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In this post, Alaina Wadsworth and Sophie Newman, who both work within the insurance and reinsurance group at CMS, comment on the decision handed down by the UK Supreme Court last month in the matter of Aspen Underwriting Ltd and others v Credit Europe Bank NV [2020] UKSC 11. 

The Supreme Court has clarified aspects of the interpretation of the Brussels Regulation Recast (Regulation (EU) 1215/2012) (the Regulation) on jurisdiction in its decision in the matter of Aspen Underwriting Ltd and others v Credit Europe Bank NV [2020] UKSC 11.

The case concerned a bank’s, Credit Europe NV (the Bank), challenge to the High Court’s jurisdiction over claims brought by insurers who were seeking to recover sums paid under a settlement agreement.  The Bank is domiciled in The Netherlands and sought to argue that, in light of the Regulation, proceedings ought to have been brought there.  The insurers disputed this and tried to argue that the relevant sections of the Regulation stating that the domicile of the party was important did not apply in this instance.

The Bank succeeded ultimately, and the courts of England and Wales were found not to have jurisdiction in respect of the insurers’ claims against the Bank.

Factual background

The Bank lent €38.2 million to the owners of a vessel called the “Atlantik Confidence” (the Vessel) and to an associated company, Capella Shipping Ltd, the owners of the “Atlantik Glory” to re-finance the purchase of both vessels.  The Bank is domiciled in The Netherlands.  The loan was secured by a first mortgage on both vessels and by a deed of assignment that included an assignment on the insurances on the vessels.

Insurance of the Vessel was arranged under a hull and machinery risks insurance policy (the Policy).  The key parts of the Policy, for the purposes of this case, were:

  • The jurisdiction clause: “this insurance shall be governed by and construed in accordance with the law of England and Wales and each party agrees to submit to the exclusive jurisdiction of the courts of England and Wales.”
  • A schedule of owners and mortgagees.  A contract endorsement dated 8 February 2013 recorded that the Vessel was mortgaged in favour of the Bank.
  • A Loss Payable Clause (noting an assignment providing that the owners assign to the Bank their right, title and interest in the Policy), which provided that “Claims payable under this policy in respect of a total or constructive total…loss…shall be payable to the Mortgagee”.

The Vessel sank on 3 April 2013.  The insurers entered into a settlement agreement with the owners and managers of the Vessel on 6 August 2013 (the Settlement Agreement) and paid out under the Policy.  Subsequently, the Admiralty Court found that the owners and managers had procured the scuttling of the Vessel.  The insurers commenced High Court proceedings against the owners, managers and the Bank to recover the sums paid under the settlement agreement.  The Bank challenged the High Court’s jurisdiction of the insurers’ claims.

Issues

The appeal raised four issues that concerned the interpretation of the Regulation. The issues were:

  1. Did the High Court have jurisdiction pursuant to the exclusive jurisdiction clause in the Policy?
  2. Were the insurers’ claims against the Bank “matters relating to insurance” within Chapter II, section 3 of the Regulation?
  3. If the answer to (2) was yes, was the Bank entitled to rely on section 3 by virtue of it falling within a class of persons who were entitled to the protection afforded by that section?
  4. Were the insurers’ claims for restitution matters relating to tort, delict or quasi-delict under article 7(2) of the Regulation?

First instance judgments

In his first judgment dated 27 July 2017, Teare J held that the High Court had jurisdiction in respect of the claims for damages for misrepresentation under article 7(2) of the Regulation but not in respect of the claims for restitution.  Article 7(2) of the Regulation states: “A person domiciled in a Member State may be sued in another Member State…in matters relating to tort, delict or quasi-delict, in the courts of the place where the harmful event occurred or may occur”.  He also held that the court did not have jurisdiction based on the exclusive jurisdiction clauses in the settlement agreement and Policy.

In his second judgment dated 1 December 2017, Teare J held that the court had jurisdiction in respect of the insurers’ claim for damages for misrepresentation pursuant to the Misrepresentation Act 1967.

Both the insurers and the Bank appealed to the Court of Appeal with Teare J’s permission.

Court of Appeal’s judgment

The Court of Appeal upheld Teare J’s decisions on 21 November 2018.  It found that:

  • The Bank was not bound by the exclusive jurisdiction clause in the Settlement Agreement and the insurers did not have a good arguable case that the Bank was a party to that agreement.  That finding was not appealed to the Supreme Court.
  • The Bank was not bound by the exclusive jurisdiction clause in the Policy by asserting its right to payment under the Policy as loss payee and assignee.  The Bank would not be bound unless and until it commenced legal proceedings against the insurers.  (This was issue 1 before the Supreme Court.)
  • The Bank was not entitled to rely on section 3 of the Regulation because its business of ship finance was analogous to that of an insurance professional and the Bank fell within a class of persons not deemed to be a “weaker party” (issues 2 and 3).
  • The insurers’ claims against the Bank for damages for misrepresentation were matters relating to tort, delict or quasi-delict under article 7(2) of the Regulation with the “harmful event” occurring in England.  (The validity of this finding depends on the court’s answers to issues 1, 2 and 3.)
  • The insurers’ claims against the Bank for restitution were not matters relating to tort, delict or quasi-delict under article 7(2) of the Regulation (issue 4).

Supreme Court’s judgment

Issue 1

By way of backdrop, the Supreme Court noted that the Regulation seeks to set out rules that are highly predictable and are founded on the principle that jurisdiction is generally based on the defendant’s domicile.  They stated that it is only in “well-defined circumstances” that jurisdiction based on domicile is replaced by a different connecting factor based on the subject matter of the dispute or the autonomy of the parties (recital 15).

The Supreme Court agreed with the Court of Appeal’s finding in respect of issue 1.  Case law has found that a jurisdiction agreement in an insurance contract does not bind a third party beneficiary of insurance who is domiciled in a different contracting state and who has not expressly subscribed to the clause (Société financière et industrielle du Peloux v Axa Belgium (Case C112/03) [2006] QB 251).

Issues 2 and 3

Section 3 of the Regulation is entitled “Jurisdiction in matters relating to insurance” and article 14(1) states: “An insurer may bring proceedings only in the courts of the member state in which the defendant is domiciled, irrespective of whether he is the policyholder, the insured or a beneficiary”.

The Supreme Court agreed with the Court of Appeal’s finding in respect of issue 2; the nature of 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 could be perceived as relating to insurance.  The court gave a number of reasons why it considered this to be the case including the fact that the title to section 3 (“Jurisdiction in matters relating to insurance”) would require to be glossed if it were to be read as “Matters relating to an insurance contract” (as contended by the insurers’ Counsel).  Such a gloss would be inconsistent with the requirement of a high level of predictability in recital 15.

Issue 3 concerned whether the Bank could be deemed a “weaker party” under recital 18 of the Regulation, which states: “In relation to insurance, consumer and employment contracts, the weaker party should be protected by rules of jurisdiction more favourable to his interests than the general rules.” 

The Supreme Court disagreed with the lower courts on this issue.  It found that, a person 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.  It gave six reasons for its decision:

  1. Article 14 protects the policyholder, the insured and the beneficiary of an insurance policy because they are generally the weaker party in a commercial negotiation with an insurance company.
  2. The recitals are simply an aid to interpretation of the articles; it is the articles that have legal effect.
  3. Derogations from jurisdictional rules in matters of insurance must be interpreted strictly.
  4. In its jurisprudence, the CJEU has treated everyone within the categories of the policyholder, the insured or the beneficiary as protected unless the Regulation explicitly provides otherwise.
  5. The CJEU uses recital 18 to decide whether the protections afforded by section 3 can be extended to other persons not within the list of expressly protected persons; not to decide whether a policyholder, insured or beneficiary is protected.
  6. The policy underlying the jurisprudence of the CJEU when deciding whether to extend the protection to persons not mentioned in section 3 is that the court seeks to uphold the general rule in article 4 that defendants should be sued in the courts of the member state of their domicile, and allows extensions to the protection of section 3 only where such an extension is consistent with the policy of protecting the weaker party.

As a result, the Bank (as the named loss payee under the Policy, and a beneficiary of the Policy) was entitled to benefit from the protections of section 3 including the requirement that it must be sued in the courts of the member state of its domicile (article 14).  It followed that the insurers could not assert jurisdiction under article 7(2) of the Regulation in respect of the claims for misrepresentation.

Issue 4

It was found that issue 4 (the question whether claims in unjust enrichment fall within article 7(2)) did not arise for the same reason as the claims for misrepresentation.

Comment

The insurers therefore failed in their appeal, and the Bank succeeded in its appeal, because the courts of England and Wales were found not to have jurisdiction in respect of the insurers’ claims against the Bank.

The judgment is a reminder that the Regulation seeks to set out rules that are highly predictable and are founded on the principle that jurisdiction is generally based on the defendant’s domicile.  Insurers should exercise caution seeking to bring proceedings elsewhere.

The judgment also demonstrates that a broad range of parties can be considered to be the “weaker party” for the purposes of recital 18 of the Regulation, and insurers should be cautious dismissing an insured, policyholder or beneficiary as not falling in this category.

The case will be of particular interest to insurers whose insureds are domiciled abroad.  In assessing the risk of the insured, insurers should bear in mind the potential for disputes to be brought in the insured’s domicile and ensure that the laws of that country do not present any difficulties or unwanted bias.