Supreme Court New South Wales Medium Neutral Citation: Mobis Parts Australia Pty Ltd v XL Insurance Company SE [2016] NSWSC 1170 Hearing dates: 19 August 2016 Decision date: 25 August 2016 Jurisdiction: Common Law Before: Ball J Decision: The court declares that the Amended Summons and Amended Commercial List Statement have not been duly served on the third defendant. Catchwords: PRACTICE AND PROCEDURE – service – whether originating process duly served – whether one party agreed to accept service on behalf of another party under UCPR r10.6 – whether to stay proceedings on the grounds of a submission to jurisdiction clause Legislation Cited: Insurance Contracts Act 1984 (Cth) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Castagna v Conceria Pell MEC SPA, (Court of Appeal (NSW), 15 March 1996, unreported) Incitec Ltd v Alkimos Shipping Corporation and Another [2004] FCA 698; (2004) 138 FCR 496 Laurie v Carroll [1958] HCA 4; (1958) 98 CLR 310 Mobis Parts Australia Pty Ltd v XL Insurance Company SE [2016] NSWSC 912 Category: Procedural and other rulings Parties: Mobis Parts Australia Pty Ltd ABN 34 107 778 156 (Plaintiff) XL Insurance Company SE ABN 36 083 574 441 (First Defendant) AIG Europe Limited (Second Defendant) UNIQA Versicherungs AG (Third Defendant) Representation: Counsel: TM Mehigan (Plaintiff) JE Marshall SC | DS Weinberger (First Defendant) SE Gray (Second Defendant) PS Braham SC (Third Defendant) Solicitors: Ashurst (Plaintiff) MCabes Lawyers (First Defendant) Kennedys (Second Defendant) Hicksons (Third Defendant) File Number(s): 2015/281297 Publication restriction: None Judgment Introduction 1. The question before the court is whether the third defendant, UNIQA Versicherungs AG (UNIQA), has been properly served with the originating process in this matter and, if it has, whether the proceedings against it should be stayed on the basis that the parties have agreed that any dispute between them should be resolved in Bratislava in accordance with Slovakian law. Background 1. The plaintiff (Mobis Australia) is a related company of Mobis Slovakia sro which, in turn, is a subsidiary of Hyundai Mobis, the parts and services arm of Hyundai Motor Company and KIA Motors. 2. On 23 June 2014, Mobis Slovakia and its subsidiary and related companies (together, the Mobis Slovakia Group) entered into a two year property damage and business interruption insurance program led by XL Insurance Company Plc (XL Plc). Under the terms of the program, Mobis Slovakia on behalf of each company in the Mobis Slovakia Group including Mobis Australia entered into an insurance contract, referred to as the "Master Policy", with XL Plc, as the lead underwriter, the second defendant, AIG Europe, and UNIQA. 3. Under the terms of the program, XL Plc, or one of its subsidiaries, also entered into separate insurance contracts with each member of the Mobis Slovakia Group, which are referred to as "local policies". In the case of Mobis Australia, the relevant local policy (the Australian Local Policy) was entered into between Mobis Australia and the first defendant, XL Insurance Group SE (XL SE). 4. XL SE reinsured 30 percent of its risk under the Australian Local Policy with AIG Europe. Under the terms of the Master Policy, XL Plc took 50 percent of the risk, AIG Europe 30 percent of the risk and UNIQA 20 percent of the risk. It is plain from the terms of the Master Policy that the liability of each insurer under that policy is several. Clause 3.1.3 of the Master Policy, which sets out the percentage share of the risk taken by each insurer, includes the following: Note: UNIQA Versicherungs AG, Liechtenstein is not taking any share of local policies in UAE and Australia. The share of XL Insurance Company Plc, Zweigniederlassung fϋr Österreich on the local policies in UAE and Australia is 70 %. 1. Clause 5.1 of the Master Policy relevantly provides: This Master Policy is issued as part of an international property and business interruption insurance programme. The local policies form an integral part of the programme. 1. Clause 5.2 of the Master Policy provides: Difference in Limits (DIL) / Difference in Conditions (DIC) If the insurance cover granted by this Master Policy exceeds that provided by the local policies, and this is permissible by law, this Master Policy shall provide additional cover over and above the indemnities due under the local policies. The indemnifiable amount for the applicable local policies and the Master Policy together shall not exceed the aggregate limits or sub-limits set out in this Master Policy. Notwithstanding any agreement to the contrary, such differences in indemnity shall be paid to the Policyholder in the country of the Master Policy. The cover still applies even if the local fronting insurer becomes insolvent, provided that the conditions in accordance with Art. 5 have been fulfilled. If a local policy is suspended unintentionally by a local party, or if the Policyholder's representative was unaware of the suspension, the insurance cover provided by the Master Policy shall remain in force; in this case the premium shall be payable retrospectively. 1. On 25 April 2015, Mobis Australia's Eastern Creek warehouse was severely damaged by a storm. Mobis Australia made a claim under the Australian Local Policy. XL SE denied liability for part of the claim on the basis of a sublimit of 10 million Euros for damage caused by hail, weight of snow or ice, which it was said was included in the policy. To the extent that that sublimit was not included in the policy, XL SE seeks rectification of the policy to include a limitation to that effect consistently with a limitation contained in the Master Policy. 2. Following service of evidence, including expert evidence, concerning the cause of damage to the warehouse, XL SE made an application to amend its defence to rely on an exclusion clause in the Australian Local Policy in respect of "faulty or defective design or materials". That application was heard by Bergin CJ in Eq on 28 June 2016. At that time, Mobis Australia opposed the amendment on the basis that it would be prejudiced because had it known that XL SE would rely on the exclusion it would have made a claim under the Master Policy, which does not contain an exclusion in the same terms. In response, XL SE submitted that it had no objection if the claim were amended to include a claim under the Master Policy. XL SE recognised that in order to bring that amended claim it would be necessary for Mobis Australia to join AIG Europe and UNIQA. However, it indicated through its counsel that it saw no difficulty with that and that it would facilitate service on McCabes, the solicitors retained by XL SE. It appears that no issue was taken that XL SE is the insurer under the Australian Local Policy, but that the relevant XL company under the Master Policy is XL Plc. 3. In a judgment delivered on 1 July 2016 (Mobis Parts Australia Pty Ltd v XL Insurance Company SE [2016] NSWSC 912), Bergin CJ in Eq granted the defendant leave to file an Amended Commercial List Response which included a defence relying on the defective design and materials exclusion. 4. By letter dated 4 July 2016, the solicitors for Mobis Australia asked McCabes to confirm that they had instructions to accept service on behalf of AIG Europe and UNIQA. McCabes replied affirmatively on 7 July 2016. They had no express authority from UNIQA to do so and UNIQA did not become aware of the proceedings until 15 July 2016. 5. On 15 July 2016, XL SE informed UNIQA of the proceedings and asked if it agreed that McCabes act on its behalf and whether it submitted to the jurisdiction of court. UNIQA replied on 21 July 2016 declining to submit to the jurisdiction of the court and indicating that it would retain its own Australian lawyers. 6. On 22 July 2016, Bergin CJ in Eq granted leave to Mobis Australia to file and serve an Amended Summons and Amended Commercial List Statement. Those documents were served on McCabes the same day. 7. On 4 August 2016, the solicitors retained by UNIQA advised Mobis Australia that UNIQA would require Mobis Australia to serve its Amended Summons and Amended Commercial List Statement at its offices in Liechtenstein. On 12 August 2016, it filed a motion seeking to set aside service on it under Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 12.11(1)(b) or an order declaring that the originating process has not been duly served on UNIQA under UCPR r 12.11(1)(c). It also sought orders declaring that the court had no jurisdiction to hear the claim against UNIQA or an order declining to exercise jurisdiction. It contends that, on the correct construction of the note to cl 3.1.3 of the Master Policy, it has no liability for claims by Mobis Australia. Rather, XL Plc must bear 70 percent of those claims, with the balance being borne by AIG Europe. Other terms of the Master Policy 1. Clause 3.1.10 of the Master Policy relevantly provides: The leading insurer is authorized to receive notifications and declarations of intent by the policy-holder on behalf of all participating insurers. Each insurer participating in the insurance programme is liable for its signed share only (no joint guarantee). 1. Clause 4.2 lists the companies covered by the Master Policy. The list is divided into two categories. One is headed "EuroPass Policy (FoS) – Certificate / Invoice for each company:". The other list is as follows: Local Policies: United Arab Emirates MOBIS PARTS MIDDLE EAST FZE, P.O. Box 50251 Dubai, United Arab Emirates Risk Locations: Insured's Warehouse / Office Near Airlink & Opp. Hardley, Jebel Ali Free Zone, Dubai, U.A.E Plot No. S60108, south Zone, Near Halima Pipes, Opposite to Honest Steel, Jebel Ali Free Zone, U.A.E Australia MOBIS PARTS AUSTRALIA Pty. Ltd. 77 Peter Brock Drive, Eastern Creek NSW 2766 Australia Risk Locations: 77 Peter Brock Drive, Eastern Creek NSW 2766 Australia 13-39 Pilbara St, Amcap warehouse, WA6986 Welshpool, Australia 1. Under cl 11.5, the sum insured for buildings, equipment, stock/inventories and the gross profit for insurance purposes must be reviewed at least once a year on the premium due date and "The above values must be declared to the Insurer by the next due date of the premium for this Policy and are only effective as of this date". Under cl 11.7, "the Policyholder" must, in the event of loss, "notify the Insurer immediately" and provide full particulars of the claim. 2. Clause 12.7 provides: This Policy shall be governed exclusively by Slovakian law. This also applies to Insured Companies with a foreign domicile. 1. Clause 12.9 provides: The place of jurisdiction for any dispute arising out of this Policy shall be Bratislava. The Co-insurance Agreement 1. In June 2014, XL Plc and UNIQA also signed a Co-insurance Agreement. Clause 1.4 of that agreement provides that: This Agreement shall take effect from 23.06.2014 and shall remain in force until 23.06.2016. Those dates correspond to the period of insurance under the Master Policy and the Australian Local Policy. 1. Clause 1.5 provides: Co-insurer's Share: 20% of 100% Note: UNIQA Versicherungs AG, Liechtenstein is not taking any share of local policies in UAE and Australia. The share of XL Insurance Company Plc, Zweigniederlassung fϋr Österreich on the local policies in UAE and Australia is 70 %. 1. Clause 2.4 provides: Claim Investigation, Adjustment and Settlement a. The Co-insured shall give notice to the Co-insurer of any occurrence that does or appears likely to give rise to a claim under this Agreement. b. The Co-insured shall in its sole discretion and by itself or through the agency of a third party adjust, settle or compromise any and all claims under Original Policies and may commence, continue, defend, or withdraw from actions, suits or proceedings, and generally do all things relating to such claims that it deems necessary or expedient. c. The Co-insurer's liability shall, in all respects, follow the fortunes and settlements of the Co-insured. All adjustments, settlements and compromises (except ex-gratia payments) by the Co-insured shall be unconditionally binding on the Co-insurer. For the avoidance of doubt a claim settled without prejudice to liability shall not be considered an ex gratia payment. d. If the Co-insurer's Share of any loss paid or to be paid by the Co-insured exceeds EUR 100,000, the Co-insurer will pay the Co-insurer's Share within 5 business days after receipt of a written request for payment from the Co-insured. Was the originating process duly served on UNIQA? 1. UCPR r 10.6 relevantly provides: (1) In any proceedings, any document (including originating process) may be served by one party on another (whether in New South Wales or elsewhere) in accordance with any agreement, acknowledgment or undertaking by which the party to be served is bound. (1A) ... (2) Service in accordance with subrule (1) is taken for all purposes (including for the purposes of any rule requiring personal service) to constitute sufficient service. 1. Relying on this rule, Mobis Australia and XL SE advance two reasons why UNIQA was duly served with the Amended Summons and Amended Commercial List Statement. First, they rely on cl 3.1.10 of the Master Policy. UNIQA agreed that XL Plc was authorised to receive "notifications" on its behalf. The Amended Summons and Amended Commercial List Statement were "notifications". XL SE authorised McCabes to accept service of those documents on its behalf. Consequently, service on McCabes was effective service on UNIQA. Second, under cl 2.4 of the Co-insurance Agreement, UNIQA agreed that XL Plc had a discretion to "settle or compromise any and all claims under Original Policies and may commence, continue, defend, or withdraw from actions, suits or proceedings, and generally do all things relating to such claims that it deems necessary or expedient". That discretion included a right to accept service on UNIQA's behalf, which is what XL SE has done. 2. Mobis Australia also submitted that XL SE had ostensible authority to accept service on behalf of UNIQA. However, the only holding out of authority it relied on was the terms of the Master Policy and the Co-insurance Agreement. Either those agreements were effective to confer actual authority on XL SE or XL Plc or they were not. If they were not, it is difficult to see how they could amount to a holding out of authority by UNIQA so as to give rise to ostensible authority. Consequently, the question of ostensible authority can be put to one side. 3. It was not suggested that by filing the notice of motion and appearing at the hearing of the motion, UNIQA waived the requirement of personal service (as opposed to submitted to the jurisdiction of the court). Such a suggestion may be inconsistent with the decision of the Court of Appeal in Castagna v Conceria Pell MEC SPA, (Court of Appeal (NSW), 15 March 1996, unreported). In any event, it, too, can be put to one side. 4. I do not accept either of the arguments raised by XL SE and Mobis Australia. 5. The phrase "notifications and declarations of intent" in cl 3.1.10 of the Master Policy is clearly a reference to notifications and declarations in accordance with cls 11.7 and 11.5 of the policy. There is a clear distinction between a notification under the policy and service of court proceedings in relation to a dispute respecting the policy; and a reference to the former cannot easily be interpreted as including the latter. 6. In the present case, each of the insurers under the Master Policy was located outside of Australia. Service of the proceedings on the insurers in accordance with the relevant rules of court was a necessary step in conferring jurisdiction on the court: see Laurie v Carroll [1958] HCA 4; (1958) 98 CLR 310 at 323 per Dixon CJ, Williams and Webb JJ). The insurers did not have the same interests in relation to the question of jurisdiction. The Master Policy provides in cl 12.9 that the "place of jurisdiction for any dispute arising out of this Policy shall be Bratislava". However, XL SE provided cover under the Australian Local Policy and was clearly liable to be sued in Australia on that policy. For that reason, its attitude to the operation of the jurisdiction clause in the Master Policy is likely to be different to the attitude of UNIQA. It is doubtful in those circumstances that the parties intended by cl 3.1.10 to make service on XL Plc effective service on UNIQA. And if that is what they did intend, it is to be expected that they would have said so expressly. 7. The argument based on cl 2.4 of the Co-insurance Agreement raises similar issues. The clause does not specifically state that XL Plc has authority to accept service of proceedings on behalf of UNIQA. Mr Marshall SC, who appeared for XL SE, conceded during the course of argument that the clause could only operate where it had been determined that both insurers were liable for the same loss and invited the court to conclude that that was the case here. That would involve the court determining the question of construction advanced by UNIQA that it was not liable under the Master Policy in respect of losses arising in Australia and the UAE adversely to it. There are difficulties in determining that question of construction in the absence of full argument and in the absence of giving the parties an opportunity to lead evidence relevant to it, including evidence of Slovakian law. 8. However, even if those difficulties could be overcome, in my opinion, cl 2.4 cannot be interpreted as conferring a right on XL Plc to accept service of proceedings on behalf of UNIQA. The clause does not confer that authority in express terms. It does confer on XL Plc the right to conduct the defence of proceedings. But that right assumes that both insurers are properly a party to the proceedings, which depends on whether the court has jurisdiction and is willing to exercise that jurisdiction over both parties. It also assumes that the interests of the two insurers is the same. However, as I have explained, the interests of the two insurers are not the same insofar as the exercise of jurisdiction is concerned. That being so, the court should not give to cl 2.4 a construction that it does not obviously bear and which would have the result of permitting XL Plc to determine UNIQA's attitude to the question of jurisdiction despite the fact that its interests are different from those of UNIQA in relation to that question. Should the court exercise jurisdiction over UNIQA? 1. Having regard to the conclusions that I have reached, it is not strictly necessary to answer this question. However, I should say something about it in the event that my conclusions on service are wrong or in the event that UNIQA is properly served. 2. Under UCPR r 11.2(1), originating process may be served outside Australia in the circumstances referred to in Schedule 6. Under UCPR r 11.7, the court may make orders, among others, setting aside service on grounds including that service of the originating process was not authorised by the rules or that the court is an inappropriate forum for the trial of the proceedings. 3. In my opinion, service outside of Australia is permitted in this case. Paragraph (i) of Schedule 6 permits originating process to be served outside of Australia "if the proceedings are properly commenced against a person served or to be served in New South Wales and the person to be served outside New South Wales is properly joined as a party to the proceedings". Here, it is not disputed that XL SE was properly served in New South Wales. Under UCPR r 6.19, two or more persons may be joined as defendants in any originating process if "separate proceedings against each of them would give rise to a common question of law or fact". In this case, both policies provide insurance cover in respect of the relevant property. The claims under both policies raise common questions concerning the cause of the damage. Consequently, the insurers under both policies are properly joined as parties to the proceedings. 4. UNIQA submits that the court should give effect to cl 12.9 of the Master Policy and stay the claim against it. 5. Although cl 12.9 does not in terms state that the courts in Bratislava have exclusive jurisdiction to hear any claim in relation to the policy, that is its effect. The parties agree that "[t]he place of jurisdiction for any dispute arising out of this Policy shall be Bratislava." The ordinary meaning of the word "shall" in the context in which it appears is mandatory. It cannot be read as giving either party a choice concerning where proceedings should be brought. The agreement between the parties is that the place of jurisdiction "for any dispute" is Bratislava. Consequently, it must follow that the parties agree that the place of jurisdiction for the current dispute under the Master Policy is Bratislava. 6. A court will give effect to an exclusive choice of jurisdiction clause unless there are strong reasons not to do so: Incitec Ltd v Alkimos Shipping Corporation and Another [2004] FCA 698; (2004) 138 FCR 496. Mere inconvenience or cost to the parties are not significant factors, since it is to be assumed the parties took those matters into account in agreeing to the jurisdiction that they did. As Allsop J explained in Incitec (at [49]) what is important is: (a) the inconvenience, if any, whether financial or other, caused to third parties; (b) the effect, if any, upon the due administration of justice; and (c) any other appropriate public policy consideration that can be discerned in all the circumstances. 1. In my opinion, there are two compelling reasons why the court would not give effect to the jurisdiction clause in this case. 2. First, a stay would be inconsistent with the due administration of justice because it would run the risk of inconsistent decisions on the causes of the damage to the property and inconsistent findings on the liability of the insurers. The terms of the Master Policy and the Australian Local Policy make it clear that they both form an integral part of the property damage and business interruption insurance program taken out by companies in the Mobis Slovakia Group. Clause 5.1 of the Master Policy states "The local policies form an integral part of the programme". Clause 1.9 of the Australian Local Policy states "This Policy, while an independent contract, forms an integral part of the International Property Damage and Business Interruption Programme for Mobis Slovakia s.r.o. (904073)." The structure of the program is that primary cover is provided by the Australian Local Policy but any gaps in cover (either in scope or amount) are filled by the Master Policy. However, unless the claims under the two policies are heard together, there is a real risk that there will be inconsistent findings concerning the coverage of the two policies. For example, it is possible that the court hearing the claim under the Australian Local Policy concludes that the exclusion it contains applies, with the result that the claim under that policy fails. On the other hand, it is possible that the court hearing the claim under the Master Policy concludes that that policy does not respond because the claim is covered under the Australian Local Policy. Such a result would be inconsistent with the due administration of justice and inconsistent with the obvious intention of the parties that the two policies should operate together. 3. Second, in my opinion, there are public policy reasons not to stay a claim under the Master Policy. Australia has an interest in seeing the Insurance Contracts Act 1984 (Cth) applied to cases to which by its terms it applies. That Act reflects Australian public policy concerning what is a fair balance between the rights of insurers and insureds under contracts of insurance to which it applies: see the Preamble. The Act applies to all contracts the proper law of which is or would be the law of a State or Territory absent an express choice of law clause in the contract: s 8. Plainly the Act applies to the Australian Local Policy. There is a question whether it applies to the Master Policy, at least so far as the current loss is concerned. But that question will only be determined if the claim under the Master Policy is determined as part of the current proceedings. 4. There are no compelling countervailing considerations. New South Wales is the natural forum for determining the current dispute, since that is where the building is and the loss was suffered and the laws and practices of New South Wales will be relevant to the question whether the design of the building was defective. Proceedings in relation to the Master Policy will raise the question whether, on its proper construction, UNIQA is an insurer in respect of Australian (and UAE) risks. However, the language of the policy is English. The question of construction does not appear to be a complicated one. There is no evidence that Slovakian law relating to the construction of contracts is relevantly different from the law of Australia; and, if it is, that is a matter that can be the subject of expert evidence. 5. It follows that had I concluded that the originating process had been properly served, I would not have made an order that the proceedings be stayed. Orders 1. In my opinion, the appropriate order is as follows: 1. The court declares that the Amended Summons and Amended Commercial List Statement have not been duly served on the third defendant. 1. That leaves the question of costs. I am inclined to think that XL SE should pay UNIQA's costs of the motion and that Mobis Australia should bear its own costs of the motion. The motion was made necessary because XL SE wrongly purported to accept service of the originating process on UNIQA's behalf. However, I should give the parties an opportunity to address me on costs before making an order concerning costs. Consequently, if the parties cannot agree costs within 14 days, the matter should be relisted by contacting my Associate to fix a time for the hearing of submissions in relation to costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 October 2016