English Jurisdiction Clauses in Ship Finance and Security

English Jurisdiction Clauses in Ship Finance and Security Presented by: Professor Yvonne Baatz Date: 17th June 2020 Ship FINANCE - It is very common for ship finance contracts such as bank loan agreements to provide for asymmetric jurisdiction clauses. - An asymmetric jurisdiction clause will typically provide that if the Borrower brings proceedings, it may only do so in England, whereas the Bank may bring proceedings against the Borrower in any competent court. - We will consider such clauses and the recent case law in relation to them • Continental Bank NA v Aeakos Compania Naviera SA [1994] 1 Lloyd's Rep 505 • Lornamead Acquisitions Ltd v Kaupthing Bank [2011] EWHC 2611, [112] per Gloster J (Article 17 of the Lugano Convention) • Black Diamond Offshore Ltd v Fomento de Construciones Y Contratas SA [2015] EWHC 1035, [43]. • Barclays Bank Plc v Ente Nazionale di Previdenza ed Assistenza dei Medici e Degli Odontoiatri [2016] EWCA Civ 1261; [2017] 2 All ER (Comm) 432 • Commerzbank Aktiengesellschaft v LIQUIMAR Tankers Management Inc [2017] EWHC 161 (Comm); [2017] 1 WLR 3497 • Etihad Airways PJSC v Flother [2019] EWHC 3107 (Comm); [2020] 2 WLR 333 under appeal Security For The Loan - When a bank enters into a loan agreement for the purchase of a ship (whether a new build or second hand tonnage), the bank will take security for the loan which may include: • Mortgage of the ship • Assignment of the hull and machinery insurance policy on the ship and loss payee clause in that policy • Mortgagee's interest insurance • Assignment of the earnings of the ship e.g. the hire under a time charterparty or freights under voyage charterparties. • - Guarantee from the Director of the shipowner or the Managers of the ship. We will consider jurisdiction clauses particularly in relation to the assignment of the hull and machinery insurance policy and the decision of the Supreme Court in Aspen Underwriting Ltd v Credit Europe Bank NV [2020] UKSC 11; [2020] 2 WLR 919. The Potential Rules Applicable To A Jurisdiction Clause - Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) (the Recast Regulation). It applies to legal proceedings instituted on or after 10 January 2015 (Article 66) - The 2007 Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the 2007 Lugano Convention), clause 23 of which on jurisdiction agreements is in the same terms as Article 23 of Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the EC Jurisdiction Regulation) which applied to proceedings commenced before 10 January 2015. - The 2005 Hague Convention on Choice of Court Agreements (the 2005 Hague Convention). - The common law rules. The Recast Regulation - The Recast Regulation continues to apply to the United Kingdom of Great Britain and Northern Ireland (the UK) during the transition period following the withdrawal of the UK from the EU as retained legislation until 11pm on 31 December 2020 (see the European Union (Withdrawal Agreement) Act 2020 which amends the European Union (Withdrawal) Act 2018). - Article 25 provides for jurisdiction agreements: • 1. If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. The agreement conferring jurisdiction shall be either:  (a) in writing or evidenced in writing;  (b) in a form which accords with practices which the parties have established between themselves; or  (c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned. • 2. Any communication by electronic means which provides a durable record of the agreement shall be equivalent to 'writing'. The Lis Pendens Provisions Of The Recast Regulation - Article 29 • 1. Without prejudice to Article 31(2), where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seized shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seized is established... - Article 31 • …. • 2. Without prejudice to Article 26, where a court of a Member State on which an agreement as referred to in Article 25 confers exclusive jurisdiction is seized, any court of another Member State shall stay the proceedings until such time as the court seized on the basis of the agreement declares that it has no jurisdiction under the agreement. • 3. Where the court designated in the agreement has established jurisdiction in accordance with the agreement, any court of another Member State shall decline jurisdiction in favors of that court. Commerzbank Aktiengesellschaft v LIQUIMAR Tankers Management Inc [2017] EWHC 161 (Comm); [2017] 1 WLR 3497 - Commerzbank Aktiengesellschaft, a German bank with a London presence entered into loan agreements for the building of a number of ships. - LIQUIMAR, a ship management company, guaranteed two of the loans to ship owning companies managed by it to the bank. - LIQUIMAR and one of the borrowers commenced proceedings in Greece. - The LIQUIMAR guarantee contained a governing law and an asymmetric jurisdiction clause, which was essentially similar to that in the loan agreements and subsequent forbearance agreements. It provided: • “16 Law and Jurisdiction” LIQUIMAR - The bank commenced proceedings in England seeking repayment of the sums due under the loan including interest and costs, declaration of non liability for the claims in the Greek courts and also declarations and damages and/or an indemnity for breaches of the jurisdiction clauses in the loan agreements and guarantees. - The defendants applied for stays of the bank's claims, pursuant to article 29 of the Recast Regulation, on the basis that the Greek court was the court first seized. The issue arose whether the asymmetric jurisdiction clauses were agreements conferring exclusive jurisdiction on the English courts within the meaning of article 31(2) of the Regulation, which disapplied article 29. The Judgment Of Cranston J in LIQUIMAR - Whether an asymmetric jurisdiction agreement can be characterized as conferring exclusive jurisdiction on a court of a Member State within the terms of Article 31(2) is a question of the autonomous interpretation of the Regulation.[52] - Such a clause does confer exclusive jurisdiction within Article 31(2) - The 2005 Hague Convention was of no assistance in the interpretation of Article 31(2) ([37] - [39] [71] [74] quoted on slides 21 and 22). Judgment in LIQUIMAR - Cranston J further held that as the court chosen if the English court decides it has jurisdiction, it could "proceed with the case irrespective of how far advanced the Greek proceedings are" and did not have to stay its proceedings until the Greek court had decided whether it had jurisdiction. [78] - He rejected LIQUIMAR's subsidiary argument that the asymmetric jurisdiction agreement was not compatible with Article 25. Etihad Airways PJSC v FL other [2019] EWHC 3107 (Comm); [2020] 2 WLR 333 under appeal - On 28 April 2017 Etihad entered into a facility agreement with Air Berlin in which it agreed to advance €350 million. The facility agreement provided, • 32. Governing Law  This Agreement and all non-contractual obligations arising from or connected with it are governed by English law. • 33. Enforcement  33.1 Jurisdiction - Etihad also entered into three other agreements with AB between 28 and 30 April 2017 which were all governed by English law and contained English jurisdiction agreements similar to that in the Facility agreement. - On 28 April 2017 Etihad gave a comfort letter to AB which did not contain a jurisdiction clause. - In July 2018 the Insolvency administrator of AB in Germany - commenced proceedings against Etihad in Germany alleging breach of the comfort letter or pre contractual obligations. - In January 2019 Etihad commenced proceedings in England seeking declarations The Judgment Of Jacob J In Etihad - The essential question in the English proceedings was (i) whether there was a good arguable case that the claim commenced by Air Berlin in Germany fell within the scope of the jurisdiction clause in the facility agreement; and (ii) that jurisdiction clause fell within Article 31(2) of the Recast Regulation. - The facility agreement and the comfort letter were both part of an overall support package and were closely linked. Interpreting the jurisdiction agreement in the Facility Agreement as a matter of English law, there was a good arguable case that (i) the jurisdiction clause in the Facility Agreement was applicable to the Comfort Letter and any non-contractual claim in connection therewith, and (ii) the claim commenced by Air Berlin in Germany fell within the scope of that clause. - Etihad had a good arguable case that the dispute originated from the legal relationship in connection with which the jurisdiction agreement was concluded. - Jacob J also considered the 2005 Hague Convention but held that it did not assist in the interpretation of the Recast Regulation ([215]-[217) quoted at slide 23. - Article 31(2) of Brussels Recast does apply to asymmetric clauses. - Jacob J did not refer the issue on Article 31(2) to the Court of Justice of the European Union. Security For The Loan Agreement - Assignment Of The Hull And Machinery Policy - Aspen Underwriting Ltd v Credit Europe Bank NV [2020] UKSC 11; [2020] 2 WLR 919 - Aspen Underwriting Ltd and others insured the Atlantic Confidence owned by Kairos Shipping Limited, a Maltese company, under a hull and machinery insurance policy with a value of US$22m. - The Policy had an exclusive jurisdiction clause by which each party submitted to the exclusive jurisdiction of the courts of England and Wales a follows: - "This insurance shall be governed by and construed in accordance with the law of England and Wales and each party agrees to submit to the exclusive jurisdiction of the courts of England and Wales." - Credit Europe NV ("the Bank"), a bank domiciled in The Netherlands, funded the refinancing of two vessels, including the Atlantic Confidence. - The Bank took a mortgage over the Vessel and assignment of the Policy, which identified the Bank as mortgagee, assignee and loss payee. Aspen Underwriting - The Facts - On 3 April 2013 the Atlantic Confidence sank off the coast of Oman. - On 5 April 2013 the Bank authorized payment of the insurance proceeds to the insurance brokers, Willis Ltd, in a letter of authorization from the Bank. - On 6 August 2013 the Insurers entered into a settlement agreement with the owners and managers of the Vessel to pay US$22million to Willis. That settlement agreement also provided for English law and an exclusive English jurisdiction agreement. - Three years later the Admiralty Court ([2016] EWHC 2412; [2016] 2 Lloyd's Rep 525) held that the Owners and Managers had procured the scuttling of the Atlantic Confidence and therefore the insurers were not liable due to the willful misconduct of the Owners. - The Insurers commenced proceedings in the High Court in London against the Owners, the Managers and the Bank to recover the sums paid under the settlement agreements by seeking to avoid the settlement agreement on the grounds of the Owners' and Managers' misrepresentation or the Insurers' mistake, seeking damages for misrepresentation or restitution of the money which they had paid out. - The insurers alleged that the bank had made the same representations or was vicariously liable for them; and in reliance on those representations, the insurers had entered into the settlement agreement. The Issues - The Bank challenged the jurisdiction of the High Court in London in respect of the Insurers' claims against it. They argued that the claim was a matter relating to insurance and that therefore they were entitled to rely on Article 14 of the Recast Regulation which provides, • 1. Without prejudice to Article 13(3), an insurer may bring proceedings only in the courts of the Member State in which the defendant is domiciled, irrespective of whether he is the policyholder, the insured or a beneficiary. - The insurers argued that the Bank was bound by the English court jurisdiction clause (on the basis that the exclusive jurisdiction clause in the policy fell within Articles 15 and 25 of the Recast Regulation) and/or pursuant to Article 7(2) of the Regulation (on the basis that the claims were "matters relating to tort" and the harmful event had occurred in England). The Judgment Of The Supreme Court - (I) The bank was not a party to the jurisdiction clause contained in the insurance policy or the settlement agreement. - (II) The Insurers' claims against the Bank were "matters relating to insurance" within Chapter II, section 3 of the Regulation. - (III) The Bank as the named loss payee was a beneficiary of the policy and as such was entitled to rely on section 3 which affords protection to "a policyholder, insured or beneficiary". Everyone who fell within the categories of policyholder, insured or beneficiary was entitled to that protection without any qualification and the "weaker party" test was only used to determine if by analogy those protections were to be extended to other persons who did not fall within one of those categories. Therefore, the bank could rely on Article 14 which only permits the insurer to sue where the defendant is domiciled. It was not necessary to refer a question to the Court of Justice of the European Union on this issue [59]. - (IV) The question as to whether the Insurers' claims for restitution were matters relating to tort, delict or quasi-delict under Article 7(2) of the Regulation were therefore irrelevant. - (V) The English court did not therefore have jurisdiction and the only place where the insurers could sue the Bank was in the Netherlands where it was domiciled. Comments on Aspen - The result of the decision is that the Bank has had the benefit of the insurance policy but is not bound by the jurisdiction clause as it did not sue. - The litigation is fragmented. The insurers must sue the Owners and Managers in England but must sue the Bank in the Netherlands with all the resulting increase in costs and risk of inconsistent judgments. - The insurer should in future consider whether the Bank should be a party to the settlement agreement. - The decision is consistent with the approach of the CJEU in Assens Havn v Navigators Management (UK) Ltd (The Sea Endeavour I) C-368/16 EU:C:2017:546 Assens Havn (third party claimant in a direct action on an insurance policy for a marine risk not bound by the jurisdiction clause in the insurance contract even though it falls within the equivalent of Articles 15(5) and 16 of the Recast Regulation) and AAS Balta v UAB Griefs AG Case C-803/18 (third party beneficiary of a liability insurance contract for a large risk not bound by a jurisdiction clause for the courts of Latvia even though it falls within Articles 15(5) and 16(5) of the Recast Regulation). - The decision is significant for equitable assignment in general as well as for assignment of an insurance policy, loss payee clauses and subrogation. Contrast other third party situations such as the decision in Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd [2018] EWHC 1902 (Comm); [2018] 2 CLC 385 particularly [28] and [38]-[42]. Popplewell J held that a bank which became the lawful holder of a bill of lading became a party to the arbitration clause (incorporated into the bill of lading from the charterparty) pursuant to section 2 of the Carriage of Goods by Sea Act 1992 ("transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract"). The arbitration agreement could not be split into rights and obligations and therefore bound the bank whether it brought the proceedings or the proceedings were brought against it.