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Jurisdiction Over Freight Swap Agreement
Published in the November 2010 issue of Litigation Notes - View Article
The Court of Appeal for British Columbia rules that B.C. courts have no jurisdiction over a freight swap agreement.
The Court of Appeal for British Columbia recently had to consider whether a lower Court was correct in concluding that it had territorial jurisdiction over an action for monies allegedly owing under a contract. The contract in question was a “forward freight swap agreement” (“FFA”), which is a form of financial derivative contract. Shipowners and charterers purchase such contracts to hedge against fluctuation in freight rates.
In this case North American Steamships Ltd. (“NASL”), a British Columbia company, purchased freight capacity from HBC Hamburg Bulk Carriers GmbH & Co. KG (“HBC”) through a broker based in Hamburg.
NASL was a party to 119 freight swap agreements with various parties around the world and had incurred liability in excess of $46.5 million U.S. under those agreements, while having accounts receivable of only $6.6 U.S. The company was forced into bankruptcy in November of 2006.
Proceedings were commenced in British Columbia, but HBC took the position that British Columbia was not the most convenient forum for the resolution of the various disputes arising from the FFA. The Supreme Court of British Columbia accepted jurisdiction, relying on the Court Jurisdiction and Proceedings Transfer Act which establishes territorial competence if “there is a real and
substantial connection between British Columbia and the facts on which the proceeding… is based.” A real and substantial connection is presumed to exist if the proceeding concerns contractual obligations and the contractual obligations were to be performed in British Columbia “to a substantial extent”.
Under the FFA, NASL had directed that payments be made to its bank account in Hong Kong and payments to HBC or the broker were to be made in Germany. The agreement was to be governed by and construed in acordance with English law and was subject to the “non-exclusive jurisdiction of the High Court of Justice in London, England”.
The Chambers Judge’s decision was overturned by the Court of Appeal which concluded that contractual obligations were in fact not to be performed to a substantial
extent in British Columbia. “The FFA had (Continued from page 4) no real connection with British Columbia aside from the place of the Plaintiff’s residence… as noted above, the contract concerned freight shipping rates in various shipping routes around the world, the rates were those published by the Baltic Exchange in London and were expressed in U.S. dollars; the broker was located in Germany and the commission was payable to it there; and the contract was governed by English law and the Court in England had (non-exclusive) jurisdiction.”
North American Steamships Ltd. v. HBC
Hamburg Bulk Carriers GmbH & Co.
KG 2010 BCCA 501 (CanLII)