Court jurisdiction and the application of articles 27 and 28 ('The Alexandros T')

Court jurisdiction and the application of articles 27 and 28 ('The Alexandros T')

The Supreme Court has considered the application of arts 27 and 28 of the Judgments Regulation which consider the jurisdiction of the court where there are concurrent proceedings in another Member State. In both cases the Supreme Court refused to grant the stay of proceedings sought so reversing the decision of the Court of Appeal in relation to art 27 and upholding the analysis of the judge at first instance in relation to art 28. However, the judgment raises, what could, for practitioners, be pivotal issues without resolution as it was considered that the CJEU/ECJ authorities did not cover those particular issues. Richard Doble and Janna Purdie analyse the implications for practitioners.

Starlight Shipping Company v Allianz Marine & Aviation Versicherungs AG and others [2013] UKSC 70

Practical implications

The lengthy passage of this case to the Supreme Court will serve as a cautionary tale to practitioners of the need carefully to manage proceedings and the compromise of claims in multiple European Member States. Practitioners should consider the issues raised when preparing cross-border settlement agreements, to make sure that the language is clear and to minimise the risk of ambiguity, particularly with regard to establishing exclusive jurisdiction and the risk of concurrent claims. The Supreme Court has shown it is willing to take a clear view on the interpretation of European authorities and their application in national courts, whilst remaining cognisant of the need, where appropriate, to issue a reference to the CJEU.

Practitioners should also consider at an early stage whether they seek to rely on the application of art 27. Starlight had expressly disavowed any claim under art 27, but it subsequently issued an application relying on the article. Lord Clarke took the position that whether the owners could then rely on the application of art 27 at that stage of the proceedings would require a reference to the CJEU as to whether once it had been raised the court should consider it of its own motion.

In considering the manner in which to settle cross-border disputes, practitioners should take note of the analysis of the judge as between the elements of the claim in the English proceedings which were subject to the stay in the Tomlin Order, and those which were not (and any other steps taken by the parties to discontinue earlier proceedings). Accordingly, the status of elements of any claim before the court will impact upon the question of whether actions are 'pending' for the purposes of art 28. If elements are pending, then the court (other than that first seised) may stay the proceedings.

A further guide to practitioners lies in the recurring theme of the judgment that 'less is more' and to avoid a ‘kitchen sink’ approach. Both CMI and LMI had considered pursuing all elements of the potential claims available to their clients (including declarations of non-liability in the English proceedings in respect of the Greek claims). However, as is seen throughout the judgment, in doing so, they risked exposing the claims to the mandatory stay under art 27, resulting in the decisions to abandon these elements. Better to champion the clearly stronger arguments which ultimately won the day.

Court details

  • Court: Supreme Court
  • Judges: Lord Clarke gave the principle judgment, with which Lords Sumption and Hughes agreed. Lord Neuberger (President) and Lord Mance added their own judgments, substantially agreeing but dissenting in part
  • Date of judgment: 6 November 2013

Facts

The substantive proceedings concern the loss of the vessel The Alexandros T which sank with considerable loss of life. The parties in dispute are the vessel's owners, Starlight Shipping Company ('Starlight'), and the insurers being Company Market Insurers ('CMI') and the Lloyd’s Market Insurers ('LMI') (together the 'Insurers'). A further party, Overseas Marine Enterprises Inc ('OME') were identified in the insurance policies as managers.

Subscribers to Lexis®PSL Dispute Resolution can read the full digest of the facts here.

History of the proceedings

English proceedings—Starlight brought claims against the Insurers, alleging (amongst other things) misconduct, obtaining false evidence and failure to pay (the '2006 Proceedings').

English settlement—the 2006 Proceedings were compromised by way of settlement agreement and Tomlin Orders with CMI and LMI respectively (the 'Settlement Agreements'). The Settlement Agreements to which Starlight and OME were parties were said to be in full and final settlement of claims and included releases, indemnities and jurisdiction clauses in favour of the English courts

Greek proceedings—Starlight subsequently issued nine sets of proceedings in Greece, alleging torts under the Greek Civil and Criminal Code. The allegations materially replicated the allegations made in the 2006 Proceedings

English enforcement proceedings—the Insurers applied to enforce the settlement agreements in the English jurisdiction. Starlight applied for a stay of these proceedings on the basis that they were commenced after the Greek proceedings. They relied on art 28 in the Judgments Regulation which deals with related proceedings and provides the court with a discretion to stay

First instance: the judge refused to grant a stay under art 28 and gave summary judgment for the insurers

Court of Appeal: did not reach a final determination of the position under art 28. Instead, of its own motion it considered that the provisions in art 27 applied and therefore stayed the 2006 Proceedings; it is mandatory for the court to stay proceedings under art 27

The Supreme Court was asked to consider the following:

  1. appeal—the Insurers' appealed against the Court of Appeal’s decision under art 27 submitting that the first instance judge was right to refuse a stay under art 28
  2. cross appeal—on the art 28 point ie, that the court had not been right to stay under art 28

Issues to consider when determining whether art 27 applies

The Supreme Court held that art 27 did not apply given the facts in this case.

Of interest to practitioners will be not only the areas in which Lord Clarke took a different approach from that of the Court of Appeal, with whom he respectfully disagreed, but also the issue on which there is as yet no CJEU authority:

• Lord Clarke considered the Court of Appeal's approach to distinguished the authority of Sinco, on the basis that the settlement agreements did not purport to deny the Greek claimants the right to bring proceedings, was incorrect. In the case before him the position was that the Insurers were not seeking to deny the right to commence proceedings, but instead were contending that the two proceedings were different (paras 48, 53). Lord Clarke noted that it is established that claims based on an alleged breach of an exclusive jurisdiction clause are different causes of action from claims for substantive relief based on a breach of the underlying contract for the purposes of art 27 of the Regulation. Therefore Sinco applied.

•  Lord Clarke considered the Court of Appeal's approach to determining whether art 27 applied ie, a broad brush approach was wrong. The Court of Appeal had considered the overall result in each jurisdiction and this meant that they had equated the causes of action and defences. However, as set out in Gantner this approach is contrary to EU authority; the court cannot consider the defences. The essential question for the court is therefore whether the relevant claims were mirror images of one another such that there is the possibility of potentially conflicting or irreconcilable judgments (see paras 49—52)

• Lord Clarke raised a warning for practitioners as to the timing of their reliance on the application of art 27. In this case the Vessel's owners had expressly disavowed any claim under art 27. However, it subsequently issued an application relying on art 27. Lord Clarke took the position that whether the owners could then rely on the application of art 27 at that stage of the proceedings would require a reference to the CJEU as to whether once it had been raised the court should consider it of it's own motion

• Lord Clarke also considered the issue of Starlight's application to the Court of Appeal for permission to make their article 28 application out of time, and for relief from sanctions pursuant to CPR Part 3, namely that where a party serving an acknowledgment of service fails to apply to the court in time to challenge the jurisdiction 'is to be treated as having accepted that the court has jurisdiction to try the claim' (CPR 11(5)). The Court of Appeal held that the CPR did not apply because applications under articles 27 and 28 are not challenges to the jurisdiction. Lord Clarke considered submissions as to the precedence of European Law and the relationship with national rules of procedure. He accepted that article 27 is part of European law and overrides national law which is incompatible with it, but concluded that there is no sensible basis on which the limit under CPR 11(4), which can in an appropriate case be extended under CPR 3.1(2)(a), is contrary to EU law (paras 110 - 121) of the judgment

Findings on the facts

On the facts the Supreme Court considered that there were differences between the claims in the Greek and English proceedings.

The Insurers' claims fall within three heads, based on the relevant terms of the Settlement Agreements (which are set out in paras 7 - 9 of the judgment):

• indemnity claims—Lord Clarke concluded that none of the causes of action in the Greek proceedings had identity of cause or object with the Insurers' claims for indemnity. The Greek claims based in tort and the indemnity claims in contract. He also noted that the claim for an indemnity in the 2006 Proceedings in England did not interfere in any way with the Greek proceedings or vice versa. There was no attempt in Greece to impugn the settlement agreements or the indemnity agreements contained in them. Note: this conclusion was reached despite the Settlement Agreements containing substantially similar provisions granting indemnities to the Insurers against claims brought by Starlight, OME or their associated companies (paras 33 - 35 of the judgment).

As a practical matter, where a settlement agreement exists and subsequent proceedings are based on the substantive dispute between the parties, it is likely to be easier to draw a distinction between the causes of action in separate proceedings for the purposes of art 27

• jurisdiction clauses—Lord Clarke noted the same analysis applied in relation to the jurisdiction clauses. He accepted the Insurers' argument that, in bringing the Greek proceedings, Starlight and OME were in breach of the Settlement Agreements and that the Insurers are entitled to damages as a result. He further noted that the Insurers had not sought to stop the Greek proceedings or to restrain Starlight and OME from pursuing them, but sought a declaration under the Settlement Agreements which are governed by English law and subject to the exclusive jurisdiction of the English courts. If the matter is determined in the English courts this would have the advantage that the courts with exclusive jurisdiction decide what is the true meaning of the settlement agreements and the jurisdiction clauses (paras 36 - 37 of the judgment)

• releases —Lord Clarke noted the same analysis applied. The Settlement Agreements provided that settlement payment was 'in full and final settlement of any and all claims it may have under the policy' (ie, precluding the payment of further sums in relation to the loss of the vessel insured) (see paras 8 and 9 of the judgment). The alleged breach was the bringing of the claim in Greece (paras 40-46 of the judgment).

In drafting settlement agreements, it is important that practitioners take care to define the claims which are being compromised (ie, all claims related to the policy and the vessel) and whether it expressly extends to claims (known or unknown) which might have accrued or accrue in the future

It should be noted that there were subtle differences between the positions of CMI and LMI with regard to the terms of the Settlement Agreements and the claims, as pleased. However, Lord Clarke was satisfied that the analysis above applied to both CMI and LMI, for the following reasons:

•the jurisdiction clause in the LMI settlement agreement differed from that of the CMI. It does not expressly provide for the exclusive jurisdiction of the High Court in London. Clarke LJ concluded that the effect of art 23 of the Judgments Regulation is that where parties have agreed to the jurisdiction of the courts of a Member State, those courts shall have jurisdiction and such jurisdiction shall be exclusive unless the parties agree otherwise. The question was considered by the judge at first instance where he held that the parties had not agreed otherwise and his finding had not been appealed (para 55 of the judgment), and

•the judge had understood that LMI were seeking a declaration of non-liability which CMI were not. It subsequently transpired that neither of the insurers intends to pursue such a declaration. Accordingly, Lord Clarke noted that the conclusions and reasoning in respect of the CMI claims apply equally to LMI (para 56 of the judgment).

For practitioners the consideration would be whether to seek a declaration on the English courts. Whilst the defences are irrelevant in the context of whether art 27 applies (Gantner), a declaration that the tortious claims have already been compromised through a settlement agreement may assist in defending of proceedings brought by a party in breach of that settlement agreement.

Recap of authorities

In doing giving judgment, the Supreme Court provides a helpful recap of the relevant CJEU/EJC authority on this area addressing:

• the purpose of art 27 ie, to prevent the courts of different Member States from giving inconsistent judgments and possibly irreconcilable judgments (paras 23 and 27 of the judgment)

• the relevant test ie, do the proceedings involve the same parties and causes of action? If so, all other proceedings must be stayed pending the decision of the first court seized to determine jurisdiction). Note: in identifying the same cause of action, the court must consider that the causes of action have the same object and the same cause (namely the same facts and rules of law replied upon as the basis for the action (Gubisch, The Tatry)) (paras 28(ii) and 28 (iii) of the judgment)

• defences cannot be considered when determining whether art 27 applies (Gantner) (paras 28(iv) and 28 (v) of the judgment)

Issues to consider for a discretionary stay under art 28 apply?

Lord Clarke concluded that the appropriate court to consider the issues raised by the Insurers was the English High Court as the claims involved contractual questions governed by English law and, on the judge's earlier findings, it was arguable that the parties had agreed on English jurisdiction, where the proceedings were more advanced than in Greece. Accordingly, the court in Greece would have the benefit of the decision of the English court to assist it in its determination (para 96 of the judgment).

It was not in dispute that the various proceedings were related proceedings for the purposes of art 28. The issue was therefore which court was first seized and if it was the Greek court whether the English court should exercise its discretion to stay proceedings. Lord Clarke noted that the issue of whether actions are pending and the court first seised are closely related (para 77 of the judgment).

The fundamental point of interest considered by the Supreme Court which will be of interest to practitioners is the impact of reaching a settlement which includes the use of Tomlin orders. The 2006 Proceedings had been stayed on the basis of the Settlement Agreements and related Tomlin Orders which provided that 'save for the purposes of carrying into effect the terms agreed … all further proceedings … shall be stayed.' If the 2006 proceedings were deemed to be still pending then the English court would be the first seized but if not the Greek court would be the first seized. In determining which court is first seized it is necessary to consider the application of the settlement agreement and the Tomlin orders separately.

  • settlement agreements—a stay of proceedings under a settlement agreement is not equivalent to a dismissal or discontinuance of those proceedings and therefore an action in which all further proceedings have been stayed, even by consent, remains in being (applying the Court of Appeal decision in Rofa ). Therefore, in so far as the Insurers were seeking to enforce the provisions of the settlement agreements, the English court remained first seised. Therefore under art 28 it had no discretion to exercise the stay.

Note: Lord Clarke did not accept the Court of Appeal judgment in Rofa in so far as it applied to the construction of the Judgments Regulation)

  • Tomlin orders—for those parts of actions which have been stayed under a Tomlin Orders the proceedings are not considered to 'pending' as the parties have contractually agreed to bring them to an end. The English court, in this case, would therefore be second seised for the purposes of art 28. These include the claims for breach of the exclusive jurisdiction clauses in the policies of insurance, which do not depend upon the terms of the settlement agreements.

Where the English court was second seized, the Supreme Court had to consider whether to exercise its discretion and stay the proceedings. Lord Clarke referred to the decision in Owens Bank, where the Advocate General identified a three-fold test:

  1. the extent of the relatedness between the actions and the risk of mutually irreconcilable decisions
  2. the stage reached in each set of proceedings, and
  3. the proximity of the courts to the subject matter of the case

Note: in a case of doubt it would be appropriate to grant a stay (Owens Bank) (para 92 of the judgment).

The Advocate General had noted that it goes without saying that in the exercise of the discretion regard may be had to the question of which court is in the best position to decide a given question. The Supreme Court concluded that the natural court to consider the issues raised by the Insurers was the High Court in England and so the decision of the judge in refusing a stay under art 28 was upheld and the cross-appeal dismissed (paras 97, 125).

Recap of test and authorities

The purpose of art 28 is to avoid parallel proceedings or conflicting decisions. The article provides:

1.            Where related actions are pending in the courts of different member states, any court other than the court first seised may stay its proceedings.

2.            Where these actions are pending at first instance, any court other than the court first seised may also, on the application of one of the parties, decline jurisdiction if the court first seised has jurisdiction over the actions in question and its law permits the consolidation thereof.

3.            For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.

Lord Clarke considered the approach of the Court of Appeal in Stribog, favouring Rix LJ's formulation, that the question of whether proceedings are related should be addressed before considering the court first seised (para 76 of the judgment).

Further judgments

In addition to the judgment of Lord Clarke, Lord Neuberger and Lord Mance gave judgments, substantially agreeing with that of Lord Clarke, save as to the interpretation of the declaration that the Greek claims have been settled or compromised.

Lord Neuberger considered that the proper interpretation of the issue required a reference to the CJEU, but accepted that should the Insurers not seek to pursue the declaration of non-liability, no such reference would be required.

Lord Mance (dissenting on the specific point), considered that the first head of English release claims would be precluded under Article 27, having regard to what he considered to be in this respect the prior Greek claims. However, he accepted that in the circumstances accepted by Lords Clarke and Neuberger, a reference would not be necessary. Accordingly, he accepted that by different reasoning, he arrived at the same conclusion as the majority regarding the appropriate disposition of the appeal.

Conclusion

The court invited each of CMI and LMI as to their intention to pursue claims for declarations that the Greek claims fall within the terms of the release in the settlement agreements or that under the agreements the tort claims have been settled. They should indicate their position within 14 days. If these claims are abandoned, the Supreme Court shall allow all the appeals of both the CMI and the LMI under art 27. In any event, the court held that a stay under art 28 be refused as a matter of discretion.

This article was first published on Lexis®PSL Dispute Resolution on 7 November 2013. Click here for a free 24 trial of Lexis®PSL.

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