In the recent decision of
Background
The dispute involved a series of agreements relating to a loan and the subsequent extension of repayment and security of the loan. The Plaintiff commenced an action in
The key issue was whether the dispute was subject to an exclusive jurisdiction clause. If so, then the CFI would stay the proceedings in favor of the
Three agreements were relevant to the overarching transaction, each with a different jurisdiction clause. Accordingly, the first question was which jurisdiction clause the CFI should apply. After that, the CFI had to determine the governing law of the relevant jurisdiction clause and whether it was exclusive or non-exclusive.
Decision
The dispute involved several agreements, two of which the CFI considered relevant:
-
An initial loan agreement (the "Initial Agreement") with a jurisdiction/governing law clause providing that all disputes should be "resolved by local laws." The CFI construed this clause to mean that the Initial Agreement was to be governed by
- A subsequent agreement under which the guarantor promised to provide security with respect to property in
Wuhan (the "Repayment Agreement"). The jurisdiction clause provided the Plaintiff could elect for disputes to be resolved by an "arbitration committee" or could bring an action in the People's Court where the guarantor was located (i.e.,Wuhan ). The Repayment Agreement was silent, however, on the governing law of the jurisdiction clause.
The CFI determined that the Initial Agreement, together with the subsequent agreement, formed one whole agreement, and the later jurisdiction clause in the Repayment Agreement should supersede the jurisdiction/governing law clause in the Initial Agreement. As such, the CFI held that the jurisdiction clause in the Repayment Agreement should apply. Because the Repayment Agreement did not specify the governing law (either generally or in the jurisdiction clause), however, the CFI had to decide what law governed the jurisdiction clause.
The CFI applied the English case Enka v Chubb and held that its task was to construe the governing law of the jurisdiction clause by context and the parties' intentions. If the CFI could not determine the parties' intentions, the governing law would be defined by the system of law having the closest and most real connection to the contract. In making this determination, the CFI held that an express choice of law clause governing the underlying contract generally also would apply to the jurisdiction clause.
The CFI found that the express governing law clause in the Initial Agreement (i.e.,
Applying
Key Takeaways
Although this case involved a "jurisdiction clause" and not an arbitration agreement specifically, a
From a drafting perspective, the decision in
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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