DMC Category Rating: Confirmed/Developed

Background
The Plaintiff in this action represented a number of Lloyd’s syndicates which had delegated authority to a Hong Kong agency called International Reinsurance Services Ltd (IRS) to enter into reinsurance contracts, subjected to a restriction prohibiting re-reinsurance or in other words, retrocession business. In May 2004, IRS, on behalf of the syndicates, had entered into a contract of reinsurance with the Defendant under which the Defendant sought to reinsure with the Plaintiff 0.5% of the risk pertaining to the property belonging to a group of Taiwanese companies. On May 2005, a fire broke out, IRS was duly notified and the loss was provisionally adjusted at NT$7,650 million. In July 2005, the Plaintiff sought a declaration from the Hong Kong court that that it was not liable to pay the claim on the grounds that the Defendant had made a misrepresentation to its agent by not revealing the true dealings with its Taiwanese counterpart, thus inducing its agent to enter into a "re-re-insurance" contract which was ultra vires ("beyond the agent’s legal capacity or authority"). The Defendant was not a direct insurer but a reinsurer of another Taiwanese insurance company. Further, by agreeing to reinsure it, IRS had entered into ‘retrocession business’ which it was beyond its authority to do. The Defendant was aware of this restriction on IRS’ authority and, in these circumstances, the contract was void.

The Plaintiff obtained from the Hong Kong court an ex parte (the other side not being present) order granting it leave to issue a writ against the Defendant and to serve a copy of it on the Defendant in Taiwan. The Defendant applied to the court to set aside the order.

As part of its argument in support of its application, the Defendant contended that it was indeed a direct insurer or an ‘internal co-insurer’ as it is described under Taiwanese law. Under the insurance law and practice of Taiwan, there existed a doctrine of ‘internal co-insurance’ (which differed from reinsurance), under which a number of different insurers are able to share the risks undertaken by one of them. In this case the Defendant had been sharing the risk with another local Taiwanese insurer (whose name was not stated on the policy), with the effect that the Defendant was actually reinsuring its part of the risk, but not retroceding, or re-re-insuring. On this basis, the Plaintiff would be liable for the claim under the policy.

The Defendant also contested Hong Kong jurisdiction on the ground that the applicable law in this case was Taiwanese law; thus Hong Kong was not an appropriate forum. The Defendant referred to the ‘offer slip’ which was signed by the Plaintiff in which it referred to an ‘original policy’. If that policy was the one between the original insured and the primary underwriter, then it specifically designated Taiwanese law to be its proper law. If the ‘original policy’ were to be construed as the ‘co-insurance’ contract between the Defendant and its Taiwanese counterpart, the applicable law was still Taiwanese law. Furthermore, as the insured amount was denominated in Taiwanese currency and the place of performance (where the payment of the insurance proceeds would be made) was Taiwan, it could be concluded that Taiwanese law was the governing law and Taiwan the appropriate jurisdiction.

The Plaintiff, on the other hand, alleged that as the contract was entered into in Hong Kong, the place of performance was Hong Kong, the contract itself was in English and most importantly, the document regulating the relations between IRS and the Plaintiffs must be construed according to English/Hong Kong law, the proper forum would therefore be Hong Kong.

Judgment
The judge ruled that, in order to have the trial held in Hong Kong, the Plaintiff must demonstrate that Hong Kong was "clearly and distinctly" the appropriate forum. Furthermore, in order to determine whether Hong Kong was the appropriate forum, the decisive element lay in, firstly, the necessity for expert evidence as to Taiwanese insurance law and practice and, secondly, in the question whether the contract entered into between the Plaintiff and the Defendant was governed by Taiwanese or Hong Kong law.

In this case, expert evidence as to Taiwanese insurance practice was obviously necessary to clarify the concept of ‘co-insurance’. As to the governing law, the judge could see no reason why the Defendant, being a Taiwanese company, had to be concerned with the law governing the relationship between IRS and the Plaintiff, that is, Hong Kong law, when it concluded a contract with IRS as an agent of the Plaintiff. That contract was, he held, governed by Taiwanese law.

In these circumstances, the judge held that the Plaintiff had failed to establish that Hong Kong was the proper forum for the trial of this action and it followed that the ex parte order would be set aside with costs to the Defendant.

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