Supreme Court allows service out of jurisdiction for insurance master policy despite local policy jurisdiction.

THE SUPREME COURT

171/01

Chief Justice

Murphy J.

Fennelly J.

BETWEEN

ANALOG DEVICES BV ANALOG DEVICES IRELAND LIMITED

ANALOG DEVICES RESEARCH AND DEVELOPMENT LIMITED

AND ANALOG DEVICES INC

Plaintiffs/Respondents

AND

ZURICH INSURANCE COMPANY

AND AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY

Defendants/Respondents

JUDGMENT delivered the 24th day of January, 2002 by FENNELLY J.

The plaintiffs/respondents (“the plaintiffs”) had insurance policies with the defendants/respondents (“the defendants”) for their

computer chip manufacturing plant at Raheen, County Limerick. Losses occurred as a result of an incident at the plant in August

1999. The defendants repudiated liability under two different policies. The present issue concerns service out of the jurisdiction

of proceedings brought under the policy issued by the second named defendant appellant (“American Guarantee”). The facts

are complex.

THE BACKGROUND

The first three plaintiffs are subsidiaries or associated companies of Analog Inc. (“Analog Inc.”), which is incorporated under the

laws of the Commonwealth of Massachusetts where it also has its principal place of business. The first-named plaintiff is

incorporated in the Netherlands and registered on the external register in the State. It carries on business at the plant at

Raheen as manufacturer of high performance mixed linear and digital integrated circuits. The second and third-named plaintiffs

are incorporated in the State and engage in the research and/or design of integrated circuits at the Raheen plant.

There are two policies known respectively as the local policy and the master policy.

The local policy was issued by the first-named defendant (“Zurich”), which is a Swiss corporation registered in the State on the

external register. The first three plaintiffs are named as the insured. This policy covered, inter alia, collective material damage

and business interruption flowing from insured risks at the Raheen plant.

The master policy was issued in the United States by American Guarantee to Analog Inc. and its affiliated, subsidiary and

associated companies to cover similar risks world wide (with some excepted countries not including Ireland). American

Guarantee is incorporated under the laws of the State of New York, has its head office at Schaumberg, Illinois and is the

indirect subsidiary of Zurich.

On 2nd August 1999, there occurred at the Raheen plant the incident which gave rise to claims under the two policies and to

the proceedings with which this appeal is concerned. The plaintiffs claim that incorrect filters were fitted, during weekend

preventive maintenance by a technician, to the hydrochloric acid storage system and that the filters and “o-rings” which form

part of them were damaged as a result of exposure to the acid. This, in turn, caused particles from the filters to become

incorporated in a batch of wafers which comprise the integrated circuits. The wafers were rendered unfit for sale and had to be

destroyed. The claim, as so far formulated, runs to several million dollars not including business interruption.

The two policies contain similar exclusions for perils consisting of errors in processing or manufacture of the products of the

insured.

Both policies were in force at the date of the incident. Claims were made respectively against Zurich under the local policy and

against American Guarantee under the master policy. Both Zurich and American Guarantee have denied liability. They claim that

the losses arose from perils excluded by the policies and are thus not covered.

The plaintiffs claim that the incident fell squarely within the risks covered by the policies and, timely notice of the claim having

been given, the defendants are bound to indemnify the plaintiffs within the respective policy limits.

THE PROCEEDINGS

On 20th January 2000, the plaintiffs issued a plenary summons against both defendants claiming a declaration that the

defendants are liable under the two policies. The plenary summons, because of the US address of American Guarantee, was

marked “not for service outside the jurisdiction without an order of the Court.”

Before recounting more fully the history of the proceedings in this jurisdiction, I should refer, because American Guarantee relies

strongly on it, to an action commenced by it against the plaintiffs on 18th January 2000, in the United States District Court for

the District of Massachusetts ( “the Massachusetts proceedings” ). The Massachusetts proceedings are negative in character.

They claim declarations of the non-liability of to American Guarantee to indemnify the plaintiffs under the master policy. In fact,

American Guarantee had issued an earlier set of proceedings on 15th October 1999, but had discontinued them.

On 31st January 2000 Smith J. Made an order pursuant to Order 11 Rule 1 of the Rules of the Superior Courts (“the Rules”)

granting liberty to the plaintiffs to serve notice of a concurrent summons on American Guarantee by ordinary post at its address

in Schaumberg, Illinois, USA.

No question could arise regarding the service of the proceedings on Zurich, which entered an unconditional appearance on 1st

February 2000. American Guarantee on 20th April, 2000 entered an appearance under protest for the sole purpose of contesting

the jurisdiction of the High Court.

At this point, it is appropriate to refer to the grounds under the Rules upon which the plaintiffs sought and obtained leave to

effect service out of the jurisdiction. It is regrettable that the order of the High Court did not follow the practice so frequently

laid down by the courts of specifying the particular grounds under Order 11 Rule 1 of the Rules under which leave was granted

(see Shipsey v British and South American Steam Navigation Company [1936} I.R. 65.) (“Shipsey”). Nonetheless, it is clear from

the grounding affidavit of Mr Joseph E McDonough, a Vice President of Analog Inc. and director of the other plaintiffs, sworn on

28th January 2000 which provisions of the Rules were invoked.

Order 11 Rule 1 (e) (iii) (“sub-paragraph (e)(iii)”) was first invoked. Mr McDonough claimed to rely on a breach of contract by

American Guarantee by failing to make payment of their losses to the first three plaintiffs at Raheen, Count Limerick, where, he

said, each of those plaintiff companies was based. This amounted to a breach of contract committed within the jurisdiction.

The second provision cited was Order 11 Rule 1 (h) (“sub-paragraph (h)”). Mr McDonough claimed that American Guarantee was

a “necessary or proper party” to the proceedings brought by the plaintiffs against Zurich within the jurisdiction. The claim

against Zurich is identical with the claim against American Guarantee as are the grounds upon which the defendants purport to

repudiate liability.

American Guarantee brought a motion before the High Court seeking an order pursuant to Order 12 Rule 26 of the Rules setting

aside the service out of the jurisdiction and discharging the order of Smith J. That motion was heard and was dismissed by

Lavan J. on 18th May 2001. It is from that order that American Guarantee has appealed to this Court. American Guarantee

contended that neither of the two invoked provisions of the Rules applied. Specifically, the non-payment of the amount of the

losses did not amount to a breach of contract committed within the jurisdiction as no obligation to make such a payment had

arisen. The principal contracting party under the master policy is a US corporation with its principal place of business in the

state of Illinois. Nor is American Guarantee a necessary or proper party to the action brought by the plaintiffs against Zurich to

enforce the local policy. The action against American Guarantee relates to a distinct policy issued by a different insurer. In

addition, the court should not have exercised its discretion to permit service out of the jurisdiction because it is clear that it

would not be more convenient and less costly to permit the dispute under the master policy to be litigated in this jurisdiction

than in the United States where American Guarantee has issued the Massachusetts proceedings. In addition, American

Guarantee relies on the Massachusetts proceedings to support an argument of “lis alibi pendens” or “forum non conveniens” and

to ask, as an alternative, for an order staying the proceedings in this jurisdiction pending the determination of the

Massachusetts proceedings.

In response to the motion to set aside service, the plaintiffs advanced a new ground for alleging breach within the jurisdiction

of the terms of the policy, namely that a representative of the defendants attending the Raheen plant to investigate the claim

in September 1999 stated that the losses fell outside the scope of the policies and that cover would be denied. This statement

is hotly disputed. I will defer further comment until I come to deal with the arguments on the appeal.

I will also discuss more fully at that point of the judgment each of the other arguments. It suffices to say at this point that

Lavan J. rejected all the arguments of American Guarantee. He upheld the original grounds upon which Smith J. had granted

leave to effect service out of the jurisdiction; he thought that the defendants’ commencement of the Massachusetts

proceedings was no more than forum shopping and refused to stay the proceedings.

THE APPEAL

The defendants submissions on the appeal are as follows.

Sub-paragraph (e)(iii) does not apply. It is not correct to say that the defendants, even assuming them to be bound to

indemnify the plaintiffs, committed any breach of the terms of the policy within the jurisdiction. Clause 5 of the master policy,

under the heading “Loss Payable” states:

“Loss, if any, shall be adjusted with and payable to Analog Devices, Inc. or order whose receipt shall constitute a release

in full of all liability under this policy with respect to such loss.”

The address of Analog Inc. under the policy is in Norwood, Massachusetts. American Guarantee may be obliged to pay

elsewhere in the event that Analog Inc. directs American Guarantee to do so. It has not been suggested that it has ever given

such a direction. This is consistent with the well-established rule of law that, in the absence of any express term in the

contract, the debtor must seek out his creditor and make payment to him at his place of business or residence as appropriate.

The plaintiffs also refer to clause 5. They do not point to any express direction or order but say that Mr McDonough’s affidavit

said that the losses fell to be paid to the plaintiffs, that the issue of the proceedings should be regarded as election to have

payment made to the order of Analog Inc. and to the other three plaintiffs in Ireland.

As to the contention made for the first time in response to the motion to set aside service, namely that the alleged breach

consisted in the repudiation by American Guarantee of its obligation to indemnify, there is much more controversy. Since this

ground appears largely to have replaced the earlier one as the basis of the plaintiffs’ reliance on sub-paragraph (e)(iii), it is

necessary to refer to the facts.

In an affidavit sworn on behalf of the plaintiffs on 9th November 2000, Paul R. Miles, director of risk management of Analog Inc.,

swore that, in the course of a visit to the Raheen premises on 3rd September 1999, one Aidan Cooper, who he understood to be

a claims manager with Zurich stated that the losses claimed by the plaintiffs fell within the excepted perils and that cover would

be denied. Mr Cooper, however, in an affidavit sworn on 10th April 2001, swore that he not only did not make the statement

attributed to him, but that he was not the agent of American Guarantee but of Zurich on the occasion of that visit. He

explained in more detail than is necessary for consideration of the present issue that he was responsible for commercial claims

for Zurich in Ireland. As such, he was responsible for local claims only and did not have to consider claims under the master

policy. He swore that, at no time did he represent or hold himself out as representing American Guarantee or as addressing any

issue under the master policy. He also swore that he stated that a problem might exist regarding coverage under the local

policy having regard to the excluded perils. He went on to state that he addressed this remark to Mr Miles, to whom he was

speaking on a video link to the United States, and that he read out the clauses of the local policy but stressed that he did not

have authority to deny coverage under the local policy. Mr Cooper’s account is supported by an affidavit sworn by Mr Robin

Hamilton of McLarens, Chartered Loss Adjusters, who was also among those present.

In connection with this issue, the defendants state that the correspondence which took place after 3rd September 1999 is

inconsistent with the contention that American Guarantee had denied liability on that date. Zurich (US) wrote on behalf of

American Guarantee to the plaintiffs’ brokers in the US stating that the exclusion for “error in processing or manufacturing” was

“being considered,” but that outside legal opinion was being sought. The letter insisted that the claim was not being prejudged.

The plaintiffs retort that, where there is a serious factual dispute of this kind, its resolution should be left over for the court of

trial. They cite Short v Ireland and others [1996] I.R. 188 (“Short”) for the proposition that such disputes cannot be

satisfactorily resolved on an interlocutory application such as a motion to set aside service out of the jurisdiction.

With regard to sub-paragraph (h), the defendants submit that American Guarantee cannot be considered to be a “necessary or

proper party” to the action against Zurich. The claims are made under two separate contracts. There is no question of

American Guarantee being liable under the local policy. The defendants accept that the test is whether the party outside the

jurisdiction would be a proper party to the action if it were within the jurisdiction, but says that, in the present case American

Guarantee would not, even if it were to be a company incorporated in the State, be a proper party to the action against Zurich,

simply because the policies are quite separate. Both parties rely on a number of cases: Short v Ireland [1996] 2 I.R. 188

(“Short”) ; Tromso Sparebank v Byrne (Supreme Court, Unreported 15th December 1989) (“Tromso”); International

Commercial Bank plc v Insurance Corporation of Ireland plc [1989] I.R. 453 (“ICB v ICI”); O’Toole v Ireland [1992] I.L.R.M. 218.

THE RULES

The parts of Order 11 Rule 1 which are relevant to this appeal are:

"1. Service out of the jurisdiction of an originating summons or notice of an originating summons may be allowed by the

Court whenever -

(e) the action is one brought to enforce, rescind, dissolve, annul, or otherwise affect a contract, or to recover

damages or other relief for or in respect of the breach of a contract -

(i) (not relevant)

(ii) (not relevant)

(iii) by its terms or by implication to be governed by Irish Law, or is one brought in respect of a contract

wherever made, even though such breach was preceded or accompanied by a breach out of the jurisdiction

which rendered impossible the performance of the part of the contract which ought to have been performed

with the jurisdiction; or

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

(h) any person out of the jurisdiction is a necessary or proper party to an action properly brought against

some other person duly served within the jurisdiction or ...."

THE JURISDICTION

It is convenient to assess in the first instance the case for the existence of primary jurisdiction under the Rules. I will leave

over for the moment the adequacy of the plaintiffs’ demonstration of the suitability, on grounds relating to convenience and

cost, of the Irish jurisdiction as well as the linked case on lis alibi pendens and forum non conveniens.

When the court grants leave for the service out of the jurisdiction of proceedings, it requires a person, not otherwise within the

jurisdiction of our courts, to appear here and to answer the claim of a person made in what is for him a foreign court rather

than leaving the plaintiff to pursue his remedy against that person in that other jurisdiction. The international comity of the

courts have long required, therefore, that our courts examine such applications with care and circumspection. The applicant

must furnish an affidavit verifying the facts upon which he bases his cause of action. It is not sufficient that he assert that he

has a cause of action. The court judges the strength of the cause of action on a test of a “good arguable case.” No argument

has been addressed to the Court in this case on the existence of the plaintiffs’ cause of action. The master policy is not

disputed, nor does there appear to be any dispute about the fact that there was some incident capable of causing loss under

the policy. The parties are at odds, it appears, only in respect of the applicability of the exclusion clause.

On the other hand, the parties are in dispute in respect of the existence of circumstances justifying the grant of leave to effect

service out of the jurisdiction. In the case of sub-paragraph (e)(iii), in particular, they are in dispute about issues of fact.

It is in this context that the plaintiffs submits that the Court should apply a test of a “fair arguable case” leaving the resolution

of any disputes to the trial of the action. That approach needs to be applied with especial circumspection in a case where the

issue in contention is whether the court can take upon itself jurisdiction over a foreign person or corporation. Tests similarly

worded are adopted by the courts in deciding whether or not to grant some forms of interlocutory relief, specifically injunctions,

or whether to grant leave to apply for judicial review. But, in those cases, the position of the opposing party is not irrevocably

affected. He may succeed at the trial of an action, though an interlocutory injunction has been granted against him, and he

may defeat the substantive application for judicial review. This case is different. If the court grants leave to effect service out

of the jurisdiction, it asserts that it has jurisdiction. The foreign defendant is required to submit to that jurisdiction and fails to

do so at his peril. In particular, if the court declines to set aside an order for service, that ends the dispute about jurisdiction.

There is no later opportunity to reopen the matter.

When Barrington J., at page 215 of the report in Short, referred to a “good arguable case,” he was speaking of the merits of

the substantive claim of the plaintiffs against British Nuclear Fuels to be suffering or apprehending suffering from the activities

of that company in the United Kingdom. Lord Goff of Chieveley analysed the matter at some length in Seaconsar Far East

Limited [1994] 1 AC. 438, though he also was principally concerned with the rule for assessment of the strength of the

plaintiffs’ case on the merits as distinct from the question of what test to apply on an application for service out of the

jurisdiction. His discussion of the earlier House of Lords decision in Vitkovice Horni a Hutni Terzstistvo v Korner [1951] AC. 869

shows how confused the English courts were about the matter. The Law Lords thought the test to be, as laid down by the rule,

as in our Order 11 Rule 5, that “the case is a proper one for service without the jurisdiction..” This might not be thought to

advance the matter much and Lords Simonds and Normand appeared to accept the value of “a good arguable case.” Lord

Radcliffe spoke of “a strong argument” and "a strong case for argument.” Hence the notion of “good arguable case.” I agree

that this is the appropriate standard.

When it comes to apply a test so worded or any varied wording, I think it must be borne in mind that the issue of jurisdiction is

being determined irrevocably and that a foreign defendant is being summoned involuntarily before our courts. Therefore, I

believe that, though disputes of fact cannot always be satisfactorily be resolved on affidavit, the court must look at the matter

carefully. It is not a case where the applicant’s allegations must be presumed to be true. The foreign party’s affidavit evidence

must also be considered.

In the light of those observations, I turn to the plaintiffs’ claim under sub-paragraph (e)(iii). The first aspect is simply disposed

of. Clause 5 of the master policy provides for payment to Analog Inc., a corporation incorporated and having its address for the

purpose of the policy in the United States. It could, no doubt, direct payment of any sums due to it under the policy to be paid

to the other plaintiffs in Ireland, but it did not do so. Mr McDonough’s affidavit does not put the matter any further, nor do I

accept that the issue of the proceedings should be regarded as an election for payment in Ireland. It is equally consistent with

Analog Inc. demanding payment under the terms of the policy, which, in the absence of any direction, would involve payment in

the United States.

It is the second aspect which requires a judgment to be made on the facts. Mr Miles has sworn that Mr Cooper stated on 3rd

September in Raheen said that the loss was not covered under the master policy, by reason of the exclusion. However, Mr Miles

knew that Mr Cooper was a claims official with Zurich. He goes no further than to attribute Mr Cooper’s statement in a general

way to the defendants. He does not state that it was expressly made on behalf of American Guarantee. He goes on, crucially in

my view, to say that this position of the defendants was “confirmed in subsequent correspondence.” However, the

correspondence he exhibits, and specifically the letter of 21st September from Zurich (US) mentioned earlier demonstrates that

American Guarantee, while undoubtedly reserving its rights under the exclusion clause, had not adopted a definitive position. Mr

Cooper, himself, is quite clear that, even in respect of the local policy issued by Zurich, he did not have authority to deny

liability. A fortiori then, he could not have denied liability on behalf of American Guarantee, whom he did not represent at the

meeting. The first unambiguous statement denying liability was made in a letter of 7th October, 1999, a letter written in the

United States to a recipient in the United States. I do not think, therefore, that there was sufficient evidence before the High

Court to show, for the purpose of founding Irish jurisdiction, that American Guarantee had given notice of its intention to rely on

the exclusion clause in the master policy on any earlier date.

For these reasons, I do not think the order was correctly made under sub-paragraph (e)(iii).

In respect of sub-paragraph (h), there are two approaches. On the one hand, the two insurance policies are distinct. The

insurer under the local policy is Zurich and under the master policy is American Guarantee, even if these two companies are

linked by being members of the same group. On the other hand, the first three plaintiffs are named either expressly or by

necessary implication as insured under each policy. Each policy covered, subject to the disputed question of the excluded

perils, the type of risk which caused the loss alleged by the plaintiffs at the Raheen plant.

Clearly, American Guarantee are not a necessary party to the action against Zurich to enforce the local policy. The question is

whether they are a proper party. The cases show that the courts adopt a flexible and pragmatic approach to the question. In

Short, Barrington J. propounded the test, long adopted by the courts both here and in England, that:

"The standard test to be applied in exercising this jurisdiction is whether the person out of the jurisdiction would, if he

were within the jurisdiction, be a proper person to be joined as a defendant in the action against the other defendants."

In Massey v Heynes (1881) 21 Q.B.D. 330, Lord Esher M.R. posed the same question (see page 338): “... if both parties had

been within the jurisdiction, would they both have been proper parties to the action?”

The defendants accept that this is the correct test. Undoubtedly they are right to do so. In Short, the action within the

jurisdiction was brought against the State for failure to take steps to prevent or stop the activities of British Nuclear Fuels in

the United Kingdom. Barrington J. had no doubt that, BNF would have been proper parties to an action against the State if both

were within the jurisdiction. In ICB v ICI, the service effected out of the jurisdiction was in respect of third part proceedings.

The defendant’s claim for an indemnity from the proposed third party related to its own liability under a contract of insurance or

guarantee. Clearly, in that case, as in this, the claim within the jurisdiction and the one being made against the proposed third

party arose under different contracts. Yet Finlay C.J. was able to say (page 468 of the report):

"I have already indicated my view of the importance as a matter of justice of ensuring in general, as far as possible,

that where a defendant has a claim for indemnity against a third party it should be heard by the same tribunal and at

approximately the same time as the plaintiff's claim against the defendant. the individual facts of this case are that the

grounds on which the defendant seeks to avoid liability in the claim brought against it by the plaintiff, namely, upon the

grounds of misrepresentation on behalf of the plaintiff invalidating the contract of guarantee are to a very large extent,

though possibly not exclusively, the same grounds upon which the third party claims to avoid the contract for

reinsurance entered into by it with the defendant. In those circumstances, there are very compelling reasons why the

third party issue should be tried by the same tribunal as tries the plaintiff's claim against the defendant. The plaintiff's

claim against the defendant is, at the instance of the plaintiff, brought within this jurisdiction and that was not a forum

chosen by the defendant. In all these circumstances I have no doubt, notwithstanding the existence of proceedings in

the High Court in England in which the third party claims a negative declaration against the defendant of its right to

avoid responsibility on the reinsurance police and in which the defendant has served a third party notice arising from

that claim on the plaintiff, to the action in this jurisdiction."

In Tromso, the action within the jurisdiction was one in which the plaintiff, a Norwegian bank, was suing a number of individuals

and an Irish bank arising out of the dishonour of promissory notes, which the plaintiff had discounted, purportedly but

fraudulently issued by an employee of the Irish bank. It wished to join the Midland Bank, an English bank and ultimate parent of

the Irish bank, for alleged negligence in confirming the fraudulent signature of the Irish bank’s employee without referring to his

lack of authority. Although the causes of action and many of the facts upon which they were based were quite distinct, the

underlying circumstances were closely linked by the fact that the plaintiff said it would not have discounted the notes if they

had not been verified by Midland. McCarthy J. emphasised the desirability of centralising the hearing of the several causes of

action and of avoiding inconsistent decisions.

The important apparent single decision to the contrary is that of Costello J. in O’Toole and GPA Group plc v Ireland and others.

[1992] I.L.R.M. 218. The plaintiff, an aircraft leasing company, claimed that certain provisions of the Air Navigation and

Transport Acts were unconstitutional insofar as they had the result of making the plaintiff liable to Eurocontrol in respect of

aircraft charges primarily owed by an insolvent airline to which it had leased aircraft. Costello J. held that Eurocontrol was not a

“proper party”. The cause of action against Ireland and the Attorney General concerned the constitutionality of legislation, a

matter in which Eurocontrol had no interest whatever.

It may be difficult, at first, to reconcile the O’Toole case with the test propounded by Barrington J. It might be perfectly proper,

in the purely domestic context, to join in an action concerning the validity of legislation or perhaps secondary legislation a party

who may be entitled to make a claim under that legislation and, therefore affected by it. For example, Wexford County Council

as the rating authority was joined as a defendant with the State to the action for a declaration of unconstitutionality of

legislation concerning the rateable valuation of agricultural land (Brennan and others v Attorney General and Wexford County

Council [1983] I.L.R.M. 449). Costello J. did not directly refer to the test, whether the parties could have been joined if both

were within the jurisdiction, later restated by Barrington J. In reality, I think his remarks should be interpreted as amounting to

the exercise of a discretion to refuse service in a case where service out of the jurisdiction would not have been appropriate

rather than stating that there was no jurisdiction to do so.

American Guarantee says that it cannot be a proper party to the action against Zurich on the local policy, the claim against it is

under a distinct, quite separate and different policy. It has nothing to do with the local policy. It is difficult, however, to discern

a principled distinction between the position of American Guarantee and that of the third party in ICB v ICI or that of the

Midland Bank in Tromso. In each of these cases, the party within the jurisdiction was invoking the jurisdiction of the Irish courts

over a person outside the jurisdiction on the basis of a different cause of action. In none of the cases cited has it been

suggested that the cause of action against the claimed “proper” party must be the same as against the other party. One may

be in contract and the other in tort or they may be based on different torts. It must be borne in mind that sub-paragraph (h) is

an addition to the other grounds upon which leave may be granted to serve outside the jurisdiction. Thus, the cause of action

against the party to be joined may have little or no connection with this jurisdiction.

Naturally, there must be a sound basis for the contention that a party to be served out of the jurisdiction is a proper party.

There must be reality in law and in fact in the case against the party within the jurisdiction. His inclusion must not be a mere

device to get a foreign party before the Irish courts. There must be a substantial element in the claims against the two parties.

Lindley L.J. in his judgment in Massey v Heynes, cited above, thought it sufficient that the “liability of several persons depends

on one investigation.” (page 338 of the report). In Multinational Gas Co. V Multinational Gas Services Ltd. [1983] Ch 258, Dillon

L.J. said:

“Whether an action is properly brought against a particular defendant within the meaning of [... he referred to the

corresponding provision ...] must surely depend on the substance of the matter in the light of all the circumstances, and

not on the mere form of the pleading and whether there is technically a cause of action.”

When one considers the cases and the common sense of the matter, I think that there is little doubt that American Guarantee

is a proper party to the action against Zurich. If both defendants were within the jurisdiction, it is scarcely conceivable that the

two actions would be heard separately. They arise under separate but linked insurance policies covering the same risk and in

respect of which a virtually identical ground of repudiation has been advanced. Economy and efficiency would demand that the

facts of the complex set of events that occurred at the Raheen plant not be proved twice and that the expert evidence of both

parties be given in one action. To hear the two actions before two different courts is to court the danger of inconsistent

decisions.

Accordingly, I would uphold the order of the High Court insofar as it held that there was jurisdiction under sub-paragraph (h).

THE PROPER FORUM

I must then turn to the separate considerations advanced by American Guarantee to the effect, firstly, that the court should

nonetheless refuse jurisdiction on the ground that Ireland is not a convenient or proper forum and, secondly, that the United

States District Court is the appropriate forum, having regard to the Massachusetts proceedings.

There is, naturally, considerable overlap between the arguments of American Guarantee under the legally distinct headings,

namely that the plaintiffs have not demonstrated that Ireland is the “forum conveniens” and that American Guarantee is

entitled to a stay of the Irish proceedings on the linked grounds of “forum non conveniens” or “lis alibi pendens.” . I will

endeavour to deal with these aspects of the appeal together. Certainly, the existence of the Massachusetts proceedings looms

large under both headings. There are, of course, some differences between the two issues. I will begin by summarising the basic

legal principles as they appear from the submissions of the parties, and, in particular, of American Guarantee. In effect, they are

not seriously in controversy.

An order granting leave to effect service out of the jurisdiction is a matter of discretion. The court should grant leave only after

careful consideration, not only of the existence of grounds upon which the court is empowered to grant leave, but of the

appropriateness of the courts of this jurisdiction to try the case. The Latinism, “conveniens,” may, as has been pointed out in

some of the cases, mislead; the proper translation is not “convenient,” but suitable or appropriate. This is illustrated, in

particular, by Order 11 Rule 5, which obliges the applicant to state “the particulars necessary for enabling the court to exercise

a due discretion in the manner in rule 2 specified..” The latter provision obliges the court to “have regard to the amount or

value of the claim or property affected and to the comparative cost and convenience of proceedings in Ireland, or in the place

of the defendant’s residence...” Rule 5 goes on to lay down a fundamental principle regarding the exercise of what has been

stated to be a discretionary power: "... and no leave shall be granted unless it shall be made sufficiently to appear to the

Court that the case is a proper one for service out of the jurisdiction under this Order.”

These provisions, taken together, mean that the applicant must satisfy the Court, i.e. has the burden of proving, at the ex

parte stage, that Ireland is the forum conveniens. This means, according to Lord Goff of Chieveley in Spiliada Maritime

Corporation v Consulex Limited [1987] 1 A.C. 460, at 480, “the forum in which the case can be suitably tried for the interests

of all the parties and for the ends of justice.” Lord Goff had reviewed a range of dicta on the issue, some emphasising the

“exorbitant” character of the jurisdiction and some (older cases) the annoyance and inconvenience for a foreigner at being

brought to contest proceedings in England. Lord Goff himself found the word “exorbitant” to be “an old-fashioned word which

carries perhaps unfortunate overtones.” He also said that the defendant’s place of residence may be no more than a tax

haven. It seems to me that the dictum of Lord Wilberforce, in Amin Rasheed Shipping Corporation v Kuwait Insurance Co. [1984]

A.C. 50, expresses a correct balance. He said (at page 72 of the report):

“The intention must be to impose upon the plaintiff the burden of showing goods reasons why service of a writ, calling

for appearance before an English court, should, in the circumstances, be permitted upon a foreign defendant. In

considering this question the court must take into account the nature of the dispute, the legal and practical issues

involved, such questions as local knowledge, availability of witnesses and expense.”

The principal difference between this rule, which concerns the original grant of leave and the application by American Guarantee

is that, in the latter instance, the burden of proof rests on the moving party. The applicable legal principles have been fully

reviewed quite recently by this Court in Intermetal Group Ltd v Worslade Trading Ltd [1998] I.R. 1. It would serve no useful

purpose for me to repeat the careful and perceptive analysis by Murphy J of a number of authorities from the Irish and English

Courts. The test for whether to grant a stay on proceedings is one based on the “broad interests of justice.” Murphy J

approved expressly the test adopted by Blayney J in Doe v Armour Pharmaceutical Co. Inc. [1994] 3 I.R. 78, at page 107,

namely: “Does justice require that the plaintiff’s action should be stayed?” Murphy J observed that the notion of “forum non

conveniens” was long associated with the law of Scotland. For this reason, I will cite an appropriate summary of the doctrine

from Lord Kinnear in Sim v Robinow (1892) 19 R. 665 at 668:

“The plea can never be sustained unless the court is satisfied that here is some other tribunal, having competent

jurisdiction, in which the case may be tried more suitably for the interests of all parties and for the ends of justice.”

In his speech in Spiliada, to which I have already referred, Lord Goff made some relevant remarks about the extent of the

burden of proof on the party seeking a stay of proceedings already brought in England. He thought that it would have to be

shown that “there is another available forum which is clearly more appropriate than the English forum.” (page 477) It does not

appear, however, that English, as distinct from United States law, attributes weight to the undesirability of disturbing the

plaintiff’s choice of jurisdiction.

In the particular circumstances of the present case, I would add that actions for a negative declaration warrant some special

remarks, to which I will advert when I come to deal with the facts about the Massachusetts proceedings.

American Guarantee claims both that the High Court should not, in the exercise of its discretion, have granted leave for service

out of the jurisdiction and that the court should now grant a stay of the proceedings. As already stated, the burden in the

latter respect lies on American Guarantee. It is also true that the latter issue has to be decided as of the time the application

for the stay. Nonetheless, the grounds advanced by American Guarantee in both respects are very largely similar. They are:

1. American Guarantee have commenced the Massachusetts proceedings.

2. The claim against American Guarantee is based on the master policy, which was issued to Analog Inc. in the United

States.

3. The master policy contains provisions which suggest that the appropriate jurisdiction is in the United States.

4. Virtually all of the witnesses in relation to the claim under the master policy are in the United States.

The parties have set out in their affidavits, often at great length and in reliance on many documents, the history of the

proceedings on the two sides of the Atlantic.

While I have mentioned that American Guarantee had not earlier taken a clear stand on the question of liability under the policy,

it certainly did so in a letter of 7th October 1999 written by Zurich (US). American Guarantee issued proceedings against Analog

Inc. on 15th October 1999 taking the form of a “Complaint for Declaratory Judgment.” These were not, however, served on

any of the plaintiffs and they were unaware of them until they learned of their existence in the course of the proceedings

contesting jurisdiction. It appears that American Guarantee voluntary discontinued these proceedings on 21st October 1999.

The explanation offered for this in the affidavit of Kevin A McCoy of Zurich American Insurance Company is the “spirit of good

faith in negotiations.” Clearly, any negotiations were fruitless. After some lengthy pre-litigious correspondence, Arthur Cox & Co

came on record for the plaintiffs in a letter of 7th January 2000 addressed to American Guarantee, mentioning the separate

claim against Zurich, and declaring an intention to apply for leave to effect service out of the jurisdiction but asking American

Guarantee if it would nominate a solicitors to accept service. A letter in reply from a Boston firm of attorneys stated that

American Guarantee was Reviewing [the ] request and [would] be in contact "within a week."

Instead of getting in touch “within a week,” American Guarantee issued the Massachusetts proceedings on 19th January 2000

and serving them in the United States on Analog Inc. on 21st January. Whichever date is taken as representing the

commencement of the Irish proceedings (the issue of the summons on 20th January represented the commencement of , but

leave to effect service was granted on 31st January and service was effected on 10th February) it is tempting to borrow

language used in some of the American cases and to say that American Guarantee won "a race to the courthouse". If so, the

margin of its victory was slender rather than impressive.

Thereafter, the proceedings have proceeded in approximate parallel in the two jurisdictions. American Guarantee entered their

conditional appearance in the Irish action on 20th April 2000. They received the papers grounding the affidavit seeking leave on

11th May 2000. A statement of claim was issued on 9th May 2000. American Guarantee brought its motion to set aside service

on 13th September 2000 for hearing in October 2000. Particulars have been exchanged and defences have been filed by both

defendants in the Irish action. In the case of American Guarantee, this is described as a “preliminary defence” and is expressed

to be subject to resolution of the current issue on jurisdiction. The plaintiffs say that the Irish proceedings are ready for

hearing. It has been agreed that the discovery made by both parties in the Massachusetts proceedings may be used.

Analog inc. entered an appearance in the Massachusetts proceedings on 3rd March 2000. Thereafter there were a number of

extensions of time for its pleading. It brought an unsuccessful motion for a stay in the Massachusetts proceedings. This was

refused in December 2000. American Guarantee has detailed a large number of procedural steps in that action, including the

filing by Analog Inc. of a counterclaim which extends to a claim for damages for unfair or deceptive acts or practices contrary

to Massachusetts law.

It also appears that a motion for summary judgment under American procedures has been scheduled for 15th April 2002, though

the parties disagree as to whether many or most issues will be disposed of by this means. A case conference has been set for

14th May with a view to setting a date for trial. Other action relates to discovery and the taking of pre-trial depositions.

On the whole, the two sets of proceedings seem to be in an approximately similar condition of readiness, just as they were

commenced at approximately the same time. It must, naturally, be accepted that the United States District Court has

jurisdiction, since that court has so decided. The parties have debated whether that decision is definitive, an issue upon which

I do not think it would be appropriate for this court to pass comment. A key point about the Massachusetts proceedings is,

however, that the relief sought is expressly negative in character. It asks the court to declare American Guarantee not bound

to indemnify the plaintiffs. It does not seem to be seriously disputed that the Massachusetts proceedings were intended to be

pre-emptive. Indeed the history of the proceedings outlined above would lead inescapably to this conclusion. American

Guarantee rejects criticism on that ground, stating that it can be legitimate to seek such negative relief. That is, no doubt so.

Certainly, as I have said and as the United States District Court has decided there can be jurisdiction to entertain such an

action, but that is a different question from its weight when considering a conflict of jurisdiction and where the Irish courts are

asked to stay their own proceedings. However, the passage cited by American Guarantee in support is interesting. It is from

Dicey and Morris on “The Conflicts of Law” (13th Edition) (2000) at 403:

"In many cases, however, there is a legitimate role for a bona fide claim for a negative declaration. In modern

commercial litigation, notably in the field of insurance, a party may have a legitimate commercial need to obtain an

early determination upon his liability to another who may seek to claim against him; an insurer who wishes to know

whether he should conduct the defence of a threatened claim against his insured. A supplier who needs to know whether

he is obliged to continue to supply a distributor or may, instead, deal elsewhere. Where a stay of proceedings for a

negative declaration is sought (or there is an application to set aside service out of the jurisdiction) the Court will have

to consider both the question whether there is justification for seeking that form of relief and the question whether

[Ireland] is the appropriate forum. If, by contrast such a declaration would be ignored so far as legal proceedings

between the parties and would therefore, serve only to increase the risk of conflicting judgments, or if the proceedings

are premature in the sense that the Claimant has not reasonable apprehension of being sued by the Defendant, the

Claimant may be regarded as abusing the process of the Court. The Court is therefore likely to exercise its discretion to

strike out the application or refuse to make the order or to stay the proceedings, or to refuse to give permission to

serve proceedings out of the jurisdiction, as the case may be."

It does not appear to me that, to put the matter at its lowest, this passage offers the support for the defendants’ case for

which it is cited. More tellingly still, the immediately preceding passage from the work of the learned authors casts a great deal

of cold water on the value of actions for a negative declaration in contests about jurisdiction. Paragraph 12-034 reads as

follows:

"It frequently happens that a party seeks a negative declaration in the English court, or in the foreign court, in order to

support a contention that the English court, or the foreign court (as the case may be), is the appropriate forum.

Indeed, it has been said that claims for declarations, and in particular negative declarations, must be viewed with great

caution in all situations involving possible conflicts of jurisdiction, since they lend themselves to improper attempts at

forum shopping. Accordingly, the English court will stay English proceedings for a negative declaration against defendants

subject to the jurisdiction of the English court where a foreign court is the forum conveniens, and the English court will

not be disposed to authorise service out of the jurisdiction under Order 11.r.1(1), i.e. Rule 27, in a claim for a negative

declaration, unless England is the appropriate forum. Nor will a claim in a foreign court for a negative declaration be of

much weight in determining whether the foreign court is the appropriate forum for the purpose of staying English

proceedings, or in determining whether the English court is the appropriate forum for the purposes of service of the

jurisdiction."

One of the authorities cited in that passage is Saipem spa v Dredging VO 2 BV, The Volvox Hollandia [1988] 2 Lloyd’s Rep 361.

The plaintiffs rely on the following dictum of Kerr L.J. At page 371 of the report in that case:

“Claims for declarations, and in particular negative declarations, must be viewed with great caution in all situations

involving possible conflicts of jurisdictions, since they obviously lend themselves to improper attempts at forum

shopping.”

The normal order of events is that the insured as claimant under an insurance policy will be the plaintiff. A claim for a negative

declaration by the insurer is a reversal of the normal order. This is a significant matter to be weighed in the balance and it

weighs against the defendants. I derive support from the judgment of Costello J in ICB v ICI (page 453 of the judgment). I draw

attention only to his statement that, in that case, “with the knowledge that it was likely to be sued in Ireland, the third party

instituted proceedings in England and now seeks to use the English proceedings to found an objection to the Irish Courts’

jurisdiction in the dispute.”

American Guarantee makes one other point about the Massachusetts proceedings. It says that Analog Inc. has submitted to

the United States District Court by filing a counterclaim. Analog Inc. Responds that it was bound by US procedural rules to do

so. Rule 13(a) of the United States Federal Rules of Civil Procedure provide that, if a counterclaim is not put forward, a party

may be deemed to have waived his rights. This was not contested. It follows that Analog Inc. Did not commit any voluntary act

of submission to the jurisdiction of the United States District Court.

The fact that the policy was issued by American Guarantee, a US corporation, to Analog Inc., also a US corporation, (the next

argument of American Guarantee) in the United States is, in no way decisive. The definition of the insured under the policy

includes the first three plaintiffs, all of them companies registered in Ireland (one on the external register). Furthermore, the

place of the risk, so far as relevant to this case, is in Ireland. It is interesting, in this connection, to note that, when American

Guarantee joined Zurich as a co-plaintiff in the Massachusetts proceedings in May 2000, the pleading was amended to state

that the local policy was “issued in connection with the Master policy.”

The jurisdiction clause invoked by American Guarantee is clause 37 of the master policy. It reads:

"It is agreed that in the event of the failure of the Company to pay any amount claimed to be due hereunder or in the

event of any other dispute relating to this policy, the Company, at the request of the Insured, will submit to the

jurisdiction of any court of competent jurisdiction within the United States and will comply with all of the requirements

necessary to give such court jurisdiction and all matters hereunder shall be determined in accordance with the law and

practice of such court, not including the court's law regarding choice of law. The Company shall not transfer, change

venue, or remove, or seek to transfer, change venue, or remove any lawsuit filed by the Insured in any such court."

This clause confers jurisdiction on any court of competent jurisdiction in the United States, but only at the option of the

insured. The insured has not exercised that option. Thus the clause does not avail American Guarantee. It was not disputed at

the hearing that this clause was quite different from an exclusive jurisdiction clause. American Guarantee could no doubt have

required insured persons to accept such a clause if it had wished. However, as the plaintiffs say, the master policy gives effect

to a sort of world-wide insurance. They are, in the nature of that insurance, likely to have to submit to jurisdiction in a wide

range of countries throughout the world.

As to the location of likely witnesses, I am completely unconvinced by the claim of the defendants that they are likely to be

found preponderantly in the United States. The claim flows from an incident in a high grade technical manufacturing plant

situated at Raheen, County Limerick. All of the evidence of fact about that incident is almost certainly going to be given by

employees and executives of one or other of the plaintiff companies. The plaintiffs have furnished a credible list of likely

witnesses. American Guarantee’s response is the say that it “does not dispute this narrow statement as far as it goes.” It

cannot be disputed that a great deal of technical evidence will have to be given about the incident. Obviously, the role of

American Guarantee is as insurer only and it was not party or privy to the incident. American Guarantee says, through the

affidavit of Mr Kevin McCoy, that the loss was caused by an error which “occurred during the manufacturing process and not

during the course of maintenance.” In this connection, the plaintiffs point out that the allegedly damaged wafers as well as all

documentation are to be found at Raheen. No doubt, expert evidence will have to be given and some of the experts may come

from the United States, but the evidence relied on by Mr McCoy for the statement I have just cited is that of an expert with a

Dublin address, Mr Donal O’Donovan. In any event, the suggested need for American evidence is, in my view, heavily

outweighed by the extent of the Irish-based evidence.

American Guarantee lays great emphasis on the fact that the contract of insurance was negotiated in the United States and

that, therefore, any witnesses concerning the negotiation or interpretation of the contract of insurance are based in the United

States. Most, if not all of the witnesses listed by American Guarantee relate to underwriting or the handling of the claim.

American Guarantee also reiterates that the master policy is governed by the Massachusetts law, but does not identify any

relevant differences between the Massachusetts and Irish law. Insofar as Irish law is concerned, a contract is to be interpreted

objectively in accordance with the meaning of the words the parties have used. The corollary is that parol evidence is not

admissible so as to add to or vary that meaning. The plaintiffs plausibly question the admissibility of the evidence of witnesses

concerned only with the negotiation of the contract of insurance. In this jurisdiction, the lex fori would appear to apply to that

issue. If a large volume of evidence of that type would be admitted in the Massachusetts proceedings, that would appear to be

a point in favour of Irish jurisdiction. The issue of interpretation which arises is whether the incident at the Raheen plant was

the result of “errors in processing or manufacture.” The defendants have not explained what admissible or relevant evidence

can assist a court in deciding whether this exclusion applies. It seems to be very much a matter of evidence of fact, including,

as I have said, expert evidence.

Apart altogether from these considerations, one outstanding fact in the litigation is that the Irish courts have undisputed

jurisdiction over Zurich under the local policy. An almost identical issue arises under that policy. All the evidence I have

mentioned above will have to be given in that case and in the Irish courts. So far as the plaintiffs are concerned, they must

bear that cost in the Irish action in any case. However, they do not claim to be able to recover their losses more than once and

it would be unfair to compel them to incur the same expense on the double. So far as the defendants are concerned, they do

not have to call that evidence. Furthermore, it is clear that, in the United States, the plaintiffs will be unable to recover the

costs even if successful. I do not cite that element as a separate matter, in view of uncertainty about its relevance on the

authorities. I do think, however, it is relevant to the extent that the plaintiffs may have to incur the same expense twice (with

the added expense of travel for all their witnesses) if the actions against Zurich and American Guarantee have to be conducted

separately.

The conclusion I am leading to in respect of the two legal issues is obvious from the foregoing commentary on the facts. The

High Court, in my view, rightly exercised its discretion to permit service out of the jurisdiction on American Guarantee. It was

clearly a “proper” case for the purposes of the Rule. For this reason, Lavan J was right to reject the motion of American

Guarantee to set aside service. Neither has American Guarantee, in my view, discharged the burden of showing that a stay

should be granted on the ground of forum non conveniens or lis alibi pendens. Lavan J was correct to decline to exercise his

discretion by refusing the application for a stay.

I would dismiss the appeal.