Padden v Arbuthnot Pensions & Investments Ltd

The power to grant declaratory relief is discretionary and is not confined by an artificial jurisdictional bar. A declaration may be made where the underlying facts and potential liability are sufficiently established and the declaration has practical utility, even though the third-party claim giving rise to the indemnity has not yet been brought. The court must consider justice to both parties, the usefulness of the declaration and the overriding objective. A declaration remains inappropriate where it would determine an academic or theoretical issue based on facts that have not arisen. For loss of commission caused by misconduct, the proper measure is the income the claimant would have received, rather than a speculative assessment of its net profit.

The respondent financial services company sued its former employee, who had received £800,000 from a client for investment but had not purchased the proposed insurance bonds. The respondent sought, among other relief, a declaration that the employee must indemnify it against any liability to the client, and damages for lost commission. Judge Hawkesworth QC entered summary judgment for the respondent, granted the declaration and awarded £50,360 for lost commission. The employee appealed against the declaration, damages, stay and costs orders. The central issues were whether the declaration concerned a hypothetical liability and whether damages had been assessed on the correct basis.

1. Appeal dismissed. Kennedy LJ gave the principal reasons, with May LJ and Buxton LJ agreeing. The declaration was within the court’s discretionary power. CPR 40.20 states that the court may make a binding declaration whether or not another remedy is claimed; it does not impose a jurisdictional limitation.
2. The language in In re Clay and Midland Bank v Laker Airways that the court lacked jurisdiction should be treated with caution. The modern question is whether, in the circumstances, declaratory relief is appropriate. Relevant considerations include justice to the claimant, justice to the defendant, practical utility and any special reason for granting or refusing relief. The court should ordinarily avoid academic or theoretical questions concerning facts that have not occurred.
3. This case was materially different from a purely hypothetical claim. The relevant facts had occurred and were ascertainable. There was a real prospect that the client might claim against the respondent, and the existing proceedings provided a practical context in which the indemnity issue could be determined. The declaration could avoid further litigation if the client later succeeded. The employee’s ability or inability to satisfy the indemnity did not prevent the respondent’s entitlement from being declared.
4. On damages, the unchallenged evidence established that the insurers would have paid the respondent £50,360 in commission if the bonds had been purchased. The appellant offered no evidence showing that a reduced or renewal-based commission arrangement would have applied to this client. The claimant was therefore entitled to be placed in the position it would have occupied, namely receipt of the available commission. It was unnecessary to consider the remaining grounds, concerning the stay and costs.

• Court of Appeal (Civil Division): [2004] EWCA Civ 582 dismissed the appeal from the summary judgment and consequential orders of Judge Hawkesworth QC.