Raiffeisen Zentralbank Österreich AG v Five Star General Trading LLC

In the High Court the matter came before Longmore J, who commented in the course of his judgment that it was like "being set an examination question on the applicable law".[8] He adjudicated the issue to be one of contract, and held the issue was to be determined by English law (as the chosen governing law of the insurance contract), and so the Austrian bank prevailed.[9] The Taiwanese shipowners appealed.

In the Court of Appeal, Mance LJ gave the only judgment. After reviewing the facts and the decision in th Court, he reiterated that the essential decision that the court had to make was the "choice between the proper law of the insurance and the lex situs of the insurance claim."[10]

He affirmed and restated the general principle set out in Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1995] EWCA Civ 55, [1996] WLR 387. It is a three-stage process involving: (1) characterisation of the relevant issue; (2) selection of the rule of conflict of laws which lays down a connecting factor for that issue; and (3) identification of the system of law which is tied by that connecting factor to that issue. He also reiterated the general principle that the process falls to be undertaken in a broad internationalist spirit in accordance with the principles of conflict of laws of the forum.[11] (Aldous LJ, who was sitting in this case, was also a member of the Court of Appeal in the Macmillan case.) In an oft-cited passage he noted:

The overall aim is to identify the most appropriate law to govern a particular issue. The classes or categories of issue which the law recognises at the first stage are man-made, not natural. They have no inherent value, beyond their purpose in assisting to select the most appropriate law. A mechanistic application, without regard to the consequences, would conflict with the purpose for which they were conceived. They may require redefinition or modification, or new categories may have to be recognised accompanied by new rules at stage 2, if this is necessary to achieve the overall aim of identifying the most appropriate law (cf also Dicey & Morris on The Conflict of Laws, 13th Ed. paragraph 2-005).[12]

Mance LJ then noted that the three-stage process cannot therefore be pursued by taking each step "in turn and in isolation". There is, he held, an element of inter-play or even circularity in the three-stage process. "[T]he conflict of laws does not depend (like a game or even an election) upon the application of rigid rules, but upon a search for appropriate principles to meet particular situations."[13]

He noted that both England and France were party to the Rome Convention on the Law Applicable to Contractual Obligations (now superseded by the Rome I Regulation). Article 12 of the Convention provides:

12.(1) The mutual obligations of assignor and assignee under a voluntary assignment of a right against another person ("the debtor") shall be governed by the law which under this Convention applies to the contract between assignor and assignee.
(2) The law governing the right to which the assignment relates shall determine its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment can be invoked against the debtor and any question whether the debtor's obligations have been discharged.

He noted that the Guiliano-Lagarde report[14] on the Convention clearly indicated that property rights were not included within the Convention. Conversely, he pointed out that "contractual rights" were to be given an autonomous meaning, taking an internationalist approach, rather than looking at strictly English concepts of contract and property.[15]

After reviewing the arguments he held that the wording of the Convention, and in particular the reference to the rights between the assignee and debtor, meant the Convention rules (ie. the choice of law rules for contracts) must apply in preference to the English common law choice of law rules relating to property. He felt fortified in that conclusion by the comments in the Guliano-Lagarde report[14] that "The words 'conditions under which the assignment can be invoked' cover the conditions of transferability of the assignment as well as the procedures required to give effect to the assignment in relation to the debtor."[16]

Having decided that, the Court then had to adjudicate the type of assignment which the security document created. This related to the declaratory relief sought, and the effect which it would have in the related proceedings in France and Malaysia.

Mance LJ noted that "[u]nder English law, an assignment may occur in a pot-pourri of three different forms, with variegated terminology."[17] It can arise at law (either under the Marine Insurance Act 1906, section 50 or the Law of Property Act 1925, section 136(1)), or it can arise in equity. After carefully reviewing the document he held:

On that basis, I consider that there was an assignment of the benefit of any claims under the policy, including collision liability claims. Further, although such assignment cannot in my judgment have taken effect under either s.50 or s.136, there is no reason why it did not take effect in equity.[18]