United Kingdom: Governing Law and Jurisdiction in Reinsurance – Foreign Reinsurer Participation in a London Programme

Gard Marine & Energy v. (1) Lloyd Tunnicliffe; (2) Glacier Re & Anor [2010]
Court of Appeal 6 October 2009

The 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 the 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 reinsurers, specifically under the Sum Insured clause and the application of the policy deductible. In March 2007, Gard issued English proceedings against the reinsurers then in dispute, namely three Lloyd's syndicates and Glacier. Glacier challenged the jurisdiction of the English court, on the grounds that the law governing its participation was Swiss law and that it could be sued only in the courts of Switzerland.

Applicable Law

Dealing with applicable law first, the English court noted that it was obliged to apply the principles of the Rome Convention1. 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, a guiding text which accompanies 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 expressly or by implication as above, then the general presumption is that 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 reinsurer2.

In a judgment handed down in October 2009, the Commercial Court concluded that there was a good arguable case in favour of English law, in preference to Swiss, on four grounds:

  • 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;
  • The use of a Lloyd's slip and policy pointed towards English law, applying the reasoning in Giuliano & Lagarde
  • 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 law3;
  • 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 respect...". In the Aegis case the judge had considered this to be "terminology which associates it with the law of England".

Accordingly, the "characteristic performer" presumption under Art 4(2) of the Convention (which in this case would have pointed to Swiss law) did not come into play.

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, one of which is to be found at Art 6(1). This 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 judgments4. Such irreconcilability may arise from potential conflicting findings of fact or from potential conflicting decisions on questions of law5.

Glacier contended that there was no such risk in this case. Even if (contrary to its primary case) English law applied to the contract, it pointed out that the two slips 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.

Nevertheless, the Commercial Court found that the Art 6(1) exception applied. While it was true that the two slips bore some minor differences, these were not sufficient to call for separate proceedings. By declining English jurisdiction over the claim against Glacier (and so forcing Gard to sue Glacier in Switzerland) the court perceived a risk of irreconcilable judgments between the English litigation and that in Switzerland. Both claims turned on the proper construction of an identical Sum Insured clause in the contracts, together forming a common reinsurance programme. Further, the issue of construction fell to be determined (so the court had already held) under English law.

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.

The Court of Appeal Decision

Glacier appealed against the decision of the Commercial Court, upon which judgment was handed down on 6 October 2010. On governing law, the Court of Appeal affirmed the decision of the Commercial Court for essentially the same reasons. The Glacier participation was clearly "part of" a London market programme, a fact borne out by its correspondence with the broker. The fact that the Swiss reinsurer participated by way of a separate slip was, said the court, of "little significance", and indeed it would make "no commercial sense" for part of a single reinsurance programme to be subject to one governing law and the remainder to a different law. The parties had demonstrated "with reasonable certainty" a choice of English law for the whole programme.

However, even if that were wrong, the Court of Appeal said that this was one of those rare cases where the Art 4(2) presumption - which would normally favour the law of the reinsurer's place of business - would be rebutted. From the circumstances as a whole, this contract was "clearly more closely connected" with England, whether the parties had chosen English law or not.

The Court of Appeal also approved the decision of the Commercial Court judge with respect to jurisdiction. While there were minor variations between the two slips, and in the manner of their placement, it would be wrong to conclude that these gave rise to a "different factual situation". Consequently, for the reasons given by the trial judge, there existed a clear risk of irreconcilable judgments if Gard were required to pursue Glacier in Switzerland.

Result: Judgment for the reinsured.

Footnotes

1. Recently superseded by the Rome I Regulation, with respect to contracts entered into after 17 December 2009

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

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

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

5. 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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Authors
Anthony Menzies
 
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