Cavell USA Inc. and Another v Seaton Insurance Company and Another
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE GROSS,The Hon Mr Justice Gross |
| Judgment Date | 11 December 2008 |
| Neutral Citation | [2008] EWHC 3043 (Comm) |
| Docket Number | Case No: 2007–1566 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 11 December 2008 |
[2008] EWHC 3043 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon Mr Justice Gross
Case No: 2007–1566
Stephen Hofmeyr QC & Philippa Hopkins (instructed by Berwin Leighton Paisner LLP) for the Claimants
Michael Swainston QC & Richard Hill (instructed by DLA Piper UK LLP) for the Defendants
Approved Judgment
Hearing dates: 6 th October – 9 th October 2008
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
INTRODUCTION
This has been the trial of preliminary issues, ordered by Flaux J, on the 23 rd May, 2008 (“the Preliminary Issues”). In very broad terms, this litigation as a whole originates in disputes arising out of the management of various insurance companies in run-off. In the event, the parties agreed a wide-ranging release of claims – but with an exception or “carve-out” for “fraud” on the part of the former managers, related companies and individuals. The Preliminary Issues with which the Court is currently concerned go to the questions: (1) whether the parties have agreed to submit all their disputes, including claims in fraud to the exclusive jurisdiction of the English Court; (2) (i) what is meant by fraud; and (ii) whether claims advanced in the New York Court are claims in fraud, within the meaning of the carve-out. To explain all this, it is necessary to introduce the parties and say something of the history of the matter.
The First Claimant (“Cavell US”), formerly known as Ken Randall America Inc. and before that as Eastgate Inc., is a Delaware corporation which provides claims handling and management services to insurance companies in run-off. Since November 2000, its majority shareholder has been Randall and Quilter Insurance Holdings plc(“RQIH”), whose Chief Executive Officer, Chairman and majority shareholder is the Second Claimant (“Mr. Randall”). Mr. Randall is also Chairman of the Board of Directors of Cavell US.
The Defendants (“Seaton”– formerly, Unigard Security Insurance Company—and “Stonewall”) are insurance companies, now domiciled in Rhode Island. They have been in run-off for a number of years.
Dukes Place Holdings LP (“Dukes Place”) is a Bermuda limited partnership, established in 1996 by a New York investment house, Greenwich Street Capital Partners LP, later GSC Partners LP (“GSC”). Through Dukes Place, GSC invested in a number of insurance companies in run-off, including Seaton and Stonewall. Seaton was acquired by Dukes Place in 1999 and Stonewall in 2000.
On the 31 st March, 1999, Cavell US (then Eastgate Inc.) and Seaton entered into an agreement (“the Seaton Administration Agreement”) by which Cavell US agreed to provide administration and management services for Seaton. Cavell US and Stonewall entered into a similar agreement on the 29 th September, 2000 (“the Stonewall Administration Agreement”). RQIH companies also managed other companies in the Dukes Place portfolio, including two English insurance companies, Cavell Insurance Company Ltd. (“CIC”) and Unione Italiana Reinsurance Company (UK) Ltd. (“Unione”).
Following the inception of the Seaton and Stonewall Administration Agreements, in 1999 and 2000 respectively, Cavell US managed the run-off of Seaton and Stonewall until 2006. Various disputes arose towards the end of that period between Dukes Place and RQIH (and the Claimants) as to the conduct of run-off.
At about the same time, certainly from August 2005 if not before, negotiations were proceeding between Dukes Place and the Castlewood/Enstar group of companies (“Castlewood” and “Enstar” respectively) for the purchase of, or of a shareholding in, Seaton and Stonewall. The then Chief Executive Officer of Castlewood and now of Enstar, following a merger in early 2007 between Enstar and Castlewood, was Mr. Dominic Silvester (“Mr. Silvester”). As will be seen in due course, it was an integral part of all Castlewood/Enstar proposals for the purchase of Seaton and Stonewall (or a stake in those companies) that Cavell should be replaced by Castlewood as run-off manager.
Against the background of a pronounced souring of the relationship between Dukes Place and RQIH and the emergence of the Castlewood/Enstar interest in Seaton and Stonewall, an agreement, described as a Term Sheet, was entered into between Dukes Place and RQIH (and their respective entities), signed by the parties between the 17 th and 22 nd February, 2006 (“the Term Sheet”).
It is convenient at once to set out the Preamble, together with cll. 13 and 29, of the Term Sheet:
“ This Term Sheet documents the agreement between the parties identified as Parties below with respect to the orderly termination of the contractual and other commercial relationships amongst them and the orderly handover by Cavell Management Services Limited ('Cavell UK') and Cavell USA Inc. ('Cavell USA') of run-off management and other services in connection with Seaton Insurance Company ('Seaton'), Stonewall Insurance Company ('Stonewall'), Unione Italiana (UK) Reinsurance Company Limited ('Unione') and Cavell Insurance Company Limited ('CIC') having regard to the regulatory responsibilities of Dukes Place (as defined below) and Randall (as defined below) and the interests of the policyholders of Seaton, Stonewall, Unione and CIC.
Parties
(1) Dukes Place Holdings LP for itself and on behalf of its partners, shareholders, directors, officers, subsidiaries, associated companies and affiliates (including but without limiting the generality of the foregoing Seaton, Stonewall, Unione and CIC)('Dukes Place');
(2) Randall & Quilter Investment Holdings Limited (for itself and on behalf of its partners, shareholders, directors, officers, subsidiaries, associated companies and affiliates (including but without limiting the generality of the foregoing Cavell USA and Cavell UK)('Randall');
……
13. Dukes Place hereby releases and forever discharges Randall of and from all actions, causes of action, suits, claims and demands whatsoever, whether at law or equity, whether known or unknown, suspected or unsuspected, disclosed or undisclosed, fixed or contingent, accrued or unaccrued, asserted or unasserted, which Dukes Place ever had, now has or hereafter can, shall or may have against Randall for, upon, or by reason of any matter, cause or thing whatsoever arising out of or in connection with any business, commercial, contractual or other arrangements between or involving either of them as at the date of this Term Sheet, save (i) in respect of any obligations expressly set out in this Term Sheet, (ii) in respect of any actions, causes of action, suits, claims, and demands arising from any breach by Randall of any provision of this Term Sheet, and (iii) in the case of fraud on the part of Randall. This release will not inure to the benefit of any third party…..
29. This Term Sheet shall be governed by and construed in accordance with English law and the parties submit to the exclusive jurisdiction of the English Courts.”
It may readily be seen that cl.13 provided for a widely drafted “release” from actions, causes of action, suits, claims and demands (for shorthand, “claims”), but with a “carve-out” from the release for the matters itemised (i) – (iii) – with “fraud on the part of Randall” constituting item (iii).
Despite the Term Sheet, various disputes continued in 2006 and 2007, resulting, inter alia, in the commencement and pursuit of arbitration proceedings in the USA between Seaton and Stonewall and their re-insurers, National Indemnity Company (“NICO”), together with litigation between the present parties both in New York and before this Court. The history of these proceedings is, if I may say so, summarised with clarity by Flaux J in his Judgment of the 11 th April, 2008 (“the 11 th April Judgment”) and need not be repeated at any length here.
Suffice to say:
i) On the 6 th August, 2007, Seaton and Stonewall commenced proceedings against Cavell US and Mr. Randall personally in the United States District Court for the Southern District of New York, alleging what is said to be fraud under New York law (“the New York proceedings”). In particular and as in due course formulated in the First Amended Complaint lodged by Seaton and Stonewall on the 28 th December, 2007 (“the First Amended Complaint”), the allegations focus on the delegation by Cavell US ( then Ken Randall America Inc) of claims handling for Seaton and Stonewall to their re-insurers, NICO, pursuant to a Collaboration Agreement dated 8 th August, 2001 (“the Collaboration Agreement”). In a nutshell, at the heart of the First Amended Complaint, is the allegation that Cavell US and Mr. Randall “fraudulently” subordinated the interests of Seaton and Stonewall to those of NICO by entering into, operating and concealing the entry into and operation of, the Collaboration Agreement.
ii) On the 19 th October, 2007, the Claimants issued a Motion to Dismiss the New York proceedings on the ground (amongst others) of lack of jurisdiction.
iii) On the 20 th November, 2007, the Claimants commenced these proceedings before this Court. By their Claim Form, the Claimants seek, inter alia, the following relief:
“(1) A declaration that all of the claims advanced by the Defendants ….[in the New York proceedings] ….have been fully compromised and/or released pursuant to clause 13 of the Terms Sheet…..
(2) A declaration that, by virtue of clause 13 of the Term Sheet, alternatively in any event, the Claimants have no liability to the Defendants in respect of...
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