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Staying English proceedings notwithstanding an English jurisdiction clause

01 July 2010

Deutsche Bank AG v Sebastian Holdings Inc [2009] EWHC 3069 (Comm) (1 December 2009).

The Commercial Court has confirmed that, where parties to an agreement have agreed a clause specifying an exclusive or non-exclusive jurisdiction to resolve their disputes, that choice of jurisdiction can be challenged on grounds of forum non conveniens even where there is a forum non conveniens waiver clause.  However, the parties’ contractual agreement will not easily be displaced, and there will be a heavy burden on the applicant to show that there is some matter, that was unforeseeable at the time when the agreement was concluded, which means that there is a more appropriate forum than the one expressly agreed upon. Alternatively, the applicant will have to show strong, very strong or exceptional grounds, based on the interests of justice, to satisfy the necessary burden.

Background

The defendant (D), a company formed for the purpose of holding and dealing in investments including securities and foreign currencies, was a client of the claimant global investment bank in New York (C). Between 2006 and 2008, the parties had entered into a number of agreements for equities trading to be carried out by D. C held and operated an account on behalf of D in London to facilitate this trading and to provide prime brokerage services to D. During the same period, the parties had also entered into a number of agreements concerning foreign exchange and options trading. D, through its agent, entered into trades in C’s name with third parties. When C became concerned about losses on D’s FX trading account, C made margin calls, which were followed by various transfers. This led to assertions by C that an event of default had occurred and demands by C under the equities agreements and FX agreements.

In November 2008, D started proceedings in New York against C in respect of ten causes of action amounting to a claim for US$750 million (New York Proceedings). The causes of action included breach by C of an oral collateral limitation agreement in failing to meet reporting requirements, wrongful margin calls and wrongful transfers, conversion by C’s unauthorised transfers to itself of D’s assets, unjust enrichment, fraudulent concealment and fraud by reason of material misrepresentations. Following this, in January 2009 C issued proceedings against D in London in the High Court relating both to the equities agreements and the FX agreements and claimed sums of over US$120 million under those agreements (London Proceedings).

D had made two applications to the Commercial Court prior to the London Proceedings: the first being a claim that the English court had no jurisdiction to try the London Proceedings, and the second an alternative claim for a stay of the London Proceedings on the grounds of forum non conveniens and lis alibi pendens by reference to the existing New York Proceedings. In respect of the first application, it was held by Walker J that three aspects of the dispute fell within the English jurisdiction clauses of the agreements and therefore the application was refused as there was no contractual bar to C bringing the London Proceedings. The second application, which had been adjourned, came before Burton J to determine.

The agreements

Equities agreements

  • One provided for the English courts to have exclusive jurisdiction.
  • One provided for the English courts to have exclusive jurisdiction, together with a forum non conveniens waiver clause (FNC waiver clause).
  • One provided for the English courts to have non-exclusive jurisdiction, together with a FNC waiver clause.
  • One provided for the English courts to have non-exclusive jurisdiction, together with an “other jurisdiction acceptance” clause.

FX Agreements

  • One provided for the English courts to have non-exclusive jurisdiction, together with a FNC waiver clause.
  • One provided for the non-exclusive jurisdiction of the New York courts, with no FNC waiver clause.
  • Two provided for the English courts to have exclusive jurisdiction.

D’s Counsel’s submissions

D’s Counsel’s submissions in support of the application to stay the London Proceedings were broadly as follows:

  1. That the English court should not count up the number of jurisdiction clauses to determine the forum, ie it was not relevant that most of the agreements provided for exclusive or non-exclusive jurisdiction of the English courts. It was submitted that the substantial dispute was the one which D started in New York, and that the centre of gravity in relation to all the claims was in fact New York. Even if certain parts of C’s claims in the London Proceedings related to or fell to be decided under agreements with non-exclusive jurisdiction clauses in favour of the English courts, the New York Proceedings had started first and the balance of the disputes should be heard and could be dealt with in the New York Proceedings.
  2. Even if consideration had to be given to those agreements with exclusive jurisdiction clauses and those with FNC waiver clauses, there were strong grounds for displacing them based on the interests of justice, namely the conflicting jurisdiction provisions, the existence of New York as the centre of gravity of the disputes and the fact that a claim had already been started in the New York Proceedings.
  3. New York was the more appropriate forum based on the location of the witnesses.

Burton J approached his judgment by first identifying the hierarchy of jurisdiction clauses and the meaning of the House of Lords decision in Donohue v Armco Inc and others, that an exclusive jurisdiction clause could be displaced by a stay in the interests of justice, in this case.

The hierarchy of jurisdiction clauses

Burton J recognised that the most stringent form of jurisdiction clause is an exclusive one, which has the effect of specifically prescribing the jurisdiction. It would be a breach of contract for a party to that agreement to start litigation in another jurisdiction.

The exclusive jurisdiction clause is followed in the hierarchy by a non-exclusive jurisdiction clause coupled with a FNC waiver clause. Such a clause usually specifies one or more jurisdictions. Once a party starts litigation in one of those non-exclusive jurisdictions, the other party cannot challenge jurisdiction on the basis of forum non conveniens. If it does, that party will be in breach of contract.

Finally, there is the non-exclusive jurisdiction clause without a FNC waiver clause. Such a clause carries the risk of parallel proceedings and inconsistent judgments. In a recent case, Toulson LJ stated that “a non-exclusive jurisdiction clause self-evidently leaves open the possibility that there may be another appropriate jurisdiction”. Against this possibility, there is judicial authority to support the policy of law which aims to promote the parties litigating the issues once only.

Donohue v Armco Inc and others

At common law, in a dispute about jurisdiction, and in the absence of a jurisdiction clause, the test set out in Spiliada Maritime Corp v Cansulex Ltd applies. Under this test, it is fundamental that the party challenging jurisdiction needs to show that there is a “clearly or distinctly more appropriate” forum.

However, the position is different where the parties have agreed an exclusive jurisdiction clause. Burton J accepted that, in Donohue v Armco Inc and Others, Lord Bingham had said that there could be a stay in the interests of justice, despite there being an exclusive jurisdiction clause, where there were “strong reasons for not giving effect to” it. Lord Bingham suggested that such strong reasons might include where the interests of other parties not bound by the jurisdiction clause might be involved or where there was a dispute arising outside the contract where there was a “risk of parallel proceedings and inconsistent decisions”.

In light of the above analysis, Burton J found that, given that an exclusive jurisdiction clause will not always trump a stay application, a similar approach should be followed on a stay application brought on the grounds of forum non conveniens in breach of a FNC waiver clause.

Further, if a stay could be granted where there was an exclusive jurisdiction clause, or a FNC waiver clause, a stay application could be considered in a case where there was a non-exclusive jurisdiction clause and no FNC waiver clause. He said that the “significant factor is that there is no breach of contract involved in the party seeking to persuade the chosen court to decline jurisdiction”.

Burton J, relying on the judgment of Gloster J in Antec International Ltd v Biosafety USA Inc, held that the starting position is that the parties will be held to their contractual choice of jurisdiction “unless there are overwhelming, or at least very strong, reasons for departing from this rule” and such reasons do not include “factors of convenience that were foreseeable at the time that the contract was entered into” other than in exceptional circumstances where the interests of justice are engaged. Burton J said that if the parties’ choice of jurisdiction is to be displaced on grounds of forum non conveniens the burden on the applicant is a heavy one, and perhaps even heavier in an exclusive jurisdiction case than in one where there was no jurisdiction clause at all. In this case, it was foreseeable that there could be a clash of jurisdictions at the time the parties entered into the agreements because each agreement contained a slightly different jurisdiction clause, and there was no impact on any third parties. Therefore, if D was to succeed in its application for a stay, it would have to do so on the basis of the interests of justice.

Interests of justice

First, D contended that the issues in the London Proceedings related primarily to the agreement governed by New York law which contained a submission by the parties to the non-exclusive jurisdiction of the New York courts, and which related to FX trading which was in fact carried out in New York. As a consequence, D suggested, based on Spiliada principles, that it was significant that the location of the witnesses was New York, but Burton J found that witness evidence might also be needed from people based elsewhere, such as in Geneva, London and Monaco and that in any case, “international travel is not complex”.

D had argued that greater emphasis should be placed on the agreement governed by New York law because that agreement was at the commercial centre of the parties’ arrangements and therefore the parties must have intended for that jurisdiction clause to apply to all claims and cross-claims. However, Burton J was not persuaded that the geographical location of the disputes was “so clearly New York” that the New York courts jurisdiction clause should apply to issues arising in the London Proceedings.

Burton J said that for the New York claim to prevail over the contractual location of the London Proceedings under the English jurisdiction clauses, “there must be powerfully persuasive arguments as to the inappropriateness of the English forum”. The existence of another lis (suit or case) in New York was not, by itself, enough. Although it was desirable to have all the disputes heard in one place, the New York court might itself conclude, when it comes to decide upon the New York Proceedings, that England was in fact the appropriate forum.

The decision

As Burton J was not satisfied that New York was clearly and distinctly the more appropriate forum, and also not satisfied that there were exceptional circumstances, or strong, or very strong reasons why New York was more appropriate or why, exceptionally, the parties should not be bound by their agreement to accept English jurisdiction, the application for a stay at common law was refused.

Owusu

Arguments were made in respect of the ECJ’s decision in Owusu v Jackson & Others20 and whether the English Court was obliged to take jurisdiction under the jurisdiction clause notwithstanding the pre-existing proceedings between the parties in a non-Member State.21 Burton J stated that it was not necessary for him to decide this question, because D’s application for a stay of the London Proceedings was refused at common law.

Comment: Where parties are entering into a series of interrelated agreements, it is usually preferable, wherever possible, to include an identical jurisdiction clause in each of the agreements. Although it remains possible to get a stay of proceedings on grounds of forum non conveniens, even where the parties have agreed to an exclusive or non-exclusive jurisdiction clause, this decision underlines the heavy burden upon a party who is seeking to displace what the parties have expressly agreed, especially if the matters relied on were foreseeable at the time the relevant agreement was concluded.

Further information

This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and leglisation in commercial dispute resolution.  For more information please contact Trevor Withane trevor.withane@allenovery.com, tel +44 (0)20 3088 2031 or Sarah Garvey sarah.garvey@allenovery.com, or tel +44 (0)20 3088 3710.