Decision by fund administrator was final

LAW REPORT v 1 November 1995

West of England Ship Owners Mutual Insurance Association (Luxembourg) v Cristal Ltd; Court of Appeal (Lord Justice Neill, Lord Justice Waite and Lord Justice Pill) 19 October 1995

A clause in an international agreement providing for compensation for damage caused by oil pollution, which stipulated that the company administering the fund was to be the "sole judge" of the validity of any claims under the contract, meant that decisions of the fund administrator on any question of fact was to be final and binding for all purposes and could not be reviewed by the court unless it was unfair, in bad faith or perverse.

The Court of Appeal allowed an appeal by the fund administrator, Cristal Ltd, against a preliminary ruling given by Mr Justice Waller (see [1995] 1 Lloyd's Rep 560) in an action brought by the plaintiff, West of England Ship Owners Mutual Insurance Association (Luxembourg).

The Contract Regarding a Supplement to Tanker Liability for Oil Pollution, known as the Cristal Contract, was an international agreement made between Cristal Ltd, a Bermudian company, and a large number of oil industry companies throughout the world, who contributed to the fund. It entitled claimants to recover compensation from the fund, administered by Cristal Ltd, for damage from oil pollution sustained by that claimant or by someone to whom the claimant had paid compensation.

The contract specified that claims were to be brought within a specified time limit. Clause XI provided:

In fulfilling its obligations, in accordance with the terms of this contract, Cristal Ltd shall be the sole judge in accordance with these terms of the validity of any claim made hereunder . . .

Cristal asserted that the plaintiff's claims had not been brought within the time limit and that it had exclusive jurisdiction to determine whether or not a time limit had expired.

The judge ruled that any determination by Cristal Ltd as to whether or not a claim had been made in time could be reviewed by an English court, that the court's power of review was unrestricted, and that findings of fact as well as conclusions of law could be challenged. Cristal Ltd appealed.

Peter Gross QC and Christopher Hancock (Ince & Co) for Cristal Ltd; Adrian Hamilton QC, Jonathan Gilman QC and Vernon Flynn (Holman Fenwick & Willan) for the plaintiff.

Lord Justice Neill said that at common law an agreement wholly to oust the jurisdiction of the courts was against public policy. In the absence of some statutory provision, such as section 3 of the Arbitration Act 1979, that rule remained in force. But it was clear that in applying the rule questions of fact were treated differently from those of law.

Cristal accepted that its decisions on questions of law could be reviewed by the court. Cristal also accepted that the court could intervene if it acted unfairly or perversely.

In the light of these concessions and since, under the contract, clause XI was to be construed and to take effect in accordance with English law and English courts were to have exclusive jurisdiction "over any matter arising" from the contract, it seemed that no question of ouster arose. The problem was to define the extent of the court's role.

It was unusual for one party to a contract to be constituted the sole arbiter of the validity of any claim made against it. The plaintiff's argument that the determination under clause XI was merely a first stage determination, and that the words "sole judge" were inserted to make it clear that Cristal rather than the members of the company or some other person should make the first stage determination, was therefore attractive. But that argument must be rejected.

The contract was an unusual agreement. One of Cristal's functions was to administer the fund. In most cases the claimant would be a member. Cristal and the board of directors were there to hold a balance between such members.

In the context of the agreement, it seemed clear the words "sole judge" in clause XI were sufficient to show that the determination by Cristal would be final and binding for all purposes on matters of fact, subject to any question of unfairness, bad faith or perversity. That conclusion accorded with the nature of the scheme and took account of the importance of having the simplest possible machinery to adjudicate claims on the fund.

Lord Justice Waite and Lord Justice Pill agreed.