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Court of Appeal allows appeal by Deutsche Bank on challenge to jurisdiction under an ISDA Master Agreement

Deutsche Bank AG v Comune di Savona

On 27 July 2018 the Court of Appeal (Longmore, Gross, Floyd LJJ) handed down its judgment on Deutsche Bank’s appeal against the Judgment of HHJ Waksman QC (sitting as a Judge of the Commercial Court) in Deutsche Bank AG v Comune di Savona [2017] EWHC 1013 (Comm).

The judgment is a highly significant decision providing clear guidance from the Court of Appeal on the proper approach to competing jurisdiction clauses, particularly in the ISDA context, where there had been a conflict between the first instance decision in Savona and the Commercial Court decisions in Dexia v Brescia [2016] EWHC 3261 (Comm) and BNP Paribas S A v Trattamento Rifiuti Metropolitani SpA [2018] EWHC 1670 (Comm)). The decision provides much needed certainty to the market on the scope and operation of jurisdiction clauses in a standard form ISDA Master Agreement. The judgment also contains important observations on the effect of entire agreement clauses and the use of expert evidence of foreign law in jurisdictional challenges.

The case related to two potentially conflicting jurisdiction clauses in two separate agreements entered into between the parties in 2007. In March 2007, the parties entered into an agreement – the “Convention” – by which the Bank was to provide certain advisory services to Savona in relation to the management of its indebtedness. The Convention contained an exclusive jurisdiction clause in favour of the Court of Milan.

Several months later, the parties entered into two interest rate swaps pursuant to an ISDA Master Agreement, which contained an exclusive English jurisdiction clause and an entire agreement clause expressly providing that the swap documentation superseded all prior agreements between the parties. Significantly, the ISDA Master Agreement incorporated bespoke clauses in the Schedule including (amongst other clauses) a non-reliance clause that provided that Savona was acting for its own account and not relying on any advice from Deutsche Bank in entering into the swaps.

Following an indication that legal action may be commenced in Italy in relation to the swaps, Deutsche Bank issued a claim in the Commercial Court seeking various declarations, including declarations reflecting the terms of the non-reliance clause in the ISDA Master Agreement. The declarations sought by the bank all tracked the wording of the ISDA Master Agreement, save for the last declaration – Declaration 12 – which was a declaration of the bank’s non-liability to Savona, which the bank contended followed logically from the prior declarations.

At first instance, HHJ Waksman upheld Savona’s challenge to the English Court’s jurisdiction to grant declarations in the terms of the non-reliance clause and Declaration 12. The Judge found that the Convention governed “DB’s role as advisor” whereas the ISDA Master Agreement concerned the bank’s role “simply as counterparty”, and that “a dispute which is essentially concerned with DB's role as adviser … is much more naturally within the Italian Clause than the English Clause”.

The Court of Appeal allowed Deutsche Bank’s appeal against that decision on the basis that “The demarcation between the two relationships is … between the generic relationship set out in the Convention and the specific interest rate swap relationship set out in the swap contracts incorporating the ISDA Master Agreement.” Longmore LJ observed that the entire agreement clause was also “a strong confirmation that the swap contracts are indeed separate contracts and that any dispute relating to them is to come within the jurisdiction clause of those contracts”.

Gross and Floyd LJJ agreed with Longmore LJ’s judgment. Gross LJ added further remarks in a separate judgment, including that “it would be startling if the bank’s claims falling squarely under the swap contracts could not be brought in the forum selected by the parties through the jurisdiction clause under those agreements, namely that contained in the ISDA Master Agreement” and that this would be “highly damaging to market certainty” in the ISDA context.

In the course of their judgments, Longmore and Gross LJJ expressed serious concerns about the use of expert evidence of foreign law on jurisdiction applications, reiterating that the only relevance of foreign law to questions of construction of jurisdiction clauses was to inform the court of any relevant difference in the principles of construction applicable under the foreign law. Longmore LJ held that “The task of the English court is merely to inform itself of any relevant different principles of construction there might be in the foreign law and, armed with such information, look at both jurisdiction clauses and decide whether the English claim falls within the English clause.” He further suggested that this was a “matter which could usefully be considered by the Commercial Court Users Committee with a view to stating in the Commercial Court Guide that the permission of the court should be obtained before expert evidence of foreign law can be adduced on interlocutory applications.”

Sonia Tolaney QC and Andrew Lodder (together with Rupert Allen) acted for Deutsche Bank, instructed by Allen & Overy LLP.

A copy of the judgment is available here.