Sun Life Assurance Company of Canada v CX Reinsurance Company Ltd.

In commercial reinsurance, agreement on the wording of a treaty is not necessarily assent to be bound by it. Even without express subject-to-contract language, the court may find that formal execution was intended as a condition precedent, particularly where the parties were already bound under an existing arrangement and the later document introduced or augmented terms. The parties’ common intention is assessed from the documents, correspondence and evidence. Questions of actual or ostensible authority do not substitute for that formation analysis. Subsequent conduct adopts the new terms only if clearly referable to them; conduct equally consistent with the earlier agreement is equivocal.

Sun Life Assurance Company of Canada brought Commercial Court proceedings against CX Reinsurance Company Limited concerning a 10% quota share reinsurance treaty. Sun Life sought to avoid or rescind the treaty for alleged material misrepresentation and non-disclosure. CX applied under section 9 of the Arbitration Act 1996 for a stay, relying on an arbitration clause in an unsigned treaty and addendum.

Moore-Bick J dismissed the application on 17 May 2002. He held that no arbitration agreement had been concluded because the parties intended formal signature to precede binding assent. CX appealed, challenging the finding on formation and arguing that an underwriter had actual or ostensible authority to agree the terms. The central issue was whether agreement on the wording, without execution, created a binding arbitration agreement.

The Court of Appeal unanimously dismissed the appeal. Potter LJ gave the judgment, with Carnwath LJ and Lawrence Collins J agreeing. The dismissal of the application under section 9 of the Arbitration Act 1996 was upheld.

1. Formation and common intention. The parties already had a reinsurance contract whose terms were sufficiently ascertainable from the management and administration agreement. The question was whether the later Treaty and Addendum introduced binding additional terms. This was principally a question of the parties’ common intention, assessed from the evidence, documents and correspondence.
2. Formal execution as a precondition. Although courts should generally be slow to infer a subject-to-contract arrangement in a commercial context, the inference may more readily arise for a formal insurance or reinsurance treaty. The formal documents contemplated signature by authorised persons on both sides, and the negotiations were conducted on that basis. Agreement on wording was distinct from assent to be bound by the treaty itself. The distinction was recognised in The Zephyr 1984 1 Lloyds LR 58 and New England Reinsurance Corporation v Messoghios Insurance Co [1992] 2 Lloyds LR 251.
3. Authority. The authority issue could not overcome the prior finding that execution was required. Ms O’Sullivan was authorised to negotiate the outstanding points, but there was no sufficient holding-out that she could waive the requirement for formal signature or communicate binding assent on behalf of Sun Life. First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyds Rep 194 was distinguishable because the present parties shared a common understanding that formal execution was a precondition.
4. Subsequent conduct. Conduct could establish adoption of the proposed terms only if clearly referable to them. The limited evidence of premium accounting was equally consistent with the pre-existing agreement. The later bordereaux did not deduct the ceding commission contemplated by the draft Treaty. The absence of some usual treaty provisions therefore did not make the result commercially unreal in this unusual arrangement.

No binding arbitration agreement had been concluded through the unsigned Treaty and Addendum. The appeal was dismissed, with the appellant ordered to pay the respondent’s costs forthwith, subject to assessment if not agreed.

• Court of Appeal (Civil Division): [2003] EWCA Civ 283; appeal dismissed and the appellant ordered to pay the respondent’s costs.
• High Court of Justice, Queen’s Bench Division: Moore-Bick J dismissed CX’s application under section 9 of the Arbitration Act 1996 on 17 May 2002, holding that no arbitration agreement had been concluded.