England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE (Commercial Court)
(Hon Mr Justice Cooke)
[2004] EWHC 166 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		10 November 2004

Lord Justice Longmore:

1. Introduction

In 1994 Bim Kemi AB ("Bim") and Blackburn Chemicals Ltd ("Blackburn") made an agreement in relation to products which they respectively produced and marketed. It was agreed, inter alia, that Blackburn would "source" lint control products only from Bim and that Bim would "source" antifoams only from Blackburn. It was further agreed that Blackburn would have an exclusive right of sale in Great Britain and Eire while Bim would have first an exclusive right of sale in Sweden and secondly an exclusive right of sale in Denmark, Norway and Finland for a 3 year period which could be continued if Bim attained 20% of the available market in any agreed product range. Other provisions were agreed in relation to markets outside the exclusive regions.

2. Disagreements arose between the parties and matters came to a head in December 1998 when Blackburn refused to supply Bim with any further deliveries of a product known as BS 470. Bim claimed damages from Blackburn in the sum of two years loss of profit on the sales of BS 470 which Bim said they could and would have made. Blackburn denied that any agreement had been made in 1994 or any other time but asserted that, if that was wrong, Bim was in repudiatory breach of the agreement because Bim had wrongfully sold antifoam products of its own in Scandinavia instead of sourcing Blackburn's products. Blackburn also made independent claims for damages against Bim for breaches of not only the 1994 agreement, if it existed, but also an earlier agreement of 1984.
3. The trial of these issues began on 26th November 2001. On 30th January 2002 Langley J held first that there was indeed an agreement made in 1994 on the terms of a fax dated 20th December 1993 and secondly, contrary to Blackburn's submissions, that it was Blackburn (not Bim) who were in repudiatory breach and that Bim were, therefore, entitled to bring the contract to an end. He held further that Bim was also in breach (inter alia) because they had indeed sold antifoams other than BS 470 in Scandinavia so that Blackburn could make a claim for damages suffered as a result of such breaches of the sourcing obligations in the 1994 agreement.
4. On 13th February 2003 the Court of Appeal confirmed that there was a contract made in 1994 on the terms of the fax of 20th December 1993 but decided that it was Bim (not Blackburn) who was in repudiatory breach and that Blackburn had been entitled to accept that repudiation as terminating the contract on 22nd December 1998. Argument on the consequences of that decision and on costs was deferred. Blackburn were, accordingly, held to be entitled to damages for Bim's wrongful repudiation and also to damages for Bim's breaches of the sourcing obligations in the 1994 agreement. The Court of Appeal also held that Bim had not by the end of 1996 obtained 20% of the available market in Denmark, Norway and Finland in any relevant product range. Bim had not, therefore, been entitled to exclusive sales rights in these territories after 1st January 1997. On 24th June 2003 after a petition by Bim to appeal to the House of Lords had been dismissed, the Court of Appeal made a final order declaring that Blackburn was entitled to damages for specified breaches by Bim and for Bim's repudiation.
5. So much is common ground. What is in dispute is whether Bim should be allowed to argue on the assessment of damages (which is still to take place) that the 1994 agreement is void for illegality by reason of the competition provisions of Article 81 of the EC Treaty (ex Article 85 of the Treaty of Rome). This dispute (which has a complex procedural history) was expressly not resolved by the Court of Appeal which by its order of 24th June 2003 provided:-

"(10) Nothing in the form of this order shall prevent [Bim] from arguing [that] the 1994 Agreement is void for illegality and/or that [Blackburn] is precluded from recovering damages by reason of [Blackburn's] pleaded case that the 1994 Agreement was void for illegality, but nothing in this paragraph shall prevent [Blackburn] from arguing that the Claimant is no longer entitled to raise such an argument."

6. The question whether Bim should be entitled to argue that the contract is illegal came before Cooke J who on 6th February 2004 decided that Bim should be so entitled. He accordingly made an order dismissing Blackburn's application to strike out the relevant parts of what his order called Bim's "Defence to Blackburn's Statement of Case dated 11th August 2003".
7. Procedural History of the Article 81 (ex 85) Point

I can take this virtually verbatim from the detailed account given by Cooke J. The question of illegality surfaced about three months before the date fixed for the trial, when Blackburn sought to make amendments to its defence to plead, inter alia, that, if Bim had obtained 20% of the available market, so that it retained its right of exclusive sales in Finland after three years, there was a breach of Article 81 of the EC Treaty and the whole of the 1994 Agreement was thereby rendered invalid. Bim objected to that amendment because of the lateness of it, because it raised difficult and substantial issues and because those issues could not be fairly determined at the scheduled trial. Blackburn maintained that, as the plea was one of illegality, the Court had to consider it, whether pleaded or not, and that it was better that it should be pleaded out. Moreover, Blackburn stressed in its skeleton argument the connection to the existing proceedings in relation to investigation of market share because the Court had in any event to determine whether or not Bim had achieved 20% of the available market in the context of the existing dispute. Despite Bim's objection, Langley J gave permission to Blackburn to amend its Defence and Counterclaim and to plead and serve a Rejoinder and Reply to Defence to Counterclaim which included this plea, but he excluded the issues from the imminent trial. He gave Bim permission to make consequential amendments in the light of Blackburn's amendment, subject to the paragraph of the order in which he ordered a stay in the following terms:

"All further proceedings in respect of the pleas that the Agreement alleged by the claimant to have been made between the parties in 1994 was, if made, void under Article 85 of the Treaty of Rome or under the Restrictive Trade Practices Act 1976 shall be stayed until after the Trial of all other issues or further Order." (Nothing now turns on the reference to the Restrictive Trade Practices Act 1976 and it can be disregarded.)

8. The Article 81 plea which had been advanced by Blackburn is to be found in paragraph 6E of the Re-Re-Re-Re-Amended Defence and Counterclaim. Paragraph 6E reads as follows:

"Further or in the further alternative if (which is denied) the claimant or its subsidiary Cellkem achieved a 20% share of the market for Antifoaming agents in Finland or in Scandinavia, the exclusive supply and sourcing obligations and restrictions on re-sale outside allotted territories of the alleged Agreement (if made) were void under Article 85(2) of the Treaty of Rome, in that it was an agreement between competing undertakings …. which was liable to affect trade between member states of the EC (namely the UK, Sweden and Finland) to a not insignificant extent and which had as its object or effects the prevention, restriction or distortion of competition within the common market by restricting competition between the said undertakings in the supply of antifoaming agents, alternatively silicone based antifoaming agents in Finland or Scandinavia; and the remainder of the alleged Agreement, if made, was thereby invalidated ……."

9. When Bim came to plead to the other amendments made, not being bound (and probably not being entitled) to plead to the new paragraph 6E issue, it included the following in its own paragraph 6E:

"The claimant does not plead to paragraph …. 6E of the Defence. All proceedings arising from the allegations made in this paragraph have been stayed by the Order of Langley J dated 5th October 2001. If the …. [1994] Agreement was invalid for the reasons given by the defendant, the claimant reserves the right:

(i) to contend that the 1984 Agreement was also invalid:

(ii) to claim damages from the defendant for breach of Article 85(81) of the Treaty of Rome."

10. Self evidently Bim did not accept the validity of the Article 81 plea raised by Blackburn since it proceeded with its claim. In his witness statement, Bim's solicitor says that Bim had not taken specialist advice and literally had no case on the issue at that stage. Inevitably, however, notwithstanding the pressures of preparation for the hearing on other issues (and as Bim's own amendment shows) there would have to have been some consideration of this plea, since Bim would not wish to press on with what might turn out to be a futile claim. Bim made no positive case since it did not need to do so, but as appears from their evidence and as accepted by Blackburn, its stance was that if Blackburn was right in its assertions as to the invalidity of the 1994 Agreement because of the EC Treaty, then Blackburn's own Counterclaims would also fail. Had it ever pleaded to Blackburn's case on this point, that would, no doubt, have been said. Blackburn would at all times have accepted that its own claims fell with that argument. The judge said that it followed that success as to the invalidity of the Agreement would affect all claims under the Agreement in whichever direction they flowed and might have other "knock on" effects. Nonetheless, it was also clear that Bim's primary stance was to maintain the validity of the Agreement and to pursue its claim, as it duly did.
11. Well before the end of the trial, Bim's case was that it had achieved 20% of the silicone based antifoam agents' market in Finland and that this was the relevant market for the purposes of the 1994 Agreement. Bim could not and did not say that it had achieved 20% of the antifoam market as a whole, so that the 20% issue became one of construction of the 1994 Agreement, (on the meaning of "available market") as opposed to an issue of fact. It was not in dispute that Bim had achieved 20% of the silicone based antifoam market in Finland. Langley J held that it was the silicone based antifoam market that mattered for market penetration and that Bim had attained the contractual requirement for exclusivity after the initial 3 year period had elapsed.
12. Following the trial, an Order was drawn up and sealed which contained various declarations enshrining the Judge's decision, which became the subject of an appeal. For present purposes the important parts of the Order are as follows:

"The Court tried all issues in the action other than (i) the competition laws issue raised by paragraph 6D – E of the Re-Re-Re-Re-Amended Defence and Counterclaim and (ii) issues of loss and damage and made the following Declarations Orders and directions ……….

The above declarations are made without prejudice to [Blackburn's] case presently stated in paragraphs 6D – E of the Re-Re-Re-Re-Amended Defence and Counterclaim that the 1994 Agreement or part thereof was void …….."

13. Directions were then given by the Judge following submissions by the parties. Blackburn said that the competition law issues should be determined next and Bim said that the competition case needed to be pleaded out, bearing in mind the lack of particularisation in paragraph 6E of Blackburn's pleading. Blackburn accepted that, although it had succeeded in its counterclaim, the Court was bound to take notice of the fact that the basis of that counterclaim was put in issue by the competition law points, so that judgment could not be given on it. As the Judge had found that the relevant 20% market share had been attained, paragraph 6E of Blackburn's pleading was triggered. The Judge made the following directions with regard to the issues which remained to be tried:

"11.1 Quantum issues are to be tried after the competition issues. As to the competition issues:

11.2 [Blackburn] will serve a particularised statement of case by 4.30 pm 30th April 2002.

11.3[Bim] will serve a particularised statement of case in response by 4.30 pm 31st May 2002………."

14. Blackburn applied for permission to the Court of Appeal to appeal against the decision of Langley J but, in compliance with the directions given, served its Statement of Case on competition law issues on 30th April 2002. Between paragraphs 12 and 32 of that document, Blackburn set out its case that the 1994 Agreement constituted an agreement between undertakings within the meaning of Article 81 and asserted that 10 different provisions of the 1994 Agreement had the object of preventing, restricting or distorting competition between Blackburn and Bim in the development, manufacture, acquisition and supply of antifoams and lint products. The document made no reference to the plea of illegality being predicated on the achievement of a 20% share of the antifoam market, but it made a number of allegations which were different from and wider than the allegation for which Langley J had originally given permission.
15. Correspondence between the parties followed in which Bim objected to this Statement of Case as going well beyond that originally pleaded in the Defence. Bim's solicitors' letter of 24th May 2002 pointed out the new areas of dispute that had been raised, but made no objection on the basis that the case was apparently no longer conditional on the achievement of 20% of the relevant market. There was never any agreement between the parties as to the status of this document as, once permission to appeal was granted by the Court of Appeal, the parties sensibly agreed to "adjourn the competition issues until after the appeal" Thus Bim never pursued its objections to the width of Blackburn's case or put in its own pleading on these issues.
16. Between the two Orders of the Court of Appeal, Bim's Petition for permission to appeal to the House of Lords was dismissed. Immediately following that, on 28th May 2003 Blackburn's Solicitors wrote a letter to Bim's Solicitors formally withdrawing the Statement of Case previously advanced on competition law issues and stating that Blackburn considered that the Court was functus officio regarding the competition issues and that it did not rely upon paragraphs 6D and 6E of the Re-Re-Re-Re-Amended Defence and Counterclaim.
17. Thus, when the matter came back before the Court of Appeal on 24th June 2003, the position was that Blackburn had abandoned any arguments on the competition law issues and Bim had no positive pleaded case in relation to them – its only relevant statement being paragraph 6E of its Re-amended Points of Reply and Defence to Counterclaim where it said that it was not pleading to paragraph 6E of Blackburn's pleading but reserved its position on 2 particular ramifications of any finding of invalidity, as set out earlier in this Judgment.
18. There was discussion between the parties before the Court of Appeal's second Order about Bim's ability to raise an Article 81 argument, now that Blackburn no longer needed or wished to do so. As it had succeeded on appeal in showing that Bim was in repudiation, had succeeded on its Counterclaim and had a finding that Bim had not by the end of 1996 obtained 20% of the relevant market referred to in the fax, Blackburn contended that the issue raised in paragraph 6E of its Re-Re-Re-Re-Amended Defence and Counterclaim did not arise and that it was content with the validity of the agreement. It also abandoned the wider case in its Statement of Case on competition law issues. By contrast, Bim, which had now lost on appeal, having previously contended that the 1994 Agreement was valid in all respects, now itself wished to raise the illegality plea in order to defend itself from Blackburn's Counterclaim, which was all that remained of the litigation. It was in these circumstances that the Court of Appeal made the order recited in paragraph 5 above.
19. The Judgment of Cooke J

In his judgment Cooke J set out the well-known passage in Wigram V-C's judgment in Henderson v Henderson (1843) 3 Hare 100, 114-5 in the following terms:-

"…. where a given matter becomes the subject of litigation in and of adjudication by a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have from negligence, inadvertence or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a Judgment, but to every point which properly belongs to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."

(I will call this "the Henderson principle" and define it as the principle according to which parties are normally required to bring forward all the matters, which have to be decided, at one and the same time) The judge noted that there was an exception to the Henderson principle "in special cases", recorded Blackburn's submission that cause of action estoppel could only be avoided where fraud or collusion led to the judgment relied on and said, citing Johnson v Gore Wood & Co [2002] 2 AC 59 that the notion of special circumstances had been subsumed into the need to find an abuse of process before the Henderson principle applied. He then proceeded to hold that it was not an abuse of process to permit Bim to take the Article 81 point which Blackburn had, at a late stage of the proceedings, themselves sought to take, even though Blackburn had now decided that they were no longer going to rely on it themselves. He further held that there was a strong prima facie case that the agreement was void pursuant to Article 81 and that, if a party sought to put the illegality before the court, it was the court's duty to permit that party to do so even if an estoppel would otherwise operate. This was because Article 81 was for the protection of the public at large whose interest lay in anti-competitive practices being exposed; it followed that the policy considerations underlying the incorporation of the EC Treaty into English law required the decision of the court. For these two separate reasons he declined to strike out Bim's defence to Blackburn's statement of case in relation to the assessment of damages on its counterclaim.

20. The submissions

Mr Alistair Wilson QC for Blackburn attacked this reasoning and submitted:-

(1) the judge had failed to draw any distinction between cases of cause of action estoppel and the Henderson principle; the principle had no application in cases of cause of action estoppel;

(2) the present case was a case of cause of action estoppel because once the Court of Appeal had found that Blackburn could rely on Bim's repudiation of the contract as a defence to Bim's claim, their other defences and in particular the defence of illegality fell away; there was thus a conclusive determination that Bim had no cause of action against Blackburn, while Blackburn had a cause of action against Bim on their counterclaim to which no relevant defence had been pleaded; this entitled Blackburn to final judgment on its counterclaim;

(3) even if the judge was correct to hold that the only question was whether it was an abuse for Bim to rely on illegality, it was an abuse of process for Bim now to raise for the first time a defence which would have the effect of impugning Blackburn's judgment on the counterclaim;

(4) the illegality relied on could not be allowed to impugn the judgment on the counterclaim, once cause of action estoppel was established; if that were wrong, the illegality had to be manifest which the illegality relied on was not, depending as it did on findings of fact which would have to be made after a trial.

21. Mr Andrew Onslow QC for Bim did not engage with the first of these submissions but submitted that there was no cause of action estoppel on the facts, nor any abuse of process in Bim's now seeking to take the Article 81 point. He supported the judge's conclusion on illegality.
22. Relationship between cause of action estoppel and the Henderson principle

In the light of the argument addressed to us, it is necessary to remind oneself of the difference between cause of action estoppel, issue estoppel and the Henderson principle. The classic definitions of the first two are to be found in the judgment of Diplock LJ in Thoday v Thoday [1964] P 181, 197-8:-

"The particular type of estoppel relied upon . . . . . is estoppel per rem judicatam. This is a generic term which in modern law includes two species. The first species, which I will call "cause of action estoppel," is that which prevents a party to an action from asserting or denying, as against the other party, the existence of a particular cause of action, the non-existence or existence of which has been determined by a court of competent jurisdiction in previous litigation between the same parties. If the cause of action was determined to exist, i.e., judgment was given upon it, it is said to be merged in the judgment, or, for those who prefer Latin, transit in rem judicatam. If it was determined not to exist, the unsuccessful plaintiff can no longer assert that it does; he is estopped per rem judicatam. This is simply an application of the rule of public policy expressed in the Latin maxim "Nemo debet bis vexari pro una et eadem causa." In this application of the maxim "causa" bears its literal Latin meaning. The second species, which I will call "issue estoppel," is an extension of the same rule of public policy. There are many causes of action which can only be established by proving that two or more different conditions are fulfilled. Such causes of action involve as many separate issues between the parties as there are conditions to be fulfilled by the plaintiff in order to establish his cause of action; and there may be cases where the fulfilment of an identical condition is a requirement common to two or more different causes of action. If in litigation upon one such cause of action any of such separate issues as to whether a particular condition has been fulfilled is determined by a court of competent jurisdiction, either upon evidence or upon admission by a party to the litigation, neither party can, in subsequent litigation between one another upon any cause of action which depends upon the fulfilment of the identical condition, assert that the condition was fulfilled if the court has in the first litigation determined that it was not, or deny that it was fulfilled if the court in the first litigation determined that it was."

The Henderson principle then extends the res judicata principle to cover not merely matters which have actually been the subject of judgment between the parties but to

"every point which properly belonged to the subject of litigation and which the parties, exercising reasonable diligence might have brought forward at the time"

as per the citation in para. 19 above.

23. Mr Wilson submitted that the judge had found that there was a cause of action estoppel but that he had then appeared to hold that while such estoppel could once have been negated by "special circumstances" that exception for special circumstances had been subsumed by Johnson v Gore Wood into a rule that the estoppel would not apply unless the claim or defence, relied on to defeat the estoppel, was an abuse of process. For my part, despite Mr Wilson's close analysis of para. 20 of the judgment, I can detect no clear decision on the part of the judge that there was (or, indeed, that there was not) a cause of action estoppel since the judge held that the case could be determined by asking merely whether there was an abuse of process in permitting Bim to raise the Article 81 point. I have every sympathy with the judge's approach; the law would be much easier to apply if one could disregard nice distinctions between cause of action estoppel, issue estoppel and the principle in Henderson v Henderson, which can scarcely be intelligible to laymen even if they are to lawyers. But I fear I cannot agree that this is the present state of the law.
24. Three weeks after Cooke J delivered his judgment in this case, the Court of Appeal handed down their judgment in Co-Flexip SA v Stolt Offshore MS Ltd [2004] FSR 708 in which the majority of the court held in terms (paras. 144-149 and 159)

(1) that in Arnold v National Westminster Bank [1991] 2 AC 93 the House of Lords carefully distinguished cause of action estoppel and issue estoppel with no exceptions being allowed to cause of action estoppel other than fraud or collusion;

(2) that the House of Lords in Johnson v Gore Booth were fully alive to all that was said in Arnold's case and cast no doubt on what was there said on cause of action estoppel or on the limited further exception that existed in the case of issue estoppel;

(3) that, therefore, the abuse of process approach laid down in Johnson's case was applicable only to cases invoking the Henderson principle and not to cases of cause of action estoppel or, indeed, issue estoppel.

Thus the first question, in a case, such as the present, where a cause of action estoppel is alleged to be operative, must be to see whether there is indeed such an estoppel. If there is, it can only be negated by fraud or collusion; only if there is not such an estoppel, will it be appropriate to consider, pursuant to the Henderson principle, whether it would be an abuse of process to allow the allegedly "new point" to be taken. This is identical to the approach recently taken by this court, in a case of issue estoppel, viz. first to consider whether the alleged issue estoppel existed and, only when it was determined that it did not, to consider whether it was an abuse of process for the "new point" to be taken, see Kennecott Utah Copper Corp v Minet Ltd [2004] 1 All ER (Comm) 60, especially paras. 30 and 63.

25. Cause of action estoppel?

Mr Wilson is, of course, correct to assert that on 13th February 2003 the Court of Appeal determined that Blackburn had a good cause of action for the damages claimed in their counterclaim for Bim's breach of contract. At the time when the Court of Appeal so determined, however, that counterclaim was still subject to the plea of illegality set out at para. 6E of the Re-re-re-re-Amended Defence ("the Defence") and incorporated in the Counterclaim. The determination so made was thus only a conditional determination depending on the outcome of that plea. After the House of Lords dismissed Bim's petition for leave to appeal on 21st May, Blackburn on 28th May by solicitors' letter unilaterally withdrew their particularised Statement of Case regarding the competition issues which had been served on 30th April 2002 and which had, in any event, been alleged by Bim to go considerably wider than the case pleaded in paragraph 6E of the Defence for which Langley J had granted leave. The letter continued:-

"Our client further considers that the Court is now functus officio regarding the competition issues generally . . . . we confirm that our client considers that it cannot rely, and does not intend to rely, on the matters raised in paragraphs 6D and 6E of [the Defence] and Counterclaim in any further part of these proceedings."

It is in the light of this letter that Mr Wilson now submits there is a cause of action estoppel preventing Bim from raising the same illegality on which Blackburn originally wished to rely.

26. That is not, in my view, correct. It overlooks the fact that, when Langley J originally gave Blackburn permission to make their illegality amendment, he ordered all further proceedings in respect of that plea to be stayed in the terms set out in para. 7 above. The obvious intention of that stay was that the then pleaded issues were to be determined and the question of illegality should only be revisited after such determination had occurred. Now that those issues have been determined the question of illegality remains and there can be no final determination of Blackburn's cause of action for damages for Bim's breaches of contract until that question has been resolved.
27. Mr Wilson submitted that Bim never sought themselves to plead that the contract was illegal until they had lost the substantive action and that, if they had, Blackburn would have, at once, agreed because it had always been their case that there was no concluded contract between the parties in any event. That, of course, might be so but whether Blackburn would have adopted that course is a question of fact which cannot be resolved on an interlocutory application of the present kind. It was, moreover, not open to Bim so to plead in any event by reason of the terms of the stay imposed by Langley J. Any point of illegality is, of course, always two-edged; I have no doubt that the parties recognised it as such and were content, once permission to amend had been granted in spite of Bim's objections, to leave the point to be argued at the instance of whichever party it was who perceived that such argument was beneficial to their case. If the plea had not been advanced so late, the question of illegality would have been just one of the many questions facing the trial judge and would have had to have been decided at the trial for the benefit of whichever party it was which was ultimately held to be in breach of contract and, but for the illegality point, liable in damages.
28. Similarly I have little doubt that, if Langley J had himself decided (as he ought to have done) that it was Bim who was in repudiation and that it was Bim, rather than Blackburn, who was liable to pay damages for that and other breaches of contract, and if Bim had then indicated to him that, subject to any appeal, it was Bim rather than Blackburn who wished to raise the competition issues and plead the question of illegality he would, after judgment, have lifted his stay and directed pleadings on the issue. After all, that is precisely what he did direct when it was Blackburn who wanted to rely on the illegality and the so-called "particularised" statement of case on competition issues was indeed served before the Court of Appeal began to hear the case. The judge might or might not have imposed terms on Bim for raising the matter so late but it is impossible to conceive that he would not have allowed Bim to rely on illegality at all.
29. Mr Wilson made much of the fact that the plea for which Blackburn obtained leave was conditional on 20% of the market for the relevant product having been achieved and that the Court of Appeal had held that it had not. But in the event Blackburn did not wish this condition to be part of their considered case; it would, moreover, hardly have been determinative of the issue in any event.
30. In these circumstances the judgment of the Court of Appeal in Blackburn's favour cannot create a cause of action estoppel preventing resolution of the illegality issue which Blackburn themselves first raised unless it can be said, in accordance with what I have called the Henderson principle, that it would be an abuse of process for Bim now to take the point.
31. Abuse of process?

This was the primary question decided by the judge who held that it could not be an abuse or otherwise an infringement of the Henderson principle for Bim now to take the illegality point. Neither Blackburn's Notice of Appeal nor their Skeleton Argument pointed to any misdirection by the judge on this aspect of the case, save to argue that the judge erred in disregarding Blackburn's irrecoverable costs incurred in successfully defending a claim based on a contract which Bim now wants to say is illegal. (We were not told precisely how much these irrecoverable costs were but we were told that Blackburn's recoverable costs have now been paid by Bim.) Since any litigant has to accept the risk that there will be irrecoverable costs, there cannot be any substantial prejudice merely because that risk is realised. Moreover, such prejudice as there is has arisen because the point was taken so late; if it had been raised at a time when it could have been dealt with at the trial, all issues would have been resolved together; if it had been taken in Blackburn's original Defence, the judge at the Case Management Conference taking place on close of pleadings could have considered whether the illegality point should have been taken first before any other expenditure was incurred. Unfortunately that never proved possible.

32. The judge set out the matters he took into account; none of these was irrelevant nor did the judge overlook anything relevant. He concluded:-

"43. When these matters are taken into account, in my judgment, there can be nothing unfair to Blackburn in allowing Bim to pursue the very points which Blackburn itself would have wished to pursue had the boot been on the other foot. These were issues which Blackburn was prepared to run and it cannot be harassment of Blackburn for it to be met with the same points which it thought sufficiently arguable to pursue itself and of which it insisted that the Court must take account, after determining other issues.

. . . . . . . . . . . . . . . . . .

45. Nor in my judgment would any right thinking member of society, having been told of the course of events which I have recited, consider that the process of justice was brought into disrepute by Bim's reliance upon the illegality defence. Observing the parties' tactical manoeuvrings and their successes and failures, such a person would be likely to give a wry smile and consider, in all the circumstances, this was a fair course of action for Bim to adopt and what was sauce for the goose was also sauce for the gander."

I need only say that I entirely agree.

33. I would therefore dismiss this appeal.
34. Illegality

The judge went on to consider whether the illegality question was a point which he should allow Bim to take in any event because of the nature of the illegality. This was not a necessary part of his decision and anything I say would likewise not be essential to my decision.

35. In these circumstances I will only say that, if I had concluded that this was a true case of cause of action estoppel, I would consider that the estoppel did extend to the illegality point. The law is that only fraud or collusion can defeat cause of action estoppel. Different considerations might apply if the contract was on its face illegal but it is difficult to conceive that such a contract could ever be the subject of a judgment which could create a relevant estoppel. Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 was the only authority to which our attention was drawn on this point. But that was a case of issue estoppel said to have arisen out of a default judgment. It is an unsafe guide to cases of cause of action estoppel which is the only estoppel relied on in the present appeal.

Lord Justice May:

36. I agree that this appeal should be dismissed for the reasons given by Longmore LJ, whose account of the facts and circumstances I gratefully adopt.
37. In essence, Blackburn's case on this appeal has to be that the judgment of this court of 13th February 2003 and its order of 24th June 2003 finally determined Blackburn's counterclaim in its favour, subject to quantification, so as to preclude Bim from subsequently raising a defence that the 1994 agreement was void for illegality. The submission is that the judgment finally determined the cause of action, thereby rejecting defences which Bim had advanced and precluding them from later relying on defences which could have been advanced but were not. You cannot defend a cause of action on some grounds and then, when you have finally lost, think up some more defences. Bim had not relied on the illegality defence. It is submitted that they could have relied on it, although it may have been formally inconsistent with their own claim.
38. This submission founders, in my view, because Langley J had ordered a stay of the illegality issue in the terms which Longmore LJ has set out in paragraph 7 of his judgment; because this stay was informally extended by the parties after Langley J's judgment and pending the first appeal to this court; and because paragraph (10) of this court's order of 24th June 2003 sufficiently reserved the issue. It is true that the stay related to a plea which Blackburn, not Bim, had raised. But it is acknowledged that, if the illegality plea were good, it defeated both claim and counterclaim insofar as they depended on the 1994 agreement. Because of the stay, Bim were formally prevented from adopting in the alternative Blackburn's defence to their claim as a defence to the counterclaim. Blackburn themselves maintained the plea until they knew that they were immune from an appeal to the House of Lords, and Mr Wilson accepts that the Court of Appeal judgment was, until then, conditional.
39. In these circumstances, I do not consider that the judgment of this court is to be regarded as finally determining in Blackburn's favour all issues which were or could have been raised in defence to the counterclaim so as to preclude Bim from relying on the plea of illegality. This had been shelved. Langley J's stay was not confined to the literal plea then advanced nor only to the party then advancing it. It applied to its subject matter, that is the question whether the 1994 agreement was void under the former Article 85 of the Treaty of Rome. This was, as I have said, an issue which affected both claim and counterclaim. Blackburn were, perhaps, entitled opportunistically to take the plea off the shelf and throw it away for their own purposes, but not so as to preclude Bim from relying on it. Blackburn were not, in my view, entitled unilaterally to convert the Court of Appeal's conditional judgment into a judgment which was final for all purposes.
40. It is not, in my judgment, an abuse for Bim now to seek to rely on the plea of illegality. It is possible, perhaps probable, that Blackburn would have offered to drop their counterclaim if Bim had relied on the plea of illegality earlier. But appropriate cost orders have no doubt been made, or will be made, in relation to the continued proceedings. For the rest, it is not, in my view, an abuse to permit Bim now to rely on a plea which Blackburn themselves raised and which was put to one side while other issues were determined.

Lord Justice Kennedy:

41. I agree.

ORDER: Appeal dismissed. With the costs of appeal subject to detailed assessment on a standard basis if not agreed.

(order does not form part of approved judgment)
PROCEEDINGS AFTER JUDGMENT
42. LORD JUSTICE KENNEDY: For the reasons set out in the judgment handed down, this appeal is dismissed. We further order that the appellant pay the costs of appeal to be subject to detailed assessment on standard basis if not agreed.
43. MR ONSLOW: I do not think I need to add anything. Mr Wilson has a more exotic application to make to your Lordships.
44. MR WILSON: I hope I do not misrepresent your Lordships' judgment when I say that the underlying logic is that my point - the cause of action estoppel which would have succeeded if I was right - failed because your Lordships were saying that there was available to my learned friend an ability to amend his main defence to counterclaim, so to speak, which has been, again so to speak, subsumed within his defence to the claim for damages under the counterclaim. Therefore underlying everything there is what might be seen as an implicit amendment by my learned friend of his defence to counterclaim to introduce the European point which he had not previously pleaded. It is a very late amendment to his defence to counterclaim for the reasons with which we are all familiar. In principle, where there is a very late amendment to pleadings, the victim of such a late amendment will frequently be compensated in costs for the consequences of such a late amendment. I do not know whether your Lordships need some authority for that, but I have brought some authorities. They are familiar principles in what may be .....
45. LORD JUSTICE KENNEDY: I rather doubt it at this stage. Apart from anything else, it seems to me to be a well known

principle.

46. MR WILSON: I am obliged.
47. LORD JUSTICE LONGMORE: This is a preface to your application to appeal to the House of Lords, or where are we going?
48. MR WILSON: Do your Lordships have a copy of the amended minute of order?
49. LORD JUSTICE KENNEDY: Yes, I do. That is what I was looking at.
50. MR WILSON: We are dealing with paragraph 4 which, in a sense, is a preface to my application for leave to appeal because the contents of paragraph 4 are, or could be, quite an important ingredient.
51. In my submission, had an application been made in good time before Mr Justice Langley or notionally before your Lordships to amend the defence to counterclaim the appropriate order for the court to make would be along these lines: if the defendants now accept this amendment, it follows that both parties are at one that this action should never have been brought. That is the burden of my learned friend's amended defence to counterclaim. If the defendants were to opt to fight on, it may turn out that the agreement was valid after all and the defendants take their chances with the magnitude of damages under the counterclaim. But if the claimants did not make that amendment and it is, so to speak, accepted by the defendants, then it follows, as night follows day, that this action must be treated as if it should never have been brought. In accordance with normal principles I would submit that a consequence of such an amendment being sought is that we should be given the option, to be exercised within a reasonable time, of accepting that, after all, our counterclaim is defective on the grounds we originally pleaded.
52. The further consequences should be that, if we accept that, we should have what I might compendiously refer to as the irrecoverable costs of the action. There are three heads of irrecoverable costs which, I am told, amount to something in the order of £600,000. The three heads are these: (1) the costs incurred so far on the quantification of the counterclaim which were expressly excluded from the Court of Appeal order as to costs of the appeal and trial; (2) the 25 per cent of the ordinary costs of the action at appeal which were excluded from the Court of Appeal's order because we argued the point about existence of contract on different grounds; (3) the difference between standard basis costs and indemnity basis costs.
53. In my submission, in the very extraordinary circumstances of this case it would be right .....
54. LORD JUSTICE MAY: There is no difference between the standard basis costs and indemnity costs, in principle. It is only a question of who has to prove what.
55. MR WILSON: Indeed, yes. It does have considerable consequences when it comes to assessment. There has been a basis agreed between the parties as to the standard basis costs, which is about £620,000, which was used as the basis for agreement between the parties and, pursuant to that, BIM paid us three-quarters of £620,000, leaving something of the order of £150,000 as the 25 per cent. On top of that we say there are further costs which could have been recovered had the matter been assessed on the so-called indemnity basis.
56. LORD JUSTICE MAY: There may be irrecoverable costs, but that is a different matter.
57. MR WILSON: There may be further irrecoverable costs beyond that but I do not think one can realistically seek to recover costs which the court would never order.
58. LORD JUSTICE MAY: Precisely.
59. MR WILSON: But there are those three heads of costs which, in my submission, the court could order in our favour. There may indeed be further costs which - - undoubtedly, the clients themselves have incurred very considerable personal expense and, indeed, unhappiness fighting this action bearing in mind the course of action that the case took. We understand that that is not something they can obtain. So far as those three heads of costs are concerned, which the court can revisit on an application to amend the pleadings, by way of seeking from the person who seeks to amend the pleadings, an undertaking that if he - - or rather imposing a condition on him that if he wants to make his amendment he must accept those terms. The court, in my submission, does have jurisdiction to say this is what should happen in the case of this amendment. I appreciate that in the ordinary course of events the court could not under-do (sic) an order for costs that had already been made. But that is not what I am saying should be done. I am saying that on my friend's notional application to amend his pleadings, he should be notionally put on terms that if he wants to make an amendment he has to accept the consequences.
60. LORD JUSTICE MAY: This seems to me to be immensely complicated and highly artificial. The consequences, as I understand it, which you seek to achieve are entirely contingent on what the defendants would, or might, do once the amendment is made.
61. MR WILSON: That is why I have framed the order in the way I have.
62. LORD JUSTICE MAY: I understand that, but why should this court anticipate what you might do when you might not.
63. MR WILSON: This is the only time at which it can do it.
64. LORD JUSTICE KENNEDY: This is only time when you can secure an order in advance, I agree.
65. MR WILSON: It is only at the stage of amendment that the court can say to the person seeking to amend, "Although you have orders for costs in your favour, nevertheless, as a condition of amendment, we require you to accept that you will not get those costs and they will indeed go the other way." That is the point. In my submission, the court can do that. There may be a fourth ingredient. There may be orders for costs in my friend's favour pending trial which have not been considered, but those too are ingredients of costs which might well be within the purview of what I have put to your Lordships. In my submission, the nature of the amendment here is really a quite extraordinary one.
66. LORD JUSTICE KENNEDY: We understand that. We have been down this road ad nauseam.
67. MR WILSON: For that reason I am not seeking to re-argue the appeal, but I am saying that this amendment goes even further than the normal amendment which carries costs consequences
68. LORD JUSTICE KENNEDY: A very unusual amendment, I agree.
69. MR WILSON: It is unusual, but it goes further than the normal one because normally what one seeks to do is to add a claim which reinforces what was already there. Here the defendants, BIM, are not seeking to reinforce what is already there; they are seeking to undo what was already there and say this is a claim that should never have been brought. In those circumstances the defendants BIM, in my submission, should be required to offer very unusual undertakings commensurate with the unusual nature of the amendment.
70. It is fair to say that before my paragraph 4 came into force, so to speak, my friend perhaps should be given an opportunity to say, with those terms present, "I do not want to make my amendment." That is for him to say. But if he is happy that his amendment should be notionally granted on those terms, then, in my submission, those terms are fair terms to impose on someone seeking to amend in this way. It is not contingent upon what we choose to do.
71. The term is that if we choose to accept the amendment, then we get the costs thrown away. If, on the other hand, we choose to dispute the amendment and say that after all the agreement is valid and the matter goes to the inquiry, then there are no consequences; my friend gets his amendment and the matter carries on with an ordinary inquiry, with this argument being presented as one of the defences in the course of the inquiry.
72. My clients are then faced with a choice and, in my submission, it is an entirely fair choice with which to be faced. They either accept that the defence they originally put forward is indeed a valid one and the counterclaim goes, in which case they get the costs of the action to date. Or, alternatively, they say, "We do not propose to accept this amendment, we will fight it. It was wrong to plead it in the first place and we consider it can be defended (?)" and take their chances on the inquiry. It may be that that course of action will appear deeply unattractive to them.
73. LORD JUSTICE MAY: It seems to me, speaking for myself, that the question of amendment and the question of what might subsequently happen if you choose to come along and discontinue are two separate questions.
74. MR WILSON: They are two separate questions save for this .....
75. LORD JUSTICE MAY: I do not at the moment see why one should anticipate, in relation to the amendment, what you might subsequently do.
76. MR WILSON: For this reason - that if we do admit the pleading, at that stage the court is not able to give us the relief, in my submission, to which we are entitled. The court at that stage could do no more than give us the costs to date of the counterclaim.
77. LORD JUSTICE LONGMORE: I do not follow that, for my part. You would need leave to discontinue the assessment for damages and in that application everything would be open.
78. MR WILSON: It is a little difficult to see how the court, on an application to discontinue an inquiry as to damages, could undo orders for costs made, for example, in the Court of Appeal in the trial and on appeal from the trial.
79. LORD JUSTICE LONGMORE: You are not asking for that, are you?
80. MR WILSON: Yes, I am.
81. LORD JUSTICE LONGMORE: But asking for the irrecoverable costs.
82. MR WILSON: Those are part of the costs which, in my submission, my friend should be ordered to pay us. Those are one of the three heads of costs which, as a consequence of this amendment, we say has been wholly thrown away. It is only at this stage that the court is in a position to reverse those costs orders. It does so not by directly reversing it but by putting terms on the person seeking to amend, those terms being that you can only amend if you agree to a reversal of those costs orders, or rather sacrifice what would otherwise have been your rights under those costs orders. That is a perfectly permissible exercise at the stage of someone seeking to amend his pleadings. It is not a permissible exercise at the subsequent stage of us admitting the merits of the offence.
83. Dealing with my friend's point that it is far too late for us to take this point, which incidentally is the exact opposite of what is being put to me at the moment that it is far too early for us to take this point, it is not too late because, as we saw it, we came before the court with an attack on pleading in the inquiry as to damages at which stage it would have been too late to seek to undo costs orders in the Court of Appeal that related to the trial. It is because of your Lordships' analysis that, in truth, we are here on a notional application to amend the trial pleadings that the window of opportunity arises for me to seek to get those orders which put matters into what my clients see as an appropriate state, in other words, a state where my clients are not out of pocket on an action which should never ever have been brought by claimants who now say that, after all, this was an unenforceable agreement from the very start: a very different situation from a case where one has fought through and succeeded. This is a case where the claimant himself was saying "I should never have brought this case." That is why I say the court should make this rather unusual order. I hope that your Lordships have understood the underlying point that they put their pleading in on the inquiry. Your Lordships are saying they have notionally made the amendment, but essentially you are saying that my friend has been notionally seeking to amend the pleadings in the counterclaim, the trial pleadings. It is because of that that this point arises.
84. That brings me to the question of leave to appeal. It is fair to say it is a somewhat narrow and special point that on the facts of this case we are outside the realms of cause of action estoppel and into the realms of extended Henderson v Henderson estoppel, abuse of process. Nevertheless it does raise a rather important point of principle, both about the nature of pleadings, the nature of stays and the nature of cause of action estoppel. Where is this boundary to be defined between the one and the other? That is, in my submission, quite an important point. And the point I have put before your Lordships this morning about the consequences of amendment, if that is how it is to be dealt with, is itself a very important point for my client and perhaps its implications in similar situations were they to arise.
85. I would submit that we should have leave to appeal against your order.
86. MR ONSLOW: Dealing with the first of those points, the first submission is that there is no precedent for the kind of double contingent order that Mr Wilson is seeking. He is asking for an opportunity to have all his irrecoverable costs paid if, first, he fails in his application for permission to appeal to the House of Lords or the House of Lords decides against him, and then, at some stage after that, he unilaterally decides he does not want to proceed with the inquiry after all. Your Lordships may think that is a rather odd position for him to be taking up at all given that both before Mr Justice Cooke and in submissions to the Court of Appeal he was still saying a few weeks ago that our Euro point - whatever he or his side may have said in the past - was a bad one. He is now giving - it is encouraging to us, I suppose - the firm indication that they want to give up or may give up in the future. The answer to that is that they need to make their application to discontinue in due course. At the time that they choose to make it they can apply for me to discontinue on special terms. The usual terms are that they would pay the costs outstanding. They can apply for leave to discontinue on special terms. It does sometimes happen, as your Lordships will be aware, that parties apply for leave to discontinue on the basis not only that they should not pay the other side's costs, but that the other side should pay their costs because, for example, things have happened .....
87. LORD JUSTICE LONGMORE: Mr Wilson says that you cannot reverse an order that is already made which I think applies to his second category of irrecoverable costs in particular, does it not?
88. MR ONSLOW: I think the problem there is, as I understood it, and this is one of his problems, you certainly cannot reverse an order of the court below or the Court of Appeal that has already been made. As I understood it, when he was initially addressing your Lordships he was saying that is not actually what he sees as happening here. He is saying there are parts of the costs not dealt with yet or can be set aside or treated as separate from the costs orders that have already been made, and it is those additional costs that now he wants awarded in his favour. He is treating them as if they have never been awarded or allocated at all. If that is right - and I do not want to sound encouraging to him - then there is no objection, in principle, to him applying in due course, at the time he wishes to discontinue, for the kind of order he is now seeking. As I said in my e.mail outline, I would be impressed if he succeeds, but that is another matter. There is no precedent for this kind of double contingency. It really is most unusual. Yes, in substance, it may be - although he is keen I think to distance himself from this proposition - he is seeking to unravel costs orders that have already been made. But he is not, I think, technically appearing to want to do that or to be doing that.
89. We say there are one or two other rather basic objections to taking this course. It is all based on the idea that we are somehow amending; even Mr Wilson would say we are only notionally amending.
90. There are two points there. One is that this whole application before Mr Justice Cooke and before your Lordships has not been treated as an application for leave to amend nor has it been at the forefront, or possibly anywhere, in their argument that what we put into our pleadings should be disallowed on the simple basis that we never obtained the permission of the court to put it in. The reason for that is quite simple. There was, following the Court of Appeal hearing last year, some agreed directions that were given to enable the assessment of damages to proceed with some new pleadings. They put in their statement of case. As I had indicated we were minded to do when I appeared last before the Court of Appeal, we put in our statement of case in response which took the point we foreshadowed, the Euro point. There had been a fresh direction from the court for the service of pleadings in the assessment. That is why we say we are neither notionally nor actually amending; we are simply putting in our response to the new and fully pleaded case which has been put forward by them.
91. If one wants to take the point even further, one only has to look back at the state of their pleaded counterclaim as it stood before that moment; it remained about three or four lines with no particularisation of any aspect of their counterclaim. The reality is that both parties were starting again with the counterclaim. They had got their liability judgment and on we went. There is no question of us, by our defence in the qualification proceedings, amending notionally or otherwise.
92. I suppose the only other point I would wish to make for the moment is that they are now saying that our ability to proceed with this point should be put on terms. That was something which they should have applied for to Mr Justice Cooke and should have applied for as a matter of substance to the Court of Appeal. They have not done so. They fought before Mr Justice Cooke and before the Court of Appeal fair and square on the main substantive point with no back-up position or anything of that sort. It is wrong in principle, we submit, that this point should come in somehow as a sidewind on issues of costs when they had lost both before Mr Justice Cooke and before the Court of Appeal.
93. LORD JUSTICE LONGMORE: No application of this kind was made at the time of judgment before Mr Justice Cooke?
94. MR ONSLOW: No. I think that is all I can say on that point. On permission to appeal to the House of Lords .....
95. LORD JUSTICE KENNEDY: You need not trouble us about that. Is there anything more you want to say?
96. MR WILSON: Just on the point of not having made an application of this nature to Mr Justice Cooke. At the time of the application before Mr Justice Cooke the case appeared to be dealt with on the basis of principles of estoppel. Mr Justice Cooke appeared, as we saw it, to be deciding the case on the basis that it was a cause of action estoppel case, with the principles nevertheless permitting the amendments to be made despite that fact. It is your Lordships' analysis of the case in the Court of Appeal that has essentially raised this point because of your Lordships' view that my friend's defence to the counterclaim contains buried within it the notional application to amend the pleadings. It is true that he has not applied to amend his pleadings in relation to the action, but it is only because he could, and notionally should, have done so that he succeeded in getting it into his defence to counterclaim. To put it this way, if the pleading had not existed and Mr Justice Langley had not stayed it, and thereby preserved for my friend the ability to amend to include it himself, he would never, in a month of Sundays, have been able to add it as a defence to the counterclaim. It is only because of what happened before Mr Justice Langley and his notional ability to amend the main action that he was able to get this point in to the defence to counterclaim. In my submission, this is to be regarded as, in substance, an amendment case. That being so, your Lordships should make what are, in substance, orders appropriate to amendment. Unusual as that may be, this is an unusual, perhaps even a unique, case and in my submission an unusual, perhaps a unique, order should be made to reflect that fact.
97. LORD JUSTICE KENNEDY: Thank you.

(The Bench retired)

98. LORD JUSTICE KENNEDY: The application for leave to appeal to the House of Lords is refused. We decline to make any order in the form sought in paragraph 4 of the draft order. It is entirely a matter for any judge who has conduct of this matter henceforth to decide what the consequences of any order that he or she may make shall be.
---