The high reputation of the Commercial Court in London for efficiency and impartiality is such that English jurisdiction clauses are a ubiquitous feature of contracts signed around the world. They can be of crucial significance if disputes arise and, as one case showed; English judges are willing to enforce them to the hilt.

Two companies were being sued in America for about $1.4 billion in connection with the construction of an industrial plant. They claimed on an excess insurance policy, which was written in London, with a view to recovering the very substantial legal costs of defending the proceedings. The insurers neither refused nor consented to providing an indemnity under the policy but instead asked various questions of the companies so that they could consider how they should respond.

The companies asserted that the delay in paying out under the policy amounted to a violation of the insurers' express contractual obligations and their duty to act in good faith. The companies launched proceedings in New Jersey and obtained an order requiring the insurers, amongst other things, to pay $3.1 million immediately and to cover the companies' reasonable ongoing costs in the US litigation.

The insurers responded by applying to the Commercial Court in London for an anti-suit injunction to prevent the New Jersey proceedings from continuing any further. They pointed to a clause in the policy, repeated in supporting documents, which conferred exclusive jurisdiction on the English courts. The policy also required that English law be applied to the resolution of any disputes arising.

In upholding the insurers' application, the Court found that the English jurisdiction clause obviously applied to the dispute that had arisen. It was quite unarguable that issues concerning the recoverability of the companies' defence costs for some reason fell outside the clause's scope. There was no tenable basis on which the clause could or should be ignored and the companies had established no strong reason why it should not be fully enforced. The Court ordered the companies to withdraw the New Jersey proceedings.

Says Emma Birch, Senior Associate:

“It is essential to refer to the terms of the contract when considering issuing proceedings as it is not possible to deviate from effective governing law and jurisdiction clauses, and the cost implications of issuing in the wrong jurisdiction could be considerable. Equally, parties facing proceedings should check whether they can rely on the contract to ensure any claim is brought in the correct jurisdiction.”

Contact Emma Birch on 0808 188 7726 e.birch@sydneymitchell.co.uk

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