England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICEError! Reference source not found.
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice
		28th November 2002

MR. JUSTICE CRESSWELL: This application raises points of importance as to:

(i) the principles relevant to applications for an anti-suit injunction; and

(ii) whether wording such as "the insurance afforded by this policy shall follow all the terms and conditions of policy [A]" is sufficient to incorporate an arbitration clause in policy A.

I will refer to the parties as follows: the claimant -- "American", the defendant -- "Abbott".

On 31 October 2002, American applied (without notice to Abbott) to Mr. Justice David Steel for an anti-suit injunction against Abbott. At the same time American also sought, and was granted, permission to serve a claim form on Abbott outside the jurisdiction.

American applies to continue the anti-suit injunction. Abbott applies to set aside the permission given to American to serve the claim form outside the jurisdiction and to set aside the anti-suit injunction. In particular, Abbott submits that:

1. American's proposed claim does not fall with CPR part 6.20(5)(c) because it is not in respect of a contract governed by English law. Alternatively the court should exercise its discretion against the grant of permission; and

2. The Illinois proceedings American seeks to restrain are not vexatious or oppressive and do not involve any clear breach of a contractual promise made between the parties.

THE BACKGROUND FACTS

I am grateful to both legal teams for the trouble taken to agree the following statement of background facts:

"Abbott is a US manufacturer of pharmaceutical products. American is an Alaska corporation with a principal place of business in New York, engaged in the business of writing various types of insurance, including excess commercial general liability insurance.

In or about December 1994, a 'Manuscript General Liability Policy' was issued to Abbott by Swiss Re numbered 13.14.5824.1, providing cover from 1 January 1994 to 1 January 1995. At the same time the parties also entered into a further agreement, entitled 'Following Form Excess Liability Policy' and numbered 0094.068 for excess cover on precisely the same terms and conditions.

A further 'Manuscript General Liability Policy' was issued in or around December 1994 providing cover for the policy period 1 January 1995 to 1 January 1996 on substantially the same terms, numbered 13.14.5824.1-0094.069. This policy provided for any dispute arising out of the policy to be submitted to 'binding advice' under the laws of the Netherlands, applying the substantive laws of the Netherlands.

Prior to 1996, Abbott revised its general liability insurance programme.

The American Policies referred to below, as issued, were expressed to follow the form of the terms and conditions of Swiss Re policy 348.001, which was itself subject to the Master Declaration Sheet CAP 3082, which in turn was subject to the Multiline CAP Agreement. Policy 348.001 was expressed to provide coverage based on numerous scheduled Incorporated Insurance Policies. CAP 3082 was expressed to state the terms applicable to numerous scheduled Incorporated Insurance Policies. Policy 13.14.5824.1-0094.069, referred to in paragraph 3 above, was one of those Incorporated Policies, and was thus subject to the terms of the Master Declaration Sheet CAP 3082 and the Multiline CAP Agreement. The American Policies were not included in either schedule of Incorporated Insurance Policies.

By letter dated 18 December 1995 from Midwestern Risk Specialists Inc. ('Midwestern Risk'), an Illinois corporation, to Johnson & Higgins, Abbott's brokers in Illinois, Midwestern Risk stated that it 'was pleased to offer the following indication' as to the terms on which cover could be given by American.

After noting the coverage, form, effective date, limits and premium, Midwestern Risk referred to the 'Terms and Conditions' on which American was prepared to contract and, in this context, made express reference to a 'Service of Suit (Illinois)' which was to be attached and which subsequently became Endorsement #1. Midwestern Risk also noted that the agreement to provide coverage was subject to 'receipt of a copy of the Swiss Re policy when available'.

The Swiss Re policy in place at that time (December 1995), which was an Incorporated Policy, contained only a provision requiring that all disputes be resolved between Swiss Re and Abbott by way of the 'binding advice' procedure that existed under the laws of the Netherlands, and that this 'binding advice' procedure should be conducted in Amsterdam, Netherlands or such other location in the Netherlands as the parties agreed.

During early 1996 the form of the Swiss Re Policy 348.001, CAP 3082 and the Multiline Cap Agreement was negotiated between Abbott and Swiss Re. As at 4 March 1996 the existing draft of the Multiline Cap Agreement provided for dispute resolution by ICC arbitration in London or Paris. As at 5 April 1996 the CAP 3082 Policy provided for dispute resolution by London arbitration under the provisions of the UK Arbitration Acts (although the document was not yet agreed). The CAP 3082 Policy was signed on 15 April 1996. It included an arbitration provision which, so far as material, provides:

'Notwithstanding any other arbitration clause in an Incorporated Insurance Policy, any dispute, controversy or claim arising out of or relating to this Policy or the breach, termination or invalidity thereof shall be finally and fully determined in London, England under the provisions of the Arbitration Acts of 1950, 1975 and 1979 and/or any statutory modifications or amendments thereto, for the time being in force, by a Board composed of three arbitrators to be selected for each controversy as follows ...'.

In about May 1996, Abbott and American signed various contracts of Excess of Loss insurance, contained in two policies, numbered 818-19-59 and 818-19-60. The coverage agreed by American was at two layers, namely, cover of US$35 million for loss in excess of $45 million and cover of $40 million for loss in excess of $80 million. In 1997 a further policy was issued, numbered 818-60-09 to cover $30 million excess of $120.1 million.

American and Abbott were bound by these policies by 8 January 1996 at the latest.

In accordance with the American Policies, American agreed with Abbott that 'in consideration of the premium paid and subject to all the terms and conditions set forth below that the insurance afforded by this policy shall follow all the terms and conditions of' policy 348.001 issued to Abbott by Swiss Re, 'including all renewals and rewrites thereof'.

To each American policy issued were attached three endorsements. Each endorsement contained, at its head, the following words: 'This endorsement effective 12:01 AM January 1, 1996 forms a part of [the] Policy no. ... issued to [Abbott] by [American].' Each of the three endorsements also concluded with the following words: 'All other terms and conditions of the policy remain unchanged'.

Endorsement #1, which is central to the issue now before the Court, provides, inter alia, as follows:

'It is agreed that in the event of failure [sic] American International Specialty Lines Insurance Company (hereinafter called 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 a court of competent jurisdiction within the United States. ... Nothing in this condition constitutes or should be understood to constitute a waiver of the Company's rights to commence an action in any court of competent jurisdiction in the United States to remove an action to a United States District Court or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States ...

This endorsement deletes and replaces any substantially similar clause contained in the policy.' (Emphasis added)

On the evidence before the Court it was only in October/November 1996 that Policy 348.001 (see above) was signed.

It is common ground that as at the date on which American and Abbott became bound by the American Policies (ie at the latest 8 January 1996), the wording of Policy 348.001, CAP Policy 3082 and the Multiline Cap Agreement was not agreed and accordingly there was no incorporation of a London arbitration clause. [It is common ground on the evidence before the Court that, for the purposes of this application, as at 8/1/96 any dispute between Abbott and American arising under the American Policies would have been governed by US law].

Following its loss of US$86 million as a consequence of the so-called Brand Name Prescription Drug Litigation in the US, Abbott made calls on insurance which in its view provided cover for this risk. By May 2002 Abbott had settled its coverage dispute with its underlying excess carrier, SR for a 'substantial, but confidential, sum' and thereby claimed to have exhausted its underlying insurance coverage for 1998.

Abbott notified a claim under the American Policies to American in December 1998. There followed thereafter correspondence between the parties and/or their US lawyers from time to time. On 22 May 2002, Winston & Strawn, US lawyers acting for Abbott wrote to American explaining where matters had reached and noted, in particular, that in light of the costs already incurred in the Brand Name Prescription Litigation, the first layer of cover provided under the American Policies had been exhausted and it was very likely that the layer of cover in excess of US$80.1 million would be triggered.

On 20 September 2002 Clausen Miller, American's lawyers, wrote to Winston & Strawn noting that they had been instructed and rejecting any proposals made for mediation or other settlement method. The letter continued - 'If your client intends to maintain its claim for indemnity, we must insist that the matter is now referred to arbitration in accordance with the policy terms'. Enclosed with the letter was a notice of arbitration. On 14 October 2002, Winston & Strawn responded to Clausen Miller, asking for a 30 day extension before responding to American's notice to arbitrate.

On 17 October 2002, Abbott filed a claim against American in relation to the American Policies in the US District Registry Court, Northern District of Illinois, Eastern Division. At 10.00 am the following day, 18 October 2002, American was served with the claim, service being accepted by an attorney acting on its behalf. The action by Abbott set out in the Complaint was for breach of contract and violation of the Illinois Insurance Code following American's refusal to indemnify Abbott for at least $8.4 million in settlement costs, losses and related fees and expenses incurred by Abbott in connection with defending the price discrimination lawsuits comprising the Brand Name Prescription Drug litigation. To that end Abbott argues in the Complaint that when it purchased the coverage from American it intended to purchase coverage, and believed it was purchasing coverage, for acts of price discrimination. The Complaint says that this belief is consistent with the Seventh Circuit United States Court of Appeals' decision that an insurance policy with similar language provided personal injury coverage for injuries suffered relating to allegations of price discrimination: Federal Ins. Co. v. Stroh Brewing Co, 127 F.3d 563 (7th Cir.1997). Additionally, Abbott sought by the Complaint a stay of the London arbitration proceedings which it said were improperly begun by American in breach of contract.

On 18 October 2002 Clausen Miller wrote to Abbott indicating that they were willing to agree an extension of time to 20 November 2002 to enable Abbott to make its nomination of an arbitrator but that if Abbott 'was unwilling to proceed with an arbitration and intends to put forward reasons for not doing so, then we ask [Abbott] to make its position clear immediately.'

On 22 October 2002, Winston & Strawn wrote to Clausen Miller referring to the existing Illinois proceedings and explaining why, in their view, the Illinois Service of Suit provision contained in Endorsement #1 entitled Abbott to proceed by way of a claim in Illinois and why, therefore, they were of the view that it was by this route and not by way of an arbitration, that the parties had agreed this dispute was to be resolved. Abbott also identified an arbitrator who they would appoint to the arbitration, this being expressly without prejudice to Abbott's position that American had 'wrongfully commenced the arbitration proceedings and that the proceedings should be dismissed'."

On 31 October, Steel J. granted an anti-suit injunction in favour of American (without notice to Abbott) in the following terms:

'The defendant be restrained ... from (1) taking any steps designed to prevent the claimant from pursuing this action in this court or the London arbitration ... and (2) (without prejudice to the generality of (1) above) from taking any steps ... to continue or prosecute the proceedings filed by it on 17 October 2002 against ... the claimant in the United States District Court Northern District of Illinois Eastern Division'.

The application to Steel J. included the assertion by American that American's claim was to enforce an arbitration agreement which it contended was governed by English law and that its claim fell within CPR rule 6.20(5)(c). The anti-suit injunction has since been extended by consent until today.

THE CLAIMANT'S SUBMISSIONS

Mr. Hollander QC for the claimant submitted as follows:

Mr. Hollander accepted for the purposes of this application (while reserving his client's position (in case this matter goes further) that the weight of authority as to incorporation is in accordance with the decisions of Colman J. in Excess Insurance Co. Ltd. v. Mander [1995] LRLR 358 and His Honour Judge Raymond Jack QC (as he then was) in Trygg Hansa v. Equitas [1998] 2 Ll Rep 439. Mr. Hollander, however, submitted that the law is not entirely clear, and that notwithstanding the test in Excess and Trygg Hansa, the words in the present case,

("the insurance afforded by this policy shall follow all the terms and conditions of policy number 348.001 issued by SR International Business Ins Co Ltd including all renewals and rewrites thereof")

were apt to incorporate the arbitration clause. The Excess layers written by American, were part of the umbrella structure which Abbott's brokers were seeking to set up for the 1996-1999 years.

Mr. Hollander's submissions continued as follows:

Endorsement number 1 is a unilateral provision giving rights to Abbott. It gives no rights to American. The only part of the endorsement which enables American to do anything is the second sentence, which limits the right given to Abbott in the first sentence by making clear that even where the first sentence applies, that does not preclude American from seeking a transfer of a suit brought under the right given to Abbott in the first sentence to another permissible United States court.

Abbott can only use endorsement number 1, on its true construction, when there has been an award or judgment in its favour for a sum due. It follows that the endorsement does not delete and replace the arbitration clause because there is nothing in endorsement number 1 which is capable of affecting American's right to arbitrate a claim. Whatever the relationship between the service of suit clause and the arbitration clause, the arbitration clause is neither to be deleted nor replaced. In any event, it is not possible to regard a London arbitration clause as substantially similar to the service of suit clause; they are on any view radically different clauses.

As to proper law, the London arbitration clause made express reference to the English Arbitration Acts 1950, 1975 and 1979 and/or any statutory modifications or amendments thereto, for the time being in force. Where the parties have agreed not merely that the seat of the arbitration will be in London, but have also made express reference to the English Arbitration Acts, the court will ordinarily deduce from this a clear intention and choice (for the purposes of Article 3 of the Rome Convention 1980) on the part of the parties to choose English law as the governing law of the contract. It will be presumed that the parties intended that their relationship was to be governed by English law in the absence of compelling reasons to the contrary. At the very least, the issue of proper law is one on which American has shown a sufficiently arguable case to give the court jurisdiction.

Mr. Hollander further submitted that Illinois law does not employ principles of construction materially different from those applied as a matter of English law. The relationship between the arbitration clause and the service of suit clause is one of construction. The service of suit clause fulfils a requirement of Illinois law where surplus lines insurance policies are issued in Illinois by a corporation not authorised or licensed to do business in Illinois. It facilitates service, hence its title, "service of suit clause". It goes beyond the provisions of the New York Convention in enabling service to be effected on an Alaskan corporation elsewhere in the United States. It does not purport to replace the arbitration clause. It can thus be interpreted as facilitating litigation following arbitration, concerning the validity of enforcement of any arbitration ruling.

Indemnity insurance such as the present involves a claim for unliquidated damages. It is not a claim for the payment of a debt. It follows that sums can only be claimed to be due after an award, judgment or agreement as to a specific sum.

As to the grant of an injunction, where the English court takes the view that there has been a breach of an arbitration clause or an exclusive jurisdiction clause, it will grant an injunction to restrain breach unless there are special reasons not to do so. This approach is apparent from a long line of authorities, see The Angelic Grace [1995] 1 Ll Rep 87; Donohue v. Armco [2002] 1 Ll Rep 79; and Natwest Bank v. Utrecht-America [2002] 2 All ER (Comm) 7. It is clear from this line of cases that in such circumstances the English court will not defer to the foreign court, nor will it sit tight until any application may be dealt with by the foreign court. In the present case there are no special or strong reasons which should preclude the English court from taking action now, and good reasons why it should grant an injunction. American made clear its intention to seek arbitration in London. Abbott waited until American commenced London arbitration, said nothing about its intention to commence US proceedings, and then sought and obtained an extension of time for appointment of an arbitrator, again without mentioning its intention to commence proceedings in the United States. Abbott could have applied to the English court, or the arbitrators when appointed, for a ruling that the arbitrators have no jurisdiction, and if appropriate apply for an injunction in England to restrain arbitration. They have not done so. American's application has been made promptly, as soon as American became aware of the proceedings in Illinois.

For these and other reasons advanced in Mr. Hollander's helpful written and oral submissions, American submitted that the injunction should be maintained and the application to set aside service dismissed.

THE DEFENDANT'S SUBMISSIONS

Mr. Rabinowitz QC, for the defendant, submitted as follows:

As to jurisdiction CPR part 6.20(5)(c) provides that:

"In any proceedings to which rule 6.19 does not apply, a claim form may be served out of the jurisdiction with the permission of the court if ... (5) a claim is made in respect of a contract where the contract ... (c) is governed by English law".

It is necessary also to have regard to CPR part 6.21(2A) which, dealing with applications for permission to serve out of the jurisdiction, provides:

"The court will not give permission unless satisfied that England and Wales is the proper place in which to bring the claim".

Abbott submits (and without prejudice to the burden of proof in this regard being on American) that American's proposed claim is not a claim in respect of a contract having English law as its proper law. As to whether American must establish this in accordance with the ordinary civil standard of proof, or merely on the basis that it has a good arguable case in this regard, compare Seaconsar Far East Ltd v. Bank Markazi [1994] 1 AC 438; White Book, vol 1, p.149, para.6.21.16; and Dicey & Morris 13th Ed. 2000

para.11 - 127; Hutton & Co. v. Mofarrij [1989] 1 WLR 488 CA, especially Kerr LJ at 495.

Even if the court concludes that there does exist a good arguable case that that the arbitration clause was incorporated into the relevant contract contrary to Abbott's primary submission, and that the arbitration clause has English law as its proper law, the court should exercise its discretion against permission to serve out of the jurisdiction being granted. See Dicey & Morris (supra) Rule 27(4)(iii) p.320 and following.

The issue of incorporation is important since, if the arbitration clause in the Swiss Re policy was not successfully incorporated into the American policies, permission to serve out of the jurisdiction must be set aside and the interlocutory injunction granted to restrain a breach of the arbitration clause discharged. If the arbitration clause (or arbitration agreement) is not part of the contract between American and Abbott, it follows that there can be no contract on which the ground in CPR 6.20(5)(c) can bite.

As to the circumstances in which English law will regard an arbitration clause in one contract as being incorporated into another contract, the position is as follows:

(a) Although generally speaking the English law of contract has taken a benevolent view of the use of general words to incorporate by reference terms to be found elsewhere, a different, stricter, approach has developed in the context of the incorporation of arbitration clauses from one contract into another. See, eg, Bingham LJ in The Federal Bulker [1989] 1 Ll Rep 103 at 105.

(b) In TW Thomas v. Portsea Steamship Co. Ltd. [1912] AC 1, HL, the House of Lords held that where one wishes to incorporate an arbitration clause into a bill of lading, this has to be done by an express reference to the arbitration clause; general words were not sufficient.

(c) In Aughton Ltd. v. MF Kent Services Ltd. 57 BLR 6, Both members of the court appeared to accept that whatever the rule was, it did have an application that went beyond bills of lading and charter parties. However, Ralph Gibson LJ considered that the rule did not entail that in all cases incorporation by express words was required. Sir John Megaw considered that express words of incorporation were required.

(d) So far as insurance and reinsurance contracts are concerned, there is existing authority that the strict rule requiring express incorporation does apply. See Pine Top Insurance Co. Ltd. v. Unione Italiana Anglo Saxon Reinsurance Co. Ltd. [1987] 1 Ll Rep 476, Gatehouse J. (This case was referred to by Ralph Gibson LJ in Aughton without any apparent disapproval).

(e) A similar conclusion has been reached in at least three other relatively recent decisions in the Commercial Court. See Excess Insurance Co. Ltd. v. Mander [1995] LRLR 358 (Colman J) esp. at 365 and following; Trygg Hansa Insurance Co. Ltd. v. Equitas and Butcher [1998] 2 Ll Rep 439 and Cigna Life Insurance Co. of Europe SA-NV v. Intercaser SA De Seguros Y Reaseguros (unreported decision of Morison J of 8 May 2001).

(f) Where the incorporated contract (which either is or contains the arbitration clause) does not exist at the time the incorporating contract (eg, in this case, the American Policies) is entered into, the arbitration clause will not generally be incorporated by general words. See Colman J in Excess Ins (supra) esp. at 366.

Abbott's primary submission is as follows. The words of incorporation used in the present case

("The insurance afforded by this policy shall follow all the terms and conditions of policy number 348.001 issued by SR International Business Ins Co Ltd, including all renewals and rewrites thereof").

were insufficient to incorporate the arbitration clause into the American policies. This would be so even if (a) the arbitration clause and the incorporated contract had been in existence at the time the American policies were entered into, and (b) the parties had not also agreed the service of suit clause in endorsement 1. The fact that (a) the arbitration clause and the incorporated contract was not in existence at the time the American policies were entered into and (b) the parties did agree the service of suit clause in endorsement 1, puts the matter beyond argument.

If, contrary to Abbott's primary submission, the arbitration clause was incorporated into the American policies, Abbott's secondary submission is as follows. The effect of the words in endorsement 1 that the Illinois service of suit clause "deletes and replaces any substantially similar clause contained in the policy", but that "all other terms and conditions of the policy remain unchanged", is to oust the arbitration clause from any control over the resolution of disputes arising under the American policies. The service of suit and arbitration clauses are "substantially similar": both clauses have as their purpose (a) the determination of the place where, and forum in which, jurisdiction to deal with disputes would exist and (b) the procedures whereby such disputes and their determination in the forum identified are to be instituted.

Even if, contrary to the above, the arbitration clause was incorporated and survives the stated intention of the parties that the Illinois service of suit clause was to "delete and replace" any substantially similar clause, it is submitted that, in any event, the arbitration clause (like the American policies as a whole) is governed by the law of Illinois and not English law. The proper law of the American policies is the law of Illinois, this being the country/state with which the contract has the closest connection. There is no reason why the arbitration clause should have a proper law different from the rest of the American policies, and therefore like the rest of the American policies, the proper law of the arbitration clause is also the law of Illinois.

If the English court was required to reconcile the two provisions (and Abbott maintains that this is not appropriate or necessary) it is submitted that the English court is unlikely to conclude that the construction advanced by American (ie that the scope of the service of suit provision was confined to providing a jurisdictional basis for the enforcement of arbitration awards) is correct.

Even if, contrary to Abbott's case, the court considers that the case does fall within the terms of CPR 6.20(5)(c), Abbott submits that the court should exercise its discretion against granting American permission to serve out of the jurisdiction.

For these and other reasons Mr. Rabinowitz, in helpful written and oral submissions, invited the court to conclude that in circumstances where there is no reason why this matter cannot be resolved before the Illinois court, where it has already been raised in proceedings, the English court should exercise its discretion against the grant of an anti-suit injunction and discharge the order made by Steel J. on 31 October.

ANALYSIS AND CONCLUSIONS

The principles relevant to applications for an anti-suit injunction in cases where there is an exclusive jurisdiction clause or an arbitration agreement governed by English law can be re-stated following the speech of Lord Bingham in Donohue v. Armco Inc & Ors. [2001] UK HL 64 as follows:-

1. The following principles govern the grant of an injunction to restrain a party from commencing or pursuing legal proceedings in a foreign jurisdiction:

(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 party 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 exercised with caution.

2. The court will, generally speaking, only restrain a party from pursuing proceedings in a foreign court if such pursuit would be vexatious or oppressive.
3. If contracting parties agree to give a particular court or arbitral tribunal 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 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 that party) can show strong reasons for suing in that forum. Where an exercise of discretion is called for there can be no absolute or inflexible rule governing that exercise of discretion. A party may lose his claim to equitable relief by dilatoriness or other unconscionable conduct. But the general rule is clear: where parties have bound themselves by an exclusive jurisdiction clause or an arbitration agreement, effect should ordinarily be given to that obligation in the absence of strong reasons for departing from it. Whether a party can show strong reasons, sufficient to displace the other party's prima facie entitlement to enforce the contractual bargain, will depend on all the facts and circumstances of the particular case.
4. The principles governing the grant of injunctions and stays are not the same. Considerations of comity arise in the one case, but not in the other.
5. 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 an exclusive jurisdiction clause or an arbitration clause in their contract, and the interests of other parties are not involved, effect will in all probability be given to the clause. But this is not an invariable result. The court may well decline to grant an injunction or a stay, as the case may be, where the interests of parties other than the parties bound by an exclusive jurisdiction clause are involved or grounds of claim not the subject of the clause are part of the relevant dispute so that there is a risk of parallel proceedings and inconsistent decisions.

To the above principles derived from the speech of Lord Bingham in Donohue v. Armco, I add the following.

6. There is no difference in principle between an injunction to restrain proceedings in breach of an arbitration clause and one to restrain proceedings in breach of an exclusive jurisdiction clause. The justification for the grant of the injunction in both cases is that without it the claimant will be deprived of its contractual rights in a situation in which damages are manifestly an inadequate remedy (The "Angelic Grace" [1995] 1 Ll Rep 87 at 96, Millett LJ).
7. It would be inappropriate to grant an interlocutory injunction to restrain foreign proceedings at a time when it is no more than arguable that they were brought in breach of contract, because it could not be said that such proceedings were vexatious or oppressive (Clarke LJ in National Westminster Bank v Utrecht-America Finance Company [2001]

EWCA Civ 658).

8. On an application to restrain foreign proceedings brought in (alleges) breach of an arbitration agreement alleged to be governed by English law, the applicant must show to a high degree of probability that its case is right, and that it is entitled as of right to restrain the foreign proceedings (Colman J in Bankers Trust Co. v. PT Mayora Indah (20 January 1999, unreported) and Cresswell J in Bankers Trust Co. and Anor v. PT Jakarta International Hotels and Development [1999] 1 All ER (Comm) 785.

I analyse the position in the present case as follows:

9. Dicey & Morris 13th Ed. Rule 173 states

"(1) A contract is governed by the law chosen by the parties.

(2) The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case.

(3) By their choice the parties may select the law applicable to the whole or a part only of the contract.

(4) The parties may at any time agree to subject the contract to a law other than that which previously governed it, but any variation by the parties of the law to be applied made after the conclusion of the contract shall not prejudice its formal validity under Article 9 of the Rome Convention ... or adversely affect the rights of third parties".

Rule 184 states:

"(1) This Rule applies to determine the law applicable to a contract of insurance covering risks situated outside the territories of the European Economic Community ...

(2) To the extent that the law applicable to such contract has not been chosen in accordance with Rule 173, the contract is, in general, governed by the law of the country with which it is most closely connected.

(3) It will be presumed that the contract is most closely connected with the country in which (semble) the insurer's principal place of business is situated, or where, under the terms of the contract, the insurer's performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.

(4) The presumption in clause (3) will be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country'.

10. THE POSITION AS AT 8.1.96

As at the date when the relevant contracts of insurance were first entered into between American and Abbott, ie at the latest at 8.1.96, the wording of policy 348.001 had not been agreed and accordingly there was no incorporation of a London arbitration clause. It is common ground on the evidence before the court that for the purposes of this application as at 8.1.96, any dispute between Abbott and American arising under the American policies would have been governed by US law. The common ground recorded above in my opinnion accords with a correct application of Rule 184 (supra).

The letter from Mr. Robert Lund of Midwestern to Mr. Tom Ealy of Johnson & Higgins dated 5 January 1996, stated:

"Please be advised that the above referenced account has been bound by American ... Coverage:

Excess Liability, Form:

Follow Form.

Excess Liability, Effective:

January 1 1996 to January 1 1999 ...

Terms and Conditions Attach:

Service of Suit (Illinois) ...".

It is also common ground that the parties would have understood the words "Attach Service of Suit (Illinois)", to mean that a service of suit clause in the terms later found in endorsement 1 would apply from at latest 8.1.96.

11. THE POSITION AS AT MAY 1996

It is further common ground that it is not clear as at May 1996, when Abbott and American signed the two policies, whether policy number 348.001 had been concluded and if so whether it included the London arbitration clause. In October/November 1996, policy 348.001 was signed incorporating the London arbitration clause.

12. As to the nature and effect of a US service of suit clause (in similar terms to the clause in the present case) viewed through the eyes of the English court, see Excess Insurance Co. Ltd. v. Allendale Mutual Insurance Co. (CA 8 March 1995 unreported) and Ace Insurance SA-NV v. Zurich Insurance Co [2001] EWCA Civ 173. Such a clause is not an exclusive jurisdiction clause: either party may sue the other wherever it has the right to do so. Once the proceedings in the US court have been properly started as a matter of jurisdiction, the US court will have to consider whether in the exercise of its own jurisdiction it should stay the proceedings before it. In the context of an application for a stay on the grounds of forum non conveniens, if a party agrees to submit to the jurisdiction of the courts of a US state, it does not easily lie in its mouth to complain that it is inconvenient to conduct its litigation there (ie to assert that the agreed forum is a forum non conveniens).
13. American says that the words in the policies signed in May 1996

("the insurance afforded by this policy shall follow all the terms and conditions of policy number 348.001 issued by SR International Business Ins Co Ltd including all renewals and rewrites thereof")

had the effect of incorporating the London arbitration clause into the American policies and that the resulting arbitration agreement was governed by English law. Abbott says (1) that the words "shall follow all the terms and conditions of policy number 348.001", do not embrace the arbitration clause, and (2) that even if they do, endorsement 1. (the service of suit Illinois clause) deleted and replaced the arbitration clause.

14. On an application to restrain foreign proceedings brought in (alleges) breach of an arbitration agreement alleged to be governed by English law, the applicant must show to a high degree of probability that its case is right, and that it is entitled as of right to restrain the foreign proceedings (see legal principle 8 above).
15. It is to be noted that in the Illinois proceedings the complaint provides,

"This is an action by Abbott against American for breach of contract, violation of the Illinois Insurance Code ... resulting from American's breach of its insurance contracts ... with Abbott by refusing to indemnify Abbott for at least $8.4 million in settlement costs, losses and related fees and expenses incurred by Abbott in connection with defending a series of Federal and State Court price discrimination lawsuits brought against Abbott and other pharmaceutical manufacturers by pharmacies and other small purchasers of brand name drugs ('the Brand Name Prescription Drug Litigation'). Additionally, Abbott seeks a stay of the London arbitration proceeding which was improperly begun by American in breach of the contracts".

16. I do not consider that American has shown to a high degree of probability that its case is right and in particular to a high degree of probability (i) that the London arbitration clause was incorporated into the American policies, and (ii) that the Illinois proceedings are vexatious or oppressive for, among others, the following reasons:

(A) Where the arbitration clause did not exist at the time the contract was entered into (in the present case by 8.1.96 when the American policies were entered into) an arbitration clause will not generally be incorporated thereafter by policy words such as "the insurance afforded by this policy shall follow ..." (see Colman J, in Excess Insurance (supra) at pp.366-7). The conclusion that the arbitration clause was not incorporated is reinforced where (as in the present case) there was a clause providing for non-exclusive jurisdiction of a particular court agreed at the time the contract was entered into (by 8.1.96 when American became bound). In the circumstances of the present case clear and specific words, beyond the general words of incorporation relied upon by American, would be required to make plain the parties' intention to (a) bring into the contractual arrangements binding as at 8.1.96, a London arbitration agreement contained in a later policy issued by SR International Business Ins Co Ltd, and (b) override the terms of the service of suit Illinois clause. See further the decision of Colman J in Excess (supra) and the decision of His Honour Judge Jack QC in Trygg Hansa (supra) and the earlier authorities cited in those judgments.

(B) Even if, contrary to my view, the general words of incorporation were sufficient to bring in the London arbitration clause, I refer to the consideration of US service of suit cases in Excess Insurance (supra) and Ace Insurance (supra). I am not persuaded to a high degree of probability that endorsement 1. did not delete and replace the arbitration clause as a substantially similar clause.

17. For the reasons set out above, I discharge the anti-suit injunction. The Illinois proceedings are not vexatious or oppressive.
18. As to the order giving permission to serve out of the jurisdiction, I refer to Dicey & Morris Vol 1, 11-127. Mr. Hollander realistically concedes that if the anti-suit injunction is discharged, it is difficult for American to maintain the permission to serve out. I agree, and accordingly in addition I set aside that part of Steel J's order giving permission to serve out. I order accordingly.

Yes?

MR. HOLLANDER: Would your Lordship grant permission to appeal? One of the matters that arose this morning I think which is salient, the first principal ground on which your Lordship decided that you are not sufficiently satisfied, related to the issue about incorporation of the arbitration clause, and as I suggested to your Lordship this morning, that is really ripe for consideration by a higher court and arises squarely in the light of your Lordship's judgment.

MR. JUSTICE CRESSWELL: I am not prepared to grant permission in this case. In my opinion, the answer is clear in the particular circumstances of this case. It may be that the wider points raised by Mr. Hollander will call for consideration on another occasion, but for the reasons given in the judgment I think the answer is clear on this occasion.

MR. HOLLANDER: The second issue arising out of that is whether your Lordship would grant a stay or continuation of the injunction for a short enough time in the event that we wish to ask the Court of Appeal for permission and for it to be continued pending a hearing.

MR. RABINOWITZ: My Lord, in my submission there is no basis for that. Your Lordship has refused permission to appeal. It is not clear what it is that my learned friend thinks we are going to do in the interim behind their back which could so prejudice their position that a stay is required. The stay in effect prevents us from taking any steps in Illinois. There is absolutely no need for that. My learned friend's clients know there is an action in Illinois. They are perfectly able to go to the Illinois court given that your Lordship's grounds for refusing permission make it in my submission quite correctly clear that this is not a case where there is any need for a further delay before the parties can get on with the Illinois action.

MR. JUSTICE CRESSWELL: I will grant an extension until 2 pm tomorrow.

Yes?

MR. RABINOWITZ: My Lord, costs.

MR. JUSTICE CRESSWELL: Yes.

MR. RABINOWITZ: We would say we are entitled to costs, both in relation to the injunction and of course in relation to our application to set aside permission to serve out of the jurisdiction.

MR. JUSTICE CRESSWELL: That must follow, Mr. Hollander.

MR. HOLLANDER: That is plainly right. The only question is whether your Lordship conducts a detailed assessment or whether, given it has now taken the best part of two days, it would be appropriate to have a detailed assessment.

MR. JUSTICE CRESSWELL: I would have thought there ought to be a detailed assessment. I will order an expedited assessment.

MR. RABINOWITZ: My Lord.

MR. JUSTICE CRESSWELL: Thank you all for your assistance.

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