EU: German High Court Allows Direct Insured to Pursue Claim for Damages Against Equitable Life Despite UK Scheme of Arrangement
On 15 February 2012, the German High Court, the Bundesgerichtshof (BGH), the final appeal court in Germany, allowed a German direct insured to pursue his claim against Equitable Life (effectively for misselling a German law insurance policy) despite a Scheme of Arrangement being effective pursuant to Part 26 of the UK Companies Act 2006.
Full details of the decision are yet to be released. In its previous judgment, the German Court of Appeal of Celle (Oberlandesgericht Celle) had refused to recognise the Scheme of Arrangement, finding that it was not a "judgment" capable of recognition in Germany. While the BGH also found in favour of the direct insured, its reasoning differed. The BGH found that recognition of the Scheme of Arrangement would be contrary to Articles 12(1) and 35 of the Brussels I Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters ("Brussels I"). Article 12(1) requires insurers to bring proceedings against policyholders, insureds, or beneficiaries only in the courts of the Member State in which the defendant is domiciled. Article 35 provides that a judgment shall not be recognised where it conflicts with, among others, Article 12(1).
The judgment may be of concern only in fairly narrow circumstances. As the special provisions relating to insurance in Section 3 (Articles 8 to 15) of Brussels I do not apply to reinsurance, a UK scheme of arrangement should be recognised by the German Courts as regards UK law governed reinsurance contracts. Further, this was effectively a misselling claim in relation to a German-law policy, where the rights of the policyholder not to have been missold a policy are firmly rooted in his local law. In the case of In re Rodenstock GmbH  EWHC 1104 (Ch), the UK High Court for sanctioned of a scheme of arrangement relating to a German company's obligations to financiers where the underlying finance contracts were governed by English law, Briggs J distinguished the earlier German Court of Appeal of Celle decision in Equitable Life on the basis that "the relevant creditors' rights were governed by German rather than English law
". Briggs J later commented that even where a scheme of arrangement did not qualify for automatic recognition under Brussels I, "a scheme made by the courts which habitually apply the law governing the relevant creditor/debtor relationship would be a valuable and efficacious means of ensuring its effectiveness
." (Click here
for our previous blog post on Rodenstock).
The case has been returned to the German Court of Appeal to decide what portion of the claim is statute barred (the BGH having also clarified the appropriate limitation periods to be applied) and the quantum of any damages to be awarded to the direct insured.