Banco Bradesco S.A., Banco Multiplo, Grand Cayman Branch v. Steadfast Insurance Company and Inronshore Specialty Insurance Company

At a glance

Parties

Banco Bradesco S.A., as successor in interest to HSBC Bank Brasil S.A. – Banco Multiplo, Grand Cayman Branch (petitioner) v. Steadfast Insurance Company and Ironshore Specialty Insurance Company (respondents and cross-petitioners)

Case no.

18 Civ. 00331 (LAP)

Court

U.S. District Court, Southern District of New York (Senior District Judge Loretta A. Preska)

Underlying award(s)

Unanimous arbitration award of 16 October 2017 (panel: Louis P. Sheinbaum, Lawrence W. Pollack, and Umpire John S. Martin), New York

Forum and rules

Federal Arbitration Act (9 U.S.C. §§ 9, 10, 12, 207); New York Convention

Treaty

Arbitration clause in a Comprehensive Credit Insurance Policy; New York Convention

Sector

Banking; credit insurance

Outcome

Motion to vacate denied; the insurers' cross-petition granted and the award confirmed against both HSBC Brasil and Bradesco (7 September 2018).

Amount

Policy limit USD 45 million (90% of a USD 50 million credit). The award rescinded the Policy and ordered a refund of premiums with 9% interest; the insurers paid HSBC Brasil USD 3,501,794.24.

The dispute

HSBC Bank Brasil lent USD 50 million to Casablanca International Holdings Ltd. Schahin Engenharia S.A. guaranteed the loan. In August 2012 Steadfast and Ironshore insured the guarantee obligation up to USD 45 million, relying on the bank's application. In the application the bank confirmed that neither the obligor nor the guarantor had defaulted, missed payments or had debts rescheduled in the last five years. Casablanca defaulted in August 2014, and Casablanca and Schahin filed for bankruptcy in Brazil in April 2015. HSBC Brasil then started arbitration on the Policy. The panel unanimously held the Policy void ab initio. It found that the bank had concealed internal Credit Review Reports, which showed it had downgraded the Schahin group and that a subsidiary had defaulted on a USD 300 million Tranche A loan, later rescheduled. Bradesco, as the bank's claimed successor, asked the court to vacate the award for "manifest disregard" of New York law on materiality. Its main argument was that an underwriter's testimony alone cannot prove materiality. The insurers cross-petitioned to confirm the award under the New York Convention.

Key holdings

1. Under New York law, materiality is generally a question of fact for the trier of fact. Bradesco's cases, which require more than underwriter testimony, concern summary judgment, where materiality must be shown as a matter of law. Because the panel sat as trier of fact after a merits hearing, it could rely on underwriter testimony even without supporting documents. The first prong of the manifest disregard test therefore fails. pp. 16–19
2. Even if more than underwriter testimony were required, the requirement was met. The panel also relied on the non-binding indication, which was "Subject to: Application", on the Policy's statement that it was issued in reliance on the application, on the CRRs, and on New York law (Geer, Jenkins) that an insurer's specific questions are material. That is far more than a "barely colorable justification". pp. 19–23
3. Bradesco showed no misapplication of legal principles, let alone the egregious kind the manifest disregard doctrine requires. The motion to vacate is denied. p. 23
4. The award is commercial and involves a non-U.S. party, so the New York Convention applies (9 U.S.C. § 202). Bradesco did not invoke any Article V ground for refusal, so the court must confirm the award under 9 U.S.C. § 207. pp. 23–24
5. Because the arbitration took place in the United States, the domestic grounds for vacatur in the FAA also apply under Articles V(1)(e) and V(2) of the Convention. Bradesco expressly did not seek vacatur under the FAA and met none of its grounds. The award is confirmed against both HSBC Brasil and Bradesco. pp. 24–26

Procedural history

1. 30 August 2012The insurers issued the Comprehensive Credit Insurance Policy to HSBC Brasil.
2. 7 December 2015HSBC Brasil commenced arbitration against the insurers.
3. 30 September 2016At a hearing, the panel ordered production of the unredacted Credit Review Reports.
4. 5–7 June 2017Evidentiary hearing in New York; closing arguments followed on 7 September 2017.
5. 16 October 2017Unanimous award: the Policy was rescinded for material misrepresentation and premiums were to be refunded with 9% interest.
6. 12 February 2018The insurers filed a cross-petition to confirm the award and opposed vacatur.
7. 7 September 2018The District Court denied the motion to vacate and confirmed the award.

Tribunal, counsel and experts

Decided by

• Loretta A. Preska Judge, U.S. District Court, Southern District of New York

For the claimant

William R. Bennett

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Keywords

• manifest disregard of the law
• vacatur
• confirmation
• New York Convention
• Federal Arbitration Act
• credit insurance
• material misrepresentation
• rescission
• void ab initio
• materiality
• underwriter testimony
• Credit Review Reports
• Schahin
• Casablanca
• HSBC Brasil
• Bradesco
• Ironshore
• Article V(1)(e)

Summary generated with AI from the published documents — refer to the award for the authoritative text.