UK Supreme Court confirms bank named as loss payee under assignment of insurance policy not bound by exclusive English jurisdiction clause under the Brussels Regulation Recast 1215/2012

In Aspen Underwriting Ltd & Ors v Credit Europe Bank NV (full judgment available here), the Supreme Court recently held that the High Court of England and Wales did not have jurisdiction to hear claims of fraudulent misrepresentation and/or restitution made by Insurers against Credit Europe NV (the Bank) in respect of sums they allege were wrongfully paid to the Bank as the assigned loss payee of an insurance policy following the loss of an insured vessel.

In dismissing the Insurers’ appeal and allowing the Bank’s appeal, the Supreme Court held that the Bank, which was domiciled in the Netherlands and was not a party to the insurance policy in its capacity as assignee, was entitled to be sued in the courts of its own member state on the basis that the Insurers’ claims against it were “matters relating to insurance” within the meaning of the Brussels Regulation Recast (Regulation (EU) 1215/2012) (the Regulation). The Supreme Court also clarified that the Bank was not required to prove it was an economically “weaker party” in order to obtain the benefit of the jurisdictional protections in the Regulation.

Background

Aspen Underwriting Ltd and certain other insurers (the Insurers) insured the “Atlantik Confidence” (the Vessel) pursuant to a hull and machinery insurance policy (the Policy). The Policy had an exclusive jurisdiction clause in favour of the courts of England and Wales.

Under certain refinancing arrangements agreed with the Owners, the Bank took an assignment of the Policy and became the sole loss payee. The Vessel subsequently sank off the coast of Oman. The Owners and the Insurers, without the involvement of the Bank, settled the Owners’ claim for indemnity under the Policy and Insurers agreed to pay US$22 million in respect of the loss. The Bank issued a letter to Insurers in its capacity as loss payee authorising Insurers to pay the settlement sum to the Bank via the Owners’ insurance broker (the Letter of Authority).

Several years later, in separate proceedings, the Admiralty Court found that the Owners had deliberately sunk the Vessel. Upon learning of this development, Insurers commenced proceedings in the High Court of England and Wales seeking orders to recover the sums paid under the Policy to the Bank, either in restitution or as damages for fraudulent misrepresentation.

The Bank challenged the jurisdiction of the English High Court to hear the claims against it. In two first instance judgments, Mr Justice Teare held that the Bank was not bound by the exclusive jurisdiction clause in the Policy but as the Bank was not the “weaker party” in its relations with the Insurers, it was not entitled to be sued in its own member state under section 3 of the Regulation. His Honour found that the English High Court did have jurisdiction to hear the misrepresentation claims under Article 7(2) of the Regulation, but not the restitution claims since these were not “matters relating to tort, delict or quasi-delict”. The Court of Appeal agreed.

The Supreme Court was asked to determine four issues on appeal:

1. Whether the High Court of England and Wales had jurisdiction to hear Insurers’ claims against the Bank pursuant to the exclusive jurisdiction clause in the Policy?
2. Whether the Insurers’ claims were “matters relating to insurance” for the purpose of the protections in section 3 of the Regulation?
3. If the answer to (2) was yes, whether the protections in section 3 of the Regulation apply only where the defendant is a “weaker party” in relation to the insurer?
4. Whether the Insurers’ claims of misrepresentation and/or restitution were matters relating to “tort, delict or quasi-delict” under Article 7(2) of the Regulation and thus ought to be heard in the High Court of England and Wales as the location where the harm allegedly occurred?

Lord Hodge (with whom Lady Hale, Lord Reed, Lord Kerr, Lord Lloyd-Jones, Lord Kitchin and Lord Sales unanimously agreed) delivered judgment. Consistent with recent authorities on the common law doctrine of forum non conveniens,[1] it was for the Insurers to show they had a good arguable case that the High Court of England and Wales ought to hear their claims.

Issue 1 – Did the English High Court have jurisdiction over Insurers’ claims against the Bank pursuant to the exclusive jurisdiction clause in the Policy?

The Insurers argued that the Bank, by issuing the Letter of Authority, had asserted a claim under the Policy for payment of the insured sums as assignee and loss payee and submitted to the exclusive English jurisdiction clause in the Policy. It was not disputed by the parties that the Bank would be bound by the clause if it had sued the Insurers but the question for the Supreme Court was whether the Bank’s conduct in taking an assignment of the Policy and issuing the Letter of Authority was sufficient to attract the operation of the exclusive English jurisdiction clause in the Policy.

The Supreme Court dismissed the Insurers’ arguments. Under EU law, there must be actual consensus between the parties which is clearly and precisely demonstrated in order to displace the general proposition that a party must be sued in the member state in which it is domiciled.[2] The Supreme Court found that the Bank, as assignee and loss payee under the Policy, was not a party to the agreement with Insurers.[3] Although EU law also recognises that a person who is not a party to a jurisdiction agreement may be taken to have consented to it if, under the applicable national law, it became a “successor” to the rights and obligations under the contract, that was not the case in this instance as the Bank was an equitable assignee of the Policy rather than a successor in title.[4]

However, as an assignee, the Supreme Court observed that the Bank was unable to assert its rights in a way that was inconsistent with the terms of the Policy, including the English jurisdiction clause.  That said, the Bank had not in fact asserted any rights at all under the Policy. The Letter of Authority merely facilitated the payment of the settlement sum as between the Owners and the Insurers and provided a mechanism by which the Bank as assignee and loss payee could receive payment via the Owners’ insurance broker.[5] Thus the Supreme Court held that the Bank not being a party to the Policy was not bound by the exclusive jurisdiction clause.

Issue 2 – Whether the Insurers’ claims were “matters relating to insurance” under section 3 of the Regulation?

The Supreme Court then turned to the question of whether the Insurers’ claims properly fell within Section 3 of the Regulation, which would operate to require the Insurers to bring proceedings against the Bank in the courts of the EU member state in which the Bank was domiciled, the Netherlands.

Section 3 of the Regulation is titled “Jurisdiction in matters relating to insurance” and sets out rules governing jurisdiction in matters relating to insurance under EU law. Article 14(1), so far as relevant, provides:

“… 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.” (emphasis added)

The Insurers argued that their claims against the Bank were not matters “relating to insurance” as they were not claims for breach of an obligation relating specifically to the performance of the Policy as a contract of insurance. The Insurers argued that the heading of Section 3, “Matters relating to insurance” should be read narrowly as “matters relating to insurance contracts”.[6]

The Supreme Court held that the Insurers’ claims against the Bank were “matters relating to insurance” within the meaning of Section 3 of the Regulation.[7] The Supreme Court placed particular emphasis on the fact that the title of Section 3 was drafted more broadly than other sections of the Regulation, which referred to individual contracts rather than matters “relating to” insurance.[8] The Supreme Court also noted that it was significant that Article 14(1) expressly referred to the rights of beneficiaries (such as the Bank as assignee) in addition to policyholders.[9] The Supreme Court observed that even if, as Insurers had argued, Section 3 applied only to claims based on a breach of an individual insurance contract, that test would be satisfied in the present case in any event on the basis that the insurance fraud alleged by the Insurers would also involve a breach of the Policy.[10] The Supreme Court concluded that the Insurers’ claims against the Bank were matters relating to insurance within Section 3 of the Regulation.

Issues 3 and 4 – Whether the protections in section 3 of the Regulation apply only where the defendant is a “weaker party” in relation to the insurer?

At first instance and in the Court of Appeal, it was held that the Bank could not take the benefit of Article 14 because it was not an economically “weaker party” in relation to Insurers. This finding was based on the lower courts’ interpretation of recital (18) of the Regulation:

“In relation to insurance… the weaker party should be protected by rules of jurisdiction more favourable to his interests than the general rules.” (emphasis added)

The Supreme Court respectfully disagreed with the decisions at first instance and in the Court of Appeal and clarified that there is no such thing as a “weaker party” exception which removes a policyholder, insured or beneficiary, such as the Bank, from the protection of Article 14 and the right to be sued in the courts of their own member state.[11] The Supreme Court gave six reasons for this conclusion:

1. First, the insured and the beneficiary of an insurance policy are generally considered to be “weaker parties” in a commercial negotiation with an insurance company and are as a matter of course presented with a standard form contract;[12]
2. Second, while recital (18) may explain the policy behind Section 3 of the Regulation, it is the words of the relevant articles which have legal effect;[13]
3. Third, derogations from the jurisdictional rules in matters of insurance must be interpreted strictly and the existence of an unexpressed “weaker party” exception to the protection given to the policyholder, the insured and the beneficiary is inconsistent with this approach.[14]
4. Fourth, it is clear that the European Court of Justice (CJEU) does not engage in a case by case analysis to consider the relative strengths and weaknesses of the parties under Section 3 as to do so would give rise to legal uncertainty and unpredictability;[15]
5. Fifth, the CJEU looks to recital (18) not to decide whether a particular policyholder, insured or beneficiary is to be protected by section 3, but does so only in the context of reaching a decision as to whether those protections are to be extended to other persons who do not fall within the list of expressly protected persons;[16] and
6. Sixth, when the CJEU decides whether to extend the protections to persons not expressly mentioned in Section 3, it seeks to uphold the general rule in Article 4 that defendants should be sued in the courts of their own member state and only allows extensions to the protection of Section 3 where consistent with protecting the “weaker party.”[17]

The Supreme Court held that the Bank, as the assigned loss payee under the Policy, was the “beneficiary” of the Policy for the purpose of Article 14 and was entitled to be sued in the courts of its member state domicile (the Netherlands) pursuant to Section 3 of the Regulation.[18] On this basis, the fourth issue as to whether Insurers’ claims of  misrepresentation and/or restitution were matters relating to “tort, delict or quasi-delict” under Article 7(2) of the Regulation and thus ought to be heard in the courts of England and Wales as the location where the harm occurred did not arise.

Comment

The Supreme Court’s decision will be of interest to both policyholders (including insureds and beneficiaries, such as assignees/loss payees) and insurers alike in that it provides helpful clarification on the interpretation and application of the rules in Section 3 of the Brussels Regulation Recast on jurisdiction in matters relating to insurance. The decision makes clear that there is no economic “weaker party” exception which removes a policyholder, insured or beneficiary from the protection of Article 14; they are entitled to be sued by an insurer exclusively in the courts of their own member state, regardless of their economic strength. The decision also makes clear that “matters relating to insurance” is not to be read narrowly as “matters relating to insurance contracts”; the title of Section 3 is drafted more broadly and Section 3 is not therefore confined to claims for breach of an obligation relating specifically to the performance of an individual insurance contract.

In the case of beneficiaries under an insurance contract, the Supreme Court’s decision also confirms that an exclusive jurisdiction clause does not usually bind a beneficiary who was not a party to it unless it commences proceedings to enforce its rights under the contract.

[1] See Brownlie v Four Seasons Holdings Inc [2017] UKSC 80.

[2] [24]; see Coreck Maritime GmbH v Handelsveem BV (Case C-387/98) [2000] ECR I-9337, paras 13-15.

[3] [26]

[4] [26]

[5] [29]

[6] [33]

[7] [41]

[8] [35]

[9] [36]

[10] [40]

[11] [43]

[12] [44]; see Gerling Konzern Speziale Kreditversicherungs-AG v Amministrazione del Tesoro dello Stato (Case 201/82) [1983] ECR 2503.

[13] [45]; see Folien Fischer AG v Ritrama SpA (Case C-133/11) [2013] QB 523,

[14] [46]; see Société financière et industrielle du Peloux v Axa Belgium (Case C-112/03) [2006] QB 251

[15] [47]; see Landeskrankenanstalten-Betriebsgesellschaft - KABEG v Mutuelles du Mans Assurances - MMA IARD SA (Case C-340/16) [2017] IL Pr 31

[16] [50]; see Universal General Insurance Co (UGIC) v Group Josi Reinsurance Co SA (Case C-412/98) [2001] QB 68

[17] [55]

[18] [60]