Appalachian Reins v Mangino

• Jurisdiction: Cayman Islands
• Judge: (Foster, J.)
• Judgment Date: 05 February 2014
• Court: Grand Court (Cayman Islands)
• Date: 05 February 2014

Grand Court, Financial Services Division

(Foster, J.)

APPALACHIAN REINSURANCE (BERMUDA) LIMITED

and

MANGINO, HALL, TOBIN and GREENLIGHT REINSURANCE LIMITED

A. Akiwumi for the plaintiff;

Ms. C. Wilkins and M. Dunne for the fourth defendant.

Cases cited:

(1) A v. B, [2011] 2 All E.R. (Comm) 935; [2011] Bus. L.R. 1020; [2011] 1 Lloyd”s Rep. 363; [2010] EWHC 3302 (Comm), followed.

(2) BTU Power Mgmt. Co. v. Hyat, 2011 (1) CILR 315, distinguished.

(3) Peterson Farms Inc. v. C&M Farming Ltd., [2004] 1 Lloyd”s Rep. 614; [2003] EWHC 2298 (Comm), followed.

Legislation construed:

Arbitration Law 2012, s.75: The relevant terms of this section are set out at para. 19.

s.77(8): The relevant terms of this sub-section are set out at para. 12.

Arbitration-award-setting aside award-award subject to jurisdictional challenge prima facie invalid-jurisdictional challenge limited to claim under Arbitration Law 2012, s.75(1)(a)(iv) that award deals with dispute not submitted to arbitration or outside submission-claim that tribunal not entitled to adopt certain procedure probably non-jurisdictional challenge under s.75(1)(a)(v)

Arbitration-award-setting aside award-security-court only able to order security during jurisdictional challenge if threshold test met-respondent to show challenge flimsy or otherwise lacks substance-threshold test not applicable for non-jurisdictional challenge

The plaintiff made an application to set aside an award made by an arbitral tribunal in favour of the fourth defendant.

The plaintiff and the fourth defendant (‘the defendant’), which were both reinsurance companies, entered into two agreements but were unable to agree on the amount of collateral which the plaintiff was required to pay to the defendant. After the defendant made a formal demand for payment of US$27m., the plaintiff referred the dispute to an arbitral tribunal under an arbitration clause in the agreements. The plaintiff, however, did not appoint an arbitrator within the required time; refused to provide any indemnity for the arbitrator”s costs; attempted to impose an unreasonable timetable for the arbitration; and failed to comply with the timetable which was eventually agreed, including by failing to make any substantive submissions as to how much it believed it was required to pay. The defendant therefore invited the tribunal (which comprised the first to third defendants) to determine the dispute by summary judgment. The parties made submissions to the tribunal on its ability to determine the dispute in this way and the tribunal decided that it was able to do so. When it invited the plaintiff to make substantive submissions, however, the plaintiff instead made further submissions as to why it believed the tribunal was unable to decide the issue by summary judgment.

The tribunal ruled that, as the plaintiff had not contested the defendant”s substantive submissions, there was no need to hold an oral hearing and

granted summary judgment in favour of the defendant for US$25m. The plaintiff applied for the withdrawal of the award under the Arbitration Law 2012, s.75 on the ground that the tribunal had no jurisdiction to decide the dispute by summary judgment. The defendant applied for an order that the plaintiff be required to pay the awarded amount into court as security.

The plaintiff submitted that (a) as the challenge was as to the tribunal”s jurisdiction, the court could not order security unless the defendant could show, as a threshold test, that the plaintiff”s case was flimsy or otherwise lacked substance; (b) the court could not say that its claim was flimsy or lacked substance as the tribunal had not held a proper hearing and its decision to give summary judgment was in breach of the rules of natural justice; and (c) even if the threshold test had been met, the defendant had not shown that security was necessary because it had not produced any evidence concerning the plaintiff”s financial affairs.

The defendant submitted that (a) as the plaintiff was not actually challenging the tribunal”s jurisdiction, but rather its procedure, there was no need to satisfy the threshold test; (b) even if the plaintiff”s case was as to the tribunal”s jurisdiction, its case was flimsy and lacked substance because it had accepted the tribunal”s jurisdiction, and its ability to determine its procedure, in the retrocession agreement; and (c) the plaintiff”s conduct had demonstrated that it was deliberately delaying the proceedings to avoid paying any money to the defendant. It could therefore be inferred that the plaintiff did not have the financial resources to pay the defendant, or that it was attempting to coerce the defendant into accepting a lower sum, and there was a real concern about the defendant”s ability to enforce the award sufficient to order security.

Held, granting the defendant”s application:

(1) The defendant was not required to show that the threshold test had been passed. The threshold test would only be necessary if the plaintiff had alleged that the tribunal had acted outside its jurisdiction as-because any award made would be prima facie invalid-the court would be unable to order security unless this challenge was flimsy or otherwise insubstantial. A challenge to jurisdiction was only possible under the Arbitration Law 2012, s.75(1)(a)(iv), which allowed an award to be challenged if it dealt with a dispute which had not been submitted to the tribunal, or with matters beyond the submission”s scope. The other provisions allowed the award to be set aside on the grounds of irregularity affecting the tribunal (other than on the ground of jurisdiction), the proceedings or the award itself. Although it claimed to be a challenge to the tribunal”s jurisdiction, the challenge in the present case did not specify under which sub-section it was made and there was no suggestion that the award dealt with a dispute, or determined any substantive matter, neither contemplated by, nor falling within the terms of, the arbitration clause or the submission to the arbitration; rather, the challenge alleged that the tribunal had not been entitled to adopt the procedure which it had when determining the

submitted dispute. The claim was therefore, in all probability, a non-jurisdictional challenge based on irregularity of procedure under s.75(1)(a)(v) and breach of natural justice under s.75(1)(a)(vii). As these challenges did not raise the presumption that the award was invalid, there was no justification for imposing the threshold test (para. 21; paras. 23–27).

(2) Even if the threshold test had been applicable, it would have been satisfied, and the court would be entitled to order security. When considering the threshold test, it was undesirable for the court to analyse the plaintiff”s case too closely, but it was clear that the plaintiff had approached the arbitration as though it involved court proceedings. The arbitral tribunals were governed by Cayman law and their purpose was to obtain a fair resolution of disputes without undue delay or expense whilst allowing the parties to agree how their disputes would be resolved. The parties had expressly agreed that the tribunal was not obliged to follow judicial formalities or rules of evidence, except to the extent required by the Arbitration Law 2012. The plaintiff was therefore not entitled to challenge the tribunal”s decision on the ground that it had not observed the same formalities as a court (when determining whether it could give summary judgment) and there was nothing in the Arbitration Law to prevent the tribunal from determining the dispute by summary judgment. Further, the tribunal had been composed of arbitrators who were experienced in the field of reinsurance and had given the plaintiff multiple opportunities to present a substantive case. Its approach therefore appeared to have been fair, appropriate and consistent with the purposes and agreed terms of the arbitration and-without deciding whether the plaintiff”s application would fail when it was actually heard-the plaintiff”s claim was flimsy and appeared insubstantial (paras. 28–31).

(3) The plaintiff was required to give security for the amount awarded to the defendant”s satisfaction or, alternatively, to pay it into court. Although a defendant would often have to demonstrate that the plaintiff”s challenge prejudiced its ability to enforce the award, it was not necessary in this case to do so. As the challenge was not jurisdictional, the award was presumed to be valid until the court ruled otherwise-which, as the challenge was flimsy and lacked substance, was unlikely. Further, the plaintiff had adopted a deliberate strategy of delaying the payment of the collateral and there was no evidence to show that it would abandon this strategy. This supported the inference that the plaintiff was unable to meet its financial obligations and gave rise to serious and legitimate concerns about the defendant”s ability to enforce the award. Accordingly, although there was no evidence of a risk of the dissipation of the plaintiff”s assets, the defendant was entitled to a security of the award (paras. 33–40).

1 FOSTER, J.:

Introduction

By these proceedings, the plaintiff has applied for an arbitral award made against it to be set aside by the court. The arbitral award required the plaintiff to pay the sum of slightly less than US$25m. to the fourth defendant. By para. 2(a) of an order made on November 27th, 2013, on the application of the fourth defendant, I ordered that, pending the determination of the plaintiff”s application, the plaintiff should pay into court, or otherwise secure to the satisfaction of the fourth defendant, the amount of the arbitral award. It is against that part of the order that the plaintiff has appealed. The plaintiff was given leave to appeal out of time and apparently complied, albeit late, with s.19(2) of the Court of Appeal Law (2011 Revision) on January...