Raiffeisen Zentralbank Osterreich AG v Five Star General Trading LLC and Others

JurisdictionEngland & Wales
Judgment Date26 January 2001
Neutral Citation[2001] EWCA Civ 68
Docket NumberCase No: A3/2000/2385
CourtCourt of Appeal (Civil Division)
Date26 January 2001

[2001] EWCA Civ 68




Royal Courts of Justice

Strand, London, WC2A 2LL


Lord Justice Aldous

Lord Justice Mance and

Mr. Justice Charles

Case No: A3/2000/2385

Raiffeisen Zentralbank österreich Ag
An Feng Steel Co. Limited & Others
Appellants/11th-15th Defendants

Alexander Layton QC & Michael Davey (instructed by Messrs Howard Kennedy for the Respondents)

Jeffrey Gruder QC (instructed by Messrs Stephenson Harwood for the Appellants)


Introduction and facts


This appeal from a judgment of Longmore J. now reported at [2000] 2 Ll.R. 684 concerns rival attempts to obtain the benefit of the proceeds of claims arising under an English law marine insurance policy placed by Dubai owners of the vessel Mount I with French insurers. The insurance claims arise out of a collision between the Mount I and the ICL Vikraman. The Respondent is an Austrian mortgagee bank claiming as assignee of the benefit of the insurance. The Appellants are Taiwanese companies, who, as owners of cargo on the ICL Vikraman, have obtained provisional attachment orders in France against any insurance proceeds.


The appeal raises at least one moot issue of private international law. The judge was warned that he was being set an examination question on the applicable law. We have to consider the judge's response, conscious that our own may itself be reviewed. Although a central issue involves the scope of the Rome Convention (given the force of law in the United Kingdom law under the Contracts (Applicable Law) Act 1990), there is, as yet, no court to which such an issue may be referred to ensure a uniform international interpretation.


The collision occurred in the Malacca Straits on 26 th September 1997. The ICL Vikraman vessel sank, with the tragic loss of life of her 29 crew, and also loss of her cargo. The Appellants, who are the Eleventh to Fifteenth Defendants in the proceedings, claim as owners of cargo of the ICL Vikraman and on the basis that the Mount I was responsible for the collision. The Mount I was on a voyage from Singapore to India or Bangladesh for scrapping. She had been purchased for this purpose by the First Defendants, Five Star General Trading L.L.C. ("Five Star"), a Dubai company. To enable her purchase and scrapping, the Respondent, the Claimant in the proceedings, Raffeisen Zentralbank Oesterreich AG ("RZB"), through its London branch, had agreed on 16 th September 1997 to lend Five Star up to US$3,760,219. The facility letter of that date required as a condition of drawdown the provision of, inter alia, a mortgage over the vessel, the insurance policies and other documents relative to the insurance effected on her, an assignment of such insurances ("in such form as the Bank may require") and notice of such assignment duly signed.


The mortgage executed on the next day under the laws of St. Vincent and the Grenadines included further extensive provision regarding insurance. The vessel was to be and remain insured against marine risks (for her full market value and in any event not less than 120% of the loan), entered in a protection and indemnity association or club, insured against oil pollution risks and insured against excess and war risks (clause 5.1). RZB was to approve in advance the markets with which such insurances were placed, and Five Star was not to alter their terms without RZB's prior written consent and was to supply RZB "from time to time on request and at least annually (sic)" with such information as RZB might require regarding the insurances (clause 5.3). Five Star was to procure letters of undertaking from the brokers or P & I associations or clubs in such form as RZB might approve (clause 5.6). By clause 5.7 Five Star agreed that, at any time after the occurrence or during the continuation of an event which was (or would be with notice, or the passage of time or the satisfaction of any materiality test) an Event of Default as defined, RZB should be entitled to collect, sue for, recover and give a good discharge for all claims in respect of the insurance, and by clause 5.11 it was agreed:

"In the event that any sums shall become due under any protection and indemnity entry or insurance, such sums shall be paid to the Owners to reimburse them for, and in discharge of, the loss, damage or expense in respect of which such sums shall have become due PROVIDED THAT if at the time such sums become due, there shall have occurred and be continuing an Event of Default or any event which, with the giving of notice and/or the passage of time and/or the satisfaction of any materiality test would constitute an Event of Default, the Mortgagees shall be entitled to receive such sums and to apply them either in reduction of the indebtedness or, at the option of the Mortgagees, to the discharge of the liability in respect of which they were paid."


The Deed of Assignment dated 17 th September 1997 dealt with insurance in different terms. Five Star thereby purported to "assign absolutely and unconditionally and agree to assign to the Bank all their right, title and interest in and to the Insurances" (clause 2.1) and undertook to give notice to the insurers in a form recording that it had "assigned absolutely to [RZB] all insurances effected or to be effected in respect of the above vessel, including the insurances constituted by the policy whereon this notice is endorsed, including all moneys payable and to become payable thereunder or in connection therewith (including returns of premium" (clause 2.3.2 and Appendix A). However, by clause 2.3.4 Five Star also covenanted that it would procure that a loss payable clause in the form of Appendix B (or such other form as RZB might approve) or in the case of P & I entries a note of RZB's interest in such form as RZB should approve should be endorsed upon or attached to the relevant policies and that letters of undertaking in such form as RZB should approve would be issued to RZB by the brokers. The terms of the form of loss payable clause contemplated by Appendix B are set out later in this judgment. The Deed was entered into in London and made expressly subject to English law and to the jurisdiction of the English courts as regards "any disputes which may arise out of or in connection with [it]". Finally, also on 17 th September 1997 Five Star signed a notice of the absolute assignment of the insurances in favour of RZB in the form of Appendix A.


As from 17 th September 1997, the vessel was insured by Five Star for US$4.8 million (or 125% of the market value of the vessel as scrap at the time of sailing, whichever was less) against total loss only. The policy terms further conferred protection and indemnity cover in terms of clause 9 of the Institute Time Clauses Hulls Port Risks (20/7/87) with certain amendments and, most importantly in this case, cover in respect of collision liability in terms of clause 6 of the Institute Voyage Clauses – Hulls – Total Loss (1/10/83) with amendments to read as follows:

"6.1 The Underwriters agree to indemnify the Assured for four-fourths of any sum or sums paid by the Assured to any other person or persons by reason of the Assured becoming legally liable by way of damages for:


1 loss of or damage to any other vessel or property on any other vessel …."


The insurers were the Second to Tenth Defendants, companies incorporated and carrying on business in France ("the insurers"). The Second and Tenth Defendants were joint leaders for the purposes of the insurance. The insurance was placed through C. E. Heath (Insurance Broking) Ltd. (U.A.E. Office) ("C. E. Heath") who in turn used sub-brokers, Philmar Assurances S.A. ("Philmar") of Paris. It was on terms evidenced by these brokers' cover notes dated respectively 15 th and 22 nd September 1997. By such terms the insurance was expressly subject to English law. On 19 th September 1997 RZB's solicitors, Stephenson Harwood, wrote to C. E. Heath asking that RZB's interest be noted on the policy. By fax on 7 th October 1997 Philmar sent a memorandum to the two leaders, enclosing a copy of Five Star's notice of assignment to RZB dated 17 th September 1997 together with a draft policy memorandum No. 2, by which it was "further noted and agreed to register interest of RZB Bank as Mortgagee on vessel "MOUNT I" with effect from 17th September 1997, and corresponding Notice of Assignment is attached". The Second Defendants agreed to this memorandum by fax on 10 th October 1997. Despite the terms of clause 2.3.4 of the Deed of Assignment, the notice of assignment given to the insurers was, so far as appears, given in unqualified terms. No clause along the lines of Appendix B was attached to it or ever endorsed upon or attached to the policy or any cover note or certificate.


After the collision of 26 th September 1997, the Mount I was arrested in Malaysia by the owners of the ICL Vikraman. She was later sold by order of the Malaysian court. Her sale realised US$3,082,805 which is presently held by the Malaysian court. The substantive issue of liability for the collision is being litigated in Malaysia by both vessels' owners and the Appellants. We were told by Mr Gruder QC for RZB that, under Malaysian law, third party claimants such as the Appellants will, if successful in establishing liability on the part of Five Star, take priority over RZB's claim as mortgagees as against the Malaysian fund. However that may be, the Appellants evidently do not regard the Malaysian fund as sufficient to satisfy all their claims. They have obtained from the Tribunal de Commerce of Paris...

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