England and Wales High Court (Commercial Court) Decisions

American Motorists Insurance Co. (Amico) v Cellstar Corporation & Anor [2002] EWHC 421 (Commercial) (15th March, 2002)

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Neutral citation number: [2002] EWHC 421 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		15th March 2002

Mr Justice David Steel :

1. The claimant (“AMICO”) is a US insurance company that uses the name Kemper as a trading name. It is incorporated in Illinois but is authorised to conduct insurance business in Texas. The first defendant (“Cellstar”) is a US company which provides wireless communication equipment such as mobile telephones throughout the world. It is incorporated in Delaware but its principal place of business is in Texas. The second defendant (“CUK”) is an English company operating out of Manchester, one of many subsidiaries of the first defendant.
2. The claimant seeks declaratory relief to the effect that it has no liability to either of the defendants under a contract of insurance in respect of claims for the loss of two shipments of mobile phones made by the second defendant. The first defendant seeks to set aside service of the English proceedings. Both defendants seek a stay of the action.
3. The insurance contract was entitled a “Global Transportation Policy”. The named assured was “Cellstar Corporation and its Subsidiaries” of Carrolton, Texas. It covered cellular phones when “in transit in the care and custody or control of the carrier”. The policy was broked by Messrs Henley Williams & Associates Insurance Agency, of Houston, Texas (“HWA”) and was issued by AMICO / Kemper at Houston, Texas, on the 1^st December 1999.
4. The minimum deposit premium was calculated by reference to prospective sales operations in seventeen countries. An endorsement to the policy gave particulars. Of these countries, eight were in the Americas (Argentina, Brazil, Columbia, Chile, Mexico, Peru, Venezuela and the United States), five in the Far East (China, Hong Kong, The Philippines, Singapore and Taiwan) and the remaining four in Europe (the Netherlands, Poland, Sweden and the UK). The schedule to the policy indicates that five of these countries were expected to account for 75% of the sales (Brazil, China, Mexico, UK and the US).
5. It is the claimant’s case that the policy was subject to Valuation Warranties by virtue of the same endorsement to the policy:

“VALUATION WARRANTIES

The following WARRANTIES are made as part of this policy for values more than $10,000 in any one shipment:

1. You must declare the full valuation of the property insured, and pay valuation charges thereon, to the “carrier”, freight forwarder, warehouseman and any other third parties.

2. You must obtain and retain a current Certificate of Insurance from the “carrier”, freight forwarder, warehouseman or any other third party evidencing coverage of their legal liability.

3. The Certificate of Insurance from the “carrier”, freight forwarder, warehouseman or any other third party evidencing that party’s legal liability must show a limit of coverage for at least the amount of the value of the property insured. This Certificate of Insurance must include coverage for Theft, including Theft of property in unattended vehicles, regardless of whether the vehicle was locked or there are any signs of forced entry.

If you fail to comply with any of these WARRANTIES we reserve the right to void any coverage for “loss” that would have otherwise been covered. ”

6. The shipments in question were both made in March 2000. CUK consigned them both to Kuehne & Nagel Ltd (K & N), acting as freight forwarder, for delivery to customers elsewhere in Europe. It is the defendants’ case that CUK sought to recall these shipments on receipt of an anonymous warning that there would be a loss in transit. However the first consignment had already been released by K & N in response to instructions that, on the defendants’ case, were forged. The second consignment was returned, but it transpired that inferior value telephones had been substituted. A total loss is put forward in the sum of about £1 million.
7. The claimant rejected the claims on the grounds that the valuation warranties had not been complied with. The defendants deny that these warranties attached to the policy. In the alternative they assert that the warranties were complied with. For the purposes of the present hearing, there is no call for further examination of the merits of these issues save to say that on the facts the claimant clearly has a good arguable case albeit the impact may well depend on the governing law of the insurance contract.
8. Following rejection of the claim, CUK issued proceedings against K & N in this court, claiming an indemnity. The following day, on the 9^th February 2001, the US attorneys acting for both CUK and Cellstar wrote to the claimant’s US attorneys demanding payment under the policy within ten days. AMICO’s reaction was to issue the claim form in this action on the 15^th February 2001. In response, Cellstar filed a petition in the County Civil Court of Dallas County, Texas claiming damages from AMICO for failure to settle CUK’s claims and, in the alternative, damages from HWA for negligence in the procurement of the insurance cover.
9. Although AMICO filed a motion to stay the action in Texas on 7^th May 2001, it does not appear to have been pursued. To the contrary, on 6^th June, AMICO filed a third party complaint in the Texas action, joining CUK and K & N as “necessary” parties. Thereafter, Cellstar amended its claim to add a further 24 claims by various other subsidiaries under the insurance contract for which liability had been declined either by reference to the valuation warranties or on the basis that the loss was not shown to have occurred in transit. These additional claims concerned shipments in transit in the US, Venezuela, Switzerland, France, Germany, the UK, China, the Netherlands, Denmark, China, Peru and Mexico. Notably, at a later stage AMICO commenced a further action against Cellstar in the District Court for the Southern District of Texas seeking recovery of a balance of premium.
10. In the meantime, AMICO had sought leave to serve the present claim form out of the jurisdiction on Cellstar. The grounds in support of the application were that AMICO had a good arguable case: -

a) That the insurance contract was governed by English law,

b) That a breach of contract had been committed within the jurisdiction by virtue of the alleged non compliance with the valuation warranties,

c) That Cellstar was a necessary or proper party to the claim against CUK.

11. Leave was granted on 15^th June 2001. The defendants’ application to set aside and/or stay the proceedings was issued on 24^th August 2001. The only significant event in either set of proceedings occurring thereafter was that, on 18^th October 2001, AMICO filed requests in the Texas proceedings for production of documents by both Cellstar and CUK. Disclosure has been made in response (although there is a dispute as to its adequacy).

Choice of Governing law

12. It is common ground that the crucial threshold issue is the question of the governing law of the insurance contract. In the absence of a choice made by the parties, questions arise either under the Rome Convention scheduled to the Contracts (Applicable Law) Act 1990 or under the Directive on Non-life Insurance scheduled to the Insurance Companies Act 1982, the identification of the relevant statutory provisions depending on whether the contract covers risks situated within or without a Member State of the European Community.
13. Nonetheless, wherever the risks are situated, it is open to the parties to choose any law for the governing law of the contract: see Insurance Companies Act, Schedule 3 (A), Paragraph 1 (1) and 1 (6) and the Rome Convention, Article 3 (1). Where, as here, no choice is actually expressed, the choice must be “demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case.”
14. Whilst the commentary in the Giuliano & Lagarde Report on the Convention contains some examples of where a “real” choice might be demonstrated (e.g. the use of a standard form associated with a particular legal system, a previous course of dealing with an express choice of law, a choice of a particular forum and so on), the examples do not encompass the present case.
15. It was the defendants’ submission that the parties had demonstrated a real choice of Texas law. They relied on the following matters:-

a) The described assured was a parent company with an address in Texas which was its principal place of business.

b) The assured engaged a Texas agent to broke the policy.

c) The policy was issued by an insurance company that was authorised to do business in Texas.

d) The policy was issued in Texas.

16. The claimant asserts that these factors do not demonstrate a real choice. However in my judgment, the focus on Texas being the state in which the policy was negotiated and issued, as between an assured, who employed a Texas broker, and an insurer situated in Texas, does not just identify circumstances which demonstrate a close connection with Texas. Furthermore, in my judgment, it goes well beyond merely giving rise to an inference of the choice that the parties might have made. It is only consistent with Texas Law being the chosen governing law. This conclusion receives some significant support from Clause 25:-

“25. Time for suit. No suit or action for the recovery of any claim arising out of 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 if, by the laws of the State within which this policy is issued (emphasis added) 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.”

17. Accordingly, I conclude that the terms of the contract, taken with the general circumstances of the case, demonstrate with reasonable certainty that the parties made a real choice to the effect that the insurance contract should be governed by Texas law.

Situation of the risks

18. In case I am wrong with regard to that conclusion, I go on to consider the issue of the governing law on the assumption that the parties have made no choice. Contracts of insurance constituting general business which cover risks situated within the territory of the member state of the European Union entered into after the 1^st July 1990 are subject to the choice of law provisions laid down by the Second Directive on Non-life Insurance, as amended. This has been enacted within Schedule 3 A to the Insurance Companies Act 1982.
19. The relevant provisions are as follows:

“SCHEDULE 3A

[PART I

GENERAL BUSINESS]

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 member 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 policyholder 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….

Applicable law in the absence of choice

2. (1) ….

(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 exemption 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.”

20. Article 1 (3) of the Rome Convention provides that in order to determine whether a risk is “situate” in the territory of a Member State, the Court should apply its “internal law”. These rules are to be found within section 96A (3) (d) (ii) of the Insurance Company Act. The effect is that, where as here, the policy holder is not an individual but has an “establishment” in a Member State on a date when the insurance contract was entered into and the policy “relates” to that establishment, then the risk is deemed to be situated in the Member State where that establishment is situated.
21. The claimant’s argument was as follows:

a) CUK was a “policy holder”, either by virtue of being a party to the insurance contract and/or because a sum was due to it under the policy: see section 96 (1).

b) CUK had an “establishment” in a Member State (namely the UK).

c) The policy “relates” to that establishment, in that it covers risks arising from goods being in transit from that establishment.

d) The risk that gave rise to the claim in the present case was thus situated in a Member State.

e) Accordingly, there was a rebuttable presumption that the insurance contract was closely connected with the UK, being the State where the risk was situated.

f) That presumption could only be displaced by a close connection with the law of a country considered in the relevant sub-paragraphs of Schedule 3A. All these alternatives also identified English Law.

g) The contract was accordingly governed by English Law.

22. So far as it goes, I accept this analysis. But it focuses solely on the risk that eventuated in the present case (or at least those risks relating to only one of the subsidiaries of Cellstar). The Global Transportation Policy, as its name indicates, encompasses risks in many corners of the globe.
23. I have already analysed the scope of the transactions covered by the policy by reference to the sales figures on which the deposit premium was based. Only three of the countries concerned were within the EU (Netherlands, Sweden and the UK). Whilst the UK was the site of one of the largest operations, EU sales at that time were anticipated to represent only 20% of the total (although I recognise that there is some statistical material in the documents that the actual sales during the year gave rise to somewhat different proportions, particularly as regards the Netherlands).
24. This situation, where the risks are situated both within and without the EU, is addressed by the editors of Dicey & Morris: The Conflict of Laws (13^th. Ed) as follows at paragraph 33 - 126:

“One question which is not explicitly resolved in the Directives or in the implementing legislation is as to the applicable legal regime in a situation where a risk is situated both within and outside the territories of the European Communities. Further, a contract may cover two or more risks, one of which may be situated in a Member State, whereas the other or others may be situated in a different (non-Member) State. There is no obvious answer to this question. For reasons of convenience, it is obviously desirable to have one legal regime to determine the law applicable to the insurance contract: this might point to the conclusion that the risk should be regarded as situated in a Member State if it is principally or predominantly situated there and not otherwise. Another solution would be regard the contract as “severable” in such situations, so that the applicable law would be determined by reference to the Rome Convention in so far as the risk is situated outside the Member State but according to whichever other regime is relevant to the extent that the risk is situated within a Member State. This approach is somewhat artificial. Further, application of it may lead to inconsistent results as between (if such be the case) the different laws which may be found to govern the contract under the different regimes. And it may yield no result, for example, in the case of a policy which insures the life of an individual habitually resident in both Belgium and New York, the policy being void according to the law applicable to it under the Rome Convention. Perhaps, therefore, the most likely solution to this problem is that if the risk is “indivisible” (e.g. in the case of a policy on the life of an individual habitually resident in a Member State and a non-member State), then the contract may be severed so that the law applicable to the parts of the contract insuring each risk will be determined separately according to the regime which is relevant for each of them. This conclusion is at best, however, speculative.”

25. This analysis, which is expressly no more than speculative, does not deal with the present circumstances. The claimant submitted that the court was solely concerned with two specific EU risks. The existence of what were termed hypothetical risks in other EU jurisdictions or, more significantly, outside the EU altogether could be disregarded, so the argument ran, as being “divisible”. But the effect of this submission was to invite the court to sever the contract into seventeen separate contracts, determined according to the legal regime relevant to each of them. This outcome does not attract me for two particular reasons:-

a) A separation of this contract into a large number of different contracts is in complete contradiction to the concept of a global contract.

b) It gives rise to the potential for startling inconsistencies: the impact of the valuation warranties on the range of claims put forward in the Texas proceedings is one example: even more problematic would be the implications of non-disclosure or misrepresentation as regards the risks covered by, say, one of the 17 contracts.

26. I recognise the claimant needs to advance only a good arguable case. But on this issue I conclude that the defendants have very much the better of the argument. It is obviously more convenient that the contract should be governed by one legal regime. I agree with the defendants’ submission that the risks should only be treated as situated in a Member State if they are predominately so. On any view, the risks are predominately outside the United Kingdom, indeed outside the EU. Accordingly, the applicable law should, in my judgment, be determined by Article 4 of the Rome Convention.
27. Article 4 of the Rome Convention so far as material, reads as follows:

“Article 4 Applicable law in the absence of choice

1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.

2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. However, if the contract is entered into in the course of that party’s trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.

5. Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.”

28. I agree with the defendants that these provisions, if applicable, lead to the conclusion that Texas law was the governing law:-

a) The performance characteristic of a contract of insurance is the provision of insurance cover (see Credit Lyonnais v. New Hampshire Insurance Company [1997] 2 Lloyd’s Rep 1).

b) The claimant entered into the contract in the course of its trade.

c) The contract is deemed most closely connected with Texas being the country where performance was to be effected, albeit not in fact in the claimant’s principal place of business.

d) Accordingly, Texas law is the governing law.

e) In any event, Texas is the country with which the contract has the closest connection having regard to all the circumstances which have been outlined earlier in this judgment.

Appropriate forum

29. Against the background of my decision on the governing law, I turn to the issue as to whether England is the proper forum for the claim against CUK. (For this purpose I conclude that I am bound to proceed on the basis that there is jurisdiction to stay on the grounds of forum non-conveniens: cf. In Re. Harrods (Buenos Aires) Ltd [1992] Ch 72.)
30. In my judgment, a stay should be granted of the claim advanced against CUK:

a) Given the applicability of Texas Law, and the participation of the claimant in the Texas proceedings, the application for a negative declaration is not useful and thus not appropriate: Tiernan v. The Magen Insurance Company [2000] ILPr 517.

b) Indeed the only justification advanced by the claimant for instituting proceedings in England was that the Texas court would fail to apply English Law.

c) As regards convenience, the issue as to whether the valuation warranties were incorporated may be trumped by provisions of Texas law: but in any event, as the claimant is at pains to emphasise, those attending a meeting in Texas in November 1999 between the claimant, HWA and Cellstar, all of whom have US domicile, may be needed as witnesses.

d) Whilst the question of compliance with the warranties may raise issues on which some evidence from England might be required, essentially the issue is dependant on the documents.

e) The Texas proceedings are composite proceedings with HWA as a co-defendant, to which the claimant has joined CUK and K & N and in which a range of other claims are being advanced: cf. Donohue v. Armco Inc, [2001] UKHL 64, [2002] 1 all ER (Comm) 97.

f) The Texas proceedings are well advanced: discovery is underway: a trial date in September 2002 had been appointed.

31. I conclude that the defendants have demonstrated that Texas is clearly and distinctly the more appropriate forum. It is not suggested that the claimant will not obtain justice in Texas. The claim against CUK must be stayed. The service of proceedings on Cellstar must equally be set aside.