Article

Factual Summary:
Buyer/Applicant opened an account with Issuer by signing Issuer's "Basic contract", which provided that the parties' legal relationship, including all future business, would be subject to Swiss law and jurisdiction. To assure payment for the purchase of 3,000 mt of oil products, Buyer/Applicant instructed Issuer to issue a commercial standby LC in the amount of EUR 2,425,000 plus or minus 10% in favor of Seller/Beneficiary. The standby contained a special condition that "this standby letter of credit shall be subject to the exclusive jurisdiction of the English courts".

When Seller/Beneficiary drew on the commercial standby for EUR 2,385,506.33, Buyer/Applicant claimed to be a victim of fraud in which its own employee participated and sued Issuer and Seller/Beneficiary in a Swiss court for interim relief to prevent a wrongful honor. The Court of First Instance of Geneva granted an ex parte order for interim relief but set aside its ruling following a hearing between parties. Buyer/Applicant appealed to the Geneva Court of Appeal and then to the Swiss Federal Supreme Court. Payment was also enjoined in a separate criminal trial in Geneva, but, concerned that payment would be imminently discharged, Buyer/Applicant also sued Seller/Beneficiary and Issuer in an English court to enjoin payment and recover EUR 2,385,506.33 that Issuer was holding as security for its liability under the standby. Issuer moved to dismiss Buyer/Applicant's claim against it for lack of personal jurisdiction, and the trial court granted the motion.

Legal Analysis:

Article 23 of the Convention provides:
"(1) If the parties, one or more of whom are domiciled in a State bound by this Convention, have agreed that a court or the courts of a State bound by this Convention are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either:

(a) in writing or evidenced in writing; or
b) in a form which accords with practices which the parties have established between themselves;
or
(c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned."

At the proceeding stage of the motion to dismiss, the Judge observed that Buyer/Applicant must show that it has a "good arguable case" that the requirements of Article 23 are satisfied. The Judge concluded that Buyer/Applicant had not proven such a case. "There is no reason in principle why the parties should not agree that their own relationship should be subject to Swiss law and jurisdiction, while the credit which the bank was to open in favour of the beneficiary would be subject to English law and jurisdiction. In my judgment, that is what they did agree." The Judge ruled that the original contract between Buyer/Applicant and Issuer was broad enough to govern their legal relations and future LC transactions, but the LC in favor of Seller/Beneficiary was explicitly made subject to a different jurisdiction.

Text: The General Conditions of Banque Cantonale de Genëve provided:

"These General Conditions govern the relationship between the Banque Cantonale de Genève, hereinafter called 'the Bank', and its clients...

Special provisions

In addition to the present General Conditions, some special conditions established by the Bank govern certain areas.

The Bank also observes banking and commercial practices; stock market trading is subject to the rules and practices of the relevant market; documentary credits are subject to the rules and practices of the International Chamber of Commerce.

The above is subject to any special agreement between the client and the Bank...

Applicable law and place of jurisdiction

All legal relations between the client and the Bank are subject to Swiss Law.

The place of performance of all obligations, the place of jurisdiction for clients domiciled abroard [sic] and the sole place of jurisdiction for any proceedings of any nature whatsoever is Geneva.

However, the Bank reserves the right to take legal action at the domicile of the client or before any other competent court."

A Power of Attorney Provided:

"All the contractual relations between the principal(s) or the company and the Bank are covered by the Bank's terms and conditions. ...

All legal relations between the principal(s) or the company and/or the authorised persons on the one hand and the Bank on the other shall be subject to Swiss law. The place of execution and the exclusive jurisdiction are Geneva...

1. All contractual relationships between the Company and the Bank are governed by the General Conditions of the Bank. Furthermore, specific conditions of the Bank govern certain transactions, in particular the deposit of securities and other instruments, savings books and precious metal accounts. These contractual provisions are modified and/or completed by the present conditions and are also applicable to each of the Authorized Persons. ...

2. Any one of the Authorized Persons ... may exercise all rights pertaining to the Company in relation to documentary letters of credit, first demand guarantees or stand-by letters of credit (hereinafter referred to as 'Documentary Credits' or, individually, a 'Documentary Credit'), except the right to issue a Documentary Credit.

...

4. The instructions and actions authorized hereby include all acts which are customary in the handling and monitoring of Documentary Credits, including, in particular, but not limited to, the following acts:

• instructions to amend a Documentary Credit, issued on behalf of or in favour of the Company;
• acceptance of discrepancies in documents received in relation to a Documentary Credit, issued on behalf of all in favour of the Company;
• assignment in favour of the Bank or a third party of the proceeds or rights arising from a Documentary Credit; and
• disposal of documents in relation to a Documentary Credit, issued on behalf of or in favour of the Company.

11. The Company hereby confirms that it has taken due notice of, and accepted, the General Conditions of the Bank, in particular Articles 4, 6, 7 and 22.

...

15. All legal relationships between the Company and/or the Authorized Persons, on the one hand, and the Bank, on the other hand, are governed by Swiss law. The place of performance and the exclusive place of jurisdiction are in Geneva."

The Standby Provided:

"Validity: May 30, 2011 at our counters in Geneva Available with us by payment at sight, against presentation of the following documents

...

Special conditions:

...

3. The construction, performance and validity of this standby letter of credit shall be governed by and construed in accordance with English law, any claim or dispute arising out of or in connection with this standby letter of credit shall be subject to the exclusive jurisdiction of the English courts.

Except as otherwise herein stated this standby letter of credit is subject to the Uniform Customs and Practice for Documentary Credits UCP 600 of the International Chamber of Commerce, Paris, Rev 2007."

[JEB/ds/mkg]

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