Out-Law Guide | 02 Nov 2010 | 11:32 am | 4 min. read
Gard Marine & Energy Limited and Others v Glacier Reinsurance AG and another
Gard (a Bermudan company) participated in the insurance of a US energy company against property and business interruption risks. Excess of loss reinsurance was placed on the London market.
During the 2005/6 reinsurance renewal, a 5% line was offered to and accepted by Glacier, a Swiss reinsurance company. This was set out on a separate slip from the London market participants. Although the main slip included an English choice of law clause, the Glacier slip did not.
On 23rd September 2005, the Gulf of Mexico was hit by Hurricane Rita. The insured's loss was agreed at $365 million, Gard's share being $46.6 million.
Gard claimed on the reinsurance, but a dispute arose about when the cover was triggered. Reinsurers argued the excess point was higher than the figure put forward by the reinsured, so that their liability was correspondingly less. Glacier paid its share of this lower amount under a reservation of rights.
In March 2007, Gard issued proceedings in London against Glacier and two of the London reinsurers (one of whom subsequently settled). Glacier was served with these proceedings in June 2007. In May 2007, however, Glacier issued proceedings in Switzerland denying liability and seeking repayment of what it had already paid.
Glacier's main argument was that the reinsurance was null and void because it and Gard had had such a different understanding of the reinsurance that there had been no meeting of minds, or there had been a material error in entering the contract. It also claimed late notification of the claim.
In December 2007, the Swiss Court held that it did not have jurisdiction as Gard was not domiciled in Switzerland. Glacier nevertheless continued with an application to the court in London to dismiss the English proceedings. The High Court dismissed the application in October 2009. Glacier appealed.
The Lugano Convention determines jurisdiction issues as between EU members and EFTA member states (Iceland, Norway and Switzerland). It is closely modelled on the Brussels Convention, which was superseded in 2001 by Regulation 44/2001.
Under Lugano, the general rule is that a defendant must be sued in the state of his domicile. But Article 6(1) provides that, where a person is one of a number of defendants, he can also be sued where any one of them is domiciled.
European case law on a similar provision in the Brussels Convention has held that this applies where claims against different defendants are so closely connected that it is expedient to hear and determine them together in order to avoid the risk of irreconcilable judgments from separate proceedings. There is a risk of irreconcilable judgments if there is likely to be a divergence in outcome where there is "the same situation of law and fact".
Glacier argued that there was no risk of irreconcilable judgments because its dispute with Gard would not be based on the same law or facts as the dispute with the London market reinsurer.
It maintained Swiss law applied to its reinsurance contract because the presentation had been made and accepted in Switzerland and Glacier had signed a separate slip from the London market reinsurers.
The Court of Appeal dismissed Glacier's application.
The court had to decide whether there was risk of irreconcilable judgments such that there might be a divergence in outcome where there was the same situation of law and fact. This required to court to consider all the factors.
The first of these was the applicable law of the Glacier slip, which had no express choice of law clause. Under the Rome Convention, there must be a demonstrable choice of law but, in the absence of such a choice, the law of the state with which the reinsurance had its closest connection will apply.
The appeal judges were satisfied in this case that all the factors pointed to a demonstrable choice of English law.
The correspondence made it clear that Glacier was participating in a London market placement. The fact that Glacier signed a separate slip was of little significance. Overseas subscriptions are often set out on separate slips for convenience. The slip itself was in the form of a London market slip and included London market terms.
It made no commercial sense for one part of the reinsurance to be governed by one law and another by a different system. In addition, the underlying insurance was governed by English law, which, although not determinative, was another factor in favour of English law as the governing law for the reinsurance.
Even if this had not been the case, the Court of Appeal was satisfied that the contract had its closest connection with England. Although there was a presumption that, because Glacier's obligation to pay under the contract arose in Switzerland, its closest connection was with Switzerland, this was overridden by all the other factors that pointed to a closer connection with England.
The second factor was the connection between the issues in dispute between Gard and Glacier and between Gard and the London market reinsurer.
The main issue – the trigger point – concerned the true construction of the contract. That issue was the same under the main slip and the Glacier slip. The different manner and timing of the placements and the minor differences in the wording of the two slips did not have a material bearing on this. The brokers used the same file and the same basic materials in each placement.
This was not a case of forum shopping. It was a claim brought in respect of a market placement with different underwriters where there was a real commercial need for a dispute to be determined by one tribunal.
The Court of Appeal concluded there would be a risk of irreconcilable judgments if the primary issue - the construction of the reinsurance - was decided by two different courts. The same was true of the defences raised by Glacier that the contract was null and void.
This is another example of a case where the fact that it is a London market slip incorporating London market terms has a considerable bearing on the question of jurisdiction (see: Stonebridge v Ontario).
In light of all the other factors pointing to English law as the applicable law, the Court of Appeal attached little significance to the fact that the main slip had an express English choice of law clause but the Glacier slip was silent on the point. As far as the appeal judges were concerned, this was a simple mistake.
Of course, an express choice of law clause in the Glacier slip would have settled the issue from the start.