Court of Appeal considers conflicting jurisdiction clauses in insurance service agreements

In the recent case of Trust Risk Group SPA v AmTrust Europe Ltd [2015] EWCA Civ 437 the Court of Appeal held that there was a good arguable case that the jurisdiction clause in an earlier contract gave the English courts jurisdiction, despite an inconsistent clause in a subsequent agreement between the same parties. It found that where, as in this case, the overall contractual arrangements contain two or more differently expressed choices of jurisdiction and/or law in respect of different agreements, the correct approach was not to start with the Fiona Trust "one stop shop" presumption, but instead to apply a careful and commercially-minded construction of the contracts.

From a practical perspective, parties who enter into more than one contract with the same counterparty, either simultaneously or consecutively, should carefully consider the jurisdiction clauses in those agreements and, ideally, make sure they are consistent. If there is a good reason to have different choices or law or jurisdiction in the different contracts, parties should ensure it is clear in what circumstances each is intended to apply. It is important not to dismiss such clauses as boilerplate but to consider in each case whether individual negotiation might be required.

Drawing this case together with the previous authorities, it appears that where there are competing jurisdiction clauses, it will be easiest to determine which clause applies where the dispute clearly falls within the scope of only one of those agreements. Where the dispute transcends two or more agreements which have been entered into separately, over a period of time, the court might attribute a claim to a particular agreement even if that results in different jurisdictions dealing with different aspects of the relationship. However, where the contracts are "part of one package" the court might consider the "commercial centre of the transaction" in order to determine a single applicable jurisdiction.

Joanne Keillor and Rachelle Waxman comment on the decision below.

Background

An insurance broker and an insurer entered into a contractual arrangement comprising a Terms of Business Agreement (TOBA) and a framework agreement. The TOBA was a standard London form TOBA which included terms dealing with premium and commission payments. The framework agreement, which was entered into 6 months later, set out the terms of the exclusivity arrangements agreed between the parties in relation to the placement of medical malpractice insurance in Italy. The TOBA was appended to the framework agreement.  The framework agreement provided for Italian law and arbitration in Milan and the TOBA for English law and jurisdiction.

A jurisdiction dispute arose in relation to the TOBA following the breakdown of the business relationship between the parties.  The insurer began court proceedings in England and the broker challenged the court's jurisdiction. At first instance, the judge found that the insurer had a good arguable case that the TOBA continued as a separate agreement and was not superseded by the framework agreement, so that the English courts had jurisdiction. The broker appealed, arguing that the framework agreement was a single complete agreement governing the parties' relationship, including the TOBA which was scheduled to and subordinate to it.

Court of Appeal

The Court of Appeal (with a lead judgment being delivered by Lord Justice Beatson) upheld the first instance decision.

It first considered the scope of the Fiona Trust "one stop shop" presumption.  In Fiona Trust  & Holding Corporation v Primalov [2007] UKHL 40, the House of Lords considered the scope of a single arbitration clause, finding that disputes about the validity of the contract were included within its scope. They held that the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of their relationship to be decided by the same tribunal.

Beatson LJ found that where, as in this case, the overall contractual arrangements contain two or more differently expressed choices of jurisdiction and/or law in respect of different agreements, the position differs in that one does not approach the construction of those arrangements with a presumption. Instead, what is required is a careful and commercially-minded construction of the agreements. The Court of Appeal's approach to this issue differed to that taken by the first instance judge, who had concluded that on the face of it the Fiona Trust presumption carried considerable weight (whilst going on to consider how this case could be distinguished).

Beatson LJ considered two other fairly recent Court of Appeal decisions relating to the construction of conflicting jurisdiction clauses in complex financial transactions:

• In UBS Securities LLC v HSH Nordbank AG [2009] EWCA Civ 585 (see post) the Court of Appeal held that where parties had entered into a complex transaction comprising numerous agreements containing multiple and inconsistent jurisdiction clauses, it was the jurisdiction clauses in the agreements "at the commercial centre of the transaction" which they must have intended to apply to regulate the disputes which had arisen in that case – which related to misrepresentation in the inception of the transaction and performance of the obligations central to the investment.
• In Sebastian Holdings Inc v Deutsche Bank AG [2010] EWCA Civ 998 (see post), the Court of Appeal distinguished the case from the fact pattern of UBS and found that where a claim arose under a particular agreement, the jurisdiction clause in that agreement would apply even if this resulted in a fragmentation of proceedings.

In the present case, Beatson LJ distinguished cases where there is a complex series of agreements about a single transaction from the situation in cases such as this where there is a single contact creating a relationship which is followed by a later contract embodying a subsequent agreement about the relationship. He said that in cases such as the latter, where the contracts are not "part of one package" it may be easier to conclude that the parties chose to have different jurisdictions to deal with different aspects of the relationship.

The Court of Appeal found that there is no presumption that the provisions in the more recent contract are intended to capture disputes in the earlier contract even if, as in Sebastian, there is a risk of fragmentation of the overall process for the resolution of disputes. Rather, the court's job in interpreting the contracts is the usual one: to discern the intention of the parties, objectively speaking, from the words used, in the relevant context and against the factual background in which the documents were created. The starting point is the words used and the principle that the commercial parties who agreed the wording intended them to mean what they state in setting out the parties' respective rights and obligations. If there are two possible constructions, the court is entitled to prefer the construction which is more consistent with "business common sense" if that can be ascertained.

The two agreements in this case dealt with different aspects of the parties' relationship. The TOBA dealt with the placement of insurance by the broker with the insurer in general, whilst the framework agreement gave the broker exclusivity in the Italian market. It was not correct to say that commercial contractors could not contemplate different dispute resolution provisions in such circumstances.

Comment

This decision does not necessarily break new ground. However, it is a useful reminder of the approach the court might take in circumstances where there are conflicting jurisdiction clauses in agreements governing the parties' relationship. In particular, it provides useful clarification as to the scope and limits of the Fiona Trust "one stop shop" presumption. The decision re-emphasises the fact that the court's function is always to interpret the particular contract in the context in which it was made.

The case is also of interest from the perspective of the application of rules, principles and presumptions to contractual construction. Historically, rules of construction developed in various areas (such as the Canada Steamship guidelines in the context of the exclusion of liability for negligence and the principle of fundamental breach in Photo Production v Securicor).  In one of the leading modern authorities on interpretation of contracts, Investors Compensation Scheme v West Bromwich Building Society (No.1) [1998] 1 WLR 896, Lord Hoffmann stated that almost all these rules, which he referred to as the "old intellectual baggage of 'legal' interpretation of contracts" had been discarded, replaced by modern principles of construction.  Whilst a number of the old principles are still cited as guidelines, this case makes it clear (consistently with other recent decisions – see for example this post) that they will not be applied mechanistically.