UK: English Law Prevails in International Reinsurance Dispute

Last Updated: 11 January 2011
Article by Anna Haigh

A case on the governing law and jurisdiction of a reinsurance policy which did not contain a choice of governing law clause.

Stonebridge Underwriting Ltd v Ontario Municipal Insurance Exchange (2010) is a helpful summary of the factors to be considered in deciding the governing law and jurisdiction of a contract, where the contract is silent on these points.

It confirms that English law will usually apply to a reinsurance policy written by the London market on standard London market terms, and placed by London brokers, unless the policy provides otherwise. It also confirms that where English law applies, England will usually be the most appropriate forum to hear the dispute.

FACTS

The claimant, Stonebridge, provided excess of loss reinsurance to the defendant, OMEX, an Ontario-based mutual insurer.

OMEX presented a number of claims under the reinsurance, for which Stonebridge denied liability. OMEX issued proceedings before the Ontario courts, and Stonebridge then commenced proceedings in the English Commercial Court, seeking a declaration that it was not liable to indemnify OMEX. It obtained permission to serve the claim form out of the jurisdiction on OMEX. OMEX sought an order setting aside the service of the claim form, arguing that England was not the proper forum for the dispute to be heard.

THE DECISION

1. Choice of Law

The policy did not contain a choice of governing law. It was common ground that, in determining the governing law, the Rome Convention applied1. Stonebridge argued that the question was whether the parties had made an implied choice with reasonable certainty. It suggested that, on the evidence, the parties had chosen English law.

OMEX accepted that there was a good chance that English law was applicable. However, it argued that as the policy did not specify a choice of law or jurisdiction, the parties had accepted that the courts of any competent jurisdiction could decide the applicable law. OMEX had commenced proceedings in the Ontario courts first, so they should decide the appropriate law. The evidence was that the Ontario court would apply Ontario law.

The court agreed with Stonebridge – holding that the question was whether factors that pointed to the choice of English law were "very strong" – for the following reasons:

  • The policy was on a typical London market slip policy form, and incorporated a number of standard London market terms.
  • The policy was placed in London with a London reinsurer, and was scratched and stamped in accordance with London market practice. Following Vesta v Butcher (1986), there would be "something surprising and improbable about the conclusion that the Lloyd's slip and Lloyd's policy is governed by anything other than English law".
  • The characteristic performance of the contract was to be by an English underwriter.

The fact that the underlying policy was governed by Ontario law did not prevent the reinsurance policy from being governed by English law.

2. Appropriate Forum

The court stated that it was necessary to consider the interests of the parties and the ends of justice in deciding whether England was the appropriate forum. The factors which must be taken into account included:

  • the place where the dispute had its most real and substantial connection;
  • the nature of the dispute and the applicable law;
  • the location of the parties and their witnesses; and
  • considerations of cost, convenience and expense.

The fact that the parties had impliedly chosen English law was significant in deciding that England was the appropriate forum for the dispute. This was because:

  • There was a real risk that if the dispute was heard in Ontario, the Ontario courts would apply Ontario law. The evidence was that Ontario law would not recognise Stonebridge's policy defences, and therefore Stonebridge would be deprived of one of the contractual benefits it had bargained for.
  • It was more appropriate for the Commercial Court to interpret the provisions of the policy, as it dealt with reinsurance disputes regularly and in accordance with well developed legal principles. It was relevant that the Ontario courts had little experience of dealing with this type of reinsurance.
  • The evidence was likely to be located in London, as were the experts. Any Canadian witnesses could give evidence by video link.
  • Although OMEX had commenced proceedings in Ontario first, the Ontario courts had yet to rule on the issue of jurisdiction.

Footnote

1. The Rome 1 Regulation applies to contracts made after 17 December 2009

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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