Conflict of Laws
1. Scope of the chapter
Many insurance agreements, particularly commercial policies and reinsurance contracts, have an international element in that the assured or reinsured is situated or established in a jurisdiction different from that of the underwriters’ place of business. Further, many risks are subscribed to by a number of different insurance companies, often situated in different parts of the world. Whenever a contract does have an international dimension, and proceedings are brought in the English courts, two separate issues will inevitably arise: do the English courts have jurisdiction to resolve the dispute; and if so, which law governs the rights of the parties? Matters have become increasingly complex in the last two decades, by reason of the adoption of jurisdictional rules purely between EU and EFTA courts, by the harmonisation of choice of law rules within the EU and by the adoption by the EU of special rules for jurisdiction and choice of law as regards insurance—but not reinsurance—agreements. This chapter will consider both jurisdiction and choice of law, and highlight the provision made for insurance contracts. Readers should note that very many commercial insurance and reinsurance disputes are resolved by arbitration: this matter is outside the scope of the present text.1 Readers should also note that jurisdiction and applicable law are quite separate issues in principle: jurisdiction is about where the case is to be heard, whereas applicable law is about the rules to be applied to the dispute. However, the two matters do overlap. For example, one of the grounds upon which the English courts have jurisdiction over a dispute is because the contract is governed by English law. A choice of English law does not mean that English jurisdiction has been chosen, and vice versa. Thus the standard terms of London marine policies, that they are subject to ‘English law and practice’, means that the policy is governed by English law but not that the parties have chose that their disputes should be litigated in England.2
2.1 The different regimes
English jurisdictional rules determine whether an action may be brought in the English courts. England has long been a forum for the hearing of international disputes, as England is a convenient neutral forum and English commercial judges are regarded as expert in their field. It may also be important for a person who wishes to sue or be sued under judicial procedures which are familiar to him and which he trusts. Until 1982 a single regime governed the jurisdiction of the English courts, but matters changed dramatically with the passing of the Civil Jurisdiction and Judgments Act 1982 which gave effect in English law to the Brussels Convention 1968. That Convention laid down an entirely separate set of jurisdictional rules for cases with an EU element. Matters were taken further by the UK’s ratification of the Lugano Convention 1989 by the Civil Jurisdiction and Judgments Act 1991: that Convention was in very similar terms to the Brussels Convention, and laid down jurisdictional rules as between EU countries and European Free Trade Area (EFTA) countries. At the beginning of 2002 the Brussels Convention was (with one important caveat) replaced by an EU instrument, the Brussels Regulation, Council Regulation 44/2001. This is based on the Brussels Convention, although there are a number of significant modifications in the Regulation. In 2010 a new version of the Lugano Convention was adopted, which brings it into line with Council Regulation 44/2001 The net effect of these changes is that there are now three3 separate jurisdictional regimes which have to be considered by the English courts:
(1) if the defendant is domiciled in any EU country jurisdiction is determined by Council Regulation 44/2001;
(2) if the defendant is domiciled in any of the EFTA countries, Switzerland, Iceland or Norway, jurisdiction is determined by the Lugano Convention 2010;
(3) in all other cases, jurisdiction is determined under pre-existing English procedural rules, set out in Part 6 and Practice Direction 6B of the Civil Procedure Rules (CPR).
In this chapter regimes (1)–(2) will be treated together under the heading ‘EU cases’. Regime (3) is referred to under the heading ‘Non-EU cases’.
Whether the case is EU or non-EU is determined by the domicile of the defendant in the proceedings. An individual is domiciled in the UK if he is resident in the UK and the nature and circumstances of his residence indicate that he has a substantial connection with the UK.4 A company is domiciled in the place of its registered office, its central administration or its principal place of business.
2.2 Non-EU cases
Where the defendant is domiciled outside the EU, the jurisdiction of the English courts over a dispute depends upon the procedural question of whether the claim form may be served upon him. Service is possible on a defendant who: is an individual and is within England, temporarily or otherwise;5 is a company incorporated or with a place of business in England;6 is not within England but has agreed that an action can be brought only in England7 or that an action may be brought in England;8 or is not present in England and has not agreed to be sued in England, but has nevertheless submitted to the jurisdiction of the English court by nominating solicitors to accept service or by participating in the proceedings by submitting a substantive defence.9 Most importantly, however, the English courts have jurisdiction—generally referred to as ‘exorbitant jurisdiction’—over a defendant who is not present in England and has not submitted to jurisdiction by agreement or otherwise, but where the case has a substantial connection with England. The claimant may apply to the English court under CPR Part 6 for permission to serve the claim form on the defendant outside the jurisdiction. Permission will be granted by the court if it is satisfied that the claim raises a serious question to be tried, that there is a good arguable case that there is a substantial connection with England in that one or more of the numerous grounds of jurisdiction listed in CPR PD 6B has been made out, and that England is the most appropriate forum for the trial of the action.10 For insurance and reinsurance purposes, the most important of the heads of potential jurisdiction are that the claim is made in respect of: a contract where the contract was made in England, made by or through an agent of the defendant who was trading in England11 governed by English law or containing a jurisdiction clause nominating England;12; a breach of contract committed in England;13 or a declaration that no contract exists.14
Assuming that jurisdiction is made out on any of the above grounds, the court has an overriding discretion15 to refuse to hear the action.16 That discretion may be exercised on one of two grounds: that England is not the most appropriate forum for the action to be heard (forum non conveniens); or that there are proceedings in existence in some other place (lis alibis pendens).
The most important of these principles is forum non conveniens, an issue which arises in virtually every case where the jurisdiction of the English courts is contested. The basic principle is that the English court will hear the action unless the defendant can show that there is a more convenient forum which has under its domestic law jurisdiction over the dispute and that the claimant in England would not be deprived of a legitimate juridical advantage by proceeding in some other jurisdiction. In considering these questions the courts will balance all the circumstances in the case, although a number of principles may be derived from the numerous authorities. First, the courts will other than in exceptional circumstances give effect to an exclusive jurisdiction clause which nominates the courts of a particular place: if England is nominated, then the action will be heard here17; if some other jurisdiction is nominated then a stay of English proceedings is all but inevitable.18 Even if the clause simply confers an option on the claimant to sue in a given jurisdiction, once the claimant has chosen to exercise that option the defendant will not be able to argue that the jurisdiction is not a convenient forum, given that he had under the clause agreed to be sued there.19 Secondly, in the absence of agreed jurisdiction provisions, the law applicable to the contract will be an important, although not determinative,20 factor: if the policy is governed by English law there is a strong presumption that the dispute should be resolved in the English courts.21 Thirdly, weight will be given to other matters, including the location of the witnesses and the documents, the fact that it may be necessary to join other parties to the proceedings and the possibility of delay in other jurisdictions. By way of example, where the dispute relates to the right of the underwriters to avoid a contract placed in the London market for breach of the duty of utmost good faith, it will normally be appropriate to hear the action in England given that the relevant evidence will be in England and the contract is almost certainly governed by English law in such circumstances.22 By contrast, if the issue is whether the assured or reinsured was aware of facts misstated or withheld then the relevant evidence may be in some other jurisdiction and that will be the most appropriate forum,23 and if the dispute relates to breach of contract terms in another jurisdiction or the circumstances of a loss then the place where the breach24 or loss25 allegedly occurred is the most appropriate forum. That is all subject to the overriding consideration that the foreign court will apply English law as the law chosen by the parties.26
The existence of other proceedings—lis alibis pendens—is a matter which will figure large in the court’s ultimate conclusion as to whether the English action should be stayed. The English court will refuse to become involved if the parties have agreed that the action should be brought in that other jurisdiction or if that jurisdiction is the most convenient. The existence of other proceedings will necessarily be disregarded where the foreign action is brought in contravention of an exclusive jurisdiction clause nominating England,27 and indeed in appropriate circumstances the court may grant an ‘anti-suit’ injunction against the claimant in the foreign proceedings,28 preventing him from continuing with the action.29 An anti-suit injunction will be granted where the action is in breach of arbitration, exclusive jurisdiction or other clause, or where the court otherwise regards the foreign action as oppressive. There are numerous illustrations of anti-suit injunctions being granted in insurance and reinsurance cases.30
Many insurance and reinsurance disputes come before the English courts by way of an application for ‘negative declaratory relief’, ie an application by the underwriters to the English court that they have a right to avoid the policy or are otherwise not liable to meet any claim which may be made against them in future by the policyholder, almost certainly in a foreign court. At one time it was thought that this type of action was ‘forum-shopping’ and was frowned upon by the courts, but in the landmark decision in New Hampshire Insurance Co v Philips Electronics North America Corporation31 the Court of Appeal confirmed that this type of action was perfectly valid and that the English court should entertain the action as long as it: (a) serves some useful purpose, eg answers a point of English law raised by the policy;32 (b) does not undermine existing foreign proceedings;33 and (c) does not require the court to answer a purely hypothetical question or a question which the claimant has only an indirect interest.34
2.3 EU cases: general rules
The general rules relating to jurisdiction as between EU Member States are laid down in Council Regulation 44/2001. Those rules have no application to ‘matters relating to insurance’, but remain relevant to reinsurance and also to disputes between insurers as these are not ‘matters relating to insurance’.35 It suffices to make the following points on the general rules in the Regulation:
(a) The general principle in Article 2 is that the defendant must be sued in the place of his domicile.
(b) There are various specialised alternatives to the domicile rule set out in Article 5, and if any of these applies then the defendant can, in the alternative, be sued in the jurisdiction pointed to by the exception.
(c) The most important exception in the context of reinsurance is that in Article 5(1), namely that in ‘matters relating to a contract,’ the defendant may be sued ‘in the place of the performance of the obligation in question.’ There is a good deal of complex authority on Article 5(1) and its differently worded predecessor in the Brussels Convention, the general effect of which is that the obligation in question is the one upon which the action is founded and jurisdiction is conferred upon the courts of the country in which that obligation—or if more than one has allegedly been broken, the principal obligation—was to be performed.36 The most important decision in Article 5(1) for reinsurance purposes is Agnew v Lansforsakringsbolagens AB,37 in which the House of Lords by a bare majority held that a breach of the duty of utmost good faith by the reinsured constitutes a breach of an obligation, so that the reinsurers are entitled to seek negative declaratory relief in the jurisdiction38 where the presentation of the risk was made.
(d) If the parties have entered into an exclusive jurisdiction agreement, that agreement overrides the other jurisdiction rules in Regulation 44/2001 and the nominated court has exclusive jurisdiction (Regulation 23).39 The parties may also enter into a non-exclusive jurisdiction clause, in which case the nominated court has concurrent jurisdiction with any other court which possesses jurisdiction under the Regulation. A jurisdiction clause is binding only if the parties can be shown to have reached consensus on the point.40
(e) Where, as is perfectly possible under Regulation 44/2001, two or more courts have jurisdiction over a dispute involving the same subject-matter, the same parties and the same issues, Article 27 of the Regulation confers exclusive jurisdiction upon the court ‘first seised’41 of the action and that court must hear the case. If the actions in the two courts are merely ‘related’, in that they overlap but involve either different parties, different subject-matter or different issues, a court other than the court first seised has under Article 27 a general discretion to stay its proceedings and will do so if there is a risk of conflicting judgments in the two courts.42 This aside, there is no power for the court to stay its proceedings on the grounds of forum non conveniens.43 If there is a challenge to the jurisdiction of the court first seised, only that court may resolve the issue, and in particular it is not permissible for an English court to issue an anti-suit injunction to prevent an action being brought in a jurisdiction other than that agreed, as the jurisdiction of the court first seised is a matter for that court alone.44 The principle that an anti-suit injunction may not be issued by the English court has, contrary to the view of those courts,45 been extended by the European Court of Justice to arbitration proceedings.46
(f) A court will have exclusive jurisdiction even if it would not have had jurisdiction under the rules of Regulation 44/2001 if proceedings are commenced in that court and the defendant submits to the jurisdiction by defending the case on its merits rather than raising any objection: see Article 24.
(g) Under Article 6, a third party over whom there is no independent jurisdiction may be joined to proceedings where it is expedient to do so. If there is an action in England against a reinsurer domiciled in this jurisdiction, Article 6 can be used to join a reinsurer domiciled in another Member State if the terms of the two contracts are identical and the same issues arise with respect to both of them.47
2.4 EU cases: special insurance rules
Articles 8 to 14 of Regulation 444/2001 set out special rules on jurisdiction which affect ‘matters relating to insurance’, a phrase referring to any dispute between the parties arising out of a policy.48 The rules are designed to protect the perceived weaker party the assured—against the insurers, by restricting the jurisdictions in which the assured can be sued by the insurers and by giving the assured an extended choice of jurisdictions in which to bring an action. The phrase ‘matters relating to insurance’ is not, however, confined to consumer policies and extends to all insurances irrespective of the size of the assured.49 The only exclusions are reinsurance,50 and contribution or similar actions between insurers.51
The basic rule in Article 12 is that the assured52 may be sued only in the Member State of his domicile, a provision designed to prevent the weaker party from being forced to defend an avoidance or similar claim in a foreign court. There is an exception to this principle where the claim arises out of the operations of the assured’s agent, in which case the action may be brought in the Member State where the agent carries on its operations (Article 5(5)). The insurers may also bring a counterclaim against the assured in the court where the assured’s claim has been brought even though the assured is not domiciled in that territory (Article 12(2)).53
The assured, by contrast, may bring an action against the insurers in the courts of the Member State in which the assured is domiciled (Article 9), in the courts of the Member State in which the insurers are domiciled (Article 8),54 or, if the insurers are not domiciled within the EU, in the courts of the Member State in which the insurers’ agent carried on its operations (Article 5(5)), at the assured’s option. Further alternatives are given in the case of insurance on real property, in which case the assured may sue in the place where the harmful event affecting the property occurred (Article 10), and in the case of liability insurance, in which case the assured may sue in the place where the events giving rise to liability occurred (Article 10). In a case where the law applicable to a liability policy recognises the right of a third party to bring a direct claim against a wrongdoer’s insurers,55 Article 11 affords the third party the same rights as if he had been the assured, so that an English-domiciled third party injured by a tort in, say, France, may bring an action against the insurers in England56 even though the court would not have had jurisdiction to hear a claim by the third party against the French tortfeasor himself.57
As a general rule the assured cannot contract out of his right to be sued only in his home Member State and his right to sue the insurers in any one of the various jurisdictions open to him under the insurance rules. However, Articles 13 and 14 of Regulation 44/2001 do permit exclusive jurisdiction agreements in a variety of circumstances. The most important of these (which are alternative and not cumulative) are that:
(a) the agreement has been entered into after the dispute has arisen, or the assured has otherwise submitted to the jurisdiction of the court in question, so that the assured can be seen to have acted voluntarily;
(b) the agreement extends the rights of the assured;
(c) the parties are both domiciled in the same Member State and the agreement confers exclusive jurisdiction on the courts of that Member State;58
(d) the assured is not domiciled within a Member State;
(e) the policy relates to transport risks59 or to large commercial risks.
Although it is not possible for the assured to contract out of the rights conferred upon him by Regulation 44/2001, it was held, somewhat curiously, in Vienna Insurance Group v Bilas60 that an assured who is sued other than in his home Member State and who fails to contest the jurisdiction of the court will be taken to have submitted to the jurisdiction of that court under Article 24 and will thereby have lost his right not to be sued there. The ECJ specifically refused to recognise any duty on the court to warn the assured of his right to contest its jurisdiction, although expressed the hope that a court faced with that situation would draw the assured’s rights to his attention.