Royal & Sun Alliance Insurance Limited & Ors. v Tughans (a firm)

An arbitral notice which disclaims particular relief does not necessarily remove the underlying dispute from the tribunal’s substantive jurisdiction. In a closely related dispute, the disclaimer may instead restrict the relief sought, subject to procedural permission and fairness.

A serious irregularity arises where an arbitrator grants relief on a materially different case from that advanced at the merits hearing without giving the opposing party a reasonable opportunity to meet it. Substantial injustice may exist where the party loses a legitimate expectation of presenting its factual case at the single merits hearing.

Under a professional indemnity policy, damages payable in respect of fees to which the solicitor acquired a contractual right may constitute an indemnifiable loss. A liability to restore money which the insured never had a legal right to receive is not ordinarily an indemnifiable loss without clear wording.

RSA challenged an arbitration award under sections 67, 68 and 69 of the Arbitration Act 1996. The arbitrator had declared RSA liable to indemnify Tughans in respect of claims brought by Brown Rudnick, Cerberus and ERSIC, including claims reflecting a £7.5 million success fee.

The central issues were whether the notice of arbitration excluded jurisdiction over damages reflecting the fee; whether Tughans had introduced that claim too late, causing serious irregularity and substantial injustice; and whether the policy could cover liability for the fee where the fee was allegedly procured by misrepresentation or was never contractually due.

1. Section 67. RSA’s jurisdiction challenge failed. Construed objectively against the prior correspondence, the notice’s proviso concerning liability to return fees referred to the use of the fee to meet damages claims as well as restitutionary liability. However, the proviso restricted the relief initially sought rather than removing the closely related damages issue from the arbitrator’s substantive jurisdiction. The broad wording of the dispute, the ARIAS Rules and the principle of limited curial intervention supported that conclusion.
2. The parties may enlarge the scope of an arbitration through pleadings, memorials or defences where they proceed objectively on the basis that the additional issue forms part of the reference. That did not occur here beyond the qualified claim. Tughans consistently disclaimed any wider indemnity claim until submissions served after the merits hearing.
3. Section 68. RSA’s challenge succeeded. Granting the disputed declarations on the wider damages case was a serious irregularity under sections 33(1)(a) and 68(2)(a), and involved failure to follow the agreed procedural basis of the hearing. RSA had not been given a reasonable opportunity to present its factual case, including evidence and cross-examination concerning alleged condonation of dishonesty.
4. The opportunity to make post-hearing submissions did not cure that injustice. RSA had a legitimate litigation expectation of presenting its factual case at the single merits hearing. The award was remitted under section 68(3)(a) for determination whether the wider claim should be permitted and, if necessary, for further relief on the qualified claim.
5. Section 69. RSA’s appeal failed. A damages liability reflecting fees which the solicitor had contractually earned under a subsisting retainer may constitute an actual loss under a professional indemnity policy, even where the client’s claim arose from alleged misrepresentation. By contrast, returning money which the insured never had a legal entitlement to receive would not ordinarily be an indemnifiable loss absent clear wording.
6. The engagement letter required provision of the specified representations and warranties, not their truth as an absolute pre-condition to payment. The contract was voidable, not void, for fraudulent misrepresentation, and Brown Rudnick had not rescinded it. The Tughans Fee therefore represented remuneration to which Tughans had acquired a contractual right, subject to the other policy requirements.

This was a first-instance decision on challenges and an appeal arising from an arbitration award dated 7 September 2021. The award followed a Partial Final Award dated 5 July 2021.