In summer 2021, the German Federal Court of Justice ruled on a dispute between the insolvency administrator of the airline Air Berlin and its main shareholder Etihad Airways over millions in damages that had been going on for several years.
From a procedural point of view, the Federal Court’s findings on so-called “torpedo actions” are of particular importance, further limiting the scope of application of this litigation tactic.
A torpedo action is essentially an action that pre-empts an expected action by the other party in order to block it. A torpedo action is usually filed in a jurisdiction that promises either favorable case law or a particularly long duration of proceedings. This can considerably delay a legal dispute.
This is made possible by the principle of priority that applies to cross-border disputes and the jurisdiction of different courts. According to this principle, an action brought first before a competent court blocks all subsequent actions with identical subject matter before another court. If this torpedo action is brought in a less efficient jurisdiction with notoriously slow-working courts, the opponent’s action can be delayed by several years in some cases.
In order to put a stop to this abuse of rights, the EU legislator added a provision to the Brussels I Regulation in 2012 that excludes this priority principle in the case of an existing jurisdiction agreement. In this case, the place of jurisdiction determined by the agreement takes precedence irrespective of the chronological order in which the action is brought. A torpedo action therefore no longer blocks an action brought later at the prorogated place of jurisdiction.
In its decision, the German Federal Court of Justice extended this application and ruled that the provision on the exclusion of the priority principle also applies in the case of a merely asymmetrical jurisdiction agreement, i.e. one that only applies unilaterally to one party.
The Facts of the Case Decided by the German Federal Court
The contract underlying the dispute, on which the plaintiff based its extensive claims, was governed by English law and provided for the exclusive jurisdiction of the English courts. However, the jurisdiction agreement was “asymmetrical” in favor of Etihad Airways in that the clause provided that Etihad Airways should retain the right to bring proceedings before other competent courts.
After the insolvency administrator of Air Berlin brought an action against Etihad Airways before the Berlin Regional Court, Etihad in turn filed a counterclaim for a negative judgment of acknowledgement with the High Court in London around six months later which, based on the jurisdiction agreement, sought the jurisdiction of the English courts.
The Decision of the German Federal Court
The question of whether it is sufficient for an asymmetrical jurisdiction agreement to exclude the priority system has been negated by some German and international literature. In its decision, the Federal Court focuses on the purpose of the provision. The purpose is precisely to prevent torpedo actions which is also important in the case of asymmetrical jurisdiction agreements.
What are the Practical Implications of this Decision?
Until now, it was unclear among legal scholars whether the exception provision of Art. 31 para. 2 Brussels Ia Regulation also applies to asymmetrical jurisdiction clauses. These uncertainties have finally been resolved as a result of this decision which, is of great practical relevance, particularly in the area of financing agreements, where asymmetrical jurisdiction clauses are particularly popular.
This shows that jurisdiction agreements are particularly advantageous in the event of legal disputes and provide effective protection against torpedo actions. However, to benefit from this advantage, jurisdiction agreements must be effectively formulated and included in the contract. If, for example, a dispute arises between the parties regarding the validity of the jurisdiction agreement due to unclear wording, this may result in various lawsuits being filed in different jurisdictions and would considerably delay resolution. Particular attention should therefore be paid to the correct wording of a jurisdiction agreement.
