HORIZON ENERGY v AL BUHAIRA NATIONAL INSURANCE COMPANY [2023] DIFC CA 015 — Court of Appeal affirms DIFC jurisdiction over insurance negative declarations (19 April 2023)

The Court of Appeal confirmed that the DIFC Courts possess jurisdiction to hear claims for negative declarations regarding insurance policy avoidance, rejecting arguments that Article 110 of the UAE Insurance Law mandates an exclusive administrative process that ousts DIFC judicial authority.

What was the nature of the dispute between Horizon Energy and Al Buhaira National Insurance Company regarding the USD 70 million claim?

The litigation arose from a marine insurance dispute involving a tanker, the "BETA," which disappeared while allegedly in the service of the Iranian Navy. Horizon Energy, the insured, sought compensation for the loss of the vessel, which was covered under a Marine Hull and Machinery Policy and a Marine Hull War Policy with an insured value of USD 70 million. The insurer, Al Buhaira National Insurance Company, contested the claim, citing a lack of sufficient information to confirm its coverage position.

The dispute escalated when Horizon Energy filed a complaint with the Insurance Authority, invoking Article 110 of the UAE Insurance Law, seeking to compel the insurer to pay the claim. In response, Al Buhaira initiated proceedings in the DIFC Court of First Instance seeking a negative declaration that the insurance policies had been avoided. As noted in the factual background:

It said that the Respondent had not replied to the notification of 25 October 2021 and that “to date, the [Appellant] did not receive any clear reply from the [Respondent] in respect of the insurance cover.” It sought an order from the committee that the Respondent “execute its obligation as per the insurance policy conditions” and pay USD 70 million plus interest.

Which judges presided over the Horizon Energy v Al Buhaira National Insurance Company appeal in the DIFC Court of Appeal?

The appeal was heard by a distinguished panel of the DIFC Court of Appeal, comprising H.E. Justice Shamlan Al Sawalehi, Justice Lord Angus Glennie, and Justice Robert French. The judgment was delivered on 19 April 2023, following a hearing held on 30 January 2023.

What were the specific legal arguments advanced by Horizon Energy and Al Buhaira National Insurance Company regarding the jurisdictional challenge?

Horizon Energy, the Appellant, argued that the DIFC Courts lacked jurisdiction to hear the insurer’s claim for a negative declaration. They contended that Article 110 of the UAE Insurance Law established a mandatory administrative dispute resolution process that precluded the insurer from bypassing the Insurance Authority to seek judicial relief in the DIFC. They further argued that the jurisdiction clause in the policies, which referred to the "courts of the United Arab Emirates," did not specifically encompass the DIFC Courts.

Al Buhaira, the Respondent, represented by Mr. Nicolas Craig KC, maintained that the DIFC Courts are, by definition, courts of the UAE and that the jurisdiction clause was broad enough to confer authority upon the DIFC CFI. They argued that Article 110 did not create an exclusive administrative bar to judicial proceedings, particularly for an insurer seeking to avoid a policy. Furthermore, the Respondent successfully argued that even if the Article 110 process were applicable, it would not prevent a party from seeking a declaration in a court of competent jurisdiction.

What was the precise doctrinal issue regarding Article 110 of the Insurance Law that the Court of Appeal had to resolve?

The Court was tasked with determining whether the administrative dispute resolution mechanism set out in Article 110 of Federal Law No 6 of 2007 (the Insurance Law) operates as a jurisdictional bar that prevents an insurer from initiating proceedings in the DIFC Courts for a negative declaration. The central question was whether the statutory framework for handling insured parties' complaints against insurers creates an exclusive forum that ousts the jurisdiction of the DIFC Courts, or whether the DIFC Courts retain concurrent jurisdiction to adjudicate the validity of insurance contracts.

How did the Court of Appeal apply the test for jurisdictional competence in the context of the UAE Insurance Law?

The Court of Appeal rejected the Appellant's restrictive interpretation of the Insurance Law. The judges reasoned that the DIFC Courts are an integral part of the UAE judicial system and that the jurisdiction clause in the policies was sufficient to vest the DIFC Courts with authority. The Court emphasized that the administrative process under Article 110 is designed to protect the insured, but it does not strip the courts of their inherent power to determine the validity of insurance contracts. As stated in the judgment:

this Court does not accept that the asymmetric dispute resolution mechanism provided by Article 110 operates to deprive the DIFC Courts of jurisdiction to entertain claims by an insurer against the insured, including a negative declaration to the effect that the relevant policy has been avoided.

The Court further clarified that the legislative intent behind Article 110 was not to create an absolute barrier to judicial review. The reasoning highlighted that:

Even if the Respondent had engaged with the Article 110 process, it would have been entitled to challenge an adverse result in the DIFC Courts, as a court of competent jurisdiction.

Which specific statutes and rules were applied by the Court of Appeal in determining the jurisdictional dispute?

The Court relied heavily on the interpretation of Article 110 of Federal Law No 6 of 2007 (the Insurance Law) regarding the dispute resolution mechanism. Additionally, the Court considered Article 4(4) of Federal Law No 8 of 2004 concerning Financial Free Zones, which establishes the legal framework for the DIFC. Regarding procedural matters, the Court referenced RDC 44.94(1) and RDC 44.95, which govern the power of the Court of Appeal to strike out appeal notices where there is no compelling reason for the appeal to proceed.

How did the Court of Appeal utilize the cited precedents to support its jurisdictional finding?

The Court utilized Goel v Credit Suisse (Switzerland) Ltd [2021] DIFC CA 002 and Laabika v Ladu [2021] DIFC CA 008 to reinforce the principle that the DIFC Courts are courts of the UAE and that jurisdiction clauses referring to the UAE courts generally include the DIFC. The Court also drew upon IGPL v Standard Chartered Bank [2015] DIFC CA 004 to address the construction of jurisdiction clauses. These cases were used to establish that the "ordinary meaning" of a reference to UAE courts includes the DIFC, thereby validating the jurisdiction of the CFI in this matter.

What was the final outcome of the appeal and the specific orders made by the Court?

The Court of Appeal dismissed the appeal, affirming the decision of the Court of First Instance that it had jurisdiction to hear the claim for a negative declaration. The Court ordered the Appellant, Horizon Energy, to pay the Respondent’s costs, to be assessed by the Registrar if not agreed upon. The dismissal effectively allowed the underlying proceedings in the CFI to continue.

What are the wider implications of this judgment for practitioners in DIFC insurance litigation?

This judgment provides significant clarity for practitioners, confirming that insurers are not barred from seeking negative declarations in the DIFC Courts simply because an insured party has initiated a complaint under Article 110 of the Insurance Law. It establishes that the DIFC Courts will interpret "courts of the United Arab Emirates" in insurance contracts as including the DIFC Courts, provided there is a sufficient nexus. Litigants must now anticipate that jurisdictional challenges based on the administrative nature of the Insurance Law are unlikely to succeed, as the Court of Appeal has signaled a robust defense of the DIFC Courts' jurisdiction in commercial insurance disputes.

Where can I read the full judgment in Horizon Energy LLC v Al Buhaira National Insurance Company [2022] DIFC CA 015?

The full judgment can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-appeal/horizon-energy-llc-v-al-buhaira-national-insurance-company-2022-difc-ca-015. The text is also available via the CDN: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/court-appeal/DIFC_COA_Horizon_Energy_LLC_v_Al_Buhaira_National_Insurance_Company_2022_DIFC_CA_015_20230419.txt

Cases referred to in this judgment:

Legislation referenced:

• Federal Law No 6 of 2007 (Insurance Law), Article 110, Article 68
• Federal Law No 8 of 2004 (Financial Free Zones Law), Article 4(4)
• Judicial Authority Law, Article 5(A)(2)
• RDC 44.29, RDC 44.30, RDC 44.94, RDC 44.95