Respecting law and jurisdiction – a one way street?

Brussels EU
A troublesome and increasingly complex issue facing liability insurers is that of direct actions pursued by third parties in foreign courts in breach of law and jurisdiction provisions in the policy. See, for example, the recent CJEU decision in Assens Havn v Navigators (Case C-368/16) where it was held that per the Brussels regime, where a direct action could be brought in a foreign EU State, a clause in the policy providing for the exclusive jurisdiction of the English court could effectively be ignored by the third party claimant (see our blog here. The position in respect of arbitration remains unclear, but the EJEU’s decision in Gazprom (Case C-536/13) (in which the CJEU held that the Brussels I Regulation neither precludes nor requires a Member State to recognise and enforce arbitral awards granting anti-suit injunctions) does little to fill one with hope.

In BAE Systems Pension Funds Trustees Ltd v Bowmer & Kirkland Ltd & Ors [2017] EWHC 2082 (TCC) the claimants issued protective proceedings in the Technology and Construction Court in London in respect of alleged negligence on the part of the defendants in the design/construction of a warehouse floor. The third defendants then went into administration and so the claimants applied to join their liability insurers (RSA) to the proceedings pursuant to the Third Party (Rights Against Insurers) Act 2010 (the Act). The policy included an exclusive jurisdiction clause for certain types of dispute (“interpretation or performance” of the policy), with disputes to be determined in accordance with French law; there was also an arbitration clause for other types of disputes (“activation of the cover or…the determination of business practices”).

The Act effectively gives a third party claimant a right of direct action against the liability insurer of an insolvent individual/corporate body. The aim is simple: where a third party has suffered a loss at the hands of an insured, that third party should not be left without any remedy in the event that the insured then becomes insolvent (such that the third party cannot make any recovery from the insured/the liability insurers standing behind it). The recent case of Shirley Anne Redman v Zurich & ESJS1 Ltd [2017] EWHC 1919 (QB) discusses the background to and objectives of the Act (see our discussion of that case here:

In the BAE case, the Court held that the insurers could be joined in accordance with the Act for a declaration both as to the defendant’s liability (per section 2(2)(a) of the Act) and also as to the insurers’ potential liability (per section 2(2)(b) of the Act) – i.e. it was not necessary, in order to join the insurers, to have established their liability under the policy first; indeed section 2 was designed precisely to allow policy liability to be determined at the same time as the substantive liability. However, since the coverage dispute was a matter that needed to be determined either by the French courts or arbitration (and the judge made clear she did not need to decide which), rather than the English Court, the proceedings under section 2(2)(b) (i.e. potential liability under the policy) would be stayed, while the proceedings under section 2(2)(a) (i.e. liability of the defendant to the claimant) could proceed.

The Court thus accepted that insurers may be added for a declaration as to their liability, but that question was one either for the French Court applying French law or arbitrators, the implication of that being that before the claimants can obtain a declaration that might be enforced against insurers from the English courts, they will need to obtain either a judgment of the French Court or an arbitration award confirming policy liability; without that, the declaration as to the insolvent defendants’ liability to the claimants will lack any real bite. From the French insurers’ perspective, this must be a good result – the law/jurisdiction provisions of the policy have been respected. English insurers will surely feel slightly jealous of this outcome. The English Court rightly respected the privity of the contract and dispute resolution mechanics in it (albeit we can see that from a procedural perspective there might be some appeal to the English court simply hearing expert French law evidence on the point; indeed some French law evidence was heard in this case but the section 2(2)(b) claim was nonetheless stayed). English insurers can but hope that foreign EU courts might do the same.

Richard Hugg