Cazton International Limited & Ors v Essity Aktiebolag (Publ) & Anor

On an application to set aside permission to serve out, the claimant need only show a real prospect of obtaining the relief sought at trial. A beneficial owner of intermediated securities may have sufficient legitimate interest to seek declaratory relief concerning rights under the notes, despite having no contractual rights against the issuer.

The court’s discretion is governed by the overall principles concerning declaratory relief. It must consider whether there is a real dispute, whether the claimant is directly affected, whether all relevant arguments will be presented, whether absent parties may be prejudiced, and whether the declaration would serve a useful purpose and provide an effective resolution. The possible absence of custodians does not make relief impossible at the interlocutory stage where their position may be clarified before trial.

The claimants, who claimed to be ultimate beneficial owners of interests in three series of notes issued or guaranteed by the defendants, sought declarations that a disposal constituted an event of default and that custodians could validly serve acceleration notices.

The defendants applied to set aside permission to serve the claim out of the jurisdiction. They accepted for this application that there was a real prospect of proving both the beneficial ownership and the alleged event of default. Their case was that the claimants lacked sufficient evidence of ownership, had no contractual rights under the intermediated notes, and could not obtain useful declaratory relief because the clearing systems and custodians were not parties.

The issue was whether there was a serious issue to be tried on the claim as framed.

1. Serious issue to be tried. The test was the same as on a reverse summary judgment application: whether the claim had a real, rather than fanciful or theoretical, prospect of success. The court should not conduct a mini-trial, although it may resolve short points of law or construction and reject wholly implausible assertions.
2. The evidence, viewed as a whole, gave the claimants a real prospect of proving that they held equitable proprietary interests in the notes. Custodian confirmations and clearing-system records were more consistent with a chain of trusts and sub-trusts than with a merely synthetic interest. The evidence was incomplete, but was sufficient to avoid summary dismissal.
3. The absence of contractual rights against the defendants was not fatal. The principles governing declaratory relief are complementary. A non-party may obtain a declaration where there is a real dispute about legal rights, the claimant is directly affected, the parties’ arguments will be properly presented, and the declaration is the most effective way of resolving the issue.
4. The “no look through” principle in Secure Capital concerned the existence and enforcement of contractual rights. This claim raised the different question whether a person with a sufficient legitimate interest could obtain a determination of disputed rights under the notes. The intermediated structure did not, by itself, prevent such relief.
5. The absence of the clearing systems was not decisive. They could safely be regarded as having a ministerial role. The custodians might have their own interests or conflicting duties, and their joinder could make any declaration more effective, but the court could not conclude that declarations were bound to be refused. Further evidence could clarify their position before trial.
6. The application to set aside the order granting permission to serve out was dismissed. There was a serious issue to be tried.