+44(0)20 7638 9271

Articles

Articles

Court enforces borrower’s waiver of right to apply for a stay

In Standard Chartered Bank (Hong Kong) Limited and another v Independent Power Tanzania Limited and others [2016] EWCA Civ 411 the Court of Appeal has confirmed that where a jurisdiction agreement includes a forum non conveniens (“FNC”) waiver, the court will grant a stay only in exceptional cases where there are new circumstances that were not foreseeable at the time the waiver was given.

The case

The dispute arose out of the $145 million financing of the construction of a power plant in Tanzania after the joint venture vehicle and borrower IPTL defaulted in 2006.   

The loan and security agreements were governed by either English or Tanzanian law and all contained non-exclusive English jurisdiction clauses with an additional clause whereby each party irrevocably waived any objection it may have to a court exercising jurisdiction on this basis of it being an inconvenient forum. Furthermore the agreements contained an express acceptance of the possibility of concurrent proceedings in different jurisdictions.

Following the default, IPTL began proceedings in Tanzania as well as well as related proceedings in New York against Standard Chartered Bank (Hong Kong)’s parent.

The two claimant banks (both wholly owned subsidiaries of Standard Chartered Bank) then issued proceedings in the Commercial Court in London in December 2013 seeking judgment on all sums accruing under the loan and security agreements as well as further declaratory and injunctive relief.

Despite the FNC waiver provisions contained in the loan and security agreements the Defendants sought a stay of the English proceedings on FNC grounds as well a stay on case management grounds.

The Defendant’s application for a stay was initially heard by Flaux J in the Commercial Court took the view that even where there is an FNC waiver clause that expressly prohibits the use of FNC objections, the court may grant a stay if a Defendant can demonstrate very strong or exceptional grounds that can properly be described as unforeseen and unforeseeable at the time the agreement was made.

On the facts he held that the claims brought in England and Tanzania were still in their preliminary stages and “nowhere near ready for trial”. As a result it could not be argued that there were “strong or exceptional grounds” for allowing the stay. 

The Defendants’ appealed the Commercial Court decision.

Court of Appeal Decision

The Court of Appeal dismissed the appeal and affirmed the judgment of the Commercial Court in nearly all respects.

The court confirmed that, even where there is both a non-exclusive English jurisdiction clause and an FNC waiver clause, the court retains its discretion to allow a stay if a Defendant can demonstrate very strong or exceptional grounds that can properly be described as unforeseen and unforeseeable at the time the agreement was made.

In relation to the Defendants’ related application for a case management stay on the basis that the Tanzania proceedings were more advanced the Court of Appeal held that the presence of the FNC waiver did not preclude an application for a case management stay although this would only be successful in “rare and compelling cases” and particularly if the stay were to promote an orderly process of litigation.

The Court of Appeal agreed with the initial judgment of Flaux J that on the facts there was no good reason as a matter of case management to stay the English proceedings.

Conclusion

While this decision confirms that the courts may still grant a FNC stay despite an FNC waiver this will be in very restricted circumstances only and where the specific grounds relied on were not foreseeable at the time the agreement was made.

This emphasises the importance for a lender to include an FNC waiver by a borrower. A borrower wishing to reserve a right to bring proceedings elsewhere and to challenge the jurisdiction of the chosen courts should not agree the FNC waiver though his ability to negotiate this may be limited.

If you would like to discuss any of the issues raised further please speak to your usual contact or Charles Spragge or Max Palmer.

Share this article: