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In U.K. litigation between anonymous U.S. insured and U.K. insurer, Court of Appeal (Civil Division) rules that parties’ agreement to arbitrate in London signified applicability of English rather than U.S. law thus warranting an English injunction against insurer’s plans to bring suit in U.S. courts in order to invoke more favorable U.S. law in attacking arbitrators’ partial award
The Defendant (D) was the liability insurer of the Claimant (C), a company incorporated in the United States. The policy was a “claims made”� policy. C was the named insured, while the definition of the “insured”� included any of its subsidiaries, affiliates or associated companies.
The policy complied with the Bermuda Form (BF), and, therefore, it had a choice of law clause declaring that “the internal laws of the State of New York”� should govern the contract. It also included an arbitration clause providing that: “Any dispute arising under this policy shall be finally and fully determined in London, England under the provisions of the English Arbitration Act of 1950 as amended.”�
During the policy period, various entities filed claims against C and one of its subsidiaries. C paid the damages and expenses stemming from those claims. When C asked the Defendant to indemnify it, however, the Defendant declined to do so.
C then filed arbitration proceedings in London. The tribunal’s Terms of Appointment signed by the parties stipulated that the law governing the arbitration was the U.K. Arbitration Act of 1996. The arbitrators ruled that C should prevail in full on its policy claim; that it was entitled to be indemnified and awarded interest and costs; this is the partial award (PA). The tribunal invited the parties to negotiate the amount of the claims which the arbitrators had found to be covered by the policy.
It was agreed that the PA was, as a matter of English law, final as to issues it decided. Following the award, the Defendant applied to the tribunal to correct it. It argued that the tribunal’s findings had clearly disregarded New York law. In further correspondence, the Defendant hinted that it was thinking of applying to a U.S. Federal Court where the court would apply U.S. federal arbitration law governing the enforcement of arbitral awards. That law allowed a party to vacate an award where the arbitrators had “clearly disregarded the law.”� The tribunal balked at substantively amending the PA saying it had no power to do so.
C then brought the dispute before the English High Court; there it asked for an anti suit injunction to bar the Defendant (1) from filing proceedings on the PA in New York and (2) from relying on New York law in any proceeding to enforce the PA. The judge ruled that the choice of England as the situs of the arbitration controlled the matter: the parties had, by that agreement, limited the scope of proceedings seeking to attack or set aside the PA to those allowed by English law.
As a result, the Defendant could not lawfully bring any proceedings in New York or elsewhere to attack the PA pursuant to the law of that place, e. g., for any alleged “manifest disregard”� of the proper law of the contract. The judge also spurned arguments (1) that the choice of New York law as the proper law of the contract amounted to an agreement that the law of England should not apply to post award proceedings pursuant to Section 4(5) of the 1996 Act, and (2) that the separate agreement to arbitrate contained in the policy was itself governed by New York law so that Defendant could file proceedings in New York.
The High Court judge granted C, inter alia, a final injunction. The Defendant appealed to the Court of Appeal (Civil Division) which unanimously dismisses the appeal.
The Defendant argued, inter alia, that the judge had erred in holding that English law controlled the arbitration agreement itself merely because it had chosen London as the seat of the arbitration. It claimed that, since the arbitration agreement itself was silent as to its proper law, the court should follow the proper law of the contract as a whole, namely New York law, rather than apply the law of the seat of the arbitration, namely England.
The Defendant further contended that the fact that English procedural law governed the arbitration itself did not require that English substantive law had to govern the arbitration agreement itself. Furthermore, it submitted that Section 58 of the Arbitration Act of 1996 providing for the finality of an arbitral award, was not a mandatory provision of the Act. Thus, it left room for agreements to the contrary contained in the arbitration clause itself. The law of New York, therefore, did control and it lets one party attack an award for “clear disregard of the law”�. It followed that the English court should refrain from enjoining such a challenge.
The Court of Appeals rejects these contentions. “… [I]n [our] judgment, [Defendant's arguments] fail to grapple with the central point at issue which is whether or not, by choosing London as the seat of the arbitration, the parties must be taken to have agreed that proceedings on the award should be only those permitted by English law. … The whole purpose of the balance achieved by the BF (English arbitration but applying New York law to issues arising under the policy) is that judicial remedies in respect of the award should be those permitted by English law and only those so permitted.”�
“[Defendant] could not say (and did not say) that English judicial remedies for lack of jurisdiction on procedural irregularities under Sections 67 and 68 of the 1996 Act were not permitted; it was reduced to saying that New York judicial remedies were also permitted. That, however, would be a recipe for litigation and (what is worse) confusion which cannot have been intended by the parties.”�
“No doubt New York law has its own judicial remedies for want of jurisdiction and serious irregularity but it could scarcely be supposed that a party aggrieved by one part of an award could proceed in one jurisdiction and a party aggrieved by another part of an award could proceed in another jurisdiction.”�
“Similarly, in the case of a single complaint about an award, it could not be supposed that the aggrieved party could complain in one jurisdiction and the satisfied party be entitled to ask the other jurisdiction to declare its satisfaction with the award. There would be a serious risk of parties rushing to get the first judgment or of conflicting decisions which the parties cannot have contemplated.”�
“It follows from this that a choice of seat for the arbitration must be a choice of forum for remedies seeking to attack the award. As the judge [below] said …, as a matter of construction of the insurance contract with its reference to the English statutory law of arbitration, the parties incorporated the framework of the 1996 Act. He added that their agreement on the seat and the “�curial law’ necessarily meant that any challenges to any award had to be only those permitted by that Act.”�
“[Defendant's] argument was that Section 58 of the 1996 Act which provided for the finality of an arbitral award was not a mandatory provision of the Act and that there was a permissible “�agreement to the contrary’ contained in the arbitration clause itself which was governed by the law of the state of New York which permitted challenge for manifest disregard of the law.”�
“The fact, however, that the 1996 Act allows parties to contract out of its non mandatory provisions does not mean that the proper law of a contract to refer disputes to arbitration can constitute an “�agreement to the contrary’ and thus import a method of challenge to the award not permitted by the seat of the arbitration.”�
“Even if, therefore, the first plank of [Defendant's] argument (that the arbitration clause itself was governed by the law of New York) were to be correct, it would not qualify as an “�agreement to the contrary’ in the 1996 Act. Still less would it entitle the Defendant to mount a challenge to the award in a country other than the seat of the arbitration.”� [¶¶ 16 20].
The Court of Appeal also touches on some secondary points since counsel fully argued them. “It is necessary to distinguish between the proper law of the underlying insurance contract which is, by agreement, the internal law of New York and the arbitration agreement which is, by virtue of Section 7 of the 1996 Act, as well as by virtue of common law, a separable and separate agreement, [Cites]. There is also the law of the seat of the arbitration, namely English law, which will be relevant.”�
“The question then arises whether, if there is no express law of the arbitration agreement, the law with which that agreement has its closest and most real connection is the law of the underlying contract or the law of the seat of arbitration. It seems to me that if … this is a relevant question, the answer is more likely to be the law of the seat of arbitration than the law of the underlying contract.”�
“In the days before the separability of the arbitration agreement was fully apparent it was often said that if a contract chose a place of arbitration, the law of that place was the proper law of the contract on the principle of “�Qui elegit judicem, elegit jus.’”� [Cite].
“As the judge [below] observed …, these are only general considerations; much more forceful in the present case are the positive indications in the arbitration agreement itself which point to English law governing the agreement. Moreover, as the judge [below] points out …, the provision that the arbitral decision shall be final and binding and “�…a complete defence to any attempted appeal or litigation of such decision in the absence of fraud or collusion.’ would be rendered otiose if either party could say in New York that there had been a manifest disregard of New York law.”�
“That itself must be a strong pointer to the arbitration agreement being governed by English rather than New York law. [Defendant's] response was to say that the clause anyway attempted to exclude forms of serious irregularity other than fraud or collusion and that, even in English law, the provision was therefore partially invalid. But that (if true) is a much less serious invalidity than an invalidity which would permit the parties to raise any question of law arising on the award when it was the manifest intention of the parties to exclude that possibility.”�
“For all these reasons [Defendant's] first argument that the proper law of the arbitration agreement was New York law rather than English law cannot get off the ground and the only remaining questions relate to remedy and costs.”�
The court then evaluates the remedy devised by the trial judge. “The judge granted an anti suit injunction preventing the Defendant insurers from initiating proceedings on the [PA] in New York and also preventing them from relying on law of the [sic] New York in any application to enforce the [PA] . [Defendant] reminded us of the caution that the English court always exercises in relation to such injunctions by reason of the possibility that they may be thought to interfere with decisions or potential decisions of a foreign court.”�
“Having every regard to that caution, it nevertheless seems to me that the judge was right not only to grant a final injunction but to frame it in the way in which he did. It is only by doing so that the parties’ legitimate expectations in relation to the [BF] can be respected and enforced. I have already said that the [BF] constitutes a balancing of the opposing interests of the insured and their insurers. If either party was permitted to challenge an award in a manner intended to be excluded by the [BF], that balance would be fatally compromised.”�
“This is just as much in the interest of insurers as well as of the insured. This particular case is one in which it is the insured who seeks injunctive relief but tomorrow it may be the insurer in whose interest it is to uphold the intentions of the parties as expressed in the [BF]. The form of relief is, in any event, a matter for the judge’s discretion with which this court will not lightly interfere. Since the insurers have indicated that they will seek relief unless they are restrained, the judge’s exercise of his discretion is, in my judgment, unassailable.”� [¶¶ 28 30].
Citation: C v. D, [2007] E. W. C. A. 1282, [2007] All E. R.(D) 61 (Dec. 5).
Filed in: 2008 International Law Update, Issue 2
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Ninth Circuit approves injunction against party from pursuing subsequent parallel action in Brazil where Brazilian party had fully taken part in U.S. proceedings and had brought the Brazilian lawsuit seven months after final judgment in U.S.
Triton Container International Ltd. (Triton), a lessor of ocean cargo containers, brought a breach of contract action in the District Court for the Northern District of California against Di Gregorio Navegacao Ltda. of Brazil and several other parties (jointly Di Gregorio). Eventually, the district court awarded Triton almost $4.5 million.
Di Gregorio did not appeal. About seven months later, however, it sued Triton in Brazil based on the same facts. Triton applied to the District Court to enjoin Di Gregorio from pursuing the Brazilian suit but the district court declined on comity grounds. (Di Gregorio failed to appear in the injunction phase of the U.S. case.) The Brazilian court ended up awarding Di Gregorio about $1.8 million, which Triton appealed. The U.S. Court of Appeals for the Ninth Circuit reverses and remands. It held that the district court erred in failing to grant Triton’s application for a permanent injunction.
The Circuit Court points out that Di Gregorio had fully taken part on the merits in the original district court proceeding, and had filed the Brazilian action seven months after the final judgment. Seattle Totems Hockey Club, Inc. v. National Hockey League, 652 F.2d 852, 855 (9th Cir. 1981) held that a federal district court with jurisdiction over particular parties has the power to enjoin them from proceeding with a foreign action to litigate the same issues. Here, the district court only considered comity, and failed to consider the other Seattle Totems factors. See Seattle Totems Hockey Club, Inc. v. National Hockey League, 652 F.2d 852, 855 (9th Cir. 1981) (federal district court with jurisdiction over particular parties has the power to enjoin them from proceeding with a foreign action to litigate the same issues; factors for the court’s consideration include “the convenience to the parties and witnesses, the interest of the courts in promoting the efficient administration of justice, and the potential prejudice to one party or the other.”).
Citation: Triton Container Int’l Ltd. v. Di Gregorio Navegacao LTDA, 2006 WL 626165, No 05-15535 (9th Cir. March 15, 2006).
Filed in: 2006 International Law Update, Issue 3
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Second Circuit affirms denial of injunction against prosecution of lawsuit in Mexico where substance of foreign action turned on issue of Mexican law having to do with standing to arbitrate
A dispute arose between LAIF X SPRL (LAIF X or plaintiff) (a Belgian partnership) and Telinor Telefonia (Telinor) of Mexico. Plaintiff argued that Telinor had illegally diluted its ownership interest in Axtel, S.A. de C.V. (a Mexican telecommunications corporation)(Axtel). Telinor was Axtel’s controlling shareholder. Its bylaws require arbitration of disputes involving the company and its shareholders.
Plaintiff initially filed a demand for arbitration with the American Arbitration Association (AAA). Telinor then sued LAIF X in a Monterrey, Mexico court. Its thrust was that plaintiff had gotten its Axtel shares through an invalid assignment, thus depriving it of shareholder status. Responding to the arbitration demand, Telinor urged that there was no arbitrable dispute; alternatively, it claimed that a court should stay the arbitration pending the outcome of the Mexican lawsuit.
LAIF X then asked for an anti-suit injunction from a New York federal court, contending that Telinor had in fact balked at arbitration. By the time the district court heard the matter, however, it denied the injunction because Telinor had since submitted to arbitration. On plaintiff’s appeal, the U.S. Court of Appeals for the Second Circuit affirms.
Even though Telinor is now taking part in the arbitration, the Court holds that it has enough jurisdiction to rule on whether Telinor’s actions had amounted to a refusal to arbitrate under the Federal Arbitration Act (FAA), 9 U.S.C. Section 4. “‘Under the FAA, the role of the courts is limited to determining two issues: i) whether a valid agreement or obligation to arbitrate exists, and ii) whether one party to the agreement has failed, neglected or refused to arbitrate.’ … A party has refused to arbitrate if it ‘commences litigation or is ordered to arbitrate the dispute [by the relevant arbitral authority] and fails to do so.’ …” [Slip op. 7-8]
Here, even though Telinor had begun to litigate in Mexico, this did not necessarily mean that it has “refused” to arbitrate. In the first place, Telinor answered LAIF X’s arbitration demand, and the AAA panel itself could have decided whether the dispute was arbitrable and whether the panel should stay the arbitration.
Furthermore, where foreign law governs an issue that bears on standing to arbitrate, the submission of this issue to a foreign court need not constitute a refusal to arbitrate. Here, LAIF X was an investor in a Mexican company governed by Mexican law; it thus cannot claim to be handicapped by having a Mexican court decide its shareholder status under that law.
Turning to the merits of the anti-suit injunction, the Court points to the principles of comity that encourages sparing resort to such a measure. “‘An anti-suit injunction against parallel litigation may be imposed only if: (A) the parties are the same in both matters, and (B) resolution of the case before the enjoining court is dispositive of the action to be enjoined. …’”
“Where these threshold requirements are satisfied, ‘courts are directed to consider a number of additional factors, including whether the foreign action threatens the jurisdiction or the strong public policies of the enjoining forum.’ … A salient consideration in this case is that, given ‘the federal policy favoring the liberal enforcement of arbitration clauses,’ an anti-suit injunction may be proper where a party initiates foreign proceedings in ‘an attempt to sidestep arbitration.’”
In conclusion, the Court declares: “… [T]he district court did not abuse its discretion by declining to issue the anti-suit injunction because: (i) principles of comity counsel against issuing the anti-suit injunction; (ii) the United States federal courts have no interest in enjoining Telinor’s Mexican lawsuit; and (iii) Telinor’s Mexican lawsuit is not directed at sidestepping arbitration.” [Slip op. 11-12]
Citation: LAIF X v. Axtel, S.A. de C.V., 2004 WL 2664436; No. 04-1509-cv (2d Cir. Nov. 23, 2004).
Filed in: 2004 International Law Update, Issue12
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English Court of Appeal (Civil Division) sees no abuse of discretion in lower court’s refusal to stay or dismiss English proceedings over parties’ rights to make particular antibiotic in deference to previously filed United States lawsuit against same defendants which plaintiff contended would more appropriately decide same issues
The original plaintiffs here are DSM Anti Infectives BV, a Dutch company which sells ingredients for pharmaceutical products, and DSM Anti Infectives Sweden AB, which makes similar products for the Swedish market (collectively DSM). The first defendant is an English company which produces ingredients for pharmaceutical products. The second defendant is a Pennsylvania company that makes and sells pharmaceutical products using constituents including those supplied by the first defendant. Both defendants are subsidiaries of GlaxoSmithKline plc, an English company (collectively GSK).
In the early 1990s, GSK had come up with strains of a certain bacterium (streptomyces clavuligerus or S.Clav. or SC7). They have used the bacterium to produce clavulanic acid which in turn is used to produce the potassium salt, potassium clavulanate. They combine that salt with a penicillin, amoxicillin, to produce an antibiotic, co amoxiclav (CA), which is more effective than amoxicillin in dealing with certain infections. GSK sells CA under the mark “Augmentin.” DSM sells potassium clavulanate as a bulk product to generic pharmaceutical manufacturers. The defendants later charged DSM with patent infringement and misuse of confidential information, complaining that DSM had allowed other companies to exploit samples of the SC7 purloined from GSK.
After some negotiations, the two sides agreed in 1997 to settle their differences. The Settlement Agreement provided, inter alia, that GSK would not try to sue the claimants for having used the SC7 strain prior to the Agreement. Moreover, GSK reserved its rights to defend against any claims of patent infringement with respect to its use of the strain in the United States.
Finally, Clause 15 provided: “This Agreement shall be governed in all respects by the laws of England and exclusive jurisdiction with respect to all disputes in connection with this Agreement shall be given to the English Courts.”
Later on, GSK found out that two generic drug makers incorporated in Delaware — Teva Pharmaceuticals Inc. (Teva) and Ranbaxy Pharmaceuticals Inc. (Ranbaxy) — were getting ready to sell CA in the U.S. GSK sued these two companies in a Pennsylvania state court. Their complaint charged that the two U.S. companies were planning to vend CA derived from the pilfered SC7.
By leave of the Pennsylvania court, GSK also served process on DSM as additional defendants in September 2003. The complaint generally seeks against DSM (1) an injunction and damages for the misappropriation of a trade secret, (2) an injunction and damages for knowingly obtaining an unfair competitive advantage over GSK, (3) an injunction and damages for conversion of SC7, (4) restitution for unjust enrichment, and (5) the imposition of a constructive trust.
Three months later, DSM sued GSK in the English courts. It sought, inter alia, to have the court enjoin GSK from taking further steps in the U.S. proceedings against it because the suit breached the 1997 Agreement. GSK applied for a permanent stay of those English proceedings under C.P.R. 11 on forum non conveniens grounds, the disputed factual issues being already the subject of the ostensibly more appropriate Pennsylvania proceedings. Alternatively, GSK asked for a stay that would last at least until the Pennsylvania court finally rules on its own jurisdiction.
The English trial judge held that Clause 15 of the 1997 Agreement applied to the subject matter of the dispute in the U.S. proceedings to the degree that it affected DSM. He also decided that he had no jurisdiction to stay his own proceedings pursuant to Article 2 of Council Regulation (EC) 44/2001 on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters.
It declares that: “Subject to the Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State.” The judge therefore dismissed GSK’s application and it appealed.
Pursuant to EC Treaty Article 234 (formerly Article 177), the English Court of Appeal (Civil Division) referred to the European Court of Justice (ECJ) the legal question whether it was inconsistent with the Brussels Convention on Jurisdiction and the Enforcement of Judgments for a court of a Member State to exercise a discretionary power to decline to hear proceedings brought against a person domiciled in that state in favor of the courts of a non contracting state. The ECJ’s decision, however, has not yet come down. The Court then dismisses GSK’s appeal.
The appellate court first decides whether the Agreement covered this dispute “Whilst the primary focus in the Agreement is on settling the disputes relating to the patent infringement alleged by GSK, it is plain from para. 5 (I) that the Agreement went further.”
“The correspondence leading up to the Agreement, … shows that GSK were concerned about the possibility of a misuse of confidential information to produce the strain DSM were using, having regard to GSK’s belief that Dr. Callewaert had stolen a sample of SC7, that DSM had been in contact with him and that DSM had been using Panlabs which employed Dr. Rowlands.”
“In response to GSK’s request for information, DSM had made disclosure to GSK of the genealogy and development details of the Annex VII strain. The bargain struck between GSK and DSM involved each side accepting obligations and amongst those accepted by GSK was an obligation not to take action against the use by DSM of the Annex VII strain. In the Pennsylvania proceedings, GSK themselves so plead. ….” [¶ 34]
The Court of Appeal then turns to the question of whether or not the Agreement has a binding effect as to the proper forum in which to resolve whether DSM has been using the Annex VII strain rather than the stolen SC7 specimens.
“… [S]ubject to the effect of cl. 14 …, the obvious answer is that [the forum] was not left at large but that such dispute is connected with the Agreement and so cl. 15 applies. It is connected with the Agreement because cl. 5 (I) bars GSK from objecting to the use of the Annex VII strain. True it is that that is a factual dispute, but [there is] nothing to prevent such a dispute from being one ‘in connection with’ the Agreement. The possibility of such a dispute arising was plain from the parties’ exchanges prior to the Agreement.” [¶ 35]
“Further, if it were necessary, … for the purposes of this appeal to decide the difficult question whether cl. 14 does permit GSK to bring the Pennsylvania proceedings to determine the issue between the parties as to the strain used to produce clavulanic acid in Sweden and hence potassium clavulanate, [the Court] would hold that it does not. The wording of cl. 14 is significant.”
“It reserves GSK’s rights ‘with respect to Potassium Clavulanate in the [U.S.A.] and in particular its rights to defend and enforce such rights in the [U.S.A.] against any infringement’. Those rights with respect to potassium clavulanate, as defined, are localised to being in the U.S.A. and are rights which might be infringed. That language suggests that the parties were contemplating patent rights, which are territorial, rather than the ownership by GSK of a strain of S. Clav. allegedly used in Sweden.”
“… [T]he foundation of any claim which GSK may have must be DSM’s production in Sweden, and any consequences in the U.S.A. are only secondary to DSM’s activities in Europe and in particular Sweden. If GSK were to obtain against DSM the relief which they seek from the Philadelphia court, in reality they would obtain worldwide relief against DSM as DSM would be estopped from raising against GSK an inconsistent argument elsewhere. … [T]herefore cl. 14 does not entitle GSK to have the issue of whether DSM have been using the SC7 strain rather than the Annex VII strain … determined in the U.S.A. in derogation of cl. 15.” [¶ 38]
In the light of conclusions reached thus far, the Court of Appeal will not hinder the exercise of the trial judge’s discretion to refuse to grant a stay unless GSK can show that the judge erred in law or principle in granting “paramountcy” to the exclusive jurisdiction clause.
The Court rejects DSM’s first claim that GSK’s delay in bringing it into the Pennsylvania proceeding was damaging to it. “The judge has not, in my judgment, been shown to have erred in law or principle in rejecting the alleged prejudice to GSK from the delay as a weighty factor in the exercise of his discretion.” [¶ 42]
Secondly, the trial judge’s concerns about the danger of inconsistent findings did not detract from his exercise of discretion in refusing to stay. “It is plain from the judge’s assessment of this as GSK’s best point that he did recognise that it was an important point. However, matters of weight are for the judgment of the judge exercising his discretion and this court will rarely interfere with that judgment. He was entitled to take note of GSK’s claim of the certainty which their testing would produce even though DSM challenged that claim. The reality is that the possibility of both the Pennsylvania and the English proceedings going ahead and producing inconsistent results is remote. Whichever of GSK and DSM lose in the first case to be tried on the issue of the strain DSM has been using would be estopped from arguing the contrary in the other proceedings.” [¶ 44]
Citation: DSM Anti Infectives BV v. Smithkline Beecham plc, [2004] E.W.C.A. CIV. 1199, [2004] All E.R. (D) 66 (Ct. App. Civ. Div. September 10).
Filed in: 2004 International Law Update, Issue10
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Second Circuit affirms anti-suit injunction against plaintiff in Brazilian litigation where its agreement with U.S. defendant provides for arbitration of dispute and U.S. court has already decided dispute’s arbitrability
Paramedics Electromedicina Comercial, Ltda. (known as “Tecnimed”) distributed the products of the medical equipment manufacturer GE Medical Systems Information Technologies, Inc. (a Wisconsin corporation, hereinafter referred to as “GEMS-IT”) in Brazil. Their two 1999 agreements, a Service Agreement and a Distribution Agreement, contained broad arbitration clauses.
In early 2001, Tecnimed allegedly owed GEMS-IT approximately $1.2 million. Tecnimed, in turn, accused GEMS-IT of bypassing them and selling directly in Brazil. In April 2002, GEMS-IT invoked the arbitration clauses and requested arbitration. In May 2002, Tecnimed filed suit in Brazil, against GEMS-IT and a related company, General Electric do Brasil (“GE Brasil”). Further, Tecnimed alleged that the Inter-American Commercial Arbitration Commission (IACAC) lacked jurisdiction for an arbitration and petitioned a New York State court to permanently stay the arbitration.
Next, GEMS-IT removed the petition to a New York federal court. It also counterclaimed for an order to compel arbitration and for an anti-suit injunction to stay the Brazilian action. In the meantime, in April 2003, the IACAC panel rejected Tecnimed’s challenges to arbitration.
In June 2003, the district court ruled in favor of GEMS-IT. The Court ordered the arbitration and directed Tecnimed to have the Brazilian action dismissed. Tecnimed instead asked the Brazilian court to put the action on a “suspense” calendar. The district court, however, held that this was not enough compliance and imposed sanctions on Tecnimed. Inter alia, it not only ordered Tecnimed to arbitrate the dispute and but also enjoined Tecnimed from continuing the Brazilian action.
Tecnimed appealed from the orders of the district court. The U.S. Court of Appeals for the Second Circuit affirms in part and dismisses in part. As for the anti-suit injunction and the order to arbitrate, the Court affirms.
The standard of review for an anti-suit injunction is abuse of discretion. The Court explains: “It is beyond question that a federal court may enjoin a party before it from pursuing litigation in a foreign forum. [Cite] … But principles of comity counsel that injunctions restraining foreign litigation be ‘used sparingly’ and ‘granted only with care and great restraint.’ …”
“An anti-suit injunction against parallel litigation may be imposed only if: (A) the parties are the same in both matters, and (B) resolution of the case before the enjoining court is dispositive of the action to be enjoined. … Once past this threshold, courts are directed to consider a number of additional factors, including whether the foreign action threatens the jurisdiction or the strong public policies of the enjoining forum. …” [Slip op. 10-11]
Here, Tecnimed argued that GEMS-IT had satisfied neither of the requirements. The Court disagrees. First, although GE Brasil is not a party to the New York action, Tecnimed’s claims against GE Brasil do arise out of the same facts, circumstances, and relationships as alleged in the dispute between Tecnimed and GEMS-IT. Tecnimed’s own complaint in the Brazilian action alleges that GEMS-IT owns more than 70 percent of GE Brasil, and GE Brasil takes an active part in GEMS-IT’s business. Further, Tecnimed served process in the Brazilian action at GE Brasil’s address, claiming that defendant was an affiliate of GEMS-IT.
Secondly, the Court notes that the issue here is whether the ruling on arbitrability disposes of the Brazilian action, even though arbitral panel (not the court) is to resolve the merits of the underlying disputes. Here, the Court concludes that the district court’s ordering of arbitration disposes of the Brazilian action.
Federal policy favors the enforcement of arbitration agreements. “Therefore, ‘the existence of any broad agreement to arbitration creates a presumption of arbitrability which is only overcome if it may be said with positive assurance that the arbitration is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.’ … The arbitration agreement here, covering as it does ‘any controversy, claim or dispute’ arising out of the Agreements, is of the broad type. ‘If the allegations underlying the claims ‘touch matters’ covered by the parties’ … agreements, then those claims must be arbitrated.’ …”[Slip op. 16]
Finally, the Court rules that the foreign proceeding does not threaten a strong public policy or the jurisdiction of the domestic forum. Public policy favors the enforcement of arbitration clauses, particularly in international disputes. Through the Brazilian action, Tecnimed did try to sidestep arbitration, but that alone may not be enough to support an anti-suit injunction. In any case, the fact that one court has already reached a judgment in favor of arbitrability weakens any comity considerations to the contrary.
Citation: Paramedics Electromedicina Comercial, Ltda. v. GE Medical Systems Information Technologies, Inc., 365 F.3d 645 (2d Cir. 2004).
Filed in: 2004 International Law Update, Issue6
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In litigation related to Enron collapse, English Court of Appeal, Civil Division, upholds refusal of first instance court to enjoin defendant from pursuing its suit in New York to decision on merits of claims that mirror issues in English case by rejecting plaintiff’s claims that filing U.S. action was breach of contract as well as vexatious and oppressive
The Royal Bank of Canada (plaintiff or RBC) is a Canadian bank based in Toronto. The Cooperatieve Centrale Raiffeisen Boerenleenbank BA (defendant or Rabobank) is a Netherlands bank, with its principal place of business in Utrecht. Both parties carry on the banking business in London and New York. RBC’s claim rests upon a “swap agreement” with Rabobank recorded in a Total Return Swap Confirmation (TRS) dated in January 2001. The agreement formed part of, and was subject to, the 1995 International Swap Dealers Association Master Agreement (ISDA or Master Agreement).
Under its express terms, English law was to govern both substantive rights and the interpretation of the TRS. ISDA also contained a non exclusive jurisdiction clause authorizing the English courts to decide disputes arising out of a TRS arrangement. It also had the following clause: “Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction… nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction.”
According to their swap agreement, Rabobank was to pay RBC $517m plus $6m interest on June 28, 2002. The TRS formed part of a structured finance deal. It had to do with a block of shares in a publicly traded company called EOG Resources Inc, the shares being owned by Enron Corporation.
The TRS involved two closings. By the second closing on January 31, 2001, RBC had effectively advanced the full sum of $517m to an agreed entity called Heracles Trust. Rabobank’s involvement in the TRS came at the second-closing phase. At this point, there was an Equity Swap with Enron North America, which Enron guaranteed. In the course of the second closing, Rabobank assumed part of the Enron credit risk. The present case deals to a substantial degree with the circumstances surrounding Enron’s demise.
Next, a dispute sprang up between the parties. RBC’s claim was for damages of about $523.8m payable under the contract on June 28, 2002, which Rabobank declared on June 21 it would not pay. On the latter date, Rabobank filed proceedings in the New York state courts — mainly to rescind the TRS agreement. Alternatively, it asked for $523.8m in damages, alleging fraudulent misrepresentation.
RBC filed the instant case in the English courts on the next working day after June 21. The claims and cross claims in the English and New York proceedings mirrored each other. The plaintiff asked the court below to enjoin the defendant from taking any steps to obtain a ruling on any issue raised in the New York proceedings except in the context of completing pretrial discovery. In December 2003, the English court of first instance rejected this application and the plaintiff appealed. The English Court of Appeal (Civil Division), however, dismisses the appeal.
In the lead opinion, the Judge points out that RBC’s broad objections are (1) that Rabobank was acting unconscionably and vexatiously and (2) that it breached its contract when it filed the New York lawsuit. “Its complaint is that the only proper purpose for conducting the New York proceedings was in order to use the New York procedures for disclosure and depositions in order to gather evidence, which can be deployed in this action. In the course of argument before this court, … RBC accepted that, at no stage, had Rabobank given RBC any representation or reason to assume that, having commenced the New York proceedings, they would not be pressed to a hearing and judgment.” [¶ 12]
The lead opinion agrees with the way the lower court sized up the problems that simultaneous litigation in different countries can bring about. He then cites the following comment by the lower court. “All this is unattractive: it presents an extreme example of the ‘ugly rush’ that concerned Lord Brandon. However this cannot, in my judgment, justify the court in interfering with Rabobank’s prima facie right to choose where it litigates, given that the chosen court has internal jurisdiction over the defendant and the dispute, and to pursue the litigation to a determination.”
“The matter, as I see it, must be tested by considering whether Rabobank is guilty of conduct or threatens conduct, that can properly be said to be [1] in breach of any contract right enjoyed by RBC or [2] otherwise unconscionable, vexatious or oppressive, or [3] an abuse of the English Court. Otherwise, it is for the English Court to manage the proceedings before it so as best to minimise these problems and to leave the New York Court to handle the impact of these problems in the New York proceedings.” [¶ 20 (quoting ¶ 82 of trial judge's opinion)]
” … I cannot accept that the court should imply a term into the jurisdiction clause that, in the event that parallel proceedings throw up the possibility of simultaneous trials and one of the sets of proceedings is in the English court, either of the parties is entitled to insist that the English trial should take precedence and be completed before any trial in another jurisdiction can start. Any such implied term would be inconsistent with the express term of the jurisdiction clause.”
“Since I do not accept that it is possible to imply the term proposed … into the jurisdiction clause, it follows that Rabobank’s pursuit of the New York proceedings to a hearing and judgment, being permitted by the terms of the agreement between the parties, cannot constitute a breach of contract by Rabobank [or] vexatious and oppressive conduct.” [¶¶ 24-25]
The lead opinion also touches upon the delicacy of having one national court enjoin a party from litigating in the courts of another sovereign state. ” … Lord Justice Waller accepted that although anti suit injunctions are theoretically in personam, ‘foreign courts do consider such injunctions as an interference with proceedings in that country and that English courts for that reason should be cautious before granting such an injunction.’”
“In the present case the judge had a discretion whether or not to grant the injunction sought. His approach to his decision to refuse the injunction does not reveal any error of law and, in my judgment, he was right to refuse it. In any event it is clear that he was entitled to arrive at that conclusion on the material before him.” [¶ 32] Thus, dismissal of the appeal is appropriate.
A concurring Judge further illuminates the rationale of the Court. “Rabobank submits and the judge accepted that, in addition to the fact that the New York suit is coming on for trial within a usual period, … trial of the issues in New York is of legitimate juridical advantage to it, in so far as its claims include some claims, notably in deceit and fraud which are (Rabobank will submit) subject to New York law and fall outside clause 13(a). The judge accepted this as a valid point and gave it some weight [Cite].”
“In my view, it cannot be right for this court to contemplate interfering indirectly with the trial of the New York suit at this stage, in circumstances when it must be taken, on RBC’s own case, that (a) the New York suit was properly commenced and (b) the New York suit offered Rabobank perceived procedural advantages in terms of pre trial discovery including oral depositions, which RBC itself has not before us sought to deny; and when, further, (c) both parties have, subsequent to the commencement of the English action, vigorously participated in the New York suit over a very considerable period, without any agreement by Rabobank that the New York suit should not go to trial, (d) the New York court was asked to stay its own proceedings on grounds of forum non conveniens and refused in early 2003 in a decision upheld on appeal in June 2003 and (e) the New York trial date has now been fixed in the ordinary course of the New York court’s practice in relation to such a suit, as far as the New York judge is concerned.” [¶¶ 47-48]
Citation: Royal Bank of Canada v. Cooperatieve Centrale Raiffeisen Boerenleenbank BA, [2004] E.W.C.A. Civ. 07, [2004] All E.R. (D) 216 (Jan. 24) (Approved judgment).
Filed in: 2004 International Law Update, Issue3
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In securities fraud case against Belgian auditor, First Circuit adopts “conservative” approach of Second, Third, Sixth and D.C. Circuits and upholds injunction against Belgian defendant from pursuing home court action to penalize U.S. document discovery
Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren (KPMG-B) (defendant) is a Belgian company that served as the auditor of the now bankrupt company, Lernout & Hauspie Speech Products, N.V. (hereinafter “L&H”). Several plaintiffs filed securities fraud actions against KPMG-B and others in the U.S., including the present one. KPMG-B, however, refused to produce auditing records and other documents, contending that revelation would violate Belgian law. A magistrate judge in Massachusetts, however, ordered KPMG-B to produce the documents.
Defendant then requested a Belgian court to levy penalties of $1 million EURO for each violation by those who “take any step of a procedural or other nature in order to proceed with the discovery-procedure.” When the Massachusetts district court issued an anti-suit injunction to prevent plaintiff from pursuing the Belgian action, KPMG-B appealed. The U.S. Court of Appeals for the First Circuit affirms.
The extension of the U.S. legal system beyond U.S. territorial borders is most controversial where a party seeks the production of documents for investigations and litigation in the U.S. The sensitivity of an international anti-suit injunction justifies a heightened level of appellate review, i.e., just short of plenary.
Federal appellate courts have developed two contrasting approaches in this area. The Fifth, Ninth and Seventh Circuits seem to prefer a “liberal” approach. Their doctrine is that an international antisuit injunction is appropriate whenever there is a duplication of parties and issues, and the court finds that carrying out simultaneous proceedings would frustrate the speedy and efficient determination of the U.S. case.
On the other hand, the “conservative” method of the Second, Third, Sixth and D.C. Circuits is narrower. It demands that the lower court find out whether a party’s pursuit of the foreign lawsuit either (1) imperils the jurisdiction of the forum court or (2) threatens some strong national policy. The “conservative” approach thus gives more weight to international comity.
The First Circuit here rejects the “liberal” philosophy. “We stop short, however, of an uncritical acceptance of the conservative approach. The recent expositions of that approach have come to regard the two main rationales upon which international antisuit injunctions may be grounded – preservation of jurisdiction and protection of important national policies – as exclusive. … We are uncomfortable with this gloss, for it evinces a certain woodenness. In our view, the sensitive and fact-specific nature of the inquiry counsels against the use of inflexible rules.”
“We therefore reject this reworking of the conservative approach and instead endorse its traditional version. That version is not only more flexible but also more consistent with [Laker Airways Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909 (D.C. Cir. 1984)] – which we regard as the seminal opinion in this field of law. The Laker Airways court did not suggest that its two stated rationales were the only ones that could justify issuing an international antisuit injunction. … Rather, the court indicated that it was prudent to use a wider-angled lens, making it clear that the equitable considerations surrounding each request for an injunction should be examined carefully.”
” … The gatekeeping inquiry is, of course, whether parallel suits involve the same parties and issues. Unless that condition is met, a court ordinarily should go no further and refuse the issuance of an international antisuit injunction. … If — and only if — this threshold condition is satisfied should the court proceed to consider all the facts and circumstances in order to decide whether an injunction is proper. In this analysis, considerations of international comity must be given substantial weight – and those considerations ordinarily establish a rebuttable presumption against the issuance of an order that has the effect of halting foreign judicial proceedings.” [Slip op. 16-17]
Applying this approach to the present case, the Court finds that the district court acted within its discretion in enjoining KPMG-B from pursuing the Belgian action. The lower court soundly applied the traditional test for granting preliminary injunctions, and took into account all critical factors. These included: (1) international comity, (2) the character of the foreign action, (3) the public policy protecting investors from securities fraud, (4) the need to protect the court’s own processes, and (5) balancing the equities.
[Editors' Note: similar aspects of the L&H bankruptcy have already been litigated in the U.S., see, e.g., 2002 International Law Update 165.]
Citation: Quaak v. Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren, No. 03-2704, 2004 WL 415282(1st Cir. March 8).
Filed in: 2004 International Law Update, Issue3
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House of Lords rules that, rather than risk inconsistent results from having some parties litigate similar issues in New York federal court and some litigate in England, it would decline to enforce contract clauses designating U.K. as having exclusive jurisdiction over contract-related disputes
A Mr. Donohue is involved in litigation in New York and has asked the English courts to enjoin five companies in the Armco group from further prosecution of their civil action. The New York plaintiffs consist of Armco Inc, which is the parent company of the Armco group, a U.S. conglomerate along with four companies known as AFSC, AFSIL, APL and NNIC. These five are potential defendants in the English courts and named appellants before the House of Lords. In addition to Donohue, there are 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.
The British National Insurance Group (BNIG) used to be part of the Armco group but stopped writing new policies in 1984 leaving Armco to deal with claims under existing policies. Long time Armco executives, Messrs. Rossi and Stinson, both U. S. citizens and residents, handled the negotiations for Armco. The prospective buyers were Messrs. Donohue and Atkins (who have since settled out of court). The latter were senior Armco executives, both of them being U.K. citizens who lived in Singapore and England respectively.
AFSIL and AFSEL had owned the shares of BNIG. To carry out a sale of the business, Armco sold its shares in BNIG to newly-incorporated CISHL. Various corporations in the group then injected over $42 million in cash and shares into CISHL. In September 1991, AFSIL and AFSEL transferred all of their assets in BNIG into CISHL. On the same date, a Jersey company named Wingfield acquired all of the CISHL shares under a sale and purchase agreement. BNIG then renamed itself the North Atlantic Insurance Group (NAG). The leading company in this group was the North Atlantic Insurance Company, Ltd. (NAIC).
In 1997, NAIC went into provisional liquidation with other group companies which filed winding-up petitions before the English High Court. Mr. Atkins had quit the NAG in 1995 but made several important statements to Armco lawyers during 1998 on which Armco heavily relies to support their case. On August 5, 1998, the five Armco appellants filed suit in New York federal court against NAIC, Messrs. Donohue and Atkins, all of the six PCCs, i.e., Messrs. Rossi and Stinson and their respective companies, Wingfield and CISHL, and NPV Ltd. (a Nevis company). The complaint alleged “an international fraud of immense proportions.”
As the Lords’ lead opinion summarizes the complex Armco side’s case: “[t]hey 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.” [para. 9] Other alleged skulduggery involved setting up various debt-collection arrangements with NPV to generate exorbitant fees for themselves. To the same end, they were depleting various corporate trust funds. The New York proceedings also included invocations of the Federal Racketeer Influenced and Corrupt Organizations Act [18 U.S.C. Section 1962(c)] (RICO), which allows a successful plaintiff to recover punitive damages.
On March 8, 1999, Donohue applied for an anti-suit injunction and for joinder of the PCCs as claimants in the English court. The English court of first instance denied Donohue’s request to join the American PCCs and declined to grant him an injunction against the New York proceedings in July 1999. Importantly, the first instance judge concluded that many of the New York disputes fell outside the EJCs. He also ruled that the EJCs in the three agreements did not bind Armco.
The English Court of Appeal, however, enjoined Armco Inc., AFSC and AFSIL from litigating against any of the claimants, i.e., Messrs. Donohue, Rossi and Stinson, IROS, ITRS, Wingfield and CISHL, in any court other than those of England and Wales about any dispute stemming from the 1991 management buy-out involving the BNIG.
The House of Lords granted review and allows the appeal. It notes initially that there were two key but uncontested matters. First, on the Armco side, the only parties to these agreements were Armco, AFSIL, AFSEL and AFSC. The Donohue side included CISHL, Wingfield, Donohue and Atkins. Secondly, each of the agreements expressly stipulated (1) that English law governed each contract (CHOL clauses) and (2) that the English courts had exclusive jurisdiction (EJC clauses). The latter clauses generally read as follows: “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.” Each agreement also provided for service on a named agent of the sellers’ solicitors in England.
The Lords first distinguish between two groups of PCCs. As to the first, the Lords declare: “… if the court should consider it desirable to do so there is no jurisdictional objection to the grant of leave to add CISHL and Wingfield as claimants in Mr Donohue’s action and to give leave (if it were needed) to CISHL and Wingfield to serve AFSIL and Armco, Inc. (as the successor to AFSEL) out of the jurisdiction. The basis of their claim is in principle the same as that of Mr Donohue, but since they seek to be added to existing proceedings they must persuade the court that it is desirable to add them.” [para. 17]
The matter is different, however, for four of the PCCs. Messrs. Rossi and Stinson and their companies were not parties to the agreements nor do they qualify to serve outside the jurisdiction. As a result, none could bring an independent proceeding against any Armco company in England without their consent. In response, they contended that they had a substantial cause of action that would entitle them to obtain an injunction. The Lords of Appeal disagree.
In the lead opinion, the Lords of Appeal itemize the principles of English law that control the grant or denial of an injunction against foreign litigation. “(1) The jurisdiction is to be exercised when the ends of justice require it. (2) Where the court decides to grant an injunction restraining proceedings in a foreign court, its order is directed not against the foreign court but against the parties so proceeding or threatening to proceed. (3) An injunction will only be issued restraining a party who is amenable to the jurisdiction of the court, against whom an injunction will be an effective remedy. (4) Since such an order indirectly affects the foreign court, the jurisdiction is one which must be exercised with caution.” [para. 19]
The New York judge was correct, in the Lords’ view, when he stressed that his suit involved U.S. plaintiffs, mostly U.S. or non-English defendants, and an alleged fraudulent scheme that was hatched in New York. Moreover, the domiciles of the Armco companies are Ohio, Delaware, Wisconsin and Singapore. Rossi and Stinson have no links to England. As a result, England is not the natural forum for this case and the New York proceedings are neither vexatious nor oppressive. Nor does the amenability of Armco, AFSC and AFSIL under the EJCs to English jurisdiction enable these PCCs to bring an English claim they could not otherwise have filed. “It would be wrong in principle to allow these PCCs to use Mr Donohue’s action as a Trojan horse in which to enter the proceedings when they could have shown no possible ground for doing so in their own right.” [para. 21]
The next question is whether the court should grant Mr. Donohue his injunction. “If contracting parties agree to give a particular court exclusive jurisdiction to rule on claims between those parties, and a claim falling within the scope of the agreement is made in proceedings in a forum other than that which the parties have agreed, the English court will ordinarily exercise its discretion (whether by granting a stay of proceedings in England, or by restraining the prosecution of proceedings in the non contractual forum abroad, or by such other procedural order as is appropriate in the circumstances) to secure compliance with the contractual bargain, unless the party suing in the non contractual forum (the burden being on him) can show strong reasons for suing in that forum. … Where the dispute is between two contracting parties, A and B, and A sues B in a non contractual forum, and A’s claims fall within the scope of the exclusive jurisdiction clause in their contract, and the interests of other parties are not involved, effect will in all probability be given to the clause. [Cites] A similar approach has been followed by courts in the United States, Canada, Australia and New Zealand.” [paras. 24-25]
The Lords then analyze the factors favoring injunctive relief for Mr. Donohue. “[He] has as against the first three Armco appellants a strong prima facie right not to be the subject elsewhere than in England of claims by those companies falling within the scope of the [EJC] clause. Some of the claims made against him by those companies in New York do fall within the clause. … Much more significant, from Mr Donohue’s viewpoint, are the RICO claims made against him. They could not be pursued against him in England. They could, if established in New York, lead to the award of swingeing [punitive] damages against him. On agreement of the exclusive jurisdiction clause he could reasonably have felt confident that no RICO claim arising out of or in connection with the agreements could be pursued against him and it would represent an obvious injustice if he were now to be exposed to those claims.” [para. 29]
“There is, as always,” the Lords continue, “another side to the coin. All five Armco appellants have a clear prima facie right to pursue against Messrs. Rossi, and Stinson and their respective companies any claim they choose in any convenient forum where they can found jurisdiction. They have successfully founded jurisdiction in New York. It must further be noted that APL and NNIC have a clear prima facie right to pursue against Mr Donohue, Wingfield and CISHL also any claim they choose in any convenient forum where they can found jurisdiction. They have successfully founded jurisdiction in New York. Similarly, the first three Armco appellants have a clear prima facie right to pursue against Mr Donohue, Wingfield and CISHL any claim not covered by the exclusive jurisdiction clauses in any convenient forum where they can found jurisdiction. They have successfully founded jurisdiction in New York.” [paras. 30, 31 & 32]
The Lords then weighs the possibility of litigation going ahead both in New York and in London. “The crucial question is whether, on the fact of this case, the Armco companies can show strong reasons why the court should displace Mr Donohue’s clear prima facie entitlement. If strong reasons are to be found, … they must lie in the prospect, if an injunction is granted, of litigation between the Armco companies on one side and Mr Donohue and the PCCs on the other continuing partly in England and partly in New York. What weight should be given to that consideration in the circumstances of this case?” [para. 33]
“I am driven to conclude that great weight should be given to it. … A procedure which permitted the possibility of different conclusions by different tribunals, perhaps made on different evidence, would in my view run directly counter to the interests of justice. In my opinion, and subject to an important qualification, the ends of justice would be best served by a single composite trial in the only forum in which a single composite trial can be procured, which is New York, and accordingly I find strong reasons for not giving effect to the exclusive jurisdiction clause in favour of Mr Donohue. In New York proceedings Mr Donohue will be entitled to claim that the sale and purchase agreement is governed by English law. …”
“The qualification is that he should be protected against liability under the RICO claims made against him because of the obvious injustice to him which such liability would in the circumstances involve. [The Court then accepts the following undertaking by Armco:] ‘The Armco companies … confirm that they undertake not to enforce against Mr Donohue, Wingfield or CISHL any multiple or punitive damages awarded in the New York proceedings whether awarded pursuant to the RICO statute or common law.’” [paras. 34, 36 & 39]
Citation: Donohue v. Armco et al., 2001 WL 1479758, [2002] 1 All E.R. (Comm) 97, [2001] U.K.H.L. 64 (House of Lords, December 13, 2001).
Filed in: 2002 International Law Update, Issue 2
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English Court of Appeal upholds injunction against continuance of California breach of contract litigation since contract itself barred such suit and applicable English law warranted injunctive relief from contractually barred suits
Utrecht – America Finance Company is a Delaware corporation with its main place of business in New York. Indirectly, it is a wholly-owned subsidiary of a Dutch bank doing business as Rabobank Nederland (RN). National Westminister Bank PLC (NWB) and RN each agreed to furnish Yorkshire Food Group PLC (YFG) and certain of its subsidiaries a total of $100,000,000 as a credit facility. The YFG subsidiaries were either English or U.S. corporations.
In October 1997, NWB, Utrecht, RN, YFG and a Delaware subsidiary of YFG d.b.a Yorkshire Dried Fruit & Nuts, Inc. entered into a “take-out agreement” (TOA). The TOA brought about a novation under which Utrecht took out or bought NWB’s one-half interest in the credit agreement.
Two years later, RN and Utrecht sued NWB plus various individual directors and officers of certain YFG subsidiaries in a California court. Plaintiffs (or “Utrecht”) alleged fraudulent concealment of material information, negligent failure to disclose information and a breach of good faith or fair dealing in failing to disclose such information to Utrecht. NWB filed an answer and counterclaim on January 3, 2000 accompanied by a letter stating that it was doing so to avoid waiver or forfeiture under California procedural rules and without prejudice to its right to file suit in the English courts based on the same claims.
Fifteen days later, NWB began the present litigation in England. Three weeks after that, without seeking an interlocutory injunction, it applied for summary judgment seeking declaratory relief and an injunction barring plaintiffs from further proceeding in the California courts. On August 1, 2000, Utrecht applied for an order staying the English action until after completion of the California proceedings. The court of first instance declined to stay the proceedings and issued NWB the requested declaratory judgment and injunction. Upon Utrecht’s appeal, the Court of Appeal dismisses.
The TOA contained detailed provisions as to the substance of the agreement and as to the type of information to which each party was to be entitled. In addition, it provided that each party submits to the jurisdiction of the English courts over any dispute arising out of the TOA and the buyer appointed RN, London Branch, as its fully authorized agent to accept process issuing out of any English litigation over the TOA.
Under the TOA, each party waived any forum non conveniens objections to litigating in the English courts and agreed that a resulting English judgment may be enforced against it in the courts of any other jurisdiction. These provisions do not preclude any party from litigating TOA issues in any other court of competent jurisdiction or “concurrently in more than one jurisdiction.” Finally, the choice-of-law clause opted for the application of English law.
Utrecht’s main goal in its appeal is to have the injunction set aside so that it can complete the California litigation. The Court of Appeal first compares the two competing systems of law, then finds it logical to consider the lower court’s denial of the request for a stay of the present case.
Under English law, the TOA would not impose a duty on one party to disclose material facts to the other. Only reliance upon a misrepresentation by the other side would warrant damages or other relief. On the other hand, California law apparently does recognize a legal duty in the TOA type of contract for each side to disclose material facts.
As to the question of staying the present proceedings, the Court agrees that Utrecht properly did not try to make a case based on forum non conveniens in view of the TOA’s waiver provisions noted above. Nor, in light of the TOA’s terms, should the court below have exercised its concededly inherent power to manage the cases before it.
Analyzing the English case law, the Court concludes that this is not a suitable case for enjoining the continuance of the California proceedings, because they are generally vexatious or oppressive. Indeed, many factors link the dispute to that jurisdiction, and the TOA expressly allows a party to bring TOA proceedings in any court.
“However, for the reasons I have given, the position is radically different once it is held that Utrecht are in breach of contract in pursuing their claim in California. It follows that the question whether the judge was right to hold that Utrecht were in breach of the TOA in that regard is crucial to the outcome of this appeal, and that the judge was entirely justified in embarking on NWB’s summary judgment application.” [para. 38]
Paragraph 8.2(d) of the TOA provides that “the Seller may be in possession of material non public information relating to the Transfer Assets and which may affect the Purchase Price which the Seller shall be under no obligation to disclose to the Purchaser and the Purchaser hereby acknowledges and agrees that the Seller shall have no liability to the Purchaser, and the Purchaser shall bring no action against the Seller in relation to the non disclosure of such information, provided that nothing in this sub clause (d) shall affect the rights of the Purchaser in relation to the Seller Warranties.”
As an aid to finding out what the parties intended to embody in Clause 8.2(d), the Court sketches the context of the TOA. “The contract was negotiated at arm’s length by two large banks, both of which were advised by skilled commercial lawyers. Each bank knew that the other might have information of the type described in the clause which would affect the price if it were disclosed. Yet each bank expressly agreed that there would be no duty on the part of either bank to disclose the information. It was thus agreed by each that the other could deliberately keep to itself information which it knew would assist it to negotiate the price or indeed to decide whether to enter into the contract at all.” [para. 49]
“The agreement is clear and unambiguous and protects both banks from liability for non disclosure, however much each might be liable for negligence or fraud under Californian law if there were a duty of disclosure. If there is no duty to disclose I do not see how either bank can be liable for breach of it, whatever its intentions and wherever the action is brought. Moreover each expressly agreed not to sue the other anywhere relying upon non disclosure of the information referred to in clause 8.1(c) and 8.2(d). Yet, …Utrecht has sued NWB in America alleging just such non disclosure.” [para. 52]
NWB further contended that clause 8.2(d) failed to meet the “reasonableness” test of Section 11(1) of the Unfair Contract Terms Act of 1977. It provides that: “In relation to a contract term, the requirement of reasonableness is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably have been, known to or in the contemplation of the parties when the contract was made.”
The Court of Appeal, however, is not persuaded. “There was nothing unreasonable about either clause 8.1(c) or clause 8.2(d), freely negotiated as they were between banks of this kind. It should be noted that the clauses do not purport to exclude liability for negligent or fraudulent misrepresentation or, indeed, any notion of fraud as it is known to English law.” [para. 59]
Finally, the Court sees no abuse of discretion in permanently enjoining Utrecht from continuing the California suit. “The grant of an injunction is of course an equitable remedy and the court thus had a discretion whether or not to grant it. However, the conclusions that Utrecht is in breach of contract in bringing the proceedings in California and that it would be in continued breach of contract if it were to continue with them make such proceedings vexatious and oppressive. There is a plain risk that, unless restrained, Utrecht will continue with them. The grant of an injunction in these circumstances does not offend the principles of comity in any way.” [paras. 73-74]
Citation: National Westminster Bank Plc v Utrecht America Finance Co., Court of Appeal (Civil Division), May 10, 2001 (Smith Bernal Transcript).
Filed in: 2001 International Law Update, Issue7
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In suit over Indian air crash, House of Lords overturns unprecedented lower court injunction that barred English claimants from continuing to litigate against Airbus in Texas courts
On February 14, 1990, an Airbus A320 aircraft, Indian Airlines’ flight IC 605, crashed near Bangalore, India. The Airlines (IC) operates domestically in India and had bought the French-made plane from Airbus (AB) in 1989. Though most of the casualties were Indian citizens, eight of those injured or killed were English citizens and three were Americans. An Indian board of inquiry concluded that pilot error had caused the crash.
On February 12, 1992, several English claimants of Indian origin sued IC and the airport operator (HAL) in the Indian courts. Along with the American claimants, they also sued AB and others in Texas state court seeking compensatory and punitive damages under Texas product liability principles. At the time of filing, Texas law did not allow for dismissals on grounds of forum non conveniens. In May 1993, AB voluntarily conceded that the Texas courts had personal jurisdiction over it under the Texas long-arm statute, presumably based on its prior sale of an aircraft in Texas.
In November 1995, AB filed suit in the English courts to enjoin the English claimants from pursuing the Texas litigation on the grounds that those proceedings were oppressive and vexatious. The lower court denied the injunction and AB appealed. In the first reported English decision to issue an injunction to protect the jurisdiction of a non-English court, the Court of Appeal (Civil Division) allowed the appeal.
The Court found that India was the most convenient forum. The courts of France, AB’s headquarters, as well as the place of manufacture and purchase of the A320 aircraft, would also be a natural forum under the Brussels Convention on Jurisdiction and Judgments. There was no significant link, however, between this litigation and the Texas courts or its substantive law.
The injunction will, practically speaking, terminate the English claimants’ suits against AB. This is more than counterbalanced, in the Court’s view, by their attempt to gain illegitimate and oppressive advantages by suing in an unrelated forum and by invoking ungermane Texas law as to strict liability and punitive damages.
Leave was then given for defendants to appeal to the House of Lords. In a wide-ranging and scholarly opinion by Lord Goff of Chievely, concurred in by the other four members of the Appellate Committee, the Lords allow the appeal and order the injunction dissolved.
As to the problem of the inconvenient forum, Lord Goff first summarizes the Civil Law approach as embodied in the Brussels Convention of 1958. It sets forth a tightly structured jurisdictional system aptly designed to avoid clashes between national systems. A certain undesirable rigidity, however, may result from this technique.
In the common law system, in contrast, Lord Goff sees a “jungle” of broad and conflicting standards of jurisdiction. The courts have adopted a more flexible approach to these problems with forum non conveniens as a self-denying judicial doctrine to guide cases toward the clearly more appropriate forum. Well developed in the U.S., it has spread to England, Canada, New Zealand, Australia, India and (perhaps) to Japan.
In Lord Goff’s view, this case starkly presents the question of whether and to what extent international comity should act as a brake on the power of the English courts to order English parties to drop foreign proceedings. The typical case is where the English court deems itself the natural forum, thus leading it to enjoin the foreign case. This is an “alternative forum” case, however, where Texas and India, but not England, are the choices.
In this case, India is clearly the more appropriate forum. Its court lacks jurisdiction, however, to restrain the English defendants from continuing to litigate in Texas. Moreover, at the applicable time, Texas did not have a forum non conveniens doctrine. AB is thus asking the English courts to exercise its raw power over defendants in favor of the Indian courts.
“I am driven to say that such a course is not open to the English courts because … it would be inconsistent with comity. In a world which consists of independent jurisdictions, interference, even indirect interference, by the courts of one jurisdiction with the exercise of the jurisdiction of a foreign court cannot in my opinion be justified by the fact that a third jurisdiction is affected but is powerless to intervene. The basic principle is that only the courts of an interested jurisdiction can act in the matter; and if they are powerless to do so, that will not of itself be enough to justify the courts of another jurisdiction to act in their place. Such are the limits of a system which is dependent on the remedy of an anti suit injunction to curtail the excesses of a jurisdiction which does not adopt the principle, widely accepted throughout the common law world, of forum non conveniens.” [trans.]
Lord Goff concludes by noting that forum non conveniens rests on the exercise of self restraint by an independent jurisdiction. In this sense, it is “one of the most civilized of legal principles.”
Citation: Airbus Industries GIE v Patel et al., (transcript) (House of Lords, 2 April 1998). [See 1996 Int'l Law Update 126].
Filed in: 1998 International Law Update, Issue 4
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