LAS guidance notes

What is the Lloyd's Arbitration Scheme?

The Scheme provides a framework for the arbitration of disputes between members and their underwriting agents ("agents") at Lloyd's. It has two tiers and arbitration is carried out in accordance with the Tier 1 or Tier 2 Rules.

Which is the appropriate tier?

Tier 1 which can only be commenced by a member, is an arbitration procedure for claims which do not exceed £100,000. A sole Arbitrator is appointed and, in general, the administrative costs of the arbitration are borne by the Society.

Tier 2 can be commenced by a member or an agent. The Rules provide for the consideration of larger or more complex disputes than Tier 1 (claims normally in excess of £100,000) between a member or groups of members and agents. There is no upper limit for claims or awards. A dispute can be considered by either a sole Arbitrator or a tribunal of three Arbitrators and the costs will be borne by the parties, as determined by the Arbitrator(s).

Who administers the Scheme?

The role of Administrator has been delegated to Will O'Connor of Legal and whose contact details are:

Lloyd's Legal Department
One Lime Street,
London
EC3M 7HA
UK

Tel +44 (0)207 327 6574
Email: Will.O'Connor@lloyds.com

How is the Arbitrator appointed?

Whilst the Administrator is responsible for the formal appointment of the Arbitrator the parties are encouraged to agree on the selection of the Arbitrator from the panels appointed by the Council of Lloyd's. There are two Panels of approved Arbitrators - one for Tier 1 and the other for Tier 2 and details of these may be obtained from Will O'Connor.

In the event that the parties are unable to agree one, the Arbitrator will be chosen and appointed by the Administrator. 

How long does an arbitration take?

In view of the individual nature of each case, and the various issues that may arise, it is not possible to provide an accurate timescale for the length of time an arbitration may take. The progress of the case is, to a great degree, at the discretion of the Arbitrator. 

Who will bear the costs of the arbitration?

Tier 1
The member submitting the Request for Arbitration must pay a registration fee of £250. The fee will be refunded by the Administrator in the event that the member is successful in the arbitration. No interest will accrue on this amount. The Arbitrator has a residual discretion to direct the Administrator to refund the fee where it would be equitable to do so regardless of the outcome of the arbitration. The Arbitrator's fees and expenses and all administrative costs will be borne by the Society. This will include the costs of any independent expert witness appointed by the Arbitrator for the purpose of preparing a report or attending a hearing.

Except in circumstances identified in Rule 22 (2) (where the Arbitrator considers one party has acted unreasonably) each party shall bear their own costs.

Tier 2
The Arbitrators' fees and expenses and any secretarial expenses will be borne by the parties in a proportion to be determined by the Arbitrators. The liability of the parties to pay these fees and expenses is joint and several and the Arbitrator may request a deposit from each party prior to the commencement of the Arbitration.
The Arbitrators have the power to order the costs of one party be paid by the other party. 

Should I seek independent legal advice?

The decision whether to seek independent legal advice is a matter for the parties but is likely to depend on the complexity of the claim and/or the way in which the arbitration develops. With regard to Tier 1 arbitrations legal representation is subject to Rule 20.

Please note that Lloyd's is unable to provide legal advice to the parties involved including arbitration. 

Can I use the Scheme to bring a claim against a deregistered agent?

Unless they so agree, agents de-registered prior to the commencement of the Lloyd's Arbitration Scheme (LAS) Byelaw are not bound by the LAS rules. However, it should be noted the Members who do not have recourse to arbitration under LAS rules may be able to pursue a claim under the arbitration clause in their agency agreements. This would be an entirely separate matter in which the Society would take no part.

What happens if the agent goes into liquidation?

The most significant effect is that there is likely to be little chance of a full recovery of an Award obtained against an agent. If upheld as a claim in the liquidation, the Award would be admitted as a claim for dividend only in the event that sufficient funds are available to enable the liquidator to make a distribution on agreed unsecured claims.

Any legal costs incurred by the agent in defending the claim will have to be paid as an expense of the liquidation thereby depleting funds potentially available for distribution to all unsecured creditors of the agent. In view of this the liquidator will probably consider at an early stage whether the arbitration should continue to be defended. In reaching his conclusion the liquidator will be likely to consider whether there is a valid Errors & Omissions (E&O) insurance in place.

How do I prepare a claim?

(a) A Request for Arbitration Form ("Request") must be completed by the Claimant.

(b) Name the parties (Rule 3(1) (a))

It is essential that the parties are described by their full titles and correct legal names. It should be noted that proceedings may not be initiated until the agent (in the case of Tier 1) or Respondent (in Tier 2) is correctly described. If you wish to claim against more than one agent under Tier 1 separate claims must be submitted.

In Tier 2 there may be one or more Claimants and one or more Respondents. At this stage all intended parties to the arbitration must be correctly named.

(c) State the amount(s) claimed (Rule 3 (1)(b))

The rules require that the amounts claimed should be set out in the Request, although it is recognised that, where an open year is involved, this may be difficult. In any event the total amount claimed under Tier 1 must not exceed £100,000.

(d) State the nature of the claim (Rule 3(1)(b))

The statement should be a full description of the dispute. Where possible the statement should be accompanied by supporting documentation such as copies of correspondence, notes of meetings or the relevant agency agreement(s). However, communications between the claimant and his or her legal adviser for the purpose of seeking or receiving legal advice in connection with the claim should not be disclosed since they attract legal professional privilege.

How is the case progressed?

Tier 1
(i) On receipt of a Request for Arbitration ("Request"), the Administrator will review the Request to ensure that it contains all the information required and a sufficiently precise statement of the claim. If it appears that Request is not sufficiently precise the Claimant may be asked to provide a further statement.

(ii) When the Administrator is satisfied that the Request accords with the Rules, the Claimant will be informed that the Request has been accepted and a copy will be sent to the agent. The acceptance of at Request by an Administrator does not constitute an acceptance of the Claimant's case on its merits.

(iii) Unless otherwise agreed by the Arbitrator, the agent has 20 working days after receipt of the Request to send the Administrator a written Response to the Request (Rule 10(1)). The agent should also send a copy of the Response to the Claimant. If the agent does not submit a Response within the prescribed time, the Arbitrator will proceed with the arbitration as if the agent has no Response to make.

(iv) If the agent wishes to make a counterclaim or pursue a related claim against another party, such as a broker, this should be mentioned in the Response (Rule 10(1)).

(v) On receipt of the Response, unless otherwise agreed by the Arbitrator, the Claimant has 15 working days to make further comments - Statement of Reply ("Reply"). (Rule 10(4)).

Tier 2
(i) On receipt of a Request for Arbitration ("Request"), the Administrator will review the Request to ensure that it contains all the information required and a sufficiently precise statement of the claim. If it appears that Request is not sufficiently precise the Claimant may be asked to provide a further statement.

(ii) When the Administrator is satisfied that the Request accords with the Rules, the Claimant will be informed that the Request has been accepted and a copy will be sent to the agent. Acceptance of the Request does not relate in any way to the merits of the case.

(iii) The Respondent has 30 working days after receipt of the Request to send the Administrator a written Statement of Defence to the Request (Rule 10(1)).

(iv) If the Agent wishes to make a counterclaim, or pursue a related claim against another party, such as a broker, who has agreed to participate in the arbitration, this should be stated in the Statement of Defence (Rule 10(1)).

(v) If the Respondent does not submit a Statement of Defence within the prescribed time then, subject to Rule 19, the Arbitrator will proceed with the arbitration as if the Respondent had no response to make.

(vi) On receipt of the Statement of Defence, the Claimant has 20 working days to make further comments - Statement of Reply ("Reply") - which may include a Defence to Counterclaim. If there is a Defence to Counterclaim, the Respondent may within 15 working days submit a Reply to the Defence to Counterclaim. (Rules 10(3) & 10(4).

(vii) Once the last Reply is submitted, or the time expires without such a Reply, the arbitration will proceed on the basis of the documents which had been submitted. (Rules 9 and 11).

What happens if a hearing is arranged?

Every attempt will be made to arrange a time convenient to all parties. The parties may be legally represented (except where legal representation has been barred (see Rule 20 - Tier 1)) or may be represented by any other person, whether legally qualified or not. Although the parties have a right to attend they need not attend in person. If a party intends to send a representative, the Administrator should be given sufficient notice.

If either party fails to attend a hearing or to send a representative the Arbitrator may proceed with the hearing without that party.

What will happen when the Arbitrator has made his decision?

The Arbitrator will send his award to the Administrator and the parties. The Award will be accompanied by the reasons for the decision.

The Agent is liable for meeting an Award if it is in favour of the Member and the responsibility for recovering an Award rests with the Member or his legal representative and vice versa if the Award is in favour of an Agent.

The Award is subject to the provisions of Schedule 2 of the Premiums Trust Deed.

Please note that there is no provision in the Lloyd's Arbitration Scheme for Lloyd's centrally to meet an Award made against an Agent if that Agent is unable to pay. The roles of the Administrator and Arbitrator cease on the Award being sent to the parties.

Can an Award be appealed?

The Rules of the Scheme are governed by, and the arbitration conducted in accordance with, the laws of England including the Arbitration Acts from time to time in force. Although these Acts do allow for appeals in certain prescribed circumstances and only in relation to a point of Law, they may only be brought with the consent of all parties or with the leave of the Court.

This is entirely a matter for the parties involved in the arbitration in view of the conclusion of the roles of the Administrator and Arbitrator. The parties are therefore strongly advised to seek independent legal advice before instituting an appeal.

Should you require any further clarification on the above, please contact Will O'Connor by writing to:

Legal Department
Lloyd's
One Lime Street
London
EC3M 7HA
UK