In Allianz Insurance Plc & Anor v Tonicstar Ltd  EWCA Civ 434, the Court of Appeal decided that an arbitration clause which provided that the arbitrators must have "not less than ten years' experience of insurance" did not preclude an insurance QC from sitting as arbitrator. In doing so, it overturned a previous decision on the interpretation of standard insurance clauses which had stood for 17 years. We look at the clauses in question and the impact of this decision.
Background to the dispute
The case turned on the wording of the Excess Loss Clauses of the Joint Excess Loss Committee (the "JELC clauses"), a standard set of clauses in common use in the London market for excess of loss reinsurance used principally in the marine and energy industries. These standard clauses contained an arbitration agreement by which parties agreed to refer disputes to arbitration. The arbitration agreement provided:
"Unless the parties otherwise agree the arbitration tribunal shall consist of persons with not less than ten years' experience of insurance and reinsurance."
A dispute concerning an insurance claim governed by the JELC clauses arose between the parties and was referred to arbitration. The respondent appointed a former underwriter as its arbitrator. The appellant appointed a QC. The respondent objected to the appellant's appointment on the basis that the QC did not have "experience of insurance and reinsurance" within the meaning of the clauses, and applied to the court to have him removed as an arbitrator under s.24 Arbitration Act 1996.
High Court decision and the decision in Company X v Company Y 
Giving his decision on the application in the High Court last year, Mr Justice Teare considered that he was bound by the High Court's decision in Company X v Company Y some 17 years earlier, which had considered an almost identical scenario.
In X v Y, the court held that a QC did not qualify for appointment under the JELC clauses, notwithstanding that he had over 10 years' experience of acting in insurance disputes. The court decided that parties who adopted the JELC clauses must have intended a "trade arbitration", i.e. one in which the tribunal was composed not of lawyers, but of persons from the business in question (insurance). In support of its decision, the court noted that:
- The clause was drafted by a trade body;
- In default of the parties choosing an arbitrator, the clauses provided for the arbitrators to be appointed by the chairmen of two underwriting bodies, who were unlikely to be able to identify suitably qualified lawyers for the role, but would be able to identify such persons in the business of insurance;
- The clause gave the tribunal power to act on evidence which would not be admissible in a court of law; and
- If it was intended that lawyers could be appointed as arbitrators, it would expect the arbitration agreement to contain express words to that effect.
Mr Justice Teare said that, but for the earlier decision, he might have decided that the QC in question satisfied the qualification requirement, but he did not consider there were sufficiently powerful reasons to depart from the decision in X v Y. He did however grant permission to appeal.
Court of Appeal's assessment of X v Y
Giving the leading judgment in the Court of Appeal, Lord Justice Leggatt found that the decision in X v Y could not be defended and should now be overruled. The fact that it had stood for 17 years should not dissuade the court from holding it was wrongly decided, he said. Although it was desirable for commercial parties to have certainty as to the meaning of their contracts, that certainty could be enhanced by giving a clause its natural meaning, and "a commercial party should be able to rely on that meaning without having to scour legal textbooks… to find out whether the clause has been given a different and unnatural meaning by a court."
Turning to the objections of the court in X v Y, he said:
- Trade bodies often draft standard clauses containing an arbitration agreement, but that alone does not mean the resulting arbitrations are intended to be "trade arbitrations".
- It was perfectly credible that, if the chairmen of the underwriting organisations were called upon to appoint arbitrators, they would be able to identify a suitably qualified barrister. Even if they would be more likely instead to appoint someone involved in the business of insurance that did not mean that parties using the JELC clauses intended to prevent a barrister from being appointed.
- The ability granted by the JELC clauses for the tribunal to choose whether or not to apply strict rules of evidence was not determinative. An arbitral tribunal has that power under s.34 of the Arbitration Act in any event, and that does not preclude lawyers from sitting as arbitrators.
- The wording of the clause does not impose any restriction on how the requisite experience should be gained, nor should it. On the contrary, if the intention was to preclude any particular group from being appointed as an arbitrator, then express wording to that effect would be required. In fact, given that the arbitrator would be required to apply the law of England in coming to a decision, if anything the clause precluded non-lawyers from being appointed as arbitrator.
Is "insurance law" different from "insurance itself"?
Although the Court of Appeal dealt comprehensively with the decision in X v Y, the respondent did not in fact seek to rely on that decision, but instead advanced a compatible argument based on the natural meaning of the relevant clause. It submitted that the clause required experience of insurance or reinsurance, not experience of insurance or reinsurance law.
The Court of Appeal did not however accept this distinction. It found that no distinction can be drawn between insurance and reinsurance law, and insurance and reinsurance "itself". Insurance contracts create legal rights and obligations, and those working in insurance therefore need to have some understanding of insurance law. Further, "it is a safe inference that a lawyer who has specialised in insurance and reinsurance cases for at least 10 years will have acquired considerable practical knowledge of how insurance and reinsurance business is conducted" - the business and law of insurance are intertwined.
The court therefore allowed the appeal, finding that parties who incorporate the JELC clauses into their contracts would understand a barrister who has specialised in insurance and reinsurance for over 10 years to be qualified for appointment as an arbitrator.
What does this mean for the world of insurance?
JELC in fact revised its clauses with effect from 1 January 2018. The new clauses now expressly include reference to lawyers:
"The Arbitrators shall be persons (including those who have retired) with not less than 10 years’ experience of insurance or reinsurance within the industry or as lawyers or other professional advisers serving the industry"
The decision in Allianz v Tonicstar might therefore be thought to be somewhat academic. However, given that the historic JELC clauses still appear in policies, the interpretation of the earlier clause remains of relevance to policies made on a "losses occurring" basis. For such policies, this decision clarifies that insurance lawyers with the requisite number of 'flying hours' are qualified to act as arbitrators in disputes, contrary to the long-standing decision in X v Y.
What does this mean for arbitration?
This case, and the case of X v Y before it, highlight the issues that can arise where parties are either overly prescriptive or insufficiently clear about the qualifications that their arbitrators must possess. Either failing has the potential to lead to distracting satellite disputes and frustration of the arbitral process. Commercial parties and trade bodies should therefore give detailed consideration to the inclusion of such qualifications in arbitration agreements to ensure the arbitration can proceed efficiently.