Korea National Insurance Corporation ("KNIC") insured a North Korean airline under an aviation hull and liability policy. KNIC was reinsured by Allianz Global Corporate & Speciality AG ("Allianz") and other reinsurers (together "the Reinsurers") under an aircraft third party liability reinsurance policy ("the Reinsurance Contract"). The Reinsurance Contract was subject to North Korean law and jurisdiction.
A helicopter covered by the insurance crashed into a warehouse causing substantial damage. The owner of the warehouse brought a claim against the airline, which in turn obtained an arbitration award against KNIC. The Reinsurers refused to indemnify KNIC, which subsequently commenced proceedings in North Korea against Allianz on its own behalf and on behalf of the other reinsurers in its representative capacity. Allianz declined to attend the hearing in the North Korean court and KNIC obtained a judgment which it then sought to enforce in England.
Allianz sought to defend the enforcement proceedings by arguing that (1) the use of "representative" proceedings constituted a defect in the judgment of the North Korean court; (2) KNIC had committed a fraud on the North Korean court by failing to inform it that the dispute had been conditionally settled between the parties and that all rights and obligations under the Reinsurance Contract were discharged; and (3) the North Korean court lacked jurisdiction to hand down a judgment in light of this settlement. Allianz claimed that the Reinsurers had agreed with KNIC to pay the total indemnity limit under the Reinsurance Contract, but in local currency (as opposed to in Euros in accordance with the currency conversion clause in the Reinsurance Contract). Alternatively, if there was not a settlement of the reinsurance claim, Allianz said that at the very least this constituted a variation of the conversion clause.
KNIC applied for summary judgment in the enforcement proceedings on the grounds that Allianz’s defences had no reasonable prospect of success.
Mr Justice David Steel held that KNIC was entitled to commence "representative" proceedings in England against Allianz on the ground that Allianz shared the same interest as the other reinsurers it was said to represent. Consequently, it did not matter that KNIC had only served proceedings on Allianz alone, and any judgment against Allianz would be deemed to bind all the Reinsurers. Furthermore, it was held that KNIC had a similar entitlement to commence representative proceedings in North Korea pursuant to the relevant local legislation.
As to the existence of a settlement (or alternatively a variation to the terms of the Reinsurance Contract), the judge found that given the size of the claim and the significance of the currency conversion clause, it was "wholly improbable if not inconceivable" that the parties would have considered that a settlement had been reached without a written record of the agreement. The contemporary correspondence from Allianz’s solicitors was clearly inconsistent with the notion that a settlement had been achieved. Summary judgment was given to KNIC.
This case serves to highlight the importance of recording in writing any agreement, or indeed, any variation to the terms of a reinsurance contract.
This case also illustrates the potential issues which may arise by agreeing choice of law and jurisdiction clauses of territories with which reinsurers may not be entirely familiar. In this case, since the judge decided that the effectiveness of any variation to the Reinsurance Contract was subject to North Korean law, the Reinsurers required expert evidence from a North Korean lawyer. The Reinsurers appeared to encounter practical difficulties in finding a suitable expert lawyer to assist them in the proceedings in England.