Starlight Shipping Company (“Starlight”) owned the vessel Alexandros T which sank on 3 May 2006 and was a total loss. The vessel was insured under two policies of marine insurance, a vessel policy and a fleet policy. The insurers under the policies were both the companies market (the “CMI”) and the Lloyd’s market (the “LMI”). The vessel was also insured under a policy with Hellenic Hull Mutual Association plc (“Hellenic”). All three policies were subject to English law. The CMI and LMI policies were subject to the exclusive jurisdiction of the English Courts and the Hellenic policy contained a London arbitration clause.
Starlight claimed recovery of its losses under the insurance policies; however, CMI and LMI sought to avoid the policies for various reasons including material non-disclosure and unseaworthiness of the vessel. Starlight, together with the managing company of the vessel, Overseas Marine Enterprises (“OME”), brought claims against CMI and LMI in the English Courts. Hellenic commenced an arbitration seeking a declaration of non-liability under their policy. The claims against CMI, LMI and Hellenic were subsequently settled by way of settlement agreements in 2007 and 2008. The settlement agreements were subject to English Law.
In April 2011 Starlight, OME and the owners of other vessels insured under the fleet policy (“the co-assured”) commenced proceedings in Greece against CMI, LMI, Hellenic (collectively, the “insurers”), their individual underwriters and employees, the director of the Hellenic, the original firm of solicitors with conduct of the Defence, and an individual adjuster.
CMI and LMI applied to the High Court in London for declaratory relief, specific performance and damages, on the basis that the proceedings in Greece were in breach of the settlement agreements and the exclusive jurisdiction clauses of both the settlement agreements and the underlying policies. Additionally CMI brought new proceedings against OME and the co-assured seeking a declaration of non-liability, and LMI brought new proceedings against Starlight and OME seeking enforcement of the settlement agreement between Starlight and LMI.
Mr Justice Flaux in the Commercial Court had to consider three main issues:
- whether the insurers were entitled to declaratory relief on the true construction of the settlement agreements;
- whether LMI were entitled to a decree of specific performance in relation to the LMI settlement agreement; and
- whether the original solicitors and adjuster were entitled to claim damages under the Contracts (Rights of Third Parties) Act 1999, in respect of their claims to enforce Starlight’s and OME’s promise not to sue them.
Claim for Declaratory Relief
Applying the case of Rainy Sky SA v Kookmin Bank  All ER (D) 19 (Nov), the Court considered the language used in the agreements in order to ascertain what a reasonable person would have understood the parties to have meant when entering into the agreement. If there were two possible constructions then the Court would be entitled to adopt the construction consistent with common business sense and reject the alternative interpretation.
The Court ruled that the term ‘underwriters’ in the settlement agreements included the servants and agents of the insurers, i.e. the insurers’ employees and directors, and the original solicitors, against whom claims in Greece had also been brought. The Court found that this interpretation is in line with business common sense as it provides a clean break for the parties to end the dispute between them. Therefore the claims brought against the employees and individuals in Greece were in breach of the settlement agreements and the Court ruled that the Defendants were entitled to declaratory relief.
Claim for Actions to be Stayed
The Court ruled that the settlement agreements provided a continuing promise by Starlight not to sue the insurers and their servants or agents, as Starlight had accepted a sum of money in full and final settlement of its claims. The Court found that this promise by Starlight could be enforced by an Order for specific performance and found that the Defendants were entitled to such relief.
Third Party Damages Claim
The Court upheld the solicitors’ and adjuster’s claims for damages under the Contracts (Rights of Third Parties) Act 1999, to be assessed, and ordered interim payments to be made.
The case highlights the importance of careful drafting of settlement agreements, particularly in relation to any future claims against other parties and indemnities which may be given. Additionally, it is important to note that the Courts will adopt a pragmatic approach to give effect to common business sense when interpreting the wording of settlement agreements.