Etihad Airways PJSC v Flother

The Commercial Court dismissed the defendant's application to prevent Etihad's English declaratory proceedings. The court applied English contractual construction principles to the jurisdiction clause in the €350m Facility Agreement and held there was a good arguable case that the clause, construed broadly, covered disputes arising out of or in connection with the Comfort Letter, including non-contractual claims.

The court further found that the requirements of Article 25 of Regulation (EU) No 1215/2012 (Brussels Recast) were met: the dispute arose in connection with the "particular legal relationship" in which Etihad provided financial support to Air Berlin and the Comfort Letter was part of the same package. The court also held that Article 31(2) applied to the jurisdiction clause despite its asymmetric drafting (allowing Etihad to sue elsewhere), so that the English court was entitled to determine the jurisdiction issue despite the German court being first seised.

Accordingly, the defendant's application was dismissed. The judge declined to make a reference to the Court of Justice of the European Union.

The applicant (the Insolvency Administrator of Air Berlin) sought a declaration that the English court lacked jurisdiction and an order staying Etihad's English proceedings, arguing (inter alia) that the Comfort Letter disputes did not fall within the scope of the exclusive English jurisdiction clause in the €350m Facility Agreement and that Article 31(2) of the Brussels Recast did not apply to asymmetric clauses.

Background and parties:

• Etihad and Air Berlin had a long commercial relationship in which Etihad provided substantial financial support. In April 2017 several documents were concluded as a "support package": among them a Facility Agreement (governed by English law with an English exclusive jurisdiction clause), a Comfort Letter (no jurisdiction clause), reimbursement deeds and other instruments.
• Air Berlin later entered insolvency and the Insolvency Administrator commenced German proceedings alleging that the Comfort Letter gave rise to binding obligations (or alternatively to a claim in culpa in contrahendo under German law).
• Etihad commenced English Part 8 proceedings seeking declarations, including that the German claims fell within the exclusive English jurisdiction clause and that English law governed the Comfort Letter on the true construction of the governing law clause and under Rome I/Rome II, and that Etihad was not liable.

Issues framed:

• Whether, under English law, the jurisdiction clause in the Facility Agreement extended to the Comfort Letter and the claims in the German proceedings.
• Whether the jurisdiction clause qualified as an Article 25 agreement under Brussels Recast by reference to the "particular legal relationship" test in Powell Duffryn.
• Whether Article 31(2) applies to asymmetric jurisdiction clauses (ie where the clause is exclusive for one party but permits the other to sue elsewhere) so as to prevent the first-seised foreign court from proceeding.

Court's reasoning (concise):

• Standard and approach: the court applied the established "good arguable case" standard to determine whether Etihad had the better of the argument on the material available when asserting jurisdiction.
• Construction under English law: applying a broad, purposive, commercially realistic approach (as in Fiona Trust and subsequent authorities), the Facility Agreement's jurisdiction clause used wide words ("arising out of or in connection with" including non-contractual obligations). The Comfort Letter was part of a single support package; its genesis and close commercial linkage with the Facility Agreement supported a good arguable case that disputes about the Comfort Letter fell within the clause.
• Applicable law and nature of the Comfort Letter: there was a good arguable case that English law governed the Comfort Letter and, on that basis, that it was no more than a non-binding statement of present intention ancillary to the Facility Agreement; that factual/choice-of-law issue supported treating the Comfort Letter as linked to the Facility Agreement.
• Article 25 (particular legal relationship): the court considered the relevant legal relationship by reference to context and the package of agreements (not solely the narrow label "lender/borrower"). On the facts, the dispute originated in the wider shareholder/financial-support relationship and the April 2017 package, so Article 25 was satisfied.
• Article 31(2) and asymmetric clauses: the court followed authority (including Commerzbank) and academic commentary in holding that Article 31(2) applies to asymmetric clauses. The factual promise by Air Berlin not to sue elsewhere (as to disputes it commenced) rendered the clause an agreement conferring exclusive jurisdiction for the purposes of Article 31(2). The court rejected arguments to the contrary, considered policy and Recital (22), and declined to refer the point to the CJEU.

Disposition: the defendant's application was dismissed and the English court retained the ability to decide the jurisdictional issues.

The application is dismissed. The court held that, applying English law to the Facility Agreement, there was a good arguable case that its widely worded jurisdiction clause covered disputes relating to the Comfort Letter and related non-contractual claims. The court further found that the requirements of Article 25 Brussels Recast were satisfied because the dispute arose in connection with the particular legal relationship constituted by the April 2017 support package and Etihad's role as provider of financial support. Finally, the court held that Article 31(2) applies to asymmetric jurisdiction clauses of the type in issue, so the English court can determine the jurisdiction question despite the German court being first seised. The judge declined to refer the matter to the Court of Justice of the European Union.