The potential for estoppel to arise based on the conduct of a party in litigation is well established in the law of England and Wales. The courts acknowledge that a party cannot change its position adopted in previous proceedings and then expect the court not to hold that party to its previous conduct.
The Court of Appeal has reiterated this position in the case of La Micro Group (UK) Ltd and another v La Micro Group Inc and others and provided clarification that the court will not be constrained by strict rules. The court must adopt a “broad, merits-based assessment” when considering whether estoppel by conduct applies (paragraph 26, judgment).
The appellants appealed against a declaration that they were not beneficial owners of the La Micro Group (UK) Ltd and that the shares were owned by Mr Bell (the second respondent) and Mr Lyampert (the third respondent).
The parties had been involved in lengthy and hard-fought litigation. One issue in dispute was the ownership of 51% shares in the UK company. Crucially, for the purposes of the estoppel by conduct principle, Mr Bell indicated in a deposition in 2012 that the UK company was owned by him, Mr Frenkel (the second appellant) and Mr Lyampert. Mr Bell corrected his position when he was asked about it in subsequent proceedings, which were commenced in 2015, explaining that he, Mr Frenkel and Mr Lyampert owned the UK company via shares they owned in a US company. In 2017, the High Court found that 51% of the share capital in the UK company was owned by the US company (Frenkel v Lyampert and others).
Mr Bell and the UK company sought a declaration that Mr Bell and Mr Lyampert were the sole shareholders. Mr Frenkel and the US company argued that Mr Bell and the UK Company were estopped from seeking the declaratory relief given the position taken by Mr Bell in previous proceedings. At first instance the judge rejected that there was an argument based on estoppel by conduct.
The appeal was allowed to the extent of referring issues of contractual surrender, laches and proprietary estoppel back to the judge. The Court of Appeal, however, rejected the argument that estoppel by conduct arose in these circumstances.
The Court of Appeal acknowledged that the principal of estoppel arising from the conduct of a party in litigation has been recognised in previous cases including Kok Hoong v Leong Cheong Kweng Minds Ltd, in which Viscount Radcliffe said “a litigant may be shown to have acted positively in the face of the court, making an election and procuring from it an order affecting others apart from himself, in such circumstances that the court had no option but to hold him to his conduct and refuse to start again on the basis that he had abandoned” (paragraph 19, judgment).
The Court of Appeal referred to Viscount Radcliffe’s formulation of the test for estoppel by conduct in Kok Hoong which requires “(a) that the party’s stance in the earlier proceedings was the means by which he procured an order, and (b) the circumstances must be such that the court has no option but to hold him to his former stance” (paragraph 22, judgment).
A similar doctrine has been recognised in US law. The Court of Appeal referred to the case of New Hampshire v Maine, confirming there was no reason why English law was different to the law as held in New Hampshire. The Court of Appeal acknowledged therefore that the court should consider the factors referred to in the New Hampshire case, among other matters. Such factors include:
- Whether a party’s later position was clearly inconsistent with its earlier position.
- Whether the party has succeeded in persuading a court to accept the party’s earlier position, so that judicial acceptance of an inconsistent position in later proceedings would create the perception that either court was misled.
- Whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped (paragraph 24, judgment).
The Court of Appeal also stated that “it is clear, therefore, that this form of estoppel by conduct is one which is approached by means of a broad, merits-based assessment, and is not constrained by strict rules (as, for example, issue estoppel)” (paragraph 26, judgment).
The Court of Appeal placed emphasis on the material question of whether or not the previous order had been obtained by the position taken by the party in the earlier proceedings, stating that “absent that factor, whilst the change of position may affect the credibility of the party or the witness concerned, there will not be an impression that one or other court was misled into giving its decision, so that the administration of justice risks being brought into disrepute” (paragraph 26, judgment).
In these circumstances, it was considered that, while there was confusion stemming from Mr Bell’s submissions in his 2012 deposition, his position in the 2015 proceedings and his evidence before the lower court judge, the confusion did not give rise to estoppel by conduct, particularly given that, in the Court of Appeal’s view, it was “not possible to say with anything approaching confidence that [Mr Bell] won before [the lower court] on the footing of or because of the position he took in relation to the continued ownership by Inc” (paragraph 29, judgment).
The decision applies established legal principles but is an important reminder to parties that their conduct in previous proceedings will be taken into account, particularly if a party performs a volte-face with regard to a previous position. While the Court of Appeal acknowledged there has to be a broad assessment, it also helpfully highlighted various key considerations (by reference to New Hampshire and Kok Hoong), making it clear that a material and critical factor is whether a previous decision was gained by the particular position that is thereafter altered and whether or not the judgment would have been obtained in any case.
The approach taken by the Court of Appeal provides a potentially useful alternative to a res judicata argument where a party is unable to establish that the precise issues and questions in dispute have been litigated by the same parties. Indeed, the court in Gandy v Gandy stated that, whether or not res judicata could be established, there “would be monstrous injustice” if one party, having suggested and succeeded on one interpretation, were allowed to change its position in subsequent proceedings and be successful in a “diametrically opposite construction” of the same document.
Despite the decision in La Micro, the courts have made it clear that caution has to be taken to avoid parties “playing fast and loose with justice”, as the court expressed it in Gandy, by altering positions already taken in previous proceedings. Any party doing so is therefore unlikely to receive sympathy from the court.