Good news for lenders

In the recent case of Mauritius Commercial Bank Limited v Hestia Holdings Limited and another the English Commercial Court did not follow the restrictive approach to one way jurisdiction clauses that the French Cour de Cassation took last year in Mme X v Banque Privée Edmond de Rothschild.

Flexibility for lenders

Most facility agreements (including the LMA precedents) contain a one way jurisdiction clause limiting the jurisdiction (or country)  in which the borrower can bring proceedings against the lender to one specific place, usually the English courts. These clauses, however, still allow the lender to take action against the borrower under any jurisdiction that it chooses.  They are known as a one way jurisdiction clause – “one way” as all the flexibility is in favour of the lender. Such clauses are favourable to lenders as it means they have the option to bring proceedings either in the borrower’s home court or where the assets are located (if different places). It also allows the lender to maintain control and sue the borrower in the most convenient and beneficial jurisdiction for the lender whilst also providing the lender with certainty that any action against it will only be brought within the English courts.

Cause for concern

The Rothschild case caused concern for lenders and finance lawyers.  In that controversial case it was decided that a one way jurisdiction clause was not valid which suddenly meant there was uncertainty around the validity of one of the most common boilerplate clauses in facility agreements and over how much control lenders actually had over which court to use for enforcement proceedings.  The defendant borrowers used the decision to argue in Mauritius Commercial Bank that a one way jurisdiction clause contained in an amendment and restatement agreement was invalid on a number of grounds, one being because it was one sided in so far that they were bound to bring any claims under English jurisdiction but it allowed the lender to bring proceedings anywhere it chose, which was so unreasonable it was contrary to public policy. The English court has, however, moved away from this decision and held that the clause was valid under English law.

The way forward

Whilst this case allows lenders to breathe a sigh of relief, the long term validity of these clauses is still uncertain in Europe.  It seems that this will remain the case until the European Commission expresses an opinion on the issue or the matter is brought before the European Court.

More information –

Leave a Reply

Your email address will not be published. Required fields are marked *

five + 16 =

This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.