MANCE L J:
Introduction
1. This is an appeal from the judgment and order of David Steel J dated
15th March 2002 whereby he set aside service of proceedings out of the
jurisdiction on the first respondent, C. Corporation ("C."), and stayed
proceedings against the second respondent, C. (U.K) Limited ("CUK").
2. The claimant and appellant is A. M. I. Co. ("A."), which claimed in these
proceedings a declaration that, by reason of breaches of warranty or other
defences under a policy of insurance No. 30M 001 077 02 effective from
12th. January 1999, it was as insurer under no liability to either CUK or C.
in respect of the loss of two consignments of mobile phones despatched
from CUK's Manchester warehouse to other European destinations in
March and April 2000. These English proceedings were issued on 15th
February 2001 after Texas attornies acting for CUK had on 9th February
2001 written giving A. 10 days to pay the claims. In March 2001 C. began
Texan proceedings against A. for payment of the losses. A. in June 2001
joined CUK as a third party in those proceedings.
3. The Judge concluded that A. had failed to show a good arguable case
for saying that the insurance policy was governed by the law of England.
…
4. Alternatively, A. submits that, even if the Judge was right to proceed
on the basis that the law of Texas applies as between A. and CUK, the
Judge had no jurisdiction to stay the proceedings against CUK; and that
there would then in any event be no reason to stay further proceedings
against C.. The lack of jurisdiction to stay proceedings against CUK is
said to follow from the Brussels Convention, particularly Title II section
3 (jurisdiction in matters of insurance), which governed jurisdiction
within European Contracting States at the relevant time (though replaced
since 1st March 2002 by Council Regulation (EC) No. 44/2001 of 22nd
December 2000). The submission is that In re Harrods (Buenos Aires)
Ltd. [1992] Ch. 72 does not govern the situation under that section. But,
if necessary, A. asks for a reference to the European Court to determine
whether re Harrods is good law. The respondents agree that, if there
is any question as to the correctness of re Harrods, then a reference
would be appropriate (although they submit that, even if A.'s proceedings
against CUK cannot be stayed, that is no reason for allowing A. to sue
C. here). There is already a reference to the European Court on the
correctness of re Harrods in Owusu v. Jackson [2002] EWCA Civ 877
(a case concerning Title II section 1 of the Brussels Convention). Any
reference in the present case could probably be combined with that earlier
reference.
The policy
5. The policy, issued by A. to cover C. and its subsidiaries, describes
itself as a Global Transportation Policy, and is dated at Houston, Texas,
December 1st 1999. it consists of a signed front page headed Global
Transportation Policy Declarations which identifies the insured, period,
limits, deductible ("as Per Endorsement Attached"), description of covered
property ("Cellular telephones and related equipment and accessories
forms and endorsements, reporting information (including a reporting rate
"Per Country Schedule Attached") and producer information, and contains
an agreement to provide insurance as stated in the policy. There follow
ten pages ending with another signature page, together with a three page
Endorsement No. 1 also dated 1st December 1999 which includes clauses
headed Deductible Valuation Warranties and Country Schedule. In the
current proceedings in Texas C. challenges the validity of the whole of
endorsement No. I or at least of the Valuation Warranties under Texan
law, but the reasons have not been developed before us, and A. certainly
does not accept them or their suggested effect. …
7. Under the head of Reporting Information, the policy provided for a
Deposit (and Minimum) Premium of $894,747, a premium base of Gross
Product Sales, a reporting rate per $100 as per the Country Schedule and
an annual reporting period. The County Schedule provided differing rates
and aggregate deductibles for 17 countries, including the United Kingdom
and Netherlands, and a breakdown of the Minimum and Deposit premium
of $894,747 between such countries. It also stated:
'The applicable Aggregate Deductible applied in any loss adjustment
is determined by which of your country-based sales operations is
responsible for the lost or damaged shipment in their financial returns to
you and is shown in the schedule below to the far right of that country."
Under the head "Additional Premium", Endorsement No. 1 provided that
the premium charged did not contemplate transportation by seagoing
vessel, and that there was a right to charge additional premium for
additional exposures.
8. Endorsement No. 1 also includes the Valuation Warranties which are
central to the issue of A.'s liability to CUK or C. for the losses claimed.
They give A. the right to void coverage for any consignment valued over
$10,000 in respect of which no declaration of its full value and payment of
valuation charges has been made to the carrier, forwarder, warehouseman
or other relevant third parties. The present losses are not the only losses
for which A. has denied liability by reference to the Valuation Warranties.
C.'s Texan proceedings have been expanded to include a number of losses
in places outside Europe.
9. The policy wording states that, in the event of a loss, contact should
be made with Kemper Ocean Marine Claims Department, at an address in
Summit, New Jersey, and says:
"Throughout this policy, the words "you" and "your" refer to the Named
Insured shown in the Declarations. The words "we", "us" and "our" refer
to the Company providing this insurance."
By clause 25, Time for Suit, it provides:
"No suit or action for the recovery of any claim arising under this policy
shall be maintainable in any Court unless such suit or action shall have
been commenced within twelve months from the date of the happening of
the loss out of which the said claim arose; provided, however, that it [sic],
by the laws of the State within which this policy is issued such limitation
is invalid, then any such claim shall be void unless action is commenced
within the shortest limit of time permitted by the laws of such State."
There were endorsements subsequent to 1st December 1999, one
covering (for an additional premium of $1500) the move of inventory etc.
from "the current Netherlands location" to another Dutch address and
providing "In addition Telfort is added as a Loss Payee in respect of the
fulfilment operation in the Netherlands".
10. The policy was negotiated during a meeting or meetings in Houston.
The Judge recited that C., although a Delaware corporation, had its
principal office in Houston. That is also A.'s case. C. and its subsidiaries
are given a mailing address in Houston for policy purposes. The producing
broker engaged by C. was based in Texas. A., although incorporated in
Illinois, has underwriting offices in Houston, through which it negotiated
and issued the policy, which was signed on its behalf by a Mr Ca..
11. CUK, one of C.'s subsidiaries, is an English company, with a
warehouse in Manchester. The consignments the subject of the claims
were despatched from Manchester to other European destinations. C.
clearly has subsidiaries in at least some of the other countries listed in the
policy schedule, although whether these subsidiaries' businesses divide
neatly between the different listed countries is not known.
12. It can be seen that the policy was a form of open policy, to cover
future movements of cellular telephones, particularly from the countries
listed in Endorsement no. 1. Insured under it are C. itself and its
subsidiaries. The internal arrangements between C. and its subsidiaries
have not been investigated. Whether any subsidiary provided any part
of the minimum and deposit premium, and if so whether it corresponded
with the particular minimum and deposit premium shown against any
particular country in the country schedule, is not known. It may well
be that C. was acting with the authority of each and every one of its
subsidiaries in negotiating the policy. On the other hand, it is possible
that it was not. The law of Texas and other of the United States may take
a more relaxed view of privity than English law did, at least before the
Contracts (Rights of Third Parties) Act 1999. Assuming, in the absence of
any contrary evidence, that whatever the law is governing the policy, it
adopts the same approach as English law, then the policy is a composite
policy, under which the different interests of C. and its subsidiaries are
insured, as and when they are at risk in respect of shipments in which
they are involved: see General Accident Fire and Life Assurance Corp.,
Ltd v. Midland Bank Limited [1940] 2 KB 388. That does not mean,
however, that the policy is severable into the series of separate policies
or insurances. C., and those subsidiaries who are party to the contract,
are on the face of it jointly responsible for premium A. has in fact sued
C. (alone) in Texas for the whole of a balance of premium premium said
to be unpaid, while C. asserts that it has paid all premiums due. Non-
disclosure in relation to any aspect of risk would (at least under English
law) render the whole policy voidable. So the policy has unitary aspects,
although insurance under it enures to the benefit of those interested in
any particular consignments.
The two schemes for ascertaining the governing law
13. There were at the relevant times two alternative schemes, by
reference to which the governing law of an insurance contract might fall
to be identified. They were s.94B(1), read with Part I of Schedule 3A,
in the Insurance Companies Act 1982 (since repealed and replaced by
regulations under the Financial Services and Markets Act 2000) and the
Rome Convention scheduled to the Contracts (Applicable Law) Act 1990
(since amended to refer to such regulations). The former scheme gave
effect to the second general insurance directive (Council Directive 88/357/
EEC of 22nd June 1988 …
14. Schedule 3A identifies the "Law applicable to Certain Contracts of
Insurance" as follows:
General rules as to applicable law
"1. – (1) Where the policy holder has his habitual residence or central
administration within the territory of the member State where the risk
is situated, the law applicable to the contract is the law of that member
State.
However, where the law of that State so allows, the parties may choose
the law of another country.
(2) Where the policy holder does not have his habitual residence or
central administration, within the territory of the member State where the
risk is situated, the parties to the contract may choose to apply either -
(a) the law of the member State where the risk is situated, or
(b) the law of the country in which the policy holder has his habitual
residence or central administration.
(3) Where the policy holder carries on a business and the contract covers
two or more risks relating to his business which are situated in different
member States, the freedom of choice of the law applicable to the
contract extends to the laws of those member States and of the country
in which he has his habitual residence or central administration.
In this sub-paragraph "business" includes a trade or profession.
(4) Where the member States referred to in sub-paragraph (2) or (3)
grant greater freedom of choice of the law applicable to the contract, the
parties may take advantage of that freedom
(5) Notwithstanding sub-paragraphs (1) to (3), when the risks covered
by the contract are limited to events occurring in a member State other
than the member State where the risk is situated, the parties may always
choose the law of the former State.
(6) Where the risk -
(a) is situated in an EFTA state and falls within class 4, 5, 6, 7, 11 or 12
of Part 1 of Schedule 2 to this Act; or
(b) is situated in a member State and is a large risk
the parties to the contract may choose any law.
(7) Where the risk is situated in a member State which has implemented
the transitional provisions in Article 27 of the second general insurance
Directive, the meaning of "large risk" for the purposes of sub-paragraph
(6) above shall be determined in accordance with the law applicable in
that State.
Applicable law in the absence of choice
2. – (1) The choice referred to in paragraph 1 must be expressed or
demonstrated with reasonable certainty by the terms of the contract or
the circumstances of the case.
(2) If that is not so, or if no choice has been made, the contract shall be
governed by the law of the country (from amongst those considered in
the relevant sub-paragraphs) with which it is most closely connected.
(3) Nevertheless, a severable part of the contract which has a closer
connection with another country (from amongst those considered in the
relevant sub-paragraphs) may by way of exception be governed by the
law of that other country.
(4) A contract is rebuttably presumed to be most closely connected with
the member State where the risk is situated.
5. – (1) Subject to the preceding provisions of this Part of this Schedule,
a court in a part 'Of the United Kingdom shall act in accordance with the
provisions of the Contracts (Applicable Law) Act 1990;
(2) In particular, reference shall be made to those provisions
(a) to ascertain for the purposes of paragraph 1(1) and (4) what freedom
of choice the parties have under the law of a part of the United Kingdom;
and
(b) to determine whether the mandatory rules of another member State
should be applied in accordance with paragraph 3(1) where the law
otherwise applicable is the law of a part of the United Kingdom."
15. The Contracts (Applicable Law) Act 1990 gave effect to the Rome
Convention at the relevant times as follows:
"2(1) Subject to subsections (2) and (3) below, the Conventions shall
have the force of law in the United Kingdom
(1A) The internal law for the purposes of Article 1(3) of the Rome
Convention is whichever of the following are applicable, namely-
(a) the provisions of Schedule 3A to the Insurance Companies Act 1982...
3.-(1) Any question as to the meaning or effect of any provision of the
Conventions shall, if not referred to the European Court in accordance
with the Brussels Protocol, be determined in accordance with the
principles laid down by, and any relevant decision of, the European Court.
(2) Judicial notice shall be taken of any decision of, or expression of
opinion by, the European Court on any such question.
(3) Without prejudice to any practice of the courts as to the matters which
may be considered apart from this subsection-
(a) the report on the Rome Convention by Professor Mario Guliano and
Professor Paul Lagarde which is reproduced in the Official Journal of the
Communities of 31st October 1980 may be considered in ascertaining the
meaning or effect of any provision of that Convention; and
(b) any report on the Brussels Protocol which is reproduced in the Official
Journal of the Communities may be considered in ascertaining the
meaning or effect of any provision of that Protocol."…
17. The Guiliano-Lagarde report referred to in s.2(1A) of the Contracts
(Applicable Law) Act 1990 contains this passage on choice of law:
"The choice of law by the parties will often be express but the Convention
recognizes the possibility that the Court may, in the light of all the facts,
find that the parties have made a real choice of law although this is not
expressly stated in the contract. For example, 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 marine insurance. In other cases a previous course of
dealing between the parties under contracts containing an express choice
of law may leave the court in no doubt that the contract in question is to
be governed by the law previously chosen where the choice of law clause
has been omitted in circumstances which do not indicate a deliberate
change of policy by the parties. In some cases the choice of a particular
forum may show in no uncertain manner that the parties intend the
contract to be governed by the law of that forum, but this must always be
subject to the other terms of the contract [sic.] and all the circumstances
of the case. Similarly references in a contract to specific Articles of the
French Civil Code may leave the court in no doubt that the parties have
deliberately chosen French Law, although there is no expressly stated
choice of law. Other matters that may impel the court to the conclusion
that a real choice of law has been made night include an express choice
of law in related transactions between the same parties, or the choice of
a place where disputes are to be settled by arbitration in circumstances
indicating that the arbitrator should apply the law of that place."
18. …I agree that there is no reason to distinguish between the concept
of choice in the context of the 1996 Act (giving effect to the second
directive) and in the context of the Rome Convention. I also agree
that, although the Guiliano-Lagarde report has no direct weight in the
former context, it is likely in practice to assist in both contexts. Indeed,
paragraph 5 of Schedule 3A to the 1996 Act (set out above) demonstrates
that the link is two-way. If freedom of choice under United Kingdom law
is defined for the purposes of Schedule 3A by the Rome Convention, the
concept of "choice" cannot differ under the two schemes, Support for
this approach is also provided by the judgment of Hobhouse LJ in Crédit
Lyonnais v. New Hampshire Insurance Co. [1997] 2 Lloyd's Rep. 1, 5
(left), with which the other members of the court agreed. For present
purposes, the Rome Convention allows parties to a contract freedom of
choice as to its governing law. So there is no relevant restriction on the
law that may be chosen under either the Rome Convention or paragraph
1(1) of Schedule 3A to the 1996 Act.
19. There is, however, still a possible problem in this case about
proceeding direct to the question of choice of law. Ms Troy-Davies submits
that we should look at the policy as a whole, while Mr McParland in his
submissions focuses almost exclusively on the relationship between
CUK and A.. CUK, he submits, was and is as much an insured and
policyholder under the policy and under the 1996 Act as was C. or any
other subsidiary. It is, he submits, the insurance relationship between
CUK and A. that matters and, if necessary, attracts a different governing
law to that applicable between C. and A..
20. Under the Rome Convention I do not consider that this would be a
real problem Article 3(1) provides for "a contract" to be governed by
the law chosen by the parties. The parties by choice can select the law
applicable to the whole or a part only of the contract. However, I have no
doubt that the present composite policy would fall to be regarded as a
single, probably multi-partite, contract. Neither the parties nor the Rome
Convention could sensibly be taken to have intended to scissor up the
policy negotiated and issued in Houston and to subject different aspects
of it to different governing laws. The potential problems arising on such
an approach do not need emphasis. I will only instance the problems
that would arise if different countries had different principles or remedies
governing non-disclosure or breach of warranty.
21. A possible problem arises because the Rome Convention is to an
extent subordinated to the insurance regime of the European Union. Its
rules "do not apply to contracts of insurance which cover risks situated
in the territories of the Members States of the European Economic
Community". To determine whether risks are so situated, we must apply
our own internal law, in the form of the provisions of Schedule 3A. to
the 1982 Act (cf Article 1(3) of the Rome Convention and s.2(1A.) of the
1990 Act). Mr McParland submits that these provisions oblige us to look
at the present policy, not as one open policy or multipartite contract,
but as containing as many further individual contracts of insurance
as there are different subsidiaries with establishments in the member
States of the European Union. He seeks support for this submission in
the European Court's decision in Kvaerner plc v. Staatssecretaris van
Financiën (Case C-191/99) [2002] QB 385 (not drawn to David Steel J's
attention). He submits that CUK is a "policyholder" within the definition
of s.96(1) and Schedule 3A paragraph 1(1) of the 1982 Act; and that the
establishment of the policyholder to which the policy relates is "situated",
within the meaning of s.96A(3)(d)(ii), at CUK's Manchester premises in
England. Since CUK also has its central administration in England, the law
applicable to its insurance contract is, under paragraph 1(1), English law,
subject only to any contrary choice. There is, he submits, no reason to
regard CUK, an English company, as having chosen Texas law to govern
its particular insurance. …
24. It is in these circumstances of interest to look at the directives which
Schedule 3A implements. They are the first, second and third general
insurance directives, Council Directives 73/239/EEC of 24 July 1973,
88/357/EEC of 22 June 1988 and 92/49/EEC of 18 June 1992, to which
s.96A of the 1982 Act refers. The first concerns the taking-up and pursuit
of direct insurance activity carried on by any insurance undertaking
established in a member State in classes of general insurance set out in
its annex. The second, after a long delay, opened up the European market
to any insurance undertaking established in a member State, by enabling
it to cover specified risks within other member States, by way of provision
of services, subject to administrative authorisation under conditions
specified in article 15. The third directive facilitates the provision of such
services, by providing that an authorisation in one member State shall be
valid for the entire Community, and shall permit an undertaking to carry
on business there, under either the right of establishment or the freedom
to provide services (article 5).
25. The second directive contains in article 7 the source of Schedule 3A.
to the 1982 Act. The recitals to the second directive identify its intended
scope:
"Whereas it is necessary to develop the internal insurance market and,
to achieve this objective, it is desirable to make it easier for insurance
undertakings having their head office in the Community to provide
services in the Member States, thus making it possible for policy-holders
to have recourse not only to insurers established in their own country, but
also to insurers which have their head office in the Community and are
established in other Member States;
Whereas, pursuant to the Treaty, any discrimination with regard to
freedom to provide services based on the fact that an undertaking is not
established in the Member State in which the services are provided has
been prohibited since the end of the transitional period; whereas this
prohibition applies to services provided from any establishment in the
Community, whether it is the head office of an undertaking or an agency
or branch;
Whereas, for practical reasons, it is desirable to define the provision
of services taking into account both the insurer's establishment and
the place where the risk is situated; whereas therefore a definition of
the situation of the risk should also be adopted; whereas, moreover,
it is desirable to distinguish between the activity pursued by way of
establishment and the activity pursued by way of freedom to provide
services;
...
Whereas policy-holders who, by virtue of their status, their size or the
nature of the risk to be insured, do not require special protection in the
State in which the risk is situated should be granted complete freedom
to avail themselves of the widest possible insurance market; whereas,
moreover, it is desirable to guarantee other policy-holders adequate
protection;"
Articles 1 and 2 of the second directive provide:
"Article 1
The object of this Directive is:
(a) to supplement the first Directive 73/239/EEC;
(b) to lay down special provisions relating to freedom to provide services
for the undertakings and in respect of the classes of insurance covered by
that first Directive.
Article 2
.......
(b) 'undertaking':
- for the purposes of applying Titles I and II, means:
any undertaking which has received official authorization under Article 6
or 23 of the first Directive,
(c) 'establishment':
means the head office, agency or branch of an undertaking, account being
taken of Article 3;
(d) 'Member State where the risk is situated' means:
- the Member State in which the property is situated, where the insurance
relates either to buildings or to buildings and their contents, in so far as
the contents are covered by the same insurance policy,
- the Member State of registration, where the insurance relates to
vehicles of any type,
- the Member State where the policy-holder took out the policy in the
case of policies of a duration of four months or less covering travel or
holiday risks, whatever the class concerned,
- the Member State where the policy-holder has his habitual residence or,
if the policy-holder is a legal person, the Member State where the latter's
establishment, to which the contract relates, is situated, in all cases not
explicitly covered by the foregoing indents;
(e) 'Member State of establishment' means:
the Member State in which the establishment covering the risk is situated;
(f) 'Member State of provision of services' means:
the Member State in which the risk is situated when it is covered by an
establishment situated in another Member State."
Article 7 starts as follows
"1. The law applicable to contracts of insurance referred to by this
Directive and covering risks situated within the Member States is
determined in accordance with the following provisions:"
There follow clauses and further paragraphs, which the United Kingdom
legislature incorporated into English and Scottish law by Schedule 3A, in
terms designed to fit the domestic legal scene.
26. The opening words of article 7 to the second directive thus specify
that its provisions regarding governing law are only to cover "contracts of
insurance referred to in this Directive and covering risks situated within
the Member States". Article 1 makes clear that the object of the second
directive is to supplement the first and to lay down special provisions
relating to freedom to provide services for the undertakings and in respect
of the classes of insurance covered by the first directive. The first directive
only applies to undertakings established within a member State, and the
definition of "undertaking" in article 2 of the second directive makes clear
that the second directive only applies to such undertakings. It follows that
the rules for ascertaining a governing law set out in article 7 were never
intended to apply to, for example, a United States insurer which is not
established and providing services in a member State of the European
Union, but which underwrites in America a policy covering a risk relating
to a United Kingdom establishment of its policy-holder.
27. This being the scheme of the directives, it remains possible (although
it could, perhaps, seem surprising) that the United Kingdom legislature
went further and determined in Schedule 3A upon a wider scheme,
aimed at defining the governing law of all policies, wherever and by
whomsoever issued, which could be said to relate to an establishment
of the policyholder in any member State of the European Union. That
is assumed to be the case by the editors of Dicey & Morris, paragraph
33-144. A similar question could arise in relation to long term business,
since article 1 of the first long term insurance directive (Council Directive
79/267/EEC) makes clear that it only concerns insurance business
carried on by undertakings established in a member State, in the form
of activities consisting of certain (long term) types of insurance on a
contractual basis, whereas s.94B(1A) of the 1996 Act determines that
the law "applicable to a contract of insurance to which article 1" of
such directive applies shall be determined in accordance with part II
of Schedule 3A, if the policyholder, being an individual, is habitually
resident in a member State, or, in other cases, the establishment of the
policyholder to which the contract relates is situated in a member State.
The on-fission, in each case, of any express reference to the need for the
insurance undertaking to be established in a member State, against the
background of article 1(3) of the Rome Convention excluding contracts of
insurance covering risks situated in any member State, may well mean
that Parliament intended the wider scheme. However, since I. do not find
it necessary in the event to express a concluded opinion on the point, I
prefer to leave it open in this case.
28. There is a possible interplay between the point raised in the preceding
paragraph and the construction of the detailed provisions of Schedule 3A.
The proper construction of Schedule 3A may affect the view one takes
as to its intended and appropriate sphere of application under the United
Kingdom legislation. Mr McParland submits, and the editors of Dicey
& Morris at paragraph 33-163/5 tentatively suggest, that, in any case
where no choice of governing law is made, the range of laws from among
which a court might choose that with which a contract is most closely
connected is limited to the member State or States where the risk or risks
is or are situated (cf paras. 1(1), (2)(a), (3) and (5)); the member State
or country where the policyholder has his habitual residence or central
administration (para. 1(1) and (2)(b)); and the member State where the
events occur when the risks covered are limited to events occurring in
a member State other than that where the risk is situated (para. 1(5)).
That would mean that the scheme offered no possibility of selecting any
law outside the European Union as the law of the country with which a
contract is most closely connected, unless (it seems) this was the "law of
the country in which the policy holder has his habitual residence or central
administration".
29. It is furthermore questionable whether the range of countries always
includes all those identified by Mr McParland and Dicey & Morris. The
true intention of paragraph 2(2) (reflecting article 7(1)(h) of the second
general insurance directive) appears to be that the law with which a
contract is most closely connected must be selected from among the laws
of those countries considered in whichever of the sub-paragraphs is or
are relevant. That was also the view expressed by Hobhouse LJ in Crédit
Lyonnais at p.4. The policies there were issued in London by an overseas
insurance company authorised to carry on business here in favour of the
French bank, Crédit Lyonnais, but solely in relation to the business of its
United Kingdom branches. In these circumstances, Hobhouse LJ said:
"It was agreed that the risk was situated in England being the "State"
where the establishment of the policyholder to which the policies relate
was situated. It is similarly agreed that the central administration of the
policyholder was in France and that par. 1(2) would have been the sub-
paragraph which delimited the freedom of choice had the parties made
a choice of applicable law and which was therefore the relevant sub-
paragraph for the purpose of par.2(2)."
The court went on to hold, not surprisingly, that there was nothing to
rebut the presumption arising under paragraph 2(4) of Schedule 3A, that
English law applied as the law of the policyholder's establishment to which
the policies related.
30. This leads to a further question regarding the meaning in paragraphs
2(3) and (4) of Schedule 3A of "those [laws] considered in the relevant
sub-paragraphs". Mr McParland's formulation assumes that it is only laws
which are specifically identified in such sub-paragraphs that come into
question, and Dicey & Morris appears to take the same view in paragraph
33 -163. If this were so, then, where, as in Crédit Lyonnais, the relevant
sub-paragraph (or sub-paragraphs, since a situation may fall within two
sub-paragraphs, e.g. paragraphs 1(2) and (3)) prescribe(s) a right to
choose between two or more laws, the court may select any of those as
the law of the country with which the contract is most closely connected.
But, where the relevant sub-paragraph gives greater and more open
freedom of choice, as under sub-paragraph (4) and perhaps (1) and (6),
the court may not select any law which the parties could have chosen,
although it would otherwise have been the law of the country with which
the contract was most closely connected. I have considerable doubts
whether that can be correct. The phrase "from amongst those considered
in the relevant sub-paragraphs" seems wide enough to embrace any
law which it was open to the parties to choose under whichever is or are
the relevant sub-paragraph(s) in the particular case. There seems no
particular reason to distinguish between the specific choice allowed by,
say, sub-paragraph (2) and the more general choice allowed by, say, sub-
paragraph (4).
31. There is a yet further specific problem arising in relation to sub-
paragraph (1). This is in prescriptive language. In a case where the
policyholder has his habitual residence or central administration in the
member State where the risk is situated, then, failing any choice, "the law
applicable to the contract is the law of that member State". This might
be thought to sit uncomfortably with the general provisions of paragraph
2(4) and (2), whereby a contract is only rebuttably presumed to be most
closely connected with the member State where the risk is situated, and
the court is able to select the law of the country with which the contract
is most closely connected. That said, there is nothing express in the
phrase "those considered in the relevant sub-paragraphs" to exclude sub-
paragraph (1), or indeed (5) or (6), from those which are relevant for the
purposes of paragraph 2(2). Further, the identical phrase in paragraph
2(3) must have been intended to refer back to all of sub-paragraphs (1)
to (6) of paragraph (6). Otherwise, there would be no provision entitling
parties to an insurance contract to choose to subject a severable part
of their contract to any law permitted to be chosen under, say, sub-
paragraphs (1), (4) and (6). Again, however, I need in this case express
no final views in this area.
Analysis of A.'s submissions
32. I return to Mr McParland's submission that, for the purposes of
Schedule 3A, the relevant policyholder is CUK, and to the support which
he seeks to derive from the European Court authority of Kvaerner. The
submission leads at once to the difficulty that, even in the context of
a simple policy covering one company, the breadth of the definition in
s.96 means that there may be more than one "policyholder". A policy
may have been taken out by A and under it a sum may be due to B (cf
e.g. Telfort's appearance as a loss payee in the endorsement mentioned
in paragraph 9 above). If A and B are habitually resident or have their
central administrations in two different member States, in one of which
the risk is situated, the policy cannot have two governing laws, and the
governing law cannot depend on which of them first suffers a loss, but
it is unclear on Mr McParland's case whether it is paragraph 1(1) or 1(2)
or both in Schedule 3A which would be relevant. In the present case,
it would follow from Mr McParland's submissions that paragraph 1(2)
requires the English court to consider separately by reference to each C.
subsidiary within the European Union the governing law relevant to that
subsidiary's insurance relationship with A..
33. I have to say at the outset that I do not detect either in the directives
or in the 1982 Act and Schedule 3A any positive intention to attribute
different governing laws to different parts of a single policy. The furthest
that Schedule 3A goes is to provide that a severable part of a contract
which has a closer connection with another country may by way of
exception be governed by the law of that other country. (A provision to
like effect is contained in article 4(1) of the Rome Convention.) I have
already given reasons for concluding that the facility provided by the
policy in favour of C. and its subsidiaries cannot be regarded as severable
into a series of separate contracts. C. and its subsidiaries have separate
insurable interests. But there is a significant composite element which
makes the policy incapable of severance (cf. also Bank of Scotland v
Butcher [1998] EWCA Civ. 1306, where under article 4(1) of the Rome
Convention this Court gave short shrift to the idea that a joint and several
guarantee could be severed according to the countries of residence of
the two guarantors). It may weft be that the draftsmen of the directive
did not address their minds to complex policies of the present nature, or
simply left it to the courts to develop sensible solutions; but it can be said
that, when, in article 7(1)(c) of the directive (paragraph 1(3) of Schedule
3A)), they dealt with risks situated in different member States, they did
so in terms which envisaged that only one law would govern the single
contract covering all such risks.
34. The case of Kvaerner does not lend A. any support. Kvaerner, a
company established in the United Kingdom, had taken out a group
professional indemnity policy, covering "as the insured [Kvaerner]
and/or its subsidiaries and/or associated companies as instructed by
the policyholder" (Advocate General Jacobs' opinion, paragraph 15).
Kvaerner's subsidiaries included a Netherlands company ("JBV"). Kvaerner
had included JBV within the cover without being instructed to do so by
JBV After paying the total premiums due, Kvaerner then invoiced and
was reimbursed by JBV for that part of the premiums corresponding to
JBV'S share of the operating risks. Under article 25 of the second general
insurance directive, any tax on insurance services may be levied only in
"the member state where the risk is situated", defined in article 2(d) of
the directive in terms materially similar to those of s.96A(3)(d)(ii) of the
1996 Act (which gives effect in the United Kingdom to article 2(d)). The
issue was whether the Netherlands were entitled to levy tax in respect
of the premiums so paid by JBV in respect of its operations. Kvaerner
and the United Kingdom submitted not, arguing that JBV as a subsidiary
could not constitute the policyholder's (Kvaerner's) "establishment to
which the risk relates" within the meaning of article 2(d). The European
Court not only held that it could (judgment, paragraphs 53 and 55),
but went further to hold that, even if the policy had been taken out by
an associated company in the group, rather than by JBV's parent, the
concept of "establishment" would have covered JBV (paragraph 56):
The term "establishment"... must therefore be interpreted as covering
all companies linked to each other within a group where one of the
companies takes out an insurance policy covering all companies in the
group."
35. The European Court thus reached the same conclusion as Advocate
General Jacobs, who, however, also addressed and rejected an argument
by the French Government that JBV was "to be considered to be the
policyholder for the purposes of the Directive" (opinion, paragraph 24).
In doing so, he distinguished between the terms "insured person" and
"policyholder" (paragraph 24).
36. Against this background, I address the question who is the
policyholder under the present policy for the purposes of applying
Schedule 3A. The definition in s.96(1) only applies "unless the context
otherwise requires". In determining whether the context otherwise
requires, we are entitled and bound to have regard, firstly, to the
reasoning of the European Court in Kvaerner, bearing in mind the origin of
the directive in Schedule 3A, but, secondly, also to the different context
in which Kvaerner was decided. We are not therefore necessarily tied to
the concepts, the terminology or the solutions of English domestic law. In
any event cases such as Scher v Policyholders Protection Board [1994]
2 AC. 57, decided in an entirely different context, where a broad view of
the concept of policyholder would be natural, are of no assistance in the
present context. There are on this basis several possibilities. One is that
the policyholder is C. alone, with its subsidiaries being in the Advocate
General's terms simply "insureds". A second is that C. and each and
every one of its subsidiaries (or at least those who authorised C. to act
on their behalf) count as numerous policyholders. A third is that C. and
its subsidiaries might, in the context of the present policy, be treated as a
single policyholder.
37. The first seems to me a very likely possibility, although, as I have
pointed out, we know very little about any arrangements between C.
and CUK with regard to this policy. If one assumes that CUK authorised
its placing by C. on its behalf, the situation may be suggested to differ
from that in Kvaerner, in so far as the lack of instructions from JBV to
Kvaerner in that case may have meant that JBV was not even a party to
the contract contained in the policy. I doubt, however, whether that can
have been so. Unless it was or became a party, JBV would not strictly
ever have been an insured. Further, JBV paid premiums under the policy,
and would seem on the face of it at least to have ratified its placement
on their behalf by Kvaerner. Further, I very much doubt whether the
Advocate General was intending to distinguish between parties and non-
parties, when he contrasted the positions of policyholder and insureds,
or whether the Court was intending to suggest that Kvaerner was the
only counter-party to the insurance policy. In the present policy, we
have a block description of the "named insured and mailing address".
but that does not mean that they were all policyholders under Schedule
3A. It seems clear that C. took the lead in negotiating and effecting
one policy for the whole group, very much as Kvaerner placed its group
policy, although there is reference in the evidence to a meeting with
A. in November 1999 to which C. invited "the majority of C.'s overseas
financial operatives". The single mailing address for the named insured
is C.'s address in Houston. There would seem no real difficulty about
treating subsidiaries as "establishments" of C., as Kvaerner's subsidiaries
were of Kvaerner. This would, I add, fit well with the (admittedly printed)
terms of the Country Schedule, providing that the applicable aggregate
deductible 'is determined by which of your country-based sales operations
is responsible for the lost or damages shipment in their financial results to
you.."
38. The third possibility also merits consideration. The policy, although it
insures several interests, has composite and unitary aspects which I have
already identified. Premium in particular appears as a joint obligation.
The policy gives the named insured a single mailing address, in Houston,
Texas. The group is treated as a single entity in the provision regarding
aggregate deductible in the Country Schedule.
39. The second possibility has, on the other hand, little attraction. It
introduces the prospect of a most unusual and artificial exercise requiring
separate consideration to be given to the law governing C. and each of its
subsidiaries in the European Union. As I have already said, I can find no
indication in the directive or Schedule 3A that such an exercise can have
been intended, and there are some positive indications that it was not.
40. I would in these circumstances approach the application of Schedule
3A on the basis that the policyholder is C., with its subsidiaries being
insureds. If that is wrong, then I would prefer an analysis treating
the policyholder under this policy as the whole group located in Texas
(rather than one which recognises as many policyholders as there are
subsidiaries). On either of these two analyses, the central administration
is in Houston, Texas, rather than in any member State of the European
Union. This leaves unresolved the question whether the policy can
be said to cover risks situated within the European Union at all, in
circumstances when it covers multiple risks situated inside and outside
the European Union (cf. paragraphs 22-27 above). But, assuming that
s.94B and Schedule 3A of the 1982 Act apply, the potentially relevant
sub-paragraphs in Schedule 3A could not include sub-paragraph (1); they
would clearly include sub-paragraph (2), clause (b) of which would on any
view enable the parties to choose, or the court to select as the law of the
country of closest connection, the law of Texas.
Choice of law
41. This brings me to the primary basis on which the Judge decided
the main issue before us. He concluded that the parties had, by the
terms of the contract and other circumstances of the case, demonstrated
with reasonable certainty their choice of Texas law. He highlighted the
negotiation and issue of the policy in Texas "as between an assured who
employed a Texas broker, and an insurer situated in Texas", together with
the language of clause 25, providing a time limit for suit of 12 months
from loss, unless such a limitation is invalid "by the laws of the State
within which such policy is issued", in which event the time limit was to be
"the shortest time permitted by the laws of such State". To these points,
I add the considerations (a) that the policy was a group policy negotiated
by the parent company in the state where it had what appears to have
been its principal (and what was on any view a main) place of business,
which was used as the group's mailing address for policy purposes (e.g.
for communications regarding terms or premium); (b) that neither those
negotiating the policy nor any of the subsidiaries insured under it can
sensibly have contemplated that their policy would be governed by more
than one law; and (c) that (despite Mr McParland's submission that it
represented at most an example of dépeçage) clause 25 seems to me,
as it seemed to the Judge, a strong indication of an understanding that
the policy would be subject to the laws of the State where it was issued,
because there would be no reason to defer to any minimum limitation
period (longer than 12 months) in proceedings which might be brought in
a number of different States or countries, unless it was understood that
the law of Texas was the point of reference for the Policy.
42. Mr McParland referred us to a number of other policy clauses, such
as a sue and labour clause (clause 26), an Inchmaree clause (clause 15)
and a general average provision (clause 17) which could all be found in
an English policy (although the general average provision refers first of all
to United States laws). But these are standard insurance law provisions,
which are probably as frequent in United States policies as in English
(although they would not appear to be of primary significance under the
present policy, bearing in mind that its basic cover did not contemplate
marine transportation).
43. Mr McParland cited to us the passage in the Guiliano-Lagarde report,
emphasising the need for a "real choice of law". The examples given
in the report were of use of a standard form (e.g. the Lloyd's policy of
marine insurance – by which the authors probably had in mind the old
SG form); a previous course of dealing under contracts containing an
express choice; a choice of a particular forum, or of a place to arbitrate in
circumstances indicating that the arbitrators were to apply the law of that
place; references to particular articles of e.g. the French Civil Code; or a
choice of law in related transactions. The authors further also state that
'The law does not permit the court to infer a choice of law that the parties
might have made where they had no clear intention of making a choice".
Mr McParland buttresses this with reference to another official language
of the text, where it is said that the choice must be de façon certaine. He
points out that the place of issue of a policy was regarded as having little
weight in Amin Rasheed Corpn. v. Kuwait Insurance Co. [1984] AC 50,
71 per Lord Wilberforce. But that was in a very different context, where
the form of the marine policy pointed ineluctably to an English proper law.
Here, I do regard the fact that C. from its base in Texas chose on behalf
of its whole group to negotiate worldwide cover in Texas with insurers
also based in Texas as a relevant indicator of implied intent. Mr McParland
rightly did not stress before us the submission in his skeleton that the
parties cannot be taken to have had Texas law in mind, because (on C.'s
and CUK's case – though I doubt whether A. accepts this) the Valuation
Warranties which A. asserts to have been breached are invalid and/or do
not void the cover under Texas law. There is no evidence that either side
would have had any inkling of this when making the policy, even if it be
correct.
44. We were also referred to ISS Machinery Services Ltd. v. Aeolian
Shipping SA (The Aeolian) [2001] EWCA Div 1162; 2 Lloyd's Rep. 641,
in which an argument that the parties had by implication agreed to
vary the law governing a counterclaim was rejected. Potter LJ said at
p.645 that "the circumstances which may be taken into account when
deciding whether or not the parties have made an implied choice of
law under article 3 of the Rome Convention (whether by initial choice
or subsequent change) range more widely in certain respects than the
considerations ordinarily applicable to the implication of a term into a
written agreement, in particular by reason of the reference in article
3(1) to the circumstances of the case". I reserve my view on that point,
because it seems to me that even when construing a written agreement
at common law the surrounding circumstances may be of considerable
relevance. The analogy does, however, bring to mind the test governing
the implication of an implied term at common law, on the grounds that it
must have been intended or was so obvious that it went without saying
and was one to which the parties would have said "of course" if anyone
had suggested it. The mere fact that it would be "reasonable" will not
suffice.
45. In my view the circumstances of this case would satisfy the common
law conditions for implying an intention that Texan law should govern the
present policy. What is however directly relevant for present purposes
is that in my view they satisfy the test of "real choice" applicable
under Schedule 3A to the 1996 Act and under the Rome Convention.
Accordingly, the Judge was right to hold both that A. had failed to show
a good arguable case that the parties chose English law, and, more
positively, to hold that they chose Texas law. I would only add, for
completeness, that, even if I had seen any merit in the second possibility
mentioned in paragraph 39 above, there would have been much to be
said for the view that CUK (on this hypothesis one of 17 or so individual
"policyholders" choosing to negotiate a policy in Texas through its parent
company) must, despite its English establishment, be regarded as having
at the same time chosen Texan law, along with the rest of the group. Sub-
paragraph 1(1) of Schedule 3A allows this.
Law of country with closest connection
46. If it were wrong to regard the parties as having chosen Texas law, I
would also agree with the Judge that the law of the country with which
the policy was most closely connected was Texan law, for the purposes
of both Schedule 3A paragraph 2(2) to the 1982 Act and article 4(1) of
the Rome Convention. Taking Schedule 3A first, there is a rebuttable
presumption that the policy was most closely connected with the member
State where the risk is situated (paragraph 2(4)). But, even assuming
that this applies as a result of the cover afforded to risks involving CUK,
I consider that the circumstances and manner in which the policy was
effected, and the fact that it was a group policy to cover risks situated all
over the world, outweigh any such presumption decisively. Mr McParland
referred us to a witness statement by his clients' Texas attorney (Mr
Jordan), exhibiting a list showing the number of consignments valued
between $500,000 and $1 million and over $1 million in the year 2000.
According to this statement and list, the majority of the shipments
"came from the Netherlands and the United Kingdom, ie from C. UK's
Manchester depot". The precise percentages were approximately 43.5%
from the Netherlands and approximately 20.5% from the United Kingdom.
Mr Jordan's formulation does not establish that CUK's Manchester depot
had anything to do with the Netherlands consignments, and it would
seem unlikely that it did (especially when there is a policy endorsement
referring to consignments from a Dutch location: cf paragraph 9 above).
We were not given any information about lesser value consignments or
historical pattern, or about the parties' knowledge and contemplation
when the policy was issued. The policy itself does not focus on Europe.
The 17 countries in the Country Schedule include only three in the
European Union [Netherlands, Sweden, UK], and one other European
country [Poland].
47. As to the Rome Convention, in so far as that is or may be the relevant
scheme, I have already set out article 4(2) (paragraph 16 above). The
performance characteristic of the policy was to be effected by A. as
insurer: see the Guiliano-Lagarde report at p.20 and Crédit Lyonnais at
p.6 left, per Hobhouse LJ. I reject Mr McParland's contrary submission.
The policy gives no address for A., but stipulates that, in the event of
a loss, the insured should contact what is clearly a centralised marine
claims department for all Kemper companies in New Jersey. Having regard
to the circumstances of its execution, the policy probably still provides,
by implication, for performance by A. through its Houston office. But
even if the second sentence of article 4(2) does not itself apply to point
towards Texan law, the presumption that would result in favour of Illinois
law under the first sentence is obviously displaced in this case by the
circumstances connecting the policy with Texas.
48. The conclusion I therefore reach is that the whole policy was subject
to Texas law. So far as relevant, I would also conclude that there is
not even a good arguable case that the governing law is English law.
The Judge held on this basis that Texas was "clearly and distinctly the
more appropriate forum" for the resolution of the disputes between CUK
and A. and so also between C. and A.. The Judge also referred to A.'s
participation in the Texas proceedings, which were "well advanced" and in
which A. had joined CUK and the carriers or forwarders, Kühne & Nagel.
While recognising that the issue whether there had been compliance
with the warranties (by making declarations of value to Kühne & Nagel)
might require evidence from England, he said that essentially the issue
depended on the documents. Mr McParland points out that A. had no
choice but to participate in the Texas proceedings, in order to avoid a
default judgment plus a statutory penalty of 18% interest on the amount
due and claims for exemplary damages, interest and attorney's fees.
Nonetheless, the Texas proceedings (extending now beyond the present
two losses) are a fact, and A. evidently did not consider that it had any
basis for pursuing an application to halt them as regards the present two
losses. It is most undesirable that there should be concurrent litigation
about the same issues in two different jurisdictions. The Judge appears
to have been incorrect in referring to the Texas proceedings as "well
advanced", in terms of proximity to any trial date likely to be effective,
and the proceedings against Kühne & Nagel have now been settled.
Despite this, once it is concluded that Texas law governs, the central
issue whether the Valuation Warranties are enforceable combines with
the undesirability of litigation in two separate jurisdictions to make Texas
"clearly and distinctly the more appropriate forum". Subject to the next
question which is whether the Judge was, in the fight of the Brussels
Convention, entitled to stay A.'s proceedings against CUK, I would uphold
the Judge's order staying the proceedings against CUK and setting aside
the proceedings against C., which was only sued as a necessary or proper
party to the proceedings against CUK.
The power to stay and the Brussels Convention 49. S.49 of the Civil
Jurisdiction and Judgments Act 1982 provides:
"Nothing in this Act shall prevent any court in the United Kingdom from
staying, sisting, striking out or dismissing any proceedings before it, on
the ground of forum non conveniens or otherwise, when to do so is not
inconsistent with the 1968 Convention or, as the case may be, the Lugano
Convention,"
The case of re Harrods is binding authority that this Court has power to
stay, in favour of the courts of a State which is not a party to the Brussels
Convention, proceedings pursued under article 2 of that Convention in the
courts of a State which is a contracting party to the Convention against
a defendant domiciled in that State. The Convention regulates conflicts
of jurisdiction between Contracting States, not between a Contracting
State and a non-contracting State. In Owusu in June 2002 this Court
referred the issue of the correctness of re Harrods to the European Court
for its opinion. Mr McParland submitted, though not at length, that there
was in effect no need for us to await the decision of the European Court,
because it was clear that, even if re Harrods is correct, it cannot apply
under Title II section 3 of the Brussels Convention dealing with insurance.
I do not accept that submission. I would find it difficult indeed to see
any rational basis for distinguishing between Title II sections 2 and 3.
On the construction of article 11 of the Convention which Mr McParland
advances, A. (an American insurance company, which is neither domiciled
nor deemed under article 8 to be domiciled within a Contracting State
and from which a policy has been sought and obtained in Texas covering
a European insured) must sue in the Contracting State in which the
insured is domiciled. Indeed Mr McParland submits that any judgment
obtained by A. in Texas proceedings would be incapable of recognition
in the European Union on public policy grounds (even though, not being
a judgment in a Contracting State, articles 27 and 28 of the Convention
would appear inapplicable). I question all these propositions. It follows
that we should either await the outcome of the reference in Owusu or
ourselves make a related reference. I prefer the latter course, which will
enable the European Court to consider the position in the light of two
different sections of the Convention at the same time. I would invite
counsel to submit in draft a form of reference summarising the particular
issue for the European Court. The European Court will not wish to be
troubled with the other detailed matters with which this judgment has had
to deal.
The proceedings against C.
50. Ms Troy-Davies submits that the reference to the European Court
in respect of CUK, a company domiciled in England, need not deter us
from setting aside the proceedings against C., which had no domicile
in a Contracting State party to the Brussels Convention. Even if the
European Court rules that A.'s proceedings must continue against CUK
here in addition to the Texan proceedings, the problem should not
be compounded by requiring C. to come here to defend proceedings
in addition to those which it is bringing in Texas. I agree with that
submission. If the European Court were to upset the principle in re
Harrods, that would not make it appropriate to add to the resulting
duplication of proceedings or to oblige C. to litigate here an issue which
ought inherently to be, and is being, litigated in Texas. I would therefore
dismiss A.'s appeal in respect of C. in any event.
Conclusion
51. (1) If it is permissible under the Brussels Convention to stay A.'s
proceedings against CUK, an English domiciled company, on the ground
that the forum conveniens for them is Texas, I would uphold the Judge's
order granting such a stay. But it is in issue whether the Brussels
Convention permits such a stay. In order to resolve the issues on this
appeal as between A. and CUK, I would therefore order a reference on
that question to the European Court, with a view to its being combined
with the previous reference made by this Court in Owusu v. Jackson
[2002] EWCA Civ 877.
(2) I see no basis, however, on which it is appropriate to allow A.'s
proceedings served out of the jurisdiction on C. in Texas to continue, and
I would set them aside in any event, upholding the Judge's order in that
respect.
MANTELL L J:
52. I agree.
KENNEDY L J:
53. I also agree.
DISPOSITION:
The appeal would be dismissed in part.