Supreme Court decision leaves troubled waters for insurers’ shipping claim
In a unanimous decision on 1 April 2020, the Supreme Court ruled that the Courts of England and Wales do not have jurisdiction to hear a claim against a Turkish shipping company’s bank, to recover sums the insurer paid out for a cargo ship that was later determined to have been deliberately sunk (scuttled) by its owners.
Aspen Underwriting Ltd and 12 others (“Insurers“) insured the “Atlantik Confidence” (“Vessel“) under a hull and machinery policy, which valued the Vessel at $22 million (“Policy“). The Policy had an exclusive jurisdiction clause in favour of the Courts of England and Wales.
Credit Europe Bank NV, a bank domiciled in the Netherlands (“Bank“), funded the re-financing of the Vessel. In exchange, the Policy was transferred to the Bank and it took a mortgage of the Vessel under the terms of the loan granted to Kairos Shipping Ltd, the owners and managers of the Vessel (“Owners“).
After the Vessel sank in Yemen in 2013, the Insurers entered into settlement discussions with the Owners. The Bank was not involved in these discussions. However, it did issue a letter of authority to the Insurers, authorising them to pay any claims relating to the loss of the Vessel to a nominated company, Willis Ltd. Eventually, the Insurers concluded a settlement agreement with the Owners and made a payment of $22 million to Willis Ltd.
In October 2016, the Admiralty Court held that the Owners had deliberately sunk the Vessel by allowing water to flow into the hull (ie scuttling). The Insurers (who were not involved in that claim) therefore commenced legal proceedings in the High Court seeking to set aside the settlement agreement and recover the $22 million, either in restitution or as damages for alleged misrepresentations by the Owners and the Bank. The Bank challenged the jurisdiction of the High Court to hear the Insurers’ claims against it.
Mr Justice Teare, sitting in the High Court, found that the Bank was not bound by the exclusive jurisdiction clause in the Policy. However, the Bank could not rely on section 3 of the Recast Brussels Regulation (“Regulations“), which provides (in article 14) that, in “matters relating to insurance“, an insurer may only bring proceedings in the courts of the member state where the defendant is domiciled.
The High Court therefore had jurisdiction to hear the damages claim, pursuant to article 7(2) of the Regulations – which provides that in “matters relating to tort, delict or quasi-delict”, a defendant may be sued in the place where the relevant “harmful event” occurred.” However, this would not apply to the restitution claims, since these were not ‘matters relating to tort, delict (ie intentional or negligent breaches of duty) or quasi-delict’. The Court of Appeal subsequently upheld these findings.
The Supreme Court’s Determination
The Insurers and the Bank both appealed to the Supreme Court, which affirmed the findings of Teare J and the Court of Appeal that the Bank was not bound by the exclusive jurisdiction clause in the Policy. Justice Patrick Hodge held that, “Under EU law a jurisdiction agreement in a contract binds a defendant only if there is an actual consensus between the parties which is clearly and precisely demonstrated.”
The Supreme Court noted that the Bank had not asserted its rights under the Policy rather, it had left the settlement negotiations to the Owners. Its letter of authority merely facilitated that settlement. As it was not a party to the Policy, the Bank was not required to submit to the jurisdiction of the courts of England and Wales in an action brought by the Insurers. Hodge J stated that, “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.”
Given these findings, there was no need for the Supreme Court to address the question of whether the Insurers’ restitution claims are matters relating to ‘tort, delict or quasi-delict’ under article 7(2) of the Regulations.