The Court of Appeal recently handed down judgment in a case that hinged on the proper construction of an “Applicable Law and Jurisdiction” clause in a series of insurance policies issued by the appellant defendants – Al Mana Lifestyle Trading LLC & Ors v United Fidelity Insurance Company PSC & Ors  EWCA Civ 61.
The relevant clause was relatively concise and much rested on what the word “Otherwise” meant at the beginning of the second sentence. Cockerill J and Andrews LJ adopted one interpretation whereas the majority in the Court of Appeal, Males LJ and Nugee LJ, preferred the alternative construction.
The claimants were 27 entities forming part of the Al Mana Group, carrying on business in the food, beverage and retail sectors, principally in the Middle East and Gulf Region but also with a small part of their operation in Ireland. The group did not carry on business in England or Wales. The defendants were insurance companies operating within Gulf Cooperation Council countries, located in the UAE, Qatar and Kuwait.
The claims were brought by the claimants under a suite of seventeen “Multi-Risks” insurance policies underwritten by the defendants. 15 policies were issued in the UAE, one in Qatar and one in Kuwait. For the purposes of the case all of the policies were on materially identical terms. The claims were all for indemnities for business interruption losses, said by the claimants to arise from the Covid-19 pandemic.
Each policy contained a Schedule that includes, among other things, the “Applicable Law and Jurisdiction” clause.
The clause in question
The relevant clause stated as follows (the numbers were not included in the clause but added by the parties for ease of exposition):
“APPLICABLE LAW AND JURISDICTION
 In accordance with the jurisdiction, local laws and practices of the country in which the policy is issued.  Otherwise England and Wales UK Jurisdiction shall be applied,
 Under liability jurisdiction will be extended to worldwide excluding USA and Canada.”
The defendants’ case was that, in each policy, the clause provides for the exclusive jurisdiction of the court of the country in which the policy was issued with a fallback for English or Welsh jurisdiction in the event that the local court does not have or would not accept jurisdiction.
The claimants’ primary case, accepted by the judge at first instance, was that the clause gave whichever party wished to bring a claim a free choice to bring proceedings either in the local court or in England. Alternatively, if that was wrong, the jurisdiction of the English Court is available so long as the jurisdiction of the local court is not mandatory under the law of that country.
The decision at first instance
The claim form was served on the defendants out of the jurisdiction in reliance on what the claimants contended was the agreement for English jurisdiction contained in the Applicable Law and Jurisdiction clause.
The defendants’ challenge to the jurisdiction came before Cockerill J in July 2022. Cockerill J accepted the claimants’ primary case that the clause gives whichever party wishes to bring a claim a choice of bringing proceedings either in the local court or in England and Wales. In that sense the jurisdiction was non-exclusive, although exclusive as against the rest of the world.
Cockerill J applied the approach of the Supreme Court in Financial Conduct Authority v Arch Insurance (UK) Ltd  UKSC 1,  AC 649 at  and considered “how the words of the contract would be understood by a reasonable person to whom the document should be taken to be addressed”, that is to say “an ordinary policyholder” and not “a pedantic lawyer who will subject the entire policy wording to a minute textual analysis”.
The judge accepted the claimants’ approach for three main reasons:
- She considered that the word “otherwise” as used in the clause was most naturally considered as equivalent to “or”, so that the clause provides for a choice of jurisdiction.
- The difficulty with regarding the first sentence as providing the primary rule, with the second sentence providing for a fallback, was that the clause did not identify the circumstances in which the fallback was triggered.
- She regarded the claimants’ construction as supported by what she called “the commercialities or practicalities”: either there was a real prospect that the local court would not accept jurisdiction, in which case it was unattractive for a claimant to have to bring proceedings there in order to find out whether it would accept jurisdiction, only to start again in England if it would not; or there was no realistic prospect of jurisdiction being declined in which case the second sentence of the clause was otiose, a conclusion which the English court would not readily reach. In addition, it made sense to provide for a single neutral venue, namely the English court as common issues could arise under policies issued in each of the three jurisdictions where the defendants were located.
The Court of Appeal
The Court of Appeal allowed the appeal by a 2-1 majority.
The initial impressions of Males LJ and Andrews LJ, two experienced commercial practitioners, were diametrically opposed. Males LJ stated, “My strong impression when I first saw this clause was that the first sentence contains the primary jurisdiction selected by the parties, with a fallback for English or Welsh jurisdiction in the second sentence” (paragraph 22). That stands in contrast to Andrews LJ’s statement, “I am firmly of the view that the judge was right in her construction for the reasons that she gave. That was my strong first impression…” (paragraph 41).
Males LJ highlighted the following points in support of his interpretation:
- The first sentence dealt with jurisdiction, the governing law and the need to apply local practices whereas the second sentence was confined to jurisdiction. That strongly suggested that the first sentence was intended to contain the primary rule, with the second sentence operating as a fallback.
- The words “in accordance with” in the first sentence were intended to be mandatory as demonstrated by the fact that even in English proceedings local law and practices must be applied.
- If the parties had intended to provide a free choice of jurisdiction between the local court or England and Wales then the clause was an odd way of doing so. The word “Otherwise” was more appropriate to introduce a fallback. It made far better sense of the clause for “Otherwise” to mean “if not available” rather than “if not fancied by whichever party is the claimant.”
- It was not an objection that the circumstances in which the local court would not accept jurisdiction were very limited or, perhaps, even non-existent. Males LJ saw no reason why parties should not agree to confer jurisdiction on one court, with another as a fallback in case the primary court chosen was not available, without troubling to investigate whether or in what circumstances the primary court would decline jurisdiction.
- A dispute as to whether the local court would accept jurisdiction was unlikely to arise because if the defendant objected to being sued in the local court, which is itself unlikely, then it would have no ground for complaint if the proposed claimant then sued in England.
- The need for a neutral venue did not arise as neither side suggested that a fair trial could not be obtained in the UAE, Qatar and Kuwait or that the local courts were not equipped to handle such claims.
Males LJ concluded that the second sentence applies only when the jurisdiction of the local court is not available. He rejected the claimants’ alternative case as he saw no basis in the language of the clause for that construction.
Andrews LJ viewed the clause differently for the following reasons:
- The clause must be construed holistically rather than taking the first sentence in isolation and then considering the effect of the second sentence.
- The word “otherwise” naturally connotes a choice as it means “or”, “or else” or “if not”. The Collins English Dictionary states, “you use otherwise to indicate that other ways of doing something are possible in addition to the way already mentioned.” “Otherwise” does not mean “if that is not possible”, and that is not how it would be understood by the reasonable reader, particularly if they are not a lawyer.
- Whereas the defendants’ interpretation might commend itself to a commercial lawyer, it was doubtful whether it would even occur to the reasonable policyholder, apprised of all the relevant circumstances, that it could be understood as meaning that it was mandatory to bring proceedings in the local forum and that they could not go to the English court unless they could establish that the local court had declined or would decline jurisdiction. They would understand it to mean that if they did not bring proceedings in the local forum they would have to do so in England and Wales.
- Males LJ stated that for jurisdiction to be established in one court rather than another depending on the chance (or sometimes the cunning) of whichever party gets in first seemed unlikely to have been what the parties intended but that was tantamount to saying that the parties would be unlikely to agree to a non-exclusive jurisdiction clause despite the fact that in practice they often do. Andrews LJ noted that she had seen numerous non-exclusive jurisdiction clauses in practice at the commercial bar, though they were generally better drafted. A non-exclusive jurisdiction clause provides both parties with a choice of forum so neither is in a position to complain about its exercise.
- It is possible that a common issue might arise which affects policies issued in the UAE, Kuwait and Qatar. If the defendants’ construction was correct, that issue would have to be determined separately in proceedings in each of those countries with the concomitant risk of conflicting decisions. The claimants’ construction would allow for the issue to be resolved in the English court in one set of proceedings.
- It makes far less sense for the second sentence to be intended as a “fallback” to cater for what everyone appeared to accept is and was at all material times the highly unlikely prospect that the local forum would decline exclusive jurisdiction conferred upon it by the parties. Andrews LJ stated that she has seen many exclusive jurisdiction clauses but never a clause that provided what would happen if the chosen court declined jurisdiction. She stated that the hypothetical reasonable reader would think that it was unlikely to have occurred to the contracting parties that that might happen in practice, and even less likely that if it did occur to them, they would want to make provision for it. The more unrealistic the prospect that the chosen forum would decline jurisdiction, the less likely it is that the parties would have decided to cater for such a remote contingency.
- “Even when it means “if not”, “otherwise” does not mean “if not available” or “if not possible” and construing it in that way involves implying additional words (“available” or “possible”) which are not there and would not ordinarily be implied. It makes no commercial sense to me to strain the ordinary meaning of “otherwise” in this way in order to produce the result that the second sentence would serve no useful purpose, when the normal meaning of the word produces a construction which would give the parties a choice of appropriate jurisdictions which could be of real assistance if they wished to resolve a common dispute in a single venue” (paragraph 58).
Nugee LJ adopted a concise textual approach. He set out how he considered that the clause would be understood by the reasonable reader:
- The heading tells the reader that the clause will stipulate both what is agreed about the applicable law and what is agreed about jurisdiction.
- The first sentence, read with the heading, tells the reader that the “Applicable Law and Jurisdiction” are to be “in accordance with the jurisdiction, local laws and practices of” the place of issue. The natural way to understand the clause at that stage is that the applicable law is agreed to be “in accordance with” the local law of the place of issue and jurisdiction is agreed to be “in accordance with” the jurisdiction of the place of issue. The words “in accordance with” are mandatory and one would except them to mean exactly the same when it comes to jurisdiction.
- The second sentence is a separate sentence which in itself suggests that the first two sentences are intended to be independent rather than a single composite provision. That means that when the reader comes to the second sentence they have already understood the first sentence to provide that the applicable law will be the local law of the place of issue, that local practices are to be applied and that the courts of that place are to have jurisdiction.
- To construe “Otherwise” as “Alternatively” was an unnatural and rather jarring way to read the provision. A useful paragraph for “Otherwise” in the relevant context was “If not”.
- The first two sentences looked more like a mandatory requirement for suing in the local court supplemented by another mandatory requirement if that provision was ineffective. Put another way, “Otherwise” means “Failing that”, and that indicates that the second sentence applies where the stipulation in the first sentence fails.
Nugee LJ therefore concluded that the natural and ordinary of the clause was that proposed by Males LJ i.e. that the second sentence applies only when the jurisdiction of the local court is not available.
Points of interest
This case reiterates that whilst the principles of construction are well established, the application of such principles by different individuals often does not produce the same outcome. A clause that consists of a heading and three relatively short sentences was construed by four experienced practitioners differently. Cockerill J and Andrews LJ construed the clause as being a non-exclusive jurisdiction clause whereas Males LJ and Nugee LJ interpreted the clause as an exclusive jurisdiction clause.
The clause was to be construed in accordance with “how the words of the contract would be understood by a reasonable person to whom the document should be taken to be addressed”, that is to say “an ordinary policyholder” and not “a pedantic lawyer who will subject the entire policy wording to a minute textual analysis”. The divergent constructions depend on the judges differing approaches as to how the reasonable ordinary policy holder would understand the clause. Whilst Males LJ and Nugee LJ adopted an interpretation that seems attractive to legal practitioners that emphasise the significance of textual analysis, the approach of Cockerill J and Andrews LJ could be said to be more in keeping with commercial reality and how an ordinary policyholder would approach the clause. The relevant clause therefore highlights the differing outcomes that can arise at the intersection between commercial sense and legal principle.
Males LJ noted the statement in Lewison, The Interpretation of Contracts (7th Ed), paras 2.103 to 2.112 that, “impressions (and first impressions and intuition and judgment) may be as powerful a tool as intricate and linguistic and contextual analyses.” The judges had distinct initial impressions as to how to construe the clause and as to the meaning of the word “Otherwise” within the context of that clause. An initial instinct as to the proper construction of a clause is often strong and it is on that basis that it can be helpful to take time away from considering the clause and to then return at a later date/time with fresh eyes to see if the degree of conviction as to the proper interpretation remains.
Article by Kort Egan