LAW AND JURISDICTION

7

APPLICABLE LAW AND JURISDICTION

A. Applicable Law

(1) Rome Convention and Rome I Regulation on Conflicts of Laws

7.01 The identification of the proper law of the contract may be of very great importance because it is likely to have a crucial impact on the shape and possible outcome of the case.¹ Section 2(1) of the Contracts (Applicable Law) Act 1990 provides for the incorporation of the Rome Convention into the law of the United Kingdom. Article 1(4) of the Convention expressly provides that reinsurance contracts, unlike contracts of insurance, are subject to the rules of the Convention. Further, there is nothing in the Convention which limits its scope to contracts made in or between nationals of contracting states. However, the Convention does not have retrospective effect and therefore only applies to contracts entered into after April 1991 when the Convention came into force.² For a contract concluded before that date, the determination of its proper law depended and still depends on common law principles.

7.02 Reinsurance contracts concluded after 17 December 2009 are governed by the ‘Rome I Regulation’ under EC Regulation on the Law applicable to Contractual Obligations which consolidates the Rome Convention.³ Article 7 of the Regulation does not apply to reinsurance contracts so, as under the Rome Convention, reinsurance is excluded from the mandatory choice of law provisions that apply to contracts of insurance.⁴

7.03 The general common law rule was that, in the absence of an express choice, an intention with regard to the law to govern the contract could be inferred from the terms and nature of the contract and from the general circumstances of the case. When the intention was not expressed and could not be inferred from the circumstances, the contract was governed by the system of law with which the contract had its closest and most real connection.⁵

7.04 The Rome Convention and Rome I Regulation are by and large consistent with the common law approach to determining the governing or applicable law. At common law, the starting point is to investigate whether the parties have expressly selected a body of law at the time of contracting or whether such selection can be implied from the express terms of the contract. If the court is unable to ascertain the governing law from the contract it will then look to determine with which system of law the contract has the closest connection.

(2) Express or Implied Choice of Law

7.05 Article 3(1) of the Convention under the heading ‘Freedom of choice’ provides:

A contract shall be governed by the law chosen by the parties. The choice must be express or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract.

7.06 Where a reinsurance contract contains an express choice of governing law and/or provision for jurisdiction or arbitration in a particular forum, the court or arbitrators are bound to apply that law and the conflicts rules of that law and that forum when determining the dispute.⁶ However there is frequently more complication as the reinsurance may not itself specify a choice of law and one needs to be implied or inferred.

7.07 An example given in the Giuiliano-Lagarde Report on the Rome Convention as a circumstance which could demonstrate an inferred intention was a contract in a standard form which is known to be governed by a particular system of law even though there is no express statement to this effect, such as a Lloyd’s policy of marine insurance. The report was cited on this point by Thomas LJ in Gard Marine v Glacier Reinsurance.⁷ The report had in mind the old SG form annexed as a schedule to the Marine Insurance Act 1906,⁸ but the same considerations applied to the Lloyd’s J(A) form on which the contract of reinsurance was made. The use of that form, London market terminology, and London market clauses throughout the slip indicated the choice of English law.⁹

7.08 This approach was also applied in the reinsurance context in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd¹⁰ where the Court of Appeal held that the inclusion in the slip of various standard form clauses commonly found in reinsurance contracts placed on the London market pointed to an implied choice of English law. This implied choice was further demonstrated by the circumstances of the placing of the business in London using London brokers who presented the risk to reinsurers in the conventional way in concluding a contract of reinsurance governed by English law.

7.09 In this regard, Hobhouse J in Forsikringsaktieselskapet Vesta v JNE Butcher¹¹ noted that:

Where a contract such as the present provides that its terms and conditions are to be the same as those of another contract and where its clear commercial purpose is to provide corresponding cover to that provided by the other contract then unless some other powerful consideration is to intervene the conclusion must be that there is an intention that both contracts are to be governed by the same law. However, there remains something surprising and improbable about the conclusion that the Lloyd’s slip and the Lloyd’s policy are governed by anything other than English law.

7.10 There is thus a ‘very strong inference’ that contracts of reinsurance placed on the London market and recorded in policies issued in London are, in the absence of strong contrary intentions, intended to be governed by English law.¹² This is also reflected in the following passage from the judgment of Bingham LJ in EI Du Pont De Nemours & Co:¹³

I think it plain, almost beyond argument, that the proper law of that policy is English. It was a Lloyd’s policy, negotiated by Lloyd’s brokers and issued by the Lloyd’s Policy Signing Office in London. Notice of potential claims was to be given to Lloyd’s brokers. The policy was for world-wide cover. Unless displaced, the inference that English law was intended to govern is in my view overwhelming.

7.11 References in the slip to ‘as original’, ‘following original’ and ‘as more fully described in the original policy wording’ will not be sufficient to impute to the parties an intention that the reinsurance contract be governed by the same law as the original contract. Such words are intended to ensure that the risk undertaken by the reinsurer is identical as to period, geographical limits, and nature of the risk with the risk undertaken by the reinsured as direct insurer, ie they define the risk.¹⁴

7.12 The presence of an exclusive jurisdiction clause in a contract of reinsurance may be a relevant circumstance from which it is possible to infer the parties’ intention as to the applicable law.¹⁵ In Norske Atlas Insurance Co Ltd v London General Insurance Co Ltd¹⁶ it was held that the parties’ intention that the applicable law should be Norwegian law was clearly indicated by the presence of an arbitration clause which provided for arbitration in Norway by Norwegian or Danish arbitrators.

7.13 The significance or weight to be attached to an arbitration clause will depend on its precise terms, but it can be an indication of the applicable law whether or not it is mandatory for arbitrators to apply a particular law. The clause in Norske was a compulsory clause which provided that any disputes which arose under the reinsurance ‘shall always be decided’ by arbitration in Norway. In King v Brandywine¹⁷ (in which there was a ‘package’ of policies in three sections—I, IIIA, and IIIB) the arbitration clauses in sections I and IIIA were not compulsory, but simply provided that if the parties agreed to refer any dispute to arbitration it would take place in New York (with the arbitrators applying New York law to the extent that they chose to follow any rules of law). The arbitration clause in section IIIB provided for compulsory arbitration in New York should either party request it. Although the arbitrators might abstain from strictly following the rules of law, they had to apply New York law if applying any law. In Commercial Union Assurance Co Plc v NRG Victory Reinsurance Ltd¹⁸ Clarke J, considering the same contracts, had expressed the obiter view that the proper law of the contracts was New York law. At first instance in King Colman J suggested that where the arbitrators were given discretion not to apply strict rules of law, little weight could be attached to the arbitration clauses as indicia of the proper law.¹⁹ The Court of Appeal disagreed.²⁰

7.14 The Court of Appeal noted that the arbitration clauses in sections I and IIIA were largely in the same form as the arbitration clause in section IIIB, except arbitration was not compulsory and there was express choice of New York law. They noted that if the arbitration and service of suit clauses were viewed as a whole they pointed strongly to an inferred choice of New York law. They then examined whether the circumstances of the placement in the London market displaced that inference, but held that the New York arbitration clause in section IIIB meant that it was difficult, if not impossible, to infer a choice of English law as the law to govern the contract.

7.15 It will be noted that the Court of Appeal also took the service of suit clause into account as a relevant circumstance which assisted in determining the parties’ intention.²¹ One service of suit clause provided for the insurers to submit to the jurisdiction of any court of competent jurisdiction within the United States, not simply within the State of New York. The Court of Appeal held that as the dispute was between the laws of England and New York, this did not detract from the effect of the arbitration clause, which pointed to New York law. The service of suit clauses in the other two sections provided that the insurers would, at the request of the insured, ‘submit to the jurisdiction of any court of competent jurisdiction within the State of New York’, and that ‘all matters arising hereunder shall be determined in accordance with the law and practice of such court’.²² The fact that these clauses provided for submission to the jurisdiction of a New York court and for the provision for service of process on an officer specified by a New York statute were factors which pointed (when taken together with the wording of the arbitration clause) to New York law as the proper law.²³

(3) Applicable Law where there is No Express or Implied Choice of Law

7.16 To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the Convention and Rome I Regulation provide that the contract shall be governed by the law of the country with which it is most closely connected, subject to the qualification that a severable part of the contract which has a closer connection with another country may be governed by the law of that other country.²⁴

7.17 Article 4(1) of the Rome I Regulation provides specific rules for specific types of contract, not including reinsurance contracts. It then points to the law of the country where the party required to effect the characteristic performance has his habitual residence unless it is clear from all the circumstances of the case that the contract is manifestly more closely connected with another country.²⁵ If the applicable law cannot be determined under Article 4(1) or (2) the contract shall be governed by the law of the country with which it is most closely connected.²⁶

7.18 The Rome Convention presumed²⁷ that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has its principal place of business or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated. The characteristic performance of the contract of reinsurance is the provision of cover or the payment of a claim by the reinsurer.²⁸ Therefore, where the presumption applies, the applicable law is determined by reference to the country from which the reinsurer effects its performance.

7.19 However, this presumption does not apply if it appears from the circumstances as a whole that the contract is more closely connected with another country.²⁹ The authors of Dicey and Morris on The Conflict of Laws³⁰ state that in the context of reinsurance the presumption is more likely to be disregarded than applied because its operation ignores the important role of brokers in reinsurance. It is not uncommon for a broker to place reinsurance on the same slip, in respect of the same risk, with a number of reinsurers each of whom has their principal place of business in different jurisdictions. It would make little sense to hold that each of the reinsurer’s obligations was governed by the law of a different country.³¹ In such circumstances it will be necessary to consider whether the contracts have a close connection with any one country whose law would then apply to govern all the obligations arising under them.

7.20 Some of the relevant factors in determining with which country the contract is most closely connected are the manner in which the reinsurance was placed, the type of cover placed and the inclusion of any standard form clauses. This is demonstrated by the following passage from the judgment of Moore-Bick J in Lincoln National Life Insurance v Employers Reinsurance Corp:³²

…the contracts in this case were not made by reference to a standard English form, nor were they all made in the London market in the sense of being placed by London brokers direct with London underwriters in each case…However, all the contracts were negotiated through brokers in London, Bradstock, and were made in the usual manner of the London market, that is, by the signature of a slip which summarized the essential terms of the contract. Two other factors point strongly towards England as the country with which the contracts have their closest connection. The first is the nature of the cover itself, described in the slips as ‘General Aviation Personal Accident Carve out Reinsurance’. The evidence shows that in 1995 aviation bodily injury carve out reinsurance was a relatively new and specialized form of reinsurance developed in the London market. The second that the slips incorporated by reference a number of standard London market Clauses. The fact that the limits of liability were expressed in US dollars seems to me to be of little significance by comparison since much of the business written in the London market is written in dollars.

(4) Floating Choice of Law Clause

7.21 In Heath Lambert Ltd v Sociedad de Corretaje de Seguros³³ the cover note provided that the reinsurance was ‘Subject to Venezuelan Law and/or Venezuelan Jurisdiction if required’.