English Supreme Court rules in favour of insurers in jurisdictional dispute

Starlight Shipping v Allianz Marine & Aviation Versicherungs AG, the “Alexandros T” [2013] UKHL 70

Background

Starlight Shipping Company (Starlight), the Greek owner of the Alexandros T, issued proceedings in the English courts against insurers in relation to a claim for the total loss of the vessel in May 2006. The insurers denied liability on the grounds that the vessel was unseaworthy and that there had been a failure properly to report and repair damage to the vessel. Starlight commenced proceedings in England, and in the course of preparing for those proceedings, Starlight alleged that the insurers had tampered with evidence and bribed key witnesses. Starlight further alleged that the deliberate refusal of insurers to make payment had caused it substantial consequential loss amounting to nearly US$80 million. The claims were settled by two agreements in December 2007 and January 2008, and the proceedings were stayed under Tomlin Orders.

The settlements were governed by English law and subject to English exclusive jurisdiction. In April 2011 the assured commenced proceedings in Greece alleging torts equivalent to malicious falsehood and defamation. The insurers commenced proceedings in England seeking the lifting of the stays under the Tomlin Orders, damages for breach of the releases in the settlement agreements, damages for breach of the exclusive jurisdiction clause, declarations of non-liability and indemnity against the costs of the Greek proceedings.

At first instance, Burton J held that the Greek proceedings were in breach of the English exclusive jurisdiction clause and the settlement agreements and, therefore, the insurers were entitled to an indemnity against each of the claims made in the Greek proceedings. The decision was overturned at the Court of Appeal, which held that:

  • The English proceedings had to be stayed under Article 27 of Council Regulation 44/2001/EC (the Brussels Regulation). The Greek and English proceedings involved the same cause of action, and the Greek courts were first seised so they had exclusive jurisdiction.
  • Had the point arisen, the English proceedings would not have been stayed under Article 28 of the Brussels Regulation. The Greek and English actions were related, but the Greek proceedings were also related to the original claims under the policy, so that he English court had been first seised of those related proceedings.

Supreme Court judgment

The insurers appealed granting the Supreme Court its first opportunity to examine the jurisdictional rules in the Brussels Regulation. The Supreme Court unanimously overturned the Court of Appeal’s decision, although there was some disagreement as to whether the cause of action was the same. The Supreme Court held:

  • None of the causes of action relied upon in the Greek proceedings had identity of cause or object with the original claim for indemnity.
  • Article 27 of the Brussels Regulation required a comparison of the claims made in each jurisdiction, disregarding defences, so it was not appropriate to compare what each party wished to achieve. The insurers’ claims for damages and declarations as to the meaning of the settlements were in contract and were different from those in the Greek proceedings, which were based in tort. It would have been different if the insurers had sought a declaration of non-liability in the Greek proceedings. Lord Mance dissented to a limited extent, holding that the claims for a declaration that the Greek claims fell within the terms of the release in the settlement agreements were the same cause of action as the Greek proceedings themselves. A reference to the Court of Justice of the European Union (CJEU) was not required as the position was clear, other than in respect of the application for a declaration that the Greek claims fell within the terms of the settlement, where a reference should be made unless that claim was abandoned.
  • To the extent that the insurers sought a declaration that the Greek proceedings fell within the terms of the settlements, the Greek courts were first seised of the issue. However, if the insurers maintained their claim for a declaration that the Greek claims fell within the release in the settlement agreements then it would be necessary to refer to the CJEU the question whether the English or Greek court was first seised of the causes of action which were the subject of the Greek proceedings, given that the new claims were added to the original English proceedings which had commenced before the Greek proceedings.
  • A stay of the English proceedings would be refused under Article 28 of the Brussels Regulation. Article 28 required a comparison of the proceedings themselves and not the claims made in those proceedings, and it was not disputed that the proceedings were related. The stay granted of the original English proceedings did not bring an end to them, so that when the Greek proceedings were commenced there were existing related English proceedings in place. It might have been appropriate to make a reference to the CJEU on the first seised issue, but in the event it was not critical: even if the Greek courts were first seised, a stay would be refused as a matter of discretion given that it was arguable that the Greek proceedings were in breach of the settlement agreements.

The case is far from over but the insurer’s successful appeal marks a significant step in how complex jurisdictional disputes will be considered by the Supreme Court and casts light on the interpretation of the first seised rule in a commercial context.

Norton Rose Fulbright LLP represented Lloyd’s market insurers in this matter.

For further information, Starlight Shipping v. Allianz Marine & Aviation Versicherungs AG, the “Alexandros T” [2013] UKHL 70.

Faraday Reinsurance Co Ltd v Howden North America Inc [2011] EWHC 2837 (Comm)

The defendant assured, Howden North America Inc (HNA), obtained cover for asbestos liabilities under three consecutive excess of loss policies written by Faraday Reinsurance Co Ltd. The second and third policies were governed by UK law (which the court held to mean English law) and were subject to non-exclusive English jurisdiction, but the first policy was silent on both points. Proceedings were brought against HNA in 1999, and HNA commenced proceedings against the US insurers in 2003 and again in 2009.

In August 2010, NHA notified Faraday that no claims were being made against it at this stage, although they might be at some future point. In December 2010, Faraday issued a claim form seeking a declaration that the policies were governed by English law, and obtained permission to serve the claim form outside the jurisdiction but this was not served until 1 June 2011. Thereafter Faraday was made a defendant in the US proceedings. In the present case HNA sought to have permission for service out set aside.

Beatson J upheld the judge’s order for service out.

  1. Faraday had the better of the argument that jurisdiction existed under the Civil Procedure Rules, Practice Direction 6B, paragraph 3.1(6), on the basis that the contracts were made within the jurisdiction and (in the case of the second and third contracts) contained jurisdiction clauses in favour of England.
  2. Faraday had a real prospect of success in showing that there was an implied choice of English law for the first contract, given that it was made in England on English forms and claims were to be notified to brokers in England.
  3. England was the most appropriate forum: the contracts were arguably governed by English law; a trial would come on much more quickly in England; and there was a risk of different outcomes in the two jurisdictions, but that did not outweigh the convenience of England.

For further information, Faraday Reinsurance Co Ltd v. Howden North America Inc & Anor [2011] EWHC 2837 (Comm) (01 November 2011).

Mujur Bakat SDN BHD v. Uni Asia General Insurance Berhad [2011] EWHC 643 (Comm)

The claimants, both Malaysian companies, were the owner and manager of the vessel M/V Mujur 1. The vessel was insured with the defendant Malaysian insurers on the terms of the Institute Time Clauses Hulls 1983. The policy was placed in Malaysia but expressly stated to be governed by “English law and practice”.  The vessel grounded on 15 January 2009 off Indonesia and the claimants asserted that it was a constructive total loss.

The claimants obtained permission from Flaux J to serve a claim form on the insurers on the ground that the policy was governed by English law. Eder J held that the permission should be set aside for the reason that England was not the most appropriate forum for the hearing of the disputes. The insurers had raised three defences: (a) breach of warranty in relation to the licensing of the vessel with the Mongolian registry and compliance with the registry’s regulations; (b) breach of warranty in relation to the maintenance and management of the vessel; and (c) failure to sue and labour. Under Malaysian law the Malaysian courts would apply English law, and the legal issues were all straightforward. The main evidence was factual, and the relevant witnesses were located in and around Malaysia and many of them did not speak English as a first language. Malaysia was, therefore, a more convenient forum.

For further information, Mujur Bakat SDN BHD & Anor v Uni. Asia General Insurance Berhad & Ors [2011] EWHC 643 (Comm) (18 March 2011).

Sulamerica CIA Nacional De Seguros SA v. Enesa Engenharia SA [2012] EWHC 42 (Comm)

The claimant was the insurer of hydro electric facilities in Brazil. Both parties were Brazilian, the risk was situated in Brazil and there was a dispute resolution clause which provided that the policy was governed by the law of Brazil and that all disputes were to be subject to the exclusive jurisdiction of the Brazilian courts. The policy also provided that the parties would seek to have any disputes resolved amicably by mediation and that if mediation failed then any disputes as to the amount payable under the policy were to be resolved by arbitration with its seat in England. A dispute arose as to alleged change of risk under the policy. The parties were unable to agree on a mediation procedure, and the defendant commenced judicial proceedings in Brazil.

Cooke J granted the claimant an anti-suit injunction so that the dispute could be referred to arbitration in London.

  1. The law applicable to the arbitration clause was English law. There was no necessary link between the law applicable to the policy and the law applicable to the arbitration clause, and there was a closer link between the seat of the arbitration and the law applicable to the arbitration clause.
  2. The agreement to mediate did not constitute a legally binding obligation as the mediation clause did not specify a procedure for the mediation or for the appointment of a mediator, so there was no condition precedent of mediation pending the commencement of arbitration proceedings.
  3. The arbitration clause applied to disputes of both liability and quantum, and even if that was wrong then a dispute as to whether anything was payable at all was a dispute as to the amount payable.
  4. In the case of a conflict between jurisdiction and arbitration provisions, arbitration prevailed and the jurisdiction clause was confined to enforcement of the award or cases in which the parties agreed to waive the arbitration clause.

For further information: Sulamerica CIA Nacional De Seguros SA & Ors v. Enesa Engenharia SA & Ors [2012] EWHC 42 (Comm) (19 January 2012)

Sherdley v Nordea Life and Pension SA [2012] EWCA Civ 88

In June 2006 and in April 2007 the Sherdleys, who were British nationals, invested in two individual unit-linked life insurance contracts with Nordea, a Luxembourg company. At the time of the contacts the Sherdleys were living in both Wales and Spain. As regards both contracts, the claimants had initial meetings to discuss the investments, they then signed application forms and general conditions, and subsequently they signed proposal acceptances. The general conditions provided that the courts of Luxembourg possessed exclusive jurisdiction whereas the proposal acceptances stated that the Spanish courts had exclusive jurisdiction. The investments were allegedly not a success and the Sherdleys moved to Spain. In June 2010 they commenced proceedings against Nordea in England and Nordea challenged the jurisdiction of the English courts.

The Court of Appeal held that the claim could not be brought in England.

  1. At the time of the contracts the Sherdleys were domiciled in England, but by the time of the proceedings they were domiciled in Spain.
  2. Under article 9 of the Brussels Regulation, the Sherdleys had the right to sue either in the courts of their own domicile (which, at the time of the action, was Spain) or in the courts of Nordea’s domicile (which, at the time of the proceedings was Luxembourg).
  3. Under article 13, it was possible to contract out of article 9 only by an agreement which allowed the Sherdleys the additional option of suing in the courts of a country other than that specified by article 9. If a jurisdiction clause did not satisfy article 13, it was void and neither party could enforce it.
  4. It was not necessary to decide whether there had been any initial agreement that the English courts would have jurisdiction and, if there had been, whether that agreement had been superseded by an agreement to confer exclusive jurisdiction on the courts of Luxembourg or, alternatively, the courts of Spain. Any of those agreements would have been void under article 13, as they removed the claimants’ right to sue in either Spain or Luxembourg.

For further information, Sherdley & Anor v Nordea Life and Pension SA (Societe Anonyme) [2012] EWCA Civ 88 (16 February 2012).