English courts have a longstanding and well recognised jurisdiction to restrain foreign proceedings which are brought in violation of an agreement to settle disputes by arbitration in London.
In the recent case of XL Insurance Co SE v Little, the claimant (the ”XL Insurance”) asked the English High Court for a final anti-suit injunction to restrain Mr Little from pursuing proceedings that he had brought in the District Court of the Southern District of New York (the “New York Court”).
Mr Little, a former Barclays employee, had been accused by US authorities of manipulating foreign exchange currency benchmarks. In order to fund his defence against those allegations, Mr Little sought to draw on a directors and officers insurance policy issued by XL Insurance to the bank (“Policy”). However, XL Insurance denied that Mr Little was insured under that Policy and therefore declined to provide cover.
In December of 2018, Mr Little filed proceedings against XL Insurance in the New York Court, alleging breach of contract and seeking a declaration that there was coverage available under the Policy for his costs associated with the US regulatory action.
However, those proceedings were in conflict with an arbitration clause under the Policy, which specified that any dispute or difference had to be submitted to LCIA arbitration in London. XL Insurance therefore applied to the English court for an anti-suit injunction.
Mr Justice Popplewell granted the injunction, holding that if Mr Little were insured under the Policy, then he was bound by the dispute resolution clause to arbitrate his claim to coverage in London.
The relevant law was said to be uncontroversial. Where parties have entered into an agreement to arbitrate disputes in a particular forum, this gives rise to a negative obligation not to commence proceedings in any other forum in relation to matters which are within the scope of the arbitration agreement. The Court held that Mr Little could not found a claim in the New York Court based on rights said to arise out of the Policy without also being bound by its dispute resolution provisions.
Mr Justice Popplewell did not consider there to be any strong reasons against granting an injunction. He noted that XL Insurance had made its application promptly and had not submitted to the jurisdiction of the New York Court. The fact that Mr Little resided in New York and owned no real property in the UK had no bearing on the High Court’s jurisdiction over him, which was plainly established by the English law contract from which he sought to derive a benefit.
It was argued that Mr Little should not be bound by the dispute resolution provision because he played no role in negotiating or purchasing the Policy. However, that argument was held to be misconceived as a matter of English law. After all, it was Mr Little who sought to assert rights under the Policy and those rights, if they existed, could only be exercised in accordance with the Policy’s contractual provisions.
It was also suggested that the dispute resolution clause should not apply to the “threshold question” of whether Mr Little was insured under the policy. Mr Justice Popplewell disagreed, ruling that the arbitration clause was wide enough to cover a dispute about whether Mr Little was insured. He summed the matter up as follows: “Mr Little says that he is an insured. XL Insurance disputes that that is so. If he is an insured then, as a matter of English law, he is bound by the terms of the policy, including the dispute resolution provision. If he is not an insured, then he has no claim in any event. He cannot be an insured who has a claim under the policy but who is not bound by the dispute resolution provision.”
The judgment serves as a useful reminder that English courts will not hesitate to restrain US proceedings if seen as necessary to protect a London arbitration agreement.