Tonicstar Limited v Allianz Insurance PLC

and Ors [2017] EWHC 2753 (Comm)

The Claimants were underwriters of risks for the Port of New York, which claimed various losses arising from the attack on the World Trade Centre in September 2001. Underwriters settled those liabilities in May 2011 for approximately $42.5 million and then sought indemnity under its reinsurance contract with the respondents.

The reinsurance contract contained an arbitration clause entitling each party to appoint an arbitrator. Clause 15.5, which was part of a standard set of clauses promulgated by the Institute of London Underwriters, provided:

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

Reinsurers appointed experienced senior counsel who, it was conceded, had more than ten years’ experience of insurance or reinsurance law. Reinsurers contended, however, that the clause required an arbitrator who had the requisite experience in the business of insurance or reinsurance. Application was brought to remove the appointee.

Underwriters argued that Teare J ought follow an earlier decision of Morison J in Company X v Company Y (unreported 17 July 2000) in which it was held that a QC with considerable experience as a lawyer in insurance and reinsurance was not qualified to act as an arbitrator under clause 15.5.

Teare J observed that there was considerable force in the submission that the wording of clause 15.5 did not, as the parties could have chosen to do, exclude what was the natural meaning of the words of clause 15.5, that is that experience as a lawyer in insurance or reinsurance was comprehended by the clause. However, his Honour considered, having regard to what the Supreme Court had said in Willers v Joyce [2016] UKSC 44 [9], that he ought follow the earlier decision unless satisfied that there was a powerful reason for not doing so. Teare J observed that, uninhibited by the earlier decision, he may well have been disposed to accept Reinsurers’ arguments.

His Honour therefore found that there was a vacancy that required filling by an arbitrator qualified in accordance with the agreement.

Clearly enough, the decision once again highlights the importance of carefully drafted arbitration agreements, even to deal with what may seem to be uncontroversial issues, such as the qualifications of nominated arbitrators.

Adrian Duffy QC