Archive for the ‘International Counseling & Arbitration’ Category

Privy Council Enforces Arbitration Agreement: When “May” Means “Must”

Friday, January 29th, 2016

By Alex J. Potts, Sedgwick-Chudleigh Bermuda

The Privy Council has handed down its judgment in Anzen Limited v Hermes One Limited [2016] UKPC 1, a case concerning enforcement of an arbitration agreement. The judgment can be found at http://www.bailii.org/uk/cases/UKPC/2016/1.html. The appeal came from the Eastern Caribbean (BVI) Courts, but the decision is of significance for all arbitration-friendly offshore jurisdictions whose final right of appeal lies with the Privy Council, including Bermuda and the Cayman Islands.

The main issue on the appeal was the proper interpretation of an arbitration clause in a BVI company’s shareholders’ agreement which provided that, in the event of an unresolved dispute, “any party may submit the dispute to binding arbitration.” The arbitration agreement was subject to English law, and any arbitration was intended to be subject to ICC arbitration rules and the English Court’s supervisory jurisdiction.

It was concluded both at first instance and in the BVI Court of Appeal that the use of the word “may” effectively resulted in the arbitration clause being non-exclusive, permissive and optional, rather than mandatory; and that, unless and until a party actually had exercised its arbitration option by commencing an ICC arbitration with respect to a dispute, there was no basis for the BVI Court to stay any Court proceedings.

The Privy Council disagreed. Although it did not accept that the arbitration clause was mandatory in all circumstances, it concluded that it was mandatory in the event that either party unequivocally insisted on there being an arbitration of any unresolved disputes (even if that party was not minded to commence arbitration itself, but simply waited until the other party did so).

The decision is to be welcomed as yet another example of the Court’s willingness to uphold and enforce arbitration agreements in arbitration-friendly jurisdictions such as Bermuda, the BVI, and the Cayman Islands.

However, the decision also illustrates, quite starkly, the importance of careful drafting of any arbitration agreement or jurisdiction agreement. Had the parties and their lawyers clearly used the word “shall” rather than the word “may” in the arbitration clause, they might have avoided the time and costs associated with over two years of litigation and two appeals.

Another Victory for Arbitration: The UK Supreme Court

Thursday, June 20th, 2013

By Mark Chudleigh, Sedgwick Bermuda

The United Kingdom’s highest court, the Supreme Court, has confirmed that English courts may intervene to issue an “anti-suit” injunction to restrain a party from bringing court proceedings in violation of an arbitration clause even if there are no arbitration proceedings in existence. This will be welcome news to the many insurers and reinsurers who incorporate London arbitration clauses into their policies, including carriers in the Bermuda market who frequently stipulate for coverage disputes to be resolved through arbitration in London under the English Arbitration Act 1996.   

The appeal arose out of a high value dispute involving the operation of a hydroelectric power plant in Kazakhstan and a concession agreement that provided for disputes to be arbitrated in London.  The owner of the plant issued court proceedings in Kazakhstan and obtained an order declaring the arbitration agreement invalid.  The operator then filed court proceedings in England seeking a declaration that the arbitration agreement was valid and enforceable and an anti-suit injunction to restrain the owner from continuing the Kazakhstan proceedings in violation of the arbitration clause. However, the operator chose not to file arbitration proceedings seeking any relief in relation to the concession agreement.

The English court granted both the declaratory and injunctive relief sought. The owner then appealed to the Supreme Court on the grounds that English courts have no jurisdiction to restrain foreign proceedings brought in violation of an arbitration clause where no arbitral proceedings have been commenced or are proposed.  In dismissing the appeal, the Supreme Court affirmed that the English courts have a long-standing and well-recognized jurisdiction to restrain foreign proceedings brought in violation of an arbitration clause even where no arbitration is on foot or in contemplation.

While the Supreme Court’s ruling is unlikely to come as a surprise to most arbitration practitioners, its unequivocal support of the arbitration process – even in light of a contrary ruling by a foreign court – will provide comfort to the many insurers and reinsurers who chose London as the venue for any arbitrations arising under their polices.  

Ust-Kamenogorsk Hydropower Plant JSC (Appellant) v AES Ust-Kamenogorsk Hydropower Plant LLP (Respondent) [2013] UKSC 35

Twin Towers: Two Events, Two Occurrences under English law

Friday, February 15th, 2013

By Alex J. Potts, Sedgwick Bermuda

In the recent case of Aioi Nissay Dowa Insurance Company Ltd v Heraldglen Ltd & Advent Capital (No 3) Ltd [2013] EWHC 154 (Comm), 8 February 2013, the English Commercial Court upheld an arbitration tribunal’s award that the 9/11 terrorist attacks on the Twin Towers of the World Trade Center were properly described as two separate occurrences arising out of two separate events, for the purposes of an aggregation clause under a retrocession excess of loss reinsurance programme governed by English law.

Applying the ‘unities’ doctrine to the facts of the case, the arbitration tribunal (made up of Mr Ian Hunter QC as Chairman, Mr David Peachey and Mr Richard Outhwaite) concluded that the losses arising on the 10 inward reinsurances were caused by two separate occurrences arising out of separate events. The Commercial Court agreed with the tribunal’s reasoning and its conclusions on the agreed primary facts, which had been taken from the Final Report of the National Commission on Terrorist Attacks upon the United States.

The ‘unities’ doctrine is an English law test that derives from Mr Michael Kerr QC’s award in the Dawson’s Field Arbitration in 1972. It has been applied and developed by Rix J in Kuwait Airways Corporation v Kuwait Insurance Co SAK [1996] 1 Lloyd’s Rep 664, and subsequently affirmed by the English Court of Appeal in Mann v Lexington Insurance Co [2001] 1 Lloyd’s Rep 1 and Scott v Copenhagen Reinsurance Co (UK) Ltd [2003] Lloyd’s Rep IR 696. The ‘unities’ test of aggregation has been stated to depend on the position and viewpoint of an informed observer (placed in the position of the insured), and it involves consideration of the degree of unity in relation to cause, locality, time, and, if initiated by human action, the circumstances and purposes of the persons responsible. The ‘unities’ test must be assessed by finding and considering all the relevant facts carefully, and then conducting an exercise of judgment and analysis. The exercise should be performed on the basis of the true facts (even if they are only discovered subsequently), and not simply on the basis of the facts as they may have appeared at the time.

Although specifically dealing with reinsurance contracts subject to LSW (London Standard Wording) 351, this judgment of the Commercial Court, and the underlying arbitration award, provide some welcome certainty to the reinsurance market generally on the issue of aggregation under English and Bermuda law.

A copy of the judgment can be found here: http://www.bailii.org/ew/cases/EWHC/Comm/2013/154.html

State of Washington v. James River Insurance Company – What Impact on Bermuda Insurers?

Friday, February 1st, 2013

By Richard J. Geddes, Sedgwick Chicago

The short answer is – none.

State of Washington, Dept. of Transportation v. James River Insurance Company, – P.3d –, 2013 WL 258877 (Wash. January 24, 2013), a January 2013 decision of the Washington State Supreme Court, upheld a Washington statute prohibiting insurance contracts from depriving Washington policyholders from access to state courts, due to the insurer’s contract provisions calling for arbitration to resolve contract disputes. [The Insurance Law Blog reported on the decision shortly after the court ruled on January 17th.]

James River represents a purely U.S.-domestic dispute. All parties to the dispute were U.S. residents, such that the NY Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the NY Convention”), which is the source of enforcement of international arbitration agreements, did not apply. The NY Convention applies to arbitration agreements between parties of different nations, each of which is signatory to the NY Convention, and requires those nations to enforce the arbitration agreements between those parties.

The law in the U.S. dealing with conflicts between international arbitration agreements and state insurance law is not uniform, but if a trend is apparent, it is to recognize the primacy of these international contractual agreements via the NY Convention over contrary state law. The question: whether the McCarron Ferguson Act, granting the states the right to regulate insurance except in cases where Congress has expressed a contrary intent, would be trumped by Federal law recognizing the enforceability of international arbitration agreements. The issues controlling these decisions are complex, and require consideration beyond the space available here. However, of the three Circuit Courts that have considered this question, two,¹ and importantly, the most recent two, have found in favor of enforcing the arbitration agreement, while only one,² the earliest, has not.

The lesson here is that U.S. state court decisions about purely domestic disputes say nothing about the enforceability of international arbitration agreements as are typically included in Bermuda form policies. The U.S. federal courts have generally favored the enforcement of these agreements. Equally important to Bermuda insurers is the fact that Bermuda and U.K. courts have routinely been receptive to applications to issue anti-suit injunctions to bar lawsuits filed in contravention of arbitration agreements. In short, Bermuda insurers may continue to rely on the enforceability of their chosen Bermuda- or London-based arbitration selection. 

 


¹ Safety National Casualty Corp. v. Certain Underwriters at Lloyds, 587 F.3d 714 (5th Cir. 2009); ESAB Group v. Zurich Insurance PLC, 685 F.3d 376 (4th Cir. 2012).

² Stephens v. American International Ins. Co., 66 F.3d 41 (2d. Cir. 1995).

 

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