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Articles | Thu 18th Jun, 2020
Cases on jurisdiction are like torpedoes, aren’t they? You wait for one for ages, and then four come along in the space of a couple of weeks, culminating in a decision (or rather lack of it) from the Court of Justice of the European Union. In this Special Briefing the team at 1 Chancery Lane bring you up to date on Italian torpedoes, anchor Defendants, and territorial limitation clauses in insurance contracts.
The Italian Torpedo and the Gentlemen’s Excuse Me
In recent years there has been little that is distinctively “Italian” about the “Italian torpedo”. In the experience of this writer, this wearisome tactic has not been confined to Italian insurers and Italian Courts: the torpedo has been French or Spanish as often as it has been Italian and the early “spoiler” action has proved attractive to insurers across the EU.
What is the torpedo action? A pithy and appropriate description appears in an article written several years ago (Jonathan Wood of RPC’s International Law Office, “Sinking the Italian Torpedo: the recast Brussels Regulation” 10.2.15), “The ‘Italian Torpedo’ is the name given to a common tactical abuse of process in cross-border disputes to defeat a jurisdiction agreement. A party may seek to frustrate its opponent by bringing an action in an EU member state that has a reputation for a slow or inefficient judicial system with a considerable backlog of cases, even where that jurisdiction has no connection to the claim. The court of the member state in whose favour the jurisdiction clause is drafted must then wait until the first court seised has dealt with the jurisdiction dispute. The resulting delay and expense in many cases forces the unfortunate torpedoed victim to settle.” Typically, the torpedo action is brought by a Defendant party (often, an insurer) seeking a declaration that it is not liable to the Claimant: a claim for a negative declaration (this might in itself be thought a rather obvious abuse of process, but it is not usually regarded as such in the torpedoed English Court). The priority given to the Court first seised in the lis alibi pendens provisions of Brussels I (No 44/2001) and its predecessors (unwittingly) encouraged the use of the torpedo action. When the Brussels Regulation was recast (in Regulation No 1215/2012), it was thought necessary to do something about it. The policy objectives of the eventual reform are explained in recital (22) of the recast Regulation:
“… in order to enhance the effectiveness of exclusive choice-of-court agreements and to avoid abusive litigation tactics, it is necessary to provide for an exception to the general lis pendens rule in order to deal satisfactorily with a particular situation in which concurrent proceedings may arise. This is the situation where a court not designated in an exclusive choice-of-court agreement has been seised of proceedings and the designated court is seised subsequently of proceedings involving the same cause of action and between the same parties. In such a case, the court first seised should be required to stay its proceedings as soon as the designated court has been seised and until such time as the latter court declares that it has no jurisdiction under the exclusive choice-of-court agreement. This is to ensure that, in such a situation, the designated court has priority to decide on the validity of the agreement and on the extent to which the agreement applies to the dispute pending before it. The designated court should be able to proceed irrespective of whether the non-designated court has already decided on the stay of proceedings. This exception should not cover situations where the parties have entered into conflicting exclusive choice-of-court agreements or where a court designated in an exclusive choice-of-court agreement has been seised first. In such cases, the general lis pendens rule of this Regulation should apply.”
These objectives found expression in Article 31(2) of the recast Regulation which correspondingly provides that, “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 seised, any court of another Member State shall stay the proceedings until such time as the court seised on the basis of the agreement declares that it has no jurisdiction under the agreement.”
These provisions of recast Brussels I were directly considered in the very recent decision (of Foxton J) in Generali Italia SpA v Pelagic Fisheries Corporation [2020] EWHC 1228 (Comm). A substantial portion of the judgment is taken up with consideration of a jurisdiction clause in an insurance contract (I will spare you this). More interesting is the Court’s consideration of the recast Brussels I provisions in the context of conflicting proceedings and the attempted launch of a torpedo (perhaps fittingly, in this case the torpedo was Italian). The dispute reached Foxton J in this way. First, an action was brought in an Italian Court by a number of insured parties against their insurers seeking payments under insurance policies. In jurisdictional terms, these insureds sought to rely on agreements that the Italian Courts should have jurisdiction. Subsequently, the insurers brought proceedings against the insureds in the English Court seeking negative declarations (on the basis that the relevant policies could be avoided on grounds of misrepresentation or non-disclosure). The insurers sought to rely on an exclusive jurisdiction clause in favour of the English Courts in the insurance policies. The Italian Court (first seised) stayed the Italian proceedings pending a determination by the English Court as to whether the relevant policies were subject to exclusive jurisdiction in England and the insureds appealed that determination. The insureds then applied to contest the jurisdiction of the English Court.
The first issue was whether the English Court (second seised) should determine whether there was an exclusive jurisdiction clause in favour of the English Court or whether it should await a ruling on jurisdiction in the Italian Court first seised? (the latter being the solution urged by the insured parties) In reliance on an earlier Court of Appeal decision (Ablynx NV v VHsquared [2019] EWCA Civ 2192) and on Article 31(2) of recast Brussels I, the insureds argued that a distinction should be drawn between the substantive rules on lis pendens which prioritised the Court first seised and the (merely) procedural rule, expressed in Article 31(2), which assisted in identifying the Court which should take the lead where there were parallel proceedings. Given the substantive rule (and the dispute about the existence of an exclusive jurisdiction clause favouring the English Courts), it was argued that the only issue for the English Court to consider was whether there was a prima facie case that the Italian Court had jurisdiction (which, so it was argued, was easily met by the Italian proceedings): the outcome ought to be that the English Court stayed its proceedings pending the resolution of the appeal in the Italian Court.
Foxton J did not agree. He accorded a higher priority to Article 31(2) when considered against the policy objective expressed in recital (22). First, it was clear from the wording of Article 31(2) (and from the writings of Professor Briggs QC on this topic) that it was not necessary for the existence of an exclusive jurisdiction clause to be definitively established before Article 31(2) was engaged (in this regard, Article 31(2) requires, “any court of another Member State shall stay the proceedings until such time as the court seised on the basis of the agreement declares that it has no jurisdiction under the agreement [emphasis added].”) Moreover, it was not contended (for the insured) that there was an exclusive jurisdiction agreement favouring the Italian Courts and Article 31(2) “provides no basis for the English court to stay its proceedings pending a determination by another Court that it has some jurisdiction on some basis other than an exclusive jurisdiction agreement.” (Judgment, #68.ii)). Finally, the practical effect of the insureds’ arguments for the Italian Court would be that the Italian Court (rather than the English Court) would have to determine whether the jurisdiction clause (favouring England) was exclusive or non-exclusive, whereas the clear wording of recital (22) was that the designated (here, English) Court should carry out this exercise. Foxton J also commented that the Italian Court had already (subject to the appeal) stayed its proceedings to enable the English Court to determine whether it had jurisdiction (under the exclusive jurisdiction clause) and if, as the insureds sought to argue, the English Court returned the favour then “… the dispute might become caught in the self-perpetuating politeness of an Alphonse and Gaston cartoon” (Judgment, #70): ie. a Gentlemen’s Excuse Me, After you! No, after you!
Foxton J went on to consider what would have happened if both parties had argued that there were relevant exclusive jurisdiction clauses: one favouring the Italian Courts and the other favouring the English Courts. In this regard, Foxton J referred to the final paragraph of recital (22) of the recast Regulation in which there is reference to “conflicting choice-of-court agreements” and stated (Judgment, #75) that, “… there is scope for at least some consideration by the court second seised of the potential application of the two exclusive jurisdiction agreements, before determining whether the court is obliged to stay proceedings under Article 29, or whether it is able to determine its own exclusive jurisdiction under Article 31(2) [which may require review on the basis of the “prima facie test” approved in the Ablynx case].”
The Court’s judgment also considers what should happen where the jurisdictional dispute concerns the proper construction of the parties’ agreement and whether it gives exclusive jurisdiction to the Courts of one country or another. In this regard, Foxton J’s preferred solution was that, “The court second seised could stay proceedings only if satisfied that the assertion that the court first seised was the designated court was at least arguable (without deciding who had the better of the argument).” (Judgment, #76.iii))
Accordingly, in Generali Italia SpA v Pelagic Fisheries Corporation Foxton J concluded that the (English) Court could “proceed to consider whether the … insurers have a good arguable case that this Court has exclusive jurisdiction” (Judgment, #78): Articles 29 and 31(2) did not require the English Court to stay its proceedings; the Italian torpedo was successfully detonated.
In the period since Odenbreit was decided by the Court of Justice of the European Union, much – perhaps most – of the volume cross-border personal injury litigation reaching the English Courts has been tort-based. In such cases, the overseas “spoiler” action (the rapid and early claim by the EU insurer for a negative declaration) will continue to be a headache (the Italian, Spanish, French etc. torpedo will still be fired). However, in the many personal injury claims with a contractual element (and a potential exclusive jurisdiction clause), recital (22), Article 31(2) and now Generali Italia SpA v Pelagic Fisheries Corporation provide some hope for English parties that the first word of the Court (first) seised may not necessarily be the last word.
Sink or swim? – Claims against anchor defendants under Article 8 of the Recast Brussels Regulation
Article 8 of the recast Brussels Regulation permits a Defendant domiciled within the jurisdiction to be used to ‘anchor’ claims against other Defendants domiciled outside the jurisdiction. It provides as follows:
“A person domiciled in a Member State may also be sued:
where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.”
Does the claim against the anchor defendant need to pass a ‘merits’ test? That is, does the Claimant need to prove that the claim has a real prospect of success?
This is a question that has produced extensive obiter comments at all levels of the judiciary over many years. In Senior Taxi Aero Executivo v Augusta Westland & others (2020) EWHC 1348 (Comm), Waksman J has – for the time being – provided a firm answer: the claim against the anchor defendant must be a sustainable one.
The claim arose out of the fatal crash of a twin turbine helicopter flying from an offshore oil platform in the Atlantic to Rio de Janeiro. The Brazilian air accident investigation branch (CENIPA) concluded that the primary cause of the accident was manufacturing defects in the tail rotor blades. The Defendants were companies alleged to have been involved in the design and manufacturer of the helicopter. Those companies included one English company and two Italian companies. The claimants, the owners and operators of the helicopter, pursued a claim under the Consumer Protection Act 1987, for an indemnity against compensation paid to families of the deceased, and for the loss of value of the helicopter and associated business losses.
The English company (AW Ltd) denied that it had any role in relation to the design and manufacture of the helicopter. It applied to strike out the claim against it, or for summary judgment. The Court concluded that there was no real prospect of success against AW Ltd and entered summary judgment in its favour. The other defendants applied to set aside the proceedings served on them out of the jurisdiction, arguing that the effect of the Court’s ruling on the claim against AW (the anchor defendant) was that the implied merits test under Article 8(1) could not be satisfied.
It has long been accepted that Article 8 (and its predecessor, Article 6 of the Judgments Regulation 44/2001) carries at least one implied limitation. It cannot be used for abusive purposes, or in bad faith. For example, in Cartel Damage v Akzo (2015) QB 906, the CJEU held that if it was proved (as was alleged in that case) that the Claimant had secretly settled its claim against the anchor defendant but did not disclose this fact until after it had issued proceedings against other defendants, this constituted an ‘artificial fulfilment’ of the conditions under the Regulation, which would not be permitted. Waksman J noted that, in his view, commencing a claim which the Claimant knows is hopeless is also likely to fall within this exception, since it was conceptually no different from commencing a claim against a fictitious defendant.
On the other hand, the fact that a claim against the anchor defendant is procedurally barred (for example because they are bankrupt) will not by itself preclude the use of Article 8. This is the effect of the CJEU decision in Reisch Montage v Kiesel (2007) I.L.Pr 10, a case which may prove to be relevant in the fallout of Thomas Cook’s administration, where claimants are now looking to other avenues for recovery, for example against foreign hoteliers.
However, neither scenario addresses the question of whether a claim which, whilst pursued in good faith against a solvent Defendant, is found by the court to be without merit.
Waksman J was persuaded that the policy concern which underpinned Article 8 – namely avoiding the risk of irreconcilable judgments if claims against multiple defendants had to be pursued in different courts – did not arise where the claim against the anchor defendant was without merit. He considered that if the proceedings (against the other defendants) have to be brought elsewhere, the outcome (as against those other defendants) would almost certainly be the same, whether as a matter of fact or law.
Waksman J recognised that no merits test applied to non-anchor defendants (following the comments of Aikens LJ in Aeroflot v Berezovsky (2013) EWCA Civ 785), but considered that there was a substantive difference between the anchor and non-anchor defendants in this regard. The claim against the former was fundamental to establishing jurisdiction, such that if it was not sustainable, there was no reason for the foreign defendants to be ousted from their jurisdiction in the first place. The reverse was not true: if the claim against one or more of the foreign co-defendants fell away, the claim against the anchor defendant would be unaffected, at least jurisdictionally.
A curious feature of Waksman J’s decision is that it comes only shortly after JSC v Kolomoisky (2019) EWCA Civ 1708 (in respect of which see Matthew Chapman QC’s analysis in a prior 1CL briefing note) , in which the Court of Appeal concluded that neither the Recast Brussels Regulation nor the Lugano Convention had a ‘Sole Object’ test. In other words, a party was not precluded from using a claim against the anchor defendant for the sole purpose of bringing foreign co-defendants within the jurisdiction. However, as Waksman J noted, the very rejection of the Sole Object test might be said to lend weight to the existence of the implied ‘merits’ test, since if claims were permitted whose sole object was to oust foreign defendants from their own jurisdiction, it can only be because the claim against the anchor defendant was nonetheless a meritorious one, and therefore not inherently abusive or artificial.
The Italian Torpedo: Part II
Just four days after Foxton J handed down judgment on 18th May 2020 in Generali Italia SpA v Pelagic Fisheries Corporation, Butcher J handed down judgment in a matter raising the issues arising both in that case and in Senior Taxi Executivo, judgment in which was handed down on 29th May: Federal Republic of Nigeria v Royal Dutch Shell & 12 others [2020] EWHC 1315 (Comm), judgment 22nd May 2020.
The claimant’s case was a rather explosive one; it alleged that various Nigerian oil rights had been procured by way of a corrupt and fraudulent scheme knowingly entered into by the defendants. In February 2017 the Public Prosecutor of Milan had charged various individuals, including certain current or former officers or employees of companies in the Shell and Eni groups, with the offence of international bribery. The first, second, fourth and eighth defendants were joined to those proceedings as the companies vicariously liable for the actions of the individuals. The claimant had joined the Italian criminal proceedings as a civil claimant claiming compensation for the effects of the crimes. The Italian criminal trial began in March 2018 and remained ongoing in December 2018, when the claimant issued proceedings in the courts of England and Wales seeking damaging against twelve defendants, of whom four were defendants in the Italian criminal action.
All of the defendants challenged jurisdiction under Article 29 of the recast Brussels Regulation:
” … 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 seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established”.
It was alleged that such proceedings involving the first, second, fourth and eighth defendants had been brought in the Italian courts, and that therefore the English court should decline jurisdiction over them. Because the first defendant anchored all of the other (foreign domiciled) defendants, the claims against them should also be declined.
Butcher J held that in order for the court to decline jurisdiction, the Italian proceedings would have to involve the same parties, the same cause and the same objet.
In this case the parties were the same, at least as regards the claimant and first defendant; it was not a requirement that all parties should be the same.
In determining whether the cause was the same the court should examine the reality of the situation; were the basic facts in both sets of proceedings the same? Here, they were. Further, the rights alleged to have been infringed were also the same, as was the obligation giving rise to the claim for damages; in both cases the claimant claimed a right to redress for bribery and corruption.
The objet of proceedings, the purpose of them, was also the same, interpreting the concept broadly. In both claims the claimant sought monetary compensation for the defendants’ alleged bribery and corruption.
As a result of these findings the court was constrained to decline jurisdiction over the claim against the first defendant, which unanchored the other defendants, causing the court to decline jurisdiction over them as well.
The decision is a reminder to practitioners, if one were needed, that the greatest care must be taken in respect of criminal proceedings in those European countries featuring a hybrid criminal/civil mechanism for redress. Where an injured party joins criminal proceedings abroad, it will usually be impossible to establish the jurisdiction of the courts of England and Wales against the same defendant in civil proceedings. This will often have a catastrophic effect on the measure of damages available, not to mention the difficulty and delay usually experienced by claimants in these hybrid proceedings. The Federal Republic of Nigeria might be assumed to have joined the Italian proceedings after having taken a properly advised decision to do so; but in the author’s experience, quite often injured claimants join foreign criminal proceedings almost by accident, and without having taken legal advice as to the effect of their decision. It remains to be seen whether these considerations would be enough to distinguish Federal Republic of Nigeria in cases involving individuals with little or no capacity to take an informed decision in this regard, however.
Territorial Limitation in Insurance Contracts: Can an Insurer Stipulate Jurisdiction?
RB v TÜV Rheinland LGA Products GmbH & Allianz IARD SA
Practitioners will be aware that the use of territorial limitation clauses in insurance contracts is becoming increasingly prevalent, notwithstanding the controversy surrounding their use. Such clauses typically stipulate that an insurer will only respond to a claim where it is brought within the courts of a particular country or region. For example, if an English holidaymaker is injured as a result of defective hotel premises in Spain, he would normally expect to be able to sue the Spanish public liability insurer for the hotel directly within the courts of England and Wales, because in Spain there is a direct right of action enabling him to do so under Odenbreit principles. However, the insurer might well respond contesting jurisdiction on the basis that its insurance cover is limited by a territorial limitation clause providing that it will only respond where a claim is made against its insured within the courts of, for example, Andalucia, and that any claims made in any other jurisdictions are not covered by the policy.
These clauses obviously cause claimants a good deal of difficulty; if the clause is effective, it will deprive the injured claimant of the possibility of being able to sue a defendant within the courts of his or her country of residence.
So it was that we eagerly awaited the decision of the CJEU in RB v TUV, Case C-581/18, handed down as recently as 11th June 2020, the facts of which did not directly engage the recast Brussels Regulations and conflicts of jurisdiction, but which might have given the Court the opportunity to clarify the broad EU law approach to insurance policies seeking to erect fences around Member States.
The facts of the case arose from the well-known PIP breast implants scandal of 2010. The applicant was a German national who underwent a breast implantation procedure in Germany involving implants manufactured by PIP (a French company) containing unauthorised and potentially harmful silicone. The applicant brought proceedings in the German courts against three Defendants: first, the doctor who had carried out the procedure; second, TÜV Rheinland who had inspected PIP’s products, approved their quality and certified them with the ‘CE’ marking; and third, Allianz, who were the inheritors of the insurance policy covering PIP’s product liability. PIP themselves had been liquidated in 2011.
After losing at first instance, the applicant appealed and the higher German court referred various questions to the CJEU. Relevant for the reference, the insurance policy by which Allianz provided cover to PIP included a clause which limited the geographical extent of the insurance to harm that occurred in France or the French overseas territories. The referring court were uncertain whether such a clause was compatible with Article 18 of the Treaty on the Functioning of the European Union –
“Within the scope of application of the Treaties, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited”.
The German court seems to have felt that the CJEU might be able and willing to provide some clarity on an as-yet-not-fully-resolved issue: does Article 18 TFEU have horizontal effect?
The CJEU declined to anwer.
They skilfully dodged the question by challenging the premise that Article 18 was even applicable to these proceedings. This could only be the case, they reasoned, if the situation that gave rise to the discrimination fell within the scope of EU law. However, they found that there was no EU Directive covering the particular facts of this case: not the Medical Devices Directive (93/42/EEC), not the Product Liability Directive (85/374/EEC), and not the Services in the Internal Market Directive (2006/123/EC). With no Directive, the only other inroad would be if the discrimination touched on a fundamental freedom (i.e. free movement of goods, services or people). Again, in the CJEU’s finding, it did not. The applicant in this case had not exercised her rights to freedom of movement – she was a German national who had undergone the procedure in Germany. The insurance contract did not engage free of movement of services issues – the insurer and the insured were both French companies and the applicant was not a party to the contract. Finally, although there was clearly a cross-border free movement of goods element (i.e. transporting the implants from France to Germany), this was irrelevant to the discrimination at issue. It followed that no fundamental freedoms were in play in the proceedings, no EU law applied, the first condition of Article 18 was not satisfied, and it was not therefore applicable. It followed that the CJEU need not provide any further answers, and they resolved there should be no further resolution.
Practitioners who had hoped for some determination of whether territorial limitation clauses in insurance policies are effective are left disappointed. Whilst Allianz can reasonably contend that the decision of the CJEU represents a victory for their position, it still does not answer the question of whether insurers can rely on these clauses to escape liability where a claim is made against their insured in a country not covered by the clause.
For the time being, then, we are left to rely on domestic caselaw. In Hutchinson v Mapfre [2020] EWHC 178 (QB), amongst other issues, Andrews J ruled that a clause in the Defendant’s insurance contract limiting cover to “claims submitted within Spanish jurisdiction for events that have taken place in Spain” was an impermissible attempt to avoid the special jurisdictional rules of the recast Brussels Regulation that were designed to protect the economically and legally weaker party (the Odenbreit principles, in other words). Effectively, the insurer and insured are free to enter into such restrictions as they wish; but they do not bind the beneficiaries of the insurance contract, for to do so would inhibit his or her jurisdictional rights. For good measure Andrews J dismissed the insurer’s argument that the clause was effective as a matter of Spanish law, coming down firmly (albeit obiter) on the side of the ‘rights limiting’ rather than ‘risk defining’ side of the argument so familiar to so many of us who have to deal with Spanish insurers.
The CJEU’s failure to grapple with these jurisdictional issues in RB v TUV is disappointing; but we suspect that it will have its chance in the months and years to come. It remains to be seen, of course, whether after Brexit its conclusion will have any relevance for English practitioners.
About the Authors
Matthew Chapman QC, Sarah Prager and Jack Harding co-author Saggerson on Travel Law and Litigation, the leading textbook in the field. All are highly listed in the Legal 500 and Chambers & Partners, and Matthew is said by Chambers & Partners to be the ‘go-to’ barrister for complex issues of jurisdiction and applicable law. Sarah has recently been named Travel Lawyer of the year by Best Lawyers UK. Tom Yarrow is chambers’ latest acquisition, having been called in 2018. Before joining chambers Tom was a civil servant working in various government departments, including as a policy advisor on the UK-EU Withdrawal Agreement at the Department for Exiting the European Union. During pupillage he worked with the Government Legal Department, practising in public law in the fields of public international law, justice and security, human rights and immigration.
