HIH Casualty & General Insurance Limited (in liquidation) v R J Wallace sued on his own behalf and on behalf of all other members of Syndicate No 683 at Lloyd's of London for the 1993 underwriting account - [2006] NSWSC 1150

No judgment structure available for this case.

Reported Decision:
(2007) 14 ANZ Insurance Cases 61-721

New South Wales

Supreme Court

CITATION: HIH Casualty & General Insurance Limited (in liquidation) v R J Wallace sued on his own behalf and on behalf of all other members of Syndicate No 683 at Lloyd's of London for the 1993 underwriting account & Ors [2006] NSWSC 1150

HEARING DATE(S): 23/10/06, 24/10/06

JUDGMENT DATE :
3 November 2006

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: Einstein J

DECISION: Notice of motion seeking stay of proceedings to be dismissed

CATCHWORDS: Reinsurance Treaties - Proper construction and effect of service of suit and arbitration articles - Service of suit article providing that in the event of a dispute arising under the agreement, reinsurers at request of insurer will submit to jurisdiction of any competent court in the Commonwealth of Australia such dispute to be determined in accordance with the law and practice applicable in such court and reinsurers to abide final decision of such court or any competent appellate court - Arbitration article providing that disputes arising out of agreement or concerning its validity to be submitted to decision of a Court of Arbitration consisting of three members to meet in Australia and that decision of Court of Arbitration shall not be subject to appeal - HIH Casualty & General Insurance Ltd (in Liquidation) commences proceedings against Lloyd’s Syndicate in Supreme Court seeking to test the analysis of the House of Lords in Charter Reinsurance Co Ltd v Fagan [1997] AC 313 on question of whether payment by the insurer to its insureds is a condition precedent to its right to recover from the reinsurers the balances confirmed from time to time to be owing by reinsurers - Test case likely to affect recovery of amounts from other reinsurers on other reinsurance contracts - Evidence that potential denial of the access of creditors to reinsurance assets that form part of an insurance company's solvency requirements, once the company has entered formal insolvency, may well have serious regulatory implications - Reinsurers seek stay of proceedings under section 7 of International Arbitration Act 1974 (Cth) - Whether arbitration clause/agreement not binding upon HIH by reason of the provisions of section 19 of the Insurance Act 1902 (NSW) - Whether section 19 inconsistent with section 7 of International Arbitration Act and therefore inoperative by virtue of section 109 of the Constitution (Cth) - Whether the effect of section 7 (2) of International Arbitration Act is to provide a party with a right to a stay of proceedings whereas section 19 of Insurance Act purports to limit the availability of that right - Whether International Arbitration Act intended to cover the field for regulating recognition and enforcement of foreign arbitration agreements leaving no scope for operation of section 19 of Insurance Act - Meaning of the term 'Insurance' in section 19 - Whether as a matter of construction section 19 inapplicable to instant circumstances because article dealing with arbitration not 'a provision in a contract of insurance' or 'a provision with respect to the submission to arbitration of any matter arising out of the contract of insurance' - Whether arbitration clause not engaged because properly construed policy gives an option to HIH to litigate rather than to arbitrate - Whether arbitration clause not engaged because action is for payment of 'a confirmed balance' - Whether arbitration agreement not one to which International Arbitration Act applies as it is not ' an agreement in writing' - Consideration of procedures whereunder Lloyds syndicates contractually bind themselves in relation to inwards reinsurance including affixation of syndicate's stamp and 'scratching' on slips presented by broker as agent for ceding insurer - Procedures taken by Lloyds Policy Signing Office - Whether proceedings involve ‘claims for the payment of confirmed balances’ - Whether arbitration agreement an 'agreement in writing' within meaning of International Arbitration Act - Principles of construction of contractual documents - Estoppel - Whether Court should exercise its discretion to refuse a stay of proceedings - Courts begin with a strong disposition in favour of maintaining a bargain unless strong reasons adduced against grant of a stay

LEGISLATION CITED: Arbitration Act 1975 (UK)
Commercial Arbitration Act 1984 (NSW)
Commercial Transactions (Miscellaneous Provisions) Act 1974 (NSW)
Companies Act 1961 (NSW)
Companies Act 1961 (Vic)
Contracts Review Act 1980 (NSW)
Conveyancing Act 1919 (NSW)
Corporations Act 2001 (Cth)
Fair Trading Act 1987 (NSW)
Industrial Relations Act 1996 (NSW)
Insurance Act 1902 (NSW)
Insurance Contracts Act 1984 (Cth)
Insurance Regulation 2004 (NSW)
International Arbitration Act 1974 (Cth)
Minors (Property and Contracts) Act 1970 (NSW)
Trade Practices Act 1974 (Cth)

CASES CITED: 325 George Street Pty Ltd (in liquidation) v Norwich Union Fire Insurance Society Ltd (1980) 1 ANZ Ins Cas 60-404
Agnew v Lansforsakringsbolagens [2000] Lloyd’s Rep IR 317
Akai Pty Limited v People’s Insurance Company Ltd (1996) 188 CLR 418
Alex Kay Pty Limited v General Motors Acceptance Corporation and Hartford Fire Insurance Company [1963] VR 458
American Airlines Inc v Hope [1974] 2 Lloyd’s Rep 301
Ansett Transport Industries (Operations) Pty Limited v Wardley (1980) 142 CLR 237
AssetInsure Pty Ltd v New Cap Reinsurance Corporation Limited (in liq) (2006) 226 ALR 1
Attorney-General (NSW) v Brewery Employees Union of New South Wales & Anor (1908) 6 CLR 469
Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99
Australian Casualty Co Ltd v Federico (1986) 160 CLR 513
Barcelo v Electrolytic Zinc Co of Australasia Limited (1932) 48 CLR 391
BP plc v National Union Fire Insurance Co [2004] EWHC 1132
British Dominions General Insurance Company Ltd v Duder [1915] 2 KB 394
Bull v Attorney-General (NSW) (1913) 17 CLR 370
Bulong Nickel Pty Limited, Re (2002) 42 ACSR 52
Charter Reinsurance Co Ltd v Fagan [1997] AC 313
Chloe Z Fishing Co Inc (US) v Odyssey Re (London) Ltd formerly known as Sphere Drake Insurance Plc (UK) 109 Fed Supp 2nd Series (SD) Cal 2000, 1236
Clyde Engineering v Cowburn (1926) 37 CLR 466
Commercial Radio Coffs Harbour v Fuller (1986) 161 CLR 47
Commercial Union Assurance Co Plc v NRG Victory Reinsurance Limited [1998] 1 Lloyd’s Rep. 80
Darlington Futures Limited v Delco Australia Pty Limited (1986) 161 CLR 500
Daval Aciers D’Usinor et de Sacilor v Amare SRI [“The Nerano”] [1996] 1 Lloyd’s Rep 1
Day and Dent Constructions Pty Ltd v North Australian Properties Pty Ltd (1982) 150 CLR 85
Devenish v Jewel Food Stores Pty Ltd(Milk Vendors case) (1991) 172 CLR 32
Dominion Insurance Co of Australia Ltd and the Companies Act, Re [1980] 1 NSWLR 271
Du Pont v. Agnew [1987] 2 Lloyd's Rep 585
Eagle Star Insurance Co v Spratt [1971] 2 Lloyd’s Rep 116
E I Du Pont de Nemours & Co v I C Agnew [1987] 2 Lloyd’s Rep. 585
Ethiopian Oilseeds v Rio del Mar [1990] 1 Lloyd's Rep 86
Forsikringaktieselskapet National of Copenhagen v Attorney General [1925] AC 639
Forsikringaktieselskapet Vesta v J N E Butcher [1989] AC 852
Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160
Heath Lambert Limited v Sociedad de Corretaje de Seguros [2004] 1 Lloyd’s Rep. 495
Hide & Skin Trading Pty Limited v Oceanic Meat Traders Limited (1990) 20 NSWLR 310
Hi-Fert Pty Limited v Kiukiang Maritime Carriers Inc. (No 5) (1998) 90 FCR 1
Holmes v Permanent Trustee Co of New South Wales Ltd (1932) 47 CLR 113
IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466
James Allen (Ireland) Ltd v Marea Producten B.V. (Netherlands) (Yearbook X (1985) p 485)
James Buchanan & Co Ltd v Babco Forwarding and Shipping (UK) Ltd [1978] AC 141
K A & C Smith Pty Limited v Ward (1998) 45 NSWLR 702
Kahn Lucas Lancaster Inc v Lark International Ltd (1999) 14 Mealey’s International Reports C1 (29 July 1999); (1999) 186 F 3d 210
King v Brandywine Reinsurance Co (UK) Ltd [2004] 2 Lloyd’s Rep. 670
La Donna Pty Limited v Wolford AG (2005) 194 FLR 26
Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390
Lief Investments Pty Ltd v Conagra International Fertiliser Company (1997) 141 FLR 124; [1998] NSWSC 481]
Lo v Aetna 2000 WL 565465 (US District Court, District of Connecticut)
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
Metrocall Inc v Electronic Tracking Systems Pty Ltd (2000) 52 NSWLR 1
MGICA Ltd v United City Merchants (Australia) Limited (1986) 4 ANZ Ins Cas 60-729
Myer Emporium Limited v Commission of Stamp Duties (1967) 85 WN (Part 2) (NSW) 115
O’Sullivan v Noarlunga Meat (1954) 92 CLR 565
Palmdale Insurance Ltd (in liq) (No. 3), Re [1986] VR 439
Pan Australia Shipping Pty Ltd v The Ship ‘Comandate’ (No 2) Comandate Marine Corp [2006] FCA 1112
Parr v Rural Agents Pty Limited [1975] 2 NSWLR 347
Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyd’s Rep 127
Prenn v Simmonds [1971] 1 WLR 1381
R v Slator (1881) 8 QBD 267
Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289
Samuel v Newbold [1906] AC 461
Shell International Petroleum v Coral Oil Co Ltd [1999] 1 Lloyd’s Rep 72
Shipping Corporation of India Ltd v Gamlen Chemical Co Australasia Pty Ltd (1980) 147 CLR 142
Tariff Reinsurance Ltd v Commissioner of Taxation (Vic) (1938) 59 CLR 194
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Toomey v Eagle Star Insurance Co. Ltd [1994] 1 Lloyd’s Rep. 516
Vimar Seguros y Reaseguros SA v M/V Sky Reefer 515 US 528
Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102
Wanganui-Rangitikei Electric Power Board v Australian Mutual Provident Society (1934) 50 CLR 581
Waugh v Kippen (1986) 160 CLR 156
Wik Peoples v State of Queensland (1996) 187 CLR 1
Wilson v Moss (1909) 8 CLR 146
Woolworths Limited v DS McMillan (unreported, Supreme Court of New South Wales, Rogers J, 29 February 1988)
Zambia Steel Building Supplies Ltd v James Clark & Eaton Ltd [1986] 2 Lloyd’s Rep. 225

PARTIES: HIH Casualty & General Insurance Limited (in liquidation) (Plaintiff)
R J Wallace sued on his own behalf and on behalf of all other members of Syndicate No 683 at Lloyd's of London for the 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000 underwriting account (First - Eighth Defendants)

FILE NUMBER(S): SC 50073/06

COUNSEL: Mr F Gleeson SC, Dr A Bell SC, Mr S Nixon (Plaintiff/Respondent)
Mr J Sackar QC, Ms K Barrett, Mr MA Izzo (Defendants/Applicants)

SOLICITORS: Blake Dawson Waldron (Plaintiff/Respondent)
Ebsworth & Ebsworth (Defendants/Applicants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Friday 3 November 2006

50073/06 HIH Casualty & General Insurance Limited (in liquidation) v R J Wallace sued on his own behalf and on behalf of all other members of Syndicate No 683 at Lloyd's of London for the 1993 underwriting account & Ors

JUDGMENT

The proceedings

1 By Commercial List Statement filed on 1 June 2006, HIH Casualty & General Insurance Limited (in liquidation) has instituted proceedings against Lloyds Syndicate 683 in relation to a series of primary, first and third excess layer quota share policies of reinsurance for the policy years 1993-1997. The proceedings involve 15 separate quota share policies of reinsurance.

2 The substantive issue concerns the question whether or not, on the proper construction of the policies, HIH needs to have actually paid out its underlying insureds before it is entitled to be indemnified under the terms of its reinsurances with Syndicate 683 [“the pay as paid out issue"]. This issue is described in the Commercial List Statement in the following terms:

Charter Reinsurance Co Ltd v Fagan

3 The related issues identified in the Commercial List Statement as likely to arise in the proceedings are stated to be as follows:

i. The proper construction of the Contracts.

ii. Whether the failure of each of the defendants to pay to the plaintiff the balances detailed in Schedule 2 is a breach of the Contracts.

4 In terms of relief sought, HIH seeks the payment by Syndicate 683 of the balances claimed to be confirmed to be owing to HIH and said to be as furnished in quarterly summary accounts presented to the Syndicate in accordance with Article X of the policies. Those quarterly balances in respect of each of the 15 policies are said to be set out in Schedule 2 to the Commercial List Statement.

The significance of the issue

5 The point raised in the present case is a short but important one of construction. It is however of high significance.

6 Mr McGrath, one of the joint liquidators of HIH, has given evidence that:

i. the resolution of the ‘pay as paid issue’ not only affects the possible recovery of $53.9 million from Syndicate 683 but also the recovery of other uncollected amounts from other reinsurers on the reinsurance contracts the subject of these proceedings and other similar reinsurance contracts.

ii. the Liquidators estimate that at a minimum $212 million of reinsurance recoveries from reinsurers could be affected by resolution of the pay as paid issue in relation to the reinsurance contracts obtained by HIH C&G for its professional indemnity business. [This estimate comprises $56 million of unpaid balances due from reinsurers less an estimated amount of $5 million in relation to amounts possibly paid by HIH C&G to insureds prior to provisional liquidation and $161 million in outstanding loss reserves. The estimate does not include an amount for incurred but not yet reported claims, which could be substantial].

a) in total, for HIH C&G, there are $487.3 million in possible recoveries from reinsurers, comprising $139.4 million of unpaid balances owing by reinsurers and $347.9 million in outstanding loss reserves. This estimate (which includes the figures referred to in paragraph 22) does not include an amount for incurred but not yet reported claims, which could be substantial.

iv. the Liquidators consider the potential impact of the pay as paid issue on not only the liquidation of the licensed insurers within the HIH and FAI groups, but also possible future insurance company insolvencies to be extremely important.

The Notice of Motion seeking a stay of proceedings

7 As at the present time no defence has been filed for the reason that by notice of motion filed on 13 July 2006, Syndicate 683 sought orders that the proceedings be stayed pursuant to section 7 of the International Arbitration Act 1974 (Cth) or, in the alternative, pursuant to section 53 of the Commercial Arbitration Act 1984 (NSW) or in the further alternative, at common law pursuant to the inherent jurisdiction of the Court.

The provisions of the material instruments

8 It is convenient to commence by setting out the material provisions of the sundry instruments/legislation falling to be considered on the hearing of the instant motion.

Section 7 of the International Arbitration Act 1974

9 Section 7 of the International Arbitration Act provides as follows:

(a) the procedure in relation to arbitration under an arbitration agreement is governed, whether by virtue of the express terms of the agreement or otherwise, by the law of a Convention country;

(b) the procedure in relation to arbitration under an arbitration agreement is governed, whether by virtue of the express terms of the agreement or otherwise, by the law of a country not being Australia or a Convention country, and a party to the agreement is Australia or a State or a person who was, at the time when the agreement was made, domiciled or ordinarily resident in Australia;

(c) a party to an arbitration agreement is the Government of a Convention country or of part of a Convention country or the Government of a territory of a Convention country, being a territory to which the Convention extends; or

this section applies to the agreement.

(a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and

(b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;

(3) Where a court makes an order under subsection (2), it may, for the purpose of preserving the rights of the parties, make such interim or supplementary orders as it thinks fit in relation to any property that is the subject of the matter to which the first-mentioned order relates.

(4) For the purposes of subsections (2) and (3), a reference to a party includes a reference to a person claiming through or under a party.

10 ‘Arbitration agreement’ is defined in s3(1) of the International Arbitration Act to mean:

11 The ‘Convention’ is defined in s3(1) of the International Arbitration Act to mean:

12 Article II of the Convention provides:

ARTICLE II

1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

2. The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.

Insurance Act 1902

13 Section 19 of the Insurance Act 1902 (NSW) provides that:

Section 53 of the Commercial Arbitration Act 1984

14 Section 53 of the Commercial Arbitration Act 1984 (NSW) provides:

(a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement, and

(b) that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary for the proper conduct of the arbitration,

(2) An application under subsection (1) shall not, except with the leave of the court in which the proceedings have been commenced, be made after the applicant has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance.

(3) Notwithstanding any rule of law to the contrary, a party to an arbitration agreement shall not be entitled to recover damages in any court from another party to the agreement by reason that that other party takes proceedings in a court in respect of the matter agreed to be referred to arbitration by the arbitration agreement.

International Arbitration Act

Commercial Arbitration Act

The material terms of the Reinsurance Treaties

15 These reasons require to deal with certain issues concerning the treaty wording is insofar as the provisions dealing with arbitration are concerned. Without intending to presently treat with the cross-contentions in that regard, it is convenient to observe that the relevant provisions are in articles XVIII and XIX of the Primary Treaty Wording [together the ‘arbitration clauses’]. For present purposes the arbitration clauses may be assumed to have provided as follows:

ARTICLE XVIII
SERVICE OF SUIT

The Reinsurer hereon agrees that:-

i. In the event of a dispute arising under this Agreement, the Reinsurers at the request of the Company will submit to the jurisdiction of any competent Court in the Commonwealth of Australia. Such dispute shall be determined in accordance with the law and practice applicable in such Court.
ii. Any summons notices or process to be served upon the Reinsurer may be served upon

MESSRS. FREEHILL, HOLLINGDALE & PAGE
M.L.C. CENTRE,
MARTIN PLACE, SYDNEY,
N.S.W. 2000 AUSTRALIA

who has authority to accept service and to enter an appearance on the Reinsurer’s behalf, and who is directed, at the request of the Company to give a written undertaking to the Company that he will enter an appearance on the Reinsurer’s behalf.

iii. If a suit is instituted against any one of the Reinsurers all Reinsurers hereon will abide by the final decision of such Court or any competent Appellate Court.

ARTICLE XIX
ARBITRATION:

Disputes arising out of this Agreement or concerning its validity shall be submitted to the decision of a Court of Arbitration, consisting of three members, which shall meet in Australia.

The members of the Court of Arbitration shall be active or retired executives of Insurance or Reinsurance Companies.

Each party shall nominate one arbitrator. In the event of one party failing to appoint its arbitrator within four weeks after having been required by the other party to do so, the second arbitrator shall be appointed by the President of the Chamber of Commerce in Australia. Before entering upon the reference, the arbitrators shall nominate an umpire. If the arbitrators fail to agree upon an umpire within four weeks of their own appointment, the umpire shall be nominated by the President of the Chamber of Commerce in Australia.

The Arbitrators shall reach their decision primarily in accordance with the usages and customs of Reinsurance practice and shall be relieved of all legal formalities. They shall reach their decision within four months of the appointment of the umpire.

The decision of the Court of Arbitration shall not be subject to appeal.

The costs of Arbitration shall be paid as the Court of Arbitration directs.
Actions for the payment of confirmed balances shall come under the jurisdiction of the ordinary Courts.

16 The following matters may be noted:

i. apart from one provision, the wordings applicable to each of the reinsurance treaties are in almost identical terms. An article concerning contingent commission is included in the wording for the primary layer and the first excess layer (article VII), but is not included in the wording for the third excess layer. That article has no relevance to the outcome of any issue arising from the motion;

ii. the business reinsured by HIH pursuant to the reinsurance treaties was the net liability of HIH arising out of loss occurrences under HIH’s professional indemnity and professional liability policies commencing during the term of each of the reinsurance treaties (article III);

iii. pursuant to each of the reinsurance treaties, HIH ceded to the Syndicate a particular identified percentage of the net retained liability of HIH, not exceeding an identified amount for any one policy and any one risk being that “layer” of insurance (eg. the primary layer which does not exceed the first $1 million) (article V);

An overview of the issues

17 Without being exhaustive a short overview of the primary issues litigated on the motion is as follows:

the International Arbitration Act

b) hence the Court is obliged upon such conditions as it may think fit, to stay the proceedings and to refer the parties to arbitration.

Insurance Act 1902

[Syndicate 683 joins issue on this contention submitting that:

a) section 19 is inconsistent with section 7 of the International Arbitration Act and therefore inoperative by virtue of section 109 of the Constitution (Cth) ;

a provision in a contract of insurance

a provision with respect to the submission to arbitration of any matter arising out of the contract of insurance

Insurance Act

a) properly construed, the policy gives an option to HIH to litigate rather than to arbitrate or

b) the action is for payment of ‘a confirmed balance’ which is expressly carved out from the arbitration clause.

Insurance Act

International Arbitration Act

[Syndicate 683 joins on this proposition]

v. Syndicate 683 contends that HIH is estopped from denying the existence of an arbitration agreement for the purposes of section 7 (1) (d) of the International Arbitration Act.

a) section 19 of the Insurance Act does not apply;

b) the juxtaposition of Articles XVIII and XIX did not provide HIH with an option to litigate (which it has exercised);

c) the proceedings do not involve claims for the payment of confirmed balances; and

d) the “arbitration agreements” (or some of them) were not “agreements in writing” within the meaning of the International Arbitration Act .

HIH contends that a number of reasons favour the discretionary refusal of a stay of proceedings

Approach taken in these reasons to the submissions put in the alternative

18 Where HIH in particular has approached its analysis in the form of a series of cascading submissions, the Court has proceeded to deal with those submissions seriatim for the reason that there must be a reasonable possibility that this judgment will be appealed from. In that circumstance it is appropriate at first instance to treat with as many of the alternative sets of submissions [falling from both sets of parties] as is practicable.

The section 19 issue

19 In my view as a matter of correct ordering, this presents as the initial issue for determination. Prior to considering whether the International Arbitration Act is engaged, the Court requires to be satisfied that there is a binding arbitration agreement in existence between the parties. This involves determining what was the contract and what were its terms.

20 Section 19 was introduced into the Insurance Act by the Commercial Transactions (Miscellaneous Provisions) Act 1974 (NSW), the long title to which included the words “to excuse the insured under a policy of insurance from any requirement of compulsory arbitration”: as quoted by Samuels JA in 325 George Street Pty Ltd (in liquidation) v Norwich Union Fire Insurance Society Ltd (1980) 1 ANZ Ins Cas 60-404.

21 Syndicate 683 has submitted inter alia that s 19 (1) does not encompass contracts of reinsurance and that the contracts in issue do not constitute contracts of reinsurance.

22 The submission is that it is appropriate to interpret the phrase “contract of insurance” [as it appears in section 19] narrowly. The propositions advanced are as follows:

i. it is self evident from the wording of the relevant provision that it was designed to protect persons considered to be in need of protection from the effect of arbitration clauses inserted into contracts of insurance;

ii. whilst consumers entering into contracts of insurance with insurance companies might reasonably be perceived to require such protection on the basis that they are simply not in a position to negotiate in respect of the standard terms of a policy of insurance, reinsurers are in a completely different position;

iii. there is no apparent policy reason for seeking to protect a reinsurer from an arbitration clause contained in reinsurance contract;

23 Syndicate 683 has further submitted that an reinsurance treaty is not a contract of insurance but is merely ‘a commercial arrangement’ between two parties. The contention is that when a quota share reinsurance treaty is put in place there is no individual risk scrutiny by the reinsurer and the reinsurer is obliged to accept the risks bound by the reinsured. This is said to follow from the definition of treaty reinsurance to be found in (Parkington & Ors, ‘MacGillvaray and Parkington on Reinsurance Law’ 9th ed at para [33-17]):

24 Syndicate 683 contends that direct insurance protects the insured against extraordinary risks outside the ordinary course of events, whereas reinsurance is concerned with the management of risks which it is the ordinary business of both parties to underwrite. The proposition is that reinsurance is essentially a professional hedging operation by which the reinsured assigns all or part of his insurance liabilities to the reinsurer. Reliance was sought to be placed inter alia on Agnew v Lansforsakringsbolagens [2000] Lloyd’s Rep IR 317 at 330-331.

25 The matter at issue is of some importance concerning as it does the meaning of the term "Insurance" in section 19.

Finding

26 The finding is that “Insurance” within the meaning of the Insurance Act includes reinsurance: see Sutton Insurance Law in Australia (3rd ed., 1999) at 2.65, cf AssetInsure Pty Ltd v New Cap Reinsurance Corporation Ltd (in liq) (2006) 226 ALR 1 at [86], [28].

27 As HIH has submitted:

i. It is well established that a reinsurance contract is a contract of insurance: see, for example, British Dominions General Insurance Company Ltd v Duder [1915] 2 KB 394 at 400; Forsikringaktieselskapet National of Copenhagen v Attorney General [1925] AC 639 at 642; Toomey v Eagle Star Insurance Co. Ltd [1994] 1 Lloyd’s Rep. 516 at 523; Forsikringaktieselskapet Vesta v J N E Butcher [1989] AC 852 at 908.

Attorney-General (NSW) v Brewery Employees Union of New South Wales

prima facie

R v Slator

Wik Peoples v State of Queensland

Insurance Contracts Act

28 I further accept that the Insurance Act, being beneficial and remedial legislation, ought be construed broadly, not narrowly, a proposition also consistent with well-established principles of statutory construction: see, for example, Bull v Attorney-General (NSW) (1913) 17 CLR 370 at 384 where Isaacs J said that such legislation “should be construed as to give the fullest relief which the fair meaning of its language will allow”; see also Samuel v Newbold [1906] AC 461 at 467; Wilson v Moss (1909) 8 CLR 146 at 165; Holmes v Permanent Trustee Co of New South Wales Ltd (1932) 47 CLR 113 at 119; Waugh v Kippen (1986) 160 CLR 156 at 164; Day and Dent Constructions Pty Ltd v North Australian Properties Pty Ltd (1982) 150 CLR 85 at 108; Devenish v Jewel Food Stores Pty Ltd(Milk Vendors case) (1991) 172 CLR 32 at 44 per Mason CJ.

29 Reinsurers are capable of protecting themselves and deciding for themselves the manner in which their disputes will be resolved. As HIH has contended, the protection of section 19 extends to ‘reinsureds’ and not ‘reinsurers’, HIH having been a reinsured and not a reinsurer.

30 The Court rejects the proposition that the proper approach requires the introduction of some extra-statutory concept of "stronger" and weaker" parties into the terms "insurer" and "insured". As HIH has contended:

i. BHP, Westpac and Macquarie Bank, for example, all have the benefit of the general provisions of the Insurance Contracts Act when they enter into policies of insurance with insurance companies even though, as a matter of economic fact, they may be the stronger party;

ii. that Act, as with the Insurance Act , operates by reference to a concept which has a settled meaning which is not qualified by considerations foreign to the language of the legislation;

Insurance Contracts Act

Trade Practices Act

31 Nor do the express terms of section 19 provide any basis for excluding contracts of reinsurance from its operation. Consistently with the Australian Law Reform Commission's recognition in Report No 20 that there is a public interest in the enforcement of an insurer's rights under its policies of reinsurance [see paragraph 10 of that Report: “adverse effects on the availability …of reinsurance…would not be in the interests of the insuring public.”], section 19 makes no distinction in its terms between direct insurance and contracts of reinsurance.

32 Further and as HIH has also submitted:

i. sub-section 21(2) provides that certain provisions of Part 6 of the Insurance Act (namely ss 18A and 18B) do not apply to certain contracts of insurance, but does not provide that contracts of reinsurance are excluded from the operation of section 19;

ii. sub-section 21(1) empowers the Governor to make regulations exempting certain classes of contracts of insurance from all or any of the provisions of Part 6 of the Act;

iii. this power has been exercised in respect of contracts of marine insurance, contracts of life insurance and contracts of insurance that are subject to the Insurance Contracts Act 1984 (see Reg 4 of Insurance Regulation 2004);

iv. the latter exemption does not apply to a contract of reinsurance since such a contract is specifically excluded from the operation of the Insurance Contracts Act 1984 under section 9(1)(a) of the Commonwealth Act.

v. the scheme of the Insurance Act is that Part 6 of the Act, including section 19, applies to all types of contracts of insurance (which would include contracts of reinsurance), except those that are specifically exempted from the operation of those provisions under s 21(1) or (2);

vi. specific exemptions have been made for certain types of insurance contracts, but not for contracts of reinsurance. Section 19 should be regarded as applying, on its terms, to contracts of reinsurance;

Sutton Insurance Law

33 It does not appear that the decision of the House of Lords in Agnew v Lansforsakringsbolagens [2000] Lloyd’s Rep IR 317 relied upon by Syndicate 683 is presently of assistance. That case was decided in a wholly different setting: it involved the interpretation of a European Union jurisdiction and judgments convention where the very matter at issue, whether a reference to insurance in the context of that Convention included a reference to reinsurance was the subject of express consideration in the relevant travaux préparatoires, namely the report of Professor Schlosser on the 1978 Accession Convention referred to by Lord Millett at 338-339. Of particular significance is the observation by his Lordship that, had he not been deciding the issue in the context of a European instrument and against the background of that Convention’s policy and intendment, he would have had no hesitation as a matter of English law in holding that insurance includes reinsurance: see at 338.

34 Syndicate 683’s proposition that a reinsurance treaty is merely a commercial arrangement between two parties hence not constituting a ‘contract of insurance’ requires to be rejected for each of the following reasons advanced by HIH and adopted as correct:

“

indemnify

ii. the submission is contrary to a long line of authority that reinsurance contracts, and in particular “quota share treaties”, are contracts of insurance. See Re Dominion Insurance Co of Australia Ltd and the Companies Act [1980] 1 NSWLR 271 at 273 [9] – 274 [12] where Needham J, citing Dixon J in Tariff Reinsurance Ltd v Commissioner of Taxation (Vic) (1938) 59 CLR 194 at 215, held that a quota share treaty was a contract of insurance for the purposes of s 292(5) of the Companies Act 1961 (NSW) (a predecessor provision to s 562A of the Corporations Act 2001); Re Palmdale Insurance Ltd (in liq) (No. 3) [1986] VR 439 at 444 per Crockett J, also in respect of 292(5) of the Companies Act 1961 (Vic); Forsikringaktieselskapet National of Copenhagen v Attorney General [1925] AC 639 at 642.

iii. the Syndicate’s submission that a reinsurance treaty is “ not a ‘contract of insurance’ but merely a commercial arrangement between two parties ”, conflates the nature of the arrangement with the true legal character of such contracts. In Agnew v Lansforsakringsbolagens [2000] Lloyd’s Rep IR 317, Lord Hope (at 330) acknowledged that reinsurance is a form of insurance, but drew a distinction for the purposes of Section 3 of the Lugano Convention between direct insurance and reinsurance having regard to the social protection policy the section was directed to. Likewise, Lord Millett (at 338) acknowledged that reinsurance was merely a species of insurance, and if the question in that case had arisen under a domestic statute then absent compelling context to the contrary, there would be no reason to confine insurance to direct insurance.

iv. all insurance is about managing risk (see Agnew at 339 per Millett LJ). Reinsurance does not cease to be insurance because of the financial nature of the transfer of risk between the parties.

35 The finding is that s 19 applies to the present facts for the reason that the policies are governed by the laws of New South Wales (of which this section forms a part). And in any event, the section would operate irrespective of the law which governs the policies, as a mandatory law of the forum.

36 In truth the policies are governed by New South Wales law as a result of a combination of:

i. Article XVIII, sub-clause (i) which provided that “[i]n the event of a dispute arising under this Agreement, the Reinsurer at the request of the Company will submit to the jurisdiction of any competent Court in the Commonwealth of Australia. Such dispute shall be determined in accordance with the law and practice applicable in such Court [emphasis added];

ii. the request on behalf of HIH to the Syndicate to submit to the jurisdiction of the Supreme Court of New South Wales; and

The term "inoperative" as used in s 7 (5) of the International Arbitration Act

37 The holding is that the Insurance Arbitration Act has no application where, in terms of s 7 (5), the agreement in question is "inoperative or incapable of being performed".

38 In this regard Syndicate 683 has submitted that the term "inoperative" in section 7 (5) of the International Arbitration Act is confined to circumstances where the agreement has become inoperative on the basis of ordinary common law principles.

39 In support of this contention Syndicate 683 has cited a number of authorities where consideration has been given in the United Kingdom to whether particular agreements have lost their efficacy by reference to the operation of common law doctrine. However these authorities do not establish that the efficacy or operability of an agreement cannot be lost by other means, such as the operation of a statute.

40 As HIH has contended:

i. an arbitration agreement may become inoperative or incapable of being performed as a result of the operation of common law doctrine (see, for example, election: La Donna Pty Limited v Wolford AG (2005) 194 FLR 26; Pan Australia Shipping Pty Ltd v The Ship ‘Comandate’ (No 2) [2006] FCA 1112;

ii. this being so (and well-established), there is no reason as a matter of logic, policy or the language of the Act why an arbitration agreement could not become inoperative by operation of statute, whether Commonwealth or State;

iii. the trilogy of concepts employed in the sub-section – null and void, inoperative or incapable of being performed – emphasises the breadth of its intended operation.

iv. this trilogy of concepts derives from Article II (3) of the New York Convention which is an international convention; its signatories extend far beyond the family of common law countries;

v. when this is appreciated, it simply cannot have been intended that the meaning of these terms (including “inoperative”) can have been intended to be confined to the consequences of the operation of common law principles;

Pan Australia Shipping Ltd v Comandate Marine Corp

It has been recognized that a national court, in the interest of uniformity, should construe rules formulated by an international convention

,

, unconstrained by technical rules of English or domestic law, or by English or domestic legal precedent, but on broad principles of general acceptation

Shipping Corporation of India Ltd v Gamlen Chemical Co Australasia Pty Ltd

James Buchanan & Co Ltd v Babco Forwarding and Shipping (UK) Ltd

Vimar Seguros y Reaseguros SA v M/V Sky Reefer

Contracts Review Act

Industrial Relations Commission Act

Fair Trading Act

Insurance Act

41 The holding rejects the Syndicate’s submission as to the meaning of the word “inoperative” in section 7(5) of the International Arbitration Act.

Section 109 Constitution (Cth)

42 It is necessary to consider Syndicate 683's two propositions in support of the suggested section 109 inconsistency:

The "right" to a stay argument

i. The contention that the effect of section 7(2) of the International Arbitration Act is to provide a party with a “right” to a stay of proceedings, and that section 19 of the Insurance Act purports to limit the availability of that right.

The "cover the field" argument

International Arbitration Act

Insurance Act

The "right" to a stay argument

43 Syndicate 683 contends that section 7(2) of the Commonwealth Act confers on a party to an arbitration agreement which comes under section 7(1), the right to a stay of proceedings and the referral of the matter to arbitration. HIH contends and the Court accepts that if this be described as a ‘right’, it is not an absolute right, but is subject to subsection 7(5).

44 In truth the Commonwealth Act does not prescribe the circumstances in which an agreement may be held to be “null and void, inoperative or incapable of being performed”. Nor does it prescribe the circumstances in which a matter will or will not be “capable of settlement by arbitration” within the meaning of section 7(2)(b) of the Act. Those matters are left to be determined against the background of the applicable general law, including both common law and statute.

45 In Ansett Transport Industries (Operations) Pty Limited v Wardley (1980) 142 CLR 237 it was argued that the Airline Pilots Agreement (which was deemed to be an award of the Conciliation and Arbitration Commission) and gave Ansett the right to terminate the employment of a pilot within the first 12 months, was inconsistent with Victorian legislation which prevented dismissal on grounds of gender. The Court held that the award did not give Ansett the right to dismiss, irrespective of circumstances, but dealt with the process for dismissal where Ansett had a right to dismiss according to the general law of employment, including any State legislation.

46 Stephen J said (at 246-248):

“In my view there is in this case no inconsistency within the meaning of s. 109 of the Constitution. I regard the right of termination of the contract of employment which clause 6 of the Agreement confers as no absolute right, such as that for which Ansett contends. The right which it confers is not one which is capable of exercise regardless of the unlawfulness under State law of the ground for its exercise. On the contrary it is a right the nature of which is to be understood against the background to its operation which general laws of the land, whether State or federal in origin, provide.

The Agreement is not, I think, to be read as if creating a partial vacuum, within which the relationship between Ansett and its pilots lies wholly withdrawn from the operation of those general laws of the land which are applicable to other members of the community. …

The view that the Agreement is not to be read in isolation from, but, rather, against the background of, the general law of the land finds support in certain features of the Agreement. … the provisions of the Agreement regarding grievance procedures are elaborate, yet they provide no particular criteria or considerations which are to be applied in the determination of any review or appeal from a dismissal.

Included in that general law will be any applicable statute law, whether State or Commonwealth.

47 Section 7(2) of the International Arbitration Act does not confer the type of absolute right for which [at least in its initial approach] Syndicate 683 had contended. As HIH has submitted:

i. section 7(2) is not to be read as requiring arbitration agreements to be enforced in a vacuum, separate from the general law background (including State legislation) of the circumstances in which such an agreement is binding and enforceable;

ii. indeed, section 7(5) of the Act expressly denies the application of s7(2) in circumstances where the arbitration agreement is null and void, inoperative or incapable of being performed;

iv. the same reasoning may be applied by analogy in the context of the reference to a “matter capable of settlement by arbitration” in s7(2)(b) of the Act;

Metrocall Inc v Electronic Tracking Systems Pty Ltd

Industrial Relations Act

International Arbitration Act.

48 The judgment of the full bench of the Industrial Relations Commission in Court Session in Metrocall includes the following:

International Arbitration Act

Industrial Relations Act

International Arbitration Act

The

International Arbitration Act

(Cth) contemplates courts having jurisdiction to determine the existence of an arbitration clause, whether the proceedings involve a matter which is capable of settlement by arbitration (s7( 2)), whether to make any interim or supplementary orders (s7(3)) and whether the arbitration clause is “null and void, inoperative or incapable of being performed” (s7(5)). These findings must be made by the court as a prerequisite to the granting of a stay of proceedings

Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No.5)

Emmett

Section 7(2) is only invoked upon the application of a party. It is open to the parties not to invoke s7(2) or the discretionary inherent jurisdiction of the Court. If a party chooses to make no application, then there will be no occasion for the Court to consider ordering a stay under s7(2).”

Hi-Fert

49 Hence the same analysis as given in Metrocall, [where it was held that State legislation applied without any inconsistencies to answer the question whether the matter the subject of the arbitration agreement was capable of settlement by arbitration], requires to be given in relation to the issue presently before the Court [where s 19 of the Insurance Act answers the question as to whether or not the arbitration agreement was inoperative].

50 Nor do I accept as correct Syndicate 683's submissions in reply seeking to put the matter rather than on the basis that the alleged right is an absolute right, upon the basis that if s 19 of the Insurance Act was valid, and thereby limited the right created in s 7, then the State Act would alter, impair or detract from the operation of the Commonwealth Act.

51 I reject the submission by Syndicate 683 that although section 7 (2) is subject to section 7 (5), the only part of the general law applicable to determining whether an agreement is null and void, inoperative or incapable of being performed are “ordinary common law principles, including, for example, the doctrines of frustration and repudiation”. As HIH has contended, on this view, any State legislation that might be relevant to whether an agreement is binding or enforceable would have no role to play.

52 Additionally to the reasons earlier given, apart from the fact that the proposition sought to be put by the Syndicate is wholly incongruous with the international (i.e. not solely common law) character of the New York Convention, it seeks to draw a distinction between common law and statute which cannot be maintained. As HIH has contended, this is because:

i. in NSW, many areas of the law of contract have been codified. For example, the law relating to the capacity of minors is codified in the Minors (Property and Contracts) Act 1970 ;

ii. further, some NSW statutes lay down general provisions regarding the enforceability of contracts. [For example, section 7 of the Contracts Review Act and section 72 of the Fair Trading Act provide that, in certain circumstances, the Court may refuse to enforce the provisions of a contract, or make an order declaring the contract void];

53 I accept as correct the contention put by HIH that the Insurance Act falls into this third category. It lays down provisions which relate to all contracts of insurance, other than those which are specifically exempted from its operation. It alters the common law of contract in relation to the consequences of breach (s18), the consequences of misrepresentation (s18A), the effect of limitation clauses (s18B), and the enforceability of arbitration clauses (s19).

54 A contention that this Act needs to be ignored, and that the Court should have regard solely to the common law, eschews the fact that the general law background against which the International Arbitration Act operates consists of both common law and statute, and that in some respects (including in relation to contracts of insurance) the common law has been supplanted by statute.

Finding with respect to the "right to a stay" argument put by Syndicate 683

55 For the reasons already given the finding is that insofar as section 7(2) confers a ‘right’ to have proceedings stayed and referred to arbitration, it is not an absolute ‘right’, but is expressly subject to section 7(5), which provides that the Court has no power to grant a stay where the arbitration agreement is “null and void, inoperative or incapable of being performed”.

56 The Commonwealth statute does not set down any criteria for determining when section 7(5) shall apply, but instead leaves the issue to be determined against the background of the general law, which includes any applicable State legislation.

57 It is artificial to draw a line between the common law and legislative components of the general law, particularly in circumstances where aspects of the law have been codified, where statutes (such as the Fair Trading Act) allow the Court to declare a contract void or unenforceable in certain circumstances, and where there exists legislation (such as the Insurance Act) which specifically modifies the common law applicable to certain categories of contract.

58 As HIH has submitted, the International Arbitration Act takes the arbitration agreement as it finds it, including whether it has been waived as a matter of common law or whether it is in some other way “inoperative”, including as a result of the operation of an applicable statute.

The 'cover the field' contentions of Syndicate 683

59 Syndicate 683 has contended inter alia as follows:

International Arbitration Act

Insurance Act

International Arbitration Act

Arbitration (Foreign Awards and Agreements) Bill

The present Bill deals with the matter on a national basis. This is desirable because the implementation of an international Convention is involved and because that Convention concerns trade and commerce with other countries. The Australian Parliament has the necessary power to proceed in this way and should exercise that power. The former Government had proposed that the matter be dealt with by State and Territory legislation, but that would have been unsatisfactory. The resulting multiplicity of legislative provisions would have been confusing, particularly to parties in other countries. (The Arbitration (Foreign Awards and Agreements) Bill 1974, Second Reading Speech by Mr Enderby, the Minister for Manufacturing, House of Representatives Hansard, 2 December 1974, 4390)

ii. this statement evidences first, an intention by the Commonwealth Parliament to uphold obligations under the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards and second, an intention to ensure that the national response covered the field and was not left to State legislatures to regulate. The International Arbitration Act provides a detailed scheme of regulation governing recognition and enforcement of foreign arbitration agreements and foreign arbitral awards and includes inter alia the referral of a matter to arbitration, which is set out in s.7.

Insurance Act.

International Arbitration Act

Insurance Act

Dealing with the issue

60 In my view the submissions and advanced by HIH are of substance and they are adopted in what follows.

61 In Clyde Engineering v Cowburn (1926) 37 CLR 466 (at 489-490) the following steps were outlined by Isaacs J as appropriate to be taken in applying the “cover the field” test:

i. identify or characterise the field, or subject matter, that the Commonwealth law deals with and regulates;

ii. ascertain whether the State law attempts to regulate a field which the Commonwealth intends to cover. If there is no overlap of the fields, then no indirect inconsistency will be found;

62 In relation to the first of these steps, Syndicate 683 has identified the ‘field’ that the Commonwealth law regulates, as “the recognition and enforcement of foreign arbitration agreements and foreign arbitral awards”

63 In relation to the second of the steps identified above, Syndicate 683 does not attempt to identify the field which the State law attempts to regulate. In simple terms, it may be said that the NSW Act deals with the regulation of contracts of insurance.

64 This is not a case, like O’Sullivan v Noarlunga Meat (1954) 92 CLR 565, where the Commonwealth and State acts both seek to lay down detailed regimes in relation to the same subject matter.

65 Rather, it is a case where the State and Commonwealth laws address different subject matters. In that sense, it is closer to Ansett v Wardley, where the subject matter of the State law was sex discrimination, and the subject matter of the Commonwealth law was an award dealing with the dismissal of pilots; or Commercial Radio Coffs Harbour v Fuller (1986) 161 CLR 47, where the Commonwealth law related to the regulation of broadcasting, and the NSW law related to environmental planning restrictions.

66 The only area of ‘overlap’ which could be identified is in relation to one specific provision of each statute, namely s7 of the International Arbitration Act and s19 of the Insurance Act, and only in the specific circumstances where an arbitration agreement, which satisfies the requirements of s7(1), is found in a contract of insurance that is covered by the NSW statute, and if the arbitration clause is sought to be enforced by the insurer against the insured.

67 However, there is - even in these limited circumstances - no overlap at all:

a) Section 7 of the Commonwealth statute sets down the steps to be taken by a court when a party to a binding international arbitration agreement applies for a stay of proceedings and referral to arbitration, but does not deal with the circumstances in which an arbitration agreement is not binding; and

68 The two statutes are therefore not overlapping, but complementary.

69 Even if there were some overlap between the ‘fields’ covered by the respective statutes, the third step outlined above requires an enquiry into whether the Commonwealth intended its law to be the only law on the subject matter in question.

70 The starting point is the proper measure of the nature of the right conferred by the Commonwealth legislation.

71 Syndicate 683 does not suggest that there is an express intention to this effect. Instead, it is argued that such an intention may be “imputed from the fact that the International Arbitration Act was enacted in compliance with Australia’s international obligations to enact law to implement an international convention.”

72 There are two bases on which an intention to cover the field may be implied: first, the detail of the legislative regime (for example, O’Sullivan v Noarlunga Meat Ltd); and second, the subject matter of the Commonwealth legislation. That is, the determination of the intent of the Commonwealth legislation depends upon a consideration of the legislation itself, and not by reference to extrinsic material such as a second reading speech.

73 Even if such material could be called in aid, it is of limited assistance to the Syndicate. The quotation given by the Syndicate from the second reading speech is directed to the issue of whether it was appropriate to implement the convention by way of Commonwealth legislation, or by way of a series of uniform State statutes (as is the case with the Commercial Arbitration Act). It says nothing about any relationship between the Commonwealth law and individual statutes of the States regarding the circumstances in which agreements may not be binding.

74 Rather than relying on the detail of the Commonwealth legislative regime as the basis of an implied intention, Syndicate 683's contention appears to rely on the fact that the Commonwealth law is intended to fulfil an obligation cast upon it by the Convention.

75 However, the Commonwealth statute evinces no intention to ‘cover the field’ in relation to the circumstances in which an arbitration agreement is binding. Section 7(5) specifically makes the duty of the Court in section 7(2) subject to the general law regarding the circumstances in which an agreement may be “null and void, inoperative or incapable of being performed”. Syndicate 683 recognises that this preserves a field of operation for the common law of NSW, but seek to draw a distinction between the common law and statute, which ignores the extent to which NSW legislation supplants and supplements common law principles relating to contract. Both legislation and common law form part of the general law background against which section 7(2) of the International Arbitration Act operates, by virtue of section 7(5).

76 In Commercial Radio Coffs Harbour v Fuller (1986) 161 CLR 47, Wilson, Deane and Dawson JJ stated (at 57-58):

In the words of Dixon J in Ex parte McLean … the Act was intended to be ‘supplementary to or cumulative upon the State law’

.

77 Similarly here, the intention of the International Arbitration Act (as shown by sub-section 7(5)) is not to confer an immunity from the general law requirements for there to be a binding arbitration agreement. It does not purport to lay down the entire legislative framework within which the enforceability of arbitration agreements is to be determined. Instead, it is intended to operate within the setting of other laws, both Commonwealth and State, both common law and statute, which determine the circumstances in which an agreement is null and void, inoperative or incapable of being performed. In this sense, it is intended not to remove any field of operation for State law, but to be supplementary to or cumulative upon the State law.

78 It follows that there is no inconsistency between section 19 of the Insurance Act and the International Arbitration Act so that in the circumstance of section 19 otherwise applying, extending as it does to contracts of reinsurance [as a species of the genus ‘contracts of insurance’], it renders the arbitration clause upon which the Syndicate relies non-binding and, in terms of section 7(5) of the International Arbitration Act, “inoperative”.

79 This also removes any basis for the grant of a stay pursuant to the Commercial Arbitration Act or at general law as both of those aspects of the motion are predicated upon the existence of a binding arbitration agreement. Moreover, section 3(7) of the Commercial Arbitration Act expressly preserves the operation of section 19 of the Insurance Act.

Construing the material Articles

80 The Syndicate submits that:

i. the proper construction of the arbitration clauses is that all disputes arising out of the reinsurance treaties or concerning their validity must be referred to a Court of Arbitration in Australia pursuant to article XIX unless they fall within the exception to this general requirement contained in the last paragraph of article XIX namely, “actions for the payment of confirmed balances”.

ii. such actions are to be determined by the “ordinary Courts” (article XIX).

iii. the present proceedings fall within the scope of the arbitration clause.

iv. Article XVIII serves the purposes of providing the procedure to be followed for service of process in respect of those disputes that are to be determined by an ordinary court, those being “actions for the payment of confirmed balances”.

81 The Syndicate relies inter alia upon the following propositions:

i. the starting point for interpretation of clause XIX is to give content to the opening phrase “ Disputes arising out of this Agreement or concerning its validity shall be submitted to the decision of a Court of Arbitration ".

ii. there is no doubt on the existing authorities that claims in the nature of those made in the current proceedings fall within the scope of this term which has been broadly construed ( Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 165; IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 at 475-477, per Kirby P; Ethiopian Oilseeds v Rio del Mar [1990] 1 Lloyd's Rep 86 per Hirst J; Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102.)

iii. therefore, prima facie the matters raised in these proceedings come within the scope of article XIX and are liable to be referred to arbitration unless they are properly characterised as being “actions for the payment of confirmed balances”.

iv. in construing the scope of the exception to the arbitration clause, the starting point is an assumption that the parties did not intend the inconvenience of having possible disputes arising from their transaction being heard in different places.

Decision

82 In my view the Syndicate's above submissions require to be rejected. In the reasons which follow HIH's submissions are of substance and are adopted in what follows.

83 Before giving those reasons it is appropriate to step back from the exercise and consider the proper approach to the construction exercise.

The principles of construction

84 The policies, like any contracts of insurance, fall to be construed according to orthodox principles of contractual construction, the relevant search being for the mutual intentions of the parties, objectively ascertained: see Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.

85 Particularly important in this regard is the dictum of Gibbs J. in Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109:

the whole of the instrument has to be considered

the words of every clause must if possible be construed so as to render them all harmonious one with another

86 Generally the following principles are apt to inform the construction of the subject instrument:

i. the construction exercise is to take place in accordance with the principles which apply to the interpretation of contractual documents: Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 520, per Gibbs CJ.

ii. the Court is dealing with a commercial contract and requires to give the instrument a business like interpretation, requiring attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22], per Gleeson CJ.

iii. the task is to ascertain the objective intention of the parties from a consideration of the material wording. The instrument must be read in its commercial setting in such a way as to fulfil and not restrain its commercial purposes: see MGICA Ltd v United City Merchants (Australia) Limited (1986) 4 ANZ Ins Cas 60-729 at 74,349 and 74,350; Darlington Futures Limited v Delco Australia Pty Limited (1986) 161 CLR 500 at 510.

Prenn v Simmonds

Legal & General Insurance Australia Ltd v Eather

The other United Kingdom authorities

106 Syndicate 683 further sought to rely upon three English authorities which recognise a bias towards upholding arbitration clauses.

107 That matter is however explicable when one focuses upon the different language and context of the clauses under consideration in each of those authorities where notably, there was no question of any "option" to litigate being dealt with.

108 As HIH has contended, Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyd’s Rep 127 concerned the construction of a settlement of disputes provision (cl 13) and a choice of language and law provision (cl 14).

The plaintiff had commenced Court proceedings in relation to a dispute. In response to the defendant’s stay application based on the existence of the dispute resolution clause, the plaintiff argued that clauses 13 and 14 were hopelessly inconsistent and therefore devoid of effect.

Steyn J held that there was no inconsistency because clause 14 merely specified the law governing the arbitration. This was not to be confused with either the proper law of the contract, the proper law of the arbitration agreement, or the procedural rules which would apply in the arbitration (see pp 129 – 130).

Steyn J noted without any disagreement, the plaintiff’s observation that the clauses in issue did not confer an “option” to resort to arbitration or legal proceedings (see p 129, col 2 at .6).

109 Shell International Petroleum v Coral Oil Co Ltd [1999] 1 Lloyd’s Rep 72 concerned the construction of a choice of law and jurisdiction clause (art 13) and an arbitration clause (art 14). The jurisdiction clause was held to confer only limited jurisdiction on English Courts in relation to any dispute “under this provision”, being the choice of law clause itself. This case is distinguishable because the scope of disputes the subject of the jurisdiction clause was construed as being limited to disputes about the proper law only. Article XVIII presently before the Court is however expressed in broad terms covering a dispute arising “under this Agreement” and is not limited to disputes about the proper law of the treaties.

110 Daval Aciers D’Usinor et de Sacilor v Amare SRI [“The Nerano”] [1996] 1 Lloyd’s Rep 1 concerned an arbitration clause in a charter party which was held to have been incorporated into a bill of lading, the terms of which provided “English Law and Jurisdiction applies”. The arbitration clause was able to be read consistently with the provision in the bill of lading on the basis that the English Court retained a supervisory jurisdiction over the arbitration. The case did not concern a service of suit clause, nor a choice of law and jurisdiction clause conferring an option to litigate.

Returning to the present litigation

111 In the result whatever the proper law of the policies may have been prior to the commencement of the proceedings, it was “retrospectively varied on the exercise of a contractual option” (to quote Bingham LJ in Du Pont v Agnew at 592) and that exercise rendered New South Wales the governing law of the policies referred to in the summons.

112 Later in these reasons the section 109 issue is determined adversely to the Syndicate. Taking that finding into account for present purposes, the correct analysis is that it is because the policies were governed by New South Wales law that section 19 of the Insurance Act applies, with the effect that the arbitration clause does not bind HIH: cf. for example, Wanganui-Rangitikei Electric Power Board v Australian Mutual Provident Society (1934) 50 CLR 581 at 601 where Dixon J said:

113 The converse of this proposition is that statutes whose criterion of operation is not spelt out in terms on the face of the statute apply to contracts whose governing law, according to the forum’s choice of law rules, “picks up” the statute: see Akai Pty Limited v People’s Insurance CompanyLtd (1996) 188 CLR 418 at 442-443. That is to say, if the forum’s choice of law rules indicate that the contract is governed by New South Wales law, New South Wales statutes are picked up and apply to the contract in question. See also Barcelo v Electrolytic Zinc Co of Australasia Limited (1932) 48 CLR 391 at 424; Myer Emporium Limited v Commission of Stamp Duties (1967) 85 WN (Part 2) (NSW) 115; see also K A & C Smith Pty Limited v Ward (1998) 45 NSWLR 702; Re Bulong Nickel Pty Limited (2002) 42 ACSR 52.

114 The granting by the policy to HIH of an option to litigate or arbitrate is consistent with the existence and operation of section 19 of the Insurance Act 1902 which as earlier observed, formed part of the contractual matrix against which the policies were entered into and against which they fall to be construed (see Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289).

115 As HIH has submitted, in this context Yeldham J’s observations in Parr v Rural Agents Pty Limited [1975] 2 NSWLR 347 at 354 are in point. His Honour said that:

“It should also be observed that section 19 does not purport to render void, or otherwise destroy, the arbitration provision, but merely provides that, in a contract which this section applies, it “does not bind the insured”, with the consequence that the insured is left with the option of proceeding to arbitration, if he desires to do so.” (emphasis added)

116 It is also true that construing the policy as a whole as providing HIH with an option to litigate or arbitrate also satisfies the injunction contained in Australian Broadcasting Corporation v Australasian Performing Right Association, namely to construe a contractual document as a whole with a view to insuring an harmonious reading of all the clauses.

117 Article XVIII would not only be denuded of force and effect if, once a party had triggered its operation, the Court proceedings could be immediately stayed by reference to Article XIX but also such a construction would destroy the effect of the right on the part of HIH in effect to choose the governing law through its choice of jurisdiction. It would also arguably denude it of the opportunity to bind all Reinsurers on the programme (because there is no equivalent to clause (iii) of Article XVIII in Article XIX).

118 Finally the context permits the Court to infer that the parties would not have intended a potentially difficult legal question of policy construction to be resolved by insurance or reinsurance executives who were not bound to apply any legal standard and from whose decision no appeal would lie.

119 Reasoning of this kind was deployed by the Full Court of the Federal Court in Hi-Fert Pty Limited v Kiukiang Maritime Carriers Inc. (1998) 90 FCR 1 at 6G (per Beaumont J) and 23G (per Emmett J, with whom Branson J agreed) where the Court refused to attribute to the parties an intention to invest arbitrators (commercial men) in London with responsibility for resolving questions involving the construction of an Australian statute (the Trade Practices Act) and possibly complex private international law questions.

120 In like fashion HIH has submitted and I accept that the Court would not readily attribute such an intention to the parties in the current case in relation to the proper construction of a clause of the policy.

Syndicate 683’s alternative contention

121 Syndicate 683's alternative contention that the natural and ordinary meaning of article XVIII is that it is a submission to jurisdiction clause, specifying "the jurisdiction of any competent Court in the Commonwealth of Australia" and that the relevant Court may thus be a "Court of Arbitration" as it is referred to throughout article XIX, or a Court of law such as the Supreme Court requires to be rejected.

122 The problems with this analysis are as follows:

i. on its plain language article XVIII does not mention or refer to the word "arbitration" at all and does not refer to article XIX, which governs arbitration;

ii. a "Court of Arbitration" as referred to in article XIX cannot be a competent court in the Commonwealth of Australia.

iii. Article XVIII(iii) which refers to the circumstance that a suit is instituted against one of the reinsurers [in which event all reinsurers are bound by the decision of the court or any competent appellate court] expressly provides for a right of appeal in respect of disputes within the scope of this article;

iv. by contrast article XIX provides that the decision of the Court of Arbitration shall not be subject to appeal [hence one cannot read "Court of Arbitration" consistently with article XVIII (iii)];

v. the procedures to be adopted by a Court in article XIII and by the Court of Arbitration in article XIX are diametrically opposed, the latter requiring the arbitrators to reach the decision primarily in accordance with usage and customs of reinsurance practice and relieving them from all legal formalities, and the former requiring that a dispute be determined in accordance with the law and practice applicable in the Court in which HIH has elected to litigate;

123 For all those reasons HIH has succeeded in its alternative contention that the policies afforded HIH an option to litigate or arbitrate, which HIH has exercised in favour of litigation: hence for this reason also the International Arbitration Act is not engaged. The arbitration agreement contained in Article XIX of the policies would not be operative because of the exercise by HIH of the option contractually reserved to it.

Is the action one for "the payment of a confirmed balance"?

124 Article X was in the following terms:

“ Reports and Remittances

Within sixty (60) days after the close of each calendar quarter, the Company shall furnish to the Reinsurer a summary account in respect of transactions during the quarter showing:-

A. (1) Gross Written Premiums less Return Premiums

less

(3) Losses and loss adjustment expenses paid after deduction of salvage and subrogation.

The balance so calculated shall be paid by the debtor party to the credit or [sic] party within one hundred and five (105) days after the close of the calendar quarter.

125 The words "confirmed balance" are nowhere defined in the policy wording. In the search for the proper construction to be given to those words it is naturally necessary for the Court to consider the language of the entire policy.

126 It should also be noted that Article IX deals with loss adjustment and expenses and losses and provides for HIH to settle all losses incurred under its policies, such settlements to be binding on the reinsurer in proportion to its participation. This article also includes an obligation on the reinsurer to reimburse HIH promptly when so requested by it, for losses paid by HIH. Hence the article contemplates a reimbursement which might precede the submission or the furnishing of the quarterly accounts.

127 The last sentence in the first paragraph of Article IX is in the following terms:

128 Each of the following propositions put forward by Mr Gleeson SC during his address are accepted as correct:

i. there was an obligation on HIH to furnish to the syndicate a summary account each quarter setting out certain information;

ii. there are three pieces of information required;

iii. the first two pieces of information, A and B, are integers to a financial calculation.;

iv. the third piece of information, the outstanding loss reserves, does not impact upon the financial calculations A and B, but it is information required to be provided to the syndicate for obvious reasons. It gives an indication of the likely development of the account;

v. the clause is more than simply a process clause;

vi. the clause has a contractual consequence. The consequence is that having furnished the summary account setting out the information contained in the integers in A and B, the balance so calculated, whether it be credit or debit, shall be paid by whoever is the debtor party to the creditor party within a specified period of time 105 days after the close of the calendar quarter;

vii. the clause gives rise to a contractual obligation;

viii. the clause does not contain or provide any requirement for the syndicate to signify its assent or agreement to the balance, so calculated, and the clause clearly contemplates a unilateral statement by HIH of the balances.

129 I further accept that there is nothing unusual or exceptional about the unilateral nature of the type of confirmation being here dealt with, particularly in circumstances of these types of quota share treaties where the reinsurer in the position of the syndicates, stands far removed from the underlying relationship between the original insured and HIH, and the settlement of those claims.

130 The scheme provided for was that if HIH wanted to obtain early reimbursement, then it had to provide certain information at the time to satisfy the syndicate, but otherwise the matter would be dealt with in the ordinary course in the quarterly statements.

131 As Mr Gleeson SC further contended the clause is consistent with HIH's construction of article 10, that it involves a unilateral verification by HIH of the balances owed, either way. That is not to say that a dispute cannot arise in relation to those balances. If a dispute does arise the treaty provides certain mechanisms for the resolution of those disputes.

132 In the result and as HIH has contended:

i. the Policy prescribes a process whereby on a quarterly basis, HIH furnished to the Syndicate a summary account made up of various integers, and, if the account showed a balance owing to HIH, the Syndicate was under a mandatory obligation to pay that amount within a prescribed period;

ii. the Policy makes no provision for any confirmation by Reinsurers of the balances so furnished. Rather, it directs the debtor party to pay “ the balance so calculated ”. Thus, the only party who, on the terms of the Policy, has any role in confirming the balances due is HIH;

iii. this also follows from the fact that the Reinsurer will not, in the ordinary course, be in a position to “ confirm ” the balance as it will lack critical information required to do so. It will not have, for example, information on the number of risks written in order to calculate the premium component of the balance, nor will it have information about underlying losses or salvage, also a necessary integer in the calculation of the balance under Article X. In this context it is relevant to note that Article IX expressly provides that losses “ need not be individually reported ” where they are handled in the quarterly accounts, further confirmation that HIH was the only party in the position to confirm the balance due or owing;

iv. the situation thus is that HIH has presented, via its brokers, summary accounts and claims amounts due. By those presentations, HIH confirmed the balances due to be paid (either to or by the Reinsurers depending upon the direction of the balance) and, where amounts are owing to HIH, Reinsurers have failed to pay those balances;

v. in the present proceedings, HIH’s claim in effect is for the payment of those balances – a proceeding which is expressly excluded from the operation or scope of the arbitration clause (see final sentence of Article XIX);

Agreement in writing

133 It will be recalled that one of HIH's alternative submissions [strictly falling to be considered only in the event that s19 of the Insurance Act was not engaged and that the arbitration clause was engaged], was that the Court did not have before it an arbitration agreement to which the International Arbitration Act applied as it is not "an agreement in writing".

134 The terms of Article II (2) have already been set out. Syndicate 683 contends that the facts establish that there was an agreement in writing within the meaning of Article II (2) on the basis of satisfying either:

· the requirement that the material arbitration clauses were signed by the parties; or

· the requirement that the material arbitration clauses were contained in an exchange of letters or telegrams.

The requirement that an agreement be "in writing"

135 The submissions put to the Court by HIH in this regard and supported by a plethora of texts, articles and authorities, are accepted as correct and are adopted in what follows.

i. The policy underlying the definition in Article II(2) and the requirement that an agreement be “in writing” is to ensure that the arbitration agreement was actually consented to and concluded [Van den Berg, New York Convention , p 173; Toby Landau “The Requirement of a Written Form for an Arbitration Agreement: When ‘Written’ means ‘Oral’” International Arbitration Conference ICCA Congress Series (2001, Series no. 11 )]. The formal requirements also serve the purpose of ensuring that the terms of the arbitration are clear and susceptible of proof [Landau, “The Requirement of a Written Form”, p 23; JD Lew, LA Mistelis and SM Kroll Comparative International Commercial Arbitration London 2003, at 7-7]. Article II(2) was included in the Convention with the intention of overcoming the divergence of national laws in favour of a uniform rule as to formal validity [Van den Berg New York Convention , p 173].

Chloe Z Fishing Co., Inc. v Odyssey Re (London) Ltd

Convention

New York Convention

on entend par ‘convention écrite’ …

La expresiün ‘acuerdo por escrido’ denotÜ”

Zambia Steel Building Supplies Ltd v James Clark & Eaton Ltd

‘It is clear to me that the [New York] Convention by Art II par 2 did not impose upon the contracting state an obligation to recognise an agreement in writing to submit to arbitration unless it is signed by the parties or unless the agreement is contained in an exchange of letters or telegrams in the sense that the assent to be bound by both parties is given in writing by such document.’

iii. The drafters of the Convention considered and rejected a proposal by the Dutch delegate to add to the definition of Article II(2) a third category, whereby an arbitration agreement “in writing” could be proved by demonstrating that there had been “confirmation in writing by one of the parties [which is kept] without contestation by the other party” [Van den Berg, New York Convention , pp 179 and 196, citing UN DOC E/CONF.26/L.54 and SR.22]. The rejection of this proposal is referred to by Rares J. in Pan Australia Shipping Pty Ltd v The Ship ‘Comandate’ (No. 2) [2006] FCA 1112 at [78]-[79].

iv. In Kahn Lucas Lancaster Inc v Lark International Ltd (1999) 14 Mealey’s International Reports C1 (29 July 1999); (1999) 186 F 3d 210, the United States Court of Appeals for the Eleventh Circuit held (at [C5-C6]) that the modifying phrase “signed by the parties or contained in an exchange of letters or telegrams” applies to both arbitral clauses in contracts and arbitration agreements. In so holding, the Court rejected an earlier approach that had been taken in Sphere Drake Insurance, the case relied upon by the Syndicate in its written submissions.

v. Following Kahn Lucas , the definition of “arbitration agreement” in Article II(2) requires that such an agreement, whether it be in the form of an arbitral clause contained in a contract or an arbitration agreement, must be signed by the parties or contained in an exchange of communiqués . Landau states that this approach has been applied in a number of cases and cites Lo v Aetna 2000 WL 565465 (US District Court, District of Connecticut) and Chloe Z Fishing Co Inc (US) v Odyssey Re (London) Ltd formerly known as Sphere Drake Insurance Plc (UK) 109 Fed Supp 2nd Series (SD) Cal 2000, 1236 [Landau “Requirement of Written Form”, p 36].

vi. The reference to “exchange” in sub-clause 2 of Article II means that there must be a mutual transfer of documents. The mere transmission of a document by one party to the other cannot linguistically satisfy the requirement of “exchange” [Van den Berg, New York Convention , p 192].

vii. Even if one party has orally or tacitly accepted an arbitration agreement contained in a document forwarded by the other party, this will not suffice to satisfy the second limb of Article II(2) [Van den Berg, New York Convention , p 207; Landau, “Requirement of Written Form”, p 28]. For the same reasons, an oral offer accepted in writing will not suffice [Landau, “Requirement of Written Form”, p 29]. Landau states that Article II(2) was intentionally limited to exclude cases involving acceptance by performance, conduct or tacit acceptance [Landau, “Requirement of Written Form”, p 26].

viii. The fact that the parties have had an ongoing trading relationship and regularly used the same standard conditions including an arbitral clause (which appears to be the tenor of Mr Whittaker’s evidence) will not overcome the lack of compliance with Article II(2) if there has been no exchange of documents in respect of the particular transaction [Van den Berg, New York Convention , p 221] or if the agreement is otherwise not signed by both of the parties. In James Allen (Ireland) Ltd v Marea Producten B.V. (Netherlands) ( Yearbook X (1985) p 485) the Court of Appeal in the Hague held that there was no enforceable arbitration agreement, despite the regular prior use (in at least 25 successive transactions) of particular general conditions of trade (which included an arbitration clause) because in the particular case the general terms had not been referred to [Referred to in Landau, “Requirement of Written Form”, p 42].

agreement in writing

International Arbitration Act

Pan Australia Shipping Pty Ltd v The Ship ‘Comandate’ (No 2)

International Arbitration Act

2. contained in an exchange of letters or telegrams in the sense that the assent to be bound by both parties is given in writing by such document;

b) confirmation in writing by one of the parties which is kept without contestation by the party will not suffice, and

viz

exchange

“As a matter of construction under Australian law, I would have no hesitation in concluding that the definition was an inclusive one. However, I think that the drafting of the definition in Art II r 2 invokes a concept of certainty that the arbitration clause or arbitration agreement is itself signed or contained in an exchange of letters or telegrams.”

Turning to the factual issues

136 The following is a brief overview of the approach taken by Syndicate 683 to the factual question of whether the arbitration agreements were signed by the parties:

· identifying the Lloyd’s syndicates’ procedure in relation Reinsurance Treaty negotiations by reference to two cases (Eagle Star Insurance Co v Spratt and American Airlines v Hope) and the affidavits of Mr Whittaker;

· submitting evidence of the slips and treaty wordings to enable the Court to draw an inference that the arbitration agreements existed and were signed by HIH for all relevant years.

The established procedure

137 Syndicate 683’s submissions set out the key aspects of the process by which the slips and treaty wordings for each Reinsurance Treaty are said to be negotiated and put in place.

138 The process may be described thus:

a) a long-standing and well-known procedure is in place pursuant to which Lloyd’s syndicates contractually bind themselves in relation to inwards reinsurance. At all relevant times HIH’s agent, the broker, participated in the process on HIH’s behalf;

b) the procedure involves, as a first step, acceptance of a proportion of the reinsurance risk offered by the ceding insurer. This is done by the underwriter affixing the Syndicate’s stamp and completing other information (known as “scratching”) on a slip presented by the broker as agent for the ceding insurer (in this case, HIH). The Syndicate enters relevant information about the slip onto its computer system at the time of scratching the slip. The slip is then returned to the broker;

c) the lead underwriter (in this case the Syndicate) was responsible for negotiating the wording for each of the Reinsurance Treaties (Whittaker October Affidavit, para 13). In many instances, the wording for the relevant reinsurance contract may simply be recorded on the slip as being “wording as expiring”, which means that the wording in place for the previous year continues to apply (Whittaker July Affidavit, para 8; Whittaker October Affidavit, para 14). Sometimes the slip wording includes the phrase “wording to be advised L/U only” which means that brokers need only show any changes in the wording to the lead underwriter and not to the following reinsurers (Whittaker July Affidavit, para 10);

d) In due course the broker takes the slip and the wording to the Lloyds Policy Signing Office [“LPSO”] for processing. Sometimes there is a significant delay between the time of scratching the slip and the time of the wording being produced to the LPSO for processing;

e) the LPSO checks the terms and conditions in the wording against the slip. Any anomalies are taken up with the broker at once. If the wording is correct, the LPSO seals the wording with the LPSO stamp and assigns a unique number to the policy. The LPSO enters the relevant information about the slip on the LPSO’s computer system including the date the slip was processed which is called the “signing date” (Whittaker October Affidavit, para 17). Although it is often the case that execution clauses are provided in the wordings (eg. Whittaker July Affidavit, pp. 87-103 of “TJW1”), for inwards reinsurance the Syndicate does not sign the execution clause itself. All original documents are then returned to the broker;
f) ordinarily the broker does not provide a copy of the wording to the Syndicate. The Syndicate can request a copy of the wording from the brokers’ files (e.g. if the Syndicate wish to have the wording in relation to a particular claim). The Syndicate generally does not keep copies of any renewed policy wording that is issued. The practice of the reinsurance market at the relevant time was for the brokers to hold the relevant documentation (Whittaker October Affidavit, para 16).

The documentary evidence

139 Syndicate 683 tendered the following list of documents for various years between 1993 to 1997:

Primary Layer
($1 million)

First Excess Layer
($1 million/$1 million)

Third Excess Layer
($5 million/$5 million)

1993
GT843K
1986-1992* Wording (TJW1 p87-103) LPSO

1993 Slip (TJW1 p1-6) (wording as expiring) scratched p6, p4 LPSO p3

1993 wording processed by LPSO 23/9/94 (TJW2, p297)

GT118F
1988 Wording (TJW1 p174-183) LPSO;

1988-1990 slips (to be tendered) (Wording to be agreed by Leading Underwriter/ Wording to be agreed by Leading Underwriter only/ Wording to be advised L/U only)

1991-1992 Slips (TJW1 p159-164; 165-173) (“wording as expiring”)

1993 Slip (TJW1 p104-113) (“wording as expiring”) scratched p.108; LPSO

1993 wording processed by LPSO 1/7/94 and/or 6/7/94 (TJW2, p299)

GT160E
No wording available

1993 Slip (TJW1 p184-207) (wording as expiring) scratched p196; LPSO

1993 wording processed by LPSO 23/9/1994 (TJW2, p300)

1994
GT843L
1986-1992* Wording (TJW1 p87-103) LPSO

1994 Slip (TJW1 p45-51) (wording as expiring) scratched pp 45, 46, 49; LPSO

1994 wording processed by LPSO 12/8/94 and/or 18/1/05 (TJW2, p302)

GT118G
1994 Wording (to be tendered) LPSO

1994 Slip (TJW1 p147-158) scratched p150-155, 157-158 LPSO p147

GT160F
1994 Wording (TJW1 p224-233) LPSO

1994 Slip (TJW1 p208-223) scratched p211, 213, 214, 220-223; LPSO

1995
GT843M
1995 Wording (TJW2 p1-22) LPSO/HIH

1995 Slip (TJW1 p34-44) scratched

GT118H
1995 Wording (TJW2 p98-118) LPSO/HIH

1995 Slip (TJW1 p135-146) scratched/ LPSO

GT160G
1995 Wording (TJW2 p188-206) LPSO/HIH

1995 Slip (TJW1 p234-251) scratched /LPSO

1996
GT843N
1996 Wording (TJW2 p23-76) LPSO/HIH

1996 Slip (TJW1 p21-33) scratched

GT118J
1996 Wording (TJW2 p119-157) LPSO/HIH

1996 Slip (TJW1 p124-134) scratched/ LPSO

GT160H
1996 Wording (TJW2 p207-255) LPSO/HIH

1996 Slip (TJW1 p252-263) scratched

1997
GT843P
1997 Wording (TJW2 p77-97) LPSO/HIH

1997 Slip (TJW1 p7-20) scratched

GT118K
1997 Slip (TJW1 p114-123) scratched p118; LPSO

1997 Wording (TJW2 p158-187) LPSO/HIH

GT160J
1997 Slip (TJW1 p264-274) scratched 269; LPSO

1997 Wording (TJW2 p256-277) LPSO/HIH

The missing years: 1993 – 1994

140 The parties agree that the factual dispute only arises for the years 1993 – 1994 because signed copies of the treaty wordings for each of the layers for those years could not be found.

141 The Syndicate could only locate unsigned and unstamped reinsurance wordings for the primary and first excess layers for 1993 and 1994 and stamped reinsurance wording for 1994 for the third excess layer. The reinsurance wording for 1993 for the third excess layer could not be located.

142 The Syndicate sought to overcome this deficiency by referring to the Lloyd’s established procedure set out previously and then taking the Court through the slips for the years in question to contend for the drawing by the Court of the inference that there once existed signed copies of the treaty wordings.

143 In the present case, HIH confines its submission based upon a lack of the requisite “agreements in writing” to the following policies:

Year Layer

1993 Primary layer GT843K

1993 First excess layer GT118F

1993 Third excess layer GT160EA

1994 Primary layer GT843L

1994 First excess layer GT118G

1994 Third excess layer GT160FA

144 As earlier indicated issue raised with respect to each of the above policies is that no policies, which are signed by both parties for these layers in these policy years are in evidence.

145 The burden undoubtedly lies on Syndicate 683, as the party seeking a stay of proceedings pursuant to the International Arbitration Act, to satisfy the Court that “agreement in writing” meeting the description of that term in the Act, as it has been construed, were once in existence.

146 Mr Whittaker’s evidence that it was not the practice of Syndicate 683 to receive signed copies from HIH is equivocal as to whether the policies were signed by both sides for the relevant years. This evidence clearly falls short of establishing the fact on the balance of probabilities.

147 It is critical for Syndicate 683 to establish that HIH had a consistent practice of signing the policies in place for the years in question. However, Syndicate 683 has not put forward any policy signed by both parties in any policy year prior to 1993 and the only signed policies are dated from 1995 onwards. The available evidence supports no more than the inference that such a practice began after 1995.

148 It is inappropriate to draw an inference that the 1993 and 1994 policies were signed from the mere fact that they were processed by the LPSO. Rather the evidence suggests significant lapses in time between the dates when the policies were processed and when they were signed.

149 HIH concedes that the position may have been different if there were policies signed by both parties prior to 1993. The liquidators of HIH were obliged to bring forward any such policies had they existed. None were identified.

150 The finding is that the established procedure of scratching, stamping and processing the slips did not render the slips “agreements in writing” within the meaning of the Act signed by both parties.

Estoppel

151 There is no substance in the contention by Syndicate 683 that HIH is estopped from denying the existence of an arbitration agreement containing signed policies for the purposes of s7 (1) (d) of the International Arbitration Act. The matter is put in terms of an estoppel by a convention. There is no evidence of any detrimental reliance by Syndicate 683 on any such assumption. That is of course an essential element for any estoppel case because the necessary consideration for the Court, when considering whether relief sought is proportional to the detriment, is to have regard to the detrimental reliance contended for. There was no evidence from the syndicate, in particular Mr Whittaker, that he acted in reliance upon any such assumption.

The obvious mistake

152 Mr Sackar QC appearing for Syndicate 683 drew attention to the fact that in some policies certain of the articles clearly had slightly different headings to the others.

153 This matter is shortly explained by the fact that the variation appears only in four policies in the third access layer. The scheme of the vast bulk of the policies involved Article V1 being headed "Commission" and Article VII being headed "Contingent Commission". It so happens that the scheme in the third access layer was that it did not include an article in relation to contingent commissions whereas the policies for the underlying layers did include the contingent commission article.

154 A mistake appears to have occurred with respect to the subject four policies. In terms of the placement of the relevant headings for the "Service of suit" and "Arbitration" articles, all the articles had been brought forward by one for those four years, resulting in the mistaken repositioning of the material headings.

155 The mistake was ultimately corrected [cf Exhibit R2] removing the matter from contention as an issue.

Discretionary considerations

156 HIH has accepted that the usual principle [where agreements are binding, operative and where proceedings fall within their scope] is that the Courts begin with a firm disposition in favour of maintaining the bargain unless strong reasons be adduced against a stay: Akai Pty Ltd v People's Insurance Company (1988) 188 CLR 418 at 445.

157 Notwithstanding that circumstance it is true that the Court retains a discretion such that even had HIH not succeeded in its several cascading contentions, the Court would not be obliged to grant a stay of the present proceedings.

158 HIH's submission that:

i. the provisions of the Commercial Arbitration Act provide a right to either party to seek leave to appeal to the Suprême Court;

Charter Reinsurance v Fagan

159 In my view the parties having solemnly entered into contractual commitments should be held to their bargain. Hence had it become necessary for the Court to determine the discretionary issue, the principled the exercise of the discretion would have been to grant the stay.

Scheme of judgment

160 As will appear from the reasons, HIH has succeeded on most of its submissions. Hence it was strictly unnecessary for the Court to treat with all of those submissions. The section 19 holding in favour of HIH and the rejection of the section 109 challenge were sufficient to resolve the motion.

Short Minutes

161 The parties are to bring in short minutes on which occasion costs may be argued.

************************************

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Citations

HIH Casualty & General Insurance Limited (in liquidation) v R J Wallace sued on his own behalf and on behalf of all other members of Syndicate No 683 at Lloyd's of London for the 1993 underwriting account [2006] NSWSC 1150

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Primary Layer ($1 million)	First Excess Layer ($1 million/$1 million)	Third Excess Layer ($5 million/$5 million)
1993	GT843K *1986-1992 Wording** (TJW1 p87-103) LPSO 1993 Slip (TJW1 p1-6) (wording as expiring) scratched p6, p4 LPSO p3 1993 wording processed by LPSO 23/9/94 (TJW2, p297)	GT118F 1988 Wording (TJW1 p174-183) LPSO; 1988-1990 slips (to be tendered) (Wording to be agreed by Leading Underwriter/ Wording to be agreed by Leading Underwriter only/ Wording to be advised L/U only) 1991-1992 Slips (TJW1 p159-164; 165-173) (“wording as expiring”) 1993 Slip (TJW1 p104-113) (“wording as expiring”) scratched p.108; LPSO 1993 wording processed by LPSO 1/7/94 and/or 6/7/94 (TJW2, p299)	GT160E No wording available 1993 Slip (TJW1 p184-207) (wording as expiring) scratched p196; LPSO 1993 wording processed by LPSO 23/9/1994 (TJW2, p300)
1994	GT843L *1986-1992 Wording** (TJW1 p87-103) LPSO 1994 Slip (TJW1 p45-51) (wording as expiring) scratched pp 45, 46, 49; LPSO 1994 wording processed by LPSO 12/8/94 and/or 18/1/05 (TJW2, p302)	GT118G 1994 Wording (to be tendered) LPSO 1994 Slip (TJW1 p147-158) scratched p150-155, 157-158 LPSO p147	GT160F 1994 Wording (TJW1 p224-233) LPSO 1994 Slip (TJW1 p208-223) scratched p211, 213, 214, 220-223; LPSO
1995	GT843M 1995 Wording (TJW2 p1-22) LPSO/HIH 1995 Slip (TJW1 p34-44) scratched	GT118H 1995 Wording (TJW2 p98-118) LPSO/HIH 1995 Slip (TJW1 p135-146) scratched/ LPSO	GT160G 1995 Wording (TJW2 p188-206) LPSO/HIH 1995 Slip (TJW1 p234-251) scratched /LPSO
1996	GT843N 1996 Wording (TJW2 p23-76) LPSO/HIH 1996 Slip (TJW1 p21-33) scratched	GT118J 1996 Wording (TJW2 p119-157) LPSO/HIH 1996 Slip (TJW1 p124-134) scratched/ LPSO	GT160H 1996 Wording (TJW2 p207-255) LPSO/HIH 1996 Slip (TJW1 p252-263) scratched
1997	GT843P 1997 Wording (TJW2 p77-97) LPSO/HIH 1997 Slip (TJW1 p7-20) scratched	GT118K 1997 Slip (TJW1 p114-123) scratched p118; LPSO 1997 Wording (TJW2 p158-187) LPSO/HIH	GT160J 1997 Slip (TJW1 p264-274) scratched 269; LPSO 1997 Wording (TJW2 p256-277) LPSO/HIH

CITATION:	HIH Casualty & General Insurance Limited (in liquidation) v R J Wallace sued on his own behalf and on behalf of all other members of Syndicate No 683 at Lloyd's of London for the 1993 underwriting account & Ors [2006] NSWSC 1150
HEARING DATE(S):	23/10/06, 24/10/06
JUDGMENT DATE :	3 November 2006
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Notice of motion seeking stay of proceedings to be dismissed
CATCHWORDS:	Reinsurance Treaties - Proper construction and effect of service of suit and arbitration articles - Service of suit article providing that in the event of a dispute arising under the agreement, reinsurers at request of insurer will submit to jurisdiction of any competent court in the Commonwealth of Australia such dispute to be determined in accordance with the law and practice applicable in such court and reinsurers to abide final decision of such court or any competent appellate court - Arbitration article providing that disputes arising out of agreement or concerning its validity to be submitted to decision of a Court of Arbitration consisting of three members to meet in Australia and that decision of Court of Arbitration shall not be subject to appeal - HIH Casualty & General Insurance Ltd (in Liquidation) commences proceedings against Lloyd’s Syndicate in Supreme Court seeking to test the analysis of the House of Lords in Charter Reinsurance Co Ltd v Fagan [1997] AC 313 on question of whether payment by the insurer to its insureds is a condition precedent to its right to recover from the reinsurers the balances confirmed from time to time to be owing by reinsurers - Test case likely to affect recovery of amounts from other reinsurers on other reinsurance contracts - Evidence that potential denial of the access of creditors to reinsurance assets that form part of an insurance company's solvency requirements, once the company has entered formal insolvency, may well have serious regulatory implications - Reinsurers seek stay of proceedings under section 7 of International Arbitration Act 1974 (Cth) - Whether arbitration clause/agreement not binding upon HIH by reason of the provisions of section 19 of the Insurance Act 1902 (NSW) - Whether section 19 inconsistent with section 7 of International Arbitration Act and therefore inoperative by virtue of section 109 of the Constitution (Cth) - Whether the effect of section 7 (2) of International Arbitration Act is to provide a party with a right to a stay of proceedings whereas section 19 of Insurance Act purports to limit the availability of that right - Whether International Arbitration Act intended to cover the field for regulating recognition and enforcement of foreign arbitration agreements leaving no scope for operation of section 19 of Insurance Act - Meaning of the term 'Insurance' in section 19 - Whether as a matter of construction section 19 inapplicable to instant circumstances because article dealing with arbitration not 'a provision in a contract of insurance' or 'a provision with respect to the submission to arbitration of any matter arising out of the contract of insurance' - Whether arbitration clause not engaged because properly construed policy gives an option to HIH to litigate rather than to arbitrate - Whether arbitration clause not engaged because action is for payment of 'a confirmed balance' - Whether arbitration agreement not one to which International Arbitration Act applies as it is not ' an agreement in writing' - Consideration of procedures whereunder Lloyds syndicates contractually bind themselves in relation to inwards reinsurance including affixation of syndicate's stamp and 'scratching' on slips presented by broker as agent for ceding insurer - Procedures taken by Lloyds Policy Signing Office - Whether proceedings involve ‘claims for the payment of confirmed balances’ - Whether arbitration agreement an 'agreement in writing' within meaning of International Arbitration Act - Principles of construction of contractual documents - Estoppel - Whether Court should exercise its discretion to refuse a stay of proceedings - Courts begin with a strong disposition in favour of maintaining a bargain unless strong reasons adduced against grant of a stay
LEGISLATION CITED:	Arbitration Act 1975 (UK) Commercial Arbitration Act 1984 (NSW) Commercial Transactions (Miscellaneous Provisions) Act 1974 (NSW) Companies Act 1961 (NSW) Companies Act 1961 (Vic) Contracts Review Act 1980 (NSW) Conveyancing Act 1919 (NSW) Corporations Act 2001 (Cth) Fair Trading Act 1987 (NSW) Industrial Relations Act 1996 (NSW) Insurance Act 1902 (NSW) Insurance Contracts Act 1984 (Cth) Insurance Regulation 2004 (NSW) International Arbitration Act 1974 (Cth) Minors (Property and Contracts) Act 1970 (NSW) Trade Practices Act 1974 (Cth)
CASES CITED:	325 George Street Pty Ltd (in liquidation) v Norwich Union Fire Insurance Society Ltd (1980) 1 ANZ Ins Cas 60-404 Agnew v Lansforsakringsbolagens [2000] Lloyd’s Rep IR 317 Akai Pty Limited v People’s Insurance Company Ltd (1996) 188 CLR 418 Alex Kay Pty Limited v General Motors Acceptance Corporation and Hartford Fire Insurance Company [1963] VR 458 American Airlines Inc v Hope [1974] 2 Lloyd’s Rep 301 Ansett Transport Industries (Operations) Pty Limited v Wardley (1980) 142 CLR 237 AssetInsure Pty Ltd v New Cap Reinsurance Corporation Limited (in liq) (2006) 226 ALR 1 Attorney-General (NSW) v Brewery Employees Union of New South Wales & Anor (1908) 6 CLR 469 Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 Barcelo v Electrolytic Zinc Co of Australasia Limited (1932) 48 CLR 391 BP plc v National Union Fire Insurance Co [2004] EWHC 1132 British Dominions General Insurance Company Ltd v Duder [1915] 2 KB 394 Bull v Attorney-General (NSW) (1913) 17 CLR 370 Bulong Nickel Pty Limited, Re (2002) 42 ACSR 52 Charter Reinsurance Co Ltd v Fagan [1997] AC 313 Chloe Z Fishing Co Inc (US) v Odyssey Re (London) Ltd formerly known as Sphere Drake Insurance Plc (UK) 109 Fed Supp 2nd Series (SD) Cal 2000, 1236 Clyde Engineering v Cowburn (1926) 37 CLR 466 Commercial Radio Coffs Harbour v Fuller (1986) 161 CLR 47 Commercial Union Assurance Co Plc v NRG Victory Reinsurance Limited [1998] 1 Lloyd’s Rep. 80 Darlington Futures Limited v Delco Australia Pty Limited (1986) 161 CLR 500 Daval Aciers D’Usinor et de Sacilor v Amare SRI [“The Nerano”] [1996] 1 Lloyd’s Rep 1 Day and Dent Constructions Pty Ltd v North Australian Properties Pty Ltd (1982) 150 CLR 85 Devenish v Jewel Food Stores Pty Ltd(Milk Vendors case) (1991) 172 CLR 32 Dominion Insurance Co of Australia Ltd and the Companies Act, Re [1980] 1 NSWLR 271 Du Pont v. Agnew [1987] 2 Lloyd's Rep 585 Eagle Star Insurance Co v Spratt [1971] 2 Lloyd’s Rep 116 E I Du Pont de Nemours & Co v I C Agnew [1987] 2 Lloyd’s Rep. 585 Ethiopian Oilseeds v Rio del Mar [1990] 1 Lloyd's Rep 86 Forsikringaktieselskapet National of Copenhagen v Attorney General [1925] AC 639 Forsikringaktieselskapet Vesta v J N E Butcher [1989] AC 852 Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 Heath Lambert Limited v Sociedad de Corretaje de Seguros [2004] 1 Lloyd’s Rep. 495 Hide & Skin Trading Pty Limited v Oceanic Meat Traders Limited (1990) 20 NSWLR 310 Hi-Fert Pty Limited v Kiukiang Maritime Carriers Inc. (No 5) (1998) 90 FCR 1 Holmes v Permanent Trustee Co of New South Wales Ltd (1932) 47 CLR 113 IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 James Allen (Ireland) Ltd v Marea Producten B.V. (Netherlands) (Yearbook X (1985) p 485) James Buchanan & Co Ltd v Babco Forwarding and Shipping (UK) Ltd [1978] AC 141 K A & C Smith Pty Limited v Ward (1998) 45 NSWLR 702 Kahn Lucas Lancaster Inc v Lark International Ltd (1999) 14 Mealey’s International Reports C1 (29 July 1999); (1999) 186 F 3d 210 King v Brandywine Reinsurance Co (UK) Ltd [2004] 2 Lloyd’s Rep. 670 La Donna Pty Limited v Wolford AG (2005) 194 FLR 26 Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 Lief Investments Pty Ltd v Conagra International Fertiliser Company (1997) 141 FLR 124; [1998] NSWSC 481] Lo v Aetna 2000 WL 565465 (US District Court, District of Connecticut) McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 Metrocall Inc v Electronic Tracking Systems Pty Ltd (2000) 52 NSWLR 1 MGICA Ltd v United City Merchants (Australia) Limited (1986) 4 ANZ Ins Cas 60-729 Myer Emporium Limited v Commission of Stamp Duties (1967) 85 WN (Part 2) (NSW) 115 O’Sullivan v Noarlunga Meat (1954) 92 CLR 565 Palmdale Insurance Ltd (in liq) (No. 3), Re [1986] VR 439 Pan Australia Shipping Pty Ltd v The Ship ‘Comandate’ (No 2) Comandate Marine Corp [2006] FCA 1112 Parr v Rural Agents Pty Limited [1975] 2 NSWLR 347 Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyd’s Rep 127 Prenn v Simmonds [1971] 1 WLR 1381 R v Slator (1881) 8 QBD 267 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 Samuel v Newbold [1906] AC 461 Shell International Petroleum v Coral Oil Co Ltd [1999] 1 Lloyd’s Rep 72 Shipping Corporation of India Ltd v Gamlen Chemical Co Australasia Pty Ltd (1980) 147 CLR 142 Tariff Reinsurance Ltd v Commissioner of Taxation (Vic) (1938) 59 CLR 194 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Toomey v Eagle Star Insurance Co. Ltd [1994] 1 Lloyd’s Rep. 516 Vimar Seguros y Reaseguros SA v M/V Sky Reefer 515 US 528 Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102 Wanganui-Rangitikei Electric Power Board v Australian Mutual Provident Society (1934) 50 CLR 581 Waugh v Kippen (1986) 160 CLR 156 Wik Peoples v State of Queensland (1996) 187 CLR 1 Wilson v Moss (1909) 8 CLR 146 Woolworths Limited v DS McMillan (unreported, Supreme Court of New South Wales, Rogers J, 29 February 1988) Zambia Steel Building Supplies Ltd v James Clark & Eaton Ltd [1986] 2 Lloyd’s Rep. 225
PARTIES:	HIH Casualty & General Insurance Limited (in liquidation) (Plaintiff) R J Wallace sued on his own behalf and on behalf of all other members of Syndicate No 683 at Lloyd's of London for the 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000 underwriting account (First - Eighth Defendants)
FILE NUMBER(S):	SC 50073/06
COUNSEL:	Mr F Gleeson SC, Dr A Bell SC, Mr S Nixon (Plaintiff/Respondent) Mr J Sackar QC, Ms K Barrett, Mr MA Izzo (Defendants/Applicants)
SOLICITORS:	Blake Dawson Waldron (Plaintiff/Respondent) Ebsworth & Ebsworth (Defendants/Applicants)

Year	Layer
1993	Primary layer GT843K
1993	First excess layer GT118F
1993	Third excess layer GT160EA
1994	Primary layer GT843L
1994	First excess layer GT118G
1994	Third excess layer GT160FA