Specialist Group International Limited v (Claimant/Respondent) [2001] EWCA Civ 777

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MR JUSTICE RIMER
[2001] EWCA Civ 777Case No Case No: A3/2000/2269Venue Royal Courts of Justice, Strand, London, WC2A 2LL, Wednesday 23rd May 2001
Between
Specialist Group International Limited(Claimant/Respondent)(1) Richard Simon Deakin(2) Charles David Deakin(Defendants/Part 20 Claimants/Appellants)
Before
Lord Justice AldousLord Justice MayMr J. Dagnall (instructed by Boyd & Hutchinson for the Appellants)Mr L. Kosmin QC and Miss C. Roberts (instructed by Manches for the Respondent)Date 23 May 2001

LORD JUSTICE ALDOUS:

With

[1]leave of the judge Messrs Richard and Charles Deakin appeal the order of Rimer J of 22nd May 2000 which dismissed their application to strike out the proceedings brought by Specialist Group International Ltd.[2]The facts relevant to the appeal are not in dispute and the parties accept that they are correctly set out in the opening paragraphs of the judgment. That being so, I adopt them. "1. SGI is a company whose principal business is the provision of the specialist skills needed for the purpose of rescuing people or property from confined spaces, whether tunnels, wells, caves, drains or collapsed buildings. It is a two person company, the two being Peter Faulding and his mother Nora. They each hold one of its two issued shares. There is a dispute between the parties as to whether Nora Faulding holds her share as a nominee or trustee for Peter, but I am not required - or in a position - to resolve that on this application, and am invited to assume for present purposes that she holds it beneficially. 2. Peter Faulding is and has always been a full-time working director of SGI. The Deakins became involved with SGI in about December 1995, although not on a full-time basis: they each have other employments, Richard Deakin being an employee of British Aerospace plc and Charles Deakin being a doctor employed by the NHS. They both became directors of SGI on 24 June 1997 and remained in office until they were removed on 10 February 1999. 3. In November 1997 £338,200 (less deductions of income tax and national insurance) was awarded and paid to the Deakins by way of directors' remuneration. In June 1998 a further sum of £120,000 (£60,000 each) was also awarded and paid to them (also less the like deductions). The net amount of the latter payments after such deductions totalled £68,008.48. That sum was not actually paid out to the Deakins, in the sense that no payment of it actually moved from SGI to them. What instead happened was that it was agreed that the Deakins should be treated as having received it and then immediately lent it back to SGI; and SGI was then treated as becoming a debtor of the Deakins in respect of the amounts so lent, the loans being repayable on demand. These loans were thereafter referred to as directors' loans and there is no doubt that is how everyone always regarded them. The remuneration awarded to the Deakins in November 1997 and June 1998 was referred to in the argument as "the 1997 bonus" and "the 1998 bonus" respectively. 4. By the autumn of 1998 relationships between the Deakins and Mr Faulding had soured. Both sides consulted solicitors. Boyd & Hutchinson acted for the Deakins. Morrisons acted initially for Mr Faulding, although by December 1998 Manches had taken over from Morrisons and they acted for SGI, Peter and Nora Faulding, as they still do. 5. Mr Faulding's stance in late 1998 was that he wanted the Deakins to sever their connection with SGI finally, although he recognised that money was due to them under the loans created on the occasion of the award of the 1998 bonus; and by their letter of 15 December 1998 Manches also recognised that SGI owed the Deakins this money although they there expressed an unwillingness on SGI's part to pay it as they said it would leave SGI with insufficient working capital to pay its other creditors as their debts fell due. The Deakins appear to have regarded their claim for payment of the directors' loans as unanswerable. Apart from this, they were also claiming that they were each entitled to one third of the issued shares in SGI, a claim based on an agreement said to have been made with Mr Faulding although he disputed that claim and still disputes it. 6. The differences between the parties led to the issue by the Deakins of two writs on 15 December 1998. In one action ("the loans action") they sued SGI for repayment of their directors' loans. The statement of claim comprised a mere four paragraphs, (two of them being devoted to claims for reimbursement of expenses and interest, which are irrelevant for present purposes). Paragraph 1, relating to the loans, reads:
"The Plaintiffs [the Deakins] seek repayment of monies lent by them to the Defendant [SGI] on 30th June, 1998 and in the total sum of £68,008.48. which monies were repayable on demand. By letter dated 1st December, 1998, the Plaintiffs demanded repayment of the monies, but the Defendant has failed to repay the same."
Paragraph 3 claimed interest on the loans under s.35A of the Supreme Court Act 1981 from 30 June 1998 at 8%. The other action ("the shareholders action") was one commenced against Mr Faulding alone and by it the Deakins claimed to establish their entitlement to two thirds of the issued shares of SGI. 7. The loans action was promptly settled. Julie Bond, a partner in Manches, said in a witness statement made on 17 April 2000 that it was settled on the basis that it was believed that SGI "had little or no defence to that claim at the appropriate time". The only defence which she appears to have considered SGI might have had was the point that a satisfaction of the claim might have left SGI with insufficient working capital, although that was obviously no defence to the action: it meant at most that the action might result in SGI having to enter some appropriate insolvency regime. For the purposes of this application it is agreed that no other line of defence had occurred to SGI or its advisers. The settlement of the loans action was effected by a consent order dated 18 January 1999 made by Master Moncaster. That recorded the written consent to it of both sides' solicitors and ordered SGI to pay the Deakins £71,687.69 in two instalments by 29 January 1999, plus costs. That sum was expressed to be in "full and final satisfaction of the [Deakins'] claims particularised in the Statement of Claim inclusive of interest". The judgment was satisfied in full and SGI continued to trade. Meanwhile the shareholders action proceeded towards trial, which was fixed to start on 2 May 2000. 8. That trial did not, however, start on that day because at some stage SGI and its advisers fell upon a new point. That is that SGI's articles of association incorporated regulation 82 of Table A in the Companies (Tables A to F) Regulations 1985. Under the heading "Remuneration of Directors" that provides:
"The directors shall be entitled to such remuneration as the Company may by ordinary resolution determine and, unless the resolution provides otherwise, the remuneration shall be deemed to accrue from day to day."
The new point is that it follows from this that the 1997 and 1998 bonuses would only have been validly declared and paid if they had been the subject of an ordinary resolution passed by Peter and Nora Faulding. It is said by SGI that there was no such resolution so that the two bonuses were invalidly declared and paid. The discovery of this point led on 6 March 2000 to the issue by SGI of a claim form against the Deakins. By it SGI claims from them the gross amount of those bonuses, a total of £458,200 plus interest ("the bonuses action"). There is no dispute between counsel that remuneration purportedly paid to directors in contravention of articles such as regulation 82, or otherwise than in accordance with the company's constitution or pursuant to a contract for service, is paid without the company's authority and can be recovered. Mr Kosmin referred me to various statements to this effect in some well-known text books on company law, and also to the decision of the House of Lords in Guinness PLC v Saunders [1990] 2 AC 663 , in particular to Lord Templeman's speech at 689D to 692H. 9. The commencement of the bonuses action led to an application on 22 March 2000 by the Deakins to His Honour Judge Rich Q.C., sitting as a judge of the Chancery Division. The outcome was that the trial date of 2 May 2000 for the shareholders action was vacated and various other directions were given. One of them contemplated the making by the Deakins of a prompt application to strike out the bonuses action. That application was duly launched and is now before me for determination. I preface what follows by saying that, if the bonuses action is not to be struck out, the Deakins will, I am told, seek to raise various defences directed at avoiding the potentially painful impact of the regulation 82 point. But I am asked to approach this application on the basis that the point is on the face of it a good one, that is that the bonuses were not the subject of the required resolution and were improperly paid."[3]The judge in paragraph 4 of his judgment referred to the bonus payments made in 1997 and 1998. He accurately recorded how the 1998 payments were not actually paid over to SGI but were lent back to it by the Deakins. However it is important to note that the 1997 payments were actually paid over and that the application was to strike out the claim for their return, although they were not the subject of the loans action.[4]Before the judge and before us Mr John Dagnall, counsel for the Deakins, submitted that the bonuses action should be struck out because the claim should have been raised in the loans action, if at all. He relied on cause of action estoppel and issue estoppel. He also contended that the bonuses action was an abuse of the process of the court.[5]At the outset Mr Dagnall submitted that the issue before the Court was a preliminary issue of law not a determination as to whether the action should be struck out. In support he drew attention to the order made by the judge that the question of whether the loans action should be struck out should be determined as a preliminary issue. That is correct, but it is of no importance to this appeal. The issue before the court was whether in law the bonuses action, as pleaded, should be struck out as it offended what can be called issues of res judicata. If the submissions of law were soundly based, then the action stood no real prospect of success and the claim should be struck out. If not, then the action would proceed to trial with the defendants confined to the other defences that they plead.[6]I will come to the detailed submissions of the parties, but believe it best to set out the law upon what I have referred to as the res judicata issues.[7]Mr Dagnall placed considerable emphasis upon the leading case of Arnold v National Westminster Bank Plc [1991] 2 AC 93 and in particular the leading speech of Lord Keith. At page 104 Lord Keith said:
"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 re-opened. 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 , 814, per Lord Cairns L.C. 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 , 114-115, Sir James Wigram V-C expressed the matter thus: "
In trying this 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 of the Judicial Committee of the Privy Council in Hoystead v Commissioner of Taxation [1926] AC 155 , 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 , 590:
"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 re-open that issue. This form of estoppel seems first to have appeared in Duchess of Kingston's Case (1776) 20 St. Tr. 355. A later instance is Reg. 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. C.L.R. 537, 561. It was adopted by Diplock L.J. in Thoday v. Thoday [1964] P. 181. Having described cause of action estoppel as one form of estoppel per rem judicatam, 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 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 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 proceedings."[8]Lord Keith went on to refer to two cases where issue estoppel had been considered and concluded at page 108 G:
"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, 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 should be a different result according to whether he decided not to take the 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, 947."
[9]The most important modern statement of the law is contained in the speech of Lord Bingham in Johnson v Gore Wood [2001] 2 WLR 72 . At page 89 H he said:
"It may very well be, as has been convincingly argued (Watt, "
The Danger and Deceit of the Rule in Henderson v Henderson : A new approach to successive civil actions arising from the same factual matter" (2000) 19 CLJ 287), that what is now taken to be the rule in Henderson v Henderson has diverged from the ruling which Wigram V-C made, which was addressed to res judicata. But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel has much in common with them. The underlying public interest is the same: that there should be finality in litigation and a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. 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 (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. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party where those elements are present the later proceedings will be much more. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention 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. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."[10]The principles upon which cause of action and issue estoppel are based are as stated by Lord Bingham: there must be finality in litigation and a litigant should not be twice vexed on the same matter. No doubt the phrases cause of action estoppel and issue estoppel are well known to lawyers, but they would not be recognised by educated members of the public as being an indication of those principles. It is therefore appropriate to use more recognisable names such as cause of action finality and issue finality. They are, as Lord Bingham pointed out, forms of abuse of process. That is misuse of the court's procedure in a way which would be manifestly unfair or otherwise bring the administration of justice into disrepute amongst right thinking people (see Lord Diplock in Hunter v Chief Constable of the West Midlands [1982] AC 529 at page 536. However it is important to bear in mind that the application of those principles involves the denial of the right of access to the courts conferred by common law and is a right protected by the European Convention for the Protection of Human Rights. Thus such principles should only be applied where the circumstances are such that their application is necessary to prevent misuse of the court's procedure amounting to an abuse of process.[11]The courts have recognised the need for there to be finality of causes of action and that to relitigate the same issue amounts to an abuse of the process. Thus, as Lord Keith in Arnold pointed out, where the cause of action in the later proceedings is identical to that in the earlier proceedings, the bar is absolute unless fraud or collusion is alleged. However the same rigidity does not apply to issues that have been the subject of previous litigation. Arnold is one example. In that case a rent review clause had been wrongly construed in the earlier proceedings, but it was held that the construction was not binding on a subsequent rent review. Essentially the reason was that the contention that the rent review clause had the correct meaning was not an abuse of the process of the court. Another example is where the issue in the earlier proceedings was not fundamental to the conclusion. As Lord Diplock said in Mills v Cooper [1967] 2 QB 459 at 468:
"[The] doctrine [of estoppel] … 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 …. in previous civil proceedings between the same parties or their predecessors in title and was found by a court of competent jurisdiction in such civil proceedings to be incorrect …"
[12]The requirement that the issue must have been an essential element in the earlier proceedings is logical when it is appreciated that the crucial question for decision is whether relitigation of that issue would amount to an abuse of process. It would normally not be right to bind a party to a finding of fact made by a court, when there was no need for that party to produce evidence to the contrary in those proceedings. An example is where the earlier proceedings take place abroad where procedures differ and the main issue is different (see Kirin Amgen Inc. v Boehringer Mannheim GmbH [1997] FSR 289). Of course what was an essential element can be difficult to discern, but that does not matter if the approach advocated by Lord Bingham in Johnson is adopted. In each case the court should decide "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."[13]Mr Dagnall submitted that the award of the bonuses and the loans were one transaction. The money never left the company. All that happened was that there were book entries. The bonus payments were conditional upon the loans being made and if, as was accepted, for the purposes of this appeal, the bonuses were illegal, the loans were also invalid. There was no consideration. That being the position, the crucial allegation in the bonuses action namely that the bonuses were illegal, would have constituted a defence to the loans action. It followed that that allegation could and should have been raised in the loans action. It was therefore an issue which could not now be raised in the bonuses action. He went further and submitted that by raising the invalidity of the bonuses, SGI was attacking the basis of the judgment in the loans action. It followed the decisions in the loans action involved a decision on the merits of the bonuses action with the result that the action should be struck out on the ground of cause of action estoppel.[14]I cannot accept Mr Dagnall's submissions as to what happened. In 1997 bonuses of £338,200 were paid with SGI deducting the appropriate income tax and national insurance which was then forwarded to the Inland Revenue. In 1998 a further sum of £120,000 was paid. Again tax and national insurance contributions were deducted. The loan of £68,008.48 was a separate transaction. The fact that it was accomplished by book entries cannot make the payment of the bonuses, the deduction of tax and national insurance and the loans all one transaction. Thus there was consideration for the loans, even if the bonus payments were illegal. The illegality of the bonus payments could have been pleaded as a counterclaim in the loans action and probably as a defence of equitable set off. But such a defence is not a true defence to the action. It is a right to set off a sum against the sum claimed in the action.[15]The judge correctly rejected the submissions of Mr Dagnall on cause of action estoppel. "10. I do not accept this submission for the short reason that the causes of action in the loans action and the bonuses action are not identical, and Lord Keith's speech shows that to be fatal to a plea of cause of action estoppel. The difference between the two causes of action is that the loans action was in terms an action for money lent, whereas the bonuses action is one for the repayment of remuneration improperly paid. I do not regard this difference as a mere matter of form. Whilst I see much force in Mr Dagnall's submission that the 1998 bonus/loan transaction was all part of one transaction, I interpret the transaction as one in which all parties regarded the bonus as having in fact been paid on terms that the amount of the net payment to the Deakins was immediately lent back to SGI. The same result could have been arrived at by an exchange of cheques, although instead it was done by way of book entries, but I do not regard this as affecting the substance of what was done. The claim in the loans action was not, therefore, one for unpaid remuneration. It was a claim for repayment of loans which all parties recognised had arisen. The Deakins did not need to plead, as part of their cause of action, the source of the moneys lent. If SGI wanted to make something of this by way of a defence, then it was up to it to raise it. For these reasons I reject the Deakins' application in so far as it is founded on cause of action estoppel."[16]Because of the conclusion the judge reached he did not have to consider separately the 1997 bonuses. They of course were not the subject of the loans action and therefore could not have been relevant to it. The suggestion made by Mr Dagnall that the principle of cause of action estoppel should apply to them as they were part of the whole picture is unarguable. They were actually paid and there was no loan. They were irrelevant to the cause of action and the issues in the loans action.[17]The judge did not have the advantage that we have had of reading that part of the speech of Lord Bingham in Johnson which dealt with issue estoppel, but even so he came to his conclusion in the way suggested by Lord Bingham. Having reviewed the statements of the law on issue estoppel in Arnold , he rightly rejected the submission that the issues in the bonuses action were the same as in the loans action. The loans were as he said, a separate transaction and their illegality had simply been overlooked by everybody. He then went on to consider issue estoppel in the wider form, namely whether the illegality issue could and should have been pleaded and, if so, whether SGI should be able to litigate that issue in the bonuses action. He said:
"11. I approach this application, therefore, on the basis that the bonuses action involves an issue which was not raised in the loans action, and was not the subject of a decision or admission in it, and so at most involves the concept of issue estoppel in the "wider sense" referred to by Lord Wilberforce in the Brisbane case. I interpret Lord Wilberforce's statement of principle as requiring me not to apply the Henderson principle in the almost mechanistic way which Mr Dagnall invites, but instead to look at the particular facts of the case in order to see whether the bringing of the bonuses action amounts to an abuse of the process of the court and should for that reason be struck out, or whether in all the circumstances it involves no such abuse so that to strike it out would involve the shutting out of a legitimate claim. If I may respectfully say so, it appears to me to accord with basic justice that the court's approach to issue estoppel in the so-called "wider sense" should be rather more flexible than it is to issue estoppel in the narrower sense. If an issue has been the subject of decision or admission in earlier proceedings, it is easy to see that to raise it anew in later ones is, on the face of it, something which the courts ought not ordinarily be willing to permit, since the essence of the Henderson principle is that there should be an end to litigation. But it does not follow that the full rigour of the principle should apply also to points which were not the subject of the decision or admission in the earlier proceedings, although of course in the particular circumstances of any case it may in fact be an abuse of the process to seek to raise them in later proceedings between the same parties."
[18]Having set out passages from Auld LJ's judgment in Bradford & Bingley Building Society v Seddon Hancock [1999] 1 WLR 1482 , he concluded:
"24. I consider, therefore, that my task in the present application requires me to look at all the circumstances leading up to the commencement of the bonuses action and to consider whether the raising in it by SGI of the regulation 82 point - one which could also have been raised in the loans action by way of defence and counterclaim - constitutes an abuse of the process of the court which should be stopped here and now. The Bradford & Bingley case shows that the mere fact that the regulation 82 point could have been taken in the loans action is not by itself enough to make the bonuses action an abuse. Some additional factor turning the bonuses action into an abuse must also be pointed to, and the onus is on the Deakins to identify it. In my view, the Deakins have not identified any such additional factor and I am not satisfied that the bonuses action constitutes an abuse of the process of the court. 25. First, whilst I agree with Mr Dagnall that the regulation 82 point could have been raised by SGI as a defence to the loans action, I do not consider that the bonuses action involves any attack, whether collateral or otherwise, on the consent judgment in the loans action. I have no doubt that that judgment estops SGI from denying that the Deakins made the loans to it on which they sued; and it may be that it also estops SGI from denying that they gave any consideration for the loans. But issues of that sort are not going to arise for consideration in the bonuses action. The issue in that action will simply be whether the 1997 and 1998 bonuses were validly awarded. If it is decided that they were not, it may follow that the court will order their repayment; but I cannot see that will involve an attack on the consent order in the loans action. 26. Secondly, although it is said that the regulation 82 point could have been raised as a defence to the loans action, the real thrust of the point made by the Deakins is that they say that SGI should have taken the opportunity then open to it to counterclaim against them not just in respect of the 1998 bonus but also in respect of the 1997 bonus. In fact, SGI raised neither counterclaim but simply submitted to judgment. There is no basis for any suggestion that it deliberately elected not to bring such counterclaims. No doubt, had the regulation 82 point occurred to SGI, it would have brought them. The penny has now dropped and SGI now wishes to bring by way of action the claims which it could have brought by counterclaim in the loans action. The loans action, whose real substance involved issues which were different from the bonuses action, was all over within a matter of weeks and involved virtually no contest or argument at all. No defence was served and the substance of the outcome was not very different from one in which the Deakins had obtained a judgment by default. The case is, therefore, on its facts very different from cases such as Yat Tung Investment Co. Ltd . v. Dao Heng Bank Ltd. and Another [1975] AC 581 . I cannot regard SGI's wish to pursue the bonuses action as involving any unfair hounding of the Deakins with successive claims or as otherwise amounting to an abuse of the process. In my view, to shut SGI out from bringing the bonuses action would be to shut out the bringing of a proper claim and would be a wrong exercise of the court's jurisdiction."
Those passages from the judgment are right, save for the use of the word "must" in the penultimate sentence of paragraph 24. Lord Bingham in Johnson at page 901 said that such an attitude would be too dogmatic an approach.[19]As the judge said the true question is whether the bonuses action is an abuse of process. I agree with the judge that it is not. There is no basis for any allegation that SGI failed to raise the illegality of the loans as a tactical manoeuvre. Also the illegality of the bonuses would not have been a true defence. The loans action involved just two issues namely – were the loans made and if so how much was lent? Those issues did not involve consideration of the legality of bonuses. It could not have been an abuse of the process of the court to pay back the loans and at the same time start an action to recover the bonus payments. To start such an action at a later stage, when the point had been discovered, would not be an abuse. That is illustrated by the nature of the claim in the bonuses action. There it is alleged that the directors, in breach of the fiduciary duty to SGI, paid themselves bonuses. Such a claim differs in nature and purpose to the claim made in the loans action. Further and importantly it would be wrong to prevent SGI having their claim that the bonuses were illegal determined in court, unless there are compelling reasons, which there are not. In fact to accept the submissions of the Deakins would provide them with a windfall to which they were not entitled.[20]In my view the judge came to the right decision. I would dismiss this appeal. LORD JUSTICE MAY:[21]I agree that this appeal should be dismissed for the reasons given by Aldous LJ, whose account of the facts I gratefully adopt.[22]As Aldous LJ said during the hearing, the authorities taken as a whole tend to encourage elaborate technical submissions which many percipient non-lawyers would scarcely understand. Cause of action estoppel and issue estoppel are not readily understandable phrases to a non-lawyer. It should not be necessary to have to pick for hours over the precise text of a dozen or so law reports to find out what in the end is reasonably straight forward and understandable law capable of being simply expressed. I would try to express it simply as follows.[23]If a claim has been explicitly determined in previous concluded proceedings between the same parties, that claim cannot be raised again, other than on an appeal, unless there is fraud or collusion. If a necessary element of a claim has been explicitly determined in previous concluded proceedings between the same parties, that issue cannot be raised again, if, as is likely but not inevitable, it would be an abuse to raise that issue again. This may also extend to an implicitly necessary element of the previous determination. The previous determination may include a settlement. If a claim or issue has not been determined in previous concluded proceedings between the same parties, there may nevertheless be circumstances in which, as a matter of public and private interest on a broad merits-based procedural judgment, it would be an abuse for a party to raise that claim or issue. Such circumstances may, depending on the facts, exist where the litigant could and should have raised the matter in question in earlier concluded proceedings. There may in particular cases be other elements of abuse, including oppression of another party; but abuse of process is a concept which defies precise definition in the abstract. The court will only stop a claim as an abuse after most careful consideration.[24]The main sources of this summary are Arnold v. NatWest Bank plc [1991] 2 AC 93 at 104-107 and Johnson v. Gore Wood & Co [2001] 2 WLR 72 at 90 and 118.[25]The issue which the judge decided assumed that the 1997 and 1998 bonuses had been unlawfully awarded and paid. I am persuaded that, on this assumption, the defendants were fiduciaries obliged to reimburse the company. The 1997 bonuses were paid. They were not retained as directors' loans. There seems to me to be no case whatever that settlement of an action to recover the 1998 loans carried with it any implicit acceptance as to the lawfulness of the 1997 bonuses. These were awarded and paid on different occasions and, it could be, in different circumstances. They were not a relevant subject matter of the loans action. In my view, the fact that the constitution of the 1998 loans was effected as a book transaction (and not by payment of the bonuses and repayment of the same amount as loans) does not mean that the awarding of the bonuses and the constitution of the loans were parts of the same single transaction. The settlement of the loans action did not determine that the bonuses were lawfully awarded. Nor am I persuaded that the defendants' claims to recover the 1998 loans implicitly carried with them the proposition that the 1998 bonuses were lawfully paid. If I were wrong about that, and taking account of the fact that the claim to recover the bonuses probably could – but need not – have been raised as an equitable set off as a defence to the loans action, I would nevertheless conclude without hesitation that there was no abuse or oppression in permitting the company to claim, notwithstanding the settlement of the loans action, repayment of the bonuses on the ground that they were unlawfully awarded. On the contrary, it seems to me that justice requires that the question whether the bonuses were unlawfully awarded and paid should be open for determination. If the company's claims were to be regarded as an abuse, this would generate a potential for directors to award themselves bonuses unlawfully and retain them, in breach of their fiduciary obligation to repay them, by the device of converting them into loans. It seems to me that there would have been no abuse, if the company had consciously decided to compromise the loans action and then proceed to make a claim to recover the bonuses. In fact, there was no such conscious decision.

ORDER

Appeal dismissed; adjourned until 8 th June 2001 at 10.00am, unless order by consent. (Order does not form part of approved Judgment)

Cited in 7 later judgments