The London Steam-Ship Owners’ Mutual Insurance Association Ltd v Trico Maritime (Pvt) Ltd & Others (The “X-Press Pearl”)
DMC/Arbn/24/02
England
The London Steam-Ship Owners’ Mutual Insurance Association Ltd v Trico Maritime (Pvt) Ltd & Others (The “X-Press Pearl”)
English Commercial Court: Mr Justice Bright: [2024] EWHC 884 (Comm): 23 April 2024
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2024/884.html
Simon Rainey KC, Natalie Moore and Joseph Gourgey (instructed by Campbell Johnston Clark) for the P&I Club
Trico Maritime (Pvt) Ltd & Others, the Cargo Interests, did not appear and were not represented
P&I INSURANCE CONTRACT: ANTISUIT INJUNCTION: DECLARATORY RELIEF: WHETHER CARGO INTERESTS PURSUING A CLAIM AGAINST AN INSURER ARE BOUND BY THE TERMS, INCLUDING THE ENGLISH LAW AND LONDON ARBITRATION CLAUSE, OF THE CONTRACT: WHETHER INSURER ENTITLED TO INJUNCTION AND RELIEF FOR CARGO INTERESTS’ BREACH BY PURSUING FOREIGN COURT PROCEEDINGS AGAINST INSURER
Summary
The High Court granted an application by the P&I Club for a final antisuit injunction and declaratory relief in response to the Cargo Interests having commenced court proceedings in Sri Lanka following the sinking of the “X-Press Pearl”, a container ship (the “Vessel”) off the coast of Sri Lanka in June 2021.
In finding for the P&I Club, the High Court held that any claim pursued by the Cargo Interests would be governed by the contract of insurance (the “Insurance Contract/Club Rules”) which provided for:
(1) English law to govern any claim;
(2) any claim against the P&I Club to be referred to arbitration in London;
(3) the P&I Club, conversely, to have the right to take legal action in any fora; and
(4) there to be a condition precedent that any right to recover from the P&I Club would first require the P&I Club’s insured to have paid the full amount of its liability (the Insurance Contract’s ‘Pay to be Paid Rule’).
N.B. The Pay to be Paid Rule is of material importance in the context of P&I insurance and this latest judgment affirms the position, set out in the decision of the House of Lords in Firma C-Trade S.A. v Newcastle Protection and Indemnity Association (The “Fanti” and The “Padre Island”) (fn.1), that effectively prevents direct claims by third parties against P&I insurers.
Case note contributed by Sheridan Steiger, LLM (International Trade and Commercial Law), LLB (Hons), BA (Hons), Solicitor of England & Wales, and International Contributor to DMC’s Case Notes
Background
The Vessel sank off Sri Lanka on 2 June 2021 and, at the time of sinking, the P&I Club was the London-based P&I insurer of the Vessel’s registered owners pursuant to the Insurance Contract.
The Cargo Interests alleged they had interests in some of the cargo on board the Vessel at the time of its sinking. To pursue these alleged claims, the Cargo Interests commenced proceedings in the Sri Lankan courts against various parties including the P&I Club (the “Sri Lankan Proceedings”).
In the Sri Lankan Proceedings, the Cargo Interests argued that the P&I Club was “jointly and severally liable” and that the P&I Club was directly liable to them “as the insurer”.
In response to the Sri Lankan Proceedings, the P&I CLub commenced an arbitration claim in London seeking a final anti-suit injunction and declaratory relief in support of its right to be sued only by a claim referred to arbitration in London and subject to the terms of the Insurance Contract. The P&I Club submitted evidence from a Sri Lankan lawyer that:
(1) the claims the P&I Club sought to restrain in Sri Lanka were for loss or damage to goods carried in a ship, which constituted maritime claims under Section 2(1)(g) of the (Sri Lankan) Admiralty Jurisdiction Act No. 40 of 1983;
(2) the Cargo Interests asserted that the P&I Club was liable as an insurer;
(3) Sri Lankan law does not provide for an independent or direct right of recovery against insurers; and
(4) in the absence of an applicable local statute or common law, the Sri Lankan court would look to the terms of the Insurance Contract to determine whether the P&I CLub had any liability to the Cargo Interests and, given the terms of the Insurance Contract, would apply English law and take cognizance of the ‘Pay to be Paid’ clause.
The relevant legal principles were set out as:
(1) The English courts have often dealt with a claimant outside England (“Foreign Claimant”) who wishes to bring a claim in its own country against an indemnity insurer based in England. In response, indemnity insurers have sought to rely on the terms of the insurance contract providing for English law and jurisdiction by restraining the Foreign Claimant from pursuing claims outside England.
(2) Accordingly, the case law on issues of this type is clear and well-known. The two main authorities are: the decision in the Court of Appeal in Shipowners Mutual P&I v Containership Denizcilik (The Yusuf Cepnioglu) (fn.2); and the decision of Foxton J in QBE Europe SA NV v Generali Espana de Seguros [2022] EWHC 2062 (Comm) (fn.3).
(3) The English court must first establish whether the Foreign Claimant is seeking to enforce a contractual right derived from the contract of insurance or advancing an independent right of recovery under the local law.
(4) If the Foreign Claimant is relying on contractual rights found in the insurance contract which itself is subject to English law the right being asserted must also be governed by English law.
(5) In such circumstances, the Foreign Claimant will be bound by the terms of the insurance contract even though they are not a party to it. This will include any contractual provisions too; a party cannot enjoy a benefit under the insurance contract without also accepting any associated burden.
(6) If an assessment of these principles leads to a conclusion that the Foreign Claimant is bound by the arbitration agreement set out in the contract of insurance, the insurer will be entitled to seek an anti-suit injunction.
Judgment
Having dealt with the background material facts, the Judge first addressed the Cargo Interests’ failure to obtain legal representation and appear before the High Court. The Judge held that:
(1) the Cargo Interests had been given sufficient notice of proceedings; and
(2) it followed that the Cargo Interests’ decision not to engage with proceedings was deliberate.
Accordingly, the Cargo Interests’ failure to appear was not a bar to the P&I CLub seeking an antisuit injunction.
The Judge went on to address the substantive issues and found and held as follows:
(1) The Sri Lankan lawyer gave evidence that a Sri Lankan court would apply English law to any claim against the P&I Club and that the Cargo Interests were obliged to arbitrate in England.
(2) At no time had the P&I Club submitted to Sri Lankan Proceedings and had always made clear to the Cargo Interests that it contested the jurisdiction of the Sri Lankan courts.
(3) It followed that the P&I Club was entitled to an antisuit injunction.
(4) The ‘Pay to be Paid’ provision was intended to and did prevent direct claims by third parties against P&I insurers.
Comment
Indemnity insurers will take comfort that this judgment affirms that they are still able to rely upon the ‘pay to be paid’ clause found in their rules.
This judgment also confirms the existing case law that English courts will uphold the ‘benefit and burden’ principle when considering the rights of foreign claimants to proceed against an insurer pursuant to terms set out in an insurance contract governed by English law.
However, insurers should still carefully consider any response when notified of foreign proceedings as imprudent correspondence may be construed as their acquiescing to the foreign court having jurisdiction in the foreign proceedings.
Footnote 1: [1991] 2 AC 1
Footnote 2: [2016] EWCA Civ 386 [2016] 1 Lloyd’s Rep. 641
Footnote 3: [2022] 2 Lloyd’s Rep. 481
