British- American Insurance (Kenya) Ltd v Matelec Sal & Anor

Common issues arise in two arbitration claims, 2013 Folio 225 and 2013 Folio 268. In 2013 Folio 225 the claim is for an order pursuant to section 18(3)(d) of the Arbitration Act 1996 appointing an arbitrator on behalf of the defendants. The claimant says that the defendants have failed to make an appointment in response to the claimant’s commencement of arbitration under an alleged arbitration agreement. In 2013 Folio 268 the claimant seeks an injunction restraining the defendants from commencing or pursuing proceedings other than in accordance with the alleged arbitration agreement. In that regard on 26 February 2013 Cooke J granted an interim injunction. It has now been replaced by an undertaking recorded in a consent order (“the consent order”) made in both arbitration claims by Andrew Smith J on 15 March 2013.

In each case the claimant is British-American Insurance (Kenya) Limited (“BAIC”). It is an insurance company carrying on business in Kenya. The defendants in each case are Matelec SAL (“Matelec”, a Lebanese company) and Thika Power Limited (“Thika Power”, a Kenyan company). They are contractors in a project (“the project”) for the construction of a power plant (“the power plant”) at Thika in Kenya. I shall refer to them as “the contractors”.

Both arbitration claims involve a document (“the policy”) which bore a policy number 552/063/1/000086/2012/02 and was signed by Mr George Odinga on behalf of BAIC in February 2012. The policy stated that it took effect from 3 February 2012. It was not, however, in fact signed until later that month. The policy is a remarkable document in various respects. BAIC and the contractors agree as a matter of legal analysis that it contained a contract of insurance (“the insurance contract”) by which BAIC insured “project cargo”, giving cover against marine risks (“the marine cover”) and against delay in start up (“the DSU cover”). The policy identified those that were insured (“the insured parties”). The expression “project cargo” was defined in the policy so as to comprise cargo intended for the construction and erection of the power plant.

The words used in an “Insurance Schedule” on the second page of the policy, taken at face value, suggested that BAIC only underwrote 5% of the cover provided by the insurance contract, with Swiss Re (as to 50%), Munich Re (20%) and Africa Re (25%) underwriting the balance. However, one of the remarkable features of the policy is that it also set out terms:

In these circumstances it is agreed by BAIC and the contractors, despite what is said in the “Insurance Schedule”, that BAIC underwrote 100% of the insurance contract, and that under the reinsurance contract 95% of BAIC’s liabilities as insurer were reinsured by Swiss Re (as to 50% of those liabilities), Munich Re (20%) and Africa Re (25%). I shall accordingly refer to Swiss Re, Munich Re and Africa Re as “the reinsurers”.

The policy was retrospectively amended by a “Contract Endorsement” described as “Endorsement Reference 003” (“the endorsement”) which was issued by BAIC in March 2012. I shall refer to the policy as it was prior to the making of the endorsement as “the unamended policy” and to the policy as amended by the endorsement as “the amended policy”.

BAIC and the contractors agree that there were terms set out in the unamended policy applying to the insurance contract only, there were terms set out in the unamended policy applying to the reinsurance contract only, and there were terms set out in the unamended policy applying to both contracts. The parties do not agree, however, in all respects as to which terms fell within each such category.

References below to “the policy” are not intended to prejudge any question as to whether any particular words applied solely to the insurance contract, solely to the reinsurance contract, or to both. This is also the case as regards references to “the endorsement”, “the unamended policy” and “the amended policy”. In general references below to “the policy” are references to the policy document in circumstances where it does not matter whether it was amended by the endorsement.

The structure of this judgment is as follows:

It is common ground that:

A substantive dispute has arisen in which the contractors assert, but BAIC denies, that BAIC is liable under the insurance contract. I am not concerned with the merits of that substantive dispute. Instead I am concerned with what the amended policy said as to how disputes were to be resolved. Two issues (“issue (1)” and “issue (2)”) have been formulated in that regard. I shall call them “the consent order issues”, for they were specified in the consent order.

Paragraph 2 of the consent order provided:

2.

There shall be a trial of the following issues … :

(1)

Whether BAIC is entitled to refer disputes arising in connection with the [amended policy] to arbitration in London; and

(2)

Whether the [contractors] are bound to refer (i) the dispute which has been submitted to arbitration by BAIC pursuant to its Notice of Arbitration dated 22 November 2012; and/or (ii) any dispute arising in connection with the [amended policy] to arbitration in London.

With a view to the Court determining:

(a)

Whether to declare that there is, or is not, a binding agreement to arbitrate;

(b)

Whether to grant or refuse an injunction (interim or final) restraining proceedings other than by way of arbitration in London; and

(c)

Whether to grant relief pursuant to s. 18 of the Arbitration Act 1996.

The decision on each of the consent order issues will or may depend upon three sub-issues. I shall call the first “the construction sub-issue”. If I construe the amended policy in the way urged by the contractors, then the answer to both the consent order issues will be “no”. If, however, I construe the amended policy in the way urged by BAIC, then I must consider what I shall call “the rectification sub-issue”. If I were to find in the contractors’ favour on the rectification sub-issue, then the answer to both the consent order issues will be “no”. But if I find in favour of BAIC on the rectification sub-issue, I must then go on to consider what I shall call “the estoppel sub-issue”. If I find in the contractors’ favour on the estoppel sub-issue, then the answer to both consent order issues will be “no”. By contrast, if I find in favour of BAIC on each of the three sub-issues, then the answer to both consent order issues will be “yes”.

In broad outline, the issues and sub-issues are concerned with what happened, as regards the insurance contract, in relation to matters dealt with in a “Choice of Law & Jurisdiction” provision. This provision appeared in the section of the policy headed “Risk Details”, and it was amended by the endorsement. Part of the factual matrix for the construction sub-issue, being an essential part of the background to the insurance contract, is that subject to two exceptions the operative wording in this and subsequent sections of the policy mirrored that in an attachment to an email sent by Crescent to BAIC on 7 February 2012. The attachment in question was a scan of a signed slip (the “Swiss Re slip”) under which Swiss Re offered to reinsure BAIC.

This email was sent 4 days after 3 February 2012, the commencement date in the policy. All concerned knew that on 3 February 2012, at a stage when relevant contract wording had yet to be finalised, “project cargo” intended to be covered by the contracts of insurance and reinsurance had begun its marine voyage to Kenya. The need for relevant contracts to be finalised urgently may explain, if not excuse, some of the infelicities in the unamended policy.

The Swiss Re slip was, but the policy was not, described on its face as an “MRC SLIP” – that is, a slip formatted in accordance with the London Market Reform Contract (“MRC”) standard of June 2007, as amended. The MRC standard is made up of 6 sections. The MRC implementation guide states that the first of these, headed “Risk Details”, is to give “details of the risk/contract involved, such as insured, type, coverage, conditions etc.”.

The “Risk Details” section of the Swiss Re slip began with a Unique Market Reference, B1089/P01307/2012 (“the UMR”). There was no UMR in the policy. In all other respects, however, the initial provisions in the “Risk Details” section of the Swiss Re slip and “Risk Details” section of the policy were identical:

The remaining provisions in the “Risk Details” section of both documents were in the same format: the subject matter of the provision was set out in block capitals and underlined on the left, and the provision itself was set out on the right.

A little further on in the “Risk Details” section of the Swiss Re slip, and repeated in identical terms in the policy, there was a description entitled “Conditions”. Against this description there appeared a list of standard clause wordings, many of them produced by the Institute of London Underwriters (the “Institute”), and other wordings. Among other things, the list made reference to what were described as “Swiss Re General conditions for Facultative Business”. It is common ground that this was a reference to seven clauses set out in a document entitled “Terms and Conditions for Facultative Business (SR – GC 2003 v1)”. I shall refer to these clauses as the “Facultative Terms”. The first six of them are set out in the annex to this judgment. The seventh was strongly relied on in argument by the contractors. I shall refer to it simply as “clause 7”. It was as follows:

7)

Dispute resolution: Any dispute between the parties arising out of or in connection with the provisions set out herein or in the acceptance including contract formation and validity and whether arising during or after the agreed period shall be settled by arbitration in accordance with the Arbitration Rules set out in the acceptance. The applicable law and the seat of arbitration are as set out in the acceptance.

Also in the “Risk Details” section of the Swiss Re slip, against the description “Choice of Law & Jurisdiction”, there was a provision as follows:

The reference in the Swiss Re slip to ARIAS (UK) was a reference to the acronym for the A.I.D.A. Reinsurance and Insurance Arbitration Society of the UK. This body explains on its website that it is a UK-based chapter of the Association Internationale de Droit des Assurances, and that it:

… is a “not-for-profit” society formed in 1991 at the instigation of various members of the legal profession dealing with Insurance and Reinsurance disputes. Lawyers and their clients had expressed a need to improve arbitration procedure and create a source of trained, insurance-practitioner arbitrators from whom well reasoned awards might be forthcoming.

Turning to the “Risk Details” part of the unamended policy, it too contained a provision described as “Choice of Law & Jurisdiction”. However as regards this particular provision of the unamended policy the wording in the Swiss Re slip was not used. In its place there appeared a single word: “Kenya”.

In March 2012 the lenders, having been told that the insurance contract was expressly governed by Kenyan law, received advice that this contrasted with the various Institute clauses. The Institute clauses detailed the cover provided, and they were governed by English law. The lenders were advised that to avoid a dispute over the governing law and the law used to interpret the various clauses it would be easier if the policy were governed throughout by English law. This advice was passed on to Crescent, who in turn reported it to BAIC. It prompted the making of the endorsement, which was signed by BAIC on 29 March 2012. The endorsement, so far as material, stated:

It is hereby noted and agreed that with effect from Inception, the Law and Jurisdiction is amended to read as follows:

CHOICE OF LAW & JURISDICTION:	This reinsurance shall be governed by and construed in accordance with the law of England and Wales and each party agrees to submit to the exclusive jurisdiction of the Courts of Kenya. All disputes arising hereunder shall be submitted to a competent court in Kenya. Seat of Arbitration: London Appointor: Appointing officers of ARIAS (UK)

On each of the sub-issues the central dispute concerns the passages in the endorsement prescribing “London” as the “Seat of Arbitration” and “Appointing officers of ARIAS (UK)” as “Appointor”. The contractors say that when the amended policy is properly understood, as a matter of construction those passages apply only to the reinsurance contract. If the contractors’ construction were correct, the result would be that disputes between BAIC and the insured parties are, by virtue of earlier passages in the endorsement, agreed to be subject to the exclusive jurisdiction of the courts of Kenya. By contrast BAIC says that the entire endorsement applies to both the insurance contract and the reinsurance contact, and that the result is that disputes between the insured parties and BAIC have been agreed to be decided by London arbitration.

It is enough for the contractors to succeed if they can show that their construction of the amended policy is correct. If they fail on construction, however, the contractors assert that their arguments on rectification, or if necessary their arguments on estoppel, entitle them to succeed on both issues (1) and (2).

At the hearing before me Mr John Lockey QC appeared for BAIC. Mr Timothy Hill QC and Mr James Shirley appeared for the contractors. The time estimated for the hearing expired at the conclusion of Mr Hill’s oral submissions for the contractors. At my suggestion arrangements were made for a written reply to be lodged on behalf of BAIC. This was followed by a written “Closing Remark” lodged on behalf of the contractors. I am grateful to all counsel for the clarity and succinctness of the arguments.

Neither side suggested that witness evidence would be admissible on the construction sub-issue: plainly the policy, subject to any endorsement, was intended to be the complete contract between the insured parties and BAIC. Both sides agreed, however, that witness evidence was admissible on the rectification and estoppel sub-issues. Three witnesses provided statements upon which they were cross examined at the hearing:

Having considered the relevant evidence and the arguments, I conclude that each of the consent order issues must be answered “yes”. I reach that conclusion because each of the sub-issues must, in my view, be answered in favour of BAIC. In the remainder of this judgment I set out my reasons.

The unamended policy comprised 60 pages, each headed with BAIC’s logo, its head office address and other details, and the policy number. It was undated. The pages, in the version provided at the hearing, were numbered in a way which I describe below.

As to the date, at the hearing Mr Lockey stated on instructions that the date of signature of the unamended policy was 22 February 2012. There was no contrary submission by Mr Hill. I proceed on the footing that the unamended policy was signed by Mr Odinga on behalf of BAIC on 22 February 2012.

As to page numbering, the trial bundle contained a copy of the policy in which the pages were numbered from 2 to 61. For convenience I shall use these page numbers. As so numbered, the unamended policy comprised:

At the foot of page 2 the policy bears the stamp of BAIC and the signature of George Odinga, described as “underwriting manager”. Each of the remaining pages of the unamended policy is signed at the foot by Mr Odinga.

The unamended policy differs from the Swiss Re slip in 5 respects:

Above Mr Odinga’s signature on page 2 (the first page of the policy) almost all the page was taken up with a table giving information about the policy. This table (the “Initial Table”) comprised two columns and thirteen main rows, and included:

Above Mr Odinga’s signature on page 3 was a table headed “INSURANCE SCHEDULE”. In this table:

This table was not alone in giving the impression that BAIC was insuring only 5% of the risk, with the so-called “reinsurers” in fact insuring the balance. Nevertheless, as noted earlier, it was common ground at the hearing before me that BAIC insured 100% of the risk, and that 95% of its liability was reinsured with the reinsurers.

Pages 4 to 7 of the unamended policy set out the “Risk Details,” with a heading to that effect towards the top of page 4 of the unamended policy. These pages contained a series of provisions. As noted earlier, almost all were identical to those in the “Risk Details” section of the Swiss Re slip. I have set out the first 4 provisions in section B above. As to later provisions:

Mirroring the Swiss Re slip, and in accordance with the MRC standard, the next 5 sections of the unamended policy dealt with Information (p. 8), Security Details (pp. 9 to 11), Subscription Agreement (pp. 12 to 14), Fiscal and Regulatory (p. 15), and Broker Remuneration and Deductions (p.15).

Also mirroring the Swiss Re slip, there were three remaining sections in the unamended policy. Each of these last three sections set out wording for certain aspects of cover:

I do not set out any of these detailed wordings, other than to note that:

Section B above gives a broad outline of how it came about that in March 2012 the policy was retrospectively amended by the endorsement. For purposes of analysis the amendments introduced by the endorsement can be divided into three parts. I shall refer to the first part as the “amended governing law provision”. It comprises the words:

This reinsurance shall be governed by and construed in accordance with the law of England and Wales …

I shall refer to the second part as the “amended exclusive jurisdiction of courts provision”. It comprises the words:

… each party agrees to submit to the exclusive jurisdiction of the Courts of Kenya. All disputes arising hereunder shall be submitted to a competent court in Kenya.

I shall refer to the third part as the “amended arbitration provision”. It comprises the words:

Seat of Arbitration: London
Appointor: Appointing officers of ARIAS (UK)

Despite the use of the word “reinsurance” in the endorsement, both sides agree that the amended governing law provision and the amended exclusive jurisdiction of courts provision apply to the insurance contract. However the scope of the amended exclusive jurisdiction of courts provision in the insurance contract is said by the contractors to be wider than is accepted by BAIC.

The essential dispute concerns the amended arbitration provision. BAIC says that it, too, applies to the insurance contract. The contractors disagree. They say that it applies to the reinsurance contract, and only to the reinsurance contract. The consequence is that if the contractors are right then in the insurance contract the amended exclusive jurisdiction of courts provision is a wide provision, untrammelled by any provision for arbitration. By contrast if BAIC is right then, in both the insurance contract and the reinsurance contract, the amended exclusive jurisdiction of courts provision is subject to the amended arbitration provision.

The skeleton argument for the contractors identified four general principles of construction. I am content to adopt them for the purposes of the present case.

The first general principle is that in approaching the question of the interpretation of a commercial contract, the aim is to ascertain what a reasonable person would have understood the parties to have meant by the words they used, with such reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract: Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, per Lord Hoffmann at pp.912H–913D and Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 per Lord Clarke at para 12.

The second general principle is that the process of interpretation is an iterative process involving the checking of rival meanings against the other provisions of the document and investigating their commercial consequences in the context of the overall contractual scheme and purpose of the contract. Where the language of the parties can be construed in two different ways, the court should generally adopt the interpretation which will make more commercial sense: see Rainy Sky, per Lord Clarke at para 21 and para 30.

The third general principle is that when confronted with two provisions in a contract that seem to be inconsistent with each other, the court must do its best to reconcile them if that can conscientiously and fairly be done: Pagnan SpA v Tradax Ocean Transportation SA [1986] 2 Lloyd’s Rep 646, 653, per Steyn J., endorsed by Bingham LJ in the Court of Appeal [1987] 2 Lloyd’s Rep 342, 350.

The fourth general principle is, however, that where the document sought to be construed has not been drafted “as a coherent whole”, the likelihood of a need to reject parts of the document is greater: Yien Yieh Commercial Bank Ltd v. Kwai Chung Cold Storage Ltd [1989] 2 HKLR 639, PC, per Lord Goff.

It was common ground that if the amended arbitration provision had stood on its own as part of the insurance contract then the words used in that provision would have been sufficient to constitute a binding agreement to refer disputes under that contract to arbitration in London. That being so, Mr Lockey submitted that the real question was how to resolve the tension between the arbitration agreement and the references to the exclusive jurisdiction of the Kenyan courts. In that regard he cited cases where a similar tension has been discussed. For present purposes I need refer only to the most recent, Sulamerica CIA Nacional De Seguros SA v Enesa Engenharia SA [2012] EWHC 42 (Comm) (“Sulamerica”).

Mr Lockey noted that in Sulamerica Cooke J was faced with a contract which included an arbitration agreement (which provided for a London seat and ARIAS rules) and a Law and Jurisdiction clause providing for exclusive Brazilian law and jurisdiction. At paragraph [48] Cooke J held that:

The English courts, when faced with an exclusive jurisdiction clause and an arbitration agreement, look to the strong legal policy in favour of arbitration and the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered to be decided by the same tribunal. Unless expressly provided otherwise, the parties must be taken to have agreed on a single tribunal for the resolution of all disputes. A liberal approach to the words chosen by the parties in their arbitration clause must now be accepted as part of our law.

Mr Lockey added that Cooke J recognised:

At an early stage in his skeleton argument Mr Lockey submitted that the position as to choice of law and forum in the unamended policy was not entirely clear:

Mr Lockey submitted that the endorsement, construed in accordance with Sulamerica, solved this lack of clarity. True, it was necessary to proceed on the basis that the word “reinsurance” used in the endorsement had a meaning which referred, not just as to part but in relation to all matters covered by the endorsement, to both the insurance contract and the reinsurance contract. This was not difficult when such a meaning was accepted to apply to part of the endorsement in any event, and given the way in which the word “reinsurance” was used in the unamended policy.

Turning to the contractors’ contention that the amended arbitration provision applied only as between BAIC and the reinsurers, Mr Lockey’s skeleton argument submitted that this was unsustainable. It made four numbered points:

(1)

Endorsement 3 is an endorsement to the contract of insurance between the [insured parties] and BAIC.

(2)

Endorsement 3 was put forward in order to amend the position as between the [insured parties] and BAIC.

(3)

The choice of law provision in Endorsement 3 plainly applies to the contract of insurance, as well as to the contract of reinsurance, ie as between the [insured parties] and BAIC as well as between BAIC and its reinsurers.

(4)

It is impossible as a matter of ordinary English to read the arbitration references in Endorsement 3 as applying only as between BAIC and its reinsurers. The terms of the Endorsement simply do not say so, and there is no sensible or permissible basis for implying words of limitation (eg “but as between BAIC and its reinsurers only”).

In addition to the four numbered points in his skeleton argument, Mr Lockey in his oral opening made further points on this aspect. For present purposes I need mention only one of them which I shall refer to as point (5). This was that the proposal for the endorsement had come from Crescent, who sought the endorsement on behalf of the insured parties.

The contractors’ skeleton argument noted that the courts had struggled to reconcile jurisdiction and arbitration clauses. It asserted that in doing so the courts had only been prepared to conclude that an apparent choice of exclusive court jurisdiction was limited so as not to affect an arbitration clause if the reasonable person would have been forced to come to this conclusion about what the parties meant. Moreover, Sulamerica involved a development which had not been seen before. It was the first case in which such an approach had been applied to resolve an apparent tension between London arbitration and an exclusive jurisdiction clause in favour of a foreign court. Resolution of those provisions in that way meant that the foreign court would have no supervisory role in relation to the arbitration. In such a case, the apparent tension was all the greater, and all the more in need of explanation, because if effect were given to the London arbitration clause, so little was left of the foreign jurisdiction clause.

After an analysis of the case law, the contractors’ skeleton argument set out at paragraph 72 their stance for the purposes of the hearing before me:

The Assureds submit that if (and the Assureds would respectfully reserve the right to argue otherwise in future; they do not need to do so at this stage) Sulamerica was correctly decided on its own facts, it represents the very furthest that a court might properly go in construing a commercial contract so as to reconcile an exclusive jurisdiction clause and an arbitration clause without losing sight of the need to arrive at a construction that the reasonable person would have understood the parties to have intended the contract to have. It is submitted that to construe the Policy so as to prohibit the Assureds from commencing proceedings in the Kenyan courts would be a step too far.

In his opening submissions Mr Hill confirmed this stance. While the contractors reserved their position if the case went further, for the purposes of the hearing before me the contractors did not contest the Sulamerica approach. Their argument was that the dispute in the present case is different. The words in the amended arbitration provision were simply not words in the contract between the insured and the insurer. The insurance contract under the unamended policy had no arbitration clause. When construing the unamended policy it was for the court to decide which terms were part of the insurance contract and which terms were part of the reinsurance contract. Similarly, submitted Mr Hill, the court would have to decide those questions as regards the endorsement. It was erroneous to assume that because the words of the amended arbitration provision appeared in the endorsement that they were part of the insurance contract.

In his oral closing submissions Mr Lockey expanded on points made earlier. As regards points (2) and (5), he stressed that the whole purpose of seeking BAIC’s agreement to the endorsement was to amend the insurance contract, the genesis of the endorsement being that it was sought in order to apply as between BAIC and Crescent’s clients. Mr Lockey made three additional points which for convenience I shall refer to as (6), (7) and (8):

In his oral closing submissions Mr Hill countered with what he described as the contractors’ positive case. This was that the Facultative Terms were concerned solely with the reinsurance relationship. Accordingly clause 7 of those terms had effect as between BAIC and its reinsurers, with the consequence that as regards their relationship the method of dispute resolution envisaged was arbitration. Clause 7 required governing law and seat of arbitration to be specified, something which had not happened in the unamended policy, and the endorsement was completing that. The Facultative Terms had absolutely nothing to do with the insurance contract. It was only because the policy embodied both the insurance and reinsurance relationship that the present dispute had arisen. For all these reasons arbitration had nothing to do with the insurance contract.

Moreover, submitted Mr Hill, it was sensible to have different resolution procedures. The insurance contract contained conditions and warranties, and could give rise to a range of disputes. It was not surprising that the parties wanted those disputes resolved in Kenya, where the power plant is and where the parties are. That consideration did not apply to the reinsurance, which was subject to a “follow the fortunes” clause. The sort of dispute arising under the reinsurance contract would be very different from the sort of dispute arising under the insurance contract. For that reason there was no true analogy with a chain of charterparties, where it would be important to ensure that disputes would not be resolved in a way which fell between two stools.

By way of secondary submission Mr Hill advanced what he described as a negative case. This was that if neither side’s construction were ideal, then the contractors’ construction was to be preferred. As Cooke J had observed, the approach in Sulamerica, which BAIC necessarily relies upon, is a construction of last resort. Here it could be avoided by confining it to the reinsurance relationship. Indeed, as regards the reinsurance relationship it was not a construction of last resort, for the Facultative Terms envisaged arbitration. Accordingly in the context of that relationship the Sulamerica construction was one which did less violence to the words used in the policy.

The “negative case” was criticised by BAIC in its written reply. The written reply asserted that there was no presumption or starting point that the amended arbitration provision could not constitute an arbitration agreement between the insured parties and BAIC because that would otherwise conflict with the jurisdiction provisions. In the written “Closing Remark” the contractors countered that in deciding whether these commercial parties really intended the whole of the endorsement to affect the insurance contract, the court could not ignore the impending infelicity of finding both an exclusive Kenyan jurisdiction clause and a London arbitration clause in that contract. This contrasted with the reinsurance contract where the contractors said that the Facultative Terms made the amended arbitration provision peculiarly germane.

My task is to identify what the parties must be taken to have meant, as regards the insurance contract, by the words used in the amended policy once the endorsement was in place. For this purpose I put myself in the place of a reasonable person with a background knowledge of the factual matters which I have outlined in section B above. I agree with Mr Lockey that the position as to choice of law and forum in the unamended policy was not clear. Although it is not essential to my decision, in the circumstances of the present case I do not consider it necessary or desirable to reach any definite conclusion as to the correct construction of what was said concerning arbitration, governing law or jurisdiction, as regards either or both of the insurance and reinsurance contracts, in the unamended policy. The undoubted background to the endorsement was that in relation to the unamended policy there might be questions as to which law governed. It seems to me that a reasonable person would, for the reasons given by Mr Lockey, conclude that there might also be questions both as to whether and if so how the agreement to arbitrate in clause 7 would apply and as to whether and if so how the agreement for the courts of Kenya to have jurisdiction would apply.

The present case illustrates just how difficult the task facing the hypothetical reasonable person can be. It seems to me highly likely that a reasonable person would have come to the conclusion that the Insurance Schedule in the policy meant what it said. It would follow that references later in the policy to “reinsurance”, “reassured” and “reinsurers” should be read as references to a policy of insurance under which BAIC was insuring only 5% of the risk, with the “reinsurers” insuring the balance.

It is not open to me, however, to decide what the reasonable person would have thought in this regard. BAIC and the contractors agree that the policy is to be understood as set out in section A above, a single document embodying both the insurance contract and the reinsurance contract. I shall work on the basis that if the reasonable person had expressed some view to the contrary then the parties would have made the position clear. The result is that as regards those parts of the policy unaffected by any endorsement the reasonable person necessarily has the task, identified in section A above, of working out which provisions apply to which contract.

I agree with Mr Hill that the reasonable person also has the task of considering whether the whole of the endorsement is intended to apply to both contracts, or whether some part of it is intended to apply only to one or to the other. When that task is performed, however, it seems to me that as regards the amended governing law provision Mr Lockey’s points (1), (2) and (3) are plainly right. The amended governing law provision can hardly have been intended to apply only to the reinsurance contract. That would not meet the concern identified by the lenders. Indeed Mr Hill does not dispute that this provision must apply to both contracts. True, it is necessary to read the word “reinsurance” in the amended governing law provision as encompassing both the insurance contract and the reinsurance contract – but it has already been necessary to do that as regards many aspects of the unamended policy.

Thus as regards governing law the opening words of the endorsement’s replacement clause, “This reinsurance”, must be taken to mean, in effect, “The contracts of insurance and reinsurance in this policy”. The contractors’ stance is that despite this, and despite the lack of anything saying that the position is different as regards other aspects of the replacement clause, the remainder of the replacement clause operates differently in relation to the reinsurance contract from the way it operates in relation to the insurance contract. They say that as regards the reinsurance contract the amended arbitration provision engages with clause 7 in the unamended policy, with the result that disputes must be determined by arbitration. The consequence, they say, is that in the reinsurance contract the amended exclusive jurisdiction of courts provision has little (if any) effect. By contrast they say that as regards the insurance contract the amended arbitration provision has no effect at all, because clause 7 is not part of the insurance contract. The consequence, they say, is that in the insurance contract the amended exclusive jurisdiction of courts provision prohibits arbitration.

Mr Lockey’s point (4) castigates this reading of the endorsement as one which is impossible a matter of ordinary English. But it must be recognised that what the endorsement means is not necessarily determined merely by the ordinary use of English. The real question, as it seems to me, is whether on analysis the arguments overall point towards the contractors’ construction or against it.

Here I return to the contractors’ four principles of construction. The first two are of general application, while the third and fourth concern how to resolve apparent inconsistencies. I begin with the first two, as they are at the forefront of the contractors’ positive case. Applying the first general principle, a reasonable person would in my view be reluctant to conclude that an endorsement changing governing law, court jurisdiction and arbitration would change governing law in both contracts identically, but – without expressly saying so – as regards court jurisdiction and arbitration make different changes in the insurance contract from those made to the reinsurance contract.

In the unamended policy an unusual approach is taken of dealing with two contracts at once, without clearly distinguishing between the two. This suggests a desire to ensure that so far as possible the contracts will be identical. By contrast, however, the contention advanced in the contractors’ positive case is that the location of clause 7 in the Facultative Terms should lead to the conclusion that in the unamended policy arbitration was intended to apply only to the reinsurance contract. I explained at paragraph 66 above why I do not think it necessary or desirable to reach any definite conclusion as to the correct construction of what was said concerning arbitration, governing law, or jurisdiction, as regards either or both of the insurance and reinsurance contracts, in the unamended policy. Lest that be wrong, however, I turn to consider whether this contention on the part of the contractors is right. The question that it poses, as it seems to me, is what would a reasonable person infer from inclusion in the unamended policy of the Facultative Terms in general and clause 7 in particular? As to that:

The second general principle requires the court to favour a construction which will make more commercial sense. Here Mr Lockey’s point (7) appears to me to be particularly strong. Provision for London arbitration in both the insurance and reinsurance contracts will enable disputes under the two contracts to be decided by the same tribunal. I cannot see that in the present case there would be any good reason for wanting to have a different regime for deciding disputes as between insurer and insured on the one hand and reinsurers and reinsured on the other.

Identical court jurisdiction clauses in linked contracts will usually enable disputes under the linked contracts to be decided by the same tribunal. This can also be achieved by using identical arbitration clauses.

Mr Hill acknowledges that charterparty disputes often involve appointment of the same arbitrators to decide issues under a head charter and one or more sub-charters. He submits that the present case is different, and in that regard rightly points out that there was a “follow the fortunes” clause in the reinsurance contract. The “follow the fortunes” clause – in particular clause 3 of the Facultative Terms – could not possibly be part of the insurance contract. As to that, however, clause 3 does not say that court decisions in favour of the reinsured bind reinsurers. In that respect and others it is not a particularly generous “follow the fortunes clause”. Allowing for all these features, in my view a reasonable observer would have understood the parties to want the method of resolving any dispute between the insureds and BAIC to be the same as that for resolving a linked dispute between BAIC and reinsurers. This would be achieved in the amended policy by reading the reference to reinsurance in the replacement clause as referring, not just in relation to governing law but in relation to the whole of the replacement clause, to both the insurance contract and the reinsurance contract.

There is, however, a further point which needs considering in relation to the contractors’ positive case. Might it be that the insureds would want disputes to be resolved by Kenyan courts rather than London arbitration because the insureds and the project were located in Kenya? As to this:

Accordingly I conclude that the contractors’ positive case fails. In that regard I have not thus far mentioned in my analysis Mr Lockey’s point (5), in which he pointed out that the endorsement was put forward on behalf of the contractors. If there were two rival constructions of what had been proffered to BAIC, one of which had the potential to harm BAIC and the other of which did not, then it would ordinarily be right to adopt the construction which did not. It seems to me that the contractors’ positive case has the potential to harm BAIC by exposing it to the risk that the court in Kenya might hold a claim to be within the insurance contract and arbitrators might hold it not to fall within the reinsurance contract. For this additional reason it seems to me that the contractors’ positive case fails.

Turning to the contractors’ negative case, here the contractors’ third and fourth general principles come into play. The fourth general principle notes that there may be a greater need to reject parts of a document where it has not been drafted “as a coherent whole.” In the circumstances of the present case, I do not think that this general principle adds anything to the third general principle. In the present case there is nothing outside the endorsement to suggest that the replacement clause was not drafted as a coherent whole. There was no doubt a desire to achieve a solution which would meet the lenders’ concerns, and a degree of time pressure in that regard, but not (in comparison with the position in early February) such as would significantly reduce the likelihood of producing a replacement clause which was a coherent whole.

Thus the contractors’ negative case focuses on the third general principle: it asserts, in effect, that inconsistencies in the replacement clause can only be reconciled by going to the margins of what can conscientiously and fairly be done. That being so, the contractors submit that it should only be done in one contract and not in both.

In the written exchanges following the hearing BAIC urged that there was no reason to start with a presumption against its construction of the replacement clause. The contractors in response recapitulated their key point: incorporation of the Facultative Terms, and in particular clause 7, indicated that arbitration was to apply to the reinsurance contract alone. For the reasons given above, however, I am not persuaded by the contractors’ contentions concerning clause 7. Moreover, as Mr Lockey points out, there is no need to have resort to clause 7 when well established principles of English law have the effect that the words used in the replacement clause, taken on their own, are to be read as requiring disputes to be arbitrated.

In these circumstances it does not seem to me that, if there were any infelicity in the Sulamerica reconciliation of differing elements in the replacement clause, there would be any good reason to apply that reconciliation to one and not both of the contracts affected by the endorsement. Accordingly the contractors’ negative case in my view fares no better than their positive case.

Moreover it seems to me that Mr Lockey’s point (5) is equally applicable to the negative case. It would read the replacement clause in a way potentially damaging to BAIC when that clause can be read in a way which does not involve such potential damage. For that reason, too, it seems to me that the contractors’ negative case cannot succeed.

Although it is not necessary to my decision, I add that I am not sure that there is any particularly great infelicity in the reconciliation which BAIC advances in the present case – especially when compared with the many other infelicities found in the unamended policy. I start with an assumption that the replacement clause is intended to operate as a coherent whole. What one has in the endorsement is a reference to one particular forum, the courts of Kenya, followed by a reference to a second particular forum, London arbitration. When referring to the courts of Kenya the replacement clause says two things. First, it says that their jurisdiction is exclusive. Second, it says that all disputes arising shall be submitted to a competent court in Kenya. How can it say these two things about court jurisdiction, while at the same time contemplating that disputes will be resolved by arbitration? In these circumstances the inference, to my mind, is that what is said about court jurisdiction is concerned with no more than court jurisdiction – which court will have jurisdiction if court proceedings are brought. In this way the replacement clause is a coherent whole. A reasonable observer would, to my mind, conclude that the exclusive jurisdiction of courts provision was not intended to, need not and should not prevent the amended arbitration provision from being effective in either the insurance or the reinsurance contract. Nor is it intended to prevent the necessary consequence if the amended arbitration provision is effective, namely that, because it identifies London as the seat of arbitration, it carries with it jurisdiction for the English court to supervise the arbitration.

When reading the replacement clause it seems to me important to bear in mind that arbitration provisions do not always, as a matter of practical reality, prevent one side or the other from bringing court proceedings as to the merits. Nor will they prevent both sides from dispensing with arbitration if they so choose. It makes commercial sense to have a specific provision requiring that if the merits are to be decided by the courts, then they must be the courts of the jurisdiction which the parties have agreed upon. In this way, as it seems to me, a fair and conscientious reconciliation of the two provisions can readily be found. What is said about the jurisdiction of courts can be given substantial meaning and effect by reading it as stating that if court proceedings are brought as to the merits then they must be brought in the courts of Kenya.

For all these reasons it seems to me that such difficulties as may arise from giving effect to the amended arbitration clause are difficulties which can and should be overcome. To my mind this is just as true in the insurance contract as in the reinsurance contract.

Accordingly I conclude that BAIC succeeds on the construction sub-issue. It follows that I must go on to consider the rectification and estoppel sub-issues. In order to do this I set out a fuller account of the events which led to the policy and the endorsement.

In late 2011 the contractors wished to obtain cover against marine risks and against delay in start up. These two categories of risk were dealt with together, and the cover that was sought can conveniently be referred to as “marine and DSU cover”. The contractors also wished to obtain what was described as “erection all risks” (“EAR”) cover. Arrangements for this proceeded separately. The evidence before me did not deal with it. Although there are occasional references to it in documents dealing with marine and DSU cover, neither side suggests that what happened in relation to EAR cover has any bearing on the present case.

Mr Nasr was closely involved in the making of arrangements for marine and DSU cover. He was assisted by Matelec’s broker, Mr Anthony Naoum of Cape. In December 2011 they approached Mr Roger Mattar of Crescent’s Bahrain office. Mr Nasr’s initial idea was that the contractors should be insured by Swiss Re and others. It subsequently became clear that, in the light of local Kenyan regulations, they needed to involve a local Kenyan insurer. Mr Nasr explained that often arrangements with a local insurer are done purely on a “fronting” basis where the entire risk is reinsured. Mr Mattar discussed terms with proposed reinsurers while Mr Nasr dealt with the lenders. In January 2012 Crescent approached BAIC as regards both marine and DSU cover and erection all risks cover.

By late January 2012 time was pressing. The first shipment of cargo proposed to be covered against marine and DSU risks was due to take place in early February. The cargo in question was in fact shipped in containers on board the “CMA CGM LATOUR”, which sailed from Dubai for Mombasa on Friday 3 February 2012. It was on that Friday that Mr Cuthbert sent an email to Mr Odinga, stating that it attached “Swiss Reinsurance confirmation of coverage.” The email asked Mr Odinga to sign and return that document. It added that formal documents and details of the first shipment would follow on Monday 6 February.

The “Swiss Reinsurance confirmation of coverage” was not put in evidence. It appears not to have reached Mr Odinga. On 6 February Mr Cuthbert emailed Mr Odinga with details of the 3 February shipment from Dubai. Events the following day are recorded in three emails.

The first email of 7 February 2012 was sent by Mr Odinga to Mr Cuthbert. It stated:

Thanks so much for your e-mail, it appears my e-mail address was captured incorrectly and I ended up not getting the attachment – please re-forward.

I have also noted that we are yet to get an official instruction from your end to go on cover, all the participants need to be given official instruction to place cover and confirmation of the same obtained then the rest will now automatically fall in place.

Please liaise with Roger [Mattar] and let us have this concluded to avoid exposing the client. Also confirm when the cover is to start?

The second email of 7 February was from Ms Hannah Harvey of Crescent to Mr Odinga. It stated:

Apologies for you not receiving the confirmation of coverage.

Please find attached the signed slip from Swiss Re. Once we have received confirmation from all participating underwriters, we’ll re-scan to you.

We’re currently awaiting their confirmation.

The “signed slip from Swiss Re” which Ms Harvey attached to her email was the scan of the Swiss Re slip referred to in section B above. It contained, among other things, the “Choice of Law & Jurisdiction” clause which I have set out in that section, specifying as the governing law that of England and Wales, and providing for exclusive jurisdiction of the courts of England, while also adding that the seat of arbitration was to be London, and that the “appointor” was to be “appointing officers of ARIAS (UK)”.

The third email of 7 February was from Mr Odinga to Ms Harvey:

Thank you for your prompt response.

We confirm cover with effect from 7^th February 2012 (as per Swiss Re)

As the lead local insurer, we need to issue all the policy documents on our official documents (part of regulations), kindly send us the documents in soft- Word format to enable us process/issue them together with all the required documents as we await confirmation from Munich Re and Africa RE.

Let us know in case you need our intervention to have the rest confirm.

Thank you so much for the business we appreciate your support and the confidence you have in us.

On Thursday 9 February 2012 Mr Cuthbert emailed Mr Odinga:

Please find attached Swiss Re signed slip for … Marine Cargo.

Please note that the M&D for the cargo has been agreed at 80% and we are awaiting the final adjustable values so currently this has been left blank until we have received final confirmation – This will alter calculations for the Marine Cargo. Will advise ASAP.

We are also awaiting confirmation of no known or reported losses and a schedule of critical items to be shipped which we will forward to you ASAP.

Please also find attached our word formatted slip for … Marine Cargo … together with the Swiss Re terms and conditions for Facultative Business (not available in word format) as requested.

Trust you find all to be in order and look forward to receiving your signed slip for Marine Cargo ...

The “word formatted” attachment to this email was what I shall refer to as the “Word formatted slip”. It was a “soft” version (i.e. a version formatted in Microsoft Word for use in word processing) of the Swiss Re slip which, as explained in section B above, had been scanned and attached – no doubt as a “hard” version not readily usable in word processing – to an email sent 2 days earlier. Also attached to the email of 9 February 2012 was a “hard” version of the Facultative Terms. Mr Cuthbert’s witness statement referred to both the Swiss Re slip and the Word formatted slip as a “draft submission” which he had produced by working with clerical staff at Crescent’s London office.

At the end of his oral evidence I asked Mr Cuthbert why it was that in this email he had explained that the Facultative Terms were not available in Word. Mr Cuthbert’s answer was that Mr Odinga would need to include the Facultative Terms in the contract with the insured.

It is not in dispute that Mr Odinga signed the policy on behalf of BAIC on 22 February 2012. Nor is it in dispute that while pages 2 and 3 of the policy (the Initial Table and Insurance Schedule) were drafted by BAIC, the remainder of the unamended policy, subject to two exceptions, was identical to the Swiss Re slip. The first exception was the thirteenth provision in the Risk Details. This was concerned with “Express Warranties”. The Swiss Re 7 February slip had said, “None”, whereas Mr Odinga altered this to read “As per policy”. Nothing turns on this alteration.

The second exception concerned the “Choice of Law & Jurisdiction” provision. As noted earlier, Mr Odinga took out the detailed provisions in the Swiss Re slip and replaced them with the single word “Kenya”. How did this come about?

In paragraphs 6 and 7 of his witness statement Mr Odinga stated in relation to the “Choice of Law & Jurisdiction” provision in the Word formatted slip:

6.

This caused us some concern. The principal insured is a Kenyan entity, and the policies (or, at least, the EAR Policy) were concerned with a risk physically in Kenya. While the jurisdiction provision was overlaid with an arbitration clause, which gave some comfort, the fact remained that the residual jurisdiction was stated to be that of a foreign court and subject to a foreign law. It appeared to us that we might face criticism from our local regulator if we agreed to that as it stood.

7.

In view of the above concern, we amended the provision for law and jurisdiction. In the first instance, we simply struck out the whole of the broker's draft clause and replaced it with a reference to Kenyan law and jurisdiction, as appears in the issued policy. This seemed like the easiest solution at that time. The policy was then issued … [It] simply states "Law and Jurisdiction: Kenya".

Turning to Mr Odinga’s oral evidence, it is convenient to begin with what he said about the use of a single document to deal with both insurance and reinsurance. Not long after the start of cross examination he was asked a number of questions about this. In broad terms his answer was that there was only one contract and one document, in which the reinsurers were party to the primary insurance, because Crescent had sent terms of reinsurance to its clients, and had obtained the agreement of reinsurers to those terms in advance. As noted earlier, he accepted that BAIC took 100% of the risk, and could not say that the insured must look to Swiss Re. It was put to him that he thought the policy, in addition to setting out the terms of the insurance contract, also set out the terms of BAIC’s relationship with the reinsurers, and he agreed.

As to the “Choice of Law & Jurisdiction” provision, Mr Odinga initially accepted that he wanted to make sure that under the contract of primary insurance Kenya was the place to resolve any disputes. He also accepted that he knew that the reinsurers had signed up to a different clause. Mr Hill then suggested that Mr Odinga had sought to make clear that dispute resolution in Kenya was the case as between BAIC and the insureds, irrespective of the position with reinsurers. In answer Mr Odinga said that was correct, but added that there was also provision for arbitration by reason of clause 7 of the Facultative Terms. Mr Hill suggested to Mr Odinga that he was making this up. Mr Odinga denied that suggestion and maintained that the arbitration clause had been in his mind at the time. He acknowledged that there was not a detailed clause specifying how the arbitrators were to be appointed. Mr Odinga maintained that he had wanted law and jurisdiction to be Kenya, but arbitration remained as it was. Mr Hill suggested that this was nothing to do with the reinsurance, to which Mr Odinga replied that it was all one contract. It was suggested to him by Mr Hill that the account he was now giving orally had not featured in his witness statement. Mr Odinga replied that law and jurisdiction being Kenyan was something that BAIC was concerned about. He maintained that he had been fully aware of the provision for arbitration in clause 7 of the Facultative Terms.

Mr Cuthbert’s evidence was that the arbitration aspect of the Choice of Law & Jurisdiction clause in the Word formatted slip related to clause 7 of the Facultative Terms. This aspect of the clause had not been discussed. Having made that point in relation to the Word formatted slip, in relation to the unamended policy Mr Cuthbert’s witness statement at paragraphs 13 and 14 said this:

13.

The arbitration aspect of the clause was not discussed, but the Claimant was evidently unhappy with the provision for English law and jurisdiction and insisted upon Kenyan law and jurisdiction. When the document containing the Policy came back from the Claimant, that's what it said:

"CHOICE OF LAW AND JURISDICTION: KENYA"

14.

The Policy was agreed on that basis.

At paragraphs 6, 7, 8 and 10 of his witness statement Mr Cuthbert gave an account of the policy which was consistent with the impression given by the Insurance Schedule, namely that BAIC was insuring only 5% of the risk with the so called “reinsurers” in fact insuring the balance. At the start of his evidence in chief, however, he explained that the reinsurance contract (proposed by Crescent in the Swiss Re slip) had not been agreed by BAIC. They had taken terms and conditions from it and:

We had an insurance policy which had the reinsurance policy in it.

This led to initial questions in cross examination, to which Mr Cuthbert replied that he had not dealt with reinsurers on the placing side. What Crescent had been waiting to receive from BAIC was BAIC’s agreement to the Swiss Re slip, along with a policy for the insured. He explained that what Crescent received from BAIC had the policy including the reinsurance, and that that was the only way Crescent could “push it forward.” When the policy came back from BAIC, Mr Cuthbert said that it had gone to Mr Mattar and to Cape. He added that he thought he read it and went through it. As to when he had noticed the change to law and jurisdiction, Mr Cuthbert replied that Crescent had noticed it “down the line”. He was not sure when it had been picked up, and he was not sure if it was a point that he had picked up or whether someone else had picked it up.

I shall return to the question whether at the time he signed the policy Mr Odinga had in mind the provision for arbitration in clause 7.

On 27 February 2012 Ms Bond of Crescent sent to Cape a letter which began as follows:

Dear Sirs

Original Insured: THIKA POWER PROJECT

Type: MARINE CARGO AND DELAY START UP REINSURANCE

Period: 12 months at 3^rd February, 2012

Our ref: B1089/P01307/2012

We have pleasure in attaching the evidence of cover document in respect of the above mentioned contract and would ask you to check carefully and advise us, by return, if there are any discrepancies or if the cover does not meet with your requirements.

…

What was described as “our ref” in the passage set out above was the UMR found in the Swiss Re slip (see section B above). Turning to the “evidence of cover document” which was attached to the letter, I shall refer to this as the “cover note”. It began with a “Risk Details” section. That section in turn began by setting out the UMR found in the Swiss Re slip. As regards the insured and the address, however, it did not use the wording in the Swiss Re slip, nor did it use the wording in the Risk Details section of the unamended policy. Instead it used the wording found in the Initial Table. Much of the remainder of the cover note set out provisions which were common to the Swiss Re slip and the unamended policy. Thus in the Risk Details section the list of “Conditions” was identical in all three documents. In addition the cover note added at the end a set of the Facultative Terms, initialled by Ms Bond.

I noted in the preceding paragraph that much of the cover note set out provisions which were common to the Swiss Re slip and the unamended policy. For reasons noted earlier, one of the respects in which it could not do this was the “Choice of Law & Jurisdiction” provision. Here the provision in the cover note differed from both the Swiss Re slip and the unamended policy. In the cover note it was set out in this way:

The second to last page of the cover note stated that cover had been effected with BAIC as to 5%, with Swiss Re as to 50%, with Munich Mauritius Reinsurance Company Limited as to 20%, and with African Reinsurance Corporation as to 25%. This suggests that whoever had prepared the cover note had taken at face value what was said in the Insurance Schedule of the policy.

Mr Cuthbert said he was not involved in producing the cover note, it would have been produced by others. It had been sent to Cape as they were the broker facing the insured.

Mr Nasr said in his witness statement that what was said in the Choice of Law & Jurisdiction clause in the Swiss Re slip was a standard type of clause and he had not been consulted on it at the time. He could not recall precisely when BAIC’s insistence on Kenyan law and jurisdiction had been “highlighted” to the contractors. As BAIC was their gateway to placing the risk in compliance with local regulations, the contractors were happy to accept BAIC’s requirements.

Turning to the cover note, Mr Nasr observed that the Choice of Law & Jurisdiction clause in the cover note had altered the earlier clause so as to provide for Kenyan law and Kenyan jurisdiction. In the cover note, it also contained a reference to a “seat of arbitration”. Mr Nasr said in his witness statement:

20.

… My understanding is that the Claimant was the party insisting on exclusive Kenyan court jurisdiction. I did not believe the reference to arbitration had anything to do with our insurance contract with the Claimant. I assumed that the reference related to and was limited to the reinsurance contract.

21.

I have now seen Mr Cuthbert's statement and the reference to Swiss Re's General Conditions for Facultative Business … , which mention arbitration. Although I did not particularly notice those General Conditions at the time it now explains why there was a reference to "Seat of Arbitration".

22.

I reviewed the Cover Note and everything was in order from my point of view.

Mr Nasr’s witness statement made no reference to the second to last page of the Cover Note. However at paragraph 11, apparently taking an approach similar to what had been stated on that page, he said that BAIC “underwrote 5% of the risk …”. In his evidence in chief Mr Nasr corrected this, and said that the word “underwrote” should be altered to “retained”. In cross examination he was asked whether he had seen the Swiss Re slip at the time. His reply was that what he saw at the time was the cover note. He added that he recalled reading the Choice of Law & Jurisdiction clause and being satisfied with it. As to the reference to arbitration, he did not think that this affected the contractors. In that context he added that he had seen other references to reinsurers. He had noticed the Facultative Terms set out on the final page of the cover note, but had not read all the pages of the cover note thoroughly.

As noted in section B above, the lenders were advised that the provision for the insurance to be governed by Kenyan law contrasted with the various Institute Clauses. The advice was given by Mr Peter Le Vey, described as “Partner – Financiers Insurance Due Diligence” of JLT Specialty Limited, part of the JLT group. He had been asked by the lenders to review the cover note against the insurance requirements discussed between the lenders and the contractors.

Mr Le Vey sent an email to Mr Nasr on 15 March 2012. In that email, as regards the marine and DSU cover, he identified four points as calling for mention. The fourth was described by Mr Le Vey in this way:

4.

Choice of law and jurisdiction – the cover note states that the reinsurance shall be governed by the law of Kenya. However, the various Institute Clauses that detail the cover provided are governed by English law. This could mean that there is a dispute over the governing law and the law used to interpret the various clauses. To avoid this, would it be easier if the policy was governed throughout by English law.

Mr Nasr, in paragraphs 25 – 27 of his witness statement, dealt with what happened next:

25.

We raised this matter with Cape and Crescent and James Cuthbert raised it with the Claimant's Mr Odinga. In the light of Mr Le Vey's comments, I instructed the brokers to get the Claimant to agree that the Policy would be governed by English law throughout.

26.

I was pleased with the outcome of James Cuthbert's efforts because he persuaded the Claimant to accept the change. This was one less problem I had to deal with.

27.

I have read Mr Odinga's witness statement in these proceedings and I do not believe what he says is correct. James Cuthbert had been expressly instructed by me (via Cape) to agree a change from Kenyan law to English law. He had no instructions to renegotiate the provision for the Kenyan courts to have exclusive jurisdiction. The Lenders had not raised any concerns about this aspect of the Policy, so it no longer concerned me. Indeed, I believed that this aspect of the Policy would be non-negotiable for regulatory reasons, so I accepted it. I can categorically confirm that I never gave instructions to Cape, Mr Cuthbert or anyone else, to change the jurisdiction aspect of the clause let alone to agree arbitration.

The background to paragraph 27 in the quotation above is that Mr Odinga’s witness statement described a discussion with Mr Cuthbert which involved arbitration. Before I turn to that aspect, I note that in his evidence in chief Mr Nasr corrected what he had said in the second sentence of paragraph 27. He explained that the words “(via Cape)” should be taken out. He had instructed Mr Cuthbert directly. The instruction had been by email. He had forwarded the email personally to Mr Cuthbert and had copied Cape. Under cross examination he added that he had emailed to Mr Cuthbert what Mr Le Vey had said, and also added that he had verified from his email that it had not been copied to Mr Mattar, although it had been copied to Cape.

It is common ground that on 19 March 2012 Mr Cuthbert emailed Mr Odinga attaching a draft of the endorsement. The draft gave at the outset the UMR for the Swiss Re slip, followed by the description “ENDORSEMENT REFERENCE: 4”. In all other respects the terms of the draft were identical to those of the endorsement as issued. When issued it substituted the policy number for the Swiss Re slip UMR, and gave the endorsement reference “003” in place of the number “4”.

The covering email read as follows:

Subject: THIKA – LAW AND JURISDICTION

Dear George,

Further to our telephone conversation, please see below from lenders:

Choice of law and jurisdiction – the cover note states that the reinsurance shall be governed by the law of Kenya. However, the various Institute Clauses that detail the cover provided are governed by English law. This could mean that there is a dispute over the governing law and the law used to interpret the various clauses. To avoid this, would it be easier if the policy was governed throughout by English law.

Underwriters were also not aware that this had been amended as we did not specifically point this out to them.

Please find attached Endorsements in word for the EAR and Marine Cargo, amending coverage to English law but jurisdiction of Kenyan courts.

Hope this will not cause an issue and await your advices

Kind Regards,

James

It will be seen that the email refers to an earlier telephone conversation. Mr Odinga’s account of this conversation, and of receipt of the email, was at paragraphs 8 to 10 of his witness statement:

8.

A few weeks later, in mid March 2012, Mr Cuthbert of Crescent called me to discuss the law and jurisdiction provisions in the two policies. He told me that his principals were concerned about the reference to Kenyan law and jurisdiction, and that they would prefer to amend the policies to have any disputes under them resolved in England. He understood that we remained nervous about foreign law and jurisdiction, in particular the latter. As a solution, he told me that he was instructed to confirm a formulation whereby the governing law would be English law, and disputes would be resolved by way of arbitration in London (satisfying his principals) but also subject to a residual Kenyan jurisdiction clause (potentially satisfying BAIC in terms of its regulatory concerns). He told me he would send over appropriate draft endorsements, which I agreed I would review with my own legal team.

9.

Soon after, I received an email from Mr Cuthbert. He referred to our conversation, and repeated the concerns he had expressed on the telephone as to the choice of Kenyan law, as this conflicted with a number of the specific incorporated wordings that make reference to English law. This might cause confusion, he said, and hence the proposal to revert to English law. He attached the promised draft endorsements, one each for the Marine Policy and the EAR Policy, "amending coverage to English law but jurisdiction of Kenyan courts", intended to take effect from policy inception. ...

10.

The drafts also superimposed over the reference to jurisdiction a provision for arbitration with its seat in London, in accordance with what we had discussed.

Mr Cuthbert took issue with this account. Paragraphs 15 to 20 of his witness statement were as follows:

15.

However in March, the Lenders, via their advisers, JLT, expressed concern about the choice of Kenyan law. They were worried that references to English law elsewhere in the Policy might lead to confusion and wanted the parties to agree that English law would govern all aspects of the insurance.

16.

I spoke to Mr Odinga over the telephone a few times in the course of resolving this issue but I have seen his evidence and I am afraid he is mistaken. We did not at any stage discuss making the Policy subject to London arbitration with the courts of Kenya providing some sort of residual jurisdiction.

17.

In fact, on the telephone we only spoke briefly and I said I would be sending an endorsement to him. I explained that the Lenders were concerned about the provision for Kenyan law and that they wanted to change it to English law.

18.

On 19 March 2012, I emailed Mr Odinga … further to our telephone conversation.

19.

I reiterated the Lenders' concerns about the involvement of Kenyan law. I had not specifically pointed out the amendment to provide for Kenyan law and jurisdiction to "Underwriters", i.e. the Reinsurers.

20.

I attached copies of a draft endorsement, which was intended to reflect the new position: "English law but jurisdiction of Kenyan courts" … . The wording used was in the same format as the clause that had appeared in the Draft Submission … . Of course, "Courts of England and Wales" had been altered to "Courts of Kenya" and "competent court in England and Wales" to "competent court in Kenya" … .

When cross examining Mr Odinga, Mr Hill began with the passage in the email stating:

Underwriters were also not aware that this had been amended as we did not specifically point this out to them.

Mr Hill explained that the reference to “Underwriters” meant Swiss Re. Mr Odinga agreed. Mr Hill then suggested that while Swiss Re had not been aware of the amendment (by which he was referring to Mr Odinga having put the one word “Kenya” in place of the Swiss Re slip wording for choice of law and jurisdiction), they wanted English law and Kenyan jurisdiction. Mr Odinga’s reply was that he had had a telephone conversation with Mr Cuthbert. In the discussion Mr Cuthbert said that he was not comfortable with the fact that BAIC had removed that particular section dealing with governing law as English law, jurisdiction and arbitration. He wanted the whole of the clause to be reinstated.

Mr Hill pressed Mr Odinga on this, pointing out that the email (which was sent after the telephone conversation) identified only that it was Kenyan law that needed changing. Mr Hill suggested that if in the telephone conversation Mr Cuthbert had said that the arbitration provision were to be reinstated, then Mr Cuthbert would have said this in the email. In response Mr Odinga maintained what he had said earlier. What Mr Cuthbert wanted to do was to go back to what had been in the original provision. The draft endorsement went back to arbitration, and Mr Cuthbert had mentioned arbitration on the phone. He simply said to return the original draft. The only concession made by Mr Cuthbert had been the reference to Kenyan courts, the remainder of the endorsement was in the same wording as had been sent by Mr Cuthbert in February.

Mr Hill then suggested that when Mr Odinga read the draft endorsement he understood that the contract with the insured was to be governed by English law, that any disputes were to be decided in the Kenyan courts, and that the provision for arbitration was to deal with BAIC’s relationship with its reinsurers. Mr Odinga denied that this was the case. The endorsement was the final contract which BAIC had with its client. There was then a further exchange about Mr Odinga’s approach that the policy contained everything. It was in the course of this exchange that Mr Odinga, while maintaining that the policy did not involve two contracts, nevertheless accepted that BAIC took 100% of the risk and could not say to the insureds that they must look to the reinsurers. Mr Hill then repeated his suggestion that Mr Odinga had understood the part of the draft endorsement dealing with arbitration as being concerned with BAIC’s relationship with its reinsurers only. Mr Odinga maintained that Mr Hill’s suggestion was not correct.

Mr Cuthbert’s account under cross examination was that he had not been copied in on the email from Mr Le Vey to Mr Nasr. Nevertheless Mr Cuthbert said that before speaking to Mr Odinga he had seen something like what was in the email from Mr Le Vey, and that what he had seen had been copied to him by Mr Mattar. He was not sure whether this had coincided with the realisation that the policy emailed by Mr Odinga had changed the Choice of Law & Jurisdiction clause in the Swiss Re slip. He thought that the point had been noted previously. While he was not sure when it was noticed, Crescent were certainly aware of the point after Mr Le Vey’s email.

Mr Lockey asked Mr Cuthbert whether his instructions from Mr Mattar had been to go back to BAIC and see if they would agree to the Choice of Law & Jurisdiction clause contained in what had been sent by Crescent to BAIC in February. Mr Cuthbert’s reply was that he was not sure. He thought that Crescent was trying to achieve a compromise: Crescent wanted English law, and BAIC obviously wanted Kenyan jurisdiction.

Mr Lockey then put to Mr Cuthbert that so far as possible Crescent were anxious to reinstate what had appeared in the Choice of Law & Jurisdiction clause in the Swiss Re slip. At this point Mr Cuthbert replied that Mr Lockey was right, and that Crescent had wanted to keep the same format as it had sent BAIC originally.

The cross examination then turned to how many telephone conversations had taken place. Mr Cuthbert said that the telephone conversation described in paragraph 18 of his witness statement was the one in question. Mr Cuthbert said that while Crescent kept notes of telephone conversations where important, “we did not think this one was important at the time”.

What was then put to Mr Cuthbert was that in the telephone conversation he had suggested reinstating the original provision, and that as Mr Odinga had stated, he was willing to keep Kenyan jurisdiction. Mr Cuthbert agreed. He then added, however, that he was sure that “we did not discuss arbitration to any degree.” He then added further that from recollection, “we did not discuss arbitration”.

In subsequent exchanges Mr Cuthbert said that his conversations with Mr Odinga had been about the need for Mr Odinga to send the signed endorsement. On Crescent’s desire to return to the original, with a concession as to Kenyan jurisdiction, the conversations did not get much further than what was set out in Mr Cuthbert’s email of 19 March. That email had referred to the fact that Crescent had not pointed out to the reinsurers the change which Mr Odinga had made to the Choice of Law & Jurisdiction clause. Mr Cuthbert thought the discussion he had had with Mr Odinga “was literally about English law.” He had kept to what was instructed. He denied that it would have been natural for him to say that Crescent had noticed the change to the law and jurisdiction provision and wanted it reinstated. Mr Lockey suggested that there would have been a discussion about arbitration because Mr Odinga had deleted the reference to this in the original provision. Mr Cuthbert’s reply was that they had not discussed it in that much detail, because the concern was changing Kenyan law to English law. The endorsement had been drafted by Ms Harvey, and Mr Cuthbert did not think that he cleared it with Mr Mattar before sending it to BAIC. Mr Lockey suggested that the endorsement was intended to affect the position as between the insureds and BAIC, and also as between BAIC and its reinsurers. Mr Cuthbert agreed. He had been happy with it and had sent it forward to Mr Odinga as an attachment to the email of 19 March. As far as he recalled, Mr Odinga had not mentioned arbitration. Mr Lockey suggested that if Mr Odinga had mentioned arbitration there would have been no problem, for arbitration had been mentioned in the original document sent by Crescent to BAIC. Mr Cuthbert’s reply was “potentially”.

In the light of this evidence I am satisfied that, as Mr Cuthbert conceded under cross examination, in the telephone conversation Mr Cuthbert explained that Crescent wanted the policy, as to the Choice of Law & Jurisdiction clause, to revert to what had been set out in the Swiss Re slip. Crescent were in an embarrassing position. They had not told reinsurers of the changes which Mr Odinga had made when issuing the policy. BAIC had never signed up to the Swiss Re slip. As Mr Cuthbert explained at the start of his cross examination, what Crescent had received was a policy which included the reinsurance, and that was the only way that they could push matters forward. A change to the policy so that it reflected the Choice of Law & Jurisdiction provision in the Swiss Re slip would get Crescent out of a hole. When that could not be achieved, Mr Cuthbert conceded that the provision dealing with exclusive jurisdiction of courts could be altered so as to substitute “Kenya” for “England and Wales”. Thus it was that the draft endorsement took the form that it did.

As to whether the conversation involved any express mention of arbitration, Mr Cuthbert’s evidence in cross examination was rather different from the uncompromising assertions advanced on behalf of the contractors prior to the hearing. Mr Cuthbert in cross examination said he did not recollect discussing arbitration. However when pressed, his response was that it had not been discussed “to any degree” and that it had not been discussed “in much detail”. As appears below, subsequent emails involved a discussion of arbitration. I shall return to the question of what was discussed in the telephone conversation after examining those emails.

The email exchanges which took place after BAIC received the draft endorsement began on 21 March, when Mr Cuthbert asked Mr Odinga if there was any news on the matter. Mr Cuthbert followed this up the next day, saying he was sorry to keep chasing but was “getting calls regularly to confirm this”. On Monday 26 March 2012 Mr Odinga replied:

Dear James,

Sorry, it has taken time to deliberate on this.

We have discussed this matter with our legal team and from business perspective we do not see any serious impact on our side because at British American we value relationship with our clients and therefore we do not foresee any chance of a disagreement that will lead to litigation. We can therefore adopt the endorsements.

However, our legal team had the following comments:

1.

It might cause legal challenges to have jurisdiction in another country applying laws of a different country unless on cases of international law.

2.

Marine is international; usually the law that will apply is for the country where the loss has occurred for example when dealing with salvage and other claims procedures. Losses in the high seas the law will be the international maritime law – regardless of country – whether Kenya or England.

3.

We stand a risk of increasing our claims cost if the case goes to England – Litigation costs are more expensive in that part of the world.

4.

Erection All risk, is a local risk that may not need to go to England.

5.

The contract should be worded such that litigation becomes the last resort, Arbitration should be a clear an option – Arbitration clause.

Let us know if you have any comment on the above especially on item number 5

Regards,

George Odinga

A response was sent by Mr Cuthbert two days later on Wednesday 28 March:

Dear George,

First of all, we would like to thank you for your comments, we would like to reiterate that the Crescent Global team as well as our clients value the relationship we have currently with you and the team and we look forward to develop it in the near future.

Having said that we will appreciate if you can accommodate the Project Lenders’ request. Generally speaking our team share the view of your legal team and would like to confirm that any potential differences will be always dealt in utmost good faith, fairness and amicably. Should any other party insist on their position, we shall strive to work closely with you and the facultative reinsurers to reach a “win-win” situation.

I believe the point Underwriters are making is that for each Institute Clause under the heading “Law and Practice” it mentions that “this insurance is subject to English Law and Practice”.

It is our own opinion and in full transparency that to insert an arbitration clause at this stage is unorthodox especially that:

1)

Swiss Re, Munich Re and Africa Re are part of your panel of treaty reinsurers;

2)

BA definitely enjoys good relationships with them;

3)

Crescent Global enjoys good relationship with them in other territories.

Since the project Lenders are following up with our mutual client in this respect, in this instance can we please have your copy of the Endorsements so we can move forward and finalize this placement

Kind Regards,

James

Mr Odinga replied on the same day:

Thanks, your position is noted and we will proceed to grant the wishes of the client, the endorsements follows shortly.

On Thursday 29 March Mr Cuthbert emailed Mr Odinga saying that it was imperative that he (Mr Cuthbert) “get back to the client later today.” In response Mr Odinga emailed the signed endorsement.

Mr Odinga described in paragraphs 11 – 17 his account of what took place after receipt of the draft endorsement on 19 March 2012:

11.

Following receipt of the draft endorsements, I reviewed them with my legal team at BAIC. Two concerns remained. The first of these was a general misgiving about the bifurcation between the governing law of one jurisdiction and dispute resolution to take place in another, which we thought might lead to legal challenges. The second was the interplay between the arbitration provision and the jurisdiction, precisely the issue that has now arisen in these proceedings. As to the latter, we were not comfortable that the draft clause was making it sufficiently clear which mechanism should give way to the other, that is to say which should go first. I also wondered whether it would be necessary to say more about the arbitration, specifically how arbitrators were to be appointed and such like.

12.

I now understand from those representing BAIC that there may be English law legal authority on the question of reconciling an arbitration and jurisdiction clause, but that is not something of which I was aware at the time. My concern, as a non-lawyer, was simply that there might be a dispute about it, given the terms as drafted, and which I thought could be clarified with a stand alone arbitration clause. That would make it clear that arbitration took precedence, being the outcome we had discussed in our telephone conversation, and that litigation would be the "last resort". I anticipated that a full arbitration clause would also specify the number of arbitrators, their method of appointment and other procedural matters, so that the parties did not end up in a dispute about the mechanics of the arbitration itself.

13.

Accordingly, we replied in the terms in my email to Crescent of 26 March 2012 … . We agreed that we could adopt the endorsements proposed by the Assureds (which, of course, included a short-form arbitration agreement). Amongst other comments, we suggested that there be a specific arbitration clause, to support the abbreviated formulation proposed in the draft endorsement. This proposal was rejected by Crescent, who responded on 28 March 2012 … refusing to insert an arbitration clause, which they said would be "unorthodox" for reasons stated in their email. Specifically, their email highlighted the strong commercial relationship between the interested parties, their point being (as I understood it) that it was not necessary to have a detailed clause because the parties would always be able to reach agreement on the procedure of the arbitration, without the need for this to be set out in advance.

14.

I took some comfort from that, and from Crescent's assurance that "generally speaking, our team share the view of your legal team and would like to confirm that any potential differences will be always dealt with in utmost good faith, fairness and amicably". They also stressed that, if either side were to insist on their position, Crescent would strive between the parties to reach a "win-win" situation.

15.

I responded the same day, confirming that we would agree to the endorsements as drafted … and the next day the endorsement for the Marine Policy was returned with my scratch … .

16.

It was my clear understanding, both on the basis of our telephone conversation and from the subsequent correspondence, that under the terms agreed at Endorsement 3, any dispute between the parties would be referred to arbitration, with its legal seat in London, but that it was not considered necessary to spell out the arbitration procedure in detail given the co-operative relationship that existed between the parties.

17.

I find it difficult to understand how it could now be said that the reference to arbitration appeared simply in "in error". On the contrary, it was consistent with what we had discussed on the telephone. In any case, this was not a long endorsement, and the reference to arbitration stands out prominently. The clause had been pored over by my team and the brokers', as is confirmed in the correspondence between us, and the objective of agreeing upon arbitration had been discussed between us. It does not seem to me credible now to suggest that the reference to arbitration, which after all appeared in a clause drafted and proposed by the brokers, was an oversight that went unnoticed by the brokers and their team throughout the entire process, or that it was intended by the parties to have no contractual effect. That was certainly not our intention, nor do I believe it was ever the intention of those representing the insureds.

The evidence of Mr Cuthbert about the email exchanges following his email of 19 March 2012 was short. His witness statement noted the comments made in Mr Odinga’s email of 26 March 2012. Mr Cuthbert said that he discussed the email with Mr Mattar, and Mr Mattar said that he (Mr Mattar) would draft a response for Mr Cuthbert to send. In cross examination Mr Cuthbert confirmed that he had not addressed his own mind to Mr Odinga’s comments of 26 March 2012. The response of 28 March 2012 had been drafted by Mr Mattar, and he (Mr Cuthbert) had no input into the content of that email.

Mr Nasr’s witness statement addressed the question of arbitration at paragraphs 5, 19, 20, 21, 27, 32, 33, 34 and 37:

5.

I understand that the Claimant's argument is that the Defendant has no right to sue the Claimant in the courts of Kenya. I am not a lawyer, but, as I will explain in more detail below, I find that suggestion extremely surprising. We expressly agreed on Kenyan jurisdiction, and arbitration was expressly rejected.

…

19.

The "CHOICE OF LAW & JURISDICTION" clause in the Cover Note has been edited from the Draft Submission to provide for Kenyan law and Kenyan jurisdiction.

20.

As in the Draft Submission, this clause also contains a reference to a "Seat of Arbitration". My understanding is that the Claimant was the party insisting on exclusive Kenyan court jurisdiction. I did not believe the reference to arbitration had anything to do with our insurance contract with the Claimant. I assumed that the reference related to and was limited to the reinsurance contract.

21.

I have now seen Mr Cuthbert's statement and the reference to Swiss Re's General Conditions for Facultative Business … which mention arbitration. Although I did not particularly notice those General Conditions at the time it now explains why there was a reference to "Seat of Arbitration".

…

27.

[Paragraph 27 is set out in paragraph 118 above.]

…

32.

Mr Odinga eventually confirmed agreement on 29 March …

33.

The wording used was in the same format as the clause that had appeared in the Draft Submission … and the Cover Note. Of course, "Courts of England and Wales" had been altered to "Courts of Kenya" and "competent court in England and Wales" to "competent court in Kenya" … . There was the same reference to a seat of arbitration as there had been in the earlier documents, but again, we had agreed exclusive Kenyan jurisdiction and I believed the reference to arbitration referred to the reinsurance contract.

34.

At this stage, in his email of 26 March … Mr Odinga tried to persuade Mr Cuthbert to agree an arbitration clause, but I can see that Mr Cuthbert was not prepared to discuss that possibility at such a late stage.

…

37.

The Defendants are extremely sceptical of the Claimant's sudden wish to insist upon arbitration in London. I believe this is in fact coming from Swiss Re and the other Reinsurers who are putting pressure on the Claimant now a claim under the Policy has arisen. I see no reason why the Defendants should now be made to pursue their claim in arbitration in London when they never agreed to arbitration in the first place. I have never heard of ARIAS before this case.

Under cross examination Mr Nasr said that in March 2012 he had specifically paid attention to paragraph 4 in Mr Le Vey’s email. It was put to him that nothing in Mr LeVey’s email suggested that the lenders had any concern about the reference to arbitration in the cover note. Mr Nasr replied that he agreed. The lenders were comfortable with the courts of Kenya. He did not know exactly how they interpreted the reference to arbitration.

As to when he had learnt that BAIC had accepted the change, Mr Nasr thought Mr Cuthbert had told him at some point before the end of March. Mr Nasr did not remember if he had seen the draft endorsement before it went to BAIC. As to seeing the endorsement once it had been agreed, Mr Nasr said he saw it at the end of June or in early July. The contractors’ main concern was to get the lenders’ insurance advisors to sign off, and that indeed happened.

Turning to paragraph 27 of Mr Nasr’s witness statement, Mr Lockey suggested to Mr Nasr that he had said nothing to Cape or Crescent about arbitration. Mr Nasr agreed. He had not mentioned it one way or the other. He had no discussion with Mr Cuthbert at any time about arbitration.

Mr Lockey then turned to paragraph 5 of Mr Nasr’s witness statement, where Mr Nasr had said that arbitration was expressly rejected. Mr Lockey asked him when it was expressly rejected. Mr Nasr did not immediately answer that question. He said that arbitration was not something that the contractors wanted. He added that it was out of the question for the contractors. It was only after these assertions that he dealt with the question – not by explaining when arbitration was expressly rejected, but by explaining that he was not saying arbitration had been rejected expressly. He told the court that he never said arbitration was expressly rejected. He was fine with the Kenyan courts having jurisdiction. He agreed with Mr Lockey that he never told anyone that he did not want arbitration.

I consider that Mr Nasr was telling the truth when he said that he never told anyone that he did not want arbitration. As regards the other passages in his witness statement cited above, I consider that Mr Nasr’s assertions about arbitration must be treated with scepticism. This was an argumentative witness statement. Mr Nasr did not check it with sufficient care before he signed it. He was in no position to give evidence, as he purported to do in paragraph 5, that arbitration had been expressly rejected.

Turning to Mr Odinga’s account of events, it seems to me that the email exchanges are entirely consistent with BAIC being willing to include in the endorsement the wording which Crescent proposed about arbitration, but pointing out that it would be better to have a proper arbitration clause rather than the rather skeletal detail found in the proposed endorsement.

BAIC’s willingness to include the amended arbitration provision is also consistent with Mr Odinga’s reference in paragraph 6 of his witness statement to there being “some comfort” in the references to arbitration in the Swiss Re slip’s “Choice of Law & Jurisdiction” provision. Mr Odinga’s oral evidence was that when he signed the policy he had in mind that clause 7 provided for arbitration. Mr Hill suggested that this was unlikely, but I disagree. BAIC already had a reinsurance arrangement with Swiss Re and was familiar with the Facultative Terms, no doubt including clause 7. Mr Cuthbert’s email of 9 September 2012 had specifically reminded Mr Odinga of the Facultative Terms. Paragraph 6 of Mr Odinga’s witness statement used legal terminology, and I accept that he would not have used such terminology at the time. However what he was describing was a commercial concern which is understandable. Mr Odinga’s fear was that the local regulator would object to English law and jurisdiction. While the regulator might be less concerned about these things when disputes were going to be decided by arbitration, the easiest solution seemed to be to replace the whole provision with the one word, “Kenya”. Mr Odinga’s witness statement did not say expressly that when he signed the policy he had clause 7 in mind. It did not need to do this, for BAIC’s assertion of an agreement to arbitrate was founded on the endorsement, not on clause 7. I do not suggest that clause 7 was at the forefront of Mr Odinga’s mind: plainly he did not trouble to think about what it said and seek to ensure that arbitration rules and a seat of arbitration were specified. It seems to me likely that Mr Odinga was conscious that clause 7 provided for arbitration, but because this was not a concern to him he focused on getting rid of the provision which did cause concern.

In these circumstances I conclude that Mr Odinga’s account of the telephone conversation is correct. There is nothing in the email exchanges between Crescent and BAIC which suggests that BAIC understood that arbitration would apply only as between BAIC and its reinsurers. Equally there is nothing to suggest that Crescent understood that this would be the case. On the contrary, what appears to me to be clear is that BAIC’s aim was to ensure that in every possible respect the position as between it and its insured should be the same as the position as between it and its reinsurers. Mr Cuthbert well understood this. It was because BAIC would, as a matter of commercial common sense, wish to ensure that this was the case, that Mr Cuthbert, as he explained in answer to my questions, had expressly made reference to the Facultative Terms when sending his email of 9 February 2012.

Turning to what it was that the contractors considered to be the position in relation to arbitration, Mr Nasr was asked additional questions in relation to the course of events subsequently. Later in 2012 a claim was made under the policy for damage to diesel engines and parts shipped on board the M/V “CEC COPENHAGEN”. BAIC’s response was that there had been a breach of the cargo critical items clause in the policy with the result that all relevant claims failed. On behalf of the contractors, Wragge & Co wrote to BAIC’s solicitors on 9 August 2012 stating that they were investigating the matter further and would respond more substantively in due course. The substantive response took the form of a letter dated 31 October 2012. It included an analysis set out in twenty numbered paragraphs and occupying eight pages of typescript. The letter concluded with paragraph 21 as follows:

21.

If such confirmation is not forthcoming, our clients fully reserve their rights to pursue an indemnity either through arbitration in London or the Kenyan courts at their option pursuant to the “Choice of Law & Jurisdiction” endorsement dated 3 February 2012.

What had been said in paragraph 21 of Wragge & Co’s letter dated 31 October 2012 was the subject of specific comment in BAIC’s skeleton argument prior to the hearing. At paragraph 45, noting Wragge & Co’s contention that the clause should be construed so as to provide an option either to arbitrate in London or to litigate in Kenya, the skeleton argument commented that this was not the most natural reading of the clause, and would, if correct, not assist the contractors because BAIC had elected for arbitration. Further reference was made in section 3 of the skeleton argument, dealing with rectification. At paragraph 54 of the skeleton argument BAIC set out points designed to show that there was no mutual mistake, and thus that a key requirement for rectification was not met. At paragraph 54 (8), the skeleton argument said this:

The fact that there was no mistake is further demonstrated by the Assureds’ original position on how this very dispute should be resolved: in the pre-action correspondence, the Assureds positively contended that they could commence London arbitration if they wished. If the Assureds had never intended to agree arbitration, their reaction – at the outset – would have been that the reference to arbitration in Endorsement 3 was a mistake. …

These points were reiterated by Mr Lockey in his oral opening on 16 July 2013. Mr Nasr was present in court during that opening. There can be no doubt that he was well aware of the points which BAIC sought to deploy by reference to paragraph 21 of the letter of 31 October 2012.

In cross examination Mr Lockey asked Mr Nasr whether the letter of 31 October 2012 had been approved by him before it was sent. Mr Nasr replied that it had been approved by him. He added, however, that he had not thoroughly read it. He had read it quickly, and had trusted the contractors’ lawyers to do the right thing. Mr Lockey asked him how, consistently with the contractors’ case that there was no question of arbitration, there could be any explanation for what was said in paragraph 21. Mr Nasr’s reply was that he could not explain it. It was, he said, just lawyers exploring options.

In re-examination Mr Hill asked Mr Nasr whether he had given instructions direct to Wragge & Co or had done this via the contractors’ lawyers. The reply was that the contractors did this via their lawyers. I asked Mr Nasr to identify the contractors’ lawyers, which he did, naming a lawyer based in Lebanon. I commented to Mr Nasr that it seemed a bit odd for Wragge & Co to say what appeared at paragraph 21 of the letter if there had been no question of arbitration. Mr Nasr then said to me that he assumed that part of the clause concerned the contractors and part of it concerned the reinsurer. I was not sure what he meant by this. He clarified that he assumed that BAIC had a relationship with their reinsurers that might have been covered by “a different jurisdiction”. Mr Nasr then added that his local lawyers dealt with Wragge & Co and had full authority to explore what would be the appropriate answer to BAIC’s rejection of the claim.

Taken as a whole, I find it impossible to accept Mr Nasr’s evidence as to a belief on the part of the contractors that arbitration did not apply to the insurance contract. They had been sent a cover note which suggested that it did. I do not think that Mr Nasr applied his mind to the Choice of Law & Jurisdiction provision in that cover note until he received Mr Le Vey’s email of 15 March. When he received that email he focused on the governing law element, and was content when the change to English law was agreed, for it disposed of the only concern that the lenders had raised in relation to this provision. He was unaware that the negotiations between Crescent and BAIC involved the re-introduction of references to arbitration: Crescent no doubt thought that there was no reason for him to be told this, as those references had always been present in the cover note as sent to him. He now considers litigation in Kenya to be preferable to arbitration in London. However, even without having regard to paragraph 21 of Wragge & Co’s letter of 31 October 2012, I am sure that during the period from February to November 2012 there was no actual belief on Mr Nasr’s part that disputes between the contractors and BAIC would not be subject to arbitration. Paragraph 21 of that letter makes it even less likely that Mr Nasr had any such belief.

It should be noted at the outset that the contractors do not ask this court to rectify the endorsement. What they say, in effect, is that this court should not compel them to arbitrate because the endorsement, as construed by the court, is a document which did not reflect what the parties on 29 March 2012 considered to be the position, and in accordance with English law would be rectified by a court if that court had jurisdiction.

At various stages in its submissions, BAIC advanced a proposition that it and Crescent reached agreement on the endorsement when BAIC’s email of 26 March 2012 was received by Crescent. I agree with Mr Hill that this proposition is not factually correct. The email of 26 March 2012 (see section G4 above) said that BAIC was willing to agree to what Crescent proposed, but invited Crescent to consider reasons why something different might be better. So long as that invitation was extant the parties had not reached a concluded agreement.

However BAIC has a much better answer on the facts. My findings in section G above have the consequence that there was nothing in the endorsement, properly construed, which differed from what the parties then considered to be the position. In those circumstances there can be no question of rectification. Accordingly I must find in favour of BAIC on the rectification sub-issue. Questions as to other aspects of the legal requirements for rectification, and questions as to the legal consequences if there had been agreement on 26 March 2012, do not arise. That being the case, I consider it undesirable to attempt to investigate them.

Here, as with the rectification sub-issue, my findings of fact in section G place insuperable obstacles in the path of the contractors. It is common ground that in order to succeed on estoppel the contractors must show an assumption on their part that arbitration did not apply to the insurance contract, and that this assumption was either shared or acquiesced in by BAIC. For the reasons given in section G, I find that there was no such assumption on the part of the contractors. Nor was any such assumption shared or acquiesced in by BAIC.

In these circumstances I must hold that BAIC succeeds on the estoppel sub-issue because the contractors have failed to establish the essential factual requirements for an estoppel. Questions as to whether other requirements for estoppel have been met do not arise. In those circumstances I consider it undesirable to seek to investigate them.

For the reasons given above, I conclude that BAIC succeeds on both issues (1) and (2). It follows that in principle BAIC is entitled to the relief identified at sub-paragraphs (a), (b) and (c) of the consent order.

The contractors asked that in that event they be given time to appoint an arbitrator. A delay of 7 days in appointing an arbitrator ought to be sufficient for this purpose and is unlikely in my view to cause significant disadvantage to BAIC. That being so, the importance of party autonomy in arbitration leads me to conclude that it would be appropriate to allow the contractors a period of 7 days for this purpose. In order to cater for the possibility of an appeal the period of 7 days should run from the earliest of (1) confirmation by the contractors that they do not intend to appeal, (2) failure by the contractors to secure such permission, or to comply with any time limit, as must be secured or complied with for there to be a successful appeal, or (3) an order of the Court of Appeal dismissing an appeal.

I add that an undertaking on the part of the contractors may well be an acceptable alternative to the grant of an injunction.

The parties are asked to seek to agree consequential orders in the light of the conclusions set out above.

Annex: The Facultative Terms

Terms and Conditions for Facultative Business
(SR – GC 2003 v1)

1)

Insuring clause: Unless the terms and conditions set out herein or in the acceptance provide to the contrary, the reinsurer’s liability shall be subject in all respects to the same terms, conditions and limits as set forth in the policy attached to the acceptance. Should the reinsured be bound to accept any amendment to the policy, the reinsurer shall also be bound but subject to it receiving thirty days’ written notice of any such proposed amendment prior to it coming into effect. In all other cases of amendment, the reinsurer’s prior consent shall be required and the reinsurer shall have the right to seek to renegotiate the terms and conditions of the acceptance.

2)

Reinsurance compensation: The reinsurer shall indemnify the reinsured to the extent of its participation in respect of any loss, interest or allocated expenses covered under the acceptance. Any salvages, recoveries and payments from third parties, including any recoveries from other reinsurers, whether collected or not, shall be taken into account. ‘Allocated expenses’ shall mean reasonable expenses incurred by the reinsured in handling claims covered under the acceptance, excluding salaries of employees, management expenses and other overhead expenses as well as costs related to declaratory judgements. The reinsurer shall be liable for its participation within the policy limit and, for non-proportional cover, up to the limit of the excess cover.

3)

Follow the settlements: Claims shall be settled by the reinsured and such settlements shall be binding upon the reinsurer, providing that they are within the terms and conditions of the policy and the terms and conditions set out herein and in the acceptance and providing the reinsured has paid its share by transferring the funds or is about to pay the insured. Payment by the reinsured where it is not liable (i.e. ex gratia payments) shall only be binding on the reinsurer if it has given prior approval. Upon the reinsurer’s request, the reinsured shall cooperate with the reinsurer or any other person designated by the reinsurer in a timely manner.

4)

Claims reporting: The reinsured shall notify the reinsurer immediately of any claim if its estimate exceeds 75% of the retention or the amount set out in the acceptance where the reinsurance is on a proportional basis. Notice shall include information about facts, legal assessment and estimated amount with a split between amounts paid and reserved. After first notification, the reinsured shall keep the reinsurer informed of all further developments relating to the claim.

5)

Accounts, payment of balance and premium: The reinsured shall provide the reinsurer with accounts for each period and at the deadline as set out in the acceptance. Any objection shall be submitted within one month of receipt of the account. Any undisputed balance due shall be paid within two weeks following the agreement of the account.

Accounts, claims reports, claims advises as well as payments between the parties shall be in the currency stated in the acceptance. Losses paid or premiums received by the reinsured in a currency other than such currency shall be converted at the official rate of exchange on the day of the respective loss payment by the reinsured to the insured or of receipt of the premium.

The reinsured may call on the reinsurer for payment within ten working days whenever the amount of such calls exceeds the amount set out in the acceptance. However, it is a condition precedent to the reinsurer’s duty to pay, that the reinsured provides the reinsurer with all related facts, legal assessments and adjusting reports. Either party may at its discretion set off against any amounts due from the other party under this facultative agreement or under any other agreement between the parties any amounts which are due under this or those other agreements.

Should the reinsurance premium not have been paid by the reinsured within a time frame as set out in the acceptance following the inception date of the reinsurance cover, the reinsurer has the right to cancel its participation by notice within thirty days. Should the cancellation become effective, the premium remains due in proportion to the time for which the reinsurer has been on risk.

6)

Inspection of records: Upon request, the reinsured shall make available to the reinsurer all information relating to the business reinsured. Should arbitration or judicial proceedings be pending between the parties, the reinsurer shall exercise its right of inspection through a person authorised by the respective arbitrator or judge.

[For clause 7 see section B2 of the judgment.]