#5220 - Raiffeisen Zentralbank V. Five Star Trading - Conflict of Laws BCL

Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC

Facts

The collision occurred in the Malacca Straits on 26 September 1997. The ICL Vikraman 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 LLC ("Five Star"), a Dubai company. To enable her purchase and scrapping, the respondent, the claimant in the proceedings, Raiffeisen Zentralbank Österreich 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.

The deed of assignment dated 17 September 1997 dealt with insurance in different terms. Five Star thereby purported to "assign absolutely and unconditionally and agree to assign to [RZB] all their right, title and interest in and to the insurances" (clause 2.1) and undertook to give notice to the insurers… 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 September 1997 Five Star signed a notice of the absolute assignment of the insurances in favour of RZB in the form of appendix A.

We were told by Mr Gruder for RZB that, under Malaysian law, third party claimants such as the cargo owners 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 cargo owners evidently do not regard the Malaysian fund as sufficient to satisfy all their claims. They have obtained from the Tribunal de Commerce of Paris five orders dated between 9 October and 6 November 1997.

RZB’s claim: On 25 October 1999 RZB started the present proceedings in the Commercial Court. The claim recites the relevant facts, and claims four declarations, in summary: (1) that notice of the assignment dated 17 September 1997 was validly given to the insurers and that the assignment took effect as a legal assignment under section 136 of the Law of Property Act 1925 on 19 September 1997; (2) that as from 17 September 1997 Five Star had no right, title and interest in and to the vessel's insurances, particularly that with the insurers; (3) that as from 17 September 1997 RZB had all right, title and interest in such insurances; and (4) that all moneys payable by the insurers arising out of the casualty are payable to RZB and not to Five Star.

Defence: The defence denies that the notice of assignment was valid and binding on the cargo owners. It alleges that the notice's validity "with respect to third parties is governed by French law, being the law of the country of domicile of the insurers"; that by article 1690 of the French Civil Code an assignment is not binding on third parties unless notice is served on the debtor (i e the insurers) by a bailiff; that this did not occur….

Holding

Characterisation of the Issue

In RZB's submission, the issue is whether the insurance contract, and/or the right to claim unliquidated damages from insurers for failure to pay under it, was effectively and validly assigned by Five Star to RZB. This, in its submission, is a contractual issue. The judge was therefore right in his general approach. The cargo owners, in contrast, maintain that the relevant issue concerns the validity against "third parties" of an assignment of an intangible right of claim against insurers. In support of their analysis, the cargo owners submit that the dispute is essentially between RZB as purported assignee and the cargo owners, who attached the insurance claim and have no other nexus, let alone contractual, with anyone. So viewed, the dispute in their submission raises an essentially proprietary issue, to be resolved by the lex situs of the attached debt, that is by French law.

These opposing analyses both assume that the factual complex raises only one issue and, in their differing identification of that issue, emphasise different aspects of the facts. In my judgment a more nuanced analysis is required. This can be demonstrated by a chronological approach. Prior to 9 October 1997 there was no attachment or competing claim to any insurance moneys at all. On 7 October 1997 notice of assignment was given by fax by the sub-brokers to the insurers. From 7 to 9 October 1997 the only persons with any conceivable right to claim or receive sums payable under the insurance were Five Star and/or RZB. The first issue for consideration raised by the parties' opposing cases is whether, in the light of the assignment and notice and apart from any attachment, the right or title to such claim and sums as against the insurers was and is in RZB or Five Star (or both). This is an issue concerning the effect on insurers' liability under the contract of insurance of Five Star's voluntary assignment to RZB (coupled with RZB's notice of such assignment to insurers).

If, consequent on such assignment and notice, RZB acquired no right or title to any insurance claim arising, the matter ends there. But, even if RZB had such right and title from 7 to 9 October 1997, it is possible to conceive of a second issue, arising from 9 October 1997. That is whether the cargo owners' attachments of any insurance claim in France override such right and title, or, putting the point the other way around, whether the cargo owners as attachers are bound to recognise the transfer of Five Star's right or title to RZB. This second issue (if it arises at all—see below) concerns the effect (involuntary as regards all three contracting parties) of the preventive attachments obtained by third parties (the cargo owners) in the French courts.

The only issue that arises presently is as regards the validity of the assignment- Third party’s proprietary rights not considered here

But, in Mr Gruder's submission, we are only concerned, at least at this stage, with the first issue. He points out that the attachments were obtained on the basis that any insurance claims on the insurers belonged to Five Star. On this basis, he submits, all that RZB would need to demonstrate is that, applying the appropriate law, the insurers had by 9 October 1997 become liable to pay any insurance claims to RZB, and not Five Star. No one has produced evidence to show that, if this issue were to be decided in RZB's favour, the French attachments could still apply, or that any second issue would remain.

Mr Gruder did not however submit that we could, on the information before us, rule out the possibility of any further or separate argument on the lines of the second issue altogether. He said that it will, if it ever arises, have to be identified and dealt with later. In these circumstances and in the light of the way in which this case has been presented and argued on both sides, it seems to me that we must proceed on the basis for which Mr Gruder submits. If there is any scope at all for any second issue, after determination of the first issue identified above, that second issue will have to be identified and considered separately, whether in these or in the French proceedings. This means however that the scope of any declarations should be appropriately limited.

Issue 1: Application of the Rome Regulation in particular, Art. 12

England, in common with France, is party to and has incorporated into its domestic law the principles of the Rome Convention. This led before us to abstract argument about whether an assignee's right or title to claim under the contract involves a question of contract or of (intangible) property. Viewing the issue of RZB's right or title to sue the insurers as involving a dispute about property, albeit intangible, the cargo owners submit that all issues relating to property are subject to the lex situs of the relevant property; and that here that means French law, since the claim is on insurers resident in France. RZB in contrast submits that the case involves a dispute about contractual rights, the right to sue the insurers, and that the relevant law is, under article 12(2) of the Rome Convention, that governing the insurance contract.

The Giuliano-Lagarde report: “First, since the Convention is concerned only with the law applicable to contractual obligations, property rights and intellectual property are not covered by these provisions.”

A simple issue whether a contractual claim exists or has arisen in these situations cannot be...