CNA Insurance Company Ltd & Ors

These proceedings have a procedural history which has rightly been described by the claimants’ solicitors as a jamboree. The present applications, to which this judgment relates, would be remarkable in any proceedings which had been conducted at considerable expense in this jurisdiction for approaching two years, but in circumstances in which the defendants have incontestably submitted not only to this court’s jurisdiction but to the court exercising that jurisdiction and done so in preference to the alternative jurisdiction (Florida) now sought to be activated they are, I think, unprecedented.

The claimant insurers seek an anti-suit injunction to restrain the second-named defendant (“OD Inc”) from pursuing claims against them in the United States District Court for the District of Florida, West Palm Beach Division (“The Florida Federal Court”). The defendants seek an order staying these proceedings. In short summary, the defendants say that in and after December 2004, on fresh legal advice, they have determined that they have to date conducted their case on the wrong, or maybe a less advantageous, basis, and now they have seen the light they will submit to judgment on, as they would put it, the matters which may have justified the jurisdiction of this court and pursue only the matters which had they alone been in issue originally would inexorably have pointed to Florida as the appropriate forum to try them.

The proceedings concern the insurance of a warehouse or distribution centre in Oldham. The warehouse was built in 1996 and completed in 1997. The warehouse has at all material times been owned by the first-named defendant, to which I shall refer as “ODUK”. ODUK is an English company and a subsidiary of the third-named defendant (“Viking”) which itself is a subsidiary of OD Inc. Viking is a Californian company. OD Inc is incorporated in Delaware with its principal place of business in Florida.

Insurers variously insured the defendants collectively under a series of programmes which extended between 1996 and 2003 made up of local policies and “difference in condition” (“DIC”) policies. The periods have been described as periods 1-7.

The Oldham warehouse was the subject of local policies, governed by English law, and DIC policies governed by the laws of California or Florida. The local policy for period 2 ran from 1 January 1997 to 1 March 1998. It provided cover against “All Risks of physical loss or damage from any external cause, howsoever or wheresoever occurring, except as specifically excluded herein”. Two exclusions are relied upon by insurers (pleaded in paragraph 102 of draft Amended Particulars of Claim). So too are provisions relating to Notice and Proof of loss. The DIC policies for period 5 (now the only policies on which a claim is pursued) provided cover against “all risk of direct physical loss or damage to property … except as hereinafter excluded” and by clauses 41 and 42 provided:

“41 DIFFERENCE IN CONDITIONS

Subject to all other terms and conditions set forth hereunder, it is understood and agreed that when local primary insurance exists, coverage under this policy is to apply only when the perils and/or conditions set forth herein are broader in meaning or scope than those of the specific primary policies. Coverage under this policy shall apply as primary insurance when a peril covered herein is not insured under a specific primary policy ….

42 WORLDWIDE GAP

… it is understood and agreed that when local primary insurance exists, coverage under this policy is to apply only when the perils, limits and/or conditions set forth herein are broader in meaning or scope than those of the specific local primary policies.

It is further understood and agreed that coverage under this policy shall apply as primary insurance when a peril and/or coverage herein is not insured under a specific local primary policy or primary insurance is inadequate, insufficient, uncollectible or non-existent.”

There were exclusions similar to those in the local policies and also discrete Notice of Loss provisions. I have quoted from the “St Paul” policy but for present purposes there are no material differences in the other period 5 DIC policies.

The warehouse suffered unequal settlement. A glance at the proposed Amended Pleadings shows that there are issues about the causes of the settlement and its relationship with the coverage provided. There are also disputes about when ODUK knew of the problems with the warehouse. Insurers allege non-disclosures and misrepresentations on a cumulative basis in relation to each policy period and breach of the notice provisions. The defendants first notified the existence of problems in May 2002. Insurers say they were aware of them from 1996 to 1997.

The defendants claimed under all the policies in issue (both local and DIC for all periods) by notices of claim sent in 2002 and proofs of loss sent in May 2003. That, no doubt, was because of uncertainty as to when the loss occurred or was “manifest” and so as to which period was appropriate. On 30 January 2003 the defendants, as claimants, had commenced proceedings against CNA as sole insurers on the period 2 local policy. There were time-bar reasons for commencing those proceedings. The tactic at the time, according to the defendants’ evidence, was to proceed in this jurisdiction on the local policies but to keep proceedings on the DIC policies, should they be necessary, to be pursued in Florida. It was also then considered on advice that the local policies were the primary route to indemnity.

On 25 June 2003 insurers brought declaratory proceedings seeking to ensure that all liabilities under all potentially relevant local and DIC policies were determined in one action in this jurisdiction. Insurers also served a defence and counterclaim in the CNA action.

In August and September the defendants responded with “forum non-conveniens” applications pursuant to CPR Part 11. In October, they commenced proceedings in a Florida State Circuit Court on all the policies which insurers then moved to dismiss.

A Case Management Conference was held in the CNA action in November 2003. The defendants’ Part 11 applications were to be heard in this court in February 2004. At the end of January the defendants’ then solicitors (Clifford Chance) and insurers’ solicitors agreed that:

On 3 February, on the joint application of the parties, the Florida State Court action was stayed by order of Judge Catherine M. Brunson.

Also in February, the claimants commenced a second action in this jurisdiction under another (Chubb) local policy. Shortly before the date of the hearing of the Part 11 applications, the claimants settled claims they had made against the contractors (and others) alleged to be responsible for the defects in the warehouse. On 4 May, Clifford Chance gave notice that the defendants intended to withdraw their Part 11 applications.

On 10 May the matter came before me. Jurisdiction was no longer in issue. I ordered that all the actions in this jurisdiction should be consolidated and that the pleadings be re-cast with insurers as claimants and the defendants as defendants. Consolidated Particulars of Claim followed and a Defence and Counterclaim was filed on 2 July 2004. At the hearing on 10 May, of which a transcript is available, counsel instructed on behalf of the defendants unequivocally accepted and acknowledged that the claims and counterclaims arising out of the insurance of the warehouse were to be conducted in this jurisdiction in precedence to Florida.

In a true reflection of the hearing on 10 May, between 16 and 18 June 2004 it was agreed that the first Florida action should be stayed pending determination of the consolidated action in this jurisdiction and also that the consolidated action should be stayed pending a settlement meeting. It is now submitted by the defendants that there was no legally binding agreement to the above effect and alleged that the approach of insurers to the settlement meeting was characterised by bad faith such as, by the law of Florida, would in any event render any agreement void. In my judgment the exchange between English solicitors substantially about the progress of English proceedings in the jurisdiction acknowledged at the time to be the primary jurisdiction for the resolution of the disputes would plainly be governed by English and not Florida law. Further, the language of the exchanges between the solicitors and of a further order made by the State Court in Florida, are, I think beyond serious argument, the language of a binding agreement. I do not think it necessary to quote from the letters in full but I would refer in particular to the letter from the solicitors of insurers to Clifford Chance dated 18 June and the “Stipulation to Stay Action and Order Approving Stipulation” (“the Stipulation”) made by the Florida State Court on 30 June and signed as agreed by the parties’ Attorneys in Florida. The letter is expressed to be a recapitulation of terms agreed in a chain of correspondence so as to avoid any doubt. The terms included:

“As a condition precedent of the stay of the London Commercial Court action, on the parties’ joint application, the Florida court shall order a stay of your clients’ suit pending either (a) the final determination, including the determination of any appeals of the consolidated proceedings in the London Commercial Court; or (b) the final settlement of those proceedings”.

That provision was repeated in paragraph 5 of the Stipulation. Paragraph 4 of the Stipulation reads:

“Prior to the scheduled May 10 and 11, 2004 hearing in the Commercial Court in London, England to determine and rule upon Office Depot’s jurisdictional challenges, Office Depot withdrew its jurisdictional challenges. As reflected in the May 10, 2004 Order of the London Commercial Court, Office Depot submitted to the jurisdiction of the UK courts as to the subject matter of the UK proceedings.”

I shall refer to the agreement, as I find it to have been, recorded in these documents as the “June 2004 Agreement”. Its purpose was to secure the precedence of the proceedings in this court over proceedings in Florida should the matter not be settled.

There was a settlement meeting in November 2004. There was no settlement. The agreed stay of the present proceedings ended and on 22 December 2004 insurers served a reply and defence to counterclaim. There has also been some limited disclosure in these proceedings.

It was, it seems, in November 2004, that the defendants changed solicitors. At the end of December, OD Inc (alone) commenced the second Florida action in the Florida Federal Court relying only on the period 5 DIC policies. The defendants also purported voluntarily to dismiss the Florida State Court action. Insurers contend that such conduct is a breach of the June 2004 Agreement and the State Court’s order which stipulated that the Florida State Court action should be stayed pending the resolution of the proceedings in this jurisdiction.

The reason for the voluntary dismissal and issue of proceedings by the defendant in a Federal court is not hard to find. One of the insurers on the period 5 DIC policies (“Greenwich”) has not been sued in the Federal Court proceedings. Had it been, it is agreed, the Federal Court would not have had jurisdiction and the claims would have had to proceed in the State Court. But the State Court proceedings were stayed and included the same claims now sought to be advanced in the Federal Court. The defendants contend that by Florida law they are entitled to discontinue the State Court proceedings and they submit that whether or not there was an agreement in June 2004 it applied only to the State Court action and not to any other action in Florida.

Whether by the necessary implication of an implied term or through the express terms of the agreement I think the defendants’ submissions are to be rejected. It would, as Mr Layton QC for the insurers submitted, be unthinkable that the June 2004 Agreement did not preclude the commencement of a second action in Florida designed to evade the agreed stay of the first action and in effect to deprive the Agreement of its purpose and any real substance.

It was these steps, taken by the defendants, that prompted insurers to seek anti-suit relief on 17 January 2005. On 21 January Cooke J made interim orders “to hold the ring” until the present hearing. On 16 February 2005, the defendants applied for a stay of these proceedings.

On 4 March the defendants applied to amend the Defence and Counterclaim. To quote from the defendants’ skeleton argument:

“Whereas hitherto the defendants’ position has been that the primary claim for recovery of the loss lay under the Period 2 local policy, their position is completely changed …. They now concede that the only Policies under which any claim arises are the Florida DIC policies [for period 5]”.

The draft Amendments include “pleas” that “Office Depot no longer claims under the Period 2 Local Policy and admits that it is not entitled to indemnity thereunder in respect of the loss at the Distribution Centre” and that “Office Depot now, however, concedes that there is no good claim on any Local or DIC Policy except for the [period 5 DIC policies]. Office Depot withdraws and will not make in the future any claim under any other Policy in respect of its current claimed losses at the Distribution Centre”.

The concentration upon the period 5 DIC policies derives from the defendants’ case that under the law of Florida a claim falls to be made under the policy in place at the date of “manifestation” of the loss which the defendants say was October 1999. Period 5 covers 21 August 1999 to April 2001. The only insurers concerned in those policies are the 5^th, 8^th, 10^th, 18^th and 19^th claimant insurers.

In short form, Mr Layton’s submissions for insurers might be summarised as: breach of the July 2004 Agreement; too late; unconscionable; no stay is permissible in law as regards the claim against ODUK; and in any event, even on the limited basis (period 5 DIC) on which the defendants now seek to proceed, this jurisdiction is and remains the proper forum and has certainly become so by reason of the events which I have recorded. Mr Layton also expressed insurers’ reservations about whether or not the defendants were irrevocably committed to the limited claim but rightly accepted Mr Boswood’s assurance that such was the case backed by the terms of the draft amendments to the Defence and Counterclaim for which the defendants seek permission and to which I have referred.

The basic submission of Mr Boswood QC, for the defendants, was that once, as they had, the defendants irrevocably abandoned and would submit to judgment on all claims other than the claim on the period 5 DIC policies the whole character of the proceedings had changed and, as he asked rhetorically, had that been the case at the outset would it not have been an inevitable conclusion that Florida was and this jurisdiction was not the proper forum in which to resolve those issues. And, if that was so, there was every reason now to ensure the remaining issues were tried in Florida.

In my judgment, insurers are plainly right in their submissions and the defendants are plainly wrong:

It does not, of course, follow that because a stay is inappropriate an anti-suit injunction is appropriate. But where, as I have found, the Florida Federal Court proceedings are brought in breach of contract then unless there is “strong reason” not to do so such an injunction will be granted: Donohue v Armco [2002] 1 Lloyds Rep 425 (HL) at paragraph 53 (Lord Hobhouse). Further, where no breach of contract can be established, it is agreed that an injunction is appropriate if the bringing of the foreign proceedings is “unconscionable” and necessary to protect the applicant’s legitimate interest in proceedings in this country: see Turner v Grovit [2001] UKHL 65 and Glencore International v Exter Shipping [2002] EWCA 528 at paragraph 42. That in my judgement, is in any event this case. The defendants have unequivocally submitted to the jurisdiction. It is too late to seek to undo what has gone before. Substantial costs have been incurred in a jurisdiction in which, as the parties were aware, their recovery is part of the normal process of litigation. The proceedings are well advanced. The defendants have at least plainly accepted that the proceedings in this court should be tried first and that any Florida proceedings would follow later.

England has become, even if it was not always, the proper forum for the matter to be resolved and it would in my judgment be unconscionable for the defendants now to be permitted under the flag of abandoning all but one part of their claim to proceed in Florida.

Insurers do not seek an injunction which would prevent the defendants pursuing the “good faith” claims in Florida after determination of the coverage disputes in this jurisdiction. The parties agree that if there is no coverage then the bad faith claims must fail as a matter of Florida law. In my judgment, it is an entirely appropriate stance in the circumstances of this case that the coverage disputes should be determined first and in this jurisdiction.

The defendants’ application for a stay is refused. Insurers’ application for an anti-suit injunction is granted. I will hear the parties on any ancillary matters which cannot be agreed when this judgment is handed down.