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Introduction
One
of the key factors in the resolution of international
disputes is also one of the first to arise.
The forum in which the case will be heard can heavily
influence the cost of the action and can influence, or even,
determine the outcome.
Yet
in spite of its potential for influencing the direction of
the case, historically the field of insurance and reinsurance
disputes was typified by a laissez
faire approach to jurisdiction issues.
The insured assumed that it was the natural claimant
and would have its choice of forum.
Until relatively recently, insurers had complied and
waited to be sued. That
time has gone. Insurers
and reinsurers are increasingly conscious of the value of
"forum shopping" and look to have disputes heard in
the forum mostly likely to secure a favourable outcome for
them.
A
particularly popular weapon in the insurer’s arsenal is the
negative declaration. The
insurer starts proceedings in its preferred court seeking a
declaration from that court that it is not liable under the
policy of insurance. In
making its claim, the insurer deploys all the arguments that
it would have used in its defence but frames them as positive
claims rather than defences.
This
article looks at the importance of forum in determining the
outcome of disputes; the question of where the most
appropriate forum might be; and the possible ways of
challenging the jurisdiction of the English courts when
insurers have commenced proceedings here.
Why
does it matter?
The
choice of forum will normally determine two significant
issues in the case.
First,
the forum will apply its own procedural law.
This may be critical.
Procedural rules will determine, amongst other things,
the scope of available discovery, the admissibility of
evidence and the power to compel witness testimony.
All these may influence the types of argument that
either party is able to use at the hearing.
The procedural rules will also determine the measure
of damages available for the claim, in particular the
availability of punitive damages.
That will affect not just the maximum recovery but
also, potentially, the insurer's view to settlement
negotiations. The
risk of punitive damages often encourages insurers to adopt
less of a "see you in court" approach.
Second,
the forum will apply its own choice of law rules to determine
which law should govern the substantive dispute.
It may be that two different courts would reach
different conclusions on the same underlying facts.
This could prove to be critical.
For example, English law is unusually strict on the
duty of disclosure imposed on an insured when seeking
insurance cover. The
insured must disclose all material facts to the underwriter
and any representation made by the insured must be true.
If full disclosure is not made or if any
representation is not true, even though this stems from an
innocent mistake, the insurer is entitled to avoid the
policy. It is
not even relevant that the misrepresentation had nothing to
do with the loss ultimately suffered.
By contrast, many jurisdictions would not permit
avoidance in such circumstances or at all. Where a non-English forum would apply a non-English law, that
will obviously be a factor for an assured facing such
allegations.
Where
to go?
The
first question in any dispute should be to determine which
court or courts could hear the dispute.
In some cases this will be a straightforward question,
since there will only be one forum with any connection to the
dispute. Where
the dispute involves a policy of insurance expressly governed
by English law, negotiated in England between an English
insured and an English insurer through the services of an
English broker and the accident and losses are suffered in
England, forum is not likely to present an issue. However, where the parties are in different countries and the
risk insured against is in a third country there will often
be a much wider range of possible forums in which any dispute
could be heard.
Once
the possible forums have been determined it will be important
to assess their relative merit.
There is no absolute guide.
Each case will turn on its particular facts.
Although
an individual analysis will need to be carried out in each
case, some general observations can be made about England as
a forum. The principal advantages to litigating in England include:
-
It has a strong and independent judiciary with
considerable experience in international disputes,
particularly those involving insurance and reinsurance.
-
Jury trials are very rarely available for civil cases.
-
There is also a strong body of expert witnesses
available in the London insurance market.
-
On
the other hand, there are also potential disadvantages:
-
English law tends to be pro-insurer, particularly as
regards obligations of full disclosure.
-
There may be logistical and cost issues for an
Argentinean insured coming to London. It will be necessary to bring witnesses across to give
evidence, potentially at considerable inconvenience and
expense. The
trial and all the evidence in it will be given in English,
which may well be a second or entirely foreign language for
the witness.
The
relative importance of these, and other, factors will depend
on the particular dispute.
Where the dispute concerns the interpretation of the
policy and little, if any, witness evidence will be required
then England may be considered a good forum in which to hear
the dispute. The
strength of the judiciary and the wealth of expert evidence
will normally outweigh the logistical difficulties.
Where a claim involves allegations of non-disclosure
and misrepresentation an insured will often find England to
be a difficult forum.
In
some cases, one factor may be decisive.
For example, where an insured is seeking to recover an
award of punitive damages made against it, it may prefer to
litigate in England, where there is no rule of public policy
prohibiting insurance against such damages, rather than the
USA, where often there is such a prohibition.
Moving
out
Assuming
that the insurer has commenced proceedings in England, and an
analysis has shown that another forum would be preferable,
what escape routes are open to an insured?
Arbitration
The
English courts will normally enforce the arbitration
provisions in any contract between the parties.
Where the insurer has commenced litigation in breach
of an arbitration provision it is open to the insured to
apply to the court for a stay of the arbitration.
Such an application will often succeed.
Invalid
service
For
the English court to have jurisdiction over a defendant, that
defendant will have to be served with the Claim Form in
accordance with the English Civil Procedure Rules.
The operation of the Rules can be complex, and advice
will have to be sought in every case.
However, two areas in particular give scope for
challenge:
-
Failure
to obtain permission:
A claimant will normally need the permission of the
English court to serve the Claim Form on a defendant who
has no presence in England.
The application for permission is made without
notice to the defendant, so the obligation is on the
claimant to disclose all factors material to the question
of whether permission should be granted. Failure to make
full disclosure is, in itself, a ground for setting aside
service. In
practice a court may be reluctant to set aside service on
this ground alone, although it is a useful supplementary
argument where others, such as forum non conveniens, are
available. In
all cases where a challenge to jurisdiction is being
contemplated, the defendant should obtain the evidence
supporting the permission application to determine whether
full disclosure was made.
-
Invalid
service: In
general terms, a defendant in another jurisdiction can
only be served in a way permitted by the law of that
jurisdiction. Argentina
has relatively strict rules on service.
The claim form can only be served through the
Ministry of Foreign Affairs, International Trade and
Worship; an attempt at service by other means will be
invalid. The
documents must be accompanied by a Spanish translation and
a statement from the translator detailing his
qualifications and containing a statement that the
translation is accurate.
Again, failure to comply with this rule renders
service invalid.
If
service is set aside the English court will have no
jurisdiction to hear the claim.
However, that would not necessarily prevent the
claimant from seeking to re-serve.
The defects set out above are technical and, if
corrected, would not prevent the English court from hearing
the case.
Forum non conveniens
Where
the defendant is domiciled outside the European Union and the
European Free Trade Area it can seek the dismissal of the
English proceedings on the ground of forum non conveniens.
This argument is based on there being another forum
with jurisdiction to hear the dispute in which the case may
be tried more suitably for the interests of all the parties
and the ends of justice.
Put simply, there is another court that is prepared to
hear the dispute and is better placed than the English court
to do so. Such an argument is, by its nature, fact driven and
will depend on the individual circumstances of the case.
Particular factors that the English court will
consider include:
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Location
of witnesses and documentary evidence:
This is particularly significant if the dispute is
essentially factual. In insurance claims it most often arises where the insurer is
relying on a defence of misrepresentation or
non-disclosure.
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Where
the parties to the dispute reside.
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The
existence of other proceedings concerning the same
dispute: If
the same claim is being litigated elsewhere, the English
court will generally try to avoid the cost of allowing
duplicate proceedings to run in England.
-
The
nature of the relief sought:
In particular, the courts will consider with
particular scrutiny applications for a negative
declaration.
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The
law governing the dispute:
Choice of law, whilst potentially important, is not
conclusive. Where
the dispute is more one of fact than of law, or where the
point of law is straightforward, little weight will be
given to it. Where
the question of law is one yet to be decided by the
English courts and is central to the dispute, the choice
of law will be far more significant.
The
advantage of forum non conveniens is that the claimant will
be far less likely to re-serve.
The claim is dismissed because England is not the
right place to resolve the dispute, rather than because of
any technical breach of the Civil Procedure Rules.
Conclusion
Forum
can be one of the significant initial battlegrounds between
the parties. In
many cases it will determine the form the dispute ultimately
takes at trial. Where
an insurer has sought to pre-empt the question by seeking a
negative declaration, the sensible insured should consider
what alternative forums are available and how they might
impact on the dispute. It
should not concede forum without carefully considering
whether it is happy to litigate its dispute, a process that
will take months and could take years, in the insurer's
chosen court and on the insurer's preferred terms.
(*)
Richard Farnhill is an
associate in the litigation department of Allen & Overy,
London.
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