On 6 October 2010 the Court of Appeal handed down judgment in Gard Marine Energy Ltd v Lloyd Tunnicliffe, Glacier Reinsurance AG and Agnew Higgins Pickering & Company Limited [2010] EWCA Civ 1052. Glacier Re were appealing the decision of Hamblen J which permitted Gard (a Bermudian company) to bring proceedings against it in the English Commercial Court in respect of its participation in a contract of excess of loss reinsurance on the grounds that the English Court had jurisdiction under Article 6(1) of the Lugano Convention.

The facts

Gard insured Devon Energy Corporation for property and business interruption risks. The policy had a limit of $400 million for any one accident or occurrence excess of a self insured retention for losses arising out of a named windstorm in the Gulf of Mexico. Gard had a 12.5% line from August 2004 and on renewal in August 2005 it arranged excess of loss reinsurance through brokers Agnew Higgins Pickering & Company Limited for losses in excess of a deductible of $250 million.

The excess of loss reinsurance was led by Lloyd's. At the September 2005 renewal the brokers sought additional participants and contacted Glacier Re who agreed to underwrite a line of 5% of the 12.5% Gard line (the "Glacier Re Slip"). A number of other underwriters (including the first Defendant Advent Syndicate 780 and Map Syndicate 2791) subscribed to 7.5% of the 12.5% (the "Main Slip").

In September 2005 Devon sustained damage in the Gulf of Mexico in the wake of Hurricane Rita. It settled its insurance claim in respect thereof in the sum of $365 million (Gard paying $46.625 million) and claims were subsequently pursued against the excess of loss reinsurers. These were calculated on the basis of scaling (which took the total value of the assets insured under the primary policy as the excess point). The effect of the scaling approach was that the reinsurance was deemed to cover the loss at a lower level; $115 million as opposed to the $250 million deductible as (as stated in the slips). Glacier Re's liability was assessed at approximately $13.05 million. Certain of the reinsurers agreed to settle on this basis, but others, including Advent and Glacier Re did not. They contended that the full level of the deductible applied. Glacier Re paid $5.75 million in January 2007 on the claim as presented under a reservation of rights and Advent and Map paid out on the same basis.

In March 2007 Gard commenced proceedings in the English Commercial Court against Advent, Map and Glacier Re for the balance of the sums which it claimed were due. Glacier Re objected to the jurisdiction of the English Court and commenced separate proceedings in Switzerland. The English action was subsequently stayed pending the determination of the Swiss proceedings which later concluded when the Swiss Courts declined jurisdiction. The English proceedings duly recommenced and in October 2009 Hamblen J dismissed Glacier Re's challenge on the grounds that jurisdiction was founded under Article 6(1) of the Lugano Convention.

Applicable regime

The Lugano Convention applies to jurisdictional disputes between the EU Member States and those of Iceland, Norway and Switzerland. Its provisions largely mirror those found under Council Regulation (EC) No. 44/2001 (the Brussels Regulation) which applies throughout the EU, with the exception of Denmark. Article 6(1) of the Lugano Convention allows parties to depart from the general rule that a defendant must be sued in its home state by allowing an action to brought against a defendant domiciled in a different member state in jurisdictions in which other proceedings are extant. It states:

"A person domiciled in a Contracting State may also be sued:

1. where he is one of a number of defendants, the courts for the place where any one of them is domiciled;"

This provision (and the equivalent under the Brussels Regulation) will only apply however where it is expedient to hear the matters against a defendant together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings (Kalfelis v Schroeder, Muenchmeyer, Hengst & Co [1988] ECR 5565). This principle is codified under the Brussels Regulation. Glacier Re contended that the Court should take a narrow view as to what would constitute irreconcilable judgments in light of the decision of the ECJ in Roche Nederland BV v Primus [2006] ECR 1-6535. In that case the Advocate General said that for there to be conflicting judgments there must be a commonality of fact and law between the cases which could not be inferred where the defendants, causes of action and applicable law were not the same. The Court of Appeal accepted that the risk of irreconcilable judgments must arise in the context of same situation of fact and law, but it did not go so far as to identify specific factors which would be determinative to that analysis (cf. Roche). Lord Justice Thomas left the position open and simply noted that it is "necessary for a national court to look at all the factors". This accords in broad terms with the approach of the English Courts in construing the equivalent provision of the Brussels Regulation in the context of insurance and reinsurance disputes.

Facts to be considered

Glacier Re argued that its dispute with Gard regarding the sums due under the Glacier Re Slip differed materially to that between Gard and the underwriters subscribing to the Main Slip on two grounds:

  1. The Glacier Re Slip was subject to Swiss law (not English law, like the Main Slip) and as such there would therefore be no risk of divergence on the application of the same law as between the construction of the two slips.
  2. There were a number of differences as a matter of fact between the Glacier Re Slip and the Main Slip and the respective placements thereof. Together, these had the effect that the dispute between Glacier Re and Gard did not arise out of the same situation of fact (Roche).

The Court considered each point in turn.

Applicable law

The Glacier Re Slip did not contain a choice of law provision and therefore according to the provisions of Articles 3 and 4 of the Rome Convention (as incorporated by the Contracts (Applicable Law) Act 1990) the applicable law would be either (1) the demonstrable choice of law or (2) the law of the state with which the reinsurance has its closest connection.

The Court of Appeal was satisfied that the applicable law was English on both counts.

The Court were not convinced that there had been a presentation of the risk to the Swiss market as contended for by Glacier Re. The fact of a separate slip and the small material differences between the wordings of the two slips did not mean that there was a separate placement. There was only one placement in the Court's view and it identified a number of points which indicated that English law was the real choice by the parties to that placement:

  • The excess of loss reinsurance was a London market placement. It was placed using a London market form, London market provisions and through a London broker. The fact that the broker approached a reinsurer in another state, as here, does not indicate that the risk is being placed in a different market. Glacier Re were accepting a participation in a share of a London placement.
  • The different slips were of no significance The Court noted that it is common for overseas subscriptions to be set out on separate slips.
  • The Court said that commercially that it would be nonsensical for one part of a reinsurance to be governed by one system of law and another to be governed by a different system.
  • The underlying document was governed by English law and although there can be a different choice of law for the reinsurance, it would be more usual for the parties to chose that the reinsurance be governed by the same law as the underlying reinsurance to seek to ensure that the provisions can be interpreted consistently.
  • The form used for both the Glacier Re Slip and the Main Slip was a London market form. The Court said that the use of a standard form governed by the particular system of law is an indication of the real choice of law by the parties. In this case the use of a J(A) Form, London market terminology and London market clauses were a clear indication of a real choice of English law.

The Court discussed briefly with which law the reinsurance has the closest connection. It took the view that the contract had its closest connection with England. It felt that the presumption in favour of Swiss law (Article 4.2 of the Lugano Convention) which arose in view of the obligation to pay in Switzerland was rebutted by the other factors referred to above.

A difference of fact?

On the assumption that English law applied to the two disputes, the Court assessed whether there was a risk of irreconcilable judgments if the disputes were to be separately determined. The Court held that the principal issue in each dispute (namely the construction of the reinsurance as to the point where the reinsurance applies) was the same. The background factual matrix to each dispute was also considered to be identical in all material respects in terms of the timing and manner of the placements and the (relevant) terms of each slip. Further, whilst it was accepted that there were differences in the legal bases of the defences raised by the parties as to what occurred during the placement, the Court held that the more important factor was that the legal issues arise out of the same facts. In the context of placement of insurances and reinsurances this was described as the same "continuum of events". Lord Justice Thomas stated:

"Although what was said or written to each participant may of course differ … it would be wrong to categorise those differences as giving rise to a different factual situation, given the way such placements are made."

The fact that the brokers were only party to the English proceedings was also dismissed as irrelevant to the analysis as they were relevant to the factual matrix of each dispute.

Commentary

The Court of Appeal were pragmatic in their approach to the assessment of the application of the Lugano Convention in the context of reinsurance placements. Lord Justice Thomas made reference to the very real commercial need to bring certainty to disputes arising in the course of international placements in the financial markets (to include insurance and reinsurance). He rightly noted that it would not be in the interests of "the proper working of these markets if disputes relating to the same issues on the same placement were determined by different tribunals" particularly as "the risk of irreconcilable judgments would be particularly damaging to financial markets, as it would give rise to uncertainty and impede the speedy resolution of disputes which is so important to the proper functioning and stability of those markets".

The approach taken by the Court of Appeal confirms a wider approach generally to London market placements. The English Courts, and particularly the Commercial Court in London are conscious that they have considerable experience and expertise in London market insurance and reinsurance disputes. Their starting point and inclination is more and more towards a finding that English law governs such disputes, and that they should exercise jurisdiction over them.