Clarifying Forum Shopping in Absence of Express Choice

Ishfaq Ahmed

This article by Ishfaq Ahmed was first published in Lloyd's List on 15 December 2010

In Stonebridge Underwriting Limited v Ontario Municipal Insurance Exchange [2010] EWHC 2279 (Christopher Clarke J) the Defendant OMEX applied to set aside service on it of a claim form in Ontario arguing that England was not the proper forum.  Stonebridge, a Lloyd's underwriter, had brought the claim for declarations as to the effect of the reinsurance contract and that there was no liability on the part of underwriting members to indemnify OMEX. 

OMEX is a Canadian not-for-profit reciprocal insurance exchange providing primary insurance cover to a number of Ontario municipalities.  A reciprocal insurance exchange is a risk-sharing arrangement owned by members.   OMEX ran two separate risk pools involving Ontario municipalities.  JLT Canada arranged for reinsurance cover for OMEX's liability arising out of or in connection with the original insured's activities, on the London market, for both pools. The reinsurance was placed by JLT London in various layers, the contract being contained in a "typical London market slip policy form" dated 10th September 2001 and incorporating a number of standard London market terms. 

The underlying dispute involved Stonebridge's failure to pay sums allegedly due to OMEX under the reinsurance.  OMEX had brought proceedings before the Ontario Superior Court of Justice asserting that the contract was governed by Ontario law.  Stonebridge's defence relied on the construction of the contractual excess provisions and on an alleged breach of the claims co-operation clause by OMEX. 

It is well known that in order to justify service out a claimant must first show a good arguable case that each of the relevant causes of action fall within CPR 6PD3.1. and that the claim has realistic prospects of success. Rather than attack these aspects, OMEX's argument focussed on whether England was the proper forum (the forum conveniens) for the claim.  As established in Spiliada Maritime Corp v Cansulex Ltd (The Spiliada) (1987) AC 460 (HL) the Court will look at a wide-ranging set of factors when deciding this.  In this case, the Court looked first at the putative governing law of the contract. 

The contract contained no express choice of law or jurisdiction.   However, in his decision, the judge held that Stonebridge had much the better argument for saying that the parties impliedly chose English law. His lordship agreed with Hobhouse, J, as he then was, in Vesta v. Butcher [1986] 2 Lloyd's Rep. 179, that there is something surprising about a policy on a Lloyd's slip, broked through a Lloyd's broker with a Lloyd's underwriter on behalf of a Lloyd's syndicate, being governed by a law other than that of England.  This was particularly so when the contract in question is replete with references to Lloyd's market clauses and when the characteristic performance is to be by an English underwriter.  Further, those who negotiated this contract must, or at any rate would naturally, have regarded the parties for whom they acted as subject to the good faith (and other obligations, such as in misrepresentation) habitually applicable between the parties to an English contract of insurance.  They would also have seen each other as subject to, or entitled to the benefit of, the condition precedent obligation contained in the claims co-operation clause.

The fact that the parties had impliedly chosen English law was of considerable significance. Firstly, because the choice of the only alternative venue could deprive Stonebridge of the benefit of English law, and rights under the condition precedent in the claims co-operation clause.  There was a risk that the Ontario court may apply relief from forfeiture provisions meaning that OMEX would be able to recover under the policy even if in breach of this clause.  This risk was not trumped by the fact that any relief against forfeiture would be granted only if the Ontario court thought that it was just to do so.

Secondly the chief subject matter of the dispute was the proper construction of the excess provisions.  In the court's view this appeared to be particularly suited for determination by the English Commercial Court, whose habitual business includes the resolution of reinsurance disputes between reassureds and Lloyd's underwriters in accordance with well-developed principles of law and construction.

The judge accepted that if the Ontario Court were to hold that the governing law was English, then evidence could be given in Ontario as to English principles of construction.  However, there was a distinct advantage in having the construction determined by the English Commercial Court which regularly applied and determined its own law and which had a particular degree of experience and expertise in reinsurance matters, particularly those concerning Lloyd's. The judge referred to unchallenged evidence that there is little Ontario jurisprudence on the interpretation and application of reinsurance contracts and that Ontario courts have limited experience with such insurance arrangements.

Thirdly, this was a case in which some evidence of the circumstances and context of the signing of the slip may be relevant (subject to admissibility of such evidence).  That may include evidence as to previous placements and evidence as to market practice and understanding as to the application of annual aggregate deductibles.  Such evidence was likely to be located in London (location of the underwriters and placing brokers), where the placing files were located, and where any expert as to London, and Lloyd's market practice was likely to be found.   Any evidence that JLT Canada witnesses could give would likely be evidence which could also come from JLT London. 

OMEX being the first to commence proceedings in Ontario was not a factor of significant weight of itself to decline jurisdiction.  In any case, the English proceedings were more developed.  The third party claim against the brokers for alleged breaches of the brokerage contract was also not grounds for declining jurisdiction. It would be open to OMEX to join JLT Canada as a necessary and proper party to English proceedings.   Any Canadian witnesses could give evidence by video link.   

Accordingly England was the appropriate forum and permission to serve out would not be set aside. 

Comment

This case makes it clear that, unless another law is expressly chosen, it is very unlikely that a reinsurance (or insurance contract) written on the English market will be held by the English courts to be governed by a law other than English law and that this will be a crucial factor in determining the proper forum in the absence of express choice.  Similarly, in another case earlier this year, the Commercial Court refused to stay English proceedings brought by insurers albeit in that case there was an express provision for English law to apply (see Royal and Sun Alliance Insurance PLC v Rolls-Royce PLC [2010] EWHC 1869 (Comm) (Blair J)).  Therefore any party seeking to establish English jurisdiction in such cases stands a good chance of doing so.    

The case above shows the range of factors a Court will consider.  However, each case ultimately depends on its facts, and the conclusion is never certain.  Therefore parties should usually still seek to agree an express choice of law and jurisdiction.  Otherwise jurisdictional battles such as this will continue especially where a particular forum is perceived to provide one party with an advantage not available in another forum, such as the Ontario relief from forfeiture provisions.  Obviously, as noted in the judgment, different countries may apply different rules to identify the correct proper law.  This will inevitably mean courts of different jurisdictions could reach different results on this issue. However, the English court will confidently apply its own conflict rules and indeed favour them above those of other jurisdictions when deciding the question. 

 

Ishfaq Ahmed specialises in shipping and commercial, including: arbitration; domestic and international carriage of goods; international trade; shipping (wet and dry); marine insurance; P&I Club issues; collision, salvage and towage disputes; fatal and non-fatal maritime accidents; maritime limitation of liability; conflict of laws, jurisdictional disputes and various aspects of international law (including treaties).