UK: Insurance And Reinsurance - 24 April 2012

Last Updated: 17 May 2012
Article by Nigel Brook

Welcome to the thirteenth edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2012.

These updates are aimed at keeping you up to speed and informed of the latest developments in caselaw relevant to your practice.


  • Ferrexpo v Gilson & Ors
    A case on whether an English court can stay proceedings in favour of a non-Member State court when the foreign proceedings have already been commenced
  • West Tankers v Allianz
    A case on whether arbitrators have jurisdiction to award damages for breach of an arbitration agreement where an EC court is "first seised"
  • Euroption Strategic v SEB
    Court decides whether a defendant should be penalised in costs for refusing to mediate
  • Templeton Insurance v Motorcare Warranties
    A decision on whether the managing director of a company can be held in contempt for breaches of a freezing injunction
  • Finmoon v Baltic Reefers
    Court considers the requirements of a notice to commence arbitration

Ferrexpo v Gilson & Ors

Whether court can stay proceedings in favour of non-Member State court/foreign proceedings already commenced html

A Swiss company had a long-running dispute with an English company. Last year, the English company started proceedings against the Swiss company in Ukraine. The Swiss company then commenced proceedings in England against the English company (with a view to ultimately obtaining an anti-suit injunction in respect of the Ukrainian proceedings). The English defendant sought a stay of the English proceedings.

In Owusu v Jackson, the ECJ held that, where proceedings are brought against an English domiciled defendant, the English court has no discretion or jurisdiction to decline to hear the proceedings, or to grant a stay, on the ground that a court of a non-Member State is the more appropriate forum to hear the case (or there is no connection with England, other than the defendant being domiciled here). However, the ECJ declined to decide whether this is the case in all circumstances. In this case, Smith J considered whether, even though Ukraine is not a Member State, articles 22, 27 and 28 of EC Regulation 44/2001 should be given a "reflexive" application (so that the position under the Regulation would, nevertheless, be applied in this case). He considered the following:

(1) Article 27 provides that where there are proceedings involving the same cause of action between the same parties in the courts of different Member States, any court other than the court first seised must stay its proceedings. Article 28 provides, broadly, that where "related actions" are pending in the courts of different Member States, the court which was not first seised may stay its proceedings. The judge agreed with the decision in JKN v JCN (2010) that a reflexive approach should be applied to Article 28 and that it is neither necessary nor desirable to extend the Owusu principle to a case where there are parallel proceedings in a non-Member State. However, on the facts of this case, Article 28 would not have applied even if Ukraine had been a Member State. Instead, Article 27 applied (and a reflexive approach should also be applied to this article). However, Smith J added that, had Article 28 applied, he would have exercised his discretion to order a stay.

(2) Article 22 provides, broadly, that the courts of the country in which a company has its seat shall have exclusive jurisdiction to hear proceedings concerning the validity of the decisions of the company's organs. The judge held that Article 22 should also be given a reflexive application. The English court has a discretion as to whether or not it assumes jurisdiction. The judge concluded that he should exercise his discretion to grant the stay.

The case also contained a discussion on the sort of evidence which should be adduced to support an argument that there is a real risk that a party would not be fairly treated by the courts of a foreign country. Mere press or political comment, unsubstantiated by independent evidence, will not suffice. The court should also be cautious about relying on material drawn from the internet from organisations about which no information is given. The judge also doubted that the decisions of other courts, including the ECHR, could be relied upon.

COMMENT: There has been some judicial discussion in recent years as to the scope of the Owusu decision. It had already been held that if there is an exclusive jurisdiction clause in favour of another jurisdiction (outside the EU), Owusu does not apply and an English court could grant a stay of proceedings (see Konkola Copper Mines v Coromin (2006)). However, the position where foreign proceedings are already on foot, and not just a possibility, had been unclear - in 2009 the Irish Supreme Court referred this issue to the ECJ (in the case of Goshawk Dedicated v Life Receivables Ireland) but it appears that that case was subsequently settled. This decision is therefore support for the view that Owusu does not apply if the conditions of Article 27 or Article 28 are met (although it should be noted that this case conflicts with the decision of Barling J in the case of Catalyst Investment v Lewinsohn [2009] on the same point).

West Tankers v Allianz

Whether arbitrators have jurisdiction to award damages for breach of an arbitration agreement where EC court "first seised" html

As previously reported, following a collision in 2000, charterers commenced arbitration proceedings against the shipowners in London (the charterparty containing a clause providing for arbitration in London). The charterers had also claimed under their insurance policy and, following payment, insurers exercised their rights of subrogation to commence proceedings in July 2003 in Italy against the shipowners, to recover the amounts which they had paid to the charterers. In 2005, the English court granted the shipowners an anti-suit injunction on the ground that the Italian proceedings were a breach of the arbitration agreement and also declared that the insurers were obliged to arbitrate the dispute. As is well known, the ECJ eventually held that the English courts could not grant this anti-suit injunction and that the Italian court, as the court "first seised", should decide if it had jurisdiction.

The Italian proceedings remain underway. In the meantime, the arbitrators held that they had jurisdiction to hear the dispute and that the insurers were not entitled to a recovery. The shipowners asked the arbitrators to also award them equitable damages for breach of the obligation to arbitrate (ie damages for legal fees and expenses incurred by the shipowners in the Italian proceedings and for an indemnity for any amount awarded by the Italian court in the insurers' favour). That application turned on an interpretation of the ECJ decision. The arbitrators found that they had no jurisdiction to award damages and the shipowners appealed to the English court pursuant to section 69 of the Arbitration Act 1996.

Flaux J has now held that the arbitrators did have jurisdiction to award damages. The "philosophy" behind the ECJ decision was that the right to bring proceedings in the court first seised under EC Regulation 44/2001 (here, Italy) should take precedence not only over any later proceedings in another EU court but also over any proceedings before an arbitral tribunal (even if the arbitral tribunal was "first seised"). However, there was nothing to stop an arbitral tribunal reaching a decision which was inconsistent with the decision of the Italian court. Nor was there any fetter on the arbitrator's jurisdiction to award damages for a breach of the arbitration agreement. Even if that was incorrect, an award of damages would not constitute an illegitimate interference with the proceedings in the Italian court. Accordingly, the arbitrators had erred in law by holding that they did not have jurisdiction to make the award.

The judge concluded that, if the Italian court in due course finds that it did not have jurisdiction to hear the case and that the dispute should have been arbitrated (ie agreeing with the decisions of both the English court and the arbitrators), "then it seems to me there would be a strong case for awarding damages for breach of the duty to arbitrate".

COMMENT: Flaux J left open the question of what the situation would be if the Italian court eventually finds that it does jurisdiction (because it finds that the arbitration agreement was not valid) - would the arbitrators still be entitled to award damages for a breach of the arbitration agreement which they have found to be valid? Although it is true that the ECJ decision does not preclude such a conflicting result, for the parties this would be an undesirable outcome. It is worth noting that Advocate- General Kokott (in the opinion on which the ECJ decision was based) did want to avoid irreconcilable decisions but found that, since arbitration does not fall within EC Regulation 44/2001, there was currently no mechanism to coordinate the jurisdiction of the arbitrators with the jurisdiction of the European courts. She therefore called for legislative change to include arbitration within the Regulation.

Although the Heidelberg Report on the Application of the Regulation, published at the end of 2008, and a subsequent EC report and green paper proposed the removal of the arbitration exclusion from the Regulation, that idea was rejected by the European Parliament in 2010. In December 2010 legislative proposals for reform of the Regulation were published and they contained a proposal to retain the arbitration exclusion (although the UK government is still pushing for its removal). It is also being proposed that the European court first seised would have to stay its proceedings if an arbitral tribunal had already been seised.

Euroption Strategic v SEB

Whether defendant should be penalised in costs for refusing to mediate

The Court of Appeal in Dunnett v Railtrack [2002] held that a winning party who had unreasonably refused to mediate could be penalised as to costs. However, later cases found that a party should not be penalised if the refusal was reasonable - for example, because the mediation objectively had no real prospect of success (or if a party reasonably believes that it has a watertight case). However, the Court of Appeal's decision in Rolf v De Guerin last year (see Weekly Update 07/11) reiterated judicial concern that parties should respond reasonably to offers to mediate.

In this case, the defendant was the winning party but the claimant sought a deduction from the defendant's costs to reflect the defendant's decision not to mediate the claim. Gloster J refused to order a reduction in the defendant's entitlement to costs. The defendant had clearly set out its position (ie that it saw no merit in the claim) and that had, objectively, been a reasonable stance: "There was no reason why [the defendant] should have incurred the additional costs of mediation". The judge doubted that the claimant would have accepted a mediated outcome of each side bearing its own costs (which was all the defendant was prepared to offer). Accordingly, there was no reason for the defendant to be required to engage in mediation.

Templeton Insurance v Motorcare Warranties

Whether the managing director of a company will be in contempt for breaches of a freezing injunction

A freezing injunction was granted against a company. Following certain alleged breaches of the order, the claimant sought an order for committal against two individuals (one being the company's managing director) on the basis that they were in contempt of court because of the breaches.

Paragraph 22 of the freezing order advised that it is a contempt of court for any person notified of it knowingly to assist in, or permit, a breach of the order. The claimant sought to argue, however, that the managing director should be liable for the company's breach of the freezing injunction solely by virtue of his office and the knowledge that the order had been made. The managing director sought to argue that he was no different from a "stranger" to the company and could only be held in contempt if he was responsible for the breach.

Eder J rejected both arguments. Where an order is made against a company, and a director of the company is aware of the order, he/she is under a duty to take reasonable steps to ensure that the order is obeyed and if he/she wilfully fails to take those steps, and the order is breached, he can be punished for contempt. It will however be a defence if the director reasonably believes that some other director or officer is taking those steps. Thus a director can be liable for civil contempt without necessarily being in contempt under the general law.

On the facts of the case, the managing director (as well as the owner of 50% of the shares in the company) were held to be in contempt of court (a transfer of the business being a breach of the order, even though no tangible assets were disposed of). The judge added that "all options remain open, including a sentence of imprisonment".

Finmoon v Baltic Reefers

Requirements of notice to commence arbitration html

The claimants challenged an arbitration award under section 67 of the Arbitration Act 1996 (on the ground that the arbitrator lacked jurisdiction). One of the arguments raised in the case was that the arbitration had not been validly commenced because the notice of arbitration had not referred to the contract between the parties. Eder J noted that the modern view is that section 14(4) of the Arbitration Act (which provides that "arbitral proceedings are commenced in respect of a matter when one party serves on the other party...a notice in writing requiring agree to the appointment of an arbitrator in respect of that matter") should be interpreted broadly and flexibly. Although the relevant contract had not been referred to, the judge held that it was clear that the dispute involved damage to cargoes carried on certain voyages. The letter also made it clear that the claim was being made under the contractual arrangements by which the vessels were chartered and so there was no need to identify the specific contract. The judge also relied on the case of "The Lapad" [2004] to find that just because a claimant has identified the wrong document as evidencing the contract between the parties, that does not invalidate a notice of arbitration (it made no difference that The Lapad was a case involving the issue of limitation rather than the issue of which disputes had been submitted to arbitration).

A further issue was whether the arbitrator had been validly appointed in relation to a claim made in relation to the carriage of goods by a certain vessel. The notice had failed to refer to this vessel and the arbitrators had found that this was due to a "typographical error" (another vessel having been incorrectly named in the notice). Eder J said that, had all things been equal, he would have held that this error had rendered the notice invalid: "It seems to me that there are and must be limits to the broad and flexible approach referred to in the authorities...There is much force in...[the] argument that no amount of flexibility can properly stretch the terms of the letter to cover an appointment in respect of the "Baltic Meridian" voyage when the letter made no reference to that at all". However, on the facts, a subsequent letter did amount to a valid notice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Nigel Brook
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