Lemas & Anor v Williams

The issue on this appeal is whether the appellant, Mr Winston Williams, can obtain an order from the court to prevent a second action to determine the beneficial ownership of 26 Purleigh Avenue, Woodford Bridge, Essex (“the Property”), which is registered in his name. He failed to obtain this order from the judge, Lesley Anderson QC, sitting as a Deputy Judge of the High Court of Justice Chancery Division. We have to consider whether the judge was right to hold that, where the registered owner of property sues (among others) two individuals in one set of proceedings (“the First Action”) to recover possession of that property, and their defence that they have permission from the trustees of a trust created by the registered owners fails because the trial judge finds that the trust does not extend to the Property:-

The first respondent, Mr Nathan Lemas (“Nathan”) is a beneficiary of a trust of which his father, Mr Roderick Lemas, and the second respondent, Mr George Sealy, are the trustees. Mr Lemas and Mr Sealy were two of the defendants of the First Action.

The issues on this appeal engage the legal doctrines of res judicata, meaning literally that a court had already adjudicated on the matter, and abuse of process, meaning abuse by a litigant of the court’s process by bringing a second set of proceedings which it either decided or ought to have been asked to decide in the first set of proceedings.

In my judgment, the judge was right for these reasons, to be amplified below:

I shall describe the First Action and the Second Action before moving to a summary of the relevant legal principles and my detailed reasons.

Prior to 2002, Mr and Mrs Lemas were the registered owners of the Property. Mr Lemas became bankrupt. Abbey National Plc (“Abbey”) had a charge over the Property. Abbey obtained a possession order in May 2002 but gave permission for Mr and Mrs Lemas to sell the Property to Mr Sealy. However, the parties did not complete that transaction. In the Second Action, Mr Sealy claims that he paid £38,550 to Abbey so that Abbey would redeem its charge over the Property.

On 6 July 2005, Mr and Mrs Lemas sold the property to Mr Williams. Mr Williams lent Mr Lemas £30,000 to redeem the charge held by Abbey. Abbey was about to enforce that charge. Mr Sealy thereafter repaid Mr Williams.

At some stage, Mr Lemas, Mr Williams and Mr Sealy decided to go into business together at the Property. They contemplated that the Property would be converted into a children’s home or a residential care home.

In April 2005, Mr Williams executed a settlement in writing (“the April trust deed”) in favour of Nathan and Jessica, the children of Mr Lemas. At the time the trust was created, Nathan was 15 years old and Jessica was 9 years old. He is the first claimant in the Second Action. The trustees were Mr Lemas and Mr Sealy. The schedule to the April trust deed states that the trust property is £10. The trust deed was drawn up by Mr Williams’ solicitors on his instructions.

At some point, the schedule to the April trust deed was amended in manuscript to include the Property.

In October 2005, a further trust deed (“the October trust deed”) was apparently executed by Mr Williams. The October trust deed provides:

“1.

[sic] The contents of the Accumulation Maintenance Trust document 1 signed on the 28 April 2005 still stands in force with the same details as it contains. A summary of which are: I intended to and have put in its schedule the property known as 26 Purleigh Avenue, Woodford Bridge, Essex IG8 8DU into that trust for two children Nathan and Jessica Lemas. The named trustees remain Mr G Sealy, Mr R Lemas or Ms R Lemas.

2.

If (1) above is not deemed to have been done, this document now declares and confirms the transfer of the same; being the property is now put into that trust. The ownership of which vest in the trustees on behalf of the children. This transfer is intended to be irrevocable.

3.

In addition, I confirm, except for my name being the registered owner and having a mortgage in my name, I have and am not to have any interest in the property...”

The Property was initially not developed as a home but was let out, first by Mr Williams and then by Mr Lemas and Mr Sealy.

In 2005, Mr Williams began proceedings in the Bow County Court for possession of the Property against Mr Lemas, Mr Sealy and persons (“the tenants”) to whom Mr Lemas and Mr Sealy had let part of the property. This action was consolidated with two other actions. The consolidated action constitutes “the First Action”.

HHJ Hornby, sitting in the Bow County Court, was the judge in charge of most of the interim hearings in the First Action. It is clear from the transcripts of the interim hearings that Mr Lemas wanted the judge to determine the question of whether the trust owned the Property beneficially. At an interim hearing on 3 August 2006, HHJ Hornby made an order that, if the trustees wished to be joined in the First Action, they should file a defence and Part 20 claim by 4pm on 14 September 2006. No such defence or Part 20 claim was filed.

At the interim hearing on 3 August 2006, HHJ Hornby also ruled that Mr Lemas was not a trustee because he had become bankrupt. This ruling was wrong but was not appealed.

At an interim hearing on 2 October 2006, HHJ Hornby made an order that Mr Williams could join Mr Sealy as a defendant to the consolidated action as, in the light of the erroneous conclusion that Mr Lemas was not a trustee, Mr Sealy was the only person who could on the defendants’ case, be the landlord of the tenants.

On 12 April 2007, Malik, solicitors, wrote to Bow County Court on Mr Sealy’s behalf. They confirmed that Mr Lemas and Mr Sealy were not (as had been suggested at interim hearings in the First Action) the same person and asked the court for an adjournment of a directions hearing. The letter complained that Mr Sealy had not been served with court papers. The letter went on to ask the court to strike out the claim for non-compliance with certain orders of the court or in default an adjournment. The letter asked the court to decide the “validity of the trust instrument” before making any possession order. In the Second Action Mr Emeka Ezekwe, then an employee of Malik, stated that the firm had not been instructed to conduct the First Action on behalf of Mr Sealy. He had merely been instructed to write to Bow County Court to confirm that Mr Sealy was not simply an alias for Mr Lemas.

On 21 November 2006 HHJ Polden made an order which barred the defendants in the First Action from defending the First Action on the grounds that they had failed to comply with the previous order of 3 October 2006 requiring them to file their defences. On 13 April 2007, Mr Lemas successfully applied to set aside that order in respect of himself only.

Only Mr Lemas took part in the trial. At the start of the proceedings he was represented by solicitors but at the trial he represented himself. At the trial, Mr Lemas started to give evidence but then withdrew as a witness before cross-examination. The judge encouraged him to complete his evidence but he did not do so.

In his judgment, delivered on 16 August 2007, HHJ Hornby recorded that Mr Lemas’ defence was that the Property belonged to the trustees of the April trust deed. He found that Mr Williams had provided the deposit for the Property by making a payment of £1,000 cash and borrowing £36,000 on his bank card. He held that the reference to the Property in the schedule to the April deed was not there when Mr Williams signed the April trust deed and that therefore the trust did not extend to the Property. He found that, when he signed the April trust deed, Mr Williams did not own the property. The judge noted that Mr Sealy did not appear at the trial. The judge was sceptical of Mr Lemas’ explanation that Mr Sealy had gone on holiday. The judge was not concerned with the October trust deed as this was not put in evidence by Mr Lemas.

Mr Lemas and Mr Sealy each made an application (together “the permission applications”) to this court out of time for permission to appeal against the judgment of HHJ Hornby in the First Action. This was refused. Rimer LJ set out the history of this matter in detail. As regards Mr Lemas’ application, Rimer LJ concluded that the real complaint was that the judge did not take into account the October trust deed. Mr Lemas wanted to argue that Mr Williams had not in fact advanced any money for the purchase of the Property and that Mr Sealy had done so. However, Rimer LJ was satisfied that this was not arguable as Mr Lemas had declined to submit to cross-examination, and because Mr Lemas had not put the October trust deed to Mr Williams when he was cross-examined. HHJ Hornby had made it clear that Mr Lemas’ documents would not be admitted in evidence because of his refusal to be cross-examined.

As regards Mr Sealy, Rimer LJ attached no significance to his claim that he had not been served in the First Action. He had learnt about the proceedings in April 2007 and the trial did not take place until August 2007. Moreover, through his solicitors, Malik, he had personally applied for the proceedings to be struck out. Rimer LJ considered that Mr Sealy had preferred to let the case go by default even though he knew that would defeat the beneficiaries’ rights.

As to Mr Sealy’s personal claim, Rimer LJ set out the background “by reference to the judge’s findings and to what the documents appear to show”. He explained that on 11 July 2005 Mr Williams had acknowledged receipt of £117,000 from Mrs Lemas which he said she owed him, but that she did not accept that she owed him more than £30,000 and that the monies had come from an unnamed third person. That part of the background tallies with the timing and (subject to Mrs Lemas’ alleged debt) the amount of Mr Sealy’s claim in the Second Action.

However, Rimer LJ held Mr Sealy had used the wrong procedure because he should have made an application under CPR 39.3(5) if he wished to have the judgment set aside because he had not been present at the trial. Rimer LJ, therefore, refused Mr Sealy’s application for permission to appeal. Sullivan and Mummery LJJ agreed with Rimer LJ.

As a result of the First Action, Mr Williams obtained possession of the Property. He currently uses it as a residential care home.

I can deal with this more shortly. In October 2011, Nathan and Mr Sealy began these proceedings. Nathan seeks a declaration that the Property is beneficially owned by the trust pursuant to the October trust deed. Alternatively, Mr Sealy seeks a declaration that on the sale of the Property to Mr Williams he became entitled to a beneficial interest in the Property under a resulting trust for sums advanced and invested in the Property, totalling £117,000.

Mr Williams then applied for the Second Action to be struck out.

The judge rejected this application. She held that the claims in the First and Second Actions were different. The First Action was for possession of the Property based on superior title. She further held that neither Mr Lemas nor Mr Sealy was sued in the First Action in their capacity as a trustee and that Nathan was therefore not, as she put it, a “party” to the First Action.

The judge considered also that the issues in the two actions were also different. In addition, in the Second Action, Nathan relied on the October trust deed and not the April trust deed, relied on the First Action. HHJ Hornby had not gone so far as to say there was no trust at all. The findings which HHJ Hornby made were not inconsistent with Mr Sealy’s claim in the Second Action that he contributed to the acquisition of the Property.

The judge further rejected Mr Williams’ argument that the Second Action was an abuse of process. So far as Nathan’s claim was concerned, it was “far from clear” that Mr Lemas represented the beneficiaries’ interest in the First Action. Mr Sealy had not participated in the First Action and he could not usefully have intervened as a trustee on the permission applications. The Second Action was the proper forum for litigating the issue based on the October trust deed and there was nothing unjust to Mr Williams in the litigation of the claim under the October trust deed.

As regards Mr Sealy, she held that his position was different from that of Nathan as he had been a party to the First Action and had made an application for permission to appeal. Although he had filed evidence that he first heard about the First Action in October 2007, the judge held that he had known about the First Action by April 2007. However, she was satisfied that there were procedural irregularities in connection with his joinder to the First Action and his being debarred from defending those proceedings. Thus she concluded that it was not unfair for Mr Williams to have to face Mr Sealy’s claim in the Second Action. Alternatively, there were special circumstances justifying the rejection of the abuse of process application against Mr Sealy.

Res judicata and abuse of process

As explained in paragraph 2, this appeal involves res judicata and abuse of process. Both principles are based on the same policy considerations. It is in the public interest that there should be finality in litigation and that a person should not be sued twice in the same matter. There is also an important private interest of a party in having access to justice and vindicating his rights.

There is no dispute as to the principles of laws involved. Res judicata includes cause of action estoppel and issue estoppel. These estoppels were explained in Arnold v National Westminster Bank Plc [1991] 2 AC 193 by Lord Keith, with whom the other members of the Appellate Committee of the House of Lords agreed.

Lord Keith explained that cause of action estoppel was absolute, save in relation to claims which were not raised but might have been raised in the first set of proceedings:

“Cause of action estoppel applies where a cause of action in a second action is identical to a cause of action in the first, 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 earlier proceedings does not permit the matter to be re-opened… 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 cause of action.”

Lord Keith refers to an exception for fraud or collusion. That has not been suggested in this case.

Issue estoppel prevents a person suing twice in respect of issues which have been decided or ought to have been decided even if the cause of action is not the same. Lord Keith held:

“Issue estoppel may arise when a particular issue forming a necessary ingredient in a cause of action has been litigated and decided and in subsequent proceedings the same parties involved in a different cause of action to which the same issue is relevant, one of the parties seeks to reopen the issue… 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 ought have been but was not raised in the earlier proceedings. ”

The earlier decision must be a decision on the merits. If, for example, an issue is raised on an interlocutory application but not finally determined, there is no issue estoppel.

Where, as here, a cause of action or issue was not raised in the previous proceedings but could have been so raised, the court has a discretion not to apply cause of action estoppel or issue estoppel if there are “special circumstances”. The judge relied on this exception in relation to Mr Sealy. There is, of course, no exhaustive definition of what constitute special circumstances but they must by definition be circumstances which make it unjust to insist on the estoppel applying. This may occur where a party obtains relevant new material which was not previously available, as in Arnold itself. Sometimes the same result is achieved by granting permission to appeal out of time from the first decision.

The most important aspect of res judicata on this appeal is privity. Again the case law does not provide a comprehensive list of circumstances in which a person will be a “privy” of another for this purpose but the underlying principle is clear. Privity means :

“that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party.” (per Megarry J in Gleeson v J.Whippell & Co Ltd [1977] 1 WLR 510 at 515 approved by the House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1 at 32)

There is sufficient privity between persons sued as trustees of a trust and beneficiaries of that trust. So, a decision that is binding on the trustees will also be binding on the beneficiaries, and vice versa: Gleeson v J. Wippell at 514.

Abuse of process, unlike res judicata, is a procedural rule (see per Lord Sumption in Virgin Atlantic Airways Ltd v Zodiac seats United Kingdom Ltd [2013] 1 WLR 299 at [25]). In order to constitute abuse of process, the court must be satisfied, having made a “broad merits-based judgment” that takes account of the public and private interests referred to above and all the circumstances of the case that it is not just for an action to proceed: Johnson v Gore Wood & Co. It is not necessary that the parties should be identical in the two actions: Aldi Stores Ltd v WSP Group plc [2008] 1 WLR 748.

The next question is the test which this court should apply where the decision of a judge on abuse of process is challenged on appeal. It is established that such a decision is not the exercise of a discretion, but an evaluation of a number of factors: see Aldi at [16]. On appeal, this court will in general interfere only if the judge has failed to take into account material factors or left such factors out of account, or reached a perverse conclusion.

A person may be sued in his own capacity and/or as a representative

There is another relevant principle: a judgment against a party in one capacity does not bind that person in another capacity. Such as person is treated as being two separate persons in law. Thus, the finding of negligence against a person in his personal capacity does not bind him in proceedings in which he is sued in his capacity as his wife's personal representative: Marginson v Blackburn Borough Council [1939] 2 KB 436.

CPR19.7A provides that beneficiaries of a trust need not be joined in proceedings against a trustee, and that, if the trustees are sued in that capacity, the beneficiaries will be bound unless the court makes some other order. It provides:

“1.

A claim may be brought by or against trustees, executors or administrators in that capacity without adding as parties any persons who have a beneficial interest in the trust or estate (“the beneficiaries”).”

2.

Any judgment or order given or made in the claim is binding on the beneficiaries unless the court orders otherwise in the same or other proceedings.”

Mr Abdul Gofur, for Mr Williams, submits that the judge should have found that there was cause of action estoppel. Mr Williams knew that the trust issue had to be decided. The judge saw at an early stage that this was a trust case. In reality, Mr Lemas represented the trustees in the First Action. Mr Gofur submits that the First Action was a hybrid claim, incorporating primarily a possession action but also a trust question in the background.

Mr Gofur submits that in any event the October trust deed can confer no greater rights than the April trust deed. The October trust deed merely confirms the April trust deed and is not a “free standing” trust. Therefore the trust cannot extend to the Property.

Mr Gofur submits that the judge was wrong because her decision effectively enables Nathan and Mr Sealy to re-litigate the claims which they failed to obtain permission to pursue on appeal in the First Action.

Mr Gofur submits that Nathan is in reality a privy of Mr Lemas in the First Action. CPR 19.7A does not prevent Nathan from being bound because the order of HHJ Hornby provided for the joinder of Mr Sealy so that the trustees were before the court. That was indeed the only capacity which Mr Sealy could have been joined.

Mr Gofur submits that HHJ Hornby had made findings on how the purchase of the Property by Mr Williams was funded. It is unclear how the judge concluded there were procedural errors in the joinder of Mr Sealy. Mr Sealy knew about the proceedings. The evidence of Mr Ezekwe did not fully explain the contents of Malik’s letter of 12 April 2007.

Mr Martin Hutchings QC for Mr Sealy submits that the question is whether a defendant who, by neglect or default, allows a default judgment for possession to be entered against him in relation to a property, is able to bring a new High Court action claiming a beneficial interest in that property. He submits that there could be no estoppel. If anything, there could only be an abuse of process. The judge did not accept that Mr Sealy existed in the First Action. It was a claim for possession, not a claim to prove title.

Mr Hutchings submits that Mr Sealy relies on a different cause of action in the Second Action from those considered in the First Action. Mr Sealy was not a party to the First Action as a trustee. In addition, on the permission applications Mr Sealy disavowed any notion that he participated in those proceedings in his capacity as a trustee.

Moreover, submits Mr Hutchings, the essential issues decided by HHJ Hornby are not those on which his new claim is based. In addition, there were no findings of fact in the First Action about the funding of the purchase price. If there were, they were inessential to the issues decided by HHJ Hornby.

In any event, submits Mr Hutchings in reliance on Mullen v Conoco [1998] QB 382, this court should be cautious before it holds that the judgment given against Mr Sealy in the First Action gives rise to any res judicata because (1) Mr Sealy had not been properly served with the proceedings; (2) the court had prevented him from defending the action by making a debarring order, and (3) that debarring order was wrongly made as he had not been properly served. Mr Sealy had been debarred by an order of the court from defending that action.

Mr Hutchings submits that there is no question of the Second Action undermining the refusal of this court to give permission to appeal from the order of HHJ Hornby in the First Action.

Furthermore there could be no estoppel on the basis of the judgment of this court on the permission applications because this court did not make any ruling on the merits with regard to October trust deed.

Mr Richard Colbey, for Nathan, adopts the submissions of Mr Sealy and submits that under CPR 19.7A the question of capacity must be a question of law. Mr Lemas was trying to pursue his entitlement to the Property encompassing the trustees’ entitlement. By a respondent’s notice, Mr Colbey submits that, if Mr Lemas had been sued in the First Action as a trustee, the court should make an order that the beneficiaries should not be bound under CPR19.7A(2).

I agree.

I also agree.