Ask an English insurer where they would prefer a coverage dispute to be heard and they will select England: the jurisdiction is stable, predictable and English law is more likely to prevail. Ask the insured and they are likely to give you a very different answer, preferring to shop around for the forum which will squeeze the most out of their insurer. The result? Very often a race to judgment in two competing jurisdictions. Two recent Court of Appeal decisions seem to have muddied the waters on when an English court will give up its right to hear a claim in the face of parallel overseas proceedings. What can insurers do now to see off a challenge to the English courts’ jurisdiction?
In Faraday Reinsurance Co Limited v Howden North America1 and Ace European Group Ltd & Ors v Howden North America2, two cases handed down late last year, two very similar fact patterns emerged. In Faraday, insurers sought a declaration on policy interpretation from the English court. Howden retaliated by joining insurers to proceedings in Pennsylvania, a jurisdiction which casts a wider net on insurers’ potential liability for asbestos claims. In Ace, insurers were joined to the same Pennsylvanian proceedings as Faraday. The insurers in turn issued their own claim in England two months later, asking the English court to rule on policy interpretation to guide the Pennsylvania court on liability. In both cases, Howden resisted the jurisdiction of the English court, arguing that the Pennsylvanian proceedings meant that the English claims had no ‘utility’ (purpose), since the Pennsylvanian court would not be bound by an English judgment. In both cases, the Commercial Court found against Howden, confirming that the English proceedings did have utility and therefore the challenge to jurisdiction was declined. Howden appealed both decisions of the Commercial Court.
In Faraday, Longmore LJ held that appeals on points of jurisdiction such as the one made by Howden should not be entertained lightly due to the associated delays and expense. The Court dismissed Howden’s challenge and retained jurisdiction, notwithstanding the parallel proceedings overseas. Specifically, Longmore LJ stated that a decision of a first instance judge as to whether proceedings had ‘utility’ could be characterised as an exercise of discretion, meaning that the Court of Appeal should generally be reluctant to interfere in the exercise of that discretion. Faraday appeared to confirm the point that English proceedings could still have utility, notwithstanding the existence of parallel proceedings overseas. This decision gave insurers some comfort that they could still obtain declarations from an English court in spite of competing proceedings overseas. It also appeared less likely that insurers would face the delay and expense involved with appeals on utility, since the Commercial Court should be given latitude to decide utility for itself.
The ink had barely dried on the Faraday judgment when last month, the Court of Appeal handed down a very different judgment in Ace. On very similar facts, the Court ruled that an English declaration would not have ‘utility’. The Court of Appeal latched on to preliminary comments made by the Pennsylvanian judge (after the decision in Faraday) that it was unlikely that English law would apply and, even if it did, the Pennsylvanian court could consider evidence on English law, without the need for an English judgment. The Pennsylvanian judge was ‘experienced and well respected’. Aikens LJ went so far as to state that the notion of the English courts issuing a declaration to assist the Pennsylvanian judge was ‘presumptuous and condescending.’ The Court of Appeal also explicitly rejected Longmore LJ’s suggestion that judgments on the issue of ‘utility’ could be characterised as exercises of discretion, meaning that the Court should review the facts and was free to overturn the first court’s decision as it saw fit.
How to reconcile these seemingly conflicting decisions? Crucially, Faraday’s claim in England predated the Pennsylvanian proceedings by a couple of weeks, whereas in Ace the English proceedings were issued two months after the insurers were joined to Pennsylvanian proceedings. The timing of the overseas proceedings relative to the English proceedings was an important factor in determining whether there was any utility to the English proceedings.
Where does this leave insurers and how should they protect their position? It is critical at the onset of a dispute that insurers consider moving quickly and issuing their claim in England before an overseas claim has begun. Insurers will also boost their prospects of success if:
- there is a real possibility that the overseas court will apply English law to the policies;
- evidence shows that the overseas court will find an English decision persuasive (particularly true of commonwealth jurisdictions);
- the overseas court has a reputation for delays and/or is perceived to be corrupt; or
- insurers can demonstrate the need for an English judgment to resist enforcement of a potentially perverse overseas judgment.
Finally, despite Longmore LJ’s warning that the appeals process can be hijacked by parties for tactical reasons, it appears that the courts’ enthusiasm for allowing appeals on points of jurisdiction remains undiminished. Nevertheless, it is still possible for insurers to have the upper hand.