Post-Brexit financial conflicts in Sweden – Commentary

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introduction
Choice of law clauses in financial contracts
Jurisdiction clauses in financial contracts
Arbitration procedure in financial disputes
Comment

introduction

Swedish companies are sometimes parties to financial contracts governed by English law – typically, as borrowers or guarantors under a cross-border financing agreement or through the use of the International Framework Agreement Swaps and Derivatives Association (ISDA) for their derivative transactions.(1)

English courts have always been a popular forum for cross-border financial disputes or derivative disputes. However, due to Brexit, the automatic recognition of judgments from English courts in the European Union, which was a process associated with the UK’s accession to the EU, no longer applies. As a result, the applicability of English judgments in Sweden has become uncertain, which in turn has increased the risk of more complex, lengthy and costly legal proceedings for the parties involved.

Choice of law clauses in financial contracts

The Rome I Regulation allows Swedish parties to choose the law that should apply to their contractual obligations,(2) as with loan contracts or derivative transactions. This is the case even if the law chosen is the law of a court which is not a Member State of the European Union. Thus, where English law is chosen to govern a financial contract, any dispute relating to that contract will be resolved in accordance with English law, even if the dispute is decided in Swedish courts.

Jurisdiction clauses in financial contracts

The clauses on the recognition of foreign court decisions in financial contracts are covered by other international agreements (for example, the Brussels Regulation (recast)(3) and the Lugano Convention(4)). However, these agreements are not universal: Swedish courts do not need to recognize judgments rendered in jurisdictions which are neither an EU member state nor a contracting state to the Lugano Convention. Following Brexit, the UK joined the 2005 Hague Convention in its own right.(5) However, this applies to “exclusive jurisdiction clauses”, which designate the courts of a Contracting State to the exclusion of the jurisdiction of any other court. This differs from “asymmetric jurisdiction clauses”, which require that one party (usually a creditor) only initiate proceedings in one jurisdiction, while the other party (usually a debtor) may initiate proceedings in other jurisdictions. other jurisdictions. As such, it is widely considered that asymmetric clauses are likely to fall outside the scope of the 2005 Hague Convention.

In this context, should an English court rule against a Swedish party in a dispute over a financial contract with an asymmetric jurisdiction clause – for example, concerning the right to accelerate a loan, the early termination of a swap or the amount of a claim – there is a risk that such a judgment cannot be enforced in Sweden if it has not been upheld by a Swedish court.

Arbitration procedure in financial disputes

Financial disputes are sometimes resolved by arbitration, and there is a broader trend towards greater acceptance of arbitration in the financial markets. In response, the ISDA and the Loan Markets Association have incorporated optional arbitration clauses into their standard documentation. Because Sweden has acceded to the New York Convention (without reservations),(6) when a dispute involving a financial contract with a Swedish party is resolved through arbitration carried out by an arbitral tribunal, it will generally be recognized and enforceable in Sweden.

Comment

Before Brexit, a judgment by an English court would be directly enforceable in Sweden without a new trial on the merits. Today, however, the recognition and applicability of such judgments in Sweden is not so certain.

In view of the current situation, when entering into a financial contract governed by English law with a Swedish party, the jurisdiction clause must be carefully considered by the contracting parties. While English courts should be preferred for disputes relating to such agreements, the 2005 Hague Convention is currently the only reciprocal enforcement legislation in force between Sweden and the United Kingdom. Therefore, to ensure that judgments related to such agreements are directly enforceable in Sweden, thus avoiding the risk of costly, lengthy and possibly inaccurate new trials, jurisdiction clauses should refer exclusively to courts or arbitral tribunals. from England.

For more information on this topic, please contact Andreas Malmberg at Wigge & Partners by phone (+46 (0) 72 062 60 86) or by e-mail ([email protected]). The Wigge & Partners website can be accessed at www.wiggepartners.se.

End Notes

(1) According to ISDA, “virtually all” ISDA framework agreements entered into by counterparties based in the EU or the European Economic Area are governed by English law. For more information see here.

(2) Regulation (EC) No. 593/2008 of the European Parliament and of the Council of June 17, 2008 on the law applicable to contractual obligations.

(3) Regulation (EU) No 1215/2012 of the European Parliament and of the Council on jurisdiction, recognition and enforcement of judgments in civil and commercial matters.

(4) The Lugano Convention of 2007 on the recognition of judgments in civil and commercial matters.

(5) Current Contracting States currently include the EU Member States, Israel, Mexico, Montenegro, Singapore and the United Kingdom.

(6) The Convention on the Recognition and Enforcement of Foreign Arbitral Awards.


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