JUDGMENT
1 The Defendants (who I shall call S.L. UK and S.r. and Su. L. collectively)
apply:
(1) To stay these proceedings against S.L. UK in favour of the proceedings
between the same parties before the Ontario Superior Court of Justice;
(2) To set aside the permission granted to the Claimants on March 16,
2004 to serve the Claim Form out of the jurisdiction on S. L. Canada;
on the grounds that Canada is an alternative available forum with
competent jurisdiction which is clearly and distinctly a more appropriate
forum than England for the trial of this action.
Background
2 S.is the parent company of the long established and well known
S. group of companies. It was originally a mutual organisation. It is
now incorporated in Canada, where its head office is situated. It owns
subsidiaries including S.L. UK.
3 S.L. UK is incorporated in England & Wales. ..
The Policy
4 In September 2000, S.took out a global "Blended Excess Program"
contained in a single policy No.MMF/1460 ("the Policy") consisting of a
primary and three excess layers…
6 G. UK is a subsidiary of G. Insurance Group ("G. US") based in New
York. It has changed its name to T. C. and S. C. of Europe Limited
7 Section 1B of the Policy, with which this dispute is concerned, stated:
"Declarations
THIS IS A CLAIMS MADE POLICY. SUBJECT TO ITS TERMS, THIS POLICY
APPLIES ONLY TO ANY CLAIM FIRST MADE DURING THE POLICY PERIOD
PROVIDED SUCH CLAIM IS REPORTED TO THE INSURERS AS SOON AS
PRACTICABLE."
The insuring clause covered loss resulting from a claim first made during
the policy period for a wrongful act, which was widely defined to include
actual or alleged error, omission, negligent act, any misrepresentation,
misstatement, misleading statement and "breach of any regulation, rule,
standard of practice or specification of any financial services regulatory
authority or Self Regulatory Organisation." Coverage also extended to all
sums which the insured became obligated to pay, and all costs incurred
as a result of any investigation or review by a financial services regulatory
authority.
8 Clause 6 of the Master General Conditions incorporated the terms
of a warranty letter ("the Warranty") …. It warranted with effect from
September 30, 2000 that:
"As respects the Financial Institution Professional Liability Policy ... issued
by G. Insurance Company UK Ltd ("the Insurer"), the Insured provides
the following:
The Insured hereby represents and warrants that it has no knowledge
or information of any actual or alleged fact, circumstance, situation, act
error, omission, misrepresentation, neglect or breach of duty which could
give rise to a Claim within the scope of the proposed coverage against the
Insured or any of the persons or entities covered under the Policy except
as disclosed in "Corporate Errors & Omissions Insurance Program Claims
History (as of September 20, 2000)" in Appendix A attached. The Insured
acknowledges and agrees that if such fact, circumstance, situation, act,
error, omission, misrepresentation, neglect and/or breach of duty exists,
whether or not disclosed, any Claim arising therefrom is excluded from
coverage under the Policy."
Knowledge or information of the "Insured" was defined under the
Warranty as meaning:
"... the following individual employees at Su L.: executive officers, risk
managers, general managers and vice presidents of national offices,
heads of national office legal departments, general counsel and vice
chairman."
9 …10 Clause 7 of the Master General Conditions provided:
"Reporting and Notice
Once known or discovered by the Assistant Vice President, Insurance
and Risk Management, notice shall be provided to the Insurer as soon as
practicable for:
(a) any Claim, Loss, or potential Loss exceeding $12,500,000;
(b) any formal administrative or regulator proceeding, Claim or
investigation;
(c) any class action lawsuit
All other Claims, Losses or potential Losses exceeding $2,500,000 shall be
reported to the Insurer on an annual bordereau."
Clause IX of Section 1B of the Programme stated:
"Assignments and Action Against Insurers
No action shall lie against the Insurer unless, as a condition precedent
thereto, the Insureds shall have fully complied with all of the terms of this
Policy ..."
Notifications were to be given to the Lead Insurer, G. UK, on behalf of
itself and the participating insurers.
11 In April 2001, after the premium had been paid, G. UK was replaced
by the Second Claimant, T. Ca. & S.of Canada ("T. Canada"), effective
from inception. The change was at the request of S.in order to avoid
payment of the tax that would be due in Ontario on an insurance
arrangement with a foreign domiciled insurer. T. Canada were fronting for
G. UK, which continued to administer the Policy. Su. L. paid premiums to
G. UK and Lloyd's underwriters via M. UK. G. UK and G. US each received
all notifications.
The Claim and Proceedings in London and Ontario
12 On October 10, 2000, a few days after the Policy incepted, the FSA
wrote to S.L. UK following a "focus" visit in August 2000. It recited a
summary of a number of serious criticisms made by the PIA and required
S.L. UK to undertake a review of past business ("PBR") in order to
demonstrate that investors had not been disadvantaged during the period
when the firm was unable to demonstrate appropriate internal controls
There was a threat of disciplinary proceedings and corrective action was
to be taken within two months.
13 In April 2002, Su. L. through Marsh gave G. UK and G. US an informal
report about a possible claim arising from the PBR conducted following a
visit and subsequent report by the FSA in August/October 2000. It was
indicated that the administration budget was currently £10.4m. …
On this basis, allowing for the policy retention of $25 million, an interim
net claim of $19,005,996.74 was advanced. In February 2004, a revised
proof of loss was sent increasing the interim net claim to $25,302,433.63,
based on costs of £23,073,577.41 and payments to policyholders
of £3,828,997. Su. L. indicated that it believed the PBR was near
completion.
14 In immediate response to the provisional proof of loss, insurers
through G. US requested some further information and reserved their
rights generally.
15 On March 10, 2004:
(1) Robin Simon LLP wrote to Freshfields Bruckhaus Deringer for Su. L.
stating that the claim was excluded from coverage under the terms of the
policy.
(2) These proceedings were issued in the Commercial Court The
Claimants were all the insurers on the primary layer, plus G. UK and New
Hampshire ("the Insurers"). Attached to the claim form were detailed
Particulars of Claim running to some 26 pages.
No letter before action was sent. In their letter of March 10, Robin Simon
stated that Insurers did not see that protracted correspondence would
resolve the coverage issue. The appropriate course (so they asserted)
was for the matter to be determined by the Commercial Court. The Claim
Form was delivered to S.L. UK's registered office on March 12, 2004.
Service is deemed to have taken place on March 15, 2004.
16 On March 16, 2004, Steel J. gave permission for the Claim Form and
Particulars of Claim to be served on S.on the basis that they were a
necessary and/or proper party to the claim against S.L. UK.
17 The grounds upon which Insurers deny liability under the Policy, as
adumbrated in the Particulars of Claim, are as follows:
(1) The claim is excluded under the Warranty. There were actual facts,
circumstances etc. existing at the date of the Warranty and/or the
inception of the Policy which could give rise to a claim, and in the event
did give rise to a claim. Insurers set out a lengthy history, based on
documents supplied by Su. L., starting in July 1997 in support of this
case. They focus particularly on a series of events, including meetings
with the PIA, between March and September 2000. If, contrary to
Insurers' primary case, it was necessary that these facts and matters
should be known to S.L. UK or Canada, then it is asserted that they were
known in detail and/or in substance to the senior management of both
companies.
(2) Su. L. failed to comply with the notification provisions of the Policy in
s.1B of the Policy and cl.7 of the Master General Conditions by notifying
Insurers of the PIA letter of October 10, 2000, which is said to constitute
a formal administrative or regulatory proceeding, or of the Claim as soon
as practicable, or as soon as practicable after it was known to Ms Susan
M., the Assistant Vice-President, Insurance and Risk Management.
18 The Particulars of Claim seek declarations that:
(1) The Claim, and/or any claim based upon the same or similar facts, is
excluded from the Policy by virtue of cl.6 of the Master General Conditions
and/or the Warranty;
(2) The Insurers have no liability under the Policy and/or no action lies
against them because the Insured failed to comply with the notification
provisions [of the Policy]; and accordingly
(3) The Insurers are not liable to make any payment in respect of the
Claim under the Policy.
19 On March 24, 2004, S.and S.L. UK commenced proceedings in
the Ontario Superior Court of Justice against the Insurers who had
commenced the English proceedings, denying a breach of warranty
and seeking recovery under the Policy of some $19 million, plus further
amounts. On April 15, 2004, Insurers applied to set aside service of
and/or to stay the Ontario proceedings. That application is due to be
heard in September 2004. More recently the Ontario proceedings have
been amended to seek an award of punitive damages against Insurers
in the amount Can$100 million on the grounds of alleged breach of good
faith and fair dealing in commencing the English proceedings (so called
"blatant forum shopping") and in improperly denying a claim which they
reasonably believed to be covered. Su. L. have also formally given notice
that they require the issues of fact and damages to be assessed by a jury.
20 On April 26, 2004, Su. L. applied to stay the English proceedings in
favour of the Ontario proceedings, on the grounds that Canada is an
alternative jurisdiction which is clearly and distinctly a more appropriate
forum. Thereafter a very considerable volume of evidence was submitted
by both parties and I heard argument from Gavin Kealey Q.C. and Andrew
Wales for S.L. UK and S.and from Robert Howe for Insurers. I am grateful
to all counsel for their careful written and oral submissions, and their
instructing solicitors for preparing the heavy documentation for the
hearing.
The EU Jurisdiction Regulation
21 Mr Howe's first submission was that, under Art.2 of Council Regulation
44/2001 (superseding the Brussels Convention on Jurisdiction and the
Enforcement of Judgments in Civil and Commercial Matters), which is part
of the law of England, S.L. UK is sued as of right in the English Court and
I have no discretion to stay the proceedings as against S.L. UK. If that
were so, it must follow (so he argued) that the claim against S.should be
tried here to avoid multiplicity of proceedings.
22 Article 2 of the Regulation provides:
1. Subject to this Regulation, persons domiciled in a Member State shall,
whatever their nationality, be sued in the courts of that Member State
2. Persons who are not nationals of the Member State in which they are
domiciled shall be governed by the rules of jurisdiction applicable to
nationals of that State.
The Brussels Convention was in similar terms.
23 S.L. UK is an English company, with its statutory seat, central
administration and principal place of business in England. It is
unquestionably domiciled in England for the purposes of Art.2(1).
24 In Re Harrods (Buenos Aires) Ltd, the Court of Appeal held that the
Brussels Convention was intended to regulate jurisdiction only as between
contracting States and it was not inconsistent with the Convention for
the English Court to stay proceedings on the grounds of forum non
conveniens in a case involving a conflict of jurisdiction between the
English Court and the courts of a non-contracting State (in that case
Argentina).
25 In Universal General Insurance Company v Group Josi Reinsurance
("UGIC"), the European Court of Justice considered a case under the
Brussels Convention in which the Plaintiffs were a Canadian company,
and thus not domiciled in a member State. The dispute was whether the
Belgian defendants should be sued in France, where the Defendants'
brokers were domiciled, or in Belgium, where the Defendants themselves
were domiciled. This raised the issue whether the Convention had any
application to proceedings brought by a Plaintiff who was not domiciled in
a member state. In its judgment, the ECJ said as follows:
"[55] The Convention enshrines, on the other hand, the fundamental
principle that the courts of the contracting state in which the defendant is
domiciled or established are to have jurisdiction.
[56] As is clear from paragraph 47 above, it is only by way of exception to
that general rule that the Convention includes certain specific provisions
which, in clearly defined cases, accord an influence to the plaintiff's
domicile.
[57] It follows that, as a general rule, the place where the plaintiff
is domiciled is not relevant for the purpose of applying the rules of
jurisdiction laid down by the Convention, since that application is, in
principle, dependent solely on the criterion of the defendant's domicile
being in a contracting state.
[58] It would be otherwise only in exceptional cases where the
Convention makes that application of the rules of jurisdiction expressly
dependent on the plaintiff being domiciled in a contracting state.
[59] Consequently, the Convention does not, in principle, preclude the
rules of jurisdiction which it sets out from applying to a dispute between
a defendant domiciled in a contracting state and a plaintiff domiciled in a
non-member country.
[60] As the Advocate General observed in paragraph 21 of his opinion, it
is thus fully in accordance with that finding that the court has interpreted
the rules of jurisdiction laid down by the Convention in cases where the
plaintiff had his domicile or seat in a non-member country, although the
provisions of the Convention in question did not establish any exception
to the general principle that the courts of the contracting state in which
the defendant is domiciled are to have jurisdiction: see Marc Rich & Co AG
v Societa Italiana Impianti PA ( Case C-190/89) [1991] ECR I-3855 and
Owners of cargo lately laden on board the ship Tatry v Owners of the ship
Maciej Rataj ( Case C-406/92) (Note) [1999] QB 515.
[61] In those circumstances, the answer to the first question must
be that Title II of the Convention is in principle applicable where the
defendant has its domicile or seat in a contracting state, even if the
plaintiff is domiciled in a non-member country. It would be otherwise
only in exceptional cases where an express provision of the Convention
provides that the application of the rule of jurisdiction which it sets out is
dependent on the plaintiff's domicile being in a contracting state."
26 Mr Howe argued that the reasoning and decision of the ECJ in UGIC
meant that Re Harrods could no longer be regarded as good law. He cited
the decision of HHJ Bentley Q.C., sitting as a Deputy High Court Judge, in
Owusu v Jackson, in which he held that Re Harrods was no longer good
law. The judgment is not reported but I was provided with a copy of it.
The learned Judge stated (at p.3 of his Judgment) that the ECJ held in
UGIC that:
"the question whether the jurisdictional rules in the Brussels Convention
applied to a dispute in principle depended upon whether the Defendant
had its seat or domicile in a contracting state, and that the Convention
applied to a dispute between a defendant domiciled in a contracting state
and a claimant domiciled in a non-member country.
If the European Court's construction of the Convention is correct it would
appear to follow that Re Harrods is bad law and that the English Court
may not stay proceedings brought against a Defendant domiciled here on
the ground of forum non conveniens since Art. 2 makes it obligatory for
a claimant, whether domiciled in a contracting or non-contracting state,
to sue such defendant in the English courts. That ... certainly appears
to be the opinion of the learned editors of Cheshire and North, Private
International Law, 13th ed. who say at p.266 that 'it is hard to resist the
conclusion that the decision in Re Harrods is misguided if not downright
wrong'."
27 In the light of that conclusion and s.3 of the Civil Jurisdiction and
Judgments Act 1982, the Judge held that he was bound to follow the
decision of the ECJ and that he could not grant a stay, as he made clear
he would otherwise have granted.
28 On appeal, the Court of Appeal referred to the ECJ the issue whether it
is inconsistent with Art.2 of the Brussels Convention for a national court to
exercise a discretionary power, available under its national law, to decline
to hear proceedings brought against a defendant domiciled in that State
in favour of the courts of a non-Contracting State:
(a) If the jurisdiction of no other Contracting State under the 1968
Convention is in issue;
(b) If the proceedings have no connecting factors to any other Contracting
State.
Although the Court of Appeal stressed the urgency of the case, the oral
hearing in the ECJ only took place recently. The advice of the Advocate
General is awaited and it is likely to be some time (probably 2005) before
the ECJ delivers its judgment.
29 In DSM Anti-Infectives BV v SmithKline Beecham Plc Lewison J.
followed and applied HHJ Bentley's decision in Owusu. At para.[34] of his
Judgment, he stated that the ordinary rules of precedent required him to
follow that decision unless he was convinced it was wrong. He observed
that the Court of Appeal were plainly not convinced that the Judge was
wrong, otherwise they would not have referred the case to the ECJ on
the basis that the question was acte clair He held therefore that he did
not have jurisdiction to stay the proceedings brought against an English
company in favour of Pennsylvania. I was told that Lewison J. did not see
Judge Bentley's judgment (although it is shortly summarised in Brooke
L.J.'s judgment in Owusu) but that he was shown some of the Court of
Appeal authorities I set out below. There is no analysis in his judgment of
Judge Bentley's reasoning or of the Court of Appeal authorities.
30 On the basis of these authorities, Mr Howe argued that, in accordance
with English rules of precedent, I should follow HHJ Bentley Q.C. and
Lewison J., and hold that I had no discretion to stay the proceedings
against S.L. UK. However, Mr Kealey cited a number of Court of Appeal
authorities which (he argued) established that the decision in UGIC was
not inconsistent with Re Harrods.
31 First, in Ace Insurance SA-NV v Zurich Insurance Co., decided after the
ECJ decision in UGIC, which was cited to the Court of Appeal, Rix L.J. held
that Re Harrods had not been decided per incuriam and was binding on
the Court of Appeal. The other judges concurred. It is right to observe,
however, that it does not appear that it was argued that the decision in
UGIC was inconsistent with Re Harrods.
32 Secondly, in Owusu on appeal to the Court of Appeal, Brooke L.J.
explained for the benefit of the ECJ that the situation that confronted
the Court of Appeal was a different one from that considered in UGIC. It
was not suggested that the courts of any other member State might be
involved. "This is not a matter on which the European Court of Justice has
ever made a ruling". In my judgment this is wholly inconsistent with the
view expressed by Judge Bentley that the reasoning of the ECJ in UGIC
was inconsistent with Re Harrods. Nor do I think that by referring the
issue to the ECJ, the Court of Appeal were supporting this reasoning. The
whole flavour of the Court of Appeal's judgment is to the contrary.
33 Thirdly, in American Motorists Insurance Co. v Cellstar Corp, the Court
of Appeal stated explicitly that Re Harrods was binding authority that the
Court of Appeal has power to stay in favour of the courts of a State which
is not party to the Brussels Convention.
34 Fourthly, in Anton Durbeck GmbH v Den Norske Bank ASA the Court
of Appeal, decided, following Ace, that under the equivalent and identical
provisions of the Lugano Convention, it was bound to hold that the Judge
had discretion to stay proceedings served on the Defendants in London
in favour of Panamanian jurisdiction. The Court of Appeal gave leave to
appeal to the House of Lords, a reference to the ECJ being impossible
under the Lugano Convention. This judgment clearly proceeds on the
basis that Re Harrods should be followed in the Court of Appeal.
35 I would only refuse to follow the decisions of Judge Bentley and
Lewison J. if I was convinced that they were plainly wrong. But I am
convinced that there is a quartet of Court of Appeal authorities all decided
post UGIC which hold that Re Harrods remains good authority. The Court
of Appeal decision in Owusu is plainly inconsistent with Judge Bentley's
assumption that the issues decided in UGIC were the same as those
before the Court in Re Harrods. I think that Brooke LJ. said the opposite
and that Lewison J. was, with respect, wrong to hold that he should follow
Judge Bentley's decision in Owusu.
36 It follows that in my judgment, as English law stands, I am bound to
consider whether I should stay this action on the grounds of forum non
conveniens. Of course, it is possible that the ECJ will determine in the
Owusu reference that the Court of Appeal's views are wrong, but that is a
matter for the future and I will not speculate.
Forum Conveniens
The Test
37 S.L. UK has been duly served within the jurisdiction. If I were to
look at the claim against them only, I would only stay the action if I was
satisfied that:
(1) S.L. UK has shown there to be another court with competent
jurisdiction which is clearly and distinctly more appropriate than England
for the trial of the action, and
(2) It is not unjust for the Insurers to be deprived of a right to trial in
England.
FN12 Dicey & Morris, "Conflicts of Laws", (13th Ed.) Rule 31(2);
summarising the effect of the House of Lords' decisions in Spiliada
Maritime Corp v Cansulex: [1987] A.C. 460; [1987] E.C.C. 168; Connelly
v RTZ Corporation: [1998] A.C. 854; [1997] I.L.Pr. 805.
38 S.has been served outside the jurisdiction with the permission of
the Court on the grounds that it is a necessary and proper party to
the proceedings commenced against S.L. UK. If I were to look at S. L.
Canada's position in isolation, the burden of proof would be reversed
and the Insurers would have to establish that England was clearly the
appropriate forum for this action.
39 In EI Du Pont de Nemours & Co v I C Agnew, Bingham L.J. giving the
judgment of the Court of Appeal considered the right approach where
the proceedings were brought against defendants within and without the
jurisdiction. He said this:
"The critical equation
I now turn to consider the comparison which the authorities indicate
must be carried out. In doing so I make three points at the outset. First,
in a case such as this where some defendants have been served within
and some without the jurisdiction, the Court must in my judgment view
the case in the round. It would not be correct to review the position
of the English defendants independently and treat that decision as
concluding the position of the foreign defendants. Or vice versa. Relative
appropriateness and the requirements of justice should be assessed
taking account of the case as a whole and not giving preponderant weight
to the position of either group of defendants. Second, I do not regard this
as a case in which the dates of beginning of proceedings are significant.
As it happens, the English proceedings began first and the Illinois action
a month later. It might have been the other way round. I do not think the
outcome of these appeals should be affected by what is little more than
an accident of timing. Third, I should emphasise, perhaps unnecessarily,
that the standing and integrity of the Illinois Court are beyond all doubt or
reproach."
So, I must consider the case in the round and ask which jurisdiction
is the natural or most appropriate forum for the trial of this action. I
must consider what factors connect this case with England, and what
factors connect it with Ontario so that I can decide which jurisdiction has
the most real and substantial connection with the dispute. I 42 For the
Insurers, Mr Howe submitted that:
(i) The Policy was, by deliberate choice of the parties, broked and issued
in London, and is governed by English law.
(ii) The insurance claim arises out of the acts and defaults by S.L. UK,
a UK financial services company, which took place entirely in the UK,
in relation to its obligations under the UK financial services regulatory
regime.
(iii) The documents and the great majority of the relevant witnesses
are in Engand. It would be much easier to compel relevant third party
evidence, especially from the FSA, if the proceedings were in England.
(iv) The negative declaration proceedings were properly brought and
directly raise the key issues in the action.
(v) The central issue in the action is one which this Court is uniquely
well placed to determine, namely what was the risk of action by the UK
financial services authorities against S.L. UK in the light of their long
history of dealings with, and criticisms of, S.L. UK, stretching over a
number of years.
(vi) Even if the Policy is governed by Ontario Law, this Court could
readily resolve the legal issues raised with the assistance, if necessary, of
expert evidence. By contrast, if there was a trial in Ontario a great deal
of evidence would be required as to the regulation of the UK financial
services industry which would be unnecessary if the case were heard
in the Commercial Court. It would be particularly difficult to explain the
system of UK regulation to a jury in Ontario.
43 For S. L., Mr Kealey argued:
(i) The Policy is governed by the law of Ontario.
(ii) Insurers were greatly exaggerating the connections with England. The
Policy was issued to S. L. Canada, the Canadian parent.
(iii) The real issue in the case (especially the late notification defence)
is the knowledge of Ms M. who is based in Canada. The majority of the
witnesses are in Canada and the documents could easily be transported
to Canada. If it was really necessary to obtain evidence from the FSA, this
would be within a narrow compass and could be achieved by means of
letters rogatory addressed by the Ontario Court to the English Court.
(iv) The issues of Ontario law, particularly whether there was power to
relieve from forfeiture for late notification, were much more suitably
determined by the Ontario Court.
(v) The negative declaration proceedings commenced were wholly
inappropriate.
(vi) An Ontario court would have a general familiarity with regulation of
the financial services industry. A jury would be well able to decide the
issues of knowledge.
(vii) This was a blatant case of improper forum shopping by Insurers.
Insurers had improperly taken advantage of the belief of Su. L. in Canada
that it was subject to a 60 day moratorium on proceedings. Su. L. should
be allowed to pursue its claim for punitive damages in Ontario.
44 Before I consider the critical equation of connecting factors, I propose
first to consider:
(1) The applicable law of the Policy;
(2) The issues of Ontario law that would arise if the trial takes place in
England;
(3) What are likely to be the real factual issues between the parties;
(4) The appropriateness of the negative declaration proceedings and
whether Insurers unfairly took advantage of Sun L. by commencing these
proceedings in England.
Applicable Law
45 The Policy is underwritten by some insurers who are established and
carrying on business in a member State of the EU, and by some who are
not. It insures some risks situated within a member State (or States)
of the EU and other risks which are not. These factors raise difficult
questions as to whether the rules for determining the applicable law
are those set out in the Rome Convention, appended to the Contracts
(Applicable Law) Act 1990, or in Sch.3A to the Insurance Companies Act
1982 (since repealed, but in force when the Policy was entered into),
giving effect to the EU second general insurance directive. The problems
particularly arise from the fact that the Directive and hence Sch.3A
did not appear to contemplate the obvious possibility of the risk being
situated partly in a member State (or, indeed, States) and partly in other
countries altogether.
46 In American Motorists Insurance Co v Cellstar Corporation Mance
L.J. reviewed the applicability of these schemes in considerable detail.
He decided that the policy in that case was a single, probably multi-
partite, contract and that neither the parties nor the Rome Convention
could sensibly be taken to have intended to "scissor up" the policy and to
subject different aspects of it to different governing laws. For the purpose
of applying Sch.3A, the policy holder in that case was the parent company
which took out the policy, with the subsidiary companies being insureds.
47 In this case the position is the same. The Policy was taken out by S.for
itself and its subsidiaries. It is a composite multi-partite policy with a
single undivided premium payable. It is inconceivable that the parties
intended that the Policy should be "scissored up" so as to provide for a
different governing law for different insureds or risks. The risk is a large
risk for the purposes of Sch.3A.
48 The parties agreed that it followed that whether the Rome Convention
applied or Sch.3A applied, the issues were the same:
a. When making their contract, did the parties choose the law of any
country and, if so, which?] That choice of law must be expressed or
demonstrated with reasonable certainty.
b. If not, which is the country with which the contract is most closely
connected?
These are familiar concepts to a common lawyer seeking to ascertain the
proper law of a contract.
49 There is no express choice of law in the Policy. ….
55 So, two of the four sections of the policy follow the terms and
conditions of policies governed by Ontario law. The third follows the terms
and conditions of a policy perhaps governed by Illinois law, … The fourth
section does not follow any other policy but refers to a policy governed by
Massachusetts law -- I regard this is as being of little significance since
the main purpose of the reference is to provide MFS with "difference in
conditions" cover.
56 The following connections (apart from the underlying policies) emerge
from the Policy:
-- The policy is entitled "Su. L. Financial Services of Canada Inc. Blended
Excess Program";
-- S.is named as the Parent Organisation with its principal address in
Ontario;
-- The currency of the policy is in US dollars, but currencies are to
exchanged at the US$ rates published in the Globe and Mail, a daily
newspaper published in Toronto.
-- The policy period is by reference to Toronto time;
-- The named Lead Insurer, writing 20 per cent on the primary and first
excess layers and 10 per cent on the second excess layer was a company
incorporated in England & Wales carrying on business in London. ..
-- The next 40 per cent on the primary and first excess layers and 35 per
cent on the second excess layer was written by Lloyd's underwriters....
-- The brokers are named as M. Canada Limited in Ontario.
-- The language (and particularly the spelling in the policy) is perhaps
more US/Canadian than English, ..-- The Lead Insurer (G. UK) was to
receive notification of all Claims notices and to deal with all Claims.
57 Mr Kealey argued that the requirement to follow these three policies,
coupled with the other pointers to Ontario, amounted to an implied choice
of Ontario law. ..
58 Looking outside the terms of the Policy, there is a dispute between the
parties as to the relevant facts leading up to the conclusion of the Policy.
59 Insurers submit that this was a policy led and issued in London as
required by S. L. Canada. They point to the following:
-- The first approach was made in London to Simon Ashby of G. UK by M.
UK on instructions from Ms M.. Ms M. was very keen for G. UK to provide
lead terms for Sun L..
-- T. Canada played no part in the negotiations. G. US was involved but it
was never suggested that G. US should issue the Policy.
-- There were meetings in London, Basingstoke, New York and Toronto
(attended by some participants by telephone).
-- G. UK's dealings were with M. UK who were the brokers licensed to
operate in the London market.
-- At M. UK's request, Mr Ashby for G. UK scratched a London Market
slip on November 24, 1999 "subject to ... G. UK Limited subjectivities".
This was, as I see it, an agreement in principle only designed no doubt to
establish progress in the negotiations.
-- M. UK expressed concerns whether G. UK could participate as leader
on a policy involving a Canadian resident corporation, given that G. UK
was not licensed in Canada. G. US took advice from Gouldens, well known
City solicitors On November 25, 1999, they advised (having consulted Mr
Vincent O'Donnell Q.C. in Montreal), that, providing such business was
brought to G. UK in the traditional manner and providing the policies were
issued in London and not subsequently delivered outside the UK, then no
Canadian authorisation was needed.
-- This advice was supplied to M. UK. I interpolate that this is disputed by
Su. L., who say the advice is not on M. UK's files. However, given (as the
advice records) that the concern had originally been raised by the broker,
and that a letter dated November 11, 1999 sent by Gouldens to G. US
recorded their understanding that their advice was to be produced to the
broker, it does seem quite likely that M. UK would have been told of the
advice to assuage their concerns. It appears that the original Policy and
slips are held by M. UK in Norwich. This accorded with Gouldens' advice.
-- On September 25, 2000, another slip was signed by Mr Ashby for G.
UK, the underwriter for Syndicate 839, and AIG for New Hampshire. This
slip contained a Canadian service of suit clause (permitting service of suit
on Insurers at an address in Montreal, Quebec) and, attached to it, were
the FINPRO Broker Convenience Clauses, referring to a number of London
market clauses. Other Lloyd's syndicates scratched an additional page of
the slip at about the same time.
-- On September 26, 2000, Mr Ashby for G. UK as Lead Insurer scratched
the Policy as did Lloyd's Syndicate 839 representing all other Lloyd's
participation. It was only after the main placement had been made in
London and 60 per cent of the primary risk and first excess layer written
(rather less on the second and third excess layers) that the Policy was
presented to the Canadian following insurers. There was never any
question of the risk being presented to the Canadian followers before
London underwriters were bound.
-- …
62 I have set out the rival contentions at some length to show that the
factual issues are complex. In my judgment, I cannot possibly resolve at
this stage whether, as a matter of English conflicts of laws, the Policy is
governed by the law of England or the law of Ontario. Neither party asked
me to decide it as a preliminary issue. In this jurisdiction, the issue will
have to be determined at trial, or possibly as a preliminary issue. What I
can say clearly is:
a. There is a good arguable case that the Policy is governed by the law of
Ontario.
b. There is also a good arguable case that the Policy is governed by
English law;
63 Mr Howe argued, on the basis of The Magnum, that once I determined
that there was a seriously arguable case that the Policy was governed by
English Law, I should exercise my discretion on the basis that this was
an English law contract, and ignore the possibility that Ontario law might
apply. The Magnum was concerned with very different circumstances,
but in any event Mr Howe's approach is wholly inconsistent with that of
considering the case in the round. The reality is that the trial judge is very
likely going to have to determine the applicable law at trial and, because
it cannot be certain which law applies, hear evidence of the law of Ontario
insofar as it is contended that it differs from English law. In determining
the appropriate jurisdiction, I must take that into account.
Issues of Ontario Law
64 I have had the benefit of evidence from Mr Glenn Smith, a member of
the Canadian Bar and of the Law Society of Upper Canada, and a senior
partner in Lenczer Slaght Royce Smith Griffin LLP of Toronto, and from Mr
Brian Brock Q.C., also a member of the Law Society of Upper Canada, and
a senior partner of Dutton Brock LLP of Toronto.
65 It is clear from their evidence that the rules of construction that would
be applied to the Policy and the Warranty in Ontario are not substantially
different from the rules applicable in this jurisdiction.
66 Where Ontario law does differ from English law is that under s.129 of
the Insurance Act 1990, the Court has power to relieve from forfeiture
for imperfect compliance with the terms of an insurance policy. If the
compliance was imperfect, the Court may, if it considers it inequitable that
the insurance should be forfeited, grant relief against forfeiture on such
terms as it thinks just.
67 It is agreed that this provision has no application to the Insurers'
defence under the Warranty. Its potential relevance is to the denial of
liability on the grounds of late notification. Two issues will arise:
(1) Has there been "imperfect compliance".
(2) If so, does the Court consider it inequitable that the insurance should
be forfeited and, if so, should relief be granted and on what terms.
68 As to (1), the Supreme Court of Canada decided in Falk Bros v Elance
Steel Fabricating Co that the equivalent section in Saskatchewan extends
to contractual conditions and that failing to provide notice to an insurer
in timely fashion is imperfect compliance. A distinction was drawn
between imperfect compliance and non-compliance, akin to the distinction
between a breach of a term of the contract and the breach of a condition
precedent. " If the breach is of a condition, that is, it amounts to non-
compliance, no relief under [the section] is available."
71 In Stuart v Hutchins, the Plaintiff was insured under a claims made
and reported policy. The insured was notified of a potential claim during
the period of the policy but failed to report it to insurers. The trial judge
was prepared to grant relief against forfeiture, but the Court of Appeal
for Ontario held that the reporting requirement was not merely incidental
to the event triggering coverage (as in McNish), but an integral part of
that event. To extend reporting time would be tantamount to an extension
of coverage gratis This was so very different from a mere condition of
the policy that in effect it would rewrite the policy. The trial judge had
"failed to address the critical question, namely, whether [the Plaintiff's]
breach constituted imperfect compliance with a term of the plan or non-
compliance with a condition precedent to coverage ..."
72 On the basis of Stuart, the Court applying the law of Ontario would
have to consider whether the requirement in the Policy, especially the
Declaration at the opening of s.1B quoted in para.[7] above, was a
condition of coverage or a clause of the Policy. It would appear from
McNish that the fact that there is a term making compliance with all terms
a condition precedent to the bringing of an action will not prevent an
insured from seeking relief under the section. However it is not entirely
easy to see how this fits with the distinction drawn in Falk between
imperfect compliance and non-compliance, akin to the distinction between
a breach of a term and a breach of a condition precedent.
73 In either jurisdiction, the Court would have to grapple with this issue.
Obviously it would be easier for the Ontario Court to do this and there
would be the availability of an appeal to a higher Court. In England,
expert evidence from Ontario lawyers would be needed. However, the
issue is fairly self-contained and I think a commercial judge in England
would be well able, having heard expert evidence from distinguished
Ontario lawyers, to decide whether s.129 could be invoked in principle, if
that were necessary.
74 If it were concluded that relief was available in principle, I think that
an English judge would be well able to decide whether it was inequitable
that the claim be denied because of late notification, and whether to grant
relief and, if so, on what terms. These are familiar considerations in other
contexts. I do not accept Mr Kealey's submission that a Canadian Court
would enjoy a substantial advantage in dealing with this aspect of the
case.
75 A further difference between English law and Canadian law is that
in Canada (including Ontario) it is possible to award punitive damages
against an insurer. In Whiten v Pilot Insurance Co, the Supreme Court of
Canada held that punitive damages could be awarded where the insurers
were guilty of "high handed, malicious, arbitrary or highly reprehensible
misconduct that departs to a marked degree from ordinary standards of
decent behaviour". The insurers had trumped up a case of arson against
a family who had lost their home and its contents and their three cats,
and forced an eight week trial, hoping to starve the insured into a cheap
settlement. The Supreme Court of Canada upheld the jury's award of Can
$1 million punitive damages (about treble the loss) on the grounds that
the insurers conduct was exceptionally reprehensible.
76 In this jurisdiction, exemplary damages are available across the whole
range of torts with a wilful element but not, as the law stands, in contract.
It is possible, as McGregor on Damages suggests, that this might change,
but not I think short of the House of Lords.
77 Before me, the parties proceeded on the assumption that, even if
the Policy was governed by the law of Ontario, an English Court would
not award punitive damages. Certainly counsel were unable to cite a
single instance where an English Court has awarded punitive damages for
breach of a foreign law contract. However, I can see that it is arguable
that, if the applicable law of a contract permits the award of punitive
damages, the English court could also do so. In SA General-Textiles v
Sun & Sand Ltd, Lord Denning M.R. considered ( obiter) that it would
not have been contrary to English public policy to enforce a French
award of punitive damages in favour of a private person, although
he considered, as did the other members of the Court of Appeal, that
properly understood the award in that case was compensatory. The
question was plainly regarded as debateable by Potter L.J. at para.[50] of
his judgment in Lewis v Eliades. However, I proceed on the basis however
that an English court could not award punitive damages in this case.
78 I shall return to the weight that I attribute to the possible availability
of punitive damages in Ontario (but not in England) later in this
judgment.
The likely real factual issues between the parties and evidential
requirements
79 In considering most appropriate jurisdiction, it is obviously important
to form a provisional view of the real issues between the parties on which
evidence will be required. As I see it there will be four main issues on
liability and quantum:
(1) Was there a breach of the Warranty.
(2) Has there been a failure to comply with the notification provisions of
the Policy.
(3) If so, assuming Ontario law applies and that relief from forfeiture is
available in principle, should relief from forfeiture be granted.
(4) If insurers lose issues (1)-(3), what is the appropriate quantum of the
insurance claim.
I also need to consider who are the real claimants under the Policy and
which Insurers are on effective risk.
80 There are disputes as to the correct interpretation of the Warranty.
Insurers contend that a breach of Warranty does not depend on
knowledge of the stated individual employees at Su. L., that is "executive
officers, risk managers, general managers and vice presidents of national
offices, heads of national office legal departments, general counsel
and vice chairman". Su. L. contend to the contrary and further that, as
regards employees of S.L. UK, it is only the knowledge of managers and
vice presidents at UK national offices that would count for the purposes of
the Warranty. They name two individuals as qualifying in the UK -- Steve
Me., the UK General Manager, and Barry B., Vice President and Chief Legal
Adviser of S.L. UK -- and eight Toronto witnesses as qualifying.
81 These may be the primary submissions of the parties but they both
seem rather extreme approaches to the proper construction of the clause.
I regard the Insurers' narrow construction of the Warranty as virtually
unarguable. I am sure that they will wish to try and prove knowledge on
the part of one or more of the defined class of Su. L. employees/officers. I
am equally sure that Su. L. will wish to be able to rebut knowledge on the
part of a wider class of UK employees than they presently concede to be
within the defined class.
82 In my judgment, the trial will inevitably involve a detailed investigation
of what transpired between the PIA/FSA and S.L. UK, especially in the
months leading up to the FSA letter dated October 10, 2000, and of the
perceptions of those involved at executive officer, risk manager, general
manager and vice president level in the UK and at the head of S.L. UK's
legal department. The knowledge of their opposite numbers in Toronto
will also be relevant but, since their involvement was indirect rather than
direct, it seems to me that the primary focus will be on the UK witnesses
because, if they did not have the requisite knowledge, it seems rather
unlikely that those to whom they reported in Toronto would have obtained
the requisite knowledge.
83 The PIA/FSA is bound to have relevant evidence available as to what
S.L. UK was told at meetings, especially in the latter period. Evidence as
to PIA/FSA internal thinking or justifications for their actions would be
irrelevant. It is the interface between S.L. UK and PIA/FSA that would be
of relevance.
84 By contrast, on the issue of notification, the ultimate focus will be on
the knowledge of Ms M., the Assistant Vice President, Risk Management
whose knowledge is critical under cl.7 of the Master General Conditions.
Nevertheless, Ms M. is likely to have been at the end of the reporting
chain. Su. L.'s case is that the first notification was made informally by
Ms M. at a dinner party held in New York on November 19, 2001 attended
by representatives of G. NY. Ms M. states that she said "there was a
regulatory issue in the UK which [she] was monitoring". Reliance is placed
alternatively on an e-mail sent by Ms M. on March 22, 2002, which was
forwarded to underwriters on April 12, 2002. Insurers accept that they
received notification in mid-April 2002 I doubt that anything turns on the
elapse of time between March 22 and mid-April 2002, but I can see the
potential for a substantial dispute as to whether what Ms M. said at a New
York dinner party in November 2001 amounted to proper notification for
the purposes of the Policy.
85 I am sure that the trial will involve a detailed investigation of what was
happening in the UK between September 2000 and March 2002, and what
was passed on to Ontario and thence to Ms M.. I think it highly unlikely
that the evidence on this issue will be confined to Ontario, let alone to Ms
M.'s evidence. There will inevitably be a substantial volume of relevant
evidence from UK witnesses, and from some other Canadian witnesses.
86 I doubt that on issues of relief from forfeiture, which I have already
explained, there would be much, if any, evidence from witnesses who
would not be before the Court anyway.
87 Quantum is, I think, bound to be in dispute. It is striking that such
a high proportion of the claim (about 86 per cent of the revised claim)
consists of expenses paid to accountants, lawyers and other professionals,
as opposed to compensation to policyholders. The investigation of the
necessity for, and reasonableness of, these expenses will be tied up
with the notification issue. When were they incurred, and when did they
become apparent to Ms M., and what conclusions were drawn as to the
likely development of the loss? As I understand it, all the expenses were
incurred in England and the evidence would be in England.
88 Ms M. asserts that S.is the insured that suffered the loss. According
to her evidence, although the loss incurred as a result of the PBR
was initially accounted for in the accounts of S.L. UK, the loss is now
accounted for in the consolidated accounts of S. L. Canada. " Therefore
it is S.which has suffered the loss". In my judgment, the internal ex post
facto accounting within Su. L. cannot alter the proper Claimant under the
Policy. It was S.L. UK which was forced by the FSA to conduct a PBR and
to compensate its policyholders. S.L. UK is the only proper claimant under
the Policy. S.is a proper party to the litigation, because it claims to be the
proper claimant, so it is important that it is bound by the result In my
judgment, its claim to be the proper claimant is wholly unpersuasive.
89 As to the insurers on risk, in my view, T. Canada is the lead
Underwriter on risk following the novation, not G. UK. The fact that
T. Canada was fronting for G. UK does not create any contractual
relationship between Su. L. and G. UK. New Hampshire is only on the
second and third excess layers. The loss would have to exceed $125
million to affect New Hampshire. There is no suggestion that the loss
will get anywhere near to this level. In my judgment, New Hampshire's
claims are in the realm of the hypothetical. So, in considering the balance
between UK based and Canadian based Insurers truly on risk for this
claim, I proceed on the basis that 60 per cent of the Insurers are in
Canada and 40 per cent in the UK.
The appropriateness of the negative declaration proceedings and
whether Insurers unfairly took advantage of Su. L. by commencing these
proceedings in England
90 In New Hampshire Insurance Co v Philips Electronics North America
Corporation the Court of Appeal approved the judgment of Rix J. where he
laid down four key principles of which the following three are relevant:
(1) There is power to grant a negative declaration but the fundamental
test is whether it would be useful.
(2) Careful scrutiny must be exercised, not just to test the utility of
negative declaratory relief, but also to ensure that inappropriate forum
shopping is not allowed, let alone encouraged.
(3) The existence of imminent foreign proceedings is always a highly
relevant consideration, not only for the purpose of testing the utility of the
English claim, but also having in mind the need to avoid the twin dangers
of forum shopping and of the vices of concurrent proceedings.
93 Looking at the negative declaratory relief sought in this case, in my
judgment it directly raises the two crucial issues on liability:
(1) Can Insurers prove a breach of the Warranty; alternatively
(2) Can Insurers prove that they have no liability under the Policy because
of a failure by Su. L. to comply with the notification provisions.
....97 In my judgment it is fairly clear that Insurers perceived that there
would be an advantage to them if they were able to be swift off the blocks
(as Mr Howe put it) and issue the proceedings first. It would surely have
been possible to send a letter rejecting the claim earlier, but Insurers
believed that if they did so, this might provoke the commencement of
proceedings by S. L. in Ontario first. …
99 Insurers have derived no advantage in this Court by being "first out
of the blocks" in the commencement of proceedings. I have to decide
which is the most appropriate jurisdiction for the determination of the
issues. There is no kind of presumption, rebuttable or otherwise, that
because the English proceedings were started first, they should be
allowed to continue ( cf. the position under the Brussels Convention and
the Jurisdiction Convention).
100 I do not accept the submission that this is a case of "blatant forum
shopping", if by that is meant pejoratively that Insurers were attempting
to achieve English jurisdiction improperly, any more than I regard the
proceedings commenced by Su. L. in Ontario as blatant forum shopping.
Both parties understandably prefer their chosen jurisdictions. To that
extent both are forum shopping. There are, as I see it, respectable
arguments both ways as to the right jurisdiction, which I have to resolve.
As in the Du Pont case, I do not regard this as a case in which the dates
of the beginning of proceedings are significant. The proceedings might
just as well have been started the other way round. Neither action has
made much progress to date.
Conclusion as to the most appropriate forum
101 In striking the balance between England and Ontario, I have taken
into account the following additional factors.
102 The majority of the relevant documents are likely to be in England
but there will also be relevant documents in Ontario. Most of the
disclosure will come from S. L.. ..
103 I have already indicated that the FSA will have relevant documents.
It is very possible that these will not be produced without a Court order.
This could be achieved from Canada by the means of letters rogatory, but
that is a rather cumbersome means of obtaining documents and a number
of obstacles will have to be overcome under the Evidence (Proceedings
in Other Jurisdictions) Act 1975. I am far from saying that an order could
not be obtained against the FSA, but I think it will be easier and cheaper
if it is done in the context of English proceedings where an order for third
party disclosure would be possible.
104 Turning to factual witnesses, I would expect a substantial
number to be called. In my view a significant majority will be English
based, although there will also be a number of important Canadian
witnesses..So, as regards factual evidence I think that the overall balance
favours England, but not decisively.
105 As regards expert evidence, if the trial is in England there will have
to be expert evidence as to the law of Ontario. Although that evidence
would be relatively self-contained and short, it will add to the expense.
Moreover, although I consider that a Commercial judge would be able to
deal with the issues of Ontario law satisfactorily, it would obviously be
better resolved in Ontario. This is a feature which significantly favours
trial in Ontario.
106 The countervailing consideration is that a great deal of the time of
the Court will be occupied in considering the history and significance of
the dealings between S.L. UK and the FSA/PIA, all of which occurred in
England. This will be a central factual enquiry at the trial. Whilst I am
sure an Ontario judge could deal with these regulatory issues, an English
commercial judge would have a distinct advantage. In Ontario, there
would have to be a considerable volume of expert evidence, whereas in
England, whilst there might be some expert evidence, I would expect it to
be within a much smaller compass. This would add considerable expense
and time at a trial in Ontario by judge alone. Su. L. have required a trial
by jury in Ontario. …..
107 If trial is in England, I have assumed that punitive damages could
not be awarded against the insurers. Superficially that may be seen
as a substantial disadvantage to S.n L. but I am satisfied it is not. In
my judgment the case pleaded in the Ontario proceedings is distinctly
unpersuasive. According to Whiten S. L. would have to show high handed,
malicious, arbitrary or highly reprehensible misconduct that departs to
a marked degree from ordinary standards of decent behaviour. I do not
consider that the Insurers' conduct comes anywhere near to reaching this
threshold -- there are plainly serious issues to be tried as to liability, and
I can see no reason to doubt Insurers' good faith in raising them. I agree
with Mr Brock that the current facts as disclosed do not remotely suggest
that an Ontario Court would make an award of punitive damages. I have
gained the clear impression that the claim for Can$100 million punitive
damages has been raised in terrorem. So, in my judgment, this is not a
factor that favours Ontario jurisdiction.
108 …The claim is by an English financial services company in relation to
costs incurred and compensation paid in the UK. At the heart of the case
will be the dealings between S.L. UK and the FSA/PIA, and perceptions of
S.L. UK and S.as to the risks of regulatory action in the UK, and the risk
that a claim would arise. Significant evidence will come from Canada, but
the bulk will come from the UK. In my judgment the dispute has its most
real and substantial connection with England and, on balance it will be
more conveniently tried in England.
109 Mr Howe argued that, even if I concluded that Ontario was the more
convenient forum, I should refuse to stay the English proceedings because
it would be unjust to the Insurers to deprive them of a right of trial in
the UK. This was because, if there is a trial in Ontario, it is likely that
the Ontario Court will conclude that the Policy is governed by Ontario
law because s.123 of the Ontario Insurance Act 1990 would deem the
Policy to be governed by Ontario law if it decided that the Policy was
delivered in Ontario. Mr Smith expressed the opinion that s.123 applied.
Mr Howe argued that this approach was unfair because it did not involve
a balancing exercise of the kind that an English Court would perform and
ignored the intentions of the parties The result would be that the Court
would have jurisdiction to relieve from forfeiture, which would not arise if
the parties intended that the Policy should be governed by English Law.
110 Had I concluded that Ontario was the most appropriate forum, this
argument would not have deflected me from granting a stay. Section
123 may be somewhat mechanistic, but so are some of the rules now
applicable in this jurisdiction as a result of the Financial Services and
Markets Act 2000 (Law applicable to Contracts of Insurance) Regulations.
Section 123 cannot be regarded as unjust.
111 I should add that, equally, I think it irrelevant that in the English
jurisdiction, when considering the applicable/proper law of the Policy, it
is likely that the parties will wish to call evidence covering the areas of
dispute I have summarised at paras [59]-[60] above. If Ontario would
simply decide the issue by applying s.123, that would make for a cheaper
resolution of the issue of the applicable/proper law, but I do not consider
that is a reason to prefer Ontario jurisdiction.
112 In those circumstances, I decline to stay these proceedings against
S.L. UK, or to set aside the permission granted to the Claimants on
March 16, 2004 to serve of the Claim Form out of the jurisdiction on S. L.
Canada. I will hear counsel as to what orders I should make for the future
conduct of this action.