Arash Shipping Enterprises Company Ltd v Groupama Transport

A sanctions cancellation clause may be triggered by the assured’s status or the risk of continued dealings, and is not confined to exposure caused by an act or omission of the assured. The insurer must genuinely and reasonably hold the specified opinion. The contractual right arises when notice is served, not when it takes effect, and a duty to reconsider should not be implied unless necessary for the contract to work. A contractual right cannot be enlarged by the Community-law principle of effectiveness. Courts should ordinarily avoid deciding an academic question about legislation creating criminal offences, particularly where the issue is unnecessary and final interpretation lies with another court. A representative defendant is inappropriate where represented underwriters have materially different policies, legal regimes or interests.

Arash Shipping, representing co-assureds under composite marine insurance, brought Part 8 proceedings against Groupama, which had been sued as representative of subscribing underwriters. The dispute arose after the Council Regulation (EU) No 961/2010 and Groupama’s cancellation notice under the policy’s Iran Sanctions Clause. Burton J held that the cancellation was valid and effective and left the representative-party issue undecided.

On urgent appeal, the court considered whether the cancellation clause required an act or omission by the assured, whether the notice was premature or unreasonable, whether a duty to reconsider should be implied, and whether the Community-law principle of effectiveness prevented cancellation. It also considered whether the policy extension was prohibited by Article 26(4), but treated that issue as academic after resolving Issue 2.

1. Disposition. The Court of Appeal granted permission to appeal, ordered that Groupama cease to be a representative party, and dismissed the appeal. The contractual cancellation issue was determinative. The question whether the policy extension was prohibited by Article 26(4) was not decided.
2. Representative proceedings. Groupama was not an appropriate representative for underwriters whose policies, applicable sanctions regimes, enforcement authorities and interests might differ. Each underwriter had formed its own view and served, or could serve, its own cancellation notice. The validity of a notice could depend on the individual insurer’s opinion. Allegations of bad faith would also require individual investigation and were generally unsuitable for Part 8 proceedings.
3. Construction of the sanctions clause. The first paragraph of the Iran Sanctions Clause did not require an act or omission by the assured. Read as a whole, the clause allowed cancellation where the assured’s status or continued dealings with it might expose the insurer to sanctions risk in the insurer’s opinion. A narrower construction would give the first paragraph little practical content beside the second paragraph, which addressed acts leading to automatic termination.
4. Opinion, timing and implied terms. The insurer had to hold the relevant opinion genuinely and reasonably. Groupama’s view was not perverse, particularly because HM Treasury and the Commercial Court had rejected the assured’s interpretation of Article 26(4). Once the contractual opinion was formed, Groupama could serve notice; commencing proceedings could not deprive it of that right. The discretion was exercised on service, not when the notice took effect. No term requiring reconsideration before the effective date was necessary or commercially appropriate. Tomlinson LJ found the analogy with Kodros Shipping Corporation v Empresa Cubana de Fletes (The Evia (No. 2)) [1982] 2 Lloyd’s LR 307 unconvincing.
5. Effectiveness and Issue 1. The Community-law principle of effectiveness applied to rights conferred by Community law and could not enlarge the contractual right created by the policy. The court applied the caution in Imperial Tobacco v Attorney-General [1981] AC 718: an English civil court should be especially cautious before deciding the effect of legislation creating criminal offences where the issue is unnecessary, the prosecution authority is absent, and the Court of Justice of the European Union is the final interpretive court. Tomlinson LJ expressed a preliminary view that Article 26(4) prohibited contractual extension or renewal, but the court expressly left that issue undecided.

• Court of Appeal (Civil Division). On 6 May 2011 permission was granted and the appeal was heard urgently. The court ordered Groupama to cease being a representative party and dismissed the appeal: [2011] EWCA Civ 620.
• High Court of Justice, Queen’s Bench Division, Commercial Court. Burton J, on 20 April 2011, held that Groupama’s cancellation notice was valid and effective. He did not determine whether Groupama should remain a representative party.