Sulamerica CIA. Nacionel De Seguros S.A. & Others v Enesa Engenharia S.A. & Others

[2012] EWHC 42 (Comm)

A dispute arose about two all risk insurance policies covering the construction of one of the world’s largest hydro electric facilities, in Brazil. Conditions 11 and 12 entitled “Mediation” and “Arbitration”, stated:

11 ...If any dispute or diff erence of whatsoever nature arises...the parties undertake that, prior to a reference to arbitration, they will seek to have the Dispute resolved amicably by mediation…”

12 ... In case the Insured and the Insurer(s) shall fail to agree as to the amount to be paid under this Policy through mediation ..., such dispute shall then be referred to arbitration under ARIAS Arbitration Rules.”

The question arose before Cooke J as to whether the right to arbitrate only arose if the requirements to mediate in condition 11 had been complied with. Here the Judge thought that there were three major diffi culties which stood in the way of the submission that condition 11 was an enforceable obligation. First, there was no unequivocal commitment to engage in mediation. The parties had agreed that “they will seek to have the Dispute resolved amicably by mediation” but did not bind themselves to do so in clear terms. They only agreed in general terms to attempt to resolve diff erences in mediation. Second, there was no agreement to enter into any clear mediation process, whether based on a model put in place by an ADR organisation or otherwise. Third, there was no provision for the selection of the mediator. The parties would need to agree upon the identity of the mediator, the location of the mediation and the process in which the parties had to engage. Condition 11 by itself was not enough to establish what the parties had to do.

Therefore there was no binding obligation to mediate and the court would not be able to determine whether or not a party had complied with the “obligations” allegedly imposed. If, for example, the parties were unable to reach agreement on a mediator or on the form of mediation and it was suggested that by one party that had not sought to have the dispute resolved by mediation, how would the court determine which party was in breach? Taken altogether, this meant that there was no condition precedent requiring the parties to mediate prior to any arbitration.