QCR Summer 2019: Distinguishing contracts from torts - Rules of jurisdiction in insurance matters - Can a beneficiary of insurance be sued outside its domicile?
Aspen Underwriting v Credit Europe Bank  EWCA Civ 2590
This case arises out of the sinking of the vessel, the "Atlantik Confidence", in the Gulf of Aden in 2013. The H&M insurers settled with the Owners over the loss of the vessel. The Settlement Agreement provided for English jurisdiction. The Owners' Bank was the mortgagee of the vessel, as well as the assignee and total loss payee on the H&M policy. The Bank was asked by the Owners to provide a letter formally authorising underwriters to pay the proceeds of the insurance claim to brokers, and the Bank issued a Letter of Authority accordingly. The Settlement Agreement included a provision for the payment of the claim to the brokers with the mortgagee's consent.
It was subsequently held by the Commercial Court that the vessel had been deliberately sunk by the master and chief engineer at the request of an alter ego of the Owners. The H&M underwriters later brought proceedings in England to recover the insurance proceeds paid out to the Owners and the Bank, alleging that the loss arose by reason of the Owners' wilful misconduct pursuant to s 55(2) (a) of the Marine Insurance Act 1906, and/or for restitution based on mistake.
The H&M underwriters argued that the High Court have jurisdiction for three reasons; 1) the Bank is bound by a Settlement Agreement which confers exclusive jurisdiction on the court,
2) the Bank is bound by the exclusive jurisdiction clause in the H&M Policy, and
3) the claims brought against the Bank are matters which relate to tort, delict or quasi-delict and the harmful event occurred in England.
The H&M underwriters further submitted that, in presenting the claim under the policy, the Owners (acting on their own behalf and allegedly on behalf of the Bank) made the following express or implied representations; that (1) the Vessel was lost by reason of a peril insured against under the Policy; (2) the Vessel's loss was accidental; (3) the Owners were unable to explain the cause of the loss of the Vessel; (4) the Owners and the Bank were entitled to an indemnity under the Policy in respect of the loss of or damage to the Vessel; (5) the Owners were not guilty of wilful misconduct and did not procure the loss of the Vessel by their own wilful misconduct.
The Bank - domiciled in the Netherlands - maintained that under the Brussels Regulation Recast (Regulation (EU) 1215/2012) ("Brussels Recast"), the English court had no jurisdiction to hear the claim against the Bank. Under Art 25 of the Brussels Recast the English Court would have jurisdiction provided that the Bank was a party to the Settlement Agreement.
At first instance, Teare J held that the Bank was not a party to the Settlement Agreement. He observed that the Letter of Authority issued by the Bank did not purport to be a grant of authority by the Bank to settle the claim under the policy.
Among the issues considered was whether the Bank was a 'beneficiary' of the insurance policy as an assignee and loss payee, whether it could be sued in England by the underwriters notwithstanding Article 14(1) of the Brussels Recast, by which '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'.
Teare J. held that the English court had jurisdiction in respect of tortious misrepresentation claims against the Bank, but not in respect of the underwriters' claims in restitution. The Bank and the underwriters appealed.
The Court of Appeal rejected the appeals and agreed with the first instance judge that the Bank was not a party to the Settlement Agreement. The Court noted that the Bank was not named as a party, even though it was referred to in other parts of the agreement; and that the Bank had not conferred authority on the Owners to enter into the agreement on its behalf.
The Court of Appeal also decided that the Bank was not bound by the exclusive jurisdiction clause in favour of England in the insurance policy. As a beneficiary of insurance the Bank may rely on Article 14(1) if: (a) as an ordinary incident of its business, it is involved in the commercial or professional settlement of insurance-related claims; or (b) its business was analogous to that of an insurance professional.
The Court of Appeal decided that the Bank in this case fell within the meaning of "professionals in the insurance sector".
Further it decided that the tort element of the underwriters' claim against the Bank can proceed in the English Court. However, it does not have jurisdiction to entertain the underwriters' claim in restitution against the Bank, which was not 'matters relating to tort'. Central to the underwriters' claims was that they were not liable to indemnify the Owners under the policy as the vessel was not lost by reason of an insured peril.
The underwriters' claims for damages for negligent misrepresentation under the Misrepresentation Act 1967 was a matter relating to tort within the meaning of article 7(2) of Brussels Recast and the harmful event occurred in England. That was because the settlement agreement was signed in London (and the underwriters would not have entered into the agreement if the Owners had not given them the Bank's letter of authority). Had it been necessary to do so, the Court of Appeal would also have concluded that the harmful event occurred in England because the settlement proceeds were paid into the brokers' account in London.
The Court of Appeal's decision represents a significant development regarding the extent to which loss payees and assignees might be bound by jurisdiction clauses in insurance policies. The decision has already been cited in subsequent judgements as authority that an undisclosed principal can sue and be sued on a contract subject to the following conditions: (i) the terms of the written contract did not confine it to the named parties; (ii) at the time of the relevant contract, the agent intended to contract on the principal's behalf; and (iii) entering into the contract was within the actual authority of the agent.
The judgment also clarifies an important point on cross-border litigation, namely what is the evidential standard an English court should adopt when determining jurisdiction under Brussels Recast. The judgment confirms that the applicable standard of proof to be satisfied by underwriters is of a "good arguable case", which remains something more than a prima facie case and something less than a case satisfying a balance of probabilities test.