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JELC clauses: New WTC case addresses who qualifies as arbitrator

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Summary: In this blog, we look at arbitrator qualification in the latest London Market World Trade Center dispute (TonicStar v Allianz and Sirius: October 2017) and the effect of the new JELC Clause.

In the latest London Market World Trade Center dispute, (TonicStar v Allianz and Sirius: October 2017), the English Commercial Court has considered the Joint Excess of Loss Committee (“JELC”) Arbitration Clause in effect as at 9/11.  The Court held, relying on the 2000 English Court decision of X v Y, where the same clause was considered, that the JELC Clause, does not include lawyers within the phrase “persons with not less than 10 years’ experience of insurance or reinsurance”.

The Court held that if the JELC had intended to include lawyers, the clause would have said so. 

The TonicStar case results from the appointment by the Reinsurers of a leading QC, Alistair Schaff, as arbitrator.  The Cedant, TonicStar (Lloyd’s Syndicate 62, 1861 and 2255) disputed Mr Schaff’s appointment, on the basis that the clause was not wide enough to include a barrister of Mr Schaff’s very significant reinsurance experience.

However, the new JELC Arbitration clause, which will become effective on 1 January 2018, specifically includes lawyers within those eligible for appointment as an Arbitrator.

This suggests that it was clearly the intention of the draftsman of the old clause to include lawyers within the definition, and it is unfortunate that the English courts have not been prepared to recognise the breadth and purpose of the definition, and the advantage lawyer arbitrators can bring to the reinsurance arbitral process.

The change in the JELC clause is therefore welcome and will eliminate uncertainties which ought to have been ironed out some time ago.

To see this in context, there is still some debate about whether reinsurance arbitrations are best served by the appointment of lawyers as arbitrators.

Under the current ARIAS UK clause, lawyers are specifically included within the definition of those who have 10+ years’ experience of insurance and reinsurance.

That was not always the case.

In most ARIAS US clauses, only industry professionals may be appointed and not lawyers.  That is unfortunate but in the US, reinsurance arbitrations tend not to require the arbitrators to apply reinsurance law, permitting the arbitrators a much wider discretion.

It is possible to see the advantage in “trade” arbitrations of clauses which do not include lawyers, thereby permitting those involved within that trade, to resolve their dispute outside the constraints of the strict confines of applicable law.  However, in reinsurance arbitrations, those who have significant experience of practice in that area, can offer a lot to the interpretation of follow obligations, aggregation and the like, with which the disputes are often concerned. 

The JELC’s decision to amend their Arbitration Clause is to be welcomed and although the clauses are not retrospective, it is hoped that when the English court is faced with the further opportunity to construe the earlier clauses, it will read into those clauses the intention to permit those properly experienced to sit as insurance and reinsurance dispute arbitrators, including lawyers. 

Hopefully, if TonicStar is appealed, that is the decision that the Court of Appeal will reach.

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