Oldham v QBE Insurance (Europe) Ltd

Under the Arbitration Act 1996, an insurer required to advance defence costs while a coverage dispute is pending makes a provisional payment. If the dispute is resolved in the insurer’s favour, the costs are repayable, even where the policy contains no express clawback provision. A challenge under section 68 requires a breach of the tribunal’s duty to act fairly, a serious irregularity and substantial injustice. The threshold is deliberately high, but a party must have a reasonable opportunity to address costs and other points that the tribunal intends to decide. The court may extend the 28-day period for challenge where the delay is explicable, prejudice is limited and the challenge would otherwise succeed. The merits of a successful section 69 challenge do not necessarily justify setting aside an award where no substantial injustice has resulted.

The claimant challenged arbitration awards concerning coverage under a professional indemnity policy. The arbitrator had held that the policy did not respond to the underlying claim, ordered repayment of defence costs advanced by the defendant insurer, ordered the claimant to pay the arbitration costs, and directed payment of £70,000 on account.

The claimant sought permission and an extension of time under sections 68 and 69 of the Arbitration Act 1996. The section 69 issue was whether the policy permitted recovery of defence costs advanced pending resolution of the coverage dispute. The section 68 issues concerned whether the claimant had a fair opportunity to address the arbitration costs and payment-on-account orders.

1. Defence costs. The extension of time and permission to appeal under section 69 were granted, but the appeal was dismissed. Clause C10.2 required QBE to advance defence costs and indemnify the insured pending resolution of the coverage dispute. Read with clauses A1–A3 and C5, it provided for provisional payments whose ultimate incidence depended on the coverage decision. The word pending did not merely mean until, and the absence of an express repayment clause was not decisive.

2. The construction was supported by the structure and purpose of clause C10, which dealt with dispute resolution rather than primary coverage. The contrary construction would allow an insured to create an entitlement to cover merely by asserting one, and would produce the same commercially absurd result for the substantive indemnity as for defence costs. The use of advanced also supported repayment if coverage failed.

3. Section 68. A serious irregularity requires a breach of the tribunal’s duty under section 33, a serious irregularity and substantial injustice. The threshold is high because the Act prioritises speedy finality and limited court intervention. A tribunal must give each party a reasonable opportunity to address costs and any point on which it intends to decide the case. Failing to take an available opportunity is different from being denied one.

4. The arbitrator decided the arbitration-costs issue without inviting submissions. The claimant was therefore denied a fair opportunity, causing serious irregularity. There was a realistic possibility that submissions would have affected both the decision to make a costs order and its timing. The same applied to the payment-on-account order, which was made before the expiry of the time allowed for submissions and exceeded the properly arguable arbitration costs.

5. Extension of time. The 18-day and six-week delays were significant against the statutory 28-day period but were not very lengthy. The claimant’s explanation involved a low degree of culpability; QBE and the arbitrator had caused no delay and QBE suffered no material prejudice. Since the section 68 challenges would succeed and concerned substantial sums, the interests of justice required an extension.

6. The orders concerning arbitration costs and payment on account were remitted to the arbitrator for reconsideration after submissions. The defence-cost order stood.

First-instance determination of applications arising from two arbitration awards. The judgment itself records separate High Court proceedings concerning the claimant’s underlying liability, from which an appeal was pending, but that appeal was not determined in this judgment.