The English High Court found that a current risk of unfair trial in Russia justified declining to enforce Russian exclusive jurisdiction clauses.
The English High Court has cleared the way for major aviation insurance litigation to proceed in England. In an important judgment on jurisdiction, the High Court refused to stay a group of claims based on the alleged total loss of aircraft formerly leased to Russian airlines. The defendants contended that any such claims could only be brought in Russia, due to exclusive jurisdiction clauses (EJCs) in the aircraft reinsurance contracts, but the High Court found multiple “strong reasons” why a stay was unwarranted.[1]
While this decision arises from an unusual set of facts, it highlights the value of strategic thinking in the use of EJCs, as well as, arguably, an increasingly “open for business” attitude of the English Courts towards Russia-related litigation when they consider justice might not be served in Russia. A considered approach is particularly important in a complex commercial context when multiple related agreements are in operation, such as the leases, insurance contracts, and reinsurance contracts at issue in this case.
Background
This jurisdiction challenge occurred in the context of market-wide litigation brought by aircraft owners, lessors, and others, recently valued at nearly US$10 billion. Following the Russian invasion of Ukraine in 2022, the claimants issued termination notices under the relevant aircraft leases and requested the return of their aircraft. The grounds for termination included Western sanctions imposed on Russia, material adverse change, violations of insurance requirements under the leases, and lack of payment. However, the Russian airlines failed to return many aircraft, which have remained in Russia to this day.
The airlines had insured the aircraft with Russian insurers against “hull all risks” and “war risks” (the former excluding war risks). The Russian insurers, in turn, reinsured a large proportion of their risk with London and international market reinsurers — and it is these reinsurance contracts that apparently contained Russian EJCs. Critically, the underlying leases also required the reinsurance contracts to contain cut-through clauses, giving the claimants direct claims against the reinsurers and leading to the present litigation.
The defendant reinsurers challenged the jurisdiction of the English court, requesting a stay to give effect to the EJCs.
Judgment
Legal standard
In its judgment, the High Court affirmed a line of previous case law indicating that a stay should be granted to give effect to an EJC, except when the claimant shows “strong reasons” for the court to decline.[2] Certain defendants suggested that the court apply a stricter formulation of the test requiring “overwhelming” or “very strong” reasons, but the High Court felt this went too far (while noting that the facts in this case were nevertheless capable of meeting a higher standard).[3]
Such strong reasons, the High Court found, would be highly fact-specific but could include the likelihood of the claimant not obtaining a fair trial in the relevant foreign jurisdiction. That likelihood would need to be demonstrated based on the preponderance of the evidence. If the prospect of an unfair trial had been foreseeable — meaning that potential unfairness had been “priced into the bargain” — it could weigh in favour of a stay. However, this would only occur when unfair treatment was foreseeable based on the type of dispute likely to arise from the relevant contract. In this case, a “double level of foreseeability” was relevant: foreseeability that Russian law and jurisdiction would apply (given the claimants’ alleged lack of actual knowledge) and foreseeability of the likelihood of an unfair trial.
Evaluation
The parties submitted extensive expert evidence regarding the Russian legal framework and the possibility that the engagement of Russian state interests might improperly influence the courts if this litigation proceeded in Russia. It was common ground that the Russian state was capable of such influence, though the parties disagreed on its likelihood and how it might manifest (e.g., direct interference or self-censorship by judges).
The High Court found a number of case-specific factors to be relevant to the analysis, principally:
- The aviation sector is a key element of the Russian economy.
- A state-owned reinsurer, the Russian National Reinsurance Company, would likely be joined as a party to any action in Russia, with potential exposure exceeding US$1 billion.
- Following the UK, US, EU Member States, and others being designated “Unfriendly Foreign States” by Russia in 2022, the Russian courts have shown a pattern of discriminatory treatment against litigants from those states.
- Russian courts would find it difficult to make objective findings in relation to the war in Ukraine, when the official Russian position is that it did not invade Ukraine and is not involved in a war. Moreover, the claimants and their lawyers could even be subject to criminal or administrative penalties for describing Russian state actions as war or invasion.
- Russian courts would need to grapple with any state role in the fate of the relevant aircraft, including whether that role amounted to confiscation or appropriation under the terms of the relevant reinsurance policies.
- Consideration of whether the Russian airlines had been obliged to return the aircraft would require the Russian courts to examine the effect of Russian export bans and their potential invalidity due to inconsistency with Russia’s obligations under an international convention.
- Successful claims in Russia could give rise to follow-on claims by the defendant reinsurers against the Russian state, on the basis that the state was ultimately responsible for the loss.
Taking these factors in the round, the High Court found that the claimants (all of whom were incorporated in “Unfriendly Foreign States”) were “very unlikely” to obtain a fair trial in Russia.
While the fair trial issue dominated the landscape, the High Court also relied on two additional reasons to decline to grant a stay. First, if the claims were to proceed in Russia, the High Court saw an increased chance of inconsistent findings across multiple jurisdictions. A key factor supporting this reasoning was that a number of defendants had already submitted to the English jurisdiction, while no claims had yet been launched in Russia.
Second, the High Court considered potential safety and security risks for individuals who would likely need to attend or even give evidence at a Russian trial. These included experts, fact witnesses, and client representatives from designated “Unfriendly Foreign States”. The High Court found such risks to be valid concerns that outweighed factors of convenience cited by the defendants in arguing that the claims should proceed in Russia.
The High Court declined to rely on two other reasons proposed by the claimants to refuse a stay: that it would be contrary to English public policy and that the defendants’ challenges to jurisdiction were tactical rather than stemming from a genuine desire for the litigation to proceed in Russia.
Takeaways
The English court’s acceptance of jurisdiction is a significant development in this landmark litigation. While the judgment is likely to be appealed, the High Court’s thorough examination of the expert evidence and case-specific factors, including in relation to recent Russian case law, may make challenging its conclusion difficult. This judgment could also increase the likelihood of further settlements in this litigation; claims approaching US$4 billion of the original US$13.5 billion value of the litigation had already been settled. Moreover, it may even lead to the issue of additional claims.
More broadly, the High Court’s decision helpfully illustrates how justice factors may impact questions of jurisdiction. In the near term, the judgment could have ripple effects across other disputes where Russian EJCs are at issue, supplying a precedent for parties attempting to litigate in England rather than Russia. In relation to non-Russian EJCs, however, the volume of factors and evidence relied upon by the High Court to support its ultimate conclusion in this case may set a high bar for analogous arguments.
For international insurers and other businesses with cross-border activities, this decision highlights the importance of attention to governing law and jurisdiction clauses in interlocking commercial contracts. The aircraft leases in this case did not require the obligatory insurance and reinsurance to be subject to any particular law or jurisdiction, and the claimants alleged that they had been unaware of the EJCs in the relevant reinsurance contracts. While the High Court has not forced the claimants to litigate in Russia as the EJCs arguably required, this case developed out of a unique geopolitical context. Moreover, the claimants’ alleged lack of actual knowledge of the EJCs appears to have been only a minor factor in the court’s analysis. Therefore, in other cases, lack of awareness of an EJC might not meaningfully assist a party seeking to litigate in a different jurisdiction than called for by the clause. Businesses should carefully consider the enforceability of their law and jurisdiction clauses, particularly for jurisdictions with less legal certainty than England.
Endnotes
[1] Zephyrus Capital Aviation Partners 1D Limited and others v. Fidelis Underwriting Limited and others [2024] EWHC 734 (Comm).
[2] Donohue v. Armco Inc [2001] UKHL 64.
[3] Mercury Communications Ltd v. Communication Telesystems International [1999] 2 All E.R. (Comm) 33; Antec International Limited v. Biosafety USA Inc [2006] EWHC 47.
