Etihad Airways PJSC v Flother

Factual and Procedural Background

This appeal concerns the interpretation and application of Article 31(2) of Regulation (EU) No 1215/2012 ("Brussels Recast"), specifically whether it applies to an asymmetric exclusive jurisdiction agreement. The agreement in question is contained in a Facility Agreement dated 28 April 2017 between Company A (borrower) and Company B (lender), relating to a financial facility. The Facility Agreement included an exclusive jurisdiction clause favoring the courts of England, but with an asymmetric provision allowing Company B to bring proceedings in any court with jurisdiction.

Company A experienced financial difficulties, entered insolvency proceedings in Germany, and ceased operations in October 2017. The insolvency administrator of Company A initiated proceedings against Company B in a German court concerning a Comfort Letter, part of the financial support package but without a jurisdiction clause. Company B subsequently initiated declaratory proceedings in England, seeking declarations that the German claims are subject to the exclusive jurisdiction clause in the Facility Agreement and governed by English law.

The German proceedings were first commenced, making the German court the court first seised, and the English court second seised. Company A challenged the jurisdiction of the English court, but the English Commercial Court dismissed that challenge. Permission to appeal was granted only on the issue of whether Article 31(2) of Brussels Recast applies to asymmetric jurisdiction clauses such as that in the Facility Agreement.

Meanwhile, the German court stayed the German proceedings under Article 31(2) pending the outcome of the English jurisdictional determination. The stay was upheld on appeal in Germany, with permission to appeal further granted to the highest German civil court due to the fundamental importance of the legal issues.

Legal Issues Presented

1. Does Article 31(2) of Brussels Recast apply to an asymmetric exclusive jurisdiction agreement, where the exclusive choice of court clause binds one party but not necessarily the other?
2. Whether the English court is obliged to stay its proceedings under Article 29 of Brussels Recast or whether Article 31(2) applies to the asymmetric jurisdiction clause in the Facility Agreement.

Arguments of the Parties

Appellant's Arguments (Company A)

• Jurisdiction allocation must follow the automatic and mandatory rules of Brussels Recast, including the first seised rule under Article 29.
• Article 31(2) is a narrow exception to the first seised rule and applies only to fully exclusive jurisdiction agreements.
• The asymmetric jurisdiction clause in the Facility Agreement is not an agreement conferring exclusive jurisdiction under Article 25 and thus does not engage Article 31(2).
• The English court is seised by Company B on the basis of its right to choose the court, not on the basis of an exclusive jurisdiction agreement binding both parties.
• Interpretation of Article 31(2) should align with the Hague 2005 Convention, which excludes asymmetric agreements from the scope of exclusive jurisdiction.
• Article 31(2) should be construed narrowly as a derogation from the first seised rule.

Appellee's Arguments (Company B)

• Article 31(2) applies to asymmetric exclusive jurisdiction agreements because the party bound by exclusivity is entitled to protection against abusive litigation tactics.
• The clause in the Facility Agreement confers exclusive jurisdiction on the English courts as regards claims brought by Company A, satisfying the requirements of Article 25 and thus engaging Article 31(2).
• Article 31(2) is not merely a narrow exception but operates with priority over Article 29, as reflected in the wording "without prejudice to Article 31(2)".
• Party autonomy supports recognizing the exclusive jurisdiction of the English courts for claims by Company A, even if Company B retains non-exclusive rights to sue elsewhere.
• The rationale of Article 31(2) is to prevent abusive tactics such as the "Italian torpedo" and should not exclude asymmetric clauses, which are common in international finance.
• The Hague 2005 Convention does not control the interpretation of Brussels Recast and may exclude asymmetric clauses, but Brussels Recast expressly includes them.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the scope of Article 31(2) of Brussels Recast in light of the asymmetric jurisdiction clause contained in the Facility Agreement. It noted that Article 31(2) applies where a court of a Member State on which an agreement as referred to in Article 25 confers exclusive jurisdiction is seised, requiring other courts to stay proceedings until the designated court decides on jurisdiction.

The court rejected the appellant's narrow interpretation that Article 31(2) applies only to fully bilateral exclusive jurisdiction agreements. It emphasized the importance of party autonomy and the commercial reality of asymmetric clauses, which are widely used in international finance to protect creditors.

The court held that the exclusive jurisdiction clause in the Facility Agreement applies exclusively to claims brought by Company A, binding it to litigate in England, while Company B retains a wider choice of forum. This asymmetry does not exclude the clause from Article 31(2)'s scope.

The court further reasoned that construing Article 31(2) narrowly to exclude asymmetric clauses would leave open the possibility of abusive litigation tactics (the "Italian torpedo") that Brussels Recast sought to prevent. The wording of Article 31(2) and recital (22) support a broad interpretation including asymmetric jurisdiction agreements.

The court considered the Hague 2005 Convention but found it inapplicable to the present facts and not determinative of the interpretation of Brussels Recast. It noted that the Brussels Recast regime is more comprehensive and that Article 31(2) has no equivalent in the Hague Convention.

Finally, the court rejected the argument that the English court was not seised on the basis of the exclusive jurisdiction agreement, affirming that Company B's choice to bring proceedings in England was pursuant to the exclusive jurisdiction clause binding Company A.

The court declined to refer the question to the Court of Justice of the European Union, finding the matter to be acte clair given consistent judicial treatment in other jurisdictions and prior decisions.

Holding and Implications

The court DISMISSED the appeal.

The direct effect of this decision is that Article 31(2) of Brussels Recast applies to asymmetric exclusive jurisdiction clauses, such that when the court designated by such a clause is seised second, other courts must stay their proceedings until the designated court decides on jurisdiction. This prevents abusive litigation tactics where one party is bound exclusively to a chosen court while the other is not.

No new precedent beyond the application of established principles was set, but the decision affirms the autonomous and broad interpretation of Article 31(2) in relation to asymmetric jurisdiction agreements within the EU legal framework.