England and Wales High Court (Commercial Court) Decisions

Tradigrain SA v S.I.A.T Spa & Ors [2002] EWHC 106 (Commercial) (23rd January, 2002)

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		23 January 2002

Mr Justice Colman:

Introduction

1. This is an application by the defendants for a declaration that this court has no jurisdiction to hear the claim against all but one of the defendants and as against the 22nd defendant for a stay of the proceedings.
2. The claimant, Tradigrain, is a well-known international commodities trading corporation whose principal place of business is in Geneva. The defendants are insurance companies, all of whom are domiciled in countries which are parties to the Lugano Convention. The leading insurer, SIAT, is domiciled in Italy. The 22nd defendant, HBA Ltd, represents Lloyd’s Underwriters and is domiciled in England.
3. The claim is made under a policy of marine insurance reference FOGO43-4001 to which all the defendants were party in various different percentages. It is alleged that the policy insured the claimants in respect of various parcels of vegetable oil held in storage in India subject to the management of ITS Caleb Brett (Canada) Ltd and/or its Indian Subsidiary (“ITS”) pursuant to a Collateral Management Agreement (“CMA”) dated 23 July 1999 between ITS and the Claimant. The Claimants plead that the policy incorporated the Institute Cargo Clauses (A) 1.1.82 which cover all risks of loss of or damage to the subject matter insured and which include by clause 16 a sue and labour and claims preservation provision.
4. The claim is alternatively advanced under the terms of the same policy said to be evidenced by a confirmation relating to the insurance of the oil while in store sent out to the claimant by the insurance brokers, Aon Jauch & Hubener (“Aon”). The terms of the policy, as indicated in that confirmation, included the following provisions:

“(1) risk of misappropriation unless this is to be applied to the authorities depriving the Assured of the right of disposal, ownership or property due to legal provisions which are effective and generally known at the time of attachment of the insurance ....”; and

“damages to/losses of the subject matter insured caused by errors, negligence and/or unauthorised release by ITS employees and/or storage facility operator.”

5. The basis of the claims under the insurance policy is as follows.
6. On 19 May 1999 by a letter of intent the claimant agreed with Lanyard Foods Ltd of India (“Lanyard”) that Lanyard and/or Shweta International Pte Ltd of Singapore, (“Shweta”) would purchase from the claimant quantities of vegetable oil to be shipped to India by the claimant. It is alleged that under the terms of the letter of intent or under the sale contracts entered into pursuant to it the oil was sold subject to the following material terms.

(1) a minimum of 15,000 mts vegetable oils would be purchased by Lanyard each month commencing in June 1999 and shipped to India by the claimant; and

(2) the cargoes of vegetable oil would be stored in India pending payment of a provisional price calculated by reference to a premium above the Chicago Board of Trade futures price for the commodity concerned together with the cost of freight, whereupon the oil would be released to Lanyard;

(3) Lanyard would arrange and pay for tank storage space in India;

(4) the cargoes of oil in storage pending payment by or on behalf of Lanyard and/or Shweta would be managed by ITS under a collateral management agreement (in the event, the CMA between the claimant and ITS referred to above).

7. It is said that Lanyard entered into tank storage lease agreements in respect of tanks located at Mumbai, Mangalore and Kandla and then sub-let the tanks to ITS.
8. In the course of 1999 to June 2000 the claimant shipped vegetable oils to Lanyard and/or Shweta in India pursuant to various sale contracts. The oils were discharged into the care of ITS and stored in the tanks which Lanyard had sub-let to it. Some of that oil was released to Lanyard and Shweta upon payment of the provisional price. However, in the course of June 2000 it was discovered that some 15,697.7 metric tons was missing from the storage tanks at Mumbai and that Lanyard had misappropriated it with the help of a former employee of ITS. Lanyard admitted that it had done so and by an agreement with the claimants made in February 2001 the defendants agreed to pay US$6.9 million in full and final settlement of a claim for the price of the misappropriated oil.
9. Also in June 2000 Lanyard wrongfully and without the claimants’ authority procured delivery to it out of storage tanks at Mangalore of 1500 metric tons of oil, for which it had not paid, by means of an ex parte petition to the District Court at Mangalore by which it obtained an interim injunction against the tank operator restraining it from preventing Lanyard from removing the oil. It is alleged that the oil thus removed from those tanks was worth US$713,050.
10. In July 2000 Lanyard started proceedings in the High Court in Mumbai seeking to obtain delivery of the remaining oil in storage at Mumbai without first having paid the claimant. It is said that in view of what had already happened with regard to the other oil stored at Mumbai and Mangalore, the claimants, in order to avert or minimise further losses, entered into an agreement with Lanyard and Shweta under which the claimants would release to those buyers small parcels of the oil remaining in storage against payment of the current market price as distinct from the provisional contract price. The market price was lower than the contract price.
11. The claim against the insurers is thus put at US$713,050 in respect of the oil misappropriated from Mangalore and is also to cover the price differences and expenses incurred in relation to all other oil in storage tanks which was the subject of the July 2000 agreement. As to the latter claim, the claimants rely on sections 78(4) and 76(2) of the Marine Insurance Act 1906, on clause 16 of the Institute of Cargo Clauses (A) 1.1.82 and further on the fact that the oil in question was lost or misappropriated within the scope of the cover provided by the marine policy.

The Claimants’ case on Jurisdiction

12. As to the 22nd defendant, HBA Ltd, it is submitted that, being domiciled in England (which is common ground) they are clearly subject to the jurisdiction of the English courts in view of Art 8(1) of the Brussels/Lugano Convention. In this connection the claimants also rely on an express submission to the jurisdiction of the English courts which, they contend, is to be found on the reverse side of the certificates of insurance which are said to have been issued by Aon to ITS and sent by ITS to Tradigrain or their bank in respect of each of the relevant shipments. This was in the following terms:

“This policy is subject to German law. The Institute Cargo Clauses shall be construed according to English law and practice. The court of jurisdiction - even where claims are agreed payable - is to be at the place where this insurance certificate is issued or at the head offices of the insurers, unless otherwise agreed”.

13. The place where the head office of the insurers was located is London. It is therefore argued that, absent any agreement to the contrary, there is an express submission to the jurisdiction of the English courts in respect of the 22nd defendant.
14. As to all the defendants, it is argued that the insurance certificates included the following clause:

“If according to the terms of the sales contract regarding the insurance, a British domicile is required by the Holder of this certificate (policy) for legal proceedings, contrary to all other terms and conditions of this insurance, insurers accept such British domicile and for service of process provide the following address:

Messrs Wendt & Company

Shoreditch High Street, London E1 6PN”

15. It is then said that the underlying sales contracts, or at least some of them, did require insurance to be effected with insurers who accepted that proceedings on the policy should be brought in the English courts. That was because the sale contracts in question were entered into between Tradigrain and Lanyard and Shweta on the standard terms of FOSFA 54. Clause 5 of FOSFA 54 provides as follows:

“INSURANCE: Insurance in accordance with the Institute/FOSFA Trade Clauses (A) and the Institute War and Strike Clauses (FOSFA Trades) ... to be effected at Sellers’ option with first class underwriters and/or companies who are domiciled in the UK or for the purpose of any legal proceedings accept a British domicile and provide an address for service of process in London.....”.

16. Further, as a subsidiary point, the claimants observe that if this court concludes that its jurisdiction is limited to the claim against the 22nd defendant and, if, as is possible if not likely, the other defendant insurers insist for reasons explained later in this judgment on the claims being brought against them in the German courts, the claimants would apply to the German court to stay the German proceedings under Article 22 of the Convention. This would be on the basis that the English courts were “first seized” and the actions against the other defendants and the action against the 22nd defendant are related actions. The claimants rely on the advice received from Dr Drumm, a German lawyer, that such an application would be likely to succeed.
17. I interpose therefore that if this court were to conclude that it does have jurisdiction over the 22nd defendant it would clearly have to take into account in deciding whether to accede to the application on behalf of that defendant for a stay that absent such a stay there would in reality be unlikely to be active parallel proceedings in Germany.

The Defendants’ Case on Jurisdiction

18. The defendants submit that the relevant policy to which the claimants were a party was the Open Cover reference FOG043-4001 which defined the Assured as ITS and all subsidiaries and associated companies and all their clients for which ITS had instructions to effect insurance. The leading underwriter is identified as SIAT and the broker as Aon. The terms of the open cover are based on the German Rules for Marine Insurance (“ADS”) in the sense that they were constructed on the foundation of those Rules subject to amendments. The Cargo and Open Policies Special Conditions were attached to the Open Cover together with the Institute Cargo Clauses. The scope of the Open Cover extended to transportation and storage to the agreed extent. Individual risks were to be declared to the Open Cover by the Assured through Aon and Tradigrain, being a third party client of ITS, was bound by the Open Cover as the “Assured”.
19. The defendants contend that a special agreement which formed part of section 4 of the Open Cover amounted to an agreement to submit to the jurisdiction of the Hamburg courts which is binding on the claimant. It provides “As venue, Hamburg is agreed upon”.
20. The defendants further rely on clause 5.3.2 of the Open Cover which provides that:

“If any disputes arise under this policy, the Assured shall enforce his claim by filing an action solely against the leading Underwriter up to his participation of the policy.

The Co-Insurers to this policy shall accept any decision against the leading Underwriter in favour of the Assured, which has become legally effective, as being binding on them. They also accept the out-of-court settlement agreed upon between the leading Underwriter and the Assured after litispendence as being binding on them.

Should the share held by the leading Underwriter not reach the sum under dispute in appeal proceedings at the first or the second instance, the Assured shall be entitled and is obliged, at the request of the leading Underwriter or the Co-Insurers, to extend the suit to the second Underwriter and, if necessary, to several of the Underwriters, until the required sum has been reached. If this demand is not complied with, the terms of the above paragraphs shall not be applied.”

21. The co-insurers are thus to be bound by the determination of the claim. Since SIAT is the designated Leading Underwriter, it is submitted that Tradigrain is in breach of contract by commencing these proceedings against the 22nd defendants and that this court should give effect to that provision by exercising its powers to stay the claim under section 49 of the Supreme Court Act 1981. It is said that any such proceedings should be in Hamburg and should in any event be against SIAT as leading underwriter.

Analysis of the Contract of Insurance

22. The Open Cover provided for the Assured to declare to the underwriters all the risks of whatever kind insured in the appropriate declaration forms: General Condition 1.8.1. It was open to the Assured to declare risks subject to a wide variety of standard form provisions set out in General Condition 1.10.1. Amongst those clauses are the German Rules of Marine Insurances (ADS) and the Institute Cargo Clauses.
23. The structure of the Open Cover was based on the ADS and it was largely expressed by way of amendments by additions to or deletions from the ADS. Part 4 of that code provides as follows:

“German Law shall apply to the relations between the parties, but Statute Law shall apply to marine insurance only in so far as the statutes are binding and unalterable”.

24. However section 127 of ADS is amended to provide:

“Jurisdiction -

As venue, Hamburg is agreed upon.

If, because of a contract of purchase, the Assured has to place insurance with Underwriters who accept the jurisdiction of British Courts and who have an address in London for the serving of writs, the Underwriters subscribing to this policy shall also accept the jurisdiction of the British courts. The following address has been agreed for the serving of writs:

Messrs Wendt & Company

Wendt House

Shoreditch High Street

UK - London E1 6PN”

25. By clause 5.3.2, which has already been set out in this judgment, it was provided that the Assured must enforce his rights by commencing proceedings solely against the Leading Underwriters and the co-insurers would be bound by the decision.
26. On 8 December 1999 Aon sent a fax message to Tradigrain containing confirmation of insurance “for Collateral Management Agreement Cover”. The message stated:

“As per our today’s telecon, we are sending you herewith a confirmation of insurance for the CMA coverage you have insured via ITS. As you wanted to have the confirmation specifically only for the CMA storage we did not additionally mention that the marine insurance for the vessels going to India had also been insured - however for these, insurance certificates had been issued.

In respect of the misappropriation cover just for good order’s sake. Kindly note that this is not a cover for indirect losses (ie. financial losses) but really for losses/damages caused to the cargo when they have been for example misappropriated.

We also attach for your information a copy of the declaration of insured values received via ITS of the vegoil insured.

CONFIRMATION

Branch: Marine Cargo Insurance FOGO43-4001

Insured (Account): Tradigrain

Insured Goods: various parcels of vegoil”

27. It is to be observed that the message draws a distinction between the cover for CMA storage in respect of which the message is to be a confirmation and the marine insurance “for the vessels going to India” in respect of which insurance certificates had been issued. Under the heading of “Confirmation” there is then a reference to Marine Cargo Insurance FOG043-4001 and a further reference to Tradigrain on the “account insured”. I infer that the reference to the Open Cover was inserted to indicate that the insurance was effected by ITS through Aon under the Open Cover. The confirmation referred to the scope of cover as “All risks as per Institute Cargo Clauses (A) (or if requested Institute FOSFA Trades Clauses (A)). Both these two clauses provide by clause 19 that “this insurance is subject to English law and practice”.
28. In respect of the marine cover, that is to say the cover relating to the carriage of the vegetable oil by sea, the separate certificates referred to in the fax from Aon described the “voyage insured” by reference to a named carrying vessel, the ports of loading and discharge, the goods insured, the bill of lading number and date and the cargo spaces in which the oil was carried. The wording included the following:

“Covering .... Institute Cargo Clauses (A) Dated 1.1.1982 ....

Covering Insurance from Loadport Storage Tanks up to Discharge Port Storage Tanks or first port weighbridge”.

29. There can be no doubt on the evidence that ITS declared to the defendants both the marine carriage risks and the CMA storage risks and charged Tradigrain for both covers in respect of each relevant shipment. The effect of their doing so was to create separate contracts in respect of each declaration on the terms of the Open Cover which applied to each declaration. Each declaration was separately charged and accounted for, the rates for the CMA cover being lower than the rates for the marine cover.
30. There is a dispute between the claimants’ expert on German law, Dr Drumm, and the defendants’ expert, Dr Bartels, as to whether the consequence of a declaration by ITS would be to cause Tradigrain to become a party to the Open Cover (Dr Bartels) or would be to create, in so far as such declaration was concerned, a contract for the benefit of Tradigrain (Dr Drumm). The resolution of this issue is unnecessary for present purposes for the following reason.
31. Dr Drumm’s opinion is that clause 1.10.3 of the General Conditions of the Open Cover has the effect of giving to the Assured what is, in effect, a unilateral option to take the benefit of the “Special Agreements” which form condition 2 of the contract. That clause provides as follows:

“The special agreements under this policy are to be applied in favour of the Assured only, unless they are referred to explicitly in an insurance certificate (single policy).

If this is not the case or a certificate has not been issued and the premium for the full coverage under this policy has been agreed upon, the Assured may request that the special agreements are also to be applied in favour of the beneficiary.”

32. Accordingly, it would be open to the Assured, as distinct from the insurer, to decide whether to rely on the amendment to section 127 of the ADS which provided that, with regard to jurisdiction Hamburg was to be the agreed venue. Only if the special agreements were referred to explicitly in the relevant insurance certificate would they be for the benefit of both the insurers and the Assured.
33. Although Dr Bartels joins issue with Dr Drumm’s view that Tradigrain was not a party to the Open Cover, but merely a third party beneficiary in respect of it, he does not appear to challenge the view that, because of the terms of clause 1.10.3, the amendment to introduce Hamburg jurisdiction can be invoked only by Tradigrain, whether as third party beneficiary through ITS or as Assured and therefore a party to the Open Cover, but not by the insurers. Moreover, there is nothing in any insurance certificate issued in respect of the CMA cover which explicitly refers to the Special Agreements in general or to section 127 of the ADS as amended in the Open Cover in particular.
34. The certificates of insurance issued by Aon in respect of each shipment refer to the ADS General Rules of Marine Insurance and to the Special Conditions for Cargo (ADS Cargo 1973/1984). They make no express reference to jurisdiction provisions in the Open Cover. The only specific reference to that contract is the reference number. That clearly does not operate to incorporate the Hamburg jurisdiction clause. Displacement of the jurisdictional rules under the Lugano Convention by agreement between the parties contract is governed by Article 17. Under those provisions the only available basis for incorporation in this case would be an agreement in writing or evidenced in writing under 17(a) for there is no evidence to support a course of dealing under (b) or a form adopted by trade usage under (c). In a very recent decision in AIG Europe SA v. QBE International Insurance Ltd (3 May 2001) Moore-Bick J. considered the application of Article 17(a) with reference to Estassis Salotti di Colzani Aimo etc v. RUWA Polstereimaschinen Gmbh C-24/76 [1976] ECR 1831 and the main English decision on Article 17 - Credit Suisse Financial Products v. Societe Generale d’Enterprises [1997] CLC 168 (CA), - as well as the English decisions on incorporation of jurisdiction clauses into contracts of reinsurance, and concluded that, whereas under Article 17(a) general words of incorporation might be effective to incorporate a jurisdiction clause, they would do so only if they clearly and precisely demonstrated the existence of a consensus to that effect in relation to jurisdiction clauses.
35. In the present case there is nothing in the certificates of insurance which expresses any such consensus. Even if it could be shown that they were applicable to the CMA storage cover, there would be no incorporation of the Hamburg jurisdiction clause from the Open Cover.
36. I therefore conclude that the effect of clause 1.10.3 of the Open Cover is to permit Tradigrain to commence proceedings in courts other than those of Hamburg, notwithstanding the reference to Hamburg jurisdiction in the Special Agreement in respect of section 127 of the ADS.
37. It is right to add that, but for the unchallenged views of Dr Drumm, I would have been reluctant to conclude that clause 1.10.3 had the effect which he ascribes to it as a matter of German law. I would have thought that it meant that the special agreements applied as between the insurers and the Assured only unless they were referred to in a certificate of insurance which had the effect of making them applicable as between the insurers and subsequent holders of the certificate to whom the Assured had assigned the benefit of the policy.
38. However, issues of construction of contracts governed by foreign law are to be decided on the evidence before the court. The unchallenged expert evidence of the application of the relevant body of law must be accepted unless the court is able to characterise it as obviously wrong. In this case, however, I am not able so to characterise Dr Drumm’s evidence on this point.
39. There is however another possible obstacle to the enforceability of the Hamburg jurisdiction provision against the claimants. That is the effect of Articles 12 and 12a of the Lugano Convention. Those Articles provide that the provision on jurisdiction in matters relating to insurance may be departed from only by an agreement on jurisdiction having at least one of the five characteristics specified in Article 12, including in particular, an agreement:

“5 which relates to a contract of insurance in so far as it covers one or more of the risks set out in Article 12a”

40. Under Article 12a the risks include:

“1. Any loss of or damage to:

(a) goods in transit other than passengers baggage where the transit consists or includes carriage by such ships .....”

(4) Any risk or interest connected with any of those referred to in points 1 to 3 above”.

41. The application of Article 12a 4 has been considered by the Court of Appeal in John Robert Charman and Mark E Brockbank v. WOC Offshore BV [1993] 2 Lloyd’s Rep 551. Staughton LJ. observed at page 557.

“For my part I do not accept that there must be a very close connection between the risk or interest in part (4) and that within parts (1) to (3). If that is what is meant by saying that the former must be accessory or ancillary to the latter, I do not agree with that interpretation. It seems to me inconsistent with the purpose of art 12(5) and art 12A.

As explained by Professor Schlosser, I take that purpose to be the creation of an exception to the mandatory rules for jurisdiction in insurance cases. The reason for the exception is that some people who take out insurance do not need the special advantage which is accorded to those with less economic power. It was not considered possible to define the class of people who did not need such protection, except by reference to the type of contracts which they entered into. Hence Art 12A. If somebody has sufficient economic power to be in that class and to make a contract of that type, but chooses to insure also for other risks or property connected in some way with the subject matter of marine insurance, it does not seem to me that he suddenly becomes a person in need of consumer protection.

There are of course other reasons given by Professor Schlosser for the special treatment of marine insurance. But in my opinion the reason summarised above was its main purpose. It is best served by adopting a liberal or generous interpretation of art 12A(4) and not the narrow meaning which the owners contend for in this case. I would however say that the extra risks or interests covered by par, (4) must not be disproportionately large compared with those covered by pars (1) to (3). They must not be the main or almost the main subject matter of the contract, but a lesser part of it. The tail must not be allowed to way the dog, or an insurance on land-based property to be converted into an insurance within art 12A by the inclusion of some trivial marine risk.”

42. Applying that approach to the present case, the relevant contractual structure involves a cluster of separate declarations to the Open Cover. These declarations were made in respect of marine risks for each shipment. It is clear from the wording of the certificates of insurance that these documents were intended to evidence marine transit cover only and not the CMA storage cover. The latter was not the subject of those certificates. It was evidenced by the confirmation issued by Aon under cover of its 8 December 1999 fax message to Tradigrain. It was further operated by means of separate declarations to the Open Cover and separately charged premium. However, as recognised by Staughton LJ. in Charman, at page 558L, there could be a contract of insurance for the purposes of Article 12a 4 which only fell into that category but did not qualify under categories 1, 2 or 3, the important criterion being the nature of the risk or interest and the strength of its connection with risks or interests within the first three categories. In view of this possibility there is much to be said for the view that a separate insurance contract covering the CMA storage risks is sufficiently closely connected to the anterior marine cover. It was connected to marine transit cover in the sense that it covered the goods after they had ceased to be covered by the marine cover but prior to the commencement of their availability to the buyer. Although it was a separate land storage cover facility designed exclusively to protect the interest of Tradigrain in the goods already discharged as unpaid seller and not as shipper, it provided cover for part of the transaction of shipment and sale, albeit the part did not involve carriage by sea. It is also pertinent to note that in the confirmation issued by ITS to Tradigrain the Scope of Coverage is described inter alia as “All risks as per Institute Cargo Clauses (A) (or if requested Institute FOSFA Trades Clauses (4))”.
43. Accordingly, I conclude in relation to Articles 12 and 12a of the Lugano Convention that their effect is to permit the parties to the CMA cover to agree to depart from the jurisdictional regime prescribed by Article 8, provided that they do so by effective means. The Hamburg jurisdiction clause could therefore be effectively incorporated. However, this does not assist the defendants as to Hamburg jurisdiction because the confirmation of CMA cover contained no effective words of incorporation and, even if that clause were incorporated, it could, according to the evidence of Dr Drumm, be invoked only by the Assured.
44. I must now consider the effect of the various conditional jurisdiction clauses.
45. The marine insurance certificates contain on their face a provision quoted above to the effect that if the terms of the sale contract provide that legal proceedings on the policy should be available in the British courts, the insurers accept such jurisdiction and that the stated address will be the address for service.
46. It is submitted on behalf of Tradigrain that, in so far as the dispute concerns loss of oil sold subject to FOSFA 54 terms, since clause 5 (quoted clause) of those terms provides for insurance with underwriters and/or companies who are domiciled in UK or accept a British domicile for the purposes of any legal proceedings, the English courts have jurisdiction over all the defendant insurers.
47. The problem which confronts this submission is that, although much if not the whole of the oil in question was sold on FOSFA 54 terms, the marine cover to be provided for under the applicable sale contract, whether under the Institute Cargo Clauses (A) or the FOSFA Trades Clauses (A), was to terminate upon delivery to a warehouse at the port of discharge, either for storage by the Assured otherwise than in transit or for allocation or distribution. It was only at that point of time that the CMA storage cover commenced and in respect of that cover FOSFA 54 introduced no insurance cover requirements. Accordingly, in my judgment, none of the conditional insurance clauses based on the requirements of the sale contract has any application to the terms of the CMA cover.
48. The same conclusion must result in respect of the similar conditional jurisdiction clause in the Special Agreements section 127 in the Open Cover.
49. As to the jurisdiction clause printed on the reverse of the certificates of insurance quoted above, claims in respect of which the court of jurisdiction is identified are claims in relation to the cover evidenced by the certificates of insurance, that is to say the marine cover. Since the certificates do not evidence cover in respect of the CMA storage, this clause has no application to jurisdiction over disputes as to that cover.
50. I therefore conclude that nothing in the certificates of insurance or in the Open Cover as such amounted to a submission by the defendant insurers to the jurisdiction of the English courts.
51. I must now consider the effect of clause 5.3.2 of the Open Cover. This bears only on the 22nd defendant. In essence the defendants argue that the effect of this provision, which although not a jurisdiction clause has jurisdictional consequences, is to require the Assured to sue only the Leading Underwriter and to prohibit proceedings against members of the following market except in so far as expressly provided for having regard to the amount claimed.
52. The effect of clause 5.3.2 has to be ascertained by reference to German law, the governing law of the Open Cover. The purpose of this provision is explained by Dr Bartels, the defendant insurers’ German law expert in paragraphs 10 to 13 of his first witness statement.
53. His evidence is that, whereas the second paragraph of clause 5.3.2 is similar in substance to Article 9.4.2 of the ADS terms, the first and second paragraphs, which are commonplace in contracts of this kind in Germany, have been inserted to reflect the effects of the costs regime applicable in the German courts. Thus, the requirement to sue the leading underwriter for his proportion of the risk is designed to limit the fees and the court costs which in Germany are calculated by reference to the amount of the claim.
54. The third paragraph is directed to the financial floor on appeals to the German Supreme Court. The appellant must have been obliged to pay at least DM 60,000. In order to enable the appellant assured to show that more than that sum is in issue he is given the facility of departing from the leading underwriter only requirement and permitted to sue sufficient of the following market to qualify for an appeal.
55. Whereas it may be possible to apply the first and third paragraphs to proceedings outside Germany, for example, in the English Courts, the third paragraph introduces procedural requirements which could not necessarily be accommodated outside Germany, in particular in the English courts. Accordingly, it is necessary to investigate how the German courts would answer the question whether the scope of the obligation imposed by clause 5.3.2 is such as to extend to proceedings outside Germany, for example where the proviso to the Hamburg jurisdiction clause indicates that claims should be brought in the English courts.
56. The only evidence of the attitude of the German courts to the scope of clause 5.3.2 is to be found in the witness statement of Mr Evagora, a partner in Richards Butler, the Claimants’ solicitors, who in paragraph 27 states as follows:

“The clause provides that in relation to this policy ‘the Assured shall enforce his claim by filing an action solely against the leading Underwriter up to his participation of the policy’, and states that the co-insurers shall accept any decision against or settlement agreed by the leading underwriter as binding on themselves. Dr Schackow & Partner have informed me that, as Dr Bartels describes at paragraphs 10 to 13 of his first statement, this provision relates to German procedural requirements whereby fees and costs are calculated by reference to the sums in dispute. However, the clause is not a jurisdiction clause and, if applicable to the claimant’s claim, would only be of relevance if this matter were to proceed in the German courts. This is consistent with the reference on the back of the insurance certificates to the courts where the head offices of the insurers are situated also having jurisdiction.”

57. In his letter of 15 October 2001 Dr Drumm, the claimant’s German law expert stated that he could “confirm that the meaning of the provision referred to (clause 5.3.2, first paragraph) (was) correctly related” in paragraph 27. The effect of this evidence, which was not challenged in Dr Bartels’ statement of 30 October 2001, appears to be that, as a matter of German law, the whole of clause 5.3.2 including the first paragraph would be inapplicable to proceedings against the underwriters outside Germany.
58. Accordingly, as a matter of German law, if, as I have concluded, the claimants were not bound to commence proceedings in Germany in particular in Hamburg, they were not confined to proceedings only against the leading underwriter.
59. It is also argued by Mr Moriarty QC, on behalf of the claimants, that clause 5.3.2 should be construed as applicable only to German proceedings as a matter of the construction of the words used against the background of German procedure described by Dr Bartels. That argument is addressed by reference to English law principles of construction, in particular those express by Lord Hoffman in Investors Compensation Scheme v. West Bromwich Building Society [1998] 1 WLR 896. I have already held that the third paragraph of clause 5.3.2 would be inapplicable in English proceedings. There is, however, no reason why the first and second paragraphs should not be applicable to English proceedings and there is nothing in the proviso to the Hamburg jurisdiction clause which necessarily suggests that claims may not be brought in the first instance against the leading underwriter alone: that more than one writ is contemplated is not inconsistent with that, for the following market may have to be sued to enforce a judgment already obtained against the leading underwriter.
60. In these circumstances, notwithstanding the evidence of the procedural background to clause 5.3.2, I conclude that it would be taking principles of construction much further away from the precise words used than is permissible on the English authorities to hold by reference to English law that there is to be implied into that clause the words “where the Assured commences proceedings in the German courts ...”. Since this is a German law contract and there is evidence of German law the English construction approach is in any event impermissible.
61. Finally, it is argued on behalf of the claimant that clause 5.3.2 applies only to disputes between the cover-holder, ITS, and the underwriters and not to disputes arising between holders of certificates, such as Tradigrain, in respect of goods declared to the open cover. This argument is, in my judgment, quite unsustainable. There is nothing in the wording of the Open Cover so to confine the application of the clause and no commercial reason strong enough to lead to that restrictive construction by implication. Neither of the experts on German law suggests that its meaning should be so confined.
62. In the event, I conclude that the claimants are not in breach of the contracts of insurance in respect of CMA storage cover by commencing proceedings against the 22nd defendant in the English courts.
63. However, there being no agreement to refer disputes arising under the CMA storage cover to the English courts, the claimants are, by reason of Article 8 of the Lugano Convention, entitled to sue each of the other insurers under the Open Cover only in the courts of the insurers’ domicile if those insurers are domiciled in a contracting state. Thus, SIAT, the leading underwriter, can be sued only in Italy and the only defendant underwriter that can be sued in the English courts is the 22nd defendant, that being the only defendant domiciled in England.
64. It follows that the application by the 1st to the 21st defendants and the 23rd to the 29th defendants for a declaration that this court has no jurisdiction to try the claim against them succeeds and that the application of the 22nd defendant for a stay of these proceedings against it is refused.
65. In the course of the hearing no little time was devoted to the issue whether the underlying sale contracts between Tradigrain and Lanyard/Schweta were on terms which incorporated FOSFA Form 54 and in particular whether they or some of them were on C and F, CIF or FOB terms. This investigation, for the purpose of which the parties had assembled some detailed evidence, was relevant to the issue whether the various conditional jurisdiction clauses were triggered by a requirement in the sale contracts that insurance should be effected on terms by which the insurers accepted English jurisdiction. In view of my conclusion that the certificates of insurance in respect of the marine cover and the FOSFA terms have no application to the CMA storage, it is unnecessary to resolve the complicated issues relating to the terms of sale and I express no view on these issues.
66. Similarly, in view of the fact that I have concluded that in commencing proceedings against the 22nd defendants in the English courts the claimants were not in breach of the terms of the Open Cover, it is unnecessary to express any concluded view on whether, had such breach been established, it would have been appropriate for my discretion to have been exercised in favour of granting a stay of these proceedings in favour of the 22nd defendants. However, in view of the evidence of Dr Drumm, the claimants’ German law expert, that the German courts would be likely to stay any negative proceedings commenced by the other defendant insurers in the German courts on the grounds that the English court was first seized of related proceedings for the purposes of Article 22 of the Lugano Convention and because the issues likely to arise in the substantive proceedings relate to the meaning and application of English law policy terms, such as the Institute Cargo Clauses, as distinct from German insurance law, I should have been highly unlikely to grant a stay as against the 22nd defendants.
67. In conclusion, it is right to say that the issues on jurisdiction to which this application has given rise are inordinately complex and their resolution has given rise to very considerable expense to the parties and no little delay and in the result has produced undesirable procedural dislocation. I would urge Tradigrain, the leading underwriters and the following market urgently to make a serious effort at least to resolve the jurisdictional position by an ad hoc agreement so as to minimise cost and further delay. In the meantime, on the occasion when this judgment is handed down I shall give case management directions as between Tradigrain and the 22nd defendants and discuss with counsel at what point in the procedural timetable it would be appropriate for an ADR order to operate.