Summary
Will a claimant wishing to sue an indemnity insurer abroad alleging wrongful actions of its insured be bound by the terms of the insurance contract, even though they are not a party to it?
This was the question addressed by the Commercial Court in The London Steam-Ship Owners’ Mutual Insurance Association Ltd v Trico Maritime & Others [2024] EWHC 884 (Comm) during a claim for a final antisuit injunction and declaratory relief.
The Court applying English conflict of law principles and the decisions in Shipowners Mutual P&I v Containerships Denizcilik (The Yusuf Cepnioglu) [2016] EWCA Civ 386 [LINK] and QBE Europe SA NV v Generali Espana de Seguros [2022] EWHC 2062 (Comm), concluded that a third party relying on a contractual right under an English law-governed insurance contract is bound by its terms, including arbitration provisions, despite not being a party to it.
Since the claim is linked to the enforcement of the insurance contract, such that the foreign claimant is bound to observe the arbitration agreement in the insurance contract, the Court granted the final antisuit injunction and declaratory relief sought.
Background
The background to this matter is the sinking of the container vessel “X-Press Pearl” (the “vessel”) off Sri Lanka on 2 June 2021. London Steam-Ship Owners' Mutual Insurance Association Ltd (the “Club”) was the vessel’s P&I Club providing insurance cover to the vessel and its owners. Following the incident, Sri Lankan cargo claimants (the “cargo claimants”) initiated legal proceedings in Sri Lanka against the Club and various other parties seeking compensation for lost cargo.
However, and as is the case with most P&I Clubs, the insurance policy included an arbitration clause stipulating that disputes should be resolved through arbitration in London, as well as a 'pay to be paid' clause requiring the insured to pay first before claiming from the insurer.
The Club consequently commenced arbitration and successfully sought an interim antisuit injunction in support of the arbitration from the Commercial Court to restrain the Sri Lankan legal proceedings, arguing that the cargo claimants were bound by the terms of the insurance contract, including the arbitration clause.
The Decision
Subsequently the Club sought and the Court granted a final antisuit injunction. The Court held that the cargo claimants, despite not being direct parties to the insurance contract, were subject to its arbitration agreement because their claims arose under the contract, finding:
Dependence on the insurance contract: The Court first noted that the claims of the cargo claimants against the Club were brought solely on the basis that it is liable “as the insurer”. Sri Lankan law does not specifically provide for an independent or direct right of recovery against the insurers in respect of claims arising out of the incident involving the vessel; the cargo claimants were therefore not advancing an independent right of recovery under a local law.
The Club’s role “as the insurer” arises out of the insurance contract between the Club and the vessel/its owners. This means, in turn, that it arises out of, and necessarily depends on the terms of that contract.
Since the claims against the Club were based on its liability as an insurer, they were inherently tied to the terms of the insurance contract. Thus, the claimants were treated as bound by the contract despite not being direct parties.
Governing law: The Court secondly noted that the insurance contract was governed by English law. In the absence of a specifically applicable local statute or common law on the matter, the Sri Lankan court would have to look to the terms of the insurance contract and would have to apply English law to the claims against the Club, on the basis that the insurance contract is subject to English law.
The application of the Club’s Rules must therefore be construed in accordance with English law, and the right asserted must also be governed by English law.
- Doctrine of Benefit and Burden: Since the claimant is treated as bound by the insurance contract, it follows that, they are also bound to observe the arbitration agreement in the insurance contract. This is on the basis of the English law doctrine of “benefit and burden”: by asserting rights under the insurance contract, the claimant has to observe the arbitration agreement. They could not benefit from the contract without complying with its arbitration obligations.
The Court therefore held that the Club is entitled to be sued only by way of a reference to arbitration in London; and that the Club is entitled to an antisuit injunction, unless there is a good reason why it should not be granted.
In considering whether there were valid reasons not to grant the injunction, the Court found the following:
- The Club had not submitted to the jurisdiction of the Sri Lankan court, despite entering an appearance, as it had clearly contested the jurisdiction of that court.
- Although the application could have been filed earlier, the Sri Lankan proceedings had not significantly progressed on their merits, and there was no reasonable perception of material interference with those proceedings.
The Court concluded that, given this context and the fact that the cargo claimants chose not to appear in this court to present a valid reason against the antisuit injunction sought by the Club, there was no good reason not to grant the antisuit injunction.
Additionally, the Club had also sought a declaration that the ‘pay to be paid’ clause in the Club’s Rules applied. The Court affirmed the clause following the House of Lords decision in The Fanti and The Padre Island [1991] 2 AC 1, emphasising that the Club’s liability was conditional upon the assured first paying the full amount of their liabilities.
Comments
This decision highlights the enforceability of arbitration clauses and other contractual terms in insurance agreements, even against third parties trying to benefit from those agreements, reinforcing the importance of adhering to the stipulated dispute resolution mechanisms.
