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24 July 2013
Nature of the clause
Mauritius Commercial Bank
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.
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:
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.
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:
Responding to each point in turn, Justice Popplewell held as follows:
"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".
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.
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