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N11b. Issue and cause of action estoppel
ISSUE ESTOPPEL
General (very limited scope in tax appeals)
“Issue estoppel may arise where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided and in subsequent proceedings between the same parties involving a different cause of action to which the same issue is relevant one of the parties seeks to re-open that issue.” (Arnold v. NatWest Bank Plc [1991] 2 AC 93, Lord Keith).
"[64] A further important part of the wider statutory background, rightly emphasised by HMRC in their written and oral submissions, is that corporation tax is an annual tax, and in the absence of special provision either side is free to change its ground on matters of law or methodology from year to year. As I pointed out during the hearing, it is a long-established principle that the doctrines of res judicata and of issue estoppel cannot apply from one year to the next in the context of income tax, and the same must be true of corporation tax..." (R (oao Refinitiv Ltd) v. HMRC [2024] EWCA Civ 1412, Henderson, Underhill, Whipple LJJ)
“We agree with Judges Richards and Berner that the question whether Mr Garland is entitled to pay voluntary NICs in Period 1 has been conclusively decided against him by UT 1, and it is not possible for us to re-open that question. There is a public interest in the finality of litigation and a defined appellate process which, as we have explained, Mr Garland has exhausted. Accordingly, even if we should think there was merit in Mr Garland’s arguments in respect of Period 1 we are obliged to refuse permission on ground (5).” (Garland v. HMRC [2016] UKUT 431 (TCC), §28).
“However, issue estoppel does not appear to have any actual application in tax cases. In Cafoor [1961] AC 584 PC it was held that a decision in one tax year does not create an issue estoppel for another tax year. That doctrine was held to apply as much to VAT as direct tax cases in Littlewoods [2014] EWHC 868 (Ch) at §190.” (Foneshops Ltd v. HMRC [2015] UKFTT 410 (TC), §25)
Overriding purpose
“designed to prevent the re-litigation of facts and other issues which have been or could have been decided in earlier proceedings between the same parties” (Bennett v. CEC [2001] STC 150)
Three requirements
“It is common ground that, in order for an issue estoppel to arise, three conditions need to be satisfied:
(i) the same question must previously have been decided;
(ii) the judicial decision which is said to create the estoppel must have been a final decision of a court of competent jurisdiction; and
(iii) the parties to the prior judicial decision … must have been the same persons as the parties to the subsequent proceedings in which the estoppel is raised…” (Littlewoods Retail Ltd v. HMRC [2014] EWHC 868 (Ch), §152, Henderson J)
(1) Same question in both proceedings
For tax purposes, issue estoppel only applies to the liability to tax itself, and even then, only when that liability is the ultimate question before the Court or Tribunal. For example, interest is a separate liability to tax, as is a consequent penalty.
"I consider that the Caffoor principle applies to the underlying determinations of VAT and section 85 agreements in the present case, and that no issue estoppel can arise in relation to the separate claims for interest now advanced by the claimants so as to prevent HMRC from arguing that the VAT was in fact due as a defence to the claims. The position is in my judgment similar in all essential respects to that considered by Jacob J in King v Walden, which I respectfully think was correctly decided.” (Littlewoods Retail Ltd v. HMRC [2014] EWHC 868 (Ch), §207(1)).
“The appellant points out that issue estoppel is of limited application in tax proceedings due to the doctrine described in Cafoor [1961] AC 584 PC. That doctrine is that a decision in one tax year does not create an issue estoppel for another tax year. That doctrine was held to apply as much to VAT as direct tax cases in Littlewoods (supra) at §190.” (Bradonbay Ltd v. HMRC [2015] UKFTT 229 (TC), §52).
“If there effectively is no issue estoppel in actions for interest on tax over or underpaid, then it seems an irresistible conclusion that a tribunal determination on liability to VAT cannot create an issue estoppel in penalty actions arising out of that liability.” (Foneshops Ltd v. HMRC [2015] UKFTT 410 (TC), §28)
- Persuasive effect of earlier findings in any event
“I am therefore of opinion that the assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made. No doubt, a decision reached in one year would be a cogent factor in the determination of a similar point in a following year, but I cannot think that it is to be treated as an estoppel binding upon the same party for all years.” (IRC v. Sneath 17 TC 149 at 163, per Lord Hanworth)
- Confiscation order proceedings do not give rise to res judicata or estoppel
“That decision clearly does not preclude HMRC altogether from investigating Mr Martin’s tax affairs. In my judgment, it does not preclude HMRC from raising assessments based on the results of their investigation; they are not bound to accept that the house was constructed before the earliest of the assessment periods.” (Martin v. HMRC [2015] UKUT 161 (TCC), §55, Warren J)
- Need not be central issue
"[63] Although the classification of the Rights as either intangible or financial assets was not the central issue being determined, the FTT was presented with a wide range of expert views on the matter. The Tribunal's clear conclusion, that the LLPs had acquired a single fixed intangible asset, was based on its assessment of the substance of the transactions and their rejection of the LLPs' accounting treatment as inconsistent with GAAP." (Inside Track 3 LLP v. HMRC [2025] UKFTT 986 (TC), Judge Sukul)
- Applies to necessary ingredients
"[17] In order to demonstrate issue estoppel, the party seeking to resist the new claim needs to show that such a claim raises an issue which:
a) Has already been litigated;
b) Has already been decided;
c) Was a necessary ingredient in the cause of action being advanced.
[Even if all that is made out, it may be possible to permit re-litigation of the issue if special circumstances apply: see Arnold v The National Westminster Bank Plc [1991] 2 AC 93." (Seele Austria GmbH Co v. Tokio Marine Europe Insurance Limited [2009] EWHC 255 (TCC), Coulson J)
Determining whether issue was decided
- Not appropriate to look beyond decision if unambiguous
"[58] In determining whether or not an issue has previously been decided by the FTT, where the wording of the FTT's conclusions is unambiguous, we do not consider it to be appropriate to look beyond the decision itself.
[59] In the First FTT Decision, the clear conclusions, as set out at [1106], were that the accounts of the LLPs did not comply with GAAP, and the asset acquired under the relevant agreements should be treated as fixed intangible asset to produce profits or losses computed in accordance with GAAP. The FTT continued, that if contrary to its view, the LLP should be regarded as having the film as a current asset, it should be valued at NRV so calculated, and if "we are right and the correct treatment is as a fixed intangible asset, then the combined effect of impairment and onerous contract provision would give rise to the same profit and loss account effect."
[60] We find the wording of the FTT's conclusions to be unambiguous. We therefore consider that the FTT explicitly determined how the Rights should be categorised for accounting purposes, and determined that the correct treatment is fixed intangible asset." (Inside Track 3 LLP v. HMRC [2025] UKFTT 986 (TC), Judge Sukul)
- Other materials may assist if ambiguous
"[18] The issue in question must be one which forms "a necessary ingredient in a cause of action [which] has been litigated and decided and in subsequent proceedings between the same parties involving a different cause of action to which the same issue is relevant one of the parties seeks to re-open that issue": Lord Keith at page 105 of Arnold. This has caused some difficulty in ascertaining precisely what was involved in the earlier decision of the court. In Carl Zeiss Stiftung v Rayner and Keeler Limited (No 2) [1967] AC 853, Lord Wilberforce suggested this formulation:
"One way of answering this is to say that any determination is involved in a decision if it is a 'necessary step' to the decision or a 'matter which it was necessary to decide, and which was actually decided, as the groundwork of the decision' (Reg v Inhabitants of Hartington Middle Quarter Township 4 E&B 780, 794). From this it follows that it is permissible to look not merely at the record of the judgment relied on, but at the reasons for it, the pleadings, the evidence (Brunsden v Humphrey [1884] 14 QBD 141, CA) and if necessary other material to show what was the issue decided (Flitters v Allfrey LR 10 CP 29). The fact that the pleadings and the evidence maybe referred to, suggest that the task of the court in subsequent proceedings must include that of satisfying itself that the party against whom the estoppel is set up did actually raise the critical issue, or possibly, though I do not think that this point has yet been decided, that he had a fair opportunity, or that he ought, to have raised it." (Seele Austria GmbH Co v. Tokio Marine Europe Insurance Limited [2009] EWHC 255 (TCC), Coulson J)
(2) Final decision of a court of competent jurisdiction
“The appellant appears to accept that this Tribunal is a court of competent jurisdiction…” (Bradonbay Ltd v. HMRC [2015] UKFTT 229 (TC), §50 – HMRC were arguing that issue estoppel would apply to the decision of the FTT)
- Includes interlocutory or procedural decision
“Yet I take it to be too clear to need citation of authority that the parties to the suit are bound by the determination of the issue. They cannot subsequently in the same suit advance argument to adduce further evidence directed to showing that the issue was wrongly determined. Their only remedy is by way of appeal from the interlocutory judgment and, where appropriate, an application to the appellate court to adduce further evidence.” (Fidelitas Shipping 30 Co Ltd v V/O Exportchleb [1966] 1 QB 630 at 642, Diplock LJ).
“Osman proceeded on the basis that the original decision which was stated to have created an issue estoppel was a final decision on disclosure and the further application was seeking to re-litigate the same issue. In this case, as Mr Furness accepts, the Targets cannot seek to re-litigate the Carmelite Application, being an application for disclosure, but the question as to whether to strike out the Targets’ pleadings on the underlying issue has not been specifically litigated.” (Granada Rental & Retail Limited v. The Pension Regulator [2014] UKUT 175 (TCC), §24, Judge Herrington)
“The fact that the decision which is said to create an issue estoppel was an interlocutory decision is not a bar to its creation.” (Granada Rental & Retail Limited v. The Pension Regulator [2014] UKUT 175 (TCC), §9, Judge Herrington)
- But not substantive issues raised in the context of interlocutory decisions on a procedural issue
“However, as Mr Furness points out, the Carmelite Application was not extensively argued, as it undoubtedly would have been had the issue been on the table as, in effect, a preliminary issue. I therefore accept the distinction he draws between an application that has been set up for hearing as a purely procedural one, as the Carmelite Application was, dealing with the question of disclosure, and a hearing that has been set up to argue the merits of a preliminary issue.” (Granada Rental & Retail Limited v. The Pension Regulator [2014] UKUT 175 (TCC), §22, Judge Herrington)
- Does not apply where earlier appeal struck out for procedural reasons
"[51] In considering whether the striking out of an appeal constituted a “decision” on the underlying grounds put forward by an appellant, I was assisted by Takhar v Gracefield Developments Ltd [2019] UKSC 13. In that case, Lord Sumption (with whom Lords Hodge, Lloyd-Jones and Kitchin agreed) held that where a case is struck out for a procedural reason, the “cause of action” is the set aside application itself, and this “relates to the conduct of the earlier proceedings, and not to the underlying dispute”. Lord Sumption went on to say that, as a result. “there can therefore be no question of cause of action estoppel” applying. In other words the substantive issues in the appeal have not previously been decided. Although Takhar concerned a strike-out application on the basis of fraud, in my judgment the principle is the same in other cases." (Henry v. HMRC [2024] UKFTT 237 (TC), Judge Redston)
- Estopped from relitigating matter following withdrawal
"[73] We should also add that there is nothing unjust, absurd or anomalous in concluding that the effect of section 85 in the present case is that the tribunal is deemed to have determined the sole issue raised in the Assessment Appeal, that input tax on the investment management services was not allowable; rather this is simply an inevitable corollary of the deemed state of affairs and is consistent with (i) the purpose of section 85 and (ii) the reality that, by withdrawing the Assessment Appeal, TTSL was conceding the issue. It is a sensible conclusion on the facts of this case where TTSL is clearly seeking to re-litigate the same issue that arose in the Assessment Appeal. Indeed, we consider it would be absurd if TTSL could withdraw the Assessment Appeal and then make a claim for repayment of the very sums which had been assessed.
[74] We are satisfied therefore that the FTT was right to find at [222] that if there was no cause of action estoppel, then TTSL was barred by issue estoppel from bringing the Claim Appeal. The consequence of that finding is that the FTT was right to strike out the Claim Appeal and this appeal must be dismissed."
(Telent Technology Services Limited v. HMRC [2024] UKUT 183 (TCC), Green J and Judge Cannan)
“Therefore, on 18 April 2011, as a result of withdrawing its appeal there was in effect a binding Tribunal determination that Meridian’s claims for input tax for 04/06 and 05/06 was incorrect as it was overstated and had no right to deduct input tax attributable to the transactions for which its recovery had been denied on the basis that it knew or should have known that these transaction were connected to fraud. This therefore disposes of the issue of whether the 04/06 and 05/06 returns are correct and, as such, Meridian is estopped from advancing the same arguments in the present appeal. In addition we find that it would be an abuse of process were it to be allowed to do so.” (Meridian Defence & Security Ltd v. HMRC [2014] UKFTT 300 (TC), §24, Judge John Brooks).
- Unless it is clear that party was not intending to abandon the claim
“In my view, what emerges from these authorities is that there is no inflexible rule to the effect that a withdrawal or judgement by consent invariably gives rise to a cause of action or issue estoppel. If it is clear that the party withdrawing is not intending to abandon the claim or issue that is being withdrawn, then he or she will not be barred from raising the point in subsequent proceedings unless it would be an abuse of process to permit that to occur.” (Ako v Rothschild Asset Management Ltd [2002] EWCA Civ 236, §41).
“The decision that the appeals should be allowed by consent was obviously not intended to be an end to the deregistration decision and we therefore decided that HMRC was not estopped from making the second deregistration decision… In our view the appeal against HMRC’s decision to reduce both input and output tax to nil for the period to 09/08 and to refuse the repayment claims in the subsequent returns were allowed by Judge Brooks, by consent. This does of course mean that that decision has already been made and has not been challenged by HMRC in any way within the prescribed time limits. It is therefore subject to res judicata and we cannot interfere with that decision.” (Wicked Wang Promotions v. HMRC [2017] UKFTT 100 (TC), §§19…22)
(3) Same parties
- HMRC not bound by litigation they were not a party to in absence of binding order
"[269]...(1) notwithstanding the decision of Bean J in Faulds, the Respondents are not barred, by reason of the doctrine of issue estoppel, from adopting the Primary Case Preferred Analysis or the Primary Case Alternative Analysis. That is because they were not party to the proceedings in Faulds and did not agree to be bound by the decision (see Faulds at paragraph [9]). In addition, as noted in paragraph 65 above, following the decision, no application was made under Rule 19.8A(2)(b) of the CPR for the decision to bind the Respondents unless they applied under Rule 19.8(b) of the CPR to set aside or vary the order of the High Court. As such, the Respondents are free to advocate those analyses in the present proceedings;" (Dalriada Trustees Ltd v. HMRC [2023] UKFTT 314 (TC), Judge Beare)
Exception: New material that could not have been adduced with reasonable diligence
"[65] As Lord Sumption said in Virgin Atlantic Airways at [21], there is some greater flexibility in the operation of issue estoppel than cause of action estoppel, because it is possible to "reargue in materially altered circumstances an old point which had previously been rejected", as well as taking a new point which could not reasonably have been taken on the previous occasion (which may be possible under both forms of estoppel)." (Axa Sun Life PLC v. HMRC [2024] EWCA Civ 1430, Lewison Nugee, Falk LJJ)
"[223] I record for completeness that Mr Jones did not refer to the exception set out at §196 and §197, namely that issue estoppel does not apply “in the special circumstance that further material relevant to the correct determination of a point involved in the earlier proceedings, whether or not that point was specifically raised and decided”. In particular, he did not seek to argue that the new arguments included in the Claim (see §25) based on the UT judgment in University of Cambridge constituted “special circumstances” for the purposes of issue estoppel.
[224] The Arnold exception only operates, of course, where the newly adduced material “could not by reasonable diligence have been adduced in those proceedings”. The UT’s judgment in University of Cambridge was issued in June 2015, so before the Assessment was appealed to the FTT, and thus prima facie could have been adduced in those proceedings." (Telent Technology Services Limited v. HMRC [2022] UKFTT 147 (TC), Judge Redston)
Exception: concession on the basis of HoL authority subsequently overruled
"[82] In our view none of the reasons put forward by Mr Bremner for not ordering otherwise outweigh these points. We accept that Set-off was a GLO issue and that there is no relevant factual distinction between Prudential and GREA on this issue, but for the reasons given it does not follow that what is now understood to be an error of law in a test case should be applied to all other claims on the group register that remain to be resolved. We also accept that it should not generally be possible to have "two bites of the cherry", particularly in relation to a point that was determined as long ago as 2014. But the situation in this case, with a decision of the House of Lords taken only seven years earlier being overruled during the course of this complex litigation, is exceptional." (Axa Sun Life PLC v. HMRC [2024] EWCA Civ 1430, Lewison Nugee, Falk LJJ)
Delay in raising estoppel may provide defence
"[21] We agree with Mr Jones KC that the FTT was wrong to treat the issues of acquiescence and estoppel raised by TTSL as issues of general case management. We consider that, in the context of a strike out application based on estoppel and abuse of process, the lateness of the application could give rise to a substantive defence based on acquiescence or estoppel. Case management issues might arise from the lateness of an application but TTSL did not take any case management issue here. It did not object to HMRC amending the statement of case." (Telent Technology Services Limited v. HMRC [2024] UKUT 183 (TCC), Green J and Judge Cannan)
CAUSE OF ACTION ESTOPPEL
- Appeal against assessment to input tax and claim for repayment of that input tax are same cause of action
"[92] In the present case, we agree with Mr Elliott and the FTT that TTSL's cause of action in the Claim Appeal was the same cause of action as in the Assessment Appeal. The cause of action was TTSL's claim to be entitled to input tax credit on fees paid to investment advisers in relation to the Escrow Account. The FTT was therefore right to strike out the appeal on the grounds of cause of action estoppel, and we reject Ground 3 of the appeal.
[93] Overall, that is not a surprising result. It would be surprising if TTSL had the right to assert entitlement to input tax credit twice in relation to the same input tax in the same VAT period, either because of a narrow interpretation of section 85 or on the basis that there is no cause of action estoppel. In substance TTSL was making the same claim arising out of the same facts. Whilst it is true that the first decision being challenged was an assessment and the second decision was the refusal of a claim, they were based on exactly the same facts and matters. If cause of action estoppel does not apply, then one would expect issue estoppel to apply." (Telent Technology Services Limited v. HMRC [2024] UKUT 183 (TCC), Green J and Judge Cannan)
RES JUDICATA
- Applies to attempts to re-raise the same argument in the same proceedings
"[62] Although issue estoppel has a diminished role to play in many tax cases under the Caffoor principle, that principle has no application here. Not only are BT seeking to redetermine matters relating to the same accounting periods, but they are seeking to redetermine matters decided in these very same proceedings....
[63] We have found that both the s80(1) and the s80(1B) issues were raised before the Court of Appeal, and that the Court decided these issues in favour of HMRC. The Supreme Court then refused permission to appeal. We find that the decision of Court of Appeal binds BT and BT is estopped from continuing to pursue these issues. If there was any doubt about the matter, we would have found that it would be an abuse of process for BT to continue to pursue the s80 point applying the test set out by Lord Bingham in Johnson v Gore-Wood." (British Telecommunications Plc v. HMRC [2023] UKUT 122 (TCC), Leech J and Judge Aleksander)
- Decision on one tax year has no binding effect in relation to other years
“…their decision on an appeal is not a decision on a ‘lis inter parties’…Accordingly a determination of an appeal by the commissioners or a s 54 agreement cannot any more since 1964 than before 1964 afford scope for application of the doctrine of res judicata or issue estoppel in respect of assessments in succeeding years or additional assessment in the same year.” (Barnett v. Brabyn (Inspector of Taxes) [1996] STC 716).
“In estimating the total income of the taxpayer the Commissioners must necessarily form, and perhaps express, opinions upon various incidental questions of fact or law. But the only thing that the Commissioners have jurisdiction to decide directly and as a substantive matter is the amount of the taxpayer's income for the year in question. This being so, their decision upon any incidental question of fact or law, however necessary it may be for the purpose of ascertaining the income for the year of assessment, cannot, as it seems to me, be conclusive in reference to the ascertainment of the taxpayer's income for any subsequent year of assessment with which the Commissioners have nothing to do, and in respect of which a fresh estimate will have to be made when the time comes, and possibly by other Special Commissioners.” (CIR v. Sneath [1932] 2 KB 362 at 391).
“It is clear from Lightman J’s comments that a decision in respect of one year or one assessment on the basis of a particular state of affairs does not preclude the making of an assessment for a later year based on a different view of the circumstances related to that year.” (Thomas v. HMRC [2016] UKFTT 133 (TC), §128).
“One issue…was whether it would be permissible for HMRC in the FTT hearing of DPAS no.2 to re-open the issues of law decided in DPAS no.1. [Counsel for HMRC] pointed out that there was no doctrine of res judicata in tribunal decisions: be that as it may, there is a principle that there should be no abuse of process.” (DPAS Ltd (No.2) v. HMRC [2015] UKFTT 0071 (TC), §35).
“In my view there can be no question of res judicata as regards the findings of fact by this Tribunal in one appeal relating to different statutory provisions in relation to a different appeal involving (with the exception of the Fourth Respondent) different parties.” (Spring Capital Ltd v. HMRC [2015] UKFTT 0066 (TC), §209).
See also R v. CEC ex p. Building Societies Ombudsman Co Ltd [2000] STC 892; Bennett v. CEC No.2 [2001] STC 137, §36.
- Necessary determination in criminal proceedings gives rise to res judicata
“In order to be acquitted of the criminal offence Mr Lennon must have been able to persuade the District Judge that he was simply transhipping the cigarettes from Dundalk in the Republic of Ireland to Donegal also in the Republic of Ireland…This Tribunal considers that the acquittal of the criminal charge results in the matter being res judicata and the appeal is therefore allowed.” (Lennon v. HMRC [2018] UKFTT 562 (TC), §§21 - 22, Judge Rankin)
- Does not apply to incidental or collateral finding
“Using Millet J’s wording, it seems to me that the Tribunal’s references quoted above to the alleged tripartite transaction were references which were not an essential part of the decision – they were incidental or collateral findings of fact.” (Spring Capital Ltd v. HMRC [2015] UKFTT 0066 (TC), §207).
- No res judicata where FTT considers issue but not technically within scope of appeal
"[23] Although the decision of the Tribunal purports to uphold the personal liability notice - if that notice was not within the scope of the appeal, then that decision can have no validity. I have, with reluctance, come to the conclusion that the scope of the VAT appeal did not extend to the personal liability notice. This is because
(1) Neither the notice of appeal, nor the statement of case refer to the requirements relating to the imposition of personal liability notices, and why those provisions are (or are not) satisfied;
(2) Mr Balasingham is not stated in the title to the decision to be an appellant;
(3) Whilst the Tribunal's decision sets out in some detail the statutory and case law provisions applying to penalties, it does not set out the corresponding statutory provisions and case law relating to personal liability notices. In particular no reference is made to paragraph 22 Schedule 41, Finance Act 2008. The Tribunal does not address in its decision the requirements that need to be satisfied for a personal liability notice to be validly given by HMRC; and
(4) there is no express finding by the Tribunal of the deliberate behaviour being attributed to Mr Balasingham for the purposes of paragraph 22." (Balasingam v. HMRC [2025] UKFTT 1541 (TC), Judge Aleksander)