English Court Rules on Conflicting Jurisdiction and Arbitration Clauses

The English Commercial Court has handed down an important decision highlighting the approach adopted by the English court when there are competing jurisdiction and arbitration clauses (“Competing Clauses”) and the effect of a hierarchy clause on Competing Clauses.

Whilst the English court adopts a pro-arbitration stance when faced with Competing Clauses, ultimately these clauses will be interpreted against the contractual framework to see if a jurisdiction clause prevails over an arbitration agreement. In Tyson International Company Ltd v GIC Re, India, Corporate Member Limited, an English Court jurisdiction clause was found to prevail over a New York arbitration agreement due to the court’s construction of a hierarchy clause within one of the agreements. Accordingly, the English court granted a final anti-arbitration injunction but refused to stay parallel English court proceedings under section 9 of the Arbitration Act 1996. This Legal Update analyses this decision and its implications for commercial parties.

THE CONTRACTS

Tyson International Company Ltd (“TICL”) was the captive insurer¹ of Tyson Foods Inc (“Tyson”) who insured Tyson’s property risks under a captive policy.  TICL reinsured the property risks on a facultative basis² with GIC (and other reinsurers). GIC issued two Market Reform Contracts (“MRCs”) – standard form agreements in the London reinsurance market – which provided for the exclusive jurisdiction of the English courts and were governed by English law.

Facultative certificates are reinsurance documents providing coverage for a specific individual risk permitting reinsurers to accept or decline each risk on a case-by-case basis.  In this case, after the MRCs were signed, a facultative certificate was executed 9 days later in respect of each policy based on a US standard form known as ‘MURA’ or ‘Market Uniform Reinsurance Agreement’ (the “Facultative Certificate(s)”), as amended by the parties. The Facultative Certificates provided for (ad hoc) New York arbitration and New York law as the substantive governing law. Arbitration was expressed to be a “condition precedent to any right of action” under the MURAs. To the extent that disputes were not resolved by arbitration, the Facultative Certificates provided for the jurisdiction of any court of competent jurisdiction within the United States.  Each Facultative Certificate also included an entire agreement clause and a hierarchy clause stating that the Facultative Certificate is “agreed subject to the terms and conditions of [the MRC]” (the “Hierarchy Clause”). 

It is uncommon to see Competing Clauses like those in this case within the same layer of reinsurance. The London Market Group (an industry body representing London insurance businesses) gives guidance which acknowledges that reinsurance certificates may contain their own Law and Jurisdiction provisions but states that these should be checked to avoid conflict with express provisions of the MRC. Their guidance makes no reference to hierarchy clauses.  However, when it comes to commercial contracts outside of the reinsurance context, Competing Clauses may be more frequently seen so this judgment provides a useful reminder of how such clauses are construed in general.

THE DISPUTE AND PROCEDURAL HISTORY

Following a fire at one of Tyson’s  plants, TICL accepted coverage for losses incurred by Tyson Foods and, after serving a notice of loss on GIC, GIC failed to indemnify it under the terms of the reinsurance and purported to rescind the reinsurance.  However, the parties disagreed as to the forum of their coverage dispute. GIC sought to use New York arbitration to resolve the dispute (as per the Facultative Certificates) whereas TICL preferred to use the English courts (as per the MRCs):

• GIC initially sought an injunction from a New York court restraining TICL from commencing any English court proceedings on the basis that arbitration was a condition precedent to any right of action under the Facultative Certificates (“Motion”).
• After becoming aware of that Motion, the next day TICL filed an English court claim and the English court granted an interim injunction on the same day requiring GIC to withdraw its Motion. That injunction was “voluntarily dismissed” by GIC and the Southern District of New York issued a ruling to that effect.
• Around the same time, GIC issued a Demand for Arbitration, appointing an arbitrator. TICL didn’t become aware of it until a few weeks later but then applied to the English court (without notice) for an interim anti-arbitration injunction.
• The parties made further applications in the English courts. GIC applied to set aside the interim anti-arbitration injunction and TICL applied to make that interim relief final. GIC also filed its acknowledgement of service in the English court claim indicating its intention to contest jurisdiction.
• Refusing permanent anti-suit relief, in February 2024, Mr Hancock KC ruled that the interim injunction should continue pending any application by GIC to challenge the English court’s jurisdiction, including any section 9 application. He dismissed GIC’s set aside application.

This decision relates to (i) GIC’s March 2024 application to stay the English court proceedings pursuant to section 9 of the Arbitration Act 1996 (the “Stay Application”) and (ii) TICL’s May 2024 application for permanent (alternatively continued) anti-suit relief, and related orders. Both applications were heard together before Nigel Cooper KC (sitting as a High Court Judge) on 18 July 2024, and judgment was rendered on 21 January 2025.

ISSUES TO BE DECIDED BY THE ENGLISH COURT

In summary, the Commercial Court had to:

1. ascertain the contractual relationship between the MRCs and the Facultative Certificates; and
2. construe the meaning of, and decide the effect of, the Hierarchy Clause (including addressing the parties’ specific arguments as to its effect).

THE ENGLISH COURT’S FINDINGS

APPROACH WHERE THERE ARE COMPETING CLAUSES

The decision provides a useful reminder of the four key principles of contractual construction where there are Competing Clauses, established in Surrey CC v Suez Recycling Surrey Ltd [2021]:

1. Where possible the Court should strive to give effect to an arbitration clause in the presence of a competing jurisdiction clause. It has latitude to do so where there is infelicitous drafting but cannot do so where the clauses are in direct conflict with each other and wholly irreconcilable so that no sense whatsoever can be given to the intention of the parties.
2. Unless they expressly and clearly say otherwise, there is a strong presumption that parties are assumed to have agreed on a single tribunal for the determination of all their disputes, at least when there is only one agreement between them.
3. Where two agreements each contain different provisions for dispute resolution, the outcome may depend on the nature of the second agreement and its relationship to the first. A second agreement which varies the first one will probably be regarded differently from a second agreement which makes a clean break from the first one. The desire for one-stop shopping means that, where possible, the clauses should be regarded as mutually exclusive in their scope of application rather than overlapping. However some degree of fragmentation may be inherent in what has been agreed, in which case the centre of gravity of a given dispute will be relevant.
4. Where a contract contains a hierarchy (or conflicts) clause, there should be no predisposition to find or not find a conflict between two clauses. The ordinary rules of construction should first be deployed and only if those result in a conclusion that the two provisions are irreconcilable is recourse to the conflicts clause required.

CONTRACTUAL STATUS OF THE DOCUMENTS

The court commented that there is “no uniform market practice among London reinsurers as to the contractual status of MRCs and facultative certificates” and accordingly, market practice evidence was of little, if any, assistance to determine the contractual status of those documents. Reinsurers negotiating with TICL all took an “individual approach” as to whether they wanted a facultative certificate and if so, whether or not to include a hierarchy clause clarifying that the MRC was to take precedence.

The court held that it was bound by the Court of Appeal’s 2024 decision in TICL’s dispute against Partner Reinsurance Europe SE that the facultative certificate was a separate contractual document which was intended to supersede the contract found in the MRC. In that case, cover was placed in a similar way between TICL and Partner Re as reinsurer, with the parties agreeing cover on the terms of a MRC and then later agreeing the terms of a facultative certificate for the same cover. However, there was no hierarchy clause in the facultative certificate in that case. Nevertheless, the Court of Appeal accepted that an appropriately worded hierarchy clause could override the effect of the entire agreement clause in a facultative certificate. Whether this was the case in the present dispute was a matter of proper construction of the Hierarchy Clause and its effect.

MEANING AND EFFECT OF THE HIERARCHY CLAUSE

The court provided useful commentary on hierarchy (or confusion) clauses. It said that confusion may arise (i) within one contract where there are inconsistent clauses and it is unclear which clause is to prevail or (ii) where there are inconsistent terms in two separate contracts and it is unclear which term is to prevail.

In this case, given the different fora and laws agreed, there was “obvious confusion” as to which dispute resolution provisions were to apply. The court looked at the two possible interpretations of the Hierarchy Clause – namely (1) a mechanism to resolve potential conflict between the two contracts or (2) a provision that the earlier contract is to be used to resolve uncertainty as to the meaning of terms in the later contract – and said that an experienced insurance professional is more likely to include (1) in a later insurance contract.  Accordingly, it construed the Hierarchy Clause to give precedence to the jurisdiction clause in the MRCs over the arbitration agreement in the Facultative Certificates. 

It rejected GIC’s submissions that the jurisdiction clause and the arbitration agreement are to be read together (either on the basis that the arbitration agreement is a Scott v Avery clause or because the jurisdiction clause can be read as giving the English courts supervisory jurisdiction over the New York arbitration) for three reasons:

1. It would ignore the parties’ intention that the terms of the Facultative Certificates should supersede the terms of the MRCs unless there is “confusion” (in which case the terms of the MRCs should prevail).
2. It would depart from the notion that wherever possible parties intend their disputes to be resolved before a single tribunal or forum.
3. Construing them together would deprive the jurisdiction clause of any sensible purpose since any arbitration would take place in New York, be subject to New York law and the parties had also provided for the jurisdiction of the courts of the United States. It said it is “extremely unlikely” that experienced insurance professionals (like those at TICL and GIC) would agree to New York arbitration with the English courts having supervisory jurisdiction and courts of the United States also having a residual jurisdiction.

RELIEF GRANTED

The court was satisfied on a balance of probabilities that GIC’s Stay Application failed because the jurisdiction clause prevailed over the arbitration agreement. It therefore granted TICL’s anti-arbitration injunction on a final basis.

IMPLICATIONS FOR COMMERCIAL PARTIES

The judgment gives useful guidance on the ramifications of Competing Clauses and the impact that a hierarchy clause may have on the court’s usual approach to the proper construction of such clauses (outlined in the Surrey CC case).  It reinforces the English court’s pro-arbitration stance as well as its commercial and pragmatic approach to the construction of hierarchy clauses.

The decision also highlights the difficulties that may arise from Competing Clauses in related contracts and reminds commercial parties to pay close attention to the way they draft their dispute resolution clauses and applicable law provisions. If parties choose to include a hierarchy clause, they should employ clear language to help avoid disputes of this kind. It also reminds parties to consider the potential impact of disputes under related contracts concerning the same substantive issues being decided in multiple fora (for example: the risk of conflicting decisions).

Finally, the same-day grant of an interim anti-suit injunction in this case provides a reminder of the swift and effective relief available from the English courts in relation to arbitral matters.

For further information please contact the authors or your usual Mayer Brown contact.