#5165 - Desert Sun V. Hill - Conflict of Laws BCL

Desert Sun v. Hill

Facts

The defendant and others formed a partnership to acquire and develop a piece of real estate in Arizona. The plaintiff made an advance to the partnership, secured by a promissory note, for that purpose. The partnership defaulted and became liable for the deficiency amount, which was the sum due less the value of the land. The plaintiff obtained judgments in Arizona against the partnership and certain of the partners personally, including the defendant, as guarantors, for the amount due under the promissory note.

US attorneys acting for the partnership accepted service of the proceedings on behalf of the defendant as well as the partnership and the other guarantors. The defendant claimed that he did not authorise them to do this.

The defendant's application to the Arizona Court to set aside the judgment on the ground that he had not authorised the US attorney to accept service failed and an appeal was dismissed. The plaintiff then applied to the UK court to enforce the judgment against the defendant, who was resident in the UK.

The defendant claimed that he had authorised the US attorneys to accept service only on behalf of the partnership, not against him personally as guarantor. Since he had not voluntarily submitted to the proceedings of the foreign court, the English court had no jurisdiction to enforce the judgment. The plaintiffs relied on issue estoppel, seeking summary judgment to enforce the Arizona court's ruling which barred the defendant from raising the same issue in English courts.

The question was whether the Arizona Court’s finding that service on the US attorneys was sufficient to bind the defendant is binding on UK Courts. In particular, the question is whether a preliminary finding on a procedural issue can satisfy the requirements for creating issue estoppel.

Holding

Issue Estoppel – General

In the international context, the principle is based on recognition of the validity of a foreign judgment in respect of the same claim or cause of action as between the same parties. The principle is that an issue of fact or law which necessarily was concluded in favour of one party in the foreign proceedings cannot be re-opened in further proceedings between the same parties here.

For there to be such an issue estoppel, three requirements must be satisfied: first, the judgment of the foreign court must be (a) of a court of competent jurisdiction, (b) final and conclusive and (c) on the merits; second, the parties to the English litigation must be the same parties (or their privies) as in the foreign litigation; and, thirdly, the issues raised must be identical. A decision on the issue must have been necessary for the decision of the foreign court and not merely collateral.

‘Final and Conclusive’ and on ‘merits’ Requirements

One restriction is the requirement that the earlier (foreign) judgment which is relied upon in one party's favour must have been ‘final’ and ‘on the merits’. But what does that mean in connection with issue estoppel? When we are dealing with cause of action estoppel it means that the merits of the case of action must be finally disposed of so that the matter cannot be raised again in the foreign country.

The natural meaning of ‘final and on the merits’ is that there has been a final, as opposed to provisional, determination of the parties' substantive rights. The present case raises what is, apparently, a novel question. Is there an issue estoppel when the decision of the foreign court was, using the words in their English meanings, interlocutory rather than final, and the rights in question were procedural, not substantive; in other words, when the decision was independent of the ‘merits’ of the issues which were the subject-matter of the foreign litigation?

On balance, and regarding the question entirely as one of principle, I would be prepared to hold that an issue estoppel could arise from an interlocutory judgment of a foreign court on a procedural i.e. non-substantive issue, where the following conditions were fulfilled:

(1) there was express submission of the procedural or jurisdictional issue to the foreign court;

(2) the specific issue of fact was raised before and decided by the court; and

(3) the need for ‘caution’ recognised by Lord Reid in Carl Zeiss is carefully borne in mind. Practical considerations such as whether the issue was or should have been fully ventilated are likely to be especially relevant in relation to procedural, as distinct from substantive issues, and for this reason I would hesitate long before including issues which might have been, but were not in fact raised or decided by the foreign court (cf. (2) above).

Submitting for ‘merits’ determination and for jurisdictional question

There is a difference between submitting to the jurisdiction of a court or tribunal to decide the substantive dispute, and on the other hand submitting only to its jurisdiction to decide whether it has substantive jurisdiction, or not: Williams & Glyn's Bank v Astro Dinamico [1984] 1 WLR 438. Here, the defendant invoked the jurisdiction of the Arizona court to decide whether he was subject to that court's jurisdiction in the proceedings in which the judgment was given. If that question of jurisdiction involved the question of fact, whether he gave express authority to Mr Graham to instruct Mr Jury to act on his behalf, then the defendant literally cannot deny that that issue was raised before and decided against him by the Arizona courts.

Application to facts

It is clear from the record of the US proceedings in which the defendant sought to have the judgment set aside that this was not the only issue raised. The plaintiffs relied, first, upon a rule of Arizona procedural law which, apparently, makes the formal entry of appearance by an attorney binding upon the party on whose behalf the attorney purported to act. Secondly, the Arizona courts appear to have been influenced by the fact that the defendants' ‘declaration’ filed by Mr Johnson on his behalf was not an affidavit as required by the rules, so that Mr Graham's affidavit evidence was formally unchallenged. So the crucial part of their decision was where they considered the issue of authority, which they defined in terms of Mr Jury's authority to act on behalf of the, defendant. It seems from these passages that the Court of Appeal was prepared to consider the question of authority in a wider context than is relevant for present purposes under English law. In English terms, it may be that the defendant could be held to be barred by Mr Jury's entry of appearance on his behalf by virtue of the actual authority which Mr Jury was given by the defendant to act generally on his behalf in relation to partnership affairs, and specifically to negotiate a settlement of the litigation, or by virtue of Mr Graham's apparent authority to instruct Mr Jury on behalf of the defendant, derived from Mr Graham's status as the defendant's partner or former partner or as his...