Can foreign litigants be bound by English jurisdiction clauses contained in contracts to which they are not a party
In its recent decision Airbus SAS v Generali Italia SPA and others, the Court of Appeal dismissed an appeal against a declaration that the English court had jurisdiction to determine a claim by insurers concerning damage to an aircraft pursuant to an English jurisdiction clause in a warranties agreement to which they were not a party.
What is an exclusive jurisdiction clause?
Under a jurisdiction clause, the parties to a contract can elect which courts will have the rights to adjudicate any disputes which arise out of the contract. More specifically, an exclusive jurisdiction clause confers jurisdiction on the courts of a particular country to the exclusion of any other.
“Each party irrevocably agrees that the courts of England and Wales shall have exclusive jurisdiction to settle any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with this agreement or its subject matter or formation.”
What are the specific facts of the case?
Airbus SAS (“SAS”) is a French company that manufactures various types of aircraft. Under a purchase agreement dated October 2005, SAS sold several aircraft to Air One; a low-cost Italian airline.
The aircraft purchased came to be operated by another Italian company called Aitalia through a series of agreements, and ultimately, a sub-lease.
The sub-lease was concluded between a company called Mainstream and Aitalia. The agreement was governed by English law and stipulated that any disputes would be in the exclusive jurisdiction of the English courts. In addition to the sub-lease, a warranties agreement was entered into between Airbus, Mainstream, other related parties, and Aitalia which also purported to give exclusive jurisdiction to the courts of England.
In September 2013, an aircraft operated by Aitalia was forced to make an emergency landing at Rome’s Fiumicino Airport with the landing gear partially retracted which resulted in significant damage. Italian investigators found that a defect in the right hand main landing gear door actuator acted as the catalyst to this incident.
Aitalia was indemnified in respect of circa $11 million worth of damage caused by the accident by their insurance company, Generali Italia. However, in July 2017, Generali Italia commenced proceedings against Airbus in Italy seeking damages for negligence under Italian law (specifically, the Italian Civil Code); the basis of the claim being that Airbus had failed to take preventative action it should have in the light of earlier incidents involving similar aircraft.
A claim for damages was made in the Italian courts by Generali Italia both:
- In its capacity as insurer of Aitalia, exercising rights of subrogation;
- On a non-contractual basis under art. 2043 of the Italian Civil Code
Airbus, in its reply, sought a declaration that the proceedings commenced against it were commenced contrary to the terms of the warranties agreement which contained an exclusive jurisdiction clause (clause 13.2) that read:
“the parties hereto irrevocably agree that the courts of England shall have
exclusive jurisdiction to settle any disputes arising out of or in connection
with this agreement or any non-contractual obligations connected with it.”
At first instance it was held by Moulder J that the English court had jurisdiction of the claims by virtue of the exclusive jurisdiction clause.
In determining how clause 13.2 should have been construed, the judge found that Airbus had successfully satisfied the test of ‘good arguable cause’ and that “the intention of the parties was that clause 13.2 should apply to all disputes arising out of or in connection with the warranties agreement, including substantive claims under the warranties.”
To this end, the judge also held that the claim advanced by Generali Italia was “connected with” the warranties agreement because it pertained to an alleged manufacturing defect of one of the components of the Aircraft.
The Appeal Judgement
In the appeal, the appellants argued that they could not be in breach of an exclusive jurisdiction clause to which, as insurers, they were never parties to and accordingly there could be no basis on which the English court could make a declaration on them.
The court held that there was at least ‘good arguable cause’ that the claim commenced by the appellants was sufficiently closely connected with the warranties to fall within the scope of the exclusive jurisdiction clause in the warranties agreement and accordingly, the court dismissed the appeal and held that the English court has jurisdiction to determine the claims.
What is the significance of this case?
This case highlights the Court’s approach in determining whether parties can be bound by exclusive jurisdiction clause and the relevance of claims being ‘closely connected’ enough to be caught by such a clause. Careful consideration and early advice should be sought when parties are considering relying on such a clause and the impact it has on another parties.
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