English Court Refuses to Enforce Russian Exclusive Jurisdiction Agreements

English courts are renowned for upholding party autonomy. However, a recent judgment in Re Russian Aircraft Operator Policy Claims (Jurisdiction Applications) [2024] EWHC 734 (Comm) (Henshaw J, 28 March 2024) demonstrates their reluctance to give effect to Russian jurisdiction agreements in the current climate.

Facts

The claimants are owners, lessors, financing banks and managers of aircraft and/or aircraft engines leased to Russian airlines under leases governed by English, Californian or New York law. The airlines insured the aircraft against hull all risks and war risks with Russian insurance companies. The insurers reinsured most of their risk with various English and international market reinsurers, including the defendants, and the Russian National Reinsurance Company. The claimants accept that the defendants have a good arguable case that the insurance and reinsurance contracts contain Russian governing law and Russian exclusive jurisdiction agreements. Following the February 2022 invasion of Ukraine, the claimants issued default and termination notices under the leases. A ground for termination was the imposition of sanctions on Russia by the UK, EU and the USA. The airlines failed to return the aircraft. The claimants are incorporated in states which, as part of counter-measures taken in response to the Western sanctions, Russia categorises as unfriendly foreign states.

The claimants brought claims against the defendants in respect of the loss of the aircraft. Some defendants challenged the jurisdiction of English courts based on the Russian jurisdiction agreements. The claimants argued that the court should not enforce the agreements because they would not receive a fair trial in Russia.

Judgment

Under the common law (different rules exist for foreign jurisdiction agreements covered by the 2005 Hague Choice of Court Convention and foreign jurisdiction agreements in consumer and employment contracts), an English court will enforce a foreign exclusive jurisdiction agreement by granting a stay or refusing permission to serve the claim form out of the jurisdiction, unless there are strong reasons not to (The Eleftheria [1970] P 94). Circumstances in which an English court will not enforce a foreign jurisdiction agreement include the likelihood that the agreed forum will not provide a fair trial to the claimant (Ellinger v Guinness, Mahon & Co [1939] 4 All ER 16), frustration (Carvalho v Hull Blyth (Angola) Ltd [1979] 1 WLR 1228) and the consolidation of multi-party proceedings in England (Citi-March Ltd v Neptune Orient Lines Ltd [1996] 1 WLR 1367).

Foreseeable disadvantages of the agreed forum that concern mere convenience are not regarded as strong reasons for declining to grant a stay or permitting service out. Henshaw J clarified that the treatment of foreseeable disadvantages of the agreed forum that concern the quality of justice dispensed by that forum is somewhat different:

the significance of ‘justice’ factors is reduced where they were foreseeable at the time of contracting… [A] cogent argument can be made that, having agreed to a particular forum, a party should not normally be allowed to avoid it on grounds relating to (for example) its approach to appeals, disclosure or the admission or testing of evidence. However, a case where a party is unlikely to receive a fair trial in the agreed forum, due to state intervention and/or lack of judicial independence/impartiality, is high on the spectrum of cases engaging the ‘interests of justice’. [ie in which the jurisdiction agreement would not be enforced despite foreseeability]. ([129])

Applying these principles, Henshaw J found that the claimants were unlikely to receive a fair trial in Russia and refused to enforce the Russian jurisdiction agreements on this basis. The factors that the judge relied upon are conveniently (given that the judgment spans 557 paragraphs or 261 pages) summarised at [472]:

i) there is substantial Russian State exposure via the [Russian National Reinsurance Company]…;

ii) the Russian courts would be unlikely to be able objectively to determine whether the alleged losses were caused by war or invasion…;

iii) the Russian courts would be unlikely to be able objectively to determine whether the alleged losses were caused by other war perils, or fell within the All Risks Cover…;

iv) the Russian courts would be unlikely to be able objectively to determine whether the Russian Counter-Measures were invalid under Russian law…;

v) there is Russian State interest by virtue of contingent subrogated claims against the civil aviation sector or the State itself…;

vi) the Russian courts would be likely to apply provisions other than the governing law of the Leases to the question of whether terminations were valid…;

vii) the Russian courts would be likely to apply provisions other than the governing law of the Leases to the question of whether Claimants had the right to recover the Aircraft, if they considered those provisions valid and applicable…;

viii) the Claimants are from Unfriendly Foreign States…

Furthermore, the court took into account the prospect of multiplicity of proceedings and the resulting risks of inconsistent findings on key issues, as well as an element of personal risk to individuals attending trial if it were to take place in Russia.

An interesting aspect of the case was that at least some of the insurance and reinsurance policies were issued in late 2021, when there were strong indications that Russia would invade Ukraine. For example, para 27 of the judgment mentions a certificate of reinsurance relating to an Airbus A320 leased to Ural Airlines dated 3 November 2021, just two days after it was widely reported that Maxar Technologies shared satellite images that showed “a buildup of armored units, tanks and self-propelled artillery along with ground troops massing near the Russian town of Yelnya close to the border of Belarus”. It was, therefore, not unforeseeable at that time that there would be problems with commencing proceedings in Russia if an invasion occurred. However, problems with the Russian legal system were foreseeable even with respect to older insurance and reinsurance policies. English law reports abound with colourful “Russian” cases that predate not only the 2022 invasion but also the 2014 occupation of Crimea (Cherney v Deripaska [2009] EWCA Civ 849 provides a particularly good example).

Henshaw J addressed this point by holding that any foreseeability of the likelihood of an unfair trial was at most likely to carry weight only to the extent that the parties could foresee a risk of an unfair trial of the kind of dispute likely to arise under their contract:

For example, if it was not foreseeable that a dispute under the contract in question would be likely to engage state or other interests such as to give rise to a material risk of an unfair trial, then the argument that unfairness has been ‘priced into the bargain’ will have little force. That will remain the case even if, as matters turn out, a series of events occur whose effect is that the state does take an interest in the dispute. ([130])

On the facts of the case, Henshaw J held that the Russian invasion and the subsequent events were not “realistically be said to be foreseeable in any meaningful sense” ([465]) by the claimants.

Comment

The case is notable for three reasons. First, it demonstrates that Russian jurisdiction agreements in disputes involving Russian state interests currently hold limited value in English courts. Second, it provides a good example of how the likelihood that the agreed forum will not provide a fair trial can serve as a ground for refusing to enforce a foreign jurisdiction agreement. Third, it underscores the necessity for a distinct ground for refusing the enforcement of foreign jurisdiction agreements that is based on the likelihood that the agreed forum will not provide a fair trial or violation of the court’s public policy, which differs from invalidity under the applicable law and frustration (compare, for example, Articles 6(a), (c) and (d) of the 2005 Hague Choice of Court Convention with Article 25(1) of the Brussels I bis Regulation).