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Exclusive (jurisdiction), read all about it!

05 November 2015. Published by Ed Holmes, Associate and Davina Given, Partner

In Global Maritime Investments Cyprus Limited v OW Supply & Trading A/S (under konkurs), [1] a jurisdiction clause prevented the defendant from pursuing issues in the Danish courts, even though jurisdiction was not stated to be "exclusive".

Either it was an exclusive jurisdiction clause, or it became exclusive in respect of issues raised first in England.

Facts

The parties entered into 10 cash-settled derivatives transactions relating to energy commodities between February and October 2014.  The details of each transaction were contained in confirmations and were subject to agreed general terms which were governed by English law.  The general terms provided for "close-out netting" in the event of early termination.  

In November 2014 OW filed for bankruptcy in Denmark, which constituted an event of default under the general terms.  In February 2015 GMI commenced proceedings in England. In March 2015 OW's trustee in bankruptcy commenced proceedings in Denmark against GMI seeking an order that, among other matters, OW could be put in a position as if close-out netting had taken place as at the date on which it filed for bankruptcy.   If this was the case, GMI would be liable to pay approximately US$1.6 million to OW.

In August 2015 the High Court in England heard an application by GMI for summary judgment in which GMI sought, amongst other things, declarations that no sums were currently payable by GMI (as OW's bankruptcy constituted an event of default) and any claim by OW's trustee for the alleged US$1.6 million due had to be brought in the English courts.

Decision

The court held that no sum was payable by GMI under the relevant contractual terms.

On the jurisdiction issue, the court noted that typically questions as to the meaning and scope of a jurisdiction clause will arise in the context of an application for an anti-suit injunction where the court considers whether proceedings already commenced or threatened breach the clause.  GMI's application was unusual as it did not allege that OW's trustee had commenced or expressly threatened any proceedings in breach of the clause.  However, making a declaration was of value because if OW's trustee obtained the order it was seeking from the Danish court it could then commence proceedings in Denmark or another country for payment of the sum pursuant to the close-out netting provisions of the general terms.  GMI wanted to make clear that if OW's trustee brought such a claim, it must do so in England.

The jurisdiction clause stated that "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."

Clearly, neither party could object to English jurisdiction if proceedings were started there. OW's trustee also accepted that OW could not commence parallel proceedings elsewhere while the English proceedings were ongoing. The key questions of contractual interpretation were therefore:

(i) Was the jurisdiction agreement exclusive?

(ii) If not, did the clause otherwise prevent OW from bringing proceedings on matters related to those decided in England in a different court in the future? 

(i) Exclusive jurisdiction

On the first question, the court held that the clause was an exclusive jurisdiction clause for the following reasons:

  • The court inferred that the parties intended the jurisdiction clause to apply to all proceedings relating to the general terms on the basis that it referred to "any suit, action or proceedings relating to" the general terms.
  • It also inferred, from the fact that the jurisdiction clause immediately followed the English governing law clause, that the parties saw there was good sense in linking the law of the transactions with the law of the country whose courts were referred to in the jurisdiction clause. In that context, the obligation to "submit to the jurisdiction of the English courts" would reasonably be understood as an obligation to submit all claims relating to the general terms to the jurisdiction of the English courts.
  • As in BNP Paribas v Anchorage Capital and others,[2] the court had little sympathy for the argument that the intransitive use of the word "submit" in the jurisdiction clause (as opposed to a transitive use such as "each party agrees to submit all claims to the jurisdiction of the English courts"), meant that the jurisdiction of the English courts was non-exclusive given that each party had "irrevocably" submitted to the jurisdiction of the English courts.
  • The court considered that the reasonable commercial man who had agreed to the English choice of law clause and the English jurisdiction clause could not regard the jurisdiction clause as permitting him to start proceedings in courts outside England.

(ii) Prevention of proceedings elsewhere

In case it was wrong on that point, the court went on to consider whether OW's trustee could bring future proceedings on similar issues elsewhere, even after the English proceedings were concluded. The court held that it could not, as this would give rise to the prospect of inconsistent decisions by separate courts on the same matters. This was a prospect which the parties could not have contemplated would be acceptable. Indeed, the parties would have regarded this possibility as a "procedural nightmare". In effect, therefore, if the clause was not an exclusive jurisdiction agreement covering all disputes, the start of proceedings in England created exclusive jurisdiction in respect of issues disputed there.

Comment

This decision was, of course, specific to its facts and the particular jurisdiction clause in question. Nonetheless, it does suggest that the courts are prepared to interpret jurisdiction clauses as effectively conferring exclusive jurisdiction on the courts of a particular country even where such clauses do not specify that the jurisdiction is intended to be "exclusive". That is consistent with Article 25 of the Recast Brussels Regulation (which does not yet cover Denmark) and Article 23 of the 2001 Brussels Regulation, which provide that jurisdiction agreements are exclusive unless the parties agree otherwise.

That said, the court was not unequivocal in its interpretation that the clause granted exclusive jurisdiction. It is also difficult to reconcile the court's aversion to a "procedural nightmare" with other cases, such as Deutsche Bank AG v Highland Crusader Offshore Partners LP,[3] where the courts have accepted those problems as an unavoidable consequence of the parties' non-exclusive jurisdiction agreement.

If nothing else, however, this serves as a reminder to those drafting contracts that jurisdiction clauses are more intricate than they at first appear and that it is always preferable to specify as precisely as possible the desired jurisdictional arrangements.


[1] [2015] EWHC 2690 (Comm)

[2] [2013] EWHC 3073 (Comm)

[3] [2009] EWCA Civ 725