Royal & Sun Alliance v. BAE Systems
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 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
Clause 5 of the DRA materially provides:
Rule 26 of the LCIA Rules materially provides:
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.
What does s.69(2)(a) require?
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.
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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