Jurisdiction: one foot in, one foot out

Netherlands flag boat

The Atlantik Confidence has previously made the legal press twice: first when the Court of Appeal confirmed that a tonnage limitation fund can be established by means of a P&I Club Letter of Undertaking (The “Atlantik Confidence” [2014] EWCA Civ 217); and, second, as the first case in the UK where limits under the 1976 Limitation Convention were ‘broken’, with the court holding that the vessel had been deliberately sunk by the master and chief engineer at the request of her owner: as a result, liability could not be limited (The Atlantik Confidence [2016] 2 Lloyd’s Rep 525).

The latest twist (Aspen Underwriting Ltd v Kairos Shipping Ltd & Ors [2017] EWHC 1904 (Comm)) involves the vessel’s hull insurers (“Insurers” – the claimants in this action). Insurers had paid a total loss to the vessel’s owners in August 2013 (i.e. before the Court had held that the vessel had been scuttled) pursuant to a settlement agreement between them. In the present English litigation, Insurers seek to undo that settlement agreement and recover the sums paid out from the vessel’s owners and the mortgagee bank (the assignee of the policy and loss payee under it). The bank – based in the Netherlands – challenged the jurisdiction of the English court to hear the claim against it. This jurisdiction issue was decided in a judgment handed down on 27 July 2017.

Insurers had argued that they could establish jurisdiction in England on the following bases:

  1. The bank was bound by the settlement agreement which contained an exclusive jurisdiction clause.
  2. The bank was bound by an exclusive jurisdiction clause in the policy.
  3. Insurers’ claims – which were framed alternatively as a claim for damages for misrepresentation and a claim for restitution (unjust enrichment) as the settlement monies had been paid pursuant to a mistake of fact – were matters relating to tort where the harmful event had occurred in England, such that they fall within Article 7(2) of the Brussels Regulation (Recast) (the “Regulation”) and thus should be heard by the English court.

The main difficulty facing the Insurers on their first two arguments was that the bank was not a named party in either the settlement agreement or the policy, and the various arguments put forward by Insurers were not enough to convince the judge that the bank was bound by the exclusive jurisdiction clause in either.

That left Insurers’ third and final argument. The Court accepted the bank’s submission that that this was “a matter relating to insurance”, which would ordinarily mean it would have to be pursued in the Netherlands per Article 14 of the Regulation. However, the Court then went on to find that since the bank could not be described as the “weaker party” (per Recital 18 of the Regulation), it could not take advantage of the protection in Article 14, such that the bank could not require the claim to be brought in the Netherlands on that basis.

The Court held that the claim for damages for misrepresentation was a claim in tort within Article 7(2) of the Regulation, such that the English court had jurisdiction to hear the claim on the basis that the harmful event occurred here. However, it held that the claim in restitution, being based upon mistake, was not a tort claim and did not fall within Article 7(2). Accordingly the Court held that that claim will have to be pursued in the Netherlands. So Insurers are left in the curious position of being able to pursue the claim framed on one juridical basis (misrepresentation) in England but being required to pursue the same claim framed on a different juridical basis (restitution) in the Netherlands. The Judge was clearly troubled by this ostensibly odd outcome, describing it as “unsatisfactory on case management grounds”. The Court considered its hands to be tied by the terms of the Regulation, with the Judge noting that “this is the consequence of the Brussels Regulation as was accepted [by the European Court of Justice]”.

For another recent decision with potentially widespread implications for insurers seeking to rely on exclusive jurisdiction clauses, see our discussion of Assens Havn v Navigators Management (UK) Ltd: https://inceinsurance.com/2017/07/17/ecj-ruling-exposes-liability-insurers-to-direct-actions-across-the-eu/.

Richard Hugg