The duty of fair presentation in non-consumer insurance contracts – does one size fit all?

This blog post is by Viktorija Morozovaite (University of Aberdeen LLB (Hons) graduate 2016, Law and Economics LL.M. candidate at Utrecht University). It presents a condensed version of her article in the October 2017 issue of the British Insurance Law Association Journal, which in turn built on her undergraduate dissertation. It considers whether micro-businesses are adequately protected under the UK’s insurance law regime as it applies to non-consumers. The full article can be found here (£).

The duty of disclosure played a fundamental role to the conclusion of all types of insurance contracts. Codified by the Marine Insurance Act 1906 (the 1906 Act), it was designed on an assumption that it is the policyholder that possesses the relevant knowledge of risks and, therefore, it is him that should volunteer the information about those risks to the insurer. Failure to provide sufficient information would result in a great ordeal for an insured. Namely, in cases of a breach of the duty of disclosure the insurer was entitled to invoke a ‘Draconian’ remedy of avoidance, which allowed the contract to be rescinded altogether. Problematically to the insured, there was no clear guidance of how much information had to be provided to satisfy the duty of disclosure in any particular case.

However, long gone are the days since insurance contracts were concluded exclusively by merchants at the Lloyd’s Coffee House. With passing years, insurable risks have evolved and so did the types of insureds. In 2002, the British Insurance Law Association’s report called for the need to change an archaic law and marked the beginning of the joint Law Commission’s and the Scottish Law Commission’s reform project. The enactment of the Consumer Insurance (Disclosure and Representations) Act 2012 (the 2012 Act) separated consumer and non-consumer insurance contract law regimes in the UK, abolishing the duty of disclosure for consumers. (By “consumer”, this roughly means someone acting outwith the scope of a business, for personal purposes.) A duty of fair presentation was retained for non-consumer policyholders under the Insurance Act 2015 (the 2015 Act).

The division of the two regimes is an important change. It was rationalised by the perceived need to protect vulnerable consumers who did not understand the extent and implications of the ‘original’ duty of disclosure. Echoing similar line of argumentation, the Law Commissions suggested that micro-businesses should also be included in the consumer regime. This blog post, and the related article, explores whether it was correct for the law that was enacted not to reflect this initial proposal about micro-businesses.

What is a micro-business?

For the smallest businesses to be placed within the consumer insurance contract law regime, the term ‘micro-business’ has to be clearly defined (see Locke Lord LLP, Publication of responses to Law Commission’s proposals concerning micro-businesses).Up until 1971, the denotation of a ‘small firm’ was shrouded in mystery. The Bolton Committee’s findings demonstrated that there is no uniform definition of a small firm, as any such definition would depend on the sector that the business operates in. Therefore, instead of defining the term, the Committee resorted to providing indicative criteria, characterising what a small business would look like.

However, the initially cautious approach to defining a small firm has significantly evolved since that time. Modern company law demonstrates that a workable ‘micro-business’ definition may be found in a number of legislative initiatives aimed at micro-businesses. Examples range from exemptions from accounting requirements or VAT registration to business rates relief. It is noteworthy that by virtue of Section 33(2) of the Small Business, Enterprise and Employment Act 2015, the legislature provided policymakers with a statutory ‘template’ for a micro-business definition. It follows that, in practice, disparities between micro-business definitions in different regulations will remain prevalent.

A subtle distinction must be drawn between designing regulatory measures that would specifically target issues relating to micro-businesses and fitting micro-businesses neatly in the consumer insurance contract law regime. While the former legislation would be modelled according to micro-businesses’ needs, the latter would focus on the needs of consumers. Whilst there is no perfect micro-business definition, it is submitted that a workable definition would have been found if there was enough support for the policy choice at stake.

Why should micro-businesses be treated as consumers?

There are a number of reasons why treating micro-businesses as consumers may appear as a rational decision in the insurance contract law context. Firstly, they share similar characteristics, including: lack of sufficient knowledge of insurance products; bargaining power; and availability of time and financial resources. The Law Commissions acknowledged this, stating: “Most micro-businesses are hardly, if at all, more sophisticated than consumers. Most are sole proprietorships, have relatively small turnovers and have no more experience in buying insurance than consumers” (see Law Commission, Issues Paper 5: Micro-Businesses Should micro-businesses be treated like consumers for the purposes of pre-contractual information and unfair terms? (April 2009), para 4.3). As the policymaker should treat like cases alike, honouring the principle of normative coherence, the argument is born for including micro-businesses in the consumer regime.

Secondly, even though the insurance industry’s practice has evolved to favour weaker parties to the contract, such practice is non-obligatory and far from uniform. The existence of the Financial Ombudsman Service (FOS) does provide an additional safeguard for the interests of micro-businesses interests, but while it is a transparent and robust service for informal dispute adjudication, it does not treat micro-businesses as consumers for all intents and purposes. Therefore, the existence of the FOS does not negate any need for a statutory insurance contract law reform. Its role can more properly be regarded as supplementary or complementary.

Is it better for micro-businesses to be treated as consumers after all?

Despite the fact that micro-businesses and consumers share similar traits, before accepting the right policy choice, one must always look into a broader context of the reform. An important consideration in this respect is legal certainty, which is the leading guiding principle of the design and implementation of the UK’s commercial law. When the Marine Insurance Bill was presented to the House of Lords, Lord Herschell quoted Willes J in Lockyer v Offley:

As in all commercial transactions the great object is certainty, it will be necessary for this Court to lay down some rule, and it is of more consequence that the rule should be certain, than whether it is established one way or the other. The belief is that business people would rather have a clear rule that might operate harshly and against their interests in a particular case than an unclear rule designed to produce a fair and equitable result in each case but that might require a lengthy and costly process to apply.

This statement captures the very essence of the approach taken by the legislator in the insurance contract law context. By including micro-businesses in the consumer regime, the Law Commissions would have risked jeopardising legal certainty, as there are fundamental differences between the groups that cannot be discounted when deciding on an effective policy choice.

Firstly, if one is an individual acting in a private capacity, such an individual will remain a consumer irrespective of significant changes to his personal circumstances (for example, a deteriorating health condition). In contrast, in less than a year, the smallest business may flourish to fall outside the scope of the ‘micro-business’ definition and therefore the consumer regime altogether.

Secondly, a diverse group of consumers applying for the same insurance product will usually face very similar risks. However, businesses with similar number of employees or financial turnover are likely to be exposed to greatly varying hazards. This means that standardised questionnaires that allow gathering relevant information about individuals would not work with regard to different business practices.

These differences reinforce the idea that micro-businesses do not belong in the consumer insurance contract law regime. In fact, even though the initial proposal seemed attractive at first glance, in practice, it would have resulted in financial drawbacks to micro-businesses. As insurers would be exposed to greater risks for covering the smallest businesses, the logical response would be raising premiums or withdrawing the service altogether. Adopting legislative measures only makes sense if they achieve their pursued aims. Thus, with micro-businesses facing higher overall costs for obtaining insurance cover, treating them as consumers is not justified.

The initial proposal to extend consumer insurance contract law regime to include micro-businesses was primarily based on the criticisms relating to the harsh operation of the duty of disclosure under the 1906 Act. The final part of the article assessed whether the Insurance Act 2015 could constitute a flexible and well-balanced package that can effectively address the needs of different non-consumer insureds.

One size does fit all

According to the Law Commissions, in order to understand the main difference between consumer and non-consumer insurance contracts, it is crucial to consider the rules on “contracting out” (see Law Com No 353, 2014 para.6.22). That is the process whereby certain legal rules can be avoided by agreement between the parties. The 2012 Act created a mandatory regime for consumers, meaning that the insurer is not allowed to put the insured in a worse position than provided by the law. In direct contrast, the duty of fair presentation is part of a default regime. However, for any contractual alterations to be legal, the Law Commissions imposed two transparency requirements on the insurer: it must take sufficient steps to draw the relevant term to the insured’s attention before the conclusion of the contract; and the term has to be clear and unambiguous. Whether the requirements have been satisfied would be assessed in the light of the characteristics of a particular insured. Therefore, in principle, the less sophisticated the business, the stronger the obligation on the insurer to address any contractual deviations from the 2015 Act. Accordingly, micro-businesses are catered for in the 2015 Act, to a certain extent.

In addition, the ‘all or nothing’ avoidance remedy that came into play with the duty of disclosure was subject to significant criticism. The introduction of the proportionate remedies scheme in the 2015 Act was perceived as the most significant change to the old rules. Section 8 of the 2015 Act lays down qualifying breaches that would allow the insurer to use a number of remedies set under Schedule 1. The article further discussed the main differences between the non-consumer and consumer remedies schemes, concluding that the 2015 Act places micro-businesses in a far more favourable position than the old law as found in the 1906 Act and the likelihood of losing a significant claim is lower than ever before.

Conclusion

Insurance contract law in the UK has undergone a revolutionary change. The short-lived attempt to include micro-businesses in the consumer contract law regime reconfirmed the importance of legal certainty in the UK’s commercial law context. The Law Commissions retreated from their initial proposal because of two main reasons. Firstly, there was no agreement on an acceptable definition of a ‘micro-business’. Secondly, there was insufficient evidence of a systematic problem that would justify such policy choice. It was demonstrated that while the arguments for including micro-businesses in the consumer regime create a seemingly obvious rationale for adopting this policy choice, unravelling them in more depth has proven that such decision would be counter-productive. Therefore, the outcome of the insurance contract law reform is pragmatic. The Law Commissions designed a flexible and balanced package in the form of the 2015 Act, which would allow treating different types of business insureds according to their sophistication levels.

Viktorija

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British and Irish Law Education and Technology Association Conference 2018 in Aberdeen

The Law School of the University of Aberdeen will be hosting the 2018 BILETA conference on 9-11 April. BILETA is one of the leading scholarly associations in law, technology and education and its annual conference – with its opportunities for dissemination, publication and friendship – is for many one of the highlights of the year.  The conference title is “Digital Futures: places and people, technology and data”; and reflecting contemporary challenges and the conference location, a particular emphasis will be placed on energy, sustainability, cultural, rural and development issues and pedagogy.

BILETA is both challenging and welcoming and PhD students are particularly welcomed (including through the availability of two prizes). There is also an overall Taylor and Francis prize. Key note speakers this year will be Professor Ronan Deazley (Queen’s University Belfast) exploring heritage and creativity; and Professor Margaret Ross (University of Aberdeen) exploring the impact of technology on the student experience, with particular reference to mental health.

Professor Abbe Brown, conference organizer, is excited at bringing the conference to Aberdeen. She sees this as an opportunity to showcase (in particular): ongoing work in information science at the University of Aberdeen; and innovative developments across Scotland in information technology and education, notably through law clinics. And perhaps most importantly, she has arranged for a cèilidh and piper…

The call for papers is here (deadline 26 January 2018) and proposals for papers and also for posters are most welcome.

#FutureLeadersConnect: Purpose and Policy

This blog post is by Emma Jones.

Being chosen as a ‘Future Leader’ by the British Council coincided serendipitously with the LLM in International Commercial Law with Professional Skills [Arbitration] I began in 2017. ‘Future Leaders Connect’ ran for the first time as a nine-day residential program during October 2017 designed by the British Council to promote policy leadership amongst ‘Future Leaders’ in various policy fields. 50 members met in the UK for nine days of activities, travelling from Egypt, India, Indonesia, Kenya, Mexico, Morocco, Nigeria, Pakistan, Tunisia, USA, and across the UK to be part of the global network of emerging policy leaders. Thanks must go to the School of Law which was supportive in facilitating the  trip halfway through a semester!

To qualify for the program – as one of two Scottish delegates – I submitted a policy idea related to the UK Government Department for International Development ’s 2017 Economic Strategy on leveraging development funding by working with the private sector in priority areas including large-scale infrastructure projects in developing countries. In my mind, potential issues include failure to deliver on contracts and issues of accountability on a global scale; likely implications include the emergence of a new genre of legal issues with negative impacts for the poorest of the poor. Potential issues can be addressed with effective, accountable, and targeted policy and are the kind of issues investigable with an LLM in International Commercial Law. The Future Leaders Connect programme also provided a platform to discuss these ideas with participants and sector experts.

The most important lesson I learned from the Program was to identify the ‘little big thing’ – one small thing that can be changed as steps are made towards developing bigger global changes through effective policy implementation. These ideas were shared over the  first five days of the program at the Møller Centre at the University of Cambridge where we considered what it means to be a leader, methods for researching policy, and engaging people. After the theory and research, we went to London to visit No.10 Downing Street, the Houses of Parliament, the BBC, and take part in the #WalkTogether event involving Kofi Annan and Richard Branson. At Parliament, groups were set up to develop policy ideas with Members of Parliament – working with Baroness Uddin, our group discussed future policy ideas around artificial intelligence to create three specific recommendations to present at a panel discussion; this took our theory, learning, and engagement experiences full circle.

Most of the value came from the networking, mixing of different cultures, backgrounds, disciplines, and expertise which helped me develop both hard skills to build on my academic interests, underpinned by new theoretical approaches, and appreciate the value of influence and networking through soft power. I learned to recognise the fluidity of leadership and power, particularly how to fill spaces to take responsibility and strategically ride the tides of leadership, as opposed to trying to force management opportunities. The opportunity helped my professional development because it legitimised policy concerns I’ve developed through professional experience and academic curiosity; the Program provided the opportunity to escalate these issues and legitimised our concerns.

A common query amongst all the Future Leaders was understanding what had made our applications stand out and why were we selected. It seemed obvious to me why the others were selected; they are remarkable. All the future leaders shared the attitude of being less preoccupied with being out in front; instead, our primary interests are the disciplines in which we are actively engaged. If you want to apply for the Future Leaders Connect Program in 2018; do it – I didn’t think I’d be accepted onto the program, or that I qualified as a ‘Future Leader’.

For more information visit www.britishcouncil.org and/or follow #futureleadersconnect

Author Profile

Emma Jones is working towards an LLM in International Commercial Law with Arbitration at the University of Aberdeen, having returned from working in Kampala – Uganda for two years on public policy issues related to democratic governance, peace, and security for Advocates Coalition for Development and Environment [ACODE]. Prior, Emma earned a first-class BA in Development and Peace Studies at the University of Bradford, undertaking internships in the development sector alongside study. Her interests include the impact of and relationship between the public and private sector in leveraging development capital, and mitigating of negative impacts on vulnerable global populations. Get in touch at e.jones.16@aberdeen.ac.uk

Too many plans to plan Scotland?

This post is by Anne-Michelle Slater

The planning system in Scotland is set for more reform, including once again reform to the process of plan making. In launching its Programme for Government 2017-18 confirmed that a new planning bill will be introduced, “to support the effective and efficient delivery of the development our communities need” through  “…a simpler, more effective system of development plans, to set a clear view of how areas might develop in the future” (PDF, page 33).

Having worked, taught and thought about planning for 30 years, I think this statement, made by Nicola Sturgeon in 2017, could equally refer to many of the reforms proposed over the years to the landmark Town and Country Planning (Scotland) Act 1947 and the later Town and Country Planning (Scotland) Act 1997. And, come on, Nicola, the development plan is no longer the only plan in the town and country planning system. A plethora of plans are now required within and beyond the planning system in Scotland. Most of them were introduced by the SNP administration over the last 10 years. I want to step back in this blog post and ask:

  • Are there too many plans?
  • Do the plans ‘talk’ to each other?
  • Should the plans be combined?

Planning in Scotland today

The planning system is, in my opinion, both, insufficiently nimble, and a block on new development, particularly housing development. Previous reforms have only added to the problems. Bob Reid put it very clearly in a recent article in the journal Scottish Planning and Environmental Law:

“The current planning regime in Scotland is unbelievably complex and few but the most devout adherents of bureaucracy would demur from that fact. Far from being facilitating, enabling and sleeves rolled up can do, I am afraid that decades of manning the barriers has turned our plan led system into an almost completely regulatory framework focused entirely on the statutory core of planning”.

(“Housing Crisis? What Crisis” S.P.E.L. 2015, 167, 8-9 (available on Westlaw)

The 2017-18 Planning Bill will:

  • extend the National Planning Framework to 10 years
  • abolish strategic development plans
  • create regional partnerships.
  • maintain 32 Local Development Plans
  • abolish Supplementary guidance
  • introduce local place plans
  • revive SPZs as Simplified Development Zones

But over and above these anticipated reforms relating to plan making in Scotland, I have noted an increasing tendency for the Scottish Government to respond to policy issues by requiring a plan to be created. To illustrate this I will briefly review some of the current Scotland wide plans.

The National Planning Framework (NPF) is now in its third iteration, with a 4th expected in 2020. It provides a strategic overview of Scotland with a focus on the implementation of National Developments to ensure that large scale infrastructure is provided. For example, The Queensferry Crossing, was identified as a National Development in NPF 2 2009. National Developments are determined by the Scottish Government and although they require planning permission from the various planning authorities in which they are located, the principle of the National Development has already been decided. The rest of the NPF is regarded as a material consideration in local planning decisions.

Queensferry
Queensferry Crossing. Photo by Klaus Foehl, licensed under the Creative Commons Attribution-Share Alike 4.0 International license.

Getting The Best From Our Land: A Land use Strategy 2016-2021, regarded as the rural NPF was a direct requirement of the Climate Change (Scotland) Act 2009.  Now in its second iteration, it is very detailed and can be used to inform local development. Like the NPF, the format is Scotland wide.

Scotland’s National Marine Plan adopted in 2015 is another new national level plan. It covers all marine and coastal development and activities, as well as marine conservation and Marine Protected Areas in Scotland’s territorial waters and extending out to 200nm. This plan was central to the Marine (Scotland) Act 2010 and powers to extend the plan out to 200 nm derive from the devolution settlement and through and the Marine and Coastal Access act 2009, by executive devolution. Decisions made in Scottish waters must have regard to the marine plan, unless material considerations indicate otherwise.

1. Are there too many plans? I like the creation of plans as a way of creating policy. I particularly welcome the plans which take Scotland as a whole. It is the only sensible approach in a small but diverse country. All too often decision making has suffered from being compartmentalised in terms of both sector and geographical location. Scotland requires more connections and holistic approaches in both the approach to development and to conservation; to address really difficult issues such as housing, transport, climate change and economic development. These cross local and legal boundaries and jurisdictions over land and sea. It is very good to see topics such as climate change and rural development being dealt with at national level and the expertise brought to all the national plans is to be commended. But plans require to be implemented and it is important for that to ensure that at the very least the national plans ‘talk’ to each other.

2. Do the plans ‘talk’ to each other? All the plans are required to take into account each other. The jurisdiction of the NPF extends to low water and the national marine plans goes inland as far as high tide. The NPF and the Land Use Strategy are considered complementary. I do not think this is enough. There is still too much ‘silo’ mentality and the only way to consider the country as a whole is to combine the national plans into a super plan for future Scotland.

3. Should existing plans be combined? I say a resounding YES. It would be complicated in the short term to combine the 3 national plans. Different legislation and policy would have to be examined and considered. But this is an opportunity for a real joining up and momentum for action. Disparate government departments and disciplines would have to work together, as well as multiple agencies and NGOs. It would be newsworthy and engage the Scottish public and the wider world.

REAL Planning Reform for Scotland

There are not too many plans in Scotland. The plans that have been created for urban and rural areas the infrastructure, for rural development and for the marine areas have been developed with care and expertise. But they need to do more than nod to each other. They need to do more than even talk to each other. The NPF, the Land Use Strategy and Scotland’s National Marine Plan plans should be amalgamated and combined to create one plan for Scotland. This can be the starting point for all strategic planning for Scotland as a whole.

Conclusion

Planning reform in Scotland should include unified and holistic plans across the urban, rural and seas of Scotland. Such bold and creative action could galvanise the various disparate development and conservation strands and spark creativity and action in a unified and clear purpose: to plan Scotland.

Daphne Caruana Galizia and the rule of law: A note to law students

This post is by Dr Justin Borg-Barthet

It isn’t my job to preach to you or to teach you right from wrong.  But I will, on this occasion, explain why the skills we impart are so important.

Daphne Caruana Galizia was a Maltese journalist. I never met her, but wrote for her on a handful of occasions.  On Monday 16 October 2017, she was assassinated in a horrendous car explosion outside her home.  Her family explains that she was assassinated “because she stood between the rule of law and those who sought to violate it”.

Daphne – she is that well known in Malta; no need for surnames to identify her – was killed because she exposed corruption.  She argued that Malta had become a vassal State of criminal organisations.  She showed how the Prime Minister’s closest aides set up secret offshore companies, allegedly to process kickbacks from Azeri and Chinese dictatorships.  She showed how a bank – Pilatus Bank – was established in Malta to launder the money of politically exposed persons, and how action against the bank had been suppressed.  She revealed that the Leader of the Opposition had also engaged in money laundering; in his case as a legal practitioner acting for a transnational prostitution racket.

More importantly, Daphne saw the signs that the rule of law was being undermined.  She observed the perversion of judicial appointments, the emasculation of the police force and prosecutors, and the weakening of financial intelligence services.  She died because of what she revealed – not simply because she revealed it, but also because the violation of the rule of law results in organised crime running riot, in organised crime being enabled to commit heinous crimes against freedom of speech.

This, dear students, is where you come into the story.  As lawyers, you will be the first to note that the rule of law is being undermined.  You will be the first to see the tell-tale signs that rights are being eroded, and that systems for the protection and enforcement of rights are being reprogrammed.

Do not be complacent.  This can happen anywhere.  I too thought that I was growing up in a relatively normal country governed by the rule of law in Malta.  Change can be rapid, especially in constitutional systems which rely on trust and trustworthiness for institutional effectiveness.

If you see the signs, you will have but one choice.  You may choose, like Daphne, to stand between the rule of law and those who choose to violate it.  Or you may choose to stand with those who violate the rule of law.  There is no other choice.  You may not sit on the fence, because there is no fence on which to sit.  Those who violate the rule of law rely on a code of silence – omertà – silence is their weapon.

It’s a grave choice, and one for each of you to make for yourselves.  But remember the words of an Italian judge who was murdered by the Mafia: “they can kill one, two of us, but they cannot kill us all”.

Daphne

Hung jury – the de facto third verdict

This post showcases a poster presentation by PhD candidate David Lorimer

The poster follows at the end of the post. An abstract sets the scene and a note on methodology explains the basis of the work.

Abstract

The 15 juror courtroom may be viewed as a self-compensating system with in-built safety mechanisms to accommodate attrition, diversity and even jury nobbling. The hung jury can be viewed as a de facto third verdict and Scotland’s not proven verdict is arguably a more sophisticated and empowering version of the ‘too close to call’ option in modern comparative jurisprudence – regardless of its historic evolution.  In reality every coin has three surfaces.

Quantitative Methodology

The Scottish criminal jury is composed of 15 members compared to the 12 found in other common law jurisdictions. It requires a simple majority verdict which means conviction or acquittal by 8 or more as opposed to a unanimous verdict or qualified majority (usually 10 or more in other jurisdictions). This means that there are no ‘hung juries’ in Scotland. The Scottish system is therefore arguably more efficient but is it less fair? Does it ‘fly in the face of conviction beyond reasonable doubt’ as some commentators have suggested? Quantitative analysis carried out recently at Aberdeen University uses decision tree logic as a basis on which to develop and evaluate probabilities of conviction in both types of jury system. The results are presented graphically and provide a unique perspective on jury analysis, including the observation that the ‘rogue juror’ may be as much a numerical phenomenon as anything else. Consideration of the analysis raises a number of propositions:

  1. The drivers for a ‘Not Proven’ vote or verdict may be closely related to those which lead to a hung jury, leading to the concept of the ‘Hung Juror’ (see below).
  2. The simple majority may be a timely indication of how a Scots jury would ultimately vote if given a mandate to reach a unanimous or qualified majority verdict.
  3. The option to vote ‘Not Proven’ in Scotland vents the pressure on the ‘Hung Juror’ to make a peer driven, biased or otherwise uneasy decision without compunction.
  4. The hung jury is a de facto third verdict.

What next for the Scottish criminal jury?

Research has been commissioned by the Scottish Government.

Jury verdicts visualised: David Lorimer’s poster presentation

15 v 12 Jurors - Lorimer
Copyright: David Lorimer

I thought we were exclusive? Some issues with the Hague Convention on Choice of Court, Brussels Ia and Brexit

This blog post is by Dr Mukarrum Ahmed (Lancaster University) and Professor Paul Beaumont (University of Aberdeen). It presents a condensed version of their article in the August 2017 issue of the Journal of Private International Law. The blog post includes specific references to the actual journal article to enable the reader to branch off into the detailed discussion where relevant. It also takes account of recent developments in the Brexit negotiation that took place after the Journal article was completed.

On 1 October 2015, the Hague Convention on Choice of Court Agreements 2005 (‘Hague Convention’) entered into force in 28 Contracting States, including Mexico and all the Member States of the European Union, except Denmark. The Convention has applied between Singapore and the other Contracting States since 1 October 2016. China, Ukraine and the USA have signed the Convention indicating that they hope to ratify it in the future (see the official status table for the Convention on the Hague Conference on Private International Law’s website). The Brussels Ia Regulation, which is the European Union’s device for jurisdictional and enforcement matters, applies as of 10 January 2015 to legal proceedings instituted and to judgments rendered on or after that date. In addition to legal issues that may arise independently under the Hague Convention, some issues may manifest themselves at the interface between the Hague Convention and the Brussels Ia Regulation. Both sets of issues are likely to garner the attention of cross-border commercial litigators, transactional lawyers and private international law academics. The article examines anti-suit injunctions, concurrent proceedings and the implications of Brexit in the context of the Hague Convention and its relationship with the Brussels Ia Regulation. (See pages 387-389 of the article)

It is argued that the Hague Convention’s system of ‘qualified’ or ‘partial’ mutual trust may permit anti-suit injunctions, actions for damages for breach of exclusive jurisdiction agreements and anti-enforcement injunctions where such remedies further the objective of the Convention. (See pages 394-402 of the article) The text of the Hague Convention and the Explanatory Report by Professors Trevor Hartley and Masato Dogauchi are not explicit on this issue. However, the procès-verbal of the Diplomatic Session of the Hague Convention reveal widespread support for the proposition that the formal ‘process’ should be differentiated from the desired ‘outcome’ when considering whether anti-suit injunctions are permitted under the Convention. Where anti-suit injunctions uphold choice of court agreements and thus help achieve the intended ‘outcome’ of the Convention, there was a consensus among the official delegates at the Diplomatic Session that the Convention did not limit or constrain national courts of Contracting States from granting the remedy. (See Minutes No 9 of the Second Commission Meeting of Monday 20 June 2005 (morning) in Proceedings of the Twentieth Session of the Hague Conference on Private International Law (Permanent Bureau of the Conference, Intersentia 2010) 622, 623–24) Conversely, where the remedy impedes the sound operation of the Convention by effectively derailing proceedings in the chosen court, there was also a consensus of the official delegates at the meeting that the Convention will not permit national courts of the Contracting States to grant anti-suit injunctions.

However, intra-EU Hague Convention cases may arguably not permit remedies for breach of exclusive choice of court agreements as they may be deemed to be an infringement of the principle of mutual trust and the principle of effectiveness of EU law (effet utile) which animate the multilateral jurisdiction and judgments order of the Brussels Ia Regulation (see pages 403-405 of the article; C-159/02 Turner v Grovit [2004] ECR I-3565). If an aggrieved party does not commence proceedings in the chosen forum or commences such proceedings after the non-chosen court has rendered a decision on the validity of the choice of court agreement, the recognition and enforcement of that ruling highlights an interesting contrast between the Brussels Ia Regulation and the Hague Convention. It appears that the non-chosen court’s decision on the validity of the choice of court agreement is entitled to recognition and enforcement under the Brussels Ia Regulation. (See C-456/11 Gothaer Allgemeine Versicherung AG v Samskip GmbH EU:C:2012:719, [2013] QB 548) The Hague Convention does not similarly protect the ruling of a non-chosen court. In fact, only a judgment given by a court of a Contracting State designated in an exclusive choice of court agreement shall be recognised and enforced in other Contracting States. (See Article 8(1) of the Hague Convention) Therefore, the ruling of a non-chosen court is not entitled to recognition and enforcement under the Hague Convention’s system of ‘qualified’ or ‘partial’ mutual trust. This provides a ready explanation for the compatibility of anti-suit injunctions with the Hague Convention but does not proceed any further to transpose the same conclusion into the very different context of the Brussels Ia Regulation which prioritizes the principle of mutual trust.

The dynamics of the relationship between Article 31(2) of the Brussels Ia Regulation and Articles 5 and 6 of the Hague Convention is mapped in the article (at pages 405-408). In a case where the Hague Convention should apply rather than the Brussels Ia Regulation because one of the parties is resident in a non-EU Contracting State to the Convention even though the chosen court is in a Member State of the EU (See Article 26(6)(a) of the Hague Convention) one would expect Article 6 of the Convention to be applied by any non-chosen court in the EU. However, the fundamental nature of the Article 31(2) lis pendens mechanism under the Brussels Ia Regulation may warrant the pursuance of a different line of analysis. (See Case C-452/12 Nipponkoa Insurance Co (Europe) Ltd v Interzuid Transport BV EU:C:2013:858, [2014] I.L.Pr. 10, [36]; See also to similar effect, Case C-533/08 TNT Express Nederland BV v AXA Versicherung AG EU:C:2010:243, [2010] I.L.Pr. 35, [49]) It is argued that the Hartley–Dogauchi Report’s interpretative approach has much to commend it as it follows the path of least resistance by narrowly construing the right to sue in a non-chosen forum as an exception rather than the norm. The exceptional nature of the right to sue in the non-chosen forum under the Hague Convention can be effectively reconciled with Article 31(2) of the Brussels Ia Regulation. This will usually result in the stay of the proceedings in the non-chosen court as soon as the chosen court is seised. As a consequence, the incidence of parallel proceedings and irreconcilable judgments are curbed, which are significant objectives in their own right under the Brussels Ia Regulation. It is hoped that the yet to develop jurisprudence of the CJEU on the emergent Hague Convention and the Brussels Ia Regulation will offer definitive and authoritative answers to the issues discussed in the article.

The implications of Brexit on this topic are not yet fully clear. (See pages 409-410 of the article) The UK is a party to the Hague Choice of Court Agreements Convention as a Member State of the EU, the latter having approved the Convention for all its Member States apart from Denmark. The UK will do what is necessary to remain a party to the Convention after Brexit.  In its recently published negotiating paper – only available after the article in the Journal of Private International Law was completed – the UK Government has explicitly stated that:

“It is our intention to continue to be a leading member in the Hague Conference and to participate in those Hague Conventions to which we are already a party and those which we currently participate in by virtue of our membership of the EU.” (See Providing a cross-border civil judicial cooperation framework (PDF) at para 22)

The UK will no doubt avoid any break in the Convention’s application. Brexit will almost certainly see the end of the application of the Brussels Ia Regulation in the UK. The reason being that its uniform interpretation is secured by the CJEU through the preliminary ruling system under the Treaty on the Functioning of the European Union (TFEU).  The UK is not willing to accept that jurisdiction post-Brexit (“Leaving the EU will therefore bring an end to the direct jurisdiction of the CJEU in the UK, because the CJEU derives its jurisdiction and authority from the EU Treaties.” (See Providing a cross-border civil judicial cooperation framework at para 20) So although the UK negotiators are asking for a bespoke deal with the EU to continue something like Brussels Ia (“The UK will therefore seek an agreement with the EU that allows for close and comprehensive cross-border civil judicial cooperation on a reciprocal basis, which reflects closely the substantive principles of cooperation under the current EU framework”: see Providing a cross-border civil judicial cooperation framework at para 19) it seems improbable that the EU will agree to such a bespoke deal just with the UK when the UK does not accept the CJEU preliminary ruling system.  The EU may well say that the option for close partners of the EU in this field is the Lugano Convention. The UK Government has indicated that it would like to remain part of the Lugano Convention (see Providing a cross-border civil judicial cooperation framework at para 22). In doing so it would continue to mandate the UK courts to take account of the jurisprudence of the CJEU -when that court is interpreting Brussels Ia or the Lugano Convention – when UK courts are interpreting the Lugano Convention (see the opaque statement by the UK Government that “the UK and the EU will need to ensure future civil judicial cooperation takes into account regional legal arrangements, including the fact that the CJEU will remain the ultimate arbiter of EU law within the EU.” see Providing a cross-border civil judicial cooperation framework at para 20). However, unless the Lugano Convention is renegotiated it does not contain a good solution in relation to conflicts of jurisdiction for exclusive choice of court agreements because it has not been amended to reflect Article 31(2) of Brussels Ia and therefore still gives priority to the non-chosen court when it is seised first and the exclusively chosen court is seised second in accordance with the Gasser decision of the CJEU (see Case C-116/02 [2003] ECR I-14693).  Renegotiation of the Lugano Convention is not even on the agenda at the moment although the Gasser problem may be discussed at the Experts’ Meeting pursuant to Article 5 Protocol 2 of the Lugano Convention on 16 and 17 October 2017 in Basel, Switzerland (Professor Beaumont is attending that meeting as an invited expert).  Revision of the Lugano Convention would be a good thing, as would Norway and Switzerland becoming parties to the Hague Convention.  It seems that at least until the Lugano Convention is revised and a means is found for the UK to be a party to it (difficult if the UK does not stay in EFTA), the likely outcome post-Brexit is that the regime applicable between the UK and the EU (apart from Denmark) in relation to exclusive choice of court agreements within the scope of the Hague Convention will be the Hague Convention. The UK will be able to grant anti-suit injunctions to uphold exclusive choice of court agreements in favour of the courts in the UK even when one of the parties has brought an action contrary to that agreement in an EU Member State. The EU Member States will apply Article 6 of the Hague Convention rather than Article 31(2) of the Brussels Ia Regulation when deciding whether to decline jurisdiction in favour of the chosen court(s) in the UK.

Whilst the Hague Convention only offers a comprehensive jurisdictional regime for cases involving exclusive choice of court agreements, it does give substantial protection to the jurisdiction of UK courts designated in such an agreement which will be respected in the rest of the EU regardless of the outcome of the Brexit negotiations. Post-Brexit the recognition and enforcement regime for judgments not falling within the scope of the Hague Choice of Court Agreements Convention could be the new Hague Judgments Convention currently being negotiated in The Hague (see Working Paper No. 2016/3- Respecting Reverse Subsidiarity as an excellent strategy for the European Union at The Hague Conference on Private International Law – reflections in the context of the Judgments Project? by Paul Beaumont). Professor Beaumont will continue to be a part of the EU Negotiating team for that Convention at the Special Commission in the Hague from 13-17 November 2017. It is to be welcomed that the UK Government has affirmed its commitment to an internationalist and not just a regional approach to civil judicial co-operation:

“The UK is committed to increasing international civil judicial cooperation with third parties through our active participation in the Hague Conference on Private International Law and the United Nations Commission on International Trade Law… We will continue to be an active and supportive member of these bodies, as we are clear on the value of international and intergovernmental cooperation in this area.” See Providing a cross-border civil judicial cooperation framework at para 21.

One good thing that could come from Brexit is the powerful combination of the EU and the UK both adopting a truly internationalist perspective in the Hague Conference on Private International Law in order to genuinely enhance civil judicial co-operation throughout the world. The UK can be one of the leaders of the common law world while using its decades of experience of European co-operation to help build bridges to the civil law countries in Europe, Africa, Asia and Latin America.