There were a number of perceived issues with the drafting of the jurisdiction and choice of law clauses in the 1992 and 2002 ISDA Master Agreements. These were highlighted during the consultation and the guide contains new clauses which aim to deal with those issues.
The guide includes optional model forms of exclusive and non-exclusive jurisdiction clauses as well as an alternative governing law clause. These are designed to replace in their entirety the existing clauses for new contracts. They are not designed automatically to amend existing agreements and parties wishing to amend existing agreements will need to include appropriate wording in an amended schedule to reflect that.
The drafting of the jurisdiction clauses in the 1992 and 2002 Master Agreements was complex and there was scope for confusion. Although there were good historic reasons for the form of words used, developments since the agreements were originally published had complicated matters and some of the most problematic wording was drafted by reference to legislation which has now been largely superseded.
The clauses in both agreements as originally drafted provided generally for non-exclusive jurisdiction but they did this by employing different wording. They also provided for exclusive jurisdiction in certain circumstances – those circumstances differing between the two agreements. The complicated drafting was open to interpretation and led to a number of cases coming before the courts. There was little or no justification for the differences between the two agreements. Furthermore, the lack of a clear exclusive jurisdiction clause meant that the parties would not be able to take full advantage of The Hague Convention on Choice of Court Agreements (the Hague Convention) where appropriate.
Following the consultation with members, ISDA has now very sensibly drafted two forms of model jurisdiction clauses; a straightforward exclusive jurisdiction clause (in two versions) and, alternatively, a straightforward non-exclusive jurisdiction clause. The two versions of the exclusive clause are used depending on the selection of either English or New York law as the governing law.
The exclusive clauses conform to the requirements of the Hague Convention. Hague Convention contracting states are required to give effect to such agreements made in favour of a contracting state and judgments from a court in a contracting state will be recognised and enforced in other contracting states. At present, the Hague Convention contracting states are the EU, Mexico and Singapore. It is anticipated that further states will ratify the Convention in the future meaning that it is likely to grow in importance
Drafting the clauses in this way means that from the English Court’s point of view, if the UK independently ratifies the Hague Convention post Brexit (as the UK Government has suggested it will do) then the Convention should facilitate the enforcement of English judgments in the EU.
The new clause therefore contains a welcome element of future proofing.
Definition of "Proceedings"
The definition of the “proceedings” to be captured by the jurisdiction clauses differed between the 1992 and 2002 Master Agreements. The drafting in both cases was broad but it was felt that clauses should be amended so that they referred specifically to non-contractual obligations. ISDA has taken the opportunity to include non-contractual obligations arising out of or in connection with the agreements within the definition of “proceedings”. This is a welcome development although, as ISDA notes in the guide, the new wording is intended as a clarification and the definition does not imply that the current language in the agreements is intended to be construed narrowly.
Asymmetric jurisdiction clauses
ISDA has avoided providing a standard form asymmetric jurisdiction clause. Although these are common in various parts of the financial markets, there are problems with their recognition in certain jurisdictions and, in our view, for the sake of certainty, ISDA was right not to include such a clause within its range of model clauses.
Choice of law
The existing governing law clauses in both the 1992 and 2002 Master Agreements stated that the agreement should be governed by and construed in accordance with the laws specified in the schedule (English or New York law).
Both the English and New York courts have, in most cases, given effect to choice of law over contractual obligations. The coming into effect of the Rome II Regulation standardised rules across EU courts giving effect to choice of law clauses made in respect of non-contractual obligations. It is assumed that this position will be maintained by the UK post Brexit. New York courts will generally also give effect to such clauses.
ISDA has therefore sensibly included in the guide a model governing law clause expressly covering choice of law for non-contractual as well as contractual obligations. As with the proviso made in relation to the expansion of the definition of “proceedings”, ISDA expressly notes that this does not imply that the current language in the 1992 and 2002 agreements is intended to be construed narrowly.
The changes made by ISDA to its jurisdiction and governing law clauses are in line with recommendations made during the consultation and are, in our view, entirely sensible. They have swept away some slightly archaic and overly complex drafting leaving parties with clear choices on jurisdiction and enhanced certainty on both jurisdiction and choice of law. Those choices will be assisted by the clear explanatory notes contained in the guide and, overall, this should lead to fewer jurisdictional battles before the courts, which can only be a good thing.
It is worth noting that ISDA is currently working on French and Irish law governed master agreements containing French and Irish court jurisdiction clauses. Depending on the final shape of the Brexit arrangements, these agreements might give parties wishing to retain benefits of the existing EU regime for example, mutual recognition and enforcement of judgments, additional options.
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