House of Lords: Lord Neuberger, Lord Mance, Lord Clarke, Lord Sumption and Lord Hughes
Mr Iain Milligan QC, Mr Michael Ashcroft QC & Mr Luke Pearce (instructed by Thomas Cooper) for the Appellants
Mr Michael Swainston QC & Mr Tony Singla (instructed by Clyde & Co LLP) for the 1st – 4th Respondents
Mr Steven Gee QC & Mr Tom Whitehead (instructed by Norton Rose) for the 5th — 7th Respondents
Mr David Bailey QC & Mr Jocelin Gale (instructed by Mayer Brown International LLP) a watching brief for the 8th-9th Respondents
The Court of Appeal decision in this case was first reported in Case Update No. 2.
In May 2006 ALEXANDROS T became a total loss (the "Vessel"). Following the loss, the owner of the vessel, Starlight Shipping Company (the "Owner"), sued its underwriters in the Commercial Court for an indemnity in respect of the loss. The case settled shortly before trial, with the insurers paying 100% of the claim, but without interest and costs. The proceedings were stayed pursuant to Tomlin orders i.e. a court order under which a court action is stayed, on terms which have been agreed in advance between the parties and which are included in a schedule to the order which remains confidential. The order permits either party to apply to court to enforce the terms of the order, avoiding the need to start fresh proceedings.
In April 2011 - more than 3 years later - the Owner and various connected individuals commenced proceedings in Greece against insurers (among others) in which they claimed substantial damages from the underwriters arising out of the manner in which the underwriters had defended the claims under the policies. It was said the underwriters had spread malicious falsehoods in the market relating to the circumstances in which the Vessel had been lost, which had caused the Owner and the other Greek claimants to suffer substantial losses. In particular, it was alleged that the Owner had missed the opportunity to use the policy proceeds to invest in three vessels, and that as a result of underwriters' actions in acquiring false evidence, Owners were not able to insure the vessels and without insurance they would not have been able to trade them and could not purchase them.
The underwriters responded to the Greek proceedings by issuing applications in the original Commercial Court proceedings (which remained stayed pursuant to the Tomlin orders) claiming relief against Owners, including damages for breach of settlement agreement and damages for breach of jurisdiction clause. In addition, the underwriters issued new proceedings against Owners claiming similar relief. Owners in turn applied for the English proceedings to be stayed in favour of the Greek proceedings under either Article 27 or Article 28 of the Brussels Regulation (44/2001).
Article 27 provides that:-
"1. Where proceedings involving the same cause of action and between the same parties are brought in the courts of different member states, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised of the action is established ...."[our emphasis]
Court of Appeal Judgment
The Court of Appeal, reversing the decision of first instance court (before whom no application had been made under Article 27 of the Regulation, and who had dismissed the application under Article 28 and granted summary judgment in favour of the underwriters) held that the English proceedings involved the same cause of action and the same parties as the Greek proceedings, and that the Greek court had been seised first in relation to them. It followed that the English applications/actions were stayed in favour of the Greek proceedings under Article 27 of the Regulation.
Supreme Court Judgment
The Supreme Court reversed the Court of Appeal judgment. It held that the underwriters’ claims for: (i) damages for breach of the jurisdiction agreement; (ii) damages for breach of the release in the settlement agreements, and (iii) an indemnity against the consequences of Owners bringing foreign proceedings, did not have the same cause or object, and were not “the same cause of action”, as the claims brought in the Greek courts. As a result, the English court was not obliged to stay any of those claims under Article 27.
However, if the underwriters had not abandoned their separate claim for a declaration that they were not liable in the Greek proceedings, the Supreme Court would have been obliged to order a mandatory stay of that claim under Article 27, since it was a mirror image of and the same cause of action as the claims in Greece.
The underwriters’ claim for a declaration that the claims in the Greek court fell within the release (and had therefore been settled) was also problematic. By a majority, the Supreme Court decided that a stay would not have to be granted, but since two judges disagreed, this issue was referred to the European Court. The underwriters’ argument that Owners were too late to invoke reliance on Article 27 in the Court of Appeal when they had not done so at first instance was also referred to the European Court.
Owner’s argument based on Article 28 was rejected: some parts of the 2006 proceedings had been stayed and some parts had not but in both instances, the English court was first seised, so Article 28 did not apply. Even if the English court had not been first seised, the Supreme Court was not prepared to exercise its discretion to impose a stay in circumstances where the parties had expressly agreed to refer disputes under the settlement agreements to the exclusive jurisdiction of the English court.
In conclusion, whilst on the face of it, this judgment could be construed as a "policy decision", the Supreme Court was assiduous in justifying its decisions by reference to highly technical arguments under European law. In doing so, it walked a legal tightrope, drawing a fine distinction between the damages and indemnity claims (which fell outside Article 27) and the ostensibly all-but-identical claims for declarations (which were caught by Article 27, or at least required a determination from the European Court).
Above all, this can be seen as a victory for common sense: what was at stake was no less than the authority of the English courts to police settlement agreements expressly subject to English law and exclusive English jurisdiction. If Owner’s arguments had succeeded, the underwriters would have been forced to ask Owner’s home court to enforce those agreements, which Owners had breached by commencing the Greek proceedings.
The judgment also reinforces the wider principle that settlements ought to bring finality to proceedings. This is plainly in the interests of legal and business certainty and therefore ought to be welcomed by the commercial community at large.