A 'Triple Crown' Arbitral Challenge In The Professional Indemnity Insurance Context (RSA V Tughans)

• Published date: 23 November 2022
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Arbitration & Dispute Resolution
• Law Firm: Quadrant Chambers
• Author: Paul Toms

In this recent judgment, Mr Justice Foxton dealt with a 'Triple Crown' arbitral challenge under sections 67, 68 and 69 of the Arbitration Act 1996 (AA 1996) arising out of an arbitration award concerning a solicitors' firm's entitlement to payment from an insurer under its professional indemnity cover in respect of its potential liability to another firm of lawyers arising out of the payment of a success fee. Of interest to arbitration practitioners, the judgment (when considering the section 67 challenge) makes clear that the scope of an arbitrator's jurisdiction is not exclusively defined by the notice of arbitration but can be expanded by the subsequent agreement of the parties or the permission of the arbitrator. Accordingly, the section 67 challenge failed. The judgment is further of interest to insurance practitioners and practising lawyers since it considers as part of the unsuccessful section 69 challenge the scope of standard professional indemnity cover in respect of claims concerning the 'loss' of fees earned and paid pursuant to a contractual retainer, albeit in unusual factual circumstances.

Royal & Sun Alliance Insurance Ltd and others v Tughans [2022] EWHC 2589 (Comm)

What are the practical implications of this case?

While practitioners will be well-advised to identify and define the scope of the dispute referred to arbitration in the widest and broadest terms possible when drafting a notice of arbitration or equivalent, this case confirms that (subject to any contrary provision in the rules applicable to the particular arbitration forum) the arbitrator's jurisdiction is not exclusively limited to the matters set out in the notice of arbitration. Rather, even if particular claims do not fall within the scope of the notice of arbitration, those claims can still be pursued provided that the parties agree or the arbitrator gives permission for them to be pursued or the parties proceed on the basis that those claims fall within the scope of the arbitration.

What was the background?

The facts of the case were complex. RSA provided professional indemnity insurance to Tughans Solicitors. A US private equity fund, Cerberus, agreed to pay Brown Rudnick LLP ('BR') a success fee in the event that a transaction for the purchase of certain loans completed. BR, in turn, agreed with the then managing partner of Tughans that half of the success fee would be paid to Tughans. The transaction having completed, payment of the success fee was made by BR to an...