#5226 - Dornoch V. Westminster International Bv - Conflict of Laws BCL

Dornoch v. Westminster International BV

Facts

The mega-size trailer hopper dredger, 'WD Fairway', to which I shall refer hereafter as 'the vessel', became a constructive total loss (CTL) as a result of a collision off China in March 2007. The vessel was at the time owned by the first defendant, one of the companies in the Boskalis group.

Insurance Contracts: The vessel's hull and machinery cover was written in two layers. The primary layer of up to EUR 5m was underwritten by seven insurance companies of which six are incorporated in the Netherlands. I shall call them 'the primary underwriters'. The policy to which these underwriters subscribed is governed by English law but contains a Dutch exclusive jurisdiction clause. The excess policy, EUR 145m in excess of EUR 5m, was written by the 15 claimants, predominantly but not exclusively London market underwriters. The excess policy is likewise governed by English law.

Dispute: A dispute has arisen between the assured and the underwriters as to the realisation of the value of the wreck. The fact that this has here not so far proved possible has brought into question the precise nature of underwriters' rights in this regard and, in particular, whether they are such as to entitle underwriters to exercise control over the manner in which the residual value of the wreck is ascertained. It is common ground that underwriters, having paid for a CTL and settled the salvors' claim against the vessel, are entitled to the residual open market value of the wreck. However there is acute controversy between assured and underwriters as to what is that residual value.

Sale by the Owners: It is against that background that the insured owners of the vessel, the first defendant, took the equally unprecedented step of selling her, or attempting so to do, without reference to underwriters and, therefore, without their consent. On 9 January 2009 the first defendant concluded with the fourth defendant a memorandum of agreement for the sale of the vessel and a protocol of delivery and acceptance of the vessel was likewise executed by both parties. The first and fourth defendants are related companies, in the sense that it is conceded that the fourth defendant is in the majority ownership of companies in the Boskalis group. The consideration for the sale was EUR 1,000. The first defendant admits, it could hardly sensibly deny, that the purpose of the sale was to prevent underwriters from themselves realising the open market value of the vessel.

Question

What is (or are) the relevant system (or systems) of law for determining the incidence of proprietary interests in the vessel prior to, at the time of, and after the purported transfer of the vessel to the fourth defendant? (a) English law, as the law of the excess policy and of the primary policy or the lex fori? (b) The lex situs?

Holding

Renvoi Issue

As recorded above all were agreed at the hearing before me that the answer to be given to this question, at any rate by a court of first instance, is the lex situs. That is the effect of Dicey, Morris and Collins r 124, set out at [17], above. However there is disagreement as to what is meant in this context by the lex situs. The claimants say that in this context reference to the lex situs includes any choice of law or conflict of laws rules of the situs. The defendants say that reference to the lex situs in this context is simply to the domestic law of the situs.

Professor Adrian Briggs, in a vigorous contribution to the debate in 'Decisions of the British Courts in 2007' (2007) BYIL 628 suggests, p 629, that the English court should ask itself whether the lex situs rule, which English private international law seeks to apply, is more faithfully given effect by referring to the domestic law of the situs or to the private international law of the situs. Without knowing the content of either, indeed without at this stage identifying the lex situs at all, that inquiry can only be undertaken in a limited fashion. A similar point is made in Dicey, Morris and Collins p 83 (para 4-023) where it is said: 'The doctrine [renvoi] should not therefore be invoked unless the object of the English conflict rule in referring to a foreign law will on balance be better served by construing the reference to mean the conflict rules of that law.'

Islamic Republic of Iran v. Berend: The Republic argued that application of the French conflict rules would bring into play an exception to the traditional French rule and application of the law of Iran as the law of the state of origin of the fragment. Eady J followed Millett J's approach. He saw no principled reason to draw a distinction for this purpose between the context of title to shares and the context of title to a tangible moveable object. He saw no reason 'to hold, for the first time, that public policy requires English law to introduce the notion of renvoi into the determination of title to moveables'.

General Trend in abolition of Renvoi:

As to the former, Pt III of the Private International Law (Miscellaneous Provisions) Act 1995 deals with choice of law in tort and delict. Section 9 provides, so far as immediately relevant:

'9.--(1) The rules in this Part apply for choosing the law (in this Part referred to as "the applicable law") to be used for determining issues relating to tort or (for the purposes of the law of Scotland) delict ...

(5) The applicable law to be used for determining the issues arising in a claim shall exclude any choice of law rules forming part of the law of the country or countries concerned.'

In commenting on that section p 1904 (para 35-021) of Dicey, Morris and Collins, for which Professor Morse is immediately responsible, says:

'Renvoi is therefore excluded in relation to claims in tort which fall within the scope of Pt III of the 1995 Act. Section 9(5) would seem to reflect the common law position on this question, but this view has been rejected by the High Court of Australia which has applied the doctrine of renvoi in relation to a foreign tort.'

There are two further areas in which English law has, by enacting into law obligations undertaken by international convention, excluded the doctrine of renvoi. The Contracts (Applicable Law) Act 1990 enacts into law the Rome Convention on the Law Applicable to Contractual Obligations 1980. Article 15 of the Convention, under the rubric 'Exclusion of renvoi' provides: 'The application of the law of any country specified by this Convention means the application of the rules of law in force in that country other than its rules of private international law.' The Recognition of Trusts Act 1987 enacts into law the Convention on the Law Applicable to Trusts and on their Recognition. Article 17 provides: 'In the Convention the word "law" means the rules of law in force in a State other than its rules of conflict of laws.

Finally, in a slightly different legislative context, European Parliament and Council Regulation (EC) 864/2007 (on the law applicable to non-contractual obligations) (OJ 2007 L199 p 40) (Rome II) provides, at art 24, under the rubric ‘Exclusion of renvoi’: ‘The application of the law of any country specified by this Regulation means the application of the rules of law in force in that country other than its rules of private international law.’

Decision on Renvoi

If therefore I were to decide that as a matter of English common law reference to the lex situs as being the law governing the incidence of proprietary rights in moveable property includes reference to the choice of law or private international law rules of the situs, I would I think be rowing against a strong tide.

Moreover, in the commercial context in which the question arises here I should be loath to assimilate the law to that hitherto applicable only in fields such as the formal and intrinsic validity of wills, intestate succession and legitimation by subsequent marriage when in the fields of contract, tort, restitution and trusts a deliberate decision has apparently been taken to eschew the doctrine of renvoi.

Not to follow their lead would introduce uncertainty into our law for no very good reason. At p 89 (para 4-034) Dicey, Morris and Collins concludes:

“As a purely practical matter it would seem that a court should not undertake the onerous task of trying to ascertain how a foreign court would decide the question, unless the advantages of doing so clearly outweigh the disadvantages. In most situations, the balance of convenience surely lies in interpreting the reference to foreign law to mean its domestic rules.”

I respectfully agree. It goes without saying that, for the reasons which I gave at the outset of this discussion, I am in no position to weigh the advantages and disadvantages which adoption of renvoi would in this case yield. I do not think it appropriate that, as a judge of first instance, I should fashion in the abstract a rule of general application which has never before been applied by an English court in this context.

This notwithstanding, I draw back from giving a definitive answer to the question whether reference to the lex situs in this context includes or excludes reference to the private international law rules, if any, of that system of law. In the light of the illuminating discussion of the point in the High Court of Australia, it would I think be unwise so to do. If the rationale of the English lex situs rule is a policy decision by English law that the policy adopted by the foreign law should prevail, so then in any given case it would in my judgment be unwise to describe...