C v D - proceedings in breach of arbitration agreement on the Bermuda Form

[2007] EWCA Civ 1282

Following the discussion of the decision in National Westminster Bank plc v Rabobank Nederland in Litigation Update November 2007 in which costs incurred as result of a breach of an anti-suit agreement were assessed on the indemnity rather than the standard basis, the point has come before the Court of Appeal. The court noted Colman J’s decision in the Nat West case and quoted Cooke J in Kyrgyz Mobil v Fellowes International as saying that this was the general approach of the Commercial Court where a party started proceedings in breach of an arbitration clause. It did not, however, decide the point. The case concerned an agreement between insurers to the Bermuda Form, under which the parties agree to arbitrate in London with the proper law of the insurance contract to be the internal laws of New York. The issue before the court concerned the proper law governing remedies seeking to attack the award. The court decided that the choice of seat for the arbitration, London, was also the choice of forum for such remedies. This meant that the award could only be challenged as permitted by the Arbitration Act 1996. The issue of costs did not arise because the insurers threatening to begin proceedings in New York had not yet done so.

Comment: awarding costs on an indemnity basis in such circumstances clearly appears to be the norm in the Commercial Court but whether this will be extended to cases in which damages are payable by, for example, solicitors in respect of legal costs incurred by their client in litigation resulting from their negligence is more doubtful. In C v D the Court of Appeal limited their consideration to cases concerning breaches of exclusive jurisdiction and arbitration clauses and did not refer to Redbus LMDS Limited v Jeffrey Green Russell or Dadourian Group International Inc. v Paul Simms, the latest decisions to award standard costs in such a case in line with British Racing Drivers' Club Ltd v Hextall Erskine & Co. Where the costs are incurred in English proceedings governed by the CPR, which was not the case in the Nat West case, it seems likely that the standard basis of assessment will continue to apply for the time being.

As a postscript on a related note, there have been two cases this year in which the courts have granted injunctions restraining insurers from continuing foreign proceedings in breach of a London arbitration clause - Kallang Shipping SA Panama v Axa Assurances Senegal and Starlight Shipping Co and another v Ta Ping Insurance Co Ltd. A party’s insurer is bound by an arbitration clause in the relevant contract and the court will issue an injunction against them as well as the insured where the insurer is exercising subrogated rights or is “calling the shots” in relation to the conduct of the claim, as was the case in Kallang.