Principle of Res Judicata Philip Yang, 11th – 12th November 2017.

Principle of Res Judicata Thrasyvoulou v Secretary of State for the Environment (1990) 2 A.C.

273, Lord Simon said: “As a means of resolution of civil contention litigation is certainly

preferable to personal violence. … The law itself is fully conscious of the evil of protracted litigation. Our forensic system, with its machinery of cross-examination of witnesses and forced disclosure of documents, is characterised by a ruthless investigation of truth. Nevertheless the law recognises that the process cannot go on indefinitely. … the fundamental principle that it is in society’s interest that there should be some end to litigation is seen most characteristically in the recognition by our law - by every system of law - of the finality of a judgment. If the judgment has been obtained by fraud or collusion it is considered as a nullity and the law provides machinery whereby its nullity can be so established. If the judgment has been obtained in consequence of some procedural irregularity, it may sometimes be set aside. But such exceptional cases apart, the judgment must be allowed to conclude the matter. That, indeed, is one of society’s purposes in substituting the lawsuit for the vendetta.”

Principle of Res Judicata Fraser v HLMAD Ltd (2006) EWCA Civ 738, Moore-Bick J:

“It has been recognised for centuries that it is neither just nor in the public interest that a person should be allowed to litigate the same issue more than once. The principle is encapsulated in the well known maxims nemo debet bis vexari pro una et eadem causa and interest reipublicae ut sit finis litium. Out of these broad principles of justice and policy, however, there have developed three distinct principles of law usually referred to as ‘cause of action estoppel’, ‘issue estoppel’ and ‘abuse of process’. The first two are aspects of estoppel by record since they both depend on a prior decision by a court or tribunal of competent jurisdiction on matters before it. The third involves the exercise of the court's inherent jurisdiction to prevent abuse of its process. This appeal is concerned with cause of action estoppel. ”

Principle of Res Judicata Pre-requisites: 1) Judicial decision by competent court or tribunal; 2) Final and binding; 3) A decision “on the merits” (See in Desert Sun Loan Corp v

Hill (1996) 2 All ER 847 (CA), a decision on procedural issues [namely, non-substantive issues] could be “on the merits” where:

[i] There was express submission of the procedural or jurisdictional issue to the earlier court;

[ii] The specific issue had been raised before and decided by that court, and

[iii] Caution was exercised in relation to practical considerations, such as whether the issue was or should have been fully aired before the earlier court.)

Principle of Res Judicata 4) A fair hearing; 5) Earlier decision right or wrong is irrelevant (Lord Simon in

Committee for Privileges the Ampthill Peerage (1977) AC 547: “A line can thus be drawn closing the account between the

contestants. Important though the issues may be, how extensive soever the evidence, whatever the eagerness for further fray, society says, ‘We have provided courts in which your rival contentions have been heard. We have provided a code of law by which they have been adjudged. Since judges and juries are fallible human beings, we have provided appellate courts which do their own fallible best to correct error. But in the end you must accept what has been decided. Enough is enough.’ and the law echoes: ‘res judicata, the matter is adjudged.’ The judgment creates an estoppel - which merely means that what has been decided must be taken to be established as a fact, …”

Principle of Res Judicata Foreign judgment:

The Civil Jurisdiction and Judgments Act 1982.

The Good Challenger (2004) 1 Lloyd‘s Rep 67:

“ The authorities show that in order to establish an issue estoppel four conditions must be satisfied, namely (1) that the judgment must be given by a foreign court of competent jurisdiction; (2) that the judgment must be final and conclusive and on the merits; (3) that there must be identity of parties; and (4) that there must be identity of subject matter, which means that the issue decided by the foreign court must be the same as that arising in the English proceedings … ”

Doctrine of Merger Redcar and Cleveland BC v Bainbridge Surtees v Middlesbrough

BC (2008) EWCA Civ 885, Mummery LJ said:

“The doctrines of res judicata and merger are rooted in the need for finality in litigation, both in the public interest and in the interests of the litigants themselves. Whether he has won a case or lost a case, a litigant is not normally entitled to reactivate the same case against the same party in another action. Subject to a right of appeal, a litigant is entitled to one go at his claim, but no more … Merger is a defence where the litigant has won his case and obtained a final judgment on a particular cause of action. In general, he is not entitled to bring another case against the same party seeking a greater remedy for the same cause of action, because it has ‘merged in the judgment’ and been extinguished.”

Doctrine of Merger The rational is that merger of a cause of action occurs

automatically upon the recovery of judgment. Thus the cause of action has extinguished. The claimant has recovered and he can recover only once, irrespective who is or could have been sued for it. Double-recovery is not allowed.

Parke B in King v Hoare (1844) 13 M & W 494 (explained why the identity of parties for the merger doctrine is irrelevant):

“There is but on cause of action. The merger it be against a single person or many.”

Doctrine of Merger Commercial contracts of multi-party or joint or concurrent tortfeasor;

claimant’s decision to go against one and not all (deep-pocket; economy in litigation; not all defendants are known; etc).

Sensible that the claimant, if recovered in that action by a judgment (not just an out-of-court settlement) cannot re-run the same cause of action against another defendant (say, another joint tortfeasor).

The defendant in prior judgment seeks recourse, indemnity or contribution (under the《Civil Liability [Contribution] Act》1978) from another joint tortfeasor.

The Act in section 3 reads:“Judgment recovered against any person liable in respect of any debt or damage shall not be a bar to an action … against any other person who is (apart from any such bar) jointly liable with him in respect of the same debt or damage.”

Cause of action estoppel Difference with the Doctrine of Merger: See《Finality in Litigation》by Jacob V. Van Develden, p.45,

that: “Apart from the general requirements that the judgment

relied upon must stem from a court of competent jurisdiction and must remain in force, and that the defendant must duly invoke the doctrine, the only condition for application is that the new claim is based on a case of action for which judgment was previously recovered. In addition to this ‘identity of cause of action’-requirement, and in contract to the doctrine of estoppel per rem judicatam, the merger doctrine does not require that the same parties are involved in the new and in the prior case; no ‘identity of parties’-requirement applies.”

Cause of action estoppel All claims which arise from the same event and rely on the

same evidence make up one cause of action. The general rule is, a claim involves different heads of

damage, even if varying in size and nature, does not mean that the claim involves more than on cause of action. Longmore LJ said in Berezovsky v Abramovich(2011) EWCA Civ 153 :“the additional or substitution of a new loss is by no means necessarily the addition or substitution of a new cause of action”.

Importance to claim the whole remedy in one and only one action

In rem and in personam actions: The “Indian Grace” & The “Indian Endurance” (1998) 1 Lloyd’s Rep 1

Issue estoppel Lord Keith in Arnold v National Westminster Bank plc (1991) 2 AC 93 :

“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 …

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. ”

Issue estoppel Issue estoppel – effect on commercial contracts:

1) Danger to long-term contract; Price Review clause”; “Escalation Clause”; etc…

2) Confidentiality in arbitration? - Ali Shipping Corporation v. Shipyard Trogir（1998）1 Lloyd’s Rep 643

Abuse of process Terence Etherton LJ in Price v Nunn (2013) EWCA Civ 1002: “Res judicata operates as a substantive rule of law. It is to

be distinguished from the court’s exercise of its procedural powers to control the court’s processes from being abused. They are juridically very different even though there are overlapping legal principles with the common underlying purpose of limiting abusive and duplicative litigation. In the case of the exercise of the court’s procedural powers to prevent abuse the court should take a broad, merits-based judgment taking account of the public and private interests involved and all the facts of the case, focusing on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.”

Abuse of process Abuse in the context of finality of earlier judgment:

1) Collateral attack-abuse – Ex.: Smith v Linskills (1996) 1 WLR 763 (Mr Smith convicted of burglary, then Mr Smith sued his lawyer for negligence); C v D (2008) 1 Lloyd’s Rep 239 (London award; US losing party setting aside in US Court on “manifest disregard of law” (US law governs ); Anti-suit inj.

2) Henderson v Henderson Rule – In Johnson v Gore Wood & Co. (2002) 2 AC 1, Lord Bingham said: “ The bringing of a claim or the raising of a defence in later proceeding may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. ”

Abuse of process Examples:

1) Yat Tung Investment Co. Ltd v. Dao Heng Bank Ltd (1975) AC 581

2) House of Spring Gardens Ltd v Waite and Others (1991) 1 QB 241 (防弹衣; deceits; Claimant sued Waite in Ireland and prevailed; Waite alleged perjury/fraud; rejected by Irish Court and did not pursued in CA; enforcement in England; Waite & McLeod (son-in-law) raised fraud again and was dismissed as abusive)

3) Barrow v Bankside Members Agency Ltd (1996) 1 WLR 257 (Lloyd’s litigations; special circumstance)

Res judicata in arbitration Applicable under English law to arbitration:

1) C v D (2008) 1 Lloyd’s Rep 239

2) Nomihold Securities Inc v Mobile Telesystems Finance SA (No.2) (2012) EWHC 130 (Comm) (Share Purchase Agreement of 51% at US$150m; Option Agreement of 59% at US$170m (call & put option); shares became worthless; Nomihold exercised option & demand payment of US$170m; MTF failed in Option Agreement in LCIA arbitration; MTF started 2nd LCIA arbitration under SPA for misrep; fraud; money laundry; etc.)

Res judicata in arbitration How about International Arbitration?

1) Messy and unclear

2) Res judicata – broad in common law jurisdictions (different) but narrow in civil law jurisdictions

3) Arbitrators of different legal background

4) What law to govern res judicata? (i) procedural law of the seat? (ii) law of the 1st award or judgment? (iii) governing law of the contract?

Res judicata / abuse of process – substantive rights (Aegis v European Reinsurance [2003] 1 WLR 1041 PC) or procedural?

Res judicata in arbitration Award not binding on third parties (e.g. privies)

Dangers of “Issue estoppel” or “abuse of process” in chain contracts and multi-party cases (ICC 2016 statistic of 43%)

Abuse of process (Henderson v Henderson Rule) – application in party-autonomy international arbitration in doubt?

Issue estoppel – should the second arbitral tribunal be bound by the first arbitral tribunal or only “persuasive evidence” in party-autonomy international arbitration?

Res judicata in arbitration The future:

1) Hard law – international convention?

2) Soft law – IBA Rules?

ILA (International Law Association) , Final Report on Res Judicata and Arbitration and Resolution No. 1/2006, Toronto Conference (2006), available at http://www.ila-hq.org