After a tortuous journey up to the Supreme Court, this case has finally found its way back to the Court of Appeal which, in a significant judgment delivered earlier today, has affirmed the right under English law of a party to a contract to obtain damages from the other contracting party if it brings proceedings in tort in another Member State in breach of an express jurisdiction clause.
The English courts have deftly managed to reconcile such a finding with the strict EU rules on jurisdiction that already prevent English courts granting anti-suit injunctions to stop other EU courts claiming jurisdiction in breach of such express choice of jurisdiction clauses. We now have it on the highest authority that the English courts are prepared to distinguish claims for damages for breach of an exclusive jurisdiction clause or for an indemnity in respect of costs incurred in defending a foreign action brought in breach of the clause from anti-suit injunctions. Although a reference to the Court of Justice of the European Union was considered, it was deemed unnecessary.
The Court of Appeal’s decision, reflecting the earlier ruling of the Supreme Court on 4 November 2013, will be greeted with relief by the shipping sector and the wider business community as it effectively upholds the effectiveness of agreed settlements in English proceedings.
So, where does the Alexandros T leave the enforceability of English settlement agreements, which, if this case had gone the other way, would hardly be worth the paper they are written on? This article explains the history of the case, discusses the legal issues raised and attempts to draw some conclusions.
The story in brief
When the underwriters involved in this insurance dispute had reached an agreed settlement with the owners in the English High Court, they would have been forgiven for thinking that that would be the end of the matter. The contracts were subject to English jurisdiction and the case had been settled. However, notwithstanding the agreed jurisdiction, the owners subsequently started tortious proceedings in Greece against the underwriters and associated parties, claiming damages for alleged defamation and malicious falsehood. The defendants were quick to deny the allegations and sought to challenge the ‘Greek torpedo’ by way of an application to the English High Court for damages for breach of the jurisdiction clause and associated relief.
The underwriters have now obtained satisfaction from the Court of Appeal, but not before a trip to the Supreme Court, whose judgment on the matter was delivered on 4 November last year. The Supreme Court’s judgment confirmed that the English courts could assert jurisdiction despite the existence of proceedings involving the same parties in Greece, since the nature of the claims was sufficiently different. The leading judgment was given by Lord Clarke and unanimously supported by the other judges, subject to one point of clarification by Lord Mance.
All judges in the Supreme Court took a robust view on the difficult points of construction arising out of Article 27 and 28 of EU Council Regulation 44/2001 (formerly the Jurisdiction and Judgments Convention), the legislation designed to allocate jurisdiction between the national courts of different EU Member States and avoid the risk of parties being faced with conflicting judgments on the same issues in dispute.
Burton J. had been prepared to grant summary judgment in favour of the insurers and refused to grant the owners a stay pending resolution of the Greek proceedings (which they claimed should take priority pursuant to Article 27 of Regulation 44/2001). However, Burton J’s decision not to stay was overturned by the Court of Appeal, which granted the stay (leaving open the correctness or otherwise of the summary judgment). The stay was in turn successfully challenged by the insurers in the Supreme Court, which lifted it and remitted the case back to the Court of Appeal. The Court of Appeal had to bow to the inevitable in the light of the Supreme Court’s ruling and has today ruled in favour of the insurers, upholding Burton J’s original order.
The case has to be seen in the context of a long line of cases from the EU Court of Justice that have gradually eroded the powers of the English courts to take jurisdiction even where parties have clearly agreed that their contracts are governed by English law and disputes are subject to English court jurisdiction or arbitration.
The Alexandros T has tested the limits of the existing case law and in particular provides valuable guidance from the English courts on the extent to which claims for damages for breach of an exclusive jurisdiction clause or for an indemnity in respect of costs incurred in defending a foreign action brought in breach of the clause are also precluded.
The Supreme Court has clearly articulated that:
(1) the ‘cause of action’ involved in such claims is not the same as that involved in the foreign proceedings and this distinguishes them from anti-suit injunctions;
(2) a declaration that there has been a breach of a jurisdiction clause and for damages resulting from the breach could (at least where the foreign proceedings were tortious in nature and the English proceedings contractual and so clearly had a different end in view) was permissible;
(3) no mandatory stay was required under Article 27; and
(4) the discretion not to grant a stay under Article 28 should be exercised as it was better that questions of construction of an English contract, where parties had expressly conferred exclusive jurisdiction on the English court, should be decided in England.
Looking at the purely legal aspects, how come the Court of Appeal and Supreme Court came to opposite conclusions and is there still a risk that other cases settlements remain at risk?
Article 27 requires national courts to cede jurisdiction to a court of another Member State if the latter is first ‘seised’ where the cases involve the same cause of action (interpreted by the EU Court of Justice to mean having the same ‘object’ and ‘effect’). Article 28 gives a national court that is second seised the discretionary power to stay proceedings in favour of the court of the Member State first seised where ‘related actions’ are pending in both courts. So, the issue, looked at simply, was whether the Greek proceedings had to be seen as separate from the English ones because, if so, a stay would have to be granted as the Greek courts would count as first seised.
EU rules on jurisdiction: Articles 27 and 28
It is now settled law that where the same cause of action arises in two parallel pending cases, whichever court is first seised has the first bite at the cherry – even if the second court would be better placed to decide it. That has meant the popular ‘anti-suit injunction’, holding parties to their exclusive jurisdiction agreement, which English courts would formerly grant where one party attempted to bring proceedings elsewhere, has been stopped. It left the risk that foreign courts could take an opposite view on the construction of the jurisdiction clause and reach a contrary judgment that would then be enforceable in the UK under the relevant EU legislation on reciprocal enforcement.
History of the case
Following the total loss of the vessel Alexandros T, the assured owners, Starlight, and their managers, OME, claimed against their insurers under two policies, both of which conferred jurisdiction on the English courts (but only one of which was expressly stated to be ‘exclusive’, although nothing turned on this). When the claims were disputed, they commenced actions in the English courts (there were separate actions against the Company Market Insurers (CMI) and Lloyd’s Market Insurers (LMI)), but both were settled, virtually at the court door, and Tomlin Orders duly made. The Orders provided for proceedings to be stayed save as to implementation of the terms of the settlement.
As Longmore LJ said at the later appeal: ‘One might have expected that to be that, but it was not to be.’
In 2011, more than three years after the original English settlement, the Greek assured (Starlight) and OME began a private prosecution in the Greek courts against some 20 underwriters and their officers, as well as Hill Dickinson and three individual partners and employees who had acted for them in the English proceedings. The defendants are alleged to have committed various ‘delicts’ under Greek law, which are akin to defamation and malicious falsehood under English law, and essentially all of a tortious nature.
In reaction to this development, the underwriters, supported by Hill Dickinson, brought further proceedings in England pursuant to the Tomlin Orders granted in the 2006 proceedings to enforce the terms of the settlement, seeking declarations and damages against Starlight. At first instance, Burton J held that the insurers were entitled to an indemnity against each of the claims made in the Greek proceedings. His decision was, however, overturned on appeal on the grounds that Article 27 applied and the proceedings in England and Greece did involve the same cause of action.
The Supreme Court therefore had several questions to decide, relating to both Articles 27 and 28. Most were decided in favour of the respondents on the basis that the EU law on the subject was crystal clear and no reference to the EU courts required. The Supreme Court nevertheless identified certain claims, made by certain respondents, which it considered did raise sufficient questions of doubt under EU law and so were not acte clair, which would have had to be referred to the EU Court of Justice if they had been maintained.
Here, we review the principal questions that the Supreme Court found in the respondents’ favour.
Under both Articles, which court was first seised? One peculiarity of the case before the Supreme Court was therefore that the English proceedings had on one view at that stage already come to an end: while there was no doubt that the English court had been first seised in 2006, there was a question mark over whether the 2006 proceedings were still pending and the continuation proceedings in 2011 could still benefit from priority over the Greek court proceedings under Article 27.
On this question, the Supreme Court noted that Regulation 44/2001 does not specify when proceedings before the first court to be seised are deemed to come to an end and saw merit in the argument that they were still pending. Nevertheless, it did not feel able to reach a final view. However, provided Article 27 does not apply, the English court retains the discretionary right, under Article 28, to continue hearing the case – even though it is the court second-seised, and the issue disappears. As will be seen, that is exactly what the Supreme Court has done. However, to the extent that the LMI maintained their claims for a declaration of non-liability in Greece, that would clearly be covered by Article 27 and require a mandatory stay (as explained below those claims would be a mirror image of the Greek claims and so involve the same cause of action).
Was English Court under a duty to consider Article 27 claims where a party had initially not sought to rely on them?
Another peculiarity of the case is that, at first instance, the respondents (Starlight and OME) had expressly disclaimed any intention to rely on Article 27, instead relying entirely on the discretion of the court to grant a stay in related actions under Article 28. Burton J had refused to grant a stay, and gave summary judgment, but allowed Article 27 arguments to be introduced on appeal. One of the subsidiary issues therefore before the Supreme Court was whether it was too late for the respondents to rely Article 27 arguments at the appeal stage and whether as a matter of EU law courts are required to consider them of their own motion, as argued by the respondents.
Lord Clarke was particularly robust on this point: in his view, it was not open to the respondents at a later stage of the proceedings to introduce claims if they had voluntarily and very specifically rejected the opportunity to raise those claims at an earlier stage. However, the question whether, in giving effect to the EU principles of effectiveness and equivalence, the national court has a duty under EU law to raise them of its own motion was sufficiently in doubt as to require a reference to the EU Court of Justice. That would not be necessary if the LMI were to indicate their willingness to abandon their claims for a declaration of non-liability within the time set.
Do the actions involve the same cause of action?
The Supreme Court reviewed the extensive case law of both the EU Court of Justice and the English courts, in particular Beatson J’s judgment in the Sinco case, which it felt able to distinguish. The Supreme Court has stood firm and essentially granted most of the relief sought by the appellants, in effect upholding Burton J’s summary judgment. Its principal findings are that:
(1) A claim to damages for breach of an English exclusive jurisdiction agreement does not involve the ‘same cause of action’ as the foreign proceedings alleged to be in breach of that agreement.
(2) A claim to damages for breach of a release does not involve the same cause of action as the claim in the foreign proceedings alleged to be in breach of the release.
(3) A claim under a contractual indemnity to be indemnified and held harmless against foreign proceedings involves a different cause of action from the claim in the foreign proceedings against which indemnity is sought.
To have the same cause of action, the proceedings must have the same objet and the same cause (the key terms are derived from French civil law which is in turn based on Roman law). ‘Cause’ means the facts and rules of law relied on as the basis of the action, while ‘Rule of law’ refers to ‘the juridical basis upon which arguments as to the facts will take place’ (see The Tatry). The same ‘objet’ means the same end in view. Furthermore, the identity of the cause and object are to be made by reference only to the claims and not the defences to those claims and therefore requires much more than the fact that the proceedings raise common issues.
The Supreme Court distilled the various complex questions of law into one simple one: ‘The essential question is whether the claims in England and Greece are mirror images of one another, and thus legally irreconcilable.’ Lord Clarke had no hesitation in concluding that the claims in Greece had different subject matter and different ends in view and were not a mirror image. One was for claims in tort, the other for an indemnity and so a claim in contract. Moreover, he did not see the claim for an indemnity in England ‘interfering in any way with the Greek proceedings or vice versa’. The same sort of reasoning was applied to both the indemnity claims and the claims for damages based on breaches of the exclusive jurisdiction clauses.
The Supreme Court made it clear that it was limiting itself to establishing liability under the settlement agreements, which were subject to English law and jurisdiction. By contrast, a request for a declaration that the Greek defendants were not liable to the respondents in Greece would clearly be precluded by Article 27. The Supreme Court was not convinced by the arguments put forward by the LMI for granting a stay under Article 27 and indicated that if they maintained such claims it would have to make a reference to the EU Court of Justice before forming a concluded view.
In overruling the Court of Appeal on Article 27, the Supreme Court relied heavily on the fact that the Court of Appeal had, in comparing the object and cause of the actions, looked at the actions in the round and not disregarded the defences raised, as EU law required it to do.
That left Article 28, as to which the respondents had cross-appealed, requesting a stay under Article 28 as a matter of discretion. The Supreme Court firmly refused to exercise its discretion in their favour and did not see the need to make any reference to the EU Court of Justice on the point. Lord Clarke side-stepped the Gasser case in which it was held that a court second-seised must ignore any exclusive jurisdiction clause in an Article 27 context. He held that where Article 28 is concerned, as the decision is discretionary and not mandatory, the English court could take account of factors such as the existence of such a clause in favour of retaining jurisdiction, especially where it is being asked to construe a contract governed by English law.
The fact that the Court of Appeal and Supreme Court came to different conclusions shows how finely balanced the legal arguments on either side were. However, the business community should welcome an outcome that contributes to greater legal certainty: businesses can rely on the English courts enforcing the final settlement terms they have agreed and know that the other side cannot go back on them ‘through the back door’ by starting proceedings in another Member State without risking a monetary award.
The Court of Appeal was faced with little option but to follow the Supreme Court and reinstate Burton J’s order. So, what conclusions can be drawn for the future?
The days of the anti-suit injunction may now be over, but this case shows that the English courts are still prepared to exercise critical judgment over the meaning of EU rulings and interpret the EU rules in a way that still opens a limited gateway for parties faced with torpedo actions elsewhere in the EU.
There is no doubt that this is an overwhelming victory for the insurers in the English courts, but one can never rule out further civil wars arising between EU jurisdictions and the Court of Justice of the European Union then becoming involved. Who knows whether the EU Court would be prepared to make the same fine distinction in the nature and object of a claim as the Supreme Court? After all, a readiness to arrive at practical judgments that meet the objectives of the business community is not a characteristic hallmark of the EU Court! And the fact that our own Court of Appeal initially had sufficient doubts to order a stay, shows that there can be different views on difficult cases like this.
By way of postscript, the insurers could still of course be facing the prospect of the Greek proceedings. As it happens, however, all the criminal charges in Greece in Starlight’s private prosecution against the underwriters and the Hill Dickinson defendants arising out of the Alexandros T claim were rejected by the Greek court (at a hearing in April corresponding to English committal proceedings). As is normally the case in Greek private prosecutions, the court followed the recommendation of the public prosecutor – although, in theory, the court could have taken a different view.
One can speculate on the possible outcomes if that had not happened. Starlight was not prevented by any of the English rulings from continuing the Greek proceedings (and the Greek court might or might not then have been influenced as to jurisdiction by the Supreme Court’s finding that the Greek tort claims are essentially the same as those that were subject to the English settlement agreement) and if the Greek court had decided to hear the charges and deal with the merits, and if Starlight had been successful, it would have been met by indemnity and damages claims in like amount in England.
Hill Dickinson was represented by David Bailey QC and Jocelin Gale at 7 King’s Bench Walk instructed by Mayer Brown International LLP.