CGU International Insurance Plc & Ors v Astrazeneca Insurance Co Ltd.

A statutory restriction on an appeal from a decision under section 69 of the Arbitration Act 1996 prevents review of the merits unless the first-instance court grants leave. It does not exclude the Court of Appeal’s exceptional residual jurisdiction to review unfairness or misconduct in the decision-making process.

Read compatibly with article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms, the restriction does not protect a decision invalidated by a substantial procedural defect. A mere error of law, an allegedly perverse result, or disagreement with the reasons does not establish such unfairness. If unfairness is established, the Court of Appeal may set aside the refusal and remit the leave question, but may not itself grant leave. The jurisdiction is to be used only exceptionally.

AstraZeneca Insurance Company Ltd, the captive insurer of the AstraZeneca group, settled claims arising from the distribution of genetically modified corn seed and sought an indemnity from its reinsurers. A majority arbitral award held that the reinsurance responded by reference to the law which an Iowa court would have applied to the underlying insurance claim.

The Commercial Court allowed the reinsurers’ appeal under section 69 of the Arbitration Act 1996, holding that English law governed the construction of the relevant cover: [2005] EWHC 2755 (Comm). It refused AstraZeneca’s application for leave to appeal to the Court of Appeal.

The application before the Court of Appeal alleged that the refusal of leave was unfair and contrary to article 6. The central issue was whether the statutory bar in section 69(8) nevertheless permitted appellate review of unfairness in the process by which leave had been refused.

1. The application for permission to appeal was refused unanimously. Lord Justice Rix, with whom Lord Justice Longmore and the Master of the Rolls agreed, held that North Range Shipping Ltd v Seatrans Shipping Corporation [2002] EWCA Civ 405 was binding and correctly recognised a residual jurisdiction.

2. Section 69(8) of the Arbitration Act 1996 excludes an appeal on the merits from a refusal of leave unless the Commercial Court grants leave. It does not bar an appeal directed to a fundamental defect in the fairness or integrity of the process. Section 3 of the Human Rights Act 1998 requires that construction, so as to preserve a remedy for a breach of article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms.

3. The residual jurisdiction is not a means of correcting legal or factual error. A decision which is merely wrong, unreasonable or perverse remains within the statutory finality provision. The applicant must show a substantial procedural defect which invalidates the decision, such as unfairness or misconduct in the decision-making process.

4. Where that threshold is met, the Court of Appeal may set aside the refusal and remit the application for leave to the first-instance court. It cannot decide for itself whether leave should be granted.

5. On the facts, Cresswell J had engaged with the parties’ submissions, had not applied a wrong leave test, and had not acted arbitrarily or unfairly. The complaints sought, in substance, to challenge the correctness of his refusal. They disclosed no article 6 breach.

The court stressed that this residual jurisdiction will be justified only in exceptionally rare cases and must not undermine the statutory finality of arbitration.

• Court of Appeal (Civil Division): Refused the application for permission to appeal and upheld the limited residual jurisdiction to review unfairness in a refusal of leave: [2006] EWCA Civ 1340.

• Commercial Court: Allowed the reinsurers’ appeal under section 69 of the Arbitration Act 1996, holding that English law governed the construction of the relevant insurance and reinsurance cover, and refused leave to appeal: [2005] EWHC 2755 (Comm).

• Arbitral tribunal: By a majority, determined the preliminary issue in favour of AstraZeneca Insurance Company Ltd. The chairman dissented.