A recent ruling from the English Commercial Court illuminates one risk with the use of the Bermuda form arbitration clause:  if the losing party is dissatisfied with the arbitration result, it may not be permitted to challenge the result under New York law in a New York court, but may instead be limited to challenging the arbitration award under English law in English court.

In the case, C v. D, [2007] EWHC 1541 (English Commercial Court) (attached here), the parties arbitrated a coverage dispute under a Bermuda form arbitration clause, which provided that the policy was governed by New York law  but that policy-related disputes were to be “finally and fully determined in London, England under the provisions of the English Arbitration Act . . . . ”  After a London panel found in favor of the insured on the claim dispute, the insurer indicated that it intended to challenge the award in federal court in New York as a “manifest disregard of New York law . ”  The insured sought an injunction in the English Commercial Court, arguing that the London tribunal’s decision was final and binding under the policy’s arbitration clause.  The insurer disagreed, arguing that the tribunal’s decision could be challenged in New York under the policy’s explicit governing law provision.

Stressing that the parties’ decision to incorporate English legal procedure into the law governing the policy, the English Commercial Court held that the U.S. courts would have no jurisdiction over the matter and only the English court could resolve the dispute under the terms of the English Arbitration Act : “Such a challenge usurps the function of the English court which has power to grant injunctions to protect its own jurisdiction and the integrity of the arbitration process.  In such a case there is an infringement of the legal right of [the Claimant] (both contractual and statutory rights) under English law and an abuse of the process of this court in the usurpation of its exclusive jurisdiction to supervise arbitrations with their seat in this country.”

The opinion brings into some question one of the perceived benefits of the Bermuda form, which is the combining of New York substantive law (seen by many as being reasonably balanced on substantive insurance issues) with English procedural law (seen by many as being less burdensome than American law).