Are lawyers up to the job? Are they experienced enough to be an arbitrator?

20 May 2018

Background to the case

The matter came up in Allianz Insurance v Tonicstar [2018] EWCA Civ 434 which dealt with a clause in the standard Excess Loss Clauses as published by the Joint Excess Loss Committee, though arbitration clauses commonly call for some similar sort of experience threshold before an arbitrator is eligible to be nominated.

The precise wording was,

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

It might be thought that this was pretty straightforward – but what happens when one party appoints a QC who has practised as a barrister in the field of insurance and reinsurance for at least 10 years? Did that give him experience in the field, or was he just a lawyer without the requisite experience?

The case itself

The reference to arbitration arose out of settlement of the claims arising out of the 9/11 attacks. The settlement was of claims made by many rescue and recovery personnel who had suffered personal injuries and who alleged that their injuries were caused (among other things) by the failure of the Port of New York to provide them with proper breathing equipment. The Port of New York made a substantial settlement of these claims and claimed under its liability insurance which in turn led to the dispute under the contract of reinsurance, which was referred to arbitration.

Tonicstar appointed a former underwriter, but Allianz appointed a QC. Tonicstar objected, and brought proceedings under s24(1)(b) of the Arbitration Act for the court to remove Allianz’s nominated arbitrator.

At first instance before Teare J, they were successful.

Legal background

Teare J held that he could not get around a case decided some 17 years ago, with materially the same facts: this was the case of Company X v Company Y (unreported: 17 July 2000). In that case, the judge decided that the wording showed the parties must have intended a “trade arbitration” – not a term of art, but showing that the parties wanted someone immersed in the trade itself rather than an external adviser to it.

The judge came to this conclusion for three reasons:

  1. the wording was part of a set of terms drafted by a trade body;
  2. the rules of the arbitration gave the tribunal a discretion to act on evidence which would not be admissible in a court of law; and
  3. the wording provided that, where there was a failure to make a nomination, application could be made to the Chairman of the Lloyd’s Underwriters Association and the Chairman of the International Underwriting Association of London to nominate an arbitrator: these people would be highly likely to know people in the industry, but less likely to know lawyers active in the field.

In general, the judge thought that the wording should be narrowly construed, otherwise not only barristers, solicitors and accountants would be eligible, but really anyone who was an insured and spent a lot of time working with insurers as part of their job – like a ship owner, for example. If it was intended to include lawyers specialising in the field, the judge thought some express wording would be required.

What the Court of Appeal thought

Looking at the wording, there was nothing to suggest that a nominated arbitrator had to be employed in the insurance or reinsurance industries – they just had to have experience of one of those industries.

Moreover, the Court of Appeal did not think that the context should lead to any other conclusion: it was true that the wording was promulgated by a trade body, but this did not inevitably mean that the parties must be taken to have wanted a “trade arbitration”.

Again, the Court of Appeal did not think that the fact that a default appointment might be made by the Chairman of the Lloyd’s Underwriters Association or the Chairman of the International Underwriting Association of London  was relevant: even if these people were likely to appoint a market professional, there was no reason to conclude that the parties positively did not want a lawyer.

The arbitration rules required the dispute to be decided according to the laws of England: this rather indicated that express wording would be required to exclude lawyers from consideration. The fact that the tribunal could act on evidence which was not admissible in a court of law made no difference – s34 of the Arbitration Act 1996 allowed for this possibility anyway.

The Court of Appeal considered that it was a “safe inference” that a lawyer who specialised in insurance or reinsurance would have acquired considerable practical knowledge of how insurance and reinsurance business is conducted: it might be different in sports, engineering or telecommunications where the practice is very different from the law regulating those activities.

The Court of Appeal’s conclusion

It was true that Company X v Company Y had stood for 17 years and had been accepted as a settled interpretation of the relevant wording. While there was something to be said for upholding this decision on the basis of providing ongoing consistency, the Court of Appeal thought that the case was wrongly decided and certainty would be enhanced if contractual language were interpreted in accordance with its natural meaning. Business people should be able to look at the text and understand its natural meaning rather than scouring through legal textbooks to find out whether the clause has been given a different and unnatural meaning by a court.

Finally, the Court of Appeal noted that the relevant wording had in fact been updated as from 1 January 2018 and now read,

“The Arbitrators shall be persons (including those who have retired) with not less than 10 years’ experience of insurance or reinsurance within the industry or as lawyers or other professional advisors serving the industry.”

Thoughts

Obviously, the decision relates to specific wording in a specific industry sector – in this case, insurance and reinsurance. As has been seen, the trade body in question acted quickly to clarify the meaning of the words in any case. It is notable that the Court of Appeal thought that its reasoning applied to insurance and reinsurance, but not necessarily to sports, engineering or telecommunications.

It is not clear why the Court of Appeal thought this. There is no reason to suggest that a lawyer with 10 years experience in engineering contracts or disputes should have any less knowledge of the industry than an insurance lawyer engaged in the same activities.

However, be that as it may, dispute resolution clauses do not perhaps get the attention they deserve and they are often regarded as boring boilerplate. If you are choosing arbitration as your method of dispute resolution, then it might be worth looking at the person(s) you are nominating as arbitrators and just checking that your wording really is going to provide you with arbitrators of the right experience. There are different views as to whether lawyers make good trade arbitrators and whether industry insiders really have the requisite legal nous to be able to decide a complex legal dispute. If you are going for a three person tribunal, then having wording which explicitly allows for a mix of skills might be just the ticket.