The decision of the High Court in BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA  EWHC 1670 (Comm) confirms that an express agreement to the jurisdiction of the English court within standard form ISDA documentation will not easily be displaced or restricted. The court found that the jurisdiction clause in a 1992 ISDA Master Agreement was effective over a ‘competing’ jurisdiction clause in a separate but related agreement between the same parties. This was despite a provision in the Schedule to the Master Agreement that in the event of conflict, the related agreement would prevail.
The decision is likely to be of interest to financial institutions trading in derivatives based on ISDA documentation, and of particular interest to those involved in cross-border funding transactions which require the implementation of associated hedging through separate but related agreements. Significantly, the court found no conflict between ‘competing’ jurisdiction clauses in an ISDA Master Agreement and a separate financing agreement. The court noted that in complex financial transactions it was possible for the same parties to have multiple relationships, each governed by a separate agreement, and there was no inconsistency in each agreement having a different jurisdiction provision.
The court gave two further points of guidance in response to arguments raised by the bank’s counterparty relating to the background context within which to interpret the jurisdiction clause:
- In considering the declarations sought in these English proceedings, the court did not engage with the question of whether those declarations may act as defences to a claim in another jurisdiction (preferring the approach taken in Dexia Crediop SPA v Provincia di Brescia  EWHC 3261 (Comm), over that in the more recent case of Deutsche Bank AG v Comune di Savona  EWHC 1013 (Comm)).
- More generally, the court suggested that the use of ISDA standard documentation was evidence of the parties’ intention to limit the use of the specific factual background to their transaction in interpreting the agreement between them. It emphasised that the purpose of using such standard documentation is to achieve greater consistency and certainty in the parties’ dealings with each other. This reflects the approach of the court more generally in limiting the extraneous factors which will be considered where standard documentation, including ISDA documentation, is used by sophisticated commercial parties.
In 2008, a syndicate of banks led by the claimant, BNP Paribas SA (the “Bank“), entered into a loan agreement (the “Financing Agreement“) with the defendant, Trattamento Rifiuti Metropolitani SpA (“TRM“), an Italian public-private partnership, to fund the building of an energy plant. The Financing Agreement included an obligation for TRM to hedge with the Bank against the interest rate fluctuation risks associated with the loan.
In 2010, pursuant to the obligation in the Financing Agreement, the parties executed a 1992 ISDA Master Agreement (the “Master Agreement“), and an interest rate swap.
The Financing Agreement included an exclusive jurisdiction clause in favour of the Italian court. The Master Agreement contained an exclusive jurisdiction clause in favour of the English court. A clause in the Schedule to the Master Agreement stated that in case of conflict between the terms of the Master Agreement and those of the Financing Agreement, the latter should “prevail as appropriate“.
In 2016 the Bank issued proceedings in the English Commercial Court against TRM seeking declarations of non-liability “in connection with a financial transaction pursuant to which [TRM] entered into interest rate hedging arrangements with the [Bank]“. In 2017, TRM sued the Bank before the Italian court and challenged the jurisdiction of the English High Court.
The court considered TRM’s arguments that the Bank should not be permitted to pursue the English proceedings because: (1) there was no serious issue to be tried; and (2) the English court had no jurisdiction.
(1) Serious issue to be tried
TRM argued that there was no relevant dispute regarding the Master Agreement (containing the English jurisdiction clause) and the swap transaction. However, the court held that while there was no argument as to the validity of the swap transaction or Master Agreement, there was a dispute as to the Bank’s rights under them, and therefore a serious issue to be tried.
The court started its analysis by reference to Article 25(1) of the Recast Brussels Regulation, which provides that parties may agree to refer disputes to the court of a Member State. The court went on to consider the ‘competing’ jurisdiction clauses in the Finance Agreement and Master Agreement. The court said that this was a question of construction or interpretation, and that its approach should be broad and purposive (Sebastian Holdings Inc v Deutsche Bank AG  EWCA Civ 998).
It was held that the Bank had much the better of the argument that the dispute fell within the English jurisdiction clause of the Master Agreement. The following points made by the court in reaching its conclusion are likely to be of wider interest and application:
- The two jurisdiction clauses could “readily bear” the interpretation that one was concerned with the Master Agreement and the other was concerned with the Financing Agreement. That fitted well in the context of the parties’ dealings and recognised that the parties had more than one relationship.
- Similarly, the wide contractual language of the jurisdiction clauses in the two agreements did not prevent “an interpretation that allows those contracts to fit together“.
- The provision in the Schedule to the Master Agreement providing that the Financing Agreement would prevail in cases of conflict was not engaged, simply because there was no conflict.
- Addressing TRM’s argument that the interpretation of the jurisdiction clauses should have taken into account the specific factual context:
- The court stated that the “most powerful point of context” was the parties’ use of ISDA documentation and the ISDA jurisdiction clause within it. The “worldwide use of ISDA documentation further signals the interest of parties to achieve consistency and certainty in this area of financial transacting“. As per Lomas and others v JFB Firth Rixson Inc and others (ISDA intervening)  EWHC 3372 (Ch): the Master Agreement should (so far as possible) be interpreted to achieve clarity, certainty and predictability. Further, the court noted (with reference to In Re Lehman Brothers International (Europe) (in administration) (No 8)  EWHC 2417 (Ch)) that the use of ISDA documentation by commercial parties showed that those parties were “even less likely to intend that provisions in that documentation may have one meaning in one context and another meaning in another context“.
- The court chose not to engage with the question of how the declarations sought in the English proceedings might act as a defence to the claim brought in Italy, preferring the approach taken in Dexia v Provincia di Brescia, over the more recent case of Deutsche Bank v Comune di Savona.
This decision is in line with recent judgments in relation to jurisdiction clauses in associated agreements and reinforces the view that non-identical clauses can co-exist in related agreements. The decision is also another example of judicial recognition of the need for certainty and consistency associated with the use and interpretation of the ISDA standard documentation.