High Court confirms enforceability of one-sided jurisdiction clauses

Nature of the clause
Rothschild
Mauritius Commercial Bank
Comment


Following a decision of the French Court of Cassation in X v Banque Privée Edmond de Rothschild,(1) the High Court (Commercial Division) has issued a decision in Mauritius Commercial Bank Limited v Hestia Holdings Limited(2) confirming that one-sided jurisdiction clauses will be upheld by the English courts. This decision 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. They 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 to:

• provide certainty to Party A that litigation will be conducted in a jurisdiction that is acceptable to it; and
• allow Party A to pursue Party B in any jurisdiction in which Party B has any assets.

Rothschild

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

The French Court of 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.

Mauritius Commercial Bank

In November 2010 Hestia entered into a facility agreement with Mauritius Commercial Bank, pursuant to which the bank provided a banking facility in favour of Hestia in an amount of up to $10 million. Sujana Universal Industries entered into a guarantee in favour of the bank, 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 $20 million. 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, Mauritius Commercial Bank, 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 stated that it was to be governed by English law and included a one-sided jurisdiction clause in favour of Mauritius Commercial Bank. Hestia defaulted on the repayment of the rescheduled loan payments, with $15 million (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 simply by choosing to amend it in an agreement; it must be terminated and a new agreement entered into;
• 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 Mauritius Commercial Bank to bring proceedings against Hestia anywhere in the world (while Hestia could bring proceedings against Mauritius Commercial Bank only 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, Justice Popplewell held as follows:

• 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."
• Mauritian law was, therefore, irrelevant. Even if Mauritian law were relevant, the expert evidence presented to the court was that the Rothschild decision
  • was controversial;
  • subject to criticism domestically and in the context of Article 23 of the Brussels Regulation; and
  • inconsistent with previous decisions of the French Court of Cassation.
• At best (following the defendants' expert witness), there was a 50/50 chance that Rothschild would be followed, while at worst (following Mauritius Commercial Bank's expert witness), there was no compelling reason why the courts would follow Rothschild. In the circumstances, the judge found that there was a "good arguable case" that Rothschild would not be followed.
• The construction of a one-sided jurisdiction clause as permitting Mauritius Commercial Bank to bring proceedings against Hestia in any jurisdiction in the world was incorrect, as 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".

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

Comment

This decision confirms that English courts are unlikely to follow Rothschild. It also highlights the controversial nature of Rothschild in France and jurisdictions whose laws are influenced by decisions of the French courts. As there are now two recent cases of EU 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 ruling may still be required to clarify any remaining uncertainty.

With the inherent mobile nature of aviation assets and the international scope of participants in this sector, multi-jurisdiction clauses are an important aid to financiers (in the case of finance documents) and lessors (in the case of lease documents) in recovering the aircraft and pursuing claims in jurisdictions in which the relevant borrower or lessee, or any other relevant assets, are located. If a dispute were raised in an English court about such clauses in an aviation contract, the fact that such clauses are standard and a useful tool in the context of this industry should be additional reasons for the clear intention of the parties to be upheld.

For further information on this topic please contact John Pearson at Vedder Price's London office by telephone (+44 20 3440 4680), fax (+44 20 3440 4681) or email (jpearson@vedderprice.com).

Endnotes

(1) Court of Cassation, Civil Division 1, September 26 2012, 11-26022.

(2) [2013] EWHC 1328 (Comm).

(3) EU Regulation 44/2001 of December 22 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (as amended).