Petrologic Capital SA v Banque Cantonale De Geneve & Anor

For the purposes of Article 23 of the Lugano II Convention, a jurisdiction agreement must be established clearly and precisely. At an interlocutory stage, the claimant must show a good arguable case, meaning a much better argument than the defendant.

Where an applicant and issuing bank have already agreed that their relationship, including future documentary credit transactions, is subject to a particular law and jurisdiction, a jurisdiction clause in the credit issued to the beneficiary does not ordinarily vary that agreement. Nor does the applicant thereby obtain a right under the Contracts (Rights of Third Parties) Act 1999 to enforce the clause in the credit. Such enforcement would undermine the autonomous nature of documentary credits.

Petrologic Capital SA applied for injunctions restraining Banque Cantonale de Genève from paying under a standby letter of credit issued in favour of MIC Petrochemische Vertriebs GmbH, and for payment of the secured sum. The bank challenged the English court’s jurisdiction.

The claimant relied on Article 23 of the Lugano II Convention, arguing that English jurisdiction was agreed in the mandate for opening the credit, that the clause in the credit governed the applicant-bank relationship, or that it could enforce that clause under the Contracts (Rights of Third Parties) Act 1999. The central issue was whether the parties had agreed to confer jurisdiction on the English courts.

1. Application granted. The English court had no jurisdiction over the claimant’s claims against the bank.
2. Article 23 of the Lugano II Convention requires the claimant to demonstrate clearly and precisely that the jurisdiction clause was the subject of consensus. At the interlocutory stage, the claimant had to show a good arguable case, namely that it had a much better argument than the bank. The approach described in [2006] UKPC 45 and [2008] EWCA Civ 1091 was applied.
3. The bank’s Basic Contract and general conditions applied to all current, new and future business relations. Article 20 expressly contemplated documentary credits and did not displace Article 22, which provided for Swiss law and exclusive jurisdiction in Geneva. The specific powers of attorney relating to documentary credits reinforced that conclusion.
4. The applicant-bank contract was separate from the autonomous credit contract. The English law and jurisdiction clause in the draft credit was an instruction as to the terms of the credit in favour of the beneficiary. It was not intended to govern the applicant-bank relationship and did not vary the existing Swiss jurisdiction agreement. The signatures on the draft authenticated the instruction but did not alter that conclusion.
5. The alternative argument that the credit’s clause should govern the applicant-bank contract could not arise where an express law and jurisdiction agreement already governed that relationship. The court therefore did not need to decide whether such reasoning might apply in a case without an existing agreement.
6. The claimant could not enforce the credit’s jurisdiction clause under section 1 of the Contracts (Rights of Third Parties) Act 1999. The clause governed disputes between the bank and the beneficiary. It did not purport to confer a benefit on the applicant, and the claimant was seeking to use it to restrain performance rather than to ensure that a dispute between the contracting parties was litigated in the agreed forum.
7. That conclusion was reinforced by the autonomy principle in Article 4 of UCP 600. Allowing an applicant to enforce terms of the credit could undermine the commercial autonomy of documentary credits, save in clear cases of fraud.