1. Relationship to the PICC
C1 Article 1.1.5 is modelled on Article 1.4 PICC. In contrast to Article 1.4 PICC, Article 1.1.5 does not refer to the “rules which are applicable in accordance with the relevant rules of private international law”. This is due to the fact that a contract of reinsurance may be governed or affected by mandatory supervisory rules or public policy considerations stemming from the laws of a country different to the one providing the proper law in accordance with the relevant rules of private international law.
2. “Mandatory rules”
C2 The relevant mandatory rules differ depending on whether or not parties have agreed to include an arbitration clause. Rules of arbitration usually allow for a choice to be made in favour of non-State law as the law governing the contract and, thus, only give precedence to “overriding” or “internationally mandatory” provisions in accordance with Article 1.1.5. In contrast, courts will usually consider a choice in favour of non-binding rules to lead to their incorporation into the contract and, thus, apply even so-called “ordinary” or “domestically mandatory” rules (see, in greater detail, Article 1.1.1 Comments 7 et seq.).
C3 The difference has been explained well in Article 1.4 Comments 3 and 4 PICC, as follows:
3. Mandatory rules applicable in case of incorporation of the Principles as terms of contract
Where, as is the traditional and still prevailing approach adopted by domestic courts with respect to soft law instruments, the parties’ reference to the Principles is considered to be merely an agreement to incorporate them in the contract (see Comment 4 lit. (a), third paragraph, to the Preamble), the Principles and the individual contracts concluded in accordance with the Principles will first of all encounter the limit of the principles and rules of the domestic law that govern the contract from which parties may not contractually derogate (so-called “ordinary” or “domestically mandatory” rules). Moreover, the mandatory rules of the forum State, and possibly of other countries, may also apply if the mandatory rules claim application irrespective of what the law governing the contract is, and, in the case of the mandatory rules of other countries, there is a sufficiently close connection between those countries and the contract in question (so-called “overriding” or “internationally mandatory” rules).
4. Mandatory rules applicable in case of reference to the Principles as law governing the contract
Where, as may be the case if the dispute is brought before an arbitral tribunal, the Principles are applied as the law governing the contract (see Comment 4 lit. (a), fourth paragraph, to the Preamble), they no longer encounter the limit of the ordinary mandatory rules of any domestic law. As far as the overriding mandatory rules of the forum State or of other countries are concerned, their application basically depends on the circumstances of the case. Generally speaking, since in international arbitration the arbitral tribunal lacks a predetermined lex fori, it may, but is under no duty to, apply the overriding mandatory rules of the country on the territory of which it renders the award. In determining whether to take into consideration the overriding mandatory rules of the forum State or of any other country with which the case at hand has a significant connection, the arbitral tribunal, bearing in mind its task to “make every effort to make sure that the Award is enforceable at law” (so expressly e.g. Article 41 of the 2012 ICC Arbitration Rules), may be expected to pay particular attention to the overriding mandatory rules of those countries where enforcement of the award is likely to be sought. Moreover, the arbitral tribunal may consider it necessary to apply those overriding mandatory rules that reflect principles widely accepted as fundamental in legal systems throughout the world (so-called “transnational public policy” or “ordre public transnational”).
3. Relevance of the provision in the context of reinsurance contract law
C4 Reinsurance contract law will provide for very few mandatory rules, if any. Thus, the relevance of Article 1.1.5 PRICL will remain limited in this respect.
C5 However, a choice in favour of the PRICL cannot prevent the application of supervisory law and other provisions of public law or public policy considerations. Such rules are not only effective within the issuing jurisdiction but may also have extraterritorial effect. The consequences of non-compliance with such rules may differ significantly. In general, a violation of such rules may either have no direct impact on the validity of the contract of reinsurance, result in the impossibility of the contract’s performance, render it partially invalid or invalidate the agreement altogether. Article 1.1.5 will mainly be of relevance to contract-related supervisory rules, public law rules as well as public policy considerations.
Illustrations[1]
I1. Rules concerning the reinsurer’s solvency may impact its right to write reinsurance business.
I2. Currency export/import rules may affect the performance of a reinsurance contract.
I3. Data protection rules may limit the reinsurers’ right to inspect and audit the reinsured’s books or even render the right unenforceable.
I4. Contracts of reinsurance may contain clauses that restrict competition and hence violate competition law. Such clauses may be declared void or curtailed in application.
I5. Rules concerning trade sanctions or embargoes may impact the contract of reinsurance. For example, the European Union has put into force restrictive measures with regard to trading with entities of certain nations (cf. the European Union website).
I6. Some jurisdictions provide for mandatory forum selection or choice of law rules. For example, the Brazilian Resolution CNSP 168/2007 mandatorily requires that the parties choose Brazilian law as well as a Brazilian forum if the risk to be covered lies within the territory of Brazil. Similarly for non-life business, the Australian General Insurance Prudential Standard GPS 230 requires the reinsurer to ensure that the reinsurance agreement is governed by Australian law and that possible disputes are heard in an Australian court.
I7. Certain mandatory coverage rules may affect the enforceability of a contract of reinsurance. New York state common law, for example, prohibits the coverage of punitive damages.
I8. Some jurisdictions require its authority’s approval of reinsurance agreements. If such approval is not obtained, the agreements may be declared void or voidable.
C6 The information given in Illustrations 1–8 is for illustrative purposes only. Mandatory rules not mentioned in the Illustrations above may govern a reinsurance agreement. Non-compliance with the rules mentioned in the Illustrations may potentially have different consequences than the ones stated.
[1] These illustrations were inspired by a presentation prepared by Dr. Monica Mächler, Dr. Rolf Nebel and John Pruitt for the Zurich workshop in 2016. The PRICL project members are very grateful for this contribution.