Astra Zeneca Insurance Co Limited (“Astra Zeneca”), the captive insurer of Astra Zeneca plc, insured the group’s global property and liability risks (the “Insurance Contract”). CGU International Insurance plc reinsured Astra Zeneca’s liability in respect of personal injuries and property damage (the “Reinsurance Contract”). The Reinsurance Contract was expressly subject to English law and jurisdiction. The Insurance Contract contained no express choice of law, but it was seemingly accepted by the parties that English law governed it. It also contained a “USA Service of Suit” clause which bound insureds operating within the USA to submit to a court of competent jurisdiction within the USA. The Reinsurance Contract contained a London arbitration clause.

The underlying dispute arose when one of the Astra Zeneca plc group companies operating in Iowa allegedly breached the terms of its licence solely to produce and distribute genetically modified corn-seed for animal feed purposes when some of the genetically modified corn-seed was detected in human foodstuffs. A number of claims were brought by farmers, food manufacturers and food processors. The claims (totalling US$2 billion) were eventually settled for approximately US$80 million. Astra Zeneca paid the claims and sought recovery under the Reinsurance Contract. The Reinsurers declined liability for approximately 90% of the claim on the basis that the losses did not arise out of property damage. Astra Zeneca argued that had it declined liability under the Insurance Contract, proceedings would have been commenced against it in the Iowa courts and those courts, applying Iowa law to the Insurance Contract (in accordance with their local conflict of laws rules), would have held that all amounts claimed under the Insurance Contract were covered as damages on account of property damage.

The dispute went to arbitration in London. The panel consisted of a New York lawyer, a London underwriter, and Kenneth Rokison QC as chairman. The panel was split on the question of the proper law that should be applied to the claim, with the New York lawyer and the London underwriter holding that the proper law for the claim was Iowa law and Mr Rokison holding that it was English law. The arbitration panel made an award in favour of Astra Zeneca.

The Reinsurers appealed the award of the arbitrators to the Commercial Court on the grounds that there had been serious irregularity in the panel’s findings and contended (amongst other things) that the panel had ignored Astra Zeneca’s acceptance that English law was the proper law of the Insurance Contract. As a preliminary question, the Commercial Court judge (Mr Justice Cresswell) was asked to determine the proper law of the Insurance Contract and the Reinsurance Contract. He agreed with Mr Rokison’s analysis and allowed the appeal in favour of the Reinsurers, which meant that English law applied to the claim. Astra Zeneca was refused permission to appeal by the judge and it applied directly to the Court of Appeal.

Section 69(8) of the Arbitration Act 1996 prohibits an appeal to the Court of Appeal where the lower court has refused to give permission for the appeal. Astra Zeneca argued that this was incompatible with the requirement for fairness under Article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (the “Human Rights Convention”), now incorporated into English law by the Human Rights Act 1998.

The Court of Appeal held that despite the provisions of the Arbitration Act 1996, the court retained a residual jurisdiction to enquire into any unfairness in the process of a refusal of leave. The Court of Appeal held that the higher court was not interested in the merits of the parties’ dispute, nor the correctness of the judge’s reasons, but only in the adequacy of the judge’s reasons for refusing permission to appeal. The residual jurisdiction arises out of the need to maintain confidence in the administration of justice.

The court noted that the reasons given by Mr Justice Cresswell for not allowing Astra Zeneca permission to appeal to the Court of Appeal indicated that his refusal was not:

  • arbitrary, unfair or perverse; or
  • the product of a failure of intellectual engagement with the arguments before him; or
  • indicative of an absence of a decision on the part of the judge, ie, the decision however flawed by error was arrived at by an intellectual process and not undermined through bias or personal interest; or
  • unfair in process so as to amount to a breach of Article 6 of the Human Rights Convention (the Court of Appeal described this factor as the ultimate test).

The fact that the courts retain a residual discretion to consider an appeal based on the unfairness in the decision process meant that the Human Rights Convention had not been infringed.

Comment

The facts of the underlying dispute (which was heard in arbitration and before Mr Justice Cresswell in the Commercial Court) are undoubtedly of more interest to reinsurers and their brokers than the rather technical basis of this decision. However, reinsurers should note that the residual right to appeal an unfair decision is unlikely to be successfully established in most cases in practice. While setting out its decision in CGU v Astra Zeneca, the Court of Appeal made it clear that a wrongful refusal to grant permission to appeal a decision would not be subject to appeal in a higher court – no matter how flawed the decision – provided that the process followed by the judge when reaching his decision was not unfair. The Court of Appeal also indicated that it would be reluctant to hear most such appeals, since the purpose behind the legislation preventing appeal once leave is denied is designed to prevent issues being repeatedly brought before the courts by an unsuccessful party.