House of Lords
|Session 2001- 02
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|Judgments - Donohue v. Armco Inc and Others
HOUSE OF LORDS
Lord Bingham of Cornhill Lord Mackay of Clashfern Lord Nicholls of Birkenhead Lord Hobhouse of Wood-borough Lord Scott of Foscott
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
ARMCO INC AND OTHERS
ON 13 DECEMBER 2001
 UKHL 64
LORD BINGHAM OF CORNHILL
1. The issue in this appeal is whether an injunction should have been granted to restrain the prosecution of proceedings in New York and, if so, in whose favour it should have been granted.
2. By a summons issued on 8 March 1999 Mr Donohue, the respondent to this appeal, sought such an injunction against the five companies, all of them in the Armco group, which are named as the appellants before the House. Aikens J at first instance declined to grant an injunction:  2 Lloyd's Rep 649. His decision was reversed by a majority of the Court of Appeal (Stuart-Smith and Sedley LJJ, Brooke LJ dissenting)  1 Lloyd's Rep 579, who granted an injunction. The facts giving rise to this appeal were helpfully summarised by the judge and Stuart-Smith LJ: see at pp 651-654 and 582-585 of the respective judgments. Stuart-Smith LJ also appended to his judgment, at p 601, an annex giving details of the companies and individuals involved in the proceedings and an explanation of the acronyms used in his judgment. Both the factual summary and the annex should be treated as incorporated in this opinion, which permits more economical reference to be made to the background history.
3. The parties fall into two camps. One camp comprises Armco Inc, the parent company of the Armco group, a conglomerate based in the United States, and four other companies known by their initial letters (AFSC, AFSIL, APL and NNIC). These five companies are plaintiffs in the New York proceedings already mentioned and defendants (or potential defendants) in this English action and are named as appellants before the House. This camp also included Armco Financial Services Europe Ltd ("AFSEL"), a company which has now been dissolved.
4. The second camp comprises, first of all, Mr Donohue, a defendant in the New York proceedings and the claimant here. It also comprises a number of potential co-claimants (PCCs), all of them defendants in the New York proceedings: Mr Rossi and his Ohio company known as ITRS; Mr Stinson and his Ohio company known as IROS; Wingfield Ltd, a Jersey company; and another Jersey company known as CISHL. Another defendant was sued in New York, Mr Atkins, but he settled the claim against him.
5. The Armco group formerly included several insurance companies together known as the British National Insurance Group (BNIG). The BNIG ceased to write new business and entered run-off status in 1984. It thus represented a liability to Armco, since claims under existing policies had to be met, and negotiations for the sale of the business were set in train. On the Armco side, the negotiations were conducted by Messrs Rossi and Stinson, two senior and long-serving Armco executives, both of them United States citizens and residents. The prospective buyers were Mr Donohue and Mr Atkins, also senior and long-serving Armco executives, but United Kingdom citizens resident in Singapore and England respectively.
6. The shares in the BNIG were owned by AFSIL and AFSEL. To effect the sale of the business Armco sold its shares in the BNIG. To this end it incorporated CISHL. AFSC injected US$32.5m in cash and securities into CISHL. A further US$10m was transferred from AFSEL to CISHL. On 3 September 1991 AFSIL and AFSEL each executed an agreement (referred to as "the transfer agreements") transferring all their assets in the BNIG into CISHL. On the same day Wingfield acquired all the shares in CISHL under a sale and purchase agreement bearing the same date under which Wingfield was named as the purchaser. After the sale the BNIG was renamed the North Atlantic Insurance Group (NAG), the leading company of which was called the North Atlantic Insurance Company Ltd (NAIC).
7. Many of the facts surrounding these transactions are the subject of acute controversy between the parties. But two points central to this appeal are not in doubt. First, the only parties to these three agreements were (on the Armco side) AFSIL, AFSEL and AFSC and (on what may be called the Donohue side) CISHL, Wingfield, Mr Donohue and Mr Atkins. It is now accepted that, on the dissolution of AFSEL, Armco Inc succeeded to the rights and obligations of that company, so it also is to be treated as a party to one of the transfer agreements and to the sale and purchase agreement. But the other companies in the Armco group (APL and NNIC) and several of the PCCs (Messrs Rossi and Stinson and their respective companies ITRS and IROS) were not parties to any of the three agreements. Secondly, each of the three agreements contained an express stipulation that the contract was governed by English law, made provision for service on a nominated agent of the vendor's solicitors in England and, most importantly, provided for the exclusive jurisdiction of the English court. In the sale and purchase agreement it was provided that "the parties hereby irrevocably submit themselves to the exclusive jurisdiction of the English Courts to settle any dispute which may arise out of or in connection with this Agreement". The exclusive jurisdiction clause in each of the transfer agreements was differently worded, but no point has been taken on the difference of wording.
8. Several years passed before, in early 1997, NAIC went into provisional liquidation with other group companies and a winding up petition was presented to the High Court. From about this date, it appears that there were a series of discussions between a lawyer representing Armco and Mr Atkins, who had resigned from the NAG in 1995. Mr Atkins made a series of statements, the last of them in evidence dated September 1998. On this statement Armco strongly rely in support of their case.
9. On 5 August 1998 proceedings were issued by the five Armco appellants in New York against NAIC, Mr Donohue, Mr Atkins, all the six PCCs (Messrs Rossi and Stinson and their respective companies, Wingfield and CISHL), and NPV Ltd (a Nevis company). The proceedings were based on what the amended complaint described as "an international fraud of immense proportions". The amended complaint is a substantial document, running to more than 70 pages and including 17 specific counts. It is not easily summarised, but the broad thrust of the Armco companies' case is clear enough. They contend that a secret agreement (recorded in writing) was made between Messrs Donohue, Atkins, Rossi and Stinson in New York in April 1991. Pursuant to this agreement Armco would be fraudulently induced to inject an extra-large sum into the BNIG and the four would then buy the BNIG, thus enriched, through Wingfield, a Jersey company which they (or some of them) owned. Since Messrs Rossi and Stinson were Armco executives negotiating on behalf of their employer their conduct was a flagrant breach of the duty they owed to their employer. The plan was implemented. Much of the money injected into the group has, it is alleged, been siphoned off by the four for their own ends. But the alleged fraud did not end there. Armco also contend that, as part of the secret plan, the group of four fraudulently induced Armco (by APL) to enter into debt collection contracts with NPV, the Nevis company which they owned: these contracts are said to have been unduly favourable to NPV and to have enabled the four to take exorbitant fees for themselves. It is further alleged that the four fraudulently obtained money from two trust funds set up earlier to give financial protection to NNIC against claims by policyholders of an insurer whose business NNIC had taken over. In this way, it is said, the four fraudulently depleted the trust funds by some US$16m after the 3 September 1991 agreements. A further complaint is that, between 1991 and 1997, the four diverted funds from the NAG to themselves by means of various commission, consultancy and dividend payments. The New York proceedings also included claims under the Federal Racketeer Influenced and Corrupt Organizations Act 18 USC §1962(c) (RICO), which enables a successful plaintiff to recover triple, punitive and exemplary damages.
10. All the PCCs (Messrs Rossi and Stinson and their respective companies, Wingfield and CISHL) moved to dismiss the New York proceedings against them on various grounds, a motion denied by Judge Schwartz sitting in the District Court of the Southern District of New York on 30 September 1999. Mr Donohue did not take part in that proceeding, but had instead issued the present summons applying for an injunction on 8 March 1999. Application was also made in the action to join the PCCs as claimants. APL and NNIC applied to set aside service upon them.
11. These three applications came before Aikens J who gave his reserved judgment on 15 July 1999. On the third summons he ordered that service on APL and NNIC be set aside ( 2 Lloyd's Rep 649 at 664, para 68). This decision was upheld by the Court of Appeal ( 1 Lloyd's Rep 579 at 591, para 46 and at 597, para 80). It has not been challenged before the House.
12. On the second summons, the judge decided that the PCCs should not be joined as claimants in the English action (p 660, para 50; p 664, para 67). The majority in the Court of Appeal took a different view and held that they should be joined (p 593, para 52-53; p 600, para 98). Brooke LJ held that there were no grounds for allowing any of the American PCCs (Messrs Rossi and Stinson and their respective companies) to be joined as claimants: p 599, paras 89-92. The propriety of joining the PCCs as claimants in this action is one of the major issues before the House.
13. On the first summons, the judge held that an injunction restraining proceedings in New York should not be granted to Mr Donohue. In reaching that conclusion he made two important findings. The first was expressed in paragraphs 42 and 43 at p 659 of his judgment:
The second important finding was that Armco Inc had never succeeded to the rights and obligations of AFSEL under the transfer agreement and the sale and purchase agreement to which AFSEL had been party and so had never become bound by the exclusive jurisdiction clause in those agreements (p 656, para 28). The judge accordingly approached Mr Donohue's application by considering whether the New York proceedings against him were vexatious and oppressive and concluded that they were not (pp 662-664, paras 65-66). All three members of the Court of Appeal disagreed with these two findings, although with some qualifications by Brooke LJ concerning the first: p 588, paras 30-31; p 587, para 27; p 596, para 67; p 600, para 97. The Court of Appeal held that these errors vitiated the judge's exercise of discretion and so entitled the Court of Appeal to exercise its discretion afresh (p 588, para 32; p 599, para 87).
14. The Court of Appeal's conclusions on these two points have not been in issue before the House. Armco Inc accepts that as the successor to AFSEL it is bound by the exclusive jurisdiction clauses in the transfer agreement to which AFSEL was party and in the sale and purchase agreement to the extent that AFSEL would itself have been bound had it not been dissolved. Armco Inc also asserts that as the ultimate victim of the alleged conspiracy it has claims independent of those derived from AFSEL, an assertion challenged by Mr Donohue and the PCCs. On the scope of the clauses, the Armco companies accept that the clauses cover claims based on the conspiracy which preceded the making of the agreements as well as the misrepresentations and concealment which procured them to be made. The scope of the clauses was not the subject of argument before the House and I do not think it appropriate to give detailed consideration to this aspect of the case. The exclusive jurisdiction clause in the sale and purchase agreement, quoted above, was in wide terms. The practice of the English courts is to give such clauses, as between the parties to them, a generous interpretation.
15. The Court of Appeal granted an injunction against the first three Armco defendants (Armco Inc, AFSC and AFSIL) restraining them from commencing or continuing proceedings against any of the claimants (Messrs Donohue, Rossi and Stinson, IROS, ITRS, Wingfield and CISHL) in any court other than those of England and Wales regarding any dispute arising out of the management buy-out, defined to mean the 1991 disposal of the BNIG. The injunction was expressed to apply in particular to the Armco companies' New York proceedings already referred to, and to the numbered counts which were held to cover the 1991 management buy-out. Thus the injunction did not apply to APL and NNIC, the joinder of which companies had been disallowed, and was limited to the causes of action held to fall within the exclusive jurisdiction clauses. But the benefit of the exclusive jurisdiction clauses was extended to the four PCCs who were not party to them (Messrs Rossi and Stinson and their respective companies). The object of the injunction was plainly to give effect to the exclusive jurisdiction clauses and to ensure trial in England of the issues arising out of or connected with the management buy-out between all the parties involved.
16. The grant of an anti-suit injunction, as of any other injunction, involves an exercise of discretion by the court. To exercise its discretion reliably and rationally, the court must have the fullest possible knowledge and understanding of all the circumstances relevant to the litigation and the parties to it. This is particularly true of an anti-suit injunction because, as explained below, the likely effect of an injunction on proceedings in the foreign and the domestic forum and on parties not bound by the injunction may be matters very material to the decision whether an injunction should be granted or not. Thus although the two main issues before the House cannot be regarded entirely independently of each other, it is preferable to consider the issue of joinder of the PCCs before considering the grant of an anti-suit injunction more generally.
Joinder of the PCCs
17. CISHL was party to each of the transfer agreements. Wingfield was party to the sale and purchase agreement. All three agreements contained an English exclusive jurisdiction clause. Both companies have been sued by Armco in New York. Both have claims falling within RSC Order 11, rule 1(1)(d)(iii) and (iv) (now CPR rule 6.20(5)(c) and (d)) entitling them to seek leave to serve proceedings out of the jurisdiction. Under RSC Order 15, rule 6(2)(b)(ii) (now CPR rule 19.2(2)) the court has power to add these companies as claimants if it considers it desirable to do so. Thus 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. The decision whether it is desirable to add them will be heavily influenced by the decision whether to join the other PCCs and whether Mr Donohue upholds his claim to the grant of an anti-suit injunction.
18. The other four PCCs (Messrs Rossi and Stinson and their respective companies) are in a different position. None was a party to either transfer agreement or to the sale and purchase agreement and so none has the benefit of the English exclusive jurisdiction clause. It is common ground that none has any cause of action which would entitle the court to give leave to serve proceedings out of the jurisdiction under RSC Order 11, rule 1 or CPR rule 6.20, and thus none could bring independent proceedings against any Armco company in England unless that company submitted to the jurisdiction. But these PCCs rely on the broad power of the court under RSC Order 15, rule 6 and CPR rule 19, which is said to be unconstrained by the rules on service out of the jursidiction, and it is said to be desirable to add them because they have a substantial cause of action entitling them to seek an anti-suit injunction. The Armco companies reply that a foreign party, even if already properly sued within the jurisdiction, may not be subjected to a claim for which leave to serve out could not be granted and further that, in the absence of any contractual right to rely on an exclusive jurisdiction clause, these PCCs have on the material before the House no cause of action entitling them to seek an anti-suit injunction. The first issue between the parties is whether these PCCs can show any cause of action which would entitle them to claim an injunction.
19. The jurisdiction of the English court to grant injunctions, both generally and in relation to the conduct of foreign proceedings, has been the subject of consideration by the House of Lords and the Privy Council in a series of decisions in recent years which include Siskina (Owners of cargo lately laden on board) and others v Distos Compania Naviera SA  AC 210; Castanho v Brown & Root (UK) Ltd  AC 557; British Airways Board v Laker Airways Ltd  AC 58; South Carolina Insurance Co v Assurantie Maatschappij "De Zeven Provincien" NV  AC 24; Société Nationale Industrielle Aérospatiale v Lee Kui Jak  AC 871; and Airbus Industrie GIE v Patel  1 AC 119. Those decisions reveal some development of principle and there has in other decisions (for example, Mercedes Benz AG v Leiduck  AC 284) been some divergence of opinion. But certain principles governing the grant of an injunction to restrain a party from commencing or pursuing legal proceedings in a foreign jurisdiction, in cases such as the present, as between the Armco companies and these PCCs, are now beyond dispute. They were identified by Lord Goff of Chieveley giving the opinion of the Judicial Committee of the Privy Council in Aérospatiale (at p 892):
In Aérospatiale the issue was whether proceedings in Texas should be restrained in favour of Brunei, and (at p 896) Lord Goff summarised the guiding principles:
20. If these principles are applied to the present case it is in my opinion plain that an anti-suit injunction could not properly be granted in favour of these PCCs. The judge (considering the position of Mr Donohue and all the PCCs) concluded that England was not the natural forum for these proceedings, that the connections with England were slim and that the New York proceedings were not vexatious and oppressive ( 2 Lloyd's Rep 649 at 662-664, paras 65-66). Stuart-Smith LJ observed that if this were an alternative forum case he would not necessarily disagree with the judge ( 1 Lloyd's Rep 579 at 589, para 38). Brooke LJ considered that the convenient forum for the resolution of all disputes between Messrs Rossi and Stinson and their former employers was clearly situated on the other side of the Atlantic (p 599, para 92). Judge Schwartz concluded that:
and further said:
The Armco companies are incorporated in Ohio, Delaware, Wisconsin and (in the case of APL) Singapore. Messrs Rossi and Stinson and their companies have no English links. The dispute between them and the Armco companies concerns the alleged breach of the fiduciary duty they owed to their employers. It is plain that England is not the natural forum for resolution of this dispute and that the New York proceedings by the Armco companies against these PCCs are neither vexatious nor oppressive.
21. There is another more technical objection to the joinder of these PCCs. In stating the third of his basic principles in Aerospatiale, above, Lord Goff made reference to "a party who is amenable to the jurisdiction of the court". This echoed the language of Lord Diplock in his important statement of principle in The Siskina, above, at p 256, which has been understood to mean that the court may only grant an injunction where it has personal jurisdiction over the defendant in the sense that he could be served personally or under RSC Order 11 (other than sub-rule (i)): see Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd  AC 334 at 342, per Lord Browne-Wilkinson. These PCCs could not, as already noted, have obtained leave to serve out of the jurisdiction on any of the Armco companies in independent proceedings. Service on APL and NNIC has been set aside. Does the amenability of Armco Inc, AFSC and AFSIL to the jurisdiction of the English court by virtue of their contractual relationship with Mr Donohue enable these PCCs to take advantage of that relationship to effect service on the solicitors nominated by those companies pursuant to the transfer and sale and purchase agreements, and thus to prosecute a claim which could not otherwise have been prosecuted in this forum? In my opinion it does not. Since Holland v Leslie  2 QB 450 the view has prevailed that the court should refuse to allow an amendment of proceedings which would introduce a new cause of action against a foreign defendant in respect of which the court would have refused leave for service out of the jurisdiction (see, for instance, Beck v Value Capital Ltd (No 2)  1 WLR 6, affirmed, although not on this point,  1 WLR 572). This view seems to me to accord with principle. The jurisdiction of the English court is territorial. A party resident abroad may be subjected to the jurisdiction of the court to the extent (and only to the extent) that statute or rules made under statute permit. It would emasculate that salutary rule if such a party, properly served with notice of a claim falling within RSC Order 11, CPR r 1 or r 6.20 were then to be exposed to claims falling outside the relevant rule. In exercising its discretion to give leave to serve out of the jurisdiction the court will have regard to the substance of a claimant's complaint and not permit jurisdiction to be obtained by a mere device: Johnson v Taylor Bros & Co Ltd  AC 144. 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.
22. The majority of the Court of Appeal were in my opinion wrong to allow the joinder of these four PCCs, and I would accordingly set aside that order and refuse joinder.
The grant of an injunction to Mr Donohue
23. My Lords, I turn to the question whether an anti-suit injunction should be granted to Mr Donohue, recognising that as between him and the first three Armco appellants (Armco Inc, AFSC and AFSIL) there is a contractual obligation to submit any dispute which may arise out of or in connection with the sale and purchase agreement to the exclusive jurisdiction of the English court. It is plain that while some of the claims made by the Armco companies in the New York proceedings fall outside the scope of this clause, some claims central to the Armco companies' complaint fall within it. In this situation, exercise of the broad discretion conferred on the court by section 37 of the Supreme Court Act 1981 to grant an injunction in all cases in which it appears to the court to be just and convenient to do so is controlled by principles to be derived from a substantial line of authority here and abroad.