QCR Spring 2019: Cour de cassation - French courts will now have to refuse jurisdiction with respect to direct actions against P&I Clubs, provided there is an arbitration clause in the Club's Rules

Summary of the facts

A barge hit a dam managed by “Voies Navigables de France (VNF)”.

VNF arrested the barge in order to secure their claim and brought court proceedings before the Commercial Court of Nancy not only against the owners of the barge but also against the underwriters who covered the owners’ civil liability.

The Court of Appeal of Nancy refused jurisdiction on the basis of the arbitration clause contained in the insurance contracts between the owners of the barge and the civil liability underwriters which provides that all disputes must be referred to arbitration in Hamburg.

VNF then filed an appeal with the “Cour de Cassation” on the ground that the arbitration clause contained in the insurance contract was not opposable[1] to VNF who is a third party to the insurance contract.

The decision

In its judgement dated 19 December 2018, the “Cour de Cassation” pointed out that since an arbitration clause is included in the insurance contract, according to the principle “Competencez-Competencez”, unless the clause is null or inapplicable, it is for the arbitrators to rule first on their jurisdiction.

The “Cour de Cassation” ruled that the arbitration clause being applicable, it is ancillary to the right of action and is then opposable to third parties. The “Cour de Cassation” then dismissed the appeal against the decision of the Court of Appeal of Nancy who rightly ruled that the Commercial Court of Nancy had no jurisdiction.

Comments

In support of their appeal, VNF held that the arbitration clause contained in the insurance contract was not opposable to them since, being a third party, they never approved it and therefore, this clause is inapplicable and the Commercial Court must have jurisdiction.
 
In the above-mentioned decision, the “Cour de Cassation” rejected these arguments on the grounds that the arbitration clause being ancillary to the right of action, it is mechanically opposable to the third party who cannot claim that this clause is inapplicable.
 
The regime is however different when a jurisdiction clause and not an arbitration clause is included in the insurance contract.
 
Indeed, French courts rule that the jurisdiction clause included in insurance contracts is not opposable to the victim, third party to the insurance contract, who has not expressly accepted this clause.
 
The decision of the “Cour de Cassation” dated 19 December 2018 is very important with respect to the direct action against the P&I Club brought before a French Court.
 
Most of the French Courts’ decisions rule that the applicable law to the direct action is the law of the insurance contract and that therefore, the “paid to be paid” rule must be applied and refuse jurisdiction when a direct action is brought against the P&I Club.
 
Some French Courts have however ruled that the clauses of an insurance contract which have the effect to restrict the right of the victim to act against insurers by means of a direct action are not opposable to the victim third party.
 
Following the above-mentioned decision of the “Cour de Cassation” dated 19 December 2018, the fact to know whether the “Paid to be paid” rule must be opposable to the third party is no longer an issue.
 
Indeed, since most of the Club’s rules contain an arbitration clause referring to arbitration in London, when a direct action is brought against a P&I Club, the French Courts, on the basis of the above-mentioned decision of the “Cour de Cassation” dated 19 December 2018, will have to apply the principle “Competencez-Competencez” and will have to refuse jurisdiction in favour of the English arbitrators.
 
Therefore, when there is an arbitration clause in the P&I Clubs’ rules, a direct action against the P&I Club is no longer possible in France.