Factual and Procedural Background
The Claimant insurers ("Insurers") seek continuation of an interim anti-suit injunction against the defendant insureds ("Insureds") restraining them from pursuing proceedings in Brazil. Those Brazilian proceedings included an interim order restraining the Insurers from proceeding against the Insureds in arbitration until the Brazilian court determines whether the Insureds are bound to arbitrate disputes. The substantive dispute arises from two all-risk insurance policies ("the Policy") covering the construction of a large hydroelectric facility in Brazil. The Insureds claimed for physical damage and consequential losses from incidents in March 2011. The Insurers deny liability and initiated arbitration on 29 November 2011 seeking declarations of non-liability and material alteration under the Policy.
The parties dispute the validity and scope of the arbitration agreement in the Policy. The Policy is governed exclusively by Brazilian law with exclusive jurisdiction to Brazilian courts. However, the reinsurance arrangements were negotiated in English and the arbitration seat is in London. The court considered the Policy terms, including Conditions 7 (Law and Jurisdiction), 11 (Mediation), and 12 (Arbitration), which set out the dispute resolution procedures.
Legal Issues Presented
- Whether the arbitration agreement contained in the Policy is valid and governed by English law or Brazilian law.
- Whether compliance with the mediation requirements in Condition 11 is a mandatory condition precedent to arbitration under Condition 12.
- The proper interpretation of the scope of the arbitration clause, particularly whether it covers disputes beyond quantum, such as declarations of non-liability and material alteration.
- The reconciliation of the exclusive jurisdiction clause in Condition 7 with the arbitration clause in Conditions 11 and 12.
- Whether an interim anti-suit injunction restraining proceedings in Brazil should be continued.
Arguments of the Parties
Insurers' Arguments
- The arbitration agreement under Condition 12 is valid, governed by English law, and the seat of arbitration is London.
- The Insureds failed or refused to mediate prior to arbitration as required by Condition 11.
- The arbitration clause covers the disputes at issue, including declarations of non-liability and material alteration.
- The exclusive jurisdiction clause in Condition 7 does not prevent arbitration but relates to Brazilian courts' supervisory and enforcement jurisdiction.
- Continuation of the anti-suit injunction is justified to uphold the arbitration agreement and prevent parallel proceedings in Brazil.
Insureds' Arguments
- The arbitration agreement is governed by Brazilian law and is part of a contract of adhesion which the Insurers cannot rely upon.
- Compliance with the mediation requirements in Condition 11 is a condition precedent to arbitration, which was not fulfilled.
- The arbitration clause is limited to disputes about quantum and does not cover declarations of non-liability or material alteration.
- The exclusive jurisdiction clause grants Brazilian courts authority over disputes, and the Brazilian court's interim order should be respected.
- The Insureds were willing to mediate but required clarity on liability before engaging in mediation.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Fiona Trust v Privalov [2008] 1LLR 254 |
Arbitration agreements are distinct from substantive contracts for validity and governing law assessment. |
Supported the principle that arbitration agreement can have a different governing law from the substantive contract. |
| C v D [2007] 2 LLR 367; [2008] 1LLR 239 |
The law of the seat of arbitration is a strong factor in determining the proper law of the arbitration agreement. |
Used to conclude English law governs the arbitration agreement due to the London seat. |
| Shashoua v Sharma [2009] 2LLR 376 |
Discusses prior authorities on governing law of arbitration agreements. |
Referenced for analysis of arbitration agreement law. |
| Black Clawsen International Limited v Papierwerke Waldhof-Aschaffenburg AG [1981] 2LLR 446 |
It is rare for the law of the arbitration agreement to differ from the law of the seat of arbitration. |
Supported the conclusion that English law applies to the arbitration agreement. |
| Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1LLR 291 |
Discusses proper law of arbitration agreements and curial law. |
Referenced in support of the court's approach to governing law of arbitration agreement. |
| Mannai Investment Co Ltd v Eagle Star Life Insurance Co Ltd [1997] AC 749 |
Notice to initiate mediation must be clear and unambiguous. |
Applied to assess whether mediation was properly initiated under Condition 11. |
| Cable & Wireless plc v IBM United Kingdom Ltd [2002] EWHC 2059 (Comm) |
Binding effect of ADR clauses and enforceability when a defined procedure exists. |
Used to evaluate whether Condition 11 imposes a binding mediation obligation. |
| Courtney and Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1WLR 297 |
Agreements to negotiate in good faith are generally too uncertain to enforce. |
Supported the finding that Condition 11 does not create a binding obligation to mediate. |
| Holloway v Chancery Mead [2007] EWHC 2495 |
Requirements for ADR clauses to be binding and enforceable. |
Guided the court's assessment of Condition 11's enforceability. |
| Aiton Australia Pty Ltd v Transfield Pty Ltd [1999] NSWSC 996 |
Obligation to negotiate or mediate can be binding if sufficiently certain and defined. |
Referenced in evaluating Condition 11's certainty and binding nature. |
| ACE Ltd v CMS Energy Corporation [2009] 1LRIR 414 |
Reconciling mandatory arbitration clauses with exclusive jurisdiction clauses. |
Applied to interpret the relationship between Conditions 7, 11, and 12. |
| Paul Smith v H & S International Holding Inc. [1991] 2LLR 127 |
Principles on reconciling arbitration and jurisdiction clauses. |
Used to support the court's reconciliation approach. |
| SIPC Ltd v Coral Oil Co. Ltd [1999] 1LLR 72 |
Interpretation of arbitration and jurisdiction clauses. |
Referenced in the court's analysis of clause reconciliation. |
| Angelic Grace [1995] 1LLR 87 |
Burden of proof in upholding arbitration agreements and anti-suit injunctions. |
Guided the court's approach to burden and standard of proof. |
| Amazona [1989] 2 LLR 130 (CA) |
Binding effect of arbitration agreements once one party elects arbitration. |
Supported the conclusion that parties are bound to arbitration once elected. |
Court's Reasoning and Analysis
The court began by assessing the proper law of the arbitration agreement, applying English conflict of law rules. It distinguished the arbitration agreement from the substantive contract, noting that the arbitration clause's seat in London strongly indicated English law as the governing law of the arbitration agreement. This was supported by case law emphasizing the importance of the seat in determining curial law and supervisory jurisdiction.
Regarding the mediation clause (Condition 11), the court found that it did not impose a binding obligation or a condition precedent to arbitration. The clause's language was not unequivocal, lacked a defined mediation procedure, and did not provide mechanisms for mediator selection or process certainty. This uncertainty meant that the court could not enforce mediation or determine compliance reliably. The factual background further illustrated this uncertainty as the parties had differing views and no formal mediation was initiated.
Condition 12 (arbitration) was interpreted in light of Condition 11. Although Condition 11 envisaged mediation before arbitration, the lack of a binding mediation obligation meant that arbitration could proceed without mediation. The court held that the right to arbitrate arose given the failure to settle disputes and absence of mediation.
On the scope of arbitration, the court rejected the Insureds' argument that arbitration was limited to disputes about quantum. It interpreted the phrase "such dispute" in Condition 12 broadly to include all disputes arising under the Policy, including liability and material alteration claims. The court emphasized the commercial impracticality of splitting disputes between courts and arbitration and noted the arbitrators' qualifications suggested coverage of liability issues.
The court reconciled the exclusive jurisdiction clause in Condition 7 with the arbitration clause by giving priority to arbitration. The jurisdiction clause was read as allowing Brazilian courts supervisory and enforcement jurisdiction related to arbitration, rather than excluding arbitration altogether. This approach avoided conflicting parallel proceedings and aligned with legal policy favoring arbitration.
Finally, the court considered the continuation of the anti-suit injunction. It found the Insurers had discharged the burden of proof to justify the injunction and saw no strong reason to refuse continuation, despite the Brazilian court's interim order. The court emphasized its duty to uphold the arbitration agreement under English law and conflict of laws principles.
Holding and Implications
The court's final decision is to CONTINUE THE INTERIM ANTI-SUIT INJUNCTION restraining the Insureds from pursuing proceedings in Brazil that interfere with arbitration in London.
This decision enforces the arbitration agreement governed by English law, affirms the permissive nature of the mediation clause without it being a condition precedent, and confirms the broad scope of disputes subject to arbitration under the Policy. The exclusive jurisdiction clause favoring Brazilian courts is subordinated to the arbitration clause to prevent conflicting proceedings.
The direct effect is that arbitration proceedings in London may continue without interference from Brazilian litigation. No new precedent beyond the application of established principles on arbitration agreements, governing law, and anti-suit injunctions is established.