Deutsche Bank v Comune di Savona

Posted on 05/08/2017 · Posted in Financial Litigation, Interest Rate Swap

This case is the most recent in a number of cases brought in the English courts by Italian local authorities against banks. The banks are not necessarily English but the cases are heard in London because the ISDA swap documentation is governed by English law and grants jurisdiction to the English courts.

The relevant law in this case was Article 25 Recast Brussels Regulation which provides that where parties (regardless of domicile), have agreed that an EU member state court shall have jurisdiction, then that agreed court takes precedence even if proceedings are initially commenced in the courts of another EU member state.

What is the law of the jungle? Strike first and then give tongue.”
Rudyard Kipling

In this case, the defendant (Savona) had entered into two interest rate swap arrangements with Deutsche Bank AG (Deutsche) in June 2007. These were made under an ISDA Master agreement which contained a clause stating that English law should prevail and all disputes should be heard in English courts. Prior to this in March 2007, Deutsche had been advising Savona generally on its debts and derivative commitments, and the parties had entered into an Advisory Agreement which was governed by Italian law and contained an exclusive jurisdiction clause in favour of the Italian courts.

Following rumours that Savona was due to sue Deutsche for recommending the swaps, Deutsche issued a claim in June 2016 in the English courts against Savona seeking 12 negative declarations under the ISDA. These concerned the entry into, validity, enforceability, interpretation and performance of the swaps. Proceedings issued by Savona in March 2017 challenged some of those declarations including the one alleging that it was not relying on Deutsche for advice.

The question for the English court was to define the “dispute” and therefore whether the dispute fell within Italian or English jurisdiction (cf Article 25 above).

The Judge’s approach concerning the two jurisdiction clauses bore the following principles in mind:

  1. where there are two or more such clauses, they should be construed as mutually exclusive rather than overlapping in scope (even if this means some judicial fragmentation),
  2. there is no presumption that a later clause is intended to cut down or restrict the extent of the earlier one, and
  3. each clause must be interpreted according to its own governing law.

The Judge held that the “dispute” to which the challenged declarations related must be Savona’s claims in the Italian courts. He concluded that the essence of the Italian claim related to Deutsche’s role as advisor under the initial Advisory agreement. It was subject to a number of Italian law provisions and to the Italian financial services regulator. For the purposes of Art 25, the dispute to which the declarations related was the Italian claim.

Leave to appeal is currently being sought. However, to avoid costly conflicts on jurisdiction, parties should always ensure that there are consistent jurisdiction clauses across all linked documentation.

Link: Deutsche Bank v Comune di Savona [2017] EWHC 1013 (Comm)

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