KOREA NATIONAL INSURANCE CO V ALLIANZ GLOBAL CORPORATE & SPECIALTY AG

[2008] EWCA Civ 1355, Court of Appeal, Lord Justice Waller, Lord Justice Rix and Lord Justice Thomas, 2 December 2008

Reinsurance – Judgment obtained against reinsured – Application to enforce judgment – Reinsurers alleging that direct claim was fraudulent – Whether alleged acts of foreign government justiciable in England

KNIC, an insurance company incorporated in North Korea, insured Air Koryo, a North Korean airline, against liability for up to €45 million each accident and without any deductible. KNIC was reinsured by reinsurers represented by Allianz for the same period, the limit of indemnity being €45 million each accident in respect of claims involving Mi-8 helicopters. The reinsurance, which contained a claims control provision in favour of the reinsurers, was governed by the law of North Korea. On 13 July 2005 an Air Koryo Mi-8 helicopter crashed into a warehouse operated by a Relief Centre. Air Koryo’s assertion was that the helicopter was on a mercy mission, carrying a woman pregnant with triplets to hospital. The Relief Centre commenced proceedings against Air Koryo seeking compensation for damage to the warehouse and to its contents. The reinsurers chose not to exercise their right to take control of the claim, and judgment was given against Air Koryo in December 2005. On 23 January 2006, Air Koryo informed KNIC that it had satisfied the judgment, and sought indemnification. This was refused, and there followed an arbitration which led to an award in favour of Air Koryo. In July 2006 KNIC paid the amount awarded, and sought reimbursement from the reinsurers in the sum of €45,657,076. The reinsurers refused to pay, and on 11 December 2006 KNIC obtained a judgment against them in the Pyongyang Court, the sum awarded being €43,454,383. In the present proceedings KNIC sought to enforce the judgment in England. The reinsurers argued that: (1) the original claim had been fraudulent, and that the claim had been concocted so as to enable the North Korean Government to obtain foreign currency from the reinsurers; and (2) the North Korean judiciary was not independent of the state and the judgment had been given purely to benefit the Government, so that enforcement was against public policy. Field J, applying the principle of non-justiciability of the acts of foreign friendly governments, held that those parts of the fraud and public policy defences which alleged that KNIC knew of the fraud in the underlying claim by reason of its status as a part of the North Korean state should be struck out. The Court of Appeal allowed an appeal and held that the judge should not have ruled that any of the allegations were non-justiciable, and certainly should not have done so without some indication from the Foreign and Commonwealth Office that some embarrassment might be caused to the diplomatic relations between the United Kingdom and North Korea if the court did adjudicate on the matter. There was no general rule that an issue which might embarrass a foreign sovereign was not justiciable. Further, there was no support in the authorities for the view that, where in a commercial context allegations were made against a state, not in relation to some sovereign act carried out in its own jurisdiction but in relation to acts which affected the rights of a party under a commercial contract, that the court should exercise restraint to the extent of not being prepared to decide the issue, at least without some indication from the executive that a decision would embarrass the diplomatic relations between the United Kingdom and that State.