New Hampshire Insurance Company v Philips Electronics North America Corporation
| Jurisdiction | England & Wales |
| Judge | Phillips,Leggatt,Morritt L JJ. |
| Judgment Date | 16 May 1997 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 May 1997 |
Court of Appeal (Civil Division).
Phillips, Leggatt and Morritt L JJ.
David Mackie of Allen & Overy for the appellant.
Kenneth Rokison QC and Rory McAlpine of Wilde Sapte for the respondent.
The following cases were referred to in the judgment of Phillips LJ:
Berliner Bank AG v C Czarnikow Sugar Ltd (“The Rama”)UNK [1996] 2 Ll Rep 281.
Camilla Cotton Oil Co v Granadex SAUNK [1976] 2 Ll Rep 10.
Insurance Corporation of Ireland v Strombus International Insurance CoUNK [1985] 2 Ll Rep 138.
Practice Statement (Commercial Cases: Alternative Dispute Resolution) (No. 2)WLR[1996] 1 WLR 1024.
Vitkovice Horni a Hutni Tezirstvo v KornerELR [1951] AC 869.
Service out of jurisdiction — Insurance — Insurers sought negative declarations against US insured — Whether insurers entitled to declarations of non-liability — Whether England appropriate forum — Rules of the Supreme Court, O. 11, r. 1(1).
This was an appeal by a US defendant (“PENAC”) against a judge's refusal to set aside service on the defendant out of the jurisdiction of a writ by the plaintiff insurers seeking declarations that they were not liable to PENAC under certain comprehensive crime policies.
The policies covered PENAC for employee dishonesty and the claim related to the alleged fraudulent activities of an employee, F, who was said to have deliberately continued to supply defective products to customers, thereby procuring payment of bonuses to himself, knowing that they would fail and be returned and have to be replaced by PENAC. The insurers contended that most of PENAC's losses fell outside the scope of the cover and claimed declarations accordingly by writ served on PENAC out of the jurisdiction. PENAC sought to set aside the insurers' English proceedings on the ground that the appropriate forum was Illinois. Rix J held that the insurers could be regarded as natural plaintiffs because they were seeking to resolve issues on standard policy wording and because PENAC had not taken proceedings in Illinois. He further held that the writ raised certain issues of construction which were suitable for decision as relatively short preliminary points, that the early resolution of these points would be likely to assist the parties and that the appropriate forum in which to resolve them was England. Accordingly he refused to set aside the service out of the jurisdiction and PENAC appealed.
Held dismissing the appeal:
1. Where leave to serve out of the jurisdiction a writ claiming a negative declaration was challenged, the court would have to consider both the question of whether there was justification for seeking that relief and the separate question of whether England was the appropriate forum in which to seek it. The two questions would cover common ground where the possibility existed that the plaintiff in the English proceedings would be sued by the defendant in an alternative jurisdiction. It was in that situation that the court must be particularly careful to ensure that the negative declaration was sought for a valid and valuable purpose and not in an illegitimate attempt to pre-empt the jurisdiction in which the dispute between the parties was to be resolved.
2. Rix J applied the right principles and was right to hold that the insurers were justified in applying for a negative declaration; that PENAC was not threatening imminent litigation in Illinois; and that the motive for seeking the negative declaration was not to attempt to make sure that PENAC's claim was resolved in England, but to obtain the resolution of preliminary issues of construction which fell to be determined according to English law. The judge rightly identified threshold issues of construction, including whether the claim for bonuses fraudulently obtained was excluded by the policy wording and whether the claims for bonuses and for the cost of replacing defective products were claims in respect of “loss of money, securities and other property” within the words of the cover. The judge was rightly satisfied that it would be possible to identify the relevant assertions of primary fact made by PENAC and to resolve those issues on those assumed facts.
3. England was the natural and appropriate forum in which to seek to resolve those issues. The English hearing might obviate the need for a trial of the facts, but it might not, and whereas England was the appropriate forum for determining the points of construction, Illinois was the appropriate jurisdiction for the trial of the facts. But that did not mean that the English court should as a matter of principle decline an application for a negative declaration. The judge had regard to the relevant considerations, including that PENAC had not commenced proceedings in Illinois, and his decision demonstrated no error which would cause the court to interfere.
Phillips LJ: This is a dispute about jurisdiction. The appellants (“PENAC”) enjoyed at the material time the benefit of group cover under three policies of insurance described as comprehensive crime policies. They were governed by English law. Those policies were subscribed by the respondents (“the insurers”). In November 1994 notice was given to the insurers that circumstances had arisen which might give rise to a claim under the policies. On 31 August 1995 PENAC submitted a proof of loss which was 82 pages long. This alleged that the fraudulent activities of Mr Filson, the president of Advance, a division of PENAC, had caused PENAC losses which were recoverable under the policies. These activities took place in Illinois.
The insurers make no admissions in relation to the facts alleged in the proof of loss, but contend that if those facts are true most of the losses fall outside the scope of the cover. On 29 November 1995 they issued a specially indorsed writ in the Commercial Court claiming declarations that they are not liable under the policies for the majority of the sums claimed in the proof of loss. They served the writ on PENAC out of the jurisdiction pursuant to leave granted under O. 11, r. 1(1)(d)(iii). PENAC issued a summons under O. 12, r. 8 for an order that service of the writ be set aside on the ground that the appropriate forum for proceedings in relation to their claim was Illinois, not England. Rix J rejected their application. He accepted that if issues of fact had to be resolved the appropriate forum for their resolution would be Illinois. He held, however, that the writ raised certain issues of construction which were suitable for decision as relatively short preliminary points, that the early resolution of these points would be likely to assist the parties and that the appropriate forum in which to resolve them was England.
PENAC now appeal against Rix J's order. They contend that Rix J based the exercise of his discretion on a false appreciation of the material facts and erred in principle. In support of that submission they rely on events that have occurred since Rix J gave judgment.
Apart from the provisions which render the policies subject to English law, the following are the terms of the policies relevant to the present dispute:
“SECTION 1 — EMPLOYEE DISHONESTY
This section indemnified the Insured following loss of Money, Securities and other property which the Insured sustains, to an amount not exceeding the amount specified in the Schedule applicable to this section, resulting directly from one or more fraudulent or dishonest acts committed by an Employee at any time, acting alone or in collusion with others, PROVIDED ALWAYS THAT:
(1) Such fraudulent or dishonest acts:
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(a) are committed before the expiry of the Period of Insurance specified...
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