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
		18/10/2006

The Hon. Mr Justice Langley :

INTRODUCTION

The Claim Form

1. The claimant ("Sea Trade") was incorporated, in July 1992, in Liberia, and is the owner of the ATHENA. Sea Trade issued the arbitration claim form before the court on 29 July 2005. The respondent ("the Association") is a mutual insurance company incorporated in Bermuda, which provides war risks insurance for ships beneficially owned or controlled by a majority of Greek interests.
2. The claim form sought relief under each of sections 67, 68 and 69 of the Arbitration Act, 1996, in respect of an Interim Award ("the Award") dated 1 July 2005 by which certain preliminary issues were determined by Sir Christopher Staughton, Jonathan Hirst QC and George Henderson in an arbitration in which the Association was claimant and Sea Trade was respondent.
3. The relief sought in the claim form under section 67 of the 1996 Act is that the Award be set aside for want of substantive jurisdiction; the relief sought under section 68 ("serious irregularity") was the setting aside of certain paragraphs of the Award on the basis that the questions determined in those paragraphs were not within the scope of the preliminary issues ordered to be heard; the relief sought under section 69 was permission to appeal on a number of "questions of law" (some going to jurisdiction and some not) relating to the Rules of the Association and in particular the Rules relating to jurisdiction and arbitration (Rule 44) and additional premium areas (Rules 15 and 25). The questions of law, so far as material, were:

"5.1. The question of whether Rule 44 was incorporated into the insurance; in particular the question of whether general words of incorporation are sufficient to incorporate an arbitration agreement ….

5.2. The proper construction of Rule 44 … specifically whether:

(1) Rule 44.1 is a non-exclusive jurisdiction clause; and

(2) The right to elect to arbitrate under Rule 44.2 can be lost by delay and/or applies only to proceedings commenced in the English High Court, not in other competent courts.

5.3. The question of whether the Claimant is precluded from relying on a breach of Greek law ….

5.4. The question of whether Rules 15.3 and 25.3 were incorporated into the contract; in particular, the questions of whether they are terms which are properly characterised as unusual, onerous and out of conformity with market practice and whether the test in Interfoto Picture Library v Stiletto Visual Programmes [1989] 1 KB 433 applies and was satisfied …."

The November 2005 Order

4. The major issues to which this judgment relates are those arising and still pursued under section 67 relating to the jurisdiction of the arbitral tribunal. They are the subject of an Order made by Morison J, on 25 November 2005, for trial of certain preliminary issues as follows:

"(1) What law governs the Claimant's insurance with the Defendant?

(2) On the assumption that English law applies, was Rule 44 incorporated into the Claimant's insurance with the Defendant?

(3) On the assumption that English law applies, does Rule 44.2, on its proper construction, apply to the facts of this case?

(4) On the assumption that English law applies, as a matter of English law, would the alleged breaches of Greek law relied upon by the Claimant have the effect of rendering the Claimant's insurance, and/or the arbitration clause in it, void?

(5) On the assumption that English law applies, would the alleged breaches of New York law relied upon by the Claimant have the effect of rendering the Claimant's insurance, and/or the arbitration clause in it, void?"

5. By the same Order, Morison J ordered that, in effect, insofar as the application for permission to appeal under section 69 raised the same issues they should be heard at the same time. He also ordered that the remaining issues and the application under section 68 should be dealt with either on paper or at another hearing or stayed, the details of which are, as will appear, no longer material.
6. The parties have agreed that the present hearing should also address the only extant issue arising from Sea Trade's application under section 69. That is the question whether, if the arbitral tribunal did have jurisdiction, it was wrong in law to conclude that, on its proper construction, Rule 44 constituted an exclusive jurisdiction clause in favour of the English courts. The significance of this issue is limited. It is no longer relied upon as the basis for an argument going to jurisdiction. If the Rule does provide for exclusive jurisdiction, Sea Trade was in breach of contract in commencing proceedings (as it did) in Greece and New York. That may give rise to claims by the Association for costs otherwise not recoverable (now put forward in the total sum of about US$ 500,000). I shall refer to this issue as "the exclusive jurisdiction issue" and address it after the issues which do go to the jurisdiction of the arbitral tribunal.

Rule 44

7. So far as material, as from the 1 January 1997, Rule 44 provided:

"44.1 The Association and each Owner hereby submits to the jurisdiction of the High Court of Justice of England in respect of any dispute or difference between the Owner and the Association arising out of or in connection with these Rules or out of or in connection with any contract between the Owner and the Association.

44.2 Save for any claim by the Association in respect of the sums which the Association may consider to be due to it from an Owner either the Association or the Owner may, by giving written notice of the election to the other, elect to have such dispute or difference referred to arbitration in London subject to the provisions of Rules 44.2.1 to 44.2.7.

….

44.2.7 The submission to arbitration and all proceedings therein shall be subject to the English Arbitration Act 1996 and to any statutory modification thereof."

8. The provisions of Rule 44.2.1 are not material.
9. Previous versions of the Rules, applicable from 1 January in 1988 and 1994, had also contained arbitral provisions but in different terms.

Other Rules

10. Rule 46 provided that the Rules were subject to English law.
11. Rule 11 of the 1988 and 1997 Rules provided that:

"Subject as otherwise provided in these Rules the insurance by the Association of a ship entered in the Association shall commence at the time and date specified in the Certificate of Entry and shall continue until 2400 hours G.M.T. on the 31^st December next ensuing, and thereafter from Policy Year to Policy Year, unless it terminates, ceases or is cancelled in accordance with these Rules."

12. Rule 12 of the 1988 and 1997 Rules provided that:

"12.1 Any alteration of these Rules shall be binding upon the Owner and take effect as from the commencement of the Policy Year following that in which such alteration is adopted.

12.2 Changes in the terms and conditions of insurance (otherwise than by alteration of the Rules) may be made by the Managers by notice given to the Owner not later than 1200 hours G.M.T. on the 14 December in any Policy Year and shall take effect as from the commencement of the next following Policy Year."

The Factual Background

13. The management of ATHENA was delegated by Sea Trade to a Greek company, Natalca Shipping Co. S.A. ("Natalca"). Natalca appointed sub-agents, a New York corporation, Trans-Ocean Steamship Agency Inc. ("Trans-Ocean"). At all material times, the President of Trans-Ocean was Mr Theo Vatis; the Operations Manager, with responsibility for insurance, was Ms Elizabeth Mulcahy. Mr George Peters was appointed attorney-in-fact of Sea Trade. He shared office space at the same address as Trans-Ocean. Each signed a witness statement which was before the arbitral tribunal and each has signed supplementary statements for the present proceedings. Mr Peters, alone, gave oral evidence.
14. The Association is managed by Thomas Miller (Bermuda) Limited who delegate underwriting and claims handling to Thomas Miller (Isle of Man) Limited ("Miller IOM"). Edward Gould, the underwriting manager of Miller IOM, gave oral evidence in the arbitration and to the court.
15. In December 1992, Trans-Ocean applied, on behalf of Sea Trade, to enter ATHENA with the Association for the purpose of obtaining war risk insurance for the vessel. Brokers were involved. There remains an issue as to the party, if any, for which the brokers were acting, at least in respect of some of their activities, but it was Sea Trade who instructed Alexander & Alexander in New York ("A&A") to procure the insurance. A&A passed on the instruction to their associate Alexander Howden Marine & Energy (AH) in London who made the direct approach to Miller IOM. The broker at AH who placed the insurance (Michael Wright) gave evidence to the arbitral tribunal and to the court at the instance of the Association. That evidence was to the expected effect that he regarded himself as acting for A&A and the assured, Sea Trade, and not for the Association. Mr Wright was familiar with the Association's procedures and Rules. He had worked with Mr Gould for the Thomas Miller Group in London from 1983 to 1988 in the war risks team.
16. ATHENA was entered into the Association, and so insured against war risks, from 10 December 1992. Thereafter the insurance was renewed annually as from 1 January of each year.
17. In 1994 A&A were replaced as brokers by Johnson & Higgins ("J&H"). The individual at A&A who had handled Sea Trade's business had moved to J&H. J&H used their London office to communicate with the Association. Mr Vatis signed an open letter, dated 11 July 1994, on Trans-Ocean notepaper which included the statements that:

"This confirms that as of July 11, 1994 we have appointed Johnson & Higgins of California as our exclusive Insurance Broker with respect to our Hull & Machinery, etc. Marine Insurance program ….

Johnson & Higgins … is hereby authorised to negotiate directly with any interested companies as respect changes in existing insurance policies and in closing, changing, increasing or cancelling insurance….

This letter also constitutes your authority to furnish Johnson & Higgins of California's representatives with all information which they may request, as it pertains to our insurance contracts …."

18. The open letter was sent to Mr Gould at the Association by fax on 12 July 1994. The fax confirmed the change of "broker-of-record" and asked Mr Gould to provide the writer "with copies of any/all documentation on this account issued by the Club for the current year". Mr Gould replied by telex dated 14 July that the Association's files were "being marked accordingly" and stating "as you know from previous dealings we do not issue annual documentation such as certificates of entry as they remain valid throughout vessel's entry in the Association but we shall revert on the matter of documentation". Mr Peters said he was not aware of Mr Vatis' letter before the loss.
19. In May 1997, Trans-Ocean presented a war risks claim to the Association on behalf of Sea Trade in respect of damage to ATHENA from an explosion said to have been caused by Tamil Tigers when the vessel was at Trincomalee, Sri Lanka.
20. The claim was expressly presented on the basis that there was no right to recover under the insurance because Sri Lanka had been declared an "Additional Premium Area" (APA) and Sea Trade had failed to give proper notice of the fact that it was going to Sri Lanka as required by Rule 25.1 of the Rules of the Association. The Association was asked to exercise the discretion provided for by Rule 25.3 to make payment notwithstanding the want of notice.
21. The Association decided, in the exercise of its discretion, to make a payment of up to US$ 3.4 million. This decision was made in September 1997 and confirmed in December and again in September 1999. This sum has been paid.
22. Following payment, Sea Trade brought proceedings against the Association in Greece claiming payment in full (a further US$ 3.5 million) and damages. Sea Trade also brought proceedings in New York.
23. The Association sought a stay of the New York proceedings in favour of arbitration in London relying on Rule 44 of the Rules. A stay was granted on 13 March 2003. Appeals by Sea Trade against the stay were dismissed.
24. Before the arbitrators, Sea Trade contended that the tribunal had no jurisdiction on a number of grounds, including that Rule 44 was not incorporated into the contract of insurance because it was "onerous and unusual"; because Sea Trade was unaware of the Rule; because the Rule had not been expressly referred to; and because the insurance, and so the arbitration clause, was void for breaches of Greek and/or New York law.
25. It was in this context that the arbitral tribunal ordered the preliminary issues to be heard which were the subject of the Award. They were heard in May and June 2005. The Award found in favour of the Association on all the issues raised by the present claim form.

The other applications

26. Sea Trade's applications under section 69 for permission to appeal, which were to be considered on paper pursuant to the November 2005 Order, were refused by me by an Order dated 17 February 2006. Sea Trade's applications under sections 68 and 69, which were to be determined at another hearing, were dismissed by Christopher Clarke J by an Order dated 24 February 2006.

THE PRELIMINARY ISSUES

27. The issues ordered to be tried at the present hearing are set out in paragraph 4. But only one of them has survived to a hearing and so judgment. I should, however, summarise the position as it developed before the hearing began.

Issue (1): Governing Law

28. Rule 46 provided that:

"These Rules and any contract of insurance between the Association and an Owner shall be governed by and construed in accordance with English Law."

29. Sea Trade contended that the Rule had not been incorporated into the contract of insurance. The arbitral tribunal held that it had been. On 14 June 2006 Sea Trade's solicitors wrote stating that Sea Trade no longer intended to pursue this issue. It is, therefore, now not in issue that the insurance is, as a matter of English conflict of law principles, governed by English law.

Issue (2): Incorporation of Rule 44

30. Sea Trade contended that, if the contract of insurance was governed by English law, Rule 44.2 was not incorporated into it because Sea Trade was unaware of its terms and such references as may have been made to it were insufficient to achieve incorporation. Sea Trade also contended that it was not incorporated because it was "onerous and unusual", not in conformity with market practice and because insufficient attempts had been made to bring it to Sea Trade's attention. The arbitral tribunal decided that the Rule was incorporated into the contract: paragraphs 22 to 34 of the Award. On 14 June 2006 Sea Trade's solicitors wrote stating that Sea Trade no longer sought to contend that Rule 44.2 was not incorporated in the contract of insurance because it was "onerous and unusual". It is now contended only that it was not incorporated because it was not specifically referred to and because Sea Trade was unaware if it. This gives rise to the only surviving issues relating to the jurisdiction of the arbitral tribunal. I shall refer to the issues as "the incorporation issue", "the construction issue", and "the knowledge issue" as it remains the Association's case that even if general words of incorporation do not suffice to incorporate an arbitration clause, or that the words used did not do so, on the facts of this case Sea Trade would still be bound by Rule 44.2.

Issue (3): Rule 44.2 and the Facts

31. Sea Trade contended that the arbitration clause did not apply because it had commenced proceedings in Greece and New York. Sea Trade abandoned this contention on 27 September 2006.

Issues (4) and (5) : Breaches of Greek and New York law

32. Sea Trade abandoned its case on these issues on 21 September 2006.

THE FACTS

33. On 2 December 1992, Mr Wright of AH faxed Mr Gould:

"Please seek principal's agreement to enter [Athena] with effect from time and date of delivery to owners currently expected 4^th December 1992.

Details as follows:

Owning Co: Sea Trade…."

34. Miller IOM telexed their response on 4 December that, subject to confirmation of Greek beneficial ownership of ATHENA:

"… we are authorised by our principals … to offer insurance by the Association to Sea Trade … (the shipowners) in respect of Athena …in accordance with the rules and bye-laws of the Association and on the following basis …. If the shipowner wishes to accept this offer please telex the acceptance to us … within 3 working days … by completing the acceptance section at the foot of this telex …. On receipt of the acceptance or after the delivery date, whichever is the later, we will issue a certificate of entry in evidence of this Association's insurance of the shipowner for the ship concerned…."

35. On 11 December Mr Wright sent a further fax to Mr Gould:

"Please note [Athena] delivered to owners 1145 GMT 10^th December 1992. Further your telex offer of insurance dated 4^th December is acceptable. Please proceed."

36. On 12 January 1993 Miller IOM wrote to AH in respect of the ATHENA:

"Further to the offer of Insurance made by Thos. R. Miller & Son (Bermuda) and acceptance by the Member, on behalf of our principals please find attached to this letter a copy of the Rates and Terms for the current Policy Year which should be read in conjunction with the current Rules of the Association."

37. The "Rates and Terms" enclosed was a four-page document which, on the second page contained an "NB" stating:

"It is the Association's practice only to alter the Rules as and when it is necessary to strengthen or clarify the cover, and the Members are reminded that the Association's 1988 Rules will continue in full force and effect for 1993. Any Member who requires copies of the 1988 Rules should contact the Managers, their Agents or their consultants at the following addresses…."

38. Three addresses were set out with telephone, fax and telex numbers also given for each.
39. Thus, as is beyond argument, and not in issue, the original contract of insurance and the 1993 renewal made express reference to it being "in accordance with" the Rules and, if required, it was spelt out how a copy of the Rules could be obtained. In fact, Mr Wright was familiar with and had copies of the Rules and the evidence is that a copy was probably not requested by or supplied to him at the time for that reason. He also said, and I accept, that he was aware the Rules provided for arbitration of disputes. Mr Brenton QC, for Sea Trade, submitted that a proper reading of the 4 December telex was that the Rules were referred to simply as the basis for Miller IOM's authority to make the offer of insurance and not as relevant to the scope of the insurance. That submission in my judgment defies the language used and, in the context of the addressee being Mr Wright, verges on the absurd.
40. On 10 December 1992, Mr Peters (as "Attorney in Fact") had completed an Application for Membership of the Association in respect of ATHENA. The application was sent to Miller IOM. The Application named Sea Trade c/o NATALCA as Owners, was addressed to the Managers of the Association, and stated:

"I/we hereby apply to become (a) Member(s) of the above-named Association and authorise you to enter my/our name (s) in the Register of Members of such Association. I/we also request you to enter (ATHENA) for insurance in such Association to the extent specified in accordance with the Bye-Laws and the Rules of such Association with which I/we agree to conform."

41. An attorney signing such a form, without being aware of the Rules to which he was agreeing that his principal would conform, would be acting at least unwisely; unless, of course, he was content to rely on others who had or could be expected to have the relevant knowledge. I did not find Mr Peters' attempts to explain this in evidence satisfactory. He said he had no reason to think the Rules would contain anything material to the cover. He also said "we" asked for the Rules, meaning by "we" himself as attorney, Trans-Ocean and the brokers. But the only evidence of such a request comes much later in 1996 after the change of broker. At 10 December, 1992, Mr Peters could have had no idea from the documents he says were available to him of any terms of the cover. The one thing he did say he had read was a brochure of the Association extolling its virtues as offering much wider cover than was available in the commercial market. In the same paragraph of the brochure which he probably read in which that laudatory statement was made it was also stated that:

"The cover is set out in the Association's Rule Book. The extent and width of the Club cover is not always fully understood and for ease of understanding the main aspects are given below …."

42. Mr Peters said, and I accept, that the application for membership form would probably have been provided to him by Trans-Ocean. Someone at Trans-Ocean must either have been familiar with it and retained blank copies or must have obtained it from A&A of whom the same can be said. The form was, Mr Gould said, in fact no longer used by the Association. Nonetheless, I accept Mr Wright's evidence that on receiving it he would have passed it on to Mr Gould, probably on 22 December. I also accept Mr Gould's evidence that upon receipt he would have seen that it was kept on the file.
43. The documents include an unexecuted copy of a Certificate of Entry relating to ATHENA. The Certificate provides:

"The insurance provided by this policy (including the risks insured and the rights and liabilities of the Assured and the Association thereunder) shall, save only as may be otherwise set out herein, be as specified in this policy … and the Rules of the Association for the time being in force and shall continue until the insured ship is sold, lost or withdrawn, or the insurance is otherwise terminated or suspended in accordance with the terms, exclusions and warranties contained in those Rules, all of which are incorporated in this policy."

44. It was Mr Gould's evidence that it was standard practice for the original Certificate to be sent (together with a debit note and a summary of debits/credits for the broker) to the broker. The documents would be generated at Miller IOM by computer and would be sent without a covering letter. The only "copy" would be on the computer. Mr Wright said it was the practice at AH to pass on to A&A all formal documents such as a certificate of entry upon receipt. Mr Brenton cross-examined both witnesses on the basis that the practice may not have been followed with a membership starting so late in a year and because of the absence of any record and the mistake made by A&A (see paragraph 46 below). I am satisfied, however, that the practice was followed. Mr Gould and Mr Wright were plainly honest witnesses and their evidence was straightforward and compelling. The 4 December telex (paragraph 34) says that a certificate of entry will be issued "in evidence of this insurance". The existence of the unsigned copy of the Certificate of Entry supports them. I find, therefore, that the Certificate was not only sent to AH but also to A&A; both brokers would in any event, on the evidence, have been familiar with the Association's practices and rules. Through no fault of their own, A&A's documents have been destroyed and so are unavailable.
45. A&A in New York issued two Cover Notes dated 6 January 1993, confirming that insurance had been effected with the Association for the assured "Sea Trade … owner and/or Trans-Ocean …as managers" of ATHENA for war risks on "terms and conditions" as attached. One Cover Note was for the period from 10 to 31 December 1992 and the other for the 1993 year. The attachment stated:

"Conditions: Conditions as Rules to cover War, etc …

Warranted Trading Worldwide subject to current exclusions (As Attached)

Subject to Conditions as Club Certificate."

46. It would, again, be a matter of real criticism if writers or readers of these Cover Notes were not aware of the "conditions" of the cover for which their principals were paying. In fact, the War Risk Trading Warranties attachment stated that the absence of prior advice of a voyage to an APA would not affect the cover. That was not correct. The Rules current at the time (the 1988 issue) by Rule 25 provided that prior notice was required for cover to remain effective. It seems that was also the case prior to 1988.
47. Mr Brenton submitted that it was "perfectly apparent" from this error that A&A did not have or receive a copy of the Rules or at least had no idea what they provided. I do not agree. There is and was no evidence from A&A. The more likely explanation is that A&A had misunderstood the Rule or used an inappropriate standard letter. As will also be seen, long before the loss, J&H were aware of the true terms of Rule 25 and made Trans-Ocean aware of them also: paragraph 58 below.
48. Mr Peters said that he believed that these cover notes alone, which were supplied to him by Ms Mulcahy, were the "policy" and that they contained all the material terms of the cover. He also said, remarkably and unconvincingly, that he had read all the references to "conditions" as no more than a reference to the terms applicable to APAs. Whatever Mr Peters' belief, Mr Brenton's case was that the contract of insurance was to be found in the December 1992 exchanges between AH and the Association. Of course in either case the Rules were expressly referred to as such. Nonetheless, Mr Brenton submits that even if general words do or can suffice to incorporate an arbitration clause, the words used in the December exchanges fail, as a matter of construction, to do so. It is this submission that I refer to as "the construction issue" in paragraph 30 albeit, as will be seen, in my judgment, the incorporation issue also turns on construction.
49. The war risks insurance of ATHENA was renewed with the Association annually up to and including 1997, the year of the loss. It is both parties' case that the cover was "continuous" from year to year, in accordance with Rule 11 of the Association's Rules. J&H replaced A&A in 1994: see paragraphs 17 and 18
50. In May 1996, J&H New York sought from J&H London a cover note or certificate of entry for "Trans-Ocean Steamship War Risk". J&H London, on 29 May, asked Miller IOM for six copies of "your most recent rule book". They were duly supplied and J&H London sent the six copies to J&H New York to "share … since I understand Trans-Ocean are also keen to have a copy". Yet both Mr Vatis and Ms Mulcahy say Trans-Ocean had no copy of the Rules prior to the loss. In June 1996, J&H New York repeated the request for a cover note and Certificate of Entry. J&H London apologised for the lack of a cover note adding:

"we were informed by the (Association) that they do not issue certificates at each renewal, they believe that entry into the club is continuous …. I have not seen the original certs on these accounts and I wonder if you might forward copies of same to me.

51. J&H New York asked J&H London to obtain "the most recent certificate" commenting that they would have thought "that there would be new certs issued since J&H has replaced A&A/Howden as the broker of record." The concern was to verify to mortgagees of ATHENA that war risk cover was in place. J&H New York continued to chase J&H London for certificates in August. Mr Brenton submitted that these requests were made for J&H's own purposes and not as brokers for Trans-Ocean/Sea Trade. That is simply not so as their terms demonstrate.
52. A signed copy of the Certificate of Entry for ATHENA dated 27 September 1996 was completed by Miller IOM and supplied to J&H. The copy in the court papers was disclosed by J&H New York. The certificate contains the same reference to the Rules as the certificate supplied to AH at the outset of the insurance (paragraph 43). Mr Brenton submitted that there was "evidence" from J&H that J&H did not in fact receive any certificates of entry before the loss. He relied for that submission on an internal J&H memorandum, dated 14 November 1997, which was written in response to a request from Ms Mulcahy for "a chronology of events". The memorandum does state that "to date we have never received Athena Certificate of Entry … from … (the) Association". But the chronological context of the statement makes the "date" uncertain and, granted that J&H were undoubtedly seeking the certificate (paragraph 51) and that the Association undoubtedly prepared one and sent it to J&H London after which the requests ceased, as they also did for the Rules, I unhesitatingly conclude that both the certificate and the Rules were supplied to J&H New York, and supplied prior to the renewal for 1997. Mr Peters said he did not receive any certificate (or the Rules) before the loss, albeit he was sure J&H would have given him a copy had they received one.
53. The renewal for 1997 was effected, on Trans-Ocean's instructions, by J&H. J&H New York asked J&H London on 18 December 1996 to confirm renewal with the Association and the next day J&H London faxed Mr Gould accordingly. Mr Gould confirmed the renewal by fax on 24 December.
54. The 24 December fax read:

"WE ACKNOWLEDGE RECEIPT OF YOUR FAXES D.D.

19.12.96. ON BEHALF OF OUR PRINCIPALS PLEASED TO CONFIRM THAT THE ENTRIES OF ALL VESSELS OF GROTON PACIFIC FLEET WILL BE RENEWED IN THIS ASSOCIATION FOR A FURTHER PERIOD OF 12 MONTHS FROM 1.1.97. IN ACCORDANCE WITH THEIR RESPECTIVE TERMS OF ENTRY AND THE ASSOCIATION'S CURRENT RULES ON VALUES AS EXPIRY. WE CONFIRM THAT WE WILL ONLY RENEW THE ENTRY OF 'ATHENA' ON TRANSOCEAN FLEET ON A REVISED VALUE OF USD 12.0M. PLEASE CONFIRM ACTUAL DATE OF SALE OF MARQUESA IN ORDER THAT WE CAN ADJUST OUR RECORDS.

WISHING YOU A MERRY CHRISTMAS."

55. The faxes referred to related to the Groton Pacific fleet (which is not relevant) and a fax in which J&H had confirmed that other vessels managed by Trans-Ocean (including Marquesa) were to be sold, and so would not be renewed, so that ATHENA alone should be renewed but without the existing increased value cover.
56. Mr Brenton made the submission that the reference in the 24 December fax to terms of entry and current rules was applicable only to the Groton fleet and not to ATHENA. Mr Moriarty QC, for the Association, described the submission in strongly dismissive terms. I agree with Mr Moriarty. It is fanciful to suggest that the fax was stating that the renewal of the cover for ATHENA was other than on the applicable terms of entry and current Rules or was to be contrasted with the Groton fleet renewal, let alone that J&H would have so read it.
57. On 14 January 1997, J&H New York sent Trans-Ocean a "confirmation of insurance" in respect of ATHENA. The confirmation recorded that

"in accordance with your instructions we have arranged Marine insurance on the VESSEL "ATHENA" ATTACHING JANUARY 1, 1997 EXPIRING DECEMBER 31, 1997, INCLUSIVE In the amounts and subject to the general conditions as attached …."

The general conditions attached included:

"CONDITIONS: Conditions as Rules to cover War, etc.

Subject to Conditions as per Club Certificate."

58. This confirmation also included a page entitled "Additional Premium Areas" which listed the current APAs (including Sri Lanka) and spelt out that "the Rules provide that the Owner of an Entered Ship shall give written notice to the Association before the Entered Ship enters an Additional Premium Area, and specifies the consequences that follow if this condition is not complied with." A "confirmation of insurance" in the same terms had also been supplied by J&H New York to Trans-Ocean on 29 January 1996 for the calendar year 1996.
59. Earlier, on 4 December 1996, J&H New York had sent to Trans-Ocean (addressed to Ms Mulcahy) "for your information and file" "two sets of circulars" from the Association referring to a Special General Meeting of the Association "regarding Amendments to the Rules". The circulars referred expressly to Rule 44.
60. The circulars included a "Notice of Meeting" from the Association dated 15 November. It was addressed "to the Members". Mr Gould said, and I accept, that it would have been sent to J&H as brokers for Sea Trade/Trans-Ocean. The documents suggest that there was some confusion between J&H's offices in London, New York and San Francisco which probably accounts for the delay in the documents being sent on to Trans-Ocean. The circulars also included an "Explanatory Note" relating to the proposed amendments to the Rules. Rule 44 was one of the three Rules to be amended. The amendment was to alter the wording to the wording set out in paragraph 7 of this judgment. The note did indeed explain the reason for the proposed amendment. It was followed by the resolutions to be put to the meeting which set out the terms of the proposed changes, including the wording I have quoted which became part of Rule 44 with effect from 1 January 1997. It was Ms Mulcahy's written evidence in the arbitration that she had no recollection of seeing this letter. She does not say it was not received. Mr Peters did not remember it either. Mr Brenton accepted that Rule 12.1 was incorporated in the contracts of insurance (like Rule 11) and so, that if, contrary to his submissions, general references to the Rules did suffice to incorporate an arbitration clause, the amendments to it would also be binding.
61. There are, as I have said, unsurprisingly on the evidence as I have sought to summarise it, issues as to whether or not Sea Trade did in fact know of the Rules and the effect of Rule 44, (the knowledge issue, as I have called it), but I propose first to consider the legal principles to be applied where it is sought to incorporate an arbitration clause in a contract.

THE INCORPORATION ISSUE

The Law

62. The difference between the submissions can be summarised shortly. Mr Brenton submits that absent special circumstances express reference to an arbitration clause in what I will call the primary contractual documents it cannot be incorporated into the contract by reference to what I will call a secondary document in which the clause is contained. The submission is founded on authorities in which the secondary document is a contract to which at least one party is different from the parties to the contract in question (a "two-contract case"). Those authorities address issues of incorporation in particular in reinsurance contracts by reference to the terms of the underlying insurance, in construction contracts by reference in sub-contracts to main contracts, and in bills of lading by reference to charterparties. Mr Moriarty submits that (whatever the position in a two-contract case) the law permits the use of general words to incorporate by reference standard terms to be found in another document, including incorporation of arbitration clauses in that document, in what I will call "a single contract" case.
63. The Federal Bulker [1989] 1 Lloyd's Rep 103 was a two-contract case in which the issue was whether a clause in a charterparty requiring bills of lading to provide for arbitration "of all disputes arising out of this contract" was incorporated in bills which themselves provided only that "all terms … as per Charterparty … to be considered as fully incorporated herein as if fully written".
64. The Court of Appeal held that the arbitration clause in the Charterparty was not incorporated in the bills. In the course of his judgment, at page 105, Bingham LJ said:

"Generally speaking, the English law of contract has taken a benevolent view of the use of general words to incorporate by reference standard terms to be found elsewhere. But in the present field a different, and stricter, rule has developed, especially where the incorporation of arbitration clauses is concerned. The reason no doubt is that a bill of lading is a negotiable commercial instrument and may come into the hands of a foreign party with no knowledge and no ready means of knowledge of the terms of the charterparty. The cases show that a strict test of incorporation having, for better or worse, been laid down, the Courts have in general defended this rule with some tenacity in the interests of commercial certainty. If commercial parties do not like the English rule, they can meet the difficulty by spelling out the arbitration provision in the bill of lading and not relying on general words to achieve incorporation.

The importance of certainty in this field was emphasised by Lord Denning, M.R. in The Annefield … by Sir John Donaldson, M.R. in The Varenna … and by Lord Justice Oliver in the same case … This is indeed a field in which it is perhaps preferable that the law should be clear, certain and well understood than that it should be perfect. Like others, I doubt whether the line drawn by the authorities is drawn where a modern commercial lawyer would be inclined to draw it. But it would, I think, be a source of mischief if we were to do anything other than try to give effect to settled authority as best we can."

65. In my judgment, this dictum expresses both the principle and (with some reluctance) the justification for an exception to it. In principle, English law accepts incorporation of standard terms by the use of general words and, I would add, particularly so when the terms are readily available and the question arises in the context of dealings between established players in a well-known market. The principle, as the dictum makes clear, does not distinguish between a term which is an arbitration clause and one which addresses other issues. In contrast, and for the very reason that it concerns other parties, a "stricter rule" is applied in charterparty/bills of lading cases. The reason given is that the other party may have no knowledge nor ready means of knowledge of the relevant terms. Further, as the authorities illustrate, the terms of an arbitration clause may require adjustment if they are to be made to apply to the parties to a different contract. The language of Bingham LJ would not encourage any extension of the stricter rule, a sentiment with which I would respectfully agree.
66. I can see little or no reason for a rule which incorporates some but not all of the terms of a referenced document, provided, at least, that as a matter of construction the incorporated terms can readily apply to the relevant contract without violence to the principles on which contracts are to be construed. Indeed, I think the authorities justify an approach to the issue as one of construction, albeit certain recognised principles of construction have been established by authority in two-contract cases. Terms that are incorporated, as the law stands, are just as (if not more) likely to be unknown to the parties as an arbitration clause. This case is a case in point. On their evidence, Sea Trade and Trans-Ocean were wholly unaware of any of the terms of the insurance although it is not in dispute that a contract of insurance was made in late 1992. Yet they accept that all the other terms in the Rules were incorporated in that contract, or perhaps all other terms "germane to the insurance"(hardly a recipe for certainty) but not the arbitration clause. I can see little logic in that. Mr Brenton submits that logic requires the stricter rule to be applied in all cases. But it is that rule, if any, which I think to be illogical. In the case of a single contract, the ordinary rules of construction work perfectly well. Those rules, of course, include rules which justify a different approach to "unusual" or "onerous" terms sought to be incorporated and are subject to statutory modification in consumer contracts, but such considerations are of no relevance in this case.
67. It is, nonetheless, Mr Brenton's primary submission that the principles enunciated by the House of Lords in Thomas v Portsea [1912] AC 1, the decision in which the House endorsed the "stricter rule" and which the Court of Appeal applied in The Federal Bulker, amplified by the decisions of the House in Heymans v Darwins Ltd [1942] AC 356 and Bremer Vulcan v South India Shipping [1981] AC 909, establish, absent special circumstances, that the true rule is that arbitration clauses are not to be incorporated in any contract unless specifically referred to in the primary contractual documentation. He submits that the rationale of the decision in Thomas v Portsea applies to a single contract case as much as it does to a two-contract case and the principle to be derived from the other decisions, that an arbitration clause "constitutes a self-contained contract collateral or ancillary to" the contract in which it is to be found, dictate that such clauses are special and subject to special principles in any contract in which it is sought to incorporate them.
68. In my judgment, this submission is hopeless. It would involve the exception swallowing the rule. It is contrary to authority binding upon me. It puts a weight on Thomas v Portsea which it cannot begin to bear.
69. As to authority, there are four decisions which cannot be reconciled with Mr Brenton's submission. He submitted that they were wrongly decided, because Thomas v Portsea was not cited and the law had not developed so as to apply the same approach in other two contract cases. In Modern Builders Wales Ltd v Limmer [1975] 2 All ER 549, the Court of Appeal decided that general words of incorporation ("in full accordance with the appropriate form for nominated sub-contractors") were sufficient to incorporate the arbitration clause in what the court held to be "the appropriate form" into the contract between the head contractor and the subcontractor. Heyman v Darwins was cited to the court. Submissions that the arbitration clause was not incorporated were given short shrift by Buckley LJ at page 555, letter h, and Ormrod LJ at page 557, letter e.
70. In Tracomin S.A. v Sudan Oil Seeds Co [1983] 1 WLR 662 at 664H Staughton J said (albeit the point was conceded) that an arbitration clause would be incorporated by reference in a contract of sale in the same manner as any other clause. In the St. Raphael [1985] 1 Lloyd's Rep 403, the Court of Appeal decided the same: see in particular Lloyd LJ at page 409. The fact that the party denying incorporation was unaware that the document referred to contained an arbitration clause was "irrelevant". In Wyndham Rather Ltd v Eagle Star [1925] 21 Ll. L. Rep 214 an insurance slip stated that it was "subject to the proposal form". The proposal form stated that it was subject to "the usual conditions" of the insurers' policy. Those conditions contained an arbitration clause. The Court of Appeal held that the contract of insurance contained in the slip included a submission to arbitration. In none of these cases, it is true, was Thomas v Portsea cited. But that is no surprise. No one thought it relevant. Nor do I.
71. The leading text books on the law of arbitration also state the distinction upon which the Association relies.
72. The reasoning of the members of the House of Lords in Thomas v Portsea was short but varied. The fact that bills of lading were negotiable was relied upon by Lords Atkinson and Robson. The need for certainty in the law (the Court of Appeal had decided the issue in 1889) was relied upon by Lord Loreburn L.C. The fact that the language of the arbitration clause was inapposite to claims under the bills or would require manipulation to apply in that context was relied upon by Lords Loreburn, Gorrell and Robson. The "language problem" is one which would only exceptionally arise in a single contract case. Rule 44 is drafted, as one would expect, so as to apply to the Association and Owners. Mr Brenton submitted that the question whether general words were sufficient to incorporate an arbitration clause was one of law logically to be addressed without reference to questions whether or not if they were sufficient the clause potentially incorporated was apposite. Their Lordships would not agree. Lord Gorrell said in terms that the question was one of construction. So, too, did the Court of Appeal in Giffen (Electrical Contractors) Ltd v Drake & Scull (1993) 37 Con LR 84 at page 90 per Sir Thomas Bingham MR.
73. Other reasons for the decision in Thomas v Portsea were that (Lord Gorrell) an arbitration clause if incorporated would oust the jurisdiction of the court and so "very clear language" would be required to have that effect and that, Mr Brenton submits, albeit I am not sure with justification, such clauses are "independent" or "separate" or "ancillary" or "personal" a feature which undoubtedly finds expression later in Heyman v Darwins and Bremer Vulcan, albeit in a different context.
74. I see no reason why "ouster of jurisdiction" should give rise to anything more than a point of construction. The independent nature of an arbitration clause also, to my mind, has much greater relevance when the clause is to be found in a two-contract case. In the case of a single contract the anterior question is whether any of the referenced terms are incorporated, with the illogicality, in my judgment, of picking and choosing between them. The arbitration clause may take on its independent or personal character once it is incorporated but in a single contract case I see no reason why that potential characteristic should determine whether or not it is incorporated.
75. The final reason to be found in the authorities as justification for a different approach to arbitration clauses is to be found in the judgment of Sir John Megaw in Aughton v MF Kent Services [1991] 31 Con L.R. 60 at page 87. Mr Brenton placed considerable reliance on this judgment albeit the only other member of the court, Ralph Gibson LJ disagreed with Sir John Megaw on the issue of relevance to this case. Sir John relied upon the fact that statute required (as it did following the Arbitration Act 1950) that an arbitration agreement should be in writing. The object of that requirement was said to be "to ensure that one is not to be deprived of his right to have a dispute decided by a court of law, unless he has consciously and deliberately agreed that it should be so". So expressed the point is not different in substance from the "ouster of jurisdiction" point. However, The St Raphael is authority that in a single contract case an arbitration clause is binding on a party unaware of it. I also think Mr Moriarty is right that the statutory requirement for writing is aimed more at the need for precision as to what is agreed to be referred to arbitration and the constitution of the tribunal and procedure to be followed by it.
76. I have been referred to a considerable number of authorities but none which I think cast doubt on the principle and exception and the reasoning to which I have referred. Mr Brenton rightly referred to section 6(2) of the 1996 Act which provides that:

"the reference in an agreement to a written form of arbitration clause or to a document containing an arbitration clause constitutes an arbitration clause if the reference is such as to make that clause part of the agreement."

77. The Act was deliberately drafted so as not to address just what "reference" would make an arbitration clause "part of the agreement". It follows, as Mr Brenton submitted, that it did not seek to change the law. But not, as he also submitted, that the Act provides a uniform test for all cases in which the question arises: if the law differentiated between circumstances in the way Bingham LJ expressed before the Act, then the Act did nothing to alter that.
78. The authorities relied upon by Mr Brenton are, with one exception, two-contract cases in which it was sought to incorporate an arbitration clause in one contract into the material contract where the issue was whether or not there was an agreement to arbitrate in that contract. Aughton was a case where the first contract was a building sub-contract between P and K and the material contract a sub-sub contract between K and A. Ralph Gibson LJ favoured incorporation even by general words; Sir John Megaw did not. Pine Top Insurance Co Ltd v U.I.A.S.R. [1987] 1 Lloyd's Rep 476 was a case in which the first contract was a contract of insurance and the material contracts were contracts of reinsurance and retrocession. Several other authorities were cited in the same context.
79. The only authority to which Mr Brenton referred in which general words had been held to be insufficient to incorporate an arbitration clause in a single contract case is the decision of HHJ. John Loyd QC in Ben Barrett v Henry Boot [1995] C1LL 1026. The judge followed the judgment of Sir John Megaw in Aughton and applied it in a single contract case concerning a construction sub-contract. But that decision has not been followed in two subsequent construction cases: Roche Products v Freeman Process Systems [1996] 80 BLR 102, a decision of HHJ. Hicks QC, and Secretary of State for Foreign and Commonwealth Affairs v Percy Thomas (1998) 65 Con LR 11, a decision of HHJ Peter Bowsher QC. I would in particular and with respect refer to the judgment of HHJ Hicks QC which addresses the issue in terms with which I agree.
80. I would add that I also think Mr Moriarty is right in his submission that in a number of two-contract cases there has been an underlying assumption that an arbitration clause in the referenced contract was itself incorporated into that contract by general words. There are also numerous first instance decisions in which the distinction between single and two contract cases has been applied or assumed to be the law.

Conclusion

81. In my judgment, and in agreement with the arbitral tribunal, the Association is right and Sea Trade is wrong. General words of incorporation may serve to incorporate an arbitration clause save in the exceptional two-contract cases to which I have referred in which some express reference to arbitration or perhaps provision of the relevant clause is also required.

THE CONSTRUCTION ISSUE


82. The first question is, of course, to determine where the relevant contract is to be found. The parties are agreed that at the least it is to be found in the exchanges in December 1992 quoted at paragraphs 33 to 35.
83. Whilst I do not think it affects my conclusion on this Issue, and I would deprecate an over-analytical approach to what I think by 1997 had clearly been agreed, I also think that Mr Moriarty is right that the Application for Membership (paragraph 40) is a contractual document or itself a contract. It is true that at the time the Association itself did not require completion of such a document, but it purports to record an agreement to conform with the Rules, is consistent with the other documents and with all the documentation that followed over the years of the insurance. It forms part of a single transaction confirmed thereafter.
84. Mr Brenton acknowledges the incorporation of Rules 11 and 12. Rule 11 refers to the Certificate of Entry. There were alterations to the Rules from time to time. The insured value changed. So did the premium chargeable. The 1997 renewal (paragraphs 53 to 56) was also expressly agreed to be made "in accordance with" the terms of entry and the current rules. The confirmation note sent to Trans-Ocean brought that expressly to their attention (paragraph 57).
85. Mr Brenton's submission was that words such as "terms" and "conditions" had been held not to refer to arbitration clauses, and that such general words would not in any event suffice to incorporate an arbitration clause. Seen in the context of all the exchanges over the years of cover, the supply of the Rules, the supply of the Certificates of Entry (paragraphs 44 and 52), the frequent and explicit references to the Rules and the knowledge of the brokers involved, I think this is a hopeless submission. It is not in issue that the words were sufficient to incorporate the other Rules. The references to "conditions as Rules" were quite general. It is (rightly) no longer suggested that Rule 44 was either unusual or onerous. Those cases on which Mr Brenton relies are two-contract cases. In a single contract case it is, in my judgment, wrong to seek to describe some Rules as conditions or terms but others as somehow something else. The words of the original contract alone (paragraph 34) were that the insurance was offered "in accordance with the rules" of the Association. That refers to all the rules not some of them; so, too, do the subsequent documents.
86. In effect, I think Mr Brenton's submission is no better or worse than his submissions on the Incorporation Issue.

THE KNOWLEDGE ISSUE

87. The question whether or not Sea Trade was, or is to be taken to have been, aware of the arbitration provisions in Rule 44.2 and would be bound by them, even if general words did not suffice in law to incorporate them in the contract of insurance, is academic in view of my conclusions on the Incorporation and Construction Issues.
88. The Issue has given rise to detailed submissions of some intricacy which, as they are case specific, are unlikely to prove of interest to anyone but the parties. In the context that they are also academic, I hope I will be forgiven if I address them as succinctly as I think appropriate.
89. Mr Brenton's basic submission was that whether or not (and he submitted not) Sea Trade had notice or knowledge of the arbitration clause that was not the same as making a contract or agreement to be bound by it. I agree. But, I think, it makes no commercial sense in a single contract case to deny the existence of an agreement for arbitration, if, for example, a party agrees in one document or written exchange to be bound by terms to be found in another document and, at the time of that agreement, he knows that the second document contains an arbitration clause and/or has a copy of the second document and can see the position for himself. Nor do I think it sensible that the law should draw a radical distinction between a case in which A sends to B an offer on, say, stated terms "and otherwise on the terms of our enclosed Rules" or a case in which the Rules are supplied at a separate time but before the contract relied upon and purporting to incorporate the Rules is made.
90. I have found as a fact that Sea Trade's brokers, A&A (paragraphs 44 and 47), AH (paragraph 39) and J&H (paragraphs 50 and 52 ), each had copies of the Rules at the time the insurance was first agreed and at least (in the case of J&H) by the time of the renewal agreement for 1997. I, like, but perhaps more strongly than, the arbitral tribunal, have considerable reservations as to the denials by Mr Peters and Trans-Ocean that they had the Rules. Trans-Ocean ought at the least to have been aware before the 1997 agreement for renewal not only of the existence of an arbitration clause but of the specific terms of the clause put forward for approval: paragraph 59. I am also satisfied that Mr Wright was specifically aware of the arbitration clause in the Rules at the time the insurance was agreed in 1992: paragraph 39.
91. It was in this context that the question arose whether or not the knowledge of A&A, AH and J&H was to be attributed to Sea Trade or their admitted agents, Trans-Ocean. There is no dispute that the brokers were the agents for Sea Trade to obtain and agree war risks insurance. I have found that J&H's requests for the Rules and the certificate of entry were also made as agents for Sea Trade: paragraph 51.
92. As a matter of English law it is trite that the brokers were the agents of Sea Trade. Nor is the question one of attribution. If a principal employs an agent to enter into a transaction to the terms of which the agent's knowledge is material, even though that knowledge was obtained outwith the agency, the principal is bound by the contract concluded by his agent including, if it be material, terms of the contract to which the agent has or is held to have agreed as a result of his knowledge: see El Ajou v Dollar Land Holdings [1994] 2 All ER 685 per Hoffmann LJ at 702c-h and the cases cited there. Indeed I think it would make a mockery of the law if, as Mr Brenton submitted, a broker had to acquire afresh knowledge of the Rules on each occasion a new client instructed him to obtain war risks insurance from the Association.
93. Sea Trade contends, however, that it is New York law which governs the relationship of Sea Trade and the brokers. Sea Trade rely on expert evidence of New York law which, Mr Brenton submits, is to the effect that in receiving the policy or policy terms a broker is the agent of the insurer not the insured.
94. In my judgment this contention is wrong for at least two reasons. First, New York law does not govern the relationship. The rights and liabilities of the principal as regards the other contracting party are generally governed by the law of the contract concluded between that party and the agent: Maspons v Mildred (1883) 8 App. Cas. 874; Dicey & Morris on The Conflict of Laws (14^th Edn, vol 2, Rule 228). I see no reason in this case to depart from this general rule.
95. Second, the expert evidence of New York law is to the effect that a broker is generally regarded as the agent of the insured but may, if the facts so establish, be considered the agent of the insurer. On the facts of this case it is, I think, entirely clear that both A&A (and AH) and J&H acted throughout for Sea Trade and not for the Association. That is as would generally be expected (both in the UK and New York) and is wholly consistent with the documents and, of course, the evidence of Mr Wright. The terms of J&H's instructions could hardly have been wider (paragraph 17). The requests for the Rules and the terms on which they were supplied (paragraph 49) and the terms and purpose for which the Certificate of Entry was requested demonstrate, as I have said, that J&H were acting for Sea Trade and Trans-Ocean in seeking and receiving the documents.
96. Had this question been material, I would also have decided it in favour of the Association.

THE EXCLUSIVE JURISDICTION ISSUE

97. Clauses 44.1 and 44.2 are quoted in paragraph 7.

Authority

98. I have also been referred to a number of authorities on this issue. They are not all easy to reconcile. The language of "transitive" and "intransitive" does not leap to every mind. But one of the, if not the, most often cited cases and judgments is the decision of Hobhouse J given in July 1989 in Pathe Screen Entertainment v Handmade Films, which has recently been fully reported as an attachment to the judgment of Morison J in Tonicstar Ltd v American Home [2004] EWHC 1234 (Comm).
99. The Issue in Pathe Screen concerned wording which read:

"The parties hereby [consent and] submit to the jurisdiction of the Court of England in connection with any dispute arising hereunder."

100. The bracketed words "and consent" appeared in one clause but not another, but Hobhouse J's judgment applies regardless. In the course of his judgment, Hobhouse J said:

"The construction of a contract depends upon the words used by the parties construed in their context in the contract and in the light of the surrounding circumstances to the making of the contract. Broadly, jurisdiction clauses which are mutual may be of three types. First there can be a clause which specifically provides that a certain court is to have exclusive jurisdiction. Second there can be a clause, like an arbitration clause, by which the parties agree to refer to a particular court the determination of certain disputes. Thirdly, the parties can simply agree that a certain court will have jurisdiction over them or to submit to the jurisdiction of that court. In the first two categories to attempt to litigate a relevant dispute before some other forum is a breach of the clause although under English law, the remedies for such breach may be limited and discretionary; this is because under English law no agreement, apart from some statutory provision can oust the jurisdiction of the court. The function of the third category is to confer jurisdiction and avoid disputes about jurisdiction; it can accordingly confer useful and valuable rights.

The clauses which I have to construe do not use the word 'exclusive'. But if the context and the remainder of the words the parties have used demonstrate that their intention was that the jurisdiction should be exclusive then the clause can nevertheless be put into, and enforced as a clause in, the first category.

I have been referred to two cases in which Courts were prepared to treat a jurisdiction clause as exclusive even though that word was not used. The first is Austrian Lloyd v Gresham Life Assurance, 1903 1 KB 249 (Court of Appeal). The contract concerned was a life insurance policy … The translation of the relevant clause read:

"Residence for purpose of jurisdiction. 24. For all disputes which may arise out of the contract of insurance all the parties interested expressly agree to submit to the jurisdiction of the Courts of Budapest having jurisdiction in such matters.

At page 251 of the Report Lord Justice Romer posed the question:

"Does the condition merely mean that, if one of the parties to the contract is sued by the other in the Court of Budapest, he will not take any objection to its jurisdiction; or, does it mean that parties mutually agree that, if any dispute arise under the contract, it shall be determined by the Court of Budapest?"

He answered the question: "Having regard to the nature of the contract and its language, I am of opinion that the latter construction is the correct one." He considered the object of the contract and likened the clause to an agreement to submit any dispute under the contract to the arbitration of some individual. The other member of the court, Lord Justice Matthew, expressed himself similarly. He considered that the plain meaning of the language used by the parties was that "both parties shall be bound to refer such a dispute to that court". The view of the Court of Appeal was therefore that the clause came within the second category which I have identified.

The other authority is more recent; it was decided by the Court of Appeal on the 14^th July of last year, Sohio Supply v Gatoil USA Inc 1989 1 Lloyd's 588. There the contract was for the sale of 600,000 barrels of Brent crude … The contract incorporated BP standard terms which included a specific clause – "Governing Law: This agreement shall be governed by the laws of England. Under the jurisdiction of the English Court without recourse to arbitration." The question before the Court of Appeal was whether this was an exclusive jurisdiction clause. A statement in Dicey and Morris was approved by the Court: "Some authorities suggest that the clause must provide in terms that the jurisdiction of the chosen Court be exclusive… But it is submitted that the question is whether on its true construction the clause obliges the parties to resort to the relevant jurisdiction irrespective of whether the word exclusive is used". The Court of Appeal therefore considered it as a question of the construction of the contract and nothing more, such question to be considered against the matrix background or surrounding circumstances, in which the contract was made. The Court of Appeal considered that having regard to such surrounding circumstances there was good commercial reason why the parties should have agreed an exclusive jurisdiction clause….They concluded that the true construction of the contract was that it provided an exclusive not merely permissive jurisdiction….

Turning now to the contract which I have to construe, I must of course construe it in accordance with English law and take into account neither more nor less than the materials which are considered by English law to be relevant to the construction of a written commercial contract. The fact that the clauses in question do not include the word 'exclusive' does not if itself provide the answer. However, in view of the fact that if the parties had wished to provide for exclusive jurisdiction there was a simple and clear wording which they could have adopted to achieve that result, there is no warrant for construing a jurisdiction clause as an exclusive jurisdiction clause unless that can clearly be seen to be the intention of the parties….

In my judgment the wording of these clauses is clear. The clause in the model and conforming agreements starts by specifically referring to the fact that the agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. It therefore expressly contemplates the relevance of other entities than those actually named in the agreement. It then uses words which are words of submission not reference: "The parties hereby submit to the jurisdiction". The addition of the word 'consent' reinforces the same conclusion. The phrase in the Austrian Lloyd case was "agree to submit" but in that case it was construed in a transitive sense as an agreement to submit disputes to a particular court in the same way as one can agree to submit disputes to an arbitrator. The clauses which I have to construe do not lend themselves to a transitive construction; the sense is that the parties submit themselves to the jurisdiction of the court not that the parties submit disputes. In the Austrian Lloyd case it was open to the court to construe the words as if they read "to agree to submit all such disputes". I do not consider that it would be appropriate to make such an inferential insertion in these clauses. Words are an accurate tool and relatively small differences in wording will produce different contractual effects. In these clauses the parties have used neither the word exclusive nor a sentence construction which is transitive. They have used words which are apt to demonstrate an intention to agree to submit to the jurisdiction of the English Courts and not that there should be a contractual obligation not to have any recourse to any other court. This is the natural meaning of the words used, it is consistent with the surrounding circumstances and the general matrix of the contracts and in accord with the general context in which these clauses appear in the contracts."

101. I have quoted from this judgment at length not only because it addresses the wording used in the Court of Appeal cases referred to, but because, it is agreed, the wording of Rule 44.1 is to the same substantial and grammatical effect as the wording addressed by Hobhouse J. Unless, therefore, there is some valid distinction to be drawn, or I decline to follow the decision, Rule 44.1 would not be an exclusive jurisdiction clause and the arbitral tribunal would have reached an erroneous conclusion. As Mr Bailey, who argued this part of the case on behalf of Sea Trade, put it the question is whether the parties submit to the jurisdiction or all disputes are submitted to the jurisdiction.
102. Mr Moriarty did not submit that Hobhouse J was wrong. He was right not to do so; at least to a court of first instance. The decision has since been frequently referred to substantially without criticism. It was applied by the Court of Appeal in Sabah v GOP [2003] 2 Lloyd's Rep 571, see per Waller LJ at paras 30-34. Mr Moriarty sought to distinguish the decision, pointing out (with some justification, I think) that the analysis of the Austrian Lloyd case opened the way to "inferential insertion" in respect of wording not easy to distinguish in substance from the wording before Hobhouse J and this court. The particular wordings in later cases in which jurisdiction clauses were held to be exclusive such as British Aerospace v Dee Howard [1993] 1 Lloyd's Rep 368, Continental Bank v Aeakos Co [1994] 1 WLR 588 and Sinochem v Mobil [2000] 1 Lloyd's Rep 670 are much more readily distinguishable.
103. In the British Aerospace case, at page 375, Waller J distinguished Hobhouse J's decision (described as the Cannon Screen case) on two grounds specific to the wording, but also because of the presence of an English choice of law clause, albeit such a clause was also present in the contract construed in Pathe Screen itself. Waller J considered the choice of law clause material because "there is no real purpose as I see it in submitting disputes to the jurisdiction of the English court as well as choosing English law unless the intention is to make England exclusive". Rix J in Sinochem made the same point at page 676. But, as Mr Bailey submitted, even a nonexclusive jurisdiction clause does have a purpose. It makes it difficult, if not impossible, to argue that the chosen forum is not an appropriate one for the resolution of the dispute. In Axa v Ace [2006] EWHC 216, Gloster J, like Hobhouse J, held that an English jurisdiction clause was non-exclusive notwithstanding that the contract also contained an English choice of law clause.
104. Although both parties sought to pray in aid "the obvious commercial sense" of their respective constructions neither in my judgment demonstrated any compelling contextual arguments to that end.
105. Mr Moriarty's major submission was that the arbitration provisions in Rule 44.2 justified the Court reaching an opposite conclusion to Hobhouse J. I do not think they do. The fact that there is (save for claims by the Association) a mutual elective arbitration clause for arbitration in London cannot, I think, affect the proper construction of Rule 44.1; and, indeed, as Mr Bailey submitted, if it did there is no good reason for giving more emphasis to London than to the fact the Rule is elective or optional.

Conclusion

106. In my judgment no good reason has been shown for this court departing from the conclusion reached by Hobhouse J on wording agreed to be substantially the same as Rule 44.1. If, therefore, the issue had been heard by me, I would have decided it differently from the arbitral tribunal.

Permission

107. Sea Trade need permission to appeal on this issue. The tribunal addressed it in peremptory terms in paragraph 40 of the Award. Sea Trade submit the decision was both "open to serious doubt" and, if necessary, "obviously wrong". Mr Bailey submitted the "lower" test was appropriate because the issue was not a "one-off" issue but involved the construction of a standard form of contract applicable (as I have held) to all members of the Association which is itself a leading provider of war risks insurance covering some 80% of the Greek fleet. I accept that submission. I therefore grant leave and determine the question as I have stated.

CONCLUSIONS

108. In my judgment, the answers to the five Issues ordered to be the subject of this determination (paragraph 4) are:

i) Issue (1) English law applies.

ii) Issue (2) Yes: Rule 44 was incorporated in the insurance of Sea Trade by the Association.

iii) Issue (3) Yes: Rule 44 does apply on the facts of the case.

iv) Issue (4) No: Breaches of Greek law (if any) are irrelevant.

v) Issue (5) No: Breaches of New York law (if any) are irrelevant.

109. Sea Trade is granted permission to appeal on the question whether Rule 44.1 is an exclusive English jurisdiction clause and in my judgment it is not.
110. I will hear the parties on the appropriate form of order and any outstanding issues when this judgment is handed down.