In Equitas Ltd v Allstate Insurance Co - Lawtel 9.9.08 the applicant, which was the Defendant in proceedings brought by the respondent, sought a stay of those proceedings pending the determination of arbitration in Texas between itself and an American reinsurance company which was in receivership. The proceedings concerned the scope of a commutation agreement entered into by the respondent, a group of companies linked to Lloyd's of London, and the applicant, which had reinsured the Lloyd's syndicates, which contained an exclusive English jurisdiction clause.

The applicant argued that the issues before the English court were being advanced by the respondent in the Texan arbitration; and that the respondent had delayed in instituting proceedings in England until after extensive briefs had been submitted to the arbitrators. The respondent relied on the exclusive jurisdiction clause in the commutation agreement and argued it had not forfeited its right to have its dispute with the applicant adjudicated as contractually agreed as a result of the American reinsurance company's involvement.

The Commercial Court held that the applicant’s application for a stay was based on the court's case management powers and not on any residual power based on the principle of forum non conveniens. Since the proceedings had been brought pursuant to an English jurisdiction clause under a contract between the parties governed by English law, Regulation 44/2001 art.4(1) and art.23 had the effect that the court's jurisdiction was exclusive and the clause had mandatory effect. The court was deprived of its common law discretion to stay proceedings in favour of another jurisdiction on forum non conveniens grounds.

It held that the burden on a defendant seeking a stay where the claimant had founded jurisdiction in England and Wales as of right was particularly significant where the jurisdiction of the English court was founded on a contractual provision – rare and compelling circumstances are required.

It found that a stay of the instant proceedings pending resolution of the Texan arbitration would mean that the respondent would either have to intervene in that arbitration or take the riskier course of leaving the matter to the American reinsurance company. Moreover, it was possible that the applicant would argue that the respondent would be bound by the outcome of the arbitration as a privy. In that event, the litigation would be taken out of the English courts altogether and the principle set out in Owusu v Jackson would be subverted. Allowing the proceedings to continue would result in a final binding determination on the commutation agreement; whereas a stay would result in the likelihood of further litigation in the event that the respondent did not intervene in the arbitration, and if the respondent did intervene, that would result in its giving up the benefit of the exclusive jurisdiction clause to which it was contractually entitled.