Merrill Lynch v Commune Di Verona

Declaratory relief does not require an independent cause of action. The court must generally identify a real and present dispute, assessed pragmatically by reference to the claimant’s genuine commercial interest and the surrounding evidence, including a veiled threat of proceedings. Where contractual representations and terms support the declarations, contractual estoppel may justify them. The court retains a discretion to grant relief where doing so serves justice and causes no injustice. However, it should not make broad declarations of non-liability without evidence addressing the alleged duties or breaches. A declaration from the English court cannot itself restrain proceedings abroad.

Two Merrill Lynch entities sought declarations concerning the validity and binding effect of an amortising interest rate swap and sinking fund transaction with the Comune Di Verona. The transaction was governed by English law and included an exclusive English jurisdiction clause. The defendant pleaded that the claim disclosed no cause of action, that there was no real or present dispute, and that declaratory relief should be refused, but did not attend trial or advance a positive case. The central issues were whether declaratory relief required an independent cause of action, whether a real and present dispute existed, and whether the declarations sought should be granted.

1. Declarations 1–11 granted. The court held that an independent cause of action was unnecessary for declaratory relief. That conclusion was supported by Gouriet v Union of Post Office Workers [1978] AC 435.
2. A real and present dispute was generally required before declaratory jurisdiction should be exercised. The modern approach was pragmatic. The court considered the claimant’s real commercial interest and whether the evidence disclosed a threat, including a veiled threat, to commence proceedings. The discussions, statements and Italian media reports established a clear threat of Italian proceedings despite the defendant’s solicitors’ subsequent disavowal.
3. The declarations concerning representations and contractual terms were appropriate because the defendant was contractually estopped from denying those matters. The substantial value of the transactions, the exclusive jurisdiction clause and the claimant’s legitimate interest in avoiding harassment by foreign proceedings supported relief. Granting the declarations was consistent with doing justice and caused no injustice to the defendant.
4. Declarations 12 and 13 refused. They sought wide declarations that the claimants owed no contractual, tortious, fiduciary or other liability and had caused no loss. No evidence had been adduced on those matters because the defendant had advanced no positive case. The absence of a pleaded case did not justify declarations unsupported by evidence, even though the claimant’s res judicata argument was attractive.
5. The English court could not restrain the defendant from commencing proceedings in Italy. Any such question would be for the Italian courts, having regard to the jurisdiction clause, the court first seized under the Judgments Convention, and the declarations made.

First-instance decision. No appellate history was stated in the judgment.