England and Wales High Court (Commercial Court) Decisions

Case No: 2000 Folio 1308

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 3^rd May 2001

B e f o r e : THE HONOURABLE MR JUSTICE MOORE-BICK - - - - - - - - - - - - - - - - - - - - -

	AIG EUROPE S.A.	Claimant
	- and -
	QBE INTERNATIONAL INSURANCE LIMITED	Defendant

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Mr. Neil Calver (instructed by Norton Rose for the claimant) Mr. Adam Fenton (instructed by Vizards Staples & Bannisters for the defendant) - - - - - - - - - - - - - - - - - - - - - JUDGMENT

Pursuant to the Practice Statement issued by the Master of the Rolls on 9th July 1990 I hereby certify that the attached text records my judgment in this matter and direct that no further record or transcript of the same need be made.

The Hon. Mr. Justice Moore-Bick

Mr Justice Moore-Bick:

1. This matter comes before the court by way of an application by the defendant, QBE International Insurance Limited (“QBE”), for a declaration that the English courts have no jurisdiction to determine the dispute in this action and for an order setting aside service of the proceedings on the grounds that the parties have agreed within the terms of Article 17 of the Brussels Convention that the courts of France are to have exclusive jurisdiction.
2. The background to the present dispute can be described quite briefly. The claimant, AIG Europe S.A. (“AIG”), and a number of other European insurers issued a policy of insurance against material damage and consequential loss in favour of the French aviation company Aerospatiale in respect of the three year period from 1^st January 1999 to 1^st December 2001. In February 1999 AIG entered into a facultative contract of reinsurance with QBE through its Paris office in respect of losses arising under the Aerospatiale policy for the same three year period. The reinsurance was effected through a Luxembourg broker, Société Anonyme d’Intermédiaires Luxembourgeois. In its claim form AIG alleges that it gave notice to cancel the underlying policy with effect from 31^st December 2000 pursuant to a clause in that policy. On that basis the underlying policy ran for two rather than three years. AIG alleges that the reinsurance contract also remained in force until 31^st December 2000, but that QBE wrongfully purported to cancel it with effect from 31^st December 1999. It seeks a declaration that reinsurance remained in full force and effect in respect of the period up to 31^st December 2000 and also seeks to recover sums payable under that contract.
3. The claim form in these proceedings was issued on 30^th November 2000. It was served within the jurisdiction because, although the contract was made through its Paris office, QBE is an English company with its head office in London. It is common ground, therefore, not only that QBE is amenable to the jurisdiction of the English courts in the ordinary way, but that by virtue of Article 2 of the Brussels Convention England is the proper country in which to bring proceedings against it since it is domiciled here. That is the case notwithstanding the fact that the contract was made through QBE’s Paris office which enjoys a considerable degree of autonomy.
4. However, the contract of reinsurance contained the following term:

“Conditions

All terms, clauses and conditions as original and to follow the original in all respects including settlements”,

and the underlying policy contained among its general conditions the following clauses (as translated):

“L. Arbitral Procedure

In case of dispute between the insured and the insurers the parties will apply to the Tribunal de Commerce in Paris who will appoint an arbitrator. The latter, with the possible collaboration of two further arbitrators appointed by the parties, will have the task of proposing an agreement acceptable to both parties.

M. Law and Jurisdiction

In the event of dispute between the insured and the insurers and should the arbitral procedure referred to earlier fail to establish an agreement between the parties in the dispute, the said parties should address themselves to the French Courts which have sole jurisdiction; foreign companies which have accepted part of the risk are also subject to the jurisdiction of the French Courts and abandon all rights of appeal in their own country.

French law will apply except where local law applies obligatorily.”

On the basis of these provisions QBE contends that the parties to the reinsurance contract have agreed that the French courts are to have exclusive jurisdiction over all disputes arising under that contract.

5. The material parts of Article 17 of the Brussels Convention provide as follows:

“If the parties, one or more of whom is domiciled in a Contracting State, have agreed that a court or the courts of a Contracting State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have exclusive jurisdiction. Such an agreement conferring jurisdiction shall be either in writing or evidenced in writing.”

6. Mr. Fenton submitted on behalf of QBE that the clause in the reinsurance contract providing “All terms, clauses and conditions as original” is sufficient to satisfy the requirements of Article 17. He put his case in two ways. The first was simplicity itself: “all”, he said, means all, and is a sufficient indication of the parties’ intention to incorporate all the terms of the underlying insurance, including clauses L and M. Alternatively, insofar as it may be permissible to consider the presumed intention of the parties, he submitted that the connections with France are so strong in this case that the court can readily infer that they intended to refer disputes arising under the reinsurance contract to the French courts.
7. Mr. Calver for AIG, on the other hand, submitted that clauses L and M are intrinsically personal to the insured and insurer under the original policy. They represent a self-contained procedure ancillary to the contract of insurance and are not apt on their face to cover disputes between the insurer and its reinsurer. Article 17 of the Brussels Convention requires that a derogation from the fundamental rule contained in Article 2 be clearly agreed in order to be recognised. Here the general words in the reinsurance contract relied on by QBE are not adequate to demonstrate the parties’ agreement to be bound by clauses in the underlying insurance which are not directly germane to the nature or effect of that contract. In order to achieve that result, he submitted, specific words of incorporation are required.
8. It was common ground that the construction and effect of Article 17 is a matter to be determined by reference to principles of community law rather than those of the proper law of the contract. This is clear from the decision of the European Court in Powell Duffryn plc v Petereit [1992] ECR I-1745 and has been recognised in a number of English cases. Each of the parties to the application adduced evidence of French law, on which there was a significant measure of disagreement, but in fact, as both parties ultimately recognised, this application can be determined without recourse to French law and I have therefore found it unnecessary to concern myself with that part of the evidence. Had it been otherwise, I do not think that it would have been possible to reach a conclusion without hearing from the relevant witnesses in person.
9. It is convenient to begin by disposing of one question concerning the nature of clauses L and M. It was suggested at one stage that clause L, containing as it does a reference to “arbitration”, involved an agreement to refer disputes to arbitration and that clause M did not therefore contain a clear agreement to refer disputes to the French courts. I am unable to accept that. It is quite true that clause L on its face provides for a preliminary procedure involving the appointment of persons described as “arbitrators”, but it is clear that this is at best a procedure for conciliation which may, or may not, result in a compromise of the dispute. It is clearly not an arbitration agreement in the sense in which that expression is normally used, nor does it deprive the courts of jurisdiction. Indeed, the conciliation procedure is carried out with the assistance, if not actually under the auspices of, the Tribunal de Commerce. I have no doubt that as between the insured and insurer clause M contains a valid choice of jurisdiction. The question in the present case, therefore, is simply whether the general words in the reinsurance contract are adequate to satisfy the requirements of Article 17 as interpreted in accordance with community law.
10. The nature of the agreement needed to satisfy the requirements of Article 17 was considered by the European Court in Estasis Salotti di Colzani Aimo e Gianmario Colzani v RÜWA Polstereimaschinen GmbH [1976] ECR 1831. That case concerned offers made by RÜWA to Salotti under cover of a letter dated 18^th September 1969 to supply machinery “subject to the general conditions of sale overleaf”. These conditions included clauses stating that the place of performance in respect of any claims and also for the purposes of jurisdiction was Cologne, but reserved a right to the seller to bring proceedings at the buyer’s place of establishment. Subsequently the parties entered into a contract in Milan on RÜWA’s stationery for the supply of “the machinery offered for sale pursuant to the letter of 18^th September 1969”. RÜWA’s general conditions of sale were printed on the back of that document. On Salotti’s failure to take delivery of the goods RÜWA brought proceedings against it in Cologne and a question arose whether the parties had effectively agreed that the court in Cologne should have jurisdiction.
11. In paragraph 7 of its judgment the European Court observed that in view of the consequences that such an agreement may have for the parties to the action, the requirements of Article 17 must be strictly construed. Article 17 therefore imposes on the court the duty of examining

“whether the clause conferring jurisdiction upon it was in fact the subject of a consensus between the parties, a matter which must be clearly and precisely demonstrated” (my emphasis).”

12. The first question which the court was asked to consider was whether a jurisdiction clause included among general conditions of sale printed on the back of a contract signed by both parties fulfils the requirement of writing. In answering that question the court said this:

“9. Taking into account what has been said above, it should be stated that the mere fact that a clause conferring jurisdiction is printed among the general conditions of one of the parties on the reverse of a contract drawn up on the commercial paper of that party does not of itself satisfy the requirements of Article 17, since no guarantee is thereby given that the other party has really consented to the clause waiving the normal rules of jurisdiction.

It is otherwise in the case where the text of the contract signed by both parties itself contains an express reference to general conditions including a clause conferring jurisdiction.

10. Thus it should be answered that where a clause conferring jurisdiction is included among the general conditions of sale of one of the parties, printed on the back of a contract, the requirement of a writing under the first paragraph of Article 17 of the Convention is fulfilled only if the contract signed by both parties contains an express reference to those general conditions.”

13. These passages suggest that one is not looking either to the presumed or actual intention of the parties as derived from extrinsic evidence but to the form of the contract. Only a clear reference to the terms containing the jurisdiction clause will suffice.
14. The second question which the court was asked to consider was whether the requirement for writing is satisfied if the parties expressly refer in the contract to a prior written offer which itself referred to general conditions of sale which included a jurisdiction clause. The court answered it in the following way:

“12. In principle the requirement of a writing under the first paragraph of Article 17 is fulfilled if the parties have referred in the text of their contract to an offer in which reference was expressly made to general conditions of sale including a clause conferring jurisdiction.

This view of the matter, however, is valid only in the case of an express reference, which can be checked by a party exercising reasonable care, and only if it is established that the general conditions including the clause conferring jurisdiction have in fact been communicated to the other contracting party with the offer to which reference is made.

But the requirement of a writing in Article 17 would not be fulfilled in the case of indirect or implied references to earlier correspondence, for that would not yield any certainty that the clause conferring jurisdiction was in fact part of the subject-matter of the contract properly so-called.”

15. A number of things emerge from this judgment. The first is the emphasis which the court laid on the need to be confident that the jurisdiction clause had been effectively brought to the attention of the other contracting party so as to satisfy the need for genuine consensus. The second is the recognition of the validity of incorporation by reference. A jurisdiction clause contained in general conditions of trading may be effectively incorporated by a general reference to those conditions provided that they are referred to expressly in the contract. The third is the importance attached to the language of the contract rather than extrinsic factors. There is nothing in the judgment to suggest that the court should be concerned with commercial considerations which might make it more or less likely that the parties intended that the jurisdiction clause should apply.
16. My attention was drawn to a number of English cases in which Salotti v RÜWA has been considered. The first of these is Crédit Suisse Financial Products v Société Générale d’Enterprises [1997] CLC 168. In that case Saville L.J. who gave the leading judgment pointed out that the second question which the court was required to answer in Salotti v RÜWA was concerned with the problem of incorporation at one remove, that is, incorporation by reference to another document which itself contained a reference to the conditions in question. The question in the Crédit Suisse case was whether an express reference in the contract to the terms of the ISDA Master Agreement amounted to a clear and precise demonstration that the jurisdiction clause was the subject of a consensus between the parties even though a copy was not available for examination. He considered that it did and expressed the view that the court in Salotti v RÜWA had recognised that there is a guarantee of real consent where there is an express reference in the written contract itself by way of incorporation of other written terms which include a clause conferring jurisdiction. The other members of the court agreed.
17. In AIG Europe (UK) Limited v The Ethniki [1998] 4 All E.R. 301 the court was concerned with the incorporation into a contract of reinsurance of a jurisdiction clause in favour of the courts of Athens contained in the underlying contract of insurance. The underlying contract provided as follows:

“Both contracting parties do hereby agree that they submit to the jurisdiction of the Courts of Athens the trial of any dispute which shall arise out from the present policy and they now expressly waive the right to contest the above jurisdiction of the Courts of Athens for any reason”.

The reinsurance contract provided simply

“Conditions: Wording as original”.

18. Colman J. held that these general words in the contract of reinsurance were not apt to incorporate the jurisdiction clause in the underlying policy. He drew attention to certain English authorities relating to the incorporation of terms by reference, drawing a distinction between those which are germane to the subject matter of the contract and those, such as arbitration clauses, which are essentially ancillary in nature. He concluded that general words of the kind to be found in the reinsurance contract in that case would not normally suffice to incorporate terms of an ancillary nature and that the commercial background to the contract did not point to a different conclusion in that case. Accordingly he held that the challenge to the jurisdiction under Article 17 failed.
19. The decision of Colman J. was upheld on appeal: the judgment of the Court of Appeal is reported at [2000] 2 All E.R. 566. In that case, as in this, the party seeking to challenge the jurisdiction of the English courts relied on the literal meaning of the words used in the contract of reinsurance. Having drawn attention to certain aspects of the commercial background, Evans L.J., with whom Thorpe and Jonathan Parker L.J.J. agreed, held that the right approach in any given case was to ask whether the parties to the contract in which the general words of incorporation appear intended that their contract should include the particular term from the other contract referred to. He noted that the jurisdiction clause in the underlying contract did nothing to define the risk and that, if regard were had to its terms, it was wholly inappropriate to disputes arising between insurers and reinsurers under a contract which was probably governed by English law. Evans L.J. reached his conclusion on the basis of English law. He recognised that it would perhaps be more correct to approach the question by reference to community law, but he considered that the result would be the same in any event. In his judgment the ‘clear and precise demonstration that the jurisdiction clause was the subject of a consensus between the parties’ called for by Salotti v RÜWA was not present.
20. Finally I must mention the decision of Tuckey J. in Arig Insurance Company Ltd v Sasa Assicurazione Riassicurazione S.p.a. (unreported, 10^th February 1998). That case also concerned a claim under a contract of reinsurance and raised the question whether a jurisdiction clause in the underlying policy had been effectively incorporated into the contract. The underlying policy provided as follows:

“The court of competent jurisdiction is exclusively that of the place of the residence or office of the Contracting Party”.

The Contracting Party was defined as the Italian insured. The policy also contained certain standard terms including the following:

“Court of competent jurisdiction – The court of competent jurisdiction, chosen by the plaintiff, is exclusively that of the place of residence or the registered office of the defendant, or that of the place where the Agency to which the policy is assigned has its office”.

21. Having considered the decisions in Salotti v RÜWA and Crédit Suisse Financial Products v Société Générale d’Enterprises, Tuckey J. held that the only question for the court was whether the words “Policy wording as original” amounted to a clear demonstration that the jurisdiction clause in the underlying policy of insurance was the subject of consensus between the parties. He held that it was not, relying in part, at any rate, on the commercial background to the reinsurance contract.
22. It follows from the decisions in Salotti v RÜWA and Crédit Suisse Financial Products v Société Générale d’Enterprises that a provision which purports to incorporate into the contract by express reference a body of terms which is clearly identified will normally satisfy the requirements of Article 17, whether or not those terms were available to the contracting parties at the time the contract was made. The question in the present case, therefore, as it was in Arig v Sasa, is whether the general words in the reinsurance contract amount to a clear demonstration that all the terms of the underlying contract, including the jurisdiction clause, were the subject of consensus between the parties.
23. Mr. Fenton submitted that the reference to “All terms clauses and conditions as original” (my emphasis) is sufficient to demonstrate such a consensus, but although that argument has a certain logical attraction, it carries the matter too far. Clearly some of the terms of the original policy were not intended to apply to the contract of reinsurance and in the absence of any other indication that the parties had addressed their minds to the question I am unable to accept that the use of the word “all” in this context will bear the weight which he sought to put on it.
24. Insofar as it is permissible to have regard to it, there is some force in Mr. Fenton’s submission that the commercial background to the contract in the present case supports rather than undermines the likelihood of consensus. Although QBE is an English company, its Paris office operates largely independently and to that extent it might be said that both parties to the contract are in substance French. In addition, the reinsurance was placed through Luxembourg brokers and it is likely that the proper law of the contract is French law. Considerations of the kind which weighed with Colman J. in AIG v The Ethniki and with Tuckey J. in Arig v Sasa point the other way in this case. Mr. Calver submitted, however, that it is inappropriate in the light of the judgment in Salotti v RÜWA to have regard to matters of that kind because the question is to be judged simply by reference to the terms in which the parties have expressed their agreement.
25. I find myself unable to accept Mr. Calver’s submission, at any rate in its full width. It is quite true that in Salotti v RÜWA the court emphasised that the requirements of Article 17 must be strictly construed and that the existence of a consensus between the parties must be clearly and precisely demonstrated. It does not follow from that, however, that it is necessary to ignore the background to the agreement in question. Indeed words, particularly those in commercial documents, invariably take their colour from the context in which they are used. The commercial context, therefore, must always be taken into account when construing a document of this kind, but it cannot always be relied on to make good deficiencies in the language which the parties have chosen to use.
26. Community law, in common with English law, regards jurisdiction clauses as ancillary to the substantive provisions of the contract for the purposes of Article 17: see Benincasa v Dentalkit S.r.l. [1997] ECR I-3767. The incorporation of the terms of one contract into another related contract between different parties raises rather different questions from those which arise when one party to a contract seeks to incorporate by reference a set of standard trading terms. In the former case most, but not all, of the terms of the original contract are likely to be directly relevant to the substance of the contract into which they are to be incorporated. In these circumstances it becomes necessary to decide which terms the parties intended to incorporate and which they did not. In many cases the answer will be that in the absence of specific language the court will not be able to infer with confidence that the parties did intend to incorporate any terms other than those which are germane to their own contract: see the comments of Colman J in AIG Europe (UK) Ltd v The Ethniki at pages 309f – 310e. In the latter case this question rarely arises and the result is that all or none of the terms in question are incorporated. The present case, of course, is of the former kind. It does not necessarily follow, therefore, that general words in the reinsurance contract incorporating the terms and conditions of the underlying policy can be taken as demonstrating clearly and precisely the existence of a consensus in relation to clauses which are ancillary to the substance of the contract. In each case the court must construe the language of the contract in the context of its commercial background and ask itself whether a consensus on the subject matter of the jurisdiction clause is clearly and precisely demonstrated.
27. In the present case I do not think that it is. The difficulty lies both in the nature and, to a lesser extent, in the language, of clauses L and M. The decisions in AIG Europe (UK) Ltd v The Ethniki and Arig v Sasa support the view that in the context of contracts of reinsurance jurisdiction clauses, being ancillary in nature and having no bearing on the definition of the risk, are not germane to the substance either of the underlying policy or of the reinsurance contract. In those circumstances general words of incorporation will not suffice to demonstrate with sufficient certainty to satisfy the requirements of Article 17 the existence of the necessary consensus. Although the commercial background does not reinforce this conclusion (as it did in both AIG Europe (UK) Ltd v The Ethniki and Arig v Sasa), it is not of sufficient weight to make good this deficiency in the language of the contract.
28. This conclusion does not depend on the particular language of the jurisdiction clause but on its essential nature. In some cases, however, the terms in which the clause is drafted may itself undermine the argument that the parties intended to incorporate it into their contract. The language of clauses L and M in the present case does not require a great deal of manipulation to render it applicable to reinsured and reinsurer, but the inclusion of a mandatory conciliation clause is in my judgment much more apt for inclusion in an original contract of insurance than in a reinsurance contract. However, for the reasons I have given the terms in which clauses L and M are framed are not essential to my conclusion.
29. For the reasons I have given I have reached the conclusion that QBE is unable to demonstrate that there was a consensus between the parties to incorporate clauses L and M of the underlying policy into the contract of reinsurance and that this application must therefore be dismissed.