International Arbitration 2021

• Published date: 25 August 2021
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Reinsurance, Arbitration & Dispute Resolution
• Law Firm: Walkers
• Author: Mr Peter Dunlop and Shannon Dyer

1. General

1.1 Prevalence of Arbitration

Bermuda is regarded as a first-class centre for international business, including funds, trusts and, in particular, insurance and reinsurance. What makes Bermuda an attractive jurisdiction is its responsible but facilitative regulator, modern infrastructure, stable political and economic climate, English-based legal system and an unmatched collection of talent and intellectual capital in key sectors.

As a global leader in insurance and reinsurance, insurance policies and reinsurance agreements often include Bermuda governing law and arbitration clauses specifying a Bermuda seat. The Bermuda International Arbitration and Conciliation Act 1993 ("1993 Arbitration Act") is the legislation in Bermuda that provides the regime for international commercial arbitrations. It adopts the internationally renowned UNCITRAL Model Law on International Commercial Arbitration ("Model Law").

International arbitrations in Bermuda conducted under the 1993 Arbitration Act are frequently governed alternatively by the substantive laws of New York or England & Wales - a feature of what has become known as the "Bermuda Form" policy, further reflecting the international reach and usage of Bermuda international arbitration.

In Bermuda's domestic market, arbitrations are routinely used for employment, construction, sport and maritime disputes. The domestic arbitration regime is governed by the Bermuda Arbitration Act 1986 ("1986 Arbitration Act").

1.2 Impact of COVID-19

The international business community in Bermuda and the (re)insurance industry have felt the impact but weathered well the effect of COVID-19. Losses in the funds and trusts industry have been manageable and although reinsured losses from business interruption have been significant - impacted in part by the Financial Conduct Authority's business interruption insurance test case decided by the Supreme Court in September 2020 - the (re)insurance industry has responded responsibly to those losses and only a small number of international arbitrations have been commenced, most of which were settled at an early stage. With that said, the backlogs caused by COVID-19 to Bermuda's domestic courts have highlighted further the flexibility and efficiency of international arbitration, which has been largely uninterrupted over the course of the pandemic. Although the courts have adapted well to technology such as virtual hearings, the flexibility of the arbitration process and the availability from home of arbitrators has enabled Bermuda international arbitrations to respond quickly to the limitations placed on parties, practitioners and arbitrators and proceed as close to normally as possible, with concomitant savings in flights and hotel costs otherwise associated with substantive hearings in Bermuda. Bermuda arbitrators now commonly accept electronic filings only, without the need for hard copy filings of documents. As a result, the pandemic has had minimal impact on arbitration proceedings, particularly in comparison to the significant disruption unavoidably caused to court proceedings (with no fault of the Bermuda courts or their administrations). Bermuda as a community was relatively uninterrupted by lockdowns when compared with those observed in the USA, the UK and internationally.

1.3 Key Industries

Bermuda is a globally-recognised, market-leading jurisdiction for (re)insurance and insurance-linked securities (ILS), often performing the role of insurer of last resort in the most catastrophic weather-related or man-made disasters. International arbitration under the 1993 Arbitration Act is typically the preferred form of dispute resolution used in the insurance and reinsurance industry in Bermuda, although litigation is sometimes still observed in the industry.

Given the pressures facing (re)insurance companies in relation to COVID-19-related claims, we have seen a modest number of arbitrations commenced, as well as an increased number of trapped collateral disputes arising in the ILS space - and the usual pattern of coverage disputes one would expect. This has resulted in a significant increase in demand for expert industry-specific legal advice in relation to arbitrations arising within those areas. In other industries - including funds, trusts, banking and construction - the level of arbitration activity has overall been relatively flat.

We have not seen any particular industries within Bermuda that are experiencing decreased international arbitration activity in 2020-21 as a result of the COVID-19 pandemic. Litigation funders remain active and arbitration disputes have commenced regardless of the overall economic climate caused by the pandemic.

1.4 Arbitral Institutions

For Bermuda international arbitrations related to insurance and reinsurance, arbitration clauses provide for a variety of arbitral institutions by which the parties conduct the arbitration, including ARIAS (UK), ARIAS (US) and the London Court of International Arbitration (LCIA). Those institutions, or the Supreme Court of Bermuda, are frequently named as the appointing body for third arbitrators, as is the Appointments Committee of the Bermuda Branch of the Chartered Institute of Arbitrators (CIArb). Ad hoc arbitrations are common, as is use of the UNCITRAL Rules where no specific arbitral institution is specified. Less common in Bermuda (re)insurance arbitrations is the use of the institutions of JAMS, the American Arbitration Association (AAA) and the International Chamber of Commerce (ICC).

For domestic arbitrations, the most common arbitral institution specified is the CIArb Bermuda Branch.

No new arbitral institutions have been established in Bermuda in 2020-21 but, after many years of discussions and planning, Bermuda will soon benefit from the construction of a dedicated Bermuda Arbitration Centre building.

1.5 National Courts

The Supreme Court of Bermuda has a dedicated Commercial Division, with specialist commercial judges, that deals with procedural and substantive disputes arising from international arbitrations and has frequently been required to resolve party-party deadlock on appointment of third arbitrators. The Bermuda Court of Appeal also hears applications to set aside final arbitral awards on prescribed grounds set out in Article 34 of the Model Law.

2. Governing Legislation

2.1 Governing Law

The 1993 Arbitration Act governs international commercial arbitrations and incorporates the Model Law in its entirety.

2.2 Changes to National Law

There have been no significant changes to Bermuda arbitration law in the past year, but it is conceivable that amendments will be made to Bermuda's 1993 Arbitration Act, to Bermuda arbitration clauses, or to arbitration convention and best practice to better specify arbitrators' duties of disclosure of appointments in separate but related arbitrations arising from the same insured event.

3. The Arbitration Agreement

3.1 Enforceability

In Bermuda, under Article 7 of the Model Law, the arbitration agreement must be in writing and signed by the parties. An arbitration clause can appear in the contract or in a separate agreement. In the reinsurance realm, reinsurance agreements that fail to express a clear intent to incorporate an arbitration clause of an underlying insurance policy are at risk of failing to include that arbitration clause. However, Article 7(2) of the Model Law is regarded in Bermuda as providing that general words of incorporation by reference to an arbitration clause will suffice. See Skandia International Insurance Co et al v Al Amana Insurance and Reinsurance Co Ltd [1995] 4 Re LR 63.

3.2 Arbitrability

All commercial disputes may be subject to arbitration in Bermuda; however...