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The issue in this case was whether an insured who allowed
someone else (who was uninsured) to drive his vehicle and was then
injured by the driver's negligence, would be liable to repay
any amount paid to him by his insurer pursuant to section 151(5) of
the Road Traffic Act 1988 ("the Act"). The key statutory
provision in this case was section 151(8) of the Act which provides
that "where an insurer becomes liable under this section to
pay an amount in respect of a liability of a person who is not
insured by a policy...he is entitled to recover the amount
from...any person who...is insured by the policy...and...permitted
the use of the vehicle which gave rise to the liability".
The Court of Justice of the European Union (formerly the ECJ)
ruled that the various Motor Insurance Directives should be
interpreted as precluding national rules whose effect is to
"omit automatically" the requirement that an insurer
compensate a passenger who is a victim of a road traffic accident.
The English courts were then asked to decide whether section 151(8)
could be interpreted in a way which made it compatible with the
Directives. The Court of Appeal has now held that it could.
It was possible to restrict the extent to which a passenger
could recover compensation by notionally including the following
wording at the end of section 151(8): "save that where the
person insured by the policy may be entitled to the benefit of any
judgment to which this section refers, any recovery by the insurer
in respect of that judgment must be proportionate and determined on
the basis of the circumstances of the case". Thus it might be
possible in certain circumstances for an insurer to be unable to
recover from an insured who is also a passenger victim and so this
interpretation did not automatically omit the requirement that an
insurer compensate the passenger victim.
SERVAAS INCORPORATED v RAFIDAIN BANK
Supreme Court decides the scope of the "commercial
purpose" exception in the State Immunity Act 1978
The earlier decisions in this case have been reported in Weekly
Updates 47/10 and 40/11. The claimant obtained judgment against the
Republic of Iraq ("Iraq") 20 years ago and over US$ 34m
remains outstanding. The claimant sought to execute against
distributions due imminently to Iraq because it has an admitted
claim in the scheme of arrangement for Rafidain Bank (a
state-controlled Iraqi Bank). Iraq had bought the commercial claims
of various commercial creditors against the bank.
The issue in the appeal is whether Iraq is entitled to state
immunity in respect of this imminent payment and, in particular,
whether the exception to immunity set out in Section 13(4) applied.
This provides that the general immunity from execution of judgment
against a state "does not prevent the issue of any process in
respect of property which is for the time being in use or intended
for use for commercial purposes".
The claimant sought to argue that the current use of Iraq's
right to payment could only be ascertained from the underlying
commercial transaction which led to the payment of the debt by the
bank. That argument was rejected at first instance and by a
majority of the Court of Appeal. It has now also been unanimously
rejected by the Supreme Court. It held (referring to both English
and American caselaw) that there was a crucial distinction between
the origin of funds and the use to which they are to be put:
"the central question in this appeal is whether the nature of
the origin of the debts is relevant to the question whether the
property in question was in use for commercial purposes. In my
opinion it is not" (as per Lord Clarke).
The claimant was unable to show on the facts that Iraq intended
to use the payment for commercial purposes - on the contrary, it
accepted that the payment was intended to be used for sovereign
purposes. Accordingly, the appeal was dismissed.
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