DMC Category Rating: Confirmed

Background
The Insurance Policy
D, a US insurer, insured C, a US corporation, on the basis of the Bermuda form for US$100m xs US$190m. The arbitration clause in the policy provided that:

"Any dispute arising under this Policy shall be finally and fully determined in London, England under the provisions of the English Arbitration Act 1950 as amended…In case the Board fails to meet 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." The clause also provided for application to a Judge of the English High Court in the event that one party did not appoint an arbitrator.

The Governing Law and Interpretation Clause provided that:
"This policy shall be governed by and construed in accordance with the internal laws of the State of New York..."

The Reference to Arbitration and the Award
Various claims were made under the policy and London arbitration was initiated by C with a reference to Arbitration agreed by all parties in writing. This reference provided, among other things, that the parties all confirmed that the tribunal had been validly established. In relation to applicable law, the reference provided that the law governing the insurance policy itself was the law of New York, while the seat of the arbitration was London and the law governing the arbitration itself was the English Arbitration Act 1996 ("the 1996 Act").

The tribunal heard a number of defences to the claims but determined that C succeeded in full on its claim under the policy. D then applied to the tribunal for it to correct the award, alleging that its findings constituted a "manifest disregard of New York law" and that the award fell outside the scope of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 ("the 1958 Convention") and as such could be reviewed for error by any US Federal District Court.

The Arguments
C maintained that, as a result of the parties’ express agreement to London as the seat of arbitration and to the application of the 1996 Act and because of the English court’s power over arbitrations heard in this jurisdiction, D could not challenge the award other than as permitted by the 1996 Act. The only possible challenge to enforcement of the award in other countries could be made through the 1958 Convention.

By contrast, D focused on New York law, as the governing law of the insurance policy, and argued that that law entitled D to a minimum standard of review of arbitration awards, when such arbitrations take place between US corporations in relationships without a significant international element. D also contended that the award was a non-Convention award in that it was made between US corporations, with the effect that it did not fall to be enforced under the 1958 Convention. Finally, D submitted that the arbitrators had made fundamental errors of New York law in their award.

Judgment
Applying English law principles of conflict of laws, the judge found that the agreement to London as the seat of arbitration and the agreement to the 1996 Act as the procedural law of the arbitration necessarily meant that the parties had adopted the framework of the 1996 Act as applying to the arbitration. That included its mandatory provisions, including those relating to enforcement of the award and challenges based on substantive jurisdiction or serious irregularity.

Non-mandatory provisions would also be applied except where the parties had agreed otherwise. In this case, the parties had effectively excluded the non-mandatory appeal provisions by agreeing in the arbitration clause that the arbitrators’ decision would be "a complete defence to any attempted appeal or litigation of such decision in the absence of fraud or collusion" (neither of which was alleged).

The judge’s findings on this topic were supported by previous authority, which indicated that agreement as to the seat of arbitration is akin to agreement to exclusive jurisdiction. By agreeing to the seat, the parties also agree that any challenge to an award is to be made in the place designated as the seat. Here, the parties had gone out of their way to agree that the award should be final and binding, subject only to challenge on the basis of the mandatory provisions of the 1996 Act or on the basis of fraud or collusion.

In response to the point that, apart from agreeing English law as the procedural law of the arbitration, the parties had also agreed New York law as the substantive law on insurance policy issues, the judge could not accept that the parties would agree to a limitation on the right of appeal (the "complete defence" referred to above) if that limitation would not be effective under New York law, as D contended. Accordingly, the parties’ agreement to New York law as the substantive law of the policy could not dislodge the conclusion that the procedural law of the arbitration and any challenge to it was English law as embodied in the 1996 Act.

The attempt by D to challenge the award in New York was, therefore, a breach of its obligations under the arbitration agreement.

Comment
The judge’s decision respects the integrity of the parties’ express voluntary agreement to England as the seat of arbitration, to the 1996 Act as the procedural law governing the reference and to any award being final and binding.

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It would have been a pity if that agreement had in effect been torn up by the judge just because one party found itself dissatisfied with the award that the tribunal had reached. It is not uncommon for contracts to contain different procedural and substantive law provisions but that does not mean that the latter should override the former when questions of appeal or challenge arise.

As with the recent decision in West Tankers v Ras Unione, in which the House of Lords indicated their preferred view that anti-suit injunctions should be available in support of voluntary arbitrations between commercial parties, this decision reinforces the belief of the English court in the need for protection of the arbitration regime.