Private International Law of Reinsurance and Insurance

Raymond Cox; Louise Merrett and Marcus Smith

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13 REINSURANCE AND INSURANCE: CHOICE OF LAW IN ARBITRATION DISPUTES

13.1 If the insurance or reinsurance contract contains an arbitration clause, the picture in relation to choice of law changes completely. In this chapter we consider the choice of law rules which will apply in such cases. In particular, we consider the extent to which the various regimes already discussed will apply to arbitrators.

B. THE DIFFERENT CHOICE OF LAW ISSUES WHICH ARISE IN ARBITRATIONS

13.2 As we have already seen (see para. 8.3 above), a number of different choice of law issues arise in the context of arbitration. The arbitrators must determine:

(1) the law governing the agreement to submit the dispute to arbitration;
(2) the law governing the reference to arbitration;
(3) the law which regulates the conduct of the arbitration; and
(4) the law which regulates the substantive rights of the parties.1

13.3 It is only the last of these issues, the law which regulates the contract or other matter from which the dispute has arisen, that also arises in court proceedings. The various regimes which apply to determine choice of law in insurance and reinsurance contracts have been discussed in detail in Chapters 9 to 12. The extent to which arbitrators are bound by these same regimes is a difficult question. But first we will consider briefly the arbitration-specific choice of law questions referred to at (1) to (3) above.2

C. THE LAW GOVERNING THE AGREEMENT TO SUBMIT THE DISPUTE TO ARBITRATION

13.4 An arbitration clause in a contract constitutes a self-contained contract collateral to the main contract of which it forms part.3 The law governing this self-contained agreement need not be the same as that which governs the rest of the contract and must be determined separately.4 13.5 The law which governs the arbitration agreement will govern a number of issues, notably: whether the agreement to arbitrate is valid; the interpretation of the arbitration agreement, and in particular whether the arbitrator has jurisdiction over a specific issue; and

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whether an agreement to arbitrate has been frustrated. It will also be relevant to the other choice of law questions. Thus, the law governing the arbitration agreement will be applied to decide whether there has been an agreement as to curial law (i.e. issue (3) above).5 13.6 The Rome Convention does not apply to agreements to arbitrate (Article 1(2)(d)). Nonetheless, an arbitration clause is usually governed by the same law as that which governs the contract of which it forms part. It will only be in exceptional cases that the laws differ.6 For example, in Deutsche Schachtbau-und-Tiefbohrgellschaft mbH v. Ras Al Khaimah National Oil,7 an arbitration agreement providing for arbitration in Geneva was governed by Swiss law, notwithstanding that the contract, which was to be performed in R’As Al Khaimah, had been held by the arbitral tribunal to be governed by general principles of law. Thus, usually an arbitration agreement in an insurance or reinsurance contract will be governed by the law applicable to the contract it is contained in, determined in accordance with the relevant choice of law regime as has been described in detail in the preceding chapters. The main situation where this will not be the case is where the underlying contract is governed by law A, but provides for arbitration in state B, which may be chosen as neutral territory. In such a case it is likely that the presumption that the agreement to arbitrate will be governed by the same law as the law of the arbitration will outweigh any other presumption.8 13.7 All questions relating to the formulation of an arbitration agreement are governed by the law which would govern if it were validly concluded, i.e. by its putative proper law.9

D. THE LAW GOVERNING THE REFERENCE TO ARBITRATION

13.8 There is in theory a distinction between the agreement to arbitrate and the actual reference to arbitration which constitutes a contract in its own right. In theory, at least, that contract is capable of having its own proper law. But the overwhelming likelihood is that they will be governed by the same law. Indeed, there is no case where the courts have held that the law applicable is different to that which governs the agreement to arbitrate.10 Thus, the laws at (1) and (2) above are nearly always the same.

E. THE LAW GOVERNING THE ARBITRAL PROCEEDINGS

13.9 The law governing the arbitral proceedings, often referred to as the curial law, will govern procedural aspects of the arbitration, such as appointment of arbitrators, the conduct of the proceedings, and challenge to the award. The law of the arbitration will also be applied, as we will see, to decide what law the arbitrators are to apply to decide the substantive issues (i.e. issue (4) above).11

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13.10 The 1996 Arbitration Act tells us when English procedural law applies.12 The application of the Act, and thus the curial law, depends on a number of factual questions. Most significant is whether the seat of the arbitration is in England. 13.11 The juridical seat of an arbitration is not necessarily the place where the hearings physically take place. The seat may be designated by the parties themselves or they may agree to delegate the decision to the arbitrators (see para. 8.7 above). In the absence of any express designation, the court will have to determine the seat. The seat has to be determined at the outset of the arbitration. The court will consider the parties agreement and all the relevant circumstances at the time when the arbitration was commenced. These circumstancesinclude any connections with one or more particular countries that can be identified in relation to:

(1) the parties;
(2) the dispute;
(3) the proposed procedures in the arbitration, including the place of any interlocutory or final hearings; and
(4) the issue of the award.13

13.12 Although the place where any hearings take place is clearly significant, it can be outweighed by other factors, particularly if that place is purely fortuitous or the hearings were held there to meet to convenience of the arbitrators or particular witnesses.14 13.13 If the seat of the arbitration is in England, the 1996 Act will apply in its entirety. Thus various procedural rules set out in that Act will apply. However, some of those provisions are mandatory (for example, the provisions relating to the court’s powers of supervision such as the power to set aside or remit an award for lack of jurisdiction or serious irregularity and certain of the provisions relating to the court’s support of the process such as the duty to stay court proceedings, the power to extend time limits and the power to secure the attendance of witnesses, as well as the duty of the tribunal to act fairly and impartially), while the others are non-mandatory (for example, the power to appeal on questions of law). It is possible for the parties to contract out of the non-mandatory provisions and chose their own rules in that regard. This can be done in a number of ways:

(1) the parties may have agreed to arbitration in England in accordance with English law but have specifically excluded certain of the non-mandatory provisions. This is what happened in XL Insurance Ltd v. Owens Corning 15 where the parties had agreed to hold their arbitration in London but had excluded section 45 (application to the court for a ruling on a preliminary point of law) and section 69 (appeal on a point of law);
(2) the parties may have agreed to arbitrate in accordance with the rules of one of the institutional arbitration organisations, for example they may have incorporated the Rules of the London Court of International Arbitration or the UNCITRAL Arbitration Rules. To the extent that those rules are inconsistent with non-mandatory provisions in the 1996 Act the rules will apply;

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(3) the parties may have chosen a different curial law. Where the procedural rules imposed by that law differ to the non-mandatory provisions in the 1996 Act the curial law will apply.

13.14 A little more needs to be said about (3) above. Section 5(5) of the 1996 Act provides:

“The choice of a law other than the law of England and Wales or Northern Ireland as the applicable law in respect of a matter provided for by a non-mandatory provision of this Part is equivalent to an agreement making provision about that matter.

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