Key legal and regulatory developments driving and shaping M&A
A submission to English jurisdiction in the 2002 ISDA Master Agreement was not inconsistent with Danish insolvency proceedings that overrode the suspensory effect of s2(a)(iii) of the Agreement.
O.W. Supply & Trading ("OWSupply") and SwissMarine Corporation Ltd ("SwissMarine") entered into a 2002 ISDA Master Agreement (the “ISDA Agreement”). OWSupply filed for bankruptcy in Denmark. SwissMarine did not designate an Early Termination Date. OWSupply brought proceedings in Denmark for close-out netting of the ISDA Agreement, on the basis that Danish insolvency law disapplied the suspensory provisions of s2(a)(iii) of the ISDA Agreement (under which no payments are made from the non-defaulting party to the defaulting party following an event of default and before any Early Termination Date is designated – that is, the non-defaulting party can effectively hold the contract ‘in suspense’, see Lomas v JRF Firth Rixson  EWCA Civ 419 for more details). SwissMarine sought an anti-suit injunction to restrain the Danish proceedings.
Andrew Smith J held that the proceedings in Denmark were not incompatible with the jurisdiction clause in the ISDA Agreement and refused to grant the anti-suit injunction.
The jurisdiction clause in section 13 of the ISDA Agreement stated “with respect to any suit, action or proceedings relating to any disputes arising out of or in connection with this Agreement (“Proceedings”), each party irrevocably…submits…to (A) the non-exclusive jurisdiction of the English courts if the Proceedings do not involve a Convention Court and (B) the exclusive jurisdiction of the English courts if the Proceedings do involve a Convention Court…”
Andrew Smith J held that the 2002 wording was similar in effect to the 1992 wording, previously considered in AWB (Geneva) v North America SS Ltd  EWCA Civ 739. The Danish proceedings were not about what rights and obligations the parties have under the contract but how the Danish insolvency regime operates on those rights and obligations. Therefore, it was outside the scope of the jurisdiction clause.
Andrew Smith J also rejected the argument that ‘Convention Courts’ meant any court covered by the Brussels Regulation, so that the jurisdiction was in any case non-exclusive.
As Denmark is not party to the Insolvency Regulation (Regulation (EC) No 1346/2000), a discharge of the ISDA Agreement under the Danish insolvency regime will not be a discharge of the ISDA Agreement under English law. English courts will not recognise the modification of an English law governed contract by foreign courts. Accordingly, the Danish proceedings may lead to a judgment for a debt owing from SwissMarine to OWSupply under the ISDA Agreement and the English proceedings may lead to a judgment for a different sum under the ISDA Agreement, or a declaration that no sum is owing. Both incompatible judgments would theoretically be enforceable in other Member States, with unpredictable results.
There is some suggestion in the judgment that the Danish proceedings were embarked on specifically to circumvent the suspensory effect of s2(a)(iii). This then becomes another factor when considering whether to defer the designation of an Early Termination Date.
The analysis of the jurisdiction clause will also be of interest to derivatives practitioners. The curious split between exclusive and non-exclusive jurisdiction is due to an historic concern that non-exclusive jurisdiction clauses were not enforceable in certain jurisdictions.
In this issue, we cover a broad spectrum of ‘hot button issues’ for boards and companies operating internationally.
© Norton Rose Fulbright LLP 2021