Expanding the Scope of Article 31(2) Brussels Recast to Asymmetric Jurisdiction Clauses: Etihad Airways v. Flother

Introduction

The case of Etihad Airways PJSC v. Flother ([2020] EWCA Civ 1707) presents a pivotal moment in the interpretation of the Brussels Recast Regulation, particularly concerning the application of Article 31(2) to asymmetric jurisdiction clauses. This case marks the first time the England and Wales Court of Appeal Civil Division addressed whether Article 31(2), as enacted by Regulation (EU) No 1215/2012, applies to jurisdiction agreements that are asymmetric in nature.

Parties Involved:

Etihad Airways PJSC (Etihad): The claimant and appellant, serving as the lender and insolvency administrator of Air Berlin.
Air Berlin PLC (Air Berlin): The respondent and borrower, which faced severe financial difficulties leading to insolvency proceedings.
Professor Dr. Lucas Flother: The insolvency administrator of Air Berlin, acting as the defendant and appellant.

Summary of the Judgment

The Court of Appeal upheld the initial decision that Article 31(2) of the Brussels Recast Regulation applies to asymmetric jurisdiction clauses. The judgment dismissed Air Berlin's appeal, affirming that the exclusive jurisdiction agreement within the Facility Agreement is subject to Article 31(2), thereby prioritizing the English courts' jurisdiction as agreed by Etihad.

Analysis

Precedents Cited

The judgment extensively referenced several key precedents to establish the court's reasoning:

Erich Gasser GmbH v MISAT Srl [2005] QB 1: A CJEU decision that initially allowed an "Italian torpedo" tactic, where proceedings could be initiated in a non-designated court to delay resolution in the agreed forum.
Commerzbank AG v Liquimar Tankers Management Inc [2017] EWHC 161 (Comm): A High Court case that supported the application of Article 31(2) to asymmetric clauses.
Nikolaus Meeth v Glacetal [1979] 1 CMLR 520: A German case emphasizing party autonomy in jurisdiction agreements.
Codere SA v Perella Weinberg Partners and Others (2016): A Spanish case where the court applied Article 31(2) to an asymmetric jurisdiction clause, relying on academic interpretations.

Legal Reasoning

The court's legal reasoning centered on interpreting Article 31(2) of the Brussels Recast Regulation within the framework of party autonomy and the regulation's objectives. The key points of the reasoning include:

Article 31(2) Application: The court determined that Article 31(2) is not merely an exception but holds priority over Article 29(1), ensuring that exclusive jurisdiction agreements are respected.
Asymmetric Jurisdiction Clauses: Such clauses, where only one party is bound to litigate in a specified jurisdiction (in this case, England), fall within the scope of Article 31(2), contrary to arguments suggesting otherwise.
Party Autonomy: Emphasizing the importance of respecting the parties' agreed terms in jurisdiction clauses, the court upheld their exclusivity to enhance legal certainty and prevent abusive litigation tactics.
Reversal of Gasser: The court acknowledged that Article 31(2) was designed to counteract the "Italian torpedo" problem identified in the Gasser case, thereby reinforcing the efficiency of choice of court agreements.
Hague 2005 Convention: While addressing arguments related to the Hague Convention, the court concluded that Brussels Recast operates independently, and Article 31(2) should be interpreted based on its own merits and objectives.

Impact

The judgment has significant implications for future cross-border commercial disputes and jurisdiction agreements:

Strengthening Exclusive Jurisdiction: Businesses can confidently include asymmetric jurisdiction clauses in their agreements, knowing that such clauses are enforceable under Brussels Recast.
Preventing Abusive Litigation: The decision mitigates tactics like the "Italian torpedo," fostering faster and more predictable dispute resolution in the agreed forum.
Legal Certainty: Enhances uniformity and predictability in international contracts by upholding parties' autonomy in choosing their jurisdiction.
Alignment with EU Law: Ensures that jurisdiction clauses are interpreted consistently within the EU's regulatory framework, even post-Brexit.

Complex Concepts Simplified

Asymmetric Jurisdiction Clauses

An asymmetric jurisdiction clause is a provision in a contract where only one party agrees to litigate in a specified forum, while the other party retains the freedom to choose among multiple jurisdictions. In this case, Air Berlin was bound to litigate exclusively in England, whereas Etihad could initiate proceedings in any jurisdiction.

Article 31(2) Brussels Recast

Article 31(2) of the Brussels Recast Regulation establishes that when an exclusive jurisdiction agreement exists, courts of other Member States must stay proceedings until the jurisdiction of the agreed court is confirmed. This rule supersedes the general principle of first seised (the court first hearing the case has priority), ensuring that exclusive jurisdiction clauses effectively control where disputes are settled.

Lis Pendens

Lis pendens refers to the situation where the same cause of action is brought in two different courts simultaneously. The Brussels Recast introduces rules to manage such conflicts, primarily prioritizing the court designated by an exclusive jurisdiction agreement.

Conclusion

The Etihad Airways PJSC v. Flother judgment firmly establishes that Article 31(2) of the Brussels Recast Regulation applies to asymmetric jurisdiction clauses. By doing so, it upholds the sanctity of exclusive jurisdiction agreements even when they are unilateral, thereby reinforcing the principle of party autonomy in international commercial contracts. This decision not only reverses the problematic precedent set by the Gasser case but also aligns with broader EU objectives to facilitate efficient and predictable cross-border dispute resolution.

Legal practitioners and businesses operating within the EU and beyond can draw confidence from this ruling, knowing that carefully crafted jurisdiction clauses will be respected and enforced. Additionally, the judgment mitigates the risk of delayed litigation through concurrent proceedings in different jurisdictions, fostering a more streamlined and effective legal process for resolving commercial disputes.