Factual and Procedural Background
The Plaintiff, a manufacturer of an aircraft, seeks declarations that it is not liable to the Defendant insurers for losses arising from an incident on 29 September 2013, where an aircraft it manufactured was damaged during an emergency landing in Rome. The Plaintiff also claims that proceedings commenced by the Defendants in Italy are contrary to an exclusive English jurisdiction clause contained in a Warranties Agreement dated 8 July 2010, entered into among the Plaintiff, the Defendant's insured airline, and other parties. The Defendants, insurers of the airline, appealed a decision by Moulder J that the English court has jurisdiction over these claims.
The Defendants contend that the jurisdiction clause is limited in scope, does not cover the Plaintiff's claims, and that the claims fall instead within an arbitration clause in a separate Purchase Agreement. They also argue they cannot be in breach of a jurisdiction clause to which they were not parties and that the English court cannot make a declaration against them.
The aircraft was sold under a 2005 Purchase Agreement between the Plaintiff and an Italian company, with the airline operating the aircraft. The incident involved a defect in a landing gear actuator. The Defendants, Italian insurers, indemnified the airline for over US $11 million in damages and commenced proceedings in Italy claiming negligence under Italian law.
The Plaintiff commenced the current action in England seeking declarations of no liability and that the Italian proceedings breach the exclusive English jurisdiction clause. The Plaintiff also challenged the Italian court's jurisdiction and set out substantive defences, denying liability and relying on contractual exclusions. The judgment does not address the merits of the dispute.
The contractual background involves multiple agreements: a 2005 Purchase Agreement with ICC arbitration in Geneva; a 2008 Novation Agreement; a 2010 Purchase Agreement Assignment; a Sale and Leaseback Agreement; a Sub-Lease to the airline; and the 2010 Warranties Agreement containing the exclusive English jurisdiction clause at issue. The Warranties Agreement granted warranty rights to the airline and others, incorporated terms of the Purchase Agreement, and provided for English law and exclusive jurisdiction of English courts.
The Defendants' Italian claim alleges negligence and failure to take remedial action after prior incidents. The Plaintiff contends the claim falls within the scope of the Warranties Agreement jurisdiction clause. The English court initially held there was a good arguable case for jurisdiction and granted declarations including that the Italian proceedings breached the clause, though the latter was premature.
Legal Issues Presented
- What is the true construction of the jurisdiction clause in the Warranties Agreement? In particular, does it extend to substantive warranty claims?
- Is the commencement and pursuit of the Italian proceedings contrary to the terms of the jurisdiction clause?
- If so, can the English court make a declaration against the Defendants, the insurers, who were not parties to the Warranties Agreement or the Purchase Agreement?
Arguments of the Parties
Appellants' Arguments
- The Warranties Agreement is part of a wider scheme and must be construed in context; it regulates who benefits from the warranties rather than substantive claims.
- The Purchase Agreement requires arbitration for warranty enforcement; assignees are bound by arbitration clauses ("benefits and burdens" principle).
- The rights assigned to the airline under the Warranties Agreement are the same as those assigned to Mainstream, enforceable only by arbitration.
- The jurisdiction clause in the Warranties Agreement covers only disputes about entitlement to warranty benefits and related validity issues, not substantive warranty claims.
- Litigation in England would modify the Plaintiff's rights under the Purchase Agreement, contrary to specific clauses.
- Fragmented dispute resolution schemes are permissible and appropriate here, distinguishing between entitlement disputes and substantive claims.
- Therefore, the English court lacks jurisdiction over the Plaintiff's substantive claims, which fall to arbitration in Geneva.
- As insurers and non-parties, the appellants cannot be in breach of the jurisdiction clause or be subject to declarations.
Appellee's Arguments
- The Warranties Agreement is an independent contract granting warranties directly to the airline, superseding prior warranties and making all claims subject to the English jurisdiction clause.
- The jurisdiction clause is broad and covers contractual and non-contractual disputes connected with the Warranties Agreement.
- It is commercially irrational to have disputes about entitlement litigated in England and substantive claims arbitrated in Geneva.
- The Warranties Agreement is the sole relevant contract relating to the warranties among all parties, unlike cases with multiple agreements and varying dispute resolution clauses.
- Textual analysis supports that the warranties granted under the Warranties Agreement are new rights, not mere assignments, and that the jurisdiction clause applies to substantive warranty claims.
- References to terms and conditions of the Purchase Agreement do not incorporate the arbitration clause for procedural purposes.
- The English court has jurisdiction over the Plaintiff's claim for a declaration of non-liability.
- Insurers exercising subrogation rights are bound by the jurisdiction clause to the same extent as the insured and the court can grant declarations against them.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Bols Distilleries BV v Superior Yacht Services Ltd [2006] UKPC 45 |
Test of "good arguable case" for jurisdiction under Brussels Recast Regulation Article 25. |
The court applied the "good arguable case" standard to determine jurisdiction. |
| Brownlie v Four Seasons Holdings Inc [2017] UKSC 80 |
Clarification of "good arguable case" standard and its application. |
Confirmed the applicable standard for jurisdictional challenges. |
| The Jordan Nicolov [1990] 2 Lloyd's Rep 11 |
Assignee bound by arbitration clause of assigned contract ("benefits and burdens"). |
Referenced in argument about whether arbitration clause binds assignees and subrogated parties. |
| Sebastian Holdings Inc v Deutsche Bank AG [2010] EWCA Civ 998 |
Construction of jurisdiction clauses in multiple related contracts; fragmentation of dispute resolution. |
Used to analyze competing jurisdiction clauses and fragmentation in related agreements. |
| Altimo Holdings & Investment Ltd v Kyrgyz Mobil Tel Ltd [2011] UKPC 7 |
Questions of law on jurisdiction can be decided definitively if material is complete and no prejudice. |
The court decided to finally determine the construction of the jurisdiction clause as a question of law. |
| Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV [2019] EWCA Civ 10 |
Affirmed the "good arguable case" test and the approach to jurisdictional challenges. |
Supported the standard applied by the court in considering jurisdiction. |
| Donohue v Armco Inc [2002] 1 Lloyd's Rep 425 |
Broad and purposive construction of jurisdiction clauses. |
Guided the court's approach to interpreting the jurisdiction clause. |
| Fiona Trust & Holding Corporation v Privalov [2007] 2 Lloyd's Rep 267 |
Parties unlikely to intend different tribunals for validity and performance disputes; requires clear language. |
Supported a broad construction of the jurisdiction clause to avoid fragmented dispute resolution. |
| Credit Suisse First Boston (Europe) Ltd v MLC Bermuda Ltd [1999] 1 Lloyd's Rep 767 |
Careful construction of jurisdiction clauses in multiple related agreements. |
Referenced in analysis of related contracts and their jurisdiction clauses. |
| UBS AG v HSH NordBank AG [2009] EWCA Civ 585 |
Construction of competing jurisdiction clauses in related contracts. |
Guided the court's interpretation of overlapping jurisdiction clauses. |
| Monde Petroleum S.A. v Westernzagros Ltd [2015] EWHC 67 (Comm) |
Presumption that jurisdiction clauses in multiple contracts deal exclusively with their own subject matter. |
Supported the approach to interpreting the Warranties Agreement clause in context. |
| Trust Risk Group S.p.A. v AmTrust Europe Ltd [2015] EWCA Civ 437 |
Broad, purposive, and commercially minded approach to jurisdiction clauses. |
Reinforced principles applied in this case. |
| Deutsche Bank AG v Comune di Savona [2018] EWCA Civ 1740 |
Interpretation of jurisdiction clauses in related contracts. |
Applied in assessing the scope of the Warranties Agreement clause. |
| BNP Paribas S.A. v Trattamento Rifiuti Metropolitani S.p.A. [2019] EWCA Civ 768 |
Jurisdiction clauses in multiple agreements and their application. |
Considered in context of multiple related contracts. |
| The Jay Bola [1997] 2 Lloyd's Rep 279 |
Subrogated insurers bound by arbitration clauses to the extent their rights derive from insured. |
Discussed regarding remedies available against insurers and their obligations under arbitration/jurisdiction clauses. |
| West Tankers Inc v Allianz SpA [2009] UKHL 27 |
Equitable rights enforceable against insurers exercising subrogation to comply with arbitration agreements. |
Supported the court's conclusion that declarations can be made against insurers despite their non-party status. |
| Turner v Grovit (Case C-159/02) |
Restrictions on anti-suit injunctions against EU defendants. |
Noted as limiting remedies but not precluding declarations. |
Court's Reasoning and Analysis
The court applied the "good arguable case" standard for jurisdiction under the Brussels Recast Regulation, as clarified in recent authority. The court considered whether the Warranties Agreement's exclusive jurisdiction clause extended to substantive warranty claims or was limited to disputes about entitlement to warranty benefits.
The appellants argued the clause was limited and that substantive claims must be arbitrated under the Purchase Agreement's ICC arbitration clause. The court found this textual analysis inconclusive and instead focused on the overall commercial context and the contractual scheme.
The court noted that the Warranties Agreement was the only contract binding all relevant parties and contained a broad jurisdiction clause covering contractual and non-contractual disputes connected with it. The court found no clear intention to reserve substantive warranty claims to arbitration in Geneva, especially as that would cause inconvenient fragmentation of dispute resolution.
The court rejected the appellants' narrower construction and held that the jurisdiction clause extends to substantive warranty claims, including non-contractual claims connected to the warranties.
Regarding the Italian proceedings, the court held there was a good arguable case that the claims brought by the appellants, although in tort, were sufficiently connected with the Warranties Agreement and thus within the scope of the jurisdiction clause.
On whether declarations could be made against the appellants, the court relied on established equitable principles. Although the appellants were not parties to the Warranties Agreement, as insurers exercising subrogation rights derived from the insured, they were bound by the jurisdiction clause to the same extent. The court held that breach of the jurisdiction clause by insurers constitutes breach of an equitable obligation enforceable by declaration, even though an anti-suit injunction is unavailable against EU defendants.
The court concluded that the English court has jurisdiction to determine the Plaintiff's claims and to grant declarations against the appellants, but that it was premature to grant final declarations regarding breach of the clause by commencement of the Italian proceedings; that issue must await trial.
Holding and Implications
The court upheld the construction of the jurisdiction clause in the Warranties Agreement as broadly extending to substantive warranty claims and related non-contractual claims.
The court dismissed the appellants' appeal against jurisdiction, confirming that the English court has jurisdiction over the Plaintiff's claims.
The court set aside the earlier grant of final declarations that the Italian proceedings breached the jurisdiction clause, holding that such declarations are premature and must be determined at trial.
The court held that the English court can make declarations against insurers exercising subrogation rights, binding them to the jurisdiction clause as an equitable obligation, despite their non-party status.
The direct effect is that the Plaintiff may proceed in England and seek declarations against the appellants, while the question of breach by the Italian proceedings remains for trial. No new precedent was established beyond applying existing principles to the facts.