Tonicstar Ltd (Operating as Lloyd's Syndicate 1861) v American Home Assurance Company
Jurisdiction | England & Wales |
Judge | Mr Justice Morison |
Judgment Date | 26 May 2004 |
Neutral Citation | [2004] EWHC 1234 (Comm) |
Docket Number | Case No: 2004 Folio 118 |
Court | Queen's Bench Division (Commercial Court) |
Date | 26 May 2004 |
IN AN ARBITRATION CLAIM
[2004] EWHC 1234 (Comm)
The Honourable Mr Justice Morison
Case No: 2004 Folio 118
2004 FOLIO 372
IN THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
QUEEN'S BENCH DIVISION
Mr G. Kealey QC & Mr Brocklebank (instructed by Clyde & Co) for the Claimants
Mr D. Railton QC & Mr R. Williams (instructed by Denton Wilde Sapte) for the Defendant
Hearing dates: Monday 24 May 2004
Approved Judgment
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.
Mr Justice Morison :
This is a return date for an injunction granted without notice by Gross J on 13 May 2004. By his order made without notice, the Defendants, AHA, were restrained from proceeding with or taking any steps (other than to abandon or discontinue) in pursuit of its Petition to compel arbitration in the New York Federal Court for the Southern District dated 5 May 2004. AHA say that I should discharge the injunction 'which should never have been granted'.
The Background
The background to the dispute between the parties arises out of a facultative excess of loss reinsurance contract made between AHA and a corporate syndicate, 1861. At the date of the contract, the Syndicate's capital was provided by Commercial Union Corporate Member Limited [CGU], who remained the capital provider for the calendar year 2000. For the following year, CGU was replaced as capital provider by a company called Tonicstar Limited [Tonicstar]. In the normal way, at the end of the year there was a reinsurance to close to reflect these arrangements. At this stage of the narrative I shall not distinguish between the two capital providers but refer instead to the Syndicate. In April 2003 the Syndicate asserted that it had the right to avoid the policy on the grounds of misrepresentation and non-disclosure. In September of that year, through their New York lawyers a request was made to carry out an audit of AHA's files in New York. This request was accepted on terms that "CGU will either pay its outstanding balance in full, or provide a formal position setting forth its reasons for refusing to pay within two weeks of completing the inspection. At that time, should CGU fail to pay the amount owed, [AHA] will commence proceedings." The lawyers were required to enter into a confidentiality agreement which was governed by New York law. It is AHA's case that the audit was completed on 3 February 2004, and for two weeks after that date CGU were, deliberately, uncontactable.
Instead, proceedings against AHA were started in this court by Tonicstar on 13 February 2004. Unaware that that was so, AHA issued court proceedings in New York on 17 February. Neither party had written the other a letter before action and each was unaware that proceedings in either jurisdiction were about to be started. After the New York action had started, AHA's lawyers spoke to CGU's New York lawyers and were informed that CGU "had beaten AHA to the punch". Leave to serve the English proceedings out of the jurisdiction was granted on paper by me on 1 March 2004 and the proceedings were served on AHA in New York on 9 March.
CGU applied by Motion to the New York Court to dismiss the action there on jurisdictional grounds, and filed evidence in support. AHA say that it was only as a result of seeing that evidence that they became aware for the first time that the reinsurance contained an arbitration clause. By way of explanation, they say that the paper work relating to this contract was retained by their brokers at the World Trade Centre and was destroyed as a result of the events on 11 September 2001. The reinsurance form incorporated within it the "XL1 (agg)" form which includes the provision for arbitration. The arbitration clause provides for arbitration of
"any dispute … between the Reassured and the Reinsurers with reference to the interpretation of this Reinsurance or the rights with respect to any transaction involved."
The arbitration clause has no express provision for the seat of the arbitration and thus for its curial law.
In the light of this, AHA discontinued their New York action and issued a Demand for Arbitration on 9 April 2004. The syndicate disputed that there was any applicable arbitration clause, but made a without prejudice appointment of Mr Boswood QC as their arbitrator. The parties disagreed as to the seat of any arbitration. On 27 April 2004, AHA made an application within this jurisdiction under section 9 of the Arbitration Act 1996, seeking a stay of the proceedings brought in the name of Tonicstar pending arbitration. On 29 April 2004, the Claimants made it clear that they would seek a determination of the seat of the arbitration by this court, in the absence of agreement between the parties. On 5 May 2004, AHA brought a Petition in the New York Court seeking to compel arbitration and to restrain the English Court proceedings. It is that Petition which is the subject of the anti-suit injunction. On 6 May 2004, CGU and Tonicstar, unaware of the Petition, issued an arbitration claim form in this Court seeking, amongst other things, a declaration that the seat of any arbitration between it and AHA and of any arbitration commenced by AHA by its Demand for Arbitration was England.
The Claimant's case
(1) The Petition is an unjustified and tactically-driven attempt by AHA to arrogate to the New York Court issues which should naturally and properly be determined by this Court and of which, at least in part, the English Court is already seised.
(2) The issues in question which should be decided in this jurisdiction are first, whether the English Court proceedings should be stayed in favour of arbitration; and second, whether the seat of the arbitration is in England or elsewhere (where the law governing the arbitration agreement is English Law). AHA were aware of this before they issued their Petition.
(3) England is the natural forum for the determination of the stay application as was implicitly accepted by AHA when they made their application for a stay. The Petition constitutes a blatant tactical manoeuvre to prevent the English Court from determining the extent of its own jurisdiction.
(4) The Claimants had indicated, during their disagreement in correspondence over the seat of the arbitration, that this would be a matter they would seek to raise before the English Court at the hearing of the stay application. The Petition represents an attempt by AHA to prevent this Court from deciding the question of a stay and the proper seat of the arbitration, as a matter of English law. By the Petition AHA are seeking to fix the arbitration in New York, thus pre-empting this Court's decision on the issue.
(5) It has never been disputed that the applicable law of both the reinsurance contract and the arbitration agreement is English law. The reinsurance was placed in the Lloyd's market and was to be operated in London. The alleged misrepresentations and non-disclosures took place in London. There can be no doubt that the proceedings brought by the Claimants here were properly so brought.
"The question which arises is whether the determination of the future progress, and scope, of those proceedings should be determined by this Court, as all parties originally envisaged, or in New York in accordance with the Defendants' tactically motivated change of tack."
(6) The following key facts emerge from the background. First, AHA have not disputed the territorial jurisdiction of this Court – they have made no application under CPR Part 11. Their only case is that the proceedings should be stayed pending arbitration. Second, aside from the Petition there are no ongoing proceedings in New York, the New York action having been discontinued. Third, the English action was started first. Fourth, AHA have applied to this court for a stay and that is plainly the appropriate procedure. Fifth, AHA knew before they issued their Petition that the assistance of this Court was being sought on the question of stay and the seat of the arbitration. Against that background:
"… it is plain that [AHA's] Petition in the Southern District Court of New York is a naked attempt to deprive this Court of the ability to determine issues which are naturally and properly within the province of this Court to determine, and which, at least in part, the parties have hitherto contemplated would be determined in this Court."
AHA's case
(1) At the time when the application for a stay was made in this Court "it was assumed" that Tonicstar was entitled to stand as claimant but clarification was expressly sought from the Claimants solicitors on this question. On 29 April the Claimants' solicitors stated that Tonicstar had assumed responsibility and liability for the reinsurance by reason of a reinsurance to close. That contention is misconceived as it is well established that a reinsurance to close is no more than a reinsurance of the Names for the old year by the Names for the succeeding new year Toomey v Eagle Star [1994] 1LLR 516. Although an application to amend the proceedings to include CGU in the title to the action has been made, that will be opposed. The position is that the proceedings asserting claims for misrepresentation and non-disclosure are 'empty' as the named Claimant...
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