Anti-suit injunctions prohibit a party from commencing or continuing proceedings in a foreign jurisdiction. They can be used to enforce exclusive jurisdiction or arbitration clauses in a contract. The practice they are essentially designed to prevent is forum shopping, which some litigants adopt in order to have their cases heard in a jurisdiction that they perceive to be more favourable to them. That said, there may be a number of reasons to apply for such an injunction, including cost, enforceability and procedural advantages in the contractually agreed forum.
Anti-suit injunction enforces the contractual agreement to arbitrate
Catlin Syndicate Limited (underwriting as XL Catlin Syndicate 2003) and XL Insurance Company SE v Weyerhaeuser Company [21.12.2018]
The English High Court has recently found in favour of a claimant insurer in granting an anti-suit injunction to restrain a non-EU defendant insured from breaching a contractually agreed arbitration clause. Katherine Proctor at Kennedys acted for the claimants in successfully securing the anti-suit.
What is an anti-suit injunction?
Catlin Syndicate v Weyerhaeuser Company [21.12.2018]
The claimants issued excess liability insurance policies. The defendant manufactured and sold TJI joists with Gen 4 Flak Jacket Protection (TJI Joists), a fire-retardant engineered wood product used in residential home construction to support flooring. In May 2017, the defendant began receiving odour and irritation complaints in certain homes where the TJI Joists had been installed. It subsequently gave notice of a claim under the insurance.
The defendant later issued District Court Proceedings in Washington State, USA (the District Court Proceedings) seeking declarations that the policies issued by certain insurers in the tower of cover did not mandate arbitration and that the Washington District Court was the proper venue for coverage litigation. Those proceedings raised arguments including (i) policy construction and (ii) a local State law that voids non-Washington State choice of law and forum clauses in insurance contracts delivered or issued for delivery in Washington State and covering subjects located, resident or to be performed in the State (the Anti Choice of Law and Forum Statute).
In response, the claimants issued ex parte anti-suit proceedings and obtained an interim anti-suit injunction.
The dispute as between the second claimant and the defendant was subsequently resolved. The dispute that remained was in respect of the policy issued by the first claimant (the Excess Policy).
The Excess Policy followed form to a Lead Underlying Policy, which contained:
- Endorsement 7: an endorsement providing for “…any dispute, controversy or claim arising out of or relating to” the policy to be determined in London under the Arbitration Act 1996.
- Endorsement 8: an endorsement providing for the construction and interpretation of the policy to be governed by a modified version of Washington State law (akin to a modified version of New York law in the Bermuda Form).
- Endorsement 9: a Service of Suit Endorsement containing the words “Solely for the purpose of effectuating arbitration, in the event of the failure of the Company to pay any amount claimed to be due hereunder, the Company, at the request of the Insured, will submit to the jurisdiction of any court of competent jurisdiction within the United States.”
The Excess Policy consisted of a slip and endorsements as follows:
- The Risk Details section of the slip read:
“CHOICE OF LAW AND JURISDICTION: NMA1998 Service of Suit Clause (USA) (amended), as attached. As per Lead Underlying Policy.”
- The Insuring Agreements (Coverage) section of the slip read:
“The Company agrees that, except as may otherwise be endorsed to this Policy, this Policy will follow:
1. The same terms, definitions, exclusions and conditions as are, at inception hereof, contained in the Lead Underlying Policy …”
- An NMA Service of Suit Endorsement, but without the words “Solely for the purpose of effectuating arbitration…”.
The central issue in the anti-suit proceeding concerned policy construction; whether and if so, the extent to which the NMA Service of Suit Endorsement in the Excess Policy limited the effectiveness of the Arbitration Endorsement incorporated from the Lead Underlying Policy.
A subsidiary issue was the applicable law to determine the same.
The court’s findings
The English High Court issued a final anti-suit injunction restraining the defendant from pursuing the District Court Proceedings and any other proceedings against the first claimant in breach of the arbitration agreement.
It found in favour of the first claimant’s construction of the policies that the choice of forum was arbitration and the Arbitration Endorsement incorporated from the Lead Underlying Policy could be read consistently with the NMA Service of Suit Endorsement in the Excess Policy; the latter applying to enforcement of an arbitration award or where the parties agreed to dispense with arbitration. There was no conflict in the drafting, which it was said should not be lightly attributed to commercial parties in any event. Such construction also worked commercially.
More particularly, the judge did not consider as critical distinctions between the Lead Underlying Policy and the Excess Policy the absence of the words “Solely for the purpose of effectuating arbitration…” in the NMA Service of Suit Endorsement of the Excess Policy. Nor that the words “failure … to pay any amount claimed” in the NMA Service of Suit Endorsement were not linked to enforcement of an arbitration award, unlike in the Service of Suit Endorsement in the Lead Underlying Policy; if the same wording of the Service of Suit Endorsement in the Lead Underlying Policy is linked to enforcement of an arbitration clause, it can be taken to be so in the NMA Service of Suit Endorsement. Nor that the Excess Policy did not contain its own arbitration endorsement, like that appended to the Lead Underlying Policy.
As to the applicable law, the judge first applied English law, but concluded that Washington State law did not lead to any different conclusion. It was material in the court’s decision on this issue that the defendant did not rely in the anti-suit proceedings upon the Anti Choice of Law and Forum Statute. It noted that even if there is a policy of Washington State law that is adverse to arbitration that does not affect the conclusion on the question as to what the parties agreed.
The English High Court has, once again, enforced a party’s contractual agreement to arbitrate. Despite a number of authorities referred to, the court, in the usual way, took its decision based upon the specific facts of this case.
Such decision follows case precedent (i.e. ACE v CMS ) on the interrelationship between service of suit clauses and arbitration clauses, although this case stands out as being one where the court was interpreting consistency not between such clauses found in the same policy, but in two separate policies; a follow policy having its own service of suit endorsement and incorporating the arbitration endorsement of the underlying policy.
A finding to be noted is that a policy of law adverse to arbitration does not affect the conclusion as to what the parties agreed. This suggests that the English Court would not look favourably upon a party seeking to rely upon local anti-choice of law and forum provisions to defeat their contractual agreement; it being notable that there are a number of jurisdictions with such laws and policies.
The lessons to be learned are:
- Draft your policy carefully.
- Take advice and anti-suit action immediately upon receipt of a threat to or actual breach of your contractual agreement to arbitrate. Delay can defeat an anti-suit application and, whilst general principles can be taken away from the case law, every case is highly fact dependent.
- Beware of local laws and policies that may defeat your express choice of law and forum agreements. Washington State, for example, is one of a number of States in the USA that have anti-choice of law and forum statutes and policies that undermine parties’ express contractual agreements.