Searching For The ‘Objective Intention’ Of Contracting Parties Who Had Completely Different Intentions
TYSON INTERNATIONAL V PARTNER REINSURANCE EUROPE SE
[2024] EWCA Civ 363
In this case, the parties signed two documents covering precisely the same risk, parties and period, one a London market reinsurance contract and the other a facultative certificate of reinsurance commonly used in the USA.
The law and jurisdiction clauses were not consistent across the two agreements and, when a claim arose, a key issue was as to which set of clauses applied.
The facts
Tyson, as reinsured, obtained reinsurance from Partner Re, as reinsurer, relating to certain property risks for which Tyson was proposing to provide insurance cover.
The first year of the cover – At the time of negotiating the first year of the cover, the broker provided Partner Re with an agreement in the form of the Market Reform Contract (‘MRC’), this being a form in common use in the London market. This was referred to as a ‘slip’, for signing. The form contained an English law and exclusive jurisdiction clause. Partner Re signed, stamped and returned it to the broker.
A few days later, the broker provided what was described as the ‘facultative certificate’, a contract in in the form of the Market Uniform Reinsurance Agreement (‘MURA’), this being a form in common use in the property reinsurance market in the USA. This MURA covered the same parties, risks and period as the MRC, and bore the same market reference. According to contemporaneous communications between the parties, the premium would not be administered until this later document was executed. The MURA provided for New York law and arbitration and contained an ‘entire agreement’ clause.
The brokers also provided an endorsement to the agreement on the MRC form, to the effect that the terms of the MURA form were subject to the terms of the MRC. Further, the Service of Suit clause in the MURA form was left blank. These documents were signed and stamped by Partner Re.
The second year of the cover – The second year of the cover was not simply a renewal of the first year. However, once terms had been agreed, matters proceeded in a similar manner to the first year: a few days after the MRC was signed, the brokers provided an agreement in the MURA form, which Partner Re signed, stamped and returned. However, in contrast to the first year, there was no endorsement providing for the MURA to be subject to the MRC. Further, in the second year, the Service of Suit clause was completed, so as to provide for service on a New York law firm, Mendes & Mount.
When a dispute arose in respect of a claim relating to a large fire, Tyson issued proceedings in the English court, in reliance on the MRC wording. Partner Re then began an arbitration in New York, in reliance on the MURA wording, and applied for a stay of the English proceedings. Tyson objected to arbitral jurisdiction and sought from the English court an ‘anti-arbitration injunction’, to restrain Partner Re from pursuing the arbitration.
The decision
The Commercial Court found that each of the agreements would have been a self-standing contract, if viewed in isolation from the other. In the first year, the effect of the endorsement had been to make the MURA agreement subject to the MRC agreement.
However, in relation to the second year, where there was no endorsement, the court observed that it appeared fairly clear from the evidence that Tyson intended and understood subjectively that the MRC form would continue to govern the parties’ relationship, while Partner Re intended and understood that the MRC would be superseded by the MURA. In these circumstances, the court held that its approach must be to make an objective assessment of what the parties said and did.
The result was that the agreement contained in the MURA form, being (a) later in time, (b) contemplated at the time the MRC was signed, (c) clear, (d) fully executed and (e) a sufficient expression of consensual contractual sovereignty, cancelled and replaced the agreement in the MRC form, or at least those provisions in the MRC relating to applicable law and jurisdiction. The reinsurance was therefore subject to New York law and arbitration. This decision was upheld on appeal.
Custom of the market not taken into account – In coming to this conclusion, the court rejected the evidence of Tyson’s witnesses of fact, to the effect that the MURA document was simply a ministerial instrument or piece of administrative or recapitulative paperwork which is habitually or customarily issued by a reinsurer, but which did not, without more, alter the terms already agreed pursuant to the MRC wording. Thus, the argument was that there was a market custom or practice as to the use of each type of contract.
However, the Court held that it was not the function of witnesses of fact to give such evidence. In any event, such evidence would not have had the effect of dictating the contractual effect of the documents, which was a question of the parties’ common intention, objectively assessed in context.
Improbability not taken into account – Tyson had also argued that it was inherently improbable and commercially absurd to suggest that the parties would have agreed (a) to sweep away provisions incorporated into the MRC agreement, (b) to replace an agreement containing negotiated, specific, bespoke provisions with a shorter document comprised of standard terms and (c) to replace fundamental provisions on applicable law and jurisdiction, within a few days of executing the contract of reinsurance. Nowhere in the MURA was it stated that the MURA superseded the MRC. Nor had the ‘change of contract’ terms in the MRC been operated to replace it with the MURA form.
However, the court found that the parties, judged objectively from what they did and said, and however unusual their conduct may have been, had intended to replace the MRC with the MURA. A different view might have been taken if the replacing agreement led to complexity or uncertainty, but that was not the case here. Some clauses may not have been swept away because, for example, terms of the original insurance were incorporated into the reinsurance as a matter of New York law, or there might in future be a claim for rectification. The ‘change of contract terms’ provisions in the MRC may not have been operated because the parties simply entered into a further contract which was not an attempt to change the agreement from the MRC form.
Lovetts’ comment
A party contracting through an agent will usually be bound by the terms which the agent negotiates and therefore needs to check the agent’s work carefully.
If conflicting sets of terms are used in an agreement, clear provisions must be incorporated, to determine how the terms are to operate together.
Further, if a party wishes to adduce expert evidence, for example as to custom or practice, they must apply for permission to do so, provide it from a person whose evidence may be relied on by the court as an independent expert, and the expert evidence must establish that such practice or custom imposes an immutable characterisation of events.
For further information, please contact Wendy Miles, Chris Earl-Anderson or William Sturge at Lovetts.