The Court of Appeal has held that an English jurisdiction clause in an ISDA master agreement took precedence over an Italian jurisdiction clause in a wider contract for debt restructuring advice. In doing so, the Court questioned the value of expert evidence in evaluating competing jurisdiction clauses and stressed that it was possible (albeit not desirable) for jurisdiction clauses to overlap, such that two or more different courts might have jurisdiction.

Background

In Deutsche Bank AG v Comune di Savona [2018] EWCA Civ 1740, an Italian local authority entered into an agreement to obtain debt restructuring advice from a bank. The authority then entered into two interest rate swap agreements with the same bank. The agreement for advice contained an Italian exclusive jurisdiction clause, but the swap agreements were subject to an ISDA master agreement that contained an English exclusive jurisdiction clause, an entire agreement clause and a non-reliance clause.

An Italian regulator subsequently investigated the swap transactions and announced that it was considering legal proceedings to challenge their validity. The bank issued proceedings in England for a declaration that the authority had not relied on its advice in entering into the swap agreements, relying on the entire agreement clause and non-reliance clause. At first instance, the Commercial Court found that the dispute related to the advice agreement and was therefore subject to Italian jurisdiction. HHJ Waksman QC stated in his judgment that while the language of the English jurisdiction clause was wide enough to encompass a dispute as to the basis on which the authority had entered into the swaps, there was a need to avoid overlap between the English and Italian jurisdiction clauses, and the dispute was essentially concerned with the bank’s role as adviser. In reaching this conclusion, he took into account detailed expert evidence as to the construction of the Italian jurisdiction clause under Italian law. The bank appealed.

The decision

The Court of Appeal held that the dispute related to the swap agreements and fell within the jurisdiction of the English courts. While this decision turned on the facts of the case, in reaching it, the Court of Appeal set out a number of principles of general application, as follows:

  • While there was a presumption of “one-stop adjudication”, it was not conclusive. The court should not adopt a convoluted construction of two jurisdiction clauses simply in order to ensure that they were mutually exclusive. It was possible for two competing clauses to result in overlapping jurisdiction.
  • In considering competing jurisdiction clauses, the first-instance court was not engaged in an unappealable evaluative exercise (by which the parties in this case appear to have meant an exercise of discretion). It was making a decision as to the correct construction as a matter of law and was therefore subject to appeal.
  • The correct approach to competing jurisdiction clauses was to focus on the question of whether or not the English court had jurisdiction, not to try to predict what effect a judgment in English proceedings would have in parallel proceedings in the competing jurisdiction.
  • The scope for evidence of foreign law on the construction of a jurisdiction clause was limited. The evidence should be confined to informing the court of any relevant differences in the principles of contractual construction between the two regimes. It was not necessary to set out competing arguments as to how the foreign court would ultimately decide the question of jurisdiction in the case at hand.

The Court of Appeal invited the Commercial Court Users Committee to consider introducing a requirement to obtain permission before adducing expert evidence of foreign law on an interlocutory application.

Comment

This case highlights the importance of expressly addressing the question of jurisdiction at the time of entering into a contract. It is not always sufficient to rely on form clauses, especially where there is a complex network of interlocking agreements. Contracting parties should review any pre-existing agreements and any overarching terms that may be incorporated into their contracts in order to establish whether or not there is a risk of competing dispute resolution provisions. In general, it is best to avoid a situation in which different aspects of a relationship are subject to different dispute resolution measures, but if the parties consider this absolutely necessary, then they should expressly specify which clause is to take precedence in the event of any overlap. Otherwise, as this case illustrates, there is a risk that an exclusive jurisdiction clause may turn out not to be so exclusive after all