Courtesy of Mr. Reid, though “the imagery comes from NASA’s Moderate Resolution Imaging Spectroradiometer (MODIS) satellite’s Rapid Response System which provides near real-time imagery of the Earth’s surface.”
English arbitrations are generally certain, final and enforceable. They can be appealed in only limited circumstances, principally if the panel has erred as to its jurisdiction or on some point of English law or, and more rarely, if there has been some “serious irregularity affecting the tribunal, the proceedings or the award” (Arbitration Act 1996 s.68(1)).
Compania Sud-Americana de Vapores SA -v- Nippon Yusen Kaisha [2009] EWHC 1606 (Comm) is a rare instance of such an “irregularity” appeal coming before the courts.
Facts
Briefly, in September 2002 Compania Sud-Americana de Vapores SA (CSAV) and Nippon Yusen Kaisha (NYK) entered into an agreement (the SGEX agreement) for a joint trans-Pacific container service agreement with Kien Hung Ltd (KHL). Unhappy with KHL’s performance, on 7 April 2003 both CSAV and NYK served termination notices on Kien Hung, NYK relying on clauses 2.1 (90 days notice) and 11 (insolvency or change of control) and CSAV on clause 11 alone. The SGEX agreement itself ostensibly remained in place, and meetings ensued between CSAV and NYK over the next few months to explore the possibilities for replacing KHL. In the end, only NYK went ahead, with new partner Hamburg Sud.
Disputes then arose between CSAV and NYK, including in particular as to whether and when valid notice had been given terminating the SGEX agreement itself (rather than simply KHL’s involvement in it). The disputes were arbitrated in London. NYK claimed that it had given valid notice to terminate when it served notice on KHL, on 7 April 2003, and that the SGEX Agreement terminated 90 days later, on 6 July. CSAV denied this and counterclaimed damages for repudiatory breach.
The arbitration
NYK’s pleaded case included an allegation that the parties had jointly agreed to terminate the SGEX agreement during a meeting on 5 June 2003. Yet thereafter NYK gave every indication that the point was not being pursued: first, its chief witness averred in his statement that that pleading was mistaken (because it was based on incorrect facts); in opening oral submissions it did not rely upon or even refer to that point; and finally, when CSAV suggested that the point ought to be taken as abandoned, it made no response at all and certainly did not assert to the contrary.
However, on the fifth day of the arbitration and after its own witnesses had been dealt with, NYK itself raised the point in cross-examination of CSAV’s witnesses and was allowed to proceed despite objections from CSAV.
The arbitrators dismissed all of NYK’s defences to the counterclaim except that based on the 5 June agreement, and on a 2-to-1 margin ruled in favour of NYK on that basis.
The appeal
CSAV challenged the award under section 68 of the Arbitration Act 1996 on the ground that the arbitrators had relied upon a matter which CSAV had been given no chance to rebut and had thus acted contrary to the natural justice requirement in section 33 of the 1996 Act.
The relevant part of s.68 reads as follows:
“(1) A party to arbitral proceedings may…apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.
…
(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant
(a) failure by the tribunal to comply with section 33 (general duty of tribunal);
…”
Section 33 of the Act basically provides that the tribunal shall act fairly and impartially and allow each side reasonable opportunity to present its case, adopting the correct procedures.
The hurdle is high in such cases and s.68 “is really designed as a long stop only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected” (para. 280 of the report of the Departmental Advisory Committee). The court had to decide, first, if there had been an irregularity and, second, if there had been, whether that “affected” the award.
The decision
However, Beatson J went on to find that, notwithstanding the irregularity, the award would not be set aside because there was no substantial injustice to CSAV – the arbitrators had been entitled to conclude that they would have reached the same decision on the other evidence that the SGEX agreement had been terminated on 5 June 2003. The question here was this: Could what CSAV had been deprived of have made a difference to the final outcome? In the peculiar circumstances involved here, the answer was no.
The Serious Fraud Office has been investigating whether former Madoff Securities International Ltd. CEO, Stephen Raven, or any London employee of Madoff had knowledge of Madoff’s Ponzi scheme.
Those familiar with the investigation have commented that the U.K. is unlikely to prosecute anyone at Madoff’s London operation because the SFO does not currently have enough evidence to prove that any employee knew about the fraud. In addition, the SFO is currently probing whether anyone at London-based FIM Advisors LLP or 20.20 Medici AG Chair, Sonja Kohn, knew of Madoff’s scheme when they sent him money. FIM Advisors managed Kingate Global Fund Ltd., which invested $2.8 billion with Madoff.
Source: Bloomberg, via my NY colleagues.
On November 9, an en banc opinion of the Fifth Circuit Court of Appeals ruled that arbitration provisions in international reinsurance contracts are enforceable despite a Louisiana statute prohibiting arbitration agreements in insurance contracts.
In Safety Nat’l Cas. Ass’n v. Certain Underwriters at Lloyd’s the Underwriters provided reinsurance for excess policies issued to a workers compensation self-insurance fund. After Underwriters refused to recognize as an assignment of the fund’s rights to Safety National, the fund brought suit in a Louisiana federal court. Underwriters moved to compel arbitration. The court ultimately denied the motion, finding that the McCarran-Ferguson Act allowed a Louisiana statute forbidding arbitration provisions in insurance contracts to “reverse-preempt” the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and its implementing legislation, the Convention Act. The McCarran-Ferguson Act provides that no act of Congress is to be construed to invalidate, impair or supersede a state insurance law unless the act of Congress specifically relates to the business of insurance.
The Fifth Circuit reversed, holding that the term “act of Congress” as used in the McCarran-Ferguson Act did not encompass international treaties such as the Convention regardless of whether the treaty was self-executing or required implementing legislation. The court specifically disagreed with the Second Circuit opinion in Stephens v. American Int’l Ins. Co., 66 F.3d 41 (2d Cir. 1995), which had held that the implementing statute, rather than the Convention itself, was the relevant consideration and that state law could invalidate an arbitration provision in an international agreement.
The conflict between the circuits sets the stage for a possible resolution of the issue by the U.S. Supreme Court. Until this resolution occurs, the Safety National opinion constitutes the law of the land in Louisiana, Texas and Mississippi and provides substantial ammunition for non-U.S. insurers and reinsurers to obtain enforcement of arbitration provisions in the face of hostile state law.
The case is Safety Nat’l Cas. Ass’n v. Certain Underwriters at Lloyds’, London No. 06-303262 (5th Cir. Nov. 9, 2009).
No, not a reference to a tired and emotional broker who won’t be quiet, but a reflection of one of the minor joys of working for a US firm.
We all receive circular emails from time to time punting some sort of ‘must have’ service. Most of them are pretty pedestrian and more or less pointless or inappropriate. So this one that landed in my inbox today rather leaped out at me, entitled, as it was:
8 Issues When Doing Business or Contracting With Native American Tribes
And it then went on to evangelize on the benefits of joining their course:
There are more than 500 federally-recognized American Indian tribes in the United States, each established under a constitution unique to the tribe. Each tribe, through its constitution and subsequent legislation, has developed its own laws and regulations addressing issues of contracting, jurisdiction and waivers, if any, of sovereign immunity. Individuals and entities seeking to do business with and/or contract with one or more tribes must become familiar with the laws and regulations of each tribe when preparing to engage in business with the tribe. However, there are also basic tenets of American Indian law that can be applied to all aspects of doing business and/or contracting with individual American Indian tribes. This teleconference is designed to provide you with the tools to recognize the uniqueness of each American Indian tribe while applying the basic tenants of contracting with these same tribes.
It sounds fascinating, and having long been an admirer of Joe Leaphorn and Jim Chee, I’d love the chance to work in this field. But it seems unlikely, given the distance from Lime Street.
No jokes about “siouxing” people, please.
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We have a good write-up in the latest Legal 500, under the Insurance and Reinsurance Litigation section:
Sedgwick Detert Moran & Arnold LLP has an excellent practice, with clients appreciating, among other things, its international reach. Sarah Hills is ‘very detail orientated’ while new addition to the team Jolyon Patten offers ‘sensible and commercial solutions’. It represented a large Bermuda insurer in respect of its insured’s involvement in the Buncefield oil depot explosion.
And, at the risk of own-trumpet-blowing, I am also happy to see my name again on the list of Leading Individuals for Insurance and Reinsurance Litigation.
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Alistair Schaff QC gave an illuminating talk on Wasa –v– Lexington at an impromptu BILA session in Lloyd’s Old Library today.
While Schaff represented the winning reinsurers he managed to convey an objective sense that the right decision had been reached. I was in tune with that since I had always found the CA decision oddly artificial and this judgment from the House of Lords strikes me as more commercially sensible.
An interesting point did arise, though. Supposing that the underlying law had always and explicitly been that of Pennsylvania – what then would have happened as regards the period of cover under the (UK law) reinsurance? In other words, how would the Courts reconcile the clash between the unusual yet legally correct (under Pennsylvanian law) finding that Lexington were liable for all loss occurring from 1942 onwards as against the very plain words of the reinsurance contract’s period clause, i.e. that it only responded to losses occurring during the policy period (for 3 years from 1 July 1977)? Schaff admitted that he did not know the answer but said that, while it would be a very close call, it was perhaps marginally more likely that reinsurers would still squeak home. He alluded to their Lordships’ comments that the period clause in the reinsurance wording was very plain, and also to the English reinsurance law position that an LOD clause is not at all far from being an express, specific provision that cover will only be available for losses occurring in that period.
Interesting. The factual matrix in Wasa was unusual and unlikely to be repeated, but that second scenario (a foreign finding at odds with English reinsurance doctrine) is not at all uncommon and one can expect this to be tested before very long, I suspect.
Emphasising that the case was all about construction, Schaff also pointed out why the ‘follow settlements’ clause in Wasa didn’t help the cedent, namely, because the clause only operates if the risk is one to which the insurance and reinsurance respond. Here, the reinsurance did not respond (because of the LOD provisions) and Lexington were thus unable to apply the follow clause.
While it seems obvious, that’s a principle worth bearing in mind. Too often, people see a follow settlements or Full Reinsurance wording and immediately conclude that cover must necessarily apply. Wasa shows quite neatly why that is not always the case.
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Well, yes, it has been pretty quiet here on ReRisk for a while and I could give you all some spiel, but basically I’ve been busy, then on holiday (twice) and so forth, and now I’m back, but even more basically…not much has happened in the Reinsurance (legal) world for a while, with the notable exception of
WASA -V- LEXINGTON
but it’s been so absolutely, comprehensively done to death already by every single commentator that I’m not going to say any more.
Let’s trust that as the dog days of Summer pass and we move into the new term there’ll be more to report. I should have one of the first cases in the new Supreme Court coming up soon, so that should be ink to the pen.
The front page splash in The Lawyer yesterday was that EC3 law firms would be doing well out of the forthcoming “tidal wave of litigation“.
Certain of the quotes were remarkably insensitive. The comment that”the London market’s walking around with a smile on its face” from one senior partner managed to combine smugness and hubris in equal measures. Even if that were correct, I’m not sure that I’d want to crow about it so openly.
But I am not at all convinced that it is correct.
People say that this is the early 90s all over again. That certainly was a boom time for the initially rather select band of law firms active in EC3. I cut my teeth on a plethora of E&O cases, in all fields, and there was certainly no shortage of work.
However, times have changed since then, and it’s worth bearing in mind the following factors that put us in a different place this time round:
Changes in caselaw: Back in the early 90s, there was not a well-established body of caselaw on the issues typically in dispute; now there is. So there is less to argue about.
Banks are not driving litigation: Last time around the banks were a major driver of much of the litigation against surveyors, which itself constituted a very high proportion of all E&O claims. Now, the banks will probably sit tight and keep their heads down: with a pile of our cash from the bail-out, and a perception of bankers as Public Enemy No. 1, they will not feel quite the same need to go after funds lost in shaky deals, especially when to do so might expose their own perhaps questionable practices to the public gaze.
Increased professionalism within insurers: Since the 90s, insurers have become very much more professional in what they write and, more importantly, in how they manage and control claims. Back then, it was comparatively rare to have in-house claims counsel or solicitors amongst your claims team; now, it is the norm. Insurers are much more capable now of triaging claims and filtering out the ones that need to go on to external solicitors. And when cases do go out to lawyers, the insurers’ claims team tends to be much more pro-active about managing them and getting results–gone are the days when a one year qualified solicitor could simply put the case on auto-pilot and then settle very shortly before trial, collecting money every time the case passed Go.
Changes in the Court system: Reforms in the way the courts handle cases has also had a huge effort, with claims issued in the Commercial Court dropping from (from memory) about 147,000 in 1995 to about 14,700 in 2005. Fast-track procedures, the pre-action protocols, increased and interventionist case management: all of these have had a powerful effect in weeding out unmeritorious claims (and defences).
Circumstances -v- Claims: Anecdotal evidence tends to support the view that, whilst the notification of circumstances has shot through the roof, that is not as yet translating into anything like the same number of claims. Claims will rise in time, no doubt, but I don’t think we’re ever going to see them anywhere near matching notifications.
Too many lawyers: Back in the Good Old Days, there were really only a few specialist law firms around who worked significantly with the EC3 market. Once others perceived it as a gravy train, the vultures descended and a whole raft of firms suddenly began to claim an expertise in the field. While a few fell by the wayside for various reasons–no expertise, marketing to the ‘wrong’ sector and getting killed on rates etc–there are still enough around claiming specialism to make it something of a buyer’s market.
We are undoubtedly going to see a rise in claims and a concomitant rise in work for solicitors advising the insurance industry. That is almost inevitable in a recession, for basic human reasons–when the money dries up, people frequently have to litigate to try and recoup legitimate monies (say, an architect who is not paid his fees, suing his client and then facing a counterclaim many times the value of those fees) or, fraudulently, they make false claims against insurers.
However, save in one area, I don’t think we’re going to see a “tidal wave of litigation” for all the reasons above. That one area? You may find some measure of ironic amusement in that the one field that really does seem to be motoring is…(wait for it)…solicitors’ negligence.
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No, this isn’t a story about how junior assistants (yes, I think they still do have them) are made to work 27 hours a day at this top tier City law firm, but rather that, a long time ago, Mr Freshfield had some clients who had links to the slave trade.
The FT today reveals that Freshfield
and his sons had several slave-owner clients, mostly based in the Caribbean. The lawyers acted as trustees of the owners’ estates and in one case tried to claim unpaid legal fees for the firm through the government scheme set up to compensate owners after abolition.
Given the then-pervasive nature of the slave trade in British society, this seems to me not un-akin to marvelling nowadays that a lawyer has clients with links to the haulage industry. That is not remotely to excuse the practice of slavery, which must, in any culture at any time, be abhorrent. But to indulge in hand-wringing now seems to me questionable. To paraphrase from William Monahan’s generally good script in Kingdom of Heaven, “those who gave offence are not now alive; nor those who were offended”.
Mind you, it’s topical because I was lunching with a friend the other day who noted that his business card did not bear the full address of the company for fear of ramifications, given that the company has a large presence in the US. The offending part of the address? “Plantation Place”. I guess it plays differently in the States, where the ghastly realities of slavery were much closer to home.
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