Setting the Standard: Ontario Court Enforces Hybrid Arbitration Agreement in Favour of Bermudian P&I Club

In the recent decision of T. F. Warren Group Inc and Vanguard Shipping (Great Lakes) Ltd v The Standard Steamship Owners’ Protection and Indemnity Association (Bermuda) Limited [2015] ONSC 7778, the Ontario Superior Court of Justice granted a stay of court proceedings under Ontario’s International Commercial Arbitrations Act 1990, in order to enforce a hybrid London arbitration agreement between two insureds and The Standard Club, a Bermudian Protection & Indemnity Association (‘the P&I Club’).

The liability insurance claims asserted in the proceedings related to a maritime incident that occurred in 2011, when a ship collided with a railway bridge on the Maumee River in Ohio. As the Court noted in passing: “the bridge was very likely minding its own business.

Section 25 of the P&I Club’s Defence Rules imposed conditions that arguably could be read as giving the P&I Club unilateral discretion to delay the submission of any dispute to arbitration. In particular, section 25 provided that:

  1. The insured party had to submit the dispute to the P&I Club;
  2. No insured party was entitled to maintain any legal proceedings against the P&I Club unless and until the matter had been submitted to the P&I Club for decision;
  3. The parties then would engage in mandatory mediation (in London); and
  4. If the matter was not settled by mandatory mediation within 14 days, “the dispute shall be referred to and finally resolved by arbitration in London,” subject to the UK’s Arbitration Act 1996.

The Court noted that the P&I Club sat on the insured’s claim for a year.  The Court observed that, “the entire premise of granting a stay under the ICAA is that the party whose action is stayed is not denied access to justice but is gently but firmly directed to the correct door to obtain it.

To mitigate against the risk of further delays, the Court ordered an interim stay of the proceedings, which would then become a permanent stay if all conditions precedent to commencement of arbitration proceedings had been waived or completed within a reasonable period of time.

Although this decision should give comfort to the various P&I Clubs that are incorporated in Bermuda and in the UK that the Canadian Courts will enforce London and Bermuda arbitration agreements, it also illustrates the importance of careful drafting of such clauses, so that they can be easily understood, performed, and enforced.

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