The English courts will generally hold parties to the terms of their contractual promises and so, where an exclusive jurisdiction clause in favour of a foreign court applies, proceedings issued in England & Wales will usually be stayed. However, as the Commercial Court's recent decision in Zephyrus Capital Aviation Partners 1D Ltd & Ors v Fidelis Underwriting Ltd & Ors (Re Russian Aircraft Operator Policy Claims (Jurisdiction Applications)) [2024] EWHC 734 (Comm) demonstrates, that rule is not absolute where strong reasons can be shown why the English court should hear the claim. The decision means that claims worth over $9.5 billion brought by policyholders under reinsurance contracts covering aircraft held in Russia, will now proceed to trial here.
Background
The background to the dispute is set out in detail in our article here. The claimants are, primarily, the owners or lessors of aircraft which were leased to Russian airlines. Following the Russian invasion of Ukraine in February 2022, the claimants issued termination notices under the leases, which are governed by English, Californian or New York law. They rely on the imposition of sanctions on Russia, material adverse change, a failure to maintain insurance and a failure to pay sums due. The claimants contended that each airline was accordingly required to cease operating the aircraft and return them to various locations outside Russia. However, the aircraft were not returned, and still remain in Russia.
The leases generally required the lessee airlines to insure the aircraft in respect of hull all risks and war risks (the operator policies). Those policies were placed with Russian insurance companies who reinsured the vast majority of the risk with various London and international market reinsurers, including the defendants, together with Russian reinsurers. The claimants brought claims against the defendants in respect of the loss of the aircraft before the English courts. They contended that they have been wrongfully deprived of the aircraft such that they are a total loss falling within the all risks or war risks cover and that they are directly entitled to an indemnity from the defendants pursuant to a cut-through-clause in the reinsurance policies. However, the defendants contended that the reinsurance policies (which had not previously been provided to the claimants) are governed by Russian law and contain Russian exclusive jurisdiction clauses, and therefore challenged the English court's jurisdiction.
Many of the claimants also have the benefit of separate insurance policies covering the same aircraft on a contingent and possessed basis (the lessor policies). They have brought concurrent claims under all risks and war risks sections of those policies which are due to be heard by the Commercial Court in October 2024. Many of the defendants are also defendants in the lessor policy claims. Since some of the defendants in those claims rely upon the availability of cover under the operator policies as part of their defence to the lessor policy claims, the question of whether the corresponding claimants have cover under the operator policies will be an issue for the court.
The claimants accepted for the purposes of the jurisdiction challenge that there was a good arguable case that their claims were subject to the Russian exclusive jurisdiction clauses, but contended that:
- they would not receive a fair hearing in Russia;
- that to require them to pursue their claims in Russia would be contrary to public policy as it would undermine the sanctions regime; and
- that given the proceedings under the lessor policies, it would give rise to an undesirable multiplicity of proceedings and the risk of inconsistent judgments in circumstances where the matters in dispute would affect the aviation insurance and reinsurance markets as a whole.
Decision
As Mr Justice Henshaw noted in his lengthy judgment, it is well established that, where parties have agreed that disputes are to be subject to the exclusive jurisdiction of a foreign court, the English court will usually uphold that bargain by staying proceedings brought in breach of such an agreement. However, the court is not bound to do so. It has a discretion and, if the claimant can show strong reasons not to grant a stay, the court may be prepared to hear the claim. What constitutes a strong reason will depend on all the facts of the case. Foreseeable factors of convenience, such as the location of documents or witnesses, should not be regarded as strong reasons.
However, regard may be had to whether the claimant would be prejudiced by having to sue in the foreign court because they would, for political, racial, religious or other reasons, be unlikely to get a fair trial. The foreseeability of the risk of an unfair trial will be a relevant factor, but in this case the judge concluded that it is only likely to carry weight to the extent that the parties could foresee a risk of an unfair trial in respect of the kind of dispute likely to arise under their contract. Further, the fact that a claimant did not have actual knowledge of the relevant jurisdiction clause will be relevant when considering whether it was foreseeable that the agreed forum would provide an unfair trial.
By closely examining the substantive issues in the case, and the likely approach of the Russian court on the basis of expert evidence, Mr Justice Henshaw concluded that the claimants would be very unlikely to receive a fair trial in Russia and that this was a compelling reason for refusing a stay. He referred, in particular, to the significant exposure of the state-owned Russian National Reinsurance Company in relation to the claims; concerns about whether the Russian courts would be able to objectively determine whether the alleged losses were caused by war or invasion; and Russian State interest – by virtue of contingent subrogated claims – against the civil aviation sector or the State itself. He also noted safety concerns that have led to orders protecting the identities of certain individuals in the lessor policy proceedings, concluding that this outweighed any considerations of convenience relating to the location of the likely documents and the fact that factual issues would largely turn on events in Russia.
The judge also accepted that, in circumstances where some defendants had in fact submitted to the English court's jurisdiction and that the claims under the lessor policies were proceedings in England in any event, the prospect of a multiplicity of proceedings and risk of inconsistent judgments were factor to be properly taken into account. However, he declined to determine the public policy issue.
Conclusion
The decision in Zephyrus is unusual. Indeed, the defendants were only able to identify two other cases where the claimant submitted that they would not receive a fair trial in the agreed forum and the court declined to grant a stay. Contracting parties should not assume that the English courts will now more readily disregard an exclusive jurisdiction clause. Nevertheless, in refusing to order a stay in this case, Mr Justice Henshaw has made clear that in the right circumstances, the English court will be prepared to hear a claim in the face of a foreign exclusive jurisdiction clause.
The judgment is also an important indication of the arguments that are likely to be addressed in the October 2024 hearing in relation to the lessor policies. Whether the operator policy claims will be heard alongside those claims remains to be determined but, with Mr Justice Henshaw's decision, it is clear that the English courts will be dominated by these disputes for some time to come.