A recent legal battle between Allianz and a shipping company has shown how vulnerable providers can be to legal challenges brought overseas

International sanctions have unintended consequence for businesses

Law firm Hogan Lovells highlights that, in cases where an insurer refuses to pay out but is challenged in another country about how it handled the claim, it might be hamstrung by the insured blocking their efforts to stay the challenge.

The case Starlight Shipping Company v Allianz Marine & Aviation Versicherungs AG & Ors started when the vessel Alexandros T sank in 2006. In High Court proceedings the vessel’s insurers denied liability on the basis of unseaworthiness. The insured counterclaimed for an indemnity under the policy.  

The insured had complaints about the insurers’ conduct which could not be pursued to a successful conclusion in the English proceedings. English law permits no remedy for late payment under an insurance contract, even where that is the consequence of deliberate obstruction by the insurers, other than the award of interest on the indemnity due. The English proceedings were settled in January 2008.

In April 2011 the insured brought proceedings against the insurers in Greece, alleging late payment under the insurance contract and other misconduct said to have caused consequential losses.

The question inevitably arose as to the interaction of the Greek proceedings and the settlement of the earlier English action. The insurers issued High Court proceedings seeking various remedies in respect of the Greek proceedings by reason of the existence of the 2008 settlement. The insured applied to stay the proceedings under regulation 44/2001 of the Council of the European Union (the “regulation”).

Court of Appeal decision

When the High Court refused to grant a stay, the insured appealed. They relied on article 27 of the regulation, which provides that a member state court must stay proceedings “involving the same cause of action and between the same parties” as proceedings already been commenced in another member state.

A key issue in dispute was whether the Greek and English proceedings involved the same cause of action. Longmore LJ concluded that two causes of action in different member states will be the same if they are a “mirror image” of each other.

Although the insured’s misconduct allegations in the Greek proceedings (claims in tort) were different to the contractual dispute over the settlement agreement that formed the basis of the High Court proceedings, the Court of Appeal nonetheless found that the two cases were “mirror images” because in both cases the insurers were asserting non-liability by reason of the settlement and there was a clear risk of inconsistent decisions.

Having established that the two proceedings did involve the same cause of action, the Court of Appeal found that the Greek court had been first seised, as the High Court proceedings were only begun after the Greek proceedings had been commenced. As a result, the Court of Appeal ordered a stay of the High Court proceedings under article 27.

The essence of the decision of the Court of Appeal was that, for the purposes of article 27 of the regulation, “cause of action” was to be construed by reference to the substance of any proceedings and the object of those proceedings. As such, the question of whether two claims involve the same cause of action was not necessarily answered ‘no’ just because one claim is based in contract and the other based in tort.

Supreme Court decision

The insurers sought to overturn the stay. The Supreme Court allowed the insurers’ appeal unanimously, but with a majority reaching that result on a different basis from the rest of the court.

Lord Clarke (who gave the majority judgment) held that the two causes of action were not mirror images of each other because the subject matter and factual basis of the two claims were different, and the Greek proceedings were claims in tort, whereas the English proceedings were claims in contract. As such, the English and Greek proceedings did not involve the same “cause of action”. This was notwithstanding that the court found that ‘cause of action’ has its own meaning in European law, the relevant law in this case, such that the English law concept of such was inapplicable.

It was recognised that, by reason of the insurers seeking in England an indemnity for any amounts for which they might be out of pocket following the Greek proceedings, the insurers were seeking to negate the effect of the Greek proceedings. However, so far as the majority in the Supreme Court were concerned, this overall effect was irrelevant, particularly in circumstances where the insurers were not seeking to use the English action to prohibit the Greek proceedings from running their course. If the two causes of action were not mirror images of one another, the overall relationship of the two sets of proceedings could not engage article 27 and so no stay of the English proceedings was justified.

This decision certainly suggests that a sophisticated approach to the framing of a set of proceedings in one European jurisdiction may permit those proceedings to continue in the face of closely related proceedings elsewhere in Europe, notwithstanding the potential availability of stay of the second set of proceedings pursuant to article 27.    

Stuart Hill is partner and Lydia Savill is an associate at Hogan Lovells.