Dassault Aviation SA v Mitsui Sumitomo Insurance Company Ltd
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Cockerill |
| Judgment Date | 20 December 2022 |
| Neutral Citation | [2022] EWHC 3287 (Comm) |
| Docket Number | Case No: CL-2022-000210 |
| Court | King's Bench Division (Commercial Court) |
[2022] EWHC 3287 (Comm)
Mrs Justice Cockerill
Case No: CL-2022-000210
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
KING'S BENCH DIVISION
OMMERCIAL COURT
Rolls Building
Fetter Lane
London, EC4A 1NL
Paul Stanley KC, Nico Leslie, Daniel Carall-Green (instructed by Addleshaw Goddard LLP) for the Claimant
Chris Smith KC (instructed by Norton Rose Fulbright LLP) for the Defendant
Hearing dates: 28 November 2022
APPROVED JUDGMENT
The Claimant (“Dassault”) makes this application under s.67 of the Arbitration Act 1996 (“AA 1996”) to set aside a Partial Award dated 29 March 2022 made by an arbitral tribunal consisting of Lord Collins of Mapesbury, Simon Crookenden KC, and Joe Smouha KC (the “Tribunal”). That Partial Award declared by a majority that it had jurisdiction over the claim of the Respondent (“MSI”) against Dassault.
The issue as to jurisdiction engages part of the question asked by Professor Goode as to the limits of contractual prohibitions against assignment in his article “Contractual Prohibitions Against Assignment” [2009] LMCLQ 300 in which he stated:
“What is the scope of a no-assignment clause? Does it prohibit equitable as well as statutory assignments? Does it extend to declarations of trust and to equitable charges? Does it embrace the sum received by the assignor from the debtor? These are all questions of construction of the contract.”
The majority of the Tribunal concluded (broadly with Professor Goode) that a no-assignment clause is limited to contractual assignments and does not encompass a transfer to an insurer by operation of Japanese Law. The minority took the view that the transfer in this case fell within the clause because the operation of Japanese law was brought about by voluntary acts of the assured.
BACKGROUND
On 6 March 2015, Mitsui Bussan Aerospace Co Ltd (“MBA”) and Dassault entered into a contract governed by English law (the “Sale Contract”), whereby Dassault agreed to manufacture and deliver to MBA two aircraft and certain related supplies and services (“Aircraft and Spares”) for supply to the Japanese Coast Guard.
Article 15 of the Sale Contract, titled “Assignment-Transfer”, provided as follows:
“Except for the Warranties defined in Exhibit 4 that shall be transferable to Customer, this Contract shall not be assigned or transferred in whole or in part by any Party to any third party, for any reason whatsoever, without the prior written consent of the other Party and any such assignment, transfer or attempt to assign or transfer any interest or right hereunder shall be null and void without the prior written consent of the other Party.
Notwithstanding the above and subject to a Seller's prior notice to Buyer, Seller shall have the right to enter into subcontracting arrangements with any third party, for the purpose of the performance of this Contract”
The terms of the Sale Contract required the Claimant to deliver:
i) The first of the Aircraft on or prior to 31st March 2018.
ii) The second of the Aircraft on or prior to 31st July 2018.
iii) The Spares in June 2018.
Because of the nature of the contract there were fairly stringent confidentiality provisions in the Sale Contract. Article 20 provided:
“Except with the written consent of the other Parties, each Party shall keep confidential and shall not disclose any part of the Contract or of any of its provisions including its exhibits to any third party, except:
(i) with respect to disclosures undertaken by Seller, to the sole extent such disclosures are required by Government representatives/banking institutions of the countries involved, in particular for the purpose of obtaining the required export licences or to negotiate and perform contractual arrangements with Mission System Manufacturer;…”
The Sale Contract contained an arbitration agreement providing for arbitration under the ICC rules and for the seat of arbitration to be London.
On 30 September 2017, MBA entered into a contract of insurance (the “Policy”) with MSI, governed by Japanese law. It did not seek Dassault's consent. The Policy covered the risk of MBA being held liable to the Japanese Coast Guard for late delivery under the Sale Contract. It appears that it was entered into at this point because of a perceived risk of delay consequent on issues with approvals needed for the completion of the aircraft.
In the circumstances, delivery was delayed; the Aircraft were in fact delivered on 22nd April 2019 (the first of the Aircraft) and 10th May 2019 (the second of the Aircraft). The Spares were delivered on 28th February 2020.
The Japanese Coast Guard claimed liquidated damages for late delivery. MBA claimed that sum from MSI (less a deductible) under the Policy, and MSI accepted that claim and paid MBA in turn.
Article 25 of the Japanese Insurance Law provides:
“An insurer, when the insurer has made an insurance proceeds payment, shall, by operation of law, be subrogated with regard to any claim acquired by the insured due to the occurrence of any damages arising from an insured event (under a non-life insurance policy which covers claims arising due to default or any other reason, such claims shall be included; hereinafter referred to as the ‘insured's claim’ in this Article), up to the smaller of the amounts listed below:
(i) the amount of the insurance proceeds payment made by the insurer; or
(ii) the amount of the insured's claim (if the amount set forth in the preceding item falls short of the amount of damages to be compensated, the amount that remains after deducting the amount of the shortfall from the amount of the insured's claim).”
Article 26 of the Japanese Insurance Law provides: “ A contractual provision that is incompatible with the provisions of […] [Article 25] that is unfavourable to an insured shall be void.” However it permits of agreement that an insurer would not be subrogated, as not being “ unfavourable to the insured”.
Article 35(1) of the Policy essentially reproduces Article 25 of the Japanese Insurance Law. It provides as follows:
“In the event that the Insured acquires a right to claim for damages or other claim […] as a result of the occurrence of Losses, such claims shall be transferred to [MSI] when [MSI] pays the insurance benefits for said Losses. However, the amount to be transferred shall be limited to the ‘Maximum amount’ in the following table.
Category
Maximum amount
(i) If [MSI] has paid the full amount of the Losses as insurance benefits
Full amount of claims acquired by the Insured
(ii) In cases other than (i)
The amount of the claim acquired by the Insured minus the amount of Losses for which no insurance benefits have been paid”
It is common ground that the mechanism of subrogation under Japanese Law is the transfer of rights: the insurer acquires the right to sue in its own name, including the right to initiate proceedings.
On 30 April 2021, MSI submitted a request for arbitration under the arbitration agreement in the Sale Contract against Dassault. A tribunal consisting of Lord Collins, Joe Smouha KC and Simon Crookenden KC was constituted.
On 28 July 2021, Dassault submitted its response to the request for arbitration, in which it challenged the tribunal's jurisdiction. Dassault contended that, because any transfer of rights from MBA to MSI was precluded under Article 15 of the Sale Contract (and was therefore ineffective) MSI did not acquire any rights under the Sale Contract and, as a result, was neither a party to (nor permitted to enforce) the arbitration agreement in the Sale Contract, leaving the Tribunal without substantive jurisdiction. In response to this, MSI argued that the prohibition on assignment created by Article 15 did not on its proper construction (in English law) apply to an assignment by operation of law. Since MSI's right of subrogation arose by operation of a Japanese statutory provision, that was not a transfer caught by the prohibition under Article 15. Much of the debate before the Tribunal centred on whether the transfer was brought about by Article 25 of the Japanese Insurance Law or by Article 35(1) of the Policy.
The Tribunal considered the jurisdictional issue as a preliminary issue. It issued its Partial Award on jurisdiction on 29 March 2022. By a majority decision, the Tribunal dismissed Dassault's jurisdictional objection. The Tribunal held that: (i) Article 15 of the Sale Contract did not apply to involuntary assignments and/or assignments by operation of law; (ii) as a matter of Japanese law, the transfer of rights from MBA to MSI occurred by operation to law pursuant to Article 25 of the Japanese Insurance Act.
The majority found that, since the transfer occurred by operation of law, Article 15 did not apply to it. Mr Crookenden KC dissented on this point, on the basis that the transfer of rights was to be regarded as voluntary rather than involuntary, opining that “ any transfer of rights under the Policy would be a consequence of the voluntary decisions of MBA and MSI to enter into the Policy. Any such transfer would, therefore, itself be voluntary”. According to Mr Crookenden KC, any transfer of MBA's rights under the Sale Contract by reason of the Policy was precluded by Article 15 and was legally ineffective, resulting in the Tribunal having no substantive jurisdiction over the dispute.
THE PARTIES' POSITIONS
Dassault's position in the present application is that the prohibition of assignments and transfers created by Article 15 of the Sale Contract, on its proper construction, covered and rendered ineffective the transfer of rights under the Sale Contract pursuant to Article 25 of the Japanese Insurance Act.
Dassault contended that...
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