Inconsistent jurisdiction clauses across primary and excess layers result in proceedings in different jurisdictions for reinsurance claims

The Court has had to grapple with construing different jurisdiction clauses across different reinsurance contracts in Axis Corporate Capital UK II Ltd & Ors v ABSA Group Ltd & Ors [2021] EWHC 861 (Comm). The Court concluded that an anti-suit injunction should be granted restraining South African proceedings under some but not all of those reinsurance contracts.

The Court recognised that its decision meant the end result was far from ideal because it left the parties involved in two sets of proceedings in different jurisdictions. This not only involves additional expense but also risks inconsistent judgments.  However the outcome reflected the different wording of the agreements entered into by the parties.

The decision is a useful reminder of the practical consequences of having policies structured over primary and excess layers which do not have identical jurisdiction provisions and the need to try and avoid this by considering such clauses carefully at the placement stage.

Background

ABSA Bank was trustee or custodians of a Collective Investment Scheme and faced claims by investors in that scheme.  ABSA Bank settled those claims and sought to recover under certain liability insurance policies issued by its captive insurer, ABSA Manx.

The original insurance contracts issued by the captive insurer were essentially back to back with reinsurance contracts which ABSA Manx had entered into with the claimant Reinsurers (the Reinsurers). Those reinsurance contracts comprised a primary (Primary Layer Reinsurance), a series of three excess layers (Excess Layer Reinsurances) and a policy of Aggregate Retention Reinsurance (ARR) (together the Reinsurance Contracts). The underlying insurances were "fronting" insurance contracts: both the Original Insurances and Primary and Excess Layer Reinsurances contained cut-through clauses allowing the original insured to proceed directly against the Reinsurers.

A dispute arose between ABSA Bank and ABSA Manx (on the one hand) and Reinsurers (on the other hand): Reinsurers contended that ABSA Bank's claims were not covered.  ABSA Bank and ABSA Manx commenced proceedings against Reinsurers in South Africa.

Reinsurers applied to the English court for an interim anti-suit injunction restraining ABSA Bank and ABSA Manx (the Defendants) from pursuing the South African proceedings and an urgent ex parte hearing was held on 2 February 2021. At that hearing, Mr Justice Calver granted the interim anti-suit injunction.  At a subsequent inter partes return date hearing, Mr Nicholas Vineall QC, sitting as a Deputy High Court Judge considered the Defendants’ application to set aside the interim anti-suit injunction and the claimant Reinsurers’ cross-application to continue the interim anti-suit injunction

There were three different law and jurisdiction clauses across the different Reinsurance Contracts – one in the Primary Layer Reinsurance,  a second which appeared in all three Excess Layer Reinsurances and a third in the ARR policy.

Both parties accepted that the jurisdiction clause in the ARR policy conferred exclusive jurisdiction on the courts of England and Wales. It was the choice of jurisdiction in the Primary Layer and Excess Layer Reinsurances that was in dispute.

Decision

Primary Layer Reinsurance

This policy did not contain an express exclusive jurisdiction clause and provided that:

"Each party agrees to submit to a worldwide jurisdiction and to comply with all requirements necessary to give such court jurisdiction."

Reinsurers argued that on the true construction of the contract, or by way of an implied term, where a claim has impacted or would impact the Excess Layer Reinsurances and/or the ARR, the parties are obliged to submit any dispute arising under or connection with the Primary Layer Reinsurance to the exclusive jurisdiction of the English courts.

The Court noted that neither party had found it easy to articulate exactly what the intended effect of the clause was. However, it disagreed with Reinsurers' interpretation and agreed with the Defendants that since the clause referred to "worldwide jurisdiction", it was "about as far away from an exclusive England and Wales jurisdiction clause as one could get". It did not agree that a term should be implied providing for the exclusive jurisdiction of the English courts where a claim would impact either the Excess Layer Reinsurances or the ARR. While the Court recognised that having proceedings on the primary and excess layers taking place in different jurisdictions would be inconvenient and commercially undesirable and risked inconsistent decisions, this was not enough to justify the implication of a term.

Excess Layer Reinsurances

The relevant clause in the Excess Layer Reinsurances provided:

"Each party agrees to submit to the jurisdiction of England and Wales to comply with all requirements necessary to give such court jurisdiction.

In respect of claims brought against the insured and indemnified under this policy, as more fully described herein, the choice of law applicable is Worldwide and the choice of jurisdiction is Worldwide."

Reinsurers argued that this conferred exclusive jurisdiction on the courts of England and Wales. Although the Defendants agreed that the clause conferred jurisdiction on the courts of England and Wales, they argued that this was not an exclusive jurisdiction clause. In other words, it prevented the parties from objecting to the jurisdiction of the English court but did not compel them to sue there.

The parties agreed that it was possible for a jurisdiction clause to take effect as an exclusive jurisdiction clause even if the word "exclusive" is not used. This is consistent with the High Court's approach in other cases: see our litigation blog post on Global Maritime Investments Cyprus Limited v O.W. Supply & Trading A/S [2015] EWHC 2690 (Comm).

The Court had to construe the clause bearing in mind that there was an unambiguous exclusive jurisdiction clause in the ARR and there was no exclusive jurisdiction clause in the Primary Layer Reinsurances.  The Court took account of various factors including: the fact that the parties had chosen English law as the choice of law, and the advantage of certainty and predictability that an exclusive jurisdiction clause has over a non-exclusive one. Although there was a service of suit clause in the Excess Layer Policies permitting service of proceedings on a representative of the Reinsurers in South Africa, the Court held that service of suit clauses were only indicative of the parties' intentions regarding jurisdiction and must be construed in the overall context.  Here, the service of proceedings provision was intended to provide a convenient single, local place of service against all Reinsurers and did was not a significant factor in determining whether there had been an exclusive choice of jurisdiction.

Ultimately, the Court found that the natural and proper reading of the clause was that this was an exclusive jurisdiction clause.

Injunctive relief

Following its findings on the jurisdiction clauses, the Court then had to determine whether to restrain the South African proceedings on both the Primary Layer and Excess Layer Reinsurances.

Primary Layer Reinsurance

In respect of the Primary Layer proceedings (where the Court had found there was no exclusive jurisdiction clause), Reinsurers argued that the South African proceedings should be restrained because (i) they were vexatious, oppressive and/or unconscionable, (ii) England is the natural forum for these disputes, and (iii) it was in the interests of justice to grant an interim anti-suit injunction restraining the claims in South Africa under the Primary Layer Reinsurance.

On the ex parte application, Calver J had said that, even if there was no exclusive English jurisdiction agreement in the Primary Layer Reinsurance, the result of allowing the proceedings to continue in South Africa would be to allow concurrent proceedings relating to the same subject matter in two different jurisdictions, and would expose the parties to the risks of inconsistent judgments and likely complication with regard to recognition and enforcement of judgments. He was satisfied that granting the injunction had the potential to secure the continuation of only one set of proceedings taking place which was clearly desirable.

Whilst the Court agreed that it would be desirable for there to be proceedings in only one jurisdiction, it concluded that the high hurdle of demonstrating that proceedings limited to the Primary Layer Reinsurance would be vexatious or oppressive had not been made out by Reinsurers, applying 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. The Court was not persuaded that England was clearly the more appropriate forum for a claim under the Primary Layer Reinsurance and accepted the submission of the Defendants that the "centre of gravity" of the issues that would be in dispute was South Africa. The mere fact that there would be proceedings on the Excess Layer Reinsurances in England did not render it necessary in the interests of justice to stop the Primary Layer proceedings in South Africa. The injunction to stop the claim in South Africa brought on the Primary Layer Reinsurance was therefore declined.

Excess Layer Reinsurances

Having concluded that there was an exclusive English jurisdiction agreement in the Excess Layer Reinsurances, the question for the Court was whether the fact that there would continue to be proceedings in South Africa with claims under the Primary Layer Reinsurance  constituted a strong reason for refusing to restrain the claims under the Excess Layer Reinsurances in South Africa. The Court concluded that there were no such strong reasons and granted the injunction in relation to the South African proceedings on the Excess Layer Reinsurances.

Comment

The Court recognised that the end result was far from ideal because it left the parties involved in two sets of proceedings in different jurisdictions: proceedings in South Africa on the Primary Layer Reinsurance and proceedings in England on the Excess Layer Reinsurances. However, if the Court did not grant the injunction in respect of the Excess Layer Reinsurances the outcome may be worse, since there could be proceedings in respect of those reinsurance contracts in both South Africa and England.

Further, as the Court noted, the decision reflected the fact that the parties entered into contracts with different terms:

"The parties can reasonably expect the Court to enforce the terms which they agree, but they should not expect the Court to try to fashion for them an objectively better agreement."

The case is a clear reminder of the need for parties in (re)insurance contracts to make sure that governing law and jurisdiction clauses, and dispute resolution provisions more generally, are given the attention they deserve at placement.  Policyholders and reinsureds in particular should ensure that there is consistency, in so far as possible, in the dispute resolution provisions applicable to different (re)insurers and on different layers of a (re)insurance programme to ensure that any disputes are handled as efficiently as possible.