Jurisdiction in Matters of Insurance: Part 1

Aspen Underwriting Ltd & Ors v Credit Europe Bank NV [2020] UKSC 11

01 April 2020

Background

This case concerned the application of the Brussels Recast Regulation (‘BRB’) to a hull and machinery risks insurance policy containing an exclusive jurisdiction clause in favour of England and Wales (‘the Policy’). The policy was taken out for a marine vessel (‘the Vessel’) by its owners and managers (‘the Owners and Managers”), and was underwritten by the Appellants (‘the Insurers’). The Respondent (‘the Bank’) was both (i) beneficiary of the Policy as mortgage of the insured vessel, and (ii) the assignee of the Owners and Managers’ rights under the Policy.

After Vessel sank on 3 April 2015, the Bank, at the Owners’ request, issued a Letter of Authority addressed to the Insurers formally authorising the Insurers to pay the proceeds of the insurance claim to the relevant insurance brokers. The Letter of Authority was dated 5 April 2013 and confirmed that the Bank was the sole loss payee of the policy, and that settlement of such amounts in account to the nominated brokers shall constitute absolute discharge in respect of the amounts paid.

A Settlement Agreement was subsequently negotiated and entered into on 6 August 2013 by the Owners, Managers, and the Insurers. The Settlement Agreement warranted that, subject to the interests of the Bank, they were the only parties entitled to the settlement sum. Clause 4 of the Settlement Agreement confirmed that (subject to an irrelevant exception) the parties did not intend to confer any benefit on third parties which could be enforced by third parties under the Contracts (Rights of Third Parties) Act 1999. Clause 5 provided that English law was the governing law of the contract and that the parties submitted to the exclusive jurisdiction of the English High Court in respect of any claims arising in connection with the agreement. Pursuant to the Settlement Agreement, the Insurers paid out $22 million in full and final settlement of the claim to the brokers, who remitted payment to the Bank to an account in Malta.

In 2016, the Admiralty Court held in Kairos Shipping Ltd v Enka & Co LLC (“The Atlantik Confidence”) [2016] 2 Lloyd’s Rep 525, a separate set of proceedings, that the Vessel had been scuttled: it had been deliberately sunk at the request of the alter ego of the Owners. The Insurers therefore commenced the present set of proceedings against the Owners, Managers, and Bank seeking to avoid the Settlement Agreement on the basis of misrepresentation and/or mistake, and claimed damages or restitution. The Bank, as domiciliary of the Netherlands, challenged the jurisdiction of the English courts.

The Issues on Appeal

Three (of the four) issues raised in the appeal were determined by the Supreme Court:

(i) Does the High Court have jurisdiction pursuant to the exclusive jurisdiction clause contained in the Policy?

(ii) Are the Insurers’ claims against the Bank “matters relating to insurance” within Chapter II, section 3 of the Regulation?

(iii) If the answer to (ii) is yes, is the Bank entitled to rely on section 3 by virtue of it falling within a class of persons who are entitled to the protection afforded by that section?

Issue 1: Exclusive Jurisdiction under the Policy

The Court of Appeal held that the Bank was not bound by the exclusive jurisdiction clause in the Policy by asserting its rights to payment under that Policy as loss payee and assignee.

In considering whether this were correct, Lord Hodge (with whom the other six Justices of the Supreme Court agreed) first considered the position under EU law. The case law of the CJEU holds that a jurisdiction agreement in a contract will bind a defendant only if there is actual consensus between the parties which is clearly and precisely demonstrated. Thus a jurisdiction agreement in an insurance contract does not bind a third party beneficiary of insurance who is domiciled in a different contracting state and who has not expressly subscribed to the clause, nor a victim of insured damage who wishes to bring an action directly against the insurer:

EU law however recognises that a person who is not a party to a jurisdiction agreement may be taken to have consented to it if, under the applicable national law, it became “the successor” to the rights and obligations under the contract. Whether or not the third party became such a ‘successor’, however, depends on national law.

Under English law, assignment transfers rights under a contract but cannot transfer obligations absent the consent of the party to whom the obligations are owed. Rights assigned, however, may be conditional or qualified, thereby preventing an assignee from exercising the rights without being subject to the conditions or qualifications in question. In effect, ‘conditional benefits’, as such rights are often called, cannot be exercised by an assignee in a way which is inconsistent with the terms of a contract.

Of the authorities cited to the Court, Lord Hodge considered that the formulation by Hobhouse LJ in The Jay Bola best encapsulated the principle. In that case, an assignee sought to assert its assigned rights under a voyage charter by bringing proceedings in Brazil, notwithstanding an arbitration clause in the charter. An anti-suit injunction was granted on the ground that :

“… the [assignee] is not entitled to assert its claim inconsistently with the terms of the contract. One of the terms of the contract is that, in the event of dispute, the claim must be referred to arbitration. The insurance company is not entitled to enforce its right without also recognizing the obligation to arbitrate.”

In the present case, the Bank did not even go so far as to assert it claim to payment. It was common ground that the Bank was not party to the Settlement Agreement and derived no rights under it. The Letter of Authority, which the Bank produced at the request of the Owners and the Managers, facilitated the settlement and provided a mechanism by which it could receive its entitlement. At the time of payment of the proceeds of the Policy there was no dispute as to the Bank’s entitlement and no need for legal proceedings. There was therefore no inconsistency between the Bank’s actions and the exclusive jurisdiction clause. The Bank therefore was not bound by an agreement as to jurisdiction under article 15 or article 25 of the Regulation.

Commentary

This case makes clear an assignee of contractual rights may in some circumstances also be bound, albeit indirectly, to the obligations of the assignor: under the ‘conditional benefits’ doctrine, an assignee may not assert its rights in a way that is inconsistent with the wider contract. Although the question of whether the assignee has purported to assert rights will largely be one of fact and, therefore, vary from case to case, the present appeal demonstrates that the timing of the proceedings may sometimes be a factor. Of particular relevance in such circumstances will be whether the proceedings are ones (i) in which the assignee’s rights are in dispute; or (ii) as was the present case, in which the assignee’s rights are beyond dispute and the proceedings go to some other matter.