Citation(1998) 10 SAcLJ 248
Date01 December 1998
Published date01 December 1998

Akai Pty Ltd v The People’s Insurance Co Ltd

As the cross-border exchange of goods and services in the region becomes more liberalised, it is increasingly common for ASEAN insurers to extend policies to businesses outside their home jurisdiction. The insurance contracts usually either provide for disputed claims to be adjudicated by the courts of the home country of the insurance company or the parties agree to refer disputes to third “neutral” countries, such as Singapore or England. Seldom, if ever, does an insurer agree to refer claims to courts in the insured’s home jurisdiction.

ASEAN insurers considering extending their operations to Australia may therefore be surprised to learn that, in the recent case of Akai Pty Ltd v The People’s Insurance Co Ltd1, the Australian High Court effectively held that ASEAN and other foreign insurance companies who issue insurance policies to Australian businesses are compelled by Australian law to refer disputes to adjudication in Australia.


In mid 1991, The People’s Insurance Co Ltd (“PIC”), a Singapore insurance company, entered into a credit insurance policy with Akai Pty Limited (“Akai”), a company incorporated in New South Wales, Australia. Akai is the local subsidiary of a large. Japanese electronics manufacturer.

In negotiating the policy, PIC had initially required the insurance contract to be governed by the law of Singapore and disputes to be resolved by the courts of Singapore. Akai rejected this, but the parties were able to agree on England as a “reliable and impartial” third country alternative2. Accordingly, the contract provided for the law of England to be the governing law, and for all disputes to be referred to the courts of England.

Some time after entering into the insurance contract, Akai claimed indemnity under the policy for loss suffered by it as a result of the liquidation of one of its creditors. PIC denied liability on the basis of several breaches of the insurance policy by Akai. Under the law of England, these breaches may have been sufficient for PIC to refuse to indemnify Akai. However, under section 54 of the Australian Insurance Contracts Act 1984 (“Act”), PIC could only avoid liability to the extent to which Akai’s defaults caused or contributed to the relevant loss.

Akai brought its claim against PIC in the Supreme Court of New South Wales, Australia. PIC applied for a stay of these proceedings on the basis of the English forum selection provision in the insurance contract. Akai argued that the Act invalidated the forum selection provision. The High Court of Australia, by a majority of three to two3, upheld Akai’s argument and refused to stay the Australian proceedings.

Application of Act

The reasoning of the High Court majority followed a two step process. The majority first considered whether or not the Act applied to the Akai insurance contract. If the insurance contract was governed by English law, as specified in the contractual choice of law provision, then the Act (as a provision of Australian law) could have no application.

The scope of the Act is set out in section 8, which provides as follows:

  1. (1) Subject to section 9, the application of this Act extends to contracts of insurance, the proper law of which is or would be the law of a State or the law of a Territory in which this Act applies or to which this Act extends.

  2. (2) For the purposes of subsection (1), where the proper law of a contract or proposed contract would, but for an express provision to the contrary included or to be included in the contract or come other contract, be the law of a State or Territory in which this Act applies or to which this Act extends, then, notwithstanding that provision, the proper law of the contract is the law of that State or Territory.

The English choice of law clause in the insurance contract clearly constituted an “express provision to the contrary”, and therefore had to be disregarded by the High Court.

The question for the High Court to decide was therefore whether or not the objective proper law of the insurance contract would otherwise have been Australian (or, in this case, New South Wales) law. If so, then the Act would apply to the contract.

The majority held that, in the absence of a choice of law clause, the objective proper law of the contract would be the law of New South Wales.

Following the approach in Commonwealth v Bonython4, the majority determined that the law of New South Wales was the law with which the contract had its “closest and most real connection”.

Although a number of considerations were mentioned, the majority’s determination was largely based on the fact that the risk insured by the relevant contract was located in Australia5:

it is proper to have regard to a number of matters including the places of residence or business of the parties, the place of contracting, the place of performance, and the nature and subject matter of the contract…The policy was the product of negotiations conducted by communications between Sydney and Singapore. But the policy had no practical connection with Singapore except that the insurer happened to be a Singaporean company. The policy had no factual connection at all with England. On the other hand, the risk was very substantially situated in New South Wales…the only countries covered under the policy were identified as Australia and New Zealand. The maximum liability was stated in Australian currency…In our view, the State of New...

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