Arash Shipping Enterprises Co Ltd v Groupama Transport & Sveriges Angfartygs Assurans Forening [2011] EWCA Civ 620

The Appellant was the representative of co-assureds under a composite policy of marine insurance issued by the Respondent, the assets insured by which comprised an Iranian fleet of oil tankers. The policy was for 12 months, with an agreed extension for a further 12 month period at the anniversary date. The policy contained an Iran Sanctions clause, which allowed the insurer to cancel “where the Assured has exposed or may, in the opinion of the Insurer, expose the Insurer to the risk of being or becoming subject to any sanction”.

The Respondent gave notice to cancel the policy, relying on Article 26(4) of EU Regulation 961/2010 which banned the extension or renewal of insurance with Iranian entities. The Appellant challenged the Respondent’s right to serve this notice, and sued the Respondent both on its own behalf an as representative of other underwriters subscribing to the policy. The Appellant argued that the obligation to extend the period of insurance for a further 12 months on the same terms was an automatic renewal which would not infringe the Regulation. The Respondent asserted that it was not properly joined as a representative defendant, and that the case in question was not an appropriate one for representative proceedings.

The Court held, firstly, that the Respondent should not have been made a representative party. Its cancellation had been expressly served on its own behalf only. Further, the underwriters were incorporated and carried on business in different jurisdictions, and not all of them were EU Member States, so the Iran sanctions legislation applicable to the various underwriters was not identical.

The Court also held that the Respondent had been entitled to serve its notice of cancellation, and that the notice was effective. The Respondent’s conclusion that an extension of the period of insurance would expose it to the relevant risk was not arrived at in bad faith, nor was it unreasonable or premature. The Regulation does not provide for a derogation for automatic renewal.

As regards the validity of the notice, the time to test this is when it is tendered, and underwriters are not obliged to exercise their discretion as to when the notices take effect. Further, it was neither reasonable nor necessary to imply a term requiring the underwriters to re-exercise their discretion before the notice took effect if there was a material change of circumstances.

Finally, the Court found that it was not necessary to decide whether the extension of the period of the policy was prohibited by the Regulation.