ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
The Hon Mr Justice Burton
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE ELIAS
LORD JUSTICE TOMLINSON
| ARASH SHIPPING ENTERPRISES COMPANY LIMITED
for and on behalf of itself and
those listed in Schedule 1 to the claim form
|- and -
|- and -
|SVERIGES ÅNGFARTYGS ASSURANS FÖRENING
Peter MacDonald Eggers QC (instructed by Barlow Lyde & Gilbert LLP) for the Respondent
Rhodri Thompson QC and Elizabeth Prochaska (instructed by Reed Smith) for the Intervener
Hearing date : 6 May 2011
Crown Copyright ©
Lord Justice Stanley Burnton:
From 10 May 2010 to 9 May 2011 both days inclusive Greenwich Mean Time.
From 21.00 hours 9 May 2010 to 21.00 hours 9 May 2011 Korean local time
It is agreed to extend for a further period of Twelve Months at 2011 anniversary date(s) subject to Review Clause attached.
Iran Sanctions Clause
Insurers hereon may, on such notice in writing as the Insurer may decide, cancel the Insurer's participation under this Policy in circumstances where the Assured has exposed or may, in the opinion of the Insurer, expose the Insurer to the risk of being or becoming subject to any sanction, prohibition or adverse action in any form whatsoever against Iran by the State of the Ship(s) flag, or by the United Kingdom and/or the United States of America and/or the European Union and/or the United Nations.
The participation of the Insurer on this Policy shall forthwith cease if any Ship is employed by the Assured in a carriage, trade or on a voyage which will thereby in any way howsoever expose the Insurer to the risk of being or becoming subject to or in breach of any sanction, prohibition, regulation or adverse action in any form whatsoever against or in respect of Iran promulgated by the State of the Ship(s) flag, or by the United Kingdom, and/or the United States of America and/or the European Union and/or the United Nations.
The Insurer shall receive pro-rata premium for the period of the Insurer's participation until the time of termination or cessation under this Clause.
Provided that, after 10 months of the policy period, the Credit Balance of this insurance is 50% or better for all fleets combined Underwriters hereon will extend the period of this insurance for a further twelve months on an unaltered basis.
The Credit Balance referred to above shall be the percentage credit to Underwriters calculated at 21.00 hours 9 March 2011 Korean Time using the total net premium hereon and claims record (including estimated outstandings) for the 2010/2011 contract."
"Insurers hereon may, on such notice in writing as the Insurer may decide, cancel the Insurer's participation under this Policy in circumstances where the Assured has exposed or may, in the opinion of the Insurer, expose the Insurer to the risk of being or becoming subject to or in breach of any sanction, prohibition, regulation or adverse action in any form whatsoever against or in respect of Iran promulgated by the executive, legislative, other competent governmental agency, regulatory authorities or competent court or other judicial body of the State of the Ship(s) flag, or by the United Kingdom and/or the United States of America and/or the European Union and/or the United Nations."
1. It shall be prohibited:
(a) to provide insurance or re-insurance to:
(i) Iran or its Government, and its public bodies, corporations and agencies;
(ii) an Iranian person, entity or body other than a natural person; or
(iii) a natural person or a legal person, entity or body when acting on behalf or at the direction of a legal person, entity or body referred to in (i) or (ii).
(b) to participate, knowingly and intentionally, in activities, the object or effect of which is to circumvent the prohibition in point (a).
2. Points (i) and (ii) of paragraph 1(a) shall not apply to the provision of compulsory or third party insurance to Iranian persons, entities or bodies based in the Union.
3. Point (iii) of paragraph 1(a) shall not apply to the provision of insurance, including health and travel insurance, to individuals acting in their private capacity, except for persons listed in Annexes VII and VIII, and re-insurance relating thereto.
Point (iii) of paragraph 1(a) shall not prevent the provision of insurance or re-insurance to the owner of a vessel, aircraft or vehicle chartered by a person, entity or body referred to in point (i) or (ii) of paragraph 1(a) and which is not listed in Annexes VII or VIII.
For the purpose of point (iii) of paragraph 1(a), a person, entity or body shall not be considered to act at the direction of a person, entity or body referred to in points (i) and (ii) of paragraph 1(a) where that direction is for the purposes of docking, loading, unloading or safe transit of a vessel or aircraft temporarly [sic] in Iranian waters or airspace.
4. This Article prohibits the extension or renewal of insurance and re-insurance agreements concluded before the entry into force of this Regulation, but, without prejudice to Article 16(3), it does not prohibit compliance with agreements concluded before that date.
3. No funds or economic resources shall be made available, directly or indirectly, to or for the benefit of the natural or legal persons, entities or bodies listed in Annexes VII and VIII.
The Appellant is not listed in either of those Annexes.
55. Article 26 bans the provision of new insurance or reinsurance to:
(i) Iran and its Government, and its public bodies, corporations and agencies;
(ii) an Iranian person, entity or body other than a natural person; or
(iii) a person acting on behalf or at the direction of a person referred to under (i) and (ii);
It also bans the extension or renewal of insurance and reinsurance agreements concluded before 27 October 2010.
56. Compliance with agreements made prior to 27 October 2010 is not prohibited. This means existing contracts of insurance and reinsurance may run their course. However, they may not be extended or renewed. Activity pursuant to existing contracts, including the payment of claims, may continue, subject to compliance with any other relevant provision of the Regulation.
Europa Insurance purchased excess of loss treaty insurance, with London Re (UK domiciled) as the leading insurer, …
(i) This reinsurance treaty incepted on 1 January 2010 and ran for 12 months, and includes a renewal clause at the option of either party if the claims performance falls within a given threshold (in this instance, the automatic renewal requirements have been fulfilled.
London Re is permitted to pay the claim notified on 31 December 2010 because the claim falls within the original policy period and is deemed to be "compliance with agreements" concluded before the Regulation came into force … The Council Regulation expressly catches renewals except where these are pursuant to existing obligations. Since the renewal is not "automatic" because it is at the option of either party, such renewal would not be permitted except, possibly, where the renewal was pursuant to a clear and unambiguous contractual obligation contained in the contract between London Re and Europa Insurance."
The policy contains a Review Clause with automatic renewal on unaltered terms provided that the loss ratio is below a specified threshold …
The fact that extension is on unaltered terms means that there is no new underwriting decision. Assuming that the loss ratio does not exceed the threshold, there is a clear and unambiguous obligation for the Underwriters/insurers to extend the period of insurance on the same terms.
Please confirm that such automatic renewal on the same terms in compliance with the insurance policy would not infringe Article 26(4) of Council Regulation No 961/2010.
Compliance with insurance agreements made prior to 27 October 2010 is not prohibited. This means existing contracts of insurance and reinsurance may run their course. However, as is clearly stated in Article 26(4), insurance agreements already agreed may not be extended or renewed. We do not consider automatic renewal to be permitted under Article 26(4) of Council Regulation (EU) 961/2010. However, if you consider there are reasons to take a different interpretation and you wish us to consider this further, it would be helpful if you could set out those reasons in detail.
6. … The intention is clear from the use of the words "it is agreed" and "will" … which do not permit any discretion in the renewal process but provide for mandatory automatic renewal/extension. As such it is our view that this renewal/extension provision will not be prohibited from taking effect as the provision is contained in an insurance contract/policy which pre dates the Regulation. This view is supported by the opinion of our clients' English Queen's Counsel.
7. The reason why we are requesting an urgent response is that HM Treasury ("HMT"), the public body tasked with overseeing the Regulation of this in England and Wales, has indicated a different view.
The proceedings and the cancellation notice
We refer to Holman Fenwick Willan's letter of 5 April 2011 and to our meeting last week. Groupama Transport ("GT") would like to co-operate with "NITC" in the contemplated proceedings so far as able. In part, the extent to which GT participates in the High Court proceedings will turn on whether (as GT hope) [HM Treasury] agrees to participate in the proceedings as an interested party and argues the case. [Barlow Lyde & Gilbert] will write to HFW on this later today.
However, it is GT's view, supported by advice from BLG and Jonathan Hirst QC (in which GT does not waive privilege), that the 12 month extension contemplated by the Review Clause would be in breach of the prohibition within article 26 of EU Regulation 910/2010. This is further confirmed by HMT's message to HFW of 16 February 2011, which is also consistent with HFW's advice of 16 December 2010 (paragraph 18).
GT hereby gives notice of cancellation of its participation in the Insurance of Arash Shippping, NITC, the Owning Companies and the Management Companies … to take effect on 10 May 2011 for fleet C and at 21:00 hours Korean local time on 9 May 2011 for the other fleets. This notice is given because GT's participation after those dates exposes or may expose GT to the risk of being or becoming subject to or in breach of article 26, as above. Please be advised that this notice is given on behalf of GT alone and not on behalf of any following Insurer.
GT does not accept HFW's interpretation of the first paragraph of the Iran Sanctions Clause, namely that the right to cancel only arises where the assured has done or has not done anything which has exposed GT to sanction, prohibition or adverse action in any form. In GT's opinion it is sufficient that continued insurance of NITC may expose GT to criminal sanction, for the right to cancel to arise under the Iran Sanction Clause.
GT understands that NITC disagrees with GT's position and intend to challenge. If HMT alters its opinion or there is a final decision by a Court which binds HMT that the insurance can be extended beyond 9/10 May 2011 without breaching the Regulation, then GT shall reconsider its position.
Finally, this notice is given on behalf of the GT alone. GT requests that JLT provide the following London and overseas markets with a copy of this notice. If JLT do not confirm within the next 24 hours that they have done so, GT will do so in respect of the followers known to it.
Regulation 961/2010 explicitly prohibits the extension or renewal of insurance and re-insurance agreements concluded before the entry into force of the Regulation, and does not provide for a derogation for automatic renewal of such contracts. It would therefore appear that the renewal of the contract under consideration is prohibited under Regulation (EU) No 961/2010, unless this can be construed as a mere continuation of the original contract.
Issue 1: is the extension of the period of the Policy prohibited by Article 26(4) of the Regulation?
Issue 2: was the Respondent entitled to serve its notice of cancellation, and was its notice effective?
The judgment below
The appellant's contentions on appeal
The Respondent as a representative party
(a) The first paragraph of the cancellation clause requires that the Insured has exposed or may expose the Insurer to the specified risk. It requires an act or omission on the part of the Insured giving rise to that risk. It was common ground that there had been no relevant act or omission and that none was foreseen. The notice of cancellation was served solely by reason of the extension of the period of the Policy, which did not involve any act or omission on the part of the Insured. It followed that the right to cancel had not arisen.
(b) The notice of cancellation, having been served after service of these proceedings, was not served in good faith and was given unreasonably in the Wednesbury sense.
(c) The moment at which Underwriters are obliged to exercise their discretion is the moment when the notices take effect (9 May, 2011) and not when they are tendered. In the circumstances, if the Court of Appeal ruled in favour of the Appellant, Underwriters would be obliged to withdraw their notices of cancellation.
(d) If the relevant time for the exercise of Underwriters' discretion was the moment when the notice of cancellation was tendered, even if it takes effect at a later date, there was an implied term of the Policy that where, to the knowledge of the insurer, a real alteration in the risk of insurers being exposed to sanctions occurs between the tendering of notice of cancellation and its coming into effect, the insurer must exercise its discretion afresh before that notice takes effect. If the Court of Appeal ruled in favour of the Appellant, Underwriters would be obliged to withdraw their notices of cancellation.
(e) The Community law principle of the effectiveness of rights precluded the cancellation of the Policy
(a) Does the cancellation clause require an act or omission on the part of the Assured?
(b) Bad faith and Wednesbury unreasonableness
(c) Underwriters are obliged to exercise their discretion at the moment when the notice takes effect (9 May, 2011) and not when it is tendered.
(d) The implied term
(e) The principle of effectiveness of rights
General conclusion on Issue 2
"Could the court in the proper exercise of its discretion grant the declaration sought?
Donaldson J. thought it could but did not grant it as he thought that the Spot Cash scheme was a lottery and an unlawful competition. The Court of Appeal, holding that it was neither, granted it.
That decision, if it stands, will form a precedent for the Commercial Court and other civil courts usurping the functions of the criminal courts. Publishers may be tempted to seek declarations that what they propose to publish is not a criminal libel or blasphemous or obscene. If in this case where the declaration sought was not in respect of future conduct but in respect of what had already taken place, it could properly be granted, I see no reason why in such cases a declaration as to future conduct could not be granted. …
Such a declaration is no bar to a criminal prosecution, no matter the authority of the court which grants it. Such a declaration in a case such as the present one, made after the commencement of the prosecution, and in effect a finding of guilt or innocence of the offence charged, cannot found a plea of autrefois acquit or autrefois convict, though it may well prejudice the criminal proceedings, the result of which will depend on the facts proved and may not depend solely on admissions made by the accused. If a civil court of great authority declares on admissions made by the accused that no crime has been committed, one can foresee the use that might be made of that at the criminal trial.
My Lords, it is not necessary in this case to decide whether a declaration as to the criminality or otherwise of future conduct can ever properly be made by a civil court. In my opinion it would be a very exceptional case in which it would be right to do so. …"
The position of the Intervener
Lord Justice Elias :
Lord Justice Tomlinson :
(a) that Gard's notice of cancellation contains the following final paragraph:-
"Gard Marine Energy is aware that Arash have indicated their intention to appeal the decision of Burton J. Should that appeal be heard and ruled upon prior to expiry of this notice and should the Court of Appeal hold that the risk can be renewed without breaching Article 26, then Gard Marine and Energy Limited will treat this notice as null and void."
(b) that in the light of a favourable decision by this court on the construction of Article 26, other underwriters might withdraw their notices and
(c) that two underwriters, Lancashire and IGI Bermuda had, as at the date of the hearing before us, served no notice.
Ultimately, Mr Bryan's plea on this point amounted to the suggestion that, if this court were of the view that the conclusion reached by Burton J on the construction of Article 26 is wrong, it would be an unfortunate and unattractive result to leave the market in ignorance of that view.