UK: Governing Law And Jurisdiction In Reinsurance

Last Updated: 21 October 2009
Article by Anthony Menzies

Gard Marine & Energy v. (1) Lloyd Tunnicliffe; (2) Glacier Re and Anor [2009]

Commercial Court, 9 October 2009

A. Background

This was a case giving rise to issues of both jurisdiction and governing law under a contract (or contracts) of excess of loss reinsurance issued by the Defendants, to the Claimant ("Gard"), a reinsured domiciled in Bermuda.

The reinsurance was arranged under two separate placements. An order for 7.5% of the whole was placed by way of a London market slip, to which various Lloyd's syndicates subscribed. A separate slip, for 5% of whole, was placed with the second Defendant, Glacier Re ("Glacier"), a company domiciled in Switzerland.

A dispute emerged under the reinsurance between Gard and certain of the subscribing insurers, specifically under the Sum Insured clause and the application of the policy deductible. Glacier paid a proportion of the amount claimed against it, on the basis of its own calculation of how the deductible should apply, although it subsequently developed its case to argue that no sums were in fact due at all, and accordingly sought to recover the amount it had paid.

In March 2007, Gard issued proceedings in the English Court against the insurers then in dispute, namely three Lloyd's syndicates and Glacier. The proceedings were served on Glacier in June 2007, by which time Glacier had itself issued competing proceedings against Gard in the Swiss court, for recovery of the amount it had already paid. Subsequently the Swiss court declined jurisdiction over those proceedings, on the ground that the Defendant, Gard, was not domiciled in Switzerland. At that point, the English court was asked to rule upon its own jurisdiction and as to issues of governing law.

B. Applicable Law

Dealing with applicable law first, the English court noted that it was obliged to apply the principles of the Rome Convention (soon to be superseded by the Rome I Regulation). Article 3 of the Convention provides that a contract is to be governed by the law chosen by the parties. Such a choice may be express or it may be "demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case." The 1980 report of Professors Giuliano & Lagarde, an official academic commentary accompanying the Convention, offers examples of where this may be so, including where the contract is in a standard form known to be governed by a particular system of law "such as a Lloyd's policy of marine insurance..."

If no choice can be discerned at all, either by expressly or by implication as above, then generally the contract will be subject to the law of the place of business of the "characteristic" performer of the contract (Art 4(2)), which in the case of reinsurance is taken to be that of the reinsurer1.

In the present case, the court concluded that there was a good arguable case in favour of English law, in preference to Swiss, on four grounds:

  1. The contract with Glacier was not, in truth, a Swiss market placement. It was a London market placement in which Glacier had merely been invited to participate. The risk was placed by London brokers who had offered Glacier a share of an existing reinsurance programme, expressly to make up for capacity constraints faced by the existing participants. The fact that the Glacier participation was recorded under a separate order did not detract from this fact.
  2. The use of a Lloyd's slip and policy pointed towards English law, applying the reasoning in Giuliano & Lagarde.
  3. The slip specifically incorporated a number of London market wordings, such as LSW196A, CL 356A, CL 365 and LSW 1001. This had previously been held persuasive in favour of an implied choice of English law.2
  4. The slip adopted a number of formulations and turns of phrase recognisable to English law, such as the form of Notice of Cancellation or the provision "Subject to all terms, clauses, conditions as Original and to follow the original in every respects.."

Accordingly, the "characteristic performer" test under Art 4(2) of the Convention (which in this case would have pointed to Swiss law) never came into play.

C. Jurisdiction

Matters of jurisdiction as between England and Switzerland are subject to the Lugano Convention. The default position under the Lugano Convention (Art 2) is that a defendant should be sued only in his own domicile, such that in this case Glacier could only be sued in Switzerland.

There are, however, a number of specific derogations from this position, and in this case Gard relied upon two of them, in the alternative.

The Article 5(1) Argument

Under Art 5(1) of the Convention, which deals with contractual obligations, a party in a Contracting State (eg Switzerland) may be sued in another Contracting State (eg. England), if the latter is "the place of performance of the obligation in question."

As a matter of English law, however, the actual place of performance of an obligation to pay money is taken to be the place where the creditor (ie. Gard) resides, in this case Bermuda. On this basis, there would be no "place of performance" within a Contracting State, since the required place of performance was actually Bermuda. Accordingly, so argued Glacier, Art 5(1) could not apply. The court agreed. It dismissed Gard's argument that, as a matter of practice, the debtor's obligation here was to pay money to the brokers in London, rather than (on the orthodox analysis) to seek out its creditor in Bermuda. Thus, Gard's argument in favour of English jurisdiction under Art 5(1) failed.

The Article 6(1) Argument

Under Art 6(1), the Lugano Convention also provides that where (as here) the Defendant is one of a number of defendants, he may be sued "in the courts for the place where any one of them is domiciled".

The purpose of Art 6(1) is of course to avoid the risk of contradictory judgments in different jurisdictions, but it will only apply where the claims against the various defendants are so closely connected that it is expedient to hear and determine them together in the interests of avoiding irreconcilable outcomes.3 Such irreconcilability may arise from potential conflicting findings of fact or from potential conflicting decisions on questions of law4.

Glacier contended that there was no such risk in this case. Although the two slips shared common provisions, they were separate and contained distinct annotations. The claims also concerned different facts, in that exchanges were relied upon between the brokers and the London market reinsurers that were not relevant to Glacier's position.

On this point, the court agreed with Gard and rejected the position of Glacier. There was a good arguable case that, by declining English jurisdiction over the claim against Glacier (and so forcing Gard to sue Glacier in Switzerland) irreconcilable judgments would be reached between the English litigation and that in Switzerland. Both claims turned on the proper construction of the Sum Insured clause in the reinsurances. That clause was in precisely the same terms in both contracts, which contracts were placed as part of a common reinsurance programme. Further, the issue of construction fell to be determined under English law. There was no material difference between the terms of the two contracts, so the court held, and so the legal issue to be determined in both cases was the same.

The court also noted that Gard was pursuing an alternative claim in the same litigation against its broker, a claim contingent upon the outcome of the claim on the reinsurance. This made the consequence of differing judgments particularly serious. If, for example, Gard's claim against Glacier failed in Switzerland but its contingent claim against the broker was being pursued in England, what would happen if the English Court reached a different conclusion on the issue of construction? The claim against the broker might then fail, leaving Gard to "fall between two jurisdictional stools".

Accordingly, the English court confirmed jurisdiction over Gard's claims against both the London market syndicates and Glacier, as well as the contingent claim against the broker.

Footnotes

1 Dornoch v Mauritius Union Assurance [2006] 1 Lloyd's IR 786.

2 Gan v Tai Ping [1999] Lloyd's Rep IR 229 (CA); Aegis v Continental Casualty (11 May 2006).

3 Kalfelis v Schroeder, Muenchmeyer, Hengst & Co [1988] ECR 5565

4 Gascoine v Pyrah [1994] IL Pr 82

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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