News / 03-04-2020

Aspen Underwriting Ltd and others (Appellants) v. Credit Europe Bank NV (Atlantik Confidence) [2020] UKSC 11

In a decision that will be significant for marine and other insurers, the Supreme Court has found that the English courts did not have jurisdiction over claims brought by the hull underwriters of the vessel, Atlantik Confidence, as against the Dutch bank that was the mortgagee of the vessel and also the assignee of the insurance policy and the loss payee. The Supreme Court held that the bank was not bound by the exclusive English jurisdiction clauses in the policy or the settlement agreement with the vessel owners and managers. Nor could the underwriters rely on the special insurance provisions in the recast Brussels Regulation to establish English Court jurisdiction over their claims. The underwriters are now faced with the prospect of pursuing their claims against the bank in the Netherlands.

The background facts

In 2013, the vessel sank off the coast of Oman following a fire on board. The vessel was valued at US$22 million under the hull and machinery risks insurance policy, which incorporated an exclusive English jurisdiction clause. The underwriters subsequently entered into a settlement agreement, also governed by an exclusive English jurisdiction clause, with the owners and their managers that resulted in the claim being paid.

A bank domiciled in the Netherlands had funded the refinancing of the vessel and had taken a mortgage over the vessel and an assignment of the policy and was also named as loss payee. The bank was not directly involved in the settlement negotiations between the underwriters and the owners/managers, but it did issue a letter authorising the underwriters to pay the insurance proceeds under the policy to insurance brokers. This was duly done and the brokers paid out the proceeds to the vessel interests.

In subsequent court proceedings, the Court held that the vessel had been deliberately scuttled. The underwriters sought to set aside the settlement agreement and recover the money they had paid out in respect of the claim. The underwriters alleged misrepresentation by the owners/managers that misled them into believing that the loss was accidental and an insured peril and inducing them to enter into the settlement agreement and pay the claim. In addition to suing the owners and managers, the underwriters sued the bank on the grounds that it was also liable for misrepresentation. Underwriters further claimed that the bank had “facilitated” the owners’/managers’ misrepresentations that led to the pay-out. In response, the bank challenged the English Court’s jurisdiction over the underwriters’ claims against it. 

The recast Brussels Regulation

Article 4 of the recast Brussels Regulation provides that a defendant must be sued in the EU member state where they are domiciled. However, where the claim is brought in tort then, pursuant to Article 7(2), the defendant may be sued in the place where the harmful event occurred. This is subject to Article 14 of section 3 of the Regulation, which provides that in matters relating to insurance, an insurer may only bring proceedings in the courts of the member state where the defendant is domiciled, irrespective of whether the defendant is the policy holder, insured or beneficiary. 

Article 25 gives jurisdiction to the member state court chosen by the parties. The parties’ consensus on the choice of jurisdiction must be clearly demonstrated, usually by a written jurisdiction agreement. 

The lower court decisions

At first instance, the judge held that the Court had jurisdiction over the claims for damages for misrepresentation, pursuant to Article 7(2) and also the Misrepresentation Act 1967, but not in respect of the claims for restitution. The judge further found that the exclusive jurisdiction clauses in the policy and settlement agreement did not bind the bank.

On appeal, the Court of Appeal held that the bank was not a party to the settlement agreement and so was not bound by the exclusive jurisdiction clause in that agreement. It further held that the bank had not become bound by the exclusive jurisdiction clause in the policy by asserting its right to payment under the policy as assignee or loss payee. The bank would only have been bound by the jurisdiction clause if it had commenced proceedings against the underwriters. Further, by issuing the letter of authority, the bank had not asserted rights against the insurers that made it subject to the jurisdiction clause. However, the Court of Appeal did not think that the bank could rely on Article 14, the reasoning being that while the recast Brussels Regulation provided protection for the “weaker party” in the case of certain types of contract, including insurance contracts, the bank could not be deemed as the “weaker party” in this case. The Court of Appeal, therefore, upheld the finding that it had jurisdiction over the damages claims, but not the restitution claim which did not come within Article 7(2).

The Supreme Court decision

The Supreme Court agreed that the bank was not bound by the exclusive jurisdiction clauses. The bank was not a party to the policy that contained the jurisdiction clause. An assignment of contractual rights did not make the assignee a party to the contract. There were circumstances in which a non-party could become bound by an exclusive jurisdiction clause but the required consent to the jurisdiction agreement had not been demonstrated in this case. Specifically, the bank had not asserted any rights under the policy that also bound it to take on the obligations, including the obligation to litigate only in England. The bank was also not a party to the settlement agreement. The Supreme Court further rejected the argument that the bank had voluntarily submitted to English Court jurisdiction.

With regard to the insurance provisions in the recast Regulation, the Supreme Court concluded that the underwriters’ claims against the bank came within the scope of Section 3 which applied to “matters relating to insurance”. The wording of the provision was broad and it was clearly designed to protect the rights not only of parties to the policy but also third parties such as beneficiaries and, in the context of liability insurance, injured parties who would not normally be party to the policy. 

However, the Supreme Court disagreed with the lower courts’ conclusions that the bank could not be considered the “weaker party” and could not benefit from the protections afforded by Section 3. Article 14 applied equally to all categories of policy holder, insured and beneficiary, unless otherwise explicitly provided for in the Regulation. Any derogation from the jurisdictional rules in relation to insurance matters had to be interpreted strictly and to undertake an analysis of the relative strength or weakness of contracting parties would militate against legal certainty. The bank, as the named loss payee under the policy, was the beneficiary of the policy and entitled to be sued only in its country of domicile, namely the Netherlands. The underwriters would, therefore, have to pursue the bank in its domestic courts in respect of all claims, including the claim for damages for misrepresentation.

Comment

It is noteworthy that although the bank was in the business of ship finance, which involved it in the settlement of insurance claims, for the purposes of the special insurance provisions in the recast Regulation, it was still deemed to be the “weaker party” in its relationship with the insurers. This is a conclusion that will doubtless be noted by insurers going forward. 

The judgment is also helpful in confirming the broad scope of the application of Article 14 of the recast Brussels Convention and the English Court’s approach to interpretation, which will no doubt be of interest to insurers and other entities that may benefit from a contract of insurance to which they are not a party. 

Finally, the decision is of general interest for its findings on when a non-party to a contract might be bound by a jurisdiction agreement in that contract.