Facts

In Best Re (L) Limited v Ace Jerneh Insurance Berhad(1) the appellant issued several insurance policies (the original policies) to the respondent, which provided that any differences arising from the contracts be referred to arbitration.

Following the issuance of the original policies, the parties entered into three reinsurance contracts (ie, facultative reinsurance slips), which contained no express arbitration clauses nor any reference to the arbitration clause in the original policies.

Pursuant to the reinsurance contracts, the respondent commenced actions in the sessions court, claiming sums owed by the appellant. The appellant applied to stay the proceedings and referred the matter to arbitration. The respondent appealed the stay application before the high court.

Decision

The appellant appealed to the Court of Appeal, which held that the sole issue was whether the reinsurance contracts had sufficiently referenced the original policies so as to allow the incorporation of the arbitration clause into the reinsurance contracts and whether reference should be expressly made to render the same effective and valid.

The Court of Appeal referenced Section 9(5) of the Arbitration Act 2005, which states as follows:

"A reference in an agreement to a document containing an arbitration clause shall constitute an agreement, provided that the agreement is in writing and the reference is such as to make that clause part of the agreement."

In holding that the arbitration clause was effectively incorporated into the original policies, the Court of Appeal considered the differing tests adopted by different jurisdictions and judicial pronouncements regarding whether references to contractual clauses can be incorporated into another agreement between the parties. The Court of Appeal ultimately held as follows:

"In dealing with this case we must also be conscious of the global general trend to encourage arbitration as an alternative to a dispute resolution particularly so among the commercial and business community. The uniqueness of arbitration as a means to resolve dispute where it enables the disputing parties to have their dispute referred to and determined by experts or persons of their choice can be of great advantage to the parties. In this respect the Court should be slow in striking out an arbitration agreement between the parties if the Court finds that there is a clear intention of the parties to refer their dispute to arbitration."

Comment

The Court of Appeal's decision is important for two reasons:

  • The court took a robust approach in holding that general words are sufficient for the incorporation of arbitration clauses by way of reference.
  • The court emphasised the importance of arbitration clauses in commercial contracts and the need to give business efficacy to commercial arrangements.

Given the widespread use of arbitration clauses in commercial contracts, this is a welcome decision. Contracting parties which were contemplating the use of arbitration clauses are now encouraged to settle their differences by way of arbitration and not to seek unwarranted court opinions, notwithstanding the existence of an arbitration clause.

For further information on this topic please contact K Shanti Mogan at Shearn Delamore & Co by telephone (+60 3 2070 0644) or email (shanti@shearndelamore.com). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.

Endnotes

(1) [2015] 1 LNS 959.

(2) Paragraph 48.

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