Exclusive jurisdiction clause after a Highland fire
A small hotel operator, Glenroe Hotels Ltd, is incorporated in Scotland and runs an eight-employee, £1.2m-turnover hotel near Fort William. It bought a commercial combined policy through a Glasgow broker. The schedule states: 'This insurance is governed by the law of England and Wales and the courts of England and Wales shall have exclusive jurisdiction.' In March a kitchen fire caused £240,000 of damage. The insurer, an English company, declines, alleging a breach of the duty of fair presentation and breach of a condition requiring an annual fire risk assessment. Glenroe wants to sue in the Court of Session in Edinburgh because its witnesses and fire expert are in Scotland. It has also complained to the Financial Ombudsman Service. The insurer says the exclusive jurisdiction clause prevents both the Scottish action and FOS. Glenroe argues that Scots law should apply because the risk is in Scotland and that FOS can ignore the clause.
1. Which law governs the policy, and should the Scottish court decline jurisdiction?
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The starting point is that the parties have chosen English law and an exclusive English court clause. For a commercial contract, that choice is generally upheld under the retained Rome I rules, and the risk's location in Scotland does not displace it. The clause is not merely a procedural nicety: it is a contractual promise. A Scottish court has jurisdiction over a Scottish defender, but where there is a valid exclusive jurisdiction agreement it will usually give effect to it, unless the clause is not incorporated, is invalid, or there are strong reasons of justice to refuse. The fact that witnesses and the fire expert are in Scotland is a convenience argument, not a decisive ground. On these facts Glenroe should expect to litigate in England and Wales under English law. It should not simply raise the action in Edinburgh without a fallback application; if it does, Insurer X is likely to seek a stay or dismissal.
2. Can the Financial Ombudsman Service hear the complaint despite the exclusive jurisdiction clause?
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FOS is a statutory dispute-resolution scheme, not a court. Its jurisdiction comes from FSMA 2000 Part XVI and the DISP rules, not from the jurisdiction clause. If Glenroe is an eligible complainant, FOS can consider a complaint about a regulated firm's conduct even where the policy says English courts have exclusive jurisdiction. Glenroe must be a micro-enterprise: on the facts it has eight employees and £1.2m turnover, so it is likely eligible. The clause is a relevant circumstance FOS may weigh, but it does not oust FOS. FOS decides by law and by what is fair and reasonable in all the circumstances. It could also consider the insurer's complaint handling. The insurer's assertion that the clause prevents FOS from acting is therefore too broad. However, FOS cannot determine title to land or make an award above its limit, and it may decline to hear a purely commercial dispute if it considers it more appropriate for court.
3. If the insured cites a Scottish Inner House decision and the insurer relies on an English Court of Appeal decision, how should the court approach precedent?
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Because the contract is governed by English law, the hierarchy of English precedent applies. A decision of the English Court of Appeal is binding on lower English courts and must be followed unless it is inconsistent with a later Supreme Court decision or statute. A decision of the Scottish Inner House is not binding in England; it is persuasive, especially on a point of general common law, but the court is not obliged to follow it. The court must also apply the Insurance Act 2015 and any other relevant statute. If the point were governed by Scots law, the position would reverse. The practical lesson is that the governing law clause does more than choose a court: it also determines which precedents are authoritative.