Wednesday Law Report: Clause could not be implied in contract

30 June 1999 Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd Court of Appeal (Lord Justice Beldam, Lord Justice Brooke and Lord Justice Mummery) 28 May 1999

A REINSURANCE contract made in London between London underwriters and brokers was based on the well-known duty of disclosure and the right of an insurer to avoid a policy for misrepresentation, and on principle, in the absence of express agreement, it could not reasonably be imputed to the parties to such a contract that they intended a clause of the underlying insurance contract, which would conflict with that basis, to apply.

The Court of Appeal dismissed the defendant's appeal against the refusal of its application to set aside service out of the jurisdiction of the writ in proceedings brought against it by the plaintiff.

The plaintiff carried on reinsurance business in the London market. The defendant was an insurance company based in Taiwan. In February 1996 the defendant issued an erection all risks (EAR) policy of insurance covering the erection of a large factory in Taiwan. In its English translation clause 22 of the policy provided:

Matters not stipulated in this policy shall be handled in accordance with the provisions of insurance law and regulations.

Through London brokers, the defendant presented the reinsurance risk to the plaintiff. By the terms of a slip policy the plaintiff agreed to reinsure the defendant in respect of its liability under the EAR policy.

The factory was seriously damaged by fire giving rise to a claim under the EAR policy. The plaintiff commenced proceedings against the defendant seeking, inter alia, to avoid the reinsurance policy because it had been induced to accept the risk by material non-disclosure or misrepresentation.

The plaintiff applied for leave to serve the writ out of the jurisdiction, claiming declarations that it was entitled to rescind the contract of reinsurance or to obtain relief in respect of breach of a condition of the contract, which was made within the jurisdiction through brokers carrying on business within the jurisdiction on behalf of the defendant which was out of the jurisdiction; and that the contract of reinsurance was by its terms or by implication governed by English law.

The defendant applied under Order 12, rule 8(1) of the Rules of the Supreme Court to set aside service, accepting that the court had jurisdiction under Order 11, rule 1(1)(d) but disputing that English law governed the reinsurance policy. The judge decided that English law was the proper law of the contact and that the English courts were the appropriate forum.

The defendant appealed, contending that its liability to its insured was governed by Taiwanese law and that the effect of the provisions in the slip that the form of the policy was described as "following original" reinforced the conclusion that the conditions of the Taiwanese policy, in particular clause 22, were to be taken to be included in the reinsurance slip.

Colin Edelman QC and Colin Wynter (Dibb Lupton Alsop) for the plaintiff; John Lockey (Stephenson Harwood) for the defendant.

Lord Justice Beldam said that where a contract of reinsurance was made in London between London underwriters and brokers their agreement was based on the well-known duty of disclosure and the right of an insurer to avoid a policy for misrepresentation. Clause 22 of the EAR contract would introduce a term of Taiwanese law in conflict with that basis.

On principle, in the absence of express agreement, it could not reasonably be imputed to the parties that they had intended clause 22 to apply. In any event, where matters were expressly dealt with on the slip, the provisions of clause 22 would not apply. A term could only be implied in the reinsurance policy if it did not conflict with its express terms. The decisions in Hong Kong Borneo Services Co Ltd v Pilcher (1992) 2 Lloyds rep 593, Municipal Mutual v Sea Insurance [1996] LRLR 265 and Pine Top v Unione Italiano [1987] 1 Lloyds LR 476 fortified that view.

Accordingly, the judge had been correct to hold that there was an implied choice of English law, and that the English courts were the convenient forum.

Kate O'Hanlon

Barrister