Governing law and jurisdiction clauses: the importance of clear drafting

Governing law and jurisdiction clauses: the importance of clear drafting

In Al Mana Lifestyle Trading LLC and others v United Fidelity Insurance Company PSC and others [2023] EWCA Civ 61, the Court of Appeal found in favour of insurers when overturning a Commercial Court decision concerning a law and jurisdiction clause.

The first instance decision found that the clause gave English courts jurisdiction over claims amounting to over USD 40 million. The Court of Appeal disagreed. Although the decision turned on the specific wording of the clause, it serves as a useful reminder of the importance of carefully drafting jurisdiction clauses.

Case Background

The insureds, who were involved in the food and beverage industry in the Middle East, sought an indemnity of USD 40 million under various insurance policies issued in the UAE, Qatar and Kuwait, for business interruption losses arising out of the Covid-19 pandemic. Each policy provided for a governing law and jurisdiction clause which read:

The insurers’ case was that, in each policy, the clause provided for the exclusive jurisdiction of the local court where the policy was issued, with a fallback for English and Welsh jurisdiction in circumstances where the local court did not have or would not accept jurisdiction. In contrast, the insureds argued that the clause gave a choice between bringing a claim in the local court or in England and Wales.

At first instance, the court found in favour of the insureds by holding that the clause permitted proceedings to be brought either in the country where the policy was issued (UAE, Qatar or Kuwait respectively), or in England and Wales (emphasis added), the word “otherwise” being synonymous with “or”. The judge also concluded that England and Wales could not be a fallback, given there was no express condition for such fallback to be triggered.

However, in its recent judgment handed down on 31 January 2023, the Court of Appeal overturned this decision (2-1 majority) by ruling that on proper interpretation, the clause only made the English court an option for jurisdiction if local courts could/would not accept jurisdiction. Lord Justice Males, who gave the leading judgment, determined that “otherwise” was more akin to “if not available”, thereby pointing to a fallback when local courts were unavailable. This supplemented the fact that, on further analysis of the first sentence, the words “in accordance with” suggested that the choice of jurisdiction of the local court was mandatory.

The concurring opinion given by Nugee LJ interpreted “otherwise” as synonymous with “failing that”, which suggested an English court being the appropriate jurisdiction only where the local court could not hear the claim. Andrews LJ dissented, agreeing with the High Court’s construction of the clause.

Key Takeaways

Whilst this decision does not alter the legal position on jurisdiction clauses, it emphasises important considerations to bear in mind when drafting such provisions. Indeed, the range of interpretations of the clause in the present case – from three Court of Appeal judges and the first instance judge – demonstrates the risk of procedural uncertainty that arises from ambiguously drafted clauses.

As highlighted by Nugee LJ, “the same words may strike different readers differently”. This case should therefore serve as a cautionary tale, not only to the insurance market but also more widely, on the need to draft jurisdiction clauses carefully to minimise ambiguity.

We have previously considered jurisdiction clauses in detail as part of our Practical Guide for Claims Managers, which can be found here. In short, our suggestions for best practice are:

• Include express law and jurisdiction clauses, where possible.
• Use clear and unambiguous language which reflects the agreed position of the parties.
• Consider whether greater certainty or flexibility is required when deciding whether to use an exclusive or non-exclusive jurisdiction clause.
• Seek legal advice on which law and jurisdiction to choose, and on adhering to any necessary formalities of jurisdiction clauses.

For advice on law and jurisdiction clauses in light of this article please contact Jane Childs, Dan Jewell, or Alexandra Lyons.

DLA Piper UK LLP

Jane Childs is a Partner, Dan Jewell is a Legal Director and Alexandra Lyons is a Senior Associate at DLA Piper UK LLP.

This publication is intended as a general overview and discussion of the subjects dealt with under English law at the time of original publication and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation.