QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building, Fetter Lane London EC4A 1NL |
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B e f o r e :
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BRITISH-AMERICAN INSURANCE (KENYA) LTD |
Claimant |
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- and - |
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(1) MATELEC SAL |
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(2) THIKA POWER LTD |
Defendants |
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Mr Timothy Hill QC and Mr James Shirley (instructed by Wragge & Co LLP) for the Defendants
Hearing dates: 16 and 17 July 2013
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Crown Copyright ©
Mr Justice Walker:
A. The claims, the parties and the policy
(1) some of which were apparently only concerned with a contract of reinsurance ("the reinsurance contract") under which BAIC was the reinsured; and
(2) some of which, while apparently concerned with the reinsurance contract, must apply to the insurance contract as well; thus, for example, the "Risk Details" are found in a part of the policy which describes BAIC as the "reinsured", but which provides the only source for many of these essential details in the insurance contract.
A. The claims, the parties and the policy | A. |
B. The issues and the factual matrix | B. |
B1. The issues and the sub-issues | B1. |
B2. The issues in context, and the factual matrix | B2. |
B3. Overview of the sub-issues | B3. |
C. The hearing, and the outcome | C. |
D. The unamended policy | D. |
D1. General aspects of the unamended policy | D1. |
D2. The Initial Table | D2. |
D3. The Insurance Schedule | D3. |
D4. The Risk Details | D4. |
D5: Remaining sections: references to English law / jurisdiction | D5. |
E. The amended policy | E. |
F. The construction sub-issue | F. |
F1. Construction: what is in dispute | F1. |
F2. Construction: general principles | F2. |
F3. Construction: the arguments | F3. |
F4. Construction: Analysis | F4. |
G. Detailed history of events | G. |
G1. Matelec, Cape, and Crescent; the "draft submission" | G1. |
G2. The wording of the policy when it was signed | G2. |
G3. The cover note | G3. |
G4. The endorsement | G4. |
G5. Events after the endorsement | G5. |
G6. Mr Nasr's evidence as a whole | G6. |
H. The rectification sub-issue | H. |
I. The estoppel sub-issue | I. |
J. Conclusion | J. |
Annex: The Facultative Terms | Annex |
B. The issues and the factual matrix
B1. The issues and the sub-issues
(1) the contractors were among the insured parties;
(2) the project was financed by lenders ("the lenders") who imposed insurance requirements on the contractors;
(3) Cape SAL ("Cape", a Lebanese company) acted as insurance broker on behalf of the contractors; and
(4) Crescent Global UK Limited ("Crescent") acted on behalf of the contractors as sub-broker.
2. There shall be a trial of the following issues :
(1) Whether BAIC is entitled to refer disputes arising in connection with the [amended policy] to arbitration in London; and
(2) Whether the [contractors] are bound to refer (i) the dispute which has been submitted to arbitration by BAIC pursuant to its Notice of Arbitration dated 22 November 2012; and/or (ii) any dispute arising in connection with the [amended policy] to arbitration in London.
With a view to the Court determining:
(a) Whether to declare that there is, or is not, a binding agreement to arbitrate;
(b) Whether to grant or refuse an injunction (interim or final) restraining proceedings other than by way of arbitration in London; and
(c) Whether to grant relief pursuant to s. 18 of the Arbitration Act 1996.
B2. The issues in context, and the factual matrix
TYPE: | Marine Cargo and Delay in Start Up (DSU) Reinsurance |
INSURED: | IFC, ABSA/BARCLAYS and African Development Bank as lenders and/or Thika Power Limited and/or MAN/MELEC Power Services and/or MATELEC and/or Sargent & Lundy and/or Contractors / Sub-contractors of any tier, Suppliers, Consultants & supervisors and other concerned parties from whom they have instructions to insure and as agreed by the lead reinsurer. |
ADDRESS: | Kenya |
REINSURED: | BRITISH AMERICAN INSURANCE COMPANY |
7) Dispute resolution: Any dispute between the parties arising out of or in connection with the provisions set out herein or in the acceptance including contract formation and validity and whether arising during or after the agreed period shall be settled by arbitration in accordance with the Arbitration Rules set out in the acceptance. The applicable law and the seat of arbitration are as set out in the acceptance.
This reinsurance shall be governed by and construed in accordance with the law of England and Wales and each party agrees to submit to the exclusive jurisdiction of the Courts of England and Wales. All disputes arising hereunder shall be submitted to a competent court in England and Wales.
Seat of Arbitration: London Appointor: Appointing officers of ARIAS (UK)
is a "not-for-profit" society formed in 1991 at the instigation of various members of the legal profession dealing with Insurance and Reinsurance disputes. Lawyers and their clients had expressed a need to improve arbitration procedure and create a source of trained, insurance-practitioner arbitrators from whom well reasoned awards might be forthcoming.
It is hereby noted and agreed that with effect from Inception, the Law and Jurisdiction is amended to read as follows:
CHOICE OF LAW & JURISDICTION: This reinsurance shall be governed by and construed in accordance with the law of England and Wales and each party agrees to submit to the exclusive jurisdiction of the Courts of Kenya. All disputes arising hereunder shall be submitted to a competent court in Kenya.
Seat of Arbitration: London Appointor: Appointing officers of ARIAS (UK)
B3. Overview of the sub-issues
C. The hearing, and the outcome
(1) BAIC relied upon the statement of George Odinga. Mr Odinga lives in Nairobi, Kenya, where he is an underwriter employed by BAIC. His witness statement was straightforward and went into considerable detail. He gave oral evidence in a similarly straightforward manner. There were occasions when Mr Hill and Mr Odinga were speaking at cross purposes. They do not call for criticism of either Mr Odinga or Mr Hill. Mr Odinga regarded the policy as a single contract involving the insured parties, BAIC and the reinsurers. This part of his evidence differed from the agreed legal analysis which I have set out above. There was no suggestion, however, that in relation to this part of his evidence Mr Odinga was being disingenuous. He accepted that under the policy BAIC was the insurer for 100% of the risk, and that it could not say that the insured parties must look to the reinsurers. His thinking, in producing the policy, was that proposed terms of reinsurance had been sent by Crescent to its client, and for that reason the terms of reinsurance needed to be part of the insurance contract.
(2) The contractors relied upon the witness statement of James Cuthbert. Mr Cuthbert is based in London, where he is a senior broker at Crescent. His written and oral evidence was much less detailed than that of Mr Odinga. He is not to be criticised for this. The dealings between Mr Cuthbert and Mr Odinga were particularly significant for Mr Odinga. They concerned a piece of business which was very substantial. Moreover, it involved Swiss Re, a reinsurer with whom BAIC already had an existing and important relationship, in that Swiss Re was already a reinsurer of BAIC under treaty arrangements. By contrast, Mr Cuthbert's role was, in Mr Hill's words, more that of a foot-soldier than that of a general. He was acting on the instructions of Mr Roger Mattar, of Crescent's Bahrain office. It was Mr Mattar who dealt with Cape and the reinsurers. There was no particular reason for Mr Cuthbert to remember the detail of what he said to Mr Odinga. In so far as his account differs from that of Mr Odinga, I have no hesitation in preferring the account given by Mr Odinga.
(3) The contractors also relied upon the witness statement of Samer Nasr. Mr Nasr, who is based in the Lebanon, is Director in the International Business Development Division of Matelec and Chairman of Thika Power. As I explain below his witness statement was misleading in certain respects. There were aspects of his oral evidence which I found difficult to accept.
D. The unamended policy
D1. General aspects of the unamended policy
p. 2 | Initial Table |
p. 3 | Insurance Schedule |
pp. 4 to 7 | Risk Details |
p. 8 | Information Section |
pp. 9 to 11 | Security Details |
pp. 12 to 14 | Subscription Agreement Section |
p. 15 | Fiscal and Regulatory |
p. 15 | Broker Remuneration and Deductions Section |
pp. 16 to 48 | Section 1: Marine Cargo Policy |
p. 16 | Institute Cyber Attack Exclusion Clause |
p. 17 | Institute Radioactive Contamination, Chemical, Biological, Bio-chemical and Electromagnetic weapons exclusion clause |
pp. 18 & 19 | Institute Classification Policy Clause 01/01/2001 |
pp. 20 to 26 | Institute Cargo Clauses (A) |
p. 26 | Institute Replacement Clause |
pp. 27 to 31 | Institute War Clauses (Cargo) |
pp. 32 to 36 | Institute Strikes Clauses (Cargo) |
p. 37 | Termination of Transit Clause (Terrorism) 2009 |
p. 38 | Cargo ISM Endorsement |
p. 39 | Cargo Piracy Notice of Cancellation |
p. 40 | Loss Payee Clause Swiss Re |
pp. 41 to 48 | Institute Cargo Clauses (C) |
pp. 49 to 57 | Section 2: Marine Delay in Start Up |
pp. 57 to 61 | General Policy Conditions Applicable to Section 1 and 2 |
(1) Each page of the Swiss Re slip bore Crescent's header (along with the UMR and page number) and footer, while each page of the unamended policy bore BAIC's header (along with the policy number) and footer (including page numbering) along with, as noted in the previous paragraph, Mr Odinga's signature.
(2) The Initial Table and the Insurance Schedule (the first two items in the list above of the contents of the unamended policy) did not feature in the Swiss Re slip.
(3) The Swiss Re slip's first page stated, immediately under the header, "MRC SLIP"; this did not appear in the unamended policy.
(4) The "Risk Details" section in the Swiss Re slip said that there were no express warranties, while in the policy it said that express warranties were "as per policy".
(5) The provision as to "Choice of Law & Jurisdiction" differed as set out in section B above.
D2. The Initial Table
(1) In main row 1, a description of the "Policy Type":
MARINE CARGO AND DELAY IN START UP (DSU)
(2) In main row 2, a description of the "Insured" as:
IFC, ABSA/BARCLAYS and African Development Bank as lenders and/or Thika Power Limited and/or MAN/MELEC Power Services and/or MATELEC and/or Sargent & Lundy and/or Contractors / Sub-contractors of any tier; Suppliers, Consultants & supervisors for their site activities only; other concerned parties to be named and to be agreed by lead Reinsurer.
This differed in some respects from the description in the "Risk Details" section of the policy. The differences are immaterial for present purposes.
(3) In main row 3, a description of "The Postal Address" as:
NAIROBI KENYA
(4) In main row 4, a description of "Business/Occupation" as:
CONTRACTOR
(5) In main row 5, a description of the "Broker" as:
Crescent Global UK Ltd
(6) In main row 6, a description of the "Financial Interest (If any)" as:
As per named insured
(7) In main row 7, a description of the "Operative Endorsements" (Clauses) as:
APPLICABLE CLAUSES AS PER POLICY
(8) In main row 8, a description of the "Period of Insurance":
Effective From:
00:01 hours local standard time on the 3rd February, 2012
To:
00:01 hours local standard time on the 3rd February, 2013
At the address of the Insured above or as per original policy.
(9) In main rows 9 to 12, a computation concerning the "1st Premium" a term which was followed by the descriptive words "Minimum and deposit premium (50% of estimated annual premium)". The computation began in row 9 with an amount of 69,056.25 which was described as "Basic" first premium. Row 10 then added a fronting fee of 4,961.18, local taxes of 2,480.78, and ceding commission of 4,415.78, giving a sub-total of 80,913.99. Row 11 identified "Broker commission" of 18,317.03, leading to a total in row 12 of 99,231.
(10) In main row 13, a description of the "Geographical and Jurisdiction Area" as "Kenya".
D3. The Insurance Schedule
(1) Rows were set out, apparently with the intention that each row should be signed in the final column by a specified "Insurer" for a specified "Proportion". For each such "Insurer" the row identifies a maximum sum insured per conveyance for marine risks (which I shall call "the marine conveyance maximum"), and a maximum sum insured per year for DSU risks (which I shall call "the DSU yearly maximum"). The row also identified (for the relevant "Insurer") a "1st Premium", accompanying that term by the same descriptive words as were used for rows 9 to 12 of the Initial Table.
(2) The first main row identified BAIC as an "Insurer" with a "Proportion" of 5 per cent. In the signature column the stamp of BAIC appeared with Mr Odinga's signature.
(3) The next three main rows appeared under a heading "FACULTATIVE". They identified the remaining "Insurers" (and "Proportions") as Swiss Re (50%), Munich Re (20%) and Africa Re (25%). Figures were set out in each row for the relevant insurer's marine conveyance maximum, DSU yearly maximum, and "1st Premium". None of these three rows, however, is signed or stamped.
(4) The final row computed the total of the "Proportions" as 100%. It identified totals for the marine conveyance maximum of 10million and for the DSU yearly maximum of 9 million.
(5) The final row also computed the total of the amounts given for "1st Premium" in relation to each of the "Insurers". The total thus computed was 69,056.25, which corresponded to the amount described as "Basic" in the 9th main row of the Initial Table.
D4. The Risk Details
(1) The fifth and sixth provisions dealt with the period of insurance in the same terms as in the Initial Table, and with the insured interest, for which purpose a definition of "project cargo" was given as described in paragraph 3 above. The seventh provision concerned the type of conveyances upon which the insured interest could be shipped.
(2) On page 5, the eighth and ninth provisions dealt with monetary limits of liability and provided for various deductibles, while the tenth provision provided that the territorial limits were to be worldwide.
(3) The eleventh provision, on pages 5 and 6, comprised the list of conditions mentioned in section B above. The contractors relied at the hearing upon the way in which the conditions were set out, including the presence of blank lines. For that reason I set out the list with line numbers inserted in square brackets:
[1] | Marine Cargo |
[2] | |
[3] | Institute Cargo Clauses "A" CL382 dated 1/1/2009 |
[4] | Institute War Clauses (Cargo) CL385 dated 1/1/2009 |
[5] | Institute Strikes Clauses (Cargo) CL386 dated 1/1/2009 |
[6] | Institute Classification Clause CL354 dated 1/1/2001 (amended age |
[7] | limitation) |
[8] | Institute Radioactive Contamination, chemical, biological, Bio-Chemical |
[9] | and Electromagnetic Weapons Exclusion Clause 10/11/2003 (CL370) |
[10] | Institute Cyber Attack Exclusion Clause 10/11/2003 (CL380) |
[11] | Institute Replacement Clause CL372 dated 01/12/2009 |
[12] | Cargo Piracy Notice of Cancellation JC2008/024 dated 11/12/2008 |
[13] | Termination of Transit Clause (Terrorism) JC2008/56 dated 1/1/2009 |
[14] | Cargo ISM Endorsement JC 1998/019 dated 1/5/1998 |
[15] | Sanction Limitation Exclusion Clause |
[16] | |
[17] | General Exclusions |
[18] | |
[19] | Shipments from prohibited countries as per the Sanction Limitation |
[20] | Exclusion Clause are excluded. |
[21] | Unpacked / unpainted steelwork and all non containerized cargo |
[22] | shipped on deck are covered under conditions not wider than those |
[23] | defined in the Institute Cargo Clauses "C" CL384 dated 1/1/2009 |
[24] | On unpacked and/or unprotected items, bending, twisting, rust, |
[25] | oxidation and discolouration are excluded, unless caused by a peril |
[26] | insured under the Institute Cargo Clauses "C" CL384 dated 1/1/2009 |
[27] | |
[28] | Mechanical, Electronic and Electrical derangement are excluded |
[29] | unless caused by a peril insured under the Institute Cargo Clauses "C" |
[30] | CL384 dated 1/1/2009. |
[31] | |
[32] | Additional Conditions / Clauses |
[33] | |
[34] | Accumulation Clause |
[35] | Project Cargo Critical Items Clause |
[36] | Warranted survey by approved surveyor for Project Cargo Critical |
[37] | Items at insured's expense at loading and discharging ports. |
[38] | Warranted that carrying vessel is entered in approved P & I Club as |
[39] | per P & I Club Clause |
[40] | Loss Payee Clause. |
[41] | |
[42] | Claims Co-Operation Clause as per Swiss Re General conditions for |
[43] | Facultative Business. |
[44] | Application of Swiss Re General conditions for Facultative Business. |
[45] | |
[46] | Delay in Start Up (DSU) |
[47] | As per Project Cargo Delay in Start Up Wording JC2009/020 dated |
[48] | 02/11/2009 |
(4) The twelfth provision concerned "subjectivities", and is immaterial for present purposes. So is the thirteenth provision, concerned with "express warranties", other than to recall that it is the fourth respect in which the unamended policy differed from the Swiss Re slip.
(5) The fourteenth provision was the fifth and final respect (see section D1 above) in which the unamended policy differed from the Swiss Re slip. What the Swiss Re slip said about "Choice of law & Jurisdiction" is set out in section B above. What the unamended policy said was set out at the foot of page 6:
CHOICE OF LAW & KENYA
JURISDICTION:
(6) On page 7, the fifteenth and sixteenth provisions dealt with premium and premium payment terms.
(7) The seventeenth provision concerned taxes "payable by insured and administered by underwriters". These were described as being "4.45 per cent on gross premium". The eighteenth provision concerned "reinsurance commission to cedant". This was described as being "2.50 per cent on gross premium". It is not clear to me that these two provisions tally with the Initial Table, but nothing turns on this.
(8) The nineteenth provision concerned "Fronting fees". These were described as "5% on gross premium". This tallies almost exactly with row 9 of the Initial Table.
(9) The twentieth provision permitted Crescent to hold material electronically.
(10) The twenty first and final provision of the Risk Details was:
REINSURER CONTRACT DOCUMENTATION: | This document details the contract terms entered into by the Reinsurer(s), and constitutes the contract document. |
D5: Remaining sections: references to English law / jurisdiction
(1) The third to last section ran from pages 16 to 48. A heading on page 16 included the description "Marine Cargo Policy". What this section did was to set out the full wordings for certain of the Institute and other clause wordings listed at lines 3 to 40 of the "Conditions" provision in the Risk Details section.
(2) The second to last section ran from pages 49 to 57. A heading on page 49 included the description "Marine Delay in Start Up". What this section did was to set out the full wording referred to at lines 47 and 48 of the "Conditions" provision in the Risk Details section.
(3) Confusingly, these headings described the third to last section and second to last section as "Section 1" and "Section 2" respectively.
(4) The last section ran from pages 57 to 61. A heading on page 57 said that it comprised general policy conditions "applicable to Section 1 and 2" (i.e. the two preceding sections). This section began by setting out a clause, not specifically mentioned in the "Conditions" provision of the Risk Details section, seeking to exclude contribution where the insured was entitled to be indemnified by other insurance. This was followed at pp. 57 to 59 by a lengthy "Survey Warranty" which may have related to what appeared at lines 36 and 37 of the "Conditions" provision in the Risk Details section. At pages 59 and 60 was the wording for the Accumulation Clause contemplated at line 34 of the "Conditions" provision in the Risk Details section. At pages 60 and 61 was the wording for the Project Cargo Critical Items Clause contemplated at line 35 of the "Conditions" provision in the Risk Details section.
(1) In the third to last section, concerned with Marine Cargo, Clause 6 of the Institute Classification Clause (page 19 of the unamended policy), clause 19 of the Institute Cargo Clauses (A) (page 26), clause 14 of the Institute War Clauses (Cargo) (page 31), clause 14 of the Institute Strikes Clauses (Cargo) (page 36) and clause 19 of the Institute Cargo Clauses (C) (page 41) all stated:
This insurance is subject to English law and practice.
(2) In the second to last section, concerned with Marine Delay in Start Up, clause 11 (page 57) was as follows:
11. LAW, PRACTICE AND JURISDICTION.
This insurance is subject to English law and practice and the exclusive jurisdiction of the Courts of England and Wales, except as may be expressly provided herein to the contrary.
E. The amended policy
This reinsurance shall be governed by and construed in accordance with the law of England and Wales
each party agrees to submit to the exclusive jurisdiction of the Courts of Kenya. All disputes arising hereunder shall be submitted to a competent court in Kenya.
Seat of Arbitration: London Appointor: Appointing officers of ARIAS (UK)
F. The construction sub-issue
F1. Construction: what is in dispute
F2. Construction: general principles
F3. Construction: the arguments
The English courts, when faced with an exclusive jurisdiction clause and an arbitration agreement, look to the strong legal policy in favour of arbitration and the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered to be decided by the same tribunal. Unless expressly provided otherwise, the parties must be taken to have agreed on a single tribunal for the resolution of all disputes. A liberal approach to the words chosen by the parties in their arbitration clause must now be accepted as part of our law.
(1) that his construction of the contract left "very little in practice" of the exclusive jurisdiction clause; and
(2) at [50], that the effect is to give priority to the arbitration clause over the exclusive jurisdiction clause, but there was no other way of reconciling the two; it was not possible to give full effect to the jurisdiction agreement as this would be to exclude the right to arbitrate altogether, and the clause could not sensibly be construed as permitting arbitration and court proceedings in tandem as this would be a most unlikely construction of the parties intentions.
(1) It referred to the Facultative Terms, which included an arbitration agreement.
(2) Clause 11 in "Section 2" (the DSU cover) stated that the insurance was "subject to English law and practice and the exclusive jurisdiction of the Courts of England and Wales, except as may be expressly provided herein to the contrary".
(3) Other provisions of the unamended policy also referred to "English law and practice".
(4) The "Risk Details" section of the unamended policy stated, "Choice of Law & Jurisdiction: KENYA".
(1) Endorsement 3 is an endorsement to the contract of insurance between the [insured parties] and BAIC.
(2) Endorsement 3 was put forward in order to amend the position as between the [insured parties] and BAIC.
(3) The choice of law provision in Endorsement 3 plainly applies to the contract of insurance, as well as to the contract of reinsurance, ie as between the [insured parties] and BAIC as well as between BAIC and its reinsurers.
(4) It is impossible as a matter of ordinary English to read the arbitration references in Endorsement 3 as applying only as between BAIC and its reinsurers. The terms of the Endorsement simply do not say so, and there is no sensible or permissible basis for implying words of limitation (eg "but as between BAIC and its reinsurers only").
The Assureds submit that if (and the Assureds would respectfully reserve the right to argue otherwise in future; they do not need to do so at this stage) Sulamerica was correctly decided on its own facts, it represents the very furthest that a court might properly go in construing a commercial contract so as to reconcile an exclusive jurisdiction clause and an arbitration clause without losing sight of the need to arrive at a construction that the reasonable person would have understood the parties to have intended the contract to have. It is submitted that to construe the Policy so as to prohibit the Assureds from commencing proceedings in the Kenyan courts would be a step too far.
(6) Clause 7 of the Facultative Terms was perfectly workable as a term of the insurance contract. Nothing in those conditions led to the conclusion that the arbitration clause could only apply as between BAIC and its reinsurers.
(7) There was no good reason for BAIC to agree to a bifurcation of jurisdiction on the contrary, a fronting insurer would be keen to avoid falling between two stools. That was particularly true where BAIC by issuing the endorsement was intending to embody both the insurance and the reinsurance. Moreover the insured parties would not want to run the risk of a different result in a different forum. If they were entitled to succeed against BAIC, then they would want to ensure that BAIC succeeded against the reinsurers, for BAIC would be looking to the reinsurers in order to fund any payment it was obliged to make to the insureds. Accordingly it would be in the interests of the insured parties for both contracts to have the same method of dispute resolution.
(8) Nothing in the unamended policy suggested that arbitration applied only to the position between BAIC and the reinsurers. When cross examining Mr Odinga Mr Hill had drawn attention to the gap between lines 40 and 42 in the Risk Details provision dealing with conditions. It had been suggested by Mr Hill that the gap preceded lines 42 to 44 because they were concerned only with the reinsurance contract. Whatever the reason for the gap, submitted Mr Lockey, it was no indication that arbitration applied only as between BAIC and its reinsurers.
F4. Construction: Analysis
(1) The list of conditions at pages 5 and 6 of the unamended policy transposes the list at pages 2 and 3 of the Swiss Re slip, adopting the same format, and with the same line spacing, as appears there. It comprises a number of groups.
(2) Two items in the list refer to the Facultative Terms. They are at lines 42 to 44 (see section D4 above). For convenience I repeat them here:
[41] | |
[42] | Claims Co-Operation Clause as per Swiss Re General conditions for |
[43] | Facultative Business. |
[44] | Application of Swiss Re General conditions for Facultative Business. |
[45] |
(3) These two items comprise the second of two groups under a sub-heading, "Additional Conditions/Clauses". They can conveniently be referred to as "the Facultative Terms group."
(4) As with other parts of the list of conditions, the items in question appear to have been strung together without detailed thought as to how they may inter-relate with each other and with other provisions in the unamended policy. At lines 42 and 43 the "Claims Co-Operation" clause in the Facultative Terms is singled out. It will be seen from the Annex to this judgment that there is no clause specifically entitled "Claims Co-Operation." The reference, presumably, is to clause 4, which is entitled "Claims reporting." Then at line 44 it is said that there is to be "Application" of the Facultative Terms presumably including the "Claims Co-Operation" clause already identified at lines 42 and 43.
(5) At first sight there is nothing in the Swiss Re slip to warn or flag that the Facultative Terms group is wholly different in kind from the other items listed. It is only on analysis that their different role is apparent. I accept that, on analysis, in the Swiss Re slip the Facultative Terms group must have been included with the intention that they govern the relationship between BAIC and its reinsurers. On analysis, however, it would also be seen that those terms, in numerous places including clause 7, contemplate a contractual structure which does not appear to have been adopted in the present case. Clauses 1 to 5 and 7 all refer to an "acceptance" a document in which Swiss Re has accepted to be reinsurer of liabilities under a separate policy of insurance. No-one in the present case has been able to point to any acceptance, just as no-one has been able to point to any separate policy of insurance.
(6) It seems to me that the reasonable observer would conclude that, as with other wording in the Swiss Re slip, the Facultative Terms group had been included in the unamended policy so that, to the extent that they could apply to the insurance contract, they would apply to that contract. I accept Mr Lockey's points (6) and (8). While in the Swiss Re slip the Facultative Terms group had been included with the intention that they govern the relationship between BAIC and its reinsurers, this of itself does not entail that in the unamended policy they must be read in that way if and to the extent that they could be read as applying to the insurance contract.
(7) In relation to clauses 1 to 5 what is envisaged in those clauses as being in the acceptance is in fact found elsewhere in the unamended policy. In accordance with the reasoning set out above if, elsewhere in the unamended policy, London had been specified as the seat of arbitration and the rules of ARIAS (UK) had been specified as the arbitration rules, a reasonable observer would not have inferred from the location of clause 7 that arbitration was to apply only as between BAIC and reinsurers.
(8) Accordingly if it were necessary to reach a decision on the point, I would not accept the contractors' contention that the location of clause 7 in the Facultative Terms should lead to the conclusion that in the unamended policy arbitration was intended to apply only to the reinsurance contract.
(1) Thika Power is a Kenyan company, but Matelec is not. Nor is it apparent that any other insured is Kenyan.
(2) The risks insured against were predominantly marine. They might require investigation of what happened at a discharge port in Kenya, or elsewhere in Kenya following discharge, but they might equally require investigation of what happened in other parts of the world - at loading ports, during the period before cargo arrived at the loading port, during the course of the laden voyage from the loading port, or during the course of earlier voyages before the vessel loaded the project cargo in question.
(3) Thus the substantive dispute would be as likely to be concerned with events in other parts of the world as with events in Kenya.
(4) Arbitration clauses are common in commercial insurance contracts.
(5) London arbitration would have commercial advantages, in particular an expert tribunal and a substantial degree of privacy.
(6) For all these reasons I consider that the reasonable observer would identify no compelling reason overall for the insureds to want disputes to be resolved in the Kenyan courts rather than by London arbitration.
G. Detailed history of events
G1. Matelec, Cape, and Crescent; the "draft submission"
Thanks so much for your e-mail, it appears my e-mail address was captured incorrectly and I ended up not getting the attachment please re-forward.
I have also noted that we are yet to get an official instruction from your end to go on cover, all the participants need to be given official instruction to place cover and confirmation of the same obtained then the rest will now automatically fall in place.
Please liaise with Roger [Mattar] and let us have this concluded to avoid exposing the client. Also confirm when the cover is to start?
Apologies for you not receiving the confirmation of coverage.
Please find attached the signed slip from Swiss Re. Once we have received confirmation from all participating underwriters, we'll re-scan to you.
We're currently awaiting their confirmation.
Thank you for your prompt response.
We confirm cover with effect from 7th February 2012 (as per Swiss Re)
As the lead local insurer, we need to issue all the policy documents on our official documents (part of regulations), kindly send us the documents in soft- Word format to enable us process/issue them together with all the required documents as we await confirmation from Munich Re and Africa RE.
Let us know in case you need our intervention to have the rest confirm.
Thank you so much for the business we appreciate your support and the confidence you have in us.
Please find attached Swiss Re signed slip for Marine Cargo.
Please note that the M&D for the cargo has been agreed at 80% and we are awaiting the final adjustable values so currently this has been left blank until we have received final confirmation This will alter calculations for the Marine Cargo. Will advise ASAP.
We are also awaiting confirmation of no known or reported losses and a schedule of critical items to be shipped which we will forward to you ASAP.
Please also find attached our word formatted slip for Marine Cargo together with the Swiss Re terms and conditions for Facultative Business (not available in word format) as requested.
Trust you find all to be in order and look forward to receiving your signed slip for Marine Cargo ...
G2. The wording of the policy when it was signed
6. This caused us some concern. The principal insured is a Kenyan entity, and the policies (or, at least, the EAR Policy) were concerned with a risk physically in Kenya. While the jurisdiction provision was overlaid with an arbitration clause, which gave some comfort, the fact remained that the residual jurisdiction was stated to be that of a foreign court and subject to a foreign law. It appeared to us that we might face criticism from our local regulator if we agreed to that as it stood.
7. In view of the above concern, we amended the provision for law and jurisdiction. In the first instance, we simply struck out the whole of the broker's draft clause and replaced it with a reference to Kenyan law and jurisdiction, as appears in the issued policy. This seemed like the easiest solution at that time. The policy was then issued [It] simply states "Law and Jurisdiction: Kenya".
13. The arbitration aspect of the clause was not discussed, but the Claimant was evidently unhappy with the provision for English law and jurisdiction and insisted upon Kenyan law and jurisdiction. When the document containing the Policy came back from the Claimant, that's what it said:
"CHOICE OF LAW AND JURISDICTION: KENYA"
14. The Policy was agreed on that basis.
We had an insurance policy which had the reinsurance policy in it.
G3. The cover note
Dear Sirs
Original Insured: THIKA POWER PROJECT
Type: MARINE CARGO AND DELAY START UP REINSURANCE
Period: 12 months at 3rd February, 2012
Our ref: B1089/P01307/2012
We have pleasure in attaching the evidence of cover document in respect of the above mentioned contract and would ask you to check carefully and advise us, by return, if there are any discrepancies or if the cover does not meet with your requirements.
CHOICE OF LAW & JURISDICTION This reinsurance shall be governed by and construed in accordance with the law of Kenya and each party agrees to submit to the exclusive jurisdiction of the Courts of Kenya. All disputes arising hereunder shall be submitted to a competent court in Kenya.
Seat of Arbitration: London
Appointor: Appointing officers of ARIAS
(UK)
20. My understanding is that the Claimant was the party insisting on exclusive Kenyan court jurisdiction. I did not believe the reference to arbitration had anything to do with our insurance contract with the Claimant. I assumed that the reference related to and was limited to the reinsurance contract.
21. I have now seen Mr Cuthbert's statement and the reference to Swiss Re's General Conditions for Facultative Business , which mention arbitration. Although I did not particularly notice those General Conditions at the time it now explains why there was a reference to "Seat of Arbitration".
22. I reviewed the Cover Note and everything was in order from my point of view.
G4. The endorsement
4. Choice of law and jurisdiction the cover note states that the reinsurance shall be governed by the law of Kenya. However, the various Institute Clauses that detail the cover provided are governed by English law. This could mean that there is a dispute over the governing law and the law used to interpret the various clauses. To avoid this, would it be easier if the policy was governed throughout by English law.
25. We raised this matter with Cape and Crescent and James Cuthbert raised it with the Claimant's Mr Odinga. In the light of Mr Le Vey's comments, I instructed the brokers to get the Claimant to agree that the Policy would be governed by English law throughout.
26. I was pleased with the outcome of James Cuthbert's efforts because he persuaded the Claimant to accept the change. This was one less problem I had to deal with.
27. I have read Mr Odinga's witness statement in these proceedings and I do not believe what he says is correct. James Cuthbert had been expressly instructed by me (via Cape) to agree a change from Kenyan law to English law. He had no instructions to renegotiate the provision for the Kenyan courts to have exclusive jurisdiction. The Lenders had not raised any concerns about this aspect of the Policy, so it no longer concerned me. Indeed, I believed that this aspect of the Policy would be non-negotiable for regulatory reasons, so I accepted it. I can categorically confirm that I never gave instructions to Cape, Mr Cuthbert or anyone else, to change the jurisdiction aspect of the clause let alone to agree arbitration.
Subject: THIKA LAW AND JURISDICTION
Dear George,
Further to our telephone conversation, please see below from lenders:
Choice of law and jurisdiction the cover note states that the reinsurance shall be governed by the law of Kenya. However, the various Institute Clauses that detail the cover provided are governed by English law. This could mean that there is a dispute over the governing law and the law used to interpret the various clauses. To avoid this, would it be easier if the policy was governed throughout by English law.
Underwriters were also not aware that this had been amended as we did not specifically point this out to them.
Please find attached Endorsements in word for the EAR and Marine Cargo, amending coverage to English law but jurisdiction of Kenyan courts.
Hope this will not cause an issue and await your advices
Kind Regards,
James
8. A few weeks later, in mid March 2012, Mr Cuthbert of Crescent called me to discuss the law and jurisdiction provisions in the two policies. He told me that his principals were concerned about the reference to Kenyan law and jurisdiction, and that they would prefer to amend the policies to have any disputes under them resolved in England. He understood that we remained nervous about foreign law and jurisdiction, in particular the latter. As a solution, he told me that he was instructed to confirm a formulation whereby the governing law would be English law, and disputes would be resolved by way of arbitration in London (satisfying his principals) but also subject to a residual Kenyan jurisdiction clause (potentially satisfying BAIC in terms of its regulatory concerns). He told me he would send over appropriate draft endorsements, which I agreed I would review with my own legal team.
9. Soon after, I received an email from Mr Cuthbert. He referred to our conversation, and repeated the concerns he had expressed on the telephone as to the choice of Kenyan law, as this conflicted with a number of the specific incorporated wordings that make reference to English law. This might cause confusion, he said, and hence the proposal to revert to English law. He attached the promised draft endorsements, one each for the Marine Policy and the EAR Policy, "amending coverage to English law but jurisdiction of Kenyan courts", intended to take effect from policy inception. ...
10. The drafts also superimposed over the reference to jurisdiction a provision for arbitration with its seat in London, in accordance with what we had discussed.
15. However in March, the Lenders, via their advisers, JLT, expressed concern about the choice of Kenyan law. They were worried that references to English law elsewhere in the Policy might lead to confusion and wanted the parties to agree that English law would govern all aspects of the insurance.
16. I spoke to Mr Odinga over the telephone a few times in the course of resolving this issue but I have seen his evidence and I am afraid he is mistaken. We did not at any stage discuss making the Policy subject to London arbitration with the courts of Kenya providing some sort of residual jurisdiction.
17. In fact, on the telephone we only spoke briefly and I said I would be sending an endorsement to him. I explained that the Lenders were concerned about the provision for Kenyan law and that they wanted to change it to English law.
18. On 19 March 2012, I emailed Mr Odinga further to our telephone conversation.
19. I reiterated the Lenders' concerns about the involvement of Kenyan law. I had not specifically pointed out the amendment to provide for Kenyan law and jurisdiction to "Underwriters", i.e. the Reinsurers.
20. I attached copies of a draft endorsement, which was intended to reflect the new position: "English law but jurisdiction of Kenyan courts" . The wording used was in the same format as the clause that had appeared in the Draft Submission . Of course, "Courts of England and Wales" had been altered to "Courts of Kenya" and "competent court in England and Wales" to "competent court in Kenya" .
Underwriters were also not aware that this had been amended as we did not specifically point this out to them.
Dear James,
Sorry, it has taken time to deliberate on this.
We have discussed this matter with our legal team and from business perspective we do not see any serious impact on our side because at British American we value relationship with our clients and therefore we do not foresee any chance of a disagreement that will lead to litigation. We can therefore adopt the endorsements.
However, our legal team had the following comments:
1. It might cause legal challenges to have jurisdiction in another country applying laws of a different country unless on cases of international law.2. Marine is international; usually the law that will apply is for the country where the loss has occurred for example when dealing with salvage and other claims procedures. Losses in the high seas the law will be the international maritime law regardless of country whether Kenya or England.3. We stand a risk of increasing our claims cost if the case goes to England Litigation costs are more expensive in that part of the world.4. Erection All risk, is a local risk that may not need to go to England.5. The contract should be worded such that litigation becomes the last resort, Arbitration should be a clear an option Arbitration clause.
Let us know if you have any comment on the above especially on item number 5
Regards,
George Odinga
Dear George,
First of all, we would like to thank you for your comments, we would like to reiterate that the Crescent Global team as well as our clients value the relationship we have currently with you and the team and we look forward to develop it in the near future.
Having said that we will appreciate if you can accommodate the Project Lenders' request. Generally speaking our team share the view of your legal team and would like to confirm that any potential differences will be always dealt in utmost good faith, fairness and amicably. Should any other party insist on their position, we shall strive to work closely with you and the facultative reinsurers to reach a "win-win" situation.
I believe the point Underwriters are making is that for each Institute Clause under the heading "Law and Practice" it mentions that "this insurance is subject to English Law and Practice".
It is our own opinion and in full transparency that to insert an arbitration clause at this stage is unorthodox especially that:
1) Swiss Re, Munich Re and Africa Re are part of your panel of treaty reinsurers;
2) BA definitely enjoys good relationships with them;
3) Crescent Global enjoys good relationship with them in other territories.
Since the project Lenders are following up with our mutual client in this respect, in this instance can we please have your copy of the Endorsements so we can move forward and finalize this placement
Kind Regards,
James
Thanks, your position is noted and we will proceed to grant the wishes of the client, the endorsements follows shortly.
11. Following receipt of the draft endorsements, I reviewed them with my legal team at BAIC. Two concerns remained. The first of these was a general misgiving about the bifurcation between the governing law of one jurisdiction and dispute resolution to take place in another, which we thought might lead to legal challenges. The second was the interplay between the arbitration provision and the jurisdiction, precisely the issue that has now arisen in these proceedings. As to the latter, we were not comfortable that the draft clause was making it sufficiently clear which mechanism should give way to the other, that is to say which should go first. I also wondered whether it would be necessary to say more about the arbitration, specifically how arbitrators were to be appointed and such like.
12. I now understand from those representing BAIC that there may be English law legal authority on the question of reconciling an arbitration and jurisdiction clause, but that is not something of which I was aware at the time. My concern, as a non-lawyer, was simply that there might be a dispute about it, given the terms as drafted, and which I thought could be clarified with a stand alone arbitration clause. That would make it clear that arbitration took precedence, being the outcome we had discussed in our telephone conversation, and that litigation would be the "last resort". I anticipated that a full arbitration clause would also specify the number of arbitrators, their method of appointment and other procedural matters, so that the parties did not end up in a dispute about the mechanics of the arbitration itself.
13. Accordingly, we replied in the terms in my email to Crescent of 26 March 2012 . We agreed that we could adopt the endorsements proposed by the Assureds (which, of course, included a short-form arbitration agreement). Amongst other comments, we suggested that there be a specific arbitration clause, to support the abbreviated formulation proposed in the draft endorsement. This proposal was rejected by Crescent, who responded on 28 March 2012 refusing to insert an arbitration clause, which they said would be "unorthodox" for reasons stated in their email. Specifically, their email highlighted the strong commercial relationship between the interested parties, their point being (as I understood it) that it was not necessary to have a detailed clause because the parties would always be able to reach agreement on the procedure of the arbitration, without the need for this to be set out in advance.
14. I took some comfort from that, and from Crescent's assurance that "generally speaking, our team share the view of your legal team and would like to confirm that any potential differences will be always dealt with in utmost good faith, fairness and amicably". They also stressed that, if either side were to insist on their position, Crescent would strive between the parties to reach a "win-win" situation.
15. I responded the same day, confirming that we would agree to the endorsements as drafted and the next day the endorsement for the Marine Policy was returned with my scratch .
16. It was my clear understanding, both on the basis of our telephone conversation and from the subsequent correspondence, that under the terms agreed at Endorsement 3, any dispute between the parties would be referred to arbitration, with its legal seat in London, but that it was not considered necessary to spell out the arbitration procedure in detail given the co-operative relationship that existed between the parties.
17. I find it difficult to understand how it could now be said that the reference to arbitration appeared simply in "in error". On the contrary, it was consistent with what we had discussed on the telephone. In any case, this was not a long endorsement, and the reference to arbitration stands out prominently. The clause had been pored over by my team and the brokers', as is confirmed in the correspondence between us, and the objective of agreeing upon arbitration had been discussed between us. It does not seem to me credible now to suggest that the reference to arbitration, which after all appeared in a clause drafted and proposed by the brokers, was an oversight that went unnoticed by the brokers and their team throughout the entire process, or that it was intended by the parties to have no contractual effect. That was certainly not our intention, nor do I believe it was ever the intention of those representing the insureds.
5. I understand that the Claimant's argument is that the Defendant has no right to sue the Claimant in the courts of Kenya. I am not a lawyer, but, as I will explain in more detail below, I find that suggestion extremely surprising. We expressly agreed on Kenyan jurisdiction, and arbitration was expressly rejected.
19. The "CHOICE OF LAW & JURISDICTION" clause in the Cover Note has been edited from the Draft Submission to provide for Kenyan law and Kenyan jurisdiction.
20. As in the Draft Submission, this clause also contains a reference to a "Seat of Arbitration". My understanding is that the Claimant was the party insisting on exclusive Kenyan court jurisdiction. I did not believe the reference to arbitration had anything to do with our insurance contract with the Claimant. I assumed that the reference related to and was limited to the reinsurance contract.
21. I have now seen Mr Cuthbert's statement and the reference to Swiss Re's General Conditions for Facultative Business which mention arbitration. Although I did not particularly notice those General Conditions at the time it now explains why there was a reference to "Seat of Arbitration".
27. [Paragraph 27 is set out in paragraph 118 above.]
32. Mr Odinga eventually confirmed agreement on 29 March
33. The wording used was in the same format as the clause that had appeared in the Draft Submission and the Cover Note. Of course, "Courts of England and Wales" had been altered to "Courts of Kenya" and "competent court in England and Wales" to "competent court in Kenya" . There was the same reference to a seat of arbitration as there had been in the earlier documents, but again, we had agreed exclusive Kenyan jurisdiction and I believed the reference to arbitration referred to the reinsurance contract.
34. At this stage, in his email of 26 March Mr Odinga tried to persuade Mr Cuthbert to agree an arbitration clause, but I can see that Mr Cuthbert was not prepared to discuss that possibility at such a late stage.
37. The Defendants are extremely sceptical of the Claimant's sudden wish to insist upon arbitration in London. I believe this is in fact coming from Swiss Re and the other Reinsurers who are putting pressure on the Claimant now a claim under the Policy has arisen. I see no reason why the Defendants should now be made to pursue their claim in arbitration in London when they never agreed to arbitration in the first place. I have never heard of ARIAS before this case.
G5. Events after the endorsement
21. If such confirmation is not forthcoming, our clients fully reserve their rights to pursue an indemnity either through arbitration in London or the Kenyan courts at their option pursuant to the "Choice of Law & Jurisdiction" endorsement dated 3 February 2012.
The fact that there was no mistake is further demonstrated by the Assureds' original position on how this very dispute should be resolved: in the pre-action correspondence, the Assureds positively contended that they could commence London arbitration if they wished. If the Assureds had never intended to agree arbitration, their reaction at the outset would have been that the reference to arbitration in Endorsement 3 was a mistake.
G6. Mr Nasr's evidence as a whole
H. The rectification sub-issue
I. The estoppel sub-issue
J. Conclusion
Annex: The Facultative Terms
Terms and Conditions for Facultative Business
(SR GC 2003 v1)
1) Insuring clause: Unless the terms and conditions set out herein or in the acceptance provide to the contrary, the reinsurer's liability shall be subject in all respects to the same terms, conditions and limits as set forth in the policy attached to the acceptance. Should the reinsured be bound to accept any amendment to the policy, the reinsurer shall also be bound but subject to it receiving thirty days' written notice of any such proposed amendment prior to it coming into effect. In all other cases of amendment, the reinsurer's prior consent shall be required and the reinsurer shall have the right to seek to renegotiate the terms and conditions of the acceptance.
2) Reinsurance compensation: The reinsurer shall indemnify the reinsured to the extent of its participation in respect of any loss, interest or allocated expenses covered under the acceptance. Any salvages, recoveries and payments from third parties, including any recoveries from other reinsurers, whether collected or not, shall be taken into account. 'Allocated expenses' shall mean reasonable expenses incurred by the reinsured in handling claims covered under the acceptance, excluding salaries of employees, management expenses and other overhead expenses as well as costs related to declaratory judgements. The reinsurer shall be liable for its participation within the policy limit and, for non-proportional cover, up to the limit of the excess cover.
3) Follow the settlements: Claims shall be settled by the reinsured and such settlements shall be binding upon the reinsurer, providing that they are within the terms and conditions of the policy and the terms and conditions set out herein and in the acceptance and providing the reinsured has paid its share by transferring the funds or is about to pay the insured. Payment by the reinsured where it is not liable (i.e. ex gratia payments) shall only be binding on the reinsurer if it has given prior approval. Upon the reinsurer's request, the reinsured shall cooperate with the reinsurer or any other person designated by the reinsurer in a timely manner.
4) Claims reporting: The reinsured shall notify the reinsurer immediately of any claim if its estimate exceeds 75% of the retention or the amount set out in the acceptance where the reinsurance is on a proportional basis. Notice shall include information about facts, legal assessment and estimated amount with a split between amounts paid and reserved. After first notification, the reinsured shall keep the reinsurer informed of all further developments relating to the claim.
5) Accounts, payment of balance and premium: The reinsured shall provide the reinsurer with accounts for each period and at the deadline as set out in the acceptance. Any objection shall be submitted within one month of receipt of the account. Any undisputed balance due shall be paid within two weeks following the agreement of the account.
Accounts, claims reports, claims advises as well as payments between the parties shall be in the currency stated in the acceptance. Losses paid or premiums received by the reinsured in a currency other than such currency shall be converted at the official rate of exchange on the day of the respective loss payment by the reinsured to the insured or of receipt of the premium.
The reinsured may call on the reinsurer for payment within ten working days whenever the amount of such calls exceeds the amount set out in the acceptance. However, it is a condition precedent to the reinsurer's duty to pay, that the reinsured provides the reinsurer with all related facts, legal assessments and adjusting reports. Either party may at its discretion set off against any amounts due from the other party under this facultative agreement or under any other agreement between the parties any amounts which are due under this or those other agreements.
Should the reinsurance premium not have been paid by the reinsured within a time frame as set out in the acceptance following the inception date of the reinsurance cover, the reinsurer has the right to cancel its participation by notice within thirty days. Should the cancellation become effective, the premium remains due in proportion to the time for which the reinsurer has been on risk.
6) Inspection of records: Upon request, the reinsured shall make available to the reinsurer all information relating to the business reinsured. Should arbitration or judicial proceedings be pending between the parties, the reinsurer shall exercise its right of inspection through a person authorised by the respective arbitrator or judge.
[For clause 7 see section B2 of the judgment.]