Lincoln National Life Insurance Company v Sun Life Assurance Company of Canada & Ors

An arbitral tribunal determining a later dispute may need to give effect to an earlier award fixing the contractual rights of parties to that earlier arbitration, where those rights define the later parties’ rights and obligations. A finding which was unnecessary to the earlier outcome may nevertheless be relevant if it was directly in issue, fully argued and determined in a reasoned award. The effect of an earlier award depends on the relationship between the contracts, the issues, the parties’ opportunities to present their cases and the fairness of permitting re-litigation. A contract may, in principle, be partly oral and partly written; market practice does not create an absolute legal rule against that possibility.

Lincoln appealed under sections 68 and 69 of the Arbitration Act 1996 against an interim final award in an arbitration concerning whole-account reinsurance. The dispute concerned whether Lincoln’s net retained lines clause excluded losses which Sun/Phoenix could, but for avoidance, have recovered under reinsurance arranged with Cigna.

In an earlier arbitration, the Cigna arbitrators held that Cigna had validly avoided its reinsurance but also held that, subject to avoidance, the Unicover risks were covered. The Lincoln arbitrators treated the Cigna award as binding on that issue but interpreted it differently and reached their own conclusion that Cigna had never covered the Unicover risks. The central questions were whether the Lincoln arbitrators were entitled to depart from the Cigna award and whether the Cigna cover could lawfully be partly oral and partly written.

1. Section 69 appeal allowed. The Cigna award determined, as between Sun/Phoenix and Cigna, that the Unicover whole-account reinsurances were covered by Cigna, subject to Cigna’s valid avoidance. That finding was directly considered after a full hearing and in a reasoned award. Its being unnecessary to the result because avoidance had been established did not justify disregarding it.
2. The Lincoln arbitrators had misinterpreted the Cigna award by treating the scope of the Cigna cover as unresolved. Paragraph 4 of the dispositive award and paragraph 84 of the reasons showed that the Cigna arbitrators had considered, and rejected, the suggested exclusion of the Unicover risks. The interpretation of the award was a legal question, not a merely factual error.
3. The general principles in Hollington v F Hewthorn and Co Ltd [1943] KB 587 applied to arbitration awards. However, the authorities showed that the effect of a prior judgment or award depends on the precise relationship between the contracts and issues. Where rights between two parties have been fixed in proceedings between them, a later tribunal may be required to take those rights as established when they affect a related dispute. That was the position here. Lincoln was therefore entitled to rely on the net retained lines clause.
4. The second ground failed. The principle discussed in The Zephyr [1984] 1 Lloyd’s Rep 58 did not prevent a reinsurance contract from being partly oral and partly written. It merely recognised that such a form was not the usual London-market practice. The Lincoln arbitrators’ conclusion was legally open to them.
5. The section 68 challenge failed. The arbitrators were entitled to rely on counsel’s assurance that disclosure redactions complied with their order. No serious irregularity was established.

The award was upheld in substance: Lincoln succeeded on the net retained lines issue, and the section 68 challenge was dismissed.

First-instance decision on an appeal under sections 68 and 69 of the Arbitration Act 1996 from an arbitral award. The judgment does not state a further appellate stage.