This was an application to the High Court arising out of a reinsurance arbitration concerning the liabilities of the Port Authority of New York following the tragic events of 9/111. Tonicstar (the reinsured) applied pursuant to section 24 of the Arbitration Act 1996 for an order that the reinsurers’ nominated arbitrator, Alistair Schaff QC, be disqualified as he did not meet the qualification required under the arbitration clause.
The contract of reinsurance was dated 12 February 2001 and incorporated the Joint Excess Loss Committee, Excess Loss Clauses (JELC Clauses). These had been published in January 1997. The arbitration clause specified as follows:
”Unless the parties otherwise agree the arbitration tribunal shall consist of persons with not less than ten years’ experience of insurance or reinsurance”.
It was accepted that Mr Schaff QC had significantly more than ten years experience of insurance and reinsurance but that this experience had been as a lawyer and not within business. Consequently, it was argued that he did not qualify and he should therefore be disqualified.
With some evident reluctance the judge, Mr Justice Teare, granted the order sought by the reinsured and disqualified Mr Schaff QC. The reason he did so was because he felt that he was bound by a previous, unreported, decision of Mr Justice Morison in Company X v Company Y dated 17 July 2000 on an application that had looked at the very same issue.
Teare J said that had he not been inhibited by the previous decision he may well have reached a different decision but in order to do so now he would have to find that there was a powerful reason not to follow the previous decision. He also noted that the phrase in question “experience of insurance and reinsurance” had not been altered by the Excess of Loss Committee when the JELC Clauses had last been amended in 2003, and accepted the submission that the unreported case of Company X v Company Y was fairly well known in the reinsurance market and had stood unchallenged for 17 years. Consequently, Mr Schaff QC was disqualified and the reinsurers had 30 days within which to appoint a new arbitrator who met the criteria.
The case is interesting as it confirms the previous, unreported, authority that in order to meet the qualification under the JELC Clauses prospective arbitrators are required to have a minimum of ten years business experience. Legal experience is not sufficient.
The new JELC clauses that were published earlier this year and take effect from 1 January 2018 take a different approach. In the new clauses the ARIAS arbitration clause has been adopted and this specifies that the qualification is “not less than 10 years’ experience of insurance or reinsurance within the industry or as lawyers or other professional advisers serving the industry”. Consequently, legal experience does qualify. However, in view of how long it takes for reinsurance disputes to come about, it is going to be a number of years before the new JELC clauses become relevant in this regard. In the meantime, absent an agreement between the parties, the reinsured or reinsurer is going to be able to successfully challenge the appointment of any arbitrator who does not have the required business experience. The same is technically true as regards any chair, albeit a legally qualified chair is often agreed by the parties in any event.