Court of Appeal decision on the appointment of a QC as arbitrator under the Joint Excess Loss Committee Clauses (January 1997 version)

The Court of Appeal has today, 13 March 2018, overturned Mr Justice Teare’s decision of 6 November 2017 and handed down a unanimous decision in favour…

(1) ALLIANZ INSURANCE PLC (formerly Cornhill Insurance Plc) (2) SIRIUS INTERNATIONAL INSURANCE CORPORATION (PUBL) (London Branch) (Appellants) v TONICSTAR LIMITED (on its own behalf and on behalf of the other corporate members of Lloyd’s Syndicates 62, 1861 and 2255) (Respondent) [2018] EWCA Civ 434

The Court of Appeal has today, 13 March 2018, overturned Mr Justice Teare’s decision of 6 November 2017 and handed down a unanimous decision in favour of the Appellants, Allianz Insurance Plc and Sirius International Insurance Corporation (Publ) (London Branch).

The appeal concerned the validity of the Appellants’ appointment of a leading insurance/reinsurance Queen’s Counsel as arbitrator, in a dispute arising from September 11 World Trade Centre under an excess of loss reinsurance policy. The policy incorporated the 1 January 1997 version of the Joint Excess Loss Committee (JELC) clauses which are standard form clauses used in the London Market for excess of loss policies. 

Clause 15 provides for disputes concerning the contract between the parties to be the subject of arbitration in London. Further, clause 15.5 states that:

“Unless the parties otherwise agree the arbitration tribunal shall consist of persons with not less than ten years’ experience of insurance or reinsurance.”

The Appellants appointed Alistair Schaff QC as arbitrator but this was challenged by the Respondent on the basis that Mr Schaff QC did not possess the requisite qualification under clause 15.5. The Respondent therefore applied to the court under section 24(1)(b) of the Arbitration Act 1996 to remove Mr Schaff QC as an arbitrator.

In support of that application, the Respondent relied on the unreported decision of Company X v Company Y (17 July 2000) where Mr Justice Morrison held that clause 15.5 provided for a trade arbitration and that only those who had acquired their experience through working within the insurance/reinsurance industry were sufficiently qualified to act as arbitrators in such  disputes. A QC who had more than 10 years’ experience of acting in insurance and reinsurance disputes did not qualify for appointment.

At first instance, Mr Justice Teare allowed the Respondent’s application. However, he stated that if he had been uninhibited by the authority of Company X v Company Y, he may have decided that Mr Schaff QC satisfied the qualification requirement in clause 15.5.

The Appellants appealed.

Lord Justice Leggett, giving the leading judgment held that:

“…none of the matters relied on in the judgment in Company X v Company Y in my view provides any legitimate basis for inferring that parties who incorporate the 1997 version of the JELC Clauses… intend an arbitration held pursuant to clause 15 to be a “trade arbitration”, if that phrase is taken to mean that only persons who have worked in the trade may be chosen as arbitrators.  In my view, the words of clause 15.5 are not capable of being read as imposing any such restriction.
… the practical and legal aspects of insurance and reinsurance are so intertwined that both market professionals and lawyers who have specialised in the field for many years are commonly appointed as arbitrators in insurance and reinsurance disputes…
… there is no such thing as insurance or reinsurance “itself” which is separate and distinct from the law of insurance and reinsurance… a person who has practised as a barrister specialising in the field of insurance and reinsurance for more than 10 years would naturally be regarded as qualified for appointment as an arbitrator.”

On the issue of overturning the decision in Company X v Company Y, Lord Justice Leggett commented that “while certainty is an important value in commerce, so too is the ability of the legal system to correct error, and contracting parties may be taken to know that a decision of a court of first instance is not immutable and is capable of being overruled.

The President of The Queen’s Bench Division (Sir Brian Leveson) and Lord Justice Underhill both agreed with Lord Justice Leggett. It should also be noted that the JELC Clauses were revised with effect from 1 January 2018 and the equivalent clause to clause 15.5 now reads:

The Arbitrators shall be persons (including those who have retired) with not less than 10 years’ experience of insurance or reinsurance within the industry or as lawyers or other professional advisors serving the industry.

However, the Court of Appeal decision will impact on the remaining policies in the London Market that incorporate the 1997 JELC Clauses and, specifically, other ongoing disputes concerning the World Trade Centre.

The above is intended only as a summary of developments and not as a definitive statement of law.

Weightmans acted for the Appellants, Allianz Insurance Plc and Sirius International Insurance Corporation (Publ) (London Branch).

If you require any further information on the way in which these developments may affect your business, please contact Ling Ong, Partner in the London Market Team at Weightmans.

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