By a judgment handed down on 10 September 2010 in Stonebridge Underwriting Ltd v Ontario Municipal Insurance Exchange [2010] EWHC 2279 (Comm), the Commercial Court held that a contract of reinsurance entered into between an Ontario insurer and a Lloyd's Syndicate was subject to English law, on the basis that the reinsurance was subject to an implied agreement in that respect – having been placed by a London broker with a London reinsurer and incorporating a number of London market standard clauses. The judge found this to be of "considerable significance" in reaching a decision that it should exercise jurisdiction on the basis the English Court was the proper place (or forum conveniens) for the resolution of the dispute.

Background

Stonebridge, the excess of loss reinsurer of OMEX, a Canadian mutual insurance carrier, brought a claim in the English Courts for a declaration that it was not liable to pay sums claimed by OMEX (in respect of which OMEX had brought prior proceedings in Canada). The reinsurance pursuant to which the dispute had arisen, which was placed by JLT London on the London market, covered OMEX in respect of its liability arising out of or in connection with the activities of the original insured, during the period from 1 July 2001 to 31 December 2002. It was written in "slip policy" form and incorporated various standard London market clauses. The reinsurance was also subject to a claims cooperation clause, expressed to be a condition precedent to reinsurers' liability, which provided inter alia that:

"The Reinsured shall, upon knowledge of any loss or losses which may give rise to a claim under this Policy, advise the Reinsurers thereof as soon as it is reasonably practicable and in any event within 30 days."

However, the reinsurance was silent on the question of its governing law and the jurisdiction under which any disputes under it were to be resolved.

The issues

The substantive issues between the parties concerned matters of contractual construction, namely the proper operation of (i) the aggregate annual deductible in the reinsurance and (ii) the claims cooperation clause. Stonebridge contended that OMEX had failed to exceed the annual aggregate deductible and thus no sums were due under the reinsurance. However, even if that were not the case, Stonebridge argued that OMEX was in breach of the notification provision of the claims cooperation clause such that, by virtue of the fact that it was expressed to be a condition precedent, OMEX had no claim.

The governing law and jurisdiction of the reinsurance was a critical issue between the parties since it was anticipated that an Ontario Court would apply Ontario law to the reinsurance. In that case, OMEX would probably be able to rely upon a "relief from forfeiture" provision in Ontario law such that it could recover under the reinsurance notwithstanding any breach of the claims cooperation condition precedent.

Following the commencement by OMEX of recovery proceedings in Ontario, Stonebridge accordingly brought proceedings in the English Commercial Court seeking declarations as to the effect of the reinsurance and a consequential declaration that it had no liability to indemnify OMEX. Permission to serve the Claim Form out of the jurisdiction was sought by, and granted to, Stonebridge and OMEX applied to set aside the order based on its contention that England was not the proper forum for resolution of the dispute.

The decision

To obtain leave to serve the Claim Form outside the jurisdiction of England and Wales it was necessary for Stonebridge to show that there was a good arguable case that each of the relevant grounds of action fell within one of the relevant grounds of CPR Rule 6, Practice Direction 3.1 and that the claim had realistic prospects of success. OMEX in fact accepted that such matters had been established by Stonebridge; however, it argued that this did not lead to an inevitable conclusion that the English Court was the proper forum for any dispute under the reinsurance to be resolved. Rather, OMEX argued that in not having expressly agreed a governing law in the reinsurance, the parties accepted that the applicable law, once established according to private international rules, could be applied by any court of competent jurisdiction which was presented with a claim. OMEX accordingly contended that the Ontario Court was the proper forum for resolution of the dispute, being the Court first seised of the matter.

In considering the arguments raised by the parties, Clarke J concluded that Stonebridge had "much the better argument" for saying that the correct inference was that the parties to the reinsurance impliedly chose English as its governing law. Indeed, Clarke J suggested (in line with the decision of Hobhouse LJ in Vesta v Butcher [1986] 2 Lloyd's Rep 179) it would be surprising for a policy on a Lloyd's slip and broked through a Lloyd's broker with a Lloyd's underwriter on behalf of a Lloyd's Syndicate to be governed by laws other than those of England and Wales – particularly when the contract in question also referred expressly to certain Lloyd's market clauses, themselves used habitually in English law contracts. The judge further suggested that those responsible for negotiating the reinsurance must (or naturally would) have regarded the parties for whom they acted as subject to the good faith obligations habitually applicable between the parties to an English contract of insurance and, accordingly, as subject to the condition precedent contained in the claims cooperation clause.

Clarke J considered it followed that the implied choice of English law by the parties was of considerable significance when determining the proper forum for the resolution of the dispute. This was, in his view, because (i) the choice of the only alternative venue for resolution of the dispute (namely Ontario) could deprive Stonebridge of the benefit of the parties' choice of English law, and particularly the operation of the claims cooperation condition precedent, (ii) the dispute as to the proper construction of the reinsurance was, in his view, particularly suited for determination by the English Commercial Court given its experience in resolving reinsurance disputes (whereas the Ontario Court was said to have little experience of dealing with this type of policy), and (iii) some evidence of the circumstances of the placing of the slip might be relevant for the proper construction of the reinsurance as a matter of English law, which evidence was likely to be located in London. These factors led to his finding that the appropriate forum for the resolution of the dispute was England, a conclusion he would have reached in any event had he found the reinsurance was subject to English law on the "closest connection" test rather than based on implied choice. In the latter case, Clarke J felt that an English Court also ought to regard it as an important factor in retaining jurisdiction if the foreign Court would not apply English law, being the law applicable by international obligation (the Rome Convention) as a matter of English private international law.

It should also be noted that while the judge indicated that the existence of concurrent proceedings was a factor to be taken into account in considering which was the appropriate forum for resolution of a dispute, this was not in itself considered to be a reason to decline jurisdiction. Indeed, in this case, Clarke J noted that the English proceedings were more developed than those in Ontario notwithstanding the Ontario proceedings having been commenced first. In his view, the existence of those proceedings did not outweigh the factors in favour of English jurisdiction and nor did the possibility that Canadian witnesses might have to give evidence as to the limits of their knowledge (which the judge indicated could take place by video-link).

The judge, accordingly, declined to grant an order setting aside the service of the Claim Form on OMEX.

Comment

The Stonebridge decision provides both a useful summary of the factors which may be taken into consideration by the English Court when considering the governing law of a reinsurance contract which is silent on the issue, and confirms that a reinsurance placed in the London market by London brokers is likely to be found to be subject to English law absent any indication to the contrary, and particularly if it contains standard London market terms. Once a reinsurance is found to be subject to English law, this case makes clear that the English Court is also likely to reach the view that it is the most appropriate forum to handle matters of English reinsurance law. That is all the more so if any competing jurisdiction will apply a different law and with a different result. It is of course in the latter situation where a dispute over the appropriate forum is most likely to arise.