A clause providing for loss to be assessed under an insurance policy
by way of a so-called “arbitration” procedure was held to be
non-compliant with the Arbitration Act 1996 and therefore not a genuine
arbitration clause. The clause provided that each side should select an
independent appraiser who would then submit their differences to the
“arbitrator”. A decision in writing agreed to by both appraisers or by
either appraiser and the “arbitrator” would be binding on the parties.
The Court said that this provision was not a genuine arbitration clause
since the arbitrator would have to agree with one of the appraisers
rather than make his own independent decision. However in the exercise
of its discretion the Court ordered that the “arbitration” process
should be progressed (rather than litigation should be continued) as the
parties had already spent substantial sums on the “arbitration”.
Whilst arbitration is based on party autonomy and parties may choose
their procedure for the process, they must be careful to ensure that the
relevant clause does qualify as an arbitration clause under the 1996
Act. The parties might have achieved their overall aim by slightly
different means eg by designating a sole arbitrator or providing for a
streamlined process where the independent appraisers act as experts
before an arbitrator whose powers to decide are unfettered by the need
to agree with one or other of them.
This was an application by insurers to stay under either section 9 of
the Arbitration Act 1996 or the inherent jurisdiction of the Court
under section 49 of the Senior Courts Act 1991 proceedings bought by the
insured. The claim arose out of a fire at the insured’s property and
although liability was admitted, there was a substantial dispute between
the parties as to both the building costs and professional fees. The
sum in issue was over £1 million.
The policy contained a clause headed “arbitration”. This provided
that in the event of a dispute as to the amount of loss, either party
could make a written demand that each select an independent appraiser.
The appraisers would then select an “arbitrator” or he would be
appointed by a nominating body. The independent appraisers would then
appraise the loss and submit any differences to the arbitrator. A
decision in writing agreed by the two appraisers or either appraiser and
the “arbitrator” would be binding on the parties.
There had been substantial correspondence between the parties as to
the extent of the loss but this had not succeeded in resolving the
dispute. The parties had already appointed independent appraisers who
had carried out substantial work in appraising the loss. However the
insured was dissatisfied with progress and commenced Court proceedings.
The Court first considered what the dispute was about. The insured
had raised several discrete issues of liability including declarations
about the meaning of the policy and refusal to indemnify by the insurer.
However the Court decided that these were all merely aspects of the
dispute about the amount of the loss and therefore fell within the terms
of the “arbitration” clause.
However, it was necessary to decide whether this clause was a true
arbitration clause within the meaning of the 1996 Act. The Court held
that it was not. The proper interpretation of the process was that the
arbitrator had to reach agreement with one of the two appraisers in
order for his decision to be binding. However section 1 of the 1996 Act
provided that the object of arbitration was to obtain the fair
resolution of disputes by an impartial tribunal. It was implicit that
the arbitrator alone made the decision and not the arbitrator in
conjunction with someone else. By contrast an arbitrator may be entitled
to seek advice from Experts or legal advisers but the decision remains
his own. The process prescribed by the policy was likely to lead to a
course of negotiation between the appraisers and the arbitrator and any
decision reached as a result would not be that of the arbitrator alone.
The appraisers could not themselves become arbitrators as they had
already acted as advocates for the party instructing them. Any decision
of the “arbitrator” with which neither independent appraiser agreed
would be of no effect and litigation would ensue. Therefore the
application for a stay under section 9 of the 1996 Act failed.
The Court was prepared to grant a stay of the proceedings under its
inherent jurisdiction. It noted that the insured had freely participated
in the process when it was first invoked and a substantial amount of
work had been done by each of the independent appraisers, whose combined
fees totalled some £100,000. The appraisers should not be very far from
identifying their differences and there should be prospects of the
“arbitrator” and at least one of the appraisers reaching agreement,
albeit after negotiation. A nominating body could appoint the
“arbitrator” albeit that, strictly speaking, his role was at most
similar to that of an arbitrator. The Court determined that its
discretion should be exercised in favour of granting a stay rather than,
as it put it, “pulling the plug” at the present stage in the
“arbitration”.
The decision indicates that, where appropriate, the Court will have
regard to the course of action which is likely to produce a speedier and
more economic solution and, in this case, this approach militated
strongly in favour of allowing the parties to continue with the course
of action they had already embarked on.
The process chosen by the parties has some parallels with the
“med-arb” procedure, whereby a mediator becomes an arbitrator if the
mediation does not succeed. However, by contrast with a mediator,
appraisers are paid by their instructing parties to promote their case
and are not truly independent of them
The issue of enforcement of a procedure of this type may be
problematical but probably the successful party would seek to enforce
through the courts any decision reached on the basis that the parties
had agreed to abide by such decision as a matter of contract, as is done
for experts’ decisions.
Source: http://hsf-arbitrationnews.com/2012/11/08/turville-v-chartis-and-the-arbitration-clause-that-wasnt/#more-1364
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