only whatever common law remedies are otherwise available under English law.
This does not end the matter. The situation is complicated by another statute, the Lloyd's Act. The Lloyd's Act provides in relevant part as follows:
SECTION 14: Liability of the Society, etc
DATE-IN-FORCE: 23 July 1982
(1) This section shall only exempt the Society from liability in damages at the suit of a member of the Lloyd's community.
(2) For the purposes of this section a member of the Lloyd's community shall be--
(a) a person who is--
(i) a member of the Society;
(ii) a Lloyd's broker;
(iii) an underwriting agent;
(iv) an annual subscriber;
(v) an associate;
(vi) a director or partner of a Lloyd's broker or an underwriting agent;
(vii) a person who works for a Lloyd's broker or underwriting agent as a manager; or
(b) a person who has been a member of the Lloyd's community in one or more of the capacities listed in paragraph (a) above; or
(c) a person who is seeking or who has sought to become a member of the Lloyd's community in one or more of the capacities listed in paragraph (a) above.
(3) Subject to subsections (1), (4) and (5) of this section, the Society shall not be liable for damages whether for negligence or other tort, breach of duty or otherwise, in respect of any exercise of or omission to exercise any power, duty or function conferred or imposed by Lloyd's Acts 1871 to 1982 or any byelaw or regulation made thereunder--
(a) in so far as the underwriting business of any member of the Society or the costs of his membership or the business of any person as a Lloyd's broker or underwriting agent may be affected; or
(b) in so far as related to the admission or non-admission to, or the continuance of, or the suspension or exclusion from, membership of the Society; or
(c) in so far as related to the grant, continuance, suspension, withdrawal or refusal of permission to carry on business at Lloyd's as a Lloyd's broker or an underwriting agent or in any capacity connected therewith; or
(d) in so far as related to the exercise of, or omission to exercise, disciplinary functions, powers and duties; or
(e) in so far as relates to the exercise of, or omission to exercise, any powers, functions or duties under byelaws made pursuant to paragraphs (21), (22), (23), (24) and (25) of Schedule 2 to this Act;
unless the act or omission complained of--
(i) was done or omitted to be done in bad faith; or
(ii) was that of an employee of the Society and occurred in the course of the employee carrying out routine or clerical duties, that is to say duties which do not involve the exercise of any discretion.
(4) Nothing in this section shall affect any liability of the Society in respect of the death of or personal injury to any person, and for the purposes of this section the expression "personal injury" means bodily injury, any disease and any impairment of a person's physical or mental condition.
(5) Nothing in this section shall exempt the Society from liability for libel or slander.
(6) For the purposes of this section "the Society" means the Society itself and also any of its officers and employees and any person or persons in or to whom (whether individually or collectively) any powers or functions are vested or delegated by or pursuant to Lloyd's Acts 1871 to 1982.
No exegesis of this statute has been provided. By its literal terms, § 14 appears to exempt Lloyd's from liability in damages for any tort, breach of duty or acts or omissions related to the conduct of its business except insofar as bad faith is established. This bad faith exception would presumably save plaintiffs' fraud claims under § 10(b) of the 1934 Securities Exchange Act, as well as its Rule 10b-5 and common law fraud claims. Insofar as this court can determine, however, it would exempt Lloyd's from liability for violations of the 1933 Securities Act, since liability under § 12(1) and § 12(2) does not require proof of bad faith. See, e.g., Wolf v. Banco Nacional de Mexico, 549 F. Supp. 841, 853 (N.D. Cal. 1982), appeal dismissed, 721 F.2d 660 (9th Cir. 1983); Basile v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 551 F. Supp. 580, 590 (S.D. Ohio 1982). Thus, from what has been presented to this court, it appears that an English court applying English law would hold Lloyd's immune from liability on plaintiffs' 1933 Act claims.
If this is the result, the court has no choice but to conclude that the choice of forum and choice of law clauses at issue cannot be enforced. The 1933 Securities Act provisions asserted by plaintiffs serve important public interests under American law. The complaint in this case asserts that defendants violated these provisions in dealing with American citizens on American soil. It is clear that permitting Lloyd's, by a forum selection clause, to avoid liability for putative violations of the 1933 Act would contravene important American public policy interests.
Moreover, the 1933 Act itself explicitly directs that if this is the effect of the plaintiffs' contracts with defendants, the contracts are void. Section 14 of the Act provides:
Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void.
15 U.S.C. § 77n.
The Supreme Court addressed this issue in Mitsubishi. There, the Supreme Court ruled that if the effect of enforcing a contractual forum selection or choice of law clause is to vitiate a person's right to pursue important statutory remedies under the law of the United States, enforcement is improper:
In addition to the clause providing for arbitration before the Japan Commercial Arbitration Association, the Sales Agreement includes a choice-of-law clause which reads: "This Agreement is made in, and will be governed by and construed in all respects according to the laws of the Swiss Confederation as if entirely performed therein." The United States raises the possibility that the arbitral panel will read this provision not simply to govern interpretation of the contract terms, but wholly to displace American law even where it would otherwise apply. The International Chamber of Commerce opines that it is "conceivable, although we believe it unlikely, [that] the arbitrators could consider Soler's affirmative claim of anticompetitive conduct . . . to fall within the purview of this choice-of-law provision, with the result that it would be decided under Swiss law rather than the U.S. Sherman Act." At oral argument, however, counsel for Mitsubishi conceded that American law applied to the antitrust claims and represented that the claims had been submitted to the arbitration panel in Japan on that basis. The record confirms that before the decision of the Court of Appeals the arbitral panel had taken these claims under submission.
We therefore have no occasion to speculate on this matter at this stage in the proceedings, when Mitsubishi seeks to enforce the agreement to arbitrate, not to enforce an award. Nor need we consider now the effect of an arbitral tribunal's failure to take cognizance of the statutory cause of action on the claimant's capacity to reinitiate suit in federal court. We merely note that in the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party's right to pursue statutory remedies for antitrust violations we would have little hesitation in condemning the agreement as against public policy.
473 U.S. at 637 n.19 (emphasis added; citations omitted).
As the above-quoted language suggests, it is not certain that an English court applying English law would invoke the Lloyd's immunity in this case. It is at least theoretically possible that the court would conclude that under English choice of law principles, American law should govern the parties' dispute. There is no evidence, however, that this would be the case, and the court has serious doubts that it is a reasonable possibility. Not only did the parties select English law, which an English court could conclude indicates an intent to be bound by English substantive law, but it appears that the protection of Lloyd's from the interference of tort-type actions not involving fraud represents a deliberate and explicit English public policy choice. The court cannot reasonably conclude, in the absence of supporting evidence, that an English court would decide the case under the 1933 Securities Act and make Lloyd's answerable to American plaintiffs in circumstances in which English plaintiffs would have no remedy. Unlike the situation confronting the Supreme Court in Mitsubishi, no one has given this court reason to believe that plaintiffs' claims would be submitted to an English court on the basis of American statutory law.
For the above reasons, the court concludes that plaintiffs have shown a likelihood of success on the merits on the issue of plaintiffs' right to bring suit in this court.
With respect to irreparable injury, the issue is straightforward. If defendants are permitted to withdraw the funds secured by plaintiffs' letters of credit, will plaintiffs lose the possibility of a remedy for their 1933 Act claims? Given the conclusion that it is likely that plaintiffs will prevail on the merits of their jurisdictional argument and be permitted to proceed to trial here, the question becomes whether a judgment in plaintiffs' favor on those claims would be enforced by an English court. The court explicitly put this issue to defendants, making clear its view that if the answer were in the affirmative, it would recommend the denial of plaintiffs' motion, given the balance of harms and public interests involved. Defendants did not offer any evidence concerning English law on the enforcement of foreign judgments, either in general or in the specific case of judgments that might contravene English public policy. The court is thus compelled to conclude that the funds plaintiffs seek to freeze are the only funds likely to be available to satisfy a judgment in plaintiffs' favor. In the court's view, losing all possibility of monetary recompense is substantial irreparable injury.
The court has previously discussed the balance of harms and public policy interests that weigh in the balance here. (See transcript of September 4 at 104-106; transcript of September 6 at 158-159). Briefly summarized, while Lloyd's will not be seriously injured by a delay in the transmission of the approximately $ 400,000 in question, the injunction sought by plaintiffs, if granted, would render uncertain Lloyd's ability to call on its names' funds, an essential aspect of its venerable way of doing business. The introduction of delay and uncertainty into Lloyd's ability to call upon the funds required to make good on its obligations would be extremely damaging to its manner of doing business.
In addition, there are significant public policy interests which militate against injunctive relief in this case. They were well-stated by the Supreme Court in Mitsubishi, see page 4, supra, and need not be repeated here. This court, however, concludes that these interests must yield to Congress' explicit directive that a contractual provision which has the effect of binding plaintiffs to waive compliance with the 1933 Securities Act is void. 15 U.S.C. § 77n. Further, the Supreme Court in Mitsubishi, even in the absence of such an explicit congressional directive, made clear that where choice of forum and choice of law clauses operate in tandem as a prospective waiver of a party's right to pursue statutory remedies under American law, such clauses must be condemned as contrary to American public policy.
On the basis of the issues presented to this court, it is accordingly recommended that plaintiffs' motion for a preliminary injunction be granted. If, however, the court is assured that the status quo will be maintained pending the hearing of defendants' arguments relating to limitations, it would be this court's recommendation that any decision on plaintiffs' motion be deferred pending the resolution of the limitations issue.
Counsel are given ten days from the date hereof to file objections to this Report and Recommendation with the Honorable Nicholas J. Bua. Failure to object constitutes waiver of the right to appeal.