Commercial Court finds asymmetric jurisdiction clause is exclusive jurisdiction clause for purposes of recast Brussels Regulation

The Commercial Court has held that an asymmetric or unilateral jurisdiction clause is an exclusive jurisdiction clause within article 31(2) of the recast Brussels Regulation. The English court was therefore entitled to continue with its proceedings where it was the chosen court but proceedings had been commenced earlier in Germany: Etihad Airways PJSC v Prof Dr Lucas Flother [2019] EWHC 3107 (Comm).

In doing so, the court followed earlier cases, in particular the Commercial Court decision in Commerzbank Aktengesellschaft v Liquimar Tankers Management [2017] EWHC 161 (Comm) (see our post here). It observed, however, that even if there had been no prior authority, it would have had no difficulty in reaching the same conclusion.

Article 31(2) was a new provision in the recast Brussels Regulation, which took effect in January 2015. It was designed to defuse the so-called Italian Torpedo, whereby a counterparty could delay a resolution in the chosen court by racing to commence proceedings first in some other EU state, and the chosen court would then have to stay any proceedings under the "first seised" rule. Under article 31(2), the court chosen under an exclusive jurisdiction clause takes priority. There has however been some uncertainty as to whether an asymmetric clause (which requires one party to sue in the chosen jurisdiction but gives the other greater flexibility) falls within article 31(2).

The present decision will give comfort to parties who have the benefit of an asymmetric jurisdiction clause, as it suggests they will not be susceptible to the Italian Torpedo tactic. However, as the decision is first instance, it may not be the last word on the subject – particularly as the Court of Appeal gave permission to appeal in the Commerzbank case. It is also worth noting that after Brexit (and depending on what is agreed during any transition period) the Italian Torpedo will not be relevant to the English courts in any event, as the Brussels regime will no longer apply.

Background

The case concerned the effect of a comfort letter given by Etihad to Air Berlin, now in insolvency. Proceedings were commenced by Air Berlin's Insolvency Administrator in Germany, claiming the letter was legally binding and had been breached, alternatively asserting a pre-contractual claim arising out of the negotiations leading up to the letter.

The comfort letter contained no jurisdiction clause but the court (Jacobs J) held that the parties intended disputes under it to fall within the jurisdiction clause in a facility agreement between Etihad and Air Berlin. This was based on a number of considerations, including that the letter was part of an overall package of agreements between the parties, all of which contained English jurisdiction and choice of law clauses. There was also a good arguable case that the dispute concerning the comfort letter arose from the relationship of lender/borrower and that the jurisdiction agreement was concluded in connection with that legal relationship.

Having lost on those issues, Air Berlin went on to argue that, as the jurisdiction clause in the facility agreement was an asymmetric clause, article 31(2) did not apply and priority therefore had to be given to the German proceedings which were first in time.

Decision

The court considered it was important to look at the agreement the parties had reached and identify the relevant obligation. In an asymmetric clause, one party promises not to sue other than in the chosen jurisdiction and the fact that the other party has a choice of where to sue is irrelevant. As Louise Merrett put it in her article in the ICLQ (2018 67(1) ICLQ 37):

"In an asymmetric agreement, the borrower has promised not to sue anywhere other than the chosen jurisdiction. The question of whether the other party did or did not agree to do the same does not arise when the bank is seeking to enforce the agreement and should be irrelevant….Each different obligation necessarily falls to be considered separately and the fact that the bank is not under a similar obligation is neither here nor there."

That approach was consistent with the decision in Nikolaus Meeth v Glacetal Sarl [1979] I CMLR 520, where a clause giving exclusive jurisdiction to the German courts if Glacetal sued Meeth and the French courts if Meeth sued Glacetal was considered effective by the CJEU. That decision recognised the ability of parties to divide up their disputes into two or more groups, even if they arose from the same contract, as well as the importance of party autonomy.

Article 31(2) had been introduced to reverse the Italian Torpedo and the effect of the decision in Erich Gasser GmbH v MISAT Srl (Case C – 116/02). In that case the Austrian court was the designated court in an exclusive jurisdiction agreement. Proceedings were, however, commenced first in Italy by the Italian party. Proceedings in Austria were then commenced by the Austrian party. The CJEU held that the Austrian court had to await the decision of the Italian court as to whether it had jurisdiction and, if it did, decline jurisdiction in its favour.

Article 31(2) now permits the chosen court to continue with its proceedings, even if it is second seised, and the non-chosen court is under an obligation to stay. The court observed that if article 31(2) did not apply to asymmetric clauses Italian Torpedoes would remain effective, and there was no logical reason for this.

So far as academic commentary was concerned, commentary from before and after the Commerzbank decision supported the view that asymmetric jurisdiction clauses were within article 31(2). Only two commentaries prior to Commerzbank expressed a contrary view, and then only tentatively.

Air Berlin also sought to rely on an argument that asymmetric clauses were not exclusive jurisdiction clauses for the purposes of the Hague Convention on Choice of Courts Convention 2005. The court considered even if that were the case, it did not mean the same was true for the purposes of the recast Brussels Regulation. In any event, it considered there were good arguments that asymmetric clauses were within Hague.

The court did not consider it appropriate to refer the issue to the CJEU, having reached a clear view on the issue, which was consistent with other decisions, as well as a body of academic writing.