Professional Services Insurance Company Ltd v Gerling-Konzern Allegemeine-Versicherungs AG and Others

• Jurisdiction: Bermuda
• Judgment Date: 04 December 2003
• Date: 04 December 2003
• Docket Number: Civil Jurisdiction 2003 No. 48
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Kawaley, J

Civil Jurisdiction 2003 No. 48

BETWEEN:

Professional Services Insurance Company Limited

Plaintiff

and

Gerling-Konzern Allegemeine Versicherungs AG and Others

Defendants

Mr. J Woloniecki and Mr. S Leonard for the Plaintiff

Mr. N Hargun and Mr P Smith for the Defendants

The following cases were referred to in the judgment:

Locabail International Finance Limited v Dimistrios Manios & Transways (Chartering) SABDLR [1988] Bda LR 26

Broadsino Finance Co Ltd v Brilliance China Automotive Holdings LtdBDLR [2003] Bda LR 11

American Cyanamid v Ethicon LtdELR [1975] AC 396

Bay Hotel & Resort Ltd v Cavlier ConstructionUNK [2001] UKPC 34

Kitts v MooreELR [1895] 1 QB 253

Compagnie Europeene de Cereals SA v Tradax Export SAUNK [1986] 2 Lloyds Rep 301

Furness Withy (Australia) pty v Metal Distributors (UK) LtdUNK [1990] 1 Lloyds Rep 236

Naviera Amazonica Peruana SA v Compania Internacional de Seguros del PeruUNK [1988] 1 Lloyds Rep 116

Dalmia v National Bank of PakistanUNK [1978] 2 Lloyds Rep. 223

Arbitration Act 1986

Insurance arbitration — Jurisdiction or seat for arbitration — Disclosure — Application for Strike Out

Ruling of Kawaley, J

Introductory

By an Amended Originating Summons dated October 28, 2003, the Plaintiff (a Bermudian registered captive insurance company in run-off) seeks declaratory relief in respect of essentially two arbitrations. The first was commenced by the Plaintiff against the First Defendant by Notice dated March 7, 2003 (‘the Gerling Arbitration’). The second was purportedly commenced by the Defendants against the Plaintiff by Notice dated October 17, 2003 and, controversially, relates to several contracts and multiple parties.

On November 13, 2003, the Plaintiff obtained an Ex Parte interim injunction from Madam Justice Charles-Etta Simmons, who ordered that:

‘the Defendants be restrained, whether by themselves, their servants, agents, attorneys or otherwise howsoever, from pursuing or taking or permitting to be taken any further step in any arbitration or arbitrations purportedly commenced by a Demand for Arbitration dated 17 October 2003 from Leboeuf, Lamb, Greene & MacRae (subsequently assigned the case number 50T 195 00497 by the American Arbitration Association/The International Centre for Dispute Resolution), before the trial of the issues set out in the originating Summons herein, or further order.’

By Summons dated November 18, 2003, the Defendants applied for the following substantive relief, namely for an Order that:

‘1. The Ex Parte order of this Court dated 13 November 2003 be set aside and discharged on the grounds set out in the affidavit of James Burns sworn on 17 November 2003 and filed herein.

2. The Amended Originating Summons herein be struck out pursuant to R.S.C. Order 18 Rule 19 alternatively under the Court's inherent jurisdiction on the grounds that the court has no jurisdiction to grant the relief sought in the Amended Originating Summons and/or it fails to disclose any reasonable cause of action and/or is [sic] abuse of process.’

The Court was greatly assisted by comprehensive oral and written submissions presented by both Counsel who are probably, in their own right, Bermuda's leading experts on arbitration law. The Defendants' application raised the following two key issues for determination by this Court.

Firstly, is the action as a whole liable to be struck-out on the grounds that, because the parties have agreed that all relevant contractual disputes should be arbitrated and for other more technical grounds based upon statutory construction, this Court has no jurisdiction over the matters set out in the Amended Originating Summons?

Secondly, irrespective of how the first question is answered, should the November 13, 2003 Order (‘the Injunction’) be discharged, either by reason of material non-disclosure on the ex parte application to obtain it, or because on the merits no sufficient case for interim injunctive relief can be made out?

As this case ultimately turns on its facts, it seems appropriate to summarize the largely uncontroversial evidence before turning to Counsel's submissions.

Relief sought by Plaintiff and supporting evidence

Under paragraph 2 of the Amended Originating Summons, the Plaintiff seeks declarations that:

• a) each of the Reinsurance Contracts contains and/or incorporates a separate and distinct arbitration agreement;

• b) each such arbitration agreement is subject to and governed by the laws of Bermuda;

• c) each such arbitration agreement contains an agreement that the legal seat of any arbitration validly commenced under such agreement shall be Bermuda

Under paragraph 3 of the Amended Originating Summons, the Plaintiff seeks declarations that:

• a) the legal seat of the Gerling 2001 Attest Arbitration is Bermuda;

• b) Gerling is not entitled to commence a further arbitration relating to the matters at issue in the Gerling 2001 attest Arbitration and/or otherwise relating to the validity of the Gerling 2001 Attest Contracts;

• c) the Purported LeBeouf Demand does not constitute a valid notice of arbitration under any of the Reinsurance Contracts (including, but not limited to, the Gerling 2001 Attest Contracts);

• d)

  none of the First to Tenth Defendants has, through the Purported LeBoeuf Demand, validly commenced arbitration in respect of any of the matters referred to therein;

• e) none of the First to Tenth Defendants is entitled validly to commence an arbitration under any of the Reinsurance Contracts other than in respect of disputes, if any, relating to such Reinsurance Contract or otherwise to seek a resolution, through such arbitration, of any disputes relating to any other Reinsurance Contract in the context of such arbitration;

• f) the legal seat of any such arbitration as may be so validly commenced is, or would be, Bermuda;

• g) any Tribunal appointed under the Purported LeBoeuf Demand has no jurisdiction in respect of any of the matters referred to therein.

The Plaintiff in essence seeks declarations that the seat of any arbitration validly commenced under the Reinsurance Contracts is Bermuda, that each arbitration agreement in the Reinsurance Agreements is a separate agreement, and that the Purported LeBoeuf Demand has not validly commenced a single arbitration proceeding in respect of several agreements, including the previously commenced Gerling Arbitration.

The First Affidavit of Colin Croly was sworn on November 12, 2003 in support of the Injunction application (‘the First Croly Affidavit’). He explains that the Plaintiff directly insured the ‘attest and non-attest’ (or audit and consultancy) practices of the Arthur Andersen Business Unit of Andersen Worldwide. Between 1997 and 2001, the Plaintiff reinsured the risks assumed by it under the Direct Policies.

Each year had separate Attest and non-Attest reinsurance contracts with one or more participating reinsurers in respect of the various layers they subscribed to. The Reinsurance Contracts involved in the present action were the 2000 Non-Attest and the 2001 Attest.

For 2000, the relevant layers were US$50 million in excess of the Plaintiff's retention (Certificate No. 3–40001–01), US$50 million in excess of US$50 million over the retention (Certificate No. 3–40001–02), and US$150 million excess of US$100 million excess of the retention (Certificate No.3–40001–03). For 2001, the relevant layers were US$100 million excess of the retention (Certificate No. 3–50001–01), and US$100 million excess of $100 million over the retention (Certificate No.3–50001–02).

Each reinsurer executed a separate contract, which incorporated general Conditions. Clause 17 in each case provided: ‘This Certificate shall be governed, construed and enforced by the laws of Bermuda, including the remedies for breach hereof.’ All contracts had the following identical arbitration clause:

‘11. ARBITRATION / SERVICE OF SUIT

All disputes which may arise between the COMPANY and the REINSURER (S) out of or in relation to this CERTIFICATE (including disputes as to the validity, construction or enforceability thereof), or for their breach, shall be finally settled by arbitration held according to the Commercial Arbitration Rules of the American Arbitration Association by which the COMPANY and the REINSURER(S) agree to be bound. Disputes regarding interim or ancillary relief pending a final decision of the arbitration panel in a matter hereunder shall also be submitted to the arbitration panel for resolution. It is submitted to the arbitration panel for resolution. It is hereby specifically further agreed by the parties that if any question of law arises out of the arbitration award, or in the course of the arbitration proceeding, no appeal may be made to the Bermuda Supreme Court under Section 29 of The Arbitration Act of 1965 and no application may be made under Section 30 of such Act.

The party desiring arbitration shall notify any other party or parties of the name of the arbitrator selected by it. The other party who has been so notified shall within thirty (30) calendar days thereafter select an arbitrator and notify the party desiring arbitration of the name of such second arbitrator. The two arbitrators, chosen as above provided, shall within thirty (30) calendar days after the appointment of the second arbitrator choose a third arbitrator. Upon acceptance of the appointment by said third arbitrator, the panel of arbitration for the controversy in question shall be deemed fixed.

The arbitration proceeding shall take place in a location mutually agreeable to the parties.

The award of the arbitration panel may be, alternatively or cumulatively, for monetary damages, an order requiring the performance of the obligations under this CERTIFICATE or any other appropriate order or remedy. The award shall assign all costs of the arbitration to one or both...