Bermuda

Bermuda as an international arbitration centre

Bermuda has hitherto not been successful in establishing itself as venue for international arbitration. This has been due to the absence of a dedicated facility for holding arbitrations comparable to those in Hong Kong and Singapore. The Government of Bermuda has offered to make available the old police station in Hamilton and to enter into a public-private partnership to convert the building into an international arbitration centre. For the time being the overwhelming majority of arbitrations held in Bermuda involve one or more parties that are Bermudian companies. Arbitration is the typical form of dispute resolution used in the insurance and reinsurance industry in Bermuda. Liability insurance policies written on the so-called ‘Bermuda Form' provide for either London or Bermuda as the seat of the arbitration.

Legislative framework

There are two separate legal regimes governing international and domestic arbitration respectively. The Bermuda International Arbitration and Conciliation Act 1993 (1993 Act) provides that the UNCITRAL Model Law (Model Law) applies to all inter­national commercial arbitrations held in Bermuda, unless the parties expressly agree that the Arbitration Act 1986 (1986 Act) will apply. The 1986 Act (which is based on the UK Arbitration Acts 1950 to 1979) remains in force and applies to any arbitration having its seat in Bermuda to which the 1993 Act does not apply.¹ The remainder of this article will discuss the regime under the 1993 Act and Model Law.

Arbitration agreements

The arbitration agreement must be in writing (article 7). Bermuda law recognises the principle of separability of arbitration clauses from within a main contract.² Thus an arbitration agreement is valid even if the validity of the contract in which the arbitration clause is incorporated is being challenged.

Appointment and removal of arbitrators

There are no limits on the parties' autonomy to select arbitrators in Bermuda. The parties are free to determine the number of arbitrators, and to agree their qualifications and the procedure for their appointment (articles 10(1), 11(1), 11(2)). Article 12(1) of the Model Law requires a person approached in connection with his or her possible appointment as an arbitrator to disclose ‘any circumstances likely to give rise to justifiable doubts as to his impartiality or independence'. The disclosure obligation continues throughout the arbitral proceedings. An arbitrator can only be challenged if circumstances exist that give rise to justifiable doubts as to his or her impartiality or independence, or if he or she does not possess the qualifications agreed to by the parties (article 12(2)). The challenge must be made to the Supreme Court of Bermuda (which is the court of first instance) within 15 days of a party becoming aware of the constitution of the tribunal, or after becoming aware of any circumstance that gives rise to the challenge. In determining a challenge on the grounds of ‘apparent bias' the Bermuda Court is likely to follow the objective test which was restated in a recent decision of the English Commercial Court H v L & Ors [2017] EWHC (Comm): ‘Whether a fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.' The case concerned a Bermuda Form arbitration with a London seat between a policyholder H and its insurer L. H applied to disqualify M, the chairman of the tribunal who had been appointed by the High Court. No allegation of actual bias was made. The grounds for the application were that the conduct of the arbitrator following his appointment gave rise to an appearance of bias for the following three reasons:

• M had subsequently accepted an appointment in two Bermuda Form arbitrations involving R, and affiliated company of H and two insurers (one of which was L), in which the disputed claim arose out of the same incident and raised similar issues, namely the reasonableness of the settlement;
• M's appointment in the R arbitrations had not been disclosed; and
• M's response to the challenge to his impartiality.

All three grounds were rejected by the English Commercial Court.

Jurisdiction

The arbitral tribunal can rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement (article 16(1)).

The arbitral tribunal can rule on a challenge to its jurisdiction, as a preliminary question or in an award on the merits (article 16(3)). If the arbitral tribunal rules as a preliminary question that it has jurisdiction, this can be challenged before the Supreme Court of Bermuda within 30 days of the ruling. There is no appeal from a decision of the Supreme Court of Bermuda under article 16(3) of the UNCITRAL Model Law. However, if the arbitral tribunal rules on its jurisdiction in an award on the merits, any challenge to that ruling must be brought before the Court of Appeal for Bermuda within three months of the date of the award.

Enforcing agreements to arbitrate

Agreements to arbitrate in Bermuda will be enforced by staying any proceedings brought in breach of the arbitration agreement, or by granting an anti-suit injunction against any foreign proceedings in breach of the arbitration agreement.³ If one party to an arbitration agreement is a company incorporated in Bermuda - which is therefore a party over which the Bermuda court has jurisdiction as of right - breaches an agreement to arbitrate outside Bermuda by commencing foreign court proceedings, the Bermuda court will also grant an injunction against the Bermuda company restraining it from pursuing those proceedings.⁴ However, in a recent decision, AK Bakri & Sons Ltd and ors v Asma Abdul Kader Bakri Al Bakri and ors [2017] SC (Bda) 40 Com (26 May 2017), the Bermuda Commercial Court, following English authority (Excalibur Ventures LLC v Texas Keystone), granted an injunction restraining the plaintiffs in the Bermuda proceedings from continuing with a parallel arbitration commenced in Saudi Arabia pursuant to an arbitration clause in a shareholder agreement which provided for all disputes between the parties to be arbitrated in Saudi Arabia under Sharia law. Hellman J also refused the plaintiffs' application to stay the Bermuda proceedings which had been commenced in ignorance of the existence of the Saudi arbitration clause in the shareholder agreement. The decision is presently subject to an appeal.

Procedure

Typically, the parties agree to the disclosure of all non-privileged documents relevant to the issues as defined by the pleadings, and to the exchange of witness statements in advance of a hearing. The usual practice is for those witnesses who the other party wishes to cross-examine to attend the hearing. In the absence of agreement between the parties directions regarding discovery, witness statements and cross-examination are typically given by arbitral tribunals. The scope of discovery varies depending on the particular tribunal. While the IBA rules on evidence are frequently used, it is not uncommon for tribunals composed of English QCs and retired judges to order ‘standard disclosure' in accordance with the English civil procedure rules. US-style ­depositions are occasionally ordered, usually with the agreement of parties in cases where American lawyers are acting on both sides, but they are not standard practice in Bermuda.

Section 35(1) of the 1993 Act provides that unless the parties otherwise agree, the arbitral tribunal is not bound by the rules of evidence applicable in Bermuda, and it can receive any evidence that it considers relevant. This is expressed to be subject to section 10 of the 1993 Act, which provides that without prejudice settlement discussions cannot be disclosed. Article 19(2) confers a general power on the arbitral tribunal to determine the admissibility, relevance, materiality and weight of any evidence.

Any party to an arbitration agreement can obtain a writ of subpoena to compel a non-party to attend before the arbitral tribunal to give evidence or produce documents, but only to the extent that such production can be compelled in court (section 35(3), 1993 Act). The subpoena power of the court is limited to persons in the jurisdiction of Bermuda. However, the Bermuda court also has power to issue a letter of request to a foreign court for the examination of a witness outside the jurisdiction (section 35(5)(a), 1993 Act). Under article 27 a request to a Bermuda court for assistance can be made by the arbitral tribunal or by a party with the approval of the tribunal.

Confidentiality

Under Bermuda law there is an implied term in an arbitration agreement that proceedings and documents produced during the proceedings, including the award, are confidential.⁵ The extent of any exceptions to the confidentiality rule that has been addressed by the English courts⁶ has yet to be considered in Bermudian case law. Section 45 of the 1993 Arbitration Act provides that subject to the Constitution any proceedings under the 1993 Arbitration Act will on the application of any party to the proceedings be heard otherwise than in open court. In ACE Bermuda Insurance Ltd v Ford Motor Company [2016] Bda LR 1, the Bermuda Commercial Court engaged in a balancing exercise between the competing principles of ‘open justice' and the confidentiality of arbitral proceedings. The plaintiff had applied for an anti-suit injunction and wanted the substantive hearing of its summons to be held in camera. Hellman J ordered that only that part of the hearing at which confidential material would be referred to was to be held in camera, and refused the plaintiff's application to seal the court file on the grounds it was unnecessary to do so to preserve confi­dentiality since the affidavit containing the confidential material would not be available to the public.

Courts and arbitration

The Bermuda courts have jurisdiction to grant interim measures of protection, before or during arbitral proceedings (article 9). The types of interim relief which the Supreme Court of Bermuda can grant are set out in section 35(5) of the 1993 Act, and include:

• examination on oath of any witness before an officer of the court or any other person, and the issue of a commission or request for the examination of a witness out of Bermuda;
• the preservation, interim custody or sale of any goods that are the subject matter of the arbitration;
• securing the amount in dispute in the arbitration;
• the detention, preservation or inspection of any property or thing that is the subject of the arbitration or as to which any question may arise, and authorising for any of these purposes any person to enter on or in any land or building in the possession of any party to the arbitration, or authorising any samples to be taken or any observation to be made or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; and
• interim injunctions or the appointment of a receiver.

The Bermuda Commercial Court is an administrative subdivision of the Supreme Court of Bermuda and hears all court applications in Bermuda relating to arbitral proceedings, apart from challenges to awards in respect of which the Court of Appeal for Bermuda has exclusive jurisdiction. Both the Bermuda Commercial Court and the Court of Appeal for Bermuda are strongly pro-arbitration.

Awards

Article 31 sets out the requirements for an arbitral award in Bermuda: it must be in writing and signed by the arbitrator or arbitrators; it must give reasons (unless the parties have agreed that no reasons need to be given); and it must state the date and place of the arbitration.

Applicable law

Article 28 of the UNCITRAL Model Law states that the tribunal will decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. Reference has been made above to ‘Bermuda form' liability insurance contracts that provide for arbitration in either London or Bermuda subject to New York law, with certain modifications agreed by the parties. It is the practice to deal with New York law issues in such arbitrations by way of legal submission rather than by means of expert evidence. If there is no choice of law expressly agreed by the parties, the tribunal will apply the law determined by the conflict of law rules which it considers applicable (article 28(3), Model Law).

Appeals

The grounds on which an arbitral award can be set aside by the Court of Appeal for Bermuda (the court with jurisdiction to hear appeals) are very limited and derive from the grounds in the New York Convention for refusing to enforce an award. Article 34(2) sets out the following six grounds:

• A party to the arbitration agreement was under some inca­pacity, or the agreement was not valid under its governing law (if no governing law is expressed, the validity of the agreement is determined under Bermuda law).
• The applicant was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or was otherwise unable to present its case.
• The award deals with a dispute not contemplated by or not falling within the terms of the arbitration, or contains decisions on matters beyond the scope of the submission to arbitration.
• The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties.
• The subject matter of the dispute is not capable of settlement by arbitration under Bermuda law.
• The award is in conflict with Bermuda public policy. Section 27 of the 1993 Arbitration Act states that an award is in conflict with Bermuda public policy if the making of the award was induced or affected by fraud or corruption.

An application to set aside the award must be made to the Court of Appeal for Bermuda within three months of the date of the award. There is no further right of appeal from the decision of the Court of Appeal for Bermuda under article 34(2) (section 25(2), 1993 Act). There are no reported instances of the Court of Appeal for Bermuda upholding a challenge to an arbitral award under article 34. In Sampoerna Strategic Holdings Ltd v Huawei Tech Investments Co Ltd & Huawei International Pte Ltd [2014] CA (Bda) 2 Civ., a case in which a challenge to a Singaporean award on public policy grounds was rejected, Evans JA said that, ‘a heavy burden ... lies upon a party seeking to set aside or prevent enforcement of an arbitral award on the ground of breach of natural justice'. He approved dicta stating that it was necessary to demonstrate that upholding an award would ‘shock the conscience' or ‘be clearly injurious to the public good' or ‘violate the forum's most basic notions of morality and justice'.

Article 34(4) confers a discretion on the court, when it is asked to set aside an award, to suspend the proceedings: ‘in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal's opinion will eliminate the grounds for setting aside.'

Although there is no specific provision in either the 1993 Act or the Model Law which provides for parties to exclude the right to appeal to the Court of Appeal for Bermuda (in contrast to the 1986 Act where such exclusion agreements are provided for) it is likely that as a matter of principle that exclusion agreements are valid save in a case where fraud is alleged.

Costs and interest

Section 32 of the 1993 Act provides that unless the parties to an arbitration agreement choose otherwise the following costs are recoverable at the discretion of the tribunal:

• fees and expenses of the arbitrator and the costs of expert advice and of other assistance required by the arbitral tribunal;
• legal fees and expenses of the parties, their representatives, witnesses and expert witnesses;
• admnistration fees and expenses of an arbitral institution; and
• any other expenses incurred in connection with the arbitral proceedings.

Generally, the unsuccessful party will be ordered to pay a substantial proportion (typically 70 per cent to 80 per cent) of the successful party's costs. Unlike the 1996 Act, which provides that agreements that no costs be payable are only valid if entered into after the dispute that is the subject of the arbitration has arisen, there is no provision in either the 1993 Act or the Model Law that limits the rights of the parties to enter into an agreement excluding the award of costs.

Unless the parties agree otherwise, the arbitral tribunal has a general power to award interest on all or part of a monetary award, at such reasonable rate as the tribunal determines, for the whole or any part of the period between the date on which the cause of action arose and the date of the award (section 31(1), 1993 Act). The Interest Credit Charges (Regulations) Act 1975 only applies if the award is in Bermuda dollars.

Enforcement of foreign awards

Bermuda is a self-governing territory of the United Kingdom, which has extended the 1958 New York Convention to Bermuda, with no reservations. The legislation that gives effect to the New York Convention in Bermuda is in the 1993 Arbitration Act. A New York Convention award is enforceable in Bermuda, either by action or it can with leave of the court be enforced in the same manner as a judgment or order to the same effect and, where leave is given, judgment can be entered in terms of the award (section 40(1), 1993 Act). Section 48 of the 1993 Act contains an equivalent provision for non-New York Convention awards. In LV Finance Group Ltd v IPOC International Growth Fund Ltd [2006] Bda LR 67, the Supreme Court of Bermuda held that two arbitral awards of a Zurich tribunal, which declared an option contract to be illegal and hence unenforceable as a matter of English law (its governing law), would be recognised and enforced in Bermuda pursuant to the New York Convention. As noted above, the Court of Appeal for Bermuda has rejected a challenge to the enforceability of a Singaporean award on public policy grounds.

In New Skies Satellite BV v FG Hemisphere Associates LLC [2005] Bda LR 59, the Court of Appeal held that where a New York Convention award was enforced under section 40 of the 1993 Act it was not necessary for the party seeking to enforce the award to serve proceedings out of the jurisdiction on the foreign judgment debtor. The Rules of the Supreme Court (RSC) of Bermuda 1985 were amended with effect from 1 January 1986 to provide for a new RSC Order 11 rule (1)(m) conferring juris­diction on the Bermuda Court in cases where ‘the claim is brought to enforce any judgment or arbitral award.' Thus where any party has assets in Bermuda a writ may be served outside the jurisdiction against that party. Moreover, since the plaintiff has a substantive cause of action in respect of which the Bermuda Court has, by virtue of Order 11 rule 1(10)(m) in personam jurisdiction, a freezing order (still known in Bermuda as a Mareva injunction) may be obtained pending the conclusion of the enforcement proceedings.

Notes

1 See: Professional Services Insurance Co Ltd v Gerling Konzern Versicherungs Aktiensgesellschaft [2003] Bda LR 55. In Kessler v Hill [2005] Bda LR 55, the Court of Appeal for Bermuda held that an arbitration between landlord and tenant (both of whom were ordinarily resident outside Bermuda) relating to an option to purchase residential property was not ‘commercial' within the meaning of article 1(2) and therefore subject to the 1986 Act.

2 Article 16(1); Sojuznefteexport v Joc Oil Ltd [1989] Bda LR 11.

3 See: Skandia International Insurance Co & Others v Al Almana Insurance & Reinsurance Co Ltd [1994] Bda LR 30; for recent examples of antisuit injunctions granted by Bermuda courts see: ACE Bermuda Ltd v Pederson [2005] Bda LR 44, ACE Bermuda Insurance Ltd v Continental Casualty Company [2007] Bda LR 38, Star Excess Liability v General Reinsurance Co [2007] Bda LR 34; Ironshore Insurance Ltd and ors v MF Global Assigned Assets LLP and anor [2016] Bda LR 127.

4 See: LV Finance Group v IPOC International Growth Fund Ltd [2006] Bda LR 69; affirmed on appeal, [2007] Bda LR 43.

5 See: ABC Insurance Company v XYZ Insurance Company [2006] Bda LR 8.

6 See: Michael Wilson & Partners Ltd v Emmott [2008] EWCA 184.