Stonebridge Underwriting Limited v Ontario Municipal Insurance Exchange
The reinsured, a Canadian not-for-profit reciprocal insurance exchange (similar to a mutual), ran two risk pools that provided insurance cover to a number of municipalities in Ontario.
The pools were administered by Jardine Lloyd Thompson Canada. Excess of loss reinsurance cover for 2001/2002 was placed in the Lloyd's market by JLT Risks Solutions Limited in London.
The reinsurance policy was on a typical Lloyd's slip policy form and incorporated a number of standard London market terms. But it did not contain a choice of law or jurisdiction clause.
It did include a claims cooperation clause, which made it a condition precedent that the reinsured should "upon knowledge of any loss or losses which may give rise to a claim under this policy" notify reinsurers as soon as practicable and in any event within 30 days.
Reinsurers denied claims made under the policy. They argued that, on the proper construction of the excess provisions, the reinsurance cover had not been triggered at all. Alternatively, they said that the reinsured had breached the condition precedent because it had been late in notifying several very large road traffic accidents.
The reinsured issued proceedings in Ontario in January 2010. In February, reinsurers issued proceedings in London for declarations that they were under no liability. The reinsured applied to set those proceedings aside on the ground that England was not the proper forum for the dispute.
In the absence of a jurisdiction clause, reinsurers had to show that England was clearly and distinctly the most appropriate forum for the claim to be tried.
Various factors are taken into account by the court, including where the dispute has its most real and substantial connection, the nature of the dispute, the applicable law, the location of the parties and likely witnesses and considerations of costs, convenience and expense.
In jurisdiction disputes involving reinsurance, the applicable law of the contract is likely to be a significant factor. Since this contract did not contain a choice of law clause, the Rome Convention applied.
Under the Convention, a contract is governed by the law chosen by the parties which must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case.
In the absence of an express or implied choice of law, the contract is governed by the law of the country with which it is most closely connected. It is presumed that this will be where the party who is to effect the performance characteristic of the contract is based.
Reinsurers argued that the parties had made an implied choice of English law because the contract had been placed in London by London brokers with London reinsurers and incorporated standard London market clauses.
Consequently, it was more appropriate for the English court to decide the true construction of the reinsurance.
The reinsured accepted that there was a strong chance that the court would conclude that English law applied, though on the grounds that the party carrying out the characteristic performance of the contract (providing the indemnity) was based in London.
But it maintained that the fact that the parties had chosen not to make a choice of law showed that they were content to have the applicable law decided according to the rules applied by any court of competent jurisdiction before which any claim was brought.
In this case, the Ontario proceedings had been brought first so, the reinsured argued, it should be left to the Ontario court to decide the applicable law.
The judge agreed with reinsurers that the parties had made an implied choice of English law. He thought it would be surprising if a policy on a Lloyd's slip broked though a Lloyd's broker with a Lloyd's underwriter on behalf of a Lloyd's syndicate was governed by a law other than that of England, particularly when the contract was replete with references to London market clauses.
This implied choice was of considerable significance to the question of jurisdiction.
In the judge's view, the only alternative venue (Ontario) might deprive reinsurers of the benefit of English law, to which the parties had impliedly agreed. There was a risk that an Ontario court would apply Ontario law, which includes a provision that could deprive reinsurers of the benefit of the condition precedent. Reinsurers would have to pay a claim when there was a valid defence under English law.
Secondly, the judge thought that the chief subject matter of the dispute - the true construction of the excess provisions and the claims cooperation clause - was particularly suited for determination by the English Commercial Court, which has considerable experience in deciding reinsurance disputes between reinsureds and Lloyd's underwriters.
Evidence of the circumstances and context in which the slip was signed might also be relevant, including evidence of previous placements, market practice and understanding. Any such evidence was likely to be located in London.
The fact that the reinsured had issued its proceeding in Ontario first was of no significant weight. Nor was the fact that it had recently begun proceedings against its Canadian brokers, since it was open to the reinsured to join them to the English proceedings.
The decision confirms that a reinsurance policy placed in the London market by London market brokers will almost certainly be held to be governed by English law unless there is an express provision to the contrary, and the presumption follows that England is likely to be the most convenient forum.
Although the judge based his decision on the basis of an implied choice of English law, he said he would have reached the same conclusion had English law been the applicable law because it was the place of characteristic performance of the reinsurance contract.
