ENGLISH COURT GRANTS ANTI-SUIT INJUNCTION ORDERING THE DEFENDANT TO DISCONTINUE ITS CLAIM IN A NEW YORK COURT UNDER A D&O INSURANCE POLICY

In a recent case, the English High Court (the Court) granted XL Insurance Company (XL) a final anti-suit injunction restraining Peter Little (PL) from pursuing litigation proceedings against XL in the District Court of the Southern District of New York (the New York proceedings), on the basis that PL was bound by the arbitration agreement mandating London-seated arbitration in the directors’ and officers’ (D&O) insurance policy (the Policy) issued by XL to PL's former employer, Barclays PLC (Barclays).

While this decision does not advance the law in this area, it highlights a key advantage of choosing London as the arbitral seat, particularly in sectors where claims are likely to be brought by parties who had not themselves entered into the arbitration agreement.

Background

PL is a New York resident who formerly worked for Barclays in New York. In December 2018, he commenced the New York proceedings against XL, claiming damages for breach of contract, breach of an alleged implied covenant in the Policy of good faith and fair dealing, and a declaration that there was coverage available under the Policy for his costs in respect of proceedings brought against him by the Board of Governors of the Federal Reserve System of the United States of America.

On February 2019, XL filed an arbitration claim form in the Court (the English proceedings) seeking to restrain PL from pursuing the New York proceedings in breach of the arbitration clause in the Policy, which provides that "any dispute or difference which may arise under or in connection with this [P]olicy" is to be submitted to LCIA arbitration in London.

The Court granted an interim injunction on a without notice basis on 11 February 2019 , together with permission to serve the arbitration claim form and the Court's order on PL out of the jurisdiction pursuant to r.62.5(1)(c) of the Civil Procedure Rules. This was continued with notice on the return date of 22 February 2019.

PL was served with the English proceedings both directly, by a process server at his home address on 16 February 2019, and through the Foreign Process Section of the High Court on 11 March 2019. However, he did not acknowledge service nor take any part in the English proceedings.

Decision

The Court found that it was just and convenient to grant a final injunction restraining PL from pursuing the New York proceedings and to make an order requiring him to take steps to discontinue and withdraw those proceedings.

It is well settled that, where foreign proceedings are brought in breach of a London arbitration agreement, the Court has the jurisdiction to enforce the claimant's prima facie right under English contract law to enforce the negative aspect of that agreement by granting an anti-suit injunction under Section 37 of the Senior Courts Act 1981, unless the defendant can show strong reasons to refuse the relief. This is on "the simple and clear ground that the defendant has promised not to bring" such foreign court proceedings (per Lord Mance in AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35, approving and following a number of authorities, including The “Angelic Grace” [1995] 1 Lloyd’s Rep 87).

In this case, the Court held that there was no reason to refuse relief, let alone a strong one. In particular, XL had made its application for an anti-suit injunction promptly and before the New York proceedings were very far advanced; XL had not submitted to the jurisdiction of the New York court; English law was the proper law of the Policy, under which the issues in dispute arose; and London was the seat of the arbitration which PL would have to commence if he wished to pursue his claims. Moreover, there was no evidence before the Court that there was any good reason why PL could not and should not pursue his claim in accordance with the dispute resolution provisions in the Policy.

One of the submissions made on PL's behalf in opposing XL's Motion to Dismiss the New York proceedings was that PL was not bound by the arbitration agreement in the Policy because he was not involved in the negotiation, purchase or receipt of the Policy, and he and his legal advisors did not see the Policy until December 2018 and did not receive a copy until February 2019. This argument was, however, misconceived as a matter of English law.

Indeed, in each of the three causes of action he was advancing in the New York proceedings, PL was clearly claiming rights conferred under the Policy. It is well established under English law that he was not entitled to seek to take the benefit of the rights conferred by the Policy without the burden of the obligation to comply with its dispute resolution provisions. PL's argument that part of his claim could not fall within the scope of the arbitration agreement was also a bad one; the dispute resolution clause was wide enough to cover all of PL's claims.

Comment

As this case helpfully reminds us, where claims are brought in a foreign court under a contract which contains a London arbitration agreement, the English courts show no diffidence in granting an anti-suit injunction to protect the defendant's contractual right to have any claims brought against it pursued in arbitration, even though the foreign court would not consider the claimant to be bound by the arbitration agreement and might therefore assume jurisdiction over those claims.

This has already been well established in the context of anti-suit injunctions granted against subrogated insurers and other third parties which have brought claims in a foreign court to enforce rights they have acquired under a bill of lading which, as a matter of English law (but not the law of the jurisdiction where the claims have been brought), incorporates a London arbitration agreement.

Parties including a London arbitration agreement in their contract can therefore be confident that the English courts will protect their valuable contractual right to have all disputes arising in connection with that contract determined in arbitration in London and not to be vexed with litigation other than in that forum, including claims brought by third parties. In this case, not only did the Court order PL to discontinue and withdraw the New York proceedings, it also restrained PL from commencing proceedings anywhere else other than by way of LCIA arbitration in London in accordance with the Policy, and ordered PL to pay XL's costs of the English proceedings on the basis that he had been aware of the dispute resolution clause before he commenced the New York proceedings.

It should be noted, however, that if the claimant in the foreign proceedings does not voluntarily comply with the Court's order, and the defendant is unsuccessful in challenging the jurisdiction of the foreign court notwithstanding the anti-suit injunction, the defendant may wish to consider commencing arbitration proceedings in order to obtain an award, particularly if the claimant has assets in the UK or in another New York Convention signatory country other than the country in which the vexatious claims were brought. Indeed, if the foreign court where those claims were brought assumed jurisdiction on the basis that the claimant was not bound by the relevant arbitration agreement, then there is a significant risk that enforcement of the award in that jurisdiction would be refused on the basis that there was no binding arbitration agreement between the parties.

For further information, please contact Craig Tevendale, Partner, Naomi Lisney, Senior Associate or your usual Herbert Smith Freehills contact.