DAVID STEEL J: 1. On this application the defendants seek to set aside
the service of the claim form and all subsequent proceedings on the
grounds that this Court has no jurisdiction pursuant to art 5(1) of the
Brussels Convention. The application is founded on two propositions: (a)
that the claimant has no good arguable case as to the existence of the
contracts on which it brings its claims; (b) alternatively, that the claimant
has no good arguable case that England is the place of performance of the
relevant contractual obligation.
2. The claimant I shall refer to as D. and the five defendants as L., M., F.,
P. and A. respectively.
3. The case concerns the claimant's and defendants' involvement in an
excess of loss reinsurance and retrocession pool managed by I. The
claimant seeks to recover what it contends are the defendants' share of
payments made by the claimant under a number of inwards reinsurance
contracts made between 1974 and 1980 where the claimant was used
to front for members of the pool. The claimant contends that there were
implied retrocession agreements effected by I. as between the claimant
and the other pool members.
4. The defendants participated in the pool during different periods as
follows:
L. Jan 1, 1974 to June 30, 1980
M. July 1, 1976 to June 30, 1978
F. July 1, 1974 to June 30, 1976
P. July 1, 1976 to June 30, 1978
A. Jan 1, 1974 to June 30, 1976.
5. As will appear, the termination of the participation of F. and A. on June
30, 1976 coincided with the introduction of new terms in the form of
agreement between the participating pool members and I..
6. Surprisingly, there was some dispute as to the threshold to be
surmounted by the claimants in making good their entitlement to proceed
within this jurisdiction. The matter is now well established by the decision
of the House of Lords in Canada Trust Co v Stolzenberg, [2000] 3 WLR
1376 where it was held that the standard of proof in this respect was that
of a good arguable case, a concept developed in some detail in a passage
approved in their Lordships' house from the judgment of Lord Justice
Waller in the Court of Appeal (see [1998] 1 WLR 547 at p 553 ff).
7. In the period leading up to June 30, 1976 the first, third and fourth
defendants were signatories to agreements with I. which contained the
following (or materially identical) provisions:
Article 1
The Subscriber authorises the Coverholder to accept up to 100% of one
share of Non Marine, Marine and Aviation Excess of Loss reinsurance
and retrocession Contracts (such contracts being hereinafter referred
to as Reinsurances) for which the Coverholder receives offers directly
or indirectly from insurance and/or reinsurance companies and/or L.'s
underwriters (hereinafter referred to as the Reinsured) in respect of
original interests situated anywhere in the World, subject to the limits,
terms, conditions and stipulations contained herein or attached hereto or
as may subsequently be mutually agreed.
It is understood and agreed that the Coverholder shall only receive
underwriting proposals in respect of Non Marine and Aviation reinsurances
from:
G. AGENCY LTD
41 St (…) Axe
London
And furthermore that the Coverholder shall only receive underwriting
proposals in respect of all classes of retrocession business and marine
reinsurance from:
N. AGENCY LTD
41 St (…) Axe
London
And the decision of the Coverholder regarding each proposal shall be
communicated in writing by the Coverholder to either G. or N. Agencies as
appropriate but notwithstanding the foregoing the Coverholder shall sign
on behalf of the subscriber or subscribers contracts of reinsurance relating
to all business accepted.
For the purpose of this Agreement a Non Marine and/or Marine and/or
Aviation Excess of Loss Reinsurance or Retrocession shall be understood
to mean a reinsurance of one or more Reinsured protected on an Excess
of Loss basis whereby the Reinsured retains a specific amount of each and
every loss or an Aggregate Excess of Loss basis whereby the Reinsured
retains an aggregation of losses or on a Stop Loss basis whereby the
Reinsured retains losses equivalent to a percentage of the relevant
premium income such reinsurance(s) protecting a reinsured's whole
account or section(s) of a Reinsured's Non marine, Marine or Aviation
account except as may be hereinafter excluded.
The Coverholder shall have absolute discretion in determining what
constitutes one Reinsurance and shall accept business solely in the name
of the Subscriber but it is agreed that should any other Subscriber or
Subscribers for which the Coverholder may be acting also be involved
through the Coverholder, the Coverholder may accept business in the
name of any or all the Subscribers but nevertheless the business shall be
deemed to have been accepted for all Subscribers proportionate to their
shares for the time being therein and each Subscriber shall be indemnified
by the others to the extent of such proportion.
ARTICLE 12
The Coverholder may at his sole discretion effect any reinsurance on
behalf of the Subscriber as the Coverholder considers desirable and
the premiums will be deducted from the half-yearly accounted income,
nevertheless premiums applicable to any general account excess of loss
protection shall be debited separately in the half-yearly accounts.
8. The impact of these provisions was considered by Mr Justice Andrew
Smith in Deutsche Rucksversicherung AG v Zion Insurance Co Ltd, Mar 2,
2001 (unreported). In those proceedings, the defendant Zion was another
member of the pool. As in the present application, it was argued on the
defendant's behalf that the claimant had not established a good arguable
case that the pool arrangements gave rise to contracts between the
participants in the pool. The Judge concluded that the agreements made
between ICRA and the participants in the pool evidenced an intention to
create contracts of retrocession between the fronting companies and the
other participants.
9. The Judge analysed the point in the following way:
The context is that subscribers to the pool entered agreements in similar
terms. Those agreements contemplated... and it was contemplated by
all participants... that some of the participants would lend their name
to front risks. It is in this context that the fourth paragraph of the 1st
Article of the Agreements is to be read. That Article shows the parties
contemplation, in my view, of a direct obligation owed by and to the
subscribers... Zion argued that if participants in the pool had intended to
create agreements inter se they could have made express agreements but
that instead they made written agreements which could be enforced by I..
I do not find that argument compelling. The administrative difficulties that
such a web of express agreements would raise are obvious. It is unlikely,
or it seems to me, that participants in the pool would choose to rely on I.
to bring proceedings to enforce the indemnities which were contemplated
by the participation agreements and which all fronting companies would
expect to receive and other participants expect to pay.
10. So far as matters concern the period prior to July, 1976, the relevant
defendants in the present proceedings do not re-argue that point and it is
accepted that internal pool retrocession agreements can be inferred from
the terms of the agreement set out above.
11. As regards the period from July 1, 1976 onwards, only the first,
second and fourth defendants are involved. The significant feature of the
agreements entered into on and after that date is that art 1 was amended
by way of deletion of the fourth paragraph. The defendants' submission
was straightforward. Given the absence of any entitlement on the part
of I. to use one or more subscribers as fronting companies for the pool
and the absence of any coincident obligation of indemnification, it was not
arguable that there were implied retrocession agreements for the benefit
of pool members that were, for one reason or another, used to front risks.
12. The claimant puts its case in two ways. First, despite the removal
of the fourth paragraph, I. were nonetheless authorized by art 1 to
accept reinsurance of risks overwritten by one member of the pool by
the other members of the pool. I conclude that the claimant has no good
arguable case in respect of this proposition. It is true that art 12 affords a
discretion on the part of I. to effect reinsurance on behalf of a subscriber
to the pool. But absent the fourth paragraph, it is impossible to read art
1 as permitting I. to accept reinsurance of one member of the pool by
other members of the pool since art 1 expressly provides that I. should
only consider underwriting proposals emanating from G. or N. ie from
third party sources. Put another way, it is impossible to imply authority
to effect a fronting arrangement, in respect of which other members
of the pool would be bound to afford an indemnity, given the removal
of paragraph four (not forgetting that the amendment was associated,
it was suggested, with a policy decision not to continue with fronting
arrangements).
13. The alternative submission advanced by the claimant was that all
three relevant defendants had in due course ascertained that the fronting
arrangements had nonetheless been continued and that they had been
credited with their proportion of the net premium and despite this,
they had thereafter so conducted themselves as to give rise to a clear
inference that they would not repudiate the implied liability to indemnify
the fronting companies but would indeed adopt and accept such liability.
14. It is fairly clear that, despite any understanding that there may have
been that the practices of fronting would cease, it was in fact persisted in,
with both the claimant and the defendant companies being put forward as
fronting companies from time to time.
15. It is also fairly clear that the defendants became aware of this
practice. Indeed the motivation (albeit unexpressed) for the second and
fourth defendants leaving the pool in November, 1977 with effect from
June, 1978 was the discovery of such practice, confirmed as regards M.
by the findings of Mr Justice Waller in Suncorp Insurance & Finance Ltd v
Milano Assicurazioni SpA [1993] 2 Lloyd's Rep 225 at p 236.
16. As regards L., it is also fairly evident that the fact of fronting was
known by 1982. This is demonstrated by a telex from I. to L. dated Oct
19, 1982 which reads as follows:
We see you have not settled the accounts up to the second quarter 1982
which were sent to you at the beginning of August. You will realise that
the smooth running of this portfolio depends entirely on the prompt
payment of moneys due by pool members and we therefore request you
to pay the outstanding accounts at the end of the month as failure to do
so will not only make it very difficult for us to manage this run-off but will
seriously prejudice the position of those pool members who fronted for
other pool members and are currently being very hard pressed by brokers
and ceding companies to settle balances.
17. At no stage was it suggested on behalf of any of these three
defendants that they were not liable to indemnify the relevant fronting
company, let alone that the share of premium allocated to them should
be returned. A good example of their collegiate attitude emerges from the
minutes of a meeting of the board of Euro (established to organize the
run-off following the collapse of the pool) on May 23, 1985. The stance of
the Italian pool members was reported to be as follows:
If a company occupies a fronting position, that company is in a position
to negotiate a settlement which may or may not involve a cut-off that
in doing so the company in the fronting position must be ready to pay
100% of its gross share. The company would then rely upon the internal
arrangements of I. to recover the requisite contributions from those
companies for whom it fronted the business.
18. Indeed their spokesman, Professor Afferni, is reported to have
accepted on behalf of both M. and P.:
That they could not resist making their contribution as fronted companies
to the settlement of claims as on the basis that they may possibly still
have a credit balance owing them by I. as a result of the large sums
of money that they deposited with I. at the inception of their agency
agreements.
19. The matter was forcibly brought to the attention of all three
defendants in May, 1999 when settlement reports were sent on behalf of
the claimant to each of the defendants identifying sums due on contracts
fronted by the claimant with off-sets for moneys due in respect of
contracts fronted by the relevant defendant. In response to those letters
there was no repudiation of liability, let alone an offer to return premium.
20. Against this background the claimant, in my judgment, has clearly
established a good arguable case that the relevant defendants ratified
the fronting arrangements and thereby exposed themselves to an implied
obligation to indemnify the fronting companies by reference to their
individual proportionate share.
21. It follows that the claimant has surmounted the initial threshold
needed to establish the jurisdiction of this Court under art 5(1) of the
Brussels Convention namely that the claim is in regard to "matters
relating to a contract". It remains for the claimant to establish a good
arguable case that England was the place of performance of the obligation
in question.
22. It was common ground that the relevant obligation as to which the
place of performance needed to be identified was payment under the
implied retrocession agreements. The defendants contended that they
were prima facie obliged to seek out their creditor and that the place of
performance was accordingly Germany (the domicile of the claimant) or
alternatively Holland (the domicile of I.).
23. The claimant contended that they had a good arguable case that
the place of performance was England. In contrast to the issue as to the
existence or otherwise of the retrocession agreements, this, if decided in
the claimant's favour, would be not an issue that would be re-litigated on
the merits. Accordingly I approach the issue on the basis that, allowing
for the limited material available, the claimant must establish that it has
much the better of the argument.
24. It was the claimant's submission that on their proper construction,
having regard to the surrounding circumstances and the course of dealing
between the parties, the implied retrocession agreements required
payment to be made in England. Indeed it was submitted that such
payment to the common account held in London by the pool managers
would constitute a discharge of all liability to the other pool members.
25. Attention was initially drawn to the operation of the pool in the years
leading up to 1974 (L. having participated in the pool in 1972 and 1973).
At that stage the pool managers were two English companies, G Agency
Ltd, and N Agency Ltd. It was probably not controversial that there was
a clear implication arising out of the agreements in effect in those early
years that payment was to be made to either G. or N. and such indeed
was the practice.
26. In a transparent (and probably ineffectual) attempt to avoid the
application of English insurance legislation, confirmation of accepted
business was effected after 1974 through a subsidiary of G., G. Agency
Europe BV (later I. BA). The claimant contended that this arrangement
was indeed entirely artificial and was not intended to have any impact
upon the manner of the operation of the pool in London.
27. In support of this submission reliance was placed upon a letter from
G. Agency Ltd to the third defendants dated Dec 6, 1973 which reads
(having suggested that the purpose of the establishment of the Dutch
company was to speed up the process of confirmation):
To achieve our objective you will note that the contract wordings were
sent to you for signature included as cover holders G. Agency Europe
BV of Rotterdam. This company is wholly owned by G. Agency Ltd
London. The underwriting recommendations and other aspects of business
will continue to be managed in London as before but all necessary
confirmation and signature of individual contracts will be conducted on
behalf of all parties by G. Agency Europe BV.
28. Throughout the period of the operation of the pool, quarterly accounts
reflecting net contributions due to the pool were despatched to pool
members by the pool managers. Following the establishment of the Dutch
subsidiary the operation of the pool continued as before with invoices
from I. BV calling for payment into London bank accounts from which
payment of net balances due to pool members were paid out by I..
29. In these circumstances, the claimant makes the submission that it
has a good arguable case that the place of performance was England. It
is submitted that this can be readily inferred from the course of dealing
that the parties intended that the account balances should be payable in
London.
30. With regards to the submission on behalf of the defendants that,
absent any express provision, it is appropriate to apply the rule that a
debtor should seek out and pay his creditor at his place of business, the
claimant submits that there was no question of one pool member paying
another. Indeed it was submitted that the pool was to all intents and
purposes unworkable unless accounts were settled through the facilities of
a common agent.
31. I am fully persuaded that the claimant has a good arguable case.
In my judgment the default rule must readily give way to the practical
considerations of the relevant transaction: see RBS v Cassa di Risparmio,
[1991] ILPr 411 at p 419.
32. Accordingly I conclude that the defendants' application to set aside
these proceedings must fail.