England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		21 November 2003

Mr Justice Andrew Smith:

1. The defendant in these proceedings, Musini Sociedad Anonima de Seguros y Reaseguros ("Musini"), applies for an order that the Court has no jurisdiction over the claim made by the claimants (to whom I shall refer as the "Reinsurers") and that the proceedings should therefore be set aside; and alternatively for an order under article 28 of Council Regulation no 44/2001 (the "Regulation") that the proceedings be dismissed or stayed. The application also indicated that Musini would seek a stay on the grounds that England is not the appropriate forum to determine the claim, but this argument is not pursued before me (although Musini reserve their position should the matter go further). The basis of Musini's applications are (i) that the relevant reinsurance contract made between them and the Reinsurers contained a jurisdiction agreement to the effect that claims relating to it would be heard in Spain, and (ii) that, these proceedings and proceedings brought against Musini in Spain being "related actions" under article 28, this Court may and should dismiss or stay this action.
2. This action was brought on 16 April 2003. The Reinsurers seek declarations that they are not liable to Musini as reinsurers of cover written for the Spanish football club, Real Sociedad de Fulbol SAD ("Real Sociedad"), in respect of personal accident and sickness of its players for a period from 5 December 2000 to 4 December 2001. A claim has been brought against Musini by Real Sociedad in respect of one of their players, Frederic Peiremans. Mr Peiremans, having played no competitive matches since September 2000 and having been taken off injured when he played in a friendly match in April 2001, retired from playing professional football in September 2001. In these proceedings, the Reinsurers claim (i) a declaration that they are entitled to avoid the reinsurance contract and have validly done so (the "avoidance claim"), and (ii) further and alternatively, a declaration that they are not liable under the reinsurance contract in relation to the claim concerning Frederic Peiremans (the "pre-existing condition claim").
3. The contractual background to the dispute is as follows: in December 1999, Musini wrote insurance (the "1999/2000 insurance") for Real Sociedad in respect of their players suffering personal accidents or sickness for a period of 12 months from 5 December 1999. They were reinsured as to 98% of the risk under a reinsurance contract (the "1999/2000 reinsurance") placed in the London market, the leading underwriter being CIGNA Re. The evidence is that Musini would not have contemplated underwriting the risk without such reinsurance. Musini wrote a second such policy (the "2000/01 insurance") for Real Sociedad for a period of 12 months from 5 December 2000, and took out reinsurance (the "2000/01 reinsurance") as to 98% of the risk with the Reinsurers.
4. The 1999/2000 reinsurance was a slip agreement, and no wording was produced. The terms of the slip included the following:

Type: Personal Accident Reinsurance

Form: Slip Reinsurance NMA 1779a plus wording as agreed by Leading Underwriter on 10 December 1999

…

Conditions: 1) Full reinsurance clause:-

Being a reinsurance of and warranted subject to the same terms and conditions (excluding limits and rates) as and to follow the settlements of the Reassured.

The above full reinsurance clause is amended to include the following claims Control clause:

2) It is understood and agreed that the Reinsurers shall have the sole control of the adjustment, negotiations and settlement of all claims.

It is further agreed that:

(a) the Reinsured upon being advised of any claim(s) or of any possible claim(s), or upon their being advised of any situation likely to result in any claim(s), shall give immediate notice thereof to the Reinsurers,

(b) the Reinsured shall furnish the Reinsurers with all information and papers in connection with such claim(s) and co-operate in the settlement, negotiation and adjustment thereof.

3) 24 hour cover including Flight risk and Hijacking, as original.

…

5) Pre existing conditions exclusion clause, as Original."

5. The 2000/01 reinsurance was also a slip agreement. Its terms included the following:

"Form: Slip Reinsurance NMA 1779a

…

Conditions: 1) Full Reinsurance Clause:-

Being a reinsurance of and warranted subject to the same terms and conditions (excluding limits and rates) as and to follow the settlements of the Reassured.

The above full reinsurance clause is amended to include the following Claim Control Clause:

It is understood and agreed that the Reinsured shall have the sole control of the adjustment, negotiations and settlement of all claims.

It is further agreed that:

(a) the Reinsured upon being advised of any claim(s) or of any possible claim(s), or upon their being advised of any situation likely to result in any claim(s), shall give immediate notice thereof to the Reinsurers;

(b) The Reinsured shall furnish the Reinsurers with all information and papers in connection with such claim(s) and co-operate in the settlement, negotiation and adjustment thereof.

2) 24 hour cover including flight risk, as original.

…

4) Pre existing conditions exclusion Clause, as Original."]

…

6. The wording referred to in the 1999/2000 reinsurance slip and agreed by the leading underwriter on 10 December 1999 (and it will be observed that there was no comparable reference in the 2000/01 reinsurance slip) was a translation from the Spanish prepared by the brokers, Willis Faber and Dumas Limited ("Willis Faber"), of conditions of the underlying insurance. It was initialled by the leading underwriter, and included the following:

i) A term headed "24 hour risk", referred to in the reinsurance slip, that Musini should cover any accident in either professional or private life.

ii) A term headed "Pre-existing Conditions", excluding cover "in the event of death or permanent total disablement arising from, traceable to or accelerated by a pre-existing condition", subject to an exception if a duly completed proposal form and a medical report had been presented.

iii) Under the heading Special Conditions at article 17, a jurisdiction clause in these terms: "If any or both of the contracting parties decide to bring action before the Courts, this should be made before the Court with jurisdiction over the Policy Holder's Address in Spain, this being the only competent court to hear actions arising from this insurance contract, as long as it reside in the Spanish territory. In any other situation, the Court with jurisdiction over the Insurer's address shall be the only competent (sic)".

7. According to a witness statement of Mr Luis Castellanos, Musini's manager of the Northern Zone of Spain, the 1999/2000 insurance also included, at article 15 of the "policy wording", a simultaneous payments clause whereby it was agreed that Musini would be obliged to meet its obligations when it had received payment from its reinsurers for the reinsured proportion of the risk. This is not article 15 of the conditions initialled by the leading underwriter: it is apparent that the 1999/2000 insurance included other conditions which are not in evidence.
8. Further, perhaps more surprisingly, the 2000/01 insurance contract is not in evidence. However, it included the following terms:

i) A jurisdiction clause which (according to Prof Dr Juan Sanchez-Calero Guilarte, a Professor of Commercial Law at the Complutense University at Madrid and a practising Spanish lawyer, who gave expert evidence for Musini) reads as follows in translation: "Competent Jurisdiction. The Competent Judge to hear any claims under the Policy will be the judge of the domicile of the Insured in Spain, notwithstanding any agreement to the contrary. Should the Insured have its domicile in another country, it will be required to nominate a domicile in Spain for the purposes of this article."

ii) A simultaneous payments clause and a pre-existing conditions clause similar to those of the 1999/2000 insurance.

I was invited by Mr S J Phillips, who represented Musini, to assume that otherwise the 2000/01 insurance was in similar terms to the 1999/2000 insurance. I do not find that an easy assumption in view of the differences which are apparent: the jurisdiction clause not only had different wording but was found at article 13 of the General Conditions in the later policy whereas it was article 17 of the Special Conditions in the 1999/2000 insurance. In any event, it is not necessary to my decision to draw any inference about the other terms of the 2000/01 insurance.

9. By a claim dated 27 March 2003, which was filed on 1 April 2003, Real Sociedad brought proceedings in the Court of San Sebastian against Musini, making a claim for E3,606,072.63 (including interest) under the 2000/01 insurance on the basis that Frederic Peiremans was permanently incapable of playing football. Cover in respect of Mr Peiremans had been added to the 1999/2000 insurance in about August 2000, and was included in the 2000/01 insurance. In their claim Real Sociedad, referring to the pre-existing condition exception, cited medical evidence that the injury causing the player's disability was not related to an earlier injury that he had suffered, and stated that he suffered an injury "separate from the one he had at the start of the agreement". They also claimed that his condition was disclosed to Musini.
10. In their response made on 20 May 2003, Musini disputed both these points. Musini also raised a procedural issue of "litisconsorcio pasivo necesario", a complaint that the proceedings were not properly constituted because the necessary parties, including the Reinsurers, had not been joined. Further, Musini requested that there should be the "provoked intervention" (compulsory intervention) of the Reinsurers (and others), or alternatively that the proceedings be notified to Reinsurers (and others) so that (as I infer) they could apply to be joined if they wished to do so.
11. At a preliminary hearing on 15 July 2003, the Judge rejected Musini's complaint of "litisconsorcio pasivo necessario" and the application for "provoked intervention". She did, however, agreed to notify the Reinsurers (and also Mr Peiremans and the brokers) of the proceedings. She also said that the rejection of Musini's application did not mean that Musini could not bring separate proceedings against the Reinsurers. On 4 November 2003, the Court set out the reasons that it rejected the "litisconsorcio" argument. Musini was given permission to file a "revision appeal". The trial of the Spanish proceedings is scheduled for 4 February 2004.
12. Is there a relevant agreement between Musini and the Reinsurers that disputes should be determined by the Spanish court? The Reinsurers say that there is not. Musini say that, in view of the full reinsurance clause and the commercial background, the parties are to be understood to have agreed to Spanish jurisdiction, and so, under article 23 of the Regulation, the Spanish Court have exclusive jurisdiction over this dispute and this Court has no jurisdiction. Article 23 provides that "If the parties … have agreed that the Court or the Courts of a Member 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 jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either:-

(a) in writing or evidenced in writing; or

(b) in a form which accords to practices which the parties have established between themselves".

13. It is convenient first to set out what is not in dispute:

i) Musini's domicile is in Spain, and so prima facie under the Regulation proceedings against them are to be brought in Spain.

ii) The claim of the Reinsurers is a matter "relating to a contract" within the meaning of article 5 of the Regulation, and as far as the avoidance claim is concerned, the place of performance of Musini's obligation to make a fair presentation of the risk was England: Agnew v Lansforsakringsbolagens, [2001]AC 223. Accordingly, in the absence of a relevant jurisdiction agreement, these proceedings are properly brought in the English Court.

iii) The question whether there is a relevant jurisdiction agreement is, so far as is relevant, determined not by the proper law of the contract, but by community law.

14. I was referred to a number of cases in which the Courts have considered whether the parties had made an effective jurisdiction agreement. The starting point is, of course, the decision of the European Court in Salotti v RUWA Polstereimaschinen GmbH, [1976] ECR 1831 in which it was said that "Article 17 [of the Brussels Convention] imposes on the court before which the matter is brought the duty of examining, first, whether the cause conferring jurisdiction upon it was in fact the subject of a consensus between the parties, which must be clearly and precisely demonstrated" (at p.1841, para 7).
15. Musini submits that that the parties to the 2000/01 reinsurance slip did reach a consensus that they should confer jurisdiction upon the Spanish Court because, through the full reinsurance clause, they reached a consensus upon the terms of the 2000/01 insurance, including the jurisdiction clause agreed between Musini and Real Sociedad. In Siboti v BP France, [2003] EWHC 1278, [2003] 2 Lloyd's Rep 364 at para 40, Gross J set out the following principles (among others) about the incorporation of jurisdiction clauses through reference to a body of terms. I gratefully adopt his formulation of them:

i) Community law recognises the validity of incorporation by reference, provided that the body of terms to be incorporated is clearly identified and whether or not it was available to the parties at the time of entry into the contract.

ii) For the purposes of article 23, Community law, like English law, regards jurisdiction clauses as ancillary to the substantive provisions of the contract. In many cases, general words of incorporation would only suffice to incorporate terms germane to the subject matter of the contract and not terms ancillary thereto; the reason is that in the absence of specific language, the Court may not be able to conclude that the parties have demonstrated clearly and precisely the existence of a consensus to incorporate clauses which are ancillary to the subject-matter of the contract.

iii) While in Community law, the language of the contract is emphasised rather than extrinsic factors, this does not entail ignoring the commercial background; to the contrary, in each case the Court must construe the language of the contract in context and inquire whether a consensus on the subject matter of the jurisdiction clause has been clearly and precisely demonstrated. It was, however, to be kept in mind that the commercial background could not always be relied upon to make good deficiencies on the language which the parties had chosen to use.

16. The full reinsurance clause does not expressly refer to the jurisdiction clause in the 2000/01 insurance, and the clause is not germane to the subject matter of the contract but ancillary thereto. Mr Phillips nevertheless invites me to conclude in view of the terms of the 2000/01 reinsurance slip and the commercial background (and in particular the fact that Musini were, as Mr Phillips submits, "a front", with the Reinsurers bearing the real financial risk) that Musini has sufficiently demonstrated a consensus between the parties to the 2000/01 reinsurance slip that their agreement should be subject to the jurisdiction clause in the 2000/01 insurance.
17. First, Mr Phillips relies upon the fact that the full reinsurance clause not only provides that the contract is subject to the terms and conditions of the 2000/01 insurance, but also contains a warranty that it is subject to those terms and conditions; and argues that it is therefore clear that the Reinsurers were promising that reinsurance was subject to the terms of the insurance. I doubt whether, properly interpreted, the full reinsurance clause does contain such a warranty on the part of the Reinsurers, being inclined to think that the proper interpretation of the clause is that stated by Mr Longmore QC arguendo in Vesta v Butcher, [1989] AC 852, 887C/D thus: "The true meaning of this provision is that in consideration of the reinsured agreeing that the terms of the original contract of insurance should be incorporated in the contract of reinsurance … reinsurers agree to accept and follow the settlements made by his reinsured". More importantly, the fact that there was a warranty in the reinsurance contract that terms would be the same as those of the insurance does not assist an argument that the parties intended to incorporate not only terms germane to the subject matter of the insurance but also ancillary provisions.
18. Secondly, Mr Phillips relies upon the express exception from the full reinsurance clause of "limits and rates" to argue, on the basis of expressio unius est exclusio alterius, that the jurisdiction clause was incorporated. There are three answers to this point:

i) Mr Phillips' argument was undermined when he (necessarily) accepted that not all terms of the 2000/01 insurance other than those relating to limits and rates were incorporated into the reinsurance.

ii) Secondly, the 2000/01 reinsurance slip expressly incorporated from the 2000/01 insurance the 24 hours cover and the pre-existing provisions clauses. The Reinsurers could therefore point out that similarly it could be argued that the express reference to those terms indicated that not all other terms of the insurance contract were incorporated into the reinsurance slip through the full reinsurance clause.

iii) Thirdly, the express exclusion of limits and rates is an exclusion of matters germane to the subject matter of the contract. Even if the exclusion could be used to advance an argument of expressio unius est exclusio alterius as to other terms so germane, it cannot apply to ancillary matters such as the jurisdiction agreement.

19. Next, Mr Phillips argues that, because the leading underwriter writing the 1999/2000 reinsurance initialled the insurance wording, it is to be inferred that the intention was to incorporate the jurisdiction clause into the 1999/2000 reinsurance, and that, since such changes as were made upon renewal of the reinsurance are apparent from the 2000/01 slip (for example, the changes relating to claims control), the inference is that the parties to the 2000/01 reinsurance contract did not intend to change the agreement that the Spanish Courts should have jurisdiction over disputes. I cannot accept this argument:

i) First, I do not infer from the fact the CIGNA Re initialled the wording that the 1999/2000 reinsurers intended to adopt ancillary provisions from the insurance contract, specifically the jurisdiction clause.

ii) Secondly, the jurisdiction agreement in the 2000/01 insurance was different from that in the 1999/2000 insurance. This undermines the argument that it is to be inferred that the parties to the 2000/01 reinsurance intended that the jurisdiction agreement should remain unchanged.

iii) Thirdly, CIGNA Re did not lead, or even subscribe to, the 2000/2001 reinsurance, and their agreement to terms in the previous year does give a "clear and precise" indication as to the intention of the parties to the 2000/01 reinsurance contract.

20. Finally it is argued that, because the subject matter of the reinsurance was a Spanish risk, the commercial context of the 2000/2001 reinsurance suggests, in the absence of an express jurisdiction agreement, that the parties intended the Spanish courts to have jurisdiction over any disputes. I do not agree. Indeed, it seems to me, if anything, more natural to suppose that parties to reinsurance underwritten in the London market would more probably expect litigation to be in the English courts. In any event, I do not consider that the commercial background can properly be deployed in this way.
21. In order to defeat Musini's application, the Reinsurers must make out a good arguable case that the English court has jurisdiction under article 5(1) of the Regulation and that there is no jurisdiction agreement that the courts of Spain should have jurisdiction; and in a case such as this, in order to satisfy the flexible test of "good arguable case", the Reinsurers must, in my judgment, show that their argument would be highly likely to succeed if the question were tried: I P Metal Ltd v Ruote OZ SpA, [1993] 2 Lloyd's Rep 60 at p.63: Evialis v SIAT, [2003] EWHC 863, [2003] 2 Lloyd's Rep 377 at para 70. I conclude that they have done so. Indeed, despite Mr Phillips' ingenuity, I consider Musini's contentions on this point to be barely arguable.
22. I add that I see force in criticisms which have been made of adopting the criterion of a "good arguable case" on the question whether the parties have made an effective jurisdiction agreement: see Briggs and Rees in Civil Jurisdiction and Judgments 3^rd Ed (2002) at p.215. However, I need not consider these criticisms further. I would have emphatically rejected Musini's application had I decided the question on the balance of probabilities.
23. Musini's alternative application is that these proceedings should be dismissed or stayed under article 28 of the Regulation, which reads as follows:

"1. Where related proceedings are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings.

2. Where these actions are pending at first instance, any court other than the court first seised may also, on the application of one of the parties, decline jurisdiction if the court first seised has jurisdiction over the actions in question and its law permits consolidation thereof.

3. For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.

24. It is not disputed that the Spanish proceedings were brought before this action and that the Spanish court was first seised. Nor have the Reinsurers argued that the Spanish court does not have the relevant jurisdiction or that the law of Spain does not permit "consolidation" of the actions within the meaning of article 28. The issues between the parties are whether the proceedings are "related actions" and whether this Court should exercise its discretion to dismiss or stay these proceedings. I consider these questions bearing in mind that "there should be a broad commonsense approach to the question whether the actions in question are related, bearing in mind the objective of the article, applying the simple wide test set out in article [28] and refraining from an over-sophisticated analysis of the matter": Sarrio SA v Kuwait Investment Authority, [1999] 1 AC 32 at p.41F per Lord Saville.
25. When the application was opened before me, Mr Phillips accepted that the avoidance claim was "no part of the existing Spanish proceedings" and his argument was that "The material factors rendering these actions related therefore arise from the [Reinsurers'] secondary case, by which it places reliance on the incorporation of the Pre-Existing Conditions clause from the underlying wording". In response, Mr Masefield sought to argue that his clients' pre-existing condition claim did not give rise to a risk of irreconcilable decisions because the essential question in the Spanish proceedings is whether the medical report disclosed to Musini gave them sufficient notice of the player's condition. This was no answer to Musini's argument. Although one question in the Spanish proceedings is whether proper disclosure was made, the question whether the player's disability results from a pre-existing condition is also in issue.
26. During the course of the hearing, therefore, I expressed the view that since the 2000/01 reinsurers were relying upon the pre-existing condition clause in the reinsurance slip, there was a real risk of inconsistent decisions in the Spanish proceedings and in this action, and that injustice might be done to Musini if the Spanish court were to find that the player's disability did not result from a pre-existing condition and this court reached the contrary conclusion. I therefore indicated a provisional view that there was a "risk of irreconcilable judgments resulting from separate proceedings", that these proceedings and the Spanish proceedings were "related actions" within the meaning of article 28, and that it would be wrong for this action to proceed. Mr Masefield took instructions and told me that the Reinsurers offered the court an undertaking not to pursue the pre-existing condition claim and to confine themselves to the avoidance claim; and to seek permission to amend their pleading accordingly.
27. This answered the case as originally presented by Musini. However, Mr Phillips then put forward a new argument that the avoidance claim gives rise to the risk of irreconcilable judgments from this court and the Spanish court. This is said to arise from the Reinsurers' complaint that, when presenting the risk, Musini did not disclose what they knew of Mr Pieremans' condition from the medical proposal that they received from Real Sociedad when cover relating to the player was added to the risk in about August 1990. Therefore, it is argued, Mr Pieremans' medical condition will have to be investigated in both these proceedings and the Spanish proceedings, and there is a consequent risk that the two Courts will reach different conclusions about it. I must therefore consider whether there is such a connection between the avoidance claim and the Spanish proceedings, and such a risk of irreconcilable judgments if the avoidance claim is litigated in this court, that these proceedings should be dismissed or stayed.
28. I am not convinced by Mr Phillips' argument. As Mr Masefield made clear, the focus of the Reinsurers' argument in the avoidance claim is that Musini should have disclosed the report that they had received about Mr Piereman's condition, rather than his condition itself. This is not surprising in view of the decision of the Court of Appeal in Brotherton v Aseguradora Colseguros SA, [2003] EWCA Civ 705, [2003] 2 All R (Comm) 298. In my judgment, it is not likely that any question about Mr Piereman's actual condition will need to be determined in these proceedings, and if any such question arises at all, it will be relatively peripheral.
29. In these circumstances, even had it appeared probable that the Reinsurers would be joined as parties in the Spanish action if I dismissed these proceedings or ordered a stay of them, I would not have been persuaded that, because of a risk of irreconcilable judgments, it is expedient for the avoidance claim to be heard with the Real Sociedad's claim in Spain, and I would not have made an order under article 28. In fact, unless the decision of the Spanish court is reversed, the dispute between the Reinsurers and Musini over the avoidance claim will not be tried with Real Sociedad's claim, and there is nothing in the evidence before me to suggest that the risk of irreconcilable judgments will be less if there are two separate proceedings in Spain than if this action proceeds. Accordingly, I decline to dismiss or stay these proceedings under article 28. I add, although this is not my reason for reaching this conclusion, it is convenient and desirable that the avoidance claim, which is likely to be determined by English law and in light of practices in the London market, should be heard by this Court.
30. Upon the Reinsurers giving the undertaking to which I have referred, I dismiss Musini's application.