[HOUSE OF LORDS]

AND

Estoppel - Per rem judicatam - Issue estoppel - Rent review clause - Construction determined by judge at first instance - Refusal of leave to appeal - Subsequent change in law - Whether capable of being special circumstance allowing relitigation

Under a lease between the defendant landlords and the plaintiff tenants there was provision for rent reviews at approximately five-yearly intervals, such reviews to be carried out partly by reference to a hypothetical lease for the unexpired residue of the term. On the first review, in 1983, a dispute arose between the parties as to whether or not the hypothetical lease was to be construed as itself containing rent review provisions. Walton J. held, on an appeal from an arbitrator, that it was not to be so construed. He refused a certificate under section 1(7)(b) of the Arbitration Act 1979 that the question of law was one which ought to be considered by the Court of Appeal, and the Court of Appeal held that no appeal lay from that refusal. Judicial decisions, including two in the Court of Appeal, given after Walton J.'s judgment, indicated that his decision on the construction point was wrong. Before the

second review became due in June 1988, the plaintiffs brought an action for, inter alia, determination of the basis on which rent reviews under the lease were to be conducted. On an application by the defendants to strike out that claim on the ground that the plaintiffs were barred by issue estoppel from relitigating the point decided by Walton J., Sir Nicolas Browne-Wilkinson V.-C. held that the plaintiffs were not barred. The Court of Appeal dismissed the defendants' appeal.

On appeal by the defendants:-

Held, dismissing the appeal, that although issue estoppel constituted a complete bar to relitigation between the same parties of a decided point, its operation could be prevented in special circumstances; that where further material became available which was relevant to the correct determination of a point involved in earlier proceedings but could not, by reasonable diligence, have been brought forward in those proceedings, it gave rise to an exception to issue estoppel, whether or not that point had been specifically raised and decided; that such further material was not confined to matters of fact but that where a judge made a mistake and a higher court overruled him in a subsequent case, justice required that the party who suffered from the mistake should not be prevented from reopening that issue when it arose in later proceedings; and that, accordingly, the plaintiffs ought to be permitted to reopen the question of construction decided against them by Walton J. (post, pp. 107B-C, 109A-B, E-F, 110G-111B, C-E, 112F-H, 113E).

Henderson v. Henderson (1843) 3 Hare 100; Mills v. Cooper [1967] 2 Q.B. 459, D.C. and Property and Reversionary Investment Corporation Ltd. v. Templar [1977] 1 W.L.R. 1223, C.A. applied.

Decision of the Court of Appeal [1990] Ch. 573; [1990] 2 W.L.R. 304; [1990] 1 All E.R. 529 affirmed.

The following cases are referred to in the opinions of their Lordships:

Amax International Ltd. v. Custodian Holdings Ltd. (1986) 279 E.G. 762

Badar Bee v. Habib Merican Noordin [1909] A.C. 615, P.C.

Basingstoke and Deane Borough Council v. Host Group Ltd. [1988] 1 W.L.R. 348; [1988] 1 All E.R. 824, C.A.

Brisbane City Council v. Attorney-General for Queensland [1979] A.C. 411; [1978] 3 W.L.R. 299; [1978] 3 All E.R. 30, P.C.

British Gas Corporation v. Universities Superannuation Scheme Ltd. [1986] 1 W.L.R. 398; [1986] 1 All E.R. 978

Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2) [1967] 1 A.C. 853; [1966] 3 W.L.R. 125; [1966] 2 All E.R. 536, H.L.(E.)

Cheapside Land Development Co. Ltd. v. Messels Service Co. [1978] A.C. 904; [1977] 2 W.L.R. 806; [1977] 2 All E.R. 62, H.L.(E.)

Duchess of Kingston's Case (1776) 20 St.Tr. 355

Equity & Law Life Assurance Society Plc. v. Bodfield Ltd. [1987] 1 E.G.L.R. 124, C.A.

Fidelitas Shipping Co. Ltd. v. V/O Exportchleb [1966] 1 Q.B. 630; [1965] 2 W.L.R. 1059; [1965] 2 All E.R. 4, C.A.

Henderson v. Henderson (1843) 3 Hare 100

Hoystead v. Commissioner of Taxation [1926] A.C. 155, P.C.

Hoysted v. Federal Commissioner of Taxation (1921) 29 C.L.R. 537

Hunter v. Chief Constable of the West Midlands Police [1982] A.C. 529; [1981] 3 W.L.R. 906; [1981] 3 All E.R. 727, H.L.(E.)

Mills v. Cooper [1967] 2 Q.B. 459; [1967] 2 W.L.R. 1343; [1967] 2 All E.R. 100, D.C.

National Westminster Bank Plc. v. Arthur Young McClelland Moores & Co. [1985] 1 E.G.L.R. 61; (Practice Note) [1985] 1 W.L.R. 1123; [1985] 2 All E.R. 817, C.A.

New Brunswick Railway Co. v. British and French Trust Corporation Ltd. [1939] A.C. 1; [1938] 4 All E.R. 747, H.L.(E.)

Phosphate Sewage Co. Ltd. v. Molleson (1879) 4 App.Cas. 801, H.L.(Sc.)

Property and Reversionary Investment Corporation Ltd. v. Templar [1977] 1 W.L.R. 1223; [1978] 2 All E.R. 433, C.A.

Reg. v. Humphrys [1977] A.C. 1; [1976] 2 W.L.R. 857; [1976] 2 All E.R. 497, H.L.(E.)

Reg. v. Inhabitants of the Township of Hartington Middle Quarter (1855) 4 E. & B. 780

Thoday v. Thoday [1964] P. 181; [1964] 2 W.L.R. 371; [1964] 1 All E.R. 341, C.A.

United Scientific Holdings Ltd. v. Burnley Borough Council [1978] A.C. 904; [1977] 2 W.L.R. 806; [1977] 2 All E.R. 62, H.L.(E.)

Yat Tung Investment Co. Ltd. v. Dao Heng Bank Ltd. [1975] A.C. 581; [1975] 2 W.L.R. 690, P.C.

The following additional cases were cited in argument:

Ainsbury v. Millington (Note) [1987] 1 W.L.R. 379; [1987] 1 All E.R. 929, H.L.(E.)

Barrell Enterprises, In re [1973] 1 W.L.R. 19; [1972] 3 All E.R. 631, C.A.

Bright (Charles) & Co. Ltd. v. Sellar [1904] 1 K.B. 6, C.A.

Bynoe v. Governor and Company of the Bank of England [1902] 1 K.B. 467, C.A.

Connelly v. Director of Public Prosecutions [1964] A.C. 1254; [1964] 2 W.L.R. 1145; [1964] 2 All E.R. 401, H.L.(E.)

Dallal v. Bank Mellat [1986] Q.B. 441; [1986] 2 W.L.R. 745; [1986] 1 All E.R. 239

Gueret v. Audouy (1893) 62 L.J.Q.B. 633, C.A.

Hunter v. Chief Constable of the West Midlands Police [1980] Q.B. 283; [1980] 2 W.L.R. 689; [1980] 2 All E.R. 227, C.A.

Koenigsberg, In re, Public Trustee v. Koenigsberg [1948] Ch. 727; [1949] Ch. 348; [1949] 1 All E.R. 804, C.A.

Ladd v. Marshall [1954] 1 W.L.R. 1489; [1954] 3 All E.R. 745, C.A.

Mekhanik Evgrafov, The (No. 2) [1988] 1 Lloyd's Rep. 330

North West Water Ltd. v. Binnie & Partners (a firm) [1990] 3 All E.R. 547

Reg. v. Secretary of State for the Environment, Ex parte Hackney London Borough Council [1983] 1 W.L.R. 524; [1983] 3 All E.R. 358, D.C.

S.C.F. Finance Co. Ltd. v. Masri (No. 3) [1987] Q.B. 1028; [1987] 2 W.L.R. 81; [1987] 1 All E.R. 194, C.A.

Sennar, The (No. 2) [1985] 1 W.L.R. 490; [1985] 2 All E.R. 104, H.L.(E.)

Shoe Machinery Co. v. Cutlan [1896] 1 Ch. 667

Tebbutt v. Haynes [1981] 2 All E.R. 238, C.A.

Thrasyvoulou v. Secretary of State for the Environment [1990] 2 A.C. 273; [1990] 2 W.L.R. 1; [1990] 1 All E.R. 65, H.L.(E.)

Tommey v. White (1847) 1 H.L.Cas. 160, H.L.(Ir.)

Waring, In re (No. 2) [1948] Ch. 221; [1948] 1 All E.R. 257

APPEAL from the Court of Appeal.

This was an appeal by the defendants, National Westminster Bank Plc. (as trustees for British Rail Pension Trustee Co. Ltd.), by leave granted

on 22 February 1990 by the House of Lords (Lord Keith of Kinkel, Lord Jauncey of Tullichettle and Lord Lowry) [1990] 1 W.L.R. 458, from the order dated 8 November 1989 of the Court of Appeal (Dillon, Staughton and Mann L.JJ.) [1990] Ch. 573 dismissing the defendants' appeal against the order dated 1 July 1988 of Sir Nicolas Browne-Wilkinson V.-C. [1989] Ch. 63. On the defendants' summons dated 1 October 1987 under R.S.C., Ord. 18, r. 19, seeking to strike out, inter alia, paragraph 20 of the statement of claim dated 17 June 1987 of the plaintiffs, Michael John Arnold, Peter Robert Edwards and Simon Francis Phillips, for disclosing no reasonable cause of action, the Vice-Chancellor declared that the plaintiffs were not precluded by the doctrine of issue estoppel per rem judicatam from putting forward the contentions set out in paragraph 20 of their statement of claim dated 17 June 1987.

By that paragraph the plaintiffs, who were the tenants under a sub-underlease dated 28 October 1976 for a term commencing on 28 October 1976 and expiring on 24 June 2008 of office premises at 7, Rolls Buildings, Fetter Lane, London E.C.4, sought, as an alternative to their claim for rectification of the sub-underlease, a determination as to the basis on which rent reviews under the sub-underlease were to be conducted and contended that the definition of "the fair market rent" in the sub-underlease, on its proper construction, meant that the rent was to be reviewed on the basis of a letting for a term equal to the residue of the term unexpired at the relevant review date with provision for rent review on 24 June 1988, 1993, 1998 and 2004.

The facts are stated in the opinion of Lord Keith of Kinkel.

Terence Cullen Q.C. and Hazel Williamson Q.C. for the defendants. The main issues in this appeal are (a) whether an issue actually raised, argued and decided between the parties can be relitigated between the same parties in subsequent proceedings where fraud or collusion is not alleged; (b) if so, whether the circumstances in which such relitigation can take place include the emergence of later authority suggesting that an earlier decision was wrong or would now be differently decided.

The term "res judicata" signifies two associated but different doctrines. The first is estoppel per rem judicatam: under this doctrine parties to a judicial decision are estopped from disputing the correctness of the decision in law and fact. It is an estoppel so called because it prevents an unsuccessful party from contradicting a proposition of law or a finding of fact expressly declared by the earlier judgment. The second is merger of the cause of action in the judgment, or transit in rem judicatam: this doctrine prevents a successful plaintiff from reasserting in a second proceeding the cause of action which had been made the subject of a judgment in the first. It has nothing to do with estoppel: see Spencer Bower and Turner, Res Judicata, 2nd ed. (1969), pp. 1-4, paras. 1-6.

There are, however, four situations where in second proceedings between the same parties the doctrine of estoppel per rem judicatam may be invoked: (i) cause of action estoppel, where the entirety of a decided cause of action is sought to be relitigated; (ii) issue estoppel or, "decided issue estoppel," where an issue is sought to be relitigated which has been raised and decided as a fundamental step in arriving at the earlier judicial

decision; (iii) extended res judicata or "unraised issue estoppel," where an issue is sought to be litigated which could, and should, have been raised in a previous action but was not raised (Henderson v. Henderson (1843) 3 Hare 100); (iv) a further extension of (iii) to points not raised in relation to an issue in the earlier decision, as opposed to issues not raised in relation to the decision itself. The instant case falls within (ii). The issue which the plaintiffs want to relitigate is the same as that decided by Walton J., namely, the true construction of the lease as at the date of its execution.

For nearly two centuries, cause of action estoppel and issue estoppel were treated as founded on the principle that a determination of a cause of action or issue in earlier proceedings was an absolute bar to the same cause of action or issue being litigated again between the same parties: see Duchess of Kingston's Case (1776) 20 St.Tr. 355; Reg. v. Inhabitants of the Township of Hartington Middle Quarter (1855) 4 E. & B. 780, 791; Gueret v. Audouy (1893) 62 L.J.Q.B. 633, 637, 640; Hoystead v. Commissioner of Taxation [1926] A.C. 155, 161-162 and New Brunswick Railway Co. v. British and French Trust Corporation Ltd. [1939] A.C. 1, 19-20, 41.

The phrase "issue estoppel" was first used in Hoysted v. Federal Commissioner of Taxation (1921) 29 C.L.R. 537, 561, in the High Court of Australia and was adopted in England by Diplock L.J. in Thoday v. Thoday [1964] P. 181, 197. In Connelly v. Director of Public Prosecutions [1964] A.C. 1254, 1358, Lord Devlin stated the different principles relating to decided issues and unraised issues. Lord Denning M.R. in Fidelitas Shipping Co. Ltd. v. V/O Exportchleb [1966] 1 Q.B. 630, 640, said that "decided" issue estoppel was subject to an exception for "special circumstances," relying on Badar Bee v. Habib Merican Noordin [1909] A.C. 615, which, however, was a case of cause of action estoppel and made no mention of special circumstances. [Reference was made to Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2) [1967] 1 A.C. 853; The Sennar (No. 2) [1985] 1 W.L.R. 490, 499 and Thrasyvoulou v. Secretary of State for the Environment [1990] 2 A.C. 273, 288, 291.]

Both logic and principle support the approach that the judicial determination of an entire cause of action is in fact the determination of every issue which is fundamental to establishing the entire cause of action. Thus, the assertion that the determination on one of the issues is flawed is equivalent to asserting that the whole judgment is flawed. The effect of a judicial determination on an entire cause of action is as if the court had made declarations on each issue fundamental to the ultimate decision: Shoe Machinery Co. v. Cutlan [1896] 1 Ch. 667.

The extended res judicata (Henderson v. Henderson, 3 Hare 100) is a separate rule which developed independently from, and in parallel with, the principles of cause of action estoppel and decided issue estoppel. The basis of the Henderson v. Henderson principle is the public policy of avoiding multiplicity of suits which imposes a duty on a litigant to bring forward before the court for decision his whole case. It applies to cases where the issues or facts sought to be raised in the second proceedings are so clearly part of the subject matter of the earlier proceedings between the same parties, and could so clearly have been raised but were not, that it would be an abuse of the process of the court for those matters to

be raised in the later proceedings. In Henderson v. Henderson itself, Wigram V.-C., at p. 115, treated the principle as being an extension of the doctrine of res judicata. However, the rule is more properly regarded as a species of abuse of the process of the court: Yat Tung Investment Co. Ltd. v. Dao Heng Bank Ltd. [1975] A.C. 581, 590 and Brisbane City Council v. Attorney-General for Queensland [1979] A.C. 411, 425.

Mills v. Cooper [1967] 2 Q.B. 459 was solely concerned with the applicability of estoppel per rem judicatam in criminal law. Diplock L.J., at pp. 468-469, expressed the view that the civil doctrine was subject to an exception where further material relevant to the correctness of an assertion had become available and could not, by reasonable diligence, have been adduced in the previous proceedings. That dictum was adopted in Reg. v. Humphrys [1977] A.C. 1, 15, 19-20, 21, 27, 39 and was considered by the Court of Appeal and the House of Lords in Hunter v. Chief Constable of the West Midlands Police [1980] Q.B. 283; [1982] A.C. 529. Diplock L.J. cited no authority for his dictum. The authorities cited by counsel in that case were not cases of decided issue estoppel. Among those authorities, Phosphate Sewage Co. Ltd. v. Molleson (1879) 4 App.Cas. 801 was a civil appeal to the House of Lords from the Court of Session. It related to the doctrine of res noviter veniens in notitiam which is not a doctrine known to English law. It is only available in Scots law. The possible sources of the dictum were (1) the 1966 version of the Rules of the Supreme Court, Ord. 20, r. 11, but all the authorities cited in The Annual Practice 1966, pp. 464-468, in support of that paragraph were cases of fraud, the exception being Charles Bright & Co. Ltd. v. Sellar [1904] 1 K.B. 6; (2) the old bill of review procedure, which was a review either (a) on facts discovered since the decree or (b) for error apparent on the face of the decree. An allegation that the decree ought to have been different from what it was could only be discussed on appeal: Tommey v. White (1847) 1 H.L.Cas. 160, 164-165. Bills of review for error of law were no longer available after the Supreme Court of Judicature Act 1873 (36 & 37 Vict. c. 66): Charles Bright & Co. Ltd. v. Sellar. That case also suggested that the bill of review for fresh evidence might still lie. But that suggestion did not survive long: see In re Barrell Enterprises [1973] 1 W.L.R. 19. The proper way of putting any error is the appellate channel. In certain circumstances the Court of Appeal may allow the case to be heard on fresh evidence: see Ladd v. Marshall [1954] 1 W.L.R. 1489. In Reg. v. Secretary of State for the Environment, Ex parte Hackney London Borough Council [1983] 1 W.L.R. 524 the Divisional Court decided that issue estoppel had no application to judicial review cases but that it did not arise in the case before the court for want of a previous final determination of the relevant issue. [Reference was made to Tebbutt v. Haynes [1981] 2 All E.R. 238 and North West Water Ltd. v. Binnie & Partners (a firm) [1990] 3 All E.R. 547.] Even if Diplock L.J.'s dictum in Mills v. Cooper [1967] 2 Q.B. 459, 468-469 was correct, there is no basis for extending it to cover the case where the earlier action might now be decided differently because of a change in the law. The case only referred to new factual material, i.e. evidence.

It has hitherto been accepted that it was never an answer to a plea of estoppel per rem judicatam to say simply that the earlier decision was

wrong: see Spencer Bower and Turner, Res Judicata, 2nd ed., p. 337, para. 394. In the case of cause of action estoppel, which operates on identical principles to those of decided issue estoppel a later decision demonstrating beyond doubt that the former decision was wrong does not overcome the absolutely binding nature of the estoppel per rem judicatam: In re Waring (No. 2) [1948] Ch. 221. That case was distinguished in In re Koenigsberger [1949] Ch. 348 but was not doubted. To hold that a decided issue can be relitigated, as against its being appealed from, at the instance of the losing party merely because an argument, however respectable, could be mounted that the judge in the earlier decision should have decided differently would be contrary to, and would undermine, the policy of finality of litigation which underlies the whole doctrine of res judicata. Furthermore, it would bring into existence two decisions of courts of co-ordinate jurisdiction placing different constructions on one and the same lease. The Court of Appeal decision in National Westminster Bank Plc. v. Arthur Young McClelland Moores & Co. (Practice Note) [1985] 1 W.L.R. 1123 on Walton J.'s judgment and the fact that there was no avenue of appeal and later decisions of various courts in other cases could not have had the result of excluding the operation of res judicata: see Bynoe v. Governor and Company of the Bank of England [1902] 1 K.B. 467.

James Munby Q.C. and Jonathan Gaunt for the plaintiffs. The essentials of issue estoppel in civil cases were formulated by Diplock L.J. in Mills v. Cooper [1967] 2 Q.B. 459, 468-469, where he stated that the doctrine applied to the assertion in question unless further material which was essential and relevant to the correctness of the assertion and which could not by reasonable diligence have been adduced by the party in the previous proceedings had become available to him. Diplock L.J.'s formulation was derived from established authorities: see Phosphate Sewage Co. Ltd. v. Molleson (1879) 4 App.Cas. 801, 814 and Hoystead v. Commissioner of Taxation [1926] A.C. 155, 165. It was referred to without disapproval by the House of Lords in Reg. v. Humphrys [1977] A.C. 1, 39, 43, 48, and was accepted in Hunter v. Chief Constable of the West Midlands Police [1982] A.C. 529. However, in modern times it has been recognised that there may be circumstances where the doctrine could apply but it would be unjust to apply it: see Fidelitas Shipping Co. Ltd. v. V/O Exportchleb [1966] 1 Q.B. 630, 640, where Lord Denning M.R. stated that it was established in Henderson v. Henderson, 3 Hare 100 that the doctrine was not an inflexible rule but could be departed from in special circumstances; and Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2) [1967] 1 A.C. 853, 947, per Lord Upjohn.

According to the defendants a distinction has to be drawn between issue estoppel where the issue was decided in the previous proceedings, and the case where the issue was not raised or decided in previous proceedings. In the former case, the defendants say, the rule is absolute and no exception is permissible. But this is not so, as special circumstances can render the rule inapplicable: see Phosphate Sewage Co. Ltd. v. Molleson and Hunter v. Chief Constable of the West Midlands Police [1980] Q.B. 283; [1982] A.C. 529. [Reference was made to Hoystead v. Commissioner of Taxation.] The true distinction is not between cases where the issue was decided and cases where it was not raised or decided,

but between cases where relevant material could, and should, have been brought forward at the earlier trial and cases where it could not have been or where the failure to do so is excusable. Where the subject matter of the litigation disappears the court will not entertain any further proceedings because it is a fundamental feature of the judicial system that the courts do not pronounce on academic questions of law: Ainsbury v. Millington (Note) [1987] 1 W.L.R. 379.

The defendants suggest that there are two conflicting lines of authority: one establishes that issue estoppel constitutes an absolute bar and the other that it is a flexible principle. They contend that the former line is the true one, relying on Duchess of Kingston's Case, 20 St.Tr. 355 and Reg. v. Inhabitants of the Township of Hartington Middle Quarter, 4 E. & B. 780. The defendants argue that the principle was endorsed by the House in Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2) [1967] 1 A.C. 853 and they rely on the passage in Hartington, at p. 794, to the effect that it was not open to the parties to show, by adducing new evidence, that the court had been misled as to the facts, or to show, by new argument or authority, that the court drew a wrong conclusion in law. But that passage was not referred to in the speeches in the Carl Zeiss case and those speeches did not seek to explore the inconsistency between that statement and the formulation of Lord Denning M.R. in Fidelitas Shipping Co. Ltd. v. V/O Exportchleb [1966] 1 Q.B. 630, 640. In the Township of Hartington case the court was not concerned with special circumstances. In re Waring (No. 2) [1948] Ch. 221, also relied on by the defendants, was a case of cause of action estoppel in which special circumstances were not and could not have been argued. Further, Reg. v. Secretary of State for the Environment, Ex parte Hackney London Borough Council [1983] 1 W.L.R. 524 did not deal with any question of exception. [Reference was made to S.C.F. Finance Co. Ltd. v. Masri (No. 3) [1987] Q.B. 1028.] Accordingly, there are not two conflicting lines of authority.

There is no definition of special circumstances in the authorities, but special circumstances are not limited to new matters of evidence: see The Mekhanik Evgrafov (No. 2) [1988] 1 Lloyd's Rep. 330; Dallal v. Bank Mellat [1986] Q.B. 441. Special circumstances can be extended, under Henderson v. Henderson, 3 Hare 100, to fresh material covering both law and facts. There should be no arbitrary limit to special circumstances. If the test is abuse of process, there is no reason, in principle, to confine special circumstances to evidence only: cf. Property and Reversionary Investment Corporation Ltd. v. Templar [1977] 1 W.L.R. 1223.

In the present case, the special circumstances justifying the non-application of the rule are that at the time of Walton J.'s decision (National Westminster Bank Plc. v. Arthur Young McClelland Moores & Co. [1985] 1 E.G.L.R. 61) and the Court of Appeal's decision on the question of leave to appeal (National Westminster Bank Plc. v. Arthur Young McClelland Moores & Co. (Practice Note) [1985] 1 W.L.R. 1123) there was a division of judicial opinion about the proper approach to the construction of this kind of provision in leases; subsequently an approach was laid down by Sir Nicolas Browne-Wilkinson V.-C. in British Gas Corporation v. Universities Superannuation Scheme Ltd. [1986] 1 W.L.R. 398; that approach was approved by the Court of Appeal in Equity & Law Life

Assurance Society Plc. v. Bodfield Ltd. [1987] 1 E.G.L.R. 124 and Basingstoke and Deane Borough Council v. Host Group Ltd. [1988] 1 W.L.R. 348; and the Vice-Chancellor's approach was adopted by Hoffmann J. in Amax International Ltd. v. Custodian Holdings Ltd. (1986) 279 E.G. 762. There has thus been a change of law applicable to the construction of the rent review provisions of the lease.

Their Lordships took time for consideration.

25 April. LORD KEITH OF KINKEL. My Lords, this appeal raises an important question concerning the availability and extent of exceptions to that branch of the rule of estoppel per rem judicatam which has come to be known as issue estoppel.

The appellants ("the defendants") are landlords of premises in Fetter Lane let to the respondents, a firm of chartered accountants, ("the plaintiffs"), under a sub-underlease ("the lease") dated 28 October 1976. The lease demised the premises to the plaintiffs for a term of just under 32 years from that date, the expiry being on 24 June 2008. It provided for an initial yearly rent of £800,000, subject to review on 24 June 1983, 1988, 1993, 1998 and 2004. The rent from each rent review date is whichever is the greater of a rent equal to the rent payable during the last preceding rent period and the "fair market rent" at the relevant review date, which in default of agreement is to be fixed by arbitration. The "fair market rent" is defined as meaning:

"such amount as shall represent a yearly rent at which the demised premises might reasonably be expected to be let at the relevant review date in the open market by a landlord to a tenant without a premium with vacant possession and subject to the provisions of this sub-underlease other than the rent hereby reserved there being disregarded any effect on rent of any of the matters set out in paragraphs (a) (b) or (c) of section 34 of the Landlord and Tenant Act 1954 (as amended)."

When the first rent review date came up in 1983 a dispute arose and it was referred to an arbitrator. There was disputed in particular whether under the definition of "fair market rent" the rent under the hypothetical lease for the unexpired residue of the term fell to be fixed on the basis (a) that it contained the same provisions for five year rent reviews as the actual lease or (b) that it contained no provision for review. The arbitrator decided that the hypothetical lease should be treated as containing provision for five-yearly rent reviews, and on that basis fixed the rent at £1,003,000 per annum. In case he should prove to be wrong on the question of construction, he determined that if the hypothetical lease contained no provision for rent reviews the rent would be about 20 per cent. higher, namely £1,209,000.

An appeal by the landlords on the point of construction came before Walton J. He held that the arbitrator was wrong and that the hypothetical lease should be treated as not containing any provision for rent review, so that the rent payable was £1,209,000: National Westminster Bank Plc. v. Arthur Young McClelland Moores & Co. [1985] 1 E.G.L.R. 61. The

lessees asked Walton J. for leave to appeal and for a certificate under section 1(7)(b) of the Arbitration Act 1979 that there was a question of law of general public importance or one which for some other special reason ought to be considered by the Court of Appeal, but both were refused. The lessees then sought to appeal to the Court of Appeal against the refusal of Walton J. to grant a certificate. The Court of Appeal held that it had no jurisdiction to entertain such an appeal: National Westminster Bank Plc. v. Arthur Young McClelland Moores & Co. (Practice Note) [1985] 1 W.L.R. 1123.

In the course of his judgment Walton J. said, at p. 62:

"The first and I think probably the main question which arises here is whether, when the arbitrator is deciding what is to be the fair market rent for the next rent period, he is to do that upon the basis that the lease contains (as, of course, we know it does in fact contain) a rent review clause or whether, on the other hand, he is to fix the fair market rent on the basis that there is no such clause in the lease. I do not think that there is a presumption one way or the other. I think that in every case that must depend upon the precise terms of the lease, because it must be very much borne in mind that there is no such thing as a fair market rent of any premises in the abstract. There is only a fair market rent upon a set of abstractions which may be actual, may be hypothetical and in most cases under rent reviews are a mixture of the one and the other. For example, here we have that the premises are expected to be let with vacant possession which is, of course, something which we know as a fact just is not the case because the tenants are actually in possession and are certainly not just going to move out for the purpose of a rent review. So the attempt by Mr. Morritt" - who was appearing for the tenants - "to poison my mind in advance to achieve the lower of the two values by defining the fair market rent as something which favours the tenant, as in fact he was attempting to do, I do not think impresses me very much."

In the subsequent case of British Gas Corporation v. Universities Superannuation Scheme Ltd. [1986] 1 W.L.R. 398 Sir Nicolas Browne-Wilkinson V.-C. had to consider a somewhat similar rent review clause. The hypothetical lease there was to be one "containing the same provisions (other than as to the yearly rent)" as the actual lease. The Vice-Chancellor held that the hypothetical lease fell to be treated as including the rent review clause. He said, at p. 403:

"In these circumstances, there are in my judgment conflicting decisions as to the correct approach to the construction of these clauses. I am accordingly free to adopt the approach I prefer. In my judgment the correct approach is as follows: (a) words in a rent exclusion provision which require all provisions as to rent to be disregarded produce a result so manifestly contrary to commercial common sense that they cannot be given literal effect; (b) other clear words which require the rent review provisions (as opposed to all provisions as to rent) to be disregarded (such as those in [Pugh v. Smiths Industries Ltd. (1982)] 264 E.G. 823) must be given effect to, however wayward the result;

(c) subject to (b), in the absence of special circumstances it is proper to give effect to the underlying commercial purpose of a rent review clause and to construe the words so as to give effect to that purpose by requiring future rent reviews to be taken into account in fixing the open market rental under the hypothetical letting."

In Equity & Law Life Assurance Society Plc. v. Bodfield Ltd. [1987] 1 E.G.L.R. 124 Dillon L.J., in the course of a judgment concurred in by Fox and Russell L.JJ., expressed himself, at p. 125, as welcoming and approving the guidelines so laid down by the Vice-Chancellor. The Vice-Chancellor's approach was again approved by the Court of Appeal in Basingstoke and Deane Borough Council v. Host Group Ltd. [1988] 1 W.L.R. 348, 353, 355. It may also be noted that in Amax International Ltd. v. Custodian Holdings Ltd. (1986) 279 E.G. 762 Hoffmann J. construed a rent review clause in terms similar to the present one in the opposite sense to that favoured by Walton J.

It therefore appears that there are powerful grounds for the view that Walton J. wrongly construed the rent review clause in the parties' lease, and that he did so by virtue of an approach to the question of construction which was wholly incorrect in law.

In these circumstances, when the second rent review date occurred in 1988 the plaintiffs sought to re-open the question of construction. They brought an action by writ claiming rectification of the lease so as to produce the result that the rent review clause is not left out of account and also a determination as to the true construction of the clause. The defendants applied to strike out the claim for a declaration on construction on the ground that the plaintiffs were barred by issue estoppel from re-litigating the very point decided by Walton J. That matter, as a preliminary issue, came before Sir Nicolas Browne-Wilkinson V.-C., who on 1 July 1988 gave judgment [1989] Ch. 63 holding that the plaintiffs were not so barred. He took the view that the law admitted of special circumstances which could prevent an issue estoppel from arising, that such special circumstances included the situation where relevant new material, not available at the time of the first decision, had since come to light, and that such new material might include not only the discovery of new facts but also a change in the law. He said, at p. 70:

"The question therefore is whether, given a subsequent change in the law indicating that the earlier decision was wrong, the injustice of holding the plaintiff in the second action bound by the erroneous decision in law in the first action outweighs the hardship to the other party in having to relitigate the matter and the public interest in the finality of legal proceedings."

As regards the circumstances of the instant case, he expressed himself as having no doubt that justice did require the matter to be re-litigated. The relevant factors were these, at p. 71:

"1. There is a continuing contractual relationship of landlord and tenant under which, if there is an issue estoppel, the decision of Walton J. will regulate four further rent reviews and thereby affect the rent payable until the end of the term. 2. Because of the

peculiarities of the procedure applicable to appeals from arbitrators, unlike the ordinary case of a prior decision by a judge, the decision of Walton J. was not subject to appeal. Therefore a matter of a very great financial importance involving millions of pounds will, if an issue estoppel applies, 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 Walton J. himself and there was no right of appeal against his refusal to certify the matter fit for appeal. The lessees took every possible step to test the decision in the earlier case in the higher courts but without success. 4. Subsequent decisions, in particular that of the Court of Appeal in the Equity & Law Life case [1987] 1 E.G.L.R. 124, make it, at the lowest, strongly arguable that the decision of Walton J. was wrong."

On appeal by the defendants the Court of Appeal (Dillon, Staughton and Mann L.JJ.) on 8 November 1989 affirmed the judgment of the Vice-Chancellor upon substantially the same grounds [1990] Ch. 573. The defendants now appeal, with leave given here, to your Lordships' House.

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] A.C. 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] A.C. 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 Hoysted 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 different conditions are fulfilled. Such causes of action involve as many 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 evidence or 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. In Fidelitas Shipping Co. Ltd. v. V/O Exportchleb [1966] 1 Q.B. 630, 642, Diplock L.J. said:

"In the case of litigation the fact that a suit may involve a number of different issues is recognised by the Rules of the Supreme Court which contain provision enabling one or more questions (whether of fact or law) in an action to be tried before others. Where the issue separately determined is not decisive of the suit, the judgment upon that issue is an interlocutory judgment and the suit continues. Yet I take it to be too clear to need citation of authority that the parties to the suit are bound by the determination of the issue. They cannot subsequently in the same suit advance argument or adduce further evidence directed to showing that the issue was wrongly determined. Their only remedy is by way of appeal from the interlocutory judgment and, where appropriate, an application to the appellate court to adduce further evidence: but such application will only be granted if the appellate court is satisfied that the fresh evidence sought to be adduced could not have been available at the original hearing of the issue even if the party seeking to adduce it had exercised due diligence.

"This is but an example of a specific application of the general rule of public policy, nemo debet bis vexari pro una et eadem causa. The determination of the issue between the parties gives rise to what I ventured to call in Thoday v. Thoday [1964] P. 181, 198 an 'issue estoppel.' It operates in subsequent suits between the same parties in which the same issue arises. A fortiori it operates in any subsequent proceedings in the same suit in which the issue has been determined. The principle was expressed as long ago as 1843 in the words of Wigram V.-C. in Henderson v. Henderson, 3 Hare 100, 114 which were expressly approved by the Judicial Committee of the Privy Council in Hoystead v. Commissioner of Taxation [1926] A.C. 155, 170. I would not seek to better them: . . ."

Then in Brisbane City Council v. Attorney-General for Queensland [1979] A.C. 411, 425, Lord Wilberforce, giving the advice of the Judicial Committee of the Privy Council, said:

"The second defence is one of 'res judicata.' There has, of course, been no actual decision in litigation between these parties as to the issue involved in the present case, but the appellants invoke this defence in its wider sense, according to which a party may be shut out from raising in a subsequent action an issue which he could, and should, have raised in earlier proceedings. The classic statement of this doctrine is contained in the judgment of Wigram V.-C. in Henderson v. Henderson, 3 Hare 100 and its existence has been

reaffirmed by this Board in Hoystead v. Commissioner of Taxation [1926] A.C. 155. A recent application of it is to be found in the decision of the Board in Yat Tung Investment Co. Ltd. v. Dao Heng Bank Ltd. [1975] A.C. 581. It was, in the judgment of the Board, there described in these words: 'there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings:' p. 590. This reference to 'abuse of process' had previously been made in Greenhalgh v. Mallard [1947] 2 All E.R. 255 per Somervell L.J. and their Lordships endorse it. This is the true basis of the doctrine and it ought only to be applied when the facts are such as to amount to an abuse: otherwise there is a danger of a party being shut out from bringing forward a genuine subject of ligitation."

It thus appears that, although Henderson v. Henderson, 3 Hare 100, was a case of cause of action estoppel, the statement there by Wigram V.-C. has been held to be applicable also to issue estoppel. That statement includes the observation that there may be special circumstances where estoppel does not operate. The instant case is concerned with the nature of such special circumstances.

There are indications that special circumstances may exist where the earlier proceedings have resulted in a default judgment. I refer to New Brunswick Railway Co. v. British and French Trust Corporation Ltd. [1939] A.C. 1, per Lord Maugham L.C., at p. 21, per Lord Russell of Killowen, at p. 28, and per Lord Wright, at p. 38. Then in Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2) [1967] 1 A.C. 853, where the earlier proceedings had taken place in a foreign court, Lord Reid stated, at p. 917:

"The difficulty which I see about issue estoppel is a practical one. Suppose the first case is one of trifling importance but it involves for one party proof of facts which would be expensive and troublesome; and that party can see the possibility that the same point may arise if his opponent later raises a much more important claim. What is he to do? The second case may never be brought. Must he go to great trouble and expense to forestall a possible plea of issue estoppel if the second case is brought? This does not arise in cause of action estoppel: if the cause of action is important, he will incur the expense: if it is not, he will take the chance of winning on some other point. It seems to me that there is room for a good deal more thought before we settle the limits of issue estoppel. But I have no doubt that issue estoppel does exist in the law of England. And, if it does, it would apply in the present case, if the earlier judgment had been a final judgment of an English court."

In the same case Lord Upjohn went so far as to express doubts about the application to issue estoppel of the full breadth of the statement by Wigram V.-C. in Henderson v. Henderson, 3 Hare 100. He said, at p. 947:

"All estoppels are not odious but must be applied so as to work justice and not injustice and I think the principle of issue estoppel must be applied to the circumstances of the subsequent case with this overriding consideration in mind."

In Mills v. Cooper [1967] 2 Q.B. 459 the question arose whether the respondent, having been found by magistrates not to have been a gypsy on a certain date upon which he had been charged with unlawfully encamping on a highway, had the protection of issue estoppel in relation to a similar charge relating to a later date. It was held that the status of gypsy was not an unalterable one, so that the respondent might well be a gypsy at one time though not at another. Diplock L.J. made the following general observation about issue estoppel, at pp. 468-469:

"That doctrine, 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, if the same assertion was an essential element in his previous 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 previous civil proceedings to be incorrect, unless further material which is relevant to the correctness or incorrectness of the assertion and could not by reasonable diligence have been adduced by that party in the previous proceedings has since become available to him."

In Hunter v. Chief Constable of the West Midlands Police [1982] A.C. 529, 541, Lord Diplock said, with the concurrence of the other members of the House, that this passage had been adopted and approved by your Lordships' House in Reg. v. Humphrys [1977] A.C. 1.

It is to be noted that there appears to be no decided case where issue estoppel has been held not to apply by reason that in the later proceedings a party has brought forward further relevant material which he could not by reasonable diligence have adduced in the earlier. There is, however, an impressive array of dicta of high authority in favour of the possibility of this. It was argued for the defendants that exceptions to the rule of issue estoppel should be admitted only in the case of the earlier judgment being a default or a foreign judgment and further that an exception should not be recognised where the point at issue had actually, as here, been raised and decided in the earlier proceedings, but only where the point might have been but was not so raised and decided. The later dicta are, however, adverse to these arguments. It was argued that there was no logical distinction between cause of action estoppel and issue estoppel and that, if the rule was absolute in the one case as regards points actually decided, so it should be in the other case. 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, the subject matter of the two proceedings being identical, than they do in issue 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 A.C. 853, 947.

It is next for consideration whether the further relevant material which a party may be permitted to bring forward in the later proceedings is confined to matters of fact, or whether what may not entirely inappositely be described as a change in the law may result in, or be an element in special circumstances enabling an issue to be re-opened. Counsel for the plaintiffs argued that the passage quoted above from the judgment of Diplock L.J. in Mills v. Cooper [1967] 2 Q.B. 459, 468-469, specifically recognised the possibility of a change in the law having this effect, by its references to "an assertion, whether of fact or of the legal consequences of facts" and to "further material which is relevant to the correctness or incorrectness of the assertion." A change in the law, so it was contended, must clearly be further material which was relevant to the correctness or incorrectness of an assertion of the legal consequences of facts. I do not, for myself, feel able to accept that Diplock L.J. had a change in the law in mind when he wrote the passage in question. If he had done so, I consider that he would have expressed himself more specifically. Your Lordships should appropriately, in my opinion, regard the matter as entire and approach it from the point of view of principle. If a judge has made a mistake, perhaps a very egregious mistake, as is said of Walton J.'s judgment here, and a later judgment of a higher court overrules his decision in another case, do considerations of justice require that the party who suffered from the mistake should be shut out, when the same issue arises in later proceedings with a different subject matter, from reopening that issue?

A certain analogy can, in my view, be drawn with the principles governing the situation where leave to appeal out of time is sought. In Property and Reversionary Investment Corporation Ltd. v. Templar [1977] 1 W.L.R. 1223 a landlord's claim for increased rent under a rent review clause had been dismissed upon the ground of non-compliance with the time limit for initiating the review. Two and a half years later this House reversed two decisions of the Court of Appeal which had proceeded upon the same basis: United Scientific Holdings Ltd. v. Burnley Borough Council and Cheapside Land Development Co. Ltd. v. Messels Service Co. [1978] A.C. 904. The Court of Appeal granted the landlord leave to appeal out of time against the judgment dismissing his claim. Roskill L.J. said, at p. 1225:

"The real point here, as Mr. Goodhart ultimately accepted, is whether it is right that these parties should have their continuing contractual relationship governed by a lease the terms of which have assumedly been erroneously construed in the court below. I think that notwithstanding Mr. Hunt's submissions put the case that the landlords should be left to receive the lower rent for the next 18 months or so" - which was until the next rent review date - "and thereafter become entitled to claim the higher rent in accordance with the House of Lords' decision, there are special circumstances which justify leave to appeal out of time."

Cumming-Bruce L.J. said, at pp. 1225-1226:

"Now that the House of Lords has decided that the proper construction of the contract is other than that decided by the judge, I agree that there are special circumstances here because it does not seem just that future obligations between the parties to the lease should depend upon the construction now shown to be wrong."

In the instant case there was no right of appeal against the judgment of Walton J. because he refused to grant a certificate that the case included a question of law of general public importance. There can be little doubt that he was wrong in this refusal, as is shown by the large volume of litigation on the construction of rent review clauses and the decisions in that field which I have mentioned earlier. I consider that anyone not possessed of a strictly legalistic turn of mind would think it most unjust that a tenant should be faced with a succession of rent reviews over a period of over 20 years all proceeding upon a construction of his lease which is highly unfavourable to him and is generally regarded as erroneous. It is true that the chosen method of settling disputes about rent reviews, namely arbitration, involves that the right of appeal from the judge of first instance is subject to limitations. But these limitations were not present when the lease was entered into in 1976, having been introduced by the Arbitration Act 1979. 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 plaintiffs permission to reopen the disputed issue. Upon the whole matter I find myself in respectful agreement with the passage in the judgment of Sir Nicolas Browne-Wilkinson V.-C. where he said [1989] Ch. 63, 70-71:

"In my judgment a change in the law subsequent to the first decision is capable of bringing the case within the exception to issue estoppel. If, as I think, the yardstick of whether issue estoppel should be held to apply is the justice to the parties, injustice can

flow as much from a subsequent change in the law as from the subsequent discovery of new facts. In both cases the injustice lies in a successful party to the first action being held to have rights which in fact he does not possess. I can therefore see no reason for holding that a subsequent change in the law can never be sufficient to bring the case within the exception. Whether or not such a change does or does not bring the case within the exception must depend on the exact circumstances of each case."

I am satisfied, in agreement with both courts below, that the instant case presents special circumstances such as to require the plaintiffs to be permitted to reopen the question of construction decided against them by Walton J., that being a decision which I regard as plainly wrong.

My Lords, for these reasons I would dismiss the appeal.

LORD GRIFFITHS. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Keith of Kinkel. I agree with it and, for the reasons which he has given, I, too, would dismiss this appeal.

LORD OLIVER OF AYLMERTON. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Keith of Kinkel. I agree with it and for the reasons given by him I, too, would dismiss this appeal.

LORD JAUNCEY OF TULLICHETTLE. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Keith of Kinkel. I agree with it and, for the reasons which he has given, I, too, would dismiss this appeal.

LORD LOWRY. My Lords, at first I had misgivings at the prospect of dismissing this appeal but, having seen the speech of my noble and learned friend, Lord Keith of Kinkel, which I have had the opportunity of reading in draft, and having also carefully read again the judgments of Sir Nicolas Browne-Wilkinson V.-C. [1989] Ch. 63 and the Court of Appeal [1990] Ch. 573, I am now clearly persuaded that this is the right course to take. With a view to stating my initial outlook and ultimate conclusions, I would adopt my noble and learned friend's recital of the facts and his terminology, as well as his conclusions.

My starting points on issue estoppel were Duchess of Kingston's Case, 20 St.Tr. 355 and Reg. v. Inhabitants of the Township of Hartington Middle Quarter, 4 E. & B. 780. Basing myself on these cases, which have never been overruled or disapproved and have often been expressly followed, I found it remarkable that from Henderson v. Henderson, 3 Hare 100 until Mills v. Cooper [1967] 2 Q.B. 459 the doctrine of new evidence not discoverable by reasonable diligence seems to have operated in relation to "non-issue estoppel" but was not heard of in connection with issue estoppel, the idea of which had been developed as a branch of estoppel per rem judicatam, the main branch being cause of action estoppel. The accepted principle of finality seems

to have been applied equally to each branch: the decision of an issue which was essential to the decision of the action was treated in the same way as the decision of the action itself. In one way the logic of not distinguishing issue estoppel from cause of action estoppel is unassailable. If the decided issue was crucial in the first action, it remained crucial in the second, and the important point was that the issue was decided (not neglected or overlooked, as in non-issue estoppel) and was essential to the decision of the first action; it was therefore equivalent to the decision itself and was an equally great obstacle to a claim in the second action.

It seemed to me that the proviso enunciated by Diplock L.J. in Mills v. Cooper [1967] 2 Q.B. 459, 468-469, was not founded on authority. It was, in fact, part of an obiter dictum unrelated to the case in hand. Although delivered extempore, the judgment, and particularly the passage at pp. 468-469, drew upon several phrases in decided cases and appeared to have resulted from careful preparation with a view to defining constructively the law of issue estoppel. The approvals given in Reg. v. Humphrys [1977] A.C. 1, and Hunter v. Chief Constable of the West Midlands Police [1982] A.C. 529 are obiter indorsements of obiter dicta, so far as the vital words are concerned, and only Lord Hailsham of St. Marylebone [1977] A.C. 1, 39E, comes close to voicing a specific approval of the proviso. Their Lordships, moreover, had no need in those two cases to focus on the finer points of the estoppel doctrine, and 24 years after Mills v. Cooper there has not been until the present case an actual example of issue estoppel being distinguished in the result from cause of action estoppel.

The reliance on "new law" in the proviso was a new departure. It was conceded before your Lordships that the presentation of a new argument or the discovery of a previously overlooked authority would not suffice: the new law must take the form of a new decision; but it seems that this could come about by a lucky accident or even as a result of encouraging another litigant to take the same point. In Property and Reversionary Investment Corporation Ltd. v. Templar [1977] 1 W.L.R. 1223 a new decision opened the way for the Court of Appeal to exercise its discretion by permitting a late appeal; that case was not an example of defeating an issue estoppel, since the granting of leave to appeal out of time meant that success was achieved in what was still a pending action.

It appears from this review that there are significant arguments in favour of the proposition that issue estoppel constitutes a complete bar to relitigating a point once it has been decided but I am now of the opinion that the court can, and in exceptional circumstances should, relax that rule.

I think the first clue, though not an obvious one, is to be found in certain words of Wigram V.-C. in Henderson v. Henderson, 3 Hare 100, 115, which were contained in the passages approved by the Judicial Committee of the Privy Council in Hoystead v. Commissioner of Taxation [1926] A.C. 155, 170, and recalled by Diplock L.J. in Fidelitas Shipping Co. Ltd. v. V/O Exportchleb [1966] 1 Q.B. 630, 643:

"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."

I refer to the comment on this passage which was made by Sir Nicolas Browne-Wilkinson V.-C. [1989] Ch. 63, 69B-C.

In the Fidelitas Shipping case Lord Denning M.R. had already said [1966] 1 Q.B. 630, 640:

"The rule then is that, once an issue has been raised and distinctly determined between the parties, then, as a general rule, neither party can be allowed to fight that issue all over again. The same issue cannot be raised by either of them again in the same or subsequent proceedings except in special circumstances, see Badar Bee v. Habib Merican Noordin [1909] A.C. 615, 623, per Lord Macnaghten."

The reference to Badar Bee clouds the issue most unfortunately, since that case has nothing to say to the proposition for which it was cited as an authority. Nonetheless, I respectfully agree with the observation of Dillon L.J. [1990] Ch. 573, 593B, that development of the law in Fidelitas flows logically from the earlier cases. My noble and learned friend, Lord Keith, has already drawn attention to the important statements of Lord Reid and Lord Upjohn in Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2) [1967] 1 A.C. 853, 917, 947, which effectively encourage the proposition that the doctrine of issue estoppel is not inflexible.

Once the possibility of relying on special circumstances is established as a legal proposition, I have no hesitation in agreeing that the circumstances of this case are special and indeed exceptional.

Accordingly, I, too, would dismiss the appeal.

Solicitors: Stephenson Harwood; Freshfields.

A. R.