Practice - Service out of the jurisdiction - Alternate forum available

Faraday Reinsurance Co Ltd v Howden North America Inc and another company: Queen's Bench Division, Commercial Court (Mr Justice Beatson): 1 November 2011

The claim concerned three excess layer policies (the policies) written by G Ltd, a firm dealing with indemnities, in respect of H Group Ltd, of which the defendants were members. The two defendant companies were in effect the same corporate entity (together, H Inc). With effect from November 2010, all three policies were transferred to the claimant company pursuant to section 111 (1) of the Financial Services and Markets Act 2000. The first policy was set out on a London underwriting slip and used London market abbreviations on its stamp. The second and third policies contained choices of English law and jurisdiction.

Since 2003, H Inc had been involved in litigation in Pennsylvania in the United States regarding liability in personal injury claims concerned with the use of asbestos (the Pennsylvania proceedings). Related mass tort proceedings had been in action since 1999. In August 2010, the claimant received a letter from H Inc's solicitors, giving notice of occurrences which, it was said, would entitle H Inc to claim under the second and third policies. That letter prompted the claimant to issue proceedings in the English courts in December 2010. In January 2011, H Inc confirmed that it intended to refer to the first policy. Permission was granted by the English court in respect of all three policies to serve out of the jurisdiction. In an application of July 2011, H Inc sought to set that permission aside.

The claimant contended that there was an implied choice of English law in the first policy and that English law was the law with the closest connection to that policy. The claimant sought declarations that: (i) the policies were governed by English law and subject to the jurisdiction of the English courts; (ii) as a matter of English law, effect had to be given to the periods under each policy during which G Ltd had been on cover; (iii) under section 1 of each policy, the claimant was liable to indemnify H Inc for any sums which H Inc might become legally liable to pay in respect of claims made against it for damages, costs and expenses in respect or in consequence of personal injury and/or damage to material property during the relevant policy period, and (iv) under section 2 of each policy, the claimant was liable to indemnify H Inc in respect of legal liability arising out of the matters set out in section 2 insofar as (a) claims were made against H Inc during the relevant policy period or (b) claims had subsequently been made against H Inc arising out of circumstances that could reasonably have been expected to give rise to a claim under section 2, and of which H Inc ought to have become aware during the relevant policy period. H Inc submitted that the claimant had failed to show that the instant proceedings were justified and served a useful purpose, as there was no dispute about the second and third policies which required resolution.

It contended that, in the case of the first policy, the claimant had instituted the proceedings in order to try and establish issue preclusion on the point in the Pennsylvania court or deference to it in that court, and submitted that a judgment by the English court granting the relief sought would not achieve that purpose. H Inc further submitted that, even if there was justification for the relief sought, Pennsylvania was the appropriate forum for the proceedings because of the longstanding insurance proceedings in Pennsylvania about the dispute between H Group and its various historical insurers.

It contended that there were other factors which made a hearing in Pennsylvania more appropriate, inter alia, that: H Inc did not have manufacturing facilities or offices in the United Kingdom, and that its asbestos liability arose exclusively in the US; H Inc's US lawyers had much experience in relation to its claims for cover; and the claimant was a subsidiary of an American-owned company. Consideration was given to the fact that the parties had not used an English standard form of policy, and that H Inc had conceded that the claimant had a good arguable case that the claim under the first policy was within Civil Procedure Rule PD 6B 3.1(6)(a) and (b), even if it was not governed by English law or did not fall within CPR PD 6B 3.1(6)(c).

The court ruled: (1) The mere fact that a policy had been placed in the London market might not be sufficient of itself, but the fact that it had been broked and issued in London would clearly be a material and important factor to be taken into account (see [61] of the judgment). On the true interpretation of the policies, there was indication of an intention that the relationship between the parties was to be governed by English law. The fact that the parties had not used an English standard form of policy would not be regarded as inconsistent with an implied choice of English law. The first policy was set out on a London underwriting slip, which referred to London market institutions and features such as the 'unique market reference' for numbering risks. Further, the stamp applied to it employed London market abbreviations.

Furthermore, under the underlying policy, claims would be notified to the brokers, who were based in London. Moreover, in the instant case, the claimant had much the better of the argument as to whether an implied choice of English law had been made (see [61]-[63] of the judgment).

On the evidence, the claimant had satisfied the jurisdictional gateway in CPR PD6B 3.1(c) as well as those in PD6B 3.1(a) and (b) (see [63] of the judgment). DR Insurance Co v Central National Insurance Co [1996] 1 Lloyd's Rep 74 considered; Gan Insurance Co Ltd and Eagle Star Insurance Co Ltd v Tai Ping Insurance Co Ltd [1999] Lloyd's Rep IR 472 considered; Stonebridge Underwriting Ltd v Ontario Municipal Insurance Exchange [2010] All ER (D) 57 (Sep) considered.

(2) The general principle that a court applied its own law more reliably than a foreign court would assist in identifying the appropriate forum. Although, formally an applicant for permission to serve out of the jurisdiction had to show an 'good arguable case', in the context of the jurisdictional gateways to service out, the court would require a higher standard, formulated by asking 'who has the better of the argument?' (see [46], [66] of the judgment).

In the instant case, the conclusion that the claimant had the better of the argument on proper law would be a strong pointer to the appropriate forum being England. Further, if the proceedings were to remain constituted as they were, without a counterclaim from the first defendant, the trial would be able to come on quickly. Several important potential witnesses regarding any claim for a declaration as to the proper law of the first policy were all in the UK. If the issue of what constituted 'injury' or a 'single occurrence' arose, England would be the appropriate forum.

A number of other factors relied on by H Inc were of limited relevance or outweighed by other factors: the fact that H Inc did not have manufacturing facilities or offices in the UK, and that its asbestos liability arose exclusively in the US had to be set against the fact that the insurance was composite insurance arranged on a group basis, that H Group operated worldwide, that cover in the first policy was worldwide, and that the business was placed in London, by London brokers, with a London underwriter.

H Inc's US lawyers undoubtedly had much experience in relation to its claims for cover, but the issues between the parties in the instant proceedings concerned choice of law and questions of English law. In that context, the experience of H Inc's US lawyers was of less significance. Similarly, the fact that the claimant was an indirect subsidiary of a United States corporation was also of very limited relevance because it was independently managed from London (see [66], [71] of the judgment).

In the circumstances, Pennsylvania would not be the more appropriate forum for the issues (see [74] of the judgment). New Hampshire Insurance Co v Philips Electronics North America Corpn (No 2) [1998] All ER (D) 235 applied; Canada Trust Co v Stolzenberg (No 2) [1998] 1 All ER 318 applied; Cecil v Bayat [2010] All ER (D) 25 (Apr) applied; Cherney v Deripaska [2009] 1 All ER (Comm) 333 considered.

(3) It was established that a party could have a legitimate commercial need to obtain an early determination as to a matter concerning his liability to another who might seek to claim against him (see [77] of the judgment). If the matter was considered as at the time that the claimant instituted the proceedings, the claimant undoubtedly had a legitimate interest in asking the court to decide the issue as to the applicable law under the three policies.

On the evidence, the claimant's interest was neither academic or hypothetical. Provided that the approach in applications for negative declarations was applied, the more limited nature of the relief sought or the fact that that relief might obviate the need for further proceedings was not a reason for requiring a higher threshold. With regard to the first policy, the instant case was not one in which it could be said that the proceedings served no useful purpose because the determination of the English court (which would bind the first defendant as a matter of English law) would be ignored by the Pennsylvania court.

The submission that the Pennsylvania court would accord a decision of the English court on proper law deference did not sit comfortably with the proposition, on which there was common ground, that the Pennsylvania court would apply its own conflict of laws principles, just as an English court would. Further, it was not possible to say at the instant stage that the claimant's evidence on issue preclusion was such that the court could conclude that it had not shown that the instant proceedings had no utility.

Regarding the second and third policies, further evidence would be required on the issue of whether the fact that the concession applied to all coverage under the policies in respect of the first defendant's asbestos personal injuries liabilities ought to be embodied in an undertaking given to the court to assist its enforceability by the claimant (see [77], [79], [80]-[84] of the judgment). The claimant had a legitimate interest in having the proper law established with regard to the first policy. The order permitting service out of the jurisdiction, and that service itself, would not be set aside (see [86] of the judgment).

New Hampshire Insurance Co v Philips Electronics North America Corpn (No 2) [1998] All ER (D) 235 applied; CGU International Insurance plc v Szabo [2001] All ER (D) 69 (Nov) applied; Irish Shipping Ltd v Commercial Union Assurance Co plc, The Irish Rowan [1989] 3 All ER 853 considered; Stonebridge Underwriting Ltd v Ontario Municipal Insurance Exchange [2010] All ER (D) 57 (Sep) considered.

John Lockey QC (instructed by Barlow Lyde & Gilber) for the claimant; Richard Jacobs QC (instructed by Covington and Burling LLP) for the defendants.