English courts show willingness to interpret fraud widely

Cavell USA and Randall v Seaton Insurance Company and Stonewall Insurance Company (Court of Appeal — 16 December 2010).

The defendants had contracted with Cavell USA to manage the run-off of their insurance business (the liability of an insurance company for future claims it expects to pay). Cavell was to undertake, among other duties, the handover of run-off management.

The defendants, Seaton Insurance and Stonewall Insurance allege that in breach of contractual/fiduciary duty, the claimants sub-contracted the conduct of the run-off to another company, resulting in its inability to look after the interests of the defendants. It was said that Cavell dishonestly benefited from the arrangement and concealed the sub-contract's existence. The defendants, both based in the US, terminated the contract.

The defendants instituted fraud proceedings in New York against the claimants, who resisted on the basis that the claims should have been brought in England, as the contract was governed by English law, and subsequently issued proceedings in the Commercial Court.

In dealing with preliminary issues, District Judge Gross ordered that the parties had contracted to submit all disputes, including those of fraud against Randall, to the exclusive jurisdiction of the English courts and that claims in fraud were limited to the tort of deceit.

The defendants said that they were entitled to bring a claim for fraud in New York and were not confined to bringing claims that would, as a matter of English law, be regarded as claims in deceit.

In the Court of Appeal, Lord Justice Longmore set aside part of the District Judge Gross order — thus allowing the appeal in part — and extended the meaning of fraud within the contract to include "at least some claims of dishonest abuse of fiduciary position". He found that in the commercial context of this case, the concept of fraud is wider than the concept of the tort of deceit.

Lord Justice Longmore also found that the word 'fraud' was not directly linked to deceit, and that it is incorrect to assume the claimant can only be liable for fraud if they were deliberately deceiving the defendant. He added that "the fact that a fiduciary may be liable for abuse of position without being dishonest does not seem to him to be conclusive of the proposition that a person abusing his fiduciary position can never be regarded as fraudulent".

Comment:

The decision displays a willingness by the English courts to to interpet fraud within commercial cases more widely. Whether the defendants are succesful in their claims of fraud against the claimants remains to be seen.

Claire Laver, BLM, Birmingham

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