Jurisdiction clauses in complex financial transactions to be construed widely and generously

19/06/2009

In UBS AG and UBS Securities LLC v. HSH Nordbank AG the Court of Appeal has ruled that jurisdiction clauses in complex financial transactions should be construed widely and generously. Where there are conflicting jurisdiction clauses the Court will look to the transaction as a whole to determine which is the most appropriate. There will also be an assumption that the parties acted in commercially sensible way in not wanting similar claims to be capable of being brought in multiple jurisdictions.

UBS AG and UBS Securities LLC ("the Claimants"), the Swiss bank and its US subsidiary respectively, entered into a complicated financial arrangement ("the transaction") to sell US denominated notes to German bank HSH Nordbank AG ("the Defendant"). The central agreement of the transaction was governed by the law of New York and that was the jurisdiction in which the transaction itself was to take place. When agreeing to enter into the transaction, the Defendant relied upon the protection of the assets they were purchasing by the Claimants, which was subsequently defaulted upon. A dispute arose between the parties in relation to the default and the circumstances under which the Defendant had entered into the agreement. The assets were purportedly protected by the Dealers Confirmation, a complex credit swap agreement, which contained a clause giving exclusive jurisdiction to the English courts.

The Claimants, pre-empting a claim being brought by the Defendant, issued proceedings in England in the form of negative declaratory relief to prevent the Defendant bringing proceedings against it in New York. The Claimant sought to invoke Council Regulation (EC) 44/2001 (relating to jurisdiction in commercial matters) on the ground that the Dealer Confirmation was governed by English law. Later that same day, the Defendant duly brought an action against the Claimants in New York citing, inter alia, breach of contract, fraud and negligent misrepresentation. The Defendant then applied for an order in England that the English courts did not have the jurisdiction to hear the claim. Mr Justice Walker decided that English courts did not have that jurisdiction, primarily because the claim form made no mention of the Dealer's Confirmation but rather related the transaction generally.

The decision was upheld by the Court of Appeal because Lord Justice Ward, Lord Collins of Mapesbury and Lord Justice Toulson decided that the correct approach was to view jurisdiction clauses in light of the transaction as a whole. Lord Collins states that "where there are numerous jurisdiction clauses which may overlap, the parties must be presumed to be acting commercially, and not to intend that similar claims should be subject to inconsistent jurisdiction clauses".

It follows that sensible business people would never want their deal to be governed by conflicting jurisdictions and so when different agreements are made in the same transactional "package", the jurisdiction clauses in the documents at the commercial centre of the transaction (which stated New York in this case) are plainly those which are intended to apply. Lord Collins found that the exclusive English jurisdiction clause in the Dealer Confirmation related only to technical banking disputes, rather than claims going to the heart of the transaction.

Such clauses should be construed widely and generously. In this case the phrases 'in connection with' and 'arising out of' were to include claims for misrepresentation which involve acts performed before the completion of the original agreement.

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