Royal & Sun Alliance v. BAE Systems

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Royal & SunAlliance Insurance plc v BAE Systems (Operations) Ltd and Others
English High Court: Walker J: [2008] 743 (Comm): 15 April 2008

Iain Milligan QC and David Foxton QC (instructed by Ellum LLP)
Michael Crane QC, James Cutress and Matthew Gearing (instructed by Allen & Overy LLP)
Wording in a dispute resolution agreement that "any party to the dispute may appeal to the court on a question of law arising out of an award made in the arbitral proceedings", rendered it unnecessary to seek the leave of the court for an appeal under s.69(2)(b) of the Arbitration Act 1996

DMC Category Rating: Confirmed

This case note is based on a text written by Hew Dundas, Chartered Arbitrator, CEDR-Accredited Mediator and Expert Determiner, who is a Contributor to this website. It has been edited by Jim Leighton, BSc, LLB, LLM (Maritime Law), Trainee Solicitor and also a Contributor to DMC’s CaseNotes.

BAE Insurance was the BAE group’s captive insurer for certain BAE Companies (BAE). It reinsured its liabilities with a group of reinsurers (the Reinsurers) that included Royal & Sun Alliance (R&S).

BAE and the Reinsurers entered in to a Reinsurers’ Common Terms Agreement (the RCTA) and a Dispute Resolution Agreement (the DRA). The DRA provided for English law to be the governing law and referred various disputes to arbitration incorporating the Rules of the London Court of International Arbitration (the LCIA Rules) for this purpose.

R&S sought to appeal on a point of law to the High Court following a partial award made in favour of BAE during arbitration pursuant to the DRA. The question that arose was whether leave of the court to appeal was required under s.69(2)(b) of the Arbitration Act 1996 (the 1996 Act). The parties agreed that this was a matter of pure construction requiring consideration of the 1996 Act, the DRA and the LCIA Rules.

Sections 69(1) and (2) of the 1996 Act state:

"(1) Unless otherwise agreed by the parties, a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) appeal to the court on a question of law arising out of an award made in the proceedings. …
(2) An appeal shall not be brought under this section except –
(a) with the agreement of all the parties to the proceedings, or
(b) with the leave of the court."

Clause 5 of the DRA materially provides:
"Any party to the dispute may appeal to the court on a question of law arising out of an award made in the arbitral proceedings." (the Crucial Sentence)

Rule 26 of the LCIA Rules materially provides:
"… the parties … waive irrevocably their right to any form of appeal, review or recourse to any state court or judicial authority, in so far as such waiver may be validly made."

The parties agreed that rule 26 of the LCIA Rules on its own would have effectively excluded the right of appeal otherwise provided by s.69 of the 1996 Act because s.69 was a non-mandatory provision (see the opening words of s.69(1) above).

The arguments made by BAE were to the effect that clause 5 of the DRA did no more than remove the effect of rule 26 of the LCIA Rules by satisfying s.69(1) of the 1996 Act. It did not, however, go as far as satisfying the requirement laid down by s.69(2)(a) because the Crucial Sentence contained no reference to an appeal being brought with the agreement of all the other parties. By simply tracking the words of s.69(1), it did not satisfy s.69(2)(a) in "the clearest possible terms", which – BAE argued – was required.

The arguments made by R&S were to the effect that clause 5 of the DRA not only qualified rule 26 of the LCIA Rules but also satisfied both s.69(1) and s.69(2)(a) of the 1996 Act. Limiting the clear wording of the Crucial Sentence by tying it to s.69(1) only was an unwarranted technical limitation, particularly as the 1996 Act had no policy antagonistic to agreements to appeal on law without leave of the court.

Had R&S been required to satisfy s.69(2)(b) of the 1996 Act instead, this would have placed a severe restriction on its ability to appeal on a point of law because s.69(3)(a) to (d) needed the satisfaction of four cumulative requirements before leave would be granted.

Section 69(2) of the 1996 Act identifies two requirements for an appeal without leave of the court:  (i) there must be an "agreement of all the other parties to the proceedings." and there was no dispute that the DRA met this requirement;  (ii) the appeal must "be brought … with [that] agreement." The parties disagreed on whether (ii) was met by the DRA sentence quoted.

What does s.69(2)(a) require?
The language of s.69(2)(a) said that if the case was one where there was an agreement of the kind specified, then there was no need to seek leave of the court in order to bring an appeal.  If the case was one which lacked such an agreement, then there would be a need to obtain leave. Whether or not there was an agreement of the kind specified in s.69(2)(a), there would be requirements to exhaust alternative remedies and comply with time limits under s.70(2) and (3). It was unnecessary to decide whether the parties could contract out of these latter requirements since it was clear that there would be no need for leave if the parties agreed. It was not a question of contracting out of the need for leave since the approach taken in s.69 was to introduce a requirement for leave only in those cases where the parties have not positively agreed that there may be an appeal on law. Nothing in the 1996 Act led the Judge to think that in s.69 there was any intention to make a requirement that there be a specific agreement to dispense with leave, nor that such agreement as was contemplated by s.69(2) must be "expressed in the clearest terms."

There were indeed constraints in s.69, but the Judge saw no reason why the court should do anything other than apply ordinary principles of construction in determining whether those constraints were engaged. While it was true that if those constraints were engaged then this would tend towards finality and finality is regarded as a positive, parties to an arbitration were entitled, however, to take the view that, as regards questions of law, finality should come from the Court rather than from the arbitral tribunal. 

The clear language of s.69(2) left no room for the gloss which BAE sought to put on it. While the matter might be dealt with differently in different jurisdictions, nothing turned on this nor did anything turn on whether or not s.69 was controversial, or whether or not it raised the threshold for leave (as argued by BAE).  Where the language was clear, and there was no reason to doubt that that language meant what it said, the Judge saw no basis to impute a requirement that the agreement contemplated by s.69(2)(a) must be "an agreement to dispense with leave" expressed "in the clearest terms."

R&S argued that under clause 4.3 of the DRA the incorporation of the LCIA Rules was "subject to the provisions of clause 5 …". In other words, clause 5 was not a qualification of the LCIA Rules but it was the other way round in that the LCIA Rules may, where not inconsistent, supplement clause 5. BAE suggested that this was a matter of semantics but the Judge did not agree since clause 5 was a free-standing code applicable to all arbitrations under the DRA. There was nothing to suggest that the provisions of clause 5 had been designed to counteract any particular feature of the 1996 Act or the LCIA Rules. The Judge considered that a reader of the DRA would reasonably be entitled to expect that the provisions in clause 5 were designed to set out in clear terms for the benefit of the parties overarching principles which would apply to all arbitrations. Moreover, a principle which stated that a party may appeal on a question of law, and contained no express qualification, would ordinarily be clearly understood as not involving any requirement for leave.

BAE submitted that the DRA did not envisage the removal of any other features of the English law of arbitration and this was said to be highly relevant - the Judge did not agree. The structure of the DRA was to set out in clause 5 the overarching principles which are to govern all arbitrations thereunder. One of those overarching principles, if interpreted according to the ordinary use of language, had the consequence that, under s.69(2)(a), there was no need to seek leave of the court when bringing (by agreement) an appeal on a question of law. Whether other aspects of the overarching principles, or any other parts of the DRA, involved the removal of any feature of the English law of arbitration was of little assistance in determining whether the language in question bore its ordinary meaning.

R&S pointed out that similar formulae to those in the Crucial Sentence were found in other contracts which had come before the courts and had been recognised as having the effect of removing the requirement for leave. None of the cases cited, however, had involved any judicial determination of the point. It followed that they gave the Judge no assistance in his task.

In his analysis of the points relied upon by the parties, the Judge found nothing which positively assisted BAE in its contention that the DRA sentence sought only to remove the waiver found in rule 26 of the LCIA Rules. The ordinary meaning of the language used in the DRA sentence was contrary to that contention. The considerations that the Judge had identified when discussing the role of clause 5 of the DRA pointed strongly to the language of the DRA sentence being given its ordinary meaning.

The Judge rejected BAE’s contention that an agreement made under s.69(2)(a) must be "an agreement to dispense with leave" expressed "in the clearest terms." There was no good reason to construe the DRA sentence as anything less than the agreement contemplated by s.69(2)(a), or in any way as departing from the provisions of s.69. In any event, however, for the reasons given above, the Judge held that the DRA sentence amounted to an agreement "to dispense with leave" expressed "in the clearest terms."

It followed that R&S was correct in its contention that leave was not required in order to bring an appeal under s.69(2)(a) of the 1996 Act in this case.

Hew Dundas says that he finds BAE’s whole line of argument surprising.  While the apparent novelty of the issue might suggest an appeal to the Court of Appeal, s.69(6) requires the Judge’s permission and, in his view, there are no valid grounds on which he should give it.

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