UK: "YUSUF CEPNIOGLU" - Court Of Appeal Backs Marine Insurers In Direct Action Battle

Last Updated: 15 July 2016
Article by Rob Collins

On 20 April, the Court of Appeal in the "YUSUF CEPNIOGLU" ruled firmly in favour of insurers, supporting the terms of the policy over direct rights of action against insurers under foreign legislation. The vessel grounded at Mykonos, Greece, resulting in a total loss. The charterers, under whose bills of lading the cargo was carried, faced cargo claims of US$13.5m and sought an indemnity from owners/owners' P&I insurers (the P&I Club).

The proceedings

The charterers commenced direct action proceedings in Turkey against the P&I Club, which obtained an anti-suit injunction from the English Court restraining these. The Court was asked to decide whether the injunction should remain.

Where a third party has a direct right of action against an insurer under the UK Third Parties (Rights Against Insurers) Act 1930, it will be bound by a jurisdiction or arbitration clause in the policy, because the insured's rights are transferred to it. At issue, here, was whether the English Court could intervene to injunct proceedings where the direct right of action arises under foreign law. That depends on whether the foreign statute confers on the third party the same rights and obligations as the insured, or whether it creates an independent right (in which case, the charterers would not be bound by the London arbitration clause in the policy and their right to sue the P&I Club would be governed by Turkish, not English, law).

The decision

The Court held that bringing the Turkish action was a contractual right. It considered the substance of the claim and, specifically, the extent to which policy terms apply, such as limiting liability to losses occurring during the cover period and to insured perils, the cap of cover and the time bar under the policy. 

The second issue was the basis for anti-suit relief, either through Angelic Grace principles (where a party is in breach of an exclusive jurisdiction clause, an anti-suit injunction should be granted unless there is good reason not to); or if the foreign proceedings are considered vexatious and oppressive.

The Court of Appeal disagreed with the Commercial Court's conclusion that it was not a breach of contract to bring proceedings in Turkey and that whether the proceedings were vexatious or oppressive was relevant, and held, following The Jay Bola, that the charterers were bound to the exclusive jurisdiction clause in the policy. The Court made no distinction between an assignee or transferee and a third party claiming under a direct action statute, rejecting the contrary Court of Appeal decision in The Hari Bhum (No.1).

Last, the Court rejected the charterers' argument that comity provided a good reason not to injunct Turkish proceedings, concluding that "questions of comity...do not arise".

Comment

The decision (which remains subject to appeal) leaves insurers with an open goal for injunctive relief against similar direct actions. It is difficult to imagine a direct action statute that would not refer to the terms of the policy, allowing, for example, a direct claim by a third party against an insurer that did not insure the vessel at the time, or where cover did not extend to the losses claimed.

It is now almost inevitable that rights arising under direct action statutes will be characterised by the English Court as contractual. There will be no need to show vexatious or oppressive conduct, the issue of comity will not be relevant and it is difficult to imagine another good reason not to order an injunction in similar circumstances to this case.

First featured in Insurance Day on 25 May 2016

"YUSUF CEPNIOGLU" - Court Of Appeal Backs Marine Insurers In Direct Action Battle

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