Brotherton v. Colseguros

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Brotherton and others v Aseguradora Colseguros SA and another

Michael Swainston and Roger Masefield, instructed by Reynolds Porter Chamberlain, for the claimant reinsurers
Richard Millett, instructed by Clyde & Co, for the defendant insurers
Case Note based on an Article in the January 2002 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA

DMC Category Rating: Confirmed

In these proceedings, claimant reinsurers sought a declaration that they were entitled to avoid two facultative reinsurance contracts on the grounds of misrepresentation and non-disclosure. This interlocutory hearing, in which the defendant insurers sought to set aside service of proceedings upon them out of the jurisdiction, was to decide whether England was the appropriate forum for hearing the case in the absence of an express choice of jurisdiction. It also dealt briefly with the circumstances when proceedings can be served on a foreign defendant’s agent.

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The reinsurance contracts (two bankers' fidelity slip policies) covered the defendant primary insurers' liability as insurers of a Colombian bank. The dispute concerned alleged non-disclosure of reports in Colombian newspapers that the president of the bank was involved in corrupt lending and this had led to a police investigation and his arrest, charge and suspension. The reinsurers claimed that these same lending irregularities formed the basis of losses claimed by the bank against its insurers. í

The facultative reinsurance was entered into by means of declarations to a line slip agreed by the lead underwriter (although a minority of subscribers insisted on agreeing each declaration separately). The line slip was silent on issues of jurisdiction, although the governing law was stated to be English law. í

The defendants’ brokers, Butcher Robinson Staples, presented the risk to the lead underwriter in November 1997, and subsequently produced two quotation sheets for the primary and excess layers respectively. The primary quotation stated "jurisdiction clause as attached", but these words had been crossed out by the lead underwriter before he initialled the slip. The slip itself used the same phrase, but this time the lead did not delete it. In any event, no jurisdiction clause was attached. As regards the excess layer, neither the quotation nor the slip made any reference to jurisdiction. í

The factual evidence conflicted. The defendants argued that a generic jurisdiction clause had been discussed and agreed with the lead underwriter to the effect that the governing law and jurisdiction would be where the insured's head office was situated, namely Colombia. But no copy of any such clause was found on the underwriter's or brokers’ files or computer records. The underwriter's evidence was that no agreement had been reached on jurisdiction and that only in exceptional circumstances would he ever have agreed that any law other than English law should govern the reinsurance. í

The defendants’ evidence failed to convince the judge. Ê

He also quickly disposed of a last-minute argument that sought to rely on the recent English case of Burrows v Jamaica Private Power Company (High Court, October 2001) to suggest that a mere reference to a jurisdiction clause was enough to constitute an agreement conferring jurisdiction on the Colombian courts. In the Burrows case, the parties had included a standard overseas jurisdiction clause (without specifying which jurisdiction) in circumstances where the only one they could conceivably have had in mind was Jamaica. In the current case, there was no jurisdiction clause attached and no indication of a preference for non-English jurisdiction, let alone Colombian. Ê

Having decided that there had been no agreement for Colombian jurisdiction, the judge found it easy to conclude that England was the appropriate forum. The reinsurance contracts were governed by English law, the primary issues of fact revolved around misrepresentations and non-disclosures by London brokers to London underwriters in London, the witnesses (factual and expert) were based in England and the proceedings on the underlying insurance were of no direct concern to the dispute. Ê

On the question of service of the proceedings, the Rules of Civil Procedure allow a claimant to apply to serve proceeding on the defendant's agent where (a) the defendant is overseas, (b) the contract was entered into within the jurisdiction with or through the defendant's agent and, (c) at the time of the application, either the agent's authority has not been terminated or he is still in business relations with his principal. Ê

As broker, Butcher Robinson Staples acted as the defendants' agent but, by the time of the application, their retainer regarding this reinsurance had been terminated. However, because they continued to act on behalf of the defendants on a whole range of other reinsurance contracts, they were clearly still "in business relations" with them. This was, therefore, a prime example of a case when service on an agent would be allowed. Ê

The defendants’ application to have service of proceedings upon them set aside failed accordingly.

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Choice of law clauses and jurisdiction clauses, though frequently linked, actually deal with different issues - the law which will govern the contract (sometimes called the "proper" or "applicable" law) and the jurisdiction within which any dispute will be heard. There is no rule to say the two have to match, so it is quite possible for the contract to be interpreted according to, say, Japanese law and the case to be heard in England.

If, however, the contract does not expressly state which law or which jurisdiction will apply, or if it is silent on both issues, the court has to decide whether a choice of law and/or jurisdiction can be implied.

Where, as here, the governing law has been specified, but there is no jurisdiction clause, the court will be more inclined to find an equivalent implied term as to jurisdiction (or vice versa). Other factors will also be taken into account, however, such as an arbitration clause or other terms in the policy. If all else fails, the court will look at (in the case of governing law) the law with which the contract has the closest connection, and (in the case of jurisdiction) the most appropriate forum for the dispute, taking into account such factors as where the contract was made and by whom and (in deciding jurisdiction) where documents and witnesses are located.

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