ACE v Moose: Enforcing the jurisdictional bargainAuthor : Adam Chylek and Gareth Horne

Public and Products Liability

The interpretation of choice of law and jurisdiction clauses in commercial contracts represents an area of growing significance as contractual relationships increasingly transcend jurisdictional boundaries.  The issue is of particular relevance to insurers extending cover for claims that might arise in foreign jurisdictions.  The recent decision of the Supreme Court of New South Wales in ACE Insurance Limited v Moose Enterprise Pty Ltd [2009] NSWSC 724 (ACE v Moose) provides important guidance on the interpretation and application of choice of law and jurisdiction clauses, and the application of equitable principles to determine when the institution of foreign proceedings will be deemed unconscionable, vexatious and oppressive.

Background

Wotton + Kearney acts for ACE Insurance Limited (ACE), the insurer of Moose Enterprise Pty Ltd (Moose) pursuant to a public and products liability policy (the Policy) issued by ACE’s Perth office.  ACE and Moose are Australian entities.

Moose develops toys for sale to Australian retailers and foreign distributors.  In 2007 Moose announced a voluntary recall of its Bindeez Beads product after batches were allegedly found to have contained a toxic substance.  Following the voluntary recall of the Bindeez Beads product, known as Aqua Dots in North America, various class actions were commenced in several United States jurisdictions against Moose and others.  Moose made a claim for indemnity under the Policy.  There is a relevant issue as to whether the various class actions in the United States trigger the Policy.

In December 2008 Moose, without notice, commenced declaratory proceedings against ACE in the San Francisco Superior Court (Californian Proceedings).  The Californian Proceedings alleged, among other things, that ACE had a œduty to defend Moose under Californian municipal law so long as there was a possibility that its claim for indemnity might be covered under the Policy.  ACE sought and obtained an ex parte injunction from the Supreme Court of New South Wales shortly after being informed of the Californian Proceedings.  The temporary injunction restrained Moose from taking further steps in the Californian Proceedings until ACE’s application for a permanent anti-suit injunction was determined.

Policy

Clause 4.11 of the Policy provided that:

œShould any dispute arise concerning this policy, the dispute will be determined in accordance with the law of Australia and the States and Territories thereof.  In relation to any such dispute the parties agree to submit to the jurisdiction of any competent court in a State or Territory of Australia.

The Expona Endorsement to the Policy contained the following proviso:

œProvided that all claims which fall under the terms of this endorsement, it is agreed:

+     the limits of liability are inclusive of costs as provided under supplementary payment in this policy.

+     that should any dispute arise between the insured and ACE over the application of this policy, such dispute shall be determined in accordance with the law and practice of the Commonwealth of Australia.

Jurisdiction

In CSR Limited v Cigna Insurance Australia Limited (1997)) 189 CLR 345 (CSR v Cigna) the High Court of Australia held that an injunction may be granted in aid of a contractual promise not to sue in a foreign jurisdiction, for example, where the parties agree to submit to the exclusive jurisdiction of the courts of the forum.

ACE submitted that Clause 4.11 of the Policy constituted an exclusive jurisdiction clause and that the Expona Endorsement aided in that construction.  Justice Brereton considered that the Expona Endorsement did not aid the construction of Clause 4.11 because the Expona Endorsement was a choice of law clause not a choice of jurisdiction clause and the term œpractice meant insurance practice not court practice.

In terms of Clause 4.11 itself, His Honour reviewed a long line of authorities where jurisdiction clauses have been interpreted and held that Clause 4.11 did amount to an exclusive jurisdiction clause.  In reaching that conclusion His Honour cited with approval the judgment of Giles J in FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association Ltd (1997) 41 NSWLR 117 and concluded that:

+     while the absence of the word œexclusive in not determinative, it will weigh against the clause being held to be an exclusive jurisdiction clause;

+     where the courts of the forum selected by the jurisdiction clause will have jurisdiction, that will weigh in favour of a clause being an exclusive jurisdiction clause;

+     jurisdiction clauses in insurance contracts are treated the same as jurisdiction clauses in other contracts except in the case of ambiguity where the clause will ordinarily be construed against the insurer; and

+     the use of mandatory words such as œshall in a jurisdiction clause weigh in favour of the clause being held to be exclusive in nature.

His Honour added that there was a œparticularly strong case for Clause 4.11 to be interpreted as intending more than providing for the non-exclusive jurisdiction that existed in circumstances where ACE and Moose are Australian entities, the Policy was issued in Australia, the Policy is governed by Australian law, and Australia is the œnatural forum for disputes under the Policy.

Breach of implied negative stipulation in the Policy
ACE also submitted that, by instituting the Californian Proceedings in an attempt to apply Californian law to the Policy, Moose was in breach of an implied contractual obligation not to invoke the jurisdiction of a court which would apply a law other than the law referred to in the choice of law clause.  Justice Brereton rejected that submission on the basis that the choice of law clause in the Policy was declaratory not promissory in nature.  However, His Honour added that, with the use of very clear language, a choice of law clause could be made promissory rather than declaratory so that there could arise an implied contractual obligation not to sue in a jurisdiction that would apply a different law.

Vexation and oppression

One of Moose’s central submissions was that the San Francisco Superior Court would apply Californian law to the Policy and, in particular, impose on ACE a œduty to defend which does not arise under Australian law.  That would, in effect, provide Moose with a benefit not available in local proceedings.

In CSR v Cigna the High Court observed that foreign proceedings will only be vexatious, oppressive or unconscionable if there is nothing to be gained by them over and above what could be gained in local proceedings.  In ACE v Moose, Justice Brereton referred to the decision of Goff LJ in Bank of Tokyo Ltd v Karoon [1987] AC 45 (Bank of Tokyo) where it was noted that the criteria for establishing that foreign proceedings are vexatious, oppressive or unconscionable œwas very rarely fulfilled.

Justice Brereton held that, notwithstanding the comments of Goff LJ in Bank of Tokyo, the decision by Moose to commence the Californian Proceedings was vexatious, oppressive and unconscionable and California was a clearly inappropriate forum for the declaratory proceedings.  His Honour reached that conclusion with reference to the choice of law, the jurisdiction clause, the location of ACE and Moose, the fact that the Policy was issued in Perth, and the very faint connection with California.

Comment

The judgment of Justice Brereton in ACE v Moose has significance in the areas of private international law, contract law and insurance law.  Insurers will take some comfort from the fact that remedies such as anti-suit injunctions are both available and attainable where insureds seek to flout the jurisdiction and choice of law clauses in an insurance contract.  Insurers should be mindful, however, that the absence of the word œexclusive in a jurisdiction clause will tend against the clause being deemed an exclusive jurisdiction clause leaving the insurer vulnerable to being sued in foreign jurisdictions.

14/09/2009