Cavell USA Inc. v Seaton Insurance Company
| Jurisdiction | England & Wales |
| Judge | Mummery,Longmore,Toulson L JJ |
| Judgment Date | 16 December 2009 |
| Date | 16 December 2009 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Mummery, Longmore and Toulson L JJ.
Michael Swainston QC and Stephen Midwinter (instructed by DLA Piper UK LLP) for the appellants.
Stephen Hofmeyr QC and Philippa Hopkins (instructed by Berwin Leighton Paisner LLP) for the respondents.
The Following Cases Were Referred to in the judgment:
Armitage v NurseELR [1998] Ch 241.
Barclays Bank Ltd v ColeELR [1967] 2 QB 738.
Kensington International Ltd v Congo [2007] 2 CLC 791.
Reddaway v Banham [1886] AC 199.
Satyam Computer Services Ltd v Upaid Systems LtdUNK [2008] EWCA Civ 487; [2008] 2. CLC 864.
Scott v Commissioner of Police of the MetropolisELR [1975] AC 819.
Welham v DPPELR [1961] AC 103.
Insurance — Run-off — Release of claims — Fraud — US insurance companies in run-off alleged breach of contract or fiduciary duty by company conducting run-off — Release of claims save in the case of fraud — Release contained English law and exclusive jurisdiction clause — Insurance companies instituted fraud proceedings in US — All disputes including claims in fraud within scope of jurisdiction clause — In context concept of “fraud” wider than tort of deceit.
This was an appeal against a decision on preliminary issues ([2008] 2 CLC 898) on the interpretation of an agreement terminating the relationship between the parties.
The appellants (“seaton” And “stonewall”) Were Insurance Companies In Runoff. The run-off was Conducted By The First Respondent (“cavell”). Cavell Acted on Behalf of Seaton and Stonewall in Adjusting And Paying Claims On The One Hand And In Making Reinsurance Recoveries From Reinsurers (“nico”) On The Other. Mrken Randall was The Moving Spirit Of Cavell.
Seaton and Stonewall alleged (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 because of a conflict of interest. It was also 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.
The owners of Seaton and Stonewall decided to terminate the relationship and that was done by an agreement, in what was called a Term Sheet, containing an English law and exclusive jurisdiction clause, under which the owners released Randall (as defined) 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 had instituted what they called “fraud proceedings” in the Southern District of New York against both Cavell and Mr Randall, who resisted the jurisdiction of the New York court on the basis that such claims should have been brought in England. Cavell and Mr Randall accordingly issued proceedings for declaratory relief in England and a trial of preliminary issues was ordered to determine whether the parties had agreed to submit all disputes, including “claims in fraud” against Randall, to the exclusive jurisdiction of the English courts, and whether the claims in New York were claims in fraud within the meaning of that phrase in the Term Sheet.
Gross J answered the first question in the affirmative and held that as a matter of English law the expression “claims in fraud” in the Term Sheet meant claims in deceit and did not include the dishonest abuse of fiduciary position alleged in the New York claim.
Seaton And Stonewall Appealed Arguing That They Were Entitled To Bring Their “fraud” Claim In New York And That They Were Not Confined To Bringing Claims Which Would As A Matter Of English Law Be Regarded As Claims In Deceit.
Held, allowing the appeal in part:
1. The judge was right that as a matter of construction of the Term Sheet, any claims for fraud had to be brought in England. The complaints against Randall related to breach of their contractual and fiduciary obligations but those claims had been released “save in the case of fraud”. That was a new concept provided for in the Term Sheet and it was a concept which fell within the exclusive English jurisdiction clause. That conclusion was supported by the difficulty that a New York court would have in deciding whether a particular claim would be regarded as one of fraud as a matter of English law. The parties to the Term Sheet could not have contemplated that New York courts or arbitrators would have to become involved in debate about the scope of the English law of fraud.
2. The use of the phrase “whether at law or equity” in the Term Sheet might be an indication that something wider than the common law action of deceit was envisaged to be preserved by the term “in case of fraud”. The concept of fraud was notoriously difficult to define. When the parties agreed that “all claims … whether at law or equity … save in the case of fraud” were to be released, they did not envisage that the only claims which Seaton and Stonewall could thereafter bring were claims which sounded in the English tort of deceit. The run-offs were basically run-offs of Seaton and Stonewall's US business and were originally subject to New York jurisdiction and arbitration clauses. Despite the fact that the Term Sheet was drawn up by English lawyers after substantive agreement between the principals had been reached, the word “fraud” was not intended to mean only deceit in the sense of being only liability that followed from a fraudulent misrepresentation. The exception “in case of fraud” in the Term Sheet was not confined to claims in deceit but extended to at least some cases of dishonest abuse of fiduciary position.
Longmore LJ:
1. 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 [2008] 2 CLC 898 relieves me from the necessity of setting out the facts and contentions of the parties in more than the barest outline.
2. 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.
3. 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...
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