WHAT JUST HAPPENED?

The UK left the European Union (EU) on 31st January 2020 through the process well-known as Brexit. However, the UK later applied to re-join the Lugano Convention (the Convention) in April 2020 as an independent contracting State.

WHAT DOES THIS MEAN?

The Convention is a multilateral treaty between the EU and three out of the four members of the European Free Trade Association (Switzerland, Norway, and Iceland). [1] The fourth EFTA member is Liechtenstein but is not a contracting party of the Convention.

The Convention encompasses EU jurisdiction and enforcement legislation that covers most civil and commercial matters including contractual, tort, and non-contractual claims. [2] The Convention also covers final judgments, and jurisdiction agreements of all kinds, in addition to disputes where no such agreement has been entered. [3]

For the UK to re-join the Convention, the contracting States will need to agree to the UK’s accession. The three EFTA members agreed to the accession, but thus far the EU has not.

HOW DOES THIS IMPACT THE LEGAL SECTOR?

Apart from the longer timeframe taken for the UK to re-join the Convention, the UK faces disadvantages should it re-join the Convention.

As aforementioned, the Convention covers many types of legal matters. However, for the Convention to support jurisdictional agreements, there is a requirement that at least one party is domiciled in a State that is a party to the Convention. While the courts selected must also be from a State that is party to the Convention, fulfilling this requirement alone will not guarantee that the Convention will support jurisdiction agreements.

As numerous aircraft finance agreements are drafted using English law, [4] this means that some agreements will be excluded from the jurisdiction of the Convention, and this sacrosanct principle of the Convention is unaffected regardless of whether the UK eventually manages to successfully re-join the Convention or not.

Furthermore, the Convention prevents parallel litigation, requiring all other courts to stay their proceedings to wait for the court “first seised” to decide whether it has jurisdiction. [5] This principle allows parties to a contract to prevent the contractually selected courts from hearing a case for the time being to hear the case in another State to the Convention. In such situations, it can be expected that defendants will prefer to hear a case in States where the justice system lags behind that of the English courts in terms of detail, speed, and fairness, which will be unfavourable to claimants.

However, there is a silver lining in an asymmetric clause. It is commonplace for aircraft financing agreements to include an asymmetric jurisdiction clause. This allows a lender to sue the borrower in any jurisdiction but limits the borrower to being able to sue only in one exclusive jurisdiction. [6] This confers a stronger bargaining position upon the lender as it will only be sued in its preferred jurisdiction (usually advantageous for the lender) and is further given the freedom to sue the borrower in any jurisdiction.

In Etihad Airways v Flöther, [7] the English Court of Appeal held that an asymmetric jurisdiction clause is interpreted as conferring exclusive jurisdiction on only the English courts to hear an action brought by the borrower. If the asymmetric jurisdiction was not incorporated into the agreement, the borrower (Air Berlin) would very likely resort to using the Convention’s benefits of being able to stay proceedings to hear the case in the courts of another State that is a party to the Convention. If this were to be the case, then the lender will be at a significant disadvantage.

As the UK awaits accession to the Convention, it can be firmly said that any contractual issues regarding aircraft financing agreements will be enforced under English law. Nevertheless, it is important to note that under English jurisdiction, the English courts may still turn away claims based on forum non conveniens. This is a legal doctrine that allows courts to stay a civil claim and decide whether to accept jurisdiction based on whether the courts in another jurisdiction is the more appropriate forum, regardless of what was agreed upon contractually. [8] This takes into account foreign and local factors to determine the most ‘natural’ country to hear the case. [9] This ultimately prevents a claimant from bringing a claim in a jurisdiction that is inherently more favourable for that claimant.

By Nickolaus Ng

ASSESSING FIRMS:

#Clyde&Co #StephensonHarwood #FenwickElliott #Kennedys #CliffordChance

REFERENCES:

[1] Rachel Moore and Cariad Wells, ‘Lugano Convention and the future of civil jurisdiction’ (Kennedys, 21st May 2021) <https://kennedyslaw.com/thought-leadership/article/lugano-convention-and-the-future-of-civil-jurisdiction/>

[2] Clyde & Co., ‘Aviation newsletter: Winter 2021’ pg 11 <https://cdn.clydeco.com/clyde/clyde/media/insight-files/aviation-newsletter-winter-2021-clyde.pdf>

[3] ibid

[4] ibid [n2], pg 10

[5] Stephenson Harwood, ‘Pending litigation, impending Brexit: What next for dispute resolution clauses?’ (October 2020) <https://www.shlegal.com/docs/default-source/news-insights-documents/pending-litigation_impending-brexit_what-next-for-dispute-resolution-clauses_october-2020.pdf?sfvrsn=f171ed5b_2>

[6] Stephenson Harwood, ‘Asymmetric jurisdiction clauses & the Hague Choice of Court Convention: time to shape up? (Etihad Airways v Flöther)’(News, 20th April 2021) <https://www.shlegal.com/news/asymmetric-jurisdiction-clauses-the-hague-choice-of-court-convention-time-to-shape-up-(etihad-airways-v-flöther)>

[7] Etihad Airways PJSC v Flöther [2020] EWCA Civ 1707 <https://www.bailii.org/ew/cases/EWCA/Civ/2020/1707.html>

[8] James Abbott et.al., ‘The DIFC Court of Appeal confirms the broad scope of the jurisdiction of the DIFC Courts’ (Clifford Chance Briefing Note, November 2015) <https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2015/11/the-difc-court-of-appeal-confirms-the-broad-scope-of-the-jurisdiction-of-the-difc-courts.pdf>

[9] Peter Prince, ‘Bhopal 20 years on: forum non conveniens and corporate responsibility’ (Department of the Parliamentary Library, 2005)

Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.