UK: "Jurisdiction Clause as Attached"- What if it Isn´t?

Originallly published in March 2002

The recent decision of Mr Justice David Steel in Brotherton v Colseguros (18th December 2001) in which RPC represented the successful reinsurers, sheds an interesting light on how the English Commercial Court will approach issues of disputed jurisdiction in facultative reinsurance contracts, and provides some pointers for those placing or underwriting such business in the London Market. his

The claimant reinsurers commenced English Commercial Court proceedings for a declaration that they had validly avoided the defendant’s reinsurance contract in respect of their original insurance of a Colombian bank.

The reinsurers argued that the presentation and placement of the reinsurance (under a lineslip) had taken place in London. The reinsurance was accordingly governed by English law and, because most of the relevant evidence and witnesses were located in this country, England was the appropriate forum in which the dispute should be determined - and the Commercial Court should therefore accept jurisdiction.

The reinsureds opposed English jurisdiction on the basis that, as they alleged, the reinsurance contract incorporated a clause imposing Colombian law and jurisdiction.

The underwriter at the Lloyd’s syndicate which led the lineslip had given his quotation for the risk on a "quotation sheet" prepared by the brokers, which as printed included the words "jurisdiction clause as attached". Those words were deleted by the underwriter in manuscript. Nonetheless the words reappeared in the final version of the slip. No jurisdiction clause was in fact attached either to the quotation sheet or to the final slip.

Notwithstanding the absence of any attachment, the reinsureds argued that a generic jurisdiction clause had already been discussed and agreed between the brokers and lineslip underwriters in terms which provided for local, in this case Colombian, law and jurisdiction to apply. The reference "jurisdiction clause as attached" was therefore sufficient to incorporate the clause.

In his evidence, the leading syndicate’s underwriter confirmed that a standard form of jurisdiction clause for us generally with the lineslip had indeed been discussed, and that the brokers had pressed for the same governing law to be applied to the reinsurance as to the underlying cover, ie that of the country in which the original risk and the reinsured were located. The underwriter’s philosophy however had remained that, although he had agreed to follow the fortunes of the reinsureds in two disputes under the underlying cover (which would obviously be subject to local law and jurisdiction), he was only willing for the reinsurance contract to be governed by English law, save in exceptional circumstances.

No clause reflecting this position had been put forward by the brokers, and no agreement had ever been reached in the discussions. In the particular case of the reinsurance contracts at issue, he had failed to strike through the reference to "jurisdiction clause as attached" when he checked that the final slip prepared by the brokers reflected his quotation, probably because he had overlooked it, or possibly in anticipation of agreement with the brokers of a standard clause which would reflect this philosophy.

The underwriter’s evidence was supported by other evidence from reinsurers to the effect that no generic clause had been agreed.

The reinsureds sought to counter this with evidence from the two senior brokers who were responsible for presentation of the risk and for declarations under the lineslip. They deposed to a firm belief that the clause had been drawn up and agreed by the leading underwriter (and other lineslip underwriters), and that a copy scratched by the leading underwriter had been retained in their office. However, they were unable to produce the signed copy, and neither was able to say from direct knowledge that he himself had secured the underwriter’s agreement, or had seen the scratched clause.

The judge characterised the brokers’ evidence as lacking both supporting documentation and consistency, and preferred reinsurers’ evidence that no jurisdiction clause was in fact agreed.

The judge went on to reject the reinsureds’ further submission, relying on another recent Commercial Court decision, Burrows v Jamaica Power² (29 October 2001), that mere reference to a "jurisdiction clause" in the slip was sufficient to constitute an agreement that the local courts in Colombia had jurisdiction. That case concerned direct insurance of a Jamaican risk where the slip included a reference to the Lloyd’s NMA1483 clause. This is headed "Overseas Jurisdiction Clause" and has as its counterpart NMA1485, the so-called "English Jurisdiction Clause". NMA1483 includes a blank space which can be filled in to nominate the country whose courts and system of law will govern the contract. In Burrows, the judge accepted the Jamaican insured’s submission that, although no policy wording had been issued, and the blank in NMA1483 had not been completed to nominate Jamaica as the relevant country, the reference to it in the slip indicated agreement that the contract was to be subject to Jamaican law and jurisdiction.

The judge in Brotherton had no difficulty distinguishing Burrows. There was no analogy between Burrows, where a specific "Overseas Jurisdiction Clause" was referred to by reference to a recognised standard wording, and Brotherton, where the slip reference was to an unidentified jurisdiction clause which was not in fact attached or available to the market, and indicated no preference for a non-English jurisdiction.

The judge in Brotherton also rejected the further submission that because a version of a jurisdiction clause was in circulation at the time the slip was scratched, the reference to "jurisdiction clause" in the slip had to be construed as a reference to that draft. In the first place, it appeared that more than one version had been in circulation; second, this argument was entirely inconsistent with the reinsureds’ primary case that there had been a successful conclusion to the negotiations and that a jurisdiction clause had been agreed.

Because no specific applicable law/ jurisdiction clause had been agreed, the (English law) rule that English law governs reinsurance placed in the London market applied. For this reason, and because the primary factual issues concerned misrepresentation and non-disclosure at placement in London, and most of the relevant witnesses were in England, it was clear that the English courts were the most appropriate to hear the dispute and would accept jurisdiction. The fact that proceedings were already on foot in Colombia in relation to the underlying insurance was of no direct relevance - the issues were quite different.

It is implicit in the nature of facultative reinsurance contracts that jurisdiction and applicable law may be controversial. Many reinsurers would accept that, in relation to claims under a direct policy, reinsurers should in the usual course follow the fortunes of the reinsureds, subject to local law and jurisdiction. A reinsured would be left high and dry if it is held liable to its original insured by the local courts, and is unable to recover under a reinsurance contract to which reinsurers seek to apply narrower English law principles to determine the scope of cover.

On the other hand, if there is a dispute between reinsurers and reinsureds unrelated to coverage under the direct policy (as was the case in Brotherton where reinsurers allege that the reinsureds failed to disclose matters within their own knowledge material to the underlying risk), most reinsurers would wish to ensure that those issues were determined against the framework of English insurance and reinsurance law in the English courts, which boast an established expertise in international reinsurance disputes. However, many reinsureds may not be willing to agree such an arrangement.

Leaving the slip silent as to jurisdiction and applicable law would not necessarily ensure English jurisdiction over a reinsurance contract placed in the London market; the English courts could decline jurisdiction if they believed a foreign court would apply English law, and if they considered that the factual issues, location of evidence, and convenience of witnesses all pointed to a foreign court as more appropriate and convenient.

Where possible, underwriters and brokers should seek to agree and incorporate jurisdiction and applicable law clauses acceptable to all the parties. Reinsurers who are happy to follow the fortunes of their reinsureds in relation to direct policy losses, but want the reinsurance to be subject to English law and jurisdiction, may wish to stipulate for a clause in the terms of the recently issued Lloyd’s Standard Wording LSW1125, which provides as follows:

A clearly defined express agreement as to jurisdiction and applicable law should avoid the uncertainty and expense of jurisdiction disputes, and benefit all the parties to a facultative reinsurance or direct insurance contract.