International Risk Management Group Ltd and International Risk Management (Bermuda) Ltd v Elwood Insurance Ltd and Hoechst Celanese Corporation 1993 Civil Jur. No. 103 & 245

• Jurisdiction: Bermuda
• Judgment Date: 29 September 1993
• Date: 29 September 1993
• Docket Number: Civil Jurisdiction 1993 Nos. 103 and 245
• Court: Supreme Court (Bermuda)

In the Supreme Court of Bermuda

Ground, J

Civil Jurisdiction 1993 Nos. 103 and 245

BETWEEN:

International Risk Management Group Limited

International Risk Management (Bermuda) Limited

Plaintiffs

-and-

Elwood Insurance Limited

Hoechst Celanese Corporation

Hoechst Celanese Chemical Group Inc.

Defendants

Mr. J. Woloniecki for the plaintiff; and

Mr. M. Die1 for the defendants.

Yorkshire Tanner v Eglington (1884) 54 LJ Ch 81

Grainger v HillENR (1838) 4 Bing (NC) 212

Speed Seal Products v PaddingtonUNK [1986] 1 All ER 91

Midland Bank v Laker AirwaysELR [1986] 1 QB 689

Carron Iron Co v MacLaren (1855) 5 HL Cas 416

British Airways Board Ltd v Laker AirwaysELR [1985] AC 58

Societe Nationale Industrielle Aerosnatiale v Lee Kui TakELR [1987] 1 AC 871

Protection of Trading Interests Act 1981

Application for injunction to restrain defendants from pursuing litigation in foreign jurisdiction — Application to set aside service — Insurance claims — Bermuda captive insurance company — Application to strike out statement of claim

REASONS FOR ORDER

(In Chambers)

These proceedings are an attempt by the plaintiffs to obtain an injunction from this court to restrain the defendants from pursuing hostile litigation against the plaintiffs in a foreign jurisdiction, Dallas County, Texas. Two of the defendants are not within the jurisdiction of this court. The matter came before me on a variety of summonses, being the plaintiffs' application to vary and confirm an ex parte interim order made by Brown J restraining the defendants from entering a default judgment in the Texas proceedings, and the defendants applications to strike out the proceedings against the first defendant, as disclosing no cause of action, and to set aside service on the foreign defendants. There are various subsidiary applications in the summonses, and there is also an application to strike out Cause No. 245, which is identical to No. 103, and which had been issued for procedural reasons.

The action in Texas of which complaint is made alleges misfeasance against the plaintiffs in respect of an insurance claim arising out of an explosion at a chemical works at Pampa in northern Texas, some considerable distance from Dallas. The Texas plaintiffs, the second and third defendants in this action, are constituents of a major chemical multinational, one being incorporated in Delaware and the other in Texas, with its principal place of business in Dallas. I will refer to them collectively as ‘Hoechst.”

In order to insure their operations in North America and the Caribbean Hoechst established a wholly owned captive insurance company in Bermuda. That is the first defendant in this action (“Elwood”). Elwood retained one percent of the risk, laid off 1.5% in a way which does not concern us, and placed the remaining 97.5% with Hopewell International Insurance Limited (“Hopewell”), a Bermuda re-insurance company, who in its turn laid off 97% of its risk with a variety of retrocessionaires, who in this action have been referred to as “the Hopewell Pool.”

The plaintiffs in this action were incorporated in Bermuda on 9th May 1988. The first (IRMG) is a holding company, and in that capacity owns the second (IRMBL). IRMBL is in the business of providing management services to Bermuda captives, among whom is Elwood, whom it manages under an agreement of 16th May 1988.

The loss occurred on 14th November 1987. That was prior to the incorporation of IRMG and IRMBL, and prior to the management agreement between Elwood and IRMBL, although at the time Elwood was managed by a member of a predecessor group. I am told that the International Risk Management group was formed to acquire the assets of a group of companies owned beneficially by Mr. Fred Reiss. At the time of the loss the management company was International Risk Management Limited, a member of the Reiss organisation. I do not know what, if any, was the relationship between the Reiss organisation and the present International Risk Management Group.

The loss, being large and complex, was followed by a process of loss adjustment. This involved a number of disputed matters. At the end of the day these were resolved by a negotiation process between Elwood and Hoechst which led to a settlement agreement of 7th December 1992. That settlement conclusively resolved all disputes between Hoechst on the one hand and Elwood, Hopewell and the members of the Hopewell pool on the other, subject to a reservation of rights in respect of certain extra-contractual claims. As a result of the settlement the loss was agreed at $507,670,945, as against an original claim of $588,252,000, and paid.

Prior to the settlement Hoechst had commenced litigation in Texas against those involved in the adjustment process, including the plaintiffs in this action, but that had been suspended during the negotiation process. However, very shortly after the settlement agreement, that litigation, in an amended form, was resurrected against, among others, the plaintiffs, who had not been party to the settlement agreement, and Elwood.

Because Texas law provides for service of foreign entities by service on the Texas Secretary of State, and because time runs from such service and not from actual receipt by the defendant, the Bermuda plaintiffs only received the Texas proceedings very shortly before the time limited for appearance, in default of which Hoechst could enter default judgment. Although the plaintiffs could enter a conditional appearance in Texas in order to contest jurisdiction, a failure to do so successfully would result in their being taken to have submitted to that jurisdiction. Hoechst's evidence in this case is that such a contest to the jurisdiction would, in any event, stand little chance of success.

A voluntary submission to the Texas jurisdiction could carry certain consequences for the plaintiffs in the event that the action eventually went against them. They are not resident in Texas and have no assets there. Their residence, and no doubt some at least of their assets, are in Bermuda. Bermuda may be unwilling (and at this stage I am only considering possibilities, not expressing a view) to enforce a judgment obtained in Texas under an extended jurisdiction to which the judgment debtor had not submitted. On the other hand a submission, even for the purposes simply of contesting jurisdiction, followed by a withdrawal if the decision was adverse, may well render any judgment obtained thereafter enforceable in Bermuda.

The plaintiffs therefore applied to this court to enjoin Hoechst from entering a default judgment or otherwise pursuing their action in Texas. The plaintiffs faced certain difficulties in doing this. Hoechst have no presence in Bermuda. In order to get any action against them off the ground the plaintiffs have, therefore, to establish this court's jurisdiction over Hoechst and obtain leave to serve the process out of the jurisdiction. The plaintiffs initially obtained leave by including Elwood as a defendant, and then seeking leave to serve out of the jurisdiction on the basis that Hoechst were proper and necessary parties to an action commenced against a party within the jurisdiction. However, the plaintiffs now seek to advance other grounds why Hoechst are amenable to the jurisdiction of Bermuda, and there is, among the applications before me, one to allow them to amend their writ to add new causes of action to establish those grounds. The sequence of all of this gives rise to technical objections to the initial service with which I will deal later, but at this stage I will allow the amendments to the original writ as sought by the plaintiffs' summons, on the usual terms as to the payment of costs.

In the upshot, on 1st March 1993, the plaintiffs were granted leave, on an ex parte basis as the rules require, to serve Hoechst out of the jurisdiction, and at the same time were granted an ex parte interim injunction restraining the Hoechst defendants from entering judgment in default or otherwise pursuing the Texas proceedings. It has taken from then to get the matter on before me on an inter partes basis, and in the meantime Hoechst have indeed refrained from entering default judgment, although there is some argument as to whether they have otherwise refrained from pursuing the action.

Before coming to the details of the various applications before me I will deal briefly with the substance of the Texas proceedings. The claim against the Bermudian plaintiffs is not made under the insurance contract, for that claim has been settled. Instead it is a claim for damages in respect of alleged defalcations in the management of the adjustment process by the plaintiffs. Hoechst say, in the Texas proceedings, that they did not recover substantial portions of their loss ‘due to the actions of Defendants as described herein.’ The actions complained of may be summarised as an unnecessarily obdurate attitude in the adjustment process, and the unfair portrayal of Hoechst to the reinsurers and the insurance market generally as unreasonable and overreaching. This alleged behaviour is said to be due to conflicts of interest arising out of the fact of IRMBL's management of both Elwood and Hopewell, and the participation of Swiss Re, IRMBL's ultimate parent, in the Hopewell pool, The eventual settlement agreement is described in the Texas claim as being ‘far in excess of the artificially low valuations...