AIG UK Ltd & Ors v QBE Insurance

PROCEDURE - SUPREME COURT PROCEDURE - QUEENSLAND - JURISDICTION AND GENERALLY - where the defendant was the primary insurer at the time of an accident in New South Wales - where the plaintiffs were reinsurers of part of that liability - where the primary policy specified "Australian law" as governing any dispute concerning interpretation - where the reinsurance contract defined jurisdiction as "the Commonwealth of Australia and New Zealand only" - where the plaintiffs commenced proceedings in Queensland seeking a declaration that they are not bound to indemnify the defendant - where the proceedings concerning the accident had been settled in Victoria according to Victorian law - where the defendant sought to set aside or stay the plaintiffs' proceeding for want of jurisdiction - where the plaintiffs argued that r 124 UCPR permitted service on the defendant as the parties had agreed to submit to the jurisdiction of the Supreme Court of Queensland - whether the plaintiffs' proceedings were improperly commenced in Queensland

PROCEDURE - COURTS AND JUDGES GENERALLY - CONCURRENT JURISDICTION OF DIFFERENT COURTS - TRANSFER OF PROCEEDINGS UNDER CROSS-VESTING LEGISLATION - WHERE APPROPRIATE AND IN INTERESTS OF JUSTICE - where the defendant argued in the alternative that the proceedings should be transferred to the Victorian Supreme Court - whether it was in the interests of justice that the matter be cross-vested to the Victorian Supreme Court

Insurance Contracts Act 1984 (Cth)

Civil Liability Act 2002 (NSW), Pt 1A Div 5

Instruments Act 1958 (Vic), s 27

Jurisdiction of Courts (Cross-vesting) Act 1987 (Qld), s 5(2), s 9

Jurisdiction of Courts (Cross-Vesting) Act 1987 (Vic), s 4(3)

Uniform Civil Procedure Rules 1999 (Qld), r 16, r 56,

Backyard Concepts Corporation Pty Ltd v Jim's Group Pty Ltd [2007] QSC 295, cited

Bankinvest AG v Seabrook (1988) 14 NSWLR 711, cited

World Firefighters Games Brisbane, 2002 v World Firefighters Games Western Australia Inc [2001] QSC 164, cited

[1] MACKENZIE J: The defendant ("QBE") was the primary insurer of Confederation of Australian Motor Sports ("CAMS") and related entities at the time when an accident which became the subject of proceedings for damages occurred. The plaintiffs were reinsurers of part of that liability, the nature of which will be briefly explained later. The background to the issue raised in the proceedings brought by the plaintiffs against the defendant is that a driver was injured during a motor race at Oran Park, New South Wales, in January 2000. In September 2002, he commenced proceedings in Victoria against three defendants connected with the conduct of the event, one of which was CAMS. The action was based on negligence and implied warranties under s 74 of the Trade Practices Act 1975 (Cth). The proceedings were settled in November 2007 for a sum of $3.25 million.

[2] The three plaintiffs had reinsured the defendant's liability to the original insured persons by a non-proportional excess facultative reinsurance agreement. The two retention layers applicable to the policy were in aggregate $1 million. A claim or loss on the original policy (that is to say the policy in favour of CAMS) in excess of $1 million would prima facie give rise to a claim by QBE under the policy.

[3] The proceeding commenced by the three plaintiffs is brought to seek a declaration that they are not bound to indemnify the defendant in respect of the claim for damages covered by the CAMS policy. As argued, the application by the defendant seeks orders, pursuant to r 16 UCPR:

(i) declaring that the proceeding has not, for want of jurisdiction been properly started;

Alternatively an order is sought under s 5(2)(b)(iii) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Qld) transferring the proceeding to the Supreme Court of another State or Territory, and directions under UCPR r 56. The court to which it is submitted it should be transferred is the Victorian Supreme Court.

[4] The most important provision of the primary policy for present purposes is what is called "service of suit clause". It provides, inter alia, as follows:

(a) any dispute concerning the interpretation of the terms conditions and limitations and/or exclusions contained herein is understood and agreed by both the Assured/Company and Underwriters to be subject to Australian Law.

Each party agrees to submit to the jurisdiction of any Court of competent jurisdiction within Australia and to comply with all requirements necessary to give such Court jurisdiction. All matters arising hereunder shall be determined in accordance with the law and practice of such Courts. ..."

[5] In the excess layer reinsurance contract, there is a definition of "jurisdiction" which is "Commonwealth of Australia and New Zealand only, as original." There is also a "claims cooperation clause" which is as follows:

"Notwithstanding anything herein contained to the contrary, it is a condition precedent to any liability under this policy that;

(a) The Reinsured shall upon knowledge of any loss or losses which may give rise to a claim under this policy advise the Underwriters thereof as soon as practicable and without undue delay. Such advices will include but not be restricted to any claim with a reserve in excess of 50% of any underlying limit whether insured or not.

(b) The Reinsured shall furnish the Underwriters with all information available respecting such loss or losses and shall cooperate with the Underwriters in adjustment and settlement thereof."

[6] All of the companies are overseas companies. The reinsurance contract was not made in Queensland. Nor, probably, was it breached in Queensland. As already indicated, the claim in respect of which indemnity is sought from the plaintiffs was not made in Queensland. Nor was the claim upon the reinsurance contract made in Queensland. It is apparent from correspondence and documents exhibited to affidavits that, although the accident happened in New South Wales there was a question whether; by bringing the proceedings in Victoria the plaintiff was able to avoid a major potential risk to succeeding. There was a New South Wales provision in Pt 1A Div 5 of the Civil Liability Act 2002 (NSW), which limited rights to recover damages if a person injured was engaging in dangerous recreational activities with obvious risks that materialised. That is of little direct relevance except to explain why the submission on behalf of the defendant is that Victoria was the most appropriate forum in which to hear the proceeding by the three reinsurers against it, and, perhaps, as a reason for the lateness of notification under the claims cooperation clause.

[7] The defendant submitted that the connection with a particular jurisdiction in a contract case was relevant to the jurisdiction to entertain the matter, the governing law of the contract and the cross-vesting issue. The lack of connection with Queensland was emphasised. The litigation in connection with the accident had been conducted and settled under Victorian law and the damages were paid in Victoria. Victorian solicitors and counsel had the carriage of the action. The court file and the solicitors' files were located in Melbourne. There are two other issues advanced in this connection by the defendant that are perhaps less uncontroversial. One is that "the events which the plaintiffs allege rendered the condition precedent incapable of fulfilment occurred in Victoria". The second is that the proper law of the contract is the law of Victoria.

[8] The reason for a reservation about the accuracy of the first of the two propositions is that the solicitors were in Melbourne but reports to the agents of the defendant were sent to the agents in places outside Victoria - Adelaide, Sydney, London and Brisbane. The last Australian contacts were made with an agent in Brisbane. The triggering of the obligation under the claims cooperation clause occurred "upon knowledge of any loss or losses which may give rise to a claim" under the reinsurance contract. Once that occurred, the plaintiffs were to be notified "as soon as practicable and without undue delay".

[9] Analysed in that way, it becomes rather tenuous to argue that the defendant's knowledge of the extent of the claim, and crystallisation of an obligation to notify the plaintiffs occurred in Victoria. The obligation to notify the plaintiffs was the defendant's. While it was, no doubt, dependent on advice from the solicitors in Victoria about the extent of its exposure, there is substantial evidence in the correspondence suggesting that the defendant's relevant decisions were not made there.

[10] In developing the argument about the proper law of the contract, the defendant contended that, by the service of suit clause in the primary policy, the parties had exercised a choice of law ("Australian law") and a choice of jurisdiction ("any court of competent jurisdiction"). It was submitted that in the reinsurance contract, the definition of "jurisdiction" as "the Commonwealth of Australia and New Zealand, as original" should be similarly interpreted. It was submitted that the reference to "Australian law" should be interpreted as including relevant Australian statutes, the rules and implications of Australian common law and the rules of conflict of laws insofar as they were applicable to the terms of the contract.

[11] The search by the defendant for the "closest and most real connection with the transaction" appears to have been excited by the absence of any analogue in Queensland law of s 27 of the Instruments Act 1958 (Vic) and the exclusion of reinsurance contracts from the Insurance Contracts Act 1984 (Cth). Section 27 relieves an insured from the consequences that would otherwise follow from failure to comply with notice provisions required by a contract of insurance if the failure occurred "by reason of accident, mistake or other reasonable cause", unless the court considered that the insurer had been so prejudiced by such failure that it would be inequitable if the failure were not a bar to proceeding. It was submitted that the application of domestic conflict of laws rules pointed to the application of the law of an Australian jurisdiction that had the closest and most real connection with the subject matter of the proceeding. It was also submitted that although the proper law of the contract is ordinarily to be determined by reference to the parties' intention, the courts have shown a willingness to descend to the nature of a particular cession under a reinsurance treaty and even a particular claim as part of the "transaction" to which a close and real connection with the jurisdiction might be found.

[12] It was submitted that the service of suit clause in the primary policy spoke of "any dispute" being subject to Australian law. A dispute as to the claims cooperation clause could only arise in the context of a particular claim. Therefore the clause should be interpreted as meaning that the claim and its contextual circumstances were intended to be regarded as part of the transaction with which a real and close connection had to be found. The list of connections with Victoria, referred to above, should lead to the conclusion that the law of Victoria was the proper law of the contract.

[13] The plaintiffs submitted that that conclusion should be rejected. It was submitted that the authorities relied on by the defendant did not support the proposition that the reference to "laws of Australia" or "Australian law" could be distilled down to a choice of specific State law. It was submitted that, on its true construction, either the jurisdiction clause in the policy was not intended to be a choice of law clause (in which case English law was most likely to be the proper law of the contract) or it operated as indicating a choice of Australian law, namely Australian common law and Commonwealth statutory law. On neither view could it be said that the English reinsurer or their English reinsured had intended that the proper law of the reinsurance policy was the law of Victoria.

[14] It will be apparent from what has been interpolated during the analysis of the arguments above that the submission that the Supreme Court of Victoria was the most appropriate court within which to commence proceedings cannot be made out. Detailed analysis of the authorities would, no doubt, be an interesting exercise, but would be peripheral only in this case, on the view I take.

[15] With regard to the submission that the proceedings have been improperly commenced in Queensland, the plaintiffs' position is that the effect of the service of suit clause was that the parties had agreed to submit their disputes to the jurisdiction of any court of competent jurisdiction within the Commonwealth of Australia. There was a clear submission to the jurisdiction of competent Australian courts, of which the Supreme Court of Queensland is one.

[16] They rely on the proposition that the court's jurisdiction over a defendant in an action in personam is coextensive with the defendant's amenability to service of the court's process. The rules relating to service of a defendant resident outside Australia were of critical importance. Reliance was placed on r 124(1)(i) UCPR as the basis upon which jurisdiction of the Supreme Court of Queensland was established. Rule 124(1)(i) permits service outside Australia, without the court's leave, of a proceeding based on a contract containing a condition by which the parties agree to submit to the jurisdiction of the court. It was submitted that it was irrelevant that the submission to the jurisdiction of the Supreme Court of Queensland was not exclusive since the parties had also submitted to the jurisdiction of other competent courts in Australia. Accordingly, service on the defendant was permitted by r 124(1)(i) and the court had jurisdiction. There is no demonstrated basis for setting aside the originating proceeding or staying it.

[17] In my view, the plaintiffs' approach is correct. The traditional view as to the foundation of jurisdiction was relied on by them. It may be mentioned that this was not a case where, if the matter were truly a Victorian "state matter", the interaction between s 4(3) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Vic) and s 9 of the corresponding Queensland legislation was relied on. If it had been, Ch 2 Part 7 UCPR would have operated on it for procedural purposes.

[18] The remaining issue is whether an order should be made under the Jurisdiction of Courts (Cross-vesting) Act 1987 (Qld). The application invokes the freestanding ground under s 5(2)(iii) which requires this Court to transfer the proceeding to another Supreme Court if it thinks that it is in the interests of justice, for reasons other than those in s 5(2)(i) and (ii), that the relevant proceeding be determined by the Supreme Court of another State.

[19] The plaintiffs' submission is that, while the test under the Jurisdiction of Courts (Cross-Vesting) Act is different from the test applicable to applications to stay proceedings, the relevant considerations are similar to those applicable to that kind of application. The plaintiffs' fundamental starting point is that the question to be answered is a very narrow one. The argument is premised on a perception that the case will be wholly a documentary evidence case. There are a number of objective facts that seem difficult to controvert, even if evidence were given, in the form of dates when certain advices were given to the defendant by the Victorian solicitors. One, as early as 12 May 2006, recommended that a reserve be raised on a likely settlement of $1.5m representing about half the top end of the range of damages potentially recoverable. There are also a letter annexed to an affidavit of Mr Henley, described as AH7, dated 2 November 2007 and an email AH8, dated 5 November 2007, which at least make concessions that the notification given to the plaintiffs was later than would be expected under ideal circumstances. They also attribute at least part of the cause of the late notification to matters internal to the defendant.

[20] It is a matter where the documentation is such that it would be easy to draw a conclusion as to what the defendant's state of knowledge was at various relevant times and whether it had advised the plaintiffs of the claim as soon as practicable and without undue delay. It may be unduly optimistic to think that there would be no evidence given orally but it is also not a case which appears, on the face of it, to be complex even if evidence were to be called.

[21] It was submitted by the plaintiffs that the fact that the defendant's actions during the underlying damages proceedings in Victoria had given rise to the consequential litigation between the parties is irrelevant. The documentary evidence already available provides a basis for determining the matter, without the need to call witnesses at all or with minimal evidence. It was further added that none of the parties resided in Queensland. It was also submitted that there was no element of inconvenience if the matter was heard in Queensland. As opposed to that, there would be some inconvenience in having to engage new legal representatives in Victoria. Further, there was no suggestion that the breach of the obligation to give notice promptly occurred in Victoria. It was submitted that the plaintiffs and defendants, for the reasons previously discussed, did not express a preference for any particular Australian jurisdiction as the forum for determining disputes under the contract. The Queensland Supreme Court was a suitable forum in which to try the matter.

[22] The defendant relied on Bankinvest AG v Seabrook (1988) 14 NSWLR 711, Backyard Concepts Corporation Pty Ltd v Jim's Group Pty Ltd [2007] QSC 295 and World Firefighters Games Brisbane, 2002 v World Firefighters Games Western Australia Inc [2001] QSC 164 as the source of the relevant principles. That submission is accepted since the approach in them appears to be the dominant view of how the cross-vesting scheme should be understood. It was submitted that it was necessary to identify whether, in the interests of justice, it was more appropriate that the proceeding be determined by another Supreme Court. It was submitted that the application of the substantive law, if it was peculiar to a particular jurisdiction, was particularly important. Since the Insurance Contracts Act 1984 (Cth) excludes reinsurance but the benefit conferred by s 27 of the Instruments Act 1958 (Vic) does apply to reinsurance, litigating in Victoria would put the plaintiff in the position of preventing the reinsurer defeating a cause of action "by a technicality considered by the legislature to be unworthy". It was submitted that it was also relevant to speculate that the reason for choosing Queensland rather than Victoria was due to pre-emptive forum shopping, which would be a relevant consideration.

[23] The plaintiffs and the defendant are commercial organisations who all agreed to submit their disputes to determination by Australian law. The fundamental issue in the proceedings between the parties is whether the defendant complied with its obligation to notify the plaintiffs as soon as practicable and without undue delay. That involves a primary question of when the defendant became aware that the extent of the claim was such that notification was appropriate. The fact that the defendant was dependant on advice from those conducting the proceedings in Victoria about the extent of exposure is little more than an incidental connection with Victoria, given that critical decisions by the defendant about notification seem not to have been made there. A body of documentary evidence that appears to be relevant to when knowledge of the potential extent of the claim was received by the defendant and when advice about creating a reserve was given to it is already available. Reliance on a complaint that a potential defence that may be available in Victoria in a case where there is no clear reason why the matter should otherwise be heard in Victoria is not a compelling argument. Despite the defendant's submissions, I am not persuaded it has been established that the interests of justice require the matter to be cross-vested to the Supreme Court of Victoria.

[24] I am not persuaded that it has been established that it is in the interests of justice that the matter be cross-vested to the Victorian Supreme Court. The application has failed in all respects. The order, accordingly, will be that the applicant/defendant's application be dismissed with costs to be assessed on the standard basis.