Donohue v. Armco Inc and Others

An English exclusive jurisdiction agreement will ordinarily be enforced unless the party suing elsewhere establishes strong reasons for departure from the contractual bargain. The court must consider all the circumstances. The interests of third parties, claims outside the agreement and a serious risk of parallel proceedings or inconsistent findings may constitute strong reasons.

A non-party to the agreement cannot obtain an anti-suit injunction through joinder where it has no independent basis for serving the foreign defendant and the foreign proceedings are neither vexatious nor oppressive. An injunction may be refused on protective terms, including an undertaking addressing remedies which would cause particular injustice in the foreign forum.

Five Armco group companies commenced New York proceedings alleging that Mr Donohue, other former executives and associated companies had participated in an international fraudulent conspiracy. Some allegations concerned a management buy-out governed by agreements containing English exclusive jurisdiction clauses. Other claims concerned debt collection contracts, trust funds, fiduciary duties and liability under the United States RICO legislation.

Aikens J refused Mr Donohue an anti-suit injunction and refused to join the proposed co-claimants: [1999] 2 Lloyd's Rep 649. A majority of the Court of Appeal reversed those decisions, joined the proposed co-claimants and restrained three Armco companies from pursuing specified New York claims: [2000] 1 Lloyd's Rep 579.

The issues before the House were whether the non-contracting proposed co-claimants could be joined and whether the exclusive jurisdiction agreements should be enforced by an anti-suit injunction despite the resulting fragmentation of closely connected litigation.

1. Disposition. Per Lord Bingham of Cornhill, whose reasons were expressly agreed by Lord Mackay of Clashfern, Lord Nicholls of Birkenhead and Lord Hobhouse of Woodborough, the appeal was allowed. Lord Scott of Foscote also agreed in the result. The orders joining the proposed co-claimants and granting Mr Donohue an anti-suit injunction were set aside. The House accepted the Armco companies' undertaking not to enforce multiple or punitive damages against Mr Donohue, Wingfield or CISHL.

2. Joinder. Per Lord Bingham, Messrs Rossi and Stinson and their companies had no contractual right under the exclusive jurisdiction clauses, no independent ground for service out and no viable claim to an anti-suit injunction. England was not the natural forum for their dispute with their former employers, and the New York proceedings against them were neither vexatious nor oppressive. They could not use Mr Donohue's valid action as a means of introducing claims which they could not have brought independently. Wingfield and CISHL had a procedural basis for joinder, but their joinder served no useful purpose once the undertaking was accepted.

3. Exclusive jurisdiction clauses. Per Lord Bingham, a party bound by an exclusive jurisdiction agreement who sues within its scope in another forum bears the burden of showing strong reasons for departure from the bargain. The discretion under section 37 of the Supreme Court Act 1981 remains flexible. Relevant circumstances include the interests of non-parties, claims outside the clause and the danger of parallel proceedings producing inconsistent decisions.

4. Application. Mr Donohue had a strong prima facie contractual right to be sued in England on claims within the clauses. Nevertheless, closely related proceedings involving non-contracting parties and claims outside the clauses would inevitably continue in New York. The central allegation was a single fraudulent conspiracy whose resolution depended upon a common assessment of the alleged conspirators' honesty and motives. The interests of justice favoured one composite trial in New York and supplied strong reasons for withholding the injunction. The undertaking removed the particular injustice arising from possible RICO, multiple or punitive damages.

5. Appellate discretion. Per Lord Bingham, the Court of Appeal's exercise of discretion was vitiated because it proceeded upon an incorrect assessment of the future shape of the litigation, particularly the assumption that the non-contracting proposed co-claimants could litigate in England. The House was therefore entitled to exercise the discretion afresh.

6. Lord Scott's separate reasoning. Lord Scott considered that a widely expressed clause covering any dispute could protect a contracting party against connected foreign claims brought only against a non-party joint tortfeasor where success would expose the contracting party to consequential liability. He also considered that the RICO claims fell outside the clauses because an English court could not determine them and no clear intention to contract out of such liability had been expressed.

1. House of Lords: In Donohue v. Armco Inc and Others [2001] UKHL 64 , the House unanimously allowed the appeal on the terms of the Armco companies' undertaking and set aside the Court of Appeal's orders granting the injunction and joining the proposed co-claimants.

2. Court of Appeal: By a majority, Stuart-Smith and Sedley LJJ, Brooke LJ dissenting, the court reversed the refusal of an injunction, joined the proposed co-claimants and restrained specified New York proceedings: [2000] 1 Lloyd's Rep 579.

3. High Court: Aikens J refused the anti-suit injunction and joinder applications and set aside service on APL and NNIC: [1999] 2 Lloyd's Rep 649. The order concerning APL and NNIC was upheld by the Court of Appeal and was not challenged in the House.