The Court of Appeal has clarifi ed the approach to be taken when construing competing jurisdiction clauses in agreements in related transactions.
Sebastian Holdings Inc entered into a series of agreements with Deutsche Bank AG, pursuant to which Sebastian traded in the fi nancial markets over a two-year period. By the time trading ended in October 2008, Sebastian had made losses in the region of $750m. Unsurprisingly, both parties turned to the courts. Sebastian issued its claims in New York, whereas the bank issued its claims in London.
With numerous agreements and competing jurisdiction clauses, the position was contractually and jurisdictionally complex. It can be summarised as follows.
Agreements relating to equities trading
In May 2006 the parties entered into an agreement for equities trading, which provided a framework for the bank and Sebastian to enter into over-the-counter derivative contracts. It included the standard Equities International Swaps and Derivatives Association Master Agreement provision granting non-exclusive jurisdiction to the English courts.
In January 2008 four further agreements were entered into, extending the range of equities trading transactions. Two of these agreements (ie, an equities prime brokerage agreement and master netting agreement) provided for exclusive English jurisdiction. The third, a listed futures and options agreement, contained a non-exclusive English jurisdiction clause. The fourth, an overseas securities lender’s agreement, provided for London arbitration.
Agreements relating to foreign exchange trading
In November 2006 Sebastian and the bank entered into three related agreements to govern foreign exchange trading. The fi rst, the foreign exchange prime brokerage agreement, established the trading framework and granted non-exclusive jurisdiction to the courts of New York. The second agreement, an foreign exchange agent master agreement, provided for the non-exclusive jurisdiction of the English courts. The third, a pledge and pledgeholder agreement, provided that claims could be brought by the bank against Sebastian in the country of the bank’s offi ce, or in the country of Sebastian’s residence, or before any other competent court.
In November 2008 Sebastian issued a claim in the Supreme Court of New York to recover approximately $750m in damages for the bank’s performance of foreign exchange trading. Damages were sought primarily for breach of the foreign exchange prime brokerage agreement, together with other tort-based claims.
In January 2009 the bank issued proceedings in the Commercial Court in London to recover approximately $250m, which it contended should have been paid under the equities trading agreements and the foreign exchange agent master agreement.
Sebastian argued that to hear the bank’s claims on the true construction of the agreements looked at together, the English court did not have jurisdiction. Although it accepted that the English court had jurisdiction on the face of the relevant clauses of the relevant agreements, it maintained that this was not the position if the nature of the claim and the dispute were analysed and the series of agreements properly construed as a whole.
Sebastian alternatively argued that if the English court had jurisdiction, the claim should be stayed in favour of New York.
Sebastian’s argument proceeded on the basis that commercial parties should be presumed to intend that if a claim or dispute arises, it should be subject to a single jurisdiction. Jurisdiction clauses should therefore be construed so that parties are taken to have agreed to refer the dispute to the jurisdiction provided for in the jurisdiction clause in the transaction that was at the commercial centre of the dispute.
Determining which contract was at the centre of the dispute was an issue of fact. In this case, Sebastian argued that the entire claim arose under the foreign exchange prime brokerage agreement and that, in substance, the dispute had nothing to do with the agreements relating to equities because the losses on those accounts had arisen only as a result of transfers to cover the foreign exchange positions.
The bank relied on the fact that the agreements on which it based its claim contained clear provisions granting jurisdiction to the English courts. The essential consideration, according to the bank, was an analysis of the claim and whether it fell within those jurisdiction clauses, not a holistic analysis of the dispute (to include any points of defence that might be raised). As regards the parties’ intentions, the bank maintained that they were clear: the parties had plainly contemplated that different jurisdiction clauses would apply to claims under the different agreements. The court should not rewrite the agreements by making one jurisdiction clause override the other.
Justice Walker found that the English court had jurisdiction. The Court of Appeal reached the same conclusion, albeit on a slightly different analysis.
Lord Justice Thomas, who gave the judgment, accepted that jurisdiction clauses must be given a broad and purposive construction. As part of that process, it is generally to be assumed that parties to an arrangement set out in multiple related agreements do not generally intend a dispute to be litigated in two different tribunals. However, the court’s task ultimately depends on “the intention of the parties as revealed by the agreements against these general principles”. There may be an assumption that parties intended only one forum, but there is no legal presumption. The question is entirely one of construction.
The court found that, on the face of the agreements, the parties had envisaged proceedings in different jurisdictions. Moreover, this was not a case in which the bank was attempting to use the jurisdiction clause in one contract to seek a declaration that they were not liable under other agreements. Rather, it was a claim to recover disputed debts which, if due at all, would only be due under the agreements with English jurisdiction clauses.
The court gave short shrift to Sebastian’s claim that the parties should be taken to have agreed to allocate jurisdiction to the contract which was the “centre of gravity of the dispute”, and that the nature of the defence should be taken into account as part of those gravitational forces. As jurisdiction must be determined when proceedings are issued, the court considered that this analysis would not only give rise to a complete lack of certainty, but would also seriously prejudice a party that needed to bring a claim urgently. It agreed with the bank that Sebastian was “seeking to persuade the court to engage in case management under the guise of contractual interpretation”.
Stay of proceedings
Sebastian argued that, to the extent that the English court was vested with jurisdiction, it should stay the proceedings under common law principles, on the basis that the New York court was the more appropriate forum.
Sebastian based its argument on the fact that the substantial dispute related to the foreign exchange trading agreements, and that such trading was substantially carried on in the United States. Moreover, it argued that, in the interests of justice, there were strong or exceptional overwhelming reasons for the dispute to be heard in New York, as that was where its centre of gravity lay. In addition, it relied on the convenience of New York, as there were more witnesses there in relation to the foreign exchange dispute.
At fi rst instance, after a thorough analysis of the authorities on the application of the principle of forum non conveniens (ie, the existence of a more appropriate forum) in the context of jurisdiction agreements, Justice Burton refused to grant a stay, fi nding that there had to be “overwhelming, or at least very strong, reasons” in order to depart from the rule that parties will be held to their contractual choice of English jurisdiction. He relied on authority to the effect that those reasons:
“do not include factors of convenience that were foreseeable at the time that the contract was entered into… The defendant has to point to some factor which it could not have foreseen at the time the contract was concluded. Even if there is an unforeseeable factor,… this does not automatically lead to the conclusion that the court should exercise its discretion to release a party from its contractual bargain.”1
The judge was certainly not satisfi ed that the New York court was clearly the most appropriate forum or that, exceptionally, the parties should not be kept to their contractual agreement.
The Court of Appeal rejected Sebastian’s appeal against this decision also. It found the High Court decision to be based on a correct application of principle.
This is not the fi rst time that the English courts have had to grapple with such jurisdictional complexity. In UBS AG v HSH Nordbank AG2 the Court of Appeal formulated its decision on jurisdiction by analysing the jurisdiction clauses in the agreements “at the commercial centre of the transaction”. However, the facts of that case differed, in that:
- the agreements were concluded over a short period, not several years as in this case
- Sebastian and the bank were held to have expressly contemplated parallel proceedings
- the Court of Appeal held that this was not a case - unlike UBS - in which the bank was attempting to use the jurisdiction clause in one contract effectively to pre-empt a claim under other agreements.
This decision marks an important clarifi cation of the law. Although jurisdiction clauses are to be given a broad and purposive interpretation, and it may be assumed that parties to an arrangement do not generally intend a dispute to be litigated in two different tribunals, the court’s task in determining jurisdiction always depends on the intention of the parties. Facts and evidence should always trump assumption and presumption.
Therefore, clear drafting is vital. It is imperative to think through jurisdiction clauses and the interplay between different jurisdiction agreements in a series of contracts. If it is intended that different disputes should be litigated in different forums, it is advisable to make this as clear as possible on the face of the clause. One of the clauses before the court in this case was reinforced by a promise not to challenge the English jurisdiction - a factor which the court took into account in underlining its conclusion.