REUTERS | Amir Cohen

Lawyers can be experienced too (you know)

It is rare that an arbitrator’s qualifications are challenged in court and even rarer for such a challenge to be taken up on appeal. However, Allianz Insurance Plc and another v Tonicstar Ltd was one such case.

The facts are as follows: the parties entered into a reinsurance contract which incorporated terms from the Joint Excess Loss Committee (JELC), including an arbitration clause which provided for each party to appoint an arbitrator with “not less than 10 years’ experience of insurance or reinsurance”. The defendant reinsurers appointed an experienced insurance barrister. The claimant applied to the English High Court for an order that the barrister be removed pursuant to section 24(1)(b) of the English Arbitration Act 1996 (AA 1996), on the basis that experience working in the industry itself (and not as an insurance lawyer) was required.

At first instance, Teare J found that he was bound by an unreported case, which had interpreted the clause in the manner urged by the claimants, and granted the application to remove the barrister. He also granted leave to appeal. On appeal, Leggatt LJ (writing for an unanimous court) found that the natural meaning of the clause was wide enough to encompass lawyers with experience in insurance and that nothing about the context justified a departure from the clear words. Moreover (and much more interestingly), he found that“[u]nlike sports, engineering and telecommunications, which are clearly distinct from the law regulating those activities, no similar distinction can be drawn between insurance and reinsurance law and insurance and reinsurance ‘itself’.” Leggatt LJ went on to provide examples of the legal knowledge that a businessperson involved in insurance would need to ply their trade and, conversely, the practical industry knowledge that an insurance lawyer would require. He concluded that the prior unreported case was wrongly decided and that the benefits of correcting this obviously wrong decision greatly outweighed the costs of doing so; he therefore allowed the appeal. The Lord Justice concluded by noting that the JELC clause had, in any event, already been amended to explicitly provide for the appointment of suitably qualified lawyers and professional advisors.

Interestingly, neither Teare J or Leggatt LJ considered the second limb of the section 24(1) test, which requires that “substantial injustice has been or will be caused to the applicant” in order for the arbitrator to be removed. It might be said that the lower court decision could only have been made on the basis that this limb was established and therefore implicitly accepts that an injustice is done where the arbitrator is held in a manner that places it outside of the parties’ agreement. However, Teare J didn’t address the points and it could equally be said that an experienced insurance barrister is capable of adjudicating the issues, and that no substantial injustice would therefore accrue. In any event, the application of the second limb appears to have been left an open issue.

While the direct relevance of the decision is limited to parties that have contracted based on the previous JELC arbitration clause, Leggatt LJ’s interpretation of “experience” is likely to have farther reaching implications, particularly with regard to the line that Leggatt LJ sought to draw between industries which are naturally tied into the law (for example, insurance) and those that are not (such as sports, engineering and telecommunications). One would be forgiven for being unsure as to precisely where such a line is to be drawn;  many examples that would blur this line come to mind of contracts, such as contracts for telecommunications licensing or sports recruiting. It can be expected that parties that are seeking to delay or resist arbitrations with similar qualification clauses will find arguments to distinguish Tonicstar on the basis that their contract falls on one side of the line or the other. An obvious complementary point is that parties who want their disputes to be adjudicated by industry experts (and not professional advisers) should include clear language to this effect in their arbitration agreements. This is because, at the very least, Tonicstar creates a presumption that “experience in an industry” will include suitably qualified lawyers and, potentially, other professional advisors.

Finally, Tonicstar provides a further example of the importance of clear drafting and of parties considering precisely what it is that they are agreeing to, even when the adoptive clause is in a standard form. Whilst the drafters of the JELC clause may have felt it clear enough, the ambiguity resulted in delay and costs which could well have been avoided.

Kirkland & Ellis Noah Stewart-Ornstein

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