Exclusive or non-exclusive? jurisdiction clause in a derivatives contract
15 December 2015
A jurisdiction clause in a derivatives contract was exclusive notwithstanding the absence of express wording that it was intended to be so. In Global Maritime Investments Cyprus Limited v O.W. Supply & Trading A/S (under konkurs)  EWHC 2690 (Comm), the High Court considered that a reasonable commercial person who agreed to this clause, and who had also agreed to English governing law, would not regard it as permitting them to issue proceedings outside England.
The parties (a Cypriot company and a Danish company) entered into multiple derivatives transactions relating to energy commodities. The particulars of those transactions were set out in confirmations, which were subject to General Terms agreed between the parties (there does not appear to have been an ISDA Master Agreement between the parties). The confirmations incorporated the 1993 ISDA Commodity Derivatives Definitions.
The General Terms were governed by English law and contained the following jurisdiction clause: Clause 13.2 –
"With respect to any suit, action or proceedings relating to these general terms and conditions each party irrevocably submits to the jurisdiction of the English courts."
In November 2014, the defendant, O.W., filed for bankruptcy in Denmark. This triggered an event of default under the General Terms entitling the claimant, GMI, to withhold making payments to the defendant. In March 2015, the defendant's trustee in bankruptcy issued proceedings against the claimant in Denmark, under Danish insolvency law to force the claimant to close out the transactions, which would result in the claimant being liable to pay approximately USD 1.6 million to the defendant.
The claimant subsequently applied for summary judgment in the English High Court, seeking (amongst other things) a declaration that the jurisdiction clause prohibited the defendant from commencing proceedings relating to the General Terms against the claimant in any other jurisdiction (ie that it was an exclusive jurisdiction clause), such that any claim by the defendant for the USD 1.6 million had to be brought in the English courts.
At summary judgment, Teare J concluded that Clause 13.2 provided for exclusive jurisdiction.
Scope of declaratory relief
In reaching this decision, Teare J first considered whether he was able to grant declaratory relief in the present circumstances. The application was unusual as no proceedings alleged to be in breach of Clause 13.2 had been commenced or even expressly threatened (the Danish proceedings were under Danish insolvency law rather than the General Terms). Notwithstanding, Teare J held that there was a "real fear" of proceedings being brought in Denmark by the defendant as regards the sum payable pursuant to the close-out netting provisions of the General Terms and that the claimant had a real interest in seeking a declaration that any such proceedings should be brought in England. On that basis, Teare J held that there was "a real and present dispute" between the parties as to the effect of the jurisdiction clause.
Teare J also noted the benefit of deciding the jurisdiction question in these proceedings. If the defendant were to commence proceedings outside England in future, the dispute between the parties as regards jurisdiction would be confined to the question of whether the proceedings "relate to the General Terms".
Teare J then went on to consider whether the jurisdiction clause was exclusive. Teare J noted:
(i)the wording of Clause 13.2, from which he inferred that the parties intended it to apply to all proceedings relating to the General Terms; and
(ii)the fact that the General Terms were governed by English law, from which he inferred that the parties saw that there was good sense in linking the law of the transactions to the law of the country whose courts were referred to in the jurisdiction clause
Teare J considered that, in these circumstances, the "reasonable commercial man" would not regard Clause 13.2 as permitting him to commence a suit, action or proceeding relating to the General Terms in the courts of countries other than England.
Teare J noted that, in construing Clause 13.2, he had adopted the approach of Males J in BNP Paribas SA v Anchorage Capital Europe LLP & ors  EWHC 3073. He accepted that the language of Clause 13.2 was not "transitive" (ie it did not say that "each party agrees to submit all claims" to the jurisdiction of the English courts), but considered that "the notion that each party is free to submit a claim to the jurisdiction of a court other than the English court in circumstances where each party has "irrevocably" submitted to the jurisdiction of the English court is difficult."
Alternatively, Teare J held that even if the clause was not an exclusive jurisdiction clause, the defendant was obliged to submit to the jurisdiction of the English court and would not be able to commence parallel proceedings elsewhere in circumstances where the claimant had already commenced proceedings relating to the General Terms in England. Teare J highlighted the risk of parallel proceedings and the prospect of inconsistent decisions by separate courts on the same matters.
The decision confirms that the courts are willing to interpret jurisdiction clauses as conferring exclusive jurisdiction even in circumstances where they do not expressly specify that they are intended to be exclusive.
It is worth noting that the following drafting points were relevant to Teare J's finding that the clause was exclusive: (i) the clause applied to all proceedings; (ii) it applied mutually to both parties; and (iii) it stated that the parties "irrevocably" submit to the jurisdiction of the English courts. Teare J appeared to give little weight to the question whether the clause contained "transitive" (ie "the parties submit disputes") or "intransitive" (ie "the parties submit themselves") wording, when deciding whether this clause provided for exclusive jurisdiction (a distinction that Males J also considered to be unconvincing in the BNP Paribas case mentioned above).
Article 25, which states that, regardless of where the parties are domiciled, if they have agreed that the courts of one or more member states have jurisdiction to settle their disputes, then the agreed court will have jurisdiction. That jurisdiction will be exclusive "unless the parties have agreed otherwise".
The decision also shows that jurisdiction challenges continue to be common in English proceedings. Leaving any ambiguity as to whether a clause is exclusive or non-exclusive increases the risk of such a challenge.
This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication. For more information please contact Sarah Garvey firstname.lastname@example.org, or tel +44 20 3088 3710.