High Court exercises its powers to remove an arbitrator; Decision overturned by the Court of Appeal

Tonicstar Limited v Allianz Insurance and Sirius International Insurance Corporation [2017] EWHC 2753

Arbitration is often favoured by parties because it offers more flexibility, including the fact that parties are able to choose the arbitrator/s to decide their case. This means that, if appropriate, parties can select a tribunal with expertise in the area the dispute is concerned with, from agricultural machinery to yacht building. This can also be perceived as a problem if a party is unhappy with its choice (or its opponent’s choice) of arbitrator and cannot appeal the tribunal’s award (as is often the case). Another option is that the parties agree upon an independent third party or institution to appoint the tribunal.

This note sets out our review of the decision made by Mr Justice Teare in the High Court. For our review of the Court of Appeal’s decision, please see this article.

Usually, the issue of appointing and removing arbitrators does not enter the public realm, since such matters are often dealt with by the relevant tribunal as part of the arbitration which would be held in private. However, in Tonicstar Limited v Allianz Insurance and Sirius International Insurance Corporation, the High Court considered whether the arbitrator possessed “the qualifications required by the arbitration agreement” under Section 24(b) of the Arbitration Act 1996 in an insurance dispute arising out of the 9/11 attack in New York. The relevant arbitration agreement stated that “Unless the parties otherwise agree the arbitration tribunal shall consist of persons with not less than ten years’ experience of insurance or reinsurance.” The Claimant argued this meant the arbitrator had to have experience in the business of insurance and reinsurance and that the eminent QC arbitrator chosen by the Respondent had experience of insurance and reinsurance law but not business.

The Claimant asked the Court to order that the default appointment procedure within the agreement had been triggered. The effect of that was that the relevant trade bodies (here the Lloyd’s Underwriters’ Association and the International Underwriting Association of London) would nominate an arbitrator on the Respondent’s behalf.

Whilst this claim was in 2017, almost two decades earlier, Mr Justice Morison had given judgment on the precise issue being decided upon in this case regarding the interpretation of the wording of this arbitration agreement (in Company X v Company Y (2000, unreported)). In that decision, Mr Justice Morison found that a lawyer with experience in insurance law and without experience of the business did not have the qualifications required by the arbitration agreement. In the 2017 case, Mr Justice Teare therefore considered himself bound by precedent (and indeed this interpretation was generally known within the insurance community according to the judgment). Mr Justice Teare found that the Respondent could not show “sufficiently powerful reasons for departing from Morison J’s interpretation of the phrase in question”.   

As such, Mr Justice Teare found in favour of the Claimant that the QC arbitrator could not be appointed. However, he decided that the default provisions did not apply but instead that the Respondent would have 30 days to appoint a different arbitrator, thereby upholding the parties’ autonomy.

This case serves as a reminder to be cautious of the language used when drafting arbitration clauses to avoid the need for interpretation by the Courts at a later date as well as a reminder of following precedent, albeit it is unusual for there to be a precedent which addresses exactly the position in which the parties find themselves.

The Respondent has been granted permission to appeal which we shall be following.

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Jessica Ransley, Catherine Penny

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