Introduction

Article 28(6) of the ICC Rules of Arbitration provides that every award 'shall be binding on the parties' and Article 25(2) that an award 'shall state the reasons upon which it [the award] is based'. The latter rule was introduced in the 1998 version of the rules, but it left unsaid whether and (if so) to what extent each individual reason forming part of an award was legally binding on the disputant parties, as distinct from the operative part - or dispositif - of the award itself. At first, the distinction may seem irrelevant. The primary purpose of reasons in an award is to ensure that the arbitral tribunal has given rational and adequate consideration to the parties' submissions on the particular dispute. The statement of such reasons will often facilitate the losing party's understanding of why it has lost and that understanding may help ensure its voluntary compliance with the award. Here, the legal status of the reasons plays no separate part from the binding nature of the award's operative part. However, the secondary purpose of an award is to decide the parties' dispute for all time, both as to the whole and as to its constituent parts. Just as it would be absurd for parties to re-litigate the same dispute time and again, like Sisyphus or the hero in 'Ground-Hog Day', would it not be equally absurd for parties to re-litigate issues in a different arbitration where those same issues have already been decided in the reasons for an earlier award between the same parties? To my knowledge, no international arbitration rules expressly address this question. 2 Where an award is rooted in the legal system of the arbitral seat or the place where the award is made or enforced, it follows that the answer will be influenced by national legal rules, more often derived from the legal status accorded to the reasons for the decisions of state courts. For international commercial arbitration, the question has become important where parties face successive but different disputes raising similar issues of law and fact in different arbitrations, as evidenced by the recent decisions of the English Privy Council in Aegis v. European Re (on appeal from Bermuda) and the Swedish Svea Court of Appeal in The Czech Republic v. CME.3

Let us first take a look at history, which shows that the matter is by no means new. In England it arose as long ago as 1836 in a case involving a dead horse, Sybray v. White.4 The plaintiff's mare had fallen through the cover of an old mineshaft, but the defendant miner denied the mine was in his possession. The parties agreed to refer the dispute over the mine's ownership to a local mining tribunal - a 'barmote court' composed of a barmaster and five miners - on the defendant's separate promise to pay for the loss of the mare if the tribunal determined that the mineshaft was his. The tribunal decided, by a written decision with reasons, that the mineshaft belonged to the defendant. [Page74:] The defendant refused to recognise this adverse decision and refused to pay for the lost horse. In subsequent legal proceedings brought by the plaintiff horse owner before the assize judge in Derby, the defendant sought to re-argue the issue of his possession of the mineshaft. On appeal, the court in London treated the tribunal's decision as equivalent to an arbitration award (albeit that it did not purport to be an award and therefore required no stamp duty under the Stamp Acts) and decided that the trial judge was therefore right in allowing the decision to be admitted in evidence before the Derby jury. It however added that the judge 'did not treat the verdict as conclusive, which would have been wrong, but left the question as to the possession of the shaft to the jury, on the whole of the evidence'. The plaintiff therefore won his claim for damages in the sum of 15 pounds, much to the regret of the court because it plainly did not agree that the defendant was in fact in possession of the mine-shaft.

Over the next 150 years, the conclusiveness of English court judgments and arbitration awards was much developed into a highly technical set of legal rules, of which issue estoppel is part. The laws in many countries of the British Commonwealth have been influenced by these developments. Some other legal systems do not recognise the concept of issue estoppel at all, neither for court judgments nor for domestic arbitration awards. This is the case in France and Switzerland, for instance. In certain countries the concept is recognised for court judgments while its application to arbitration awards remains unclear. The Russian Federation is a case in point. 5 In the USA, the concept of issue (collateral) estoppel is perhaps at its broadest. However, whatever the breadth of any individual national rule, the problem remains for international commercial arbitration. In litigation or arbitration conducted in one country (where the concept of issue estoppel is recognised), the existence of an issue estoppel arising from an award made in another country may depend on whether the latter's legal system also recognises that same issue estoppel. That is the position in English law.

Features of issue estoppel

In English law, issue estoppel is different from res judicata and cause of action estoppel. The term res judicata now refers to the general doctrine that an earlier and final adjudication by a court or arbitral tribunal is conclusive in subsequent proceedings involving the same subject matter, the same legal bases and the same parties or their 'privies'. 6 Issue estoppel and cause of action estoppel are important aspects of the more general doctrine of res judicata. 7 Cause of action estoppel prevents a party re-litigating the same claim in subsequent proceedings when that claim has previously been decided in an earlier proceeding between the same parties. Issue estoppel prevents a party in subsequent proceedings from contradicting an issue of fact or law that has already been distinctly raised and finally decided in earlier proceedings between the same parties. 8 Issue and cause of action estoppel apply equally to English arbitration and to English court proceedings, as was confirmed by the Privy Council in Aegis. 9 There is another form of issue estoppel based on the rule in Henderson v. Henderson,10 according to which a party that could, but did not, raise a material issue of fact or law in earlier proceedings cannot raise that same issue in subsequent proceedings. After the decision of the House of Lords in Johnson v. Gore Wood & Co, 11 this rule is better treated as a category of abuse [Page75:] of the English Court's process and it is therefore highly questionable whether it can apply to English arbitration at all. Indeed, in Aegis, the Privy Council decided that 'it may fall on the other side of the line'. 12 Besides, in regard to arbitration, there is of course a logical difficulty in treating the absence of any decision and any reasons in the first award as a ground for precluding a new argument in subsequent proceedings.

The classic statement on issue estoppel was made by Diplock LJ (later to become Lord Diplock) in Mills v. Cooper:13

That doctrine [issue estoppel], as far as it affects civil proceedings may be stated thus: A party to civil proceedings is not entitled to make, as against the other party, an assertion, whether of fact or of the legal consequences of facts, the correctness of which is an essential element in his cause of action or defence, if the same assertion was an essential element in his previous cause of action or defence in previous civil proceedings between the same parties or their predecessors in title and was found by a court of competent jurisdiction in such previous civil proceedings to be incorrect, unless further material which is relevant to the correctness or incorrectness of the assertion and could not by reasonable diligence have been adduced by that party in the previous proceedings has since become available to him.

This statement has been approved by the House of Lords in v. National Westminster Bank plc, 14 for example. Although parts of the statement require adapting for consensual arbitration proceedings, the result is the same under English law.

A fundamental feature of issue estoppel is that the only persons who are affected by a judgment or award in personam are the parties to the proceedings from which the judgment or award derived - or their 'privies'. 15 Without more, no third person can take advantage of or be bound by a prior judgment or arbitration award. The person asserting the binding effect of a prior judgment or award must establish that the parties in both proceedings are the same or that the parties in the later proceedings are privies of those in the earlier proceedings. Further, issue estoppel requires that each party in the later proceedings must claim or defend in the same right as that party, or those to whom it is privy, claimed or defended in the earlier proceedings ('doctrine of mutuality'). For example, a judgment or award obtained by A against B will not be conclusive in a proceeding by B against C, unless C is a privy of A and the same rights are at issue in both proceedings.

The parties to English court proceedings are the specific individuals or entities appearing on the record of the proceedings as litigants in those proceedings. In limited circumstances, individuals or entities that do not appear on the record of the proceedings as litigants will be treated as parties. 16 For example, a joint tortfeasor who stands by and allows litigation to be conducted by other joint tortfeasors may be treated as a party despite the fact that he or she does not appear on the record of the proceedings. 17 However, it is to be doubted that this part of the doctrine may be extended to non-disputant parties in consensual arbitration proceedings. At English law, a privy is a person upon whom all the rights and obligations of any legal entity or natural person devolve, including the right to the benefit of, or the obligation to be bound by, a prior judgment or award. 18 There are three categories of privy in English law: 19 privies in blood (such as ancestors or heirs), privies in title (such as a person who succeeds to the rights or liabilities of a party upon insolvency), and privies in interest (such as a trustee who sues on behalf of a beneficiary). [Page76:]

Issue estoppel in two recent cases

In the Aegis and CME cases mentioned above, although the bulk of the argument lay elsewhere, national courts considered the concept of issue estoppel arising from the reasons contained in an award made in an international commercial arbitration. In Aegis, there were two successive arbitration proceedings under the Bermuda International Conciliation and Arbitration Act 1993 (enacting the UNCITRAL Model Law on International Commercial Arbitration) between the same parties, brought in respect of different contractual claims under the same arbitration clause contained in the same reinsurance contract. In CME, there were two concurrent arbitration proceedings between different named parties in London and Stockholm, raising similar issues related to different bilateral investment treaties (BIT). 20

In the Aegis case, the first arbitral tribunal decided a number of preliminary issues in a partial award. In the reasons for its award, it was required to decide on the meaning of the clause providing the basis on which the parties had agreed their contractual disputes should be resolved. Following the rejection of its legal argument on that clause in the partial award, the claimant discontinued the first arbitration on agreed terms. Later, the claimant brought the second arbitration (before a differently constituted tribunal) advancing different claims under the reinsurance contract but seeking to re-argue the legal meaning of the same clause. The respondent contended that issue estoppel precluded the claimant from advancing that same legal argument and pleaded the relevant reason from the partial award in the first arbitration. (The case then became a leading authority on the confidentiality of arbitration awards because the claimant obtained an injunction from the Bermuda Supreme Court on the ground that the first award could not be disclosed to strangers, namely the members of the second arbitral tribunal.)

The Privy Council decided that the first award:

conferred upon [the respondent] a right which is enforceable by later pleading an issue estoppel. It is a species of the enforcement of rights given by the award just as much as would be a cause of action estoppel. It is true that estoppels can be described as rules of evidence or as rules of public policy to stop the abuse of process by relitigation. But that is to look at how estoppels are given effect to, not at what is the nature of the private law right which the estoppel recognises and protects . . . where arbitrators have, pursuant to a submission of a dispute to them, decided an issue; that decision then binds the parties and neither can thereafter dispute that decision. 21

Whether or not the reasons in the first award founded an issue estoppel was, of course, a matter for the decision of the second arbitral tribunal, like the Derby jury, and not the Privy Council. Given that the Privy Council did not support the injunction granted in Bermuda, that second tribunal could now be shown the relevant reason in the first award, as an exception to the general confidentiality of that award under the parties' express and implied agreement. 22

In the CME case, the parties in the London arbitration were the Czech Republic and Mr Lauder. The parties in the Stockholm arbitration were CME and the Czech Republic. CME was not a named party in the London arbitration, nor was Mr Lauder a named party in the Stockholm arbitration. Under English law, CME was not Mr Lauder's ancestor, heir or other 'privy in blood' (or vice versa). CME had [Page77:] not succeeded to the rights or liabilities of Mr Lauder in the London arbitration, nor was it otherwise a 'privy in title' (or vice versa). Mr Lauder was a minority but controlling shareholder in one company which (through three intermediary companies) held shares in CME which, in turn, was the 99% owner of the Czech investor company. It was argued that Mr Lauder and CME were thereby each shareholders at different levels in the same corporate chain by which the investment was made in the Czech Republic. Could it therefore be said, as was contended by the Czech Republic, that CME had sufficient interest in the London arbitration to be regarded in English law as a 'privy in interest'? If so, given that the London award dismissing Mr Lauder's claim was made several days before the Stockholm award, the Czech Republic argued that the London award precluded the Stockholm tribunal from making any award in favour of CME (as in fact it did), as a matter of Swedish law, English law and public international law. Its argument raised many interesting issues beyond the scope of the present analysis of English law.

English law requires a practical approach to be taken in determining whether a person or entity is a 'privy in interest'. Barnett succinctly summarises this position: 23

There must be an examination of the parties' interests, as well as the existence of a sufficient degree of identification between the parties, before it is just to hold that a decision in respect of one party should be binding in proceedings to which another is party. Moreover, the interest in the previous litigation or its subject matter must be legal or beneficial: a mere curiosity or concern in the litigation or some interest in the outcome is not sufficient.

Accordingly, there is in practice a restricted scope to the doctrine of 'privies in interest'. For example, a trade relationship between two companies does not make one a privy in interest of the other, and an agreement to indemnify does not usually make the two parties privies of each other. 24 Hence, a guarantor, insurer and reinsurer are not privies of the original obligor, insured or reinsured, whereas a partner and trustee could be privies with a co-partner and beneficiary respectively. In Bain v. Cooper, 25 Baron Parke referred to these different categories:

in all these cases there is a privity between the parties, which constitutes an identity of person. But that is not so in the present case, where the parties are only in the relation of principal and surety, and there is no privity of interest between them, since the surety contracts with the creditor: they are not one person in law and are not jointly liable to the plaintiff.

The separate legal status of shareholders and companies, and the separate interests of each, were long ago firmly established by the House of Lords in Salomon v. A. Salomon & Co Limited. 26 As regards issue estoppel, that same principle was recently applied between sister single-ship companies with the same beneficial ownership where economic common sense might have strongly suggested otherwise. In Ali Shipping Corporation v. Shipyard 'Trogir',27 the Court of Appeal approached the doctrine of res judicata as a legal and not an economic doctrine. In this case Potter LJ decided that no issue estoppel could arise where the parties to the different arbitrations were not the same, and different single-ship companies under the same beneficial ownership were not legally the same. In practice, it is perhaps more difficult for a legal person to establish that it is a 'privy in interest' to a natural person, than vice versa.

In the event, the Svea Court of Appeal did not decide the question of issue estoppel under English law. It held (in English translation): [Page78:]

The issue whether lis pendens and res judicata may be applicable in a situation such as the instant one has not, as far as is known, arisen previously. The mere fact that the arbitrations were initiated under different investment treaties which were entered into between different states, the Czech Republic and the United States in the one treaty and the Czech Republic and the Netherlands in the other, militates against these legal principles being applicable at all.

Nonetheless, the Court then addressed the position under Swedish law, deciding that the Czech Republic, during the Stockholm arbitration, had expressly waived any objection based on lis pendens and res judicata and that, as regards any challenge based differently on an 'abuse of process', even if such a challenge could exist under Swedish law, it would depend whether a sufficient identity of interest existed between Mr Lauder and CME. The Svea Court of Appeal decided that Mr Lauder and CME 'cannot be deemed to be the same party' and accordingly the Court rejected this ground of the Czech Republic's challenge.

Yet the problem remains for another arbitral tribunal or state court where no waiver has taken place and where, if only modestly, the facts may be different. It is not so acute where the parties to the two arbitration proceedings are different, because a third person is not a party to another's consensual arbitration agreement or bound by its award. However, where the parties are the same (or very similar) and capable of being bound by successive awards in different arbitration proceedings, how are these parties to protect themselves against the risk of inconsistent decisions from the different tribunals on similar issues of fact or law? The consolidation of the two separate arbitrations, or conjoined hearings, or an agreed stay of one arbitration to give legal precedence to the other all depend upon the agreement of all parties. Consequently, this general solution cannot be assumed, as the CME case demonstrates. 28 Where the decision is the result of an award (recorded in its operative part or dispositif), the doctrine of res judicata, or cause of action estoppel, will prevent inconsistency. Where the decision is a reason for an award, it is the doctrine of issue estoppel that could promote consistency.

Conclusion

It is curious that hitherto there has been little comparative research into the different legal conceptions of issue estoppel in the field of international commercial arbitration. To a great extent, the fault may lie with the indiscriminate use of Latin tags, particularly res judicata, which disguise under ancient clothes very different concepts in diverse national legal systems. It is equally remarkable that until recently no serious attempt has been made to harmonise national rules on what has plainly emerged as a serious legal difficulty for international commercial arbitration, particularly in the field of investment arbitrations. The practical lesson to be learnt from the CME case must lead to carefully structured investments to ensure that the ultimate investor can take advantage of as many BITs (and BIT arbitrations) as possible, thereby ensuring multiple bites at the cherry until success is ensured. The defendant state can deploy no similar device. A comprehensive solution remains elusive, unless and until a new and uniform concept of issue estoppel emerges as a règle matérielle. Yet, where the parties are the same (and no problem of confidentiality can arise), the next version of Articles 25(2) and 28(6) of the ICC Rules of Arbitration could usefully provide a self-contained code to ensure that the reason for an award, as well as the result of the award, is presumed to bind the parties in subsequent proceedings where that reason was an essential reason for that award's result and an essential issue in the [Page79:] later proceedings. Under English and many other national laws, where the ICC rules form part of the parties' arbitration agreement, Articles 25(2) and 28(6) may already say as much; but given that other national laws suggest otherwise, it would be wise for the ICC rules to say so expressly. It never hurts to express an implied agreement or to provide for common sense solutions in the field of international commercial arbitration, as the Aegis and CME cases both demonstrate in their different ways.

1
All comments on this contribution are welcome and may be sent to vvveeder@compuserve.com

2
See Article 32(3) of the UNCITRAL Arbitration Rules, Article 26(1) and Article 26(9) of the LCIA Arbitration Rules, and Article 31(2) of the UNCITRAL Model Law on International Commercial Arbitration.

3
AEGIS v. European Re, [2003] 1 W.L.R. 1041; The Czech Republic v. CME, 15 May 2003, (2003) 18:6 Mealey's International Arbitration Report A-1, also available at www.cetv-net.com Indeed, similar points have since arisen in The Mox Plant Case (between Ireland and the United Kingdom) in the Permanent Court of Arbitration and the ICSID case SGS v. Pakistan; see respectively the PCA web site at www.pca-cpa.org for Ireland's oral submissions of 13 June 2003 (p. 8 of the transcript) and the ICSID award of 6 August 2003 at pp. 15, 19, 42, 65.

4
(1836) 1 M. & W. 435; 150 E.R. 504.

5
Article 209(2) of the 2002 Russian Federation's code of civil procedure (which came into effect on 1 February 2003) provides expressly that the court's decision prevents the parties and other persons participating in the case (as well as their assignees) from filing a civil claim with the same cause of action or disputing facts or legal relationships established by the court. There is no similar express rule in regard to arbitration awards.

6
P.R. Barnett, Res Judicata, Estoppel and Foreign Judgments: The Preclusive Effects of Foreign Judgments in Private International Law (Oxford University Press, 2001) at 8; G. Spencer-Bower & A.K. Turner, The Doctrine of Res Judicata, 2d ed. (London: Butterworths, 1969) at 1 and 9-10.

7
See P.R. Barnett, supra note 6 at 19-20. See also B. Hanotiau's article, above, pp. 43-51.

8
See e.g. P.R. Barnett, supra note 6 at 20 and 133.

9
This case addressed issue estoppel under the Bermuda International Conciliation and Arbitration Act 1993 enacting the UNCITRAL Model Law on International Commercial Arbitration, but the principle has long been settled for arbitrations under English law: see e.g. Fidelitas Shipping Co Ltd v. V/O Exportchleb, [1966] 1 Q.B. 630; G. Spencer-Bower & A.K. Turner, supra note 6 at 27-28.

10
(1843) 3 Hare 100; see G. Spencer-Bower & A.K. Turner, supra note 6 at Appendix 1.

11
[2002] 2 AC 1.

12
Paragraph 16.

13
[1967] 2 Q.B. 459 at 468-469.

14
A similar summary of issue estoppel was stated by Diplock LJ in Thoday v. Thoday [1964] P. 181 at 197-198, quoted with approval by the House of Lords in Thrasyvoulou v. Secretary of State for the Environment, [1990] 2 A.C. 273 at 295-296.

15
See e.g. P.R. Barnett, supra note 6 at 6185, 137, 158 and 164-166; G. Spencer-Bower & A.K. Turner, supra note 6 at 18-19. The position is the same in public international law; see e.g. Ireland's oral submissions in The Mox Plant Case, supra note 3: 'Assuming that there is a rule of public international law on res judicata - and assuming it is a rule which is akin to the domestic rule in Ireland or in the United Kingdom or elsewhere - you would need of course identity of parties, identity of issues, identity of facts.' (per Professor Philippe Sands, QC)

16
See P.R. Barnett, supra note 6 at 67-68. (This principle has nothing to do with the 'group of companies' doctrine.)

17
House of Spring Gardens Ltd v. Waite, [1991] 1 Q.B. 241.

18
See P.R. Barnett, supra note 6 at 68-69.

19
See Carl Zeiss Stiftung v. Rayner & Keeler Ltd (No 2), [1967] A.C. 853 at 910 and 936 (House of Lords).

20
The author was counsel in the first case and an expert witness in the second, both contributions (especially the latter) of marginal significance to the decisions on issue estoppel.

21
Paragraph 15.

22
At one point, given that the relevant reason from the first award was freely quoted in the written judgments of the Supreme Court and Court of Appeal in Bermuda, it had seemed possible for the respondent to refer the second arbitral tribunal to these public judgments, rather than to the 'confidential' award. Understandably, these judgments were then impounded by court order; and the Privy Council imposed strict reporting restrictions on its own proceedings in London until it published its decision dismissing the claimant's case.

23
P.R. Barnet, supra note 6 at 69.

24
Gleeson v. J Wippell & Co, [1977] 1 W.L.R. 510 at 515.

25
(1841) 8 M. & W. 751 at 754.

26
[1897] A.C. 22.

27
[1999] 1 W.L.R. 314 at 329-331.

28
At the outset of the London arbitration, one side did invite the other to agree to different forms of consolidation of the two arbitrations. If this had been agreed, it could have saved a mountain of later difficulties. The offer was rejected by the other side, at the time no doubt for very good reasons.