Partner Abigail Healey and Associate Genevieve Douglas explore exclusive jurisdiction clauses in Law360

Following the recent High Court decision in Aercap Ireland Capital Designated Activity Co. v. PJSC Insurance Co. Universalna, Partner Abigail Healey and Associate Genevieve Douglas examine what might constitute “strong reasons” for an English court to refuse to enforce an exclusive jurisdiction clause in favour of a foreign court.

In the High Court of Justice of England and Wales’s 6 June decision in Aercap Ireland Capital Designated Activity Company & Ors v PJSC Insurance Company Universalna & Ors,[1] the defendants’ applications to stay the claims against them for breach of exclusive jurisdiction clauses were successful.

It is trite law that the English courts will stay proceedings brought in England in breach of an exclusive jurisdiction clause in favour of an overseas court, unless the claimant can satisfy the court that “strong reasons” exist to allow the claim to be advanced in England. That reflects strong policy reasons in favour of upholding agreements as to forum, including party autonomy, the enforcement of bargains and commercial certainty.

In this case, the court determined that there were no such strong reasons, with Mr Justice Henshaw ruling instead that the claims should be heard in Ukraine. Having determined that the exclusive jurisdiction clause was enforceable and did apply, Henshaw J considered that the claimants’ arguments, which included the procedural difficulties of having a trial in Ukraine, amounted to no more foreseeable considerations of convenience that could not amount to “strong reasons”.

This article examines the grounds on which the claimants (including Aercap Ireland Designated Activity Company) sought to rely and the Judge’s reasoning as to why those grounds did not amount to “strong reasons”.  The decision is considered in the context of another recent court decision in which the same Judge considered the issue of exclusive jurisdiction clauses with a different outcome.

Background

The underlying dispute involved insurance claims relating to aircraft stranded in Ukraine. The claims were commenced in England (in 2022), for aircraft that were stranded in Ukraine after February 2022, under insurance policies written with local Ukrainian insurers and reinsured in the London market.

The defendants — insurers and reinsurers, operating in the London market and domiciled in England or Ireland — challenged the jurisdiction of the English courts on the basis that the insurance policies contained exclusive jurisdiction clauses in favour of the courts of Ukraine, and applied to stay the proceedings on that basis.

The claimants are owners and lessors, financing banks or other persons with an interest in the aircraft or aircraft engines that were leased to Ukrainian airlines under leases governed by English or Irish law.

They argued that:

• the exclusive jurisdiction clauses were not binding on them and/or their claims;
• alternatively, that the exclusive jurisdiction clauses were unenforceable, including on the basis that the clauses did not specify a particular Ukrainian court; and
• that even if the exclusive jurisdiction clauses were enforceable, there were “strong reasons” not to enforce the ECJ/ justifying the claims proceeding in England instead of Ukraine.

The “strong reasons” advanced by (some or all of) the claimants for having the case heard in England rather than Ukraine included:

• the impact of air strikes;
• the procedural difficulties of having a trial in Ukraine;
• the risk of multiple lawsuits and the ensuing risk of inconsistent judgments; and
• the fact that the defendants may have no genuine desire to have the cases tried in Ukraine.

Decision

Mr Justice Henshaw stayed the claims on the basis that:

• as a matter of Ukrainian law, the defendants had the better of the arguments, on the evidence, that exclusive jurisdiction clauses are binding, they do apply to the disputes between the claimants and the defendants, and they are enforceable; and
• there were not sufficiently strong reasons to decline to give effect to the exclusive jurisdiction clauses.

As to the “strong reasons” argued by the claimants, the Judge held that the evidence suggested that the Ukrainian court system, especially the Kyiv City Commercial Court where these claims would likely be heard, is functioning at nearly the same level as pre-2022, with disruptions being infrequent and court proceedings efficiently handled, including through extensive use of video conferencing.

The Judge concluded that the evidence did not indicate that there was likely to be substantial delays or other problems in litigating the claims effectively in the courts of Ukraine.  When considering the extent of any delay, he noted that the overall time taken for cases to be dealt with in Kyiv appeared to compare favourably with the English courts.

Ultimately, the reasons submitted by the claimants were dismissed as foreseeable considerations of convenience that in principle cannot constitute strong reasons for declining to give effect to the jurisdiction clauses.  The decision confirms that it is a relatively high threshold that must be met by a claimant seeking to avoid the exclusive jurisdiction clause that it has agreed to. It is likely to be of relevance in future jurisdiction disputes where the claimants raise issues around the practicalities of litigating in the other country, and in particular in cases where it is argued that the practical ability to litigate in that country is temporarily affected by other factors. In those circumstances, the English court will consider the foreseeability of those factors as well as the extent to which they are likely to have an impact on the ability to litigate so as to amount to a “strong reason”.

As to the question of whether the defendants had a genuine desire to litigate in Ukraine, despite the fact that the defendants had no material connection there, Mr Justice Henshaw held that there were “cogent reasons” as to why the defendants may justifiably want the cases heard in Ukraine, including “the importance of Ukrainian law to the issues and availability of appeals, the location of evidence and witnesses, the avoidance of duplicative litigation”.

What might amount to ‘strong reasons’?

The Judge cited various authorities including the English House of Lords 2001 decision of Donohue v Armco Inc[2] which support the following propositions:

1. The court is not bound to grant a stay but has discretion to do so;
2. There can be no absolute or inflexible rule governing the exercise of the discretion;

• However, the English court will ordinarily exercise its discretion by granting a stay of proceedings unless the claimant can show strong reasons for suing in England;

1. What constitutes a strong reason “will depend on all the facts and circumstances of the particular case”;
2. The burden of showing strong reason is on the claimant;
3. Strong reasons are not shown merely by establishing factors that would make England the appropriate forum on a forum non conveniens analysis; and

• Foreseeable factors of (mere) convenience should not be regarded as strong reasons to decline a stay.

Of interest, the same judge delivered a recent judgment in a different set of proceedings, outlined below, in which the outcome was different, further illustrating that what constitutes strong reasons will depend on all the facts and circumstances of the particular case.

On 28 March 2024, Henshaw J gave judgment in the High Court in Russian Aircraft Operator Policy Claims[3], a case relating to stranded aircraft in Russia. The Judge held that those proceedings, which were brought in breach of exclusive jurisdiction clauses in favour of Russia, should continue in London, stating that “the claimants are very unlikely to obtain a fair trial in Russia, which in itself is a strong reason to decline a stay“.

It is apparent from the Russian Aircraft decision that, to the extent a claimant can satisfy the court that it is unlikely to be able to obtain a fair trial in the country which is the subject of the exclusive jurisdiction clause, then it will amount to a strong reason. In the Ukraine Aircraft case, the claimants sought to rely on arguments relating to practical and procedural difficulties in bringing a claim in Ukraine, which the court held did not meet the threshold test.

Conclusion

Lord Bigham, in Donohue v Armco Inc, stated that “strong reasons, sufficient to displace the other party’s prima facie entitlement to enforce the contractual bargain, will depend on all the facts and circumstances of the particular case.”

It is clear that forum cases are fact-dependent, but this case provides useful guidance on what might constitute “strong reasons” for an English court to refuse to enforce an exclusive jurisdiction clause in favour of a foreign court. In particular, the case considered the relevance of foreseeability that foreign law and jurisdiction would apply to the claim and the possibility of an unfair trial.

In particular, it is apparent that claimants must meet a high threshold to demonstrate “strong reasons” for bringing proceedings in England in breach of a foreign exclusive jurisdiction clause. A change in geopolitical circumstances in and of itself may not be a sufficiently strong reason for the English court to decline a stay of English proceedings or to decline to restrain proceedings abroad in breach of an exclusive jurisdiction agreement. A claimant must instead show how the change in geopolitical circumstances has directly impaired their ability to receive a fair trial with robust, fact-specific evidence, including expert evidence.

Importantly, each case must be assessed on its unique facts and circumstances. In such matters, the evidence must demonstrate that it would be more than merely impractical to bring proceedings in a foreign jurisdiction. Evidence as to delays or other practical problems (such as the ability for parties, including witnesses, to attend the court) may not be sufficient. Parties must be prepared to demonstrate: (i) how pursuing legal proceedings in a foreign jurisdiction directly impairs their ability to receive a fair trial; and (ii) that the circumstances causing this impairment were unforeseeable at the time the agreement was made.

[1] Aercap Ireland Capital Designated Activity Company & Ors v PJSC Insurance Company Universalna & Ors [2024] EWHC 1365 (Comm)

[2] Donohue v Armco Inc [2001] UKHL 64

[3] Russian Aircraft Operator Policy Claims [2024] EWHC 734 (Comm)