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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Pugh v Cantor Fitzgerald International [2001] EWCA Civ 307 (7 March 2001)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/307.html
Cite as: [2001] CPLR 271, [2001] EWCA Civ 307, [2001] CP Rep 74

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Neutral Citation Number: [2001] EWCA Civ 307
Case No: A2/2000/2374

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
(Mrs Justice Smith)

Royal Courts of Justice
Strand, London, WC2A 2LL
Wednesday 7th March 2001

B e f o r e :

LORD JUSTICE WARD
and
MR JUSTICE EVANS LOMBE

____________________

PUGH
Appellant
- and -

CANTOR FITZGERALD INTERNATIONAL
Respondent

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Mr Andrew Stafford Q.C. (instructed by Messrs Hobson Audley for the Appellant)
Mr Damian Brown (instructed by Messrs Olswang for the Respondent)

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    LORD JUSTICE WARD:

  1. This is an appeal by the claimant, Mr Andrew Pugh, against the order of Smith J. made on 30th March 2000 when she allowed in part an appeal against the order of Master Leslie made on 16th February 2000 striking out parts of the defendant's counter-schedule of loss in an action brought by Mr Pugh for damages for wrongful dismissal from his employment.
  2. Mr Pugh was employed by the respondent, Cantor Fitzgerald International, as a broker in the Euro Bond Department under a written contract of employment dated 22nd February 1994. He had a further agreement with the American parent company of the respondent, the "partnership agreement", to which I will refer later. Under his contract of employment he was to be paid 200,000 per annum by way of salary and guaranteed bonus with the prospect of an additional bonus being paid at the company's discretion. The contract was for a three year term automatically extended year by year unless a month's notice had been given that no such extension was required. After that three year period, the contract could be terminated on six month's notice. Such notice was in fact given by the company and it is common ground that under the provisions of the contract that notice would have taken effect so as to terminate the employment on 21st February 2000. However, as it was alleged in paragraph 4 of the particulars of claim:-
  3. "On 7th October 1998 the defendant unlawfully terminated the contract with effect from 15th October 1998 in that the defendant terminated the contract before the expiry of the notice period."

  4. In a schedule of loss the claimant set out the calculations of salary, the value of his benefits, the guaranteed and discretionary bonuses totalling nearly 229,000. He gave a discount for accelerated payment reducing the claim to about 208,000. That needed to be grossed up to allow for income tax. The amount claimed on that basis was some 326,500.
  5. The acknowledgement of service was filed late but no defence was put in and as a result judgment in default was entered on 21st September 1999. The defendant then applied to set that judgment aside on grounds that:-
  6. i) "The defendant had a real prospect of successfully defending the claim in accordance with Rule 13.3(1)(a) of the Civil Procedure Rules; and
    ii) The claimant's judgment under Part 12 of the C.P.R. was wrongly entered because the conditions in Rule 12.3(1) of the C.P.R. were not satisfied (pursuant to Rule 13.2(a) of the C.P.R.)."

    The defendant relied on the evidence of its solicitor Mr Aherne (which is not in the bundle before us) and of Mr Falkner, its General Counsel to which I shall refer later, and, in respect of which for present purposes, it is sufficient to state that it went almost entirely to the second ground relating to alleged improper service of the proceedings with which we have not been troubled.

  7. It is necessary to analyse the defence in a little detail. Paragraph 4 of the Particulars of Claim, which had alleged unlawful dismissal, was admitted. Nevertheless three implied terms were then pleaded, namely that the claimant as head of a team (the Dutch Government Bond Desk):-
  8. "3.1 Would disclose any approaches from competition to his departmental manager;

    3.2 Would not seek to solicit, procure or otherwise persuade other members of his team to work for a competitor;

    3.3 Would not seek to induce a breach of contract, or collateral agreements, of other members of his team."

    Paragraph 4 pleaded an express term contained in paragraph 11 of the contract that the claimant would "well and faithfully" serve the defendant. Paragraph 16 of the contract contained another express term that the claimant would not divulge any "secret, confidential or other similar information".

    What constituted the breaches must also be carefully examined. The allegations were:-

    "6.1 In or around October 1996 the claimant was approached by a competitor of the defendant Liberty Eurasia Ltd. ("Liberty") to commence employment with Liberty and to persuade members of his Dutch Government Bond Desk and members of the German Government Bond Desk to join Liberty.

    6.2 The claimant informed Liberty of the senior brokers employed by the defendant to speak to regarding recruitment by Liberty of the members of the German Government Bond Desk and proceeded to arrange for members of his Dutch Government Bond Desk to meet with the managing director of Liberty ... in or about November 1996. The claimant together with members of his Desk, Mr R. Alder, Mr N. Dyte, Mr D. Griffiths and Mr E. Vanderdonk met with Mr Taylor who discussed their employment with Liberty.

    6.3 Further the claimant also persuaded an employee of the defendant, Mr P. Norton, a member of the defendant's Italian Government Bond Desk (but who had previously worked on the Dutch Government Bond Desk) to contact Mr Taylor of Liberty about his being employed by Liberty.

    6.4 Further the claimant gained knowledge from Mr Taylor of Liberty that Liberty intended to recruit all the members of the defendant's German Government Bond Desk and Belgian Government Bond Desk (all of whom left the defendant in January 1997 without notice to work for Liberty). The claimant did not disclose his knowledge of any of the approaches by Liberty to employees of the defendant to his department manager or any other manager of the defendant.

    6.5 The defendant first learnt of the claimant's involvement in these activities in November 1998."

    It was then alleged that "by reason of all of those matters the claimant was guilty of gross misconduct disentitling him to any damages." For convenience I shall call this "the liability issue". No admission was made as to the loss and damage pleaded.

  9. The claimant's solicitor, Mr Mahal, responded to those matters in his witness statement placed before the Master and us. He disputed the allegations of improper service and as to the defence he said it was a sham and that the case then being advanced was inconsistent with the defendant's previous stance in the dispute. His view was that:-
  10. "Clearly the defendant is attempting to construct a further reason for its defence which should not be allowed."

    He concluded that:-

    "... in the absence of any meritorious defence ... the judgment in default should be allowed to stand. The defendant will of course have the opportunity of defending the issue of quantum in this matter."

  11. Mr Aherne put in a second witness statement, and, unlike the first, this is with our papers. He deals at length with the failure to return the acknowledgement of service in time but when he dealt with the substantive defence he said little more than this:-
  12. "9. I believe the defendant has discovered matters which constitute ... a valid defence ...

    11. With respect, Mr Mahal's contention that this defence is a sham is wholly incorrect. The matters set out in the draft defence demonstrate a valid and sustainable defence to the claimant's case."

  13. I will not quote more from this statement. It was practically useless for the purpose it was designed to serve. It may have been long in argument and comment but it was woefully short on facts, especially any which went to the basis of the defence sought to be advanced.
  14. That application was heard by Master Leslie on 6th December 1999. He ordered that the defendant's application to set aside the judgment entered on 21st September 1999 be dismissed and he gave directions for the defendant to serve a counter schedule to the claimant's schedule of loss. He fixed a case management conference for 16th February 2000. There is no note of his judgment. There is no satisfactory explanation of why there is no note of his judgment. All that was apparently before Smith J. and all that is before us is as she set out in her judgment:-
  15. "Unfortunately, there is no note of his judgment and counsel have been unable to tell me how the Master expressed himself save that he said that the defence had no reasonable prospect of success."

    It is indeed unfortunate because the outcome of this appeal may well depend upon what the Master found and what the effect of his findings are.

  16. The defendant duly filed its counter schedule. It suggested that the claimant had suffered no loss, paragraph A.1 asserting that the claimant was "not entitled to any damages as a matter of causation", which I shall refer to as the "causation issue", either because:-
  17. "1.1.1 The defendant was entitled to terminate the claimant's contract of employment ...; or

    1.1.2 The losses do not flow from the defendant's breach because of the claimant's repudiatory breach of the terms of the contract."

    The defendant's case was then stated. This pleaded the same terms of the contract well and faithfully to serve under paragraph 11 and not to divulge secret or confidential information under paragraph 16. It added a further express term namely:-

    "During the course of your employment ... you will not ... solicit for your own benefit or the benefit of any person or organisation other than the (defendant) the employment or other services of any individual personally known to you who was employed by the (defendant)."

    Then the schedule pleaded implied terms to disclose any approaches from competitors and not to seek to induce a breach of contract, which echoed the defence and further, but in slightly different terms to the defence, that the claimant would "do no act which would harm the defendant's business (which would include soliciting the defendant's employees)".

    It was the defendant's case that on breach of any of those terms the defendant would be entitled to terminate the contract summarily or alternatively that the claimant would be disentitled to any damages. The breaches alleged in the schedule repeated those in the defence namely that the claimant was approached by Liberty and that the claimant arranged a meeting between Liberty and other employees of the defendant including Messrs Norton and Vanderdonk. It was suggested, again in terms slightly different to the defence, that "the claimant solicited these individuals to leave employment with the defendant to join Liberty".

  18. Paragraph A.2 pleaded in the alternative that damages should cease from November 1998, the time when the defendants discovered the claimant's activity.
  19. In Part E of the schedule the defendant pleaded that the claimant had "failed to mitigate his losses whether reasonably or otherwise" and the case, which I shall call the "mitigation issue", was set out in paragraph E.2 as follows:-
  20. "Under the terms of the agreement for Limited Partnership of Cantor Fitzgerald, LP ... (the "Partnership Agreement") between the claimant and Cantor Fitzgerald Ltd. Partnership, the claimant has received payments equal to $320,196 (less applicable taxes) (the "Base Amount"). Under the terms of section 11 of the Partnership Agreement, subject to the claimant satisfying a pre-condition that he has not engaged in any "Competitive Activity" as defined in that section of the Partnership Agreement, the claimant would receive an Additional Amount of $161,898 and a Post-Termination Payment of $342,288 less applicable taxes in four annual instalments on the anniversaries of payment of the Base Amount in the case of the Additional Amount and on the anniversaries of the termination of the claimant's employment in the case of the Post-Termination Payment. It is the claimant's case that he is not permitted to obtain employment as a broker because by doing so he will engage in a Competitive Activity and will cease to be able to satisfy the pre-condition for entitlement to the above payment.

    2.1 It is the defendant's case that:-

    2.1.1 The claimant's activities described in paragraph A.1 above are a "Competitive Activity" for the purposes of the Partnership Agreement and therefore the claimant, from the date of that Competitive Activity, ceased to be able to satisfy the condition precedent for the payment of any Additional Amount or Post-Termination Payment. The claimant's entitlement to the additional amount or the Post-Termination Payment under the Partnership Agreement would not, therefore, have been any less had the claimant immediately taken employment with a competitor of the defendant following the termination of his employment as he no longer had any entitlement to such payments over and above his base amount. The claimant should, as a senior, experienced and talented broker, have mitigated his loss and obtained employment at a rate comparable, if not in excess of, that which he was paid by the defendant within a reasonable period ..." (The emphasis is added by me the more easily to identify the only part of paragraph 2.1 which Master Leslie permitted to survive a strike-out).

  21. "Competitive activity" was widely defined in the partnership agreement and included the following:-
  22. "For the purposes of this agreement, a partner shall be construed to have engaged in competitive activity if such partner, while a partner or during the restricted period (i) directly or indirectly, or by action in concert with others, solicits, induces or influences or attempts to solicit, induce or influence any other partner, employee or consultant of the partnership, or any affiliated entity, to terminate their employment or other business arrangements with the partnership, or any affiliated entity, or to engage in any competing activity as hereinafter defined, or hires, employs, engages, including as a consultant or partner, or otherwise enters into a competing business with any such person."

  23. For completeness I should record the alternative pleas in mitigation that the claimant should have sought other work once released from the partnership agreement in September 1999 and that in any event he should have taken other work if it was more remunerative than the sums he was claiming under the partnership agreement. It has never been suggested that it was not open to the defendant to argue these points.
  24. At the case management conference on 16th February Master Leslie considered whether the causation issue and mitigation issue could stand as they had been pleaded in the defendant's counter-schedule. There is a note of his judgment. It contains a short statement of the approach he took to the application to set the judgment aside and he said:-
  25. "I decline to do so under Rule 13.3(1), exercising my power and discretion and giving a direction for an assessment of damages." (I have added the emphasis).

  26. He found with regard to the causation issue that the competitive activity alleged:-
  27. "was a fact and matter raised in the defence which I declined. Equally, the point raised with regard to mitigation of loss ... is a repeat of the defence as set aside by the judgment last year. I shall strike these out as they are seen to be matters already adjudicated upon."

  28. He considered the issue of estoppel. He doubted whether the principles in Mullen v Conoco Ltd. decided by the Court of Appeal on 23rd April 1997 before the new Procedure Rules were still relevant. He said:-
  29. "I am moreover persuaded that, when I originally looked at the defence and rejected it under Rule 13.3, I came to the conclusion that the defendant had no prospect of succeeding and if I thought this were not the case, I would have set the judgment aside. That judgment is binding on these parties."

  30. So he struck out the whole of the no causation allegations, the alternative plea that damages were capped in November 1998 when the competitive activity was discovered and the whole of the mitigation issue which relied on that competitive activity.
  31. The defendants appealed against the Master's order. The appeal was heard by Smith J. who upheld his decision on the no causation issue but she allowed the appeal on the mitigation issue and so she re-instated the allegations in paragraphs E.2 and E.2.1 which the Master had struck out. She later gave permission to appeal, saying that this court should have the opportunity to clarify the proper approach to the question in the light of the new Civil Procedure Rules.
  32. Smith J. dealt first with the no causation issue and although there is no appeal against that part of her judgment, it is necessary to see how she approached it. She held that the unreported decision of this court in Lunnun v Singh dated 1st July 1999 was binding upon her so that if the issue sought to be raised on the assessment of damages was inconsistent with the judgment on liability, it should be struck out. She held the issues were the same.
  33. She also considered that the Civil Procedure Rules, Part 13(3), effected an important change to the setting aside of a default judgment under the old Rules of the Supreme Court:-
  34. "Now, under CPR, if the master concludes that the defendant has no real prospect of success, no question of discretion arises unless, of course, he finds there is some other reason to set the judgment aside.

    26. In order to reach the conclusion that there is no real prospect of success, the master will have had to give some consideration to the merits of the claim and the proposed defence and will have required some evidence for the purpose. In my judgment, where a refusal to set aside a default judgment under CPR Part 13 includes a statement by the court that the defendant has no real prospect of successfully defending the claim, the decision made is not discretionary, but substantively determines the issues necessarily involved in that decision. Thus, the core of the proposed defence is determined, at least for the purpose of the action if not for all time, as between those two parties."

  35. She held that the essential core or bare bones of the defence was that gross misconduct justified dismissal. She held that the "scope and effect" of the Master's finding that that defence had no real prospect of success did not mean:-
  36. "that he found there had been no misconduct. He may have meant that, although I doubt it as he did not have before him material on which he could properly have made such a determination. In my view, at the very least, he must have decided that such misconduct as might be proved could not amount to such a breach of the terms of the employment contract as would amount to gross misconduct which could justify this dismissal, which was, to all intents and purposes, a summary dismissal. In my view, that is the bare essential which must have been encompassed by the master's decision of 6th December.

    29. That issue having been decided by the master on 6th December and not being made the subject of appeal, the defendant cannot now raise the same issue on the assessment of damages. To do so would be inconsistent with the decision on liability. In my view this attempt to allege misconduct as disentitling the claimant to any damages is really an attempt to defend the claim by the back door."

  37. She then dealt with the mitigation point as follows:-
  38. "30. ... The defendant argues that the claimant's alleged conduct in 1996/1997 amounted to a breach not of the employment contract, but of the terms of section 11.04 of the Partnership Agreement. All that the defendant seeks to prove is that the claimant's conduct fell within the very widely drafted definition of "competitive activity" to which I have referred, with the result that he was not entitled to receive additional payments under s.11.04 following termination. The conduct alleged is the same factual allegation as was sought to be raised in the defence but, in the submission of Mr Mead (counsel for the defendant), the issue is different from that which must be taken to have been decided by the master on 6th December.

    ...

    32. Mr Sendall, for the claimant, submitted that because the misconduct raised in the mitigation point is factually identical to that sought to be raised in the defence, it cannot be raised for any purpose. He relies on the broad words used in particular by Peter Gibson L.J. in the case of Lunnun ...

    33. If I had interpreted the master's decision of 6th December as necessarily entailing a finding that there had been no misconduct, I would accept Mr Sendall's submission. However, as I have indicated, I do not think that the master's decision can be so understood. In my view, his ruling can only be interpreted as a finding that there was no reasonable prospect of the defendant showing that the claimant was guilty of gross misconduct such as would justify summary dismissal. In my judgment, the issue now sought to be raised on the mitigation point is different from the issue determined by the master. The issue in relation to competitive activity was not, in my view, covered by the master's decision of 6th December. Accordingly, in my view, as a matter of principle, the defendant should be allowed to run it."

  39. She also dealt with arguments that the mitigation point should be struck out as having no real prospect of success but as she had evidence from Mr Norton and Mr Vanderdonk, employees of the defendant, who spoke of the claimant's involvement in the alleged poaching by Liberty Brokers Ltd., evidence not before the master, she could not strike out the allegation. She was not impressed with the submission that allowing the mitigation point would so lengthen and increase the expense of the litigation that the point should be disallowed.
  40. There are now essentially three questions which arise in the appeal to this court:-
  41. (1) Does the mitigation point give rise to a different issue from the no liability and the no causation issues, it being common ground that the same facts were being relied upon to support each of them?

    (2) Does the Master's finding that there was no reasonable prospect of successfully defending the claim necessarily include a conclusive finding against the defendant of all the facts alleged in the proposed defence so as to preclude the defendant relying on those facts to support a different issue?

    (3) Is it an abuse of process along Henderson v Henderson lines to introduce evidence to support the new issue raised in the schedule of damages when that evidence could and should have been deployed at the time when seeking to set the judgment aside?

    Issue Estoppel.

  42. The first question is what issues may be raised on an assessment of damages which is undertaken after there has been a judgement on liability. The answer is given by the unreported judgment in this court in Lunnun v Singh & Ors. dated 1st July 1999. There a default judgment for damages to be assessed was entered by the claimant seeking those damages in respect of a leakage onto his land of water and sewage from a sewer on the adjoining premises owned by the defendant. On the assessment of damages the defendant sought to dispute that any water flowing from the cracked sewer was causative of any of the particular heads of damage claimed. Jonathan Parker J., as he then was, stated the "underlying principle" in these terms, namely:-
  43. "That on an assessment of damages all issues are open to a defendant save to the extent that they are inconsistent with the earlier determination of the issue of liability, whether such determination takes the form of a judgment following a full hearing on the facts or a default judgment."

  44. Clarke L.J. held that on the assessment of damages the defendant may not take any point which was inconsistent with the liability alleged in the statement of claim but subject thereto, the claimant could take any point relevant to the assessment of damages including failure to take reasonable steps to mitigate. Peter Gibson L.J. was of the view that:-
  45. "the true principle is that on an assessment of damages any point which goes to quantification of the damage can be raised by the defendant, provided that it is not inconsistent with any issue settled by the judgment."

  46. In my judgment that view of the true principle survives the introduction of the new Common Procedure Rules.
  47. Thus the second question is what issues are determined by a judgment entered in default of defence. I accept the principle as it was expressed by Viscount Radcliffe in the Privy Council in Kok Hoong v Leong Cheong Kweng Mines Ltd. [1964] AC 993, 1012:-
  48. "... default judgments, though capable of giving rise to estoppels, must always be scrutinised with extreme particularity for the purpose of ascertaining the bare essence of what they must necessarily have decided and, to use the words of Lord Maugham L.C. (in New Brunswick Railway Co. v British & French Trust Corporation Ltd. [1939] A.C. 1, 21), they can estop only for what must "necessarily and with complete precision have been thereby determined.""

  49. The third question is whether the position is any different because the court has subsequently refused to set that default judgment aside. That was the case in Mullen v Conoco Ltd., an unreported decision of this court given on 23rd April 1997. Mr Mullen had a petrol filling station and the petrol was supplied by Conoco. After a while the business ran into difficulties which Mr Mullen was convinced were caused by his being so overcharged by his supplier that his retail prices had become uncompetitive in the area he served. When he failed to pay for two deliveries Conoco issued a writ for the unpaid price and entered judgment in default of defence. Mr Mullen attempted unsuccessfully to have the judgment set aside. He later issued separate proceedings claiming as damages the "trading losses arising out of the imposition and enforcement of an improper and unreasonable supply contract". Conoco applied to strike out the claim. Evans L.J. held as follows:-
  50. "First, that the circumstances in which an interlocutory ruling can give rise to an estoppel are always problematical ...

    Secondly, and more specifically, on an application to set aside a default judgment the court's consideration of the merits of potential defences is only part of the matters which it must take into account. It may be a sine qua non of the power to set aside that it should be shown that the defence has a good prospect of success. But the decision itself may be based either solely or at least in part on discretionary factors such as the example of delay.

    Thirdly I would not exclude the theoretical possibility that there might be a case where the court's ruling on an ord.13, r.9 application to set aside a default judgment was so clear and so specific as regards a particular defence or potential defence, and where no special factors were present which might prevent an issue estoppel from arising as discussed in the Carl Zeiss case, which might give rise to legal or discretionary grounds for barring any further action. I find such a possibility difficult to envisage in practice simply because that is not the usual scope of an ord.13, r.9 application for the reasons which I have given.

    The question is whether the test is satisfied in the present case. Was the interlocutory ruling here so clear and specific as regards a particular defence or potential defence."

  51. Having analysed the nature of the issues sought to be raised in that action, it was abundantly clear that the deputy master had not even begun to decide those issues in the judgment he gave when refusing to set aside the original judgment.
  52. Hobhouse L.J. added a comment upon which the appellant now seeks to build. He held:-
  53. "However, in my judgment, what occurs on an application under ord.13, r.9 is not a determination of issues but merely an exercise of discretion and the decision whether or not to grant a discretionary procedural remedy. It is not of the same character as ord.14 proceedings. A successful application for summary judgment under ord.14 has to establish and confirm the plaintiff's cause of action and the absence of any defence to that claim. Therefore, ord.14 does require before judgment can be entered a determination of the merits of the case and the existence of causes of action if the application for summary judgment is to be successful. In contrast, if the application for summary judgment is refused, no issue is decided at that stage. Similarly, in respect of an application under O.13, r.9 there is no determination of issues. There is simply an exercise of discretion and, therefore, it is not a decision which gives rise to res judicata properly so called."

  54. Mr Stafford Q.C. submits that under the Civil Procedure Rules there is no essential difference between the task facing the court when considering whether or not to grant summary judgment and whether or not to set a judgment aside. He submits that in both cases the merits have to be considered and so the judgment takes on greater force. I shall return to that submission in a moment and for present purposes I am content to accept it because it does not seem to me to alter the central question which has to be determined when considering issue estoppel.
  55. That central question is whether the same issue is being raised in mitigation of damages as was raised either in establishing liability or in holding that there was no reasonable prospect of establishing a defence to the claim. The judgment on the claim determined the issue that the defendant had unlawfully terminated the contract. The issue raised by the proposed defence and rejected by the Master was that the claimant was guilty of gross misconduct disentitling him to any damages. Those issues cannot be raised again. But what the defendant now seeks to aver in mitigation of the damages that flow from its now indisputable unlawful termination of the contract is that the claimant should not be entitled to argue that he did not have to obtain alternative work as a broker because, if he did so, he would thereby disentitle himself to any of the termination payments due to him under the partnership agreement. The defendant wishes to contend that because the claimant had engaged in competitive activity, he was from that time onwards no longer entitled to those payments, and thus there was no fetter on his going out immediately after his dismissal and finding other work. That issue is quite different from the issues relating to no liability at all or to no causation as pleaded in the schedule of damages. The mitigation issue relates to a wholly different contract between different contracting parties, one which is, moreover, governed by a foreign law, the law of Delaware. The issue is whether the claimant had engaged in competitive activity as widely defined in that partnership agreement. The issue is whether or not he was entitled to the termination payments under the partnership agreement. I am quite satisfied that the judge was correct in concluding that that mitigation issue was quite different from the no liability and the no causation issues.
  56. Factual Estoppel.

  57. It is common ground between the parties that a determination of fact will found an estoppel as much as the determination of an issue. The facts relied upon to support the no liability issue bear such a close similarity to those raised in the mitigation issue that I am prepared to assume for the purposes of this argument, even if it is not common ground, that they (or at least most of them) are identical.
  58. In ascertaining what facts have been determined by an earlier judgment of the court, one must look at all the circumstances and at any material, from the pleadings to the evidence and the reasons for judgment, which throw light upon what really was decided. The court will enquire broadly into the realities not the technicalities of the decision upon which the estoppel depends.
  59. Mr Stafford submits that a change in the rules for setting judgments aside has made the fact-finding exercise a necessary part of the judicial process. Under the old R.S.C.O.13, r.9:-
  60. "... the court may, on such terms as it thinks just, set aside or vary any judgment ..."

  61. As was accepted by all those members of this court in Mullen v Conoco Ltd., this was substantially a discretionary exercise. Mr Stafford submits that that process has been changed by C.P.R.13.3(1) which now provides:-
  62. "... the court may set aside or vary a judgment entered under Part 12 if -

    (a) the defendant has a real prospect of successfully defending the claim; or

    (b) it appears to the court that there is some other good reason why -

    (i) the judgment should be set aside or varied; or
    (ii) the defendant should be allowed to defend the claim."
  63. As I have already observed with dismay, there is no note of the Master's judgment of 6th December 2000 although it is common ground that he held that the defendant had no reasonable prospect of defending the claim on liability. Mr Stafford submits that a defendant must establish his real prospect of successfully defending as a threshold of fact and/or law which must be crossed before any question of discretion arises. Drawing upon Hobhouse L.J.'s dicta in Mullen v Conoco Ltd., he submits that there has to be a determination of the merits of the case both for Part 13.3 and also for summary judgment under Part 24.2 purposes where it is likewise necessary to show that a defendant has no real prospect of successfully defending the claim.
  64. I am sure that there may well be cases where it is plain that there has been a determination of the merits of the case, but I am equally sure that it does not always follow from the decision that the judgment is not to be set aside, that there is necessarily such a determination of fact sufficiently clear and certain to found an estoppel. I come to that conclusion for the following reasons:-
  65. a) The change in the language of the rules is not such a sufficient change in the practice to justify casting aside the cautionary words in the old authorities requiring careful scrutiny of default judgments and refusals to set them aside before entertaining an estoppel. As the notes to C.P.R.13.3 make clear:-

    "The phrase "real prospect of success" is a restatement of the principles laid down by the Court of Appeal in Alpine Bulk Transport Co. Inc. v Saudi Eagle Shipping Co. Inc., The Saudi Eagle [1986] 2 Lloyds Rep. 221."

    b) As the Saudi Eagle made clear, the purpose of the discretionary power was to avoid injustice and enabling the court to deal with cases justly is of course the overriding objective of the new Rules.

    c) A large number of factors may impinge upon the decision taken in a summary process that there is no real prospect of success. Take the very case before us. The only material supporting the defence was a draft defence and the witness statements of Mr Daniel Aherne, the defendant's solicitor, and Mr Falkner, the defendant's general counsel. Mr Aherne's statement presumably tells us so little about the merits of the defence that neither side has seen fit to include it in our papers. Mr Falkner in his statement says only this:-

    "I attach to this witness statement a draft defence ... settled by counsel which sets out the basis upon which C.F.I., as defendant in this matter, wishes to dispute liability. I believe, and I am advised by counsel, that the facts set out in the defence constitute a good defence to the claimant's particulars of claim."

    d) There is not even an affirmation of belief in the truth of the facts set out in the defence, still less any direct evidence to support them when that evidence was available as is shown by the later witness statements of Mr Norton and Mr Vanderdonk. Set against that paucity of evidence were the unanswered points made by the claimant's solicitor Mr Mahal that:-

    i) The suggestion of dismissal by reason of gross misconduct was an entirely new argument which was "without merit and ... a sham".
    ii) The reason given for and at the time of the summary termination was the claimant's purported resignation.
    iii) There was no reference to gross misconduct in the Industrial Tribunal proceedings when the full facts were known and when the reasons advanced for the dismissal were nothing to do with misconduct but related to redundancy and business re-organisation.
    iv) Another reason which was given in June 1999, so again after the defendant was fully aware of the alleged misconduct, was that the claimant was summarily dismissed because he refused to accept revised terms of employment.

    Small wonder the master had no hesitation in concluding on that evidence that there was no real prospect of success.

  66. Master Leslie himself stated in his judgment of 16th February:-
  67. "I decline to (set the judgment aside) under Rule 13 3.3(1), exercising my power and discretion ..."

    He did not explain how that discretion was exercised and whether or not he was influenced by the failure to address the claimant's powerful demolition of the bare assertion made by the defendant.

  68. In the light of all that material I find it impossible to conclude that in a summary hearing of which we know practically nothing, such certain conclusions can be drawn as would justify an estoppel of fact per rem judicatem. In all events, one should remember Lord Upjohn's observation in Carl Zeiss Stiftung v Rayner and Keeler Ltd. (No. 2) [1967] A.C. 853, 947 that:-
  69. "All estoppels are not otiose 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."

  70. The new rules may sometimes be thought to be open to the criticism that they elevate expediency of the judicial process above the justice of it. Where there is evidence which appears to be credible, or is certainly not demonstrably incredible, that evidence should in justice be tested at a trial of the action and not be ruled out of court by an estoppel arising from a summary stage of the procedure when the basis of the judgment relied upon is as vague as it is in this case.
  71. In my judgment this ground of appeal fails.
  72. Abuse of process.

  73. The final point taken on the appeal by Mr Stafford is that as the matters raised by Mr Norton and Mr Vanderdonk could have been raised at an early stage in the proceedings, they should have been raised and so it is an abuse of process per Henderson v Henderson (1843) 3 Hare 100 to permit the matters now to be raised. That principle has recently been explained in the speech of Lord Bingham of Cornhill in Johnson v Gore Wood & Co. [2001] 2 WLR 72,90 where he said:-
  74. "It is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."

  75. I am satisfied, as the judge in the exercise of her discretion was satisfied that the lengthening of the hearing and the added expense of the trial does not prevent the defendants "from running a point which they are otherwise entitled to run". On this aspect of the appeal, the judge did not err in principle and far from any exercise of discretion being shown to be plainly wrong, she was in my judgment plainly right.
  76. I would therefore dismiss the appeal.
  77. MR JUSTICE EVANS LOMBE:

  78. I agree.
  79. ORDER: appeal dismissed with costs agreed at 12,000, within 14 days.
    (Order does not form part of approved Judgment)


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