Limit (No 3) Ltd & Ors v PDV Insurance Company

In July 1998 and August 2001 there were leaks of crude oil from pipelines owned and operated by the Venezuelan national oil company, Petroleos de Venezuela S.A. (“PDVSA”) in Venezuela’s Anzoategui State. The 1998 leak was at ‘Rio Guanipa’, and the 2001 leak was at ‘Campo Limon’. Each leak caused pollution of the surrounding land and waterways. PDVSA incurred substantial liabilities for cleaning up the pollution and compensating local landowners. In respect of each leak it may issue proceedings in Venezuela to recover its losses under a general third party liability policy issued by a Venezuelan insurance company, Seguros Mercantil SA (“Mercantil”) (As far as the Court is aware, no such proceedings have yet been instituted by PDVSA, either by litigation or arbitration, nor has PDVIC sought any declaratory or other relief in the matter against Limit). Mercantil had reinsured with the Respondent, PDV Insurance Company (“PDVIC”), a “captive” insurance company of PDVSA. And PDVIC had retroceded the risk by two slip policies placed in the London market with the appellants, Limit (No 3) Ltd and other reinsurance companies (“Limit”).

In each case, in the event of PDVSA instituting proceedings, there could be issues of law and fact as to whether the leak is covered, having regard to a provision at each level of insurance excluding liability, in effectively the same terms, where the incident in respect of which the claim is made is not sudden, unforeseen or accidental. In the case of the Rio Guanipa loss, the incident was the fracture of the pipeline as a result of tree-root action. In the case of the Campo Limon loss, the incident was a leakage caused by corrosion of the pipeline.

Despite the absence of any proceedings by PDVSA against Mercantil or by PDVIC for any declaratory or other relief against Limit, Limit is concerned that PDVIC might issue proceedings against it in Venezuela. To forestall such proceedings, it issued these proceedings in this country seeking declarations that it is not liable to indemnify PDVIC in respect of either loss. The retrocession slip policy material to the Rio Guanipa loss incepted on 1^st January 1997 for a period of two years, and that material to the Campo Limon loss, incepted two years later on 1^st January 1999 for a period of three years.

Limit, by each of its claims against PDVIC, sought declarations of non-liability and related relief that:

In addition, in respect of the Rio Guanipa claim, PDVSA sought a declaration that the claims against Mercantil and PDVIC are outside the Venezuelan limitation period.

On 20^th December 2002 Gross J granted Limit permission to serve the claim forms on PDVIC out of the jurisdiction. On 11^th November 2003 Moore-Bick J set aside those orders, the service of the claim forms and subsequent proceedings. In doing so, he held that a “Dispute Clause”, in effect an English law and jurisdiction clause, attached to the 1997 slip and incorporated by reference into the 1999 slip, applied only to North American claims, not the cover as a whole, and, in particular not to any potential disputes from these oil leakages in Venezuela, and that, having regard to the closeness of their connection to Venezuela, that country was the forum conveniens. With the permission of Potter LJ, Limit now appeals that order of Moore-Bick J so as to enable it to proceed with its claim in this country for declaratory relief in the terms pleaded against PDVIC.

The two main issues raised by this appeal are:

The critical issue in the case of each retrocession slip policy is whether the Dispute Clause applied to the contract as a whole so as to commit the parties to resolving any issue under the policy in the English courts or whether the clause only applied in respect of North American claims. If the former, only the English courts had jurisdiction to deal with the matter; if the latter, it was for the English court in these proceedings to determine, in the exercise of its discretion, the forum conveniens. The Dispute Clause read as follows:

“Any dispute concerning the interpretation of the terms, conditions, limitations and/or exclusions contained herein, is understood and agreed by both the Reinsured and Reinsurers to be subject to English Law. Each party agrees to submit to the jurisdiction of any Court of competent jurisdiction within England and to comply with all requirements necessary to give such Court jurisdiction.

All matters arising hereunder shall be determined in accordance with the law and practice of such Court.”

In the case of both periods of cover the original insurance, the reinsurance and the retrocession all provided a “distinct regime” for dealing with North American claims. Thus, at each layer of insurance there were special provisions restricting the ambit of coverage in respect of judgments, awards or settlements emanating from countries operating under the laws of the United States or Canada, so as to: 1) exclude cover for fines, penalties, punitive or exemplary damages; 2) exclude cover entirely in respect of seepage, pollution or contamination; 3) include defence costs within the limit of the liability insured and reinsured; and 4) apply English law and make English courts the forum for any disputes concerning the construction of the rules of the special regime for North American claims.

The 1997 retrocession slip cover in force at the time of the Rio Guanipa leak had been placed in the London Market, was in the standard London market form and was “scratched”, that is initialled, by the lead underwriter as an indication of his agreement. The Dispute Clause was not an integral part of the slip, but was physically attached to the back of it on a separate piece of paper headed “Dispute Clause”, and was also scratched by the lead underwriter.

The slip included a four page summary of the conditions, and “The wording” of the contract was to be, as its opening words indicated, by reference to earlier cover. It included the following provisions:

“FORM: Wording as expiring. Amendments, if any, to be agreed slip leader only. …

ORIGINAL INSURED: PETROLEOS DE VENEZUELA and/or its direct and indirect subsidiaries and/or its direct and indirect affiliates as original. …

SITUATION: Worldwide excluding USA/Canadian domiciled companies other than sales offices. ..

CONDITIONS:

-

Full Reinsurance Clause (NMA 416) ex premium. … Including all endorsements and addenda as expiring. …

-

Seepage and Pollution Clause NMA 1683 or as expiring …

-

USA CANADIAN JURISDICTION SUBJECT TO:

-

Excluding punitive and exemplary damages.

-

costs inclusive.

-

Excluding pollution absolutely.

-

Disputes clause (English Law)

all as expiring. …

In respect of the Reactivation of Marginal Fields Project and construction activities only, the exclusion of US/Canadian domiciled companies is deleted, however, in respect of all Co-Insureds domiciled in the USA/Canada, Jurisdiction hereunder is Worldwide excluding USA/Canada all as expiring. …

Claims Co-operation Clause as expiring as attached.”

It should be noted that the summary in the “USA CANADIAN JURISDICTION …” section of the slip reflects but does not entirely replicate similar provisions in the reinsurance contract between Mercantil and PDVIC.

I should mention here that some time was given by the parties in the course of the appeal to searching for original documentation not put before the Judge. One of the documents emerging from that exercise was the original scratched 1996 slip, which was materially similar in form and terms to the 1997 slip, including an attached Dispute Clause.

The attached Dispute Clause is wide in its ambit in one sense in that it expressly covers “all disputes concerning the terms, conditions, limitations and/or exclusions contained herein”. But it is confined to disputes, like that encompassed by the first issue in this appeal, about the construction of the retrocession, including that of the Dispute Clause itself and as to its application. It does not, on the face of it, apply to disputes of fact arising out of any potential claim under the original insurance or further up the insurance chain and ultimately by PDVIC against Limit, for example, as to whether the claims were timely, or as to whether PDVSA had an adequate inspection and maintenance regime or whether the landowners who had suffered from the pollution had waived their rights as against PDVSA to compensation.

The Judge held that that the Dispute Clause related only to disputes emanating from claims originating in the USA or Canada. Before looking at his reasoning and the rival submissions on the issue before him and before this Court, I should look, as he did, at the commercial context of the retrocession slips, including the various underlying contracts disclosed to Limit as part of the placing material. In doing so, I should note that what was presented to the Judge as the wording of the 1997 reinsurance contract between Mercantil and PDVIC, was similar to that set out in the original insurance contract between PDVSA and Mercantil. It contained, in a page headed “Memorandum 1”, the special regime for North American claims, including a broadly similar Dispute Clause. I say “broadly similar” because it referred to “terms, conditions and, limitations applying to this Memorandum”, rather than “terms, conditions, limitations and/or exclusions contained herein” as in the attachment to the 1996 and 1997 slips.

However, what was thought, when the matter was before the Judge, to be the wording of the reinsurance contract between Mercantil and PDVIC, namely a copy document scratched by Limit’s lead underwriter, might now, as a result of further disclosure and examination of documents in the course of the appeal, turn out to be the wording of the retrocession contract. At the hearing the latter contract was assumed to have been contained in the 1997 slip. I shall say more about this later in the judgment, but for the moment, I shall proceed on the basis accepted below by the Judge that the 1997 contract was in substantially the same terms or “mirrored” those of the underlying reinsurance contract between Mercantil and PDVIC and of the original contract between PDVSA and Mercatil, including the provision in “Memorandum 1” for the special regime for North American claims and the Dispute Clause similar to that in the attachment to the 1997 slip. That Memorandum contained the following provisions relating respectively to exclusions and disputes:

“(i)

COVERAGE

The indemnity provided by this Policy in respect of any judgment, award or settlement within countries which operated under the laws of the United States of America and/or Canada (or to any order made anywhere in the world to enforce such judgment, award or settlement either in whole or in part) is subject to the following additional conditions and exclusions:

…

(b)

SPECIAL EXCLUSIONS

i)

No liability shall attach to Insurers in respect of any fines, penalties, punitive or exemplary damages,

ii)

This policy does not cover any claims whatsoever arising directly or indirectly from seepage, pollution and contamination.

(ii)

DEFENCE COSTS:

All Defence Costs in respect of claims under this Memorandum shall be included in the limit of liability hereunder

(iii)

DISPUTES CLAUSE

Any dispute concerning the interpretation of the terms, conditions and limitations applying to this Memorandum shall be subject to English Law. The Insured and Insurers agree to submit to the jurisdiction of any court of competent jurisdiction within England and to comply with all requirements to give such court jurisdiction. All matters arising hereunder shall be determined in accordance with the law and practice of such court. ”

I have emphasised the words in the above formulation of the Disputes Clause, “the terms, conditions and limitations applying to this Memorandum” so as to indicate the slight difference in wording from the corresponding passage in the Disputes Clause attached to the 1996 and 1997 slips, namely “the terms, conditions, limitations and/or exclusions contained herein”. As will appear, Mr Richard Millett QC, for Limit, relied in support of a broad construction of the slip attachments on the presence in their versions of the Dispute Clause of the word “exclusions”, not mentioned in the Memorandum version, and the substitution of the word “herein” in the slip attachment versions for the words in the Memorandum version “applying to this Memorandum”.

As to the 1999 slip, of which there was only a copy in evidence before the Judge, it began, as had the 1997 slip, against the heading “FORM”, “Wording as expiring”, that is, incorporating the provisions of the 1997 slip and its underlying wording. Seemingly, for the avoidance of doubt, it also contained as part of the CONDITIONS, the term “Including all endorsements and addenda as expiring”. Given those references, it did not repeat - in typescript at any rate - the special regime, including the Disputes Clause, for North American claims derived from Memorandum 1, and it did not refer to or have attached to it, as the 1997 slip had done, any “Dispute Clause”. However, against the heading “World-wide”, it had a manuscript entry against the leading underwriter’s scratch “excl. USA and Canadian domicile companies other than direct PDVS sales offices”. And, in the CONDITIONS, it included the words “Full Reinsurance Clause (NMA 416)…”

However, as I have indicated, searches made by PDVIC in the course of the appeal also yielded the original 1999 slip, which was in the same terms, save that it included in manuscript against the scratch of the lead underwriter (at the RJ Wallace syndicate) the words “RJW N.A. Conditions”, a reference to the “RJW Disputes Clause”, that is, a clause in similar terms to the Dispute Clause attached to the 1996 and 1997 slips, in the North American Conditions 1986 providing for the special regime for USA and Canadian claims. Mr Millett did not challenge the admission of this material as fresh evidence. But he maintained that, if anything the incorporation by reference of the North American conditions into the 1999 slip supported Limit’s case on the interpretation of the 1997 slip, since their availability in 1997 suggested that the separately attached Dispute Clause in the 1997 slip must have served some other, broader purpose than that for which the North American conditions provided. However, he acknowledged that, whatever the correct form and construction of the 1997 retrocession, the reference to the North American conditions in the 1999 slip was superfluous.

As I have said, the Judge held that the Dispute Clause in each of the slips applies only to the special regime of restrictions and exclusions of liability in respect of North American claims. In reaching that conclusion, he began by noting that the summary of conditions in the 1997 slip, including the reference to the “Disputes clause” in the North American claims exclusion section, made no reference to the nature of such clause, which he found surprising if it had been the parties’ intention to subject all disputes under the contract to the English courts. He continued:

“11.

If one asks oneself why the parties should have attached the disputes clause to the slip, one obvious answer is that it was to enable anyone reading the slip to identify the disputes clause referred to in the condition relating to the United States and Canada. …

12.

In my view, the condition relating to the claims arising in the United States and Canada is intended to capture, albeit in more abbreviated terms, the protection provided under the original policy by Memorandum 1. The exclusion of punitive and exemplary damages, the exclusion of pollution liability absolutely and the inclusion of costs mirror to a remarkable extent the substantive terms of that Memorandum and suggest strongly that is what was intended. It is quite natural in that context to incorporate the disputes clause as well, but in order to do that it would either have to be set out in full in the body of the slip or identified in some other way. A clause of that kind is not usually set out in the slip, so it would not be surprising to find it as an attachment. However, the wording of the clause in Memorandum 1 is not wholly apt for incorporation directly into the reinsurance contract because it refers in terms to the Memorandum. Sometimes the wholesale incorporation of clauses lifted from another contract gives rise to linguistic anomalies, but if the draftsman of the slip is alive to such difficulties, he may well adapt the clause in a way which he thinks makes it more suitable for inclusion the particular contract before him. In my view that is what has happened in the present case and the introduction of the reference to “exclusions” is in my view quite understandable in the light of the wording of the condition relating to United States and Canadian Jurisdiction which refers in terms to exclusions

“13.

The clause remains awkward in some respects, however, in particular in the use of the word ‘herein’ … That awkwardness disappears to some extent, however, if one reads the clause as if it were incorporated in the condition itself, or as part of a group of terms covering the same subject matter in a treaty wording. In my view the clause was attached to the slip simply to identify it as the disputes clause referred to in that condition and was not intended to apply to the contract as a whole.”

The Judge reached the same conclusion on the evidence before him as to the 1999 slip, given its opening words “Wording as expiring”, notwithstanding the absence of any express conditions in the slip relating to North American claims corresponding to those in the 1997 slip or of any reference to or attachment of a disputes clause. Mr Millett, relying on the inclusion in the summary of Conditions of the expression “including all endorsements and addenda as expiring”, had argued that it was apt to include the Dispute Clause attached to the 1997 slip, including the meaning for which he contended, namely its application to the contract as a whole. However, the Judge held that, as on his ruling, the Clause did not apply to the 1997 contract as a whole, its “expiring” terms had to be read in the same way for the purpose of the 1999 slip. He added that, in any event, the condition on which Mr Millett relied was limited to “endorsements and addenda” and, therefore, did not extend to the original terms of the expiring 1997 slip. He concluded, at paragraph 15, that the Dispute Clause attached to the 1997 slip was one of its original terms and that the purpose of the reference in the 1999 slip to “all endorsements and addenda as expiring”:

“…was simply to ensure that any additions and alteration to the expiring contract introduced during the policy year by way of endorsement or addendum were incorporated into the new terms. In other words, the condition was designed to ensure that the slip reproduced the expiring terms, subject to whatever modifications were introduced by the other conditions.”

As I have said, before the Judge, and initially before this Court, the parties proceeded on the assumption that a copy document scratched by Limit’s lead underwriter, was the underlying reinsurance contract between Mercantil and PDVIC, which reinsurance was similar to that in the original insurance contract between PDVSA and Mercantil, including in its Memorandum 1 a broadly similar Disputes Clause to, but differing in the respects to which Mr Millett has drawn attention from, that in the 1996 and 1997 retrocession slips.

However, as a result of the enquiries made by PDVIC, with the assistance of Limit during the course of the appeal, it is suggested by PDVIC that the wording that the parties had hitherto understood to be the underlying 1997 reinsurance was in fact that of the 1997 retrocession itself, thus confining the Dispute Clause to the body and section of the slip dealing with special regime for North American claims. Miss Siobán Healy, on behalf of PDVC, sought to put it before the Court as fresh evidence.

Mr Millett’s response to this “discovery” was to challenge its admission on Ladd v Marshall principles. He said, first, that that the misunderstanding could, with due diligence, have been cleared up at an earlier stage and that it was now too late to seek to put it before the Court as evidence of the 1997 wording. Secondly, he maintained that the proposed new evidence was not, in any event credible. He suggested that there are a number of discrepancies between the slip and the wording, and relied on other matters to support his contention that the wording until now attributed to the underlying reinsurance was not the wording of the 1997 retrocession. Thirdly, he indicated that there would or could be dispute about the contractual effect of such material if admitted into evidence. In particular, he suggested that, even if the Court found it necessary to admit, consider and accept it as the wording of the 1997 slip, it would not follow that it would supersede the slip. Given the differences between them, the two documents might or might not have to be read together; see HIH Casualty & General Insurance Ltd. v New Hampshire Insurance Co [2001] LLR IR 224, CA. One outcome might be that the Dispute Clause attached to the slip continues to have the broad application for which Limit contends.

Even if that were not the outcome as a matter of construction, and the Court were to hold that the putative wording superseded the 1997 slip, Mr Millett invited the Court to consider further complications. It might affect the validity of the cover provided by the 1999 slip, given the alleged failure by PDVIC to disclose to Limit such “variation” in cover adverse to Limit in depriving it of contractual resort to English law and jurisdiction for resolution of any disputes arising under the retrocession. Mr Millett suggested that such matters, including possibly an issue as to rectification of the 1997 wording, might arise for determination, an exercise that could not, he observed, be resolved by this Court. The only course would be for it to allow the appeal and remit the issue of potential avoidance to a Commercial Judge to decide.

However, as both Mr Millet and Miss Healy agreed, if the Court ruled that the Dispute Clause attached to the 1997 slip, on the evidence as it was presented to and understood by the Judge, governed only North American claims, admission of the new evidence would add nothing, save possibly confirmation. It is only if the Court were to rule that the Dispute Clause attached to the 1997 slip, considered without such additional material, governed the whole contract, that it would be necessary for this Court to consider de bene esse whether to admit the evidence of the putative wording of the 1997 retrocession, and, if so, what to do with it. Mr Millett and Miss Healy suggested to the Court that it could adopt a stage by stage course, and decide the matter on the evidence as it was before the Judge, before deciding, if it needs to, what to do about PDVIC’s application to adduce putative wording as fresh evidence. On that approach the Court would continue with the appeal on the basis of the evidence before the Judge, namely that the wording of the 1997 cover was that of the underlying reinsurance, forming part of the matrix of fact to the 1997 and 1999 slips.

Miss Healy suggested by way of alternative that the Court could proceed on the basis that the terms of the 1997 retrocession are to be found in both the 1997 slip and the putative wording. Only if the Court were to conclude that the terms of the slip as to jurisdiction and governing law are inconsistent with those of the putative wording would it be necessary to determine admissibility of the new evidence and/or the need to remit the matter to a Commercial Judge for a “mini-trial” as to its contractual status. Mr Millett opposed this alternative on the ground that it was unnecessary and, in any event, begged the question of the admissibility of the putative 1997 wording, something that the Court could not resolve without a trial.

In the event, the Court has adopted the course of continuing with the appeal on the evidence as it was before the Judge, leaving open the issues of admissibility of the new evidence and the status of the putative wording only if it should prove necessary to deal with them.

Mr Millett submitted, as he had done before the Judge, that the Dispute Clause in the attachment to the 1997 slip applied to all disputes under the slip, not just those referable to North American claims, with the result that all of the issues raised by Limit’s claim must be dealt with in the English courts. He suggested that that was the intention of the parties is supported by their attachment of the Dispute Clause to the slip, instead of just having a reference to a ”Disputes clause (English law)” in the section in it dealing with the North American exclusions. He pointed out that the Clause was scratched by the lead underwriter, and suggested that, if read as a whole with the slip, it did not matter that there was no express reference in the main body of the slip to it or any identification of its terms. He noted to the same effect that the reference in the North American section of slip to “Disputes clause (English law)” was not governed by words such as “as attached”.

As I have mentioned, he also drew attention to differences between the wording of the “Disputes Clause” in the underlying reinsurance policy, as it was thought to be, and that of the “Dispute Clause” in the attachment. He suggested the latter had a wider effect, first, in its use of the word “herein”, as if it were a reference to the contract as a whole, instead of “applying to this Memorandum” (which was concerned solely with the special regime for North American claims), and, second, to the inclusion in the attachment version of the word “exclusions”, not found in the Memorandum. If all that was intended was a reference back to Memorandum in the underlying reinsurance policy, why, he asked, was it reproduced at all in the in the attachment and in different terms?

As to the 1999 slip, Mr Millett submitted that, if as he contended, the Dispute Clause in the attachment to the 1997 slip applied to the whole of its cover, not just to the special regime for North American claims, the 1999 slip must incorporate it to like effect because, although it made no express reference to the Clause, it did so by implication in the words “including all endorsements and addenda as expiring”. The 1997 attachment was, he submitted, just such an endorsement or addendum.

Miss Healy’s response was that the Dispute Clause attached to the 1997 slip was confined, as was the equivalent provision in the Memorandum 1 of the reinsurance contract between Mercantil and PDVIC, to construction of the special provisions for the North American claims. She relied on the following factors in support of that submission: 1) the only reference in the 1997 slip to a disputes clause is that in the section dealing with North American claims; 2) it clearly has its origin in the structure of the corresponding provisions in the original contract of insurance between PDVSA and Mercantil and in the reinsurance contract between Mercantil and PDVIC in their provision of a distinct regime for such claims; 3) that the Dispute Clause had clearly been attached to the 1997 slip for the purpose of identifying the provision referred in the North American indent of the Conditions in the slip; 4) the Dispute Clause was not an apt provision for resolution of disputes arising out of the contract as a whole, or even all the disputes of fact and otherwise that could arise under North American claims, since it was, on its own terms, confined to issues of construction of contractual terms, whatever their ambit, and did not extend to other matters of law or factual issues going to compliance with the contract.

In my view, on the evidence before the Judge, his reasoning and Miss Healy’s submissions as to the construction of the 1997 slip, and hence of the 1999 slip, carry the day for the very practical reasons that they both gave. If no Dispute Clause had been attached to the back of the 1997 slip, it would have been unclear what was meant by the words “Disputes clause (English Law)” in the section of the summary of Conditions in the slip under the heading “USA CANADIAN JURISDICTION …”. They were not incorporated by reference to any other document or standard market terms or otherwise, as, for example was achieved by the reference in the summary of Conditions to the “Full Reinsurance Clause (NMA 416) ex premium” and the “Seepage and Pollution Clause (NMA 1683)” (see paragraph 11 above). Nor was it a standard London market reference.

Second, the only reference to the Dispute Clause was in the indented part of the summary of the Conditions under the heading “USA CANADIAN JURISDICTION …”. In conjunction with the use of the words “contained herein” in the phrase in the Dispute Clause in the attachment, “[a]ny dispute concerning the interpretation of the terms, conditions, limitations and/or exclusions contained herein”, that positioning of the reference in the slip had the effect, not only of incorporating it in the slip, but also of confining it to the special regime for North American claims with which that section of the slip dealt. In that respect, it was of a piece with the slip’s incorporation by reference of the “Full Reinsurance Clause (NMA 416) …”, the effect of which was to incorporate terms and bind reinsurers to follow settlements or awards made under the original PDVSA/Mercantil insurance contract, which bound the parties to a choice of Venezuelan arbitration in relation to North American claims rather than English law. By contrast, it does not bind them in respect of any cover, or any exclusion of cover, not included in the reinsurance or otherwise in the retrocession; see Hill v Mercantile and General Reinsurance Co PLC [1996] 1 WLR 1239. HL, per Lord Mustill at 1246-1247, and Toomey v Banco Vitalicio [2003] EWHC 1102 (Comm). As Miss Healy observed, if the Dispute Clause had been intended to be of general application to all disputes arising under the slip, it would have been included under the general part of the “CONDITIONS” section in the slip, not in an indented sub-sub-section of those Conditions concerned only with North American claims.

Third, if the attached Dispute clause were to be read as extending to the whole of the contract so as to subject all disputes arising under it to the jurisdiction of the English courts, what function would the specific reference to the Dispute Clause under the heading of “USA Canadian Jurisdiction” in the summary of conditions have in relation to the attached clause? If it were different in the sense of suggesting some distinct regime for North American claims, how would that difference be identified? If it were the same so that the clause were of general application to the whole contract, the reference in that section of the summary of Conditions would be otiose. Neither outcome could sensibly flow from the fact that the clause is physically attached to, as distinct from being in the body of the slip; see e.g. Bensaude v Thames & Mersey Marine Insurance Co Ltd [1897] AC 609, HL. In my view, the outcome for which Miss Healy contended gave sensible effect to the confined construction of the clause for which PDVIC contended.

Putting aside those textual imperatives to confining the Dispute Clause to North American claims, the Judge’s construction, as Miss Healy submitted, made good commercial sense in that it produced consistency with the original insurance contract and the reinsurance contract, both of which provide a special protection against high awards of damages that may emanate from such jurisdictions. Retrocessionaires are likely to be similarly, if not more, cautious about undertaking such risks, and to insist, not only on exclusions to be found in the underlying insurance, but also on any question as to their construction to be determined by English courts rather than courts in the USA or Canada.

As to the 1999 slip, which, on the evidence before the Judge, neither referred to nor had attached to it any English law or jurisdiction provision in the form of a “Dispute Clause” or otherwise, the Judge was plainly correct in his rulings that: 1) the opening words in the slip “Wording as expiring” had the effect of incorporating the terms of the 1997 slip, including the attached Dispute Clause properly construed so as to limit its effect to North American claims; and 2) it follows that the term in the 1999 slip “including all endorsements and addenda as expiring”, which refer to alterations of a policy after its inception, could not have incorporated the 1997 Dispute Clause so as to give it a more general ambit, since it was an original term of the 1997 cover. And, as there is no dispute about this aspect, I should note again that, among the further evidence that came to light in the appeal, was the original of the 1999 slip, which expressly incorporated the standard form of Dispute Clause applicable to North American claims (see paragraph 17 above).

It follows that, on the evidence before the Judge, I would endorse his construction of both the 1997 and 1999 retrocession slips so as to confine the application of the Dispute Clause, so far as it went, to USA and Canadian claims, so that the issues raised by these proceedings and their determination fall to be determined in accordance with the principles of forum conveniens.

It also follows, for the reasons that I have given in paragraphs 24 to 26 above, that I do not consider it necessary to meet Mr Millett’s challenge to that outcome to consider whether the Court should admit on Ladd v Marshall principles the additional putative material on which PDVIC sought to rely in the course of the appeal. I would only comment that, if that material were to be admitted and read with the 1997 slip, it would suggest further and strong support for PDVIC’s case, if it were needed, notwithstanding the various ensuing complications to which Mr Millett referred.

That leaves the question of the appropriate forum for determination of the matters identified by Limit in seeking the declarations of non-liability. Mr Millett’s two main submissions were: 1) that England is clearly the appropriate forum because the 1997 and 1999 retrocessions are governed by English law and there are no countervailing factors that make it appropriate for the claims to be tried in Venezuela; and 2) that the Judge, having appeared to agree with Limit’s contention that a party alleging forum non conveniens should put before the court some credible evidence that issues of the kind relied upon were likely to arise in practice, then failed to apply that test to the individual issues or the case as a whole.

Miss Healy, by contrast submitted: 1) that this was not a clear case for English jurisdiction since, apart from the retrocession contract entered into by Limit and the fact that its governing law is English, none of the facts or possible disputes arising out of them has any close connection with this country; 2) that the weight to be accorded to the fact that a dispute arises out of a contract of reinsurance or retrocession placed on the London market and governed by English law depends upon the nature of the issues arising for determination, so that a dispute raising issues of English law as to placement of the risk in London, misrepresentation and non-disclosure may be more appropriately tried in England, whereas, as here, a dispute turning largely on factual matters that have occurred overseas may more appropriately be tried in the overseas jurisdiction; 3) that, therefore, the Judge rightly approached his consideration of this issue by reference to the well-known propositions of Lord Goff of Chieveley in Spiliada Maritime Corp v Consulex Ltd [1987] AC 460, at 481D-E and 482D, that it was for Limit to show that England is clearly the most suitable forum for trial in the interests of the parties and for the ends of justice; and 4) that, although the claims related to different policies and different occurrences, many of the issues are common to both and that it was unlikely to be conducive to justice for one of them to be tried in England and the other in Venezuela.

I have set out in paragraph 4 of this judgment the four matters of claimed declaratory relief common to each claim, namely delay in notification of loss, sudden occurrence, waiver by landowners of their rights and currency conversion, and the additional one of limitation in the case of the Rio Guanipa loss. Two further issues common to both losses arose in argument, namely the wider implications of these proceedings and the quality of the administration of justice in Venezuela.

The Judge, having considered all those claims and issues individually and collectively, concluded that Limit had not satisfied him that England was clearly the appropriate forum for trial of the claims. He said, at paragraph 36 of his judgment:

“… Almost all the issues that are likely to arise in this litigation can more appropriately be decided in Venezuela where the relevant documents and witnesses are readily available than in this country and even those issues of law and construction which fall to be decided under English law can be determined satisfactorily there. …”

I turn now to each of the issues and the Judge’s treatment of them leading him to that conclusion. In doing so, I have in mind the general propositions behind the three submissions of Miss Healy that I have summarised in paragraph 39 above – and which I accept - in particular, the application of the Spiliada principle that it is for Limit to show that England is clearly the more suitable forum for trial in the interests of the parties and for the ends of justice.

In the case of the Rio Guanipa loss, the notification of PDVSA’s claim to Mercantil was about 13 months after the leakage, but in the case of the Campo Limon loss the delay was only a matter of days. The parties’ respective Venezuelan lawyers were in conflict as to what constituted a reasonable period within which to notify the claim. The Judge expressed the view that, in the Rio Guanipa claim, given the long period of delay, there seemed to be “good prospects of establishing” that it was unreasonable, and there was, therefore, little to indicate that substantial issues were likely to arise under this head. However, he added that the possibility of such issues arising could not be ruled out and was clearly of the view that, if they did, it would be more appropriate for them to be tried in Venezuela because the relevant evidence was there and the local courts were likely to be better equipped to determine consequential matters of law. As to the Campo Limon claim, although the period of delay was so short as to be likely to preclude a defence of late notification, he said that the issues were essentially the same and, by implication, that if they were to arise Venezuela was the more appropriate forum.

In my view, despite the lack of likelihood, for different reasons, of the issues of late notification arising as significant issues at trial, the Judge was entitled, in the exercise of his discretion, to take into account as a relevant factor in the overall exercise of his discretion, that, if they did, Venezuela would be the best place for their determination.

In the case of each leakage the original policy excluded cover for loss not caused by a “sudden, unforeseen and accidental incident”, and the reinsurance and retrocession contracts excluded cover for loss not caused by a “sudden, unintended and unexpected happening”. And in the case of each leakage Limit’s positive case, in reliance on locally appointed loss adjusters’ reports, was that the cause of the leakage giving rise to the claimed loss was so excluded because it was of a long-standing and progressive nature - in the Rio Guanipa loss, tree root growth causing damage to and eventually fracture of the pipeline, and in the Campo Limon loss, corrosion of the pipeline leading eventually to a leak. In addition, in the case of the Campo Limon loss, Limit complains of the absence of an adequate system of inspection and maintenance by PDVSA.

The Judge accepted the argument of Mr Millett that, given the time that had elapsed since the date of each incident, further site investigations as to the mechanism by which each pipeline were breached was unlikely to produce any new evidence that would add significantly to that already obtained by the loss adjusters, and that the results of their investigations could be made available as easily in this country as in Venezuela. However, he was of the view that, given Limit’s positive case on the application of this exclusion, including in the Campo Limon claim that as to PDVSA’s system of periodic inspection and maintenance of the pipeline, a court might have to consider evidence yet to be obtained, of all of which is in Venezuela.

As to the construction of the exclusion in the respective layers of policy cover, that under the original and reinsurance policies fell to be decided in accordance with Venezuelan law, and that under the retrocession policy, by English law. The Judge agreed with Mr Millett’s contention that the fact that the retrocession policy is governed by English law and that the pollution clause is a standard London Market clause (NMA 1683) might normally favour determination of such matter in England. But he held that, since the issue in each case was as to the application of the words of the clause to the facts of the case, it was “unlikely to require any deeper understanding of English insurance law or London market practice” and that there was “no reason to think that any other questions of English law calling for particular expertise of the English courts [were] likely to arise”. In summary, he expressed the view that in the case of both losses, there were no “questions of law or market practice of a kind that argue[d] strongly in favour in the Spiliada sense of a trial in this country”.

Before this Court Mr Millett, whilst acknowledging Limit’s positive case that the loss in each case fell within the relevant exclusion provision, maintained that the evidence provided by PDVSA and PDVIC’s loss adjusters make plain the mechanism of each cause of loss. He submitted, as the Judge appears to have accepted, that there was no evidence, as distinct from speculation, that any further factual investigation of the cause of the losses would yield any additional information of assistance to a court. He complained that, while PDVIC had suggested that there were possible challenges to that evidence, it had not precisely identified the areas of dispute or indicated what evidence it could adduce that could effectively challenge it. He submitted that, therefore, the Judge wrongly failed to reject this consideration. He dismissed the possibility of a need of evidence from some Venezuelan witnesses on the issue of inspection and maintenance as of little consequence when put alongside the powerful factor that English law governed any issues of construction of the retrocession.

Miss Healy prefaced her submissions on this issue, as she had done more generally, by observing that the weight to be accorded to the fact that a dispute arises out of a reinsurance contract placed on the London market and governed by English law depends upon the nature of the issues arising for determination. She submitted that a dispute raising issues of English law as to placement of the risk in London, misrepresentation and non-disclosure might be more appropriately tried in England, but, here, where the dispute would turn largely on factual matters that have occurred overseas would more appropriately be tried in the overseas jurisdiction. She underlined that submission by pointing to Limit’s’ positive case on the mechanisms of the pipeline failures, and contended that PDVIC was entitled to take issue on them without being required at this stage to identify the precise basis upon which it would seek to make good the challenge at trial. With somewhat greater force, she said that Limit’s positive case in response to the issues raised by PDVIC’s loss adjusters as to PDVSA’s systems of inspection and maintenance is likely to be a significant issue, certainly in the case of the Campo Limon loss.

In my view, the distinction drawn by the Judge and Miss Healy between issues of law and application of them to the facts in dispute, is important given the primary factual case of Limit that the mechanism of pipeline failures took the losses outside the seepage and pollution exclusions (NMA 1683) common to all layers of the insurance cover, and in respect of which there is no pleaded claim by Limit that the matter is governed by London market or practice. Whilst there might not be much more evidence to be gathered in bearing upon the mechanisms of failure of the pipelines, there is clearly scope, as the Judge accepted, for much local investigation and preparation of evidence in the Campo Limon claim on the clearly identified issue as to PDVSA’s system of inspection and maintenance. Looked at along with the other issues raised, this is clearly a possible development that could cause problems if it arises in a trial outside Venezuela. Its relevance and its weight in the overall balancing exercise, considered with that of the other issues, was a matter within the discretion of the Judge.

Limit’s pleaded case is that a number of identified landowners who have made claims for compensation against PDVSA for pollution caused by the leakages, and by others who have yet to be identified, entered into contracts with PDVSA granting it the right to run its pipelines across their land on terms that they waived claims for any resultant pollution damage. The extent of damage in respect of which compensation is claimed would require investigation and evidence from Venezuelan witnesses of PDVSA. And, given PDVIC’s Venezuelan lawyer’s advice that it is disputable under Venezuelan law whether such waiver is effective, there would also need to be investigation in Venezuela on that issue. The Judge held that, although these are matters on which, there was yet, no “evidence to indicate whether any of them … [was] likely to arise in practice –

“They are all questions, however, that would be more suitably decided in Venezuela if they were to arise.”

Mr Millett relied, as he had done on other issues, on the lack of evidence from PDVIC to indicate whether any of these issues were likely to arise in practice, and asserted that the Judge, having expressly noted that absence, should not have taken them into account. Miss Healy submitted that the Judge did not err in taking these matters into consideration in the exercise of his discretion. They were issues of fact which, if they arose, would have to be investigated and evidenced in Venezuela, as would questions of Venezuelan law on the efficacy of the waiver.

In my view, on this as on other issues, the Judge could not properly exclude the relevance of the difficulties that would be caused if such issues of fact and law are taken when claims are pressed by landowners who have suffered from pollution which may be, or could be, met with a defence by PDVSA of waiver on which Mercantil and/or PDVIC would no doubt also seek to rely. As I have indicated in relation to the previous issue, the Judge’s task in considering forum conveniens is not to take each potential issue and accept or reject it as relevant to the overall exercise of his discretion by applying in isolation a rigid yardstick as to the likelihood of its arising, without regard to the serious consequences to the justice of the matter if it and/or other issues were to arise. He should, of course, give little weight to issues raised which, for want of supporting evidence or persuasive argument appear to him to be fanciful or unlikely areas for dispute whenever the matter reaches trial, but that is not this case.