Donohue v Armco Inc. and Others

JurisdictionUK Non-devolved
JudgeLORD BINGHAM OF CORNHILL,LORD MACKAY OF CLASHFERN,LORD NICHOLLS OF BIRKENHEAD,LORD HOBHOUSE OF WOODBOROUGH,LORD SCOTT OF FOSCOTE
Judgment Date13 December 2001
Neutral Citation[2001] UKHL 64
Date13 December 2001
CourtHouse of Lords
Donohue
(Respondent)
and
Armco Inc

and Others

(Appellants)

[2001] UKHL 64

Lord Bingham of Cornhill

Lord Mackay of Clashfern

Lord Nicholls of Birkenhead

Lord Hobhouse of Woodborough

Lord Scott of Foscott

HOUSE OF LORDS

LORD BINGHAM OF CORNHILL

My Lords,

1

The issue in this appeal is whether an injunction should have been granted to restrain the prosecution of proceedings in New York and, if so, in whose favour it should have been granted.

2

By a summons issued on 8 March 1999 Mr Donohue, the respondent to this appeal, sought such an injunction against the five companies, all of them in the Armco group, which are named as the appellants before the House. Aikens J at first instance declined to grant an injunction: [1999] 2 Lloyd's Rep 649. His decision was reversed by a majority of the Court of Appeal (Stuart-Smith and Sedley LJJ, Brooke LJ dissenting) [2000] 1 Lloyd's Rep 579, who granted an injunction. The facts giving rise to this appeal were helpfully summarised by the judge and Stuart-Smith LJ: see at pp 651-654 and 582-585 of the respective judgments. Stuart-Smith LJ also appended to his judgment, at p 601, an annex giving details of the companies and individuals involved in the proceedings and an explanation of the acronyms used in his judgment. Both the factual summary and the annex should be treated as incorporated in this opinion, which permits more economical reference to be made to the background history.

3

The parties fall into two camps. One camp comprises Armco Inc, the parent company of the Armco group, a conglomerate based in the United States, and four other companies known by their initial letters (AFSC, AFSIL, APL and NNIC). These five companies are plaintiffs in the New York proceedings already mentioned and defendants (or potential defendants) in this English action and are named as appellants before the House. This camp also included Armco Financial Services Europe Ltd ("AFSEL"), a company which has now been dissolved.

4

The second camp comprises, first of all, Mr Donohue, a defendant in the New York proceedings and the claimant here. It also comprises a number of potential co-claimants (PCCs), all of them defendants in the New York proceedings: Mr Rossi and his Ohio company known as ITRS; Mr Stinson and his Ohio company known as IROS; Wingfield Ltd, a Jersey company; and another Jersey company known as CISHL. Another defendant was sued in New York, Mr Atkins, but he settled the claim against him.

5

The Armco group formerly included several insurance companies together known as the British National Insurance Group (BNIG). The BNIG ceased to write new business and entered run-off status in 1984. It thus represented a liability to Armco, since claims under existing policies had to be met, and negotiations for the sale of the business were set in train. On the Armco side, the negotiations were conducted by Messrs Rossi and Stinson, two senior and long-serving Armco executives, both of them United States citizens and residents. The prospective buyers were Mr Donohue and Mr Atkins, also senior and long-serving Armco executives, but United Kingdom citizens resident in Singapore and England respectively.

6

The shares in the BNIG were owned by AFSIL and AFSEL. To effect the sale of the business Armco sold its shares in the BNIG. To this end it incorporated CISHL. AFSC injected US$32.5m in cash and securities into CISHL. A further US$10m was transferred from AFSEL to CISHL. On 3 September 1991 AFSIL and AFSEL each executed an agreement (referred to as "the transfer agreements") transferring all their assets in the BNIG into CISHL. On the same day Wingfield acquired all the shares in CISHL under a sale and purchase agreement bearing the same date under which Wingfield was named as the purchaser. After the sale the BNIG was renamed the North Atlantic Insurance Group (NAG), the leading company of which was called the North Atlantic Insurance Company Ltd (NAIC).

7

Many of the facts surrounding these transactions are the subject of acute controversy between the parties. But two points central to this appeal are not in doubt. First, the only parties to these three agreements were (on the Armco side) AFSIL, AFSEL and AFSC and (on what may be called the Donohue side) CISHL, Wingfield, Mr Donohue and Mr Atkins. It is now accepted that, on the dissolution of AFSEL, Armco Inc succeeded to the rights and obligations of that company, so it also is to be treated as a party to one of the transfer agreements and to the sale and purchase agreement. But the other companies in the Armco group (APL and NNIC) and several of the PCCs (Messrs Rossi and Stinson and their respective companies ITRS and IROS) were not parties to any of the three agreements. Secondly, each of the three agreements contained an express stipulation that the contract was governed by English law, made provision for service on a nominated agent of the vendor's solicitors in England and, most importantly, provided for the exclusive jurisdiction of the English court. In the sale and purchase agreement it was provided that "the parties hereby irrevocably submit themselves to the exclusive jurisdiction of the English Courts to settle any dispute which may arise out of or in connection with this Agreement". The exclusive jurisdiction clause in each of the transfer agreements was differently worded, but no point has been taken on the difference of wording.

8

Several years passed before, in early 1997, NAIC went into provisional liquidation with other group companies and a winding up petition was presented to the High Court. From about this date, it appears that there were a series of discussions between a lawyer representing Armco and Mr Atkins, who had resigned from the NAG in 1995. Mr Atkins made a series of statements, the last of them in evidence dated September 1998. On this statement Armco strongly rely in support of their case.

9

On 5 August 1998 proceedings were issued by the five Armco appellants in New York against NAIC, Mr Donohue, Mr Atkins, all the six PCCs (Messrs Rossi and Stinson and their respective companies, Wingfield and CISHL), and NPV Ltd (a Nevis company). The proceedings were based on what the amended complaint described as "an international fraud of immense proportions". The amended complaint is a substantial document, running to more than 70 pages and including 17 specific counts. It is not easily summarised, but the broad thrust of the Armco companies' case is clear enough. They contend that a secret agreement (recorded in writing) was made between Messrs Donohue, Atkins, Rossi and Stinson in New York in April 1991. Pursuant to this agreement Armco would be fraudulently induced to inject an extra-large sum into the BNIG and the four would then buy the BNIG, thus enriched, through Wingfield, a Jersey company which they (or some of them) owned. Since Messrs Rossi and Stinson were Armco executives negotiating on behalf of their employer their conduct was a flagrant breach of the duty they owed to their employer. The plan was implemented. Much of the money injected into the group has, it is alleged, been siphoned off by the four for their own ends. But the alleged fraud did not end there. Armco also contend that, as part of the secret plan, the group of four fraudulently induced Armco (by APL) to enter into debt collection contracts with NPV, the Nevis company which they owned: these contracts are said to have been unduly favourable to NPV and to have enabled the four to take exorbitant fees for themselves. It is further alleged that the four fraudulently obtained money from two trust funds set up earlier to give financial protection to NNIC against claims by policyholders of an insurer whose business NNIC had taken over. In this way, it is said, the four fraudulently depleted the trust funds by some US$16m after the 3 September 1991 agreements. A further complaint is that, between 1991 and 1997, the four diverted funds from the NAG to themselves by means of various commission, consultancy and dividend payments. The New York proceedings also included claims under the Federal Racketeer Influenced and Corrupt Organizations Act 18 USC §1962(c) (RICO), which enables a successful plaintiff to recover triple, punitive and exemplary damages.

10

All the PCCs (Messrs Rossi and Stinson and their respective companies, Wingfield and CISHL) moved to dismiss the New York proceedings against them on various grounds, a motion denied by Judge Schwartz sitting in the District Court of the Southern District of New York on 30 September 1999. Mr Donohue did not take part in that proceeding, but had instead issued the present summons applying for an injunction on 8 March 1999. Application was also made in the action to join the PCCs as claimants. APL and NNIC applied to set aside service upon them.

11

These three applications came before Aikens J who gave his reserved judgment on 15 July 1999. On the third summons he ordered that service on APL and NNIC be set aside ( [1999] 2 Lloyd's Rep 649 at 664, para 68). This decision was upheld by the Court of Appeal ( [2000] 1 Lloyd's Rep 579 at 591, para 46 and at 597, para 80). It has not been challenged before the House.

12

On the second summons, the judge decided that the PCCs should not be joined as claimants in the English action (p 660, para 50; p 664, para 67). The majority in the Court of Appeal took a different view and held that they should be joined (p 593, para 52-53; p 600, para 98). Brooke LJ held that there were no grounds for allowing any of the American PCCs (Messrs Rossi and Stinson and their respective companies) to be joined as claimants: p 599, paras 89-92. The propriety of joining the PCCs as claimants in this action is one of the major issues before the House.

13

On the first summons, the judge held that an injunction restraining...

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