COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
THE HONOURABLE MR JUSTICE COOKE
2007 FOLIO 540
Strand, London, WC2A 2LL
B e f o r e :
THE RIGHT HONOURABLE LORD JUSTICE LONGMORE
THE RIGHT HONOURABLE LORD JUSTICE JACOB
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Mr Bernard Eder QC & Mr Stephen Houseman (instructed by Allen & Overy LLP) for the Respondent
Hearing dates : 29th & 30th October 2007
Crown Copyright ©
Lord Justice Longmore :
"The liability insurance crisis of the mid-1980's was viewed by many insurance people at the time as largely attributable to decisions by American judges and juries which expanded tort liabilities and broadened insurance coverage, both beyond what insurers believed was contemplated when they wrote and sold the policies. To address this problem, the decision-making process on disputes with policyholders was moved from the United States court system to London arbitration." See Liability Insurance, The Bermuda Form by Jacobs, Masters and Stanley (2004) para 1.25.
It may be true that the impetus for London arbitration may have arisen from a certain disenchantment with the expansionist scope of American jury and judicial decision-making but it might equally be true that the selection of New York law as the proper law of the contract may show a certain disenchantment with the substantive law of insurance in England, a matter which the Law Commission is currently addressing, see Joint Consultation Paper LCCP No. 182.
Any dispute arising under this Policy shall be finally and fully determined in London, England under the provisions of the English Arbitration Act of 1950 as amended …
If the party … notified of a desire for arbitration shall fail or refuse to nominate the second arbitrator … the party who first served notice of a desire to arbitrate will … apply to a judge of the High Court of England for the appointment of a second arbitrator … In the event of the failure of the first two arbitrators to agree on a third arbitrator … any of the parties may … apply to a judge of the High Court of England for the appointment of a third arbitrator ….
The Board shall, within ninety (90) calendar days following the conclusion of the hearing, render its decision on the matter or matters in controversy in writing … In case the Board fails to reach a unanimous decision, the decision of the majority of the members of the Board shall be deemed to be the decision of the Board and the same shall be final and binding on the parties thereto, and such decision shall be a complete defence to any attempted appeal or litigation of such decision in the absence of fraud or collusion."
(Condition (y) is then a Service of Suit clause pursuant to which the insurer agrees (1) that, if it does not pay any amount claimed to be due under the policy, it will submit to any court of competent jurisdiction in the United States and (2) that process may be served in New Jersey.)
"(q) Governing Law and Interpretation
This policy shall be governed by and construed in accordance with the internal laws of the State of New York, except insofar as such laws may prohibit payment in respect of punitive damages hereunder and except insofar as such laws pertain to regulation by the Insurance Department of the State of New York of insurers doing insurance business or issuance or delivery of policies of insurance within the State of New York; provided, however that the provisions, stipulations, exclusions and conditions of the policy are to be construed in an even-handed fashion as between the Insured and the Company; without limitation, where the language of this policy is deemed to be ambiguous or otherwise unclear, the issue shall be resolved in the manner most consistent with the relevant provisions, stipulations, exclusions and conditions [without regard to authorship of the language, without any presumption or arbitrary interpretation or construction in favour of either the Insured or the Company and without reference to parol evidence]."
The Reference to Arbitration
"2. Appointment of Tribunal
(a) The parties confirm their acceptance that the Tribunal composed of … has been validly established in accordance with Article V of their Insuring Agreements …
8… Applicable Law
(a) Pursuant to Article V(q) of the Agreement, the law governing the insurance policy is the law of the State of New York, USA.
(b) Pursuant to Article V(o) of the Agreement, the juridical seat of the arbitration is London, UK. Accordingly the law governing the arbitration itself [lex arbitri] is the English Arbitration Act 1996, as amended and supplemented, regardless of whether meetings and hearings take place elsewhere in the interest of saving costs or convenience."
The Parties' Respective Cases before the Judge
The Arguments in this Court
"… an agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause. Any claim for a remedy going to the existence or scope of the arbitrator's jurisdiction or as to the validity of an existing interim or final award is agreed to be made only in the courts of the place designated as the seat of the arbitration."
That is, in my view, a correct statement of the law.
"In the great majority of cases, these three laws will be the same. But this will not always be so. It is by no means uncommon for the proper law of the substantive contract to be different from the lex fori; [The Compagnie Tunisienne De Navigation S.A. case was then one such an example]; and it does happen, although much more rarely, that the law governing the arbitration agreement is also different from the lex fori."
Mustill J gave Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd  AC 583 as an example of this second situation. That was a case where the proper law of the building contract and the arbitration agreement was English but the reference was conducted in Scotland. Mustill J was, however, saying that it would be a rare case in which the law of the arbitration agreement was not the same as the law of the place (or seat) of the arbitration.
"It is by now firmly established that more than one national system of law may bear upon an international arbitration. Thus, there is the proper law which regulates the substantive rights and duties of the parties to the contract from which the dispute has arisen. Exceptionally, this may differ from the national law governing the interpretation of the agreement to submit the dispute to arbitration. Less exceptionally it may also differ from the national law which the parties have expressly or by implication selected to govern the relationship between themselves and the arbitrator in the conduct of the arbitration: the "curial law" of the arbitration, as it is often called. The construction contract provides an example. The proper substantive law of this contract is the law, if such it can be called, chosen in clause 68. But the curial law must I believe be the law of Belgium. Certainly there may sometimes be an express choice of a curial law which is not the law of the place where the arbitration is to be held: but in the absence of an explicit choice of this kind, or at least some very strong pointer in the agreement to show that such a choice was intended, the inference that the parties when contracting to arbitrate in a particular place consented to having the arbitral process governed by the law of that place is irresistible."
Mr Hirst submitted that Lord Mustill was there saying that it was less rare or less exceptional that the law governing the arbitration agreement should be different from the lex fori (as he called it in Black v Clawson) or the "curial law" as he is calling it in Channel Tunnel Group (a phrase that goes back in an arbitration context at least to the submissions of Mr James McKay QC (as he then was) in Miller v Whitworth Estates  AC at page 587 B-E, and probably a good deal earlier, as being equivalent to the lex fori).
"…a complete defence to any attempted appeal or litigation of such decision in the absence of fraud or collusion"
would be rendered otiose if either party could say in New York that there had been a manifest disregard of New York law. That itself must be a strong pointer to the arbitration agreement being governed by English rather than New York law. Mr Hirst's response was to say that the clause anyway attempted to exclude forms of serious irregularity other than fraud of collusion and that even in English law the provision was therefore partially invalid. But that (if true) is a much less serious invalidity than an invalidity which would permit the parties to raise any question of law arising on the award when it was the manifest intention of the parties to exclude that possibility.
Lord Justice Jacob:
Master of The Rolls: