Youell and others v La Reunion Aerienne and others
The insured, one of a group of French aeronautical engineering companies, claimed indemnity in respect of liabilities arising from a helicopter crash in the US in 1993.
The underlying personal injury claim had been settled in 1995, but in 2000 further proceedings were issued against the insured and others, alleging the settlement had been induced by fraudulent misrepresentation, including an understatement of the insurance coverage.
Both French and English insurers participated in the group's insurance programme. The English policy wording followed and very largely adopted the wording of the French policy, which included a clause giving the leading underwriters powers to settle claims "within the limits of the powers conferred on them by the present policy".
The French policy also contained an arbitration clause providing for arbitration in Paris.
The English insurers declined cover on the grounds that liability for fraudulent or negligent misrepresentations made in court proceedings was not a risk covered by the policy.
But in July 2007, they learned that the insurance claim had been settled and paid by the French insurers, who now sought to recover US$2.45 million from the English insurers as their proportionate share.
The English insurers claimed the settlement had been made without authority and issued proceedings in England for a declaration of non-liability.
The French insurers, who had begun arbitration proceedings in Paris, said they had been given irrevocable authority to reach the settlement. They put forward an alternative claim as assignee of the insured's rights against the English insurers.
There was also a dispute whether the French arbitration clause had been incorporated into the English policy. The French insurers argued that the English insurers were bound to submit to the French arbitration.
The issue was whether the English court had jurisdiction over the dispute. For the purposes of this hearing, the court assumed French law applied to the English policy.
EU Regulation 44/2001 governs which court has jurisdiction to hear disputes between parties in member states.
The general rule is that a person domiciled in a member state must be sued in the courts of that state. In certain circumstances, however, proceedings can be brought in another member state. For example "in matters relating to a contract," a person can be sued in the court of the place of performance of the obligation (article 5.1(a)).
Under section 3, however, there are special rules for "matters relating to insurance" which in essence give the insured a choice over where to bring an action against the insurer, but only allow the insurer to sue the insured in the insured's domicile.
The French insurers said the dispute was a matter relating to insurance, so the special jurisdiction rules applied. Alternatively, they relied on the French arbitration clause to argue that the Regulation did not apply because of the arbitration exclusion (article 1(2)(d)).
The judge disagreed. The aim of the special insurance rules is to protect the insured, who is generally the weaker party.
The European Court has held that this protection should not be extended to those for whom it is not justified, such as a reinsured in dispute with its reinsurer (UGIC v Group Josi [2001]), or third party proceedings between co-insurers (GIE Réunion Européenne v Zurich España).
In the judge's view, the same principle applied to this action, which involved a claim by the leading insurer to be reimbursed by other insurers following a settlement. It also applied to any claim brought by the French insurers as assignee of the insured. The dispute fell outside the special insurance rules.
Although, arguably, there was no contract between the French and English insurers, the judge was satisfied that both the direct claim and the assignment claim were "matters relating to a contract". Under French law, unless otherwise agreed, the place of performance of a contractual obligation to pay money is the domicile of the debtor. In this case, that was England.
On the arbitration point, there was evidence that French law would regard the arbitration clause as incorporated into the English policy, even though there were no specific words to that effect. But the arbitration exclusion in the Regulation did not apply merely because the contract contained an arbitration clause.
The judge held that the English court had jurisdiction. The French insurers were given leave to appeal, limited to the arbitration issue. They argued that the exclusion should apply because the whole foundation of their claim was the agreement to determine differences by arbitration.
The Court of Appeal confirmed the jurisdiction of the English court under the Regulation. The arbitration exclusion did not apply.
The mere fact that a claim is the subject of an arbitration agreement does not deprive a court of its jurisdiction to determine the dispute.
The court has to look solely at the subject matter of the proceedings. If that subject matter falls within the scope of the Regulation, any preliminary issue concerning the existence or validity of an arbitration agreement also comes within its scope (Allianz v West Tankers).
The claim here was essentially one for debt. The French insurers claimed an indemnity arising from their alleged authority to bind the English insurers to the settlement agreement. The English claimed the policy did not cover the claim at all. These could not possibly be regarded as matters covered by the arbitration exclusion.
The High Court ruling on the co-insurance point follows a series of decisions preventing the special jurisdictional rules for insurance from benefiting parties other than the actual insured or a beneficiary under the policy.
The judge, however, thought it was "open to question" whether the European Court would take a similar approach to a subrogated claim brought by insurers in the name of the insured. The same logic could easily apply, but the right of subrogation is not recognised in many European jurisdictions.
As for the arbitration issue, both High Court and Appeal Court confirmed the stance taken in Allianz v West Tankers, that it is the substance of the dispute that matters when deciding if the arbitration exclusion applies.
The proper remedy for a party who claims that proceedings have been brought in breach of an arbitration agreement is to apply for proceedings to be stayed under the Arbitration Act 1996 (in England and Wales) or (in other countries) under the New York Convention or legislation implementing that convention.