UK: Forum Conveniens and Governing Law in Reinsurance Contracts

Last Updated: 21 September 2010
Article by Anthony Menzies, James Crabtree and Peter Kempe

Stonebridge Underwriting Ltd v Ontario Municipal Insurance Exchange [2010]
Commercial Court, 10 September 2010

This case was a dispute about forum. However, as with many such disputes it also involved determination of important threshold questions as to governing law.

The Defendant (OMIE) was a Canadian mutual insurance carrier, whose business was reinsured under excess of loss contracts underwritten in the London market by the Claimant reinsurer, Stonebridge, a member of the XL Group (XL).

The reinsurance was arranged by Canadian brokers via their London operation, in the form of a typical London market slip, incorporating a number of standard London market terms. There was, however, no express choice of law.

A dispute arose under the excess of loss contracts, specifically as to compliance (or not) with notification requirements, and the operation of the aggregate annual deductible. OMIE launched proceedings on the claim against XL in Canada, asserting that the contract was subject to the laws of Ontario. XL retaliated with the commencement of English proceedings, seeking various heads of declaratory relief from the English court, and asserting that English law governed the contracts.

Initially, XL obtained the permission of the English court to serve the proceedings on OMIE, that is outside the jurisdiction, on the interim grounds that the reinsurance contract was made in England, through an English placing broker and was governed by English law, thereby satisfying one or more of the grounds specified for service out of the jurisdiction under the Civil Procedure Rules.

OMIE applied for an order setting aside service of the Claim Form on it in Ontario on the ground that England was not, in fact, the proper forum (the forum conveniens) for the dispute between the parties.

In deciding questions of forum conveniens, the court is required to determine the forum where the claim can most suitably be tried in the interests of all the parties and the ends of justice. It is necessary for the party seeking to invoke the English jurisdiction, in this case XL, to show that England is clearly and distinctly the most appropriate forum, a question that will take into account a number of factors including:

a) which is the natural forum, that is to say the place with which the dispute has it most real and substantial connection;

b) the nature of the dispute and the law by reference to which the dispute is to be determined;

c) the location of the parties and of the likely witnesses and their availability; and

d) considerations of costs, convenience and expense.

Among the arguments advanced by OMIE in this case was the contention that the parties had neither expressly nor by inference made any choice of law, and hence there was no immediately identifiable "law by reference to which the dispute is to be determined". That being so, there was no reason not to let matters simply run their course in the Ontario proceedings, during which that court would need to reach a decision on governing law under its own conflict principles. OMIE also noted that the Ontario proceedings had been commenced first, and it pointed out that related proceedings were also in progress, in Ontario, against its broker. All of these matters, it said, weighed in favour of Ontario forum.

Having considered the above arguments, the English court held as follows:

1. It being common ground that, in determining the governing law of a contract such as this, the English court was obliged to apply the principles found in the Rome Convention1, the first question asked by the Convention, in the absence of an express choice of law, was whether a choice of law could nevertheless be "demonstrated with reasonable certainty". In other words, the court needed to consider whether an implied choice of law could be discerned in this case. It was strongly arguable, said the court, that such an implied choice of English law existed here. It would be surprising if 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, was to be governed by a law other than that of England, particularly when the contract referred to London market clauses2;

2. If the parties had, by implication, reached a choice of English law to govern their contract then there was a distinct advantage in having the issues of construction determined by the English Commercial Court. Indeed, it appeared that the only alternative venue might in fact deprive XL of the benefit of English law, to which the parties had impliedly agreed, because the conflict principles applicable in the Ontario court were likely to find in favour of Ontario law, which law was unlikely to recognise one or more of the legal rights relied upon;

3. Even if it could not be said that the characteristics of the contract were enough to convey an implied choice of English law, the court would simply be required to take the next step in the Rome Convention, by asking itself who was the "characteristic performer" of the contract, since the Convention stipulates that the contract shall be governed by the law of the place of business of the "characteristic performer", in the absence of party choice. In the case of reinsurance, the courts have previously held the "characteristic performer" to be the reinsurer3;

4. Once the court had decided that English law was applicable, there existed a disadvantage to XL in sending the litigation to Ontario, namely the risk that the Ontario court would apply a different law and would thereby deprive XL of a defence otherwise available to it under English law. That disadvantage was the same, whether the court had found in favour of English law on the grounds of implied party choice or by virtue of the default "characteristic performer" test under the Rome Convention;

5. There was also a clear practical advantage in having the issue of construction determined by the English Commercial Court. 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;

6. The fact that OMIE commenced proceedings first was not a factor of significant weight. The proceedings in England were, in any case, more developed than in Ontario;

7. The fact that OMIE had commenced Ontario proceedings against its broker 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 the broker to the English proceedings.

Result: Judgment for the reinsurer.

Footnotes

1. Since superseded by the Rome I Regulation in relation to contracts entered into since 17 December 2009.

2. Tryg Baltica v. Boston Cia de Seguros [2005] Lloyd's Rep IR 40; Tiernan v. Magen [2000] I.L.Pr. 517; Gan v. Tai Ping [1999] Lloyd's Rep IR 229. Vesta v. Butcher [1986] 2 Lloyd's Rep. 179.

3. Dornoch v. Mauritius Union Assurance [2006] Lloyd's Rep IR 127

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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