Factual and Procedural Background
This appeal concerns an order continuing an anti-suit injunction restraining the appellants ("the insured") from pursuing proceedings against the respondents ("the insurers") in the courts of Brazil. The dispute arises from two insurance policies related to the construction of a hydroelectric plant in Brazil. The insured made claims under the policies following incidents in 2011, but the insurers denied liability citing exclusions and a material alteration in circumstances. The policies include a London arbitration clause, a choice of Brazilian law as governing law, and an exclusive jurisdiction clause in favor of Brazilian courts.
The insured initiated arbitration proceedings in London but simultaneously commenced proceedings in Brazil seeking to prevent arbitration. The Brazilian court granted an injunction restraining arbitration. In response, the insurers obtained an injunction from the English Commercial Court restraining the insured from pursuing the Brazilian proceedings. This injunction was granted by Stadlen J. and subsequently continued by Cooke J., whose order is the subject of this appeal.
Legal Issues Presented
- What is the proper law governing the arbitration agreement contained within the insurance policies?
- Whether the mediation clause in the policy creates a binding precondition to arbitration?
- Whether the scope of the arbitration agreement includes disputes over the insurers' liability and not solely disputes about the amount payable?
- How to reconcile the exclusive jurisdiction clause favoring Brazilian courts with the arbitration and mediation provisions?
- Whether the anti-suit injunction restraining proceedings in Brazil should be continued.
Arguments of the Parties
Appellants' Arguments
- The arbitration agreement is governed by Brazilian law and is enforceable only with their consent, which was not given.
- The mediation clause constitutes an enforceable obligation and a condition precedent to arbitration, which had not been satisfied.
- The arbitration clause is limited to disputes about the quantum of liability, excluding disputes about substantive rights and obligations.
- The exclusive jurisdiction clause in favor of Brazilian courts should prevent arbitration of substantive disputes.
Appellees' Arguments
- Arbitration proceedings were validly commenced in accordance with the arbitration clause.
- The mediation clause does not create a binding obligation or condition precedent to arbitration.
- The proper law of the arbitration agreement is English law, given the choice of London as the seat of arbitration and the application of the Arbitration Act 1996.
- The arbitration clause covers all disputes arising out of or in connection with the policy, including substantive liability issues.
- The exclusive jurisdiction clause in favor of Brazilian courts does not prevent arbitration but allows Brazilian courts to exercise supervisory jurisdiction consistent with arbitration.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Fiona Trust & Holding Corp v Privalov [2007] UKHL 40 |
Reinforces separability of arbitration agreements and presumption that parties intend disputes to be resolved by chosen arbitration procedure. |
Used to support the principle that arbitration agreements are separable from the substantive contract. |
| Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 |
Clarifies that proper law of arbitration agreement may differ from substantive contract; introduces concept of curial law. |
Guided the court in understanding the relationship between arbitration agreement law and substantive contract law. |
| Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1982] 2 Lloyd's Rep 446 |
Discusses possibility of different laws governing substantive contract, arbitration agreement, and arbitral proceedings. |
Supported the court's analysis of the three potentially relevant legal systems in arbitration disputes. |
| Sonatrach Petroleum Corp v Ferrell International Ltd [2002] 1 All ER (Comm) 627 |
Where substantive contract has express choice of law, arbitration agreement without express choice will normally be governed by that law. |
Supported the presumption that arbitration agreements follow the substantive contract's law absent express choice. |
| Sumitomo Heavy Industries Ltd v Oil & Natural Gas Commission [1994] 1 Lloyd's Rep 45 |
Express choice of law governing substantive contract usually determines proper law of arbitration agreement. |
Reinforced the principle that arbitration agreements are generally governed by the substantive contract’s law. |
| Leibinger v Stryker Trauma GmbH [2005] EWHC 690 (Comm) |
Proper law of arbitration agreement determined by express choice of law for substantive contract where arbitration agreement is an adjunct. |
Applied to confirm the link between substantive contract law and arbitration agreement law. |
| XL Insurance Ltd v Owens Corning [2001] 1 All ER (Comm) 530 |
Choice of seat and arbitration law can imply English law as proper law of arbitration agreement despite substantive contract law choice. |
Supported the court’s conclusion that English law governs the arbitration agreement given the London seat. |
| C v D [2007] EWCA Civ 1282 |
It is rare for the law of the arbitration agreement to differ from the law of the seat; seat choice implies choice of forum for enforcement and challenges. |
Influenced the court’s view that English law governs the arbitration agreement due to the London seat. |
| ACE Capital Ltd v CMS Energy Corporation [2008] EWHC 1843 |
Exclusive jurisdiction clauses may coexist with mandatory arbitration clauses, allowing courts limited supervisory roles. |
Used to reconcile the Brazilian courts' exclusive jurisdiction clause with the arbitration provisions. |
Court's Reasoning and Analysis
The court began by addressing the proper law of the arbitration agreement, recognizing the established principle that arbitration agreements are separable from the substantive contract and may be governed by different laws. Although the substantive contract was governed by Brazilian law, the court found that the arbitration agreement had its closest and most real connection with English law, primarily due to the choice of London as the seat of arbitration and the application of the Arbitration Act 1996.
The court rejected the appellants' argument that Brazilian law governed the arbitration agreement by implied choice, noting that such a choice would risk undermining the arbitration agreement’s effectiveness, especially given Brazilian law's requirement of consent for arbitration. The court emphasized that the parties must have intended the arbitration agreement to be governed by a law that would give full effect to its terms, which English law does.
Regarding the mediation clause, the court held that condition 11 did not create a binding obligation or a legally enforceable precondition to arbitration because it lacked sufficient certainty and a defined mediation process. Consequently, failure to mediate did not invalidate the arbitration commencement.
On the scope of the arbitration clause, the court construed the language broadly, holding that disputes over liability and coverage fall within its ambit, not just disputes concerning amounts payable. The court found that the arbitration and mediation provisions form a composite dispute resolution mechanism intended to cover all disputes arising from the policy.
In reconciling the exclusive jurisdiction clause favoring Brazilian courts with the arbitration clause, the court accepted that the exclusive jurisdiction clause permits the Brazilian courts to exercise supervisory jurisdiction over arbitration-related matters, such as compelling arbitration and enforcing awards, but does not exclude arbitration as a dispute resolution mechanism.
Finally, the court dismissed the appeal, finding no sufficient basis to overturn the continuation of the anti-suit injunction restraining the insured from litigating in Brazil.
Holding and Implications
The court DISMISSED THE APPEAL and refused permission to appeal on the ground that the arbitration agreement is governed by English law, that the mediation clause does not create a binding precondition to arbitration, and that the arbitration clause covers all disputes arising under the policy, including substantive liability issues.
The direct effect of this decision is that the insured is restrained from pursuing proceedings in Brazil and must resolve disputes through arbitration in London under English law. The decision clarifies the application of the proper law to arbitration agreements embedded in contracts governed by a different substantive law, emphasizing the significance of the seat of arbitration and the Arbitration Act 1996. No new precedent beyond the application of existing principles was established.