01
Dec
21
Articles, Travel & Cross Border Claims
On the application of Res Judicata (or disarming the ‘’Italian Torpedo’’)

1. All travel litigation practitioners will be familiar with the concept of the ‘Italian Torpedo’, but for those amongst us lucky enough never to have seen one approaching on their radar, a brief explanation is called for.

2. Italian torpedo is the colloquialism for a tactic which has abound in private international law for many years. It entails a prospective defendant to a civil action issuing proceedings in his home court, in an effort to seize those courts and to frustrate the Claimant in pursuing his own claim in his home courts.

3. However, the spectre of a torpedo need not spell the end of a claim, provided the correct steps are taken to address the issue.

4. In a recent case the authors had the opportunity to consider just such a situation. The issue was ultimately resolved without judicial consideration, but the unusual facts provided a number of useful learning points.

The factual background

5. The Claimant (MK’) was injured in a road traffic accident that occurred during the course of a motorcycle touring holiday in Northern Spain.

6. The accident happened on the 11th October 2019 on a mountain road near Arenas De Cabrales when MK, in the process of overtaking a Spanish ‘motorhome’, was struck by the vehicle, causing him to come off his bike and sustain injury.

7. A letter of claim was sent to UK Handling Agent of the Spanish foreign insurer (‘SFI’) in October 2019 and they responded, in January 2020, advising that liability was denied.

8. In February 2020, SFI’s English solicitors confirmed that they were nominated to accept service of proceedings. The Claim was issued September 2020 and served on the English solicitors in October 2020.

9. Following service of proceedings, SFI filed an acknowledgment of service, indicating an intention to contest jurisdiction.

10. Unbeknownst to MK, SFI had issued a claim in July 2020 in the Spanish Court closest to the accident location, against the Spanish Green Car Bureau, OFESAUTO, in their capacity as agents of MK’s motorcycle insurer, MCE Insurance Ltd.

11. The Claim was for just €738, this being the sum that SFI had to pay their own insured in respect of the damage to her own vehicle. It was, therefore, a claim arising out of an insurance obligation, i.e. SFI’s obligation, pursuant to the insurance contract, to indemnify their own insured.

12. Following the filing of the Acknowledgment of Service, SFI made a formal application, pursuant to CPR 11, to contest jurisdiction. They applied for MK’s claim before the English Court to be struck out on the basis that there were related proceedings, within the meaning of Articles 29 and /or 30 of Regulation (EU) 1215/2012 (the Lis Pendens provisions).

13. This was, therefore, the archetypal torpedo. The key to disarming it lay in a careful investigation into the nature of the Spanish proceedings themselves.

14. The Spanish court documents, obtained via a Spanish lawyer, revealed that SFI had issued a claim against OFESAUTO, rather than issuing a claim against either (1) MK directly or (2) MCE Insurance, his insurers.

15. It may be that the reason for taking this approach was because of a concern that they would not be able to establish jurisdiction against MK or MCE, pursuant to Regulation (EU) No 1215/2012 (‘Recast Brussels’) because their claim was ‘a matter relating to insurance’, not a claim in tort. Article 14 provides that

Without prejudice to Article 13(3), an insurer may bring proceedings only in the courts of the Member State in which the defendant is domiciled, irrespective of whether he is the policyholder, the insured or a beneficiary.

16. Spanish Law advice also suggested that OFESAUTO could not be sued by an insurance company, because the Spanish rules governing the operation of OFESAUTO had to be interpreted and applied in a way that is consistent with the Codified Motor Directive 2009/103. The Directive only permits an ‘injured party’ to present a claim to the claim’s representative, not their insurer.

17. Notwithstanding the clear difficulties with the claim under Spanish law, OFESAUTO chose not to contest it. Indeed, they had even offered to settle on a 100% basis prior to proceedings being issued. Despite this SFI issued anyway and, when OFESAUTO, quite reasonably, questioned this approach the Spanish solicitor for SFI admitted, in open correspondence, that the primary purpose of the proceedings was to foil MK’s proceedings in England, i.e. to act as the titular torpedo.

18. The English proceedings were stayed pending the resolution of the claim in Spain. Judgment in the Spanish proceedings was handed down in April 2021. It confirmed that OFESAUTO had accepted liability. The Court was not required to reach any factual findings on liability. It was in effect a rubber stamping of the previous agreement reached between the parties.

19. The only issue on which the Spanish court was required to rule was as to whether SFI should be entitled to the costs of the proceedings. Since OFESAUTO had offered the full value of the claim pre issue, the Court found that SFI was not entitled to their legal costs.

20. The conclusion of the Spanish proceedings in the manner described above raised the question of whether they the English claim could proceed, or was barred by the principle of res judicata.

Legal principles

21. The following principles of law apply to the status of foreign judgments relied upon in English proceedings. They are derived from a series of judgments in the Higher Courts listed in the footnote to this article[1]

a. Res judicata consists of two principles: issue estoppel and abuse of process. However, if there is no issue estoppel, it will be ‘rare’ for the later proceedings to constitute an abuse of process.

b. An issue estoppel arises where a particular issue has been determined by a court in prior proceedings. It can apply to foreign judgments, but only if a number of conditions are satisfied:

i. The judgment is by a court of competent jurisdiction.

ii. The judgment is final, conclusive and on the merits.

iii. The parties or their privies are the same in both sets of proceedings.

iv. There must be clear determination of the issue by the judgment – it must not be merely collateral or obiter comment.

v. The issue in the later action must be the same as the issue decided by the foreign judgment.

c. The question whether a foreign court is one of ‘competent jurisdiction’ is determined by applying English rules of private international law and not the law of the foreign court.

d. It is well established that a party, shown to have been de facto subject to the jurisdiction of a foreign court, cannot seek to persuade an English court to examine the correctness of the judgment whether on the facts, or as to the application by the foreign court of its own procedural or substantive law or, when relevant, of the law of this country. A foreign judgment is not, therefore, impeachable merely because it is “manifestly wrong”. Similarly, jurisdiction cannot be impeached where it was conferred by consent or submission, even if it would not otherwise exist. The only basis for impeaching the foreign court’s jurisdiction is where the decision, procedurally or substantively, offends English law principles of natural justice or was obtained by fraud.

e. A foreign judgment is final and conclusive if the party asserting the estoppel can establish that the ruling cannot be relitigated in the foreign country in any new action between the parties, or their privies. The fact that a judgment or decision can be appealed does not prevent it from being final. However, the foreign legal system must regard the particular issues relied upon as having preclusive effect as a matter of law. It is not enough that, as a matter of practice it would treat it as final. The foreign legal system must therefore either have a doctrine of issue estoppel which covers the issues raised, or have a doctrine which has the same underlying basis and operation (i.e. refusing to re-hear a factual issue on account of the preclusive effect of a previous judgment).

f. The requirement that the parties or their privies must be the same in both sets of proceedings is self-evident insofar as it concerns the parties themselves. The question of who or what is a ‘privy’ requires consideration of (a) the extent to which the new party had an interest in the subject matter of the previous action; (b) the extent to which the new party can be said to be, in reality, the party to the original proceedings by reason of his relationship with that party; and (c) against this background, whether it is just that the new party should be bound by the outcome of the previous litigation. The question of whether there is privity of interest cannot be conditional upon the character of the decision, i.e. it must take effect whether the relevant party wins or loses in the foreign proceedings and whether the relevant party was claimant or defendant in the foreign proceedings.

g. As a matter of EU law, an insurer and an insured may or may not have an identity of interest: “It is certainly true that, as regards the subject matter of two disputes, there may be such a degree of identity between the interests of an insurer and those of its insured that a judgment delivered against one of them would have the force of res judicata as against the other. That would be the case, inter alia, where an insurer, by virtue of its right of subrogation, brings or defends an action in the name of its insured without the latter being in a position to influence the proceedings. In such a situation, insurer and insured must be considered to be one and the same party for the purposes of the application of article 21 of the Convention”[2]

h. There is, however, another type of case in which privity of interest is recognised, namely where C knows of proceedings between A and B in which his rights are being tested but stands back and does nothing. The principle derives from what we would now call class or representative actions, where an action is brought in the name of one party as representative of a class of persons with an identical interest. It is not open to a represented party subsequently to launch fresh proceedings of his own.

i. The need for a clear determination of the issues by the foreign court means that the English court must be cautious before deciding that the foreign court made a clear decision on the relevant issue because English courts are unfamiliar with modes of procedure in many foreign countries, and it may be difficult to see whether a particular issue has been decided or that a decision was a basis of a foreign judgment and not merely collateral or obiter. However, noted above, a determination of an issue by consent is regarded as a valid judicial determination. The question of what issue or issues have been determined by the consent order can be tested by asking what would be the ratio of the case if it had gone to judgment on the pleadings after a contested hearing[3].

j. A stay of proceedings under Brussels Recast will not, in general, be appropriate if the foreign proceedings will not bind the parties to the action stayed or finally resolve all the issues in the case to be stayed, or the parties are not the same.

The resolution of the claim

Natural justice in the Spanish proceedings

22. In this case, despite the fact that it appeared that there was no basis in law for OFESAUTO to be sued by SFI in this context, the view was taken that that was not a basis for seeking to impeach the judgment of the Spanish Court. OFESAUTO had consented to the court’s jurisdiction and there was no breach of English principles of natural justice, since OFESAUTO was represented and on notice.

Determination of liability

23. At first blush, the fact that the judgment was entered by consent might be thought to offer fertile ground for arguing the issue of liability had not been determined by the Court. However, the view was taken that the decision of the Spanish court, even if just a rubber stamping exercise, would have been regarded as having determined the issue of liability. That is because, even though it was by consent, the determination of one driver’s liability to the other was a necessary precondition to the obligation on OFESAUTO to pay damages to SFI. Another way of testing the question would be to ask whether, if OFESAUTO had contested the claim, the judgment would have, as a necessity, needed to determine the issue of liability. The answer to this question would have been a clear ‘yes’.

Final and conclusive on the merits

24. The question of whether the judgment was final and conclusive on the merits was more vexing. It was not an interim judgment and nor did the fact that it could be appealed alter the position. The key question, it seemed, was whether the judgment, by consent and entered in circumstances where OFESAUTO had already offered to pay the money without recourse to proceedings, would create an issue estoppel (or equivalent) under Spanish law. The advice of an expert Spanish lawyer was that the judgment would be regarded as final and conclusive under Spanish law.

Privity

25. It was clear, however, that the parties to the Spanish proceedings were not the same as the parties to the English proceedings. In no meaningful sense could OFESAUTO be regarded as having an identity of interest with MK or as having been his ‘privy’. It was plainly a separate legal entity, with no direct factual or legal connection with him at all, other than its status as the Spanish green card bureau for intra-EU insurance claims. Looked at in reverse, it would be a surprising conclusion if the English MIB was a ‘privy’ of a Spanish citizen who had neither communicated with it nor even knew of its existence nor had any meaningful control over it, nor had provided it with instructions.

26. In the Mad Atelier case (footnote 1, above) the court emphasised that having a financial and commercial interest in the outcome of a case is not sufficient to establish privity of interest. Nor would it be enough if parties to separate litigation were part of a group of companies under common control. It also explained that if the relevant party (here MK) could have been joined to the foreign proceedings, that might be a strong indication of privity of interest and vice-versa. In this case, MK could not have been joined to the case: SFI was not a weaker party able to rely on articles 11 to 13 of Brussels Recast and it could not take advantage of the special jurisdictional rules based on the location of the harmful event.

Justice in the round

27. Ultimately, however, the application of the res judicata principle turns on the question of fairness and justice as between the parties. This point was emphasised in the Carl Zeiss case (footnote 1, above) in which the Court of Appeal held that:

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

28. It is in this respect in which the conduct and motive of SFI in bringing the Spanish proceedings assumed relevance. It was not, seemingly, concerned with vindication of its legal rights (since they could have been pursued under Spanish law by way of counterclaim in the English proceedings). Its concern, openly expressed in correspondence, was to oust the jurisdiction of the English courts and therefore deny the injured English claimant the opportunity of seeking redress. It was clear that MK was not participating in the Spanish proceedings and was not providing instructions to OFESAUTO, since OFESAUTO readily admitted liability in circumstances where MK was advancing a diametrically opposite case in England.

29. Nor was there any actual judicial determination (in Spain) of any of the factual issues which were said to exist between the parties (even though the effect of the consent order may have been that they are deemed to have been determined). The Spanish court had marked its own disapproval of the insurer’s conduct by refusing to award it any costs. Each of these points were relevant to the ‘overriding consideration’ of justice, and, on balance, the authors concluded that they favoured allowing the English proceedings to continue, not least because SFI was still free to defend them on their merits if it did not accept any liability to MK.

30. Once it was communicated to SFI’s English solicitors that MK would not be withdrawing his claim, and would resist any jurisdictional challenge or attempt to have the Claim struck out on the application of Res Judicata, the application to strike out was withdrawn and the stay was lifted, with directions for a Defence to be filed. In the Defence liability for MK’s claim was admitted.

31. Plainly each case where there are two courts seized of the same, or related actions, turn on their own facts, and sometimes, despite the best efforts of the lawyers, the torpedo will strike its intended target.

32. However, as the case study above illustrates, the fact that proceedings are issued first (in time) is far from the end of the story. A careful investigation of the procedural position in the foreign jurisdiction may provide the tools to disarm the torpedo before any long-lasting damage is done.

[1] 1 Carl Zeiss v Rayner (1967) 1 AC 853; The Sennar (No.2) (1985) 1 WLR 490; Resolution Chemicals v Lundbeck (2013) EWCA Civ 924; Adams v Cape Industries (1990) Ch 433; Klockner Holdings v Klockner (2005) EWHC 1453 (Comm); Mad Atelier v Manes (2020) QB 971; Drouot Assurances v CMI (1999) QB 497; Midtown Acquisitions v Essar (2017) 1 WLR 3083; Good challenger v Metalexportimport (2003) EWCA Civ 166

[2] Drouot Assurances v CMI

[3] South Somerset v Tonstate (2009) EWHC 3308 (Ch)

This article was co-written by Jack Harding of 1 Chancery Lane and Mike Hagan, Head of Travel Litigation at Fletchers Solicitors.

Written by or involving: Jack Harding

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