Two banks are in dispute about which of many competing and conflicting jurisdiction clauses in hundreds of pages of legal documents governing a complicated credit default swap deal should apply.
UBS has lost its case, in which it argued that one clause choosing London courts for a dispute applied to the whole deal. The Court of Appeal found that it only applied to one small part of the deal because that is the view that makes most commercial sense in light of the facts of the case.
"Whether a jurisdiction clause applies to a dispute is a question of construction," said Lord Collins in his ruling. "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."
UBS and German bank HSH engineered a complicated financial deal in which HSH undertook some of the risk of a portfolio of investments in exchange for a return on those property investments.
One page of one set of documents relating to one part of the deal specified that English courts would be where disputes would be settled. All the other documents said that New York courts were the non-exclusive forum for disputes.
"The only possible basis for the jurisdiction of the English court is the jurisdiction clause in one of the agreements in the CDO (credit default obligations) transaction," said Lord Collins. He said that the English jurisdiction clause was in "one of the documents recording the complex transaction between the parties (a 1-page document among 500 pages of other documents constituting the overall deal)".
HSH sued UBS in New York alleging that UBS had misled it and misrepresented the deal, and that it would not have gone ahead with the $500 million transaction had it not been for those misrepresentations.
UBS filed a lawsuit in London arguing that the one clause identifying England as the jurisdiction for disputes for one part of the deal should apply to the entire dispute. HSH rejected that view, as did the High Court. On appeal, so did the Court of Appeal.
The English jurisdiction clause appeared in the 'Dealer's Confirmation', which dealt with a payment mechanism for bonds that funded the deal. Lord Collins said that when dealing with complex deals and competing jurisdiction it was important to find the parts of the deal which were its primary commercial focus and give them priority.
"The jurisdiction clause in the Dealer's Confirmation is a 'boiler plate' bond issue jurisdiction clause, and is primarily intended to deal with technical banking disputes," he said. "Where the parties have entered into a complex transaction it is the jurisdiction clauses in the agreements which are at the commercial centre of the transaction which the parties must have intended to apply to such claims as are made in the New York complaint."
Lord Collins said that courts should look at a deal in the way that a commercial company would and reject non-commercial interpretations.
"The essence of the claims for misrepresentation in New York is that HSH was induced to purchase the NS4 Notes [by which it paid UBS $500m] in reliance on the fraudulent and negligent misrepresentations, and would not have purchased them in the absence of those representations," he said.
"No sensible commercial interpretation of the jurisdiction clause in the Dealer's Confirmation could have the result that identical misrepresentation claims would fall both within that clause and within the non-exclusive New York jurisdiction clauses, simply because the consideration for the transaction was the issue of the Kiel MTN Notes [which were a payment mechanism for the NS4 notes at the heart of the deal]," he said.