In early May 2020, it was reported that the Financial Conduct Authority (FCA) intended to seek and obtain declaratory relief in order “to resolve contractual uncertainty in business interruption insurance cover” in response to the COVID-19 pandemic. The aim, according to the FCA, was to obtain an “authoritative declaratory judgment” that would “resolve some key contractual uncertainties” in policy wordings. This would provide a “basis” for determining payments under individual policies and for decisions by the Financial Ombudsman.
That is a very modern use of a branch of relief that has been recognised by the English courts since at least the 1850s. It was reaffirmed by Bankes LJ in Guaranty Trust Company of New York v Hannay & Company, who referred to its introduction in Chancery Acts of the early 1850s and its later expansion to pure claims for declarations without the need for any consequential relief. Bankes LJ recognised that a liberal interpretation of the power to grant declaratory relief was consistent with “general business convenience and the importance of adapting the machinery of the Courts to the needs of suitors…”.
Declaratory relief: the modern discretion
Those comments in 1915 still hold good in 2020: the making of declarations by the English court is the exercise of a broad discretion, exercised in accordance with the well-known Rolls Royce criteria (Rolls Royce Plc v Unite the Union). These require:
- In general, a “real and present dispute” between the parties before the court as to the existence of a legal right between them (although not a present cause of action).
- That each party will be affected by the court’s determination of the issues concerning the legal right in question (but a party is not required to be a party to the relevant contract so long as they are “directly affected” by the issue).
- The court to consider whether to grant declaratory relief in a “friendly action” or “academic” question, even of private law, or a “test case” or issue in the public interest.
- That “all sides of the argument will be fully and properly put” before the court.
- That the claim for declarations be “the most effective way of resolving the issues raised”, considering the other options of resolving the issue.
Some decisions have applied a “useful purpose” gloss to the Rolls Royce test, particularly in claims for negative declarations: see the recent example of Clearlake Shipping v Xiang Da Marine at paragraph 43.
English declarations for foreign courts
But the court’s discretion to make declarations is not unlimited, particularly where parties seek declarations of the English court for the purposes of foreign proceedings. Several recent cases show how the discretion in that context is confined in practice.
In National Bank of Kazakhstan v Bank of New York Mellon and others, Teare J considered claims for declarations, based on a novel “referral” from a Belgian court to the English court on the question of whether a Belgian garnishment order had “subject matter”. This in turn depended on whether there were relevant claims by the Republic of Kazakhstan on Kazakh National Fund assets held by the Bank of New York Mellon pursuant to a global custody agreement between the bank and the National Bank of Kazakhstan, governed by English law.
Teare J granted declaratory relief as to the English law questions but refused to grant a declaration that there were no relevant claims “under any system of law”, including Belgian law. The judge granted declaratory relief as to questions of foreign law only insofar as English conflicts rules pointed to foreign law, and described the broader declaration as pleaded as a “surprising question for this court to entertain”, with an ultimate result if granted that would be “contrary to comity” and an “unthinkable” course of action for the English court (at paragraphs 37, 42, and 126 to 128). This was consistent with the principle that the English court should only make declarations for the purposes of concurrent foreign proceedings to inform the foreign court of the English law position, to assist the foreign court in the resolution of disputes before it (see for example, Howden v ACE European Group and Lambton v Lambton).
Popplewell J had refused claims for declarations between the same parties in a similar Part 8 claim two years earlier, including a declaration as to the situs of assets caught by the same Belgian garnishment order considered by Teare J above. This was rejected on the footing that it would be a “rare case in which the court will [make declarations] simply for the purposes of assisting the foreign court without it serving any other purpose in relation to an issue between the parties before the English court”.
Furthermore, declarations of that type required “considerable caution”. In that decision, the claim for a suite of declarations also failed because an interested party was not before the court, and the possible arguments of that party needed to be “fully addressed”. Parallels can be drawn with another decision of the Court of Appeal in related proceedings (Stati v Kazakhstan), which noted the “general… disinclination on the part of the courts to give what amount to advisory rulings on issues for the benefit of foreign courts”.
The same judicial reluctance extends even to the latest innovation in declaratory relief: patent litigation and so-called Arrow declarations, in which the court declares that a product or process was known or obvious at the time of the patent application. This provides an alleged patent infringer with a defence in a claim for patent infringement.
In the first successful claim for Arrow relief, Fujifilm Kyowa Kirin Biologics v AbbVie Biotechnology, the late Henry Carr J found that an Arrow declaration would serve a “useful purpose” in undermining the defendant’s (Abbvie) strategy of filing patent applications, causing commercial uncertainty and threatening to enforce its patents anywhere in the world. However, the judge carefully caveated that conclusion: the court should consider whether Arrow relief would:
“… serve a useful purpose in the United Kingdom. A declaration which is sought solely for the benefit of foreign courts will rarely be justified” (paragraph 377).
It was “important not to extend the principle of [spin-off of an English judgment as persuasive authority in other jurisdictions] too far” (paragraph 374).
Arrow relief served a “useful purpose” in this jurisdiction, because the international aspect of the case (the possibility of foreign injunctions, for example) had the potential to compromise supply lines for pharmaceuticals within the UK. This principle was deployed to deny a claim for an Arrow declaration in June 2019 in Pfizer Ltd v F Hoffman-La Roche AG. Pfizer was refused that declaration on the basis that the “true purpose” of that declaration “would be for it to be used in foreign courts”. The judge (Birss J) was “not persuaded that that is enough” (paragraph 122).
The proper role of declaratory relief
As the English courts grapple with ever more internationalised disputes, including novel “references” by foreign courts to the English court and multi-jurisdictional patent litigation, claims seem likely to strain the boundaries of declaratory relief ever further.
The FCA’s claim begs the question as to whether this a job for the courts at all, even in the domestic context: as Lord Woolf put it at paragraph 46 in Bank of Scotland v A Ltd, the court’s declaratory powers:
“… must not… be regarded as a substitute for financial institutions taking the decisions which should be their commercial responsibility… [and are] only to be used where there is a real dilemma which requires their intervention”.
While it may (or may not) be in the public interest for the English court to declare the proper interpretation of business interruption insurance policies at a time of crisis, when it comes to foreign litigation, the authorities show that the machinery of the English courts referenced by Bankes LJ in 1915 can only be adapted so far.