Article

Note: Vasonia Shipping Co. Ltd. (Lessor/Beneficiary), a Cypriot company, entered into a five year agreement to charter an Italian flag vessel to Marittima Fluviale SpA (Lessee/Applicant), an Italian Company, under Barecon 2001 terms. The charter party contract required arbitration in London under the terms of the London Maritime Arbitrators Association. As security for its payment obligations under the charter agreement, Lessee/Applicant provided Lessor/Beneficiary with a demand guarantee issued by Banca di Roma SpA (First Guarantor). The guarantee required payment on Lessor/Beneficiary's first written demand stating that Lessee/Applicant was in breach of the charter contract. As the English Commercial Court interpreted the guarantee, "Banca di Roma was required by the Guarantee to pay on demand 'without set off or counterclaim of any kind' and irrespective of any amendment or variation to the charterparty." The guarantee stated that: "Any claims or disputes arising out of this Guarantee shall be referred to the English High Court and [the parties to the charter agreement] hereby irrevocably submit to the nonexclusive jurisdiction of the English High Court."

Subsequently, Lessor/Beneficiary assigned its rights under the demand guarantee to Nordea Bank Norge ASA (Assignee). First Guarantor merged with Unicredit Corporation Banking SPA (Guarantor) which assumed all liabilities under the guarantee. First Guarantor's obligations under the demand guarantee were transferred to Guarantor, making Guarantor responsible for any demand for payment.

While the initial charter agreement was still in effect, Lessee/Applicant failed to pay charter fees to Lessor/Beneficiary. Lessor/Beneficiary notified Assignee and sent a written demand for payment of the guarantee to Guarantor. The parties subsequently initiated several separate legal actions. (i) Lessee/Applicant started arbitration processes with Lessor/Beneficiary, as specified by the original charter agreement and (ii) subsequently, on November 2, 2009, sought injunctive relief in an Italian court, Tribunale di Genova, to prevent Guarantor from paying Lessor/Beneficiary pending the arbitration (Italian Injunctive Action). An ex parte interim injunction was issued by the Tribunale di Genova that same day forbidding Guarantor from paying Lessor/Beneficiary. Guarantor did not apply to join Lessor/Beneficiary and Assignee to the Italian Injunctive Action until November 17, 2009, and on November 25, 2009, Tribunale di Genova ordered the joinder of Lessor/Beneficiary alone. Because of the Italian interim injunction, Guarantor did not honor the demand. (iii) On November 17, 2009, in accordance with the forum selection terms of the demand guarantee, Lessor/Beneficiary and Assignee sued Guarantor in England for payment on the basis of wrongful dishonor. Guarantor applied for stay of the English proceedings awaiting a determination by the Italian court and an order that the English Court would not exercise jurisdiction while Italian proceedings were pending. Guarantor's argument to the English Court was based on Articles 27 and 28 of Council Regulation (EC) No 44/2001 (Jurisdiction Regulation) "on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters."

Article 27
1. Where proceedings involving the same cause of action and between the same parties are brought in courts of different Member States, any court other than the court first seised shall of its own motion stay it proceedings until such time as the jurisdiction of the court first seised is established.

2. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court.

Article 28
1. Where related actions are pending in courts of different Member States, any court other than the court first seised may stay its proceedings.

Where these actions are pending at first instance, any court other than the court first seised may also, on the application of one of the parties, decline jurisdiction if the court first seised has jurisdiction over the actions n question and its law permits the consolidation thereof.

3. For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient to here and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.

The Queen's Bench Division, English Commercial Court, Gloster, J., dismissed Guarantor's application for a stay of the English proceedings. After finding that the English Court was not required to stay its proceedings under Article 27 because it was the first court seized of an action between the Beneficiary, Assignee and Guarantors, the Judge stated:

I accept [Counsel for Beneficiaries]'s submission that to grant a stay of the English Claim in such circumstances would be to frustrate the very purpose of demand guarantees such as the Guarantee, and to undermine their commercial utility as well-recognised financial instruments widely used throughout the EU and elsewhere. If proceedings brought against a bank to enforce a demand guarantee in the forum chosen in the guarantee can be pre-empted by proceedings brought by the customer against the bank in another Jurisdiction Regulation territory, requiring the beneficiary to become embroiled in those proceedings, the efficacy of such instruments will be emasculated...

The English jurisdiction clause in the Guarantee is material to the exercise of my discretion. Its effect is that, if [Lessor] elects to bring proceedings in England under the Guarantee, [Guarantor] irrevocably agrees to submit to the jurisdiction of the English High Court...Thus, once [Lessor] had elected to bring proceedings against [Guarantor] in the English High Court, [Guarantor] was in breach of contract in not submitting to the jurisdiction of the English Court. In this context, I reject [Counsel for Guarantor]'s submission on this point...In relation to Article 28, the English Court is in my judgment entitled to consider the jurisdiction agreement as one of the factors to be taken into account as part of the balancing exercise on discretion.

Comment:

This decision is certain to speed up suits in the European Union in a rush to sue first and most comprehensively.

[JEB/kmw/kae/AG]

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