Cavell USA, Inc & Anor v Seaton Insurance Company & Anor

A contractual release containing an exception for fraud is not automatically confined to claims in the tort of deceit. In an appropriate commercial context, it may extend to dishonest abuse of fiduciary position. The court should identify the minimum scope of the exception without attempting an exhaustive definition where the concept is fact-sensitive. A jurisdiction clause governing disputes under a settlement applies to claims preserved by the fraud exception, even where earlier agreements contained different jurisdiction or arbitration provisions, unless those provisions were expressly preserved. Whether further deception or secrecy is required, and whether particular conduct qualifies, remains for trial.

Seaton and Stonewall, insurance companies in run-off, appealed declarations concerning a Term Sheet governing the termination of their commercial relationship with Cavell and Kenneth Randall. The Term Sheet released claims subject to an exception for fraud and provided for the exclusive jurisdiction of the English courts. Seaton and Stonewall had commenced fraud proceedings in New York, while Cavell and Randall sought declaratory relief in England.

Gross J held that the English jurisdiction clause applied to the fraud claims. He further held that the fraud exception meant claims in deceit, although he made no order on whether the pleaded claims fell within that description. The appeal concerned whether the claims had to be brought in England and the proper scope of the fraud exception.

Appeal allowed in part.

1. Jurisdiction. The Term Sheet was intended to bring the parties’ contractual and commercial relationships to an orderly conclusion. Clause 13 released claims at law or in equity subject to specified exceptions, including fraud. Clause 29 applied to disputes arising under the Term Sheet, including claims within that exception. The original management agreements had been expressly terminated and their jurisdiction or arbitration provisions had not been preserved. Satyam Computer Services v Upaid Systems [2008] EWCA Civ 487 was distinguishable because the earlier agreement in that case had been expressly preserved.
2. Reformulation of the preliminary issue. The court permitted the fraud issue to be reformulated to address whether the exception included dishonest abuse of fiduciary position. This was appropriate in a commercial case where the argument had been advanced below and the opposing party had been able to address it. The exercise did not authorise or preclude any future pleading.
3. Meaning of fraud. In the commercial and international context of the Term Sheet, fraud was not confined to the tort of deceit. The references to claims at law or in equity supported a wider construction. Authorities concerning the statutory expression fraud, including Welham v DPP [1961] AC 103, could not determine the meaning of the word in this commercial document.
4. Fiduciary abuse. Liability for abuse of fiduciary position does not necessarily require dishonesty. That did not establish that dishonest abuse of such a position could never be fraudulent. The reasoning concerning dishonest abuse as a form of deception in Kensington v Republic of Congo [2008] 1 Lloyds Rep 161, and the obiter observations in Armitage v Nurse [1998] Ch. 241, supported the conclusion that at least some dishonest abuses of fiduciary position fell within the exception. Section 4 of the Fraud Act 2006 provided further support for that ordinary understanding.
5. The court declined to define the full scope of fraud. It declared that the exception was not confined to claims in deceit but extended to at least some cases of dishonest abuse of fiduciary position. Whether deception or secrecy was additionally required, and whether the facts satisfied the exception, was left to the trial judge. The suggested test that conduct must be regarded as dishonest by ordinary people and known by the defendant to be so regarded was expressly not made part of the declaration. The second paragraph of the judge’s order was set aside and replaced accordingly; the jurisdiction ruling was upheld.

• Court of Appeal (Civil Division) — Appeal allowed in part. The jurisdiction ruling was upheld, while the declaration that the fraud exception was confined to deceit was set aside and replaced.
• High Court (Commercial Court) — Gross J held that the parties had submitted the fraud claims to the exclusive jurisdiction of the English courts and construed the exception as confined to claims in deceit: [2008] EWHC 31 (Comm).