Court of Appeal upholds application of jurisdiction clause and reinforces doctrine of separability

Following the first instance decision of Flaux J in this case in April, there had been considerable uncertainty regarding the extent to which a party could safely rely on a jurisdiction clause falling within the scope of Article 23(1) of the Judgments Regulation. The decision of the Court of Appeal (Deutsche Bank v Asia Pacific Broadband Wireless Communications [2008] EWCA Civ 1091) has significantly reduced that uncertainty by rejecting the proposition that a jurisdiction clause can be defeated merely by a party raising a plausible allegation that the agreement in which the jurisdiction clause is contained is void as a result of mistake, misrepresentation, illegality, lack of authority. This welcome decision is likely to prove timely as the anticipated increase in cross-border litigation arising from the economic downturn comes to fruition.

Background

The Appellants (Deutsche Bank AG & Ors) entered into a contract under which they agreed to provide Asia Pacific Broadband Wireless Communications Inc ("Asia Pacific"), a telecommunications company in Taiwan (which together with Asia Pacific's Taiwanese parent company, are referred to as the "Respondents"), with a credit facility. The parent company guaranteed the loan monies under a credit agreement dated 31 March 2006 (the "Agreement"). The credit facility was duly provided to Asia Pacific.

At the time the Agreement was entered into the Respondents were controlled by the Wang family, certain members of whom were indicted for fraud in Taiwan in December 2006. Events of default occurred under the Agreement. After various monies had been paid out of escrow accounts, the sums owed to the Appellants were equivalent to some US$175 million. The Respondents did not pay any part of the sums outstanding and Deutsche Bank AG, on its own behalf and on behalf of the other lenders, commenced proceedings in the English Commercial Court.

The claims

For reasons unknown, the Respondents did not challenge jurisdiction in respect of the Appellants' primary claim (based in contract) but did so only in respect of two alternative claims which were later advanced in the Appellants' amended particulars of claim:

1. a restitutionary claim – the Appellants had paid out money under a mistake of fact and/or law and/or for a consideration which wholly failed; and
2. a misrepresentation claim – Mr Wang misrepresented to the Appellants that duly convened board meetings had been held to authorise Mr Wang as Asia Pacific's Chairman to enter into the Agreement.

In order to found jurisdiction in the English court, the Appellants relied on an exclusive jurisdiction clause in the Agreement. That clause provided for the English courts to have jurisdiction "to settle any dispute in connection with any Finance Document…", and contained a sub-clause stating "References in this Clause to a dispute in connection with a Finance Document includes any dispute as to the existence, validity or termination of that Finance Document." Clause 34 of the Agreement provided that the Agreement was governed by English law.

It was common ground that since Deutsche Bank was domiciled in a Member State the right to rely on the jurisdiction clause depended on the terms of Article 23(1) of the Regulation.

The defence

The Respondents' case was essentially that the Agreement was void because the members of the Wang family did not have the authority to enter into it on behalf of the Respondents – they did so as part of a large scale fraud. As such, the Agreement (including the jurisdiction clause) was tainted by fraud and could not be relied upon to found jurisdiction under Article 23 of the Regulation.

The two issues which came before Flaux J at first instance were:

1. whether the jurisdiction clause in the Agreement conferred jurisdiction on the English court by virtue of Article 23 of the Regulation, notwithstanding that the Agreement itself was alleged to be void; and
2. whether the alternative claims fell within its scope.

The decision at first instance

Flaux J gave judgment in favour of Asia Pacific. Whilst the alternative claims came within the scope of the jurisdiction clause, Flaux J found that the claimants could not clearly and precisely demonstrate that there was a consensus between the parties as to the jurisdiction clause in the context of the alternative claims. It followed that there was no jurisdiction clause governing those claims; nor could the English court otherwise assume jurisdiction over the claims.

The Court of Appeal decision

The Court of Appeal upheld the appeal, holding that the requisite consensus between the parties as to the jurisdiction clause existed and that the English courts therefore had jurisdiction by virtue of Article 23(1).

Consensus

The starting point for the Court of Appeal was the proposition that if a claimant wishes to rely on a jurisdiction clause pursuant to Article 23, he must demonstrate clearly and precisely that the clause was the subject of a consensus between the parties. A dispute on this point is resolved in favour of the claimant if, on the available material, he is able to show that the requirements of form in Article 23(1) are met and that the clause was the subject of consensus.

In the Court of Appeal's view, the point could be dealt with shortly:

1. the Agreement confirming jurisdiction was itself in writing and was contained in a written agreement (i.e. the Agreement); and
2. the Agreement had been signed or "chopped" by all the parties.

This was enough to establish consensus and contrasts with the more involved enquiry of Flaux J. who, in Longmore LJ's view, had read too much into the authorities of the European Court on the point.

Separability

The Court of Appeal then considered the doctrine of separability. The Court, observing that the doctrine of separability is as much a part of English law as it is European law, noted that a jurisdiction clause - like an arbitration clause - can be treated distinctly from the rest of the agreement in which it forms a part. The Court held that it is only where the jurisdiction clause is itself under some specific attack that a question can arise as to whether it is right to invoke the jurisdiction clause (such as fraud or duress alleged specifically in relation to the clause).

Comment

Parties who are based in Member States and who seek to rely on jurisdiction clauses with international counterparties can take considerable comfort from the Court of Appeal's approach in this case. It is now clear that a counterparty will not be able to defeat a jurisdiction clause simply by making a plausible allegation that the entire agreement in which the jurisdiction clause is contained is void as a result of mistake, misrepresentation, illegality, lack of authority and lack of capacity. Instead, the counterparty will be required to make a specific attack on the jurisdiction clause itself, such as its being procured by fraud or duress. Whilst the Court refrained from being especially prescriptive as to the type of attacks on jurisdiction clauses which may be deployed to deprive them of the consequences which would otherwise follow under Article 23, the emphasis placed by the Court on the doctrine of separability has clearly reduced a party's chances of being able to circumvent the effect of an express jurisdiction clause.