Court of Appeal considers jurisdiction of the English court to hear Covid-19 BI claim

In Al Mana Lifestyle Trading LLC & Ors v United Fidelity Insurance Company PSC & Ors [2023] EWCA Civ 61 the Court of Appeal considered the jurisdiction of the English court to hear claims brought by the Claimant policyholders against their insurers for indemnities for business interruption losses (BI) arising from the Covid-19 pandemic. In doing so, the court had to consider whether a jurisdiction clause that both parties agreed was "not a model of drafting" was exclusive or not.

The Court of Appeal reversed the first instance decision and found that the English court did not have jurisdiction to hear the claims. In a split decision, the majority of the Court of Appeal found that the clause gave exclusive jurisdiction to the courts in the country in which each policy was issued (in the Middle East). Only if the jurisdiction of the local court was not available would the courts of England and Wales have jurisdiction.

BACKGROUND

The Claimants formed part of the Al Mana Group, an enterprise which includes businesses in the food and beverage and retail sectors operating in the Middle East and Gulf region. There was no business in England or Wales.  The Defendant insurance companies operated within Gulf Cooperation Council countries. The First Defendant had its headquarters located in the United Arab Emirates, the Second Defendant was located in Qatar and the Third Defendant in Kuwait.

The Claimants sought an indemnity in the region of US$40m related to alleged BI losses during the Covid-19 pandemic under a suite of seventeen "Multi-Risks" insurance policies underwritten by the Defendants (the Policies). It was common ground that the Policies were issued respectively in the UAE, Qatar and Kuwait.

The principal issue was whether or not the Policies contained a jurisdiction agreement entitling the Claimants to bring their claims before the English courts. Each of the Policies contained the following Applicable Law and Jurisdiction Clause (the Clause):

"APPLICABLE LAW AND JURISDICTION:

In accordance with the jurisdiction, local laws and practices of the country in which the policy is issued. Otherwise England and Wales UK Jurisdiction shall be applied,

Under liability jurisdiction will be extended to worldwide excluding USA and Canada."

The Claimants argued that the Clause permitted proceedings to be brought in either:

• the country where each of the Policies was issued (in this case, the UAE, Qatar or Kuwait); or
• in the courts of England and Wales.

The Defendants’ case was that the Clause should be interpreted as an exclusive jurisdiction clause such that disputes must be submitted to the courts of the countries in which the Policies were issued (the UAE, Qatar and Kuwait), with a fallback for English and Welsh jurisdiction in the event that the local court does not have or would not accept jurisdiction

The Claimants argued that their construction was the obvious and natural meaning of the first and second sentences of the Clause and their construction gave proper effect to both. They submitted that:

• The Defendants’ proposed construction introduced a condition precedent to the operation of the second sentence that is not there and amounts to a rewriting of the provision.
• “Otherwise” should be read as equivalent to “alternatively”.
• Their construction reflected the London market scheme and made good commercial sense against the commercial background in which each of the Policies was issued in conjunction with the others as part of a suite providing comprehensive coverage for the Al Mana Group’s operations in numerous jurisdictions.

The Defendants argued the following taking each of the three key components of the Clause in turn:

"In accordance with the jurisdiction, local laws and practices of the country in which the policy is issued"

In respect of this aspect, the Defendants contended that:

• The words “In accordance with” were imperative and directory, particularly when read alongside the title of the clause and should be read as equivalent to “subject to”.
• This construction was consistent with the natural purpose of the words, relying upon Hin-Pro International Logistics v Compania Sud Americana De Vapores SA [2015] EWCA Civ 401.
• It makes obvious sense to make law and jurisdiction a mandatory matching pair.
• The absence of the word "exclusive" is not decisive (relying on Continental Bank NA v Aeakos Compania Naviera SA [1994] 1 Lloyd’s Rep 505).

"Otherwise England and Wales UK Jurisdiction shall be applied"

The Defendants argued that this component related only to jurisdiction and was akin to the words “If notwithstanding the foregoing” considered by the Court of Appeal in Hin-Pro. In Hin-Pro, the following law and jurisdiction clause was considered:

"This Bill of Lading and any claim or dispute arising hereunder shall be subject to English law and the jurisdiction of the English High Court of Justice in London. If, notwithstanding the foregoing, any proceedings are commenced in another jurisdiction, such proceedings shall be referred to ordinary courts of law…"

In that case, it was found that the use of the phrase, "if, notwithstanding the foregoing, any proceedings are commenced in another jurisdiction" in the jurisdiction clause, recognised that the first sentence required litigation in England as a matter of contract.

"Under liability jurisdiction will be extended to worldwide excluding USA and Canada"

The Defendants contended that this was irrelevant to the present dispute, being a reference to Section 5 of the cover (Public and Product Liability).

FIRST INSTANCE DECISION

In the High Court, Cockerill J agreed with the Claimants' case and found that the clause gives, whichever party wishes to bring a claim, a choice of bringing proceedings either in the local court or in England and Wales. She noted that the local law provision was a factor in favour of the Defendants' contention, but it must be considered with the other arguments. Cockerill J did not concur with the Defendants' contention that the words "in accordance with" were equivalent to the words “subject to” and therefore imperative and directory. She also highlighted that the first two components of the Clause did not run together as a sentence but they did in formatting. She felt that in reality this wording, with mandatory or quasi-mandatory elements in both parts, presented more naturally to a reader as an "either/or."

She also disagreed with the Defendants that "Otherwise" was synonymous with "or". She noted that, bearing in mind the eccentricities of the drafting, one would not be minded to place too much stress on why one word (say "otherwise") was used instead of another (such as "or").

Cockerill J concluded:

"Both as a question of impression and on detailed analysis I consider that the better view is that the clause provides for non-exclusive jurisdiction – a true alternative". I accept that the clause is to some extent odd, but this result is less odd and creates fewer difficulties than the approach urged by the Defendants. A non-exclusive jurisdiction clause best harmonise(d) the wording and the commercialities of the clause in the context of the wider factual matrix."

COURT OF APPEAL DECISION

The Court of Appeal, by a majority (Males LJ and Nugee LJ), allowed the appeal finding the Clause gave exclusive jurisdiction to the courts in the country in which each policy was issued (in the Middle East). Only if the jurisdiction of the local court is not available would the courts of England and Wales have jurisdiction.

Males LJ emphasised that the starting point should be how the words of the Clause would be understood by a reasonable policyholder. His strong first impression was that the first sentence in the Clause stipulates the parties' choice of primary jurisdiction, with a fallback for English or Welsh jurisdiction in the second sentence. He said that this impression was confirmed by the analysis in the parties' submissions.

The Court noted that the first sentence in the Clause deals not only with jurisdiction, but also with the governing law (i.e. the local law) and the need to apply local practices, while the second sentence is confined to jurisdiction. This strongly suggests that the first sentence is intended to contain the primary rule, with the second sentence operating as a fallback. Thus, even when the second sentence applies and English jurisdiction is invoked, the English court would be required to apply the local law and practices and it was clearly preferable for a local court, rather than a court of England and Wales to consider issues of local law, as they would be familiar with local practices. The words "in accordance with" were mandatory.

Males LJ acknowledged that often punctuation does not help support a particular construction of a clause but that it can help to inform the question of how a provision would be read by the ordinary reader. With regard to the construction of the Clause, the capital letter on "Otherwise" and the full stop at the end of the first sentence he thought suggested that the first and second sentences are independent rather than being read as a single composite provision. Therefore, when the reader comes to the second sentence, they have already understood the first sentence to provide that the applicable law will be the local law of the place of issue, that local practices are to be applied, and that the courts of that place are to have exclusive jurisdiction.

On the meaning of the word "Otherwise" in the second sentence ("Otherwise England and Wales UK Jurisdiction shall be applied") Males LJ held that the Clause must be considered as a whole. He held that "Otherwise" on its natural meaning indicates that the second sentence sets out the fallback i.e. if the local court is not available (would not accept jurisdiction) then English and Welsh jurisdiction is. Nugee LJ agreed and held that "Otherwise" in this context means "Failing that" indicating that the second sentence (England and Wales jurisdiction) applies where the stipulation in the first sentence fails (i.e. if the local court does not or would not accept jurisdiction).

The Claimants also objected to the appeal in their submissions by posing the following:

• that either there are no/very limited circumstances in which the local court would not accept jurisdiction, in which case the second sentence serves no purpose; or
• there are likely to be disputes about whether the local court would accept jurisdiction, leading to uncertainty for the Claimant about where it should issue proceedings.

Males LJ believed the above to represent a false dilemma. On the first point, while Males LJ accepted that the circumstances in which the local court would not accept jurisdiction are very limited or, perhaps, even non-existent, there was no reason why parties should not agree to confer jurisdiction on one court, with another as a fallback in case the primary court chosen is not available. This gives the parties the comfort of knowing that if, for any reason, their primary choice is not available, there is an alternative with which they are comfortable, and is a sensible agreement to make. On the second point, he thought such a dispute was unlikely to arise and that on any construction, there was an element of uncertainty inherent in the Clause.

In her dissenting judgment, Andrews LJ considered that a reasonable person would understand the Clause to mean that if, for whatever reason, the proceedings are not brought in the courts of the country where the policy was issued, they must be brought in England and Wales. She disagreed that sentence 2 could be considered a 'fallback' provision, arguing that it would not have been difficult to have started the second sentence with the alternative words such as: "If that court declines jurisdiction", "If that court is unavailable" or "If that is not possible". None of these phrases is synonymous with "otherwise", which is the word that the parties used. Furthermore she thought there was lack of any realistic practical utility of a "fallback clause" compared with the potential benefits to the parties of agreeing on a limited choice of jurisdictions in which to resolve their disputes.

COMMENT

The judgment is an important reminder of the need for careful drafting of jurisdiction clauses. Indeed, the Claimants, Defendants and judges in both courts agreed on one point relating to construction of the Clause, namely that it was 'not a model of drafting.' Good drafting ensures that the parties' intentions are properly recorded at inception of the policy and minimises the risk of satellite jurisdiction disputes.

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