1. The Three Stages

Every banking conflict goes through:

Stage 1: Jurisdiction - Where to sue?
Governed by Brussels I Recast Regulation (EU) No 1215/2012, Lugano Convention, or common law forum non conveniens.
In India: Sec 20 CPC + Private International Law

Stage 2: Choice of Law - What law governs?
Governed by Rome I Regulation (EC 593/2008) for contracts, Rome II for tort, or Hague Principles.
Banks almost always insert: "This Agreement shall be governed by English law / New York law"

Stage 3: Enforcement - Will judgment be enforced?
Under Brussels I, Lugano, or New York Convention for arbitration.

2. Core Banking Conflicts

A. Loan Agreement - Borrower in India, Lender in London: Loan says English law, but borrower assets in India. Can Indian court apply English law?

B. ISDA Master Agreement: Standard clause: English law or NY law. But local insolvency (IBC) may override netting.

C. Letter of Credit / Bank Guarantee: Issuing bank in one country, confirming bank in another, beneficiary in third. Which law governs independence principle?

D. Guarantee / SBLC: Guarantee governed by different law than underlying loan.

E. Consumer vs Bank: MiFID disclosure - local mandatory consumer protection overrides chosen law?

3. Legal Framework

EU/UK:

• Rome I Art 3: Freedom to choose law. Choice must be express.
• Rome I Art 4: Absent choice, bank loan governed by law of habitual residence of lender (characteristic performance)
• Rome I Art 9: Overriding mandatory provisions - e.g., Indian exchange control FEMA, Spanish consumer protection, can override English law
• Brussels I Art 25: Exclusive jurisdiction clauses - e.g., "Courts of England have exclusive jurisdiction" - are valid.

India:

• National Thermal Power Corp v. Singer Company (1992) 3 SCC 551: Supreme Court held parties can choose foreign law, but Indian mandatory law (FEMA, Public Policy) still applies. Choice of foreign law cannot violate Indian public policy.
• Shin-Etsu Chemical v. Aksh Optifibre (2005) 7 SCC 234: Arbitration clause with foreign law is valid.

4. Landmark Case Laws

A. JURISDICTION CLAUSES - ENGLISH COURTS

1. The Maharanee of Baroda v. Wildenstein - Jurisdiction Battle
Classic. But modern lead:

2. Deutsche Bank AG v. Sebastian Holdings Inc EWHC 2012 & EWCA
Deutsche Bank (English) vs Norwegian investor. ISDA governed by English law with English jurisdiction. Investor sued in Norway. English Court of Appeal granted anti-suit injunction - restraining Norwegian proceedings. Principle: Exclusive English jurisdiction clause in ISDA must be respected. Banking standard.[2009][2010]

3. BNP Paribas SA v. Anchorage Capital Europe EWHC 3073
Borrower tried to sue bank in France despite English jurisdiction clause in loan. High Court held: Under Brussels I Art 25, exclusive jurisdiction clause prevails. French action stayed.[2013]

4. Vedanta Resources v. Lungowe & Owusu v. Jackson - Forum Non Conveniens in Banking
Supreme Court UK 2019: Even with English jurisdiction clause, if substantial justice cannot be done in foreign forum (Zambia/India), English court can assume jurisdiction. Important for banking fraud cases where borrowers allege bank mis-selling in developing country.

B. CHOICE OF LAW - WHICH LAW APPLIES TO BANKING CONTRACT?

5. National Thermal Power Corporation v. Singer Company, (1992) 3 SCC 551 - Indian Supreme Court - The Foundation
NTPC (India) vs Singer (USA) - Contract said ICC arbitration, foreign law. SC held: Parties autonomy to choose foreign law is valid under Indian law, but two limits:

• Choice must be bona fide
• Cannot circumvent Indian mandatory laws like FEMA, Indian Contract Act public policy
  This is still the law for all Indian bank foreign loan disputes.

6. Rajah of Vizianagaram v. Official Assignee - Privy Council
Early case: Promissory note executed in India, payable in London - governed by lex loci contractus vs lex loci solutionis.

7. Standard Chartered Bank v. Pakistan National Shipping Corp (No.2) UKHL 43 - Letter of Credit Conflict
LC issued by Pakistani bank, confirmed by English bank, governed by UCP 500. Which law governs fraud exception? House of Lords held: English law governs confirmation as separate contract, but fraud is governed by law of place where LC issued? Created split. Modern rule: UCP applies as trade usage overriding choice of law.[2002]

8. Taurus Petroleum Ltd v. State Oil Marketing Company of Iraq UKSC 64 - Letters of Credit & Conflict
Supreme Court UK: LC is autonomous from underlying contract. Even if underlying contract governed by Iraqi law and illegal, LC governed by English law must still be paid. Confirms independence principle survives conflict of laws.[2017]

C. ISDA & DERIVATIVES - THE BIGGEST CONFLICT AREA

9. Lomas v. JFB Firth Rixson Inc EWHC 3372 & EWCA Civ 419 - The ISDA Bible
Court had to decide: What happens to ISDA under English law when counterparty enters US Chapter 11? US Bankruptcy Code prohibits termination. English law allows close-out.
Court of Appeal held: Under Rome I and ISDA, English law governs close-out rights, but US mandatory insolvency law can override as overriding mandatory provision (Art 9 Rome I). This case created doctrine: Flawed Asset vs Close-out.[2010][2012]

10. In re Lehman Brothers International (Europe) - Waterfall Cases UKSC,
Lehman London had $2bn surplus after paying creditors. Dispute: Should interest be paid under English law or NY law? Lehman had ISDA under English law and NY law. Supreme Court had to apply conflict rules to decide which law governs post-insolvency interest. Held: English insolvency law governs administration, but contractual interest governed by chosen law.[2016][2017]

11. BCCI (Overseas) v. Jan (1992) - Bank Insolvency Conflict
BCCI collapsed - assets in Luxembourg, Cayman, England. Which law governs set-off in insolvency? Privy Council held: Law of place of incorporation (lex incorporationis) governs insolvency set-off, not law of loan.

Indian application: In ICICI Bank Ltd v. SIDCO Leathers Ltd. (2006) 10 SCC 452 SC applied similar - bank's charge governed by law where charge created.

D. GUARANTEE CONFLICT - LAW OF GUARANTEE vs LAW OF LOAN

12. Dicey Rule - Bank of Baroda v. Vysya Bank Ltd
Guarantee governed by Indian law, underlying loan governed by English law. Guarantor argued English law discharge. Indian courts held: Guarantee is independent - governed by its own chosen law, not underlying debt law.

Leading English case: VTB Capital plc v. Nutritek International Corp UKSC 5
VTB (English bank) lent under English law to Russian company, guarantee by Russian individual under Russian law. Which law governs veil piercing? Supreme Court held: Law governing guarantee (Russian) governs liability of guarantor, not law of loan.[2013]

13. Starlight Shipping Co v. Allianz Marine - Swiss Law vs English Law Guarantee
Court held overriding mandatory provision of Swiss banking secrecy cannot override English law guarantee obligation to pay.

E. CONSUMER BANKING - MANDATORY OVERRIDE

14. CJEU C-26/13 Kásler v. OTP Jelzálogbank - Hungarian Foreign Currency Loans
Hungarian borrowers took CHF loans governed by Hungarian law but linked to Swiss rate. Bank chose Hungarian law. CJEU held: Despite choice of law, Directive 93/13 on unfair terms is overriding mandatory EU law - national court must assess fairness under local consumer law even if contract says foreign law.

Spanish parallel: CJEU C-125/18 IRPH Cases - Spanish banks used own index, governed by Spanish law, but CJEU said transparency control mandatory overrides.

15. Indian Case: SBI v. B. S. Agricultural Industries (2009) 5 SCC 121
NRI loan - Agreement said Singapore law. Borrower in India. Consumer Forum held: Under Consumer Protection Act 1986 (now 2019), Indian consumer jurisdiction is overriding mandatory - cannot be ousted by foreign law clause.

5. Current Principles Summarized

Principle 1: Party Autonomy is King in Banking
Banks can choose English or NY law, and courts will enforce under Rome I Art 3 and NTPC v. Singer. ISDA 2006 Master - English/NY choice is sacrosanct.

Principle 2: But Mandatory Law Overrides
Three exceptions where chosen law fails:

• FEMA / Exchange Control (India): Loan governed by English law but disbursement in India requires RBI approval - Indian law overrides.
• Insolvency: IBC Sec 14 moratorium overrides English law close-out (see Lomas)
• Consumer Protection: Under Rome I Art 6 and Indian CPA, consumer cannot lose protection of his home law.

Principle 3: Jurisdiction Clause Must be Exclusive and Clear
"Banks: Always draft: "Courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including non-contractual)." Under Brussels I Recast Art 25, this will be enforced.

Principle 4: LC/Guarantee Independence Survives Conflict
Even if underlying loan illegal under its governing law, LC governed by different law must be paid - Taurus v. SOMO.

6. Drafting Checklist for Banks

To avoid conflict:

1. Choice of law: "This Agreement and any non-contractual obligations arising out of or in connection with it shall be governed by English law"
2. Jurisdiction: Exclusive, with waiver of forum non conveniens
3. Include: "Mandatory provisions of borrower's jurisdiction to extent they are overriding under Rome I Art 9 are preserved"
4. For India: Add RBI FEMA compliance clause