AXA SA v Genworth Financial International Holdings, Inc. & Ors

Declaratory relief must serve a legitimate interest in resolving a real legal controversy. A claimant need not be party to the contract concerned, provided it is directly affected by the issue. An indemnifier cannot use declaratory relief to litigate the relationship between its indemnified party and a third party before payment has been made and subrogation rights have arisen. That is particularly so where the underlying parties are bound by an arbitration agreement and have a legitimate common interest in postponing their dispute while they complete an ongoing regulatory process. The court may strike out such a claim as an abuse of the declaratory form of relief, or dismiss it summarily where it has no real prospect of success.

AXA acquired companies from Genworth under a share purchase agreement containing payment obligations relating to losses arising from PPI mis-selling. Genworth brought a Part 20 Claim against AXA, the acquired insurers and Santander, seeking declarations concerning Santander’s liability for PPI losses, the insurers’ liability to Santander, Genworth’s warranty liability, and prospective subrogation and indemnity rights.

The Part 20 defendants applied for strike-out, summary dismissal or a stay. The principal issue was whether Genworth had a legitimate interest in requiring the acquired insurers and Santander to litigate their inter se responsibilities for PPI complaints before Genworth had paid AXA and acquired any subrogation rights.

1. Disposition. The Part 20 Claim was struck out in its entirety. Claims for the first, second and fifth declarations were also claims with no real prospect of success under CPR 24.2. Genworth remained at liberty to seek permission to amend its Counterclaim concerning SPA warranty liabilities or any subrogation rights arising upon payment.
2. The court adopted the general principles on declaratory relief summarised by Aikens LJ in Rolls-Royce plc v Unite the Union [2009] EWCA Civ 387, [2010] 1 WLR 318, subject to the qualification that a present dispute over a right or obligation may properly be determined even though a relevant contingency has not yet occurred.
3. A claimant’s lack of privity to the contract concerned is not fatal where the claimant is directly affected. The real question is whether the claimant has a legitimate interest in having the issue determined at its instance. The court declined to elevate the formulation in Federal-Mogul Asbestos Personal Injury Trust v Federal-Mogul Ltd [2014] EWHC 2002 (Comm), [2014] Lloyd’s Rep IR 671, into a general requirement that both a contractual dispute and exceptional circumstances must always be shown.
4. Genworth’s asserted interest was contingent on its becoming liable to AXA and acquiring subrogation rights against Santander. The essence of subrogation is that an indemnifier cannot involve itself in the relationship between the indemnified party and an allegedly liable third party until the indemnity has been paid. The declaratory claim attempted to circumvent that rule.
5. The claim also sought to force the insurers and Santander to litigate in court a dispute which was subject to an LCIA arbitration agreement. They had a strong and legitimate common interest in prioritising the handling of outstanding PPI complaints and postponing litigation or arbitration over ultimate responsibility. The reasoning in Santos Ltd v American Home Assurance Company (1987) 4 ANZ Ins Cas ¶60-795 was clear and persuasive.
6. The relevant paragraphs of Genworth’s Defence and Counterclaim were also struck out. The court did not pre-judge any properly framed future application to amend the Counterclaim or to join parties for the limited purpose of being bound by a determination of subrogation rights.