Hull & Machinery insurers win in Court of Appeal in jurisdiction battle

Peter MacDonald Eggers QC and Sandra Healy, acting for Norton Rose Fulbright, appeared before the Court of Appeal (Lord Justice Gross, Lord Justice Moylan and Lord Justice Coulson) in a dispute between Aspen Underwriting Ltd and Ors Appellant vs Credit Europe Bank NV, relating to the Atlantik Confidence [2018] EWCA 2590 Barristers 7KBW observed that this was the latest in a series of events since Mr Justice Teare ruled, in October 2016, in proceedings between the owner of the Atlantik Confidence and cargo interests, that the owner and Mr Agaoglu (the beneficial owner of the vessel) had wilfully cast away the vessel.

Following the fire and sinking of the Atlantik Confidence off the coast of Oman in April 2013, the Owners successfully set up a limitation fund under the Convention.  The Court of Appeal in this matter held in May 2014 that a limitation fund could be constituted by way of a P&I Club Letter of undertaking, as opposed to making a payment into court.

Before the Admiralty Court in 2016 [EWHC 2412], the cargo underwriters were seeking to break the Owners’ right to limit, whereas the Owners and their P&I Club sought to maintain the limits under the Convention. After a lengthy trial, Mr Justice Teare concluded that he vessel was deliberately sunk by the master and chief engineer at the request of Mr Agaoglu, the sole shareholder and director, the alter ego of the Owners. In those circumstances the loss of the cargo, the natural consequence of this act, resulted from his personal act committed with the intent to cause such loss. Accordingly, article 4 of the Convention applied and it followed that the Owners’ claim for a limitation decree was dismissed. It is noteworthy that the cargo insurers successfully discharged a burden of proof previously described as a ‘very heavy burden’ or ‘a high hurdle to jump’.

Since Justice Teare’s ruling, the Hull & Machinery insurers had commenced an action to recover insurance proceeds paid by them (under a release agreement entered into before Teare J’s October 2016 ruling) to the owner, manager and mortgagee of the Atlantik Confidence.

The mortgagee was loss payee and assignee under the insurance and the release agreement included provision for the payment of the claim to the London broker with the mortgagee’s consent.

The Hull & Machinery insurers alleged that the loss of the Atlantik Confidence was caused by the wilful misconduct of the owner and/or manager of the vessel.

The claims were for damages based on misrepresentations and/or for restitution based on mistake.

The mortgagee bank challenged the jurisdiction of the English High Court to hear these claims. In July 2017 Teare J held that the English court had jurisdiction over the misrepresentation claims against the bank, but not the claim for restitution. In practical terms, this decision permitted the H&M insurers to pursue a claim for the full amount of the insurance proceeds before the English court.

Both the mortgagee bank and the H&M insurers appealed. In a judgment given on November 21st 2018, the Court of Appeal reached essentially the same overall conclusion as Teare J.

The Court of Appeal held, among other things, that:

  • the mortgagee bank was not bound by the jurisdiction agreements in favour of the English High Court contained in the release agreement and the insurance policy;
  • the mortgagee bank was not entitled to take the benefit of Section 3 of the Brussels Recast Regulation (“matters relating to insurance”) as it falls within a class of persons excluded from the protection offered by that section by virtue of its “…routine, commercial or professional, involvement with marine insurance claims”;
  • the hull and machinery insurers’ misrepresentation claims, but not the claim in restitution, fell within the scope of Article 7(2) of the Brussels Recast Regulation;
  • the “harmful event” occurred in England, so as to found the jurisdiction of the English High Court to determine the misrepresentation claims.

The practical effect of the Court of Appeal’s decision, as was the case following the decision at first instance, is that the H&M insurers might pursue the full amount of the insurance proceeds from the mortgagee bank in the English High Court.

7KBW observed that the Court of Appeal’s decision was of wider significance for a number of reasons:

  1. It was an important development regarding the extent to which loss payees and assignees might be bound by jurisdiction clauses in insurance policies.
  2. The identification of persons who were not entitled to the protection Section 3 of the Brussels Regulation provided welcome clarification.
  3. The decision highlighted the current difficulty of fitting restitution claims within Article 7 of the Brussels Recast Regulation.

Instructing solicitor: Chris Zavos, Norton Rose Fulbright LLP.