Arbitrator appointments: what experience is required?

Royal Courts of Justice_2014 (B&W)
Insurance, and particularly reinsurance, contracts often contain an arbitration clause requiring the parties to resolve any disputes through that method. One of the advantages of arbitration is that it gives the parties the ability to have a say in who will resolve their dispute. Typically, insurance/reinsurance disputes will be heard by a three person tribunal, consisting of an arbitrator appointed by the claimant, one appointed by the defendant and a chair. Selection is not always a straightforward process, however, as parties can and often do seek to object to the other side’s choice, hoping to gain a tactical advantage. This is not surprising as the choice of arbitrator(s) can be critical to the outcome of the case.

In Allianz v Tonicstar, the court had to deal with just such a challenge. The reinsurance contract in dispute incorporated the Joint Excess of Loss (JELC) 1997 clauses. Clause 15.5 of JELC 1997 provides that “Unless the parties otherwise agree the arbitration tribunal shall consist of persons with not less than ten years’ experience of insurance and reinsurance.” The reinsurers had appointed a QC. The reinsured syndicate objected on the basis that, while the QC in question had considerably more than ten years’ experience of insurance and reinsurance law, he did not have the relevant experience within the meaning of the clause. It argued that what was required was experience in the business of insurance or reinsurance itself. At first instance Mr Justice Teare found for the reinsured, feeling himself compelled to follow the unreported decision of Morison J in Company X v Company Y [2000] which required arbitrators to be individuals who had gained their experience working in the industry and not with or for that industry.

The Court of Appeal has now overturned that decision. Lord Justice Leggatt, giving the leading judgment, held that none of the matters relied on in Company X v Company Y provided any legitimate basis for inferring that an arbitration held pursuant to clause 15.5 of JELC 1997 had to be a ‘trade arbitration’, if that phrase was taken to mean that only persons who have worked in the trade may be chosen as arbitrators. The wording, he held, was not capable of being read as imposing any such restriction. He dismissed the reinsured’s argument that there was a distinction between insurance and reinsurance law and insurance and reinsurance “itself”, noting that it was 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 – an observation with which we would respectfully agree!

The Court of Appeal has gone a little further than Morrison J or Teare J at first instance in this case in outlining the qualities required of an arbitrator. Leggatt LJ noted that clause 15.5 of JELC 1997 does not specify the kind or depth of experience of insurance or reinsurance which the arbitrators are required to have but he stated that it is implicit in the function of the clause that the experience must be of sufficient quality to equip the appointee to perform the role of arbitrator in an insurance or reinsurance dispute. The fact that a person owns ships for which they have purchased insurance cover would not, he said, reasonably be regarded as satisfying the requirement. However, there was no reason to attribute to the parties an intention to prevent someone who is a ship owner from being appointed if that person does in fact have the requisite experience.

It is worth noting that, prior to the Court of Appeal decision being handed down, the arbitration clause in JELC was amended so that the 2018 clauses expressly allow the parties to appoint lawyers or professional advisers as arbitrators provided that they have at least 10 years’ experience of the industry. The new clause has been effective from 1 January 2018 in relation to those policies that expressly incorporate JELC 2018. Leggatt LJ noted that this amendment made explicit what, as he interpreted it, was already the effect of the previous wording.

Kiran Soar