Tip the bottle marked “res judicata” and out will pour, among other legal principles, issue estoppel. The principle applies where successive proceedings between the same parties involve an issue which was necessarily and fundamentally decided in the earlier proceedings, even if the causes of action differ. Its effect can be powerful: it may prevent a party from advancing what would otherwise be a good claim or defence. In its second successful trip to the Supreme Court, the Danish Customs and Tax Administration, Skatteforvaltningen (“SKAT”), overturned the Court of Appeal’s finding that its 2022 fraud claim against MCML Ltd, formerly ED&F Man Capital Markets Ltd (“EDFM”), was barred by issue estoppel (see Skatteforvaltningen v MCML Ltd [2026] UKSC 19).
Summary of the relevant facts
In 2018, SKAT brought proceedings against 114 defendants, including EDFM. Its claim against EDFM was framed in negligent misrepresentation, based on tax vouchers issued by EDFM to clients who used them in support of withholding tax refund applications. SKAT alleged fraud against other defendants, but not against EDFM.
In 2021, Andrew Baker J dismissed SKAT’s claims as inadmissible under the “Revenue Rule”: the rule that English courts will not entertain an action to enforce, directly or indirectly, the penal, revenue or other public law of a foreign state. SKAT appealed. It succeeded in relation to claims against other defendants, but did not pursue the relevant non-Revenue Rule ground against EDFM; its appeal against EDFM proceeded only on a Brussels Recast Regulation point and failed.
In 2022, SKAT introduced new claims against ED&F alleging that it ran a business which involved preparing fraudulent tax vouchers for the sole purpose of inducing SKAT to pay withholding tax refunds to ED&F’s clients. ED&F alleged that these claims were, inter alia, barred by issue estoppel. Bright J dismissed this argument on the basis that the 2018 and 2022 claims involved different causes of action and different factual allegations, so no issue estoppel arose. The majority of the Court of Appeal disagreed with Bright J.
Relevant principles
Having considered the relevant authorities, the Supreme Court identified certain well established legal principles relating to issue estoppel:
-
- The issue decided in the prior proceedings must have been necessary and fundamental to the decision if it is to give rise to an issue estoppel.
-
- Whether an issue arose on the parties’ pleadings in the prior civil proceedings is critical in deciding whether its determination was necessary and fundamental.
-
- While the immediate foundation of the ultimate decision can give rise to an issue estoppel, elements of the prior court’s reasoning leading up to that decision cannot. Nothing but what is legally indispensable to the conclusion is finally closed or precluded.
Determination
The Supreme Court found that the allegations against ED&F in 2018 were in respect of negligent misstatements. The 2022 claim against ED&F asserted that the relevant misstatements were made fraudulently. Baker J’s 2021 determination only covered the application of the Revenue Rule to negligent, not fraudulent, misstatements. Therefore, SKAT was not estopped from asserting claims in fraudulent misrepresentation against ED&F. The Supreme Court emphasised that their decision would have been different had Baker J decided, for example, that the misstatements had not been made at all, which would have prevented SKAT from relying on those same misstatements in the 2022 claim.
Takeaway
The judgment underlines the narrow scope of issue estoppel. The question is not whether the earlier court’s reasoning could be applied by analogy to the later claim, but what was necessarily decided in order to dispose of the earlier claim as pleaded. Pleadings therefore matter: they define the issues capable of being finally determined. Careful and precise pleading remains central not only to winning the first fight, but to avoiding unnecessary skirmishes later.
