Mora Shipping Inc v AXA Corporate Solutions Assurance S.A. & Ors

The Defendant Insurers apply for an order that this court has no jurisdiction over this claim and so that the issue and service upon them of the Claim Form be set aside.

The Claimant company is incorporated in Liberia and domiciled in Liberia and/or Norway. The company was the demise charterer and disponent owner of the vessel ‘Vitoria’ on 14 February 2003 when it sustained serious bottom damage proceeding down the River Plate. The Defendants are incorporated and domiciled in France (defendants 1 and 2), Belgium (defendant 3), the Netherlands (defendant 4) and Switzerland (defendants 5 and 6).

Article 2 of EC Council Regulation 44/2001 (in the case of defendants 1 to 4) and Article 2 of the Lugano Convention (in the case of defendants 5 and 6) require that the Defendants be sued in the countries of their domicile unless some special ground of jurisdiction under the Regulation or Convention applies.

The claim in these proceeding is brought against the Defendant Insurers as subscribers, for their respective proportions, on various dates in March and April 2003, to an Average Guarantee which was addressed to “the Owners of the Vitoria and other parties to the adventure as their interests may appear” and which provided:

“In consideration of delivery in due course of the goods specified below to the consignees thereof without collection of a deposit, we, the undersigned insurers, hereby undertake to pay to the shipowners or to the Average Adjusters, Richards Hogg Lindley Limited, on behalf of the various parties to the adventure as their interests may appear, any contribution to General Average … which may hereafter be ascertained to be legally due in respect of the said goods. We further agree:

(a)

to make a payment on account of such sum as is duly certified by the average adjusters to be properly payable in respect of the goods and which is legally due ….

(b)

to furnish to the said Average Adjusters at their request all information which is available to us relative to the value and condition of the said goods.

(c)

that any period of prescription … shall commence to run from the date on which the general average adjustment is issued.”

The emphasis is mine. The words underlined give rise to the issue on jurisdiction.

The goods referred to in the Average Guarantee were the entire cargo of the Vitoria. The grounding and the repairs it necessitated caused (so it is alleged) the claimant and others to incur various expenses of a general average nature totalling some US $1.2m. That was the figure set out in a general average adjustment prepared by Richards Hogg Lindley (RHL) dated 2 January 2004. The adjustment also stated that those concerned in cargo were liable to contribute $1,053,302.15 in general average. The adjustment was sent on 10 February 2004 to the first defendant (Axa) under cover of a letter from RHL which called for payment “direct to us to the following Account: Charles Taylor Consulting Plc, National Westminster Bank …. London ….”. RHL is not a corporate entity but a trading division of CTC Management Limited (“CTML”) which is a company incorporated in this jurisdiction ultimately owned by Charles Taylor Consulting Plc (“CTC”).

The Defendants did not pay in response to the letter from RHL. The Claim Form was issued on 15 October 2004. The present application was made by Notice dated 15 December 2004. The defendants’ evidence is that they intend to defend the claim if they fail on their present application, or in a proper forum if they succeed, on the basis that the bottom damage to the vessel was caused by unseaworthiness.

The parties are agreed that the only special ground of jurisdiction which could be applicable, if established by the claimant, is to be found in Article 5.1(a) of the Council Regulation and Article 5.1 of the Lugano Convention. So far as material Article 5.1.(a) of the Regulation provides that:

“A person domiciled in a Member State may, in another Member State, be sued:

in matters relating to a contract in the courts for the place of performance of the obligation in question.”

Article 5.1 of the Convention is, so far as material, identical.

The question is, therefore, as the parties agree, whether on its true construction the contract, the Average Guarantee, obliged the defendants to pay contribution to general average within the jurisdiction of this court. If it did there is jurisdiction; if it did not, there is not.

Mr Baker, for the defendants submits succinctly that the payment obligation in the Average Guarantee expressly entitled the defendants to pay the shipowner, a company domiciled in Liberia and/or Norway, and so did not oblige the defendants to make payment within the jurisdiction applying the established principle that it is for a debtor to seek out his creditor and pay him at his place of business. On the wording of the Guarantee he submits the undertaking was to pay “to the shipowners or to the Average Adjusters” and that answers the question before the court. It is, of course, the fact that it is the shipowner which brings the present claim to enforce an obligation said to be owed to it.

Mr Kenny’s submissions for the claimant are, necessarily if they are to succeed, more complex. He accepts (as he must) that the Average Guarantee contemplates two alternative modes of performance of the payment obligation and that one of those modes (payment to the shipowners) would not satisfy the Regulation and Article. But he submits that “the right or power to choose between those alternative modes of performance, is, on a true construction of the Average Guarantee, vested in the parties to whom the average guarantee is addressed”. Therefore, so the submission continues, once RHL said on behalf of those parties, “Pay us by payment to a bank account in London”, the defendants’ obligation was to pay in London.

To provide support for these submissions, the claimant has adduced evidence of what it submits are “the ordinary practices of average adjustment” which “should inform the exercise of construction”. Mr Baker submits this evidence (and the response to it) is all irrelevant and in any event either inconclusive or helpful to the defendants. It is important to note that it is not suggested by the claimant that the evidence establishes any binding market custom or practice. It shows, at most, that it is the usual but not invariable modern practice that after publication of the average statement the adjusters collect for and distribute the funds to all interested creditor parties. A provision of the kind in issue in this case is common in other standard forms of Average Guarantee. It has the beneficial effect of avoiding the need to pay each creditor party, and there could be, though not in the event in this case, several creditor parties. It also enables insurers to have the essential comfort that they can, on making payment, obtain a valid discharge. But these objectives are attainable by providing for either one or more unique payees. I do not think it follows, as Mr Kenny submits, that the purpose of the provision is to give the creditor parties “the right to elect whether their collective shares of the general average payable should be paid either to the shipowners or to the average adjusters”. Not only are “the creditor parties” (save for the shipowner) not expressly referred to in the relevant obligation in the Average Guarantee but the benefit of the provision is commercially and legally just as, if not more, important to the payors as to the payees.

The issue raises questions of obligation not usual practice. Nice questions might arise if the shipowner and adjuster or indeed “the creditor parties” disagreed about to whom payment should be made. If there is a right “to elect” which creates an obligation upon insurers to observe it there is no obvious answer to the question whether it is the right of the shipowner or the adjuster or the creditor parties.

Mr Baker submitted that if the court was to be informed in construing the Average Guarantee by commercial considerations it should take into account that at least one standard form of Average Guarantee contained an express jurisdiction clause, and that it was not difficult expressly to write into the Guarantee a right of election if that was intended. He submitted that there were difficulties in seeking to rely on a clause providing for payment for a purpose (jurisdiction) for which it was not designed. The clause addresses who is to be paid not where the payment is to be made.

It is agreed that the place of performance of the payment obligation is to be determined by the law governing the contract identified by the conflict of laws rules of this court and that, for the purposes of this application, the law governing the contract is or is to be treated as the same as English law. It is also agreed that if the obligation was required to be performed in more than one jurisdiction or could be performed in more than one jurisdiction then no single jurisdiction would be established on this basis: Case C-256/00 Besix v Kretzschmar [2002] ECR 1-1699 (ECJ) at 1724-7; Hanbridge Services Ltd v Aerospace Communications Ltd. [1993] I.L. Pr. 778 (Irish Supreme Court) at 784-5.

It was Mr Kenny’s basic submission that the guarantee must by implication, or to be commercially rational, in effect be construed to read “insurers … undertake to pay to the shipowners or to the Average Adjusters as directed by the parties entitled … any contribution to General Average ….” That submission necessarily, as Mr Kenny acknowledged, carried with it the prospect of different directions by different parties entitled. In my judgment that is not only a commercially improbable commitment but one which is inconsistent with the express terms of the Guarantee which I think provide for payment of a single “contribution” by each insurer to general average due in respect of the “goods”, being all the relevant cargo. That does make good commercial sense: one payment to one person to discharge all the liability undertaken by each insurer.

I do not find the contextual evidence of any real assistance in construing the Average Guarantee. In law an adjustment is not conclusive nor binding: Sameon Co S.A. v NV Petrofina, CA (unreported), 30 April 1997. Whilst the guarantee plainly contemplates in the wording commencing: “We further agree”, that there will be an adjustment the obligation of insurers is to pay general average which is “legally due”. That obligation is to pay the shipowners “or” RHL. Those words are unqualified and, I think, unequivocal. I see no need to read into them any qualifications about election between one or other payee. It is for the claimant to establish, if there is to be jurisdiction in this court, that the obligation of insurers is to make payment to RHL in this jurisdiction. It is not, as expressed, and in my judgment that is conclusive against the claimants submission.

If, however, it is right to consider rights of election (and their subsequent exercise) between the two named payees, in principle I think the right, absent express words to the contrary, would be held by the party whose obligation is under consideration, in this case the obligation of insurers to pay. That derives some support from Chitty on Contracts, 29^th Edn, vol 1, para 21-006 and the cases cited there. Nor do I think Thorn v City Rice Mills (1889) 40 Ch D 357, to which Mr Kenny referred me, is a decision to the contrary. In that case payment was to be made to a known payee at one of two specific places (not to one of two payees) and it was held that the creditor had to make a demand for payment at one or other place to establish a default by the payor.

Mr Kenny also submitted that the implication of the construction advanced on behalf of insurers would be unfortunate and uncommercial. There would be no place of performance of the payment obligation at all. So insurers could only be sued in their respective places of domicile. Those places would rarely have any connection with the facts of the case. Each insurer could make his own choice of who to pay.

No construction is, in my judgment, free from potentially unfortunate consequences. But, the place of performance is itself only an exceptional basis for jurisdiction. Insurers may be sued as co-defendants in one state of domicile under Article 6.1 of the Regulation and Convention. This country has no connection with the factual issues in this case of damage and unseaworthiness. On the claimant’s construction each “creditor” could choose to whom payment was to be made. I agree with Mr Baker that the commercial way to provide for jurisdiction is to adopt a jurisdiction clause. Otherwise, in context, jurisdiction in the place of domicile is, and has now for many years, been the established rule regardless of whether or not that place has any connection with the material events.

Mr Baker had a second and very much subsidiary point. He referred to RHL’s request for payment in the 10 February letter (paragraph 5). He submitted that whatever the true construction of the Guarantee that request was ineffective to establish an obligation to pay in London because it sought payment not to the adjusters, RHL, nor to the corporate entity, CTML, of which RHL was a division, but to CTC. I think this is a bad point. The letter from RHL sought a remittance “direct to us” by, in effect, payment to an account of CTC in London. If it were right to read the Guarantee as entitling the adjusters to elect payment to themselves and to fix the place of performance of the obligations of insurers I think this would have been effective to do so. It does, however, I think, illustrate some of the difficulties in the claimant’s submissions. If the right of election is the right of all creditors there might be uncertainty as to the authority of the adjuster to make such an election. Moreover if the adjuster had an unfettered right to require payment to any chosen account and so to fix the place of payment it would have the consequence that jurisdiction would depend on such a choice. In each case, however, the desirable criterion of certainty of jurisdiction would not be met. Jurisdiction could not be determined from the terms of the contract itself but only upon the unpredictable outcome of an election or elections made later.

In my judgment the Claimant has failed to establish that this court has jurisdiction over the claim it seeks to make and insurers are entitled to the relief they seek. I will hear the parties on any ancillary matters which cannot be agreed when this judgment is handed down.