The appellants appealed against a decision ( EWHC 4611 (Ch)) striking out their claim for damages against the respondent bank and against receivers appointed by the bank.
The first to fourth appellants (X) had traded in a partnership (the fifth appellant). The partnership owned a number of residential properties. Its borrowing from the bank was secured by a charge over the properties. X were also shareholders in the sixth and seventh appellant companies (Z1 and Z2). Z1 and Z2’s borrowings from the bank were secured by debentures and legal charges. X gave the bank personal guarantees over Z1’s debts. Z1 and Z2 gave guarantees to the bank in respect of each other’s liabilities. The bank demanded sums from X under the guarantees and subsequently appointed receivers over the properties and Z2. The receivers realized the value of various assets sufficient to discharge X’s direct borrowings. However, the sale of Z1 and Z2’s assets did not cover all the corporate borrowing. The bank demanded further payment from X under their personal guarantees. X failed to make payment and the bank issued proceedings. X filed a defence and counterclaim. A district judge gave judgment for the bank and dismissed the counterclaim. X applied to amend the defence and counterclaim for the purposes of an appeal. They claimed that the bank had agreed to waive its right to appoint receivers if X sold the properties, with the proceeds going to the bank. X claimed that the appointment of receivers had breached that agreement, and that they had lost the opportunity to realise the fair market value of the properties. The application was dismissed. The judge stated that any loss was a matter for Z1 and Z2, not X. When refusing permission to appeal, the Court of Appeal stated that the right course would have been for the claims to be the subject of a fresh claim against the bank. Z subsequently claimed damages against the bank and the receivers.
HELD: (1) The draft amended particulars again pleaded that the appointment of the receivers was a breach of the agreement, resulting in X being unable to realize the full value of the properties. The threshold question regarding the properties was whether X were entitled to make the allegations against the bank, given the earlier decision that it was a matter for Z1 and Z2. The essence of the judge’s reasoning was that he was not persuaded that there was an arguable case that X had suffered loss even if there had been a breach of the agreement. On the face of it, X were now proposing to raise against the bank exactly the same claim in relation to the properties they had raised when permission was refused on the ground that they had no arguable claim. For the purposes of the rules relating to res judicata, the judge’s decision was final, subject only to the possibility of an appeal. Although the judgment refusing permission to appeal referred to the possibility of the claims being made in a fresh action, it did not consider the effect of leaving the previous orders undisturbed. The formal order made was simply to refuse permission to appeal. The estoppel created by the previous orders therefore continued in force. The estoppel was a “cause of action estoppel”, namely a decision that a cause of action did not exist. The dismissal of the counterclaim meant that there was no valid counterclaim as set out in the pleading then before the court. Cause of action estoppel was an absolute estoppel in relation to all points decided, which admitted of exceptions only in cases of fraud and collusion, Arnold v National Westminster Bank Plc (No.1)  2 A.C. 93 and Virgin Atlantic Airways Ltd v Premium Aircraft Interiors UK Ltd  UKSC 46,  A.C. 160 followed. The strike-out judge was therefore right that the dismissal of X’s application for permission to amend to bring the counterclaim precluded them from raising against the bank the same claim in relation to the properties (see paras 19-24 of judgment).
(2) There was no question of res judicata against Z1 and Z2. They argued that the agreement bound the bank not to appoint receivers over their assets pending the sale of the properties by X within a reasonable time. However, their interpretation of the agreement was not accepted. The correct interpretation was that it did no more than postpone the bank’s exercise of its rights as secured lender. It followed that the receivers had been validly appointed. It was impossible to interpret the agreement as making any kind of promise to Z1 and Z2, neither of which was party to the agreement, particularly when neither company had made any promise of its own regarding its own assets. Any claim by Z1 and Z2 was therefore also bound to fail for that reason (paras 25-36).
(3) The claims against the receivers concerning the manner in which they had performed or purported to perform their functions had no real prospect of success (paras 37-54).