Insurance – Conflict of laws – Applicable law – Choice of law

Stonebridge Underwriting Ltd v Ontario Municipal Insurance Exchange: QBD (Comm) (Mr Justice Christopher Clarke): 10 September 2010

The applicant reinsured (O) applied for an order setting aside service of the claim form on it in Ontario on the ground that England was not the proper forum for the dispute between the parties.

O was a Canadian not-for-profit reciprocal insurance exchange which provided primary insurance cover to a number of municipalities in Ontario. Two of the insurance programmes run by O were reinsured on the London market. The reinsurance was arranged by Canadian brokers (J) via their London operation. The dispute between the parties related to the failure of the respondent reinsurer (X) to pay the sums said by O to be due under an excess of loss reinsurance contract contained in a slip policy. The policy was on a typical London market slip policy form and incorporated a number of standard London market terms. There was no express choice of law. X denied that any sums were due under the reinsurance contract on its interpretation of the contract and in particular the annual aggregate deductible provisions. X also resisted O’s claim on the basis that compliance with the notification requirements in the claims cooperation clause was a condition precedent to X’s liability under the reinsurance contract and that there had been a clear breach of the clause in respect of both the individual and the aggregate claims advanced under the policy. O had issued proceedings in Ontario claiming damages on the basis that X had failed to honour the terms of the reinsurance contract. O asserted in those proceedings that the reinsurance contract was governed by Ontario law. X brought proceedings in England for declarations as to the effect of the reinsurance contract and a consequential declaration that it was under no liability to indemnify O thereunder. Permission to serve out was sought on the basis that the reinsurance contract was made in England, through an English placing broker and was governed by English law.

Held: (1) X had much the better argument for saying that the correct inference was that the parties to the reinsurance contract impliedly chose English law. It would be surprising if a policy on a Lloyd’s slip, brokered through a Lloyd’s broker with a Lloyd’s underwriter on behalf of a Lloyd’s syndicate, was governed by a law other than that of England, particularly when the contract referred to Lloyd’s market clauses and the characteristic performance was to be by an English underwriter, Forsikringsaktieselskapet Vesta v Butcher [1986] 2 All ER 488 QBD (Comm) applied.

(2) The fact that the parties had impliedly chosen English law was of considerable significance. That was so because, first, the choice of the only alternative venue might deprive X of the benefit of English law, to which the parties agreed, and rights under the condition precedent in the claims co-operation clause to which, under that law, it was entitled. Second, the chief subject-matter of the dispute, the proper construction of the excess provisions, was particularly suited for determination by the English court, whose habitual business included the resolution of reinsurance disputes between reassureds and Lloyd’s underwriters in accordance with well-developed principles of law and construction. There was a distinct advantage in having the issue of construction determined by the English Commercial Court, Tryg Baltica International (UK) Ltd v Boston Compania de Seguros SA [2004] EWHC 1186 (Comm), [2005] Lloyd’s Rep IR 40 considered. If evidence of the circumstances and context in which the slip was signed was relevant, such evidence was likely to be located in London where the underwriters and placing brokers were located. The issue as to whether there was non-compliance with the claims cooperation clause could not be divorced from the issue as to the true construction of the excess provisions.

(3) The same decision would be reached if the court concluded that English law was likely to be applicable because England was the place of characteristic performance. Once the court had decided that English law was applicable, the disadvantage to X of running the risk that the Ontario court would apply a different law and would thereby deprive X of a defence otherwise available to it under English law was the same, whatever the reason for the application of English law.

(4) The fact that O commenced proceedings first was not a factor of significant weight. The proceedings in England were in fact more developed than in Ontario.

(5) The fact that O had commenced proceedings against J for alleged breaches of the insurance brokerage contract did not outweigh the factors in favour of English jurisdiction. The overlap and risk of inconsistent decisions was slight and could be avoided by joining J to the English proceedings.

(6) There was nothing sufficiently special in the circumstance that the reassured was a Canadian mutual to mandate Canadian jurisdiction.

Application refused.

Alexander MacDonald (instructed by XL Services UK Ltd) for the claimant; Charles Dougherty (instructed by Clyde & Co) for the defendant.