There are two applications before the court arising out of separate but related actions. In each case the defendant, PDV Insurance Co. Ltd (“PDVIC”), seeks to set aside an order for service of the proceedings on it out of the jurisdiction. The actions relate to two contracts of reinsurance by which in each case the claimants agreed to reinsure PDVIC in respect of risks for which it had agreed to reinsure a Venezuelan insurance company, Mercantil Seguros (“Mercantil”). The original insured in each case was Petroleos de Venezuela S.A. (“PDVSA”), the Venezuelan state oil company. Mercantil insured PDVSA in respect of third party liabilities incurred during various years including 1998 and 2001. It reinsured those liabilities with PDVIC, a captive insurance company of PDVSA, which in turn reinsured them with the claimants under two policies in similar, though not identical, terms. The first policy related to liabilities arising within a period of 24 months from 1^st January 1997 and the second to liabilities arising within a period of 36 months from 1^st January 1999. PDVIC is incorporated in Bermuda, but carries on business in Venezuela.

In July 1998 a pipeline carrying crude oil in the area of the Rio Guanipa fractured causing widespread pollution of the surrounding area. In August 2001 a pipeline carrying crude oil in the Campo Limon area fractured, again causing significant pollution damage. In each case costs were incurred in clearing up the spill and compensating local farmers. The claimants maintain for a variety of reasons that they are not liable to indemnify PDVIC in respect of losses arising from either of these occurrences.

PDVIC has not yet made a formal claim against the claimants, nor, it seems, has a claim yet been made by PDVSA against Mercantil. However, the claimants became concerned that PDVIC might bring proceedings against them in Venezuela and therefore started proceedings in this country seeking declarations that they are not liable to indemnify PDVIC. Both contracts of reinsurance were placed in the London market through brokers, Alexander Howden Group Ltd and AON Group Ltd respectively, and it is accepted that they are governed by English law. On 20^th December 2002 Gross J. gave the claimants permission to serve both sets of proceedings on PDVIC out of the jurisdiction on the grounds that the contracts were governed by English law, had been made through an agent trading within the jurisdiction and contained a submission to the jurisdiction of the English courts. This last ground is controversial and turns on the construction of the slips evidencing the two contracts. It is potentially of considerable importance in relation to the exercise of the court’s discretion and I shall return to it in a moment. However, the other grounds on which permission to serve out was sought have not been challenged and Miss Healy therefore accepted that the court had jurisdiction to make those orders. Accordingly, the only question for determination in each case is whether the court should exercise its discretion in favour of giving permission to serve out.

It was recognised on both sides that the existence of an agreement to submit disputes to the courts of this country is a powerful factor in favour of giving permission to serve out of the jurisdiction. That is now well established as a result of the decisions of this court in BAE plc v Dee Howard Co. [1993] 1 Lloyd’s Rep. 368, Mercury Communications v Communications Telesystems International [1999] 2 All E.R. 33, JP Morgan Securities Asia v Malaysia Newsprint Agencies Sdn Bhd [2001] 2 Lloyd’s Rep. 41 and Marubeni Hong Kong and South China Ltd v Mongolian Government [2002] 2 All E.R. (Comm) 873 to which I was referred. I therefore turn to this question first.

The 1997 slip was in the standard London market form, setting out the main terms of the contract in an abbreviated form under various headings. It contained the following provisions which are relevant to the present issue:

“ORIGINAL INSURED: PETROLEOS DE VENEZUELA 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) . . . . . . .

Including all endorsements and addenda as expiring.

Seepage and Pollution Clause NMA 1684 as expiring .

USA CANADIAN JURISDICTION SUBJECT TO:-

- Excluding punitive and exemplary damages.

- costs inclusive.

- Excluding pollution absolutely

- Disputes clause (English Law)

all as expiring

Claims Co-operation Clause as expiring as attached.”

Attached to the papers comprising the slip was a typed ‘Dispute clause’ in the following terms which had been scratched by the leading underwriter:

The issue between the parties is whether the dispute clause applies to the contract as a whole or only to claims in respect of liabilities arising in the United States and Canada. Miss Healy relied on the fact that the only reference to a disputes clause anywhere in the body of the slip is that to be found in the section dealing with United States and Canadian jurisdiction. She submitted that the disputes clause was attached to the slip for the purposes of identification, there being no other means of ascertaining its terms. Mr. Millett Q.C., on the other hand, submitted that the language of the clause was apt to embrace all disputes arising under the contract and that it must be presumed to have been attached to the slip as an indication that the parties intended it to apply to the contract as a whole.

Much was said in the course of argument about what may have led the draftsman of the slip to structure it as he did, but it is impossible to know what he had in mind and his personal understanding is in any case irrelevant. All one can do is construe the slip as a whole against its commercial background which includes the terms of the various underlying contracts which were disclosed to the claimants as part of the placing material. Of these the most important for present purposes is the original insurance which included a document entitled ‘Memorandum 1’ providing as follows:

“(i)

COVERAGE

The indemnity provided by this Policy in respect of any judgment, award or settlement within countries which operate 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.

. . . . . . . . . . . . . . . . . . . .

(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.”

It can be seen that the disputes clause attached to the reinsurance slip broadly follows the form of the disputes clause in Memorandum 1, but with certain variations. Miss Healy submitted that Memorandum 1 explains the origin of the disputes clause and supports the conclusion that it was intended to apply only in the limited context of claims originating in the United States and Canada. Mr. Millett submitted that by attaching the disputes clause to the slip the parties demonstrated an intention that it should apply to the contract as a whole and that the changes in the wording from that to be found in Memorandum 1 supports that conclusion.

The section of the slip that summarises the conditions of the contract runs to over two pages, but it is noticeable that it contains no reference of any kind to a choice of law and jurisdiction clause. That is surprising if it was indeed the parties’ intention to agree that the English courts should have jurisdiction over any disputes that might arise under the contract. Underwriters are generally well aware of the risks of becoming embroiled in foreign litigation and can be expected to include some provision in the slip if they wish to ensure that disputes are resolved in this country. This is particularly significant in the present case since the parties were clearly aware of the existence of the clause which it is now said they intended to incorporate into the contract and might therefore have been expected to make some reference to it in the body of the slip if that had indeed been their intention. Instead it was simply attached to the rest of the documents without explanation.

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. Mr. Millett submitted, however, that the disputes clause to which that condition refers is the one to be found in Memorandum 1 and that the language of the clause attached to the slip is not apt to relate to that particular condition.

In my view the condition relating to 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 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 in 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.

The clause remains awkward in some respects, however, in particular in the use of the word “herein” on which Mr. Millett naturally placed some reliance. 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 position in respect of the 1999 contract is rather clearer. There were no conditions in the slip relating to claims arising in the United States and Canada corresponding to those that appear in the 1997 slip and no dispute clause was attached to it. In these circumstances Mr. Millett could only fall back on the term

“Including all endorsements and addenda as expiring”

which was included among the conditions. He submitted that it was effective to incorporate all the terms of the expiring contract including the disputes clause.

Miss Healy submitted that the argument failed for two reasons, first, because the disputes clause did not apply to the expiring contract as a whole, and secondly, because the effect of the condition was limited to endorsements and addenda and did not extend to the original terms of the expiring contract. In my view both of her submissions are correct. For the reasons I have already given I do not think that the disputes clause applied to the earlier contract, so that even if the reference to endorsements and addenda were apt to incorporate all the terms of the expiring contract, it would not have incorporated the disputes clause except as an adjunct to the condition covering claims originating in the United States and Canada. However, I do not think that the condition is apt to incorporate all the terms of the expiring contract. That is not what it says and in my view its purpose is simply to ensure that any additions and alterations 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.

For these reasons I am satisfied that the disputes clause does not apply to either contract as a whole and in particular does not apply to either of the present disputes.

I turn next to consider the other factors that have a bearing on the question of forum conveniens, reminding myself that since neither of these disputes has any close connection with this country it is for the claimants to show that England is clearly the appropriate forum for the trial of the action (Spiliada Maritime Corp v Cansulex Ltd [1987] A.C. 460, per Lord Goff at page 481). To do that it is necessary to begin by identifying the issues that are likely to arise, but before doing so it is worth pointing out that, although the actions relate to different policies and different occurrences, many of the issues are common to both. It is unlikely, therefore, to be conducive to the ends of justice for one of them to be tried here and the other in Venezuela. Ultimately this may not be determinative of whether England is the appropriate forum in either case, but it is a factor that cannot be ignored and is potentially a powerful one.

The claimants deny liability for the Rio Guanipa loss on the following grounds:

The first of these grounds raises an issue of limitation under Venezuelan law. Both parties have obtained evidence on this and other questions from local lawyers, Mr. da Costa and Mr. Bentata, but there is little agreement between them. Mr. Bentata, who has provided evidence in support of PDVIC, accepts that any claim is subject to a statutory three year limitation period, but says that the running of time may be interrupted in various ways, for example, by acknowledgment of the claimant’s rights or by conduct on the part of the defendant that is inconsistent with a decision to rely on limitation as a defence.

In the light of Mr. Bentata’s evidence Miss Healy submitted that the limitation defence would inevitably give rise to issues of fact and law which could more appropriately be determined in Venezuela. Mr. Millett did not dispute that in principle, but he submitted that it is not enough for a defendant in these circumstances to point to issues that might arise, depending on the evidence ultimately before the court at trial; some credible evidence had to be put before the court at this stage to show that issues of that kind were likely to arise in practice. In the present case, he submitted, there was no such evidence so little weight should be given to this aspect of the case.

I agree with Mr. Millett that in general it is not enough for a defendant in the position of PDVIC merely to identify grounds on which it might successfully argue that the running of time has been interrupted. In the present case, however, Mr. Bentata has identified a number of matters which could be relied on for that purpose and I doubt whether PDVSA or Mercantil would simply let the matter go without a fight. I think it likely, therefore, that there will be argument about the application of the law on limitation to the facts of this case and if there is, I think that Venezuela is clearly the more appropriate place in which to decide the question, both because the relevant evidence is there and because the courts there are better equipped to determine the issues of law to which they are likely to give rise.

Here again there is a difference of opinion between the Venezuelan lawyers, this time as to what constitutes a reasonable period in which to notify a loss of this kind. However, the evidence suggests that in this case notice of loss was not given to Mercantil until 13 months after the event, so on the face of it there would seem to be good prospects of persuading the court that a reasonable period was exceeded. Again, Mr. Bentata says that the parties’ rights may be affected by the way in which they have conducted their business in the past, but there is no evidence in this case to suggest that claims had previously been accepted by Mercantil despite late notification. There is little to support the conclusion that substantial issues are likely to arise under this head, but if they were to (and the possibility cannot be ruled out) it would in my view be more appropriate for them to be decided in Venezuela than in this country for essentially the same reasons.

Two questions will have to be decided in relation to the leak itself: what was the mechanism by which it was caused, and was the loss caused by a “sudden, unforeseen and accidental incident” within the meaning of the Mercantil policy or a “sudden, unintended and unexpected happening” within the meaning of the reinsurance contracts? The first of these is obviously a question of fact. Miss Healy submitted that all the relevant evidence is in Venezuela and that if further investigations are required they will have to take place there. It would therefore be more appropriate for these issues to be decided there as well.

This argument has some, though in my view rather limited, force. After they had been notified of the loss PDVIC instructed loss adjusters, Crawford Venezuela C.A., to investigate the cause of the fracture and the magnitude of the loss. They produced a report which describes the nature and extent of the pollution and attributes the cause of the fracture to the action of tree roots on the pipeline. However, because they were not instructed until about two years after the event they were forced to rely on documents in the possession of PDVSA for the purposes of their investigations. Mr. Millett submitted that in those circumstances there is no significant likelihood of there being a need for any further investigations into the cause of the fracture or its consequences and that such evidence as will need to be considered can just as easily be made available in this country as in Venezuela. That may well be true in relation to the immediate cause of the fracture, but the reinsurers do not accept that the circumstances described in the loss adjusters’ report constitute a “sudden, unforeseen or unexpected event” and that raises the possibility that the court may need to consider PDVSA’s arrangements for the periodic inspection and maintenance of the pipeline on which all the relevant evidence is likely to be in Venezuela.

The issues of construction fall to be decided in accordance with Venezuelan law insofar as they arise under the original policy or the contract between Mercantil and PDVIC, but by English law insofar as they arise under the contract between the claimants and PDVIC. The fact that the contract between the present parties is governed by English law and that the pollution clause is a standard London market clause, NMA 1683, led Mr Millett to argue that it would be more appropriate for this aspect of the case to be determined by this court rather than by a foreign court. In principle I agree that these are matters that point in favour of England as being the appropriate place of trial and in some cases they may be very powerful factors. However, I do not think that either of them is entitled to a great deal of weight in this case. The issue of construction calls for the application of the words of the clause to the facts of the case and is unlikely to require any deeper understanding of English insurance law or London market practice. There is no reason to think that any other questions of English law calling for the particular expertise of the English courts are likely to arise.

The claimants say that even if they were otherwise liable under the contract of reinsurance, they are not liable in respect of any amounts paid by way of compensation to landowners who had entered into contracts with PDVSA excluding liability for pollution damage. Among the documents exhibited to Mr. Marshall’s statement supporting the present applications is a form of contract between PDVSA and a landowner under which, in return for the payment of rent for a specified period, PDVSA is granted the right to run a pipeline carrying crude oil across the land in question. As part of the arrangements the proprietor renounces any claims for damage arising in the course of any oil activities during the period of the contract.

Mr. Marshall identifies 42 people who apparently made claims against PDVSA for damage caused by pollution. It is not clear at present how many of those were landowners who had entered into contracts on the terms of the draft or other similar terms, but it appears from the report of Crawford Venezuela that the oil spread a long way from the site of the original fracture, so it is quite possible that some had and some had not. Mr. Bentata says that it is disputable under Venezuelan law whether contracts in these terms are effective to relieve PDVSA of liability for oil spills and that there may in some cases be an issue as to the true identity of the landowner and whether he is the person entitled to recover in respect of pollution. However, he simply identifies these as potential issues without putting forward any evidence to indicate whether any of them is likely to arise in practice. They are all questions, however, that would be more suitably decided in Venezuela if they were to arise.

In his statement made in support of the claimants’ original application for permission to serve PDVIC out of the jurisdiction Mr. Hirst pointed out that most, if not all, of the payments made by PDVSA are likely to have been made in bolivars, whereas the currency of account in all the insurance contracts is the United States dollar. However, he also says that he has been advised by Mr. da Costa that Mercantil is obliged to settle the original claim in bolivars and that the claimants are therefore concerned that PDVSA might seek to make a windfall profit as a result of movements in the exchange rates between the dollar and the bolivar since the date of the loss. I can see that there may be some argument in due course about the dates at which conversion between bolivars and dollars should be made, but they do not strike me as likely to be the sort of issues that point strongly in favour of holding a trial of the substantive issues in this country rather than elsewhere.

The leak at Campo Limon occurred on 5^th August 2001 and is said to have been caused by corrosion at a welded joint between two sections of pipe with different internal dimensions resulting in a ‘step’. The grounds on which the claimants reject liability are similar to those on which they rely in relation to the Rio Guanipa loss, namely,

Although they arise in different circumstances, the issues are essentially of the same nature as those which arise in relation to the Rio Guanipa loss. The comments made earlier about late notification apply equally in this case, except that, since the delay was a matter of days rather than months, any argument that Mercantil is precluded from relying on it may have greater prospects of success.

The questions that arise in relation to the proper construction of the original policy and the contracts of reinsurance are essentially the same as those which arise in relation to the Rio Guanipa incident and for the reasons I have already given I do not think they raise questions of law or market practice of a kind that argue strongly in favour of a trial in this country. Different loss adjusters, Cunningham Lindsay International C.A. were appointed to investigate the claim. They visited the site about a month after the loss had occurred, interviewed some of PDVSA’s employees and examined the extent of the damage. They noted that some thinning of the wall of the pipe had been found about a year earlier and that PDVSA was progressively renewing the section of line where the fracture occurred. The damaged section of the pipe was later cut out and examined in a laboratory. In this case, therefore, the loss adjusters had access to the original evidence relating to the loss and damage and were able to carry out a more thorough investigation than had been possible in the case of the Rio Guanipa loss. Again, Mr. Millett submitted that no further investigation is likely to be required, but the fact remains that the evidence relating to the loss is all in Venezuela. Moreover, in this case the claimants themselves have alleged that a proper inspection and maintenance regime would have averted the loss, so it seems likely that there will need to be evidence of the procedures operated by PDVSA as well as some evidence of the steps that were taken to inspect and maintain that particular section of the line. All the evidence likely to have a bearing on these questions is also available in Venezuela and insofar as it may be necessary to call expert evidence there is no reason to think that that would be easier or cheaper in one location rather than another.

Two other factors were canvassed in argument. The first concerns the wider implications of these proceedings. As can be seen from the summary of the arguments being advanced by the claimants, many of the issues raised in these proceedings relate directly to the other contracts of insurance and reinsurance linking the claimants to PDVSA. It is likely, therefore, that in order to protect its own position PDVIC will wish to raise the same points against Mercantil and it is possible that Mercantil might wish to raise some or all of the same points against PDVSA. In that case it would clearly be desirable for the issues all to be determined in one set of proceedings. That would not be impossible if the actions were to continue in this country since the Civil Procedure Rules permit the service abroad of proceedings by a defendant against other parties where his claim against them turns on similar or related issues, but the fact that all but one of the parties are located in Venezuela and that the underlying contracts are probably all governed by Venezuelan law is a good indication of where the centre of gravity of the litigation as a whole lies.

The second point concerns various aspects of the administration of justice in Venezuela. The claimants accept that disputes of the present kind could be determined in the courts of Venezuela, but they suggested that there is overlapping jurisdiction between the courts in the locality where the incident occurred and the Supreme Court in Caracas which might give rise to difficulty. They also say that the local courts do not have the experience to deal satisfactorily with the kinds of issues that arise in this case and that even the Supreme Court has little experience in dealing with disputes of this kind.

On these questions, as on so many others, Mr. da Costa and Mr. Bentata are to some extent at odds, but it is possible to put arguments about territorial jurisdiction within Venezuela to one side because PDVIC made it clear in the course of argument that it is willing to submit to the jurisdiction of the Supreme Court, which has original as well as appellate jurisdiction, if the claimants commence proceedings against them there. However, the claimants say that because PDVIC and PDVSA are state-owned companies there are grounds for concern that the trial of an action involving either of those companies would be affected by political motives and would not lead to an impartial decision.

It is well-known that the political situation in Venezuela has been in turmoil in recent months and that as a result there has been some disruption of public services, but despite that I do not think that the evidence on which the claimants rely provides sufficient grounds for thinking that it would not be possible for a dispute of this kind to be resolved in Venezuela fairly and within a reasonable period of time. Mr. Millett drew to my attention to a report published by the International Bar Association’s Human Rights Institute in March 2003 in which it is suggested that the position of the judges is being undermined by the government and that some judicial decisions are seen as politically motivated, but it is by no means clear that the comments made in that report were directed to the Supreme Court or to the kind of litigation involved in this case. In The Abidin Daver [1984] A.C. 398 at pages 410-411 Lord Diplock pointed out that it is not appropriate for the court to embark upon a comparison of the quality of justice obtainable in a foreign jurisdiction with that obtainable in this country; if a claimant wishes to contend that he will not obtain justice in another jurisdiction he must say so candidly and support his argument with cogent evidence. In the present case neither of those requirements is satisfied and accordingly I do not consider this to be a proper factor to take into account when considering the exercise of my discretion.

In order to justify serving PDVIC out of the jurisdiction and thus requiring it to come here to defend the claim the court must be satisfied that England is clearly the appropriate forum for the trial of the action. In my view that test is not satisfied in this case. 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. In these circumstances I am satisfied that the right course in each case is to set aside the order of Gross J., the service of the claim form and all subsequent proceedings.