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Courts Will Not Stay Proceedings Concerning Commutation Agreement
London and Bermuda Newsletter
The English Commercial Court has upheld the right of a reinsured to have disputes under a commutation tried in its chosen jurisdiction.
When disputes under one contract (for example, a reinsurance) have consequences for another (for example, a retrocessional reinsurance, or commutation or deed of assignment of the reinsurance), separate proceedings about the same facts can arise in different jurisdictions – particularly where the contracts have an international character. In exceptional circumstances courts can stay proceedings (which then go into suspended animation) for “case management” reasons. This can narrow issues in dispute and minimise costs.
A stay for case management purposes is not the same as a stay in favour of another jurisdiction (forum non conveniens). That step is permanent and forces a party to sue overseas. Recent developments confirm that stays in favour of another jurisdiction are no longer available where European law applies. A case management stay may be temporary only, and could potentially fall outside the scope of these developments.
Facts
Equitas Limited v Allstate Insurance Company [2008 EWHC 1671 (Comm)] concerns the scope of a commutation agreed in 2004. That agreement commuted reinsurances by Allstate of Lloyd’s names, the benefit of whose outwards rights have, by virtue of Reconstruction and Renewal, been assigned to Equitas. The commutation included a choice of jurisdiction clause submitting disputes to the jurisdiction of the English courts.
The parties dispute the effect of the commutation on Allstate’s liability as a reinsurer under certain common account excess of loss contracts (“CAXOLs”). The CAXOLs were procured by Highlands Insurance Company and inure to the benefit of Highlands’ quota share reinsurers, which include Lloyd’s names. The CAXOLs are subject to Texas law and arbitration.
In January 2007, Highlands commenced arbitration proceedings in Texas against Allstate for balances due under the CAXOLs. Allstate disputed liability for Equitas’ share on the basis that the commutation compromised it. It also challenged Highlands’ title to sue under the CAXOLs for anything more than its net retention.
Highlands was the claimant in the arbitration and kept Equitas informed of developments.
Issues
Allstate sought a stay of the English proceedings pending the outcome in Texas. It asserted the issues in the English proceedings were already being arbitrated in Texas which – Allstate claimed - Equitas had a hand in running. Regardless of whether the court stayed the English proceedings, the outcome of the Texas arbitration would be paramount for all practical purposes. The key point was liability under the CAXOLs. That was bound up with the question whether Highlands had title to arbitrate and only a Texas arbitration could resolve that.
Equitas resisted.
Decision of the court
The Court declined to stay the proceedings. Stays for case management purposes are available only in “rare” and “compelling” circumstances. They require trials of the same facts two jurisdictions. There must be practical advantages to the stay. A stay is unlikely if it will cause prejudice.
The facts were not the same – one dispute concerned rights under the CAXOLs as such, the other the commutation. Awaiting the outcome of the arbitration would narrow the issues in England, but in the circumstances that was not enough. The arbitrators would decide the issue of the scope of commutation and resolve the important issues for good. By then the stayed English proceedings would be sterile. The stay would thus be tantamount to a permanent stay in favour of Texas. That would breach European law. Not only that, Equitas would be prejudiced, as matters relating to its commutation with Allstate would be determined in an arbitration to which it was not a party.
Conclusion
The Court was concerned not only to see disputes tried in accordance with a choice of jurisdiction, but to see that happen while the issues still matter. As one would expect, the existence of the jurisdiction clause meant Allstate faced a very high bar in persuading the court. But it is also notable that the Court will be cautious not to allow the European regime to be side-stepped.
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