In Amlin Corp and Others v. Oriental Assurance [2012] EWCA Civ 1342, the Court of Appeal was required to consider whether reinsurance containing an identical clause in dispute as in the underlying insurance constitutes an exception to the general rule that a stay of proceedings can be granted only in rare and compelling circumstances.

  1. Background

Oriental was the cargo liability insurer of Sulpicio, the owner of a passenger cargo vessel which capsized and was lost off the coast of San Fernando, Romblin, in the Philippine Islands in June 2008 after sailing into the midst of typhoon "Frank".

The cargo owners claimed against Sulpicio in a number of actions in the Philippines, and Sulpicio in turn claimed an indemnity from Oriental.  Oriental was reinsured by various Lloyd's syndicates in respect of its insurance of Sulpicio, on an excess of loss basis.  The reinsurance contract incorporated the conditions of the underlying insurance policy and contained a "single proviso" follow provision in the following terms:

"To follow all terms, conditions and settlements of the original policy issued by the Reinsured to the Insured, for the period specified herein, in respect of sums and interests hereby reinsured…"

Both the reinsurance and the underlying insurance also contained the following typhoon warranty:

"Notwithstanding anything contained in this policy or clauses attached hereto, it is expressly warranted that the carrying vessel shall not sail or put out of Sheltered Port when there is a typhoon or storm warning at that port nor when her destination or intended route may be within the possible path of the typhoon or storm announced at the port of sailing, port of destination or any intervening point.  Violation of this warranty shall render this policy void."

The reinsurance contract, unlike the underlying insurance, was subject to English law and jurisdiction.    

  1. The High Court Proceedings

In November 2010, the reinsurers issued a claim form in the English High Court seeking declarations that they were not liable to indemnity Oriental under the terms of the reinsurance contract on the basis, inter alia, that there was a breach of the typhoon warranty such that the reinsurance contract was void or, alternatively, the reinsurers were discharged from liability.

Oriental applied for an order that the proceedings be stayed pending the outcome of the claims against it before the Philippine Courts, where the same issue was in dispute.

Andrew Smith J dismissed Oriental's application for a stay of the English proceedings on the basis that he considered the "rare and compelling circumstances" required for the grant of a stay were not present.  He rejected Oriental's argument that the reinsurers would be bound by any findings of fact in the actions in the Philippines by virtue of the follow provision and also rejected the suggestion that the natural expectation of the parties was that any claim under the reinsurance contract would be resolved only after the determination of the underlying insurance claims. 

Andrew Smith J further held that (i) any risk of inconsistent decisions in the Philippines and England resulted from the choice of exclusive English jurisdiction agreed by the parties to the reinsurance contract, (ii) any evidence which might be relevant to the reinsurance position should be available before the trial of the reinsurance action, and (iii) if a stay were granted, the delay in the English proceedings would be substantial and of legitimate concern to the reinsurers.  

  1. The Appeal

Oriental appealed on three grounds:

  1. Oriental argued that the risk of inconsistent verdicts in the Philippine and English Courts militated strongly in favour of a stay because the exposure to such a risk was contrary to the intention of the reinsurance contract (including the follow provision) and to the natural expectation of those trading in the insurance/reinsurance market.  It was Oriental's case that the starting point in reinsurance subject to a follow provision should be that reinsurers should wait for the reinsured to settle a claim and only then to address the question of their own liability.  On that basis, reinsurance would be an exception to the normal rule that a stay of proceedings properly brought could only be granted in rare and compelling circumstances.
  2. Oriental also argued that the judge gave excessive weight to the exclusive English jurisdiction clause in the reinsurance contract.  Oriental relied in particular on the fact that the position adopted by the reinsurers placed Oriental in an inherently unfair position, in which it would have to assert in England that the typhoon warranty did not apply - the precise opposite of its real case as asserted in the Philippines.
  3. Oriental also considered that Andrew Smith J gave excessive weight to the delays inherent in the Philippine Court system, suggesting that such delays were inherent in the risk the reinsurers agreed to reinsure.

The Court of Appeal unanimously agreed that the appeal should be dismissed.  The Court of Appeal was clear in rejecting any suggestion that reinsurance constitutes a general exception to the usual rule that a stay of proceedings can be granted only in rare and compelling circumstances, and considered that Andrew Smith J had given proper consideration to the various arguments raised by Oriental and exercised his discretion appropriately in refusing to stay the proceedings. 

It should be noted, however, that the Court of Appeal made clear its lack of enthusiasm in reaching its decision.  Indeed, Rimer LJ indicated that despite his view, he had been left at the conclusion of argument in the appeal "with an instinct that the apparent unfairness of the position in which the judge's order places Oriental must mean that there was something wrong with his decision."  Tomlinson LJ similarly commented that by pressing ahead with their claim for negative declaratory relief: "these giants of the London insurance market have placed their reinsured Philippine minnow in a hopeless and invidious position."  As Tomlinson LJ also commented, however, "[a] conclusion does not have to be reached with enthusiasm in order to be right."  

  1. Comment

It is not clear from the Court of Appeal's decision whether it was argued at first instance that the reinsurers would be bound by the finding of the Philippine Court on the effect of the warranty as a result of an implied term as set out by Potter LJ in obiter dicta in Commercial Union v. NRG – namely that the judgment of a foreign court as to the reinsured's original liability should be treated as binding on reinsurers (provided that certain criteria are established, including the reinsured taking all proper defences).  If it was, it appears that the Judge took the view that the express warranty in the reinsurance itself meant liability as a matter of English law as between reinsured and reinsurer still needed to be proved.

On that basis, it would always be open to reinsurers to contest liability pursuant to the express reinsurance wording regardless of any follow provision in the reinsurance itself (albeit the position should be different if the warranty had simply been incorporated, say, by the operation of a full reinsurance clause).  Once that is recognised, the issue before the Court was simply whether the reinsured should be required to run inconsistent cases in the Philippines and England (with a risk of inconsistent results), or the reinsurers should be required to await the outcome of the underlying case – a delay of potentially 10 years due to the "glacial pace" of litigation in the Philippines.

Reinsurers will be relieved that the general approach is that English litigation should proceed – a result which is perhaps not unexpected given the parties' choice of England as the forum for the resolution of any disputes between them.