Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC (The Mount I) (ICL Vikraman, The, Mount I, The)

Under article 12(2) of the Rome Convention, the law governing an assigned contractual right determines the assignment’s effect between assignee and debtor, including the steps required to invoke it against the debtor. The supposed situs of the debt does not govern that question.

A pre-loss assignment of marine insurance does not pass the whole beneficial interest under section 50 of the Marine Insurance Act 1906 while the assured retains the insured interest. Nor can section 136 of the Law of Property Act 1925 transfer future claims dependent upon casualties which may never occur. Equity may nevertheless enforce an assignment for value of such an expectancy. It attaches when the insured event occurs and binds insurers upon notice.

An Austrian mortgagee bank financed the purchase of the vessel Mount I. The owners assigned the benefit of English-law marine insurance, including collision liability cover, to the bank. After a collision with the ICL Vikraman, cargo owners obtained preventive attachments in France over insurance proceeds said to belong to the owners.

Longmore J granted summary judgment and declarations in favour of the bank: [2000] 2 Ll.R. 684. The cargo owners appealed, contending that French law, as the law of the insurers’ residence and the alleged situs of the insurance debt, governed the assignment’s effectiveness against third parties.

The central issues were which law governed the effect of the voluntary assignment between the owners, bank and insurers; whether the assignment operated under statute or in equity; whether it included collision liability claims; and whether declaratory relief was appropriate.

1. The appeal was varied unanimously. Mance LJ delivered the judgment, with which Charles J and Aldous LJ agreed. The substantive challenges to the validity and scope of the assignment and to declaratory relief were rejected, but the declarations were reformulated to preserve any later question concerning the effect of the French attachments.

2. Article 12(2) of the Rome Convention governed the effect of the voluntary assignment between the insurers, the owners and the bank. Its references to the relationship between assignee and debtor and to the conditions for invoking an assignment against the debtor encompass the requirements for transferring the right to claim against the debtor, including notice. The governing law was therefore English law, as the law governing both the insurance claims and the assignment.

3. The assignment did not operate under section 50 of the Marine Insurance Act 1906. A pre-loss assignment under that section must pass the whole beneficial interest in the policy. The owners retained their insurable interests as mortgagor and vessel operator, particularly in relation to collision and protection and indemnity liabilities. The contemplated loss-payable arrangements also preserved interests for the owners.

4. The assignment was not effective under section 136 of the Law of Property Act 1925. It did not transfer the whole benefit of the policy absolutely. Moreover, claims dependent upon future casualties were expectancies rather than present legal choses in action. The agreed division of claim proceeds provided a further reason why the assignment was not absolute.

5. The assignment nevertheless operated in equity. It was supported by the loan advance and included future collision liability claims. When the collision occurred, the expectancy became a present right to indemnity in respect of resulting insured loss or liability. Notice to the insurers on 7 October 1997 then bound them to recognise the bank’s beneficial entitlement.

6. Declaratory relief was useful and appropriate. All relevant parties had accepted English jurisdiction, English law governed the issue, and the cargo owners’ attachments had placed ownership of the insurance claims in dispute. The declarations left open whether the French attachments could nevertheless override the assignment.

1. Court of Appeal: By [2001] EWCA Civ 68 , unanimously rejected the substantive appeal but varied the order by reformulating the declarations and leaving the possible overriding effect of the French attachments open.
2. Commercial Court: Longmore J, in [2000] 2 Ll.R. 684, granted summary judgment and declarations that the assignment and notice were effective and that the bank was entitled to the insurance claims and proceeds.