BP v KP and NI (Financial Remedy Proceedings: Res Judicata)

A default judgment establishes only those facts which were necessary to the judgment’s legal foundation. A fact is not issue-estopped merely because it appears among the facts relied upon if the earlier decision would stand without it. The rule in Henderson v Henderson requires a broad, merits-based assessment of whether later litigation would misuse the court’s process or cause unjust harassment. A consent dismissal does not automatically create an estoppel where the party did not intend to abandon the issue and its later pursuit is not abusive. In financial remedy proceedings, add-back is a cautious and exceptional technique, generally requiring demonstrably wanton dissipation. Whether dissipation occurred before or after marital breakdown is not automatically decisive. A court should not strike out such an argument prospectively where its prospects depend on contested evidence requiring trial.

The wife and husband were involved in financial remedy proceedings following the husband’s liability under a default judgment obtained by the first intervener. The wife alleged that an agreement underlying that judgment had been fraudulently created or entered into after the marriage had broken down, and that the resulting loss should be treated as an add-back in the financial remedy proceedings.

The parties reached a compromise under which the wife’s application to set aside the Chancery Division default judgment would be dismissed by consent. The preliminary issues were whether the default judgment or the proposed consent order barred the wife from disputing the date of formation of the agreement, and whether she should be barred prospectively from advancing her add-back case.

1. Res judicata. The wife accepted that the default judgment barred an allegation that the agreement was procured by fraud. It did not, however, establish that the agreement was formed in March 2008. Applying the principles discussed in Coke-Wallis, R (on the application of) v Institute of Chartered Accountants in England and Wales, New Brunswick Railway Co v British & French Trust Corporation Ltd, Blair v Curran and R v Hartington Middle Quarter Inhabitants, issue estoppel extends only to facts necessary to the earlier judgment. The agreement and the husband’s liability would have been equally valid whether it was formed in 2008 or 2010. The date was therefore not a cardinal fact.
2. Consent dismissal and abuse of process. The proposed dismissal of the wife’s application against the intervener did not create a separate estoppel in the financial remedy proceedings. The rule in Henderson v Henderson, as explained in Johnson v Gore Wood & Co, requires an un-dogmatic, merits-based assessment of all the circumstances. The wife had not intended to abandon the date issue, the compromise benefited the husband as well as the wife, and allowing the issue to be raised would not unjustly harass him. The approach in Ako v Rothschild Asset Management Ltd and Spicer v Tulli supported that conclusion.
3. Add-back. The technique is penal in effect and should be used very cautiously, only where dissipation is demonstrably wanton. The court rejected the submission that conduct before marital breakdown could never qualify. The approach in Scallon v Scallon had been overtaken by the later sharing jurisprudence in White v White and Miller v Miller. The wife’s case depended on disputed evidence and was not plainly hopeless.
4. The wife was permitted to pursue at trial a finding about the date of formation in support of her add-back argument. The court declined to strike out that case prospectively.

First-instance determination of two preliminary issues in financial remedy proceedings. No appellate history is stated in the judgment.