Court of Appeal upholds extension of a time limit that was "widely misunderstood"

United Kingdom

The Court of Appeal has upheld a decision granting an insurer an extension of time for commencing an arbitration under the Motor Insurance Bureau’s Articles of Association after the lower court held that the industry’s accepted interpretation of the time limit was incorrect.

Background

Haven Insurance Company Ltd v EUI Ltd [2018] EWCA Civ 2494 concerned a dispute between two motor insurers, both members of the Motor Insurers Bureau (MIB). Under MIB’s Articles of Association, disputes between MIB members are to be resolved by a Technical Committee. Either party then has the right to appeal to an arbitrator within 30 days of “being notified of the decision of the Technical Committee”.

The Technical Committee gave a verbal decision in favour of Haven at a meeting on 13 February 2015. Following some disagreement between the parties as to the precise terms in which the committee had put its decision, the MIB secretariat advised them to await the minutes before pursuing the issue. The secretariat circulated a summary of the decision by email dated 24 February. The final minutes were circulated on 31 March. On 30 April, EUI gave notice to refer the dispute to arbitration. Haven argued in front of the arbitrator that EUI had been “notified of the decision” either at the meeting itself or when the secretariat confirmed the decision by email, meaning that the reference to arbitration was out of time. In reliance on this interpretation, Haven had released its reserves in respect of the claim on 26 March 2015.

There was evidence before the arbitrator that MIB had a settled practice of calculating the time limit from the date the minutes were circulated, although in 2013, a working group had reported that the wording of the time limit in the Articles was unclear. Haven claimed that it had not been aware of MIB’s practice. After EUI had referred the dispute to arbitration, but before the arbitrator had ruled on the question of the time limit, a resolution was passed at MIB’s AGM amending the Articles of Association to clarify that time should run from the date of the minutes.

The arbitrator rejected Haven’s interpretation of the original wording and found that the 30-day period ran from the date of the minutes.

The High Court decision

Haven challenged the arbitrator’s decision under section 67 of the Arbitration Act, while EUI cross-applied for an extension of time for bringing arbitral proceedings under section 12 of the Act, which allows the court to extend time where “the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision, and it would be just to extend the time”.

Knowles J allowed Haven’s challenge, holding that the correct construction of the Articles was that time ran from the date the decision was confirmed by the secretariat. However, he granted EUI an extension of time on the basis of three key findings of fact:

  • EUI’s understanding of the time limit was wrong, but reasonable;
  • Its understanding was widely accepted in the industry;
  • MIB itself had confirmed that its custom and practice was to calculate the time limit from the date of the minutes.

The appeal

On appeal, Haven argued that section 12 of the Act required a mutual mistake by both parties, whereas in this case there had been a unilateral mistake by EUI. This argument was considered by the Court of Appeal to be misconceived. The test was not whether the parties had been mistaken, but what was in their reasonable contemplation at the time when they agreed the provision in question. It would not have been within the parties’ reasonable mutual contemplation at the time they agreed to MIB’s Articles that MIB’s method of calculating the time limit would be held by a court to be incorrect.

Further, although EUI had been aware by the time of the Technical Committee’s decision that an MIB working group had concluded that the wording of the time limit in the Articles was unclear, and EUI had therefore taken some risk by not referring the dispute to arbitration sooner, it had done so against the “backdrop” of MIB’s widely accepted custom and practice. Therefore, it was just in all the circumstances to extend time.

Comment

Although this is not the first case granting an extension of time for commencing arbitral proceedings, it provides an interesting illustration of how the test laid down by section 12 of the Arbitration Act 1996 will be applied. However, parties must still take care when calculating the time limit for bringing an arbitration, and this decision should be regarded as exceptional. In this case, the Court of Appeal expressly took into account that:

  • The parties had been encouraged by MIB to await the minutes; 
  • EUI had indicated informally to MIB at an early stage that it intended to appeal, although MIB had not passed this on to Haven;
  • MIB’s Articles required EUI’s notice of appeal to include its grounds for objecting to the decision, so EUI had a legitimate reason for wanting to see the precise wording of the decision before giving notice;
  • Haven had itself taken a risk by releasing its reserve without taking into account the possibility of an extension of time.

The court might well have decided differently if EUI had acted with less justification. Parties that are simply negligent in calculating the time limit or leave it to the last minute to start an arbitration without having good reason for doing so cannot expect to receive a sympathetic response from the court.

The authors would like to acknowledge the assistance of Linh Dao, intern at CMS London, in preparing this article.