Insurance And Reinsurance Weekly Update - 31 January 2012

Welcome to the third edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2012.

These updates are aimed at keeping you up to speed and informed of the latest developments in caselaw relevant to your practice.

SULAMERICA CIA V ENESA ENGHENHARIA

Applicable law of arbitration agreement in an insurance policy

http://www.bailii.org/ew/cases/EWHC/Comm/2012/42.html

Clyde & Co (Peter Hirst and Richard Butt) for claimants

The insurance policy in this case provided that it was governed exclusively by Brazilian law. In the event of a dispute, the parties undertook to seek to resolve the dispute by mediation prior to a reference to arbitration. The arbitration agreement in the policy provided (inter alia) that the seat of the arbitration would be London. Following a dispute between the parties, the insured commenced proceedings in Brazil seeking a declaration that it was not bound to arbitrate the dispute. The insurers obtained an interim anti-suit injunction restraining the insured from pursuing those proceedings. They sought to continue that injunction and Cooke J has now held as follows:

It was accepted by the insured that the law governing an arbitration agreement can differ from the law governing the rest of the contract in which it is found. The insured sought to argue that, as the policy was expressly governed by Brazilian law and the parties and the risk were situated in Brazil, the governing law of the arbitration agreement should also be the law of Brazil. That argument was rejected by the judge: "it is clear to me that the law with which the agreement to arbitrate has its closest and most real connection is the law of the seat of arbitration, namely the law of England". Accordingly, the fact that there might be an issue as to its validity under Brazilian law was irrelevant since there was no such issue under English law. The insured sought to argue that the right to arbitrate was conditional upon compliance with the mediation clause. That argument was rejected too. The judge held that there was no enforceable obligation to mediate in this case because the clause: (1) did not provide for an unequivocal commitment to engage in mediation (2) did not specify a clear mediation process (whether based on a model put in place by an ADR organisation or otherwise); and (3) did not deal with selection of the mediator. Nor was the clause a condition precedent to arbitration. The arbitration agreement provided for a referral to arbitration where the parties "fail to agree as to the amount to be paid under this Policy". Even on a narrow view of the words, a declaration of non-liability would amount to a dispute "as to the amount to be paid under the policy", since the insurers were saying that none was due at all. Finally, reference was made to the case of ACE v CMS Energy (see Weekly Update 31/08) and the difficulty of reconciling mandatory arbitration and exclusive English jurisdiction clauses. Cooke J held that the arbitration agreement here was mandatory and recognised that that meant there was "very little" left of the exclusive jurisdiction clause in favour of the courts of Brazil in the underlying policy. He concluded that "The effect is, of course, to give priority to the arbitration clause over the exclusive jurisdiction clause but there...