Trygg Hansa Insurance Company Ltd v Equitas Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Raymond Jack |
| Judgment Date | 05 December 1997 |
| Date | 05 December 1997 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
His Honour Judge Raymond Jack QC.
David Cohen of Clifford Chance for Trygg Hansa.
Colin Wynter (instructed by Clyde & Co, Guildford) for the syndicates and Equitas.
The following cases were referred to in the judgment:
Annefield, TheELR [1971] P 168
Astel Peiniger Joint Venture v Argos Engineering & Heavy Industries Co Ltd [1994-3] HKC 328
Aughton Ltd v MF Kent Services LtdUNK (1991) 57 BLR 6
Barrett (Ben) & Son (Brickwork) Ltd v Henry Boot Management Ltd [1995] Constr Ind Law Letter 1026
Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenberg AGELR [1975] AC 591
Cooperative Wholesale Society Ltd v Saunders & Taylor Ltd (1995) 11 Const LJ 118
Excess Insurance Co Ltd v Mander [1995] CLC 838
Federal Bulk Carriers Inc v C Itoh & Co Ltd (“The Federal Bulker”)UNK [1989] 1 Ll Rep 103
Giffen (Electrical Contractors) Ltd v Drake & Scull Engineering Ltd (1995) 11 Const LJ 122
Halki Shipping Corp v Sopex Oils LtdWLR [1997] 1 WLR 1268
Merak, TheELR [1965] P 223
OK Petroleum AB v Vitol Energy SA [1995] CLC 850
Pine Top Insurance Co Ltd v Unione Italiana Anglo Saxon Reinsurance LtdUNK [1987] 1 Ll Rep 476
Thomas (T W) & Co Ltd v Portsea Steamship Co LtdELR [1912] AC 1
Arbitration — Insurance — Reinsurance — Whether arbitration clause in underlying insurance contracts incorporated into reinsurance contracts — Arbitration Act 1996, s. 6, 9.
These were four applications by Trygg Hansa as reinsurers to stay proceedings against it in favour of arbitration under s. 9 of the Arbitration Act 1996.
Trygg was the reinsurer of Lloyd's syndicates in respect of lines written by the syndicates on Lloyd's underwriting agents professional indemnity excess of loss line slips. Trygg avoided the reinsurances on grounds of alleged non-disclosure and misrepresentation. The syndicates (and Equitas as assignee of their liabilities) took proceedings and Trygg applied to have the actions stayed under s. 9 of the Arbitration Act 1996 on the basis of arbitration agreements in the underlying primary insurance. Trygg argued that the wordings for the excess of loss layers (“follow the same terms…as the policy of the primary insurers”) incorporated the arbitration clause from the primary insurances, and that the wording of the reinsurances (“form: as original”) incorporated the wordings of the excess of loss insurances including the arbitration clause. The general conditions to the primary insurance, which contained the arbitration clause, were not agreed at the time that the excess of loss insurances were contracted but the case proceeded on the basis that the primary insurances were all written on the anticipated standard terms.
Trygg relied on s. 6(2) of the Arbitration Act 1996 which permitted incorporation of an arbitration clause by reference to the document containing it “if the reference was such as to make that clause part of the agreement”. Trygg submitted that s. 6 had changed the law and relied on the Report of the Departmental Committee on the Arbitration Bill to show that that was the case and that authorities on incorporation of arbitration clauses by reference under the previous legislation had been superseded. If the 1996 Act did not govern the question of incorporation or if it had not changed the law, the judgment of Ralph Gibson LJ in Aughton Ltd v MF Kent Services LtdUNK (1991) 57 BLR 6 was to be preferred to that of Sir John Megaw in that case and the decision of Colman J in Excess Insurance Co Ltd v Mander [1995] CLC 838 should not be followed. The syndicates argued that those authorities were still relevant and that applying them the general words of incorporation in the excess of loss layers would not be effective to incorporate the arbitration clause because of its special nature.
Held, dismissing the stay applications:
1. The 1996 Act applied to the actions in issue. The only power to stay in respect of actions commenced on or after 31 January 1997 was that provided by s. 9 of the 1996 Act. That power related to arbitration agreements as defined. There were no grounds for incorporating the definition from the previous statute.
2. In the absence of special circumstances, general words of incorporation were not to be treated as effective for the purposes of s. 6(2) of the 1996 Act. The court could look at the Report of the Departmental Committee on the Arbitration Bill on the issue whether the existing authorities on incorporation of arbitration clauses by reference should still be applied. The report showed that it was not intended that the authorities should be put on one side. It suggested that it was for the court to apply the existing case law resolving conflicts as necessary. Those cases reflected the idea that an arbitration clause was of a special nature different from the majority of clauses in a contract relating to its performance and that the parties were not to be taken to have intended to incorporate it along with those clauses in the absence of an express indication. The words used in the excess of loss insurances did not incorporate the arbitration clause from the primary insurances, and the wording of the reinsurances would not have incorporated an arbitration clause from the excess of loss insurances. (Aughton Ltd v MF Kent Services LtdUNK(1991) 57 BLR 6considered; Excess Insurance Co Ltd v Mander[1995] CLC 838followed.)
His Honour Judge Raymond Jack QC: These applications by the Swedish insurer, Trygg Hansa, are for orders under s. 9 of the Arbitration Act 1996 to stay four actions. Each action is brought against Trygg Hansa by a Lloyd's syndicate and Equitas, the syndicate's assignee under the Lloyd's reconstruction arrangements, as co-plaintiffs. In each Trygg Hansa is sued as the reinsurer of the plaintiff syndicate in respect of lines written by the syndicate on Lloyd's underwriting agents professional indemnity excess of loss line slips. Trygg Hansa avoided the reinsurances in December 1996 and early 1997 on the grounds of alleged non-disclosure and misrepresentation: it claims to be entitled to recover such losses as it paid prior to avoidance. The sums on each side are substantial. The actions were commenced on 26 June 1997 and Trygg Hansa's applications were issued on 23 September. There are no arbitrations on foot as yet.
The arbitration agreements relied on by Trygg Hansa are not found in the reinsurance wordings. They are found in the wording of the underlying primary insurance. The submission is that the wordings for the reinsurances of the excess of loss insurances incorporate the wordings of the excess of loss insurances and that these in turn incorporate the wordings of the primary insurances. It is these last which contain the arbitration provisions. The question is whether in the circumstances of the case the words of general incorporation which are used are appropriate to incorporate the arbitration provisions.
The structure of these insurances and reinsurances may be complex to describe: but that does not make them unusual. Nor, I think, is there anything unusual in the incorporation of terms by reference in the manner which occurred here. It is a situation where there is an obvious need for a quick and straightforward answer: are the parties bound to arbitrate or are they not? The question should not be one of difficulty. The parties should be able to progress the merits of their claims in the appropriate forum without the need for time and costs to be spent on a procedural question.
The greater part of the Arbitration Act 1996 came into force on 31 January 1997. Trygg Hansa's applications are made under s. 9 of that Act. Section 6 defines the term “arbitration agreement” and makes provision for incorporation by reference. There is a body of case law relating to the incorporation of arbitration provisions, which precedes the Act. This includes the decision of the Court of Appeal in the AughtonENR case (to which I will come) where the members of a court of two reached opposing conclusions. The question arises how far this body of law applies to questions of incorporation arising under the new Act. It has also been questioned before me whether the provisions of the Act as to incorporation can apply to these contracts made in 1989 and 1990.
It is agreed that there are no material differences between the contractual arrangements involving each plaintiff syndicate I will consider those relating to syndicate 1161.
Trygg Hansa reinsured syndicate 1161 in relation to two years, 1990 and 1991. For each year the underlying insurance was constructed in a number of layers as follows:
Primary: to £1m
First layer
excess of loss: £1m excess of £1m
Second layer
excess of loss: £3m excess of £2m
Third layer
excess of loss: £5m excess of £5m
Fourth layer
excess of loss: £10m excess of £10m
Trygg Hansa reinsured the syndicate in respect of the second, third and fourth layers of excess of loss for 1990, and in respect of the fourth layer for 1991. The material terms in respect of 1991 were no different to those for 1990: so I need only describe those for 1990.
It is convenient to start with the contract and terms relating to the primary insurance, up to £1m. The relevant terms of the line slip were:
“Type: Lloyd's underwriting agents professional indemnity
Alternative Lead Written Lineslip
Form: J (A) F.B. 1986 Wording or t.b.a. 2 L/U's
Assured: As declared by
Frizzell Professional Indemnity Limited and
Sedgwick Non-Marine Limited
as Joint Lineslip Holders.
Period: 1 January 1990 to 31 December 1990,
both days inclusive
Interest: As per Wording t.b.a 2 L/U's
Sum insured: Indemnity to: £1,000,000 in all (subject
to Automatic Reinstatement) each declaration to
t.b.a. 2 L/U's.
Minimum Excess: £2,500.
Conditions:…
Premium: t.b.a. 2 L/U's
Brokerage: 12.5%
Two leading Underwriters to accept each
declaration...
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