UK: Are Jurisdiction Clauses in European Reinsurance Contracts Worth The Paper They´re Written On?

Last Updated: 16 August 2005
Article by Amanda Mochrie

Where a London Market reinsurer contracts with a European cedant and the contract contains an exclusive jurisdiction clause in favour of the English courts, the position used to be that if the cedant attempted to commence proceedings in the courts of another European country, in breach of this clause, reinsurers could apply, at short notice, to the Commercial Court for an anti-suit injunction restraining the cedant from commencing /continuing foreign proceedings. As a result of the ruling of the European Court of Justice ("ECJ") in Continental Bank Gasser GmbH v. MISAT srl Case C - 116/02, this remedy is no longer available.

European conventions contain a codified set of rules which should enable every European court to use the same rules to determine which European court should hear disputes between European contracting parties, and arrive at the same result.

There are two conflicting principles at the centre of these rules. Firstly, where parties to a contract have a written agreement on jurisdiction, their express choice should be upheld. Secondly, that it is the court "first seized" of proceedings which should determine disputes, including jurisdiction disputes, between the parties to prevent conflicting judgments. Unless the court in which proceedings are first started decides there is a valid jurisdiction clause, which deprives it of the ability to hear the matter, the case cannot proceed in any other European court.

There is a conflict between these two key principles if the court chosen by the parties (in their jurisdiction clause) is not the court where proceedings are first started. The English courts have always taken the view that if a cedant starts proceedings in another European court, in breach of an English jurisdiction clause, the jurisdiction clause prevails, and they have issued anti-suit injunctions to restrain proceedings in the other European court.

In Gasser the ECJ held that the court where proceedings start first prevails over express jurisdiction agreements. In practice, this now means that English courts must not issue anti-suit injunctions to restrain proceedings brought in other European courts, even if a cedant starts proceedings in another European court in breach of an express jurisdiction clause favouring the English courts.

The cedant may commence proceedings in a European court with which it has no connection because the court process of that particular country is slow and expensive. The aim is to tie up reinsurers in lengthy and expensive foreign court proceedings in order to force commercial settlement.

The reinsurer must, in any event, instruct foreign lawyers to appear in the foreign court and argue that the foreign court has no jurisdiction and the claim should be dismissed or stayed.

This change in the law means that where London Market reinsurers have European cedants, it is now no longer safe to rely on exclusive English jurisdiction clauses alone. The clear message is that even where reinsurers have an express English jurisdiction clause, where they are dealing with a European cedant, they must treat every potential dispute as a potential jurisdictional battle. To secure English jurisdiction, reinsurers need to commence proceedings in the English courts, before the cedant can start proceedings in another European court.

Why did the ECJ make this ruling? The ECJ assumed that all European courts interpret the rules of the European conventions in the same way and arrive at the same result, and that the efficiency of a judicial system is not relevant when deciding jurisdiction. With the expansion of the EU on 1 May 2004 to include 10 new states, many of which may have unsophisticated systems of law, it now makes commercial sense to consider the domicile of contracting parties at the pre-contract stage. If cedants breach jurisdiction clauses they are likely to start litigation in their home court. It is, therefore, worth considering whether the contracting party should in fact be a parent or subsidiary company with "better" domicile.

It may be cold comfort, but reinsurers can still bring an action for damages for breach of a jurisdiction clause in the English courts to recover legal costs spent on defending litigation wrongly commenced by cedants in other European courts.

Anti-suit injunctions are still available from the English courts to restrain proceedings brought by cedants outside EU/EFTA countries in breach of exclusive jurisdiction clauses. Also, it may still be possible to obtain an anti-suit injunction from the English courts to restrain proceedings commenced in another EU court in breach of an arbitration clause.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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