Of Palm Trees and a Chancellor’s Foot: Issue Estoppel in the First-tier Tribunal

“It’s no use going back to yesterday, because I was a different person then.” – Lewis Carroll, Alice in Wonderland

In Hemmise and anor v LB Tower Hamlets [2016] UKUT 0109 (LC), the Upper Tribunal (“UT”) wrestled with the arcane equitable world of issue estoppel.

Background

In May 2006, the Leasehold Valuation Tribunal (“LVT”) had, in a reasonableness challenge to the four service charge years from 2000/2001, somewhat heroically disallowed certain claims on the basis that they could not be justified as a matter of construction of the lease.

Undeterred by this rather inconvenient decision, and untroubled (apparently) by any thought of an appeal, the local authority continued to demand the disallowed service charge items in subsequent years.

Unsurprisingly, the tenant made a further challenge: this time to the First-tier Tribunal (“FTT”), and for the service charges years from 2006/2007 to 2013/2014 inclusive.

The decision of the FTT

The determination of the FTT, on 20 April 2015, was that it was not bound to follow the decision of the LVT and – having heard an argument not put to the previous LVT – concluded that the relevant service charges, previously found to be irrecoverable, were in fact recoverable.

The permission element

On 28 September 2015, the Deputy President granted limited permission to appeal on the basis that it was at least arguable that the FTT was bound to follow the decision of a previous tribunal which had not been the subject of an appeal and which included a determination on the meaning and effect of the same lease in proceedings between the same parties.

The Binding Nature of a decision of the FTT/LVT

The UT considered West Midlands Baptist (Trust) Association (Inc) v Birmingham Corp [1968] 2 QB 188, in which the Court of Appeal deprecated the practice of the Lands Tribunal (unlike its successor the Upper Tribunal (Land Chamber), not a court of record) of following its own decisions on points of law.

The UT decided that although previous decisions of the LVT should, on points of law, be treated with great respect and considered as persuasive authority (even when made by a layman), they should never be treated as binding. Such decisions should be most carefully scrutinised and, if necessary, rejected: particularly in cases which raised points of law of outstanding importance with far reaching consequences.

Thus, in a case involving different parties the FTT would be free to depart from a previous decision, if having scrutinised it with appropriate care it believed the decision to be wrong.

But, what of a case involving the same parties and the same lease?

Cause of action estoppel

In the absence of fraud or collusion, cause of action estoppel is absolute in relation to all points which had to be and were decided in order to establish the existence or non-existence of a cause of action. It also bars the raising in subsequent proceedings of points essential to the existence or non-existence of a cause of action which were not decided because they were not raised in the earlier proceedings, if they could with reasonable diligence and should in all the circumstances have been raised: see Virgin Atlantic Airways Ltd v Zodiac Seats Ltd (formerly Contour Aerospace Ltd) [2013] UKSC 46; [2014] A.C. 160.

Thus, in the case of cause of action estoppel it is only possible to challenge the previous decision as to the existence or non-existence of the cause of action by taking a new point which could not reasonably have been taken on the earlier occasion.

In Hemmise, the decision of the LVT related to the service charge for 2001 – 2006 whereas the decision under appeal related to the period from 2007 – 2012. It followed that the causes of action were not identical and accordingly no “cause of action” estoppel could arise, as to which cf. Ayoade v Bonn [2006] LRX/139/2005.

This did not, however prevent issue estoppel arising.

Issue Estoppel

It was inevitable that the UT would consider the statement of principle enunciated by Wigram V-C in Henderson v Henderson (1843) 3 Hare 100 at 115, [1843-60] All ER Rep 378, that:

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 …

Special Circumstances

The “get out” clause is, of course, the reference to “special cases”. But what are these special cases?

In Arnold v National Westminster Bank plc [1988] 3 All ER 977; [1989] Ch 63 Sir Nicholas Browne-Wilkinson V-C considered that justice required the relevant matter to be re-litigated because (1) the continuing contractual relationship was such that the original decision would regulate four further rent reviews and thereby affect the rent payable until the end of the term; (2) the original decision – which involved millions of pounds – could not be the subject of an appeal, which meant that if an issue estoppel applied, it would be decided on a point of law which the lessees have never had the opportunity to test in the higher courts; (3) the decision whether or not to permit an appeal was the decision of the first instance judge and there was no right of appeal against his refusal to certify the matter fit for appeal albeit the appellants had taken every possible step to test the decision in the earlier case in the higher courts but without success; and (4) subsequent decisions meant that it was strongly arguable that the first instance decision was wrong.

This decision was upheld by the Court of Appeal ([1990] 1 All ER 529), with the considered emphasis being that the yardstick of whether issue estoppel should be held to apply was the justice to the parties.

It was not, however, enough to say merely that it was arguable in the light of other decisions at first instance that the previous decision at first instance might have been wrong. The Court was, however, somewhat reluctant to define “special” or “exceptional” circumstances, save that they may relate to fact, law or even practice. As it was, it found that the first instance decision was “plainly wrong”: arguably wrong may not have been enough!

In the House of Lords ([1991] 3 All ER; 41, [1991] 2 AC 93 HL) Lord Keith of Kinkel made the point that there was no right of appeal, but then said:

There is much force also in the view that the landlord, if the issue cannot be reopened, would most unfairly be receiving a very much higher rent than he would be entitled to on a proper construction of the lease. The public interest in seeing an end to litigation is of little weight in circumstances under which, failing agreement, there must in any event be arbitration at each successive review date. Estoppel per rem judicatam, whether cause of action estoppel or issue estoppel, is essentially concerned with preventing abuse of process. In the present case I consider that abuse of process would be favoured rather than prevented by refusing the respondents permission to reopen the disputed issue.

Thus, except in special circumstances where this would cause injustice, issue estoppel bars the raising in subsequent proceedings of points which were not raised in the earlier proceedings or, which were raised albeit unsuccessfully. Where the relevant point was not raised, the bar will usually be absolute if it could with reasonable diligence and should in all the circumstances have been raised.

Accordingly, in the case of issue estoppel, it is – at least in principle – possible to challenge the previous decision on the relevant issue not just by taking a new point which could not reasonably have been taken on the earlier occasion but to reargue, in materially altered circumstances, an old point which had previously been rejected.

Application to Hemmise

The UT considered that special circumstances did exist: accordingly the local authority was not estopped from arguing that they could recover the relevant service charge. Although the case was not on all fours with Arnold (and notably the UT considered that the local authority could and should have appealed the original determination), there were many similarities.

The relevant circumstances were that the decision of the LVT was plainly wrong; justice was not served by perpetuating a wrong decision over the whole life of the lease, which was for a period of 100 years and any estoppel would endure for successors in title such that all tenants would be underpaying the service charge for a very long period of time. Furthermore, the point in question was taken by the LVT itself (not necessarily problematical) but without the local authority being given a proper opportunity to deal with it: leading to a classic failure of natural justice, at one time all too familiar to practitioners: see e.g. Westbourne Ltd v Spink and anor [2008] LRX/14/2007.

Conclusion

The UT avoided a potential injustice – under-collection of the service charge for the remaining lifetime of a 100 year lease, and a consequent burden on the authority’s own tenants – by permitting an issue to be re-litigated in a case where the original decision was plainly wrong. 

Estoppels are, however, tricky and slippery concepts, protean in nature, hedged around with equitable concepts of justice, riddled with special circumstances, inherently flexible in their application and uncertain in their outcome.

When faced with an inconvenient decision that is only arguably wrong, it is (other considerations apart), always safer to appeal it than blatantly ignore it and risk facing an issue estoppel at a later date and then fail to cross the special circumstances threshold.

Perhaps it is somewhat ironic that the more plainly wrong the decision, the greater the potential for avoiding the estoppel, but equally the greater the chance of a successful appeal.