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Claim No. CFI 003/2022

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BETWEEN

(1) AMERICAN INTERNATIONAL GROUP UK LIMITED (AS TRANSFEREE OF AIG EUROPE LIMITED)
(2) MARKEL SYNDICATE MANAGEMENT LIMITED
(3) TALBOT UNDERWRITING LIMITED
(4) BERKSHIRE HATHAWAY INTERNATIONAL INSURANCE LTD

Claimants

and

QATAR INSURANCE CO. (BRANCH OF A FOREIGN COMPANY)

Defendant

ORDER WITH REASONS OF JUSTICE LORD ANGUS GLENNIE

UPON reviewing the Defendant’s Application No. CFI-003-2022/1 dated 22 February 2022 for a declaration that the DIFC Courts have no jurisdiction to hear the claim (the “Application”)

AND UPON reviewing the Claimants’ evidence in answer to the Application dated 29 March 2022

AND UPON reviewing the Defendant’s evidence in reply dated 17 May 2022

AND UPON reviewing the Defendant’s Application No. CFI-003-2022/2 dated 14 July 2022 seeking permission to adduce expert evidence in the form of the Second Witness Statement of John Henry Patrick Barlow dated 14 July 2022 (the “Expert Evidence Application”)

AND UPON reviewing the Claimants’ evidence in answer to the Application dated 19 July 2022

AND UPON reading the Claimants’ skeleton argument dated 15 July 2022

AND UPON reading the Defendant’s skeleton argument dated 15 July 2022

AND UPON reviewing the Claimants’ Statement of costs dated 20 July 2022

AND UPON reviewing the Defendant’s Statement of Costs dated 20 July 2022

AND UPON hearing Counsel for the Claimants and Counsel for the Defendant at the hearing on 21 July 2022

IT IS HEREBY ORDERED THAT:

1. The Expert Evidence Application is refused.

2. The Application is refused.

3. The Court has jurisdiction to hear the Claim under Article 5(A)(1) and Article 5(A)(2) of the Judicial Authority Law (Dubai Law No. 12 of 2004).

4. The Defendant shall pay the costs of the Application on the standard basis which I summarily assess in the sum of AED 181,654.60.

Issued by:
Ayesha Bin Kalban
Deputy Registrar
Date of issue: 29 August 2022
At: 9am

SCHEDULE OF REASONS

Introduction

1. The Defendant (“QIC”) is an insurance company organised under the laws of Qatar. It has a branch office in onshore Dubai. Pursuant to a comprehensive crime and professional indemnity insurance policy, QIC insured United Arab Bank (“UAB”) against, amongst other things, criminal acts of its employees and electronic and computer crime during the period 30 November 2014 to 29 November 2015 (the “Policy”). It reinsured those risks with a number of reinsurers (the ‘‘Reinsurance”/ the ‘‘reinsurers”), including the Claimants. As set out in more detail below, the reinsurance was arranged under five contracts for different layers of cover.

2. During the currency of the Policy, an employee of UAB colluded with a third party to misappropriate funds from an account of one of its customers (“AETC”). After the conclusion of criminal proceedings, UAB agreed to pay about AED 38 million to AETC in compensation for its loss. UAB then looked to its insurance under the Policy and claimed an indemnity from QIC. It brought proceedings against QIC in the Dubai (onshore) courts; and on 17 January 2022 the Court of Cassation in Dubai found QIC liable to UAB under the Policy.

3. QIC now claim an indemnity from their reinsurers. Certain reinsurers have agreed to pay out under their respective layers of reinsurance in a total amount of AED 17.1m. The Claimants have refused to pay, relying in particular upon the Sanctions, Limitation and Exclusion Clause (“SLEC”) in the reinsurance contracts to which they are parties. In these proceedings which commenced in the DIFC on 23 January 2022, within days of the Court of Cassation judgment in favour of UAB and against QIC, the Claimants seek a declaration that they are not liable to QIC under the Reinsurance on the grounds that liability thereunder is excluded by the terms of the SLEC.

4. QIC apply for a declaration that the DIFC Courts have no jurisdiction to hear that claim. There is no argument to the effect that the claim for a negative declaration is incompetent or inappropriate as a means of founding jurisdiction. QIC’s argument is simply on the basis that the claim does not fall within any of the relevant provisions of Article 5(A)(1) or Article 5(A)(2) of the Judicial Authority Law (Dubai Law No. 12 of 2004) (the ‘‘JAL”).

The reinsurance contracts

5. The reinsurance was in five layers structured as follows:

6. It should be noted that each layer is constituted by a single reinsurance contract subscribed by the participating reinsurers. Thus, the Primary Layer is a reinsurance contract entered into by Swiss Re, C1, Zurich Insurance Co (DIFC Branch) (“Zurich DIFC”) and Dual. The First Excess Layer is a reinsurance contract entered into by Swiss Re alone – Swiss Re is not a Claimant in these proceedings and therefore it is not necessary to consider this contract further. The Second Excess Layer is constituted by a reinsurance contract subscribed by C2, C3 and C4 as well as by Zurich DIFC; the Third Excess Layer is constituted by a reinsurance contract subscribed by C1 and Zurich DIFC along with Dual Corporate Risks; while the Fourth Excess Layer is a contract subscribed by C3 and Zurich DIFC along with Dual and AXA-XL.

7. Zurich DIFC, which subscribed all of the contracts except for the First Excess Layer, is not a Claimant in these proceedings, but the fact that it subscribed these Layers is of significance. It is, and has been at all material times, a Licensed DIFC Establishment, that is to say “an entity or enterprise licensed, registered or authorised by the Dubai Financial Services Authority to provide financial services, or conduct any other activities in accordance with the DIFC laws”, adopting the definition of Licensed DIFC Establishment in Article 2 of the JAL. It conducts insurance business in its own right and not merely as an agent or branch office for its parent company. It should be emphasised that Zurich DIFC is only licensed to carry out insurance business in the DIFC.

8. C3, which was the lead reinsurer on the Fourth Excess Layer and also participated in the Second Excess Layer, was represented at all times in the negotiations leading to its participation by Talbot (Underwriting) (MENA) Ltd (“Talbot MENA”), its subsidiary in the DIFC, which acted for C3 under a binding authority (“Binding Authority”) and signed and stamped the relevant reinsurance contracts for and on behalf of C3. Talbot MENA was at the material time (though it is no longer) a Licensed DIFC Establishment as defined in Article 2 of the JAL. Like Zurich DIFC, Talbot MENA is only licensed to carry out insurance business in the DIFC.

9. In the course of the hearing, I was shown a copy of the binding authority in terms of which it was agreed between C3 and Talbot MENA that Talbot MENA would act as agent for C3 for all purposes, including the issuance of certificates, endorsements and policy wording, collecting and processing of premiums and receiving and handling claims. Any questions or complaints about the insurance or the handling of a claim were to be made to Talbot MENA at its DIFC address. Talbot MENA signed the slip for the Second and Fourth Excess Layers on behalf of C3 pursuant to this binding authority and a copy of the binding authority was attached to the policy documentation for those layers. There was no direct evidence on the point, but it is implicit in the status of Talbot MENA as a Licensed DIFC Establishment that, when it signed the slip on behalf of C3 indicating its agreement to subscribe to the relevant Excess Layer, it did so in the DIFC.

10. I was also shown copies of the policy documents for the Primary Layer and the Second, Third and Fourth Excess Layers with the stamp and signature in each case of Zurich DIFC indicating its agreement to particate in those layers in the stipulated percentage. As in the case of Talbot MENA, while there was no direct evidence on the point, it is implicit in the status of Zurich DIFC as a Licensed DIFC Establishment that, when it signed the slip indicating its agreement to subscribe to each of the relevant Excess Layers, it did so in the DIFC.

11. Finally on this point, I should note that QIC originally reinsured only 95% of the risk, retaining 5% for itself. In December 2014, this was changed by agreement so that QIC reinsured 100% and retained nothing for itself. Contract endorsements were signed in respect of each Layer of reinsurance by the slip leader. I was shown these endorsements, including endorsements for the Third Excess Layer signed by Zurich DIFC in that capacity and, for the Fourth Excess Layer, by Talbot MENA, as agent for C3, again in its capacity of slip leader.

The reinsurance contracts – relevant terms

12. All of the reinsurance contracts were on materially the same terms. They all contained a Proportional Facultative Reinsurance Clause NMA 2977 in the following terms:

The several (as opposed to joint) nature of the reinsurers’ liability was emphasised, if further emphasis were necessary, by the Security Details Clause LMA3333 (amended), which provided, inter alia, that the reinsurer was liable only for the proportion of liability it had underwritten and was not jointly liable for the proportion of liability underwritten by any other reinsurer.

13. Each contract also contained a choice of law and jurisdiction clause in the following terms:

I have italicised the word “United” where it appears twice in this clause simply to highlight the fact that the version of the clause to be found in the contract for the Second Excess Layer omits that word and simply refers to the law and courts of the “Arab Emirates”. Parties were agreed that this made no difference to the proper interpretation of the clause – the reference in the contract for the Second Excess Layer to the law and courts of the “Arab Emirates” is clearly intended to be a reference to the law and courts of the United Arab Emirates.

14. Finally, I should set out the terms of the SLEC, which is relied on by the Claimants to justify their position on liability. This provides:

I am not required on this application to reach any decision as to the meaning or applicability of this clause. I refer to it simply to note that it is this clause which largely underpins the refusal of these Claimants to accept liability under the relevant layers of reinsurance and which has led to them bringing this claim for a declaration that they are not liable to pay.

Relevant provisions of the JAL

15. The jurisdiction of the Court of First Instance of the DIFC is laid down in Article 5 of the JAL. So far as relevant it provides as follows:

“Article 5
Jurisdiction

16. The Claimants rely on Article 5(A)(1)(b) of the JAL. They say that each of the reinsurance contracts the subject of the claim was entered into, in part at least, in the DIFC. They also rely on Article 5(A)(1)(c) on the ground (i) that payment of premium owing to C3 was made in the DIFC to Talbot DIFC and claims were notified to Talbot DIFC in the DIFC (all under the binding authority referred to above) and (ii) that all dealings with Zurich DIFC under the reinsurance contracts to which it subscribed (i.e. all except the First Excess Layer) took place in the DIFC where Zurich DIFC was licensed. In addition they say that the case falls within Article 5(A)(1)(e) when read with (i) RDC 20.7 (the “necessary and proper party” jurisdictional gateway in the DIFC Rules of Court) and (ii) Article 19 of the DIFC Court Law (DIFC Law No 10 of 2004). And they rely also on Article 5(A)(2) of the JAL, arguing that the reference in the choice of law and jurisdiction provisions in the reinsurance contracts (quoted above) to the laws and courts of the United Arab Emirates should properly be read, in this case at least, as a reference to the law and jurisdiction of the DIFC.

17. The Defendants, for their part, say that none of these jurisdictional gateways are applicable to the facts of this case.

Discussion and decision

18. Much of the argument before me focused on the proper interpretation of the choice of law and jurisdiction clause (quoted above). This is an important issue, but I consider that it is convenient to start by considering the position under Article 5(A)(1)(b).

19. The ambit of Article 5(A)(1)(b) was authoritatively explained by the Court of Appeal in Al Khorafi v Bank Sarasin-Alpen (ME) Ltd [2011] DIFC CA 003 at paragraph 60:

20. In the present case each of the contracts for the layers of reinsurance relevant to the claims in this action was concluded in the DIFC. The Primary Layer and the Second, Third and Fourth Excess Layers were all subscribed by Zurich DIFC. Its participation was confirmed by its stamp and signature on the slip for the relevant Layer. That is an essential part of the conclusion of these reinsurance contracts. The slip would have been signed by Zurich DIFC within the DIFC (see above). Similarly, the participation of C3 in the reinsurance for the Second and Fourth Excess Layers was confirmed by its agent, Talbot DIFC, appending its stamp and signature to the contract documents for those Layers. That was all done within the DIFC.

21. It follows that the reinsurance contracts for the Primary Level and for the Second, Third and Fourth Excess Layers were made in part at least within the DIFC. The fact that other reinsurers participating in those Layers would have signed and stamped the documents elsewhere is nothing to the point. The contracts were partly concluded within the DIFC. That is enough to give the DIFC courts exclusive jurisdiction over the claim in terms of Article 5(A)(1)(b) of the JAL.

22. A number of arguments were raised on behalf of QIC against this. I deal with them in no particular order. It was pointed out that Zurich DIFC was not a party to these proceedings, so that any connection by reference to the partial conclusion of these contracts in the DIFC was marginal or irrelevant. This might be a relevant factor when considering the jurisdictional gateway under Article 5(A)(1)(a) of the JAL, but it is not relevant to the argument under Article 5(A)(1)(b). Under Article 5(A)(1)(b) the Court is concerned with where the contract was concluded, whether in whole or in part, and not with the identity of the Claimant to the proceedings. Next, it was argued that Talbot MENA acted as agent only, was not a party to the proceedings and, in any event, no longer existed. These arguments too might be relevant to a consideration of Article 5(A)(1)(a), which focuses on the identity of the parties to the action, but they have no relevance to Article 5(A)(1)(b). The fact that a contract partially concluded within the DIFC was concluded there by an agent acting under a binding authority from its principal does not weaken the relevant connection, viz. that the contract was partly concluded within the DIFC. Next, it was argued that QIC made arrangements for the reinsurance through a broker, Aon Middle East LLC, and had no knowledge of precisely what re-insurance arrangements would be made, where and with which reinsurers. The evidence about the involvement of Aon Middle East was unclear – there was some argument about the role, if any, played by Aon UK – but in any event the argument is a bad one: the question under Article 5(A)(1)(b) is whether the contracts were concluded or partly concluded in the DIFC, and the knowledge or otherwise of QIC about the arrangements made on its behalf is nothing to the point. Finally, it was argued that the participation of each reinsurer at each level was a separate contract, so that, for example, the participation by Zurich DIFC in each Layer was pursuant to a different contract from that under which a different reinsurer participated in the same Layer. The result of this argument, if correct, would be that none of the Claimants could found jurisdiction under Article 5(A)(1)(b) on the ground that they were claiming under a reinsurance contract partly made (by Zurich DIFC) within the DIFC. This argument is without merit. As explained above, the contract for each Layer of reinsurance is a single contract subscribed by a number of reinsurers, each for its agreed percentage. To suggest that each Layer is comprised of a number of separate reinsurance contracts, one for each reinsurer, is wrong. This is illustrated by the arrangements described in paragraph 11 above, when QIC, having originally reinsured only 95% of the risk, changed its position in December 2014 so that it then reinsured 100% and retained nothing for itself. This alteration was effected by a contract endorsement for each Layer signed and stamped only by the slip lead for that Layer. Had each reinsurer participated pursuant to a separate contract there would have been a separate contract endorsement for each of them.

23. At one point counsel for QIC invited me to take a “holistic” view of the matter. Zurich DIFC, which had subscribed each Layer apart from the First Excess Layer and was ostensibly the main link to DIFC jurisdiction, had paid QIC and was not a party to these proceedings. C3 could only maintain any argument by reason of it having acted through Talbot MENA, its agent, so that the link with the DIFC was tenuous. In reality, it was argued, there was no connection with the DIFC so as to justify the DIFC Courts having jurisdiction over these claims. I cannot accept that argument. The terms of Article 5(A)(1)(b) are clear. The relevant contracts were each partly concluded within the DIFC. That establishes jurisdiction. It was agreed between counsel that there was no room for a forum non conveniens argument to the effect that although technically the claims might fall within Article 5(A)(1)(b) in reality there was so little connection with the DIFC that the DIFC Courts should decline jurisdiction.

24. I should just add two points. The first is this. I have focused on the question of whether the reinsurance contracts were concluded or partly concluded within the DIFC. I have found that they were. But Article 5(A)(1)(b) also refers to where the contracts will be performed in whole or in part; and Article 5(A)(1)(c) refers where the transaction has been wholly or partly performed. On the basis that Zurich DIFC is a party to the relevant contracts, performance of those contracts – such as payment of premium and handling of claims – will take place or has taken place within the DIFC. Similarly in the case of C3, where Talbot MENA in the DIFC will collect premium and handle claims and/or has already done so. Such performance within the DIFC is related to DIFC activities in the manner explained by the Court of Appeal in Al Khorafi at paragraphs [63] and [64]. So Article 5(A)(1)(b) and (c) are satisfied in this respect too.

25. The second point is that there is a great deal of sense in having the liability or otherwise of the various reinsurers who dispute liability based on the SLEC determined in one place. Even if I had been persuaded by the “separate contracts” argument, the claims by C3 under the Second and Fourth Excess Layers would still have satisfied the terms of Article 5(A)(1)(b) on the basis that they were concluded through their agent within the DIFC. On that basis I would have allowed the claims by the other Claimants (which, on this assumption, would be regarded as claims under separate reinsurance contracts) to proceed in the DIFC alongside the claims by C3 by reason of Article 5(A)(1)(e) of the JAL read in conjunction with RDC 20.7. It is now well established that the DIFC Rules of Court constitute DIFC Regulations for the purpose of Article 5(A)(1)(e): see Nest Investment Holding Lebanon S.A.L. v Deloitte & Touche (M.E.) [2018] DIFC CA 011.

26. In light of the above it is not necessary to consider the provisions of Article 5(A)(2) of the JAL or to reach a definitive view as to the meaning of the jurisdiction clause in this case. On this issue QIC applied at a late stage to adduce expert evidence as to the background to the insurance and reinsurance in this case and certain fronting practices prevalent within the insurance market within the Middle East (the “Expert Evidence Application”). Introduction of such evidence was opposed and the evidence lay unanswered. Had this point been decisive I would have had to consider carefully whether to allow that evidence to be adduced and, if so, whether to allow further time to answer it. In the event, since the jurisdiction issue can be decided on other grounds (see above), I shall refuse the Expert Evidence Application. To allow expert evidence at a late stage on an issue which is not decisive of the outcome of the Application, and which would simply lead to unnecessary delay and expense if it were to be answered, would not be in accord with the overriding objective: RDC Rule 1.6. I would just offer these brief observations. The jurisdiction clause provides that “any dispute(s) arising out of or in connection with this contract are subject to the exclusive jurisdiction of the United Arab Emirates Courts”. It is well established that reference to the Courts of the UAE includes, or can include, reference to the Courts of the DIFC: see Investment Group Private Limited v Standard Chartered Bank [2015] DIFC CA 004 at paragraphs [142]-[143]. Whether in any particular contract the use of such terminology is intended to point to any particular Court or Courts of the UAE will be a matter of construction of the contract in light of all the relevant surrounding circumstances. Absent some factor indicating that reference is intended to some particular Court of the UAE, the clause will be taken as referring to all Courts of the UAE, including both the onshore Courts of Dubai and the Courts of the DIFC. The jurisdiction given by Article 5(A)(2) is not exclusive. In those circumstances a clause in these terms is sufficient to satisfy Article 5(A)(2) since it confers jurisdiction on the Courts of the DIFC even if it might also be taken to confer jurisdiction on the onshore Dubai Courts: see Credit Suisse (Switzerland) Ltd v Goel [2018] DIFC CFI 066, Laabika and Labhdi v Ladu and Lakesh [2021] DIFC CA 008 at paragraphs [41]-[42] and Al Buhaira National Insurance Co v Horizon Energy LLC [2021] DIFC CFI 098 at paragraph [12]. Accordingly, to avoid jurisdiction being established in the DIFC under Article 5(A)(2) of the JAL, QIC i would have to establish that the jurisdiction clause – which, on its face, appears to include the DIFC Courts as Courts to whom disputes may be submitted – on closer examination excludes the DIFC Courts and points only to the onshore Dubai Courts. That is an uphill task.

Disposal

27. It follows from the above that QIC’s Application is dismissed. The DIFC Courts have jurisdiction over the claims in this action.

28. QIC must pay the Claimants their costs of this Application on the standard basis in the sum of AED 181,654.60.