Posts Tagged  EWCA Civ 2590
Aspen Underwriting: The Supreme Court overrules on the issue of economically weaker parties in the insurance section.
I wrote earlier on the judgments at the High Court and the Court of Appeal in Aspen Underwriting v Kairos Shipping. The Supreme Court held yesterday and largely upheld the lower courts’ decisions, except for the issue of whether an economically equal party may nevertheless enjoy the benefit of the insurance section of Brussels Ia.
Reference is best made to my earlier posting for full assessment of the facts. The Supreme Court considered four issues.
Issue 1: Does the High Court have jurisdiction pursuant to the exclusive English jurisdiction clause contained in the Policy? This was mostly a factual assessment (is there a clear demonstration of consent to choice of court) which Lord Hodge for the SC held Teare J and the Court of Appeal both had absolutely right. Lord Hodge refers in support to a wealth of CJEU and English (as well as Singapore) courts on assignment and contractual rights v contractual obligations.
Issues 2 and 3: Are the Insurers’ claims against the Bank matters ‘relating to insurance’ (issue 2) within section 3 of the Regulation and if so, is the Bank entitled to rely on that section (issue 3)?
On issue 2, Teare J and the Court of Appeal had held that the Insurers’ claim against the Bank was so closely connected with the question of the Insurers’ liability to indemnify for the loss of the Vessel under the Policy that the subject matter of the claim can fairly be said to relate to insurance.
On this issue the insurers had appealed for they argued that a claim can be regarded as a matter relating to insurance only if the subject matter of the claim is, at least in substance, a breach of an obligation contained in, and required to be performed by, an insurance contract. They referred in particular to Brogsitter and also to Granarolo and Bosworth.
Lord Hodge disagreed with claimant, upholding Teare J and the CA: the need for restrictive interpretation is mentioned (at 38) and at 35 it transpires that of particular relevance in his analysis, is the very wording of the title of the insurance section: unlike all other special jurisdictional rules of interest, it does not include ‘contracts’. Further (at 36),
‘the scheme of section 3 is concerned with the rights not only of parties to an insurance contract, who are the insurer and the policyholder, but also beneficiaries of insurance and, in the context of liability insurance, the injured party, who will generally not be parties to the insurance contract.’
At 40 he holds that in any event the Brogsitter test is met:
‘The Insurers’ claim is that there has been an insurance fraud by the Owners and the Managers for which the Bank is vicariously liable. Such a fraud would inevitably entail a breach of the insurance contract as the obligation of utmost good faith applies not only in the making of the contract but in the course of its performance.’
However (issue 3) both Teare J and the CA eventually held that the insurance title failed to provide the bank with protection for they argued (as I noted with reference in particular to CJEU Voralsberger) that protection was available only to the weaker party in circumstances of economic imbalance between the claimant insurer and the defendant.
Here the SC disagrees and overrules. Lord Hodge’s reasons are mentioned at 43 ff, and I will not repeat them fully here. They include his view on which he is entirely right and as I have pointed out repeatedly, that recitals may be explanatory but only the rules in the Regulation have legal effect). Bobek AG’s Opinion in C-340/16 Kabeg features with force. Hofsoe is distinguished for, at 56,
‘In none of these cases where the CJEU has relied on the “weaker party” criterion to rule on applications to extend the scope of the section 3 protections beyond those parties who were clearly the policyholder, the insured, the beneficiary or the injured party, did the court call into question the entitlement of those expressly-named persons to that protection by reason of their economic power.’
That assessment is not entirely consistent for as Lord Hodge himself notes, and the CJEU acknowledges, in KABEG, Vorarlberger, Group Josi and GIE the jurisdiction of the forum actoris had been extended under articles 11(1)(b) and 13(2) to include the heirs of an injured party and also the employer who continues to pay the salary of the injured party while he was on sick leave.
All in all, it agree following Lord Hodge’s convincing review of the cases, that it is acte clair that a person which is correctly categorised as a policyholder, insured or beneficiary is entitled to the protection of section 3 of the Regulation, whatever its economic power relative to the insurer. (Even if particularly following Hofsoe the application of the section as a whole might need a more structured revisit by the CJEU). In the case at hand the Bank is the named loss payee under the Policy and therefore the “beneficiary” of that Policy (at 60).
In conclusion: Under A14 BIa the Bank must be sued in The Netherlands.
Finally, whether claims in unjust enrichment fall within article 7(2) (answered by Teare J in the negative) ‘does not arise’ (at 60). I am not entirely sure what this means: was it no longer challenged or was Teare J’s analysis on this straightforward? A different reply than that of Teare J would have required overruling Kleinwort Benson Ltd v. Glasgow City Council (No. 2)  1 AC 153 (HL), that a claim in unjust enrichment for mistake was neither a matter ‘relating to contract’ nor a matter ‘relating to tort’ for the purposes of EU private international law – an issue I discussed in my earlier posting in particular in its relationship with Rome I and II. With the SC’s refusal to entertain it, that authority therefore stands.
One does wish that the CJEU at some point have an opportunity further to clarify the insurance section and will do so in a holistic manner. The SC judgment here is one big step in the good direction.
(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 126.96.36.199, Heading 188.8.131.52.
Aspen Underwriting: When the domicile ship has sailed, litigation splinters. And distinguishing between contract and tort.
Update 21 November 2018 the Court of Appeal confirmed today:  EWCA Civ 2590. Update 2019 the Supreme Court will hear the case in November.
Aspen Underwriting v Kairos Shipping et al  EWHC 1904 illustrates the splintering of claims which may well occur when plaintiff chooses to ignore Brussels I’s core jurisdictional rule of domicile of the defendant. Evidently such splintering often is the strategic intention of a plaintiff and even if it does inconvenience them, having part of the claims settled by one court rather than another may still be its overall preference. The case however also highlights important crossed wires between the common law and EU law on the qualification of ‘tort’, and the relation between Rome II and Brussels I (Recast).
The vessel ATLANTIK CONFIDENCE sank in the Gulf of Aden in 2013. It had earlier been held in a limitation Action commenced by her Owners, the First Defendant, that the Vessel was deliberately sunk by the master and chief engineer at the request of Mr. Agaoglu, the alter ego of the Owners. In the current action the Hull Underwriters of the Vessel, who paid out on the hull and machinery policy (“the Policy”) in August 2013 but who now consider, on further investigation, that the Vessel was deliberately cast away by her Owners, claim recovery of the insurance proceeds which were paid to Owners and the Vessel’s mortgagees, Credit Europe Bank NV, the Third Defendant (“the Bank”).
The Bank is domiciled in the Netherlands. and maintains that under the Brussels Regulation the High Court has no jurisdiction to hear and determine the claim against the Bank. It must be sued in the courts of the Netherlands where it is domiciled. The Hull Underwriters maintain that the High Court does have such jurisdiction for three reasons. First, it is said that Bank is bound by a Settlement Agreement which confers exclusive jurisdiction on the court. Second, it is said that the Bank is bound by the exclusive jurisdiction clause in the Policy. Third, it is said that the claims brought against the Bank are matters which relate to tort, delict or quasi-delict and the harmful event occurred in England.
Teare J rejected the first and second argument on the basis of analysis of the settlement. He then looks into Article 7(2) Brussels I Recast. The insurance heading of the Regulation does not apply as the relations concern those between two professional parties (at 72 the High Court refers to C-347/08 Voralberger; the CJEU confirmed later in C-521/14 Sovag).
Whether the claim of misrepresentation leading to the settlement, is one in tort or one in contract depends on how closely one finds it to be connected to the contract at issue (the Settlement). Plaintiff suggests that where such misrepresentations induce a contract, in this case the Settlement Agreement, the resulting claims are not matters relating to tort within the autonomous meaning of Article 7(2) but are matters relating to a contract within Article 7(1).
Teare J settles on the basis of the following convincing argument, at 76: ‘The court is concerned with a claim between the Hull Underwriters and the Bank. The Hull Underwriters allege that misrepresentations made by the Bank induced the Hull Underwriters to enter into the Settlement Agreement with the Owners. They seek to recover damages suffered by the Hull Underwriters as a result of the Bank’s misrepresentations. Whilst there is a factual connection between the claim and the Settlement Agreement I do not consider that that is enough to make the claim a matter relating to a contract and so within Article 7(1). Where there is a claim against the contracting party and it is alleged that the contract should be rescinded on the grounds of misrepresentations made by that party because such misrepresentations induced the contract it can sensibly be said that the subject-matter of the claim is the contract. But in the case of the claim against the Bank I do not consider that it can be fairly said that the subject-matter of the claim is the Settlement Agreement.‘
Now, the claim for damages based upon misrepresentation can be brought in England so long as the “harmful event” occurred in England (at 79; with reference to Bier /Mines de Potasse split into locus delicti commissi and locus damni). Jurisdiction for the claim based on misrepresentation can be brought fully in England because (at 79) ‘either the damage occurred in England (where Norton Rose Fulbright signed the Settlement Agreement and/or where the $22m. was paid to Willis’ bank account in London) or the event giving rise to the damage occurred in London (being the place where the misrepresentations were made and/or the place where the Hull Underwriters were induced).’
At 78 the High Court highlights the difficulty of the qualification viz conflict of laws of restitution based on unjust enrichment. The common law has the precedent of the House of Lords in Kleinwort Benson v Glasgow  1 AC 153. Teare J summarises ‘In that case Lord Goff, with whom the other members of the court agreed on this point, said that a claim in restitution based upon unjust enrichment does not, save in exceptional circumstance, presuppose a harmful event and so is impossible to reconcile with the words of Article 7(2). He was not deterred from reaching this conclusion by the decision in Kalfelis. The claim for restitution in this case is based upon a mistake; it does not require a harmful event, though there might in fact be one as suggested by [plaintiff]. I consider that I am bound to follow the decision of the House of Lords and to hold that the claim in restitution based upon mistake is not within Article 7(2). It must follow that this court has no jurisdiction over that claim and that if it is to be pursued it must be pursued in the Netherlands where the Bank is domiciled.‘
The claim for unjust enrichment cannot be brought in England. Teare J observes the consequence of the Brussels I Regulation (at 80): ‘On case management grounds it is unsatisfactory to reach the conclusion that the tort claim may be brought in England but that the restitution claim may not be brought in England. However, this is the consequence of the Brussels Regulation as was accepted in Kalfelis. Of course, the entirety of the Hull Underwriters’ case against the Bank could be brought in the Netherlands but in circumstances where the Hull Underwriters’ case against the Owners and Managers is being brought in England that also is not satisfactory. The court cannot however base its jurisdictional decisions when applying the Brussels Regulation on considerations of forum conveniens.’
Of note finally is that Kleinwort Benson was issued post Kalfelis but prior to Rome II, which contains a specific heading on unjust enrichment. Notwithstanding its clear non-contractual nature (‘non-contractual’ being the generic title of Rome II which therefore encompasses more than just torts), it is not generally considered a tort: this continues to create issues in the application of Rome II.
A good case to illustrate the lasting challenges in distinguishing contracts from torts.
(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 184.108.40.206, Heading 220.127.116.11.