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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Ace Capital Ltd v CMS Energy Corporation [2008] EWHC 1843 (Comm) (30 July 2008) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2008/1843.html Cite as: [2008] 2 CLC 318, [2009] Lloyd's Rep IR 414, [2008] EWHC 1843 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
ACE CAPITAL LTD ("ACE") (suing on its own behalf and on behalf of all underwriting members of Lloyd's Syndicates 488 and 2488 that subscribed to Political Risk Insurance Policies 509/DF054599, 509/DF054699, 509/DF054799 and 509/DF054899) and others identified in Schedule 1 to the Claim Form) ("Underwriters") |
Claimant |
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- and - |
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CMS ENERGY CORPORATION (in its own right and on behalf of any other associated, affiliated or subsidiary companies not identified below that were privy to or covered by Political Risk Insurance Policies numbers 509/DF054599, 509/DF054699, 509/DF054799 and 509/DF054899) ("CMS") |
Defendant |
____________________
Steven Berry QC & Ricky Diwan (instructed by Addleshaw Goddard) for the Defendant
Hearing dates: 8th & 9th April 2008
____________________
Crown Copyright ©
MR JUSTICE CHRISTOPHER CLARKE:
The Policies
(i) | Primary Policy: | No 509/DF 054599; |
(ii) | First Excess Policy: | No 509/DF 054699; |
(iii) | Second Excess Policy | No 509/DF 054799; |
(iv) | Third Excess Policy | No 509/DF 054899. |
The Michigan proceedings
"ARTICLES VI. GENERAL CONDITIONS
……………………
I. Choice of Law and Arbitration
a) The construction, validity and performance of this Policy, shall be governed by the laws of England and all disputes that may arise under, out of, or in relation to this Policy or to the determination of the amount of loss hereunder shall be submitted to arbitration at the London Court of International Arbitration according to its rules at the date of submission. The award rendered by the Arbitrator(s) shall be final and binding upon all parties and may be enforced by any court having jurisdiction.
b) The parties hereto agree that the speedy resolution of any disputes between them to be had as a consequence of this clause is a mutual and material inducement to enter into this Policy and that this in no way infringes on any rights accorded in the Service of Suit clause of this Policy the effect of which is to provide without waiver of any defence an ultimate assurance of the amenability of Underwriters to process of certain courts.
c) Service of Suit Clause (NMA 1998) in respect of US Insured's:
It is agreed that in the event of the failure of Underwriters hereon to pay any amount claimed to be due hereunder, Underwriters hereon, at the request of the Insured, will submit to the jurisdiction of a court of competent jurisdiction within the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any State in the United States.
It is further agreed that service of process in such suit may be made upon:
Mendes & Mount, 750 Seventh Avenue, New York, NY 10019-6829, USA.
And that in any suit instituted against any one of them upon this Policy, Underwriters will abide by the final determination of such court or of any appellate court in the event of any appeal.
The above-named are authorised and directed to accept service of process on behalf of Underwriters in any such suit and/or upon the request of the insured to give a written undertaking to the Insured that they will enter a general appearance upon Underwriters' behalf in the event such suit shall be filed.
Furthermore, pursuant to any statute of any state, territory or district of the United States which makes provision therefore, Underwriters hereon hereby designate the Superintendent, Commissioner or Director of Insurance or other office specified for that purpose in the statute, or his successor or successors in office, as their true and lawful attorney upon whom may be serviced any lawful process in any action, suit, or proceeding instituted by or on behalf of the insured or any beneficiary hereunder arising out of this Policy and hereby designate the above-named as the person to whom the said officer is authorised to mail such process or a true copy thereof".
[Emphasis added in each case]
"It is agreed that in the event of the failure of Underwriters hereon to pay any amount claimed to be due hereunder, Underwriters hereon, at the request of the Insured, will submit to the jurisdiction of a court of competent jurisdiction within the United States, Nothing in this clause constitutes or should be understood to constitute a waiver of Underwriter's right to commence an action in any court of competent jurisdiction in the United States to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any State in the United States". [Bold and underlining added]
The central issue
The history of the proceedings
US case law
The rival constructions
The background
The US case law
United States Courts of Appeal
"Policy Condition 14 relating to court actions is said to be inconsistent with Condition 3 relating to arbitration. We find no inconsistency. The purpose of Condition 14 is to ease possible burdens which the insured might encounter in obtaining jurisdiction over the insurer, which is incorporated under the laws of England and has its principal place of business in London. The assent of the insurer to jurisdiction does not prevent it from raising a defense based on policy terms".
The reference to a defence based on policy terms was a reference to the defence that the insurer had a right to arbitrate.
Federal District Courts
"was designed to guarantee the enforcement of arbitration awards and is not designed to supercede an obligation to arbitrate disputes within the scope of the arbitration clause".
"The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitral issues should be resolved in favor of arbitration whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability".
Hart was cited with approval by the Supreme Court as an example of the consistent holdings by federal Courts of Appeals 'that questions of arbitrability must be addressed with a healthy regard for the federal policy favouring arbitration". Michigan, like many other States, has the same public policy: Omega Construction Co, Inc v Altman, 147 Mich.App.649 (Ct.App.Mich 1985).
"… the arbitration clauses in these contracts retain their validity unless language compels the conclusion that the parties, having gone to the trouble of inserting a broad arbitration clause, intended to eviscerate the clause almost entirely by preceding it with a service of suit clause. But it is entirely possible to read these clauses in harmony, rather than in conflict with each other…… I am in entire agreement with the conclusion reached by the tenth circuit in Hart…, in which the court rejected an argument similar to the present plaintiff's. … Confronted with the issue in this case, I do not hesitate to hold that the consents to jurisdiction contained in the service of suit clauses in these contracts are not fatally inconsistent with Phoenix's right to raise the affirmative defense of arbitration, once jurisdiction has been successfully invoked. In consequence, the service of suit clause cannot be read to constitute a waiver of the broad arbitration clauses".
Other examples are: West Shore Pipe Line Co v Associated Elec & Gas Co 791 F.Supp 200 (N.D.Ill 1992)[4]; Continental Casualty Co v Certain Underwriters at Lloyd's, 1993 US Dist, Lexis 21345 (N.D. Cal 1993); Ochsner/Sisters of Charity Health Plan, Inc v Certain Underwriters at Lloyd's, 1996 U.S.Dist Lexis 12561 (E.D.La 1996).
Different views
A retreat from Thiokol
"well established that… service of suit clauses do not abridge an agreement to arbitrate all disputes arising out of a relationship …The reason for service of suit clauses is not to limit the arbitrability of claims but to 'obviate potential problems with obtaining jurisdiction over the parties'".
Ochsner/Sisters of Charity, Continental Casualty, Neca, Ideal Mutual and McDermott were all cited together with Old Dominion Ins Co. v Dependable Reinsurance Co, 472 So 2d 1365, a decision of the Florida Court of Appeal, First District, and Phoenix, 1984 U.S.Dist LEXIS 15258, 1984 WL 602.
"they are displaced in this context by the more specific rule requiring that 'any doubts concerning the scope of arbitrable issues be resolved in favour of arbitration".
Thiokol was distinguished on the ground that the plaintiff opposing forced arbitration, i.e. Thiokol, was not a party to the arbitration agreement but a third party. This is not easy to follow. Thikol was, indeed the "Assured" in whose favour alone the Service of Suit clause applied. But it was also bound by the arbitration clause for everything except money claims by it.
"Applying this rule of construction, courts have consistently held arbitration clauses, even those without specific language stating that arbitration is a precedent to any right of action, to be enforceable despite the presence of a Service of Suit clause elsewhere in the contract".
"These cases generally hold that the Arbitration clause and the Service of Suit clause do not conflict. All of the above cases found that the Service of Suit clause is intended to enforce an arbitration award, since an arbitration award is not self-enforcing… Neither clause conflicts, and each clause has an effect. Interpreting each clause according to its plain meaning, "(1) absent a waiver of arbitration, all disputes falling within the scope of the Arbitration clause would be arbitrated; and (2) [John Hancock] will submit to the jurisdiction of any court of competent jurisdiction chosen by [Credit General] in any lawsuit, whether it be to determine the arbitrable nature of the dispute, to confirm an arbitration award, to compel arbitration …. or to resolve on the merits a claim not subject to arbitration." See Travelers Insurance Company v Keeling, 1993 US Dist. LEXIS 491, 1993 WL 18909 (S.D.N.Y 1993).
Considering both the weight of authority and the logic and simplicity of the cases that hold that both the Arbitration clause and the Service of Suit clause can co-exist, with each given its plain meaning and effect, the Court finds that Credit General's claims are subject to arbitration, and, under the Federal Arbitration Act, John Hancock is entitled to a stay of litigation. The Court further finds, since all of the claims pursued are subject to arbitration, and, thus, nothing is left to litigate, that this claim may be dismissed without prejudice".
State Courts
"departed from the essential requirements of law by interpreting the provisions of the agreement in a manner which is contrary to the language of the agreement, the usage of the trade, the law's liberal policy favoring arbitration, and respondent's own actions in seeking arbitration of the claims it now seeks to litigate without arbitration".
"There is no irreconcilable inconsistency between the [forum selection] clause and the [arbitration clause] … Both can be given effect, since arbitration awards are not self-enforceable. Once arbitration is completed, therefore, the forum selection clause reasonably can be interpreted as dictating the location of any action that might be necessary to enforce the award …… [the forum selection clause] did not constitute an "opting out" or waiver of the right to arbitration".
See also Underwriting Members of Lloyd's v United Home Life Ins.Co. 569 N.E.2d 67 (Ct App.Ind. 1990);
"… generally provides no more than a consent to jurisdiction. It does not bind the parties to litigate in a particular forum, or give the insured the exclusive right to choose a forum unrelated to the dispute".
It held that the plain meaning of the words of the Service of Suit clause did not manifest an intention to limit jurisdiction to a particular forum and that the clause, being permissive, did not require the defendants to litigate the dispute under the policy in New York.
"In the event of the failure of the reinsurer to pay an amount claimed to be due hereunder, the reinsurer will, at the request of the reinsured, submit to the jurisdiction of any court of competent jurisdiction within the United States and will comply with all requirements necessary to give such court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such court.
……
In any suit instituted against the reinsurers under this agreement the Reinsurer will abide by the final decision of such court or any reviewing court".
"the reinsurer will, at the request of the reinsured, submit to the jurisdiction of any court of competent jurisdiction within the United States".
but also that it:
"will comply with all requirements necessary to give such court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such court".
In other words there was an express agreement that the relevant court should determine any dispute upon the merits.
"rejecting the argument that consent to service creates an ambiguity or waives the right to compel arbitration. These courts have reasoned that the two clauses do not conflict because the service of suit clause should be interpreted, in view of the presumption favoring arbitration, as intended to facilitate enforcement of the arbitration clause. The only Californian case on point is consistent with the general rule".
Summary of US cases
The English cases
Service of Suit clause and no arbitration clause
"This endorsement deletes and replaces any substantially similar clause contained in the policy".
Service of Suit clause and UK law and jurisdiction clause
Mandatory arbitration and exclusive English jurisdiction clauses
CMS' submissions
Discussion
Factor 1
"… the golden rule that, if the parties wish to have issues as to the validity of the contract decided by one tribunal, and issues as to meaning or performance decided by another, they must say so expressly. Otherwise, they will be taken to have agreed on a single tribunal for the resolution of all such disputes".
In the present case, if CMS are right, any issue may, at the option of the insured, be tried in any of the States of the Union, if there is a money claim whereas, when there is no such claim, they must be arbitrated.
Factor 2
Factor 3
"provide without waiver of any defence an ultimate assurance of the amenability of Underwriters to process of certain courts".
Factor 4
Conclusions
Note 1 The wording of the second sentence (“Nothing in this clause…”) was introduced in order to make clear that the Service of Suit clause did not amount to a waiver of the rights of underwriters to remove an action from a State to a Federal court or to seek a transfer of a case to a more appropriate forum. [Back] Note 2 In which States they have nominated Attorneys-in-Fact, currently Lloyd’s Illinois Inc and Lloyd’s Kentucky Inc. [Back] Note 3 The report does not indicate the full terms of condition 14. [Back] Note 4 In which, however, the Service of Suit clause only applied “In the event of a judgment entered against [the insurer] on an award”. [Back] Note 5 The District Judge took judicial notice “that London is not within the United States, at least not since the Revolutionary War”.
[Back] Note 6 CMS suggests that the difference may lie in the fact that in the case of a London arbitration there would be no question of the US court exercising a supervisory jurisdiction; and the New York Convention would provide a ready means of enforcement. But, as Ideal shows, the US Court regards itself as able to compel London arbitration: see paragraph 35. [Back] Note 7 See paragraph 49 below. [Back] Note 8 It was not necessary to decide, and the judgment does not decide, whether the UK jurisdiction clause would have been an exclusive jurisdiction clause, absent the Service of Suit clause. [Back] Note 9 In King v Brandywine Reinsurance Co (UK) Ltd [2004] Lloyd’s IR 554 the Court was concerned with a clause giving the assured an option to select New York jurisdiction, in two sections of a policy, and any US court, in a third section, together with an unenforceable agreement to arbitrate in the first two sections and an enforceable agreement to arbitrate in the third. The Court did not, however, have to decide on the interrelationship between the two. The issue was as to the law of the policy. [Back] Note 10 The contracts were originally placed in 1997 and then renewed in 1999. In 1997 Thiokol had been decided but Transit had not. [Back] Note 11 An arbitrator is entitled to refuse to decide any issue which overlaps with English High Court proceedings: Northern Regional Health Authority v Derek Crouch Construction Co Ltd [1984] 2 All ER 175; and I see no reason why he should not be able to do so if there is an overlap with non-English High Court proceedings. But difficult questions would arise as to how any such discretion should be exercised when each party asserts, from the beginning, a wish to pursue its own chosen route. [Back] Note 12 In Ideal there was such an undertaking and, even then there was held to be no waiver. Since such an undertaking is absent from the present clause it is unnecessary to decide what the result would be if it was there. [Back] Note 13 The existence of such clauses was regarded by Lloyd’s as a selling point for Lloyd’s American policies since it enabled the Assured to sue in his local court. [Back]