Faraday Reinsurance Co Ltd v Howden North America Inc & Anor

The Court of Appeal dismissed the appeal against Beatson J’s decision to refuse to set aside service of proceedings brought in England by Faraday against its American insureds. The key legal principles concerned the exercise of the court’s discretion (or judgment) at an interlocutory stage to allow English proceedings to continue where they have a useful purpose, forum conveniens and the proper approach to alleged foreign issue preclusion. The court emphasised that conflicting rules of substantive law (English v. certain United States approaches to asbestos-triggering and to the period clause) do not of themselves require refusal of English jurisdiction and that it is inappropriate to determine contested questions of foreign preclusion at an interlocutory stage. Beatson J’s conclusion that Faraday had shown a useful purpose and that England was the convenient forum was not shown to be erroneous and the appeal was therefore dismissed.

Background and parties: Faraday (which acquired certain policies issued by General Star International Indemnity Ltd pursuant to section 111(1) of the Financial Services and Markets Act 2000) issued proceedings in England seeking declarations about the governing law and the effect of insurance policy period clauses in relation to asbestos-related claims by Howden Group Ltd and related entities. Howden was defendant and had longstanding related coverage litigation in the United States (Pennsylvania), where differing legal approaches to asbestos cover (including multiple-trigger theories and different approaches to conflict of laws) were in play.

Nature of the application: Faraday sought declaratory relief about (i) the applicable law governing the policy (English law), (ii) the effect of the stated policy period and period clauses, and (iii) the scope of indemnity under sections of the policy. The interlocutory dispute concerned permission to serve proceedings out of the jurisdiction and an application by Howden to set aside David Steel J’s order granting that permission.

Procedural path: Permission to serve out was granted by David Steel J; Howden applied to set that order aside and Beatson J in the Commercial Court refused to set aside service in relation to the first (1998) policy while setting aside service in respect of later policies in light of Howden’s undertaking.

Issues framed: (i) whether the policy was governed by English law; (ii) whether the English proceedings had a useful purpose (utility) rather than being futile; (iii) whether a judgment in England would attract issue preclusion in Pennsylvania; and (iv) whether England was the appropriate forum.

Court’s reasoning: The Court of Appeal held that Beatson J had correctly applied the appropriate test and had been entitled to take a broad view at the interlocutory stage. The court underlined the factual and legal differences between English law and the Pennsylvania approach to asbestos coverage and the period clause, but concluded that such differences did not automatically render English proceedings futile. It was inappropriate to require resolution of contested questions of foreign law and issue preclusion at an interlocutory stage; doing so would increase expense and delay. The judge had found that Faraday had shown a good arguable case that English law governed the policy, that the proceedings could be useful (including because an English construction might assist other courts or be useful for enforcement), and that England was a convenient forum. Those conclusions were not shown to be wrong and the appeal was dismissed. The court also endorsed the guidance of Phillips LJ about avoiding interlocutory appeals on jurisdiction unless there is a clear error causing disproportionate prejudice.

Appeal dismissed. The Court of Appeal upheld Beatson J’s decision that the English proceedings (in relation to the 1998 policy) should not be set aside because Faraday had shown that the proceedings had a useful purpose and that England was the convenient forum; it was inappropriate at interlocutory stage to decide contested issues of foreign preclusion and the judge did not err in his exercise of judgment.

Permission to serve out was granted by David Steel J on 9 March 2011. Howden applied to set aside that permission; the application was heard by Beatson J in the Commercial Court (Queen's Bench Division), who set aside service in respect of later policies but refused to set aside service in respect of the 1998 policy. The decision of Beatson J was appealed to the Court of Appeal (this judgment, [2012] EWCA Civ 980).