Sulamérica Cia Nacional de Seguros SA and Others v Enesa Engelharia SA and Others
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE COOKE |
| Judgment Date | 19 January 2012 |
| Neutral Citation | [2012] EWHC 42 (Comm) |
| Docket Number | Case No: 2011 FOLIO NO. 1519 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 19 January 2012 |
[2012] EWHC 42 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
7 Rolls Building, London EC4A 1NL
The Hon Mr Justice Cooke
Case No: 2011 FOLIO NO. 1519
and
Stephen Houseman and Damien Walker (instructed by Messrs Clyde & Co) for the Claimants
Hilary Heilbron QC and Nehali Shah (instructed by Messrs White & Case LLP) for the Defendants
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Hearing dates: 12 January 2012
The Hon. Mr Justice Cooke:
Introduction
The Claimant insurers (the Insurers) seek the continuation of an interim anti-suit injunction against the defendant insureds (the Insureds) by which the latter are restrained from pursuing proceedings instituted in Brazil, in which they in turn obtained an interim order restraining the claimants from proceeding against them in arbitration until the Brazilian Court determines whether or not the Insureds are bound to arbitrate the disputes which have arisen between them. The substantive issues arise in relation to two all risk insurance policies (referred to hereafter as the Policy, as there is no material distinction between them) covering the construction of one of the world's largest hydro electric facilities, known as Jirau, located in Brazil. The Insureds have made a claim under the Policy for physical damage and consequential losses as a result of incidents in March 2011. The Insurers deny liability under the Policy and, in arbitration proceedings commenced by them on 29 November 2011, seek a declaration of non-liability and a declaration that a material alteration has occurred within Condition 3 of the Policy.
There are issues between the parties in the context of the anti-suit injunction as to the validity of an arbitration agreement which is found in the Policy. The proper law of the Policy is expressly that of Brazil, the Insureds and Insurers are all Brazilian, the subject matter of the insurance is located in Brazil and the events in question took place in Brazil. The insurance was however reinsurance led, in the sense that the Insureds, through brokers JLT, sought to arrange the terms of the reinsurance cover before local insurers were put in place to "front" the covers. The reinsurances are led by Swiss Re, Allianz and Zurich Re. The programme was tailor-made for the Jirau project and was the subject of lengthy and detailed negotiation between the Insureds who are substantial enterprises and the reinsurers. The reinsurances are expressed in the English language and the Policy, although in the Portuguese language, contained essentially the same terms as the reinsurances, translated from the English. In determining the issues which arise, both parties proceeded on the basis of the Policy, translated into English as reflecting the reinsurance terms and conditions.
The Relevant Terms of the Policy
"3.1 Condition 7, entitled "Law and Jurisdiction", states:
It is agreed that this Policy will be governed exclusively by the laws of Brazil.
Any disputes arising under, out of or in connection with this Policy shall be subject to the exclusive jurisdiction of the courts of Brazil".
Condition 11, entitled "Mediation", states
"If any dispute or difference of whatsoever nature arises out of or in connection with this Policy including any question regarding its existence, validity or termination, hereafter termed as Dispute, the parties undertake that, prior to a reference to arbitration, they will seek to have the Dispute resolved amicably by mediation.
All rights of the parties in respect of the Dispute are and shall remain fully reserved and the entire mediation including all documents produced or to which reference is made, discussion and oral presentation shall be strictly confidential to the parties and shall be conducted on the same basis as without prejudice negotiations, privileged, inadmissible, not subject to disclosure in any other proceedings whatsoever and shall not constitute any waiver of privilege whether between the parties or between either of them and a third party.
The mediation may be terminated should any party so wish by written notice to the appointed mediator and to the other party to that effect. Notice to terminate may be served at any time after the first meeting or discussion has taken place in mediation.
It the Dispute has not been resolved to the satisfaction of either party within 90 days of service of the notice initiating mediation, or if either party fails or refuses to participate in the mediation, of if either party serves written notice terminating the mediation under this clause, then either party may refer to the Dispute to arbitration.
Unless the parties otherwise agree, the fees and expenses of the mediator and all other costs of the mediation shall be borne equally by the parties and each party shall bear their own respective costs incurred in the mediation regardless of the outcome of the mediation".
Condition 12, entitled "Arbitration", states:
"In case the Insured and the Insurer(s) shall fail to agree as to the amount to be paid under this Policy through mediation as above, such dispute shall then be referred to arbitration under ARIAS Arbitration Rules. The Arbitration Tribunal shall consist of three arbitrators, one to be appointed by the Insured, one to be appointed by the Insurer(s) and the third to be appointed by the two appointed arbitrators. The Tribunal shall be constituted upon the appointment of the third arbitrator.
The arbitrators, shall be persons (including those who have retired) with not less than ten years' experience of insurance or reinsurance within the industry or as lawyers or other professional advisers serving the industry.
When a party fails to appoint an arbitrator within 14 days of being called upon to do so where the two party-appointed arbitrators fail to appoint a third within 28 days of their appointment, then upon application ARIAS (UK) will appoint an arbitrator to fill the vacancy. At any time prior to the appointment by ARIAS (UK) the party or arbitrators in default may make such appointment.
The Tribunal may at its sole discretion make such orders and directions as it considers to be necessary for the final determination of the matters in dispute. The tribunal shall have the widest discretion permitted under the law governing the arbitral procedure when making such orders or directions.
The seat of the arbitration shall be London, England."
The Main Contentions of the Parties
The Insurers submit that, on 29 November 2011, they instituted arbitration in accordance with Condition 12 which, they submit, is a valid agreement to arbitrate governed by English law. They also contend that the Insureds refused or failed to enter into a mediation prior to the time when the arbitration was commenced. The Insureds maintain that the arbitration agreement is governed by the law of Brazil and is only operative under that law at the behest of the Insureds themselves, since it is part of a contract of adhesion upon which the Insurers are not entitled to rely. The Insureds also submit that the right to arbitrate only arises if the requirements to mediate in Condition 11 have been complied with. They say that satisfaction of those requirements is a condition precedent to the ability to refer to arbitration under Condition 12. They say that those requirements were not met here. Additionally, they say that the scope of the arbitration agreement is limited to arguments about quantum and does not cover the matters which insurers have referred to arbitration, namely a declaration of non-liability and a declaration that a "material alteration" has occurred within the meaning of the Policy.
The Proper Law of the Arbitration Agreement
It is common ground that, in ascertaining the putative proper law of an arbitration agreement, the English court must apply English conflict of law rules, and that the court's task at common law, which applies here, is to ascertain, in the absence of an express or implied choice of law, the law with which the arbitration agreement has its closest and most real connection.
The Insureds contend that, as the proper law of the Policy is expressly Brazilian law and "exclusively" so (reinforced by the exclusive jurisdiction provision in favour of the courts of Brazil), combined with the fact that the parties, the location of the risk and the events are all Brazilian, the law of the arbitration agreement must also be the law of Brazil. The Insurers, on the other hand, say that the law with which the arbitration agreement has its closest and most real connection is that of England because the arbitration clause provides that the seat of the arbitration is to be London, England.
As the House of Lords pointed out in Fiona Trust v Privalov [2008] 1LLR 254, by reference to section 7 of the Arbitration Act 1996 (see paragraphs 12 and 17), an arbitration agreement is to be treated as distinct from the substantive agreement in which it is enshrined for the purpose of assessment of its validity,...
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