The fourth defendant (AA) was a wealthy Saudi businessman, and the third defendant (GA) was his son. The first and second defendants were corporate vehicles for their family trusts, incorporated in Jersey and the Cayman Islands respectively.

In 2006, the defendants made investments of $343 million with the claimant, CGM Ltd. The investments were made through agreements between the first and second defendants and CGM Ltd. The agreements provided for English law and jurisdiction. CGM Ltd and GA entered into a "non-reliance letter" recording GA's understanding of the transactions. The agreements provided that the corporate defendants had not relied on any representations or advice of CGM Ltd or its affiliates.

In 2007, the family invested $147 million with the claimant's affiliate, Citibank Switzerland.

The defendants maintain that they lost $198 million of the 2006 investment and the entire $147 million invested in 2007, plus further sums.

The claimant's US affiliate, CGM Inc, was a member of the Financial Industry Regulatory Authority (FINRA), the American regulator. In August 2011, the defendants brought arbitration proceedings against CGM Inc under the FINRA scheme relating to the 2006 and 2007 investments. They claimed that CGM Inc and its affiliated companies (which included the claimant) were liable for breach of contract, negligence and other wrongs. They argued that CGM Inc was originally supposed to be their contracting party but was displaced by CGM Ltd at the last moment to get round US regulatory law.

CGM Inc brought proceedings in the US District Court of the Southern District of New York court to restrain the arbitration. They argued that the defendants were not customers of CGM Inc.

CGM Ltd brought proceedings in England seeking various declarations relating to the 2006 investment. In particular, CGM Ltd sought declarations that it did not have the duties alleged and that it was not liable as alleged by the defendants. It sought similar declarations with respect to the duties and liability of its affiliates. CGM Ltd obtained permission to serve the two corporate defendants out of the jurisdiction on the basis that the contracts were governed by English law or provided for English jurisdiction. It obtained permission to serve AA and GA on the basis that each was a necessary or proper party to the claims.

The defendants made an application challenging the jurisdiction of the English courts to grant the declarations relating to the affiliates, and to grant a declaration against the third defendant. In the alternative, they applied for a stay of the English proceedings in view of the arbitration reference and the New York litigation.

Andrew Smith J held that the jurisdiction challenge succeeded with respect to the claims relating to the affiliates. This was on the basis that the claimant had not met the merits test for granting the declarations sought, applying the principles stated in the New Hampshire Insurance Company and Rolls-Royce cases (see Background).

The affiliate claims reflected no significant dispute between CGM Ltd and the defendants. The declaratory relief sought was not the most effective way of resolving the issues raised by these claims; they would be more effectively resolved in the FINRA arbitration. Decisions on the claims would not be useful either to CGM Inc, or in the American proceedings. The claims constituted inappropriate forum shopping because the disputes to which they were directed were really with CGM Inc.

The jurisdiction challenge by AA succeeded with respect to the claims relating to CGM Ltd itself, because AA was not a proper party to the proceedings against the other defendants. The judge held that the claims for declaratory relief by CGM Ltd against AA were premature and hypothetical because CGM Ltd did not have a reasonable apprehension that AA would bring claims against it. Consequently, there was no sustainable claim by CGM Ltd against AA and it could not rely on PD 6B.3.1(3). The comment made by Briggs & Rees (see Background) meant that the claim must be one that could be pleaded as a sustainable claim, even if the pleading was currently defective.

The judge granted a stay over the claims where the court did accept jurisdiction because of the risk that the English proceedings would constitute an unwarranted interference with the American regulatory regime of which the arbitration proceedings were part.

This decision shows the limits of the very useful right to obtain a negative declaration. For more guidance on seeking a declaratory relief, see Practice note, Remedies: equitable remedies.

It also clarifies the requirement for a sustainable claim against a defendant who is said to be a proper party to English proceedings under the jurisdictional gateway in PD 6B.3.1(3). Finally, it is an example of a rare situation in which the courts will stay English proceedings (even brought pursuant to a jurisdiction agreement) pending determination of foreign proceedings between different parties.