At a hearing held from 7 to 13 February 2024, the claimants in ongoing market-wide Russian aviation insurance disputes proved successful in arguing their claims should continue to be heard in the courts of England and Wales, rather than in Russia. Claudia Seeger reviews the significance of the ruling.
The claimants in Zephyrus Capital Aviation Partners 1d Limited & Ors v Fidelis Underwriting Limited & Ors [2024] are all owners and lessors, financing banks (or their assignees) or managers of aircraft and/or engines that were leased to Russian airlines. The leases were all governed by English, Californian or New York law and required the airlines to insure the aircraft against all risks and (separately) war risks. The airlines consequently insured the aircraft with Russian insurance companies, who reinsured the risk into the London and international market.
Such reinsurance was to be on a back-to-back basis and to include a cut-through clause either in the terms set out in the leases or as reasonably satisfactory to the lessor. Notably, the leases did not stipulate that the (re)insurance should be subject to any particular law, and the Certificates of (Re)Insurance were silent on this point. Unbeknownst to the claimants, the reinsurance slips referenced Russian governing law and contained “exclusive jurisdiction clauses” (EJCs) in favour of the Russian courts.
Proceedings issues
Following Russia’s invasion of Ukraine on 21 February 2022, and the corresponding introduction of sanctions against Russia by various governments, the claimants issued termination notices to the airlines and demanded the aircraft/engines be returned. The airlines failed to do so and the aircraft and/or engines remain in Russia to this day. The claimants therefore issued proceedings in England and Wales to reclaim the losses from reinsurers, pursuant to the cut-through clauses in the reinsurance policies.
The reinsurer defendants applied to have the claims stayed in England and Wales and litigated in the Russian courts instead, relying on the inclusion of the EJCs in the (re)insurance policies. The applications related to a total of 78 aviation insurance claims, worth $9.7 billion. Initially, every reinsurer to the claims challenged the jurisdiction of the courts of England and Wales, but by the hearing’s commencement the majority of reinsurers had withdrawn their challenges and submitted to English jurisdiction.
The court’s decision
Siding with the claimants, Mr Justice Henshaw dismissed all remaining jurisdiction challenges, finding there were strong reasons to not stay proceedings in England and Wales. In particular, Mr Justice Henshaw concluded that the claimants are “very unlikely to obtain a fair trial in Russia” given, among other factors, the Russian state’s interest in the claims.
Mr Justice Henshaw also stated that staying the proceedings in favour of the Russian courts’ jurisdiction would lead to an increased multiplicity of proceedings and a greater risk of inconsistent findings, where other defendants have already agreed to the jurisdiction of the courts of England and Wales. Finally, Mr Justice Henshaw considered there was a risk of personal attacks on individuals who in the ordinary course would attend trial in Russia, which added further support to why strong reasons existed to refuse the stay sought by reinsurers.
What does this mean for the insurance market?
Partner Chloe Derrick comments: “This is a very significant judgment, which assists not only aircraft lessors but potentially many other insureds who have significant assets trapped in Russia or other unfriendly states, and are (re)insured out of the London market.
The High Court has now made abundantly clear that (re)insurers cannot rely on EJCs to force insureds to litigate in foreign states where they are unlikely to obtain a fair trial.
Mr Justice Henshaw’s detailed analysis is welcome commentary following the Court of Appeal’s judgment in Al Mana Lifestyle Trading LLC & others v United Fidelity Insurance Co PSC & others [2023], which found that a poorly worded jurisdiction clause provided exclusive jurisdiction to the local court where the policies were issued (in that case the UAE, Qatar and Kuwait).
The circumstances of the Russian aviation challenge are of course clearly distinguishable from Al Mana, which concerned a narrow policy construction dispute over the words used in a particular clause. In contrast, we expect Mr Justice Henshaw’s judgment to have significant wider ramifications across the insurance market.
Policyholders who have claims arising under (re)insurance policies placed into the London or international market, particularly those placed on standard terms, should now carefully consider the enforceability of any EJC that requires them to pursue their claim in an unfriendly foreign state.”
If you require any advice on an EJC clause, please contact us.
You can find further information regarding our expertise, experience and team on our Policyholder Disputes page.
Subscribe – In order to receive our news straight to your inbox, subscribe here. Our newsletters are sent no more than once a month.
