Cavell USA Inc. and Another v Seaton Insurance Company and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore:,Lord Justice Toulson:,Lord Justice Mummery: |
| Judgment Date | 16 December 2009 |
| Neutral Citation | [2009] EWCA Civ 1363 |
| Docket Number | Case No: A3/2009/0247 & A3/2009/0247(Y)FC3 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 December 2009 |
[2009] EWCA Civ 1363
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE GROSS
Royal Courts of Justice
Strand, London, WC2A 2LL
The Right Honourable Lord Justice Mummery
The Right Honourable Lord Justice Longmore and
The Right Honourable Lord Justice Toulson
Case No: A3/2009/0247 & A3/2009/0247(Y)FC3
Mr Michael Swainston QC & Mr Stephen Midwinter (instructed by Dla Piper UK LLP) for the Appellants
Mr Stephen Hofmeyr QC & Ms Philippa Hopkins (instructed by Berwin Leighton Paisner LLP) for the Respondents
Hearing dates: 2 nd & 3 rd December 2009
The appellants (“Seaton” and “Stonewall”) were at all material times insurance companies which in 1999 and 2000 were not accepting new business and were in run-off. The run-off was conducted by the first respondents (“Cavell”) who were employed by Seaton and Stonewall for this purpose at a remuneration of $4–5 million per annum. As between themselves they were, of course, principal parties to the contractual arrangements made in respect of the run-off but in the course of conducting the run-off Cavell acted on behalf of Seaton and Stonewall particularly in adjusting and paying claims on the one hand and in making reinsurance recoveries from reinsurers (“NICO”) on the other. Mr Ken Randall was the moving spirit of Cavell. The fact that the judgment of Gross J has been reported [2009] Lloyd's Rep. IR 616 relieves me from the necessity of setting out the facts and contentions of the parties in more than the barest outline.
Seaton and Stonewall allege (inter alia) that in breach of contractual or fiduciary duty Cavell and/or Mr Randall sub-contracted the conduct of the run-off to NICO and that they were therefore unable to look after the proper interests of Seaton and Stonewall; that is because Seaton and Stonewall wanted a speedy run-off and, if possible, a sensible and reasonably priced commutation from reinsurers, whereas NICO's interest as reinsurers was to benefit from the substantial premiums which they had received and defer the payment of claims for as long as possible. It is said that NICO provided substantial separate business to Cavell as an inducement to Cavell to sub-contract the run-offs and Cavell dishonestly benefited from that arrangement and concealed the existence of the sub-contracting agreement (called “the Collaboration Agreement”) from their principals.
The owners of Seaton and Stonewall felt they had no alternative but to terminate the relationship and this was done by what was called a Term Sheet of February 2006. By this time Seaton and Stonewall's interests were substantially owned by an entity called Dukes Place Holdings LP (“Dukes Place”) while the Randall interests were substantially owned by an entity called Randall & Quilter Investment Holdings Ltd (“RQIH”) and both these companies were parties to the Term Sheet on behalf of their respective affiliates and subsidiaries. The preamble stated as follows:-
“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 Ltd (“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.”
Clause 12 provided that the existing run-off management agreements between Cavell and Seaton and Stonewall were to terminate on 31 st March 2006. Clause 13 provided:-
“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, and Dukes Place expressly reserves the right to pursue, against any such third party, any of the claims released herein.
Clause 29 provided:-
“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 will be noted that Randall were discharged from all actions claims and demands “whether at law or equity” save (relevantly) “in the case of fraud” on Randall's part. Seaton and Stonewall have in the light of the provision instituted what they call “fraud proceedings” in the Southern District of New York against both Cavell and Mr Randall who have resisted the jurisdiction of the New York court on the basis that such claims (which, it is accepted, can only be such claims as would be recognised as being in respect of fraud in English law) should have been brought in England. Cavell and Mr Randall have accordingly issued their own proceedings for declaratory relief in England. In the course of these proceedings Flaux J on 23 rd May 2008 ordered that there be a trial of preliminary issues to determine 2 questions.
“A. Whether, on a proper construction of the Term Sheet documenting the agreement between Dukes Place Holdings LP and Randall & Quilter Investment Holdings Limited and signed in February 2006 (“the Term Sheet”) and in particular clause 29 thereof, the parties have agreed to submit all disputes (including claims in fraud against Randall (as the phrase is used in the Term Sheet)) to the exclusive jurisdiction of the English Courts.
B. Whether, on a proper construction of clause 13 of the Term Sheet, the claims advanced by the defendants in the First Amended Complaint in the US District Court for the Southern District of New York (“the First Amended Complaint”) are claims in fraud within the meaning of that clause.”
Those issues came on for trial before Gross J who answered question A in the affirmative. With the consent (if not at the suggestion) of counsel he divided question B into two parts as set out in para 16 of his judgment:-
i) What is meant by the expression “claims in fraud” in clause 13 of the Term Sheet?
ii) Are the claims in the First Amended Complaint such claims?
This question he answered by saying
i) Claims in deceit
ii) No order since the issue does not arise in the light of the answer to Issue A.
Seaton and Stonewall now appeal the answers to both questions saying that they are entitled to bring their “fraud” claim in New York and that they are not confined to bringing claims which would as a matter of English law be regarded as claims in deceit.
Issue A: Jurisdiction
Mr Swainston QC for Seaton and Stonewall submitted that his permissible fraud claim (whatever that precisely was) was a claim which already existed before the Term Sheet had been concluded and that there was nothing in the Term Sheet which stopped him from bringing that claim in any appropriate forum and particularly in New York which was the jurisdiction specified in the two original management agreements. The fact that the Seaton agreement provided for jurisdiction in the courts of New York while the Stonewall agreement provided for disputes to be resolved by arbitration in New York did not detract from that submission. If Cavell wanted to apply for a stay in relation to the disputes under the Stonewall agreement, Cavell could always do so. The claim against Mr Randall was not caught by the arbitration agreement anyway since he was not a party to the Stonewall agreement.
Mr Hofmeyr QC for Cavell and Mr Randall submitted that clause 29 of the Term Sheet applied to all the claims which were not released but were saved by clause 13. The parties could never have intended that any claim for fraud should be brought in New York if it was only permissible to bring a claim which English law would regard as a fraud claim. A New York court would have to be educated about the English law of fraud in order to see whether whatever claim Seaton and Stonewall decided to bring constituted fraud according to English law. That would be an absurdly difficult exercise. He further relied on the fact that the whole point of the Term Sheet was to disentangle and put an end to a whole series of relationships (not just those with Seaton and Stonewall). That had to mean that a clean break was intended and that the Term Sheet was to be the source of all obligations save where old obligations were expressly preserved, as they were in relation to an Advisory Agreement with Renaissance...
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