Commercial interpretation identifies prevailing jurisdiction clause, rules Court of Appeal

One jurisdiction clause in one of hundreds of pages of documentscannot govern the whole agreement because no company acting in anormal commercial way would think that it would, the Court ofAppeal has said.

Two banks are in dispute about which of many competing andconflicting jurisdiction clauses in hundreds of pages of legaldocuments governing a complicated credit default swap deal shouldapply.

UBS has lost its case, in which it argued that one clausechoosing London courts for a dispute applied to the whole deal. TheCourt of Appeal found that it only applied to one small part of thedeal because that is the view that makes most commercial sense inlight of the facts of the case.

"Whether a jurisdiction clause applies to a dispute is aquestion of construction," said Lord Collins in his ruling. "Wherethere are numerous jurisdiction agreements which may overlap, theparties must be presumed to be acting commercially, and not tointend that similar claims should be the subject of inconsistentjurisdiction clauses."

UBS and German bank HSH engineered a complicated financial dealin which HSH undertook some of the risk of a portfolio ofinvestments in exchange for a return on those propertyinvestments.

One page of one set of documents relating to one part of thedeal specified that English courts would be where disputes would besettled. All the other documents said that New York courts were thenon-exclusive forum for disputes.

"The only possible basis for the jurisdiction of the Englishcourt is the jurisdiction clause in one of the agreements in theCDO (credit default obligations) transaction," said Lord Collins.He said that the English jurisdiction clause was in "one of thedocuments recording the complex transaction between the parties (a1-page document among 500 pages of other documents constituting theoverall deal)".

HSH sued UBS in New York alleging that UBS had misled it andmisrepresented the deal, and that it would not have gone ahead withthe $500 million transaction had it not been for thosemisrepresentations.

UBS filed a lawsuit in London arguing that the one clauseidentifying England as the jurisdiction for disputes for one partof the deal should apply to the entire dispute. HSH rejected thatview, as did the High Court. On appeal, so did the Court ofAppeal.

The English jurisdiction clause appeared in the 'Dealer'sConfirmation', which dealt with a payment mechanism for bonds thatfunded the deal. Lord Collins said that when dealing with complexdeals and competing jurisdiction it was important to find the partsof the deal which were its primary commercial focus and give thempriority.

"The jurisdiction clause in the Dealer's Confirmation is a'boiler plate' bond issue jurisdiction clause, and is primarilyintended to deal with technical banking disputes," he said. "Wherethe parties have entered into a complex transaction it is thejurisdiction clauses in the agreements which are at the commercialcentre of the transaction which the parties must have intended toapply to such claims as are made in the New York complaint."

Lord Collins said that courts should look at a deal in the waythat a commercial company would and reject non-commercialinterpretations.

"The essence of the claims for misrepresentation in New York isthat HSH was induced to purchase the NS4 Notes [by which it paidUBS $500m] in reliance on the fraudulent and negligentmisrepresentations, and would not have purchased them in theabsence of those representations," he said.

"No sensible commercial interpretation of the jurisdictionclause in the Dealer's Confirmation could have the result thatidentical misrepresentation claims would fall both within thatclause and within the non-exclusive New York jurisdiction clauses,simply because the consideration for the transaction was the issueof the Kiel MTN Notes [which were a payment mechanism for the NS4notes at the heart of the deal]," he said.