International - Arbitration
In this chapter of our Annual Insurance Review 2022, we look at the main developments in 2021 and expected issues in 2022 for International Arbitration.
Key developments in 2021
Are we virtual(ed) out?
2021 promised a great deal in terms of a return to something approaching 'normality'. However, as at the date of drafting this chapter that promise appears unfulfilled. Countries across the globe remain under some form of restrictions and the idea of packing at least ten people into a, perhaps, less than well ventilated room for an arbitral hearing is something of a distant memory.
The 'What to look out for in 2021?' section of last year's chapter speculated whether virtual arbitration would become the norm. The pandemic has certainly required parties and arbitrators to become more creative, and assertive, when it comes to the arrangement of hearings. Anecdotes throughout the market reflect strict rules being applied for parties and counsel in the run up to final hearings, almost akin to self-isolation to avoid precious hearing dates being vacated at the last minute due to illness. Discussion amongst arbitration practitioners in the last 12 months appears to suggest that the world of Zoom/Teams hearings will remain a relatively standard form of procedure, but that parties and Tribunals will adopt a 'horses for courses' approach – meaning neither that they will become the default position, nor that the (hopeful) end of the pandemic will see a return to the level of travel experienced by those involved in arbitration pre-2020.
High Court reminders on the importance of clear drafting and negotiation of arbitration agreements
Arbitration-related English court decisions during 2021 have highlighted (i) the importance of clear drafting of arbitration clauses together with the approach to adopt in ascertaining the governing law of arbitration provisions, and (ii) the point at which parties become bound by such dispute resolution provisions. Both of these points are critical to insurers' thinking during the policy negotiation stage when considering how potential disputes are to be resolved.
RPC successfully acted for the Respondent before the English Supreme Court in one of the key cases of 2021 - Kabab-Ji S.A.L v Kout Food Group. The background to the dispute concerned the interpretation of a 10-year Franchise Development Agreement (FDA) that provided for English law to govern the provisions of the contract, but for any disputes to be settled via arbitration, seated in Paris. One of the original parties to the FDA subsequently became a subsidiary of the Kout Food Group (KFG) and the other counterparty brought arbitral proceedings against that entity for breach of the FDA, not its original counterparty. The arbitral tribunal determined that the question of whether KFG was bound by the arbitration agreement was a matter of French law (given the Paris seat in the arbitration clause), but that the issue of whether there had been a substantive transfer of rights and obligations was governed by English law (due to the governing law clause).
Following the arbitration award, KFG sought to resist enforcement in England on a number of grounds, including which law governed the arbitration agreement and the extent to which it was bound by the dispute resolution provisions in the contract (and, therefore, the award). Both the High Court and Court of Appeal found in favour of KFG and determined that the parties had made an express choice of English law to govern the arbitration agreement given the wording of the governing law provision, notwithstanding the choice of Paris as the seat of arbitration.
The Supreme Court followed the lower courts' decisions, finding that the governing law clause and its reference to 'this agreement' being governed by English law meant that there was no good reason to infer that the parties intended to carve out their arbitration agreement from the remainder of their choice of law for the remainder of the contract. This ruling was consistent with earlier decisions, including Enka v Chubb as referenced in the 2021 version of this chapter.
While one might say that this case provides comfort to parties who intend the governing law of their contract (including an insurance policy) to govern all provisions. However, for certainty, insurers would be advised to state expressly the law intended to govern the arbitration agreement in their policies. This is especially important in the context of cross-border insurance in international markets where policyholders may seek to have 'home' arbitration incorporated, but where insurers wish to have the relative certainty of English law governing the contract. Uncertainty as to the law applicable to an arbitration provision can cost significant time and money to resolve.
The issue of arbitration clauses as distinct from the remainder of an insurance policy was also considered in the High Court case of Markel Bermuda Limited v Caesars Entertainment Inc. The underlying facts related to a business interruption and property damage claim arising out of the COVID-19 pandemic. Caesars Entertainment Inc (CEI), a large entertainment company in the USA which owns numerous properties such as casinos, hotels and restaurants, sought to claim an indemnity from Markel Bermuda Limited (Markel) and other insurers. The claim, brought in the District Court of Clark County, Nevada, relied on the dispute resolution provision contained in the policy wording actually provided by Markel; Markel asserted that the policy wording provided was incomplete, did not reflect the agreed terms, and that any disputes were, in fact, subject to the 'Bermuda Form' arbitration clause.
The High Court was required to determine whether to grant Markel a permanent anti-suit injunction restraining CEI from continuing the Clark County, Nevada proceedings. Having walked through the pre-contractual exchanges, including, critically, the terms quoted by Markel for the renewal of the policy and the request to bind received from the broker, the judge found that the parties were bound by the Bermuda Form arbitration clause agreed during the negotiation stage, although not contained in the wording provided to CEI. While the judge found that the policy wording was incomplete and that the agreed terms incorporated the arbitration clause into the policy, he also addressed the potential scenario of the dispute resolution provisions being agreed, but other clauses still being open to negotiation. He determined that in that scenario any dispute that arose prior to the finalisation of the policy would be subject to the arbitration provision as, by that point, it would have become binding between the parties.
This case is a salient reminder that during the negotiation of policy wordings Insurers can find themselves bound by arbitration provisions, even in the absence of a final agreed contract. This is because, under English law, an arbitration clause is a distinct agreement from the contract within which it is associated. This means that disputes over issues such as the very existence of a policy can be subject to arbitration, even pre-binding. It remains important that Insurers give due care and attention to policy dispute resolution provisions during the negotiation process and not simply wave them through while concentrating exclusively on the terms of cover.
What to look out for in 2022?
While hoping to move on from the pandemic and the issues it has raised for the arbitration of disputes, this may not be achievable. Whether hybrid-hearings are suggested and/or accepted, with certain parties/counsel present in person and others 'dialling-in', is very much open to question. This raises the ominous spectre of the potential for an unsuccessful party to raise allegations of bias and/or unfair treatment – whether justified or not – to avoid compliance with a final award. How tribunals square the circle of one party wanting an in-person hearing and another seeking virtual proceedings may take longer than the next 12-months.
Authored by Paul Baker.
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