UK Court of Appeal re-interprets jurisdiction clause in COVID related business interruption insurance dispute
The Court of Appeal has overturned the High Court's decision in Al Mana Lifestyle Trading LLC & Ors v United Fidelity Insurance Company PSC & ors1 to interpret the jurisdiction clause in a suite of insurance policies as providing for non-exclusive jurisdiction, finding that the provision was properly interpreted as, primarily, an exclusive jurisdiction clause, with a fall-back choice of jurisdiction. This decision2 serves as yet another important reminder to both insurers and policyholders on the need for careful drafting and consideration of jurisdiction clauses in insurance policies, not only to minimise the risk of a disagreement on jurisdiction should a claim arise, but also to ensure that the policy gives effect to the parties' intentions.
Our alert on the decision at first instance may be found here.
Factual background
The Claimants all form part of the Al Mana Group, whose business is in the food, beverage and retail sectors operating in the Middle East and Gulf region. In May 2021, the Claimants commenced proceedings in the English courts, claiming indemnities of around US $40 million for business interruption losses arising from the COVID-19 pandemic, under a suite of seventeen multi-risk insurance policies underwritten by the Defendants (the "Policies").
The Defendants are insurance companies with headquarters in the United Arab Emirates, Qatar, and Kuwait respectively, and the Policies were issued in these jurisdictions.
The Defendants challenged the English court's jurisdiction to hear the claims.
Policy wording
Each of the Policies contained the following wording (the "Applicable Law and Jurisdiction 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 and Defendants agreed on one point relating to construction: that the clause is not a model of drafting.
The Claimants argued that this clause permitted proceedings to be brought in the courts of either:
(a) the country where each of the Policies was issued (in this case, the UAE, Qatar, or Kuwait); or
(b) in England and Wales.
The Defendants, by contrast, argued that the Applicable Law and Jurisdiction Clause should be interpreted as an exclusive jurisdiction clause, where disputes must be submitted to the courts of the countries in which each of the Policies were issued first; with the English courts only having jurisdiction where the local court does not, for some reason, accept jurisdiction. The Defendants invited the court, on this basis, to set aside the service of the claim form, which they contended was wrongly served outside of the jurisdiction without permission.
In the alternative, the Defendants argued that, in the event that the court concluded that the Applicable Law and Jurisdiction Clause was a non-exclusive jurisdiction clause, the court ought to decline jurisdiction on the grounds of forum non conveniens (i.e. on the basis that the local courts would be better suited to hear the Claimants' claims). The Defendants submitted various points, including that (a) none of the Claimants or Defendants was located in England; (b) none of the losses were sustained in England; and (c) the Policies were governed by the local laws in the countries they were issued in.
As explained in our earlier alert, the High Court interpreted the Applicable Law and Jurisdiction Clause as conferring non-exclusive jurisdiction, such that proceedings could be brought in any of the jurisdictions named. The High Court also dismissed the Defendants' arguments on forum non conveniens.
Court of Appeal decision
On appeal, the court found that the judge at first instance had asked herself the right question, which is how the words of the contract would be understood by a reasonable policyholder. The answer to that question was to be found not only in the first "impression" given by the wording, but also in further analysis, particularly where a clause had been so "tersely" expressed. Males LJ's first impression in the Court of Appeal upon seeing the clause was that the first sentence contained the primary jurisdiction selected by the parties, with a fall-back for English jurisdiction. That impression was confirmed rather than dispelled by the more analytical approach adopted in the parties' submissions. Males LJ referenced the fact that English courts have consistently held that "England is the best forum for the application of its law" and that a choice of English law is a powerful factor showing that a choice of English jurisdiction is intended to be exclusive, in support of his view that it must also be accepted that a foreign court is the best forum for the application of its own law and that a choice of foreign law is a powerful factor showing that a choice of foreign jurisdiction is intended to be mandatory.
The Court of Appeal's judgment was clear that the first sentence of the provision is a mandatory provision stipulating both the governing law and the jurisdiction as that of the place where the Policies were issued. The question then arose of what impact the second sentence had on the first, and the meaning of "otherwise" in this context. Males LJ reasoned that while in some contexts "otherwise" can be regarded as equivalent to nothing more than "or", the context is important: "if the parties had intended to provide for a free choice of jurisdiction for whichever party was to be the claimant (either the local court or England and Wales), this strikes me as an odd way of doing so".
At first instance, the judge had held that either there was a real prospect the local court would not accept jurisdiction, in which case it was unattractive for a claimant to have to bring proceedings there in order to find out whether it would accept jurisdiction only to start again in England if it would not; or there was no real prospect of jurisdiction being declined, in which case the second sentence of the clause was likely to be otiose. On this basis, it made sense to provide for a single neutral venue, namely the English courts, particularly as common issues could arise under policies issued in each of the three jurisdictions where the defendants are located.
The Court of Appeal did not accept this argument. Males LJ saw no reason why parties should not agree to confer jurisdiction on one court, with another as a fall-back in case the primary court chosen was not available: "Such an agreement 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". The Court of Appeal therefore preferred the Defendants' submission that the word "otherwise" could be regarded as equivalent to "if not", on the basis that it made far better sense of the clause, and was likely to be what the parties intended. In other words, "otherwise" or "if not" in this context should be read as meaning "if not available", rather than "if not fancied by whichever party is the claimant".
Comment
In this case, the courts at first instance and on appeal asked themselves the same questions to determine the outcome of the dispute, but arrived at different interpretations of the same contractual provision, resulting in opposite outcomes. At first instance, the court interpreted the clause as a (non-exclusive) jurisdiction agreement in favour of the English courts, meaning that the Court's permission was not required to serve the proceedings on the Defendants out of the jurisdiction, whereas the Court of Appeal's interpretation was that there was no such jurisdiction agreement in favour of the English courts, unless and until it was established that local jurisdiction (i.e. UAE, Qatar, or Kuwait as appropriate) was “not available”, meaning that the court's permission had in fact been required to serve the Claim Form out of the jurisdiction. Such permission not having been obtained by the Claimant, service was therefore set aside.
Permission to appeal to the Supreme Court on this 2:1 majority decision has been refused, so it is unlikely there will be a further interpretation of this particular provision.
Should you have any questions regarding the issues raised in these judgments, please feel free to contact any of the authors.
