In the case of The London Steam-Ship Owners' Mutual Insurance Association Limited v. Trico Maritime (PVT) Ltd and others (CL-2023-000873), CJC, together with an eminent team of Quadrant barristers, acted for the successful claimant, the Club. Summary by Richard Guy, Maria Borg Barthet and Alistair Johnston.
The Court’s decision in the case of The London Steam-Ship Owners' Mutual Insurance Association Limited v. Trico Maritime (PVT) Ltd and others (CL-2023-000873) reinforces the principle that a third party claimant cannot seek to rely on a policy of insurance to its benefit whilst ignoring the relevant law and arbitration clause. The Court also upheld the well-known principles set out in the House of Lords decision in The “Fanti” and The “Padre Island” [1991] granting a declaration that the Club is entitled to rely in the Pay to be Paid rule.
Background:
The claim arose from the sinking of the container ship X-Press Pearl (the “Vessel") off the coast of Sri Lanka on 2 June 2021. The Claimant is the London based P&I Insurer of the Owners of the Vessel. The Five Defendants, a Sri Lankan company and four Sri Lankan citizens, initiated five separate sets of legal proceedings in the High Court of the Democratic Socialist Republic of Sri Lanka against the Owners, the Club and a number of other entities supposedly connected to the voyage and carriage of the cargo carried on board the Vessel (the “Sri Lankan Proceedings”).
In the Sri Lankan Proceedings, the Defendants claim compensation for alleged loss and damage to the cargo. The Club is alleged to be jointly and severally liable with the Owners on the sole basis that it was "the insurer".
The Vessel was insured by the Club under a contract of indemnity insurance between it and the various assureds (the “Policy”). The Policy contained what are fairly typical provisions for such a policy, including a provision specifying: i) that the Policy was subject to English law and London Arbitration save that the Club was granted a wide discretion to seek to enforce its rights in alternative jurisdictions (so not just London Arbitration, but also, for instance, the English High Court); and ii) a ‘pay to be paid’ clause (the “Pay to be Paid Rule”): a clause pursuant to which it was a pre-condition to the assured being indemnified for any liability, that the assured in fact pay the full amount of any such liabilities, costs and expenses.
There is no direct statutory right of action against insurers under Sri Lankan law save for very limited cases that did not apply in a maritime context. Accordingly, the Defendants were seeking to enforce the Policy against the Club. However, as mentioned, the Policy provides for London arbitration.
The Club commenced proceedings in the English High Court seeking:
- An Anti-Suit Injunction restraining the Defendants from pursuing the Sri Lankan Proceedings against the Club because any such claim, since it is founded on the Policy, is subject to the London Arbitration Clause; and
- A declaration that the Club is entitled to rely on the Pay to be Paid Rule.
Judgment:
Mr. Justice Bright found that the claims against the Club were solely grounded on its role as an insurer, with no independent right of recovery under Sri Lankan law. The key question was whether the Defendants can be bound by the terms of the Policy even though they were not a party to them. This turned on applying conflict of laws principles and determining whether the foreign proceedings were seeking to enforce: i) an independent right under the foreign law to claim against the insurer (or Club in this case); or ii) to enforce the contract of insurance (the Policy in this case). If the former, it was not a matter for the Court, if the latter then the Court will adopt the view that the putative claimant (being the Defendants in this case) cannot take all the benefits of the insurance contract without also bearing the burden (such as the arbitration clause) even though they are not in fact a party to the insurance contract. If the right is contractual in nature then the Court will be prepared to assist by granting an Anti-Suit Injunction. As mentioned above, in this case, the Defendants were pursuing quasi-contractual rights and not rights independent of the insurance contract.
The granting of an ASI is a discretionary matter for the Court and should the court be concerned that there is a good reason not to grant the ASI, the Court may decline to grant the ASI. A matter of paramount importance to the Court is whether: i) a party has submitted to the foreign jurisdiction; or ii) there has been delay such that the foreign proceedings have significantly progressed before the relief of an ASI is sought. These issues were closely scrutinised by Mr Justice Bright, and while the Club had entered an appearance in the Sri Lankan proceedings, the Club had made clear that it challenged the Sri Lankan Court’s jurisdiction when entering that appearance. Furthermore, the Club had not delayed “materially” in seeking an ASI. The materiality aspect arises on the basis that while it was notionally possible to have sought an ASI sooner, the Sri Lankan proceedings had not in fact progressed to any significant degree.
The function and use of the Pay to be Paid Rule was not considered controversial. It is well settled how this rule functions and that it offers a complete defence to a claim if liability has not first been settled by the assured. However, the granting of a deceleration is, again, a discretionary remedy arising under section 19 of the Senior Courts Act 1981 and the “touchstone” in exercising that discretion is “utility”. Mr Justice Bright concluded that such a declaration would assist in this case as it would avoid argument between the parties as to the Pay to be Paid Rule’s meaning and may well be helpful to the courts in Sri Lanka.
Conclusion:
The Court decided in favour of the Claimant on both counts, granting the Anti-Suit Injunction and issuing a declaration that the Club is entitled to rely on the Pay to be Paid Provision. The Court is willing to uphold the Policy terms robustly where appropriate, but parties should be mindful that if they are to do so, they need to move with speed.
For further information, please contact:
Maria Borg Barthet
Director
Maria@cjclaw.com
Alistair Johnston
Director
Alistair@cjclaw.com
Richard Guy
Managing Associate
Richardg@cjclaw.com