SOME OVERLOOKED ASPECTS OF
THE RES JUDICATA DOCTRINE1
Experienced practitioners are familiar with the general principles which
determine whether earlier proceedings have created cause of action or
issue estoppels. However some aspects of the doctrine, of considerable
practical importance, are often overlooked. The purpose of this paper is
to collect some of these loose ends.
When the decision at first instance is reversed we recognize instinctively
that the appellate decision has become the sole source of any res judicata
estoppels, and so the Court of Appeal held in P & O Nedlloyd BV v Arab
Metals Co.2 But what if the decision below is affirmed? It is not
immediately apparent that the appellate decision becomes the source of
any res judicata estoppels. This been accepted in Australia since Wishart
v Fraser3; but I could not include any relevant English authority in the
1996 edition of “Res Judicata”.
1
Based on a paper given to the Chancery Bar Association and the Anglo-Australasian Lawyers at
Lincoln’s Inn on 5 May 2010.
2
[2006] EWCA Civ 1717, [2007] 1 WLR 2288, 2299-2301 at [25]-[29].
3
[1941] HCA 8, 64 CLR 470, 478, 483.
1
Later I read Shedden v Patrick4. The appellant alleged that proceedings
in Scotland on his behalf while an infant, which failed in the House of
Lords in 1808, were vitiated by fraud. In 1848 he brought proceedings to
have that decision set aside. He failed in the Court of Session and took
the case to the House of Lords. The Law Lords questioned the
competence of proceedings in a lower court to set aside a decision of the
House. Lord Brougham, who had been junior counsel for the appellant's
tutor in the earlier appeal, but had no qualms in sitting, had a clear view.
During argument he referred to the earlier proceedings5:
“The decree below has become a judgment of the House of Lords,
which not only confirms it, but converts it into a judgment of its
own.”
He said later6:
“The judgment of this House affirming that below makes the
judgment below a judgment of this House.”
There was no dissent from Lord Cottenham LC and Lord St Leonards.
The point was not mentioned in the speeches but Lord Brougham was
surely correct. The appeal was a rehearing and the appellate decision
4
(1853) 1 Macq 535.
Ibid at 590.
6
Ibid at 599.
5
2
becomes the relevant one for the doctrine of precedent and for res
judicata.
The point was overlooked in Taylor v Lawrence7. In January 2001 the
Court of Appeal dismissed the defendants’ appeal from the judgment for
the plaintiffs in an action for trespass to land. The order was formally
entered. In November 2001 the defendants applied to reopen the appeal
relying on fresh evidence of the alleged ostensible bias of the trial judge.
The application should have been dismissed as incompetent. The
perfected order was final, the decision affirming the judgment below
created a cause of action estoppel, and Arnold v National Westminster
Bank plc established that such an estoppel was absolute. Lord Keith, who
delivered the principal speech, said of cause of action estoppel8:
“… the bar is absolute in relation to all points decided unless fraud
or collusion is alleged … The discovery of new factual matter
which could not have been found out by reasonable diligence for
use in the earlier proceedings does not … permit the latter to be
reopened.”
Taylor v Lawrence provoked an avalanche of unmeritorious applications
to reopen concluded appeals as Lord Justice Buxton recorded9. The
7
[2002] EWCA Civ 90, [2003] QB 528.
[1991] 2 AC 93, 104.
9
(2009) 125 LQR 78.
8
3
Shedden v Patrick point would have been saved the Court a great deal of
trouble.
There is a substantial body of Privy Council authority, referred to in the
1996 and 2009 editions of Res Judicata, that issue estoppels may bind codefendants inter-se. Unfortunately those decisions were only reported in
the Indian Appeals series. The principle comes as no surprise to an
equity lawyer because Chancery procedure was based on this principle.
Lord Macnaghten said in Duke of Bedford v Ellis10:
“The old rule in the Court of Chancery was very simple … the
Court required the presence of all parties interested in the matters
in suit, in order that a final end might be made of the controversy.”
The Privy Council cases can be traced to the decision of Wigram VC in
Cottingham v Earl of Shrewsbury 11decided in the same year as
Henderson v Henderson12. The mortgagor sued to redeem the mortgages
on his estate and the question was whether there could be any issue
between defendants when all were to be redeemed. The Vice-Chancellor
said13:
10
[1901] AC 1, 8.
(1843) 3 Hare 627.
12
(1843) 3 Hare 100.
13
(1843) 3 Hare 627, 638.
11
4
“If a Plaintiff cannot get at his right without trying and deciding a
case between Co-defendants the Court will try and decide that case,
and the Co-defendants will be bound. But, if the relief given to the
Plaintiff does not require or involve a decision of any case between
Co-defendants [they] will not be bound as between each other by
any proceeding which may be necessary only to the decree the
plaintiff obtains. “
His decision was affirmed by Lord Lyndhurst LC14. A trustee who brings
proceedings for the construction of the trust instrument, or to determine
some question of administration, must join all interested beneficiaries or
ensure that they are represented by parties before the Court. Such
proceedings would lack utility if the defendants were not bound inter-se.
The point has been and continues to be overlooked. In North Wales
Water Ltd v Binnie & Partners 15an explosion led to proceedings for
personal injuries against the authority, its consulting engineers, and its
contractor. The engineers were held solely to blame. When the authority
sued the engineers for its property damage the latter attempted to relitigate the issue of negligence. The authority’s reply of issue estoppel or
abuse of process was set down as a preliminary issue. Drake J, who was
not referred to the Privy Council cases or the practice in Chancery, held16
that there was an issue estoppel because there was no practical difference
14
(1846) 15 LJ Ch (NS) 445.
[1990] 3 All ER 547.
16
Ibid at p 561.
15
5
between the issues in the two cases. He added17 that even if there can be
no issue estoppel unless the same duty was involved, there was still an
issue estoppel because:
“… the issues arising in the present action have already been
decided and … in practical terms they have been decided between
the parties.”
Reinventing the wheel took three days. The possibility of issue estoppels
between defendants was overlooked in dicta in Secretary of State for
Trade and Industry v Bairstow 18and Conlon v Simms19, although the
question did not arise.
A decision that further litigation is an abuse of process involves an
evaluative judgment and Lord Bingham said in Johnson v Gore Wood &
Co 20that it requires “a broad, merits-based approach.” A broad enquiry
is also likely to be a long one. The evidence will be more extensive than
that required for res judicata estoppel and there will be more scope for
legal argument. In the interests of efficiency and certainty Courts should
favour res judicata estoppels where principle or authority supports that
approach.
17
Ibid at p 561.
[2003] EWCA Civ 321, [2004] Ch 1 CA, 14 at [31].
19
[2006] EWCA Civ 1749, [2008] 1 WLR 484 CA, 521 at [170].
20
[2000] UK HL 65, [2002] 2 AC 1, 31 (Johnson).
18
6
In Gribbon v Lutton21 the Court of Appeal had to determine whether the
party who interpleaded was bound by the decision between the claimants.
Solicitors acting for a potential vendor received, as stakeholders, a “nonrefundable” deposit from a potential purchaser. The negotiations failed
and both parties demanded the deposit. The solicitors interpleaded and a
Recorder found for the potential purchaser. The potential vendor sued his
solicitors for failing to arrange a stand-still contract which would have
entitled him to the deposit. The solicitors persuaded a High Court Judge
that the Recorder had been wrong, that there was no issue estoppel, and
the vendor had been entitled to the deposit. The client’s appeal was
allowed by majority. Two of the Judges held that there was no issue
estoppel, but one of them found an abuse of process and Robert Walker
LJ found there was an issue estoppel. Laddie J, with whom Pill LJ
relevantly agreed, said22 that the solicitors were “never in any real sense
parties” and23 that “an interpleader is only a convenient procedure for
resolving the substantive dispute between vendor and purchaser” ignoring
the fact that the claims were against the stakeholder.
21
[2001] EWCA Civ 1956, [2002] QB 902.
Ibid 918 at [48].
23
Ibid 919 at [53].
22
7
Interpleader was a remedy in the auxiliary jurisdiction of the Court of
Chancery to prevent a multiplicity of actions, an established ground of
equitable jurisdiction24. There was no general remedy at law until the
Interpleader Act 1831. As Robert Walker LJ said25, the point was
covered by De La Rue v Hernu, Peron & Stockwell Ltd, which had not
been cited, where Greene LJ said26:
“As it is the essence of interpleader proceedings that the person
who has interpleaded has no title himself he naturally drops out of
the suit. But in effect the entire matter is tried out in the presence
of all the parties concerned, and the real claimants are compelled to
put forward their claims and have them adjudicated upon … that is
not for their own benefit, it is for the relief of the person
interpleading. … It is a method to enable the Court to decide the
claims between two persons present at the proceedings, … so that
the person interpleading will get the relief to which he is entitled
… The object of interpleader relief is to enable a person who is
harassed by claims made by two or more persons to be quieted …
If he is in danger owing to the doubtful title, he is entitled to be
quieted.”
The party interpleading will only be quieted and, in the words of Lord
Macnaghten, there will only be a final end to the controversy, if all
parties are bound inter-se by the decision. In the words of Wigram VC,
the party interpleading cannot get at his right to be quieted without
deciding the case between the co-defendants in the interpleader
proceedings.
24
Story on Equity Jurisprudence 11th ed (English) 1873 para 64k.
[2002] QB 902, 923 at [70].
26
[1936] 2 KB 164, 173, 174, 175.
25
8
The pre-Judicature Act courts with Probate jurisdiction, unlike the Court
of Chancery, did not require all parties interested in the estate to be cited.
In a given case there could be many wills, many beneficiaries and many
next of kin. Grants of probate and administration operate in rem and,
unless recalled, bind “the world”, that is all persons within the
jurisdiction of the granting court.
Those courts held that persons with an interest in the estate who had not
been cited had a right to intervene. If they were aware of the
proceedings, but chose not to intervene, they were bound as if they were
actual parties, provided some one was litigating in the same interest.
Other interested persons who had not been cited, and whose interest was
not represented before the court, could still apply for the grant to be
recalled. In Wytcherley v Andrews Lord Penzance said27:
“… there is a practice in this Court, by which any person having an
interest may make himself a party to the suit by intervening; and it
was because of the existence of that practice that the Judges of the
Prerogative Court held, that if the person, knowing what was
passing, was content to stand by and see his battle fought by
somebody else in the same interest, he should be bound by the
result, and not be allowed to re-open the case. That principle is
founded on justice and commonsense …”.
27
(1871) LR 2 P&D 327, 328-9.
9
His reference to “justice and commonsense” was to prove influential. A
person who did not know he was interested was not bound28: Young v
Holloway, but one who knowingly stood by is bound in all capacities29:
Re Langton. In that case Diplock LJ said30:
“This rule differs from the common law rule of estoppel per rem
judicatam. It is peculiar to the Probate jurisdiction … “.
He was attempting to shut the stable door, but under Lord Denning the
horse had already bolted. In Nana Ofori Atta II v Nana Abu Bonsra II
Lord Denning, giving the advice of the Privy Council in a land dispute
case, referred to the judgment of Lord Penzance and continued31:
“[Counsel] argued before their Lordships that the principle stated
by Lord Penzance was confined to wills and representative actions
and has never been extended further. No decision, however, was
cited to their Lordships which confined the principle to wills and
representative actions … But assuming, without deciding, that the
English decisions have hitherto been so confined, their Lordships
would point out that there is nothing in the principle itself which
compels it to be limited to wills and representative actions. The
principle, as Lord Penzance said, is founded on justice and
commonsense.”
28
[1895] P 87.
[1964] P 163 CA, 170-1.
30
Ibid at 179.
31
[1958] AC 95, 102 (Nana Ofori).
29
10
This decision was followed by the High Court of Australia in
Administration of Papua and New Guinea v Daera Guba32; which also
involved a land dispute.
The principle was extended to joint tortfeasors in House of Spring
Gardens Ltd v Waite33. Mr McLeod had been found liable in Ireland,
with others, for misuse of confidential information and breach of
copyright. An action brought by the others in Ireland to have the
judgment set aside for fraud failed. The plaintiff sued on the Irish
judgment and the defendants pleaded the same fraud. The High Court
held that the defences were barred by an issue estoppel. Mr McLeod,
who had not been a party to the fraud action, appealed on the ground that
he could not be issue estopped. Stuart-Smith LJ, who gave the principal
judgment, held that the appellant was bound. He referred to Nana Ofori
and continued34:
“It is true that in Re Langton35 both Danckwerts and Diplock LJJ
suggested that this rule was peculiar to the Probate Division, but
this was not necessary for the decision … and Nana Ofori … was
not cited. The rule may have originated in the special position in
Probate but I cannot see that justice and commonsense require it to
be so confined. … All three defendants were joint tortfeasors …
The judgment against them was joint and several. If the … action
32
[1973] HCA 59, 130 CLR 353, 403, 456.
[1991] 1QB 241 CA.
34
Ibid at 253-4.
35
[1964] P 163.
33
11
to set aside [the] judgment had succeeded, [it] would have been set
aside in toto … Mr McLeod was well aware of those proceedings.
He could have applied to be joined in them, and no one could have
opposed his application. He chose not to do so … he was content
to sit back and leave others to fight the battle, at no expense to
himself. In my judgment that is sufficient to make him privy to the
estoppel …”.
Fox LJ agreed while McCowan LJ held that the fraud defence was an
abuse of process. The judgment of Stuart-Smith LJ was referred to with
approval by Latham LJ in Powell v Wiltshire36, which involved title to an
aircraft, and by Lewison J in Thomas and Agnes Carvel Foundation v
Carvel 37 which involved mutual wills.
In those cases persons who did not intervene were bound. The converse
is also true and Tebutt v Haynes established that interveners are bound.
The wife applied to the Family Division for the transfer of her husband's
interest in a house. Her mother-in-law intervened to claim that she was
the beneficial owner and her claim was upheld. The same dispute came
before the Chancery Division, and the Court of Appeal held there was an
issue estoppel although it was probably a cause of action estoppel. Lord
Denning MR said38:
36
[2004] EWCA Civ 534,[2005] QB 117, 126 at [24], 26].
[2007] EWHC 1314 (Ch), [2008] Ch 395, 407 at [40].
38
[1981] 2 All ER 238 CA, 242.
37
12
“The wife's claim before Hollings J was … for a transfer of
property as between husband and wife. Nevertheless … there was
an intervener. Mrs Tebbutt claimed … a considerable interest.
Because she made that claim she was quite rightly brought in as an
intervener. It seems to me that … if an intervener comes in making
a claim for the property then it is within the jurisdiction of the
judge to decide on the validity of the intervener’s claim. The judge
ought to decide what are the rights and interests of all parties, not
only of the intervener, but of the husband and wife respectively in
the property.”
The principle was overlooked in Iberian UK Ltd v BPB Industries plc39
where a party who intervened in competition proceedings in Europe was
not able to enforce the issue estoppels. The plaintiff claimed damages
under European law for the defendants’ abuse of their dominant position
in the UK plasterboard market. The European Commission had found
abuse and its decision was affirmed by the Court of First Instance and the
European Court. The defendants’ claim that the plaintiff was not a party
to the proceedings in Europe was decided on preliminary issues. Laddie J
held40 that the plaintiff had not been a party but it was an abuse of process
for the defendants to relitigate the issues. He said41:
“Although the Commission could have initiated and pursued the
complaint against the defendants by itself … it did not. … [I]t was
not possible for the plaintiff to be more fully involved. It initiated
the procedure, it formulated the allegations of abuse (even if they
were added to by the Commission), it presented written
submissions, answered the defendants’ responses and played a full
39
[1997] ICR 164.
Ibid at 177.
41
Ibid at 179-80.
40
13
part in the oral hearing before the Commission. Subsequently it
played an equally full part before the Court of First Instance and
the Court of Justice. … [I]n large part the proceedings involved a
head to head dispute between the plaintiff and the defendants as to
whether or not the defendants had abused their dominant position
and, if so, whether that was likely to, and did in fact, distort
competition … A layman who said that the plaintiff and the
defendants were engaged in a major antitrust battle with each other
in front of the Commission could not be accused of
misunderstanding what was going on. He would be just as
accurate if he said the same thing about the proceedings before the
Court of First Instance and the Court of Justice.”
One would think that on those findings the plaintiff had made itself a
party. The preliminary issues took four days.
The point was again overlooked in Cambridge Gas Transportation Corp
v Official Committee of Unsecured Creditors of Navigator Holdings plc42
where a party who knowingly stood by while others fought its battle was
not bound by the judgment. Navigator was incorporated in the Isle of
Man, and Cambridge which owned 70% of the shares in Navigator was
incorporated in the Cayman Islands. Vela Energy Holdings Ltd (Vela)
was incorporated in the Bahamas, and its Bahamian subsidiary owned all
the shares in Cambridge. Mr Mahler, a Swiss resident, controlled Vela,
Cambridge, and Navigator.
42
[2006] UK PC 26, [2007] 1 AC 508 (Cambridge).
14
Navigator, which was insolvent, applied to the Bankruptcy Court of the
Southern District of New York for a Ch 11 reorganisation. The Court
rejected the debtor’s plan and approved the creditors’ under which the
shares in Navigator were to be vested in the creditors’ committee. The
New York court sent a letter of request to the Manx court seeking its
assistance for this purpose. Cambridge argued that the Manx court could
not vest its Navigator shares in the committee. The New York judgment
was not in rem because the shares were not situated in the United States,
and Cambridge was not bound in personam because it had not submitted
to the New York jurisdiction. Lord Hoffmann said43:
“This submission bore little relation to economic reality. The New
York proceedings had been conducted on the basis that the contest
was between rival plans put forward by the shareholders and the
creditors. Vela, the parent company of Cambridge, participated in
the Ch 11 proceedings and arranged the finance which was to have
been the cornerstone of the shareholders’ plan. It is therefore not
surprising that the New York court did not trouble to ask whether
the voluntary petition presented by Navigator had the formal
consent of its own stockholder company when that company was
the creature of the real parties in interest who were actively
participating in the proceedings. For Cambridge, which was no
doubt administered by lawyers in Cayman on the instruction of
Mr Mahler, the claim that it had not submitted to the jurisdiction
was technical in the highest degree. Mr Mahler was, it appears, a
director of Cambridge as well as Vela and the Navigator
companies.”
43
Ibid pp 514-5 at [8].
15
He continued44:
“The [Manx Judge] found as a fact that although Vela had
participated in the bankruptcy proceedings in New York, its
subsidiary Cambridge had not submitted to the New York
jurisdiction. This finding is somewhat surprising but was upheld
by the Court of Appeal and the creditors’ committee, faced with
concurrent findings of fact, have not appealed against it.”
The Board nevertheless held that Cambridge was bound because
bankruptcy and insolvency judgments had universal application. I have
ventured to criticise this part of the decision elsewhere. The creditors did
not argue that Cambridge was bound because it could have intervened to
protect its property or was a privy of Vela, or Navigator, or both. The
findings recorded by Lord Hoffmann established a basis for the first
argument and the appeal of “justice and common sense” may again have
been irresistible. Its application in Cambridge would have been
supported by a decision of the Privy Council that had stood for 50 years,
a unanimous decision of the High Court of Australia, and a decision of
the Court of Appeal. An opportunity to develop and rationalise the law
went begging.
It is also surprising that the creditors did not argue that Cambridge was a
privy of Navigator and Vela. Courts in several jurisdictions have held
44
Ibid p 515 at [10].
16
that controlling shareholders and their companies are privies. One of the
issues in Johnson was whether proceedings by a controlling shareholder
were an abuse because they should have been included in earlier
proceedings brought by his company against the defendants. Lord
Bingham, who gave the principal judgment on this issue, refused to
distinguish between the shareholder and his company for this purpose.
He said45:
“The first [subsidiary argument] was that the rule in Henderson …
did not apply to Mr Johnson since he had not been the plaintiff in
the first action … this argument was rightly rejected. A formulaic
approach to application of the rule would be mistaken. [The
company] was the corporate embodiment of Mr Johnson. He made
decisions and gave instructions on its behalf. If he had wished to
include his personal claim in the company’s action, or to issue
proceedings in tandem with those of the company, he had power to
do so.”
There was no res judicata estoppel because the first action was settled. In
Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2)46 Lord Reid said that
res judicata estoppels bound privies in blood, title and interest. Privity by
blood and title are well understood. The uncertainties lie in the outer
limits of privity of interest. The core principle is that this exists where
one claims under, through, or on behalf of a party bound. Thus a
beneficiary claims under the trustees, new trustees claim under former
45
46
[2000] UK HL 65, [2002] 2 AC 1, 32.
[1967] 1 AC 853, 909-10 (Carl Zeiss).
17
trustees, and a tenant claims under his landlord. However privity of
interest may exist in other cases. In Carl Zeiss Lord Reid said47:
“… privity of interest … can arise in many ways, but it seems to
me to be essential that the person now to be estopped … must have
had some kind of interest in the previous litigation or its subject
matter.”
Lord Guest said48:
“Before a person can be privy to a party there must be community
or privity of interest between them.”
In Gleeson v J Wippell & Co Ltd 49Megarry VC proffered a test for
privity of interest in such cases. The plaintiff had sued a company for
breach of her copyright and failed. She then sued an unrelated company
for a related breach of the same copyright. Its claim of privity based on a
mere trading relationship with the earlier defendant rightly failed, and it
did not invoke the extended doctrine. The Vice-Chancellor said50:
“…the substratum of the doctrine is that a man ought not to be
allowed to litigate a second time what has already been decided
between himself and the other party to the litigation. This is in the
interest both of the successful party and of the public. I cannot see
that this provides any basis for a successful defendant to say that
47
Ibid at p 910.
Ibid at p 936.
49
[1977] 1 WLR 510 (Gleeson),
50
Ibid at p 515.
48
18
the successful defence is a bar to the plaintiff suing some third
party, or for that third party to say that the successful defence
prevents the plaintiff from suing him, unless there is a sufficient
degree of identity between the successful defendant and the third
party. I do not say that one must be the alter ego of the other: but
it does seem to me that, having due regard to the subject matter of
the dispute, there must be a sufficient degree of identification
between the two to make it just to hold that the decision to which
one was a party should be binding in proceedings to which the
other is a party. It is in that sense that I would regard the phrase
‘privity of interest’” (emphasis supplied).
This test has been said to be indeterminate,51 it is undoubtedly circular,
and it is not clear whether it is a test of privity or identity. It was applied
by Lord Bingham in Johnson,52 but he was considering identity of parties
for abuse of process, not privity of interest for res judicata estoppel.
Megarry VC continued53:
“A defendant ought to be able to put his own defence in his own
way, and to call his own evidence. He ought not to be concluded
by the failure of the defence and evidence adduced by another
defendant in other proceedings unless his standing in those other
proceedings justifies the conclusion that a decision against the
defendant in them ought fairly and truly to be said to be in
substance a decision against him” (emphasis supplied).
This is a test of identity. Where a party on the record is suing or
defending “on account of or for the benefit of another” the court can look
51
Trawl Industries of Australia Pty Limited v Effem Foods Pty Limited (1992) 36 FCR 406, 416
(Trawl)).
52
[2000] UK HL 65, [2002] 2 AC at p 32.
53
[1977] 1 WLR at p 516.
19
behind the record to identify the real party54, a test of substance, not form.
In MCC Proceeds Inc v Lehmann Bros International (Europe) Ltd, an
abuse of process case, Mummery LJ said55: “the focus should be on
matters of substance not form.” The plaintiff’s predecessor failed in an
action against a company to recover shares it had purchased from a
subsidiary. The plaintiff then sued the subsidiary which, as a predecessor
in title, did not claim under its purchaser, but Mummery LJ held that in
substance the defendants were the same and the proceedings were an
abuse of process. He said56:
“… there was a community of interest between [the subsidiary] and
[the parent] in respect of the … shares … … [The parent] had
control of [the subsidiary] …”
Litigation conducted, in the words of Lord Reid57, “for the benefit of
another” could apply to companies litigating for the benefit of controlling
shareholders. It is not clear whether the finding should be identity or
privity and the categories may overlap. Cambridge provided a good
opportunity for these questions to be explored. Vella, which intervened
in the New York proceedings, was the ultimate holding company of
Navigator and claimed through Cambridge. It opposed the creditors’ plan
54
Carl Zeiss [1967] 1 AC per Lord Reid at pp 911-2, and per Lord Wilberforce at p 969.
[1998] 4 All ER 675 CA, 695,
56
Ibid at p 696.
57
Above n 54.
55
20
and defended Cambridge’s interest in its Navigator shares. The board of
Navigator, appointed by Cambridge, authorised the Ch 11 proceedings
and, as Lord Hoffmann said, did this with the approval of Cambridge. It
was certainly arguable that Cambridge was a privy of Vella, or Navigator
or both.
Johnson established that the extended res judicata doctrine derived from
Henderson58 is a category of abuse of process. In a well known passage
Lord Bingham said59:
“The bringing of a claim or the raising of a defence in later
proceedings may, without more, amount to abuse if the court is
satisfied … that the claim or defence should have been raised in the
earlier proceedings if it was to be raised at all … It is, however,
wrong to hold that because a matter could have been raised in
earlier proceedings it should have been, so as to render the raising
of it in later proceedings necessarily abusive. That is … too
dogmatic an approach to what should … be a broad merits-based
judgment which takes account of the public and private interests
involved … [O]ne cannot formulate any hard and fast rule to
determine whether, on given facts, abuse is to be found or not ,”
The question is whether the claim or defence “should have been raised in
the earlier proceedings”. Where, as in Johnson, the claimants have their
own causes of action a finding of abuse is only open if the parties are in
substance the same. Mr Johnson stood to benefit from his company’s
58
59
(1843) 3 Hare 100.
[2000] UK HL 65, [2002] 2 AC 1, 31.
21
success in the first action, and may have been its privy, but this was not
essential. What mattered was that he controlled both proceedings.
Identity would surely have been found if he had sued first or if the second
claimant had been another company of his, although in both cases the
second claimant would not have been a privy of the first.
The extended res judicata doctrine, as rationalised in Johnson, applies to
the privies of those originally bound but only for causes of action or
liabilities derived through, under, or on behalf of an original party. A
party with its own cause of action or liability should not be affected
unless the parties in substance are the same, or the earlier proceedings
were conducted “on his behalf”, or there was a “community of interest”.
A related question arose in the Federal Court of. A company sued the
defendant for negligent misrepresentation and lost. Its directors and
shareholders then sued the same defendant on the same
misrepresentations for personal losses from share and loan capital
invested in the company in reliance on those representations. The
individuals did not claim through or under the company. It had not
claimed under or in virtue of any legal right of its shareholders60 and had
not derived any interest through them or otherwise represented their
60
Trawl (1992) 36 FCR 406, 412-3.
22
interests61. Defences of res judicata estoppel were therefore overruled.
The decision of Gummow J, now a member of the High Court, was
affirmed by the Full Federal Court62. The defendant did not raise a
Henderson defence or rely on a wider basis for finding privity of interest
perhaps because, as Gummow J found63, no single individual controlled
the company.
The Supreme Court of Ireland held in Belton v Carlow CC64 that a
company and its controlling shareholders were not privies. Proceedings
by the company to recover compensation from the Council for fire
damage to its factory failed. The Council then sued the shareholders to
recover compensation paid to the owner of an adjoining property
damaged in the same fire and attempted to rely on issue estoppels. In the
first case, brought by insurers in the company’s name, the High Court
found that the fire had been deliberately lit by the shareholder directors.
Keane J, who delivered the principal judgment in the second case,
assumed65 that the shareholders had “some control over the [first]
proceedings”. There was no conflict of interest which would require the
company suing for subrogated insurers to be treated as a different party.
61
Ibid at p 415.
(1993) 43 FCR 510.
63
(1992) 36 FCR at p 418.
64
[1997] 1 IR 172 SC.
65
Ibid at p 182.
62
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Keane J held66 that there was no privity because the interests of the
shareholders and the company in the first action were not the same, and
the company had no interest in the second action. Any recovery in the
first would have been held for the company and its insurers and the
shareholders were not at risk as to costs.
The real question however was whether the shareholders were privies of
the company in the first action because a res judicata estoppel must be
based on the earlier decision. As Lord Reid said in Carl Zeiss67 the privy
“must have had some kind of interest in the previous litigation or its
subject matter.” It did not matter that the company was not a privy of the
shareholders in the second action, and privity need not be mutual. A
tenant is always a privy of his landlord, but a landlord is not necessarily a
privy of his tenant.
In Stone & Rolls Ltd v Moore Stephens68 the House of Lords held that a
one man company could not distance itself from his frauds to obtain an
advantage from them. The Irish High Court decided in the first Carlow
66
Ibid at pp 181-2.
[1967] 1 AC at p 910.
68
[2009] UK HL 39, [2009] 3 WLR 455 (Stone & Rolls).
67
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case69 that the company could not distance itself from the arson of its
shareholders. That being so the decision against the company should
have been treated as a decision against them. The underlying question is
whether a shareholder’s economic interest in the company’s litigation
supports a finding of privity or whether the interest must be legal or
proprietary. In Trawl Gummow J said:70
“… when finding the necessary privity in a successive or mutual
relationship the courts have looked to legal rather than economic
indicia as the criterion of operation of the privity doctrine.”
Trawl’s success in the first action71 “might have had favourable economic
consequences, in an imprecise way, for the other applicants” but its extent
was “a matter of speculation”. In that case, as noted72, the company was
not controlled by a single individual.
The question is whether shareholders are privies of their companies or
whether, for present purposes, identity of parties exists in such cases.
Identity was said by Lord Reid and Lord Wilberforce to be a matter of
substance, not form, and to exist where a party litigates for the benefit of
69
Above n 64.
(1992) 36 FCR at 414.
71
Ibid at p 415.
72
Above n 63.
70
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another73. Megarry VC said74 the question was whether “a decision
against the [first] defendant … [is] fairly and truly … in substance a
decision against” the second. In Johnson75 Lord Bingham found identity
where the company was “the corporate embodiment” of the shareholder.
In Stone & Rolls the majority held that a “one man company” could not
sue its auditors for failing to detect his frauds. In the words of Lord
Phillips76 the claim failed because “the company’s sole will and mind and
beneficial owner” was a party to the frauds. His definition of a “one man
company”77 included cases “where the shareholders together run the
company”. Lord Walker noted78 that in Royal Brunei Airlines Sdn Bhd v
Tan79 Lord Nicholls found that Mr Tan’s company had acted dishonestly
because “[Mr Tan] was the company”. Lord Walker’s definition of a one
man company80 included “cases where there is a single dominant
shareholder-director even if there are other directors or shareholders” and
“cases where two or more individual directors and shareholders are acting
closely in concert.”
73
Above n 54.
Above n 53.
75
Above n 45.
76
[2009] UK HL 39,[2009] 3 WLR 455, 483 at [86].
77
Ibid pp 476-7 at [64].
78
Ibid p 504 at [157].
79
[1995] 2 AC 378, 397.
80
[2009] UKHL 39, [2009] 3 WLR 505 at [161].
74
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In Shah v Shah81 Roth J held that there was sufficient identity between a
company, the defendant in the first action, and its controlling shareholder,
a defendant in the second, to support a finding of abuse of process. In
2005 the claimant sued the company in the Employment Tribunal for
constructive dismissal, allegedly instigated by the controlling
shareholder, and lost. In 2007 he commenced an action under s 994 of
the Companies Act 2006 (the unfair prejudice section) against his fellow
shareholders based in part on the same allegations. Roth J dismissed this
part of the case as an abuse82 and was inclined to the view that83 “there is
sufficient identity … between [the controlling shareholder] and the
company for the requirements of an issue estoppel to be satisfied”, citing
Megarry VC in Gleeson.84
Caution must be exercised before finding privity based on a community
of interest. Beneficiaries under a class gift claim under the same clause in
the will and have equal interests but are not privies. All must be joined in
proceedings to determine the rights of the class unless a representative
order is made. The general point is illustrated by the two Re Waring
cases85. The testator bequeathed two tax free annuities in the same
[2010] EWHC 313 (Ch). I am indebted to Mr Andrew Walker of Maitland Chambers Lincoln’s Inn
for a reference to this case.
82
Ibid at [85].
83
Ibid at [87].
84
[1977] 1 WLR 510, 515 above n 50.
85
[1942] Ch 126; [1948] Ch 221.
81
27
amount in the same terms. In the first case the Court of Appeal held that
s 25 of the Finance Act 1941 reduced the annuities, but the decision was
overruled by the House of Lords in another case. The annuitant living in
enemy occupied Europe had not been a party to the 1942 proceedings and
the Court had refused to make a representative order. In the second case
Jenkins J held that the annuitant who had been a party was bound by the
issue estoppel, but the other could take advantage of the decision of the
House of Lords. The annuitants were not privies.
Parties to different policies in the same terms over cargo in the same ship,
parties to different charterparties with the same war or strike clause, and
passengers injured in the same accident may all have identical rights.
However each has his own independent right and interest, and they are
not privies.
K.R. Handley
A Judge of the New South Wales Court of Appeal
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