Aviation: construction of exclusive jurisdiction clause in declaratory proceedings 

United Kingdom

The Court of Appeal recently provided a useful guide to the construction of an exclusive jurisdiction clause within a series of contracts for the purchase of an aircraft. It upheld a claim for breach of the clause in respect of foreign proceedings brought by insurers who were exercising subrogated rights of action.

Factual background

On 29 September 2013, an Airbus A320 operated by Alitalia made an emergency landing in Rome because the right-handed landing gear failed to lower, causing damage to the Aircraft and injury to one of the passengers. Alitalia’s insurers – Italian companies - paid US$11 million, and then sought to recover their loss from Airbus by subrogation proceedings in Italy, arguing that Airbus had breached the Italian Civil Code by negligently failing to take remedial steps to prevent the damage identified in a previous incident from reoccurring. Airbus commenced proceedings in England for a declaration under Article 25 of the Recast Brussels Regulation that the Italian proceedings breached an exclusive jurisdiction clause in favour of English courts.

Contractual background

Airbus, the manufacturer of the A320, provided a suite of warranties under a sale and purchase agreement for several A320 aircraft, which also included a provision for arbitration of warranty issues in Geneva. The benefit of these warranties was passed along a chain of contracts to Alitalia as the aircraft operator under the terms of an Airframe Warranties Agreement with Airbus. The Warranties Agreement provided that:

“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 (including a dispute regarding the existence, validity or termination of this Agreement.)”

The appeal

Insurers appealed the first instance decision that the English court had jurisdiction pursuant to the Exclusive Jurisdiction Clause. The insurers contended:

  1. that the clause was limited in scope and that Airbus’s claims fell to be decided in arbitration in Geneva under the Purchase Agreement.
  2. that their Italian proceedings do not fall within the scope of the Exclusive Jurisdiction Clause; and
  3. that, as insurers, they could not be in breach of a clause to which they were not a party, and so the English Court could not make a declaration against them.

Airbus argued that the Warranties Agreement was the only direct agreement between Alitalia and Airbus and that the jurisdiction clause covered all claims including non-contractual obligations “connected with” the Warranties Agreement.

Principles of construction of the jurisdiction clause

The main issue for the court was determining the scope of the jurisdiction clause in the Warranties Agreement. The approach to construction – a process designed to discover the parties’ intentions - needed to account for the “scheme of contracts” of which the Warranties Agreement was a part but where other agreements contained different jurisdiction clauses.

The approach to construction was given as follows:

  • starting point: jurisdiction conveyed under one contract was not designed to capture disputes naturally falling under another contract;
  • a broad and purposive construction should be applied;
  • interpret the clause in the context of the series of agreements as a whole;
  • “sensible business people” are unlikely to intend that similar claims be the subject of inconsistent jurisdiction clauses;
  • presumption: competing clauses deal with their own subject matter and do not overlap;
  • however, the language and surrounding circumstances may show that a dispute falls within both clauses, such that either could apply.

As such the court considered the various contracts, including the original SPA with its clause pointing warranties claims towards arbitration in Geneva. The court was concerned to look at the “bigger picture” in place of textual arguments and found that the presumed intentions of the parties was to be found in the Warranties Agreement only; this was because it was the one contract to which all those who would be interested in the warranties were parties.

The clause was drafted widely, to include all non-contractual claims connected with the warranties and so included insurers’ Italian claims. Notably, there was nothing to show that the parties had intended to reserve the warranties claims to arbitration and the court recognised that, from a business perspective, it should be slow to conclude that parties intend to fragment their disputes between jurisdictions.

Subrogated insurers in relation to jurisdiction clauses

Insurers contended that the only remedy available to Airbus for breach of the jurisdiction agreement was an anti-suit injunction (an order preventing a person/party from commencing or continuing proceedings in another jurisdiction). However, following the decision in West Tankers Inc. v Allianz SpA, which held that a court in one EU Member State cannot restrain proceedings in breach of an arbitration agreement in another EU Member State, they contended that the declaration sought by Airbus was not available.

The court disagreed. It held that the inability to grant an anti-suit injunction did not prevent a court from declaring its analysis of whether a jurisdiction clause has been breached. Accordingly, the court recognised the fact that Insurers’ subrogation rights derive from the contract - the Warranties Agreement - and they were bound to English jurisdiction to the same extent as Alitalia would have been (based not on a breach of contract – since insurers were not a party – but on an equitable principle that Airbus has a right to expect the jurisdiction agreement to be enforced against subrogated insurers).

Comment

This decision to grant the declaration that commencing the Italian proceedings was in breach of the jurisdiction clause is a testament to the importance of giving effect to parties’ presumed intentions. As such this appears to be a sensible commercial decision.

In keeping with the private international law principle that decisions in different jurisdictions on common subject matter should be avoided to prevent inconsistency, the comments recognising that fragmentation of jurisdictions must be clearly expressed in dispute resolution clauses are notable. However, it is equally notable that the court considered it important to take the ‘big picture’ approach when faced with a series of contracts and clauses providing for competing jurisdictions.

Further reading: Airbus SAS v Generali Italia SpA and Others [2019] EWCA Civ 805.