Nicholson v Masood

The liquidator applied to strike out the parts of the respondents’ points of defence denying that the company had traded from the premises as claimed on the ground that doing so amounted to a collateral attack on a judgment of the magistrates’ court of 3 March 2017 given on an unsuccessful application to set aside the liability order and was thus an abuse of process. He contended that it would be manifestly unfair to require him to prove the company’s trading from the premises when that issue had already been decided by the district judge in the magistrates’ court. Further or in the alternative, he submitted that it would bring the administration of justice into disrepute to allow the respondents to re-argue the point.

The respondents in turn applied to strike out the parts of the liquidator’s points of claim that relied on the allegation that the company had traded; alternatively, they sought reverse summary judgment. They said that the liquidator’s contention that the company had traded as claimed was unparticularised and an abuse of process in that the liquidator had not adduced evidence sufficient to show that he had a real prospect of succeeding at trial on this point.

The question for the district judge in the magistrates’ court (as identified by ICC Judge Mullen) was whether the company had been “in occupation” of the premises for the purposes of s 43(1) Local Government Finance Act 1988. The district judge had found on that point in favour of the local authority and against the company. The question for ICC Judge Mullen was whether that also amounted to a finding of trading so as to make the issue res judicata for the purpose of the liquidator’s substantive application.

After considering the provisions in the CPR and the legal principles as explained in a wide range of authorities (Virgin Atlantic Airways Limited v Zodiac Seats UK Ltd, Secretary of State for Trade and Industry v Bairstow, Allsop v Banner Jones Ltd, In re Norris, Secretary of State for Business, Innovation & Skills v Potiwal and Re Phoenix Tech Limited) ICC Judge Mullen accepted that the district judge’s focus had been on the test for rateable occupation, so he would not have been concerned with trading as such. He nonetheless held that the effect of the district judge’s judgment was that he had concluded that the company had traded from the premises.

So far so good for the liquidator. However, the parties before the district judge were not, of course, the exact same parties as those to the liquidator’s main application, so ICC Judge Mullen had also to consider the question of privity of interest. On this point the liquidator did not fare so well. The judge concluded that the case before him could be distinguished from the cases of Potiwal and Phoenix:

“In those cases,” he said, “the earlier proceedings had been instigated and directed by a privy of the company who was, if not the alter ego of the company, then a person whose interests were almost entirely aligned with the company in its prosecution of the earlier proceedings. Those earlier proceedings required the tribunal to focus on and determine the conduct of the company and the state of knowledge of that person in relation to the MTIC fraud. In subsequent proceedings against that person, based on that same conduct and that same knowledge, one can see that it is likely to be considered abusive for a defendant who has had the conduct of the proceedings in which those matters have been fully considered to seek to re-argue them.”

In this case, in his view, issue estoppel did not arise. The local authority was not the applicant here. Furthermore, there were three respondents, none of whom had been parties to the magistrates’ court case and only one of whom, Mrs Masood, had clearly been a privy of the company (she had been its director at the time). Although the liquidator alleged that one of the respondents, Mr Azam, had been a de facto director of the company, that was denied and had not been the subject of a finding by the district judge, so Mr Azam could not be said to be bound by the district judge’s decision. Both Mrs Masood and Mr Azam “were plainly very involved in those proceedings, but I cannot say which of them was responsible for the Company’s prosecution of them or able to direct those proceedings so as to protect their own interests, to the extent that those interests arose.” The third respondent, Ms Drozdziol, appeared not to have been involved in the proceedings at all. Thus:

“While the district judge’s decision does indeed seem to be based on a rejection of the Company’s contention that it was not trading from the Premises and that other companies were, the focus of those proceedings was whether there was a genuine dispute as to whether the Company was in rateable occupation of the Premises, not the nature and extent of its trading from those premises. The question for the district judge was not the same as that in the instant proceedings. One cannot say that the full evidence of the Company’s business model and nature and extent of its trading necessarily was, or should have been, provided for consideration. Still less, even on the assumption that the respondents were all directing the [magistrates’ court] Application, would it have been apparent to them that the result of those proceedings as to the Company’s liability for non-domestic rates might be determinative of the central question in a claim against them personally for several million pounds. One cannot say that their interests were so aligned with those of the Company in the [magistrates’ court] Application so that they can be expected to have caused the Company to prosecute the application in a manner that protected those interests too, so as to make it abusive for them to do so now.”

That being the case, it was not unfair to the liquidator to require him to prove his case on trading. Rather, it would be unfair to the respondents to strike out the relevant parts of their defence on the basis of a judgment that was focused on a slightly different question and was given in proceedings that could not have been anticipated to be determinative of the central question in a claim brought against them personally. Nor could the administration of justice be brought into disrepute by the respondents being permitted to mount a defence, solely focused on their own interests, in such circumstances. In this case there would need to be a trial in any event, so it was unlikely that the issue would add significantly to time or costs.

For those reasons the liquidator’s application was dismissed.

The judge found that the liquidator’s case in the main application was adequately pleaded and the basis of his case was clear: “It cannot be said, in the circumstances that I have described, that the prospects of success on the Main Application are no more than fanciful,” he said. The respondents’ cross-application also failed.

As long ago as 1877, Lord Blackburn explained, in  Lockyer v Ferryman in the House of Lords, “The object of the rule of res judicata is always put upon two grounds – the one public policy, that it is in the interest of the state that there should be an end of litigation, and the other, the hardship on the individual, that he should be vexed twice for the same cause.” ICC Judge Mullen’s judgment touches on both, although the balancing exercise involved in his consideration of the second ground arguably represents the more interesting aspect of the case before him. Readers with a particular interest in the subject may care to refresh their knowledge of it by turning again to the five basic principles set out by Lord Sumption in paragraph 17 of Virgin Atlantic v Zodiac [2014] AC 160, one of the many cases referred to in Judge Mullen’s judgment.

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