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LONDON-London underwriters may be using new arbitration clauses soon to reflect a new British arbitration law.

This weeklaw has taken years to come to fruition since it was first decided to draft a new one to incorporate the 1985 Model Law on International Commercial Arbitrations recommended by the U.N. Commission on International Trade Law.

After a few failed attempts, Court of Appeals judge Lord Justice Saville headed a committee that drafted the law, which received Royal Assent last June. He worked closely with Lord Woolf's review of civil litigation to make sure arbitral rules and procedures would be consistent with Lord Woolf's suggestions (see related story).

The law, said Lord Justice Saville just after it was passed last year, attempts to "restate the law of arbitration in simple English, adopting a logical format which proceeds from arbitration agreements through the appointment of arbitrators, the conduct of the proceedings, to awards."

One of the biggest changes that will affect ceding companies and reinsurers is the choice of law arbitrators can use, summed up Jonathan Sacher, partner in London-based law firm Paisner & Co.

Until now, only English law could govern arbitrations in the United Kingdom, he said. However, under the new law, the "honorable engagement clause" used in reinsurance contracts is recognized, which allows the arbitration to be decided in accordance with the law the parties choose or, if the parties agree, in accordance with "such other considerations as are agreed by them or determined by the (arbitration) tribunal."

Arbitrators can agree, for example, that "general principles of justice and fairness" should apply in reaching a judgment, said John Taylor, the British government's corporate and consumer affairs minister.

This means arbitrators can use "commercial business sense" as well as the law when deciding a case, said James Innes, partner at D.J. Freeman.

English law in recent times has refused to recognize honorable engagement clauses, and therefore, they have largely disappeared from treaty wordings. However, "with the new Arbitration Act, it appears that they may be back in favor," Mr. Sacher said. He also said the law recognizes the honorable engagement clauses in old contracts dealing with, for example, longtail liability claims, if the arbitration occurs on or after Jan. 31.

However, Mr. Butler said the law is not retrospective on this issue and only applies to honorable engagement clauses in contracts made after Jan. 31, 1997.

Mr. Taylor also said that the new arbitration law should apply only to arbitrations made "on or after Jan. 31, so that agreements made before then remain undisturbed by the new act."

The choice-of-law issue may lead to an increase in arbitrated cases, Mr. Butler suggested. Because each arbitration tribunal would be allowed to make up its own mind which yardstick to use, each arbitration could have a different result.

Another major change in the law is that parties of international contracts can exclude the right to appeal an arbitration decision in U.K. courts, noted Philip Hertz, solicitor for the insurance group of Clifford Chance. The law omits this appeals exclusion for domestic contracts, however.

This means "arbitration is the final result," which helps clear the courts, as Lord Woolf's recommendations are trying to do, said Mr. Hertz.

Had this law been in place a few years ago, it would have meant much of the Lloyd's of London litigation would not have ended up in court, as many of the cases were appeals on arbitration decisions.