A question of claim or counterclaim

The Law Lords are set to consider whether an insurer's claim can be considered a counterclaim, reports Roger Pearson

A legal battle in which, in the original action, a Lithuanian insurer accused Jordan Grand Prix of conspiracy and fraud is to be probed by the House of Lords.

The Baltic Insurance group has been granted leave to appeal to the Law Lords against High Court and Appeal Court decisions rejecting its counterclaim in a case of considerable significance in international insurance circles.

The case centres on cover that Jordan took out with Baltic in the event that it had to pay bonuses to members of its team if it finished in the top six of the 1994 formula one Constructors' Championship. It claimed that Baltic had also agreed to cover sponsorship money offered by Quay Financial Software in the event of the team finishing in the first six.

Jordan finished fifth, but when it sought to claim on the policy Baltic levelled claims against it of conspiracy to defraud, saying that there had been no agreement of the sort Jordan claimed and that Jordan had vitiated the contract of insurance. In the ensuing litigation Baltic counterclaimed for damages.

The pending House of Lords appeal involves a battle between Baltic and Quay Financial as part of the main action. Quay Financial, although not party to the original action, also launched a claim against Baltic, seeking an order that it was entitled to sponsorship payment under the deal between Jordan and Baltic.

The Appeal Court hearing, which ended in defeat for Baltic, centred on four main points: whether Baltic's claims were "matters relating to insurance" under the terms of s3 (Articles 7-12a) of the Brussels Convention; whether Article 11 of the convention applied to any insurer or only insurers domiciled in a contracting state; whether Baltic's claim against Quay Financial and its directors, domiciled in Ireland, could be classified as a counterclaim under the second part of Article 11; and whether Quay Financial's directors were entitled to rely on the provisions of Article 11 even though the company was not the policyholder or a beneficiary.

In finding against Baltic, the court ruled that the insurer had been seeking to avoid the contract of insurance and that therefore the claim was a "matter relating to insurance"; that Article 11 applied to insurers wherever they were domiciled; that new claims against parties such as Quay Financial could not be classified as "counterclaims" in the ordinary sense of the term; and that even though they were not policyholders or beneficiaries Quay Financial's directors were entitled to rely on Article 11 in the way they sought.