Introduction

The Court of First Instance has recently in AIG Insurance Hong Kong Ltd v McCullough [2019] HKCFI 1649 considered the effect of an arbitration clause contained in an insurance policy and granted an anti-suit injunction restraining a party from pursuing foreign proceedings in breach of the arbitration agreement.

Background

Mr and Mrs McCullough (the “McCulloughs”) were having vacation in the Caribbean in 2015 during which Mrs McCullough suffered a fall from a zip line owned and operated by Rain Forest Adventures (Holdings) Ltd, Rain Forest Sky Rides Ltd and Rain Forest Tram Ltd (collectively “Rain Forest”). Among other injuries, Mrs McCullough was rendered permanently quadriplegic as a result of the fall.

AIG Insurance Hong Kong Ltd (“AIG”) had previously issued a directors’ and officers’ liability insurance policy with a limit of US$5 million (the “Policy”) to Rain Forest, covering it as the policyholder and its directors including Mr Harald Joachim von der Goltz (“Mr von der Goltz”).

The McCulloughs sued Rain Forest in the Florida courts, alleging negligence in the operation of the zip line excursion. Six months later, the McCulloughs added Mr von der Goltz as a defendant to the proceedings. Mr von der Goltz gave notice to AIG that he was seeking an indemnity under the Policy, but the claim was rejected by AIG on the basis that claims resulting from bodily injuries are not covered by the Policy. Subsequently, the McCulloughs pursued the negligence claim by way of arbitration and an award in the sum of US$65.5 million was entered in their favour.

The McCulloughs then brought a tort claim (the “Tort Claim”) against AIG, alleging that if AIG had honoured the Policy and provided Mr von der Goltz with the policy limit of US$5 million in coverage, it would have been possible for Mr von der Goltz to settle the McCulloughs’ claim. It was argued that the failure by AIG exposed Mr von der Goltz to a liability of US$65.5 million whom as a result had a claim against AIG for this amount. It was further argued that the McCulloughs were entitled to claim this directly against AIG based on the McCulloughs being judgment creditors of Mr von der Goltz.

Applications

In response to the Tort Claim, AIG obtained an ex parte anti-suit injunction in Hong Kong restraining the McCulloughs from pursuing proceedings in the Florida courts against it on the basis that the Policy contains a dispute resolution clause requiring arbitration in Hong Kong and that this applied to the question of whether AIG was liable to indemnify Mr von der Goltz under the Policy. AIG applied for a continuation of the anti-suit injunction before the Court of First Instance.

On the other hand, the McCulloughs applied for a declaration that the Court of First Instance should not exercise any jurisdiction that it may have and an order staying the action in the Hong Kong Courts in favour of the proceedings in the Florida Courts, arguing that the Tort Claim was not a claim under the Policy but a freestanding tortious claim and that, as non-parties to the Policy, the arbitration clause in the Policy does not apply to them.

Issue

The ultimate issue for the Court of First Instance to decide was whether the proceedings commenced by the McCulloughs in the Florida Courts amounted in substance to a claim to enforce the Policy such that the McCulloughs, despite being non-parties to the Policy, were bound by the arbitration clause in the Policy.

Decision

The Court of First Instance decided that the anti-suit injunction restraining the McCulloughs from pursuing proceedings in the Florida Courts was properly granted and granted a continuation of the same, ruling that the dispute should be resolved by arbitration in Hong Kong in accordance with the dispute resolution clause in the Policy.

Following the principle in Qingdao Huiquan Shipping Company v Shanghai Dong He Xin Industry Group Co Ltd [2018] EWHC 3009 (Comm), the Court of First Instance held that a party is not entitled to found a claim on rights arising out of a contract without also being bound by the forum provisions of that contract. An anti-suit injunction will ordinarily be granted to restrain a claimant from pursuing proceedings in a non-contractual forum unless there are strong reasons to the contrary, whether the claimant is a party to the insurance policy or not. This is commercially important to the conduct of international insurance business.

Although the McCulloughs were not parties to the Policy and the Tort Claim was not framed as contractual claim, the issue of coverage under the Policy had to be determined before deciding the McCulloughs’ claim against AIG. As such, the proceedings in substance amounted to proceedings to enforce an obligation created by the Policy and AIG was entitled to have the issue of coverage determined in accordance with the contractual dispute resolution mechanism.

Essentially, the reasoning of the Court of First Instance is that a party seeking to enforce an insurance policy must also abide by its contractual dispute resolution mechanism as the dispute resolution clause is a crucial part of the contractual basis upon which the issue of coverage arises under the insurance policy.

Conclusion

This decision reinforced Hong Kong Courts’ inclination to give effect to arbitration agreements and Hong Kong’s position as an international arbitration hub. An anti-suit injunction restraining a party from pursuing proceedings in a non-contractual forum will normally be granted by the Hong Kong Court unless there are strong reasons not to grant it.