Landlord and tenant — Rent review clause in lease — Further, and perhaps last, stage in the litigation beginning with the decision of Walton J in National Westminster Bank plc v Arthur Young McClelland Moores & Co — House of Lords uphold Court of Appeal’s view that issue estoppel was not an absolute bar which admitted of no exceptions — The exceptional circumstances relied on in the present case were that the decision of Walton J had been wrong — The result was that the tenants were entitled to reopen the question of construction which had been decided against them
recalled that Walton J, having decided ([1985] 1 EGLR 61) that the hypothetical
lease should be construed as not containing any provision for rent review such
as was contained in the actual lease, refused leave to appeal and refused to
grant a certificate under section 1(7)(b) of the Arbitration Act 1979 that the
question of law was either one of general public importance or one which for
some other special reason should be considered by the Court of Appeal — The
tenants sought to appeal to the Court of Appeal but, although that court could
itself have given leave to appeal, it had no jurisdiction, owing to the wording
of section 1(7), to grant the necessary certificate, and the court so held —
The tenants then started proceedings for the rectification of the lease (it was
in fact a subunderlease) and, further or in the alternative, for a declaration
as to the true construction of the rent review clause, the very point decided
against them by Walton J — The landlords, defendants in the proceedings ([1988]
2 EGLR 161), then applied to strike out the claim for a construction
declaration on the ground that it was barred by the principle of issue estoppel
in view of Walton J’s decision — Sir Nicolas Browne-Wilkinson V-C rejected the
landlords’ application to strike out and held, as a preliminary point of law,
that the tenants were not estopped from raising the issue as to the true
construction of the rent review clause — The landlords appealed against the
Vice-Chancellor’s decision but the Court of Appeal dismissed their appeal
([1990] 1 EGLR 137) — The
Kinkel, who gave the leading speech, reviewed the history of the litigation
summarised above — After referring to a number of decisions showing the
emergence of the doctrine of issue estoppel and of the possibility that there
might be exceptions, for special circumstances, to the absolute or inflexible
nature of its bar on relitigation, Lord Keith invited the House to make an
affirmative statement of the law on this subject — He suggested that the House
should affirm the law to be that there may be an exception to issue estoppel in
the special circumstance that there has become available to a party further
material relevant to a correct determination of a point involved in the earlier
proceedings, whether or not that point was specifically raised and decided,
being material which could not by reasonable diligence have been adduced in
those proceedings — The further relevant material could be either matters of
fact or a change in the law — The change in the law in the present case was the
general recognition that the decision of Walton J had been wrong — Accordingly,
the case presented special circumstances which required the tenants to be
permitted to reopen the questions of construction decided against them by
Walton J — All the other Law Lords agreed, Lord Lowry after initial misgivings
which were resolved — Appeal against decision of Court of Appeal dismissed
The following cases are referred to in
this report.
Amax International Ltd v Custodian Holdings Ltd
[1986] 2 EGLR 111; (1986) 279 EG 762
Badar Bee v Habib Merican Noordin [1909] AC
615
Basingstoke and Deane Borough Council v Host Group Ltd
[1988] 1 WLR 348; [1988] 1 All ER 824; (1987) 56 P&CR 31; [1987] 2 EGLR
147; 284 EG 1587, CA
Brisbane City Council v Attorney-General for
Queensland [1979] AC 411; [1978] 3 WLR 299; [1978] 3 All ER 30, PC
British Gas Corporation v Universities
Superannuation Scheme Ltd [1986] 1 WLR 398; [1986] 1 All ER 978; (1986) 52
P&CR 111; [1986] 1 EGLR 120; 277 EG 980
Carl Zeiss Stiftung v Rayner and Keeler Ltd
(No 2) [1967] 1 AC 853; [1966] 3 WLR 125; [1966] 2 All ER 536, HL
Cheapside Land Development Co Ltd v Messels Service Co
[1978] AC 904; [1977] 2 WLR 806; [1977] 2 All ER 62; (1977) 33 P&CR 220;
[1977] EGD 195; 243 EG 43 & 127, HL, [1977] 2 EGLR 61
Equity & Law Life Assurance Society
plc v Bodfield
Ltd [1987] 1 EGLR 124; (1987) 281 EG 1448, CA
Fidelitas Shipping Co Ltd v V/O Exportchleb
[1966] 1 QB 630; [1965] 2 WLR 1059; [1965] 2 All ER 4; [1965] 1 Lloyd’s Rep
223, CA
Henderson v Henderson (1843) 3 Hare 100
Hoystead v Commissioner of Taxation [1926]
AC 155, PC
Hoystead v Federal Commissioner of Taxation
(1921) 29 CLR 537
Hunter v Chief Constable of the West
Midlands Police [1982] AC 529; [1981] 3 WLR 906; [1981] 3 All ER 727, HL
Kingston (Duchess of) (1776) 2 Smith LC 13th ed
644; 20 St Tr 355
Mills v Cooper [1967] 2 QB 459; [1967]
2 WLR 1343; [1967] 2 All ER 100; (1964) 62 LGR 168, DC
National Westminster Bank plc v Arthur Young McClelland
Moores & Co (Practice Note) [1985] 1 WLR 1123; [1985] 2 All ER 817
National Westminster Bank plc v Arthur Young McClelland
Moores & Co [1985] 1 EGLR 61; (1985) 273 EG 402, CA
New Brunswick Railway Co v British & French
Trust Corporation [1939] AC 1
Phosphate Sewage Co Ltd v Molleson (1879) 4
App Cas 801
Property & Reversionary Investment
Corporation Ltd
v Templar [1977] 1 WLR 1223; [1978] 2 All ER 433; (1977) 245 EG 307,
[1978] 1 EGLR 92, CA
R v Humphrys [1977] AC 1; [1976] 2
WLR 857; [1976] 2 All ER 497, HL
R v Inhabitants of the Township of
Hartington Middle Quarter [1855] 4 E&B 780
Thoday v Thoday [1964] P 181; [1964] 2
WLR 371; [1964] 1 All ER 341, CA
United Scientific Holdings Ltd v Burnley Borough Council
[1978] AC 904; [1977] 2 WLR 806; [1977] 2 All ER 62; (1977) 33 P&CR 220;
[1977] EGD 195; 243 EG 43 & 127, HL, [1977] 2 EGLR 61
Yat Tung Investment Co Ltd v Dao Heng Bank Ltd
[1975] AC 581; [1975] 2 WLR 690, PC
This was an appeal by the landlords,
National Westminster Bank plc (as trustees for British Rail Pension Trustee Co
Ltd), from the decision of the Court of Appeal dismissing the landlords’ appeal
against the decision of Sir Nicolas Browne-Wilkinson V-C holding that the
tenants, Michael John Arnold, Peter Robert Edwards and Simon Francis Phillips,
were not precluded by the principle of issue estoppel from seeking the
construction of the rent review clause in the subunderlease of premises at 7
Rolls Buildings, Fetter Lane, London EC4. The Vice-Chancellor’s decision was
given on an application by the landlords to strike out the tenants’ claim for a
declaration on the construction of the clause.
Terence Cullen QC and Miss Hazel
Williamson QC (instructed by Stephenson Harwood) appeared on behalf of the appellant
landlords; James Munby QC and Jonathan Gaunt (instructed by Freshfields)
represented the respondent tenants.
In his speech, LORD KEITH OF KINKEL
said: This appeal raises an important question concerning the availability and
extent of exceptions to that branch of the rule of estoppel per rem
judicatam which has come to be known as issue estoppel.
The appellants are landlords of premises
in Fetter Lane let to the respondents, a firm of chartered accountants, under a
subunderlease (‘the lease’) dated October 28 1976. The lease demised the
premises to the respondents for a term of just under 32 years from that date,
the expiry being on June 24 2008. It provided for an initial yearly rent of
£800,000, subject to review on June 24 1983, 1988, 1993, 1998 and 2004. The
rent from each rent review date is whichever is the greater of a rent equal to
the rent payable during the last preceding rent period and the ‘fair market
rent’ at the relevant review date, which in default of agreement is to be fixed
by arbitration. The ‘fair market rent’ is defined as meaning:
such amount as shall represent a yearly
rent at which the demised premises might reasonably be expected to be let at
the relevant review date in the open market by a landlord to a tenant without a
premium with vacant possession and subject to the provisions of this
subunderlease other than the rent hereby reserved there being disregarded any
effect on rent of any of the matters set out in paragraphs (a)(b)
or (c) of section 34 of the Landlord and Tenant Act 1954 (as amended).
When the first rent review date came up
in 1983 a dispute arose and it was referred to an arbitrator. There was
disputed in particular whether, under the definition of ‘fair market rent’, the
rent under the hypothetical lease for the unexpired residue of the term fell to
be fixed on the basis (a) that it contained the same provisions for five-year
rent reviews as the actual lease or (b) that it contained no provision for
review. The arbitrator decided that the hypothetical lease should be treated as
containing provision for five-yearly rent reviews and on that basis fixed the
rent at £1,003,000 per annum. In case he should prove to be wrong on the
question of construction, he determined that if the hypothetical lease
contained no provision for rent reviews the rent would be about 20% higher,
namely £1,209,000.
An appeal by the landlords on the point
of construction came before Walton J. He held that the arbitrator was wrong and
that the hypothetical lease should be treated as not containing any provision
for rent review, so that the rent payable was £1,209,000: National
Westminster Bank plc v Arthur Young McClelland Moores & Co
[1985] 1 EGLR 61. The lessees asked Walton J for leave to appeal and for a
certificate under section 1(7)(b) of the Arbitration Act 1979 that there
was a question of law of general public importance or one which for some other
special reason ought to be considered by the Court of Appeal, but both were
refused. The lessees then sought to appeal to the Court of Appeal against the
refusal of Walton J to grant a certificate. The Court of Appeal held that it
had no jurisdiction to entertain such an appeal: National Westminster Bank
plc v Arthur Young McClelland Moores & Co (Practice Note) [1985]
1 WLR 1123.
In the course of his judgment, at p 62,
Walton J said:
The first and I think probably the main
question which arises here is whether, when the arbitrator is deciding what is
to be the fair market rent for the next rent period, he is to do that upon the
basis that the lease contains (as, of course, we know it does in fact contain)
a rent review clause or whether, on the other hand, he is to fix the fair
market rent on the basis that there is no such clause in the lease. I do not
think that there is a presumption one way or the other. I think that in every
case that must depend upon the precise terms of the lease, because it must be
very much borne in mind that there is no such thing as a fair market rent of
any premises in the abstract. There is only a fair market rent upon a set of
abstractions which may be actual, may be hypothetical and in most cases under
rent reviews are a mixture of the one and the other. For example, here we have
that the premises are expected to be let with vacant possession, which is, of
course, something which we know as a fact just is not the case because the
tenants are actually in possession and are certainly not just going to move out
for the purpose of a rent review. So the attempt by Mr Morritt
— who was appearing for the tenants —
to poison my mind in advance to achieve
the lower of the two values by defining the fair market rent as something which
favours the tenant, as in fact he was attempting to do, I do not think
impresses me very much.
In the subsequent case of British Gas
Corporation v Universities Superannuation Scheme Ltd [1986] 1 WLR
398* Sir Nicolas Browne-Wilkinson V-C had to consider a somewhat similar rent
review clause. The hypothetical lease there was to be one ‘containing the same
provisions (other than as to the yearly rent)’ as the actual lease. The
Vice-Chancellor held that the hypothetical lease fell to be treated as
including the rent review clause. He said, at p 403:
In these circumstances, there are in my
judgment conflicting decisions as to the correct approach to the construction
of these clauses. I am accordingly free to adopt the approach I prefer. In my
judgment the correct approach is as follows: (a) words in a rent exclusion
provision which require all provision as to rent to be disregarded
produce a result so manifestly contrary to commercial common sense that they
cannot be given literal effect; (b) other clear words which require the rent
review provisions (as opposed to all provisions as to rent) to be disregarded
(such as those in the Pugh case (1982) 264 EG 823, [1982] 2 EGLR 120)
must be given effect to, however wayward the result; (c) subject to (b), in the
absence of special circumstances it is proper to give effect to the underlying
commercial purpose of a rent review clause and to construe the words so as to
give effect to that purpose by requiring future rent reviews to be taken into
account in fixing the open market rental under the hypothetical letting.
*Editor’s note: Also Reported at [1986] 1
EGLR 120.
In Equity & Law Life Assurance
Society plc v Bodfield Ltd [1987] 1 EGLR 124† Dillon LJ, in the course of a judgment
concurred in by Fox and Russell LJJ, expressed himself, at p 125, as welcoming
and approving the guidelines so laid down by the Vice-Chancellor. The
Vice-Chancellor’s approach was again approved by the Court of Appeal in Basingstoke
and Deane Borough Council v Host Group Ltd [1988] 1 WLR 348‡ at pp 353, 355. It may also be noted that in Amax
International Ltd v Custodian Holdings Ltd (1986) 279 EG 762§ Hoffmann J construed a rent review clause in
terms similar to the present one in the opposite sense to that favoured by
Walton J.
† Editor’s note: Also reported at (1987)
281 EG 1448.
‡ Editor’s note: Also reported at [1987]
2 EGLR 147.
§ Editor’s note: Also reported at [1986]
2 EGLR 111.
It therefore appears that there are
powerful grounds for the view that Walton J wrongly construed the rent review
clause in the parties’ lease and that he did so by virtue of an approach to the
question of construction which was wholly incorrect in law.
In these circumstances, when the second
rent review date occurred in 1988 the respondents sought to reopen the question
of construction. They brought an action by writ claiming rectification of the
lease so as to produce the result that the rent review clause is not left out
of account and also a determination as to the true construction of the clause.
The appellants applied to strike out the claim for a declaration on
construction on the ground that the respondents were barred by issue estoppel
from relitigating the very point decided by Walton J. That matter, as a
preliminary issue, came before Sir Nicolas Browne-Wilkinson V-C, who on July 1
1988 gave judgment holding that the respondents were not so barred [1989] Ch
63**. He took the view that the law admitted of special circumstances which
could prevent an issue estoppel from arising, that such special circumstances
included the situation where relevant new material, not available at the time
of the first decision, had since come to light and that such new material might
include not only the discovery of new facts but also a change in the law. He
said at p 70:
The question therefore is whether, given
a subsequent change in the law indicating that the earlier decision was wrong,
the injustice of holding the plaintiff in the second action bound by the
erroneous decision in law in the first action outweighs the hardship to the
other party in having to relitigate the matter and the public interest in the
finality of legal proceedings.
**Editor’s note: Also reported at [1988]
2 EGLR 161.
As regards the circumstances of the
instant case, he expressed himself as having no doubt that justice did require
the matter to be relitigated. The relevant factors were these (p 71):
1. There is a continuing contractual
relationship of landlord and tenant under which, if there is an issue estoppel,
the decision of Walton J will regulate four further rent reviews and thereby
affect the rent payable until the end of the term.
2. Because of the peculiarities of the
procedure applicable to appeals from arbitrators, unlike the ordinary case of a
prior decision by a judge, the decision of Walton J was not subject to appeal.
Therefore a matter of a very great financial importance involving millions of
pounds will, if an issue estoppel applies, be decided on a point of law which
the lessees have never had the opportunity to test in the higher courts.
3. The decision whether or not to permit
an appeal was the decision of Walton J himself and there was no right of appeal
against his refusal to certify the matter fit for appeal. The lessees took
every possible step to test the decision in the earlier case in the higher
courts but without success.
4. Subsequent decisions, in particular
that of the Court of Appeal in the Equity & Law Life case, [1987] 1
EGLR 124, make it, at the lowest, strongly arguable that the decision of Walton
J was wrong.
On appeal by the appellants the Court of
Appeal (Dillon, Staughton and Mann LJJ) on November 8 1989 affirmed the
judgment of the Vice-Chancellor upon substantially the same grounds: [1990] Ch
573*. The appellants now appeal, with leave given here, to your lordships’
House.
*Editor’s note: Also reported at [1990] 1
EGLR 137.
It is appropriate to commence by noticing
the distinction between cause of action estoppel and issue estoppel. Cause of
action estoppel arises where the cause of action in the later proceedings is
identical to that in the earlier proceedings, the latter having been between
the same parties or their privies and having involved the same subject-matter.
In such a case the bar is absolute in relation to all points decided unless
fraud or collusion is alleged, such as to justify setting aside the earlier
judgment. The discovery of new factual matter which could not have been found
out by reasonable diligence for use in the earlier proceedings does not,
according to the law of England, permit the latter to be reopened. The rule in
Scotland, which recognises the doctrine of res noviter veniens ad notitiam
is different: see Phosphate Sewage Co Ltd v Molleson (1879) 4 App
Cas 801, per Earl Cairns LC at p 814. There is no authority there,
however, for the view that a change in the law can constitute res noviter.
The principles upon which cause of action estoppel is based are expressed in
the maxims nemo debet bis vexari pro una et eadem causa and interest
rei publicae ut finis sit litium. Cause of action estoppel extends also to
points which might have been but were not raised and decided in the earlier
proceedings for the purpose of establishing or negativing the existence of a
cause of action. In Henderson v Henderson (1843) 3 Hare 100 at p
114 Sir James Wigram V-C expressed the matter thus:
In trying his question, I believe I state
the rule of the Court correctly, when I say, that where a given matter becomes
the subject of litigation in, and of adjudication by, a court of competent
jurisdiction, the Court requires the parties to that litigation to bring
forward their whole case, and will not (except under special circumstances)
permit the same parties to open the same subject of litigation in respect of
matter which might have been brought forward as part of the subject in contest,
but which was not brought forward, only because they have, from negligence,
inadvertence, or even accident, omitted part of their case. The plea of res
judicata applies, except in special cases, not only to points upon which
the Court was actually required by the parties to form an opinion and pronounce
a judgment, but to every point which properly belonged to the subject of
litigation, and which the parties, exercising reasonable diligence, might have
brought forward at the time.
It will be seen that this passage appears
to have opened the door towards the possibility that cause of action estoppel
may not apply in its full rigour where the earlier decision did not in terms
decide, because they were not raised, points which might have been vital to the
existence or non-existence of a cause of action. The passage has since
frequently been treated as settled law, in particular by Lord Shaw, giving the
advice at the Judicial Committee of the Privy Council, in Hoystead v Commissioner
of Taxation [1926] AC 155 at p 170. That particular part of it which admits
the possible existence of exceptional cases was approved by Lord Kilbrandon in Yat
Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581 at p 590,
saying:
The shutting out of a ‘subject of
litigation’ — a power which no court should exercise but after a scrupulous
examination of all the circumstances — is limited to cases where reasonable diligence
would have caused a matter to be earlier raised; moreover, although negligence,
inadvertence or even accident will not suffice to excuse, nevertheless ‘special
circumstances’ are reserved in case justice should be found to require the
non-application of the rule.
Issue estoppel may arise where a
particular issue forming a necessary ingredient in a cause of action has been
litigated and decided and in subsequent proceedings between the same parties
involving a different cause of action to which the same issue is relevant one
of the parties seeks to reopen that issue. This form of estoppel seems first to
have appeared in The Duchess of Kingston’s Case (1776) 2 Smith LC 13th
ed 644; 20 St Tr 355. A later instance is R v Inhabitants of the
Township of Hartington Middle Quarter (1855) 4 E & B 780. The name
‘issue estoppel’ was first attributed to it by Higgins J in the High Court of
Australia in Hoystead v Federal Commissioner of Taxation (1921)
29 CLR 537 at p 561. It was adopted by Diplock LJ in Thoday v Thoday
[1964] P 181. Having
he said at p 198:
The second species, which I will call
‘issue estoppel’, is an extension of the same rule of public policy. There are
many causes of action which can only be established by proving that two or more
different conditions are fulfilled. Such causes of action involve as many
separate issues between the parties as there are conditions to be fulfilled by
the plaintiff in order to establish his cause of action; and there may be cases
where the fulfilment of an identical condition is a requirement common to two
or more different causes of action. If in litigation upon one such cause of
action any of such separate issues as to whether a particular condition has
been fulfilled is determined by a court of competent jurisdiction, either upon
evidence or upon admission by a party to the litigation, neither party can, in
subsequent litigation between one another upon any cause of action which
depends upon the fulfilment of the identical condition, assert that the
condition was fulfilled if the court has in the first litigation determined
that it was not, or deny that it was fulfilled if the court in the first
litigation determined that it was.
Issue estoppel, too, has been extended to
cover not only the case where a particular point has been raised and
specifically determined in the earlier proceedings but also that where in the
subsequent proceedings it is sought to raise a point which might have been but
was not raised in the earlier. In Fidelitas Shipping Co Ltd v V/O
Exportchleb [1966] 1 QB 630 Diplock LJ said at p 642:
In the case of litigation the fact that a
suit may involve a number of different issues is recognised by the Rules of the
Supreme Court which contain provision enabling one or more questions (whether
of fact or law) in an action to be tried before others. Where the issue
separately determined is not decisive of the suit, the judgment upon that issue
is an interlocutory judgment and the suit continues. Yet I take it to be too
clear to need citation of authority that the parties to the suit are bound by
the determination of the issue. They cannot subsequently in the same suit
advance argument or adduce further evidence directed to showing that the issue
was wrongly determined. Their only remedy is by way of appeal from the
interlocutory judgment and, where appropriate, an application to the appellate
court to adduce further evidence: but such application will only be granted if
the appellate court is satisfied that the fresh evidence sought to be adduced
could not have been available at the original hearing of the issue even if the
party seeking to adduce it had exercised due diligence.
This is but an example of a specific
application of the general rule of public policy, nemo debet bis vexari pro
una et eadem causa. The determination of the issue between the parties
gives rise to what I ventured to call in Thoday v Thoday an
‘issue estoppel’. It operates in subsequent suits between the same parties in
which the same issue arises. A fortiori it operates in any subsequent
proceedings in the same suit in which the issue has been determined. The
principle was expressed as long ago as 1843 in the words of Wigram V-C in Henderson
v Henderson (1843) 3 Hare 100, 114 which were expressly approved by the
Judicial Committee of the Privy Council in Hoystead v Commissioner of
Taxation [1926] AC 155, 170. I would not seek to better them.
Then, in Brisbane City Council v Attorney-General
for Queensland [1979] AC 411, Lord Wilberforce, giving the advice of the
Judicial Committee of the Privy Council, said at p 425:
The second defence is one of ‘res
judicata’. There has, of course, been no actual decision in litigation between
these parties as to the issue involved in the present case, but the appellants
invoke this defence in its wider sense, according to which a party may be shut
out from raising in a subsequent action an issue which he could, and should,
have raised in earlier proceedings. The classic statement of this doctrine is
contained in the judgment of Wigram V-C in Henderson v Henderson
(1843) 3 Hare 100 and its existence has been reaffirmed by this Board in Hoystead
v Commissioner of Taxation [1926] AC 155. A recent application of it is
to be found in the decision of the Board in Yat Tung Investment Co Ltd v
Dao Heng Bank Ltd [1975] AC 581. It was, in the judgment of the Board,
there described in these words:
. . . there is a wider sense in which the
doctrine may be appealed to, so that it becomes an abuse of process to raise in
subsequent proceedings matters which could and therefore should have been
litigated in earlier proceedings.’ (p
590)
This reference to ‘abuse of process’ had
previously been made in Greenhalgh v Mallard [1947] 2 All ER 255
per Somervell LJ and their Lordships endorse it. This is the true basis of the
doctrine and it ought only to be applied when the facts are such as to amount
to an abuse: otherwise there is a danger of a party being shut out from bringing
forward a genuine subject of litigation.
It thus appears that, although Henderson
v Henderson (1843) 3 Hare 100 was a case of cause of action estoppel,
the statement there by Wigram V-C has been held to be applicable also to issue
estoppel. That statement includes the observation that there may be special
circumstances where estoppel does not operate. The instant case is concerned
with the nature of such special circumstances.
There are indications that special
circumstances may exist where the earlier proceedings have resulted in a
default judgment. I refer to New Brunswick Railway Co v British &
French Trust Corporation [1939] AC 1 per Lord Maugham LC at p 21,
Lord Russell of Killowen at p 28 and Lord Wright at p 38. Then in Carl Zeiss
Stiftung v Rayner & Keeler Ltd (No 2) [1967] 1 AC 853, where the
earlier proceedings had taken place in a foreign court, Lord Reid stated at p
917:
The difficulty which I see about issue
estoppel is a practical one. Suppose the first case is one of trifling
importance but it involves for one party proof of facts which would be
expensive and troublesome; and that party can see the possibility that the same
point may arise if his opponent later raises a much more important claim. What
is he to do? The second case may never
be brought. Must he go to great trouble and expense to forestall a possible
plea of issue estoppel if the second case is brought? This does not arise in cause of action
estoppel: if the cause of action is important, he will incur the expense: if it
is not, he will take the chance of winning on some other point. It seems to me
that there is room for a good deal more thought before we settle the limits of
issue estoppel. But I have no doubt that issue estoppel does exist in the law
of England. And, if it does, it would apply in the present case if the earlier
judgment had been a final judgment of an English court.
In the same case Lord Upjohn went so far
as to express doubts about the application to issue estoppel of the full
breadth of the statement by Wigram V-C in Henderson v Henderson
(1843) 3 Hare 100. He said at p 947:
All estoppels are not odious but must be
applied so as to work justice and not injustice and I think the principle of
issue estoppel must be applied to the circumstances of the subsequent case with
this overriding consideration in mind.
In Mills v Cooper [1967] 2
QB 459 the question arose whether the respondent, having been found by
magistrates not to have been a gypsy on a certain date upon which he had been
charged with unlawfully encamping on a highway, had the protection of issue
estoppel in relation to a similar charge relating to a later date. It was held
that the status of gypsy was not an unalterable one, so that the respondent
might well be a gypsy at one time though not at another. At p 468 Diplock LJ
made the following general observation about issue estoppel:
That doctrine, so far as it affects civil
proceedings, may be stated thus: a party to civil proceedings is not entitled
to make, as against the other party, an assertion, whether of fact or of the
legal consequences of facts, the correctness of which is an essential element
in his cause of action or defence, if the same assertion was an essential
element in his previous cause of action or defence in previous civil proceedings
between the same parties or their predecessors in title and was found by a
court of competent jurisdiction in such previous civil proceedings to be
incorrect, unless further material which is relevant to the correctness or
incorrectness of the assertion and could not by reasonable diligence have been
adduced by that party in the previous proceedings has since become available to
him.
In Hunter v Chief Constable of
the West Midlands Police [1982] AC 529 at p 541, Lord Diplock said, with
the concurrence of the other members of the House, that this passage had been
adopted and approved by your lordships’ House in R v Humphrys
[1977] AC 1.
It is to be noted that there appears to
be no decided case where issue estoppel has been held not to apply by reason
that in the later proceedings a party has brought forward further relevant
material which he could not, by reasonable diligence, have adduced in the
earlier. There is, however, an impressive array of dicta of high
authority in favour of the possibility of this. It was argued for the
appellants that exceptions to the rule of issue estoppel should be admitted
only in the case of the earlier judgment being a default or a foreign judgment
and further that an exception should not be recognised where the point at issue
had actually, as here, been raised and decided in the earlier proceedings, but
only where the point might have been but was not so raised and decided. The
later dicta are, however, adverse to these arguments. It was argued that there
was no logical distinction between cause of action estoppel and issue estoppel
and that, if the rule was absolute in the one case as regards points actually
decided, so it should be in the other case. But there is room for the view that
the underlying principles upon which estoppel is based, public policy and
justice, have greater force in cause of action estoppel, the subject-matter of
the two proceedings being identical, than they do in issue estoppel, where the
subject-matter is different. Once it is accepted that different considerations
apply to issue estoppel, it is hard to perceive any logical distinction between
a point which was previously raised and decided and one which might have been
but was not. Given that the further material which would have put an entirely
different complexion on the point was at the earlier stage unknown to the party
and could not by reasonable diligence have been discovered by him, it is hard
to see why there
point, thinking it hopeless, or argue it faintly without any real hope of
success. In my opinion, your lordships should affirm it to be the law that
there may be an exception to issue estoppel in the special circumstance that
there has become available to a party further material relevant to the correct
determination of a point involved in the earlier proceedings, whether or not
that point was specifically raised and decided, being material which could not
by reasonable diligence have been adduced in those proceedings. One of the
purposes of estoppel being to work justice between the parties, it is open to
courts to recognise that in special circumstances inflexible application of it
may have the opposite result, as was observed by Lord Upjohn in the passage
which I have quoted above from his speech in the Carl Zeiss case [1967]
1 AC 853 at p 947.
It is next for consideration whether the
further relevant material which a party may be permitted to bring forward in
the later proceedings is confined to matters of fact, or whether what may not
entirely inappositely be described as a change in the law may result in, or be
an element in, special circumstances enabling an issue to be reopened. Counsel
for the respondents argued that the passage quoted above from the judgment of
Diplock LJ in Mills v Cooper [1967] 2 QB 459 at p 468
specifically recognised the possibility of a change in the law having this
effect, by its references to ‘an assertion, whether of fact or of the legal
consequences of facts’ and to ‘further material which is relevant to the
correctness or incorrectness of the assertion’. A change in the law, so it was
contended, must clearly be further material which was relevant to the
correctness or incorrectness of an assertion of the legal consequences of
facts. I do not, for myself, feel able to accept that Lord Diplock had a change
in the law in mind when he wrote the passage in question. If he had done so, I
consider that he would have expressed himself more specifically. Your lordships
should appropriately, in my opinion, regard the matter as entire and approach
it from the point of view of principle. If a judge has made a mistake, perhaps
a very egregious mistake, as is said of Walton J’s judgment here, and a later
judgment of a higher court overrules his decision in another case, do
considerations of justice require that the party who suffered from the mistake
should be shut out, when the same issue arises in later proceedings with a
different subject-matter, from reopening that issue?
A certain analogy can, in my view, be
drawn with the principles governing the situation where leave to appeal out of
time is sought. In Property & Reversionary Investment Corporation Ltd
v Templar [1977] 1 WLR 1223 a landlord’s claim for increased rent under
a rent review clause had been dismissed upon the ground of non-compliance with
the time-limit for initiating the review. Two and a half years later this House
reversed two decisions of the Court of Appeal which had proceeded upon the same
basis: United Scientific Holdings Ltd v Burnley Borough Council
and Cheapside Land Development Co Ltd v Messels Service Co [1978]
AC 904*. The Court of Appeal granted the landlord leave to appeal out of time
against the judgment dismissing his claim. Roskill LJ said at p 1225:
The real point here, as Mr Goodhart
ultimately accepted, is whether it is right that these parties should have
their continuing contractual relationship governed by a lease the terms of
which have assumedly been erroneously construed in the court below. I think
that notwithstanding Mr Hunt’s submissions put the case that the landlords
should be left to receive the lower rent for the next 18 months or so
*Editor’s note: Also reported at (1977)
243 EG 43, [1977] 2 EGLR 61.
–which was until the next rent review
date–
and thereafter become entitled to claim
the higher rent in accordance with the House of Lords’ decision, there are
special circumstances which justify leave to appeal out of time.
Cumming-Bruce LJ said at p 1225:
Now that the House of Lords has decided
that the proper construction of the contract is other than that decided by the
judge, I agree that there are special circumstances here because it does not
seem just that future obligations between the parties to the lease should
depend upon the construction now shown to be wrong.
In the instant case there was no right of
appeal against the judgment of Walton J because he refused to grant a
certificate that the case included a question of law of general public
importance. There can be little doubt that he was wrong in this refusal, as is
shown by the large volume of litigation on the construction of rent review
clauses and the decisions in that field which I have mentioned earlier. I consider
that anyone not possessed of a strictly legalistic turn of mind would think it
most unjust that a tenant should be faced with a succession of rent reviews
over a period of more than 20 years, all proceeding upon a construction of his
lease which is highly unfavourable to him and is generally regarded as
erroneous. It is true that the chosen method of settling disputes about rent
reviews, namely arbitration, involves that the right of appeal from the judge
of first instance is subject to limitations. But these limitations were not
present when the lease was entered into in 1976, having been introduced by the
Arbitration Act 1979. There is much force also in the view that the landlord,
if the issue cannot be reopened, would most unfairly be receiving a very much
higher rent than he would be entitled to on a proper construction of the lease.
The public interest in seeing an end to litigation is of little weight in
circumstances under which, failing agreement, there must in any event be
arbitration at each successive review date. Estoppel per rem judicatam,
whether cause of action estoppel or issue estoppel, is essentially concerned
with preventing abuse of process. In the present case I consider that abuse of
process would be favoured rather than prevented by refusing the respondents
permission to reopen the disputed issue. Upon the whole matter I find myself in
respectful agreement with the passage in the judgment of Sir Nicolas
Browne-Wilkinson V-C where he said, [1989] Ch 63 at p 70:
In my judgment a change in the law
subsequent to the first decision is capable of bringing the case within the
exception to issue estoppel. If, as I think, the yardstick of whether issue
estoppel should be held to apply is the justice to the parties, injustice can
flow as much from a subsequent change in the law as from the subsequent
discovery of new facts. In both cases the injustice lies in a successful party
to the first action being held to have rights which in fact he does not
possess. I can therefore see no reason for holding that a subsequent change in
the law can never be sufficient to bring the case within the exception.
Whether or not such a change does or does not bring the case within the
exception must depend on the exact circumstances of each case.
I am satisfied, in agreement with both
courts below, that the instant case presents special circumstances such as to
require the respondents to be permitted to reopen the question of construction
decided against them by Walton J, that being a decision which I regard as plainly
wrong.
My lords, for these reasons I would
dismiss the appeal.
LORD LOWRY, in a concurring speech, said: At first
I had misgivings at the prospect of dismissing this appeal but, having seen the
speech of my noble and learned friend, Lord Keith of Kinkel, which I have had
the opportunity of reading in draft, and having also carefully read again the
judgments of the Vice-Chancellor and the Court of Appeal, I am now clearly
persuaded that this is the right course to take. With a view to stating my initial
outlook and ultimate conclusions, I would adopt my noble and learned friend’s
recital of the facts and his terminology, as well as his conclusions.
My starting points on issue estoppel were
The Duchess of Kingston’s Case (1776) 2 Smith LC 13th ed 644; 20 St Tr
355 and R v Inhabitants of the Township of Hartington Middle Quarter
(1855) 4 E & B 780. Basing myself on these cases, which have never been
overruled or disapproved and have often been expressly followed, I found it
remarkable that from Henderson v Henderson (1843) 3 Hare 100
until Mills v Cooper [1967] 2 QB 459 the doctrine of new evidence
not discoverable by reasonable diligence seems to have operated in relation to
‘non-issue estoppel’ but was not heard of in connection with issue estoppel,
the idea of which had been developed as a branch of estoppel per rem
judicatam, the main branch being cause of action estoppel. The accepted
principle of finality seems to have been applied equally to each branch: the
decision of an issue which was essential to the decision of the action was
treated in the same way as the decision of the action itself. In one way the
logic of not distinguishing issue estoppel from cause of action estoppel is
unassailable. If the decided issue was crucial in the first action, it remained
crucial in the second, and the important point was that the issue was decided
(not neglected or overlooked, as in non-issue estoppel) and was essential to
the decision of the first action; it was therefore equivalent to the decision
itself and was an equally great obstacle to a claim in the second action.
It seemed to me that the proviso
enunciated by Diplock LJ in Mills v Cooper [1976] 2 QB 459 at pp
468-469 was not founded on authority. It was, in fact, part of an obiter
dictum unrelated to the case in hand. Although delivered extempore, the
judgment, and particularly the passage at pp 468-469, drew upon several phrases
in decided cases and appeared to have resulted from careful preparation with a
view to defining constructively the law of issue estoppel. The
Constable of the West Midlands Police [1982] AC 529 are obiter
endorsements of obiter dicta, so far as the vital words are concerned,
and only Lord Hailsham of St Marylebone at [1977] AC 1 at p 39E comes close to
voicing a specific approval of the proviso. Their lordships, moreover, had no
need in those two cases to focus on the finer points of the estoppel doctrine,
and 24 years after Mills v Cooper there has not been until the
present case an actual example of issue estoppel being distinguished in the
result from cause of action estoppel.
The reliance on ‘new law’ in the proviso
was a new departure. It was conceded before your lordships that the
presentation of a new argument or the discovery of a previously overlooked
authority would not suffice: the new law must take the form of a new decision;
but it seems that this could come about by a lucky accident or even as a result
of encouraging another litigant to take the same point. In Property &
Reversionary Investments Corporation Ltd v Templar [1977] 1 WLR 1223
a new decision opened the way for the Court of Appeal to exercise its
discretion by permitting a late appeal; that case was not an example of
defeating an issue estoppel, since the granting of leave to appeal out of time
meant that success was achieved in what was still a pending action.
It appears from this review that there
are significant arguments in favour of the proposition that issue estoppel
constitutes a complete bar to relitigating a point once it has been decided,
but I am now of the opinion that the court can, and in exceptional
circumstances should, relax that rule.
I think the first clue, though not an
obvious one, is to be found in certain words of Wigram V-C in Henderson
v Henderson (1843) 3 Hare 100 at p 115, which were contained in the
passages approved by the Judicial Committee of the Privy Council in Hoystead
v Commissioner of Taxation [1926] AC 155 at p 170, and recalled by
Diplock LJ in Fidelitas Shipping Co Ltd v V/O Exportchleb [1966]
1 QB 630 at p 643:
The plea of res judicata applies,
except in special cases, not only to points upon which the court was actually
required by the parties to form an opinion and pronounce a judgment, but to
every point which properly belonged to the subject of litigation, and which the
parties, exercising reasonable diligence, might have brought forward at the
time.
I refer to the comment on this passage
which was made by Sir Nicolas Browne-Wilkinson V-C at [1989] Ch 63 at p 69B-C.
In Fidelitas Lord Denning MR had
already said, at p 640:
The rule then is that, once an issue has
been raised and distinctly determined between the parties, then, as a general
rule, neither party can be allowed to fight that issue all over again. The same
issue cannot be raised by either of them again in the same or subsequent
proceedings except in special circumstances, see Badar Bee v Habib
Merican Noordin [1909] AC 615, 623 per Lord Macnaghten.
The reference to Badar Bee clouds
the issue most unfortunately, since that case has nothing to say to the
proposition for which it was cited as an authority. None the less, I
respectfully agree with the observation of Dillon LJ ([1990] Ch 573 at p 593B)
that development of the law in Fidelitas flows logically from the
earlier cases. My noble and learned friend Lord Keith has already drawn
attention to the important statements of Lord Reid and Lord Upjohn in Carl
Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] 1 AC
853 at pp 917 and 947 which effectively encourage the proposition that the
doctrine of issue estoppel is not inflexible.
Once the possibility of relying on
special circumstances is established as a legal proposition, I have no
hesitation in agreeing that the circumstances of this case are special and
indeed exceptional.
Accordingly, I, too, would dismiss the
appeal.
LORDS GRIFFITHS, OLIVER OF AYLMERTON and JAUNCEY OF
TULLICHETTLE agreed and did not add anything.
The appeal was dismissed.
