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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Gan Insurance Co Ltd & Anor v The Tai Ping Insurance Co Ltd [1998] EWHC 1210 (Comm) (31 March 1998) URL: http://www.bailii.org/ew/cases/EWHC/Comm/1998/1210.html Cite as: [1999] Lloyd's Rep IR 229, [1998] EWHC 1210 (Comm), [1998] CLC 1072

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice The Strand London WC2
		31 March 1998

MR JUSTICE CRESSWELL: There are before the court applications in two actions.

In 1997 Folio No 1845 (the first action) between Gan Insurance Company Limited ("GAN") and Eagle Star Insurance Company Limited ("Eagle Star"), as first and second plaintiffs, and The Tai Ping Insurance Company Limited ("Tai Ping"), as defendant, Tai Ping applies pursuant to Order 12, rule 8(1) to discharge the order of Mance J of 4 September 1997 (which granted leave to serve out) and to set aside service of the writ on the grounds that the court has no jurisdiction in respect of the plaintiffs' claims and/or that this was not a proper case for the grant of leave to serve the proceedings out of the jurisdiction.

In 1997 Folio No 1846 (the second action) between Royal Reinsurance Company Limited ("Royal") and six other plaintiffs and Central Insurance Company Limited ("Central"), as defendant, Central applies pursuant to Order 12, rule 8 for an order that the order of Mance J dated 4 September 1997 (which granted leave to serve out) be set aside on the grounds that the contract between the plaintiffs and the defendant is not governed by English law; England is not the appropriate forum; England is not clearly and distinctly the most appropriate forum; and the case was and is not in all the circumstances a proper one for service out of the jurisdiction.

The Background

Central, who are a Taiwanese insurance company, participated as one of five insurers in an EAR policy reinsuring Winbond Electronics Corporation ("Winbond") in respect of the erection of a hi-tech semi-conductor wafer fabrication plant in Taiwan known as "FAB-III". Tai Ping were the lead insurers. Tai Ping obtained facultative reinsurance of their line from among others GAN and Eagle Star. Central obtained facultative reinsurance of their line from eight reinsurers on the slip, seven of whom are plaintiffs in the second action. Of these the third, GAN, and the sixth, Eagle Star, are also reinsurers of the leaders Tai Ping (and plaintiffs in the first action).

On 14 October 1996 a fire occurred at FAB-III causing very substantial damage to various parts of the construction, including the clean room which housed some of the most sophisticated and expensive equipment. This resulted in a claim by Winbond against their insurers, including Tai Ping and Central, for the cost of replacing and/or repair of damaged machinery and equipment in the sum of NT$3,774,115,979.

Tai Ping co-ordinated the handling of the claim on behalf of co-insurers. Mr G R Purdon of GAB Robins, Taiwan, International Loss Adjusters, was instructed on behalf of the direct insurers. Mr D A Robbins of Dr JH Burgoyne and Partners Limited, Singapore, consulting scientists and engineers, was instructed by GAB Robins to investigate the fire aspects on behalf of the direct insurers.

The direct insurers purported to rescind the Winbond policy on the grounds of alleged breach of Endorsement 206 concerning the sufficiency of the FAB III fire protections and breach of Article 68 of the Taiwan Insurance Law. Winbond commenced proceedings and, after negotiation, their claim was on 31 July 1997 settled by the co-insurers. The settlement was in the global sum of NT$ 2,650,000,000.

The plaintiffs obtained leave to serve out of this jurisdiction ex parte on 4 September 1997 in both actions. In the Points of Claim in both actions the plaintiffs claim (1) a declaration that the defendant is in breach of a Claims C-operation Clause, that compliance by the defendant with the requirements of such clause is a condition precedent to the plaintiffs' liability to the defendant under the contract of reinsurance, and that the plaintiffs, by reason of the defendant's breach of the said clause, are not liable to the defendant in respect of the said loss; (2) alternatively a declaration that the plaintiffs are entitled to avoid and/or rescind the contract of facultative reinsurance with the defendant ab initio for material misrepresentation, and that the contract has been so avoided and/or rescinded.

Leave to serve out was obtained on three grounds, found in Order 11, rule 1(1)(d):

"The claim is brought to enforce, rescind, dissolve annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract, being (in either case) a contract which --

(i) was made within the jurisdiction; or

(ii) was made by or through an agent trading or residing within the jurisdiction on behalf of a principal trading or residing out of the jurisdiction; or

(iii) is by its terms, or by implication, governed by English law."

It is common ground that the principles upon which leave to serve outside the jurisdiction is granted and as to discretion and forum conveniens are accurately summarised in the notes in the Supreme Court Practice 1997 at 11/1/16 and 11/1/17, subject in addition to the need to apply the principles set out in New Hampshire v Phillips Electronics (unreported, 16.5.97 CA) in relation to claims for negative declarations.

The notes at 11/1/16 set out the principles upon which leave to serve outside the jurisdiction is granted:

"The principles can be summarised as follows:

1. The case must fall within the rule ....

2. Standard of Proof

(1) Good arguable case: this is the degree of proof required by the court to show that the case falls within one of the sub-paragraphs of Order 11, rule 1(1) so as to give it jurisdiction to consider the application ....

(2) Serious issue to be tried once the court is satisfied that it has jurisdiction, which under some heads of rule 11(1) require an examination of the merits, this is the lower degree of proof required to enable it to exercise its discretion to grant leave, both as to merits (if not already decided to the higher standard under (1)) and forum conveniens....

(3) Discretion. The applicant must satisfy the Court that it is proper to exercise its discretion to grant leave; this is a second consequence of the requirement of rule 4(2) referred to above. Moreover the court retains an inherent discretion to decline jurisdiction on grounds such as forum non conveniens or failure of the plaintiff to make out a good arguable case.

The House of Lords has reviewed all the authorities on the matters to be taken into consideration by the court in exercising its discretion to grant leave to serve out of the jurisdiction and the standard of proof to be applied. On such an application the Court must consider: (1) whether jurisdiction has been established on the criterion of good arguable case laid down in Korner's case .... under one of the paragraphs of rule 1(1) and (2) whether there is a serious issue to be tried so as to enable it to exercise its discretion to grant leave...."

As to discretion and forum conveniens, the notes at 11/1/7 state:

"The question which is the appropriate Court, or 'forum conveniens' is a matter to be considered by the court in exercising its discretion under this Order. The test is whether the interests of justice are best served by proceedings here or abroad.... under Order 11 the plaintiff is asking for the exercise of the discretion of the court in his favour and must show that the English court is the forum conveniens.

The House of Lords in Spiliada Maritime Corp v Consulex Ltd (The Spiliada) [1986] AC 460 .... has comprehensively reviewed the authorities and stated the principles as follows:

(i) The fundamental principle applicable to .... the grant of leave to serve proceedings out of the jurisdiction, is that the court will choose that forum in which the case can be tried more suitably for the interests of all the parties and for the end of justice.

....

(iii) Applications under Order 11, rule 1(1) for leave to serve proceedings out of the jurisdiction are to be determined according to the same principles applicable to a stay of English proceedings subject, however, to the burden being on the plaintiff to show that leave should be granted, and to the court being required to consider both the residence or place of business of the defendant and the relevant ground invoked by the plaintiff when deciding whether to exercise the discretion to grant leave. Accordingly the plaintiff is required to show not merely that England is the appropriate forum for the trial of the action, but that it is clearly the appropriate forum. In discharging the burden lying on him, however, the plaintiff is not confined to showing that justice cannot be obtained in an alternative forum, or, if so, only at excessive cost, delay or inconvenience, but is entitled to rely on the nature of the dispute, the legal and practical issues involved and such questions as local knowledge, availability of witnesses and their evidence and expense.

(iv) The fact that .... the refusal of leave under Order 11, rule 1(1) to serve proceedings out of the jurisdiction may deprive the plaintiff of a legitimate personal or judicial advantage available to him under the English jurisdiction will not, as a general rule, deter the court from .... refusing leave if it is satisfied that substantial justice will be done to all the parties in the appropriate forum."

Whether jurisdiction has been established on the criterion of good arguable case under one of the sub-paragraphs of rule 1(1)?

Tai Ping and Central concede that jurisdiction has been established on the criterion of good arguable case under paragraphs 1(1)(d)(i) and (ii). They dispute that the reinsurance contracts were by their terms or by implication governed by English law. Although one ground under Order 11 will suffice, it is convenient to consider the question of the proper law of the reinsurance contracts for the purposes of these applications, at this point of the judgment.

The proper law of the reinsurance contracts

It is common ground that the underlying direct insurance contracts were governed by the law of Taiwan. In the first action the reinsurance slip provided:

"TYPE Erection All Risks and Third Party Liability Reinsurance as original.

FORM Slip Policy NMA 1779 following original -- original wording as agreed Leading Reinsurance Underwriter.

....

CONDITIONS Full Reinsurance Clause NMA 416 (ex. retention) Claims Co-operation Clause. .... NMA 464 unless war and civil war exclusion clause contained in original policy wording. NMA 1685....

ORIGINAL

CONDITIONS All Risks as per local standard EAR policy wording as approved clauses as follows: ....

....

INFORMATION As on file with Jenner Fenton Slade including separate exhibits seen."

It is common ground that the relevance to the "full reinsurance clause NMA 416" incorporates the following:

"Full Reinsurance Clause No 1 (Approved by Lloyd's Underwriters' Fire and Non-Marine Association).

Being a Reinsurance of and warranted same gross rate, terms and conditions as and to follow the settlements of the .... Company ...."

The Claims Co-operation Clause was in these terms:

"Notwithstanding anything contained in the Reinsurance Agreement and/or Policy wording to the contrary, it is a condition precedent to any liability under this Policy that:

(a) The Reinsured shall, upon knowledge of any circumstances which may give rise to a claim against them, advise the Reinsurers immediately and in any event not later than 30 days;

(b) The Reinsured shall co-operate with Reinsurers and/or their Appointed Representatives subscribing to this Policy in the investigation and assessment of any loss and/or circumstances giving rise to a loss;

(c) No settlement and/or compromise shall be made and liability admitted without the prior approval of Reinsurers.

All other terms and conditions of this Policy remain unchanged."

The above is a standard London Market Claims Co-Operation Clause reference SCOR(UK) Clause 012 4/83.

In the second action the Reinsurance slip provided:

"FORM Agree sign NMA 1779 Slip Policy, Reinsurance and/or Company equivalent. No formal policy to be issued.

....

INTEREST: THE CONTRACT

Erection works of the FAB III project, Hsin Chu Science based Industrial Park Taiwan."

There follow printed provisions which read:

"Leading Underwriters Agreement (NMA) off Slips and/or annual re-signings of term policies to be initialled Leading Lloyd's Non-Marine Underwriter only. Increases in signed lines up to written plus 10% subject to agreement and initialment by first two underwriters only.

PT(NMA)

Wordings, Schedules, Proposal Forms and TOR Signings t.b.a. L/U main slip only.

Agreed sign renewal receipt if required without production of expiring slip or policy. Agreed extended for up to one calendar month on agreement L/U main slip only irrespective of individual anniversary date notices of cancellation if any. Subject otherwise to CCSA 1960, companies agreed authorisation forms not required by closing instructions and addenda will be sent with a form for return within 14 days if necessary showing any objection, admin. change or amended reference. By signing this slip signatories to the CCSA 1960 authorise the leading CCSA 1960 company to arrange for LIRMA to sign the policy on its behalf and accept that such signing will be valid signing for the purposes of CCSA 1960.

Lloyd's underwriters and companies (including LIRMA companies) agree to sign co-insurance policy (NMA 2074/5), following the same terms and conditions as the leading insurer, if required.

LIRMA authorised to accept computer produced lines....

Lloyd's Marine Underwriters/ILU and Companies subject to CCSA agreement agree to issue policies on an FDO basis as required.

All insurers hereon agree to comply."

The slip continued:

"....

CONDITIONS: 1) Full Reinsurance Clause -- The Reinsurance is subject in all respects to the same clauses and conditions as Original and to follow in every respect all settlements of Original and to bear the proportion of any expenses incurred whether legal or otherwise in the investigation and defence of a claim.

....

6) N.M.A 464 War and Civil War Exclusion Clause unless equivalent in Original Policy.

....

8) LSW 1001.Several Liability Notice.

....

It is understood and agreed that details relating to this Master Cover/Lineslip/Slip will be added to the Lloyds/ILU/Lirma placing support system for the purpose of processing associated Declarations/Endorsements electronically. It is also acknowledged that Underwriters authorisation for some Declarations/Endorsements may continue to be sought by the broker using a paper Offslip/ Endorsement. It is also noted that the original paper slip remains the basis of the contract and will not be superseded by the backloaded electronic record.

....

Underwriting Information as per AHG Information sheets (51 pages) dated 15 February,1996 seen by Underwriters hereon."

The Claims Co-Operation Clause was in these terms:

"Notwithstanding anything contained herein to the contrary it is a condition precedent to any liability under this policy that:

a) The Reinsured shall upon knowledge of any loss(es) or occurrence(s) which may give rise to a claim recoverable hereunder advise the Reinsurers thereof as soon as practicable.

b) The Reinsured shall furnish the Reinsurers with all information available respecting such loss(es) or occurrence(es) and shall co-operate with the Reinsurers in the appointment of Adjusters, Assessors, Surveyors or other experts and in all negotiations, adjustments and settlements.

It is understood and agreed that all Adjusters, Assessors, Surveyors or experts appointed in accordance with the provisions of this clause shall be deemed to be acting on behalf of the Reinsured and all reinsurers and that the fees, expenses, costs and all other disbursements incurred in this connection shall be shared pro-rata by all the interested parties."

This is another standard London Market Clause (London 2 December 1993).

Tai Ping's submissions as to the Proper Law

Mr Lockey for Tai Ping submitted as follows. The principal factors which point to Taiwanese law as the proper law of the reinsurance are as follows:

(1) The reinsurance was a facultative reinsurance of purely Taiwanese risks, namely EAR, relating to a Taiwanese manufacturing plant, owned by a Taiwanese company, and insured by local insurers under a Taiwanese law policy.

(2) To the plaintiff's knowledge at the time, the London placement was part only of the facultative protection being purchased by Tai Ping from international reinsurers. It would be very surprising if different laws were to apply to Tai Ping's facultative protection, depending on where the international reinsurers were situate.

It is beside the point that the reinsurance slip uses abbreviations or incorporates clauses which originate in the London market.

Even if an English court were to reach the conclusion that English law governed the reinsurance contract as a whole, as a matter of construction the reinsurance contract incorporates clause 22 of the underlying policy and thereby the Taiwanese Insurance Law (including Article 64, the provision dealing with avoidance for misrepresentation). The slip provided under Type 'as original' and under Form 'following original'. Under 'Conditions', the slip incorporates the Full Reinsurance Clause (NMA 416), which provides in material respects as follows:

"Being a reinsurance of and warranted same gross rate, terms and conditions ...."

Taiwanese law will be material to the misrepresentation defence, even if the Court in due course concludes that English law applies as the proper law of the reinsurance. Tai Ping will submit, in the appropriate forum, that the plaintiffs are not able to bring themselves within Article 64 of the Insurance Law.

Central's submissions as to the Proper Law

Mr Berry for Central submitted as follows:

Clause 22, Chapter III of the EAR policy stated "matters not provided for herein shall be governed by the Insurance Law". Thus the original insurance explicitly incorporated "the Insurance Law", which is a reference to the Insurance Law Taiwan. That law includes express provisions as to avoidance for misrepresentation: see Article 64(1).

The reinsurance contract provides "The Reinsurance is subject in all respects to the same clauses and conditions as Original and to follow in every respect all settlements of Original". As a matter of construction this incorporates all clauses of the original policy including clause 22 and thereby the Taiwan Insurance Law. The incorporation "in all respects" of the clauses and conditions of the original policy, including clause 22, amounts to an implied choice of Taiwanese law for the reinsurance contract as a whole. Alternatively, even if the governing law of the reinsurance contract as a whole is English law, as a matter of construction under English law the reinsurance contract incorporates clause 22 of the Original, and thereby the Taiwanese Insurance Law, including Article 64 in respect of misrepresentation, and those provisions as incorporated are to be governed by Taiwanese law. Whatever the governing law of the reinsurance contract as a whole, the Taiwan Insurance Law as interpreted in Taiwan governs questions of avoidance of the reinsurance contract for misrepresentation.

The plaintiffs' submissions as to Proper Law

Mr Edelman QC appeared for the plaintiffs in both actions. He submitted as follows:

An inferred or implied choice of English law for the purposes of Article 3 of the Rome Convention arises out of:

(1) the use of standard London market forms and clauses, including the Claims Co-Operation Clauses;

(2) the incorporation through such clauses of the English law concepts of conditions precedent (through the Claims Co-Operation Clause) and insurance warranties (through the Full Reinsurance Clause; and

(3) the circumstances of the placement, being by London market brokers, in London, to London market reinsurers (save for the seventh plaintiff in the second action, Skandia International Insurance Corporation ("Skandia") which dealt with the London brokers).

(4) Tai Ping's reliance on the use in the Slip of the words "as original" and Central's reliance on the terms of the Slip "Full Reinsurance Clause -- The Reinsurance is subject in all respects to the same clauses and conditions as Original and to follow in every respect all settlements of Original" are misplaced. Such words only serve the purpose of equating the scope of cover under the reinsurance with the scope of cover under the insurance. They may affect the way in which a provision incorporated from the original insurance into the reinsurance falls to be construed so as to give rise to "back-to-back" coverage, but they do not affect or purport expressly or implicitly to affect the law by which the contract is governed: Pine Top v Unione Italiana [1987] 1 Lloyd's Rep 476, Vesta v Butcher [1989] AC 852, Arig Insurance v SASA Assicurazione (unreported) 10.2.98, Tuckey J.

Even if there is no inferred or implied choice of law for the purposes of Article 3, the reinsurance has its closest connection with English law for the purposes of Article 4 for the following reasons:

(1) The reinsurance was placed in the London market by London brokers using London market forms and standard clauses (which incorporated English law concepts), with reinsurers operating in the London market.

(2) The Claims Co-Operation Clauses upon which the plaintiffs rely are standard forms used in the London insurance market and incorporate the English law concept of a condition precedent.

(3) The duties of good faith, which arise under English law, are duties on the basis of which the London reinsurance market operates and underwriters in the market regard themselves as being entitled to a fair presentation on the basis of the application of English law.

(4) The performance which is characteristic of a reinsurance contract is the provision of insurance cover by the reinsurer (see page 20 Giuliano-Lagarde report, and Plender, The European Contracts Convention (1991) pp 110-111). The central administration of the plaintiffs in the first action and of four of the plaintiffs in the second action is in England (there is an issue as to whether General Accident's central administration is in England or Scotland). The presumption in relation to those plaintiffs is that English law applies to this reinsurance and there are no factors to rebut the presumption. English law applies to the placements with the other two or three plaintiffs.

The fact that the defendants may end up with various reinsurances governed by different laws may be an inconvenience to the defendants in certain circumstances, although if the cover arranged is in all cases "back-to-back", there should be no problem on the question of coverage: see Pine Top v Unione Italiana (supra) and Vestra v Butcher (supra). It would be just as inconvenient (if not more so) for a London market reinsurer to find that each reinsurance to which it subscribed was governed by the system of law of the reinsured's residence or of the location of the original risk. If a reinsured wishes to have all its reinsurances in respect of a particular risk governed by a common system of law, it can and should make express stipulation for that to be the case. The reinsurance in this case was a "stand-alone" facultative placement and falls to be treated as such.

The Proper Law of the Reinsurance Contracts - analysis and conclusions

Section 2(1) of the Contracts (Applicable Law) Act 1990 provides that, subject to subsections (2) and (3) the Rome Convention shall have the force of law in the United Kingdom.

Article 3(1) of the Rome Convention provides:

"A contract shall be governed by the law chosen by the parties. The choice must be express or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract."

Article 4 of the Rome Convention provides:

"(1) To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.

(2) Subject to the provisions of paragraph (5) of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. However, if the contract is entered into in the course of that party's trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.

....

(5) Paragraph (2) shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs (2), (3) and (4) shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country."

1. Implied choice of English Law

As is pointed out in Dicey and Morris Conflict of Laws 12th Edition at page 1224:

"The Giuliano-Lagarde Report gives a number of examples of circumstances which may demonstrate an inferred intention: the examples are plainly inspired by the English case-law prior to the Convention. The first example in the Report is the circumstance that the contract may be in a standard form which is known to be governed by a particular system of law even though there is no express statement to this effect, such as a Lloyd's policy of maritime insurance. The Report was written and published before the decision in Amin Rasheed Shipping Corp v Kuwait Insurance Co, in which a marine insurance policy was issued by a Kuwaiti insurance company to a Liberian company carrying on business in the Gulf. The policy was based on the Lloyd's standard form of marine policy. It was held that, although the policy contained no express choice of English law, its provisions pointed ineluctably to the conclusion that the intention of the parties was that their mutual rights and obligations under it should be determined in accordance with the English law of marine insurance."

The reinsurance contracts, the subject matter of both actions, were placed in London on the London market. The terms of the slips and the Claims Co-Operation Clauses demonstrate an implied choice of English law "demonstrated with reasonably certainty by the terms of the contract/the circumstances of the case". I refer in particular to the following provisions: first action: Slip Policy NMA 1779, Full Reinsurance Clause NMA 416, Claims Co-Operation Clause 'NMA 464, NMA 1685 and the Claims Co-Operation Clause itself; second action: NMA 1779 Slip Policy, the printed terms at the foot of the first page of the Slip, the full Reinsurance clause, NMA 464 War and Civil War Exclusion Clause, LSW 1001.Several Liability Clause, the references to Lloyds/ILU/Lirma placing support system, and the terms of the Claims Co-Operation Clause itself.

The words "as original" in the Tai Ping Slip and the words "The Reinsurance is subject in all respects to the same clauses and conditions as original" in the Central Slip were intended to ensure that the risk undertaken by reinsurers was identical as to period, geographical limits and nature of the risk, with the risk undertaken by Tai Ping/Central as direct insurers: see Pine Top v Unione Italiana (supra) Gatehouse J; Vesta v Butcher (supra) p 875A, Neill LJ; and Arig Insurance v SASA Assicuriazione (supra), Tuckey J. Also in this connection there should be noted a passage in the speech of Lord Griffiths in Vesta v Butcher at page 896C-E.

2. Article 4 of the Rome Convention

If, contrary to the above I am wrong as to implied choice of English law, the reinsurance contracts the subject matter of both actions are governed by the law of the country with which they are most closely connected, ie England. It is to be presumed that the reinsurance contracts are most closely connected with England where the principal places of business of both plaintiffs in the first action and the principal places of business of four or five out of seven plaintiffs in the second action are situated: see Article 4(2). It does not appear from the circumstances as a whole that the reinsurance contracts are more closely connected with Taiwan (Article 4(5)). In the case of all plaintiffs, the reinsurance contracts are governed by the law of the country (England) with which they are most closely connected. The reasoning under heading 1 above (Implied choice of English law) is repeated so far as applicable.

Thus, the third ground under Order 11, rule 1(1)(d)(iii) is also made out, but the particular importance of this conclusion is in relation to discretion and forum conveniens as to which see below.

Whether there is a serious issue to be tried so as to enable the court to exercise its discretion to grant leave

Tai Ping and Central concede this.

Negative Declarations

Mr Lockey for Tai Ping submitted as follows:

"Claims for declarations, and in particular negative declarations, must be viewed with great caution in all situations involving possible conflicts of jurisdictions, since they obviously lend themselves to improper attempts at forum shopping": The Volvox Hollandia [1988] 2 Lloyd's Rep 361, at 371, Kerr LJ; First National Bank of Boston v Union Bank of Switzerland [1990] 1 Lloyd's Rep 32 at 38, Sir Michael Kerr."

The plaintiffs were attempting to steal a jurisdictional march on the natural plaintiff (and the only party with a monetary claim), namely Tai Ping. At the time of issue of their proceedings, the plaintiffs had not formally declined Tai Ping's claim and had not served notice of avoidance. The plaintiffs were forum shopping in the knowledge that proceedings in Taiwan would inevitably follow their rejection of the claim and avoidance of the reinsurance contract. The undue haste of the ex parte application, and the blatant attempt at forum shopping should weigh heavily in the balance in considering whether this was a proper case for leave to serve out.

Mr Berry for Central submitted as follows:

Central, as the reinsured with a monetary claim against the plaintiffs, are the natural plaintiffs. The nature of the action, being one solely for negative declarations by natural defendants, "must be viewed with great caution in all situations involving possible conflicts of jurisdiction since they obviously lend themselves to improper attempts at forum shopping": Volvox Hollandia (supra) at 371. The action was commenced with indecent haste. It was launched before the plaintiffs had given notice of any avoidance, which came only in the form of paragraph 14 of the Points of Claim. It was not preceded by any letter before action. The plaintiffs have indulged in improper forum shopping in a case where they perceive advantage in any ultimate trial in having the issues pending in "home" territory.

Mr Edelman for the plaintiffs submitted as follows:

In cases where negative declaratory relief is sought the court must consider (separately from the forum conveniens issue) whether there is justification for seeking the relief. In considering whether there is justification for seeking the relief, the court must be particularly careful to ensure that the negative declaration is sought for a valid and valuable purpose and not in an illegitimate attempt to pre-empt the jurisdiction in which the dispute between the parties is to be resolved. The focus on this aspect is on the question whether the relief sought can be justified rather than on the forum in which it should be sought: New Hampshire v Phillips Electronics (supra) pp 8A-10A, Phillips LJ. Whilst the relief sought in this case is declaratory and negative, in the sense that its object is establishing that the plaintiffs are not liable to the defendants in respect of the claim made under the reinsurance, the relief is confined to issues on which the burden of proof rests with the plaintiffs (ie avoidance and non-compliance with a condition precedent). The plaintiffs are therefore natural plaintiffs on those issues. The relief sought is useful in that it will determine the two threshold issues raised by the plaintiffs that stand in the way of the defendants' recovery under the reinsurances of their outlay to the assured. The relief is neither premature nor hypothetical. On the contrary, it addresses live issues which had arisen between the parties prior to the commencement of the proceedings. The plaintiffs were not in fact motivated by "forum shopping" motives. Rather, the plaintiffs were motivated by an anxiety to justify their conduct in order to protect their reputation and chose to issue proceedings in London as it appeared to be (and is) the most appropriate forum for the determination of the issues raised by the plaintiffs, who as London market reinsurers dealt only with the defendants' London brokers.

Even if the plaintiffs had deliberately commenced proceedings in an attempt to pre-empt the jurisdiction in which the dispute between the parties was to be resolved, that would not in the circumstances of this case be inappropriate or illegitimate. Negative declaratory relief is the only form of relief available to the plaintiffs and seeking that relief in England is the only way in which the plaintiffs can ensure that their rights are determined by the proper law of the contract, ie English Law, and in the jurisdiction where they and the defendants' brokers with whom they dealt carry on business: cf. Akai v People's Insurance Co [1998] 1 Lloyd's Rep 90, 106 col 2. If any accusation of illegitimate forum shopping is to be made, it is most appropriately made against the defendants by way of their pursuit of these applications, the purpose and effect of which, if successful, will be to give the defendants a clear run in Taiwan, where Taiwanese law will probably be applied so as to remove the legal foundation of the plaintiffs' cases and, no doubt, the plaintiffs' cases on the Claims Co-Operation Clauses.

Negative Declarations: analysis and conclusions

In New Hampshire v Phillips Electronics (supra) Phillips LJ said at page 8:

"In my judgment it is necessary to distinguish between two matters: the nature of the relief and the forum in which the relief should be sought. The authorities demonstrate that a negative declaration is an extraordinary form of relief and one that the Court will only entertain if there is good reason for seeking it. The test applied by Lord Wilberforce in Camilla Cotton Oil [1976] 2 Lloyd's Rep 10, 14 was whether the relief would be "useful". That was a case where service had been effected within the jurisdiction. In Insurance Corporation of Ireland v Strombus International Insurance Company [1985] 2 Lloyd's Rep 138, 144, Mustill LJ in an Order 11 case said:

'.... the Court should be careful not to bring a foreigner here as a defendant, where no positive relief is claimed against him, unless it can be shown that a solid practical benefit would ensue.'

I do not read this as dissenting from the pragmatic test applied by Lord Wilberforce other than to emphasise the care that must be taken when exercising the Order 11 jurisdiction. I am inclined to think, having regard to the nature of the relief sought, that it will always be possible to describe a valid ground for seeking that relief as 'a special reason', although as a test that phrase is so general as to be of little practical assistance. But, whatever the test, I do not see that it has any bearing on the question of whether England is the appropriate forum in which to seek the relief.

Where leave to serve out of the jurisdiction a writ claiming a negative declaration is challenged, the Court will have to consider both the question whether there is justification for seeking that relief and the separate question of whether England is the appropriate forum in which to seek it. The two questions will, however, cover common ground where the possibility exists that the plaintiff in the English proceedings will be sued by the defendant in an alternative jurisdiction. It is in that situation that the Court must be particularly careful to ensure that the negative declaration is sought for a valid and valuable purpose and not in an illegitimate attempt to pre-empt the jurisdiction in which the dispute between the parties is to be resolved."

I consider both the question whether there is justification for seeking the relief in this case and the separate question of whether England is the appropriate forum in which to seek the relief claimed.

On 28 April 1997 GAN wrote to Jenner Fenton Slade, the brokers who placed the risk for Tai Ping, as follows:

"As you will know we lead the reinsurance of Tai Ping and also participate as a following reinsurer on the reinsurance of Central.

Royal Insurance as leader of the 'Central' slip have raised through the brokers Alexander Howden various questions concerning whether the fire precautions which formed part of the underwriting information were in fact installed and in full working order at the time of the loss as required by the policy.

That has led us to look at the underwriting information which was provided to this company and our following market. We see that as part of the placing information we were provided with drawings of the fire protection system together with a statement on those drawings to the effect that there were six separate fire protection systems. There were described as follows:

'Fire Alarm System

Fire Hose and Hydrant System

Carbon Dioxide System

Sprinkler System

Foam Water System

Fog Water System'

With the exception of the alarm and sprinkler systems, no mention of how the other systems operated is made in the adjusters' reports or in the forensic report of Messrs Burgoyne & Partners. We now request that our cedant takes immediate steps to instruct Messrs Burgoyne & Partners to review the adequacy and functioning of each of the fire precautions mentioned in the placing information and to prepare a report considering:

(a) Whether the precautions were as stated in the underwriting information.

(b) Whether those precautions were in place and serviceable as required by Endorsement 206.

(c) What part those precautions played in the actual detection and containment of the fire.

(d) Whether those precautions were installed and commissioned in accordance with the specification supplied by Angel Engineering Consultants.

(e) Whether Angel Engineering Consultants approved the final installation.

(f) Whether the installation as installed commissioned and tested was in accordance with competent engineering standards.

From our participation on the slip led by Royal, we know that Central have raised these concerns with Tai Ping. We understand that there has been a reluctance to address these issues resulting in the Royal imposing a general reservation of rights which we will adopt and ratify on our behalf insofar as we participate on the Royal slip.

We think it is only fair to point out that should our reinsured on this slip, the Tai Ping, fail to respond to our request that these matters be investigated, then we will consider that to be a breach of the Claim Co-operation Clause.

Accordingly we would be grateful if you would bring to the attention of the Tai Ping our concerns and invite then to carry out the investigations we have suggested or alternatively if those investigations have already been carried out let us have a copy of any report prepared by the adjuster or forensic investigator dealing with the same.

We look forward to hearing from you with your confirmation that our concerns have been passed on to Tai Ping and thereafter with the Tai Ping's response as soon as possible.

Would you also please circulate this letter to our following market for their information."

On 20 March 1997 Royal & Sun Alliance wrote to Alexander Howden, the brokers who placed the risk for Central as follows:

"Further to our fax of 14 February we have had the opportunity of considering the various reports which have been provided and had discussions with our underwriter.

In particular we were alarmed to read that there was no sprinkler protection in the roof void and also an absence of any real passive fire protection measures.

On reviewing the underwriting information we note that in a copy fax dated 13 February 1996 it was stated that:

'The project has installed a very good fire protection system which includes below six fire protections in every floor.

1. Fire Alarm System.

2. Fire Hose and Hydrant System.

3. Carbon Dioxide System.

4. Sprinkler System.

5. Foam/Water System.

6. Fog Water System.'

We were also informed that the local policy would include Endorsement 206 in the Munich Re form.

The underwriting information also indicated that the fire precautions were in accordance with drawings provided by Angel Engineering Consultants Limited.

Given such an extensive list of fire precautions and the Munich Re endorsement, it is not unfair to ask why each of these cautions appear to have failed?

We would therefore be grateful if you would indicate to our cedant that we suggest that they instruct Burgoyne & Partners to review the adequacy and functioning of each of the fire precautions, notably:

a. Whether the precautions were as stated in the underwriting information.

b. Whether those precautions were in place and serviceable as required by Endorsement 206.

c. What part those precautions played in the actual detection and containment of the fire.

d. Whether those precautions were installed and commissioned in accordance with the specification supplied by Angel Engineering Consultants.

e. Whether Angel Engineering Consultants approved the final installation.

f. Whether the installation as installed, commissioned and tested was in accordance with competent engineering standards.

As similar information was presumably provided at the underwriting stage to the cedant, they can no doubt supply the documents in question to Messrs Burgoyne & Partners but if not we can supply them from our files with the exception of the Angel Engineering Consultants' specification which we did not retain.

While writing, this is perhaps an appropriate place to repeat the request make in our fax of 14 February to be supplied with copies of the following:

1. The recision letter from our cedant to Winbond.

2. Winbond's response.

3. Any lawyer's report commenting on policy liability obtained by our cedant.

4. A copy of the "audit report" which we understand was to be completed following Relectronic-Remech's third visit to site.

5. Copies of cedant's notes relating to the weekly meetings of coinsurers.

We look forward to hearing from you as a matter of some urgency."

I refer to the letters referred to in the chronology in the first action, AF 3 (but not the comments column), and to Tai Ping's letter of 27 August 1997. I also refer to the letters referred to in the chronology in the second action, AF 2 (but again not to the comments column). The correspondence following the letters of 28 April and 20 March 1997 quoted above reflects apparent failures to respond to the points raised in those letters. In my opinion the plaintiffs have established a good arguable case that there is good reason for seeking the relief, that the relief is useful, that a solid practical benefit will ensue, and that the declarations are sought for a valid and valuable purpose.

Discretion and Forum Conveniens

It is convenient to consider this subject under the heads (a) negative declarations; (b) generally; (c) avoidance issues; (d) the claims co-operation clauses issues; (e) joinder of brokers; (f) conclusion.

(a) Negative Declarations

The analysis and conclusions set out above are repeated.

(b) Generally

As issues relating to avoidance and the claims co-operation clauses fall to be determined according to English law, there is a strong case for saying that England is the natural and appropriate forum in which to resolve these issues: see New Hampshire v Phillips Electronics (supra) at 14G, where Phillips LJ said:

"As the issues of construction fall to be determined according to English law, I consider that England was the natural and appropriate forum in which to seek to resolve those issues."

In particular as to the claims co-operation clauses, these are standard London reinsurance market clauses designed to protect the position of London market reinsurers. There is an issue as to whether the effect of a breach is to exclude recovery or merely to require the reinsured to prove its liability. They are expressed in English and utilise the English law of concept of a condition precedent.

(c) Avoidance Issues

The issues will be (1) were the alleged representations made; (2) were the representations untrue; (3) if so, were the facts which were misrepresented material and were the plaintiffs induced thereby to enter into the reinsurance contracts?

As to issue (1) in the first action, the plaintiffs rely on a document entitled "Winbond FAB III Project, Phase I, Fire Protection System", and in particular on page 94 in the bundle which includes in manuscript the words:

"1. Fire Alarm System.

2. Fire Hose and Hydrant System.

3. Carbon Dioxide System.

4. Sprinkler S.

5. Foam-Water S....

6. Fog-Water S."

Under "General Notes" is found National Fire Codes:

"B. NFPA 13 -- Installation of Sprinkler System."

It is not admitted that these pages formed part of the placing information. Thus evidence will be required from two London underwriters and the London brokers.

As to issue (1) in the second action, the alleged representation is contained in a fax dated 13 February 1996 from Alexander & Alexander (Taiwan) Ltd to Mr Gell, AHG -- London which stated:

"The following are the answers to your questions....

D) This project has installed a very good Fire Protection system which includes below six fire protections in every floor.

1. Fire Alarm System

2. Fire Hose and Hydrant System

3. Carbon Dioxide System

4. Sprinkler System

5. Foam-Water System

6. Fog-Water System

We have got a book of the Fire Protection Map (52 pages of B4 size) in hand (the cover page is attached). Please advise us if we need to courier the book to you for underwriters' further reference.

As we mentioned before, we need your quick action to check with ARIG and Gerling for their acceptance of the business. Should you have any other markets to go, please feel free to approach them."

As to issue (2) Tai Ping's skeleton argument states:

"Mr Lowe deposes .... that the engineering drawings show the precise locations of the systems and make it clear that these systems were not present on floor 4 of FAB III."

Mr Steven Lowe, a partner in Stephenson Harwood, solicitors for Tai Ping, states at paragraph 13 of his affidavit:

"....: I am informed by Mr Su Ming-Teh of the Taipei Fire Fighting Equipment Association (an expert in fire fighting engineering) that foam water and fog water systems are only used in wafer plants in a very limited capacity, the main fire fighting systems employed in water plants being sprinklers, hydrants and hand held extinguishers, and that the drawings do show that there was a foam water and a fog water system, but not on floor 4 of FAB III where the fire occurred. The location of the foam water and fog water systems is clearly indicated in the printed Drawing Index and Pump Schedule in the index page to the drawings, and in the detailed drawings themselves. The drawings also show that there was a carbon dioxide system in the power substation and generator room, it being common in Taiwan only to use carbon dioxide systems in high danger areas such as power stations and generator rooms, but not on floor 4 of FAB III. Mr Su further informs me that the detailed drawings which take precedence over any General Notes, make no provision for sprinklers in the ceiling voids. The General Notes refer to NFPA 13 standards which envisage sprinklers in the voids, but these apply in the United States and have no statutory or regulatory effect in Taiwan, and the detailed drawings, which show no sprinkler system in the ceiling voids, would obviously prevail in the event of any inconsistency between the detailed drawings and the General Notes...."

See further the report by Burgoynes.

It is not clear to what extent the relevant facts will be in dispute at trial. Discovery will probably narrow any need for factual evidence. To the extent that factual evidence is required on this subject, Mr Robbins of Burgoynes is likely to be the most important witness and he is in Singapore. Evidence from Mr Purdon might be required. He is in Taiwan. Both Mr Robbins and Mr Purdon speak English.

As to issue (3), evidence will be required from six London underwriters and one underwriter from Stockholm and probably expert witnesses from the London market.

(d) The Claims Co-operation Clauses Issues

The issues will be: (1) did the defendants fail to co-operate in any legally relevant sense with the plaintiffs in the investigation and assessment of the loss and/or circumstances giving rise to the loss? (2) Did Tai Ping settle and/or compromise the assured's claim and/or admit liability therefor without the plaintiffs' prior approval? Did Central furnish the plaintiffs with all information available and co-operate in all negotiations, adjustments and settlements? (3) What are the consequences of any failures of Tai Ping/Central as in (2) above?

As to issue (1), the documents will provide essential evidence. I refer again to the documents listed to in the chronologies. The plaintiffs at all times dealt with the defendants' London brokers. I note the way the plaintiffs' claims against the defendants are pleaded in the Points of Claim in the two actions and by way of example only refer to the reference to "investigations .... relevant to the issue of [Tai Ping's/Central's] liability to Winbond". This may be sensitive to some factual evidence from Taiwan (and evidence as to the law of Taiwan). As to the law of Taiwan, the affidavit evidence before me suggests that it should be possible to agree this. I consider that discovery will probably narrow any need for factual evidence. To the extent that factual evidence is required, I have already referred to Mr Robbins of Burgoynes and to Mr Purdon of GAB Robins. If any further factual evidence is required from Taiwan it is in my view likely to be within relatively narrow limits.

As to issue (2), in the first action it is not contended by Tai Ping that the plaintiffs' consent was obtained. In the second action this issue will primarily require consideration of the documents.

As to issue (3), the construction of the clauses is a matter of English law. For the avoidance of doubt I take into account (1) Tai Ping's argument that even if the plaintiffs established a breach of the Claims Co-operation Clause, Tai Ping is nonetheless entitled to recover the plaintiffs' share of the settlement if Tai Ping is able to demonstrate its liability to Windbond for at least the amount at which Tai Ping settled and (2) Central's argument that even if the plaintiffs establish a breach of the Claims Co-operation Clause, Central is nonetheless entitled to recover if Central is able to prove that it was liable to Windbond and the quantum of that liability, and (3) the effect of these arguments (if correct) on the need for evidence from Taiwan. Even if these arguments prove to be correct I do not consider that there would be a significant increase in the need for evidence from overseas beyond that referred to above.

(e) Joinder of Brokers

Tai Ping state they wish to claim against the Taiwanese brokers. Tai Ping can join its Taiwanese brokers as a third party to this action if it wishes to pursue a claim against those brokers: Order 11, rule 1(1)(c) and Order 16. As the London and Taiwanese brokers are now part of the Aon International Group, no prejudice will flow from that claim being dealt with in this country. In relation to a third party claim, evidence from witnesses in Taiwan becomes potentially relevant. However, all the potential witnesses appear to be able to correspond in English. The extent to which any issues of fact in the third party proceedings will be contentious is not something which has been explored in detail before me.

Discretion and Forum Conveniens Conclusion

In all the circumstances I conclude that the plaintiffs have shown not merely that England is the appropriate forum for the trial of the actions, but that it is clearly the appropriate forum. It follows that these applications must be dismissed.

MR EDELMAN: My Lord, I am grateful. I would ask that the applications be dismissed with costs.

MR BERRY: My Lord, I for my part for Central cannot resist that.

MR EDELMAN: My Lord, I would ask for a certificate for two counsel on the plaintiffs' behalf.

MR JUSTICE CRESSWELL: Yes, certainly. Mr Berry?

MR BERRY: My Lord, I would ask for leave to appeal on two grounds. Your Lordship has applied the Pine Top and following decisions to the present circumstances and your Lordship has advanced, as it were, the sum of human decisions in two respects. Firstly, this is the first time that that line of authority has been applied to a Proper Law Clause as opposed to an arbitration or jurisdiction clause. So there is an advance there. Secondly, that form of wording is, if I may put it this way, on the original wording of the full reinsurance clause, whereas in my policy the wording is wider and I would certainly submit that it is a point of some interest and importance in which the Court of Appeal might well be interested that those two further steps have been taken by your Lordship.

My Lord, our other point would be that your Lordship has said that the true interpretation of a claims co-operation clause is a matter of English law and that may well be right if your Lordship is right about the proper law. Your Lordship has weighed that in the balance without, in our submission, weighing in the balance the consequences if we prove to be right about that and that it is a clause that leaves it open to the Taiwanese insured's to prove the original liability. We would submit that that is a factor to which your Lordship did not pay the requisite weight and that there would in effect in this court have to be a retrial of the original claim by Winbond.

For those reasons, my Lord, I would apply for leave to appeal.

MR LOCKEY: My Lord, I make a similar application.

MR JUSTICE CRESSWELL: Mr Edelman?

MR EDELMAN: My Lord, on the second point that is, in fact, even if not explicitly, implicitly covered because my Lord addressed directly under the Claims Co-operation Clause issues the implication that there might be in the way the case is pleaded of an investigation into the issue of the liability at the head of the claim, so to speak. So my Lord had directly addressed that issue in that context. My Lord, in my submission that line of attack is groundless.

As to the first ground, my Lord it is a situation where my learned friends came armed without any authority at all and have not been able to gainsay the entire body of authority which indicates how these clauses are to be approached and a unanimity amongst all the judges this matter has come before. It is a unanimity which is not based on the particular clause which is said to be incorporated, but is a unanimity as to a matter of principle which is then applied to a particular clause. So, my Lord, my submission is that it does not in fact raise a new question of law. It is simply applying existing law to this situation. My Lord, there is no new point of law there.

Then, my Lord, ultimately the most fundamental point, the issue as to whether or not England is the most appropriate forum is a matter of discretion balancing all the factors and there are a number of factors which my Lord has identified. In all the circumstances an exercise of discretion is not an appropriate matter for leave to appeal.

MR JUSTICE CRESSWELL: Yes. I am not prepared to grant leave to appeal in this case. If I am asked to revise what was a long ex tempore judgment, I would be grateful if the shorthand writers could be provided with the underlying papers so that they can add the quotations and be assisted so far as possible.

MR BERRY: My Lord, there is one other slightly technical matter. If we were minded to ask the Court of Appeal for the leave that your Lordship has just refused, we would be put in this difficulty. As the time limits presently stand, we would be required to file a defence prior to the time limit before making that application to the Court of Appeal and certainly prior to the time at which the Court of Appeal would determine that application. So I would apply your Lordship to extend the time for the filing of a defence to four weeks, which is the time for appealing to the court of appeal and if notice of appeal with an application for leave is filed within that time then the extension to carry on until such time as those applications are determined. My Lord, that is the only way of preserving our possibilities --

MR JUSTICE CRESSWELL: Otherwise you will take a step in the action.

MR BERRY: Otherwise we will be forced to take a step in the action before the time at which we know whether we are able to appeal and will be put in the position at which the (inaudible) appears to apply, which is that we cannot do it.

MR LOCKEY: Mr Lord, technically the application that I would make -- and I think this is the application that Mr Berry is making -- is an application to extend time under Order 12, rule 8(6). It is not confined simply to the service of the defence --

MR EDELMAN: I accept that. What we are talking about here is extending time for acknowledgment of service. Can I short-circuit it by saying that my instructions are not to oppose an extension of time to four weeks. Thereafter, if leave to appeal be granted, extend time until determination of the appeal subject to the appeal being prosecuted with reasonable diligence.

MR JUSTICE CRESSWELL: Thank you, Mr Edelman. When this matter, if it does, returns to this court, it seems to me that there is a strong case for directions for a speedy trial. I do not know whether Order 14 proceedings were contemplated or not?

MR LOCKEY: They were, my Lord, yes. In particular, against Tai Ping directed to the Claims Co-operation point.

MR JUSTICE CRESSWELL: Yes, but obviously if you decide to proceed with Order 14 proceedings, directions would be inappropriate. But no doubt you will reflect on this, Mr Edelman. Frequently it is the experience of this court that a speedy trial operates more effectively than proceedings for summary judgment.

MR EDELMAN: My Lord, yes.

MR JUSTICE CRESSWELL: And it should be possible in this court to bring these issues on for trial very quickly.

MR EDELMAN: My Lord, yes.

MR JUSTICE CRESSWELL: And I personally would support the giving of directions for a speedy trial.

MR LOCKEY(?): My Lord, I have to say one thing which was occurring to me, rather than Order 14 as to which I share my Lord's reticence from my own personal experience, not merely directly but also seeing what happens to other cases, is consideration as to whether there might be speedy trial of certain issues.

MR JUSTICE CRESSWELL: Yes, that is another possible approach but whether it is a trial of all issues or prima issues ordered by the court I think this is a case where, subject to any application that is made elsewhere, we should get on with it.

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