United Kingdom: Anti-Suit Injunctions: Exclusive Jurisdictio

Summary

In Morgan Stanley & Co International Plc v China Haisheng Juice Holdings Co. Ltd. an English court has held that an exclusive jurisdiction clause in favour of the English courts in the 2002 ISDA Master Agreement ("Master Agreement") does not extend to claims against third parties to the Master Agreement, whether affiliates of a party or otherwise. In reaching that decision the court was unable to order an anti-suit injunction against China Haisheng Juice Holdings Co. Ltd. ("CH") in relation to its claims brought in China against an affiliate of Morgan Stanley & Co International Plc ("MSIP").
Facts

CH had entered into an engagement letter with Morgan Stanley Asia Limited, a Hong Kong company ("MSAL"). The engagement letter provided MSAL with the exclusive right to arrange related hedging transactions and a right to provide pricing and to match bids to arrange other hedging transactions. MSAL proposed a currency swap and CH entered into the Master Agreement and Credit Support Annex ("CSA") with MSIP and then entered into a currency swap with MSIP in the second half of 2008.

Shortly after entering into the currency swap, the exchange rate moved against CH and MSIP made various demands for collateral under the Master Agreement and CSA, which CH ignored.

In April 2009 CH issued proceedings in China against MSAL and MSIP claiming rescission of the currency swap and compensation for losses suffered by it. The primary grounds for its claim was that it was induced to enter into the transaction by misleading statements on the part of an employee of MSAL and the overall failure of MSAL and MSIP to advise it fairly and clearly in relation to the currency swap. MSIP then informed CH that it was liable to pay an Early Termination Amount under the Master Agreement. Failing payment, MSIP issued proceedings in May 2009 in the English Commercial Court claiming the sums due.

Clause 13 of the Master Agreement provided for exclusive jurisdiction of the English courts in relation to "any suit, action or proceedings relating to any dispute arising out of or in connection with" the Master Agreement. The clause (as amended by the Schedule to the Master Agreement) also excluded third party rights under the Contracts (Rights of Third Parties) Act 1999, save for those of the parties' affiliates. The clause further provided that if an affiliate desired to bring a claim under the Master Agreement it would have to agree to the provisions of the jurisdiction clause.
Decision

The judge held that the words "any suit, action or proceedings relating to any dispute arising out of in connection with this Agreement" are capable of applying not only to disputes between the parties to the agreement but can extend to disputes with non-parties. However, the judge held that the words should be construed in the context of the whole agreement and in particular the whole of the jurisdiction clause. Upon analysing the jurisdiction clause in the Master Agreement (as amended by the parties in the Schedule), the judge was not convinced that it extended to claims against non-parties. An affiliate wanting to bring a claim against a party to the Master Agreement would be bound by the exclusive jurisdiction clause. However, claims against affiliates were not dealt with by the jurisdiction clause.

In the circumstances the court was able to grant an anti-suit injunction requiring CH to stay its proceedings in China against MSIP, but CH was free to continue its proceedings against MSAL in China. Whilst it was unavoidable that there would be parallel proceedings in England and China, the judge nevertheless granted the anti-suit injunction against CH in relation to its claims against MSIP so that the claims falling within the Master Agreement and its exclusive jurisdiction clause would be determined in the parties' chosen forum, namely England.
Comment

Jurisdiction clauses have, in recent times, been the subject of great judicial scrutiny. This case is of particular interest because it deals with the interpretation and applicability of the jurisdiction clause (clause 13) in the 2002 ISDA Master Agreement (similar but not identical to the jurisdiction clause in the 1992 ISDA Master Agreement) albeit as amended by the parties in the Schedule. The standard form ISDA Master Agreement is the subject of many thousands of derivatives transactions. Although the present case turned on the facts, parties entering into the ISDA Master Agreement may wish to consider the impact of this case when negotiating the ISDA Master Agreement and should consider express provisions in the Schedule to deal with claims by and against affiliates of the parties.

Case reference: Morgan Stanley & Co International Plc v China Haisheng Juice Holdings Co. Ltd. [2009] EWHC 2409 (Comm). For a copy of the full judgment click here.

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