Etihad Airways PJSC v Prof. Dr. Lucas Flöther
| Jurisdiction | England & Wales |
| Judge | Mr Justice Jacobs,Mr. Justice Jacobs |
| Judgment Date | 18 November 2019 |
| Neutral Citation | [2019] EWHC 3107 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2019-000047 |
| Date | 18 November 2019 |
[2019] EWHC 3107 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Rolls Building,
Fetter Lane, London, EC4A 1NL
Mr Justice Jacobs
Case No: CL-2019-000047
Robin Dicker QC and Roseanna Darcy (instructed by Shearman & Sterling (London) LLP) for the Claimant
David Joseph QC, Adam Kramer and Ian Higgins (instructed by Latham & Watkins LLP) for the Defendant
Hearing dates: 22 nd and 23 rd October 2019.
Approved Judgment
A: Introduction and Factual Background
The application
This is an application by the Defendant (“the Insolvency Administrator”), on behalf of Air Berlin plc (“Air Berlin”) for declaratory relief and a stay of proceedings commenced by the Claimant (“Etihad”) on 22 January 2019. Air Berlin disputes the jurisdiction of the English court on the basis that the jurisdiction clause contained in a Facility Agreement concluded between Etihad and Air Berlin, and which provides for the jurisdiction of the English court, has no application to the claims which have given rise to the present proceedings. Those claims are made by Air Berlin in proceedings commenced by the Insolvency Administrator of Air Berlin against Etihad in the Regional Court of Berlin on 24 July 2018 (the “German proceedings”).
The claims made in the German proceedings relate to a letter dated 28 April 2017 from Mr James Hogan, the then President and CEO of Etihad Aviation Group PJSC, to the directors of Air Berlin (the “Comfort Letter”), which provided as follows:
“For the purposes of the finalisation of the financial statements of Air Berlin plc for the year ended 31 December 2016, having had sight of your forecasts for the two years ending 31 December 2018, we confirm our intention to continue to provide the necessary support to Air Berlin to enable it to meet its financial obligations as they fall due for payment for the foreseeable future and in any event for 18 months from the date of this letter. Our commitment is evidenced by our historic support through loans and obtaining financing for Air Berlin”.
In the German proceedings, Air Berlin advances two alternative claims against Etihad under German Law:
i) A claim for breach of the Comfort Letter on the basis that the Comfort Letter is legally binding.
ii) Alternatively, if the Comfort Letter is not legally binding, a pre contractual claim in culpa in contrahendo, on the basis that Etihad used its negotiating power during the negotiations between the parties to avoid providing a clearly binding statement whilst, at the same time, inspiring the trust of Air Berlin that it would adhere to the commitment in the Comfort Letter.
The German proceedings were commenced prior to the present English proceedings, in which Etihad seeks the following declarations:
a) The claims made and declarations sought in the German Proceedings are subject to the exclusive jurisdiction of the English court within Article 25 of the Judgments Regulation, because, on its true construction, they are within the scope of the exclusive jurisdiction clause contained in the €350m Facility Agreement;
b) The claims made and declarations sought in the German Proceedings are governed by English Law on the true construction of the governing law clause in the €350m Facility Agreement, an implied agreement between the same parties and/or the application of Rome I and/or Rome II;
c) The Claimant is not liable for breach of the Comfort Letter, as alleged in the German Proceedings, because that letter, on its true construction, did not create a legally binding promise to provide financial support to Air Berlin;
d) The Claimant is not liable on the basis of culpa in contrahendo, as alleged in the German Proceedings, because the facts and matters relied on in the German Proceedings do not give rise to a cause of action known to English law; and
e) Further, and in any event, the Claimant is not liable to the Defendant as alleged by the Defendant in the German Proceedings.
Air Berlin's application raises issues as to:
i) the scope of the jurisdiction clause under English law;
ii) whether the jurisdiction clause is inapplicable as a matter of EU law because the relevant dispute does not arise in connection with the “particular legal relationship” between the parties, as required by Article 25 of EU Regulation No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (“Brussels Recast”);
iii) whether the present proceedings should be stayed in favour of the German court which is first seised, or conversely whether Article 31 (2) of the Brussels Recast applies so that the English court is not required to stay. This question depends upon a legal issue as to whether so-called “asymmetric” jurisdiction clauses fall within Article 31 of Brussels Recast. Air Berlin seeks a preliminary reference of that issue to the Court of Justice of the European Union.
Factual Background
Etihad acquired a 2.99% stake in Air Berlin in August 2011 and, in December 2011, increased its shareholding to 29.21% by subscribing for 31.57 million new shares for a subscription price of €72.9 million pursuant to an agreement dated 19 December 2011. That agreement, which was drafted in English, was expressed to be governed by English law and contained an exclusive jurisdiction clause in favour of the English courts.
Between 2011 and 2016, Etihad invested or made available further finance to the Air Berlin group, amounting to approximately a further €721 million. The relevant agreements between Etihad and Air Berlin, pursuant to which such equity or debt finance was provided, were, almost without exception, governed by English law and subject to the exclusive jurisdiction of the English courts.
Air Berlin had a long history of financial difficulties and, in 2016, it began working, together with various external advisors, on a restructuring. The proposed restructuring, which became known as the “new Air Berlin strategy”, had three key elements: (a) the wet lease of 40 aircraft by Air Berlin to Lufthansa in respect of which Lufthansa would pay a deposit of €220 million; (b) a joint venture between Etihad and TUI (a travel and tourism company), which was to involve Etihad purchasing Air Berlin's subsidiary airline, NIKI, for €300 million and contributing it to the joint venture with TUI; and (c) the remaining businesses of Air Berlin continuing to focus on scheduled network traffic including long-haul routes. The initial intention was that Air Berlin would fund its restructuring with the cash generated by the first two elements of this plan.
Given that Air Berlin was a UK public limited company with its registered office in London, its annual financial statements needed to be prepared in accordance with the Companies Act 2006. In November 2016, KPMG, Air Berlin's external auditors, identified going concern and funding as significant issues for the forthcoming audit. Concerned to ensure that KPMG would sign off on Air Berlin's financial statements at the end of April 2017 on a going concern basis, the management of Air Berlin communicated various requests for financial support to Etihad.
In November 2016, Etihad engaged Ernst & Young (“E&Y”) to perform an independent review of Air Berlin's cash requirements. E&Y concluded that, in addition to the proceeds of the Lufthansa wet leases and the NIKI transaction, Air Berlin was likely to need an additional €200 million. In December 2016, Etihad indicated that, subject to formal approval, it would be willing to provide Air Berlin with an additional €350 million, thus providing a ‘buffer’ of €150 million over and above the amount that E&Y had identified.
In February 2017, Etihad assisted Air Berlin to refinance €140 million 6% Convertible Bonds issued on 6 March 2013 in respect of which a put option was shortly due to arise on 6 March 2017 (the “Old Bonds”). Air Berlin proposed an exchange offer involving the issue of new €125 million 8.5% Guaranteed Convertible Bonds due 2019, with a put option date of 29 December 2017 (the “New Bonds”). Etihad agreed to support this proposal by accepting the exchange offer in respect of the €40 million of bonds that it held in the Old Bonds and by entering a total return swap with HSBC (“the Total Return Swap”), which had agreed to subscribe for €53.7 million of the New Bonds.
During March and April 2017, KPMG identified various further requirements for it to sign-off Air Berlin's financial statements on a going concern basis and without an emphasis of matter, which Air Berlin sought to address mainly by looking to Etihad to provide additional financial support. The correspondence and discussions are described in more detail in Section B below. One important feature was that Air Berlin was now said to require additional cash accumulating to €558 million, some €208 million more than the €350 million that Etihad had already indicated that it was willing to provide. In addition, Air Berlin was found to need ‘non-cash’ support which amounted to a further €600 million. This related to: the put option on the New Bonds which was exercisable on 29 December 2017; the need to extend the loans granted to Air Berlin by National Bank of Abu Dhabi PJSC (“NBAD”) and Abu Dhabi Commercial Bank PJSC (“ADCB”); and the need to refinance €225 million 8.25% Fixed Rate Notes due to mature in April 2018.
Between 5 and 28 April 2017, Air Berlin and Etihad, together with KPMG, discussed the ingredients and terms, and exchanged drafts, of the arrangements to support Air Berlin with financial support. At the same time, Air Berlin continued to pursue arrangements with third parties, in particular the German state of North Rhine Westphalia and Lufthansa, to support its...
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