Baltic Insurance Group v. Jordan Grand Prix Ltd and Others and Quay Financial Software Ltd and Others

The House of Lords interpreted Article 11 of the Brussels Convention 1968 (Schedule 1 to the Civil Jurisdiction and Judgments Act 1982) and held that Section 3 of the Convention is an exclusive code governing "matters relating to insurance". Article 11 applies to any insurer wherever domiciled and therefore an insurer domiciled outside a Contracting State is nevertheless governed by the special rules in Section 3 when the dispute concerns insurance. The term "a counterclaim" in Article 11 is to be read narrowly: it permits only a counterclaim against the original plaintiff and not a counterclaim joining new parties. Applying these principles, Baltic was not permitted to join the Irish sponsor and its directors as defendants by counterclaim in the English proceedings. The appeal was dismissed.

This appeal concerned competing claims arising from insurance arrangements said to cover contingent liabilities of Jordan Grand Prix Limited and Quay Financial Software Limited in relation to the 1994 Formula 1 Championship. Jordan sued Baltic for indemnity under the main insurance policy; Baltic counterclaimed alleging the bonus and sponsorship agreements were fraudulent and sought to recover damages from numerous parties, including Quay and two of its directors. The Irish parties applied to strike out Baltic's counterclaim against them.

Procedural history:

• At first instance Langley J considered three principal questions: whether Article 11 applies only to insurers domiciled in a Contracting State, whether Article 11 permits counterclaims against parties other than the original plaintiff, and whether Article 11 applies to directors who are neither policy-holders nor beneficiaries. The judge answered all three in the negative and struck out the counterclaim against the Irish parties.
• The Court of Appeal (Robert Walker L.J., Otton L.J. and Staughton L.J.) upheld the judge's decision (Jordan Grand Prix Ltd v Baltic Insurance Group [1998] 1 WLR 1049).
• On appeal to the House of Lords the principal issues were re-examined and resolved.

Issues framed:

• Whether Section 3 of the Convention is an exhaustive code for matters relating to insurance.
• Whether Article 11 applies only to insurers domiciled in Contracting States or to any insurer.
• Whether the word "counterclaim" in Article 11 permits counterclaims against parties other than the original plaintiff.
• Whether certain defendants who were not policy-holders, insured persons or beneficiaries fell within Article 11.

Court's reasoning and disposition:

• The court held that Section 3 is an independent and exhaustive regime for insurance disputes and parties may not rely on other provisions of the Convention in matters relating to insurance.
• Article 11 was interpreted as applying to any insurer wherever domiciled. If it did not, insurers outside Contracting States could not invoke the special insurance rules and the protective purpose of Section 3 (to protect the insured) would be undermined.
• The term "a counterclaim" was construed restrictively to allow counterclaims only against the original plaintiff. Contextual factors so warranted: derogations from the Convention's general principle of jurisdiction must be narrow; Section 3 does not give plaintiffs a corresponding right to join third parties; and the protective policy for insured persons would be eroded if defendants could add new parties by counterclaim.
• Because Baltic could not rely on Article 11 to counterclaim against new parties, the question whether Article 11 applied to the two directors fell away.
• The House of Lords dismissed the appeal and considered a reference to the European Court of Justice under the 1971 Protocol unnecessary.

Appeal dismissed. The House of Lords held that Section 3 of the Brussels Convention is an exclusive code for "matters relating to insurance", Article 11 applies to any insurer wherever domiciled, and the word "a counterclaim" in Article 11 permits only a counterclaim against the original plaintiff; therefore Baltic could not join the Irish sponsor or its directors by counterclaim.

First instance: Langley J — counterclaim against the Irish parties struck out. Court of Appeal: appeal dismissed and judgment of Langley J upheld (Jordan Grand Prix Ltd v Baltic Insurance Group [1998] 1 WLR 1049). House of Lords: appeal dismissed ([1998] UKHL 49).