OVERLAPPING ARBITRATION AND JURISDICTION CLAUSES AND THE “ CENTRE OF GRAVITY ” TEST

1. OVERLAPPING ARBITRATION AND JURISDICTION CLAUSES AND THE “CENTRE OF GRAVITY” TEST 20 JANUARY 2016 Sa’ad Hossain QC

2. The usual position • Before Fiona Trust, the Courts had frequently adopted a close textual analysis of arbitration clauses, and the particular phraseology used to bring in disputes that were “in relation to”“under” or “in connection with” a particular agreement. • Issues frequently arose as to whether disputes about contract formation or pre-inception claims could fall within a clause. • Fiona Trust & Holding Corporation v Primalov [2007] UKHL 40 has taken us in a different, and much more sensible direction: “In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction.”(Lord Hoffmann at [13]) • In single agreement cases, the presumption is a “one stop shop”. An argument that the parties intended any degree of fragmentation in the forum for dispute resolution is inherently difficult.

3. Multiple agreement cases • But what about multiple agreements? • For example: • A and B enter into a set of finance agreements. • The set contains a Master Agreement, individual Trade Confirmations, a separate security agreement, and other agreements besides. • Within those agreements is a mixture of different governing laws and different exclusive or non-exclusive jurisdictions. • The parties have a dispute which could fall within a number of clauses, perhaps depending on how it is characterised. • Clearly the parties did not intend a “one stop shop”. • So how should the Court determine jurisdiction?

4. The significance of jurisdiction • Jurisdiction is critical to parties for obvious reasons. • Parties often wish to litigate in their “home” court. • Substantive advantages: • Closeness to the governing law. • Familiarity with the relevant market. • Procedural advantages: • Suitability of court procedural/arbitral rules. • Location of witnesses, documents, parties, experts.

5. Jurisdiction as key to enforcement • Jurisdiction is often key to enforcement. • Grounds for challenging enforcement or recognition of arbitral awards • Article V(1)(c) of the New York Convention: “The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced” • Enforcement challenges on non-jurisdiction grounds will generally only succeed in extreme cases. • But jurisdictional challenges offer a “cleaner” way to challenge. • Under English law, the recognising Court has to make up its own mind on jurisdiction. • The Tribunal’s decision is to be taken into account but is not decisive. • Cukurova Holding AS v Sonera Holding BV [2014] UKPC 15 at [20] (Lord Clarke): “It is common ground that the court must determine this question for itself, although it must of course have regard to the reasoning and conclusions of the Tribunal”

6. The leading cases • Satyam Computer Services Ltd v Upaid Systems Ltd[2008] EWCA Civ 487, [2008] 2 All ER (Comm) 465 • UBS AG v HSH Nordbank AG [2009] EWCA Civ 585, [2010] 1 All ER (Comm) 727 • Sebastian Holdings Inc v Deutsche Bank AG [2010] EWCA Civ 998, [2011] 2 All ER (Comm) 245 • Trust Risk Group SpAvAmTrust Europe Ltd [2015] EWCA Civ 437, [2015] 2 Lloyd’s Rep 154 • And some further recent first instance decisions: • Monde Petroleum SA v WesternZagros [2015] 1 Lloyd’s Rep 330 • C v D1, D2, D3 [2015] EWHC 2126 (Comm) • These cases are mostly concerned with competing jurisdiction clauses where both potential fora are courts, but the same analysis usually applies where the contest is between one jurisdiction clause specifying a court and another specifying arbitration (eg PT Theiss [2011] EWHC 1842 (Comm)) or between two jurisdiction clauses specifying different forms of arbitration.

7. Multiple Agreement situations • Overall agreement cases: A and B enter into a complex transaction, involving many parallel agreements, entered into at the same time, which contain different and overlapping jurisdiction and governing law provisions. • Typically: • A sues in one jurisdiction, B in another. • Or A sues in one jurisdiction, B seeks an anti-suit injunction in another. • Or a dispute arises, A threatens to sue, and B seeks negative declaratory relief in a different jurisdiction on the basis of one of the overlapping jurisdiction/arbitration clauses. • Sequential agreement cases: A and B enter into several agreements over time, on related matters, but with different jurisdiction/arbitration provisions, and without one expressly superseding the other. • In either case, there may be core and subsidiary agreements, or agreements directed at particular kinds of transaction, but suppose the dispute arguably arises “in connection with” each of them. • Jurisdiction clauses demand a “wide and generous” approach to their interpretation. • In some cases it will be clear that the dispute only falls within one of the competing clauses but, often applying a wide and generous approach, each clause is, prima facie, engaged. • What then?

8. Trust Risk: A recent summary of the law • Trust Risk Group SpA v AmTrust Europe Ltd [2015] EWCA Civ 437, [2015] 2 Lloyd’s Rep 154 • The facts: • AmTrust was an insurer and TRG an Italian broker that placed Italian medical malpractice policies with AmTrust. • Two agreements in play: • A Terms of Business Agreement (ToBA) dated 20 July 2010: English law, English court jurisdiction. Dealt primarily with payment of commission to TRG by AmTrust. • A Framework Agreement dated 27 January 2011: Italian law, arbitration in Milan. Dealt primarily with the exclusivity of the business arrangements between TRG and Amtrust. • The ToBA was appended to the Framework Agreement. • The business relationship broke down and TRG withheld premium payments that AmTrust said were due to it under the ToBA. AmTrust sought an interim injunction requiring TRG to pay premium payments into a trust account (set up under the ToBA). TRG resisted on the grounds that the English court did not have jurisdiction, that the account was not a trust account, and that therefore TRG had been entitled to set off the the money against advance brokerage commission it said it was owed. • Central question: was the Framework Agreement a single composite and overarching agreement, with the ToBA subordinate to it, or were the two contracts freestanding? • Result. They were freestanding, dealing with parallel but distinct aspects. The ToBA was not subordinate.

9. Trust Risk: A recent summary of the law • Beatson LJ summarised the required approach at [47]: • “... [I]n construing a jurisdiction clause, a broad and purposive construction must be followed”: see [39]; • “... [A]n agreement which [is] part of a series of agreements [should be construed] by taking into account the overall scheme of the agreements and reading sentences and phrases in the context of that overall scheme”: see [40]; • “It is generally to be assumed ... that just as parties to a single agreement do not intend as rational businessmen that disputes under the same agreement be determined by different tribunals, parties to an arrangement between them set out in multiple related agreements do not generally intend a dispute to be litigated in two different tribunals”: see [41]; but • “... [W]here there are multiple related agreements, the task of the court in determining whether the dispute falls within the jurisdiction clauses of one or more related agreements depends upon the intention of the parties as revealed by the agreements as against these general principles: see [42].“ “In short, what is required is a careful and commercially-minded construction of the agreements providing for the resolution of disputes” [48], Beatson LJ

10. Trust Risk: A recent summary of the law • Beatson LJ referred to a number of the catchphrases that have been used as a shorthand for identifying under which agreement the dispute actually arises: • Locating its “centre of gravity”: Credit Suisse First Boston (Europe) Ltd v MLT (Bermuda) Ltd [1999] 1 Lloyd’s Rep 767 at 777 (Rix J) • Identifying which jurisdiction clause is closer to the claim:UBS AG v HSH Nordbank AG [2009] EWCA Civ 585 at [94] (Lord Collins) • To which one could also add : • What is the “essence” of the claim: UBS AG v HSH Nordbank AG [2009] EWCA Civ 585 • How is this done in practice, and are there any particular factors that will likely influence the outcome? • Obviously, each case is fact specific, but the illustrations provide some useful guidance.

11. Illustration 1: UBS v. HSH • The facts: • An overall transaction case. • UBS entered into a complex set of arrangements with HSH in connection with the issue of a synthetic CDO. • A letter agreement set out the overall structure, governed by New York law. • Further agreements effected the transaction, most under New York law and non-exclusive New York jurisdiction, some, however, with English law and jurisdiction. • In particular, HSH and UBS had negotiated that HSH would invest by means of sale of some loan notes (the Kiel MTN Notes). The Dealer’s Confirmation, which set out the terms on which the notes were to be issued, was governed by English law and subject to exclusive English jurisdiction. • The underlying securities defaulted. HSH brought proceedings in New York alleging misrepresentations, fraud, breach of fiduciary duty (and other wrongs) by UBS in entering into the transactions and a failure by UBS to manage the CDO properly afterwards. • UBS brought proceedings in England for negative declaratory relief, alleging that most of the claims fell within the jurisdiction clause in the Dealer’s Confirmation, on the basis that they were misrepresentations inducing the sale of the Kiel MTN Notes, and were required to be heard in England. • The result: • The Dealer’s Confirmation was only collaterally related to the claims. • The Court held that the parties’ agreement was that all of the claims would be heard in New York.

12. UBS v. HSH • How did the Court arrive at its conclusion? • Lord Collins gave the leading judgment. In general, his approach was as follows: • Accepted a “wide and generous” approach: “I accept UBS’s submission that the proper approach to the construction of clauses agreeing jurisdiction is to construe them widely and generously: Donohue v Armco Inc [2001] UKHL 64 at [14].” • But the essential task is to construe “in the light of the transaction as a whole” [83]. • “Whether a jurisdiction clause applies to a dispute is a question of construction. Where there are numerous jurisdiction agreements which may overlap, the parties must be presumed to be acting commercially, and not to intend that similar claims should be the subject of inconsistent jurisdiction clauses.” [95]

13. UBS v. HSH • Specific features of the dispute that the Court relied on were: • Although a multiple agreement case, it remained important that sensible businessmen would not have intended the same dispute of that kind to be within the scope of inconsistent jurisdiction agreements [84]. On any view, there were some related claims (the mismanagement of the CDO after the parties entered into the transaction) that were only for New York. • The lack of closeness of the Dealers’ Confirmation could be considered by asking whether there was any claim in respect of the Kiel MTN Notes to which it related: “There is no dispute about the issue, sale or performance of the Kiel MTN Notes. Their holder, NS4, is not a party to any of the proceedings. None of the parties to the proceedings advances any claim under the Kiel MTN Notes against any other party. None of the parties suggests there has been any breach of the Kiel MTN Notes, or any misrepresentation in relation to them. The Kiel MTN Notes are supported by a German state guarantee and are virtually equivalent to cash. The misrepresentationclaims were made about the Reference Pool, not about the Kiel MTN Notes. The same allegations would be made if Kiel LB had paid for its investment in cash instead of Notes.” [88] • The Court closely examined the Claim Form and the draft Particulars of Claim in the English Proceedings. • It was striking that the claim form made no mention of the Dealer’s Confirmation [73]. • It was important that UBS in the draft Particulars said that the proceedings concerned the ‘Transaction’, and defined the Transaction widely as HSH’s investment in the CDO [75]. • The Particulars characterised both the dispute and relief in terms of Principal Agreements,whichincluded the Dealers’ Confirmation, but also all the other agreements containing NY clauses.

14. Illustration 2: Sebastian v. Deutsche Bank • It is useful to compare UBS with another financial case with a multiplicity of agreements, Sebastian Holdings Inc v Deutsche Bank AG [2010] EWCA Civ 998. • Sebastian illustrates the limits of an assumption that fragmentation is unlikely to have been intended. • The background facts: • Sebastian, an investment company, made a series of agreements over two years with Deutsche for trading in the financial markets. • There was a Master Agreement for trading in equities and a Master Agreement for FX trading: both were on 1992 ISDAs and provided for English law and non-exclusive English jurisdiction. • There were other agreements relating to FX and equities trading: most with English law/jurisdiction clauses, but one with Swiss law and one – the FX Prime Brokerage Agreement – with NY law and non-exclusive NY jurisdiction. • Finally, there was a Master Netting Agreement with English law and exclusive English jurisdiction. • Sebastian’s FX investments went very badly wrong in October 2008. • The procedural skirmish: • Sebastian claimed damages in New York under the FX Prime Brokerage Agreement and in fraud. • Deutsche claimed in debt in the Commercial Court under the Master Netting Agreement and the Master Agreement for FX trading.

15. Sebastian v. Deutsche Bank • Sebastian argued that the English court did not have jurisdiction over Deutsche’sclaims: “The foundation of Sebastian’s contention …was that the parties must have intended claims to be brought in the forum specified in the agreement from which the claim had its cause or origin or the agreement which was at the commercial centre of the dispute.“ [53] • The Court considered this argument to be overly broad, pointing out that its effect would be that Deutsche could not bring claims for debts due under agreements in the forum specified in those agreements: [54]. • The rejection of this argument illustrates the limits of what is meant by “the dispute”. • Deutsche argued that the agreements plainly contemplated that different jurisdiction clauses would apply to claims under the different agreements and that in the circumstances a multiplicity of proceedings was inevitable. The Court was more receptive to this argument, noting: • The parties clearly contemplated that different disputes could be resolved in different jurisdictions [61]. • The Bank was entitled to sue on its debt in London [58]. • There was an inevitable fragmentation of the dispute, since Sebastian had brought proceedings for damages for breach of the FX Prime Brokerage Agreement in New York.

16. Sebastian v. Deutsche Bank • Sebastian shows the limits of an approach that assumes that a dispute will be heard in the same forum. • Looking at the overall scheme of the transaction: • The parties did not intend that all disputes had necessarily to be heard in the same forum. • The parties intended that claims under the debt instruments could be made in England under the dispute resolution provisions in the main agreements. • The fact that Sebastian’s defence to the debt claim involved a claim for breach of the Prime Brokerage agreement did not affect the essence or centre of gravity of the claim. • The dispute should be characterised at the time of issuance of the proceedings [62]. • At the time of issuance, the dispute depended on the bank’s claim, not Sebastian’s defence to it [62]. • There is a difference, therefore, between asking what the centre of gravity of a claim is, and what the centre of gravity of the dispute – as it turned out to be – is. • There would be a complete lack of certainty if the Bank could not know in which jurisdiction to sue until it knew the nature of the defence [63]. • That uncertainty could be critical if there were limitation issues [63]. • There was a difference between saying that all the claims must necessarily have been intended to be heard together, and asking the Court to exercise a case management function to determine that they should be heard together [64].

17. Illustration 3: Satyam v. Upaid • This was a sequential agreement case. • The facts: • Upaid was developing a novel idea and hired Satyam to develop the software. • There were two initial agreements: • An Assignment Agreement , governed by New York law (with no jurisdiction agreement), by which Satyam transferred relevant IP rights to Upaid and promised to provide necessary documents for Upaid to apply for and enforce its patents. • A Services Agreement, governed by Virginia law (with no jurisdiction agreement), covering the parties commercial relationship, including the transfer of IP to Upaid. • Upaid filed for patents using employee assignments provided by Satyam. • The relationship broke down and the parties signed a Settlement Agreement governed by English law with exclusive English jurisdiction. • Subsequently, Upaid lost a patent infringement claim against third parties on the basis that the employee assignments (provided by Satyam) that grounded its patent were frauds. • Upaid sued Satyam in Texas for fraud and breach of the Assignment Agreement. • Satyam sought an anti-suit injunction restraining the Texas proceedings.

18. Illustration 3: Satyam v. Upaid • The Settlement Agreement had clearly terminated the Services Agreement. The first question for the Court was therefore whether the Services Agreement had superseded the Assignment Agreement, or whether the Assignment Agreement remained on foot. The Court found that: • Looking at the transactions as a whole, the Services Agreement was forward looking. • The Services Agreement was intended to preserve the Assignment Agreement, not to supersede it. • The Settlement Agreement also preserved the Assignment Agreement. • Satyam’s alternative argument was that if (as the court found) the Settlement Agreement preserved the Assignment Agreement, then the Texas claims under the Assignment Agreement fell within the exclusive English jurisdiction clause of the Settlement Agreement. This argument was based on relying on Fiona Trust to construe the jurisdiction agreement in the Settlement Agreement broadly and in favour of one-stop litigation. • The Court rejected this argument, both on the specific language of the Settlement Agreement and by making the point that “Claims under an agreement preserved by the Settlement Agreement do not ‘relate’ to the Settlement Agreement.” [93]

19. Some conclusions • In multiple agreement cases, the Courts will continue to have regard to the likelihood that sensible businessmen will not intend that a dispute be subject to competing inconsistent jurisdiction clauses, but there is no automatic “one-stop shop”Fiona Trust type presumption, and the Court will accept fragmentation where that is the intention indicated by the transactions considered together. • Contrast UBS and Sebastian. In UBS, UBS made no claim under the agreement that it relied on to found jurisdiction. In Sebastian, however, each party sued under a particular agreement, and the agreements had different jurisdiction clauses. • Where contracts are not “part of one package” or address “parallel but different aspects of the overall continuing relationship” it may be easier to conclude that fragmentation was intended. • See Trust Risk , [49] and C v D1, [104, 112] • In a sequential agreement case, where the later in time is a settlement agreement, it is likely to supersede an inconsistent arbitration/jurisdiction clause in a preceding agreement, absent clear words. • See Monde Petroleum, [38-44]. • Where a claim is contractual in nature, i.e. under a particular agreement, the fact that it also “relates to” or is “in connection with” another agreement, such that it arguably falls within its jurisdiction clause, is unlikely to result in the jurisdiction agreement contained in the latter prevailing. • In Sebastianthe court found it important that Deutsche was suing for debt under the agreement that contained the jurisdiction clause for which it argued. • In Satyam the claim Upaid brought in Texas alleged a specific breach of the Assignment Agreement.

20. Conclusions cont. • The contract has to be construed when made, and the centre of gravity test applied when the claim is issued. The dispute is unlikely to change its essential character depending on the nature of the defence the defendant may put forward. • Sebastian, [61]-[64]. • Characterisation of the dispute is likely therefore to focus on its essential nature as disclosed by the Claim Form, and Particulars of Claim. • Sebastian, [61]-[64] and UBS, [73]-[81]. (A question arises whether a party can carefully craft its claim form so that it only refers to some agreements and not others. To what extent can the Court look through this to the “true” claim?) • In some cases, it will be possible to identify the purpose behind a particular jurisdiction clause, so as to discern the intended fragmentation of dispute resolution, e.g. • By concluding that a particular agreement was intended, notwithstanding its apparent breadth, to deal only with technical disputes. • In Sebastian, the Court concluded that the English jurisdiction clause was “a ‘boiler plate’ bond issue jurisdiction clause, and is primarily intended to deal with technical banking disputes”. • By concluding that a particular choice of law was because a particular aspect of the transaction is associated with that system of law. • In Trust Risk, it was an important factor that the ToBA provided for the creation of a trust in favour of the insurer over the premiums collected by the broker. This supported the idea that the ToBA remained governed by English law and had not fallen under the Italian law provision in the subsequent Framework Agreement (see[65](3)).

21. Conclusions cont. • The question for the Court is not one of case management or forum non conveniens. Selecting the correct jurisdiction clause for a claim is a matter of contractual construction to which there is only one right answer, and not a matter of discretion for the judge. • Sebastian, [64]. • Trust Risk, [31]-[35]. • There may be some cases where factors of forum convenience, as familiar from Spiliada, genuinely bear on how the parties objectively intended the division of jurisdiction to operate but these may only be argued as relevant factual matrix for construction. • There may be very close reading of the various agreements as a whole as an aid to construing the competing jurisdiction clauses. • Trust Risk, [65]-[68]. • Satyam, [60]-[64] and [66]-[70]. • However, when looking specifically at the jurisdiction clauses, the courts take a realistic view of the amount of thought usually given to these clauses and resist overly close readings. • “Jurisdiction clauses are rarely the subject of detailed negotiation and there is nothing to suggest that in these transactions any detailed attention was paid in the negotiations to the jurisdiction clauses; in most transactions in the financial markets this is the case as little attention seems to be paid to this element of risk management”: Sebastian, [57].

22. Conclusions cont. • In cases of genuine difficulty, the contra proferentum rule may give the non-drafting party of a standard term a choice between competing clauses. • An example is Credit Suisse v. MLC: • The facts: • MLC bought Russian bonds from Credit Suisse. They were purchased through purchase agreements, which had an exclusive English jurisdiction clause. The purchases were funded by repos made under a GMRA with a non-exclusive English jurisdiction clause. • MLC brought claims against Credit Suisse in New York. Credit Suisse sought an anti-suit injunction. • The result: • Rix J found held that claims arising out of the purchase agreements only had to be brought in England, and granted an anti-suit injunction in respect of such claims that MLC had brought in New York. • However, where MLC’s claims could be brought under both the purchase agreements and the GMRA, Rix J held: “then, where the jurisdiction clauses are in conflict, I do not see why the GMRA clause should not prevail: either on the basis that, in a case of conflict on standard forms plainly drafted by CS Europe, MLC should be entitled to exercise the broader rights; or on the basis that the clause in the contract which is closer to the claim and which is more specifically invoked in the claim should prevail over the clause which is only more distantly or collaterally involved.” • This application of the contra proferentem rule was cited with approval, though not applied, by Lord Collins in UBS at [92]-[94].