Claimants 'forum shopping' for the jurisdiction they think will benefit them most can lead to substantially higher losses for re/insurers Elspeth Talbot Rice highlights a significant development that can put the initiative in the hands of the insurer.

The recent decision of Bristow Helicopters Ltd v Sikorsky Aircraft Corporation [2004] 2 Lloyds Rep 150 has confirmed the availability of a useful new weapon in the armoury of insurers, on the basis of which insurers can go on the attack in the courts in England in order to prevent proceedings being brought against them by potential claimants in unfavourable jurisdictions. The form of this new weapon is an action for a negative declaration.

Ordinarily, when parties litigate, a claimant is seeking to establish the defendant's liability. In the typical liability insurance context the injured claimant sues the insured in order to establish that the insured is liable. The role of insurers in such cases is therefore reactive and defensive.

Subject to rules on jurisdiction and limitation, the case is brought wherever and whenever the claimant chooses. If the US is a possible seat of the litigation and the claimant selects this, the effect may be devastating for insurers, not least because in the US the award of astronomical damages by juries is common and litigation costs are generally not recovered.

Proceedings for a negative declaration in England give the insurer the ability to prevent the claimant from choosing to start proceedings in unfavourable jurisdictions. Where an insurer fears he may be sued in an unfavourable jurisdiction, provided that he can establish that the English courts have jurisdiction over the dispute, instead of waiting for the potential claimant to sue him in the jurisdiction of the claimant's choosing, the insurer can now strike first. This involves the insurer commencing an action in the English court, asking the court to declare that he is not liable to the injured party, or only liable to him on a particular and usually limited basis. It can be seen from this that the natural roles of the parties are reversed: the natural claimant (the injured party) becomes the defendant and the natural defendant (usually the insured) becomes the claimant.

The point of such action is to prevent the claimant from 'forum shopping' for the jurisdiction which he thinks will be most beneficial to his cause. Thus an action for a negative declaration can be a very useful 'defence'. An insurer may well prefer to go on the offensive to prevent action being brought against his insured (for example in the US) rather than to wait for the claimant to choose an unfavourable jurisdiction and then to have to spend years and vast sums in unrecoverable legal costs in disputing the claimant's chosen jurisdiction.

Changing attitudes

Proceedings for negative declarations were historically shunned by the English courts. This attitude has now changed but remarkably few are aware of this significant development.

English law long ago decided that proceedings for a negative declaration were almost always wrong. In the early 20th century, the court went as far as to say that it had no jurisdiction to grant a negative declaration(1). It was said that the courts were there to grant real and positive remedies to those who claimed to have suffered a legal wrong, not to assist those who feared they might be sued for having committed such wrongs. This approach was repeatedly followed including in cases decided as recently as 1985(2) and 1998(3). However, there was another line of authorities in which the court's jurisdiction to make a negative declaration was not doubted but the jurisdiction was rarely exercised(4).

On the face of it, the culture of not rushing precipitously into litigation introduced by the Civil Procedure Rules in England in 1999 should have made the jurisdiction (if the court was persuaded it existed) even more rarely exercised. In practice, this meant that an insurer had to wait until his insured was sued in the jurisdiction of the claimant's choice and then dispute jurisdiction if there were grounds, in that jurisdiction, to do so.

The position in Europe was different, where proceedings for negative declarations were allowed and considered entirely legitimate(5). This was to have an important influence on the English court. The key instrument for determining jurisdiction in member states of the EU (formerly the Brussels Convention, now the Brussels Regulations) gives an important impetus to being the party who 'gets in first' because of the primacy of the court first put in possession of the dispute. Thus, parties who commenced litigation in other parts of Europe could commence proceedings for a negative declaration whereas in England the historical judicial climate was opposed to them.

In 1975, the pioneering jurist Lord Denning had no truck with the alleged unavailability of negative declarations. He said(6) both that they were available and that they should be made whenever they served a useful purpose. Lord Wilberforce echoed those sentiments in the House of Lords(7). Despite this, courts continued to make decisions on the basis that there was no jurisdiction to grant negative declarations(8).

In 2000, the muddy waters began clearing when, in a landmark Court of Appeal decision, Lord Denning's approach was decisively affirmed. In Messier-Dowty Ltd v Sabena SA [2000] 1 WLR 2040, Lord Woolf, the architect of the new Civil Procedure Rules said that the court did have jurisdiction to make negative declarations, that it was a jurisdiction which should be exercised whenever it served a useful purpose and that this was so even if the real object was to fix the court with jurisdiction.

Confirmation

Recently, in Bristow Helicopters Ltd v Sikorsky Aircraft Coporation [2004] 2 Lloyd's Rep 150, Morison J affirmed the availability of the negative declaration. In this case the claimant feared proceedings in the US although such proceedings had not actually been threatened.

Following the total loss in British waters of a Sikorsky helicopter, owned and operated by Bristow Helicopters (an English company), and all 11 (English) passengers and crew on board, Philip Shepherd QC on behalf of Bristow commenced proceedings against a number of defendants who might otherwise have involved Bristow in proceedings in the US, including the dependants of the passengers and crew killed in the catastrophe, for a declaration that Bristow's liability to the dependants was governed by English law and was limited by English statutory provisions. The trigger for these proceedings was obviously a fear that the passengers' and crew's dependants would commence proceedings in the US where levels of compensation vastly exceed those available in England.

The dependants of the crew applied to strike out Bristow's proceedings on the basis that they intended to bring proceedings in the US against Sikorsky and that Bristow's UK proceedings were a deliberate tactic to prevent them from proceeding in the US - a pre-emptive strike designed to lock them into an English action - and that they had never threatened to hold Bristow responsible for the accident. The court rejected all these arguments and upheld the validity of Bristow's proceedings, thereby fixing the dependants with English, not US, levels of compensation.

The court acknowledged that the effect of Bristow's proceedings was to tie the crew's dependants into UK proceedings, but saw nothing improper or inappropriate in that. The court also accepted that, although the Civil Procedure Rules placed great store on alternative avenues being exhausted before proceedings were commenced, in appropriate cases there was nothing wrong with one party effectively forcing the issue as to where proceedings should be brought by 'getting in first'.

It follows that there is nothing wrong in principle with a potential defendant who fears being sued in another jurisdiction starting proceedings himself in England so as to fix the English court with jurisdiction. It is no longer the case that the English court will view proceedings for negative declarations as an objectionable form of forum shopping or indeed that such proceedings will be treated any differently from any other proceedings claiming positive relief.

However, an action for a negative declaration will not be appropriate in every case where foreign proceedings are feared or threatened. It is necessary to show that an English court has jurisdiction over the defendant and that, where the defendant is foreign, it is appropriate to sue that defendant in England. For example, this may be because England is the place where the parties have chosen by contract to litigate, because it is the place of performance of the relevant contractual obligation, the place where the harmful event occurred or the place where the damage was suffered.

This new and highly flexible remedy will be of particular use to UK insurers but also to manufacturers who may be exposed to product liability litigation and in a wide variety of other circumstances.

(1) Re Clay; Clay v Booth [1919] 1 Ch 66.

(2) Midland Bank Plc v Laker Airways Ltd [1986] QB 689, CA, 700-701 Lawton LJ.

(3) New Hampshire Insurance Co v Aerospace Finance Ltd [1998] 2 Lloyd's Rep.539.

(4) Dyson v Attorney-General [1911] 1 KB 410; Guaranty Trust Co of New York v Hannay & Co [1915] 2 KB 536.

(5) Owners of cargo lately laden on board the ship Tatry v Owners of the ship Maciej Rataj (Case C-406/92) (Note) [1999] QB 515, 516.

(6) In Camilla Cotton Oil Co v Granadex SA [1975] 1 Lloyd's Rep.470.

(7) [1976] 2 Lloyd's Rep 10.

(8) See footnotes 2 and 3 above.


Elspeth Talbot Rice is a barrister at XXIV Old Buildings and gave a recent seminar organised by head of insurance and reinsurance at international law firm DLA, Charles Gordon, on the importance of the Bristow Helicopters Ltd v Sikorsky Aircraft Corporation case and its effect on the insurance industry.

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