Last month, in Swissmarine Corporation Ltd v OW Supply & Trading A/S1, the English Commercial Court denied Swissmarine Corporation Ltd (SwissMarine) injunctive relief against proceedings commenced by OW Supply & Trading A/S (OW) in Denmark.

OW was part of the OW Bunker group, the world’s largest ship fuel supplier and Denmark’s third largest company before its spectacular fall into bankruptcy and global collapse in November 2014. This judgment is one of the first English court decisions following those events.

For those with derivative contracts with OW (whether on OW’s own general terms and conditions or on the ISDA form) payment obligations are subject to a condition precedent that no event of default has occurred and is continuing. An event of default includes a host of insolvency events and so, as at the date of OWs bankruptcy (and probably before), there was an event of default.

An event of default gave SwissMarine, as the “innocent” party, a right (but not an obligation) to close out their position under a derivatives agreement with OW on the 2002 ISDA Master Agreement form.

SwissMarine chose not to close out and instead relied on their English law right to “walk-away”, a principle firmly established by the Court of Appeal in Lomas and others v JFB Firth Rixson Inc and others2.

After SwissMarine had commenced proceedings in the English Commercial Court for declaratory relief that they did not have to pay according to English law, OW commenced proceedings in Lyngby in Denmark, claiming around US$2.5 million under Danish law on a forced close out.

With this clear potential for competing and conflicting judgments, and with OW claiming that the Danish proceedings were outside the Brussels Regulation, SwissMarine sought relief from the English court on two grounds:

  1. The Lyngby action was a breach of the ISDA exclusive jurisdiction clause.
  2. The Lyngby action was a breach of the ISDA English governing law clause.

Focusing most attention on the jurisdiction question, the court found that the ISDA jurisdiction clause, whilst wide in its remit, including within its scope non-contractual claims, did not apply to the dispute in the Danish court and in any event was not exclusive.

The ISDA jurisdiction clause, the court said, is only exclusive where the proceedings involve a “Convention Court” - a court “which is bound to apply to the Proceedings either Article 17 of the 1968 Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters33 or Article 17 of the 1988 Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters4.

Neither the Danish court nor the English court apply these conventions, both conventions having been superseded, and the judge found that the clause was not to be read as having been updated to refer to the new iterations.

At the time the ISDA 2002 form was drafted, the Danish court would have fallen within the definition, but not by the time the agreement was executed in 2014.

Today, the 1968 Brussels Convention applies only to certain dependent territories of EU Member States and the 1988 Lugano Convention applies only to judgments that pre-date the entry into force of the 2007 Lugano Convention. Given the extremely narrow (if not altogether defunct) definition of Convention Court, in effect the ISDA jurisdiction clause is not exclusive and parties are contractually free to bring as many parallel proceedings as they want.

Turning to a breach of the governing law clause, despite the fact that OW is seeking a money judgment in Denmark, the court found that on the balance of the evidence at an interlocutory standard “the purpose of the Lyngby action is not to have decided by a foreign law the proper construction of the contract or the parties’ rights or obligations under it. I do not accept that SwissMarine has shown a sufficient case that OW is breaking or disregarding the governing law agreement, or that it threatens to do so”.

For many, this might seem rather an odd outcome. The parties agreed English law would govern their contract and non contractual obligations in relation to it and that in the event of an insolvency, payment obligations would be suspended. Further still, the parties had the option to elect for automatic early termination under their agreement but chose not to. OW brought proceedings for forced early termination under Danish law in a Danish court. Yet this was not found to be “disregard” of the governing law clause.

Whilst SwissMarine are free to pursue declaratory relief in the High Court to uphold their contractual bargain, there is no effective right in the English courts to prevent OW from seeking to undermine the English law agreement in the Danish courts.

Parties should therefore be aware that even though they may have chosen English law to determine disputes between them and English jurisdiction, a foreign party may have different ideas, may be able to sue in its own insolvency and civil courts, and the English court may decline to intervene.