High Court: Issue Preclusion Against Non-Parties to an Arbitration

Question Addressed

Whether “privity of interest” can apply in the context of relying on an arbitration award against a non-party and, if so, what the correct test is?

General Rule

Issue preclusion, also known as issue estoppel, is the inability of a party to a later proceeding to contest the findings of a prior proceeding.

Issue preclusion may be used offensively, i.e. by a party to make out one or more elements of a new claim (be it a new claim against the same party or same claim against a new party), or defensively, i.e. by a party to preclude re-litigation of an issue already decided unfavourably to the opposing party.

The Court of Appeal helpfully set out the test which must be satisfied by the party wishing to invoke issue preclusion:

“[F]our conditions must be satisfied, namely (1) that the judgment must be given by a foreign court of competent jurisdiction; (2) that the judgment must be final and conclusive and on the merits; (3) that there must be identity of parties; and (4) that there must be identity of subject matter, which means that the issue decided by the foreign court must be the same as that arising in the English proceedings.

Good Challenger Navegante SA v Metalexportimport SA, [2003] EWCA Civ 1668

The meaning of the third element, “identity of parties,” has been subject to considerable debate. The leading case explaining the third factor is Gleeson v J Wippell & Co Ltd, [1977] 1 W.L.R. 510.

In Gleeson, the court explained that the question is one of “privity.” In particular, whether there is “privity either of blood, of title, or of interest” between the party to be silenced and a party to the prior proceedings. The last item—privity of interest—recognised a category of parties wider than those who were mere successors to the original claim but was admittedly “protean” and difficult to define.

According to the Gleeson court, any understanding of privity of interest must be tempered by certain principles of justice:Any contention which leads to the conclusion that a person is liable to be condemned unheard is plainly open to the gravest of suspicions. A defendant ought to be able to put his own defence in his own way, and to call his own evidence. He ought not to be concluded by the failure of the defence and evidence adduced by another defendant in other proceedings unless his standing in those other proceedings justifies the conclusion that a decision against the defendant in them ought fairly and truly to be said to be in substance a decision against him.

Held

Privity of interest can suffice to establish issue estoppel against a non-party to an earlier arbitration. The correct test for “privity of interest” is that which was laid out in Gleeson.

The unique features of arbitration will necessary mean the categories of privies is narrower:

1. The contractual foundation of arbitration significantly impacts the ability of third parties… to participate in the arbitration and to challenge any award;
2. Even where an arbitration institution’s rules allow for the possibility of joining an arbitration is circumscribed and of uncertain effect, as against the power of the court to join an interested party or the power of a non-party to apply to vary or set aside a court judgment;
3. The Arbitration Act 1996 does not give the same powers to non-parties to the arbitration agreement as to agreement parties, even where non-parties participate in the arbitral proceedings (for example, in removing an arbitrator or making a Section 69 challenge); and
4. Confidentiality militates against the award binding non-parties save in exceptional cases.

The court then concluded that there could be no such privity in the case before it.