Court of Appeal finds ISDA jurisdiction clause trumps ‘theoretically competing’ clause in separate agreement governing wider relationship

Consistent with recent authority, the Court of Appeal has given primacy to an English jurisdiction clause in an ISDA Master Agreement (overturning the first instance decision that had declined to do so), in circumstances where there was a “theoretically competing” jurisdiction clause in a separate agreement governing the wider relationship: Deutsche Bank AG v Comune di Savona [2018] EWCA Civ 1740.

The appellate decision contributes to market certainty in respect of contracting parties’ choice of jurisdiction and therefore represents good news for derivative market participants. The Court of Appeal commented that it would have been “startling” if the bank’s claims for declaratory relief falling squarely under the relevant swap contracts could not be brought in the forum selected by the parties in the ISDA Master Agreement.

The approach taken by the Court of Appeal focused on determining the “particular legal relationship” to which the dispute related for the purpose of Article 25 of the Recast Brussels Regulation, which deals with jurisdiction agreements. In circumstances where there were two contracts (with theoretically competing jurisdiction clauses), it held that there was a distinction to be drawn between a generic wider relationship on the one hand, and a specific interest rate swap relationship governed by the ISDA Master Agreement on the other. It concluded in general terms that disputes relating to the swap transactions were therefore governed by the jurisdiction clause in the ISDA Master Agreement.

While it may be expected that disputes relating to a specific transaction should be governed by the contract for that transaction, the position had been undermined by the High Court decision in the instant case (which considered a number of points of Italian law and the effect of the declarations sought by the bank on any potential claims in Italy). The Court of Appeal noted that while each case should be considered on its own terms, it agreed in principle with the approach in the recent case of BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2018] EWHC 1670 (Comm) which focused on the question of whether the English court had jurisdiction under the relevant agreements, rather than to trying to predict whether the declarations sought, if made, would act as defences in another jurisdiction (read our e-bulletin on that decision). Given that there had been conflicting first instance decisions on this issue, it is helpful to have this clarification from the Court of Appeal.

For more information, see our Banking litigation e-bulletin.

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High Court applies high threshold test to injunctions against public bodies

In a recent decision, the High Court rejected an application for an interim injunction restraining publication of a decision to impose sanctions on an accountancy firm. The court applied a high threshold test when considering the publication of the decision by a public body and concluded this case was not sufficiently “exceptional” to warrant an injunction: Taveta Investments Ltd (Claimant) v (1) Financial Reporting Council (2) Conduct Committee of the Financial Reporting Council (3) Executive Counsel of the Financial Reporting Council (Defendants) & (1) PricewaterhouseCoopers LLP (2) Stephen John Denison [2018] EWHC 1662 (Admin).

For more information, see our Administrative and public law e-bulletin.

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Court of Appeal re-opens gateway for service of claims against foreign parties in respect of transactions defrauding creditors

Disagreeing with the High Court, the Court of Appeal has ruled that a claim by a creditor under section 423 of the Insolvency Act 1986 falls within the jurisdictional gateway permitting service out of the jurisdiction at common law for claims “under an enactment which allows proceedings to be brought”: Orexim Trading Limited v Mahavir Port and Terminal Private Limited [2018] EWCA Civ 1660.

In doing so, the Court of Appeal resolved the conflict of authority at first instance in relation to the court’s approach to the “enactment” gateway (paragraph 3.1(20) of CPR PD 6B), holding that it was unnecessary for the enactment in question specifically to contemplate proceedings against foreign defendants. It was sufficient that section 423 was not on its face limited to claims against defendants in England and Wales.

This decision removes the difficulty that creditors may have experienced in making section 423 claims against defendants domiciled outside the EU following the first instance decision. It is no longer necessary to identify an alternative gateway in order to obtain permission to serve out; the “enactment” gateway can be relied upon provided that the creditor can show that its claim has a reasonable prospect of success and that England and Wales is the proper place to bring the claim. This is a useful option where claimants are seeking to recover assets that defendants have tried to put out of the reach of creditors.

Outside the insolvency sphere, the Court of Appeal’s approach will likely permit statutory claims to be brought against foreign defendants even where the statute does not expressly contemplate extra-territoriality, provided that the proper construction of the statutory provision permits extra-territoriality (and subject to establishing the other required elements for service out). This is a further example of the court giving a wide interpretation to a common law gateway (see also our post on Eurasia Sports Ltd v Mahchi Aguad [2018] EWCA Civ 1742 here).

The decision in Orexim is unlikely to affect claims against defendants within the EU, where the recast Brussels Regulations applies in place of the jurisdictional gateways, though the status of the Brussels Regulation remains uncertain given the ongoing negotiations between the UK and EU regarding Brexit.

Andrew Cooke, a senior associate in our contentious restructuring, turnaround and insolvency team, considers the decision further below. Continue reading

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Court of Appeal gives wide interpretation to common law gateways for service out of the jurisdiction

The Court of Appeal has given a wide interpretation to the interaction between the “necessary or proper party” gateway and the relatively new gateway permitting claims against the same defendant arising out of the same or closely connected facts (gateway 4A): Eurasia Sports Ltd v Mahchi Aguad [2018] EWCA Civ 1742.

The court in this case had jurisdiction over debt claims against a number of defendants based on a separate gateway. Further claims in conspiracy could therefore be brought against those defendants, relying on gateway 4A. The issue in the case was whether a further defendant, Mr Mahchi Aguad, could be joined as a necessary or proper party to those claims.

The Court of Appeal held that he could be joined. This was not precluded by the wording of the rules and it was eminently sensible that relevant claims against all defendants should be tried together.

This case follows the recent trend of construing the common law jurisdictional gateways widely, given that where there is no sufficient connection with England the court can refuse jurisdiction on the basis that England is not the appropriate forum. Continue reading

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Court of Appeal applies rigorous approach to assessing purpose element of claims to set aside transactions defrauding creditors

Despite evidence that a defendant knew he was facing potential proceedings which could bankrupt him, at the time he transferred assets to his son, the Court of Appeal held that this was not sufficient to find that the transfer was made for the purpose of defrauding creditors. Consequently, the transfer could not be unwound under s423 Insolvency Act 1996: JSC BTA Bank v Mukhtar Ablyazov, Madiyar Ablyazov [2018] EWCA Civ 1176.

This decision reconfirms previous authority as to the court’s approach where a defendant to a section 423 claim had more than one purpose when entering into the relevant transaction. The victim need only show that the purpose of defrauding creditors was a purpose, not the only purpose or even the dominant purpose.

However, victims may face difficulties arising from the court’s rigorous approach to distinguishing a purpose from a consequence. Even where the consequence was known or foreseen, a victim must show that the defendant positively intended to bring about that consequence when entering into the transaction. In other words, the victim must prove the subjective intention of the defendant, which may involve substantial disclosure, detailed evidence and forensic investigation.

Where the defendant has entered into an insolvency process following the transaction, victims may wish to consider other potential routes to a remedy, including via an insolvency officeholder’s claim in respect of a transaction at an undervalue or a preference. The statutory regime for both of these causes of action includes evidential presumptions which assist in satisfying the burden of proving the defendant’s state of mind.

Andrew Cooke, a senior associate in our contentious restructuring, turnaround and insolvency team, considers the decision below. Continue reading

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Two-year pilot of new disclosure rules to commence 1 January 2019

New rules to govern disclosure of documents in litigation before the English courts were unveiled yesterday, having been approved by the Civil Procedure Rule Committee on 13 July. The rules will be subject to a two-year pilot in the Business and Property Courts which (subject to Ministerial consent) will commence on 1 January 2019. The pilot will be limited to the Business and Property Courts but it is expected that, if it is a success, it will lead to wider reforms to disclosure. The pilot will affect both new and existing proceedings, but it will not affect orders for disclosure made before the commencement date (unless those orders are varied or set aside).

The new rules follow on from proposals published last November by a working group chaired by Lady Justice Gloster (see our summary of the proposals here) which were subject to consultation until the end of February this year. The approved version of the rules is broadly similar to the proposals made last November, but with a number of revisions in light of feedback received during the consultation.

Perhaps most significantly, the rules have been amended in an effort to clarify the provisions relating to disclosure of known adverse documents and to the procedure for withholding documents on grounds of privilege. Continue reading

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Supreme Court confirms no liability in tort to undisclosed principal provided with bank reference

A recent decision of the Supreme Court confirms that, where a bank reference is requested on behalf of an undisclosed principal, the bank providing the reference does not owe a duty of care to the undisclosed principal receiving it: Banca Nazionale del Lavoro SPA v Playboy Club [2018] UKSC 43.

The decision gives helpful confirmation of the circumstances in which a duty of care will be owed in relation to a statement passed on to and relied on by a third party, confirming that these circumstances do not include where the third party is an undisclosed principal of the party to whom the statement was made.

Lord Sumption, who gave the leading judgment, explained that where a party makes a statement to A which is passed on to and relied upon by B, the first party will owe a duty of care to B only if:

  • it knew the statement would be communicated to and relied upon by B; and
  • it was part of the statement’s known purpose that it should be communicated to and relied upon by B.

Otherwise the party making the statement cannot be taken to have assumed responsibility to B. Here, as the bank had no reason to suppose that the party requesting the reference was acting for someone else, the bank did not assume any responsibility to the third party.

For more information see our Banking litigation e-bulletin on the decision.

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Supreme Court confirms employers’ duty of care to employees does not extend to the conduct of litigation

The Supreme Court has held that where an employer is sued on the basis that it is vicariously liable for the acts of its employees, it does not owe those employees a duty to defend the proceedings in such a way as to protect their economic or reputational interests: James-Bowen & Ors v Commissioner of Police of the Metropolis [2018] UKSC 40.

The court considered that to recognise such a duty would amount to an extension of employers’ previously recognised duties. It unanimously concluded that it would not be “fair, just and reasonable” to impose it – either as a standard implied term in employment contracts or as a concurrent tortious duty.

In particular, given that the interests of an employer and employee in such circumstances will often be in direct conflict, the court considered that to impose such a duty would potentially stifle an employer’s defence of claims and would require it to “constantly look over its shoulder” for fear of exposing itself to claims by employees that the defence should have been run differently.

The decision provides welcome reassurance for any employer (or quasi-employer, as in this case) facing claims based on the alleged wrongdoing of its employees, particularly where fraud or other serious wrongdoing is alleged and there is potential for the employees to face public criticism. Notably, the decision is not limited to rejecting a particular formulation of the proposed duty but appears to be a wholesale rejection of any suggestion that an employer’s general duty to its employees restricts it in any way from defending such proceedings in whatever manner it thinks best to serve its own interests. Continue reading

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High Court holds ISDA jurisdiction clause trumps competing jurisdiction clause in separate but related agreement

In a recent decision, the High 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: BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2018] EWHC 1670 (Comm).

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. It also confirms that an express agreement to the jurisdiction of the English court within standard form ISDA documentation will not easily be displaced or restricted, and is another example of judicial recognition of the need for certainty and consistency associated with the use and interpretation of the ISDA standard documentation.

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. For more information see our Banking litigation e-bulletin on the decision.

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New Podcast – Class actions in England and Wales: An increasing threat to corporates?

In this podcast, Damian Grave, Gregg Rowan and Maura McIntosh discuss the extent to which class actions in the English courts are becoming an increasing threat to corporates. They look at some factors driving growth, the areas in which we are likely to see more claims, and the mechanisms for bringing such claims. They also give a bit of background about the firm’s new textbook, Class Actions in England and Wales, recently published with Sweet & Maxwell.

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