Court of Appeal finds asymmetric clauses are exclusive jurisdiction clauses for purposes of recast Brussels Regulation and considers nature of such clauses under Hague Convention 2005

The Court of Appeal has held that an asymmetric jurisdiction clause is an exclusive jurisdiction clause for the purposes 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 Lucas Flother [2020] EWCA Civ 1707.

This decision will only be of direct relevance in respect of proceedings commenced before the end of this year as the recast Regulation will otherwise cease to apply when the Brexit transition period ends on 31 December. This is the case even if the UK accedes to the Lugano Convention 2007, as there are no similar provisions within Lugano giving priority to an exclusive jurisdiction clause where the proceedings in the chosen court are second in time.

Of more interest and ongoing relevance are the court's comments concerning whether an asymmetric clause is an exclusive jurisdiction clause for the purposes of the 2005 Hague Convention on Choice of Court Agreements, as this Convention will apply post-Brexit to proceedings between the UK and the EU (assuming no Lugano). The Commercial Court has observed on two occasions that it considered there were good arguments for asymmetric clauses being within the Hague Convention (Cranston J in Commerzbank: see our post here and Jacobs J at first instance in this case: see our post here). The Court of Appeal’s view, however, was that there were strong indications that the intention was to exclude asymmetric clauses from Hague. This could be seen from the explanatory report of Professors Hartley and Dogauchi on the Convention and in the rejection of an amendment expressly to include asymmetric clauses in the Convention's definition of an exclusive jurisdiction clause. But the Court of Appeal did not need to decide the point and did not do so.

It is worth noting that whatever view the English court takes concerning such clauses, the most important question from a UK perspective will be what stance an EU court takes on this question, ie whether it will stay proceedings and enforce judgments under the Hague Convention where there is an asymmetric clause which restricts one of the parties to bringing proceedings in England. While under article 23 of Hague, courts must have regard to the Convention's international nature and the need to promote uniformity in its application, English judgments will not be binding on foreign courts.

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. Some six months later, Etihad began the present proceedings in the English court seeking declaratory relief.

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. Permission to appeal on this issue was refused.

Under both the recast Brussels Regulation and the Lugano Convention, where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member (or Contracting) States, any court other than the court first seised must stay its proceedings until the jurisdiction of the court first seised is established (the "first seised rule"). However, recast Brussels (unlike Lugano) contains an exception, at article 31(2), where there is an exclusive jurisdiction agreement in favour of the second seised court: in those circumstances the order of priority is reversed, and the first seised court must stay its proceedings unless and until the chosen court declares that it has no jurisdiction under the agreement.

In the present case, Air Berlin argued that, as the jurisdiction clause in the facility agreement was an asymmetric clause (which gave the English courts exclusive jurisdiction over claims brought by Air Berlin, but allowed Etihad a choice of where to sue), article 31(2) did not apply and priority therefore had to be given to the German proceedings which were first in time.

Jacobs J rejected this argument and Air Berlin appealed with the judge’s permission. Before the appeal was heard, the German court stayed its proceedings under article 31(2) until the English court had determined its jurisdiction. The German court’s decision was being appealed to the German Federal Court of Justice.

Decision

The Court of Appeal (Lord Justice Henderson giving the main judgment, with which Hickinbottom and Newey LJJ agreed) dismissed the appeal, holding that an asymmetric clause is an exclusive jurisdiction clause for the purposes of the recast Brussels Regulation.

The court rejected the argument that article 31(2) was an exception from the first seised rule in article 29 and should therefore be given a narrow interpretation. Article 31(2) was expressly accorded priority over article 29. Moreover, if asymmetric clauses were excluded then the path was open to the type of abusive litigation (torpedo actions) that article 31(2) was introduced to counter.

So far as the 2005 Hague Convention is concerned, Air Berlin argued that Hague and recast Brussels operated in the same sphere and were designed to be interpreted with the maximum alignment. Accordingly, article 31(2) should be interpreted in conformity with Hague and as, it argued, Hague excluded asymmetric clauses from its scope, so should recast Brussels.

The Court of Appeal referred to the views expressed obiter by the Commercial Court that there were good arguments that the definition of exclusive jurisdiction agreements in Hague included asymmetric clauses.

The court said it was prepared however to proceed on the basis that the Hague Convention should probably be interpreted as not applying to asymmetric clauses (although it was unnecessary for the court to decide that question and it did not do so). A strong indication that this was the deliberate intention of the framers of the Convention was provided by the Explanatory Report of Professors Hartley and Dogauchi, which said (para 106):

‘It was agreed by the Diplomatic Session that, in order to be covered by the Convention, the agreement must be exclusive irrespective of the party bringing the proceedings. So agreements of the kind referred to in the previous paragraph [ie asymmetric agreements] are not exclusive choice of court agreements for the purposes of the Convention.’

Further support for this conclusion could be found in the Diplomatic Minutes of the Meeting of 15 June 2005 which showed that a proposal to amend the proposed definition of an "exclusive jurisdiction agreement" so as to make it clear that it included asymmetric jurisdiction agreements (by inserting the words "for some or all of the parties to the agreement") was debated but found no support and was then withdrawn.

Even if that was the position under Hague, however, the position under recast Brussels was different. The result might be that recast Brussels went further than Hague but that was not necessarily surprising. Hague dealt solely with jurisdiction agreements whereas recast Brussels contained a comprehensive system of allocation of jurisdiction which regularly resulted in the attribution of jurisdiction to the courts of more than one member state. Furthermore, recast Brussels extended on any view to non-exclusive jurisdiction agreements and Hague had no equivalent to the first seised rule in article 29. This was a significant point as article 31(2) operated as a modification of the first seised rule, which had no counterpart in Hague. Finally, recast Brussels did not refer explicitly to the Hague Convention nor did it contain any explicit requirement that the two instruments should be interpreted consistently. There is no incompatibility in any formal sense between the two instruments, because they contain provisions which ensure their scope is mutually exclusive.

The court considered it unnecessary to refer the issue to the CJEU, having reached a clear view which was consistent with court decisions in Spain, Greece and Germany.

Note: The Supreme Court refused an application for permission to appeal in this case on 15 February 2022.