Businesses entering into international agreements will have all the usual issues to resolve. One that does not normally come out at the top of the list is choice of law and jurisdiction (arbitration or courts, and which country).
Often left to be discussed late in the day, these points can be contentious with each side wanting their familiar law and jurisdiction, or at least a neutral third country. In order to get the deal done, a compromise is often struck without thinking through the consequences.
A recent decision shows the kind of unpredictable outcome that you can face where jurisdiction clauses are in conflict.
This case arises out of an insurance arrangement, but the tension between the two sets of choice of law and jurisdiction clauses could occur in any commercial context. In conflicting jurisdiction cases a guiding principle has been to apply a ‘one-stop shop’ presumption, coming out of a 2007 House of Lords case (Fiona Trust).
This on the basis that rational business people agreeing a jurisdiction clause would not want to have parts of their relationship decided in different places, with for example, one part referred to arbitration and another decided by the courts.
In Trust Risk v AmTrust Europe the parties had entered into two separate agreements six months apart. These were:
- A 2010 Terms of Business Agreement (ToBA) that was to be construed according to English law with any disputes arising under it to be determined in the English courts; and
- A 2011 Framework Agreement (attaching the ToBA) specifying Italian law and arbitration in Milan. This also contained an entire agreement clause, and an agreement to modify the 2010 agreement ‘to the extent necessary to reflect the terms hereunder’.
Trust Risk challenged AmTrust’s attempt to have a breach of the ToBA looked at by the English court. Trust Risk said that the whole relationship should now fall within the ambit of the Italian arbitration provisions. Were they right?
The court said no. The attractive simplicity of the Fiona Trust approach did not answer the question. Features of the ToBA (it related to a distinct stream of business, and was on standard London market terms) and of the detailed wording of the two agreements meant that the jurisdiction of the English courts still applied to the ToBA.
Points to note:
- Disputes over jurisdiction are expensive and unpredictable. Be clear about your choices, even where the negotiations are difficult. And if there is more than one written agreement in your relationship, try to be consistent across all of them.
- If you want to change the governing law and jurisdiction clauses in earlier agreements you will need to make that completely clear in your drafting. Any ambiguity could lead to uncertain results.