Raiffeisen Zentralbank Osterreich AG v an Feng Steel Company Ltd

JurisdictionEngland & Wales
JudgeAldous,Mance L JJ,Charles J
Judgment Date26 January 2001
Date26 January 2001
CourtCourt of Appeal (Civil Division)

Court of Appeal (Civil Division).

Aldous and Mance L JJ and Charles J.

Raiffeisen Zentralbank Osterreich AG
and
An Feng Steel Co Ltd & Ors.

Alexander Layton QC and Michael Davey (instructed by Howard Kennedy) for the respondents.

Jeffrey Gruder QC (instructed by Stephenson Harwood) for the appellants.

The following cases were referred to in the judgment of Mance LJ:

Brandsma qq v Hansa Chemie AG (16 May 1997) (RvdW 1997, 126C) (Dutch SCt).

Central Insurance Co Ltd v Seacalf Shipping Corp (“The Aiolos”)UNK [1983] 2 Ll Rep 25.

Deutsche Schachtbau und Tiefbohr-Gesellschaft mbH v Shell International Petroleum Co LtdELR [1990] 1 AC 295.

Firma C Trade SA v Newcastle Protection and Indemnity Association (“The Fanti”)ELR [1991] 2 AC 1.

First National Bank of Chicago v West of England Shipowners Mutual P & I Association (“The Evelpidis Era”)UNK [1981] 1 Ll Rep 54.

Italia Express, The (No. 2)UNK [1992] 2 Ll Rep 281.

Lloyd v FlemingELR (1872) LR 7 QB 299.

Macmillan Inc v Bishopsgate Investment Trust plcWLR [1996] 1 WLR 387.

Maudsley Sons and Field, ReELR [1900] 1 Ch 602.

Meadows Indemnity Co Ltd v Insurance Corp of Ireland plcUNK [1989] 2 Ll Rep 298.

Messier Dowty Ltd v Sabena SA [2000] CLC 889; [2000] 1 WLR 2040.

Pickersgill (William) and Sons Ltd v London and Provincial Marine and General Insurance Co LtdELR [1912] 3 KB 614.

Russian Commercial and Industrial Bank v British Bank for Foreign Trade LtdELR [1921] 2 AC 438.

Sim Swee Joo Shipping Sdn Bhd v Shirlstar Container Transport Ltd [1994] CLC 188.

Swan v Maritime Insurance Co LtdELR [1907] 1 KB 116.

Tolhurst v Associated Portland Cement Manufacturers (1900) LtdELR [1903] AC 414.

Torkington v MageeELR [1902] 2 KB 427; [1903] 1 KB 644 (CA).

Weddell v JA Pearce & MajorELR [1988] Ch 26.

Williams v Atlantic Assurance Co LtdELR [1933] 1 KB 81.

Insurance — Conflict of laws — Assignment — Applicable law — Shipowner assigned contract of insurance to mortgagee bank — Notice of assignment given to defendant French insurers — Competing claims to insurance proceeds — Whether English law applied to validity of assignment as law of contract of insurance and of assignment — Validity and scope of assignment under English law — Whether assignment took effect in equity — Whether assignment included benefit of collision liability insurance — Marine Insurance Act 1906, s. 50 — Law of Property Act 1925, s. 136 — Contracts (Applicable Law) Act 1990, Sch. 1 (Rome Convention), art. 12.

This was an appeal from a judgment of Longmore J ([2000] CLC 1359) declaring that the validity of an assignment of the insurance on a ship was to be determined by applying English law under the Rome Convention and that according to English law the assignment was valid.

In 1997 “Five Star”, a Dubai company, borrowed US$3.76m from the claimant bank (“RZB”) to purchase a vessel, Mount I, with a view to scrapping her in India or Bangladesh. RZB took a mortgage over the vessel and an assignment of the insurance effected on her. The assignment was subject to English law. Five Star insured the vessel via French brokers with French insurers for total loss, port risks and collision liability. The insurance was subject to English law. The insurers were given notice of the assignment. On the way to be scrapped the Mount I collided with the ICL Vikraman which sank with the loss of crew and cargo. The Mount I was arrested in Malaysia and sold by order of the Malaysian court. The issue of liability for the collision was being litigated in Malaysia. On the basis that the proceeds of sale of the Mount I would not satisfy their claims the owners of cargo on the ICL Vikraman obtained preventive attachments in France in respect of the proceeds of insurance by way of security for their claims against Five Star. RZB issued English proceedings for declarations that the assignment was validly given to the insurers and any insurance moneys were accordingly payable to RZB. The cargo owners argued that the validity of the notice of assignment in respect of third parties was governed by French law and was ineffective because it was not served on the insurers by a bailiff as required by the French Civil Code. Longmore J ([2000] CLC 1359) held that English law as the law governing the contract of insurance was the law by which to determine whether RZB had a good claim against the insurers, applying art 12(2) of the Rome Convention. On that basis the assignment was effective and RZB was entitled to the declarations sought. The cargo owners appealed.

Held, dismissing the appeal:

1. The issue whether following an assignment the obligor had to pay the assignee rather than the assignor appeared to be contractual for the purposes of the 1990 Act and the Rome Convention. It was not helpful in the present context to treat the debt as property. Article 12(2) manifested a clear intention to embrace and determine this issue. The contract giving rise to the obligation governed “the conditions under which the assignment can be invoked against the debtor”. The wording appeared to cover all aspects of assignment, including such things as the giving of notice, and did not make any distinction between contractual and proprietary aspects. The effect of Five Star's assignment to RZB and of the notice of it to the insurers were to be determined by English law.

2. The assignment did not take effect under s. 50 of the Marine Insurance Act 1906 because Five Star retained an insurable interest as mortgagee and therefore the assignment did not pass the whole beneficial interest in the policy as required by s. 50. Further s. 50 was inapplicable because RZB and Five Star agreed to a loss payable clause which provided for Five Star to receive certain claims payments unless in default. ( First National Bank of Chicago v West of England Shipowners Mutual P & I Association (“The Evelpidis Era”)UNK [1981] 1 Ll Rep 54 considered.)

3. The assignment was not within s. 136 of the Law of Property Act 1925 because the assignment was not of the whole policy since Five Star remained covered as mortgagor. Whatever the generality of the language used, the assignment was only of particular claims arising. Under s. 136 there could only be an absolute assignment of present and not future claims.

4. The assignment including the benefit of the collision insurance took effect in equity. The assignment had contractual effect between RZB and Five Star as soon as it was made and once the collision occurred the previously agreed assignment could operate in equity to pass the beneficial interest in any insurance claims to RZB. Once notice was given to the insurers they were bound to recognise the interest of RZB rather than Five Star. The loss payable clause did not affect that conclusion.

5. The assignment was in the widest terms and there was no reason in principle or on the facts why the benefit of the collision insurance should be excluded.

6. RZB was entitled to declaratory relief to that effect that the assignment to RZB was valid. Declaratory relief was appropriate, notwithstanding the French attachments, since the appellants had submitted to the jurisdiction. The grant of declaratory relief was both useful and called for. ( Messier-Dowty Ltd v Sabena SA [2000] CLC 889; [2000] 1 WLR 2040applied.)

JUDGMENT

Mance LJ:

Introduction and facts

1. This appeal from a judgment of Longmore J ([2000] CLC 1359) 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.

2. 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 UK 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.

3. The collision occurred in the Malacca Straits on 26 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 11th–15th 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 defendant, Five Star General Trading LLC (“Five Star”), a Dubai company. To enable her purchase and scrapping, the respondent, the claimant in the proceedings, Raiffeisen Zentralbank Osterreich AG (“RZB”), through its London branch, had agreed on 16 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.

4. 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 per cent of the loan), entered in a protection and indemnity association or club, insured against oil pollution...

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