Dassault Aviation SA v Mitsui Sumitomo Insurance Co Ltd 2024 EWCA

The Court of Appeal’s decision in Dassault Aviation SA v Mitsui Sumitomo Insurance Co Ltd [2024] EWCA Civ 5 concerns the contractual interpretation of a non-assignment clause and highlights the importance of understanding the contractual obligations with reference to the chosen governing law, in this case, in an insurance policy.

Background

French aerospace company, Dassault Aviation SA (“Dassault”), entered into an English law governed sales agreement with Japan’s Mitsui Bussan Aerospace Co Ltd (“MBA”) for the sale of two surveillance aircrafts and their spares. A feature of this sales agreement was the prohibition of the assignment or transfer of the contract by any party without the other party’s consent. The non-assignment clause is as reproduced below:

“This Contract shall not be assigned or transferred in whole or in part by any Party to any third party, for any reason whatsoever, without the prior written consent of the other Party and any such assignment, transfer or attempt to assign or transfer any interest or right hereunder shall be null and void without the prior written consent of the other Party. Notwithstanding the above and subject to a Seller’s prior notice to Buyer, Seller shall have the right to enter into subcontracting arrangements with any third party, for the purpose of the performance of this Contract.”

These aircrafts and spares were to be supplied to the Japanese Coast Guard under a sub-sale contract with MBA as governed by Japanese law. MBA entered into an insurance contract with Mitsui Sumitomo Insurance Co Ltd (“MSI”) to protect it from any liability arising from late delivery.

Delivery was late and MBA claimed against MSI under the insurance contract. MSI paid the agreed liquidated damages to the Japanese Coast Guard. Under Japanese law (Article 25 of the Insurance Act), an insurer who has paid  an indemnity  “shall, by operation of law, be subrogated with regard to any claim acquired by the insured due to the occurrence of any damage”. MSI initiated arbitration proceedings against Dassault.

Proceedings below

Dassault challenged the jurisdiction of the arbitrators on the basis of the non-assignment clause in the sales agreement and argued that they did not consent to the assignment or transfer of contract from MBA to MSI. By a majority, the arbitrators found in favour of MSI as Dassault’s consent was not necessary under Article 15 of the sales agreement as the transfer occurred by operation of law (under Article 25 of Japan’s Insurance Act) and not by way of assignment or transfer. On Dassault’s appeal to the High Court, the High Court allowed the appeal and held that Article 15 of the sales agreement caught and prohibited the transfer of MBA’s claims to MSI. MSI appealed.

Court of Appeal’s decision

Allowing MSI’s appeal, the Court of Appeal placed an emphasis on the words “by any Party” as used in the non-assignment clause and reasoned that the transfer was not made by MBA but by the operation of the law (under Japanese law which governed the sub-sale contract). As such, this transfer was not caught by the non-assignment clause.

Key takeaways

This decision serves as a reminder of the nuances embedded within cross-border transactions where different governing laws potentially apply. Insurers should carefully consider their insured’s contractual agreements. If the agreements include non-assignment clauses, attention should be given to their scope – whether it constitutes a blanket prohibition of all assignments (by parties and/or the operation of the law) or whether it constitutes a narrower prohibition of assignments (by any party), as in the present case. Blanket prohibitions might make it harder for insurers to subrogate against other parties to the agreement.