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Asymmetric jurisdiction clauses and multiple related agreements

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Nettleton Sophie
Sophie Nettleton

Senior Associate

London

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25 February 2020

Disputes arising under a side letter fell within the scope of the jurisdiction clause in a separate but related loan agreement.  The asymmetric clause in the loan agreement was exclusive for the purposes of the anti-torpedo rule of the Recast Brussels Regulation (the Brussels Recast),1 so the court refused to stay the English proceedings despite the fact that they post-dated earlier proceedings in Germany.  This decision will be of interest to lenders and other parties who enter into multiple related agreements and rely on asymmetric clauses to maximise their enforcement rights: Etihad Airways PJSC v Flother [2019] EWHC 3107 (Comm).

The proceedings arose out of a dispute between Etihad Airways PJSC (Etihad) and the insolvency administrator of Air Berlin (the Insolvency Administrator).  In 2016, following years of financial difficulties, Air Berlin began working with Etihad (as shareholder) on a restructuring package.  In April 2017, Etihad agreed to lend EUR350 million to Air Berlin under a Facility Agreement containing an asymmetric jurisdiction clause which provided that the English courts had exclusive jurisdiction to settle any disputes arising out of or in connection with it, but that Etihad was not “prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction” (the Jurisdiction Clause).  On the same day, the parties also signed a Comfort Letter which did not contain a jurisdiction clause. 

Air Berlin ceased trading six months later and the Insolvency Administrator began proceedings in Germany (the German Proceedings) against Etihad under the Comfort Letter.  Etihad later issued a claim in the English court (the English Proceedings) for declarations that, among other things, the claims made in the German Proceedings were subject to the exclusive jurisdiction of the English court because they were within the scope of the jurisdiction clause in the Facility Agreement.  

Scope of a jurisdiction clause – application beyond Facility Agreement

The question for the court was whether Etihad had a good arguable case that the parties’ intention (as revealed by the agreements reached between them) was that a dispute under the Comfort Letter fell within the Jurisdiction Clause. In ascertaining the parties’ intention, the court considered the closeness of connection between the Comfort Letter and the Facility Agreement. The judge confirmed that the starting assumption in Fiona Trust2 (that the parties, as rational businessmen, are likely to have intended any disputes arising out of their relationship to be decided by the same tribunal) is potentially applicable to multiple contract scenarios where there is an "overall agreement package" and the related contracts contain no competing jurisdiction clause.

On the facts, Jacobs J found that the parties intended disputes arising in relation to the Comfort Letter to fall within the scope of the Jurisdiction Clause:  

  • The Jurisdiction Clause was very wide, covering contractual and non-contractual disputes arising out of or in connection with the Facility Agreement.  
  • Both the Comfort Letter and the Facility Agreement were part of an overall “support package” provided by Etihad to Air Berlin. 
  • The two agreements were very closely connected. 
  • Etihad had a good arguable case that the Comfort Letter did not create legally binding obligations and was not therefore the basis for a separate contractual relationship between the parties, as contended by Air Berlin.  The Comfort Letter was properly viewed as an ancillary document, linked to the Facility Agreement. 
  • The other agreements in the support package did not contain “competing jurisdiction clauses”; they also contained English law and jurisdiction clauses. 
  • It was reasonably foreseeable that the resolution of a dispute under the Facility Agreement might require the court to determine the effect of the Comfort Letter and vice versa (echoing the comments of Hope LJ in Fiona Trust that “one should be slow to attribute to reasonable parties an intention that there should in any foreseeable eventuality be two sets of proceedings”).3

A “particular legal relationship”

Etihad also needed to satisfy the court that the disputes in the German Proceedings arose “in connection with a particular legal relationship” in accordance with Article 25 of the Brussels Recast.  Air Berlin contended that the claims in Germany fell under the “Comfort Letter relationship”, rather than the lender/borrower relationship covered by the Jurisdiction Clause in the Facility Agreement.  Applying Powell Duffryn4, Jacobs J clarified that it was necessary for the Court to adopt a two-stage process: 

  1. first, to identify, “by reference to the facts of the case as a whole, […] the legal relationship between the parties in connection with which the jurisdiction agreement was concluded”; and
  2. secondly, to consider “whether the dispute originates from that legal relationship or a different one”. 

Jacobs J found that the dispute originated in the lender/borrower relationship; it was “unrealistic for Air Berlin to contend that the dispute relating to the Comfort Letter originated in a relationship other than” the lender/borrower relationship.

Asymmetric jurisdiction clauses – ability to continue to hear proceedings as second seised court

Article 31(2) Brussels Recast permits a second seised court (the English court in this case) to continue with proceedings where it has been chosen in an “exclusive” jurisdiction clause (in other circumstances the court second seised is required to stay its proceedings while the first seised court determines whether it has jurisdiction).  The key question in dispute, therefore, was whether the Jurisdiction Clause conferred exclusive jurisdiction on the English court. 

Air Berlin contended that the Jurisdiction Clause, when read as a whole, did not give the English courts complete exclusivity. Jacobs J concluded that the Jurisdiction Clause conferred exclusive jurisdiction on the English courts for the purposes of Article 31.  In particular, Jacobs J:

  • stated that there could be “no doubt” that Air Berlin had agreed “upon the exclusive jurisdiction of the English courts in respect of any proceedings which they commence against Etihad”.  Air Berlin therefore had an “obligation” not to sue in other jurisdictions; 
  • relied on ECJ case law in support of the view that not all disputes from a particular legal relationship need to be submitted to the same court for a jurisdiction agreement to be exclusive, nor does the exclusivity need to be reciprocal; and
  • noted that allowing Etihad to rely on an asymmetric clause as conferring exclusive jurisdiction for these purposes was consistent with academic writing and case law which confirms that this approach reflects the aims of the Brussels Recast and in particular the need expressed in Recital 22 to “enhance the effectiveness of exclusive choice-of-court agreements and to avoid abusive litigation tactics”.   

Comment

At a practical level, including jurisdiction provisions in all agreements will mitigate the risk of counterparties seeking to rely on the absence of express wording to muddy the waters as to what has been agreed. This decision is a salutary reminder of the jurisdiction complications which can and do arise between parties who have entered into a number of related contracts, often against a background of time pressure and financial distress. The lengthy judgment demonstrates that disputes about the scope of jurisdiction clauses still provide fertile ground for argument.   

The approach of the English court should provide comfort to parties that commonly rely on “asymmetric” jurisdiction clauses in order to maximise their enforcement options against counterparties. An asymmetric jurisdiction agreement allows one party (normally a lender) to litigate anywhere, whilst the other party (normally a borrower) is restricted to bringing proceedings in one jurisdiction only (in this case Air Berlin was restricted to suing in England). Jacobs J was emphatic in his classification of an asymmetric jurisdiction clause as exclusive (for the lender's benefit) for the purposes of Article 31(2) of the Brussels Recast.  This means that the tactic, commonly used by borrowers, of commencing proceedings in a slow moving Member State court in breach of an asymmetric jurisdiction agreement, is unlikely to be so attractive as it will not delay proceedings in the English court if it has been chosen by the parties in an asymmetric jurisdiction agreement.  The decision is consistent with previous case law. Air Berlin has been granted permission to appeal the decision, with a hearing expected in November 2020.

Footnotes:

  1. Regulation (EU) 1215/2012 of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast).
  2. Fiona Trust & Holding Corp v Privalov [2007] UKHL 40.
  3. [2007] UKHL 40 at [28].
  4. Powell Duffryn v Petereit [1992] ECR I-1745.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  If you wish to receive this publication, please contact Amy Edwards, amy.edwards@allenovery.com.