BP Plc and National Union Fire Insurance Company and Others
| Jurisdiction | England & Wales |
| Judgment Date | 17 May 2004 |
| Neutral Citation | [2004] EWHC 1132 (Comm) |
| Docket Number | Case No: 2003 FOLIO NO. 429 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 17 May 2004 |
[2004] EWHC 1132 (Comm)
The Honourable Mr Justice Colman
Case No: 2003 FOLIO NO. 429
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Sir Sydney Kentridge QC and Ms H Davies
(instructed by Messrs Herbert Smith) for the Claimant
Mr V Veeder QC and Mr M Templeman QC
(instructed by Messrs Kennedys) for the 1 st and 3 rd Defendants
Hearing dates: 23 to 26 February 2004
Reasons for Judgment
Approved by the court
for handing down
(subject to editorial corrections)
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Colman J.
Colman J:
Introduction
This is an application by the first defendant ("AIG") and the third defendant ("AEGIS") to set aside an order made by Moore-Bick J. on 6 May 2003 giving to BP permission to serve English proceedings on AIG and AEGIS outside the jurisdiction.
BP's claim is brought under a Global construction All Risks Open Cover ("the Open Cover") which provided a facility for the insurance against certain risks of Amoco Corporation, which later merged with BP and changed its name to BP Amoco plc and later to BP plc. AIG was co-leading underwriter with the second defendants, Swiss Re. The purpose of the Open Cover was to provide for the insurance of the construction of oil and gas extraction projects throughout the world. The Open Cover was to be operated by means of declarations of particular projects to be insured. There were altogether some 26 separate declarations and four others subsequently withdrawn. Issues have arisen amongst other matters as to whether those declarations were effective under the terms of the Open Cover. In outline, it is said that they were not because they were made before any of the projects to which the declarations related had sufficiently crystallised. The defendant insurers contend that a project was only capable of being validly declared if it had actually started physical construction during the period of the Open Cover (18 months with effect from 12.01 am 1 January 1999 GMT to 1 July 2000 GMT) and if the declaration was made no later than 30 days after commencement of physical construction or alternatively if the project were bona fide estimated to commence physical construction prior to expiry of the Open Cover. BP refers to the decision of Cresswell J. in respect of the same contract, but involving BP's claims against other members of the following market ( BP plc v. G E Frankona Reinsurance Ltd [2003] 1 Lloyd's Rep 537) to the effect that, contrary to the insurers' case, BP was entitled to declare any offshore construction project in which it or any other assured had an insurable interest at the time of the declaration or had a reasonable expectation of acquiring such an interest and provided that the project had at that time reached one of the stages set out in the Open Cover (including engineering, design, manufacture, procurement, storage, pre-fabrication, fabrication, assembly and construction). Cresswell J. also held that, even if a declaration were made to the leading underwriters, no member of the following market would be bound unless a separate declaration were made to it. BP bases its claim in these proceedings on that judgment and seeks summary judgment under CPR 24.2(a) for a declaration that it is entitled to recover from the defendants in these proceedings on the basis of the analysis in that judgment.
BP obtained permission to serve AIG in New York and AEGIS in New Jersey on the basis of two provisions of the Open Cover. By General Condition 16 it was provided:
"At the Principal Insured(s) discretion this insurance shall be subject to English law and practice or USA law and practice."
By a Condition of the Binder it was provided:
"Service of Suit in the United States or the United Kingdom at the Insured's discretion."
It was submitted that the English Courts had jurisdiction in as much as the contract was governed by English Law ( CPR 6.20(5)(c)) or contained an English jurisdiction clause ( CPR 6.20(5)(d).
The Submissions as to Jurisdiction
It is submitted by Mr Veeder QC on behalf of AIG and AEGIS that permission to serve should not have been given because the contract was not subject to an effective English jurisdiction clause. In any event, discretion should have been exercised against jurisdiction. Assuming, as the insurers contend, that the service of suit clause was not an enforceable jurisdiction clause, it is submitted that BP cannot establish that England as distinct from New York is clearly the appropriate forum and that in addition to matters of convenience the interests of justice demanded that there be proceedings in England. In this connection BP submitted that the existence of proceedings in New York commenced by AIG and AEGIS against BP and 126 other assureds on 9 December 2002—raising issues with which those in the English proceedings substantially overlapped—was a key factor material to the forum non conveniens submissions which I consider in more detail later in this judgment.
As to General Condition 16, the insurers' submissions may be summarised as follows:
That provision is said to be void for uncertainty. There is no indication as to the steps to be taken or the circumstances in which they could be taken to give effect to the words "at the Principal Insured(s) discretion". Further, that clause does not indicate what proper law is to operate as long as the "discretion" is not exercised. Accordingly, there is created a floating proper law. This is impermissible as a matter of English conflicts of laws rules: Armar Shipping v. Caisse Algerienne D'Assurance [1981] 1 WLR 207; Du Pont v. Agnew [1987] 2 Lloyd's Rep 585, per Bingham LJ. at 592. The defendants also rely on Sonatrach Petroleum v. Ferrell International [2002] 1 All ER (Comm) 627 and on The Frank Pais [1986] 1 Lloyd's Rep 529.
Article 4(1) of the Rome Convention could not be deployed to save the ineffectiveness of General Condition 16. It provides as follows:
"To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected."
The effect of that Article and Article 3(1) was to bring Article 4(1) into play only where the contract had no choice of law provision identifying a law "chosen by the parties" by means which were "express or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case" within Article 3(1). Here General Condition 16 had not been operated. The only suggestion put forward by BP that it had was the brief passage in a witness statement signed by BP's solicitor, Mr Oddy of Herbert Smith, in support of the application to serve the proceedings outside the jurisdiction in which he stated at paragraph 27:
"To the extent that any doubt remains as to whether BP has exercised its contractual option, I understand that BP now chooses English law as the proper law of the Open Cover."
That had not been communicated to AIG or AEGIS until long after the end of the cover period and after the order for service out of the jurisdiction. Nor could Article 3(2) of the Convention operate to give effect to General Condition 16. It provides as follows:
"The parties may at any time agree to subject the contract to a law other than that which previously governed it, whether as a result of an earlier choice under this Article or of other provisions of this Convention. Any variation by the parties of the law to be applied made after the conclusion of the contract shall not prejudice its formal validity under Article 9 or adversely affect the rights of third parties."
A discretion to be exercised unilaterally was not an agreement within that Article and it was outside the concept considered by Bingham LJ. in Du Pont v. Agnew, supra, at page 592, of an agreed variation of the original proper law.
Even if General Condition 16 were an effective floating proper law clause by virtue of Articles 4(1) and 3(2) of the Convention, the purported exercise of BP's discretion in favour of English Law would be ineffective. This was because the application of Article 4 would lead to the conclusion that, as regards AIG, the State of New York was the law of the country with which the Open Cover was most closely connected being the principal place of business of the insurer and, as regards AEGIS, the law of the State of New Jersey similarly applied. These were the countries where AIG and AEGIS respectively had their principal places of business. This was the result of Article 4(2) which provides:
"Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporated, its central administration. However, if the contract is entered into in the course of that party's trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated."
Consequently, the issue whether it was open to BP to select English Law as the proper law and, if so, whether it had effectively done so, would fall to be determined by the conflicts rules of the...
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