Lawyers yesterday differed over the importance of a UK Court of Appeal judgement handed down on Tuesday and the implications for the dispute concerning the collapse of Bermuda-domiciled Electric Mutual Liability Insurance Company (EMLICO).

The group representing EMLICO reinsurers Hannover Re and Kemper Re said an important point of law arising from section 426 of the UK's 1986 Insolvency Act has been clarified in a landmark case and that the implications for the EMLICO dispute were significant.

The ruling established that English Courts retained complete discretion over whether to comply with requests for assistance from foreign courts, although such assistance should be given, "if, in accordance with the law to be applied, the relief sought may properly be granted'' (only if such assistance is considered appropriate on the facts of the case).

The reinsurers' lawyers, Lovell White Durrant, stated: "The judgement has far reaching ramifications in the complex disputes surrounding the collapse of EMLICO, an insurance company established in Massachusetts in 1927, whose sole policyholder and creditor is General Electric Company (GE).'' But by way of rebuttal, EMLICO liquidators replied, "yesterday's decision in the UK does not have far reaching consequences for EMLICO. The decision applies to only one player, Hannover Re.

"We believe the decision of the court is wrong as a matter of law and that the court has misconstrued the statute. The Court of Appeals has continued the stay of Hanover Re's arbitration order to allow EMLICO to take the case to the House of Lords.'' EMLICO liquidators in Bermuda are David Lines and Peter Mitchell of Coopers & Lybrand Bermuda, Cooper & Lines.

The disputes concern the allegedly fraudulent redomestication of EMLICO from Massachusetts to Bermuda in July 1995 and its liquidation three months later in October 1995.

Reinsurers, among other things, have claimed that EMLICO and GE made intentional misrepresentations to regulators in Bermuda and Massachusetts to obtain the necessary approvals for redomestication.

They said the move to Bermuda would facilitate inflated recoveries of over $3 billion in environmental clean up and third party liability costs from the 400 or so reinsurance companies EMLICO had used to spread its risk.

A unanimous judgement by Lord Justices Morritt, Roch and Thorpe followed an appeal by EMLICO liquidators against an April decision in the companies court, which went in favour of reinsurer, Hannover Re.

Lovell White Durrant said in a press statement, "The judgement establishes that the lower court was right to decide that England is not an appropriate jurisdiction for EMLICO's liquidators to seek an injunction against German reinsurer (Hannover Re) seeking to rescind its reinsurance contracts with a formerly US insurer (EMLICO), those contracts being governed by Massachusetts law.

"Hannover Re may therefore proceed with an arbitration against EMLICO under Massachusetts law, commenced in January 1996, in which it claims rescission of the reinsurance contracts on the grounds of EMLICO's alleged fraud.

"The court awarded Hannover Re its costs and refused the liquidators leave to appeal to the House of Lords. However, the injunction remains in place for 14 days, to allow the liquidators to apply direct to the House of Lords for leave to appeal.'' The lawyers for Kemper Re also said that findings averse to EMLICO in arbitrations brought by reinsurers could well result in EMLICO finding itself with no reinsurance cover with which to pay GE's enormous claims.

"If that happens,'' they continued, "EMLICO's and GE's plan to move the company to Bermuda will have completely backfired.'' Lovell White Durrant partner, Christopher Grierson, whose firm acts for Hannover Re and Kemper Re, said, "This is a very important decision, which establishes that the English Court will not grant an injunction merely because the Bermuda Court has asked it to.

"The English Court was not satisfied that it was right to stop an arbitration under Massachusetts law, which had nothing whatever to do with England. This result will be closely studied by EMLICO's other 400 or so reinsurers, the largest of whom are syndicates at Lloyd's and London market companies.'' In a separate note to editors, the law firm remarks, "Surprisingly, notwithstanding amendments in 1995 to Bermuda insurance law designed to make regulation much tougher, the Bermuda authorities are not themselves taking any action. This is the topic of much adverse comment in the market.'' COURT CTS