Bermuda's international business community is well known for embracing the arbitration process: the chosen form of dispute resolution for insurers and reinsurers and their counterparties. When called upon to do so, Bermuda's courts have exhibited a pro-arbitration approach as most recently demonstrated by the decision in CAT SA v Priosma Limited – Civil Jurisdiction 2019: No. 099 (3 September 2019), which concerned an application by a judgment debtor to set aside an ex parte order of the court enforcing a foreign arbitration award against a Bermuda-domiciled entity.
Request to deny enforcement
Bermuda is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and its provisions are incorporated into the Bermuda International Conciliation and Arbitration Act 1993 (the 1993 Act). In the CAT SA case, the Bermuda Court was asked to refuse the enforcement of a French arbitration award on one of the very few grounds permitted under the New York Convention, namely that the foreign arbitral tribunal lacked jurisdiction to make the impugned award. This limited opportunity for review is in line with the approach taken in numerous jurisdictions whereby arbitral tribunals are accorded great deference in arriving at their substantive decision but courts preserve the right to review the threshold issue of whether jurisdiction to determine the dispute has been conferred on the tribunal.
In the CAT SA case, however, the Bermuda Court had to address the novel situation where the judgment debtor (Priosma) had previously tried and failed to challenge the foreign arbitral tribunal's jurisdiction before the supervising court, in this case the French Court of Appeal. The enforcing party (CAT) argued that, having taken this approach, Priosma had forfeited its right to reargue the point before the Bermuda Court.
The case concerned a brokerage agreement, originally between CAT and a Bermuda broker, Kitson Brokerage Services Limited (Kitson), which contained a clause for resolution of disputes by arbitration in Paris, France. Two years later a former director of Kitson established Priosma to provide reinsurance broking services in Bermuda and it was agreed in correspondence that Priosma would take over the brokerage work previously done by Kitson.
A dispute later arose between the parties about Priosma's liability to pay brokerage to CAT. CAT commenced arbitration proceedings in Paris against Priosma, alleging that the correspondence, when properly construed, incorporated the French arbitration agreement that CAT had had with Kitson. In the arbitration, Priosma argued, among other matters, that the arbitral tribunal lacked jurisdiction over it because Priosma's agreement with CAT did not include an agreement to arbitrate in Paris.
After contested arbitration proceedings in Paris, the arbitral tribunal found against Priosma and made a financial award in CAT's favour (the Award).
Thereafter, Priosma appealed the Award in the French Court of Appeal on the same basis and, after contested proceedings, the French Court of Appeal also rejected Priosma's jurisdiction argument on the same basis as the arbitral tribunal.
At that stage, after four years of contested proceedings, CAT applied and obtained an ex parte Order to enforce the Award against Priosma in Bermuda.
Priosma then appealed to France's highest court, the Cour de Cassation, to set aside the Award and applied to the Bermuda Court to set aside its order enforcing the Award on the basis that the arbitral tribunal was said to have lacked jurisdiction. In the alternative, Priosma sought a stay of enforcement of the Award in Bermuda pending its appeal to the Cour de Cassation.
CAT argued before the Bermuda Court that the decision of the French Court of Appeal had created an "issue estoppel" (or "issue preclusion" as it is sometimes referred to), the effect of which was to prevent Priosma re-arguing jurisdiction before the Bermuda Court notwithstanding the New York Convention and the 1993 Act both ostensibly permitting such a challenge.
The Bermuda Court held that, by electing to pursue a review before the French Court of Appeal, Priosma had thereby submitted to the jurisdiction of the French Courts and therefore Priosma was precluded (or estopped) from repeating its jurisdictional arguments in Bermuda. Priosma's application to set aside the ex parte order was therefore dismissed.
This was a novel ruling under the New York Convention as, although there is English case law addressing issue estoppel in the context of the enforcement of foreign court judgments, there was no precedent in the context of the enforcement of arbitration awards. The Chief Justice observed that to allow the unsuccessful party to litigate the same issue in the courts of the supervisory jurisdiction, and in the courts of the enforcing jurisdiction, would be contrary to the pro-enforcement policy underlying the New York Convention.
In light of Priosma's pending appeal to the Cour de Cassation, Bermuda's Chief Justice was willing to stay its enforcement order. However, in doing so, the Court applied the "sliding scale" test from English authorities, which takes into account the probability of success, to assess the amount of security that Priosma should be required to post as a condition of a stay and held that it was appropriate to require Priosma to post security for the full amount of the Award.
Kennedys also contributed the Bermuda chapter to the ICLG Guide to International Arbitration 2019, which can be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Kennedys operates in Bermuda in association with Kennedys Chudleigh Ltd.