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US$9.7 billion Russian aviation claims ‘very unlikely’ to receive a fair trial in Russia

Posted: 01/05/2024

Over 70 Russian operator claims will continue to be heard by the English courts following a recent decision of the Commercial Court, in which Mr Justice Henshaw found that the claimants were ‘very unlikely’ to receive a fair trial in Russia. The judge rejected the jurisdictional challenges brought by the defendants who had sought to rely on Russian exclusive jurisdiction clauses within the contracts (EJCs). 

The claimants, primarily Western aircraft lessors, leased aircraft to Russian airlines. The aircraft were then insured by local Russian insurers and reinsured in the London and international markets.

After Russia invaded Ukraine in February 2022, the sanctions imposed by the West led to the aircraft lessors terminating their leases with the Russian airlines and requesting the return of the aircraft. The airlines, however, failed to return the aircraft, which continue to remain in Russia. 

The lessors brought claims under the all-risks cover and/or war risks cover in respect of the loss of the aircraft. They commenced proceedings against the insurers and reinsurers in the Commercial Court pursuant to cut-through clauses in the reinsurance policies and as additional insureds under insurance contracts, even though the policies included EJCs in favour of the Russian courts. 

The leases were all governed by English, Californian or New York law. At the outset, all of the defendant reinsurers challenged the jurisdiction of the English court to hear the claims and applied for a stay and dismissal of the claims by reason of the EJCs. However, just prior to the jurisdictional challenge hearing, a vast number of defendants had already submitted to the jurisdiction of England. 

The judge refused to order a stay in respect of the balance of the applications and rejected the jurisdictional challenges. In doing so, Mr Justice Henshaw applied the following principles:

  • Strong reasons test
    The English court can exercise its discretion and is not obliged to order a stay where there is a foreign EJC. The general rule is that where parties have bound themselves by an EJC, effect should be given to that obligation in the absence of ‘strong reasons’ for departing from it. The burden of proving such strong cause is on the party suing in the non-contractual forum.

    Donohue v Armco Inc [2001] UKHL 64, [2002] 1 All ER 749, the leading authority on the aforementioned general rule, provides that ‘…the English court will ordinarily exercise its discretion…to secure compliance with the contractual bargain, unless the party suing in the non-contractual forum (the burden being on him) can show strong reasons for suing in that forum’.

    The judge accordingly rejected dicta suggesting the claimant must show ‘overwhelming’ or ‘very strong’ reasons and held that a party seeking to avoid an EJC had to meet the threshold of establishing ‘strong reasons’. The strong reasons test ensures party autonomy is respected, and that proper weight is given to the principle that parties should be held to their bargains, given the court would be declining to give effect to a contractual agreement as to forum. 

  • Foreseeability
    Foreseeable factors of convenience, including the location of witnesses or documents and the likely speed of litigation in the foreign forum, should not be regarded as strong reasons to decline a stay. However, where the interests of justice are engaged (for example, by the risk of an unfair trial) then the position as to foreseeability is different. It was held that, whilst the foreseeability of a risk of an unfair trial was a factor to be considered by the court when exercising its discretion, such a factor would only carry weight to the extent that the parties could foresee such a risk in the kind of dispute likely to arise under their contract.  

  • Degree of likelihood or risk of unfair trial
    The judge considered it was not sufficient to merely show a ‘real risk’ of an unfair trial. Rather, it was necessary to demonstrate that ‘the preponderance (in terms of weight and cogency) of the evidence indicates that it is likely that the agreed forum will not provide a fair trial’. The claimants were not required to prove on the balance of probabilities that justice would not be attained, as ‘proof on the balance of probabilities would imply a finding of fact, rather than a decision about the strength of arguments, and would probably require the availability of oral evidence and discovery’.  

It was held that there were strong reasons why the court should decline to stay these proceedings. The main reason was that the claimants were ‘very unlikely’ to obtain a fair trial in Russia. The substantial Russian state exposure and likely interest in the outcome of the claims made the Russian state’s intervention likely, meaning the Russian courts would be unlikely to be able to objectively determine key points of the dispute. Rather, the Russian court would be likely to apply provisions without regard to the governing law of the leases, which were all governed by English, Californian or New York law. 

Furthermore, the claimants are located in places the Russian state deems ‘unfriendly foreign states’. There was a risk of personal attacks on individuals, including foreign clients, experts and witnesses, who in the ordinary course would attend trial. This added greater weight to the view that the court should refuse a stay. 

The reality of an inevitable multiplicity of proceedings (given the large number of defendants that had submitted to the English jurisdiction), and the resulting risks of inconsistent findings were the claims to proceed in Russia, added further support to the view that there were strong reasons to refuse a stay.

With US$ 9.7 billion at stake, the Russian aviation claims are one of the largest-scale insurance and reinsurance claims and one of the most complex pieces of litigation currently listed in the English Court. The Penningtons Manches Cooper team, led by associate director Louise High and partner Lisa Hillary, is acting on behalf of a defendant insurer in six sets of proceedings, issued in the English Court with a single trial set down for 46 days.

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