## Facts

- Harbour Assurance Co. (U.K.) Ltd. reinsured Kansa General International Insurance Co. Ltd. under written reinsurance/retrocession contracts for underwriting years 1980–1982.
- Each contract contained an arbitration clause requiring arbitration of “all disputes arising” under the agreements.
- Harbour sued in the English courts seeking a declaration that the reinsurance contracts were void for illegality, alleging Kansa lacked required registration/approval to carry on insurance or reinsurance business in Great Britain under the Insurance Companies Acts 1974 and 1981.
- Kansa sought a stay of the court action under § 1 of the Arbitration Act 1975, arguing the illegality dispute fell within the arbitration clause.
- The Commercial Court denied a stay, concluding alleged initial illegality (void ab initio) prevented arbitral jurisdiction.
- Kansa appealed.

## Issues

1. Whether an arbitration clause in a contract alleged to be void ab initio for illegality is severable and can remain valid as a separate agreement.
2. Whether a dispute asserting initial statutory illegality and voidness falls within a broadly worded clause referring “all disputes arising” under the contract.
3. Whether the alleged illegality under the Insurance Companies Acts invalidated the arbitration clause itself.
4. Whether the statutory requirements for a stay in favor of arbitration under § 1 of the Arbitration Act 1975 were satisfied.

## Decision

- The Court of Appeal reversed and granted a stay of the court proceedings in favor of arbitration.
- The arbitration clause was treated as a collateral/separate agreement whose validity did not automatically depend on the main contract’s validity.
- The alleged statutory illegality, even if capable of affecting the substantive reinsurance contracts, did not impeach the arbitration agreement on these facts.
- The illegality dispute was within the scope of the broad arbitration clause, and the matter could be determined by arbitrators subject to ordinary court supervision.

## Legal Principles

- An arbitration clause is presumptively separable from the underlying contract; its validity is assessed independently unless the challenge directly targets the arbitration agreement.
- A broadly drafted arbitration clause can extend to disputes concerning whether the underlying contract is void ab initio for illegality.
- Whether illegality nullifies an arbitration clause depends on the nature and policy of the prohibition; absent a statutory policy requiring nullification of the arbitral agreement, arbitration may proceed.
- Under the Arbitration Act 1975, where there is a valid arbitration agreement covering the dispute and no sufficient reason to refuse, the court should stay litigation in favor of arbitration.

## Conclusion

The Court of Appeal held that the parties’ arbitration agreement survived an allegation that the reinsurance contracts were void from the outset for statutory illegality, and it stayed the court action so arbitrators could decide the illegality and validity dispute.


Harbour Assurance Co. (U.K.) Ltd. v. Kansa Gen. Int’l Ins. Co. Ltd., [1993] 1 Lloyd’s Rep. 455 (Eng. C.A. 1993)