by ~ Rachel M. Davison (Email) (Web Site)
MReBA member Julian Miller, a partner in the London office of DAC Beachcroft, was the featured speaker at the final educational presentation of 2013. His remarks focused on the challenges that US-based practitioners might face when called upon to arbitrate in the United Kingdom, or under English procedural rules. The presentation was peppered with helpful illustrations that highlighted the similarities and differences in the US and UK approaches to arbitration proceedings.
As an initial matter, the UK has several sets of rules that may govern procedural issues in an arbitration proceeding seated there, including the Arbitration Act (1996), the Reinsurance and Insurance Arbitration Society of the UK Rules, the International Chamber of Commerce Rules (2012), the London Court of International Arbitration (1998) Rules, the Chartered Institution of Arbitrators Rules, the International Bar Association Rules on the Taking of Evidence in International Arbitration, and the ARIAS Rules. Despite the various sets of rules that are available, reinsurance agreements are often silent as to which rules will apply in a given arbitration. In the absence of a contractual selection of applicable rules, the UK’s Arbitration Act (1996) will supply them. However, UK arbitrations are flexible enough that the parties can be inventive and “mix-and-match” provisions from the various rules so long as the parties and the tribunal are in agreement.
Mr. Miller made the important distinction between the procedural rules that control an arbitration and the governing law that is applied by the tribunal to the substantive issues presented. For example, the classic “Bermuda form” policy calls for a London arbitration under modified New York law (sometimes referred to as “New York law minus”). Because the arbitral tribunal will physically meet in London, English law will apply to all questions of procedure. The tribunal will, however, apply modified New York law to the substantive questions in dispute. The result should be an even-handed construction of the reinsurance agreement. Given the profound effect that the selection of the governing law can have on substantive issues in a reinsurance dispute and how the chosen seat of the arbitration can influence the procedural rules that apply, parties should take great care in drafting their reinsurance agreements.
One of the commonly-discussed features of a UK-based arbitration is the neutrality of the panel. Under Section 33 of the Arbitration Act (1996), all of the members of a tribunal must be neutral. After a polite initial inquiry about conflicts of interest and availability, there is no ex parte communication with the panel. The prohibition on ex parte is strictly followed. In practice, an arbitrator that acts with partisanship can be marginalized, and therefore, the reputational quality of arbitration rulings issued from a tribunal held in London is quite high. In most insurance or reinsurance coverage disputes the panel will comprise three arbitrators, and appointments of umpires (who participate only in the event of disagreement between the arbitrators) are rare. All of the arbitrators on the panel actively participate from the outset.
The pleadings and presentation of evidence differ greatly from US proceedings. The pleadings in a UK arbitration are formulaic, containing a summary of the facts and the elements of the claim but only limited advocacy or submissions on the law. Witness testimony is first presented in a written statement in accordance with the procedures followed by the Commercial Court. There are no depositions, and there is no examination in chief by the party offering the witness. A witness’ first experience in an arbitration is typically cross-examination. Moreover, excessive communication between the witness and his own barrister is strongly discouraged so as to avoid witness coaching. Witness preparation is generally limited to a review of the trial bundle or arbitration materials and a discussion of how to address the panel and deal with nerves. In an arbitration with a UK seat, a witness can be compelled to appear at an arbitration through the courts.
If the arbitration is proceeding under the Arbitration Act (1996), the tribunal will issue a written reasoned award. The parties can agree that there be some other form of award, but the form of the award impacts the parties’ appellate rights. If there is no reasoned award, there is no right of appeal. In other cases, an appeal can proceed only with the agreement of the parties or leave of court. Also, an appeal can only proceed on an issue of law (unless the appeal challenges the tribunal’s substantive jurisdiction or challenges the award on grounds of serious irregularity affecting the tribunal).
Findings of fact and procedural errors are not reviewable on appeal. For example, if an honorable engagement clause is utilized, there is no possibility of appeal because such an approach allows the tribunal to resolve the dispute without adhering to strict principles of law. Similarly, issues of foreign (non-English) law are not reviewable because they are considered questions of fact. Accordingly, an award in an arbitration involving a Bermuda form policy—governed by New York law minus—cannot be appealed. The appealability of an award must, therefore, be considered when drafting the governing law provision of a reinsurance agreement.
Mr. Miller also addressed the recoverability of costs in UK arbitrations. While US practitioners are likely familiar with the “American Rule” requiring parties to bear their own costs in litigation or arbitration, the “English Rule” allowing for cost-shifting may be more unfamiliar. Arbitrators are afforded substantial discretion in shifting the prevailing party’s costs to the non-prevailing party. They will generally take into account the parties’ conduct in the proceeding, including whether they used discovery as an abusive process, as well as the outcome. For instance, where a party wins on only one of many claims asserted in the arbitration, the panel could decide that it would be unjust to award costs and decline to follow the English Rule. Section 38 of the Arbitration Act (1996) deals with security for costs. It is common to require security for costs in marine claims, but uncommon to require security for liability claims.
In his presentation, Mr. Miller stressed the importance of assembling the proper team for an arbitration. The reputation and experience of the solicitor and the experts is important in UK arbitrations. He suggested that the early involvement of a solicitor in a UK arbitration could provide useful insight regarding the selection of arbitrators and experts and help guide a party through the nuances of the process. While Mr. Miller’s focus is on UK arbitrations, his points about having representatives with the requisite experience and credentials apply equally to US arbitrations. Also, many of the considerations that he spoke about taking into account when drafting a reinsurance agreement, such as the applicable procedural rules and governing law and their impact on the arbitration, would be wisely considered by US practitioners.
Ms. Davison is an associate in the Boston office of Morrison Mahoney LLP. She may be reached at firstname.lastname@example.org.
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