UK Court Opinions

U.K. COURT APPROVES MULTI-BILLION POUND PLAN TO TRANSFER ANNUITY LIABILITIES UNDER REINSURANCE AND BUSINESS TRANSFER AGREEMENTS

October 26, 2017 by John Pitblado

The Queen’s Bench Division of the U.K.’s High Court of Justice recently approved a scheme proposed by Scottish Equitable Plc to transfer its liabilities as to over 185,000 insurance policies to Rothesay Life Plc. The scheme was backed by roughly £7 billion in assets paid to Rothesay under a series of annuity reinsurance and business transfer agreements executed in April 2016.

The court’s approval was guided by eight principles used by British courts in assessing long-term business transfer plans. While the primary factor is whether the scheme would adversely impact policyholders, the court held that a scheme will not be rejected simply because it may adversely affect certain policyholders. Instead, viewed as a whole, the scheme must be objectively “fair.” The court also noted that a proposal will not be rejected solely because it is not the “best possible scheme,” stating that deference should be given to the company’s choice of schemes, provided that choice is objectively fair. The court rejected policyholders’ objections, finding the proposed scheme was sufficient to protect policyholders’ interests. The court also rejected the argument that the scheme was not the “transfer of a business” under the FSMA simply because the policies were being reinsured, finding that the transaction did not need to expose Scottish Equitable to “risk or reward” to qualify as the transfer of its “business.” See In the Matter of Scottish Equitable Plc and In the matter of Rothesay Life Plc, [2017] EWHC 1439 (Ch).

This post written by Alex Silverman.

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LONDON COURT UPHOLDS ARBITRAL AWARD IN CONTRACTOR DISPUTE IN FACE OF CHALLENGE THAT ARBITRAL PANEL FAILED TO CONSIDER COVERAGE DEFENSES

September 8, 2017 by Carlton Fields

A court in London recently upheld an arbitral award in the face of claims that the arbitral panel failed to consider several coverage defenses one party asserted during the proceedings. The arbitration arose from a dispute between contractors relating to the construction of a power station in Kabul, Afghanistan. The prime contractor (“JV”) engaged Symbion Power LLC (“Symbion”), which in turn engaged Venco Imtiaz Construction Co. (“Venco”) as a sub-contractor. JV and Symbion participated in an arbitration in 2012 (“prior arbitration”) which preceded the current arbitration between Venco and Symbion in 2013. The arbitral panel issued an award in Venco’s favor in July 2016. This opinion arises from Symbion’s challenges to the arbitral award on the grounds that the arbitral panel failed to address two coverage defenses outright, and failed to address all essential parts of two other coverage defenses. The court addressed in turn each of the four defenses Symbion alleges were not adequately addressed by the arbitral panel.

First, Symbion alleged a defense that the court referred to as the “conclusive evidence” defense. Symbion argued Venco’s case was based on invoices and POs it treated as conclusive evidence of the amount due to Venco, but Symbion disputed that these documents were conclusive. The court concluded this was not actual an issue that arose, and, further, the panel did not treat the invoices and POs as conclusive evidence, so they could not have “failed’ to deal with the defense.

Second, Symbion asserted a defense that Venco failed to meet its burden of proof. However the argument was framed in the arbitration, and the court held the defense was addressed by the panel, which decided against Symbion.

Third, Symbion argued that the panel was bound by the findings in the prior arbitration. The court noted the collateral estoppel issue was not one the panel needed to address because it had fallen away. But if the issue was still in play, it was not reasonably arguable and there would be no substantial injustice had the panel not dealt with it.

Fourth, Symbion alleged the prior arbitration award was binding or persuasive as to value, and as to proof and evidence. The court found this defense was repetitive of the collateral estoppel defense, and rejected the defense for similar reasons.

Finally, the court admonished one of the arbitrators for inappropriate ex parte conduct with Symbion, the party that appointed him. The Symbion-appointed arbitrator e-mailed Symbion at the outset of the proceedings to complain about the third, neutral arbitrator, with the express condition that Symbion not use the complaint in any of its arbitral submissions. While the episode was not dispositive to any issues in the court’s review, it sharply criticized such conduct as inappropriate. Symbion Power LLC v. Venco Imtiaz Constr. Co., Case No. HT-2016-000211 (Royal Court of Justice Mar. 10, 2017).

This post written by Thaddeus Ewald .
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ENGLISH HIGH COURT OF JUSTICE ANALYZES STANDARDS GOVERNING FRAUDULENT INDUCEMENT CLAIMS IN REINSURANCE DISPUTES

May 16, 2017 by Michael Wolgin

The Court of Appeal of England and Wales approved the judgment of the trial court in a reinsurance dispute between Axa and Arab Insurance Group (Arig) related to certain insured energy construction risks. The trial court had ruled in favor of Arig finding that, notwithstanding that an “unfair presentation of the risk” was made to Axa by Arig by failing to disclose past loss statistics, the latter failed to establish that its underwriter was induced to accept the ceded risks, i.e., Axa did not demonstrate that it “would have declined the risk if a fair presentation had been made” to it by Arig. The appellate court analyzed at length the evidence and testimony before the trial court related to the placement of the risks and the negotiation process. The court upheld the judgment, clarifying that the standard for evaluating non-disclosure includes both an objective component involving what a reasonable underwriter would conclude, and subjective components involving what the insured or broker would have said to the underwriter. The court made clear that whether the underwriter was induced turns on a subjective test; the fact that a reinsurer “could have been interested in something is irrelevant if in fact he would not have been.” Axa Versicherung Ag v. Arab Insurance Group, Case No. [2017] EWCA Civ 96 (Royal Courts of Justice Feb. 28, 2017).

This post written by Michael Wolgin.

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UK SUPREME COURT CONFIRMS ENGLISH COURTS LACK JURISDICTION UNDER THE ARBITRATION ACT 1996 TO COMPEL PARTIES TO PROVIDE SECURITY WHEN RESISTING ENFORCEMENT OF ARBITRATION AWARDS UNDER THE NEW YORK CONVENTION

April 19, 2017 by John Pitblado

As a condition to challenging enforcement or recognition of an arbitration award, the UK Supreme Court overturned a Court of Appeal decision which imposed a $100 Million security obligation on a New York Convention arbitral award debtor pursuant to Section 103(5) of the Arbitration Act 1996 (the “Act”).

Distinguishing Dardana v. Yukos, in which the court found there was limited power under Section 103(5) of the Act to order security in the instance of a further adjournment, the Supreme Court found that the Court of Appeals order directing the security obligation was not within the scope of the court’s jurisdiction. Here, an adjournment had not been granted, and thus there was no jurisdiction for the Court of Appeals to order the security.

Further, looking at articles V and VI of the New York Convention, which established a uniform approach for recognition and enforcement, the Supreme Court found the provision of security there was only to be used in cases where an adjournment was granted and the party was seeking to set aside or suspend the foreign proceeding’s award.

IPCO (Nigeria) Ltd. v. Nigerian National Petroleum Corp., [2017] UKSC 16 (United Kingdom Supreme Court, March 1, 2017)

This post written by Nora A. Valenza-Frost.

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UK COURT REFUSES TO REMOVE ARBITRATOR FOR ALLEGED BIAS

April 12, 2017 by Rob DiUbaldo

A court in the United Kingdom refused to remove an arbitrator for perceived bias where the arbitrator was appointed to arbitrate multiple disputes arising from the same underlying incident triggering insurance coverage. A company (“H”) was adjudged in a US proceeding to be liable and subsequently settled the claims before judgment. A Bermudan insurance company (“L”) wrote the top layer of H’s liability insurance and refused H’s claim for the full coverage of its layer, on the grounds that the settlement was not reasonable and L had reasonably not consented to it. The dispute was subject to arbitration in London, and the instant opinion addressed H’s arguments that the third, neutral arbitrator appointed (“M”) was partial and biased, warranting removal.

The claims of partiality concerned the revelation that M had accepted arbitral appointments in two other cases arising out of the same underlying incident and another party (“R”)’s disputes with its excess liability insurers—including a claim by R against L. H made three arguments regarding M’s conduct allegedly demonstrating bias: M’s acceptance of the R arbitral appointments, M’s failure to disclose those appointments, and M’s response to H’s challenge to his impartiality.

The court rejected the first argument, finding that no fair-minded or informed observer would doubt M’s impartiality because it was receiving remuneration for arbitrating other disputes involving L and that overlapping subject matter was a regular feature of international arbitration in London. The court rejected the second argument because—already having found the other arbitral appointments were not problematic—there was no reason to disclose the appointments; alternatively, the court found even if M should have disclosed the appointments, the failure to do so did not give rise to a real possibility of apparent bias. Finally, the court rejected the third argument, holding that if an arbitrator were biased merely because a party had challenged his impartiality, any party would be able to self-select neutral arbitrators by unjustifiably challenging disfavored arbitrator’s impartiality.

H v. L [2017] EWHIC 137 (Comm) (Mar. 3, 2017).

This post written by Thaddeus Ewald .

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