Cinnamon European Structured Credit Master Fund v Banco Commercial Portugues SA (2009)
A holder of certain loan notes backed by a securitised mortgage portfolio was entitled to pursue a claim in the English courts against the mortgage servicing agent that was domiciled in Portugal, as the claim was subject to an agreement conferring jurisdiction on the English courts and was within the scope of the Regulation 44/2001 art.23.
The applicant bank (B) applied to stay part of the proceedings brought against it by the respondent (C). B was registered and domiciled in Portugal. C was a Cayman-registered fund. C's claims arose out of the securitisation of a portfolio of Portuguese residential mortgages which had been granted to B. B sold the portfolio to a unitised fund pursuant to a mortgage sale agreement and at the same time, as servicer, entered into a mortgage servicing agreement with the unitised fund. Also at the same time, the unitised fund entered into a unit subscription form with another company that funded its subscription of all of the units in the unitised fund by the issue of a quantity of loan notes denominated in six classes. Class F notes conferred in effect a right of participation in the residual profit in the mortgage portfolio. B acquired the F notes and later sold its residual profit in the portfolio to another company (G). The contractual arrangements for that transaction were contained in a securities purchase agreement and a representation letter. Clause 14 of the securities purchase agreement provided that the courts of England were to have jurisdiction to settle any disputes arising out of or in connection with the agreement, but nothing in the clause limited any right of the purchaser or vendor to take proceedings in any other court of competent jurisdiction. Clause 10 of the letter was a service of process clause. G later sold the F notes to C which took the benefit of all rights under the representation letter and the purchase agreement. By the instant proceedings, C complained that B had performed its functions as servicer under the servicing agreement to the detriment of the interests of the F noteholders, namely of C. C claimed that B was in breach of the representation letter under which B had undertaken to perform its obligations under the servicing agreement in accordance with its terms and as if B, as servicer, was the owner of the economic interests in the F notes. It pleaded that if it had been complying with that obligation B would not have agreed to any of the reductions in the underlying interest rates payable under the mortgage loans. The main issues were whether clause 10 of the letter constituted an agreement that the English courts were to have jurisdiction to settle any disputes which had arisen or which might arise in connection with the letter and, if it did not, whether clause 14 of the securities purchase agreement was apt to extend to C's servicer claim.
(1) Clause 14 was undoubtedly a jurisdiction agreement within the meaning of the Regulation 44/2001 art.23 and the requirements of that provision were met. The representation letter and the securities purchase agreement were inextricably linked. They set out the contractual arrangements which governed the terms on which G purchased the F notes. Accordingly, any dispute arising out of the letter was properly to be regarded as within the scope of clause 14 of the securities purchase agreement. That clause was a choice of jurisdiction clause that should be construed liberally so that the reference to disputes arising "in connection with [that] agreement" was capable of extending to any dispute (such as C's servicer claim) arising under the very closely related representation letter and there was no good reason for confining it to "pre-agreement" matters, Fiona Trust & Holding Corp v Privalov (2007) UKHL 40, (2007) Bus LR 1719 followed, and UBS AG v HSH Nordbank AG (2009) EWCA Civ 585, (2009) 2 Lloyd's Rep 272 considered. The fact that clause 14 did not exclude the right of either party to take proceedings against the other in any other court of competent jurisdiction (other than the courts of England) and made clear that the taking of proceedings in one or more jurisdictions was not to preclude the taking of proceedings in any other jurisdiction, did not mean the court should adopt a narrower construction of the scope of the clause or reject the presumption that the parties, as rational businessmen, were likely to have intended any dispute arising out of the relationship into which they had entered to be decided by the same tribunal, Fiona followed. (2) If the court was wrong about the wide scope of clause 14 and it was necessary to treat it as inapplicable to disputes under the representation letter, it was clear that clause 10 of the letter contemplated that there would be proceedings in England for the resolution of disputes arising out of the letter. The clause amounted to a non-exclusive choice of jurisdiction agreement within the scope of art.23. Correctly understood, the decision in Deutsche Bank AG v Sebastian Holdings Inc (2009) EWHC 2132 (Comm) was not authority for the broad proposition, as suggested by B, that service of process clauses could not be construed as an agreement to have any disputes that might arise resolved by the courts of the place to which the clause related, Deutsche Bank considered.