The High Court decided in ACE Capital Ltd v CMS Energy Corporation, that a service of suit clause in four insurance policies did not limit the effectiveness of the arbitration clause also found in the policies. Rather, the judgment gave effect to the apparently conflicting clauses by reducing the applicability of the Service of Suit clause to enforcement of an arbitral award only. 

ACE Capital Ltd and other underwriters sought an anti-suit injunction from the High Court to prevent the insured, CMS Energy Corporation (CMS), from pursuing court proceedings commenced in its home jurisdiction in the US. The substantive dispute between the parties related to acts of the Argentine government and whether they rendered CMS investments economically unviable within the meaning of the insurance policies. The question before the High Court related to the appropriate forum for resolution of that dispute.

The insurance policies contained (1) an arbitration clause, calling for resolution of disputes by LCIA arbitration, (2) a choice of law in favour of English law and (3) a Service of Suit clause, whereby the underwriters agreed that in the event of failure of the underwriters to pay any amount claimed, the underwriters would submit to the jurisdiction of a court of competent jurisdiction within the US. CMS claimed this gave it a choice between arbitration and the US courts.

The court identified four factors of importance to its decision:

  1. The contracts in question were concluded in the context of a strong legal policy on both sides of the Atlantic in favour of arbitration; 
  1. The prevailing case-law in the US, of persuasive authority, favoured the construction adopted by the court; 
  1. A third clause in the contracts emphasised the importance to the parties of speedy dispute resolution through arbitration; and 
  1. The Service of Suit clause did not contain any undertaking that all matters in dispute should be settled in accordance with the law of the relevant court whereas the arbitration clause called for arbitration of all disputes.

On this basis, the court ruled that the Service of Suit clause did not absolve CMS from its contractual obligation to arbitrate disputes. The court then granted the underwriters' request for an anti-suit injunction.

This arguably contorted interpretation of a jurisdiction clause seems to demonstrate the courts pro- arbitration stance, in line with decisions such as Premium Nafta Products Ltd & ors v Fili Shipping Co Ltd & ors ('Fiona Trust')issued by the House of Lords in 2007. Nevertheless, both uncertainty and litigation costs might have been reduced if the parties had drafted their dispute resolution clause to explicitly reflect the intended applicability and effect of the Service of Suit clause.

(ACE Capital Ltd v CMS Energy Corporation [2008] EWHC 1843 (Comm))