Desert Sun V. Hill Notes

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....

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