Cohen v Lorrells LLP & Ors

A declaration should not ordinarily proceed against a party which has no direct liability to the claimant where the declaration will not bind the insurer potentially liable to satisfy the underlying judgment. Declaratory relief is discretionary and must be exercised consistently with the overriding objective, including justice, utility and proportionality of cost. Proceedings may constitute an abuse of process where their benefit does not justify the expenditure of court and party resources. Where the appropriate insurer has not been joined, the court may stay the claim and give the claimant an opportunity to amend and add that insurer before striking out the claim.

The claimant, having obtained judgment in default against a solicitor’s firm in liquidation, sought a declaration against its alleged successor practice. The declaration was intended to establish that the successor practice’s professional indemnity insurance covered the liabilities of the former firm.

The alleged successor practice applied under CPR 3.4 to strike out the claim. It argued that the claimant had pleaded no cause of action against it, that the relevant insurance issue was premature and that any declaration would not bind the insurer potentially liable under the policy. The central issue was whether the declaratory claim should proceed in its existing form.

1. The claim in its existing form was inappropriate and futile. The claimant had pleaded no cause of action against the second defendant and sought no remedy other than a declaration. The relevant liability remained that of the first defendant. Insurance arrangements did not transfer that liability to the second defendant.
2. A declaration is discretionary and need not depend on a present cause of action. The court must, however, exercise the discretion consistently with the overriding objective and ensure that litigation is dealt with justly and at proportionate cost. The declaration sought would not bind AmTrust Europe, the insurer potentially liable to meet the claim. Any insurance issue might therefore require further litigation between different parties.
3. That lack of utility, combined with the cost and burden imposed on a party having no direct liability to the claimant, meant that the proceedings in their current form amounted to inappropriate and futile litigation. The reasoning in Jameel v Dow Jones and Co [2005] EWCA Civ 75 supported treating disproportionate litigation as an abuse of process.
4. The court declined to strike out the claim immediately. The claimant had identified a possible need to join AmTrust Europe, which had been on notice of the issue, and it would be disproportionate to require the claimant to start again. The broad terms of CPR 19.2(2) permitted addition of a party where necessary or desirable to resolve the matters in dispute.
5. The claim against the second defendant was stayed. Unless the claimant applied to lift the stay and amend the claim, supported by draft amended pleadings joining AmTrust Europe, the claim against the second defendant would be struck out without further order. Continued involvement of the second defendant would then be determined in light of the proposed amendment.