Spicer & Anor v Tuli & Anor

Mr Spicer and Mr Shinners were appointed as Law of Property Act receivers under a charge over Flat 17, Stonehouse, 9 Weymouth Street in London. The charge had been granted by BRM Investments Ltd to Clydesdale Bank PLC. When they instructed solicitors to sell the property, they discovered that Ms Tonii Tuli and her two daughters were in occupation. On 21 May 2008 they brought proceedings for possession against her and persons unknown. The claim was a possession claim against trespassers, as defined by CPR Part 55.1. The claim form was in the form required by CPR Part 55.4, and Practice Direction 55A paragraph 2.6. Had the claim simply been a possession claim, as defined by CPR Part 55.1, and brought against the tenant, the claim form would have had to have been in the form required by paragraph 2.2 of the Practice Direction. Thus the claim form alleged that the claimants had a right to possession of the property occupied by the defendants, who had entered or remained on the land without their consent or licence. It also alleged that the defendant had never been a tenant or subtenant of the land. The relief claimed by the Particulars of Claim was an order for possession and payment of costs; there was no other money claim.

A hearing date was set for 17 June 2008. On 16 June 2008 Ms Tuli filed a defence. In her defence she alleged that she had been a tenant of the flat since 16 April 2003, under two successive tenancy agreements. This allegation came as a surprise to the receivers, who arranged for their solicitors to inspect the documents on which Ms Tuli relied. On 20 June the court gave directions intended to lead to a trial on 25 September. There were delays in Ms Tuli giving disclosure in accordance with the court’s directions, and it was not until 24 September that the Receiver’s solicitors, acting by Mr Sharpe, were able to inspect the original documents on which Ms Tuli relied. Late in the afternoon on the day before the inspection was due to take place, Mr Sharpe sent an email to Mr Berlad, Ms Tuli’s solicitor. That email enclosed a draft order which Mr Sharpe had signed. Mr Sharpe added that on the assumption that the inspection was satisfactory he would telephone Mr Berlad to authorize him to submit the draft order to the court. The draft order provided that the proceedings “be withdrawn”. This was a technical error. Under the CPR an action cannot be withdrawn. It may either be discontinued under CPR Part 38 or it may be dismissed. If an action is discontinued rather than dismissed, it is clear that a second action may be brought even if it arises out of the same facts as the discontinued action, although the permission of the court would be needed under CPR Part 38.7 if the action is discontinued after the defendant has served a defence.

The inspection duly took place on the following day. The inspection revealed nothing new, so one would have expected Mr Sharpe to authorize Mr Berlad to submit the order withdrawing the proceedings to the court. However, on 24 September 2008 Mr Sharpe and Mr Berlad spoke on the telephone to discuss the way forward. Mr Sharpe explained that he took the view that the tenancy agreements were not genuine and that he would seek every avenue to establish the truth. He also said that more time was needed, bearing in mind the lateness of disclosure, and that a court would take a number of factors into account. Mr Berlad then asked what he suggested, to which Mr Sharpe explained that there would be “a consent order withdrawing the proceedings”. In that context, that could only have been understood as a withdrawal which did not preclude the further pursuit of the receivers’ claim; in other words, a discontinuance.

Later that day the solicitors spoke again. Mr Sharpe and Mr Berlad discussed the order. Mr Sharpe explained that the Receivers needed more time to look into the position if Ms Tuli could maintain that she was not a trespasser. Mr Berlad said that he would take instructions. There was a third telephone call that day. Mr Berlad agreed to “a general consent order withdrawing the current proceedings with no order as to costs”. Mr Sharpe was to draw up the order.

On the following day, 25 September 2008, a signed consent order was placed before the Central London County Court. It contained an order that the proceedings in this action “be dismissed”. The reason for the change from “withdrawn” to “dismissed” is unclear, but both solicitors agreed the amendment. The underlying agreement, however, was that the proceedings would be withdrawn so as to give the receivers time to investigate the position, and on the basis that Mr Sharpe had stated his belief that the tenancy agreements were not genuine.

In his evidence, Mr Sharpe says that during the discussions between solicitors, it was made clear that the receivers’ belief was that the tenancies were nothing more than a device to frustrate the attempt to gain possession, and they would be very much looking at a further set of proceedings on a very different basis to simple trespass in the future. He adds that at no stage did he encourage Ms Tuli or her solicitors to believe that the receivers would not be seeking possession in the future. Mr Berlad does not contradict this evidence, which in my judgment is borne out by Mr Sharpe’s contemporaneous attendance notes, although he does say that the parties had agreed that if upon the inspection of the originals, the receivers were satisfied that the documents were genuine, they would agree to the dismissal of their claim.

The difficulty with this evidence is that it is clear from Mr Sharpe’s attendance note following inspection that he stated clearly that he did not believe the documents were genuine. Thus, the prediction to dismissal was not satisfied. So the evidence does not establish an agreement that the proceedings would be dismissed.

As foreshadowed in the conversation between solicitors, the receivers did not let matters rest. On 25 November 2009, they began fresh proceedings. In their Particulars of Claim, they alleged (1) they had a right to possession of the property; (2) Ms Tuli remained in occupation without their consent or licence; (3) she had never been the tenant of the receivers, the bank or the mortgagors, nor had she held a sub-tenancy; (4) in the event that Ms Tuli were to be found to be a tenant, the tenancies do not bind the bank, because they were fraudulent and created after the charge had been entered into, or because the existence of the tenancies was fraudulently concealed from the bank; (5) the tenancies should have been granted by deed but were not, with the consequence that they created equitable interests only which the bank’s legal interest overrode; (6) alternatively, the tenancy agreements were not intended to have any effect in law.

The relief sought this time round was an order for possession, charges for use of occupation at the rate of £1,500 per week, and payment of costs. Ms Tuli’s response to the fresh proceedings was to apply to strike them out. Her application was based on two grounds. First, the fact that the first action was dismissed rather than discontinued meant that any further claim for possession on whatever grounds against Ms Tuli was barred as a result of cause of action estoppel. Second, even if that were not the case, the fresh action was an abuse of process. The application failed, both before District Judge Avent and HHJ Diana Faber in the Central London County Court. With the permission of Etherton LJ, Ms Tuli appeals.

I prefer to begin with the question of abuse of process. I approach this question on the assumption that there is no cause of action estoppel, because if there is the question of abuse of process does not arise on the main claim for possession. District Judge Avent decided that there was no abuse of process, essentially because it could not be said that Ms Tuli would be twice vexed, let alone harassed, by the fresh proceedings. He pointed out that late disclosure by Ms Tuli had in effect forced the receivers to abandon the first action. In the end, the question turned on a balance between conflicting interests, and that to compel the parties to remain in a continuing legal relationship without any judicial examination of the merits would amount to an injustice.

On appeal, HHJ Faber decided that the matters raised in the second action could have been raised in the first. However, she said that the terms of the tenancy were strongly suggestive of fraud, and that there was a public interest in the investigation of fraud. She weighed that against Ms Tuli’s private interest in a peaceful life at home with her family, and noted that the receivers’ solicitors had made it clear that the investigation would not stop with the withdrawal of the first action. Weighing the factors together, she concluded that the public interest in the investigation of fraud outweighed the other considerations. She concluded that there was no abuse of process.

The leading case on abuse of process was the decision of the House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1. Mr Johnson was a property developer who conducted his affairs through a company called Westway Homes Ltd. Acting on behalf of the company, he instructed Gore Wood & Co, a firm of solicitors, to serve notice exercising an option. For reasons that do not matter, the exercise of the option went disastrously wrong. The company began proceedings for professional negligence against Gore Wood and Co, but those proceedings were settled. Before the settlement Mr Johnson had intimated through solicitors that he had a personal claim for professional negligence against Gore Wood and Co, which would be pursued whether the company’s claim culminated in judgment or settlement. The settlement took place on the basis that Mr Johnson had his own personal claim which was not included in the settlement. When some months later Mr Johnson issued his own claim against Gore Wood and Co, he was met by a plea that his action was an abuse of process because his personal claim could and should have been raised in the first settled action. The House of Lords held that the second action was not abusive.

It is particularly instructive to see on the facts why they came to that conclusion. Lord Bingham said at page 33:

“The question is whether the parties to the settlement of WWH's action (relevantly, Mr. Johnson and GW) proceeded on the basis of an underlying assumption that a further proceeding by Mr. Johnson would not be an abuse of process and whether, if they did, it would be unfair or unjust to allow GW to go back on that assumption. In my judgment both these conditions were met on the present facts.”

Lord Goff said at page 41:

“The truth of the matter is that the respondent firm, by its conduct and in particular by participating in negotiations for settlement of the company's claim against it on the basis that Mr. Johnson would thereafter be free to pursue his own personal claim against it, lulled Mr. Johnson into a sense of security that he was free to pursue such a claim against the firm, without objection, in separate proceedings, with the effect that it became unconscionable for the firm to contend that his personal proceedings constituted an abuse of the process of the court.”

Lord Millett said at pages 60 to 61:

“Accordingly, I would reject the firm's contention that it was an abuse of process for Mr. Johnson to bring his action after the Company's claim had been resolved. Even if this were not the case, however, I agree with the trial judge that it would be unconscionable for the firm to raise the issue after the way in which it handled the negotiations for the settlement of the Company's action.”

Although Lord Bingham analysed the matter as a question of estoppel by convention, neither Lord Goff nor Lord Millett were attracted by that analysis. I do not think that the precise legal analysis matters. The conduct of the parties in bringing an end to the first action is part of the broad merits-based approach to the question of abuse of process that Lord Bingham, with the agreement of the whole House, had commended. It was quite clear in the present case that the receivers said they would pursue their claim against Ms Tuli; that was the basis of the suggestion that the action be withdrawn. The accident that the draft consent order substituted “dismissed” for “withdrawn”, instead of “discontinued” cannot in my judgment alter the broad merits-based approach. It would, in my judgment, be unconscionable to allow Ms Tuli to take advantage of what was plainly a technical error. If, therefore, there is no cause of action estoppel, I would hold that there is no abuse of process.

I turn then to the question of cause of action estoppel. Ms Tuli’s argument, ably and attractively presented by Mr Nichols, runs as follows: (1) an order made by consent dismissing the first action operates in the same way as a judgment on the merits of the claim, and gives rise to a cause of action estoppel; (2) the cause of action relied on in the first action was the receivers’ claim to possession against Ms Tuli; (3) the only question relevant to that cause of action was whether the receivers had a better right to possession than Ms Tuli; (4) the receivers asserted that their right to possession derived from the charge, while Ms Tuli asserted that her right to possession derived from the tenancy agreements; (5) thus the stage was set for a battle to determine which of the two asserted rights was the better one, and that directly raised the question whether the tenancy agreements were genuine, and if so whether the bank was bound by them; (6) once that action had been dismissed by consent, that cause of action was barred by a cause of action estoppel, and cannot be raised in a second action; (7) this is a rule of law, and is not a matter of discretion. There are only three limited exceptions to the rule: fraud, collusion, or where the construction of the order itself shows that no estoppel should arise.

This is a formidable argument. I am prepared to assume, though without deciding, that the second action relies on the same cause of action as the first. But in my judgment, the first and last steps in the argument are not as solid as Mr Nichols submits. It is common ground that the principles of estoppel arising out of court proceedings are grounded on the underlying principle that there is a public interest in the finality of litigation, and that a person should not be unjustly harassed by a revival of proceedings that have already been disposed of. These principles must be applied to work justice and not injustice (see Carl Zeiss
Stiftung -v- Rayner & Keeler Ltd No 2 [1967] 1 AC 853 at 947 per Lord Upjohn, approved in Arnold v National Westminster Bank [1991] 2 AC 93 at 107). It is thus open to courts to recognise that in special circumstances, the inflexible application of estoppels may work injustice (see Arnold v National Westminster Bank at page 109). Estoppel per res judicata, where the cause of action estoppel or issue estoppel is essentially concerned with preventing abuse of process (Arnold v National Westminster Bank at page 110).

The first step in the argument concerns the effect of a consent order. The effect of a consent order was considered by this court in Ako v Rothschild Asset Management Limited [2002] EWCA Civ 236, [2002] ICR 899. Ms Ako made a claim for unfair dismissal and racial discrimination to the Employment Tribunal. She wrote to the tribunal withdrawing her application. The tribunal made an order dismissing the application on withdrawal. I should stress that the procedural rules then governing Employment Tribunals did not have the option of discontinuance. When she brought a second claim raising the same allegations, Rothschild said that she was barred from doing so by the principle of cause of action estoppel. In the course of deciding that question, the Employment Tribunal found that Ms Ako did not intend to abandon her claim. This court held that she was entitled to bring her second claim, despite the dismissal of the first. Mummery LJ said in paragraph 27 that it was permissible to have regard to the general principle that the court may have regard to the surrounding circumstances in order to determine the extent of the consent given to the making of the order, and the extent of the estoppel arising from it. He then pointed out the difference in procedure between Employment Tribunals and the ordinary courts. In the case of ordinary courts, where an action may be discontinued or dismissed, it will not normally be necessary to look behind the order in order to determine the application of cause of action estoppel. Dyson LJ, with whom Jonathan Parker LJ agreed, seems to me to have based his judgment on grounds wider than procedural differences between courts and tribunals. He said at paragraph 34:

“A person may withdraw a claim or (in litigation) consent to judgment for many different reasons. He may do so because he has accepted advice that his claim will fail; or because he cannot afford to continue; or because he wants to defer proceedings until some other avenue of resolving the matter has been explored; or because he has decided that he is not yet in a position to proceed; or that he ought to proceed before a different tribunal (as in Sajid) or add another party (as in the present case). In some cases, the reasons will indicate that the party has decided to abandon the claim. In others not so. In relation to the question whether a dismissal following withdrawal (or a consent judgment) gives rise to a cause of action or issue estoppel, I consider that the reasons for the withdrawal or consent are not relevant, unless they shed light on the crucial issue of whether the person withdrawing the application or consenting to judgment intended thereby to abandon his claim or cause of action..”

He continued in the following paragraph:

“I do not believe that Buxton LJ was saying that the dismissal of an application following withdrawal gives rise to a cause of action or issue estoppel even if it is clear that the applicant did not intend to abandon his claim or cause of action. No authority was cited to us for such a proposition which is both so starkly far-reaching and capable of giving rise to serious injustice.”

Having referred to earlier authority, Dyson LJ concluded in paragraph 41:

“In my view, what emerges from these authorities is that there is no inflexible rule to the effect that a withdrawal or judgment by consent invariably gives rise to a cause of action or issue estoppel. If it is clear that the party withdrawing is not intending to abandon the claim or issue that is being withdrawn, then he or she will not be barred from raising the point in subsequent proceedings unless it would be an abuse of process to permit that to occur. On the facts of the present case, it is clear that Ms Ako did not intend to abandon her claim. Nor would it be unjust or unfair as between the parties to permit her to start again: no abuse of process is involved here.”

Mr Nichols submits that what Dyson LJ was obiter, and hence is not binding on us. In my judgment, however, it was an alternative ratio decidendi with which Jonathan Parker LJ agreed. It will be seen that Dyson LJ did not base his judgment on any particularity of procedure in the Employment Tribunal. Ako v Rothschild Asset Management Ltd was a case in which the two causes of action were identical, as were the detailed allegations made in each case. Yet Miss Ako was allowed to proceed with her second claim. In my judgment, this conclusion also disposes of the last step in Mr Nichols’ argument, since there are plainly exceptions to what would otherwise be a rigid rule of law.

Mr Nichols also said that in paragraph 41 of his judgment, Dyson LJ went too far. He said that even if there is a limited class of exceptions to the principle, it is not right to say that the absolute bar can be surmounted merely because it is clear that the party withdrawing is not intending to abandon the claim. It must, however, be borne in mind that res judicate, cause of action estoppel and issue estoppel are all creations of judge-made law, and that judges have been careful not to lay down absolute limits to the rule. Since the fundamental purpose of both cause of action estoppel and abuse of process are the same, it is no surprise that Dyson LJ preferred the more flexible principles of abuse of process to a supposedly rigid application of cause of action estoppel. In my judgment, Dyson LJ made no error in paragraph 41 of his judgment. I would respectfully adopt his approach.

Mr Nichols also refers to the decision of this court in Zurich Insurance Co Plc v Haywood [2011] EWCA Civ 641, [2011] CP Rep 39. In that case, Smith LJ said at paragraph 28 that because estoppel creates a fixed rule, it should be strictly confined. Subsequent actions that allege almost the same thing can be controlled by the more flexible application of the abuse of process principle. I do not think that this is at odds with Dyson LJ’s approach.

In my judgment, Dyson LJ’s approach gains added force in the light of Article 6 of the European Convention on Human Rights. That article, as is well known, entitles a person to a fair and public hearing in determining his civil rights. In the present case, the action was dismissed without a hearing. It is of course possible for a litigant to waive his rights under Article 6. Entry into a contract containing an arbitration clause is one example. But where it is alleged that a person has waived his Article 6 rights as a result of a friendly settlement, a thorough analysis is needed in order to determine whether a friendly settlement has indeed been reached, including an investigation into the surrounding circumstances. An investigation into the surrounding circumstances in this case makes it clear that there was no friendly settlement; rather, the receivers made it clear that they would pursue their claim. In my judgment, it is clear from the surrounding circumstances in this case that the receivers did not intend to abandon their claim, and it is equally clear that Ms Tuli, through her solicitors, knew that. This case is, in my judgment, indistinguishable from Ako. It would, in my judgment, be unjust not to allow the receivers to proceed with their claim, even if the cause of action in the second action is the same as in the first.

For those reasons I would dismiss the appeal.

I agree.

I also agree.