Forum Shopping:
A Question of Timing?

by Nathan Hull and Nicole Gow (London)

Insurance arrangements are often multi-jurisdictional since the risks insured and the markets in which they are placed are seldom in the same place. In the absence of clauses expressing the parties' intentions as to the applicable law and jurisdiction, an insurance dispute may be preceded by a battle to secure the jurisdiction of the court whose rules and laws are most favourable. The recent Court of Appeal decision in Howden North America Inc & Anr v Ace Eruopean Group Ltd & Ors [2012] EWCA Civ 1624 illustrates that there is no guarantee that an English court will find England to be the appropriate forum in insurance cases where the policy is placed in London by London brokers.

BACKGROUND

Howden North America Inc & Anr (HNA) faced a number of claims in the US arising out of alleged exposure to asbestos from fans, rotary heat exchangers, compressors and other gas handling equipment it manufactured. HNA sought to claim its costs relating to the third party claims, from the policies in its excess public and product liability policy programme (the Howden Insurance Programme), to which various insurers, including Ace European Group Ltd, (the Insurers) had subscribed. The policies were placed in the London market, through London brokers, and were denominated in sterling. Six out of the fourteen policies in the Howden Insurance Programme had express English law and jurisdiction clauses, while the other eight contained no such clauses.

HNA initiated a number of claims in the Pennsylvanian courts against the Insurers, two of which (the 2009 and 2011 Pennsylvanian Actions) were still under consideration in the Pennsylvanian courts when the Insurers issued English proceedings against HNA. The Insurers sought declarations from the English courts that the implied choice of law of the eight policies that did not contain choice of law and jurisdiction clauses, was English law, and that on a proper construction of the policies, the Insurers were not liable for claims where the injury did not occur during the policy period or where the claims were not brought during the policy period. These declarations reflected the English law position on liability under excess public and product liability policies, as opposed to the position under Pennsylvanian law, which provides for multiple triggers of insurance from exposure to manifestations of the hazardous condition.

The Insurers had been granted permission to serve HNA outside the jurisdiction but in June 2012, HNA applied to the Commercial Court to set aside the order granting permission. The issues before the Commercial Court were whether:

• there was a good arguable case that the case fell within one of the jurisdictional gateways in English Civil Procedural Rule (CPR) 6.36 and paragraph 3.1 of Practice Direction 6B;
  
  
• there was a serious issue to be tried on the merits of the claims; and
  
  
• England was the most appropriate forum and/or the declarations sought would be of sufficient utility to the proceedings.

CHOICE OF LAW

The first two issues were not in dispute except in relation to Practice Direction 6B paragraph 6.36(c), which requires the contract to be governed by English law. The Insurers argued that the implied choice of law of the eight policies that did not contain choice of law and jurisdiction clauses, was English law, as the policies were placed in London through London brokers. The Commercial Court accepted this argument and no appeal was sought in relation to this issue.

JURISDICTION

The main issue in the Commercial Court and on appeal before the Court of Appeal (see below) was whether the declarations sought would be of sufficient utility and/or whether England was the appropriate forum for the dispute. At first instance, Mr Justice Field pointed to similarities between Pennsylvanian and English conflict of laws rules and concluded that there was a real prospect that the Pennsylvanian court would find English law to be the applicable choice of law of the eight policies. As a result, a judgment from the English courts would serve as useful guidance for the Pennsylvanian courts. Field J was further persuaded that the declarations sought would be useful in preventing the enforcement of a judgment that ignored the implied choice of law of the parties.

Field J also held that England was the appropriate forum as an English court would apply its own laws more reliably than a foreign court. As for the risks inherent in concurrent foreign proceedings, Field J reasoned that there was a good prospect that an English court would give its judgment before final judgment was given in the Pennsylvanian Actions and that a judgment in the present case would not affect the Pennsylvanian Actions any more than another case in the English courts involving HNA, namely Faraday Reinsurance Co Limited v Howden North America Inc & anor [2012] EWCA Civ 980.

In that case Faraday had been granted permission to serve HNA outside the jurisdiction and was seeking similar declarations in relation to one of the insurance contracts it had subscribed to on the Howden Insurance Programme. In the Court of Appeal in Faraday, HNA appealed against the Commercial Court's decision to uphold the order granting permission on grounds of utility. The Court of Appeal reached the same conclusion as the Commercial Court in Howden: that an English judgment on English law would be useful to the Pennsylvanian courts.

In the Court of Appeal in Howden, Lord Justice Aikens described the alleged similarities between Pennsylvanian and English conflict of laws rules as "superficial" and pointed out that the judge in the 2011 Pennsylvanian Action had commented that it was unlikely that English law would apply. The Pennsylvanian judge had also indicated that even if English law did apply, the Pennsylvanian courts were capable of evaluating foreign law without the assistance of foreign courts. Indeed, Aikens LJ described an assumption to the contrary as being "presumptuous and condescending".

The Court of Appeal distinguished Faraday on the basis that the English proceedings had commenced prior to Faraday being joined to the 2011 Pennsylvanian Action, whereas the Insurers in Howden initiated proceedings in England months after the 2011 Pennsylvanian Action had commenced. The Court of Appeal was also minded by the fact that Faraday was an English company whereas the most significant of the Insurers in Howden, New Hampshire Insurance Company, was based in the USA. In the circumstances, the Court of Appeal thought that in contrast to the position in Faraday, it was unlikely that HNA would ever seek to enforce a Pennsylvanian court judgment in England and that therefore an English Court judgment would be used as a defence to any such enforcement proceedings.

In the absence of further evidence of the utility of English proceedings, Aikens LJ concluded that the Insurers' application was a pre-emptive strike against the Pennsylvanian proceedings and that it was not a "useful exercise of the English court's jurisdiction" to make the declarations sought.

Comment

The Court of Appeal's decision in Howden may come as a surprise given its contrary decision in Faraday just a few months earlier. Aikens LJ stated that he was not bound to follow the Faraday decision because the question of 'utility' was to be judged in light of all the facts. He highlighted a number of distinctions between Howden and Faraday, the most important being the timing of the issue of proceedings. The English Faraday proceedings preceded the Pennsylvanian Actions by eight months, whilst the English Howden proceedings were initiated, months after the Pennsylvanian Actions. The timing of the Insurers' application to the English courts in Howden, appears to have suggested to the Court of Appeal that this was an inappropriate attempt to forum shop.

It is unclear whether this decision represents an outright judicial intolerance of inappropriate forum shopping in England or whether it indicates that timing is the key to establishing jurisdiction before the English courts. Insurers should be looking to establish jurisdiction quickly, if they are to avoid the risk of being subjected to the jurisdiction of a foreign court. Even then, there is no guarantee that the foreign court will not also accept jurisdiction, as in fact happened in Faraday, when the Pennsylvanian court also accepted jurisdiction, notwithstanding that the English courts had already done so. These difficulties could of course be avoided by including clauses in the policy at the outset, which express the parties' intentions as to jurisdiction and applicable law.

Contact

The information in this newsletter is for general guidance only and is not intended to be a substitute for specific legal advice. If you would like any further information please contact:



Nathan Hull
Associate (London)
+44 (0) 20 7556 4666
nhull@edwardswildman.com




Nicole Gow
Trainee Solicitor (London)
+44 (0)20 7556 4337
ngow@edwardswildman.com