Case update: Jurisdiction clauses in reinsurance contracts

On 13 April 2021, the Commercial Court handed down judgment in Axis Corporate Capital UK II Ltd & Ors v ABSA Group Ltd & Ors [2021] EWHC 861 (Comm), partially continuing an anti-suit injunction applied for by Claimant Reinsurers (Reinsurers) against Defendants’ claims in South Africa, in respect of possible claims under primary, three layers of excess and aggregate retention reinsurance contracts. This will be of interest to those who deal with policies structured over various layers of insurance and reinsurance, in particular where those layers may not contain identical jurisdiction clauses.

Background

The first three Defendants were insured by their captive (the fourth Defendant), which had arranged the reinsurances. In November 2020, the Defendants brought proceedings against the Reinsurers in South Africa. The following month Reinsurers commenced proceedings against the Reinsureds in England, contending that the South African proceedings were brought in breach of agreement that the courts of England and Wales have exclusive jurisdiction.

On 2 February 2021 the English court granted Reinsurers an interim anti-suit injunction restraining the Defendants from pursuing proceedings in South Africa.

Judgment on the jurisdiction clauses

Following a full hearing on the jurisdiction dispute, the English court continued the anti-suit injunction in respect of claims under the excess reinsurance policies (which represent the majority of the claims) but not for claims under the primary reinsurance policy (the Defendants had conceded that the aggregation retention policy gave the courts of England and Wales exclusive jurisdiction).

Whilst the primary layer and excess layers had similar jurisdiction clauses, they contained a critical difference:

• The key part of the primary layer jurisdiction clause was: “Each party agrees to submit to a worldwide jurisdiction…” The Judge observed that neither of the parties found it easy to articulate the intended effect of this sentence, but he agreed with the Defendants that it was “about as far away from an exclusive England and Wales jurisdiction clause as one could get.” The  question that needed to be addressed was whether, assuming the excess layers are subject to an exclusive jurisdiction clause in favour of England and Wales, is this sentence in the primary layer subject to the proviso that “where a claim has impacted or would impact with the Excess Insurances and/or the [aggregate retention], the Defendants and the Reinsurers are obliged to submit…to the exclusive jurisdiction of the Courts of England and Wales.” The judge did not consider that this proviso could be read into the contract as a matter of construction. He then considered whether it could be an  implied term, and applied the test in Marks & Spencer v BNP Paribas [2016] AC 742, summarising that “a term can only be implied if, without the term, the contract would lack commercial practical coherence.” Whilst the Judge agreed with the Reinsurers that it was inconvenient and commercially undesirable to have proceedings on the primary and excess layers taking place in different jurisdictions, he concluded this is not enough to justify the implication of the term.
• The key part of the excess layers’ jurisdiction clause was: “Each party agrees to submit to the jurisdiction of England and Wales…” The question the Judge faced was whether this was an exclusive jurisdiction clause, or merely an agreement to submit to the jurisdiction of the English Courts, so that if the counterparty sues them in England, they will not object. He concluded that the main considerations in determining the construction of the jurisdiction clause were:

1. The fact that the parties have chosen English law can be a factor favouring an interpretation of the clause as an exclusive jurisdiction clause.
2. Immediately prior to the key part of the jurisdiction clause identified above was a sentence stating that any dispute would be subject to the law of England and Wales. The Judge held that the juxtaposition of these two sentences strongly supports an interpretation that reads that they both refer to the submission of disputes.
3. Although there can be commercial advantages to non-exclusive jurisdiction clauses, there are in general greater commercial advantages to exclusive jurisdiction clauses.

• The Judge held that the natural and proper reading of the jurisdiction clause was that the parties agreed that they would submit any dispute that might arise to the Courts of England and Wales and to no other court. He also noted that he reached his conclusion without reference to Article 25(1) of the Brussels Regulation Recast, but that had he found the question of construction to be evenly balanced he would have applied Article 25(1) as a “tie-breaker” on the basis that it creates a presumption of exclusivity.

Having considered the construction of the jurisdiction clauses, the Judge went on to consider the injunctive relief requested.

Restraining proceedings

The Reinsurers invited the court to continue the anti-suit injunction for the primary layer on the basis that the South African proceedings were vexatious, oppressive or unconscionable. The Judge declined to do so as he did not consider that the required “high hurdle” had been met. The Judge considered the leading case on anti-suit injunctions in the absence of an exclusive jurisdiction clause – Deutsche Bank AG v Highland Crusader [2009] EWCA Civ 725 and concluded that he was not persuaded that England was clearly the more appropriate forum.

As for the excess layers, the proceedings had been brought in South Africa, in breach of an exclusive jurisdiction clause. Here the Judge considered the principles set out in Catlin Syndicate v Amec Foster Wheeler [2020] EWHC 2530 (Comm) in relation to an anti-suit injunction based on a jurisdiction clause. His view was that, if there had been no proceedings in South Africa in relation to the primary layer policy, then there would clearly be no reason to refuse to restrain the proceedings regarding the excess layers. He concluded that while having parallel proceedings on different layers of the same reinsurance programme in two jurisdictions was not ideal, it was what the parties had agreed and it was not enough reason to refuse to restrain the excess layer proceedings. The Judge held that the Defendants were not able to show the necessary “strong reasons” for him not to enforce the parties’ agreement and therefore granted the injunctive relief sought.

This case illustrates the problems that can arise when primary and excess contracts have inconsistent dispute resolution provisions, and do not spell out whether a nominated venue has exclusive jurisdiction. Consistent and clear drafting through the layers can avoid the inconvenience and expense of “disputes about disputes”, duplicated proceedings and the risk of inconsistent outcomes.