AL BUHAIRA NATIONAL INSURANCE COMPANY v ARAB WAR RISKS INSURANCE SYNDICATE [2024] DIFC CFI 013 — Reinsurance governing law and stay application (06 August 2024)

This order addresses the procedural intersection of reinsurance indemnity claims and parallel litigation, clarifying the court’s approach to strike-out applications and the management of stay requests in complex insurance disputes.

How did Justice Michael Black KC determine the procedural priority between the strike-out and stay applications in CFI 013/2024?

Justice Michael Black KC adopted a pragmatic approach to the order of operations, prioritizing the refinement of the pleadings over the request to halt the litigation entirely. By addressing the strike-out application first, the Court ensured that the scope of the dispute was clearly defined before determining whether a stay was warranted. This methodology prevented the Court from considering a stay on a potentially bloated or improperly pleaded claim.

It is logical to address the Strike-Out application before the Stay Application as it is necessary to understand what issues remain in contention in order to consider whether or not they should be stayed.

The Court reasoned that the viability of the Claimant’s arguments regarding governing law directly impacted the necessity of the stay. By pruning the Particulars of Claim, the Court effectively narrowed the issues, allowing for a more focused assessment of whether the remaining claims required a stay pending the resolution of the Underlying DIFC Proceedings.

Which judge presided over the hearing for Al Buhaira National Insurance Company v Arab War Risks Insurance Syndicate and in which division?

The matter was heard before Justice Michael Black KC in the DIFC Court of First Instance. The hearing took place on 25 July 2024, with the resulting Order with Reasons issued on 6 August 2024.

What were the competing legal arguments regarding the governing law of the Reinsurance Contract and the request for a stay?

The Claimant, Al Buhaira National Insurance Company, sought to assert that the Reinsurance Contract was governed by the Federal laws of the UAE. Conversely, the Defendant, Arab War Risks Insurance Syndicate, argued that the contract was governed by English law. The Defendant contended that the Claimant’s reliance on UAE law was an abuse of process, particularly because the Claimant had previously relied on English law in the Underlying DIFC Proceedings (CFI 098/2021). The Defendant moved to strike out paragraphs 10, 11, and 26 of the Particulars of Claim on these grounds.

Regarding the stay application, the Defendant argued that the proceedings should be halted pending the final, non-appealable determination of both the Underlying DIFC Proceedings and the stayed Sharjah Proceedings. The Defendant maintained that the outcome of these parallel matters was essential to the resolution of the indemnity claim. The Claimant resisted this, arguing that the proceedings should move forward to trial to resolve the USD 70 million dispute.

What was the precise doctrinal issue the Court had to resolve regarding the strike-out of the Claimant's pleadings?

The Court was tasked with determining whether the Claimant’s assertion that the Reinsurance Contract was governed by UAE law was so fundamentally flawed or abusive that it warranted a strike-out under RDC 4.15 and 4.16. The doctrinal challenge lay in balancing the Court’s duty to ensure the "just disposal" of proceedings against the Claimant’s right to plead its case, even where that case appeared inconsistent with prior litigation positions. The Court had to decide if the pleading disclosed "no reasonable grounds" or if it was an attempt to obstruct the process.

How did Justice Michael Black KC apply the test for strike-out in the context of the Reinsurance Contract governing law dispute?

Justice Black KC applied a nuanced test, distinguishing between claims that are clearly unsustainable and those that are merely difficult or inconsistent. While he ordered the strike-out of specific paragraphs that relied on clauses in a manner he deemed improper, he stopped short of barring the Claimant from arguing the governing law issue entirely. He recognized that the Claimant’s position on UAE law, while potentially challenging to prove, was not necessarily legally impossible.

I am satisfied that the Insurer has demonstrated that such a proposition is properly arguable under English law and therefore cannot be struck out.

The Court’s reasoning emphasized that the strike-out power is a blunt instrument. By granting the Claimant permission to amend its pleadings, the Court allowed the Claimant to refine its argument on governing law, ensuring that the trial would proceed on a clarified basis rather than a potentially defective one.

Which specific statutes and RDC rules did the Court apply to the strike-out and stay applications?

The Court exercised its powers under RDC 4.15, 4.16(1), and 4.16(2) to address the strike-out application, evaluating whether the pleadings disclosed reasonable grounds or constituted an abuse of process. For the stay application, the Court referenced RDC 1.6 and 4.2(6), which grant the Court broad case management discretion. Additionally, the Court considered Article 8 of DIFC Law No. 3 of 2004, which governs the jurisdiction and powers of the DIFC Courts.

How did the Court utilize English and DIFC precedents to evaluate the Reinsurance Contract dispute?

The Court relied on a robust body of insurance law to frame the dispute. It cited Wasa International Insurance Company Ltd. v Lexington Insurance Co [2007] EWHC 896 (Comm) to address the requirements for showing "universal market practice" in reinsurance cover. Furthermore, the Court looked to The Industrial Group Limited v Abdelazim EL Shikh EL Fadil Hamid [2022] DIFC CA 005 and CA 006 regarding the hierarchy for determining applicable law.

In Wasa at paragraph [56] it was held that it is necessary to show an express provision or “universal market practice” to the effect that reinsurance contracts provide cover for expenses incurred by the reinsured in defending claims. In the present case, the Insurer contends for both.

The Court also referenced Al Buhaira National Insurance Company v Horizon Energy LLC [2021] CFI 098 to highlight the Claimant’s previous reliance on English law, which informed the Court’s decision to strike out the inconsistent pleadings while allowing for a formal amendment.

What was the final disposition of the application, including costs and trial directions?

The Court dismissed the Defendant’s application to stay the proceedings, finding no sufficient reason to halt the litigation. It ordered the strike-out of paragraph 10, the first sentence of paragraph 11, and specific wording in paragraph 26 of the Particulars of Claim. The Claimant was granted 14 days to amend its pleadings to properly replead its case regarding the governing law. The parties were directed to agree on directions for a trial, currently anticipated for April 2025, with costs of the application ordered to be "costs in the case."

The Claimant shall have permission (if so advised) to amend the Particulars of Claim to replead its case that the Federal laws of the UAE are the governing laws of the Reinsurance Contract no later than 14 days following the date of this Order.

What are the wider implications for practitioners regarding reinsurance litigation in the DIFC?

This case serves as a reminder that the DIFC Courts will actively manage the scope of pleadings to ensure trial efficiency, particularly in complex reinsurance disputes involving parallel proceedings. Practitioners should anticipate that the Court will not grant stays simply because related litigation is ongoing, especially if the issues can be managed through effective case management. Furthermore, the ruling highlights the importance of consistency in pleading governing law across related DIFC proceedings; while the Court may allow for amendments, it will not tolerate pleadings that are clearly inconsistent or lack a reasonable basis. Litigants must be prepared to justify their choice of law early and clearly.

Where can I read the full judgment in Al Buhaira National Insurance Company v Arab War Risks Insurance Syndicate [2024] CFI 013?

The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0132024-al-buhaira-national-insurance-company-v-arab-war-risks-insurance-syndicate

Cases referred to in this judgment:

Legislation referenced:

• DIFC Law No. 3 of 2004, Article 8
• RDC 1.6
• RDC 4.2(6)
• RDC 4.15
• RDC 4.16(1)
• RDC 4.16(2)