One commercial relationship in fact, two contracts in law: the Court of Appeal considers which agreement governs which disputes when the parties’ overall contractual arrangements contain competing Jurisdiction Clauses.
The appellant-defendant, ‘TRM’ was an Italian project company in receipt of a concession to design, build and operate a power plant in Turin, Italy. For this purpose, TRM initiated a tender process for financing in which the respondent-claimant, ‘BNPP,’ was ultimately successful.
TRM subsequently entered into a Financing Agreement (‘the FA’) with a syndicate of lenders. BNPP was party to the FA through its Milan branch as Mandated Lead Arranger, Lending Bank and Agent Bank. The FA was governed by Italian law and included an exclusive jurisdiction clause in favour of the Court of Turin.
The FA provided for a floating interest rate, against which TRM was obliged to hedge. TRM therefore entered into a Swap Agreement, documented by an ISDA Master and Schedule, with BNPP, acting through its Paris office, as the Hedging Bank. The ISDA Master was governed by English law with a jurisdiction clause in favour of the English courts, however, also provided that in the event of inconsistency with the Schedule, the Schedule would prevail. In turn, the Schedule expressly provided for the recognition that the agreement was made in connection with the FA, and in the event of conflict, the provisions of the FA would prevail.
Upon deterioration of the parties’ commercial relationship, proceedings were issued in both the English and Italian courts. The present appeal concerned TRM’s challenge to the English jurisdiction and the question of under which agreement and jurisdiction clause BNPP’s claims for declaratory relief in respect of the Swaps fell.
The Court of Appeal
Having reviewed the authorities, the Court of Appeal summarised the approach to be taken where the parties’ overall contractual arrangements contain two competing jurisdiction clauses:
- The starting point is that a jurisdiction clause in one contract was probably not intended to capture disputes more naturally seen as arising under a related contract.
- A broad, purposive and commercially-minded approach is to be followed.
- Where the jurisdiction clauses are part of a series of agreements they should be interpreted in the light of the transaction as a whole, taking into account the overall scheme of the agreements and reading sentences and phrases in the context of that overall scheme.
- It is recognised that sensible business people are unlikely to intend that similar claims should be the subject of inconsistent jurisdiction clauses.
- The starting presumption will therefore be that competing jurisdiction clauses are to be interpreted on the basis that each deals exclusively with its own subject matter and they are not overlapping, provided the language and surrounding circumstances so allow
- The language and surrounding circumstances may, however, make it clear that a dispute falls within the ambit of both clauses. In that event the result may be that either clause can apply rather than one clause to the exclusion of the other.
The Court of Appeal then considered the application of Art 25 of the Brussels Recast Regulation, which reads:
If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction …
Applying these principles, the Court of Appeal first found that the natural interpretation of the competing jurisdiction clauses was that the Italian clause was to govern claims relating to the overarching or background FA, whilst the English clause was to govern claims relating to the specific interest rate Swap entered into pursuant to the FA. Furthermore, “each was to apply to claims relating to the separate contracts in which they were contained and was to be mutually exclusive.” Thus, the parties had two ‘particular relationships’ for the purposes of Art 25: borrower and Mandated Lead Arranger, Lending Bank and Agent Bank under a financing agreement; and counterparties to a derivatives transaction.
Although the ISDA Master and Schedule provided for the resolution of any conflict between the Swap and FA documentation, the Court of Appeal agreed with the judge below that no such conflict was in fact engaged in the present dispute on jurisdiction, given the clear divisions in the parties’ overall contractual arrangements.
The Court of Appeal therefore upheld the decision of the judge below that in general terms disputes relating to the Swap fell exclusively within the English jurisdiction clause.
This decision provides considerable legal certainty for those advising commercial parties, according with the objects of the Brussels Regulation of: (i) allowing the claimant easily to identify the court before which he may bring an action and the defendant reasonably to foresee the court before which he may be sued; and (ii) enabling the court seised to be able readily to decide whether it has jurisdiction, without having to consider the substance of the case.
It also accords with commercial imperative that jurisdiction clauses provide certainty and that the parties know where their disputes will be resolved, both from the outset and when a claim arises. It does so in a way that also provides clarity, certainty, and predictability as to the interpretation of the standard terms contained in the ISDA Master Agreement.