This Court of Appeal decision1 overturns that of Teare J in which he followed the previous, unreported, decision of Morison J (Company X v Company Y - 17 July 2000), in (reluctantly) finding that lawyers do not qualify as arbitrators under the previous set of JELC clauses. The JELC clauses were replaced on 1 January 2018 so as to remove scope for argument on this.

As we reported in November 2017’s Edition 3 of our Insurance Bulletin2, 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 JELC Clauses from 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 the business itself. Consequently, it was argued that he did not qualify and he should therefore be disqualified. Teare J reluctantly followed the previous, unreported, decision of Morison J and held that Mr Schaff QC did not meet the qualification.

In a unanimous decision, the Court of Appeal found that Morison J had been wrong to interpret the words “ten years’ experience of insurance or reinsurance” to be restricted to insurance or reinsurance industry experience. The Court of Appeal noted that the clause did not impose any restriction on the way in which that experience has been acquired and nothing else within the JELC clauses indicated that what was intended by the clause was a “trade arbitration” as Morison J had previously found.

In answer to the argument put by Tonicstar that Mr Schaff QC did not have any experience of insurance or reinsurance “itself” as distinct from experience of insurance and reinsurance law, the Court of Appeal said that no distinction can be drawn between the two. Interestingly, Lord Justice Leggatt, who gave the leading judgment, said that “Unlike sports, engineering and telecommunications, which are clearly distinct from the law regulating those activities, no similar distinction can be drawn between insurance and reinsurance law and insurance and reinsurance “itself”.” He went on to say that insurance contracts create legal rights and obligations and those whose business it is to negotiate and draft insurance contracts, whether as underwriters or brokers, need to have some understanding of insurance law.

Lord Justice Leggatt found that if the intention were to restrict the parties’ freedom of choice by excluding lawyers from eligibility then a clear expression of that intention would be needed. The JELC clauses in question did not contain that and so he rejected Tonicstar’s arguments and overturned the previous decisions of Morison J and Teare J.

Whilst the Court of Appeal was not bound by the same precedent constraints as Teare J as regards the Morison J decision, Lord Justice Leggatt did give consideration as to whether it was right to overturn the earlier decision. The two justifications for not overturning the decision, notwithstanding the fact it was felt to be wrong, were that (1) the decision may have formed part of the background against which the parties had contracted (the contract of reinsurance was entered into after the Morison J decision) and (2) adhering to an established interpretation assists in providing certainty in commercial law. However, in the end neither of these justifications were sufficient to override the Court of Appeal’s desire to correct what they perceived to be the previous error. In addressing the legal certainty point, Lord Justice Leggatt said “if a decision is untenable, it should not in any case be allowed to stand”.

As previously reported, the failure of the previous JELC clauses to make it clear that legal experience of insurance and reinsurance was sufficient to meet the qualification threshold set by the previous clauses has now been corrected in the new JELC clauses. These came into effect on 1 January 2018. That being said, on the basis that legal disputes at the reinsurance level often take quite some time to come to fruition, the previous JELC clauses will remain relevant for quite some time to come. This decision provides welcome clarification and means that parties arbitrating under the previous JELC clauses now have greater freedom of choice as regards party appointed arbitrators (and the chairperson) so as to include suitably experienced solicitors and barristers.