The plaintiff’s barge sank at sea while carrying cargo and while being towed by one of the plaintiff’s tugs. The cargo owners subsequently commenced proceedings against the plaintiff and arrested the tug. The plaintiff advised the defendant, the insurer of the barge, of the action but the insurer refused to provide security or a defence as it was investigating whether the barge had been unseaworthy. The plaintiff ultimately settled with the cargo owners and commenced this action for indemnity. The defendant insurer brought this application to stay the proceedings on the grounds of an arbitration clause in the policy. The main difficulty was that there were two arguably inconsistent clauses in the policy. The cover note said that it was subject to English law and practice and to the non-exclusive jurisdiction of the English courts. However, within the policy itself was a clause that required any dispute to be referred to arbitration in London. The arbitration clause included words that it was to apply “notwithstanding anything else to the contrary” and that in the event of conflict “this clause shall prevail”. At first instance the motions Judge dismissed the application holding that the contract of insurance must be interpreted as a whole.
On appeal to the Newfoundland Court of Appeal, the Court first addressed the standard of review applicable when dealing with interpretation of contracts. The Court agreed that the interpretation of a contract was a question of mixed fact and law but did not agree that this meant in every case the standard of review was palpable and overriding error as opposed to correctness. The Court said that if a decision-make fails to consider a relevant factor this is an error of law reviewable to a standard of correctness. The Court went on to find that the motions Judge had made just such an error by failing to give any meaning to the arbitration clause in the policy. The Court resolved any conflict between the arbitration clause and the clause in the Cover Note by finding that the reference to “non-exclusive” in the Cover Note recognized the jurisdiction of the arbitrator in the arbitration clause and the jurisdiction of foreign courts over enforcement proceedings. The Court refused to apply the contra proferentum rule of contract interpretation noting that resort should be had to the rule only when all other rules of construction fail. A secondary issue was whether insurer had waived the right to rely upon the arbitration clause having not invoked the clause in prior years in prior disputes. On this issue the Court of Appeal accepted the evidence of a witness on English law to the effect that a failure to invoke an arbitration or jurisdiction clause for practical and commercial reasons is not a waiver in a subsequent dispute. In result, the appeal was allowed and the present action was stayed in favour of arbitration proceedings in London.