The Supreme Court has now handed down its judgment (neutral citation [2020] UKSC 11) in a long-running dispute between London Underwriters and Dutch bank Credit Europe Bank (CEB), in which Campbell Johnston Clark ("CJC") acted for the ultimately successful bank.  This decision brings welcome clarity on the interpretation of Section 3 of the EU Recast Regulation on jurisdiction, confirming the status of a beneficiary under an insurance policy as someone entitled to the protections of Article 14.

The complex case has been the subject of a number of court hearings over the last three years. The appeal from the Court of Appeal decision handed down in November 2018 (neutral citation [2018] EWCA Civ 2590) was heard before the Supreme Court in November 2019.A team from Campbell Johnston Clark, led by Kirsty MacHardy, were the solicitors representing CEB as the mortgagee Bank which submitted that the English courts did not have jurisdiction over Underwriters' claims and that the claims should properly be brought before the courts of the Netherlands.

The matters before the Supreme Court concerned a number of EU law issues. From CEB's side, the crux of the issue was the interpretation of "matters relating to insurance" in the context of Article 14 of the Brussels Regulation Recast (Regulation (EU) 1215/2012 - the "Recast Regulation") and whether there was a "weaker party" exception applicable to CEB.

Underwriters’ claims arose following the sinking of Atlantik Confidence on 2 April 2013. Following the sinking, Owners presented a claim under the Hull Policy for US$22m in respect of the total loss of the vessel and based on the fact that a fire in the engine room, an insured peril, had caused the vessel to sink. On 5 April 2013, the underwriters and Owners agreed a settlement, with the underwriters paying US$22m in full and final settlement of claims. CEB was not a party to this settlement agreement.

In the usual way, CEB, as mortgagee of the vessel, was the loss payee and assignee under the insurance policy. The settlement sum of US$22m was therefore paid to CEB in order to pay off the ship’s mortgage and various other debts of shipowning entities within the Owners’ group.

In proceedings between the owners and cargo interests, the Hon. Mr Justice Teare ruled in 2016 (neutral citation [2016] EWHC 2412 (Admlty)) that the owner and the beneficial owner of the vessel had wilfully cast away the vessel.

Proceedings in the Jurisdiction Dispute

As a consequence of the ruling of Teare J in October 2016, London Underwriters, led by Aspen Underwriting Ltd (the "Underwriters") sought to recover the monies paid under the insurance policy. Proceedings were commenced against the owners and managers of the Atlantik Confidence, as well as CEB as the recipient of the majority of the US$22 million. Claims were brought by Underwriters' in the English High Court  firstly, for avoidance/rescission of the settlement agreement (to which CEB was not a party) on the basis of misrepresentation, i.e. that the vessel was lost due to an insured peril and secondly, for a claim in restitution for the settlement sums on the basis of the insurers’ mistaken belief that the vessel was lost due to an insured peril.

CEB disputed the jurisdiction of the English Courts to hear these claims where the subject matter of the claim was a "matter relating to insurance" under Article 14 of the Recast Regulation. Article 14 states: "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".

The Court of Appeal ruled that CEB could not rely on Article 14 as it was not considered to be a "weaker party". The Court of Appeal arrived at this conclusion based upon a recital in the Recast Regulation relied upon by Underwriters -Recital 18 - in which it is stated; "In relation to insurance, consumer and employment contracts, the weaker party should be protected by rules of jurisdiction more favourable to his interests than the general rules". 

The Court of Appeal’s view was that CEB was not a “weaker party” (than the Underwriters) "as it fell into a class of parties whose business involves the settlement of insurance claims ‘from time to time’ and that the Bank’s business was at least akin to that of an ‘insurance professional’."

Both parties appealed and were granted permission to appeal to the Supreme Court.

Supreme Court decision

The principal issues referred to the Supreme Court were:

1. Whether Underwriters' claims against CEB were "matters relating to insurance" under s.3 of Chapter II of the Recast Regulation; and

2. If this issue was answered in the positive, whether CEB was entitled to rely on the protection given by s.3 on the basis that it fell within one of the classes of persons entitled to rely on the protection under that section.

In considering these issues, Lord Hodge emphasised that Article 14 of the Recast Regulation was not seeking to derogate from the default rule under Article 4 (that a defendant was to be sued in their home domicile). It was actually in tandem with the default rule. Reversing the decision of the Court of Appeal that CEB was not entitled to the protections under Article 14 to the extent of only being sued in its home domicile, Lord Hodge cited six grounds for arriving at this conclusion.

The first five reasons related to whether the dispute was a "matter relating to insurance".

1. Comparing Article 14 with other articles of the Recast Regulation, the Court noted that the scope of the title of Section 3 ("Jurisdiction in matters relating to insurance") was wider than others, for example, Article 7(1) ("matters relating to a contract") which does indeed seek to derogate from the default position in Article 4.

2. Lord Hodge also stressed the fact that Article 14 expressly set out the classes of person it was designed to protect – not just the policy holder and the insured (who would be parties to the insurance contract) but also a beneficiary (who would not usually be a party to the contract of insurance) – of which CEB was one.

3. The Supreme Court denied that the recitals cited by the Underwriters assisted their position.

4. It was clear from the previous decisions of the CJEU that derogations from the default rule under Article 4 would be interpreted strictly.

5. To the extent it was applicable (which was argued by Underwriters), the test set down in Brogsitter v Fabrication de Montes Normandes EURL (Case C-548/12) [2014] QB 753 ("Brogsitter") that the subject matter of the claim had to relate to a breach of the insurance contract – had in any event been met.

The sixth ground cited by Lord Hodge related to the issue of whether Teare J was correct at first instance that CEB was not entitled to rely on Article 14 of the Recast Regulation, where Recital 18 to the Regulation indicated an exception to this rule, within which CEB fell. The Supreme Court disagreed with Teare J's decision (which was followed by the Court of Appeal) stating "there is no "weaker party" exception which removes a policyholder, an insured or a beneficiary from the protection of article 14".

In reaching this conclusion and clarifying the position on the interpretation of "matters relating to insurance", the Supreme Court made the following comments, also referring to a number of decisions from the CJEU which it said did not support the conclusions of the Court of Appeal:

1. Article 14 was designed to protect the policyholder, insured and/or beneficiary of a policy because they would usually be the "weaker party" in terms of commercial negotiations with an insurer and where the policy would often be on a standard form – as per the CJEU's decision in Gerling (Case 201/82) [1983] ECR 2503 and the Advocate General's statement in the same case.

2. The recitals to the Recast Regulation did not have legal effect and were there only to assist with interpreting the Regulation – it was the words of the actual articles which were of importance.

3. As with Article 4, derogations from the jurisdictional rules set down in Article 14 must be interpreted strictly – see the decision of the CJEU in Peloux (Case C-112/03) [2006] QB 251.

4. Considering on a "case-by-case" basis whether a party was "weaker" or "stronger" where they were one of the classes already set out within Article 14 went against legal certainty – as per the decision and opinion of Advocate General Bobeck in KABEG (Case C-340/16) [2017] IL Pr 31.

5. Recital 18 was relevant not in considering whether Article 14 should apply to one of the classes expressly listed therein, i.e. policyholder, insured or beneficiary, but in considering whether the protections afforded by Article 14 should be extended to additional classes of person, for example:

• a reinsured (as in the Group Josi decision (Case C-412/98) [2001] QB 68);
• an insurer (as in the GIE decision (Case C-77/04) [2005] ECR I-4509; [2006] Lloyd's Law Rep 215);
• a social security institution (as in the Vorarlberger decision (Case C-347/08) [2009] ECR I-8661; [2010] Lloyd’s Rep IR 77);
• a public law establishment (as in KABEG);
• a claim recovery agent (as in the Hofsoe decision (Case 106/17) [2018] IL Pr 184).

The CJEU had not, in any of these decisions, raised any question over whether those classes of person expressly mentioned in Article 14 should be excluded from the protections of that article in any circumstances other than under Articles 15(5) and/or 16 of the Recast Regulation (derogations from the default rule by agreement for certain types of risk). The Supreme Court did note that the present case involved one of the types of risk set out under Article 16 (marine), however there was no such binding agreement on CEB in this instance.

The Supreme Court additionally considered whether it was necessary to refer this issue to the CJEU. The Court determined that it was not necessary as, in its view, the issue of whether someone falling within one of the three express classes under Article 14 was entitled to the protection thereunder (regardless of its "economic power relative to the insurer") was "acte clair", thereby fulfilling the CILFIT test (Case 283/81) [1982] ECR 3415.   

As a result of its conclusions in relation to Article 14, the Supreme Court also confirmed that the English courts did not have jurisdiction for Underwriters' claims in misrepresentation under Article 7(2).

The Supreme Court accordingly dismissed Underwriters' appeal, allowing CEB's appeal, and ruled that the Courts of England and Wales did not have any jurisdiction to hear Underwriters' claims against CEB.

Commentary

This decision finally provides certainty and clarity in the interpretation of Article 14 and Section 3 of the Recast Regulation. This will come as a relief to many companies that have commercial insurance policies in place and/or are beneficiaries under such policies, as the excluded categories formulated by the Court of Appeal could potentially have included any of these businesses – large or small – were they in the business of the “settlement of claims”.

The judgment also reinforces the importance of the default position under the Recast Regulation. Throughout the judgment, Lord Hodge highlighted the need for legal certainty in the context of the Recast Regulation and matters of jurisdiction. He also highlighted and re-iterated the importance of the default position under Article 4 of the Recast Regulation – which provides that a defendant is to be sued in its home domicile – and that any derogations from this default position should be only in exceptional situations and interpreted strictly.

Whilst the clarity is welcomed, the impact for UK-based companies may now be more limited with the advent of Brexit. Much will depend on the extent to which the Recast Regulation's jurisdictional provisions are included in the legal framework which remains following the withdrawal of the UK from the EU.  It is expected that most, if not all, of the legal framework will remain, but at present the position remains uncertain.