The decision in a recent case(1) has demonstrated that the courts will presume the use of industry-standard documentation to illustrate that the parties did not intend for provisions (eg, jurisdiction clauses) within the documentation to have different meanings in different contexts.
In 2005 Trattamento Rifuiti Metropoliani SpA (TRM), an Italian waste management services provider, was engaged by the Province of Turin to design, build and operate a facility to convert waste into energy. In 2007 BNP Paribas (BNPP), a global bank headquartered in France, successfully tendered to finance the project, which included an interest rate hedging strategy.
In October 2008 TRM entered into a financing agreement with a syndicate of banks led by BNPP. The financing agreement stipulated that TRM must implement a hedging strategy that included entering into hedging contracts with BNPP to cover the risk interest fluctuation on the loan. The financing agreement was expressly governed by Italian law and gave rise to duties on BNPP to implement the hedging strategy.
On 1 March 2010 and in accordance with the financing agreement, TRM and BNPP entered into a 1992 edition International Swaps and Derivatives Association (ISDA) Multi-currency Cross-border Master Agreement, which was expressly governed by English law.
The schedule to the ISDA Master Agreement stated that:
For the purpose of the [ISDA Master Agreement], the parties acknowledge the existence of the [financing agreement] and the [intercreditor agreement]… In the case of conflict between the provisions of this Agreement and the [financing agreement] and the [intercreditor agreement], the provision of the [financing agreement] and the [intercreditor agreement] as appropriate shall prevail.
On 23 March 2010 the parties agreed an interest rate swap transaction under the ISDA Master Agreement.
On 23 September 2016 BNPP commenced proceedings against TRM in the English Commercial Court. BNPP sought various declarations in relation to TRM's obligations under the interest rate swap conducted under the ISDA Master Agreement.
On 14 April 2017 TRM commenced proceedings against BNPP in Italy in respect of whether the hedging strategy had been properly implemented. TRM also objected to BNPP commencing proceedings in England; TRM claimed that there was no serious issue to be tried because there was no dispute regarding the ISDA Master Agreement. TRM also argued that the English court had no jurisdiction to hear the claim, arguing (among other things) that:
- the schedule to the ISDA Master Agreement provided that in cases of conflict, the financing agreement prevailed over the ISDA Master Agreement; and
- the factual context surrounding the agreements should be considered in interpreting the jurisdiction clauses, and the context supported TRM's position.
Serious issue to be tried The English court held that while there was no dispute regarding the validity of the ISDA Master Agreement or the interest rate swap transaction, there was a dispute as to what rights BNPP had under it. The court therefore concluded that there was a serious issue to be tried.
Jurisdiction The court began its analysis of jurisdiction by referring to Article 25(1) of the Brussels Regulation (Recast), which provides that if parties have agreed that the courts of an EU member state have jurisdiction to settle any disputes that arise, that court has jurisdiction to do so – irrespective of where the parties are domiciled. It reiterated the position that where there is more than one contract and the contracts contain seemingly conflicting jurisdiction clauses, a construction or interpretation question is faced.(2) It held that the correct approach to construction of a commercial contract is to be broad and purposive,(3) whereas interpretation will involve considering the language and commercial consequences.(4)
As the application was interlocutory, the court found that it was sufficient to look at whether BNPP had a much better argument than TRM. It found that it did and made four key points to illustrate its reasoning.
First, addressing TRM's argument that the financing agreement prevailed over the ISDA Master Agreement in cases of conflict, the court held that there was no conflict. The parties had more than one relationship, documented in the financing agreement and the ISDA Master Agreement. Therefore, the respective jurisdiction clauses in each agreement were concerned with separate matters and were not in conflict.
The court found that the wide language of the jurisdiction clauses did not prevent an interpretation which allowed the contracts to fit together. On a commercial interpretation, there was no basis for rewriting the contracts. The claim referred to an irrevocable submission by the parties to the jurisdiction of the English courts found in the ISDA Master Agreement, not the financing agreement.
Second, the court disagreed that the factual context supported TRM's position. The court found that the most powerful point of context was the use of ISDA documentation. It stated that:
- parties need to know from the outset what to do and where to go if a dispute arises;(5) and
- the use of use of ISDA documentation – an industry-standard document – signalled the parties' interest in achieving consistency and certainty in this area of financial transacting.
It added that where parties use ISDA documentation, they are "even less likely to intend that provisions in that documentation may have one meaning in one context and another meaning in another context".(6)
TRM included expert evidence of Italian law in respect of its application, and did so without seeking the direction of the court. The court stated that it found it unnecessary to use the expert evidence in its decision and held that parties should avoid incurring extra time and cost by first seeking the direction of the court if they consider that expert evidence may be required.
This case reiterates the significance that the courts will ascribe to the use of industry-standard documentation when considering 'competing' jurisdiction clauses in related contracts. Where industry-standard documentation is used, commercially, there is less chance of there being different meanings in different contexts.
The case also provides an important reminder of the necessity of seeking the court's direction before engaging expert evidence, particularly in the interim stages of litigation.
For further information on this topic please contact Andy McGregor or Steven Rajavinothan at RPC by telephone (+44 20 3060 6000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
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