UK: Home Sweet Home

Last Updated: 1 July 2000
Article by Gavin Coull

In Agnew -v- Lansforakringsbolagens AB 1 , the House of Lords considered whether in proceedings between a reinsurer and its cedant, the parties were bound to litigate in England (as contended by the reinsurer, Agnew) or Sweden (as argued by the cedant). Needless to say, the contracts were silent on the issue.

It is nowadays well appreciated that the lack of a governing law and jurisdiction clause will leave London market reinsurers exposed to the possibility of litigating a dispute in an unfavourable overseas court. For reinsurers of cedants located within the European Union, the question of the applicable jurisdiction is dictated by either the Brussels or Lugano Conventions 2 . The Conventions (which are in virtually identical terms) provide that, except in respect of a few limited specific exceptions, "a person domiciled in a Contracting State shall, whatever their nationality, be sued in the courts of that state" 3 . Subject to the Conventions’ exceptions, reinsurers seeking to avoid a policy of an EU domiciled cedant will normally be obliged to commence proceedings in the court of the cedant’s home country; not a proposition that London reinsurers will necessarily relish. Reinsurers in that position will be keen to escape the effect of this overriding provision.

Can the provisions be overridden? In order to do so, reinsurers must be able to bring themselves within one of the specific exceptions to the Conventions. Until recently it was not clear whether reinsurers were able, in any event, to rely on the Conventions’ exceptions, as it was arguable whether, for the purposes of the Conventions, "reinsurance" should be equated with "insurance". This somewhat theoretical distinction was important due to the provisions of Section 3 of the Conventions which sets out specific rules for "Jurisdiction in Matters Relating to Insurance." Article 11 of Section 3 reinforces the overriding provision by stating "an insurer may bring proceedings only in the courts of the Contracting State in which the defendant is domiciled, irrespective of whether he is the policy- holder, the insured [or, it was argued, a reinsured] or a beneficiary". Significantly, if Article 11 did apply to contracts of reinsurance, then the exceptions would not be available to reinsurers. If a reinsurance contract was therefore found to be a contract of insurance, proceedings could only be commenced in the cedant’s local court. Both the question of whether Section 3 applies to reinsurance and which if any of the Conventions’ exceptions were available to assist reinsurers were considered in Agnew.

The dispute concerned a facultative reinsurance by London market reinsurers of a Swedish domiciled insurer, which in turn had insured an engineering company in respect of its obligations in supplying the Troll oil- field in the North Sea with undersea valves. A number of differences arose between the cedant and reinsurers, following which reinsurers purported to avoid the reinsurance on the basis that the cedant’s brokers had induced them into writing the risk on the basis of material non- disclosure and misrepresentations. Reinsurers accordingly commenced proceedings in England claiming a declaration that the reinsurance was validly avoided. The cedant defended the proceedings on the basis that, as both parties were domiciled in Convention countries, the English courts had had no basis for remaining seized of jurisdiction.

In giving judgment, Lord Woolf was primarily concerned with the application of the exceptions to the overriding principle. However, as a preliminary point he confirmed that "reinsurance contracts cannot be equated with insurance contracts. Accordingly [the provisions relating to "Insurance"] did not apply to reinsurance contracts". 4 The House of Lords considered that the context of Section 3 made it clear that the insurance provisions were included for a specific purpose, and that, in essence, they were consumer protection provisions and not relevant to relationships between reinsurers and their cedants, who were both commercial organisations and on an equal footing. Reinsurers were therefore able to argue that they were entitled to bring themselves within the relevant exceptions.

Reinsurers sought to rely upon two specific exemptions under Article 5 of the Conventions, which sets out "Special Jurisdiction" exceptions to the overriding principle. On the facts, Article 5( 1) relating to contracts applied, Article 5( 3) dealing with torts was not considered.

Article 5( 1) provides that "a person domiciled in a contracting state may be sued in matters relating to a contract, in the place for the performance of the obligation in question." Although a reinsurance policy is a contract, the question to be determined was whether reinsurers were able to rely on the exception when seeking to avoid for breach of the duty of utmost good faith, rather than for a breach of any contractual term. Utmost good faith does not arise under the contract; it is a precontractual duty. It was therefore argued by the cedant that any breach of the duty of disclosure is outside the Article 5( 1) exception. Lord Woolf disagreed, finding that the fact that the duty of good faith arose under the general law rather than under the contract itself did not matter: there was an obligation relating to the contract, and that obligation was performed in London. The English Courts were therefore properly seized with jurisdiction. He commented in particular that "When interpreting a convention which applies to a variety of jurisdictions, the less technical distinctions on the basis of domestic law are adopted the better".

The decision in Agnew is binding in UK national law, but it is important to note (as did Lord Woolf) that it is unusual for matters relating to a European Convention to be decided under domestic law. Unlike the Brussels Convention, the Lugano Convention (which applied in this case because the cedant was Swedish) does not allow for the referral of cases to the European Court of Justice (" ECJ"). This may lead to uncertainty. For example, there is at present a case pending before the ECJ under the Brussels Convention on the Section 3 "Insurance Issue" 5 . If it is decided in that case that reinsurance is insurance for the purposes of the Conventions, and reinsurance contracts do therefore fall within Section 3 (which does not permit reliance on the specified exceptions), the decision in Agnew will then be incompatible with European law. National courts (including English Courts) would be bound to follow the ECJ ruling when dealing with the Brussels Convention. However, English courts (unless the House of Lords subsequently reverses its decision) would be bound to follow Agnew in cases subject to the Lugano Convention. We must therefore hope, as did Lord Woolf, that the ECJ "will obtain some assistance from their Lordships’ decision" although it is under no obligation to do so.

Where does Agnew leave reinsurers and their cedants? The decision once again reinforces two fundamental issues.

First, the decision is a clear reminder that if the parties to a contract of reinsurance wish to avoid jurisdictional uncertainty, they should specifically include appropriately worded governing law and jurisdiction clauses in their contracts.

Second, if the parties have failed to include such a clause, then, following Agnew, should a party wish to litigate disputes in its own domestic courts, there is no safe way to do so unless they are first in the jurisdiction race and issue and serve proceedings before the other party does. For London market reinsurers, Agnew assists in removing the uncertainty of having proceedings that have not commenced in England challenged or stayed. Equally for cedants, it makes plain that they are no longer afforded the possibility of removing jurisdiction from the English Courts in circumstances where reinsurers have been first to seize jurisdiction. Whilst Agnew introduces certainty once proceedings have been issued, reinsurers and cedants would be best served by ensuring contractual certainty at inception.

Footnotes

1 [2000] 1 All ER 737;

2 Incorporated into English Law under the Civil Jurisdiction and Judgements Act 1982 (as amended);

3 Article 2;

4 Report of Professor Schlosser on the Convention on the Ascension of ... the United Kingdom ... to the Brussels Convention (O. J. 1979 No C- 59/ 71);

5 Group Josi Reinsurance Company SA -vCompagnie d’Assurance Universal General Insurance Co [1999] I. L. Pr. 351

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