Vol 8 (2011) - Issue 3

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Exclusive Jurisdiction and Arbitration Agreements: Will They be Enforced in Bermuda in the Event of an Insolvency?

Introduction

The Supreme Court of Bermuda ordinarily upholds and enforces exclusive jurisdiction and arbitration agreements by way of anti-suit injunctions and stays of proceedings that are brought in breach of contract, unless there are 'strong reasons' not to do so.

In this respect, the Bermuda court has expressly confirmed that it will follow and apply the House of Lords decision in Donohue v Armco [2002] 1 All ER 749.

Although the Bermuda court ordinarily takes a robust approach to exclusive jurisdiction and arbitration agreements (and remains wholly unaffected by European legislation and case law in this area), there have been a number of recent cases where the Bermuda court has had to consider whether particular circumstances give rise to sufficiently 'strong reasons' not to hold the parties to their contractual choice of jurisdiction.

Of greatest interest to insolvency practitioners, the Bermuda court has recently acknowledged that 'strong reasons' might potentially arise if one of the contracting parties is in an insolvent liquidation in a foreign jurisdiction, and that party’s foreign liquidators have requested common law recognition and assistance from the Bermuda court, pursuant to Cambridge Gas Transportation Corp v Navigator Holdings plc [2007] 1 AC 508.

There is, as a result, the possibility of a real tension developing in the common law between the public policy of holding parties to their contractual bargains on the one hand, and the public policy of recognising and assisting foreign liquidators on the other.



The public policy in favour of upholding exclusive jurisdiction and arbitration clauses

In a number of recent cases, the Bermuda court has confirmed that there is a strong public policy in favour of upholding and enforcing exclusive jurisdiction and arbitration clauses. For example:

– In IPOC International Growth Fund Ltd v OAO CT Mobile [2007] Bda LR 43, the Court of Appeal for Bermuda upheld the Bermuda court’s grant of an anti-suit injunction restraining a Bermuda entity from pursuing foreign proceedings in breach of Swedish and Swiss arbitration agreements.

– In Lenihan v LSF Consolidated Golf Holdings Ltd [2007] Bda LR 49, the Bermuda court held that 'there is a strong public policy in favour of arbitration', and stayed court proceedings in favour of arbitration pursuant to an arbitration agreement;

– In ACE Bermuda Insurance Ltd v Continental Casualty Company [2007] Bda LR 38, the Bermuda court granted an anti-suit injunction restraining a party from pursuing foreign court proceedings which were inconsistent with a Bermuda arbitration clause, even though that party was not itself a direct party to the relevant contract and arbitration agreement, but was seeking relief which would require determination in the foreign proceedings of the rights and liabilities of the parties directly privy to the contract. The Bermuda court held that 'the Court has granted anti-suit injunctions to restrain a party from pursuing foreign court proceedings in breach of an arbitration agreement for many years… the Court has such jurisdiction whether or not the party pursuing the foreign court proceedings is itself a party to the arbitration agreement. It is the breach of the arbitration clause calling for arbitration in Bermuda that the Court has jurisdiction to restrain';