Neutral Citation Number: [2004] EWHC 914 (Comm)

Case No: 2003 FOLIO NO 1113
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 28 April 2004

Before :

THE HONOURABLE MR JUSTICE MORISON 
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Between :

	MUNCHENER RUCKVERSICHERUNGS
GESELLSCHAFT
(trading as Munich Reinsurance Company)
	Claimant	
	- and -		
	COMMONWEALTH INSURANCE COMPANY	Defendant	

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Mr C. Wynter (instructed by Clyde & Co) for the  Claimant    
Mr D. Bailey (instructed by Holman Fenwick & Willan) for the Defendant

Hearing dates: Friday 2nd April 2004
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Judgment

Mr Justice Morison : 
1.	This is an application to set aside the order made by Moore-Bick J. on 8 December 2003 granting the Claimants, Munich Re, permission to serve their claim form out of the jurisdiction of the Court on the Defendants, Commonwealth, at their head office in Canada.   The claim concerns Munich Re’s liability if any to Commonwealth under a retrocession contract: Commonwealth were the cedant and Munich Re the retrocessionaire.   

2.	The Insurance contracts underlying the retrocession are as follows.   A corporation incorporated under the laws of Illinois, where it is based, called Allegiance is one of America’s largest providers of health care products and management services for hospitals and other such institutions.   It owns and operates a number of factories and distribution centres both in the USA and elsewhere.   Allegiance, through its brokers, Marsh & McLennan, based in Chicago, Illinois, obtained, in 1997, a Master Policy insurance with Zurich American for the period of three years from 30 September 1997.   The precise terms of the Master Policy are not relevant to the questions which presently arise for determination.   The Master Policy provided that the insurance cover would sit over the top of any other policy in force as an excess policy but that it would ‘drop down’ in the event of any local policy being exhausted or reduced.   There was no warranty requiring the Insured to keep or maintain local policies in force.   The Master Policy appeared to insure non USA based property on “difference in conditions” terms.   

3.	For the second year of the Cover under the Master Policy, Commonwealth reinsured 10% of Zurich American’s exposure on the terms of a certificate of facultative reinsurance.   This reinsurance contained a term that Commonwealth would be bound by loss settlements made between Insured and Insurer.   Under the reinsurance contract, Commonwealth agreed to accept service of suit at an address in California.   

4.	Commonwealth ceded 50% of its participation to Munich Re.   The retrocession contract was broked to Munich Re’s London Office through London based brokers, the Paul Group.   A broking entity, based in California, called THB, were Commonwealth’s producing brokers.   The cover is on a Lloyd’s form, NMA [non-marine association] 1779 and was expressed to be subject to “the same terms, clauses and conditions as in the Original except as may be expressly provided hereby”.  The conditions included two provisions on which the parties relied:

	“Service of Suit Clause (Canada) NMA 1998” and 

“THB Intermediary Clause”

5.	There is no service of suit clause for Canada, numbered NMA 1998; there is a service of suit clause for Canada numbered NMA 1970a.   There is also a service of suit clause (USA) NMA 1998.   The two service of suit clauses seem to me to have very different legal consequences.   The real service of suit clause for Canada [NMA 1970a] reads as follows:

“In any action to enforce the obligations of the Underwriters liable hereunder they can be designated or named as “MJ Oppenheim in his quality as Attorney in Fact in Canada for Lloyd’s Underwriters, Members of Lloyd’s, London England” and such designation shall be binding on the Underwriters liable hereunder as if they had each been individually named as Defendant.   Service of such proceedings may validly be made upon MJ Oppenheim, CA whose address for service is 1155, rue Metcalfe, Suite 1540, Quebec, H3B 2V6.”

6.	The service of suit clause for the USA [NMA 1998] provides:

“It is agreed that in the event of the failure of the Underwriters hereon to pay any amount claimed to be due hereunder, the Underwriters hereon, at the request of the Insured (or Reinsured) will submit to the jurisdiction of a Court of competent jurisdiction within the United States.   Nothing in this clause constitutes or should be understood to constitute a waiver of Underwriters’ rights to commence action in any Court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another Court as permitted by the laws of the United States or of any State in the United States.”

7.	The clause goes on to provide for an identified person to be served with any suit.

8.	It seems to me that the USA clause amounts to a submission to the jurisdiction of the courts within the USA; whereas the Canadian clause simply provides for service.   I have some doubt whether the Canada suit clause has any practical effect when the insurance contract is between two companies, not involving any Lloyd’s syndicates or Names.   

9.	Commonwealth say that the country was wrongly specified in the retrocession slip; Munich Re say it was the number of the NMA that was wrong, Canada was correct.  The practical effect of this aspect of the dispute is, I think, that if Commonwealth are right, Munich Re have no sound basis for resisting the present application.   Having submitted [ex hypothesi] to the jurisdiction of courts in America, including the District [Federal] Court in California, they would have little credibility in contending that this court was the more convenient forum.   The position may be different if the retrocession contract simply provided for a method of service in Canada on a Canadian based Corporation, such as Commonwealth.  I shall return to this point in due course.

10.	The terms of the Intermediary Clause are as follows:

“The intermediary named herein is hereby recognized as the intermediary negotiating the reinsurance for all business hereunder.   All communication including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages, and loss settlement(s) relating thereto shall be transmitted to the Company or the Reinsurer(s) through the Intermediary.   Payment by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer(s).   Payment by the Reinsurer(s) to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.” 

11.	In addition to the retrocession slip, Commonwealth say that there was a further contractual document in the form of a certificate allegedly provided by THB to Munich Re.   Munich Re deny ever having received this document and say that it can have no contractual effect.   The Certificate is dated 1 October 1998.   It contains two conditions relevant to the present dispute.   The first is a ‘follow the settlements’ clause; the second is an arbitration clause which provides for arbitration to be held “in the city in which the [Cedant] Company’s Head Office is located” unless any other place is mutually agreed.  The only contractual documents which Munich Re accept and assert they received from THB are two faxes from THB which are referred to in the retrocession slip “All information as per THB’s Facsimiles dated 11th and 23rd September 1998”.   The slip was scratched on 8 October and was stamped with Munich Re’s UK General Branch Stamp with the acronym LIRMA.   

12.	The fax of 11 September identifies properties, property values and deductibles.   The fax of 23 September 1998, which was sent by THB to a Mr Billinge of the Paul Group, with instructions to them to “present and secure Munich Re’s participation on an authorization basis as follows” stated that “this structure contemplates local retentions etc.”   The fax was used as part of the broke and was scratched by Munich Re on 25 September 1998. 

13.	The claim with which this case is concerned relates to a severe fire which occurred on 13 January 1999 at one of Allegiance’s insured properties in Juarez, Mexico.  In the earlier fax the total insured value for this property, its contents and cover for business interruption is listed at US$27,335,000.   Allegiance made a claim under the policy for some US$50 million and Zurich American settled the claim for US$48,895,700 and, in turn, made a claim for 10% of that sum against Commonwealth.   Commonwealth paid just under 10% of the claim and in turn sought to recover a half share from Munich Re.  The sums paid by Commonwealth were in tranches.     Munich Re has paid, on a without prejudice basis, US$1.3 million on 29 February 2000.   They did not believe that their concerns about the inadequacy of the total insured value of the location and the existence of a locally issued policy which was linked to the Coinsurance deficiency Clause within the Master Policy, and to the fax, had been answered.   On 7 November 2001 Munich Re made their position clear.   They pointed out that the original Master Policy “responds for Difference in Conditions coverage only for Non-USA property.   Our understanding is that this section of the Policy can only be triggered by an underlying policy and not in circumstances where there is no underlying policy at all.”   They considered that the claim should be adjusted “as though there was a local policy”; they also pointed out that in the Reinsurance Certificate [the contract between Zurich American and Commonwealth], the premises covered by the reinsurance were “as per Schedule on file with company”.   The schedule they had seen suggested that the policy was on an agreed value basis with an overall limit and sub-limits, and that no such sub-limits would be required were the insurance to be on the basis of a blanket policy rather than one linked to individual values.   The letter concluded by saying that Munich Re would like to move the claim forward and suggested that their various points should be responded to and another video conference could then be arranged.    A reply was sent by Commonwealth, suggesting that the fact that the local policy had been cancelled had no impact on Commonwealth’s liability and that they considered a further detailed reply to be unnecessary.   There was a threat that if the balance demanded was not paid “we have no option but to file suit”.    Munich Re said that the issue of blanket policy versus scheduled first loss policy was still live and as there was no ‘follow the settlement clause’ in their retrocession contract further discussion was called for.   There was a further exchange of views in letters dated 28 January 2002 and Munich Re’s response on 4 March 2002, followed by silence.   The silence was for a period of 18 months, at the end of which, on 12 September 2003, Commonwealth sent a formal demand together with a notice of arbitration, for an arbitration to be held in Vancouver, British Columbia.   Shortly after they were instructed on Munich Re’s behalf, Messrs Clyde & Co took the point that there was no arbitration agreement and this provoked a further short period of silence followed by Commonwealth, by letter dated 18 November 2003, asking Clyde’s not to assume that “we have withdrawn our request for arbitration”.  

14.	The next relevant event is the application to Moore-Bick J at the beginning of December 2003.   Pursuant to permission granted by this court, the Claim Form in this case was served on Commonwealth in Canada on 15 December 2003.   The claim by Munich Re is not just for a negative declaration that nothing is owed by them to Commonwealth; it also seeks recovery of the $1 million odd that they have already paid.   3 weeks later, Commonwealth, through Californian Attorneys, filed a complaint against Munich Re and THB in the federal court for the Central District of California.    In the section of the complaint dealing with jurisdiction, the English proceedings are referred to.

“The UK lawsuit will be the subject of one or more motions challenging jurisdiction and/or requesting that the UK court refrain from exercising jurisdiction over the matter. Because the UK lawsuit only partially encompasses the issues between Commonwealth and Munich Re and, moreover, does not include an indispensable party, THB, this Court properly has jurisdiction over the dispute because it can adjudicate all issues as to all parties.” 

15.	Reliance is placed on the certificate allegedly evidencing the retrocession contract as incorporating a follow the settlements obligation.   It is alleged that THB acted as the agent of Munich Re for delivery and transmittal of the retrocession agreement “including transmittal of all related documentation supporting Retrocession Agreement and all terms thereto”.    The complaint alleges that Munich Re “in acknowledgment of its duties and obligations under its contractual agreement with Commonwealth initially advanced” US$1.3 million odd.   No mention is made of the express reservation pursuant to which the payment was made.   It is also alleged that Munich Re were in breach of contract by “wrongfully” instituting suit against Commonwealth and refusing to arbitrate the dispute.   By refusing to pay, Munich Re is further alleged to have been in breach of the Retrocession Agreement and of their implied duty of good faith and fair dealing.   As a result, it is alleged that Commonwealth are entitled to the costs of bringing the Complaint.   It is further alleged that by bringing the UK action, Munich Re were in breach of the implied obligation of good faith and fair dealing, and, therefore Commonwealth claim their costs of the UK action as part of their damages for breach of contract.   

16.	The causes of action against THB are based upon their alleged negligence and breach of fiduciary duty.   In relation to the negligence claim, it is pleaded that:

“In the event that Munich Re avoids liability for its reinsurance obligation to Commonwealth, that avoidance of liability is the result of THB’s acts or omissions in failing adequately to perform its responsibilities as reinsurance intermediary.   Accordingly, THB is liable to Commonwealth for its negligent acts and/or omissions. THB has proximately and directly caused Commonwealth to suffer harm and damages if Munich Re avoids liability for its reinsurance obligations to Commonwealth on the basis of one or more of the [pleaded] acts or omissions.”

17.	As to the claim for breach of fiduciary duty, again it is pleaded that: 

“In the event that Munich Re avoids liability to Commonwealth, THB’s breach of its agreement with Commonwealth is the direct and proximate cause.”

18.	It is clear therefore, that the claim against THB is only viable in the event that Commonwealth fail against Munich Re, and then only if the reason for the Commonwealth’s failure is due to what THB did or did not do.    

19.	The basis upon which leave to serve out of the jurisdiction was granted is to be found in a witness statement of Mr Marangos, a partner in Clyde & Co. He puts forward the reasons why Munich Re say they are not liable to Commonwealth and why they are entitled to a return of what they have paid.   First, if there is an obligation to reinsure in respect of a Difference in Conditions in relation to Non-USA property, it implies that there must have been a local policy in existence before liability could arise.   There was a local policy which had lapsed due to non payment of premium.   Either there was no liability or, as Munich Re had suggested in correspondence, Munich Re’s liability must be based on the difference between the cover given by a hypothetical local policy and the Master Cover.   Munich Re say that there is no ‘follow the settlements’ clause in the Retrocession Contract, and in any event, even had such a clause been incorporated, the settlement made by Commonwealth was not “within the terms, conditions and limits” of the Reinsurance Certificate and Commonwealth did not take all proper and business like steps in making the settlements.   Further, the effect of the sub-limits were to limit Munich Re’s liability to 5% of the total insured value of the property.   

20.	For present purposes, it is sufficient to say that Munich Re’s position is not far fetched but seems credible.   They have a good arguable claim against Commonwealth entitling them both to recover the amount paid and to a declaration that they have no liability to Commonwealth.   The amount of their claim exceeds the amount of Commonwealth’s claim against them.   Commonwealth take the point that Munich Re had not previously asserted a right to recover the amount they paid.   This may be a good jury point but the tone of the correspondence shows, clearly, that Munich Re wanted to get rid of what is a relatively small claim as cheaply as possible and in that spirit, a claim for the return of the money paid would not have been constructive.   The lack of a prior claim for the return of monies says nothing about the validity of the claim itself, having regard to the circumstances.   After such delays by Commonwealth they were entitled, I think, to ‘throw the book at them’ after the abortive arbitration proceedings had been suddenly, unexpectedly and inappropriately launched against them.

21.	In support of the claim that this was a suitable case for service out of the jurisdiction, Munich Re relied upon Rule 6.20(5)(a), namely that their claim was in relation to a contract made within the jurisdiction of this court.   Munich Re scratched the slip in London; the risk was broked to them by London brokers, acting on Commonwealth’s behalf.   Therefore, Rule 6.20 (5)(b) also applied as the contract was made through an agent trading and residing within the jurisdiction.  Third, they asserted that the contract was governed by English Law.   The evidence of Mr Marangos concluded thus:

“English Jurisdiction, and in particular the Commercial Court, is the natural forum for a dispute of this kind, which involves the construction and application of a contract made in the jurisdiction which is subject to English Law.   The “centre of gravity” for the retrocession Contract is England despite the fact that the subject-matter of the risk is world-wide and the loss was in Mexico.”

22.	The application to set aside the order of Moore-Bick J. was issued on 30 January 2004 and came before me on 2 April 2004 and was well argued for the day.

I set out the rival arguments.

23.	For Commonwealth, Mr Bailey argued as follows:

(1)	Munich Re must establish three points, in order to sustain the order made.

(a)	a good arguable case that the claim falls within CPR 6.20;
(b)	that a serious issue to be tried has arisen;
(c)	England is clearly and distinctly the most appropriate forum for the trial.

24.	Commonwealth accepted that the first two requirements had been satisfied.   They accept for the purpose of this application that the three bases upon which this court’s jurisdiction was founded have been adequately established.   The only and real point at issue is whether Munich Re can establish that the English Court is clearly and distinctly the ‘most appropriate forum for the trial’.   In argument it was accepted that either the District Court or the English court was the more appropriate forum; there was no other more suitable forum.   Mr Bailey of counsel, emphasized that the burden of proof lay on Munich Re to establish that England was more appropriate than California for the trial of the issues; in contrast to the position where an application for a stay is sought of “proceedings started in this country as of right” [as here]: per Lord Goff in Spiliada v Cansulex [1987] AC 460 at page 477E. 

(2)	The Court’s task is to ascertain the forum in which the case can be suitably tried for the interests of all the parties and for the ends of justice and the factors which will weigh with the court “are legion”.   Mr Bailey emphasized that the court will seek to avoid creating a risk of a multiplicity of proceedings and the inherent risk of conflicting judgments.   He relied on a passage in the 13th edition of Dicey & Morris, The Conflict of Laws, which states, at paragraph 12-024, that:

“If the legal issues are straightforward, or if the competing fora have domestic laws which are substantially similar, the governing law will be a factor of little significance.   But if the legal issues are complex, or the legal systems very different, the general principle that a court applies its own law more reliably than does a foreign court will point to the more appropriate forum, whether English or foreign.”

(3)	One of the factors was the nature of the relief sought and the court will look to see whether the claim for a negative declaration is useful or contrived. In this case the factors suggest that California is the more appropriate forum since they can encompass not only the issues raised in the English action between Commonwealth and Munich Re but also the issues raised in the District Court relating to California’s contingent claim against THB.   In general it is “highly desirable” that claims against brokers should be heard and determined at the same time and by the same tribunal which determines avoidance or coverage issues.   Mr Bailey referred me to two reported decisions: Aneco v J & H [1998] 1 Lloyd’s Law Reports 565 at 567, and Kennicott v Minet [2003] Lloyd’s Insurance Reports 37 at 51.   If the action remained in the UK and judgment was given in favour of Munich Re, the judgment would not be binding on THB and thus the risk of multiplicity of proceedings and inconsistent judgments would materialize.   Mr Bailey submitted that there was an overlap between the issues involving THB and those concerning Munich Re.   It was THB who were primarily responsible for the way in which the risk was presented to Munich Re and THB will be involved in the question whether the Certificate of Retrocession was ever presented to Munich Re.   Mr Bailey placed considerable reliance on Insurance Corporation of Ireland v Strombus [1985] 2 Lloyd’s Law Reports page 138 and to a passage in Lord Justice Mustill’s judgment at page 144:

“What does seem undeniable is that the continuance of the present proceedings would create great inconvenience.   In the Californian action, the claims flow naturally down the line of parties, from the primary insurer, through the insurers, and thence to the reinsurers and the brokers, all participating in the same proceedings.   If the present action goes ahead, there can be no third party proceedings.   A claim in the negative cannot be passed on by Strombus to the brokers or to Valco.   If all the parties are to be assembled for a single trial, Valco will have to start a separate action in England with Strombus as defendants; the latter would then join the reinsurers as third party, and would seek leave to bring in the brokers as “necessary and proper parties”: an application which would not be a foregone conclusion, since the brokers could say with force that their relationship with Strombus has nothing to do with the English Court.   Finally, the new multiple action would have to be consolidated with the reinsurers’ claim in the present proceedings.   To maintain these cumbersome proceedings in England at the same time as the action in California would involve an unacceptable degree of duplication.”

(4)	The proper law governing the relationship between Commonwealth and THB is probably the Law of the State of California, where THB are based.   The governing law could not, on any view be English Law.   Because California does not itself recognize the concept of taking jurisdiction over a person on the grounds that he is a “necessary and proper party” there is doubt whether any judgment given against THB [presumably in default] would be enforceable in California.   There is controversy between the opinions of the US attorneys which are before the Court on this point.

(5)	The fact that Munich Re have indicated that they intend to challenge the jurisdiction of the Californian Court is not a matter which should concern this court at the present time.   There is an issue between the parties as to whether Munich Re’s business activities establish sufficient contact within the State to entitle the federal court to take jurisdiction over them on grounds of “diversity”.   On an Order 11 application “it is not proper or appropriate that the courts of this country should at the same time try to determine … the matters which, within the jurisdiction of [the US court] are being determined by that court”, per Hobhouse LJ in Excess Insurance v Allendale Insurance Court of Appeal, unreported 8 March 1995.   Similarly, I should not have to decide whether or not Munich Re’s argument that any claim against THB is time-barred under Californian Law is of any weight.   

(6)	The fact that the governing law of the contract between Commonwealth and Munich Re may be English Law is of comparatively little weight.   There is no suggestion that there are complex principles of English Law involved.   Such differences are readily resolved by the Californian Court.   In any event, where as here the retrocession contract incorporates within it clauses in the underlying Master Policy, which is itself governed by the law of the State of Illinois, Illinois Law will be relevant.   The Californian court is better placed to determine any disputes about Illinois Law since it will decide the points at issue, not by receiving evidence on Illinois Law but rather by receiving legal submissions from the parties legal representatives as to what Illinois Law is.   

(7)	In terms of the convenience of the parties and witnesses, the placing brokers have gone into liquidation and the person in the Paul Group who had primary responsibility for broking the retrocession is believed to be in New Zealand.  Munich Re’s underwriter is now in Cyprus. THB’s witnesses are all located in California, and the witnesses involved in the valuation of the loss are located within the USA.   Commonwealth’s witnesses are located in Canada.   Most of the relevant documentary material is likely to be located in the USA rather than in this jurisdiction.

(8)	Munich Re’s action in this jurisdiction amounted to a pre-emptive strike to secure the forum of Munich Re’s choice and in the process to reverse the roles of the parties.

(9)	On the issue of the service of suit clause, Mr Bailey submitted that I should deal with this matter now rather than ordering a preliminary issue to be determined without prejudice to Commonwealth’s challenge to this jurisdiction.   He submitted that having regard to the extrinsic evidence I should conclude that the mistake was the reference to the wrong country.   There was some support for this view from a report of a conversation between Mr Billinge and Commonwealth’s Canadian lawyers and it is said that the intention of Commonwealth’s underwriter responsible for both inwards and outwards business was that it was the service of suit clause for the USA that was intended.   He said that he never used a Canada service of suit clause.   He submitted that the USA service of suit clause was more probable given that the assured and reassured were both domiciled in the USA.   “It is inherently likely that the parties would have intended the chain of contracts to be the subject of the jurisdiction of the same courts.”

(10)	Finally, the fact that the winning party was not entitled to recover its costs against the losing party in the District Court was not a significant juridical advantage of which Munich Re would be the loser were the action to continue there rather than here.   The amount at stake [which Mr Bailey submitted was US$2.3 million] exceeded the likely costs.   

25.	For Munich Re, Mr Wynter submitted:

	(1) Although not formally conceded it is clear beyond doubt that the Retrocession Contract is governed by English Law.   It was placed and written in London making use of a standard London market reinsurance form.   It contains a number of London reinsurance market acronyms and abbreviations.   In accordance with the Rome Convention, which is applicable, article 4.1 provides that the contract shall be governed by the law of the country with which it is most closely connected.   By reference to the Giuliano and Lagarde Report one can conclude that the parties have either implicitly chosen English law as the governing law or under the Convention English law is the governing law.   One of the examples given in the Report is a contract in a standard form “which is known to be governed by a particular system of law even though there is no express statement to this effect, such as a Lloyd’s policy of marine insurance.”   As Rix J put it in Trade Indemnity v Njord [1995] LRLR 367 at 374, there is a “strong presumption that reinsurance written on the London market is written on the basis of an implied or imputed English proper law.”

(2) It was correct to describe Commonwealth’s Californian proceedings as forum shopping.   Having first sought to arbitrate in Canada (proceedings to which THB were not, and could not have been a party) they started proceedings in a third jurisdiction after being served with proceedings in this jurisdiction.   The fear of multiplicity of proceedings which lies at the forefront of Commonwealth’s submissions rings hollow in the light of their refusal to abandon the arbitration even when it was clear there was no arbitration agreement.   

(3) This is not a dispute between a reinsurer and reinsured and a placing broker, who is inextricably linked to the action.   The claim against the broker is contingent upon Commonwealth failing against Munich Re.   The essence of the accusation against the broker is that he failed to supervise the London agent and to ensure that the documentation was accurately prepared.   These are separate and distinct matters from the questions arising on a trial between Commonwealth and Munich Re.   By trying to piggy back this claim onto the claim against the broker, Commonwealth is turning the case on its head.   The claim against the broker only arises after Commonwealth have lost their dispute with Munich Re: there is no overlap.   But for the insertion of proceedings against THB in California there would have been no basis on which proceedings against Munich Re would have been justified there.   There is absolutely no connection between Munich Re, the retrocession contract and California.   The proceedings against THB and Munich Re in California were proceeding at a snail’s pace and had only been served on THB the day before the hearing before me.   Thus, the limitation defence which THB may have as a matter of law has not been developed and I cannot be sure that there is any substance to the claim against the broker and therefore anything of substance to which to attach the case against Munich Re.   If for some reason THB are able to obtain summary dismissal of the claim against it then there would be no justification for this application.   

(4) Munich Re are a natural claimant as their money claim exceeds that of Commonwealth.   This is not just an action for a negative declaration which turns the case on its head.   England was the natural forum of choice for its claim against Commonwealth and it was wrong to characterise their action “a pre-emptive strike to secure the forum”.   The costs factor is more important than Commonwealth accept.   Their claim is for just over $1 million plus interest.   A three party suit in California will not be cheap and the costs are likely to be a very significant factor.   Whilst there was some suggestion that Commonwealth could undertake to have the costs dealt with on an English basis, it was highly doubtful whether that would be effective as a matter of law.   The Californian Court cannot have conferred on it by agreement, or otherwise by order of this court, a jurisdiction which it does not possess.   And an undertaking given to this court by Commonwealth would be difficult to enforce as questions of jurisdiction would arise and so on.

(5) Although the principal underwriter is presently in Cyprus, London would plainly be a more convenient forum for Munich Re’s evidence on the contractual questions.   In addition the placing brokers are here, albeit in liquidation.   Even if the witness thought to be in New Zealand cannot be traced, there is bound to be some live witness from those brokers.  Mr Billinge, on whom Commonwealth appears to rely for their case on the proper interpretation of the service of suit clause is in England.   It is accepted that Illinois Law will play a part in the trial in England and that it will require the evidence of experts in the field.   It is the principles of law that are important and it is likely that those principles are no different from the English principles of contractual interpretation.   There are lawyers in the UK who have the necessary expertise.   

(6) On the service of suit clause, the court should decide the question.   Looking purely at the words in the context in which they appear, it is clear that the parties are more likely to have focused on the name of the country rather than the detail of the NMA provision.   If one had to choose between the name or the NMA number the Court should choose the former.   But the court is entitled to take account of the fact that in the draft version of the slip for the previous year the word USA was deleted and Canada substituted but leaving the NMA number unchanged.   That became reproduced in the relevant slip.   There was a further change from “US Reinsurance” to “Non-regulated”.   For the subsequent year, although this never came to fruition the draft slip had a service of suit clause which simply referred just to Canada without any reference to NMA or a number.

26.	This bare summary of the parties’ submissions does not do full justice to all the submissions made to me but represent a short summation of the main points.   I was provided with full and helpful skeleton arguments.
Conclusion
    
27.	These are the reasons why I have concluded that England is a more appropriate forum for the determination of the disputes between the parties than California. Just as in all the cases to which my attention has been drawn, the factors which inform my conclusion are not principles of law, they represent the application of principles in this particular case. I say this because there was a tendency during argument for counsel to rely on statements of reasons in the decided cases as though they were statements of principle applicable in every case.

(1)	The centre of gravity of the dispute between Commonwealth and Munich Re lies in the proper construction of the Retrocession Contract having regard to the terms and conditions of the Master Policy and the two faxes from THB. Although the Master Policy is governed by Illinois law which is a stranger to both the English and Californian Court, it would not be sensible or more convenient that the case should be tried in that State, and neither counsel suggested it. As between the District Court in California and this court, both are quite able to determine the impact of Illinois law on the Master Policy. Whilst it is true that the way the Court is informed of Illinois Law is different, and the cost in this jurisdiction is likely to be slightly greater, this is not, I think, a factor of much weight. The real question is not centred on the law of Illinois but rather what, as a matter of the English law, the retrocession contract means.
 
(2)	The basic facts are not really in dispute. The insured value of the property was less than the sum claimed from Munich Re; Commonwealth have paid their share of the greater sum; there was no valid local insurance policy in force when the fire caused the damage. On these facts, on a proper construction of the contractual documents, as a matter of the English law, what are the legal consequences? If the case continues here, one cannot envisage the need for oral evidence, save possibly on the question of Illinois law, and then only if the experts disagree. A single joint expert might be an option.

(3)	The claim that THB provided Munich Re with a Certificate of Reinsurance which formed part of the contract does not, in reality, appear to be an issue any longer. It would seem that Commonwealth now accept that Munich Re were never provided with it and this is borne out by the fact that the arbitration in Canada has been abandoned and by the witness statement of Ms Hopkins. As to the assertion in the USA action that Munich Re have acknowledged their liability by making a without prejudice payment to Commonwealth, I assume that this is an issue governed by English Law. The contrary was not argued and that dispute is best decided here. There is a further allegation in the USA proceedings that the retrocession Contract contained an implied term as set out in paragraph 15 above. That is a matter of English law best decided here. Looking at the allegations in the US action made by Commonwealth against Munich Re, it seems to me clear that all of them must be determined applying English Law. 

(4)	The dispute between Munich Re and Commonwealth has absolutely nothing to do with the State of California or federal law or the law of the State of California. The dispute arises from a contract made here on a recognised insurance form prevalent in the London reinsurance market. It was made with Munich Re’s London branch through London based placing brokers. Of course, the fact that a contract is governed by English Law will not universally be of significance; it is likely to have most weight in those cases, such as this, which is essentially all about the proper interpretation of that contract. In such cases this feature has more importance. All the cases upon which Mr Bailey relied have essential differences. In particular, the Strombus case is readily distinguished. This is not a case involving insurers and reinsurers up or down the line; the brokers whom Commonwealth wish to sue were not involved directly in the broke and the English Action will not need to be re-started here. But for the existence of a contingent claim against the brokers there can, I think, be no doubt that this forum is the better placed for the trial of the issues between the parties. 

(5)	Does the balance change in favour of the Californian Court because Commonwealth may wish to pass on to their producing broker the consequences of Munich Re succeeding against them? This point seems to me to be the only powerful factor in support of the present application. In one sense, THB is a stranger to this court, although they may have, or may have had an office here; just as Munich Re at least is a stranger to the Californian Court. The question ‘why should THB be brought to this Court’ applies equally and conversely to Munich Re. We do not know whether the relationship between Commonwealth and THB was governed by Canadian Law or by Californian Law. It may be that Commonwealth is a stranger to the Californian Court and the only reason they are there is because of THB’s presence there and not because there is any juridical nexus between their dispute with THB on the one hand, and State or federal law on the other. In an ideal world, the dispute between Commonwealth and Munich Re should be heard here and the dispute between Commonwealth and THB be determined later in the light of the judgment of this court. It is desirable, I think, that THB should be bound by any judgment this court may make in the dispute which underlies THB’s liability. We do not know what THB’s attitude might be to proceedings in this court. They may be quite willing to fight a case here or agree to be bound by any judgment this court might give, without the need for them to participate formally; they may wish, for example, to take over Commonwealth’s claim against Munich Re. I shall assume, however, that they are resistant to being sued here. Whilst there is some suggestion in the evidence filed on behalf of Commonwealth that a Californian Court might not recognise and enforce a default judgment against THB, at this stage it seems to me to be the better view on the evidence that such an outcome is a remote possibility. I am sceptical about the validity of the argument that because the exorbitant jurisdiction of the State of California does not include joining someone as a necessary and proper party, the Californian Court would not recognise a judgment of a court whose private international law rules were different. There is no discussion in the evidence of California’s rules for the recognition of foreign judgments and what is said on Commonwealth’s behalf could be described as ‘thin’ and superficial. If as I think should be the case, the dispute between Commonwealth and Munich Re is to be litigated here then Commonwealth will have to decide whether it really needs to bring THB here. We have the procedural rules which would make this possible. If it happened I suspect that in case management terms THB would be asked whether it wished to participate in the initial dispute or whether it would be content to allow Commonwealth to make the running against Munich Re. If Munich Re succeeded then if there were to be a trial as between Commonwealth and THB that could take place here or in California at a later date. In either event, Commonwealth can take procedural steps here to ensure that THB would be bound by this court’s judgment. At the end of the day, I do not think that the contingent dispute between Commonwealth and THB should be allowed to determine where the principal dispute is to be heard: the tail should not be allowed to wag the dog. The principal dispute is best heard here. My conclusion is unaffected by the fact that THB were an intermediary. In reality, as the correspondence shows, in relation to the present dispute THB played no part. Commonwealth and Munich Re corresponded directly with one another. 

28.	Finally, I must deal with the issue as to whether the service of suit clause is Canada or the USA. It seems to me that it is Canada. The contractual documents bear this out. The typescript was altered to substitute Canada for the USA; the explanation for the mismatch between the NMA numbers is obvious in the sense that having altered the country the person who substituted Canada for the USA did not ‘carry it through’. Commonwealth is based in Canada. The fact that most properties were located in the USA does not suggest that, in the contract between a Canadian company and a German company based, for this purpose, in England, and made in England and governed by English law, it would be sensible for the parties to submit to the jurisdiction of a USA court. If there were to be an issue about service, it made more sense for the parties to nominate as the place for service the place where one of the parties was located. The circumstances in which one of the brokers made a statement to Commonwealth’s Canadian Lawyer would need to be investigated before much reliance could be placed on what he is recorded as having said. The lawyer quite properly expressed some doubt as to the reliability of what he was told. On the basis of all the material before me I conclude that the service of suit clause was for service of suit in Canada. As I have indicated, had I reached the opposite conclusion then I would have acceded to Commonwealth’s application. 

29.	Therefore, I dismiss this application as I have concluded that Munich Re have discharged the burden of proving that this case is more conveniently and appropriately tried in England than in California.