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September 13, 2014

English High Court Confirms Enforceability of One-Sided Jurisdiction Clauses in Wake of Rothschild

Following a decision of the French Supreme Court, the Cour de Cassation, in Mme. X v. Banque Privée Edmond de Rothschild,1 the High Court (Commercial Division) has issued a decision confirming that one-sided jurisdiction clauses will be upheld by the English courts. This decision, issued in Mauritius Commercial Bank Limited (MCB) v Hestia Holdings Limited (Hestia) and Sujana Universal Industries Limited (Sujana),2 is of considerable importance to aircraft lessors, lenders and airlines.

Nature of the Clause

One-sided jurisdiction clauses are often included in aviation financing and leasing documents, and provide that:

  • Each of the parties to the document submits to the jurisdiction of the courts of a specified jurisdiction; but

  • Any finance party under a finance document, or the lessor under a lease document, (in either case, Party A) may also pursue the other party (Party B) in any other court.

The primary purpose of a one-sided jurisdiction clause is (a) to provide certainty to Party A that litigation will be conducted in a jurisdiction that is acceptable to it and (b) to allow Party A to pursue Party B in any jurisdiction in which that second party has any assets.

The Rothschild Case

Mme. X entered into a private banking relationship with the Edmond de Rothschild Private Bank (the Bank) in Luxembourg. The standard terms and conditions of the Bank were governed by the law of Luxembourg and included a one-sided jurisdiction clause in the Bank’s favour.

The Cour de Cassation ruled that the jurisdiction clause was of “a potestative nature as regards the bank” and that it was “contrary to the object and finality of prorogation of jurisdiction under Article 23 of the Brussels Regulation.”3 Pursuant to Article 1174 of the French Civil Code, a potestative condition is void for lack of mutuality of obligations.

The MCB Case

In November 2010, Hestia entered into a facility agreement with MCB (the Agreement), pursuant to which MCB provided a banking facility in favour of Hestia in an amount of up to US$10,000,000. Sujana entered into a guarantee in favour of MCB, guaranteeing Hestia’s obligations under the facility agreement. This facility was increased in 2011 and the guarantees amended to extend to the full amount of US$20,000,000. The documents were governed by Mauritian law and subject to the exclusive jurisdiction of the Mauritian courts.

By June 2012, Hestia had drawn down the full amount under the increased facility. Hestia failed to make payments when due in August 2012.

Following this default, MCB, Hestia and Sujana entered into an amendment and restatement agreement, which amended, replaced and restated the Agreement, effectively restructuring and rescheduling Hestia’s debts. The replacement facility agreement was stated to be governed by English law and included a one-sided jurisdiction clause in favour of MCB. Hestia defaulted on the repayment of the rescheduled loan payments, with US$15,000,000 (plus interest) outstanding.

The defendants argued:

  • that the jurisdiction clause remained subject to Mauritian law because the governing law of a contract could not be amended by simply choosing to amend it in an agreement—it must be terminated and a new agreement entered into;

  • that, as a result of this, the clause was invalid because Mauritian law would follow French law and the Rothschild decision would apply; and

  • even if Mauritian law did not apply, the clause was invalid under English law because it permitted MCB to bring proceedings against Hestia anywhere in the world (whilst Hestia could only bring proceedings against MCB in England) and this would be contrary to public policy, in that it was contrary to the principle of “equal access to justice” (as enshrined in Article 6 of the European Convention on Human Rights).

Responding to each point in turn, Popplewell J held:

  • the parties had replaced the Agreement, rather than merely amending it;

  • even if the Agreement had not been replaced, the parties were free to agree to amend the jurisdiction clause:

    “If commercial parties freely agree to change their governing law, the court should strive to give effect to their bargain unless there are overwhelming policy objections. None apply in this context.”;

  • that Mauritian law was, therefore, irrelevant. Even if Mauritian law were relevant, the expert evidence presented to the court was that the Rothschild decision is (i) controversial, (ii) subject to criticism domestically and in the context of Article 23 of the Regulation and (iii) inconsistent with previous decisions of the Court de Cassation. At best (following the defendants’ expert witness) there was a 50/50 chance that Rothschildwould be followed whilst at worst (following MCB’s expert witness) there was no compelling reason why the courts would follow Rothschild. In the circumstances, Popplewell J found that there was a “good arguable case” that Rothschild would not be followed;

  • that the construction of a one-sided jurisdiction clause as permitting MCB to bring proceedings against Hestia in any jurisdiction in the world is incorrect – the clause:

    “preserves MCB’s right to sue in any court which would regard itself as of competent jurisdiction, notwithstanding what would otherwise have been the effect of [the exclusive jurisdiction part of the one-sided jurisdiction clause], which, if it had stood alone, would have required MCB to sue in England.”; and

  • that Article 6 of the European Convention on Civil Rights is inapplicable as it is directed at access to justice within a forum, rather than a choice of the forum.

Conclusion

This decision confirms that English courts will be unlikely to follow Rothschild. It also highlights the controversial nature of Rothschild in France and the jurisdictions whose laws are influenced by decisions of the French courts. As there are now two recent cases of Member States which appear to contradict each other, and the interpretation of EU law should be uniform across all Member States, a European Court of Justice may still be required to clear up any remaining uncertainty.


Cour de cassation, Civil Division 1, 26 September 2012, 11-26022 (Rothschild). A more complete discussion of the Rothschild decision, which held that one-sided jurisdictional clauses were unenforceable as a matter of French law, can be found in the February 2012 edition of the Vedder Price Global Transportation Finance Newsletter atwww.vedderprice.com/Rothschild

2 [2013] EWCH 1328 (Comm).

3 Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (as amended).

© 2014 Vedder Price

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About this Author

Gavin Hill, Vedder Price Law Firm, Finance Attorney
Partner

Gavin Hill is a Partner and a member of the firm’s Global Transportation Finance team.

Mr. Hill’s practice extends to the financing, leasing or purchase of hundreds of aircraft and engines around the world. He is able to advise in the context of all types of secured and unsecured loan and lease financing, operating leases, tax leases, purchase contract negotiations and most other types of arrangement involving commercial aircraft, business aircraft and aircraft engines.

+44 (0)20 3440 4690
John Pearson, Vedder Price Law Firm, Finance Attorney
Solicitor

John Pearson is a Solicitor and a member of the firm’s Global Transportation Finance team.

+44 (0)20 3440 4693