New South Wales Supreme Court CITATION : Gordian Runoff Ltd (formerly GIO Insurance Ltd) v The Underwriting Members of Lloyd's Syndicates [2002] NSWSC 1260 revised - 5/02/2003 CURRENT JURISDICTION: EQUITY FILE NUMBER(S) : SC 50208/02 HEARING DATE(S) : 19/12/2002 JUDGMENT DATE : 19 December 2002 PARTIES : Gordian Runoff Ltd The Underwriting Members of Lloyd's Syndicates 102 & 2021 JUDGMENT OF : Brownie AJ at 1 Mr C. Gee, QC - Plaintiff COUNSEL : Mr M. Pembroke, SC - Defendant Mallesons Stephen Jaques - Plaintiff SOLICITORS : Allens Arthur Robinson - Defendant CATCHWORDS : International Arbitration Act 1974 (Cth) - when an arbitrator withdraws from office, within meaning of Article 15 of INICTRAL model law. LEGISLATION CITED : International Arbitration Act 1974 (Cth) DECISION : I make a declaration in terms of paragraph 1 of the summons and order the defendants to pay the plaintiff's costs. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BROWNIE AJ THURSDAY 19 DECEMBER 2002 50208/02 - GORDIAN RUNOFF LIMITED (formerly GIO INSURANCE LIMITED t/as GIO REINSURANCE) v THE UNDERWRITING MEMBERS OF LLOYD'S SYNDICATES 102 & 2021 FOR THE 1998 YEAR OF ACCOUNT. JUDGMENT 1 HIS HONOUR: The plaintiff and the defendants are parties to a contract of reinsurance. A dispute arose concerning that contract. That was referred to arbitration. The arbitration is governed by the provision of the International Arbitration Act 1974 (Cth). Part III of that Act adopts the UNCITRAL model law on international commercial arbitration and gives it the force of law in Australia. 2 This case throws up a problem that arises under Chapter III of the model law. In short, the plaintiff says that the mandate of one of the arbitrators has terminated or that the arbitrator has withdrawn from office. 3 The facts giving rise to the dispute are not really in dispute. The plaintiff is itself a reinsurer. It entered into a contract with the defendants for the reinsurance of the plaintiff by the defendants of part of any loss which it might suffer. After the original contract was made it was reduced to writing in the form of a document titled "Lloyd's Marine Excess Loss Reinsurance Policy". 4 The plaintiff claims to be entitled to be paid some money under the policy and the defendants deny that this is so as a matter of construction of the policy. Alternatively they raise a claim for rectification of the instrument. The questions that arise about the proper construction of the policy and its possible rectification are matters for the arbitrators and I express no view about them. 5 Chapter III of the model law contains Articles 10 to 15 inclusive. Article 10 (1) provides that the parties are free to determine the number of arbitrators. Article 11 (2) provides that the parties are free to agree on a procedure of appointing the arbitrator or arbitrators. 6 The policy provided in clause 15 generally for the arbitration of disputes that might arise concerning the policy. Clause 15.3 provided: "Unless the parties agree upon a single arbitrator...the claimant (the parties requesting arbitration) shall appoint an arbitrator...Within 30 days of receiving such notice the respondent shall appoint an arbitrator..." Clause 15.4 provided: "Before the commencement of arbitration proceedings the two arbitrators shall appoint a third arbitrator who shall act as chairman of the tribunal. Should they fail to appoint such a third arbitrator within 30 days of the appointment of the respondent's arbitrator then either of them or either of the parties may apply to the appointor for the appointment of the third arbitrator. The arbitrators appointed by the parties in dispute shall decide the verdict. If they cannot agree they shall seek the verdict of the chairman of the tribunal which shall prevail." The identity of the appointer mentioned is perhaps uncertain but nothing turns upon it. Clause 15.5 provides: "Unless the parties otherwise agree, the arbitration tribunal shall consist of persons with not less than 10 years experience of insurance or reinsurance." 7 The policy also provided that the seat of arbitration should be in Sydney and that the arbitration tribunal should apply the laws of Australia as the proper law of the policy. 8 The plaintiff suggested the appointment of a single arbitrator but the defendants did not agree. The plaintiff then nominated Mr Bryan Kellett as arbitrator and then the defendant nominated Mr Tony Berry as arbitrator. So far as the evidence shows, Messrs Kellett and Berry took no step to appoint a third arbitrator. Instead the parties agreed through their respective solicitors on the appointment of Mr Tony Meagher SC as the third arbitrator. 9 It is common ground that the arbitration tribunal has not ever convened. Instead the parties agreed upon an interlocutory regime. They have exchanged pleadings including amended pleadings. There has been discovery and inspection and various witness statements have been exchanged. There is a timetable in place for the exchange of experts' reports. 10 There came a time when the solicitors for the parties, in a practical sense, agreed that it was appropriate to fix a date for hearing of the arbitration and the suggested date of hearing became 10 March 2003. It seems that there will be at least five witnesses who will need to come from London to Australia for the hearing as well as, according to the original plan, Mr Kellett and Mr Berry. 11 Then by fax dated 19 November 2002 addressed to Mr Stockdale, the solicitor having the carriage of the matter within the firm of solicitors acting for the plaintiff, Mr Kellett expressed his regret that an earlier expectation of his that he would be available in March 2003 had been disappointed and he continued: "As I understand, however, that all other parties are available in the weeks in March I would of course be prepared to resign the appointment to enable the appointment of another arbitrator if this were to be preferred. I await your further advices." 12 Mr Kellett sent copies to the defendants' solicitors and to each of Mr Berry and Mr Meagher. On 21 November Mr Stockdale wrote to Mr Kellett saying: "In the circumstances my client has instructed me to accept your resignation as our appointed arbitrator in this matter and we will now look for a replacement." 13 On the same day Mr Stockdale's firm wrote to Mr Berry and Mr Meagher and sent a copy to the defendants' solicitors saying: "You will be aware from Mr Kellett's letter of 19 November 2002 that he is not available for a hearing during March. We understand that the period from Monday 10 to 18 March inclusive is however suitable to all parties other than Mr Kellett. The revised start date accommodates Mr Berry's difficulties during the first week in March. We have been instructed to accept Mr Kellett's proposed resignation as an arbitrator and will shortly nominate an alternative. Accordingly, we confirm the arbitration will take place in Sydney from 10 to 18 March. Please note your diaries accordingly." 14 On 22 November the defendants' solicitors wrote to the plaintiff's solicitors expressing the view that the offer of resignation was not capable of acceptance by one party and said that they would take instructions. On 25 November they wrote again saying: "We have received instructions. Our clients do not [wish] to accept the offer of resignation made by Mr Kellett. The panel has been properly constituted and should remain in place. Based on the availability of our lay and expert witnesses and the respondent's representatives, the earliest we will be available for arbitration is from the week commencing 22 September 2003." 15 They went on to give details about the availability of people. 16 Later the plaintiff said, in substance, that it proposed to nominate as a replacement arbitrator Mr Brian Rayment QC or Mr Norman Lyall. The defendants said, in substance, that this was impermissible. 17 Turning back to the model law, Article 12 sets out the grounds upon which a party to an arbitration might challenge the appointment of someone nominated as arbitrator. Article 13 provides for the procedure to be followed if such a challenge is to be made. Article 14 is in these terms: "(1) If an arbitrator becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay, his mandate terminates if he withdraws from his office or if the parties agree on the termination. Otherwise, if a controversy remains concerning any of these grounds, any party may request the Court...to decide on the termination of the mandate which decision shall be subject to no appeal. (2) If under this article or article 13(2), an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, this does not imply acceptance of the validity of any ground referred to in this article or article 12(2)." Article 15 provides: "Where the mandate of an arbitrator terminates under article 13 or 14, or because of his withdrawal from office for any other reason or because of the revocation of his mandate by agreement of the parties or in any other case of termination of his mandate, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced." 18 The plaintiff has accented the word "shall" in article 15 and it submits that, on the facts of this case, one can see that it has succeeded on any one of three different bases. The plaintiff submits that article 15 provides four sets of circumstances in which a substitute arbitrator shall be appointed. The first is where the mandate of an existing arbitrator terminates under article 13 or 14. The second is because of the withdrawal from office, for any other reason, of an arbitrator. The third is because of the revocation of the mandate of an arbitrator by agreement of the parties and the fourth is in any other case of termination of his mandate. 19 The plaintiff does not rely upon the third of those matters but in substance it contends that each of the other three are applicable. 20 A great deal of the debate has focused upon the language used by Mr Kellett in his letter of 19 November, particularly when read with the letter from the plaintiff's solicitors of 21 November. The defendants focus attention upon the expression that Mr Kellett was "prepared to resign the appointment...if this were to be preferred" and to what might be described as the language of politeness. They draw attention also to the fact that in the plaintiff's solicitors' letter of 21 November the plaintiff's solicitors referred to what Mr Kellett had done as a proposed resignation. 21 In contrast, the plaintiff accents the expression used by Mr Kellett that he was "prepared to resign to enable the appointment of an another arbitrator." 22 The defendants submit, and I accept, that the consideration that the hearing of the arbitration will be delayed if Mr Kellett has somehow effectively ceased to be an arbitrator is irrelevant. The question is one for the proper construction of the model law and its application to the facts. 23 It does seem to me, however, that one cannot entirely ignore the question of delay. It seems to have been what motivated Mr Kellett, so far as I can tell from the evidence. He considered that because he was not going to be available to act as arbitrator for a time and that the hearing of the arbitration would therefore be delayed he should have written the letter he wrote on 19 November. 24 The second of the sets of circumstances that is referred to in article 15 seems to me to be the critical one. On the plaintiff's case Mr Kellett has withdrawn from office for a reason other than the reasons given in articles 13 and 14. 25 The defendants submit that a withdrawal from office may be equated, at least in a general way, with a resignation from office. They submit that it was not open to Mr Kellett to withdraw unilaterally. He had ceased to be the nominee of the plaintiff and had become an arbitrator. 26 Reading the model law as a whole, and particularly article 15 as a whole, I am not persuaded that this is accurate. It seems to me that an arbitrator may take steps that might have the effect that he or she will withdraw from office and that if this happens the party appointing that arbitrator is then able to appoint a fresh arbitrator unilaterally. 27 In this case Mr Kellett seems to have taken the view that it was a matter for his nominator to decide whether to accept his proposed withdrawal from office and it seems that his nominator took the same view. It seems to me that this is the correct view. 28 In the course of argument it was suggested that absurd results might follow. I do not think this is correct. I do not think that if there are two parties to an agreement, A and B, and an arbitrator nominated by party A offers to withdraw from office, party B might unilaterally accept that offer of withdrawal, this being one of the absurd consequences suggested. 29 As I read the model law, an arbitrator nominated by party A might offer to withdraw and make that offer to party A alone and party A, acting alone, might accept that offer to withdraw. It does not seem to me that the agreement of party B is necessary or that party A is obliged to consult party B about the matter at all. 30 I do not overlook the submission made, although I do not think it is really supported by the evidence, that a consideration of the defendants in this case when agreeing to the appointment of Mr Meagher as third arbitrator was the supposed equilibrium of the panel as originally constituted. The convention and the model law deal with commercial arbitrations generally and not just arbitrations about contracts of insurance or reinsurance. It is the model law which must be construed and, relevantly for the purposes of the present point, only that. The model law says nothing about the topic of equilibrium. 31 Another matter which seems to me to be of some, although not great, significance is that the model law reads somewhat strangely when compared to Australian and English statutes about arbitrations not of an international nature and when compared to the common law rules about arbitrations. But the convention is an international one and it presumably represents a compromise reached by nations with different legal backgrounds and different views about arbitrations. It seems to me that it is appropriate to put out of mind the Anglo-Australian law on the subject and to focus upon the words of the model law. 32 The language used by Mr Kellett in his letter of 19 November was the language of politeness and courtesy but it does seem to me to unequivocally constitute an offer by Mr Kellett to withdraw if the plaintiff preferred that course to be adopted. Given the delay which would occur if he were to remain as arbitrator the acceptance of his offer to withdraw seems to me to be entirely understandable. 33 In any event, I decide the case on the basis that within the meaning of article 15 there has been a withdrawal from office of Mr Kellett for a reason other than the reasons mentioned in articles 13 and 14 of the model law. It is not necessary to make a decision on the other submissions raised by the plaintiff. 34 I make a declaration in terms of paragraph 1 of the summons and I order the defendants to pay the plaintiff's costs. ***************** Last Modified: 02/06/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.