Are English exclusive jurisdiction clauses really exclusive? Recent court activity would suggest that this is not always the case, as Paul Leonard, Neil Golding and Richard Tett report.

Contracts governed by English law often provide that “all claims arising out of or in connection with” that contract are to be determined solely by the English Courts. Generally these exclusive jurisdiction clauses have been widely interpreted by the English Courts and strictly enforced by way of injunctions restraining foreign proceedings in breach of the clause (see, for example, The Angelic Grace [1995] 1 LLR 87).

However, in a couple of recent cases involving the exclusive jurisdiction clauses the English court has refused to grant an injunction where (1) a single set of facts gives rise to claims against people who were not parties to the contract, and (2) the “natural forum” of the dispute was not England.This means that one contractual party may be able to sue another contractual party outside England and, despite both parties having agreed to all contractual disputes being litigated in England, the English court may refuse to injunct the foreign proceedings. It should therefore not be assumed that an exclusive jurisdiction clause will determine in all circumstances where a dispute will be litigated.

Donohue v Armco - the allegations
The most recent English case on this point was Donohue v Armco in the Commercial Court. On 15 July, Mr Justice Aikens declined to grant an injunction restraining New York proceedings allegedly brought in breach of an exclusive English jurisdiction clause.

The dispute arose out of a sale in 1991 by Armco of several insurance companies (now known as the North Atlantic Group and referred to in this article as “the group”) in a management buy-out to two directors of the group. The sale was principally negotiated on Armco's behalf by two of its officers. In 1997 one of the two group directors (Mr Atkins) revealed that he and the other group director (Mr Donohue) had entered into a secret agreement with the two Armco officers (“the four partners”). The effect of the secret agreement was allegedly to make the terms of the MBO favourable to Messrs Donohue and Atkins such that assets could be subsequently stripped out of the group.

In August 1998 Armco and four of its subsidiaries commenced proceedings in New York against 10 defendants including the four partners. At the same time, proceedings were commenced for ancillary freezing and disclosure orders in Hong Kong, Singapore, Jersey, Guernsey and England. Shortly thereafter Armco settled with Mr Atkins, who signed a statement detailing the fraud. The remaining three of the four partners have denied that there was any secret agreement.In February 1999 Mr Donohue commenced English proceedings and applied for an anti-suit injunction restraining the foreign proceedings. Mr Donohue's principal argument was that he was a party to the 1991 MBO contract (“the contract”) which contained an exclusive jurisdiction clause (“the EJC”) providing for all disputes “arising out of or in connection with” the contract to be determined by the English Court. He also argued that the New York and other proceedings were oppressive, that there was no genuine connection with New York and that England was the most appropriate forum for Armco's allegations to be determined.In May 1999 six of the New York defendants applied to be joined into Mr Donohue's English proceedings. They also sought an anti-suit injunction in relation to Armco's proceedings against them. Only two of the six applicants were party to the contract which contained the EJC, while the other four essentially sought to piggy back on this application.

In its defence, Armco argued that (at the very least) three of the Armco companies and four of the applicants were not parties to the contract. Further, there were various claims against all of the New York defendants which fell outside the ambit of the EJC. Therefore, even if the EJC were to be applied, the New York proceedings would continue against all the parties to a greater or lesser extent, hence an anti-suit injunction would result in duplicative proceedings. Armco also argued that the US (and not England) was the appropriate forum for the resolution of the dispute and Armco's proceedings outside New York were all for ancillary relief in support of the substantive New York proceedings.

Donohue v Armco - the court's decision
Mr Justice Aikens refused to grant an anti-suit injunction. He stated that an anti-suit injunction should only be granted if it is “just and convenient to do so” and that some legal or equitable right has been or might be infringed by the foreign proceedings. An applicant must show that the infringement is unconscionable and therefore unjust. For this to be the case, he said that the applicant must generally show that (1) England is “the natural forum” for the resolution of the dispute; and (2) pursuit of foreign proceedings is vexatious and oppressive. Ultimately the grant of an injunction was in the discretion of the court and Mr Justice Aikens set out four factors which he considered to be of importance in the exercise of this discretion in the case before him.

The first was the effectiveness of the EJC. The English court generally enforced an EJC unless there was a good reason not to (see The Angelic Grace). He noted that where other parties not bound by the EJC were involved in the same foreign litigation, this would weigh against an injunction being granted, particularly where the foreign forum was the natural forum for determining the factual issues. He referred to the leading case on this from the Court of Appeal - Bouyges Offshore SA v Caspian Shipping Co. [1998] 2 LLR 461.

The second factor was whether there were claims made in the foreign proceedings which fell outside of the EJC such that it appeared likely that those claims would be litigated in the foreign forum in any event. If there were such claims, this might weigh against the grant of an injunction in relation to those claims which did fall within the EJC.

The third factor was that it was preferable if there was only one set of proceedings to determine related disputes which should be in the natural forum of the dispute.

The fourth factor was whether an anti-suit injunction would bind all the relevant Armco companies who were bringing the claims in New York. In this particular case, the question focused on the three Armco companies who were not party to the EJC.

Mr Justice Aikens held that the EJC was not effective over all of Armco's claims and did not bind the three Armco companies who were not party to the EJC. Further, there was no jurisdictional basis for joining the four applicants who were not party to the EJC as they had no independent basis for founding English jurisdiction and an application to join should not be used as a “back door”.

It followed that only some of the parties on each side were party to the EJC which in turn only applied to a limited number of the claims at issue. This weighed against the grant of an anti-suit injunction.

Turning to the overall consideration of the factors relevant to the exercise of his discretion, Mr Justice Aikens found that the New York proceedings were not “vexatious and oppressive” and England was not the natural “centre of gravity”. Indeed he said that the connections with England were slim, rather the claims had worldwide connections and those referred to by him appeared to be principally US related.

In his conclusion, Mr Justice Aikens referred to the Bouyges case and held that no injunction should be granted, even for those who were parties to the EJC.A different approach to that in Donohue v Armco was taken in Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [1999] 1 All ER 237, where, notwithstanding that it was likely to result in duplicative proceedings, the court granted a limited anti-suit injunction restraining some but not all of the claims being brought in New York proceedings. This indicates how the individual factors specific to each case must be reviewed when considering the effect of an exclusive jurisdiction clause in a given situation.

Granting an injunction has always been in the discretion of the court and an exclusive jurisdiction clause will not necessarily be conclusive in all the circumstances. There is, however, a contrast to be drawn between actions where all the parties are bound by the jurisdiction clause and actions involving other parties.

In the former case, the court is likely to enforce the exclusive jurisdiction clause by granting an anti-suit injunction (as in The Angelic Grace). In the latter, the court may regard the exclusive jurisdiction clause as simply one of various factors to be weighed up in deciding which is the appropriate jurisdiction, possibly resulting in the clause not being enforced (as in Donohue v Armco).

This developing area of the law is due to be considered further by the Court of Appeal in February 2000 when Donohue and the applicants' appeal is listed to be heard.

Paul Leonard is a partner and Neil Golding and Richard Tett are solicitors in Freshfields Contentious Insurance Group. Together, they represent Armco.