As an alternative to an anti-suit injunction (outlawed in the EU by Turner v Grovit and West Tankers), the Commercial Court confirms that an award of damages for breach of an English Jurisdiction Clause is compatible with EU law.

Mr Justice Flaux’s decision in Starlight Shipping Company v Allianz Marine and Aviation Versicherungs AG & Ors [2014] EWHC 3068 is the latest judgment in a long-running dispute relative to the true meaning and effect of settlement agreements concluded by Starlight and the insurers of Starlight’s vessel, the M/V “Alexandros T”.

In May 2006, the “Alexandros T” sank off-shore South Africa; subsequently, Starlight commenced proceedings in the Commercial Court against the vessel’s insurers for an indemnity. Starlight’s claims were settled by agreements concluded in December 2007 and January 2008, and the English proceedings were stayed pursuant to consent Tomlin orders.

Some time later, in April 2011, Starlight and various affiliated companies and individuals commenced several actions in Greece against the insurers and their legal representatives, amongst others. Starlight’s claims in Greece were for damages in respect of the insurers’ handling and defence of Starlight’s claims under the policies.

In response, the insurers applied for relief within the original English proceedings under the settlement agreements, and the insurers’ legal representatives (co-defendants in Greece) applied to be joined as parties to the English action in order to seek like relief to the insurers in due course. At first instance, Burton J granted the insurers the relief sought, and joined the insurers’ representatives to the English proceedings.

Starlight appealed to the Court of Appeal on jurisdictional grounds and on the merits. That Court imposed a stay on the English proceedings pursuant to Article 27 of the Judgments Regulation and, in light of the stay, did not give judgment on the merits. In turn, the insurers and their legal representatives successfully appealed to the Supreme Court; the Article 27 stay was lifted, and the merits were remitted to the Court of Appeal where Burton J’s original orders were upheld.

In light of the foregoing, the principal question before Mr Justice Flaux was whether the settlement agreements would extend to cover the insurers’ employees and agents, including their legal representatives. The release provisions in the settlement agreements provided that Starlight would accept payment of certain sums in full and final settlement of all and any claims it may have under the insurance policies against the “Underwriters” (as defined) in relation to the loss of the “Alexandros T”. Mr Justice Flaux held that, on their true construction, the settlement agreements released the insurers’ agents and representatives as well as the insurers themselves. In so doing, the learned Judge doubted whether the “rigid” approach to construction of Jacob LJ in City Inn (Jersey) Ltd v 10 Trinity Square Ltd [2008] EWCA Civ 156 could survive the Supreme Court’s decision in Rainy Sky v Kookmin Bank [2011] 1 WLR 2900. In the result, Mr Justice Flaux held that Starlight was in breach of the continuing promise not to sue the insurers’ agents and representatives contained in the release provisions of the settlement agreements.

The learned Judge further held that the insurers’ agents and representatives were able to rely on the Contracts (Rights of Third Parties) Act 1999 in order to enforce the settlement agreements for and on their own behalf. Mr Justice Flaux also accepted the alternative arguments of the insurers’ legal representatives that (a) they were entitled to damages in lieu of an injunction restraining Starlight from continuing the Greek proceedings, and (b) on the basis of the decision of the House of Lords in St Martin’s Property Corporation v Sir Robert McAlpine [1994] 1 AC 85, the insurers would be able to recover damages for and on behalf of their agents and representatives in order to ensure that their damages claims would not simply fall into a legal ‘black hole’. This indicates the willingness of the Court to extend the ‘narrow ground’ of the decision of the House of Lords in the St Martin’s case to non-property related matters in appropriate circumstances.

To view the judgment please click here.