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Hull & machinery insurers win in the Court of Appeal in jurisdiction battle with the mortgagee bank

21st Nov 2018

The Atlantik Confidence [2018] EWCA 2590 Civ

This is the latest in a series of events since Mr Justice Teare ruled, in October 2016, in proceedings between the owner of the Atlantik Confidence and cargo interests, that the owner and Mr Agaoglu (the beneficial owner of the vessel) had wilfully cast away the vessel.

Since then, hull and machinery insurers have commenced an action to recover insurance proceeds paid by them, under a release agreement entered into before Teare J’s October 2016 ruling, to the owner, manager and mortgagee of the Atlantik Confidence. The mortgagee was loss payee and assignee under the insurance and the release agreement included provision for the payment of the claim to the London broker with the mortgagee’s consent. The hull and machinery insurers allege that the loss of the Atlantik Confidence was caused by the wilful misconduct of the owner and/or manager of the vessel. The claims are for damages based on misrepresentations and/or for restitution based on mistake.

The mortgagee bank challenged the jurisdiction of the English High Court to hear these claims. In July 2017, Teare J held that the English court has jurisdiction over the misrepresentation claims against the bank, but not the claim for restitution. In practical terms, this decision permitted hull and machinery insurers to pursue a claim for the full amount of the insurance proceeds before the English court.

Both the mortgagee bank and the hull and machinery insurers appealed. In a judgment given on 21 November 2018, the Court of Appeal reached essentially the same overall conclusion as Teare J. The Court of Appeal held, among other things, that: (i) the mortgagee bank is not bound by the jurisdiction agreements in favour of the English High Court contained in the release agreement and the insurance policy; (ii) the mortgagee bank is not entitled to take the benefit of Section 3 of the Brussels Recast Regulation (i.e. “matters relating to insurance”) as it falls within a class of persons excluded from the protection offered by that section by virtue of its “…routine, commercial or professional, involvement with marine insurance claims”; (iii) the hull and machinery insurers’ misrepresentation claims, but not the claim in restitution, fall within the scope of Article 7(2) of the Brussels Recast Regulation; and (iii) the “harmful event” occurred in England, so as to found the jurisdiction of the English High Court to determine the misrepresentation claims.

The practical effect of the Court of Appeal’s decision, as was the case following the decision at first instance, is that the hull and machinery insurers may pursue the full amount of the insurance proceeds from the mortgagee bank in the English High Court.

The Court of Appeal’s decision is of wider significance for a number of reasons. First, it is an important development regarding the extent to which loss payees and assignees may be bound by jurisdiction clauses in insurance policies. Second, the identification of persons who are not entitled to the protection Section 3 of the Brussels Regulation provides welcome clarification. Third, the decision highlights the current difficulty of fitting restitution claims within Article 7 of the Brussels Recast Regulation.

Please view the full judgment here.

Peter MacDonald Eggers QC and Sandra Healy act for the hull and machinery insurers.

Instructing solicitor: Chris Zavos, Norton Rose Fulbright LLP.

Clerk contact: Eddie Johns