UK: (Re)insurance Weekly Update 13-2017

Last Updated: 18 April 2017
Article by Nigel Brook

A summary of recent developments in insurance, reinsurance and litigation law.

This Week's Caselaw

Aldcroft v The International Cotton Association: Whether arbitral institution's rule restricting multiple appointments of an arbitrator by a party was an unreasonable restraint of trade

There has been recent caselaw debating the issue of whether, and to what extent, an arbitrator can accept multiple appointments from the same party (or a party connected to the same party). The International Cotton Association ("ICA") was concerned that there was a perception that its arbitration process had a pro-merchant bias because of repeat appointments by a merchant of the same arbitrator (which also contributed to a perceived risk of delay because a small number of arbitrators were taking on a large number of appointments at the same time). As a result, it introduced the so-called "3 and 8 rule" into its Arbitrators' Code of Conduct ie an arbitrator may only accept up to 3 appointments for a party or related party per calendar year and can have no more than 8 active first tier cases open at any one time.

The claimant, a full-time arbitrator in ICA disputes argued that the rule constituted an unreasonable restraint of trade. Foxton QC has now dismissed that claim. He held as follows:

(1) The ICA did not have to wait until there had been a challenge before changing its Code of Conduct.

(2) The issue of repeat appointments and possible delay has been dealt with in different ways by different international arbitration institutions. For example, disclosure to the parties (leaving them to make their own challenge) is often required but this can result in extra cost and delay.

(3) Being an arbitrator is a trade and so the doctrine of restraint of trade would apply. Furthermore, there could be circumstances in which a provision in an arbitration institution's rules relating to the acceptance of appointment as arbitrators could be subject to the doctrine of restraint of trade: "it is always possible for a provision in a class of contracts not ordinarily subject to the doctrine to be so unusual and egregious that there "comes a point" when the doctrine applies".

(4) However, on the facts here, there was no unreasonable restraint of trade. Concerns about impartiality and delay are legitimate objectives for the ICA to address (and a topic of general concern in the international arbitration community): "The particular mechanisms adopted by the ICA fall well within the range of reasonable options open to them for the purpose of meeting the legitimate objectives I have identified".

(5) Although not required to decide the point, the judge added that the fact that the claimant could have accepted appointments from other commodity associations would not have prevented a restraint of trade finding. The claimant's particular expertise was as a cotton arbitrator, and the overwhelming majority of international cotton was carried on ICA terms.

Societe Generale v Goldas Kuyumculuk: Judge refuses to grant order for deemed service by an alternative method and finds abuse of process where English proceedings were put on hold

After the grant of freezing orders in favour of the claimant, the claimant issued proceedings and purported to serve out of the jurisdiction, on the defendants in Turkey and Dubai. However, the claimant failed to serve in accordance with the only valid method of service in Turkey under the Hague Convention (through the Ministry of Justice). The claimant also failed to validly serve the claim form in Dubai. In both cases, the claim form had come to the notice of the defendant.

The English proceedings were then put on hold for some 8 years whilst insolvency proceedings in Turkey continued. The freezing orders were maintained throughout that period. The defendants then applied to strike out the English proceedings and discharge the freezing orders. The claimant applied for an order for deemed service by an alternative method (CPR r6.15) or an order dispensing with service (CPR r6.16).

Popplewell J reviewed and summarised prior caselaw and found that "a good reason" is required for an order under CPR r6.15 (and an exceptional reason needed under CPR r6.16). A critical factor is whether the defendant has learned of the existence and content of the claim form: "The strength of this factor will depend upon the circumstances in which such knowledge is gained. It will be strongest where it has occurred through what the defendant knows to be an attempt at formal service. It may be weaker or even non-existent where the contents of the claim form become known through other means". In any event, something more will be required.

Delay by the claimant is another factor to be taken into account, as is any abuse of process. Furthermore, "It is not ordinarily a good reason if the claimant is simply desirous of holding up proceedings while litigation is pursued elsewhere or to await some future development". It is also relevant if the method of service which the court is being asked to sanction is one which is not permitted under (where relevant) the Hague Convention or a bilateral treaty.

On the facts of this case, it was not enough that the defendants had had notice of the claim forms. Nor did it help the claimant that it had relied on allegedly negligent Turkish legal advice. Furthermore, the claimant ought to have applied to extend the period of validity for service of the claim form under CPR r7.6 when it became aware of problems with service in Dubai.

Of particular importance here was the fact that the claimant had decided to delay the English proceedings. This had been an abuse for three reasons: (1) a party which has obtained a freezing order must progress the proceedings expeditiously; (2) a party is not allowed simply to put proceedings on hold to await the outcome of developments or litigation abroad without the sanction of the court: "For a claimant unilaterally to warehouse proceedings is therefore an abuse of process, and may be a sufficiently serious abuse to warrant striking out the claim in appropriate cases"; and (3) the claimant had breached an undertaken given to the court in 2008 following the grant of the freezing orders to issue and serve the claim forms as soon as practicable.

Accordingly, no order was granted under either CPR r6.15 or CPR r6.16 and the claim was struck out and the freezing orders discharged. Although the freezing orders had been granted correctly, they were wrongly maintained from the time the claimant decided to put the English proceedings on hold to await the outcome of proceedings in Turkey. Accordingly, the claimant's cross-undertaking in damages should be enforced from that date and an inquiry as to damages was ordered.

(Re)insurance Weekly Update 13-2017

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