Court of Appeal provides guidance on the resolution of competing dispute resolution clauses

In Airbus S.A.S. v Generali Italia S.P.A. and Ors [2019] EWCA Civ 805, the Court of Appeal upheld a declaration that the English court had jurisdiction to determine a subrogated claim brought by insurers concerning damage to an aircraft, pursuant to an exclusive English jurisdiction clause in a warranties agreement between an aircraft manufacturer and an aircraft operator. The Court of Appeal was required to determine, in circumstances where there were related contacts, which of the different dispute resolution clauses prevailed.

Background

An aircraft manufactured by Airbus and operated by Alitalia, sustained damage when landing in Rome (the Aircraft). The Defendant Insurers indemnified Alitalia for over US$11 million for losses suffered in respect of damage to the Aircraft. Insurers then commenced a subrogated claim against the manufacturer, Airbus, in the Italian courts.

Airbus brought proceedings in the English courts seeking declarations that it had no liability to the Insurers and that commencing a claim in the Italian courts was contrary to the terms of an exclusive English jurisdiction clause contained in a Warranties Agreement between Airbus and Alitalia. Insurers argued that that exclusive jurisdiction clause was of limited scope and that the claim for a negative declaration fell within an arbitration clause in a different agreement, a Purchase Agreement.

The two agreements can be summarised as follows:

• Purchase Agreement: it was under the Purchase Agreement that Airbus originally agreed to sell a number of aircraft to an airline operator, including the Aircraft that ultimately became the subject of the relevant proceedings. The Purchase Agreement contained various warranties (the Warranties) to be given by Airbus on delivery of the aircraft. The Purchase Agreement contained a dispute resolution clause that provided for International Chamber of Commerce arbitration with a seat in Geneva.

The rights of the airline operator, the counter-party to the Purchase Agreement, were subsequently assigned to a third party and then sold and leased back to another. Ultimately, Alitalia became a sub-lessee of the Aircraft.

• Warranties Agreement: this was an agreement between, among others, Airbus (as manufacturer), and Alitalia (as sub-lessee). In brief, the Warranties Agreement provided that Alitalia would have the exclusive benefit of and would be entitled to exercise all rights in respect of the Warranties and the Purchase Agreement would apply to any exercise of Alitalia's rights in respect of the Warranties. The Warranties Agreement contained an exclusive jurisdiction clause in favour of the English courts.

At first instance, Moulder J in the Commercial Court granted a declaration that the English court had jurisdiction to determine the claim, and that the Italian proceedings were in breach of the exclusive jurisdiction clause under the Warranties Agreement. The Insurers appealed the decision.

Decision

The Court of Appeal determined three issues on appeal, applying the "good arguable case" standard of proof in determining whether the English court had jurisdiction under the Brussels Recast Regulation.

What is the true construction of the jurisdiction clause in the Warranties Agreement? In particular, does it extend to the substantive claim under the warranties?

The Insurers argued for a narrow construction of the jurisdiction clause in the Warranties Agreement, submitting that it only extended to disputes about which party has the benefit of the warranties and related issues such as the validity of the Warranties Agreement. It did not extend to the negligence issues raised in the Italian proceedings.

The Court of Appeal held that, as a general rule, where parties have entered into a number of agreements with different dispute resolution clauses, a broad and purposive construction must be adopted when construing a jurisdiction clause.  The Court of Appeal also found that it is generally to be assumed that parties to an arrangement set out in multiple related agreements do not generally intend a dispute to be litigated in two different tribunals.

The Court of Appeal ultimately held that the exclusive jurisdiction clause in the Warranties Agreement applied to the present dispute. This decision was influenced by the following factors:

• The Warranties Agreement was the only contract to which all those parties who were or might become interested in the warranties were parties. This was not a case in which there were a number of different dispute resolution clauses in contracts between the same parties.
• Alitalia's right to enforce the Warranties did not depend on the assignment of the Purchase Agreement, but arose directly under the Warranties Agreement itself. Therefore, the assignment of the Purchase Agreement was held to be a "stepping stone" in the contractual structure, and superseded by the Warranties Agreement.
• The terms of the jurisdiction clause in the Warranties Agreement are extremely wide, extending to any dispute "in connection with…any non-contractual obligations connected with" the Warranties Agreement.
• In the Court's judgment, it was highly likely that if the parties had intended the arbitration clause in the Purchase Agreement to apply to warranty claims despite the existence of the jurisdiction clause in wide terms in the Warranties Agreement, this professionally drafted contract would have said so.

The Insurers argued that the Italian proceedings were outside the scope of the Warranties Agreement exclusive jurisdiction clause, as the proceedings are not a warranties claim, but a claim arising under the Italian law of negligence.

The Court of Appeal disagreed, finding that the Italian proceedings were sufficiently connected to the Warranties Agreement to be within scope of the jurisdiction clause, and that the commencement of those proceedings was contrary to the terms of that clause. As a result, the Court of Appeal upheld the decision of Moulder J that the English court had jurisdiction to determine the claim.

If so, can the English court make a declaration to that effect against the Insurers in circumstances where they were not parties to and do not found their claim in the Warranties Agreement or Purchase Agreement?

The Insurers argued that they were not themselves parties to the Warranties Agreement and were not seeking to take the benefit of the contract therefore, they were not subject to its burdens.

Even though the Insurers were not party to either the Warranties Agreement or Purchase Agreement, the Court of Appeal held that they were bound by the Warranties Agreement in the same way that Alitalia would have been. The Court expressed its position as follows:

• Insurers exercising rights of subrogation to make a non-contractual claim are bound by an English arbitration or jurisdiction clause to the same extent as the insured would have been.
• Whereas the commencement and pursuit of proceedings contrary to the terms of an arbitration or jurisdiction clause by the insured would constitute a breach of contract, the commencement and pursuit of such proceedings by insurers constitutes a breach, not of the contract but of an equivalent equitable obligation which the English court will protect.
• The remedies available in such a case include the grant of a declaration in an appropriate case (an anti-suit injunction not being available against an EU defendant since the well-known decision in West Tankers Inc v RAS Riunione Adriatica di Sicurta SpA [2007] UKHL 4).

Comment

This case highlights the difficulties where related contracts, each with overlapping but not identical parties, contain different dispute resolution clauses. It is therefore important that, where competing jurisdiction clauses could be triggered by a claim under two or more overlapping contracts, the drafting of the contract(s) clearly identifies which clause is to prevail.