Ace Capital Ltd v CMS Energy Corporation

A broadly worded arbitration agreement covering all disputes is not displaced by a service of suit clause unless the contract clearly shows that intention. The provisions must be read together and given effect where possible. A service of suit clause may provide jurisdiction and procedural assistance for compelling arbitration, supervising or enforcing an award, or litigating where arbitration is waived or unavailable. It does not, without sufficiently clear language, give the insured an option to litigate the merits of a monetary claim in a United States court. The court may correct an obvious drafting omission where the intended wording is clear from the identified standard form, the surrounding contract and the nature of the error.

Ace Capital Ltd, suing for Lloyd’s underwriters, sought a permanent anti-suit injunction against CMS Energy Corporation. CMS had commenced proceedings in Michigan claiming indemnity under political risk insurance policies for losses connected with the Atacama project.

The policies were governed by English law and contained a broad London Court of International Arbitration clause covering all disputes. They also contained an NMA 1998 service of suit clause, together with wording stating that the arbitration agreement did not infringe rights under that clause. The central issue was whether CMS could elect to have the merits of its monetary claim determined by a United States court rather than by arbitration.

The claim succeeded and a permanent injunction was granted restraining CMS from continuing the Michigan proceedings on their merits.

1. Correction of drafting error. The service of suit clause contained an obvious omission. The heading identified the NMA 1998 standard form, the wording lacked an antecedent for the references to removal and transfer, and the omission was readily explained by homoeoteleuton. The omitted words could therefore be read into the clause. The approach was consistent with Homburg Houtimport BV v Agrosin Private Ltd (The “Starsin”) [2004] 1 AC 715.
2. Construction of the contractual scheme. The arbitration clause covered the dispute because it arose under, out of or in relation to the policies. The service of suit clause was to be construed consistently with that obligation. It preserved the ability to establish United States jurisdiction, compel arbitration, determine arbitrability, enforce or confirm an award, and litigate where the parties agreed to dispense with arbitration. It did not confer an option to litigate the merits of a monetary claim.
3. Relevant factors. The court relied on the strong commercial policy favouring arbitration; the substantial United States authority treating service of suit clauses as compatible with arbitration; the specific wording of clause (b), including the reference to arbitration as a material inducement and the phrase “without waiver of any defence”; and the absence of wording requiring disputes to be determined according to the law and practice of the selected United States court.
4. The provisions had to be read as a whole. The construction advanced by CMS would create potentially shifting and conflicting forums for the same dispute and would deprive the broad arbitration clause of much of its effect. The service of suit clause did not absolve CMS from its contractual obligation to arbitrate. No sufficient justification existed for the breach, so the anti-suit injunction was granted.