​The Commercial Court has upheld an Italian local authority’s jurisdiction challenge in respect of certain declarations relating to interest rate swaps entered into under an ISDA Master Agreement. At first instance, the judge ruled that some of the declarations in the English law and jurisdiction ISDA should fall to be decided in the English proceedings, which were issued first. However, notwithstanding an entire agreement clause and bespoke representations in the English law and jurisdiction ISDA, the judge ruled that certain of the declarations, which reflected the ISDA representations, should fall to be decided in more recent Italian proceedings issued by the defendant. Permission to appeal is currently being sought. Parties should seek to ensure there are consistent governing law and jurisdiction clauses across suites of documents or otherwise include explicit reference to the relative scope of any competing jurisdiction clauses: Deutsche Bank AG v Comune di Savona [2017] EWHC 1013 (Comm)

Background

Deutsche Bank AG (DB) and Comune di Savona (Savona) entered into two interest rate swaps in June 2007 under a 1992 ISDA Master Agreement, Schedule and two swap confirmations (the Swaps). The Swaps contained an exclusive English jurisdiction clause on the ISDA standard form (the English Jurisdiction Clause). Previously, in March 2007, DB and Savona had entered into a separate agreement for DB to provide certain unpaid assistance with the management of Savona’s indebtedness (the Convention). The Convention was governed by Italian law and contained an exclusive jurisdiction clause in favour of the Courts of Milan (the Italian Jurisdiction Clause).

DB issued a protective claim against Savona in England in June 2016 (the English Proceedings) in light of the threat of potential legal action by Savona in Italy. DB served its claim on Savona in September 2016 seeking 12 declarations concerning the entry into, validity, enforceability, interpretation and performance of the Swaps. With one exception, the declarations closely tracked contractual representations in the ISDA Master Agreement.

In December 2016, Savona challenged the English Court’s jurisdiction over six of the 12 declarations pursuant to Article 25 of the Recast Brussels Regulation 1215/2012 (Article 25) on the basis that they are subject to the Italian Jurisdiction Clause. Savona subsequently conceded on a limited basis that the English Court did have jurisdiction over the declaration reflecting the entire agreement clause in the ISDA Master Agreement. The remaining challenged declarations broadly focus on Savona’s understanding of the Swaps, and the nature and extent of any advice provided by DB in relation to Savona’s entry into them.

In March 2017, Savona commenced Italian proceedings against DB alleging, among other things, breaches of the Convention based on advice allegedly provided by DB concerning the Swaps (the Italian Proceedings).

HHJ Waksman QC upheld Savona’s jurisdiction challenge in respect of the five remaining challenged declarations on the basis that DB’s claims fell within the Italian Jurisdiction Clause.

The scope of the Convention

DB argued that the Convention did not impose any advisory obligations in respect of Savona’s entry into the Swaps. The judge recognised that the Convention did seek to qualify the legal consequences of any advice given by DB thereunder (and that the effect of such qualifications was a matter of Italian law). The judge considered, however, that the essence of the Italian Proceedings related to advice given by DB, and a major part of that related to its role as adviser pursuant to the Convention.

The construction of the jurisdiction clauses

The judge set out his approach to considering the two jurisdiction clauses: (a) the Court should strive to construe the clauses as mutually exclusive in scope (ie not overlapping), even if this causes the jurisdictional fragmentation of a particular claim (Monde Petroleum v Western Zagroz[2015] 1 Lloyds Rep. 330); (b) there is no presumption that the later clause is intended to cut down the scope of the earlier clause (Trust Risk v AmTrust Europe[2015] 2 Lloyds Rep 154); and (c) each clause must be interpreted according to its own governing law.

The judge recognised that the English Jurisdiction Clause was part of an internationally recognised agreement, and referred to Briggs J’s decision inLomas v Rixson [2010] EWHC 3372 which stressed the importance of construing the standard terms of the ISDA Master Agreement so as to give them clarity and certainty. However, the judge held that the English Jurisdiction Clause had to be construed in the light of the prevailing legal context, which included the Convention and the Italian Jurisdiction Clause. If the effect of this was that the ambit of the English Jurisdiction Clause is more restricted than elsewhere then there is no rule of English law which prevents that.

Which jurisdiction clause applied to the challenged declarations?

The judge held that the “dispute” to which the challenged declarations relate must be regarded as Savona’s claims in the Italian Proceedings. The judge found that, because Savona’s claims in the Italian Proceedings were essentially concerned with DB’s role as adviser, the dispute “is much more naturally” within the Italian Jurisdiction Clause than the English Jurisdiction Clause. This is on the basis that the Convention is concerned with DB as adviser whilst the Swaps are concerned with DB simply as counterparty. Although four of the challenged declarations closely tracked contractual representations in the ISDA Master Agreement, the judge found that this “did not irresistibly mean” that the dispute as to whether these declarations are correct was caught by the English Jurisdiction Clause. In respect of the final challenged declaration (which did not track an ISDA representation), the judge decided that this concerned matters which were the subject of the Italian Proceedings and therefore also outside the scope of the English Jurisdiction Clause.

Comment

The judge recognised that his analysis could produce some fragmentation (as Savona had accepted the English Court’s jurisdiction in respect of the unchallenged declarations) but did not consider that it should be avoided at all costs.

In reaching his decision, it is also notable that the judge did not refer to Deutsche Bank v Petromena[2015] 1 WLR 4225, leading Court of Appeal authority on the approach to Article 25. In that case Longmore LJ held that the Court is required (a) to have regard to the “thrust” of the claims advanced to determine the “dispute”, and (b) to identify the “particular legal relationship” to which that “dispute” relates by considering the closeness of its connection to the different legal relationships between the parties.

The judge also declined to follow, and distinguished, the recent judgment of Ali Malek QC sitting as a Deputy High Court Judge in Dexia Crediop SpA v. Provincia Di Brescia[2016] EWHC 3261 (Comm). In that case, considering similar facts, the judge found that declarations tracking the wording of the ISDA Master Agreement fell only within the scope of the ISDA jurisdiction clause. A similar approach was also taken by the Commercial Court and Court of Appeal in Merrill Lynch v Verona[2012] EWHC 1407 (Comm) and Piedmonte v Dexia[2014] EWCA Civ 1298 in which the Court held that declarations based on representations made in an ISDA master agreement may be granted on the basis of contractual estoppel.