Cavell USA Inc & Anor v Seaton Insurance Company & Anor

A wide exclusive jurisdiction clause in a settlement agreement may extend to claims preserved by a fraud carve-out, where the agreement’s commercial purpose is to channel residual disputes into one forum. The ordinary and primary meaning of fraud in an English-law contract is deceit, although deceit may arise from conduct, concealment, half-truths, previous statements or, in limited circumstances, silence. A dishonest breach of fiduciary duty is not, without more, a claim in fraud where dishonesty is not an essential element of the cause of action. Where double actionability applies, the claim must satisfy both the English-law meaning of fraud in the settlement agreement and the law governing the antecedent transaction.

The claimants sought declarations concerning a Term Sheet that released claims arising from the parties’ commercial relationships, subject to a carve-out for fraud on the part of Randall. The Term Sheet also provided that it was governed by English law and that the parties submitted to the exclusive jurisdiction of the English courts.

The defendants had brought proceedings in New York alleging that Cavell and Randall had subordinated Seaton’s and Stonewall’s interests to those of their reinsurer through a collaboration agreement. Flaux J ordered trial of preliminary issues concerning the scope of the English jurisdiction clause and the meaning of fraud in the carve-out. The central questions were whether the English courts had exclusive jurisdiction over the surviving disputes and whether fraud meant deceit alone or included dishonest breaches of fiduciary duty.

1. Preliminary Issue A. The English courts had exclusive jurisdiction over all disputes falling within the Term Sheet, including claims in fraud preserved by the clause 13(iii) carve-out. The release and its carve-outs formed part of the Term Sheet; carving fraud out of the release did not exclude it from the agreement. The clause’s wording was wide, and the Term Sheet’s commercial purpose was to achieve an orderly termination of several relationships and provide a single forum for residual disputes.
2. The court rejected the construction that would leave the English court policing whether a claim was within the carve-out while another court or tribunal determined its substance. That result would create a serious forensic difficulty and was not required by the language of the agreement. Satyam v Upaid was distinguishable because the agreement there expressly preserved claims under an antecedent agreement.
3. Preliminary Issue B(1). In an English-law agreement, fraud in clause 13(iii) had its ordinary and primary meaning of deceit. That meaning was not confined to express misrepresentations. Depending on the circumstances, fraudulent misrepresentation could arise from half-truths, failure to correct a statement, concealment, silence combined with prior conduct, or a legally recognised positive duty to speak.
4. A dishonest breach of fiduciary duty did not fall within the carve-out merely because it was described as fraudulent. The relevant cause of action was breach of fiduciary duty, for which dishonesty was not an essential ingredient. The claim therefore might succeed without any finding of dishonesty, which was inconsistent with the agreed carve-out for fraud.
5. The parties’ agreement gave rise to a double actionability requirement. A claim had to constitute fraud under English law, as the law governing the Term Sheet, and under the law governing the antecedent transaction. New York law could not convert conduct that was not fraud under English law into fraud for the purposes of clause 13(iii).
6. A claim against Randall personally could fall within the carve-out if based on dishonest representations knowingly made by him, subject to proper pleading. The suggested claim for dishonestly procuring Cavell’s fiduciary breaches was assumed but not decided, and in any event had to satisfy the English-law meaning of fraud.
7. Preliminary Issue B(2). Whether the pleaded New York claims actually constituted claims in fraud did not arise and was left undecided. The parties were directed to assist with the appropriate order and costs.

First-instance determination of preliminary issues. No appellate history was stated in the judgment.