THE APPLICATION OF THE HENDERSON V HENDERSON RULE IN INTERNATIONAL ARBITRATION

• Published date: 01 December 2014
• Date: 01 December 2014
• Author: David A R WILLIAMS QC LLB (Auckland), LLM (Harvard); Barrister and Arbitrator, Bankside Chambers (Auckland and Singapore), Essex Court Chambers (London); Honorary Professor of Law, University of Auckland. Mark TUSHINGHAM BCom, LLB (Hons) (Auckland); Barrister employed by David A R Williams QC.

The rule in Henderson v Henderson prevents parties from raising claims and defences in subsequent proceedings which could and should have been pursued in earlier proceedings but were not so pursued. In this article, the authors explain how the Henderson rule finds its origin in early arbitration cases. They discuss how the Henderson rule operates in practice where parties have participated in a prior arbitration and then seek to commence fresh proceedings raising matters that could and should have been brought in the earlier arbitration. The authors then consider whether the Henderson rule is best characterised as a procedural or substantive rule of law and whether arbitral tribunals should adopt a transnational approach to preclusion rather than applying national preclusion laws.

I. Introduction

1 In most common law systems, where a given matter becomes the subject of litigation the parties are required to bring forward their whole case in the proceedings which ensue. Those parties or their privies cannot pursue the same subject of litigation in later proceedings in respect of a matter which could and should have been brought forward in the earlier proceedings but was omitted whether by negligence, inadvertence or accident. Absent special circumstances, the plea of res judicata applies not only to points upon which the original court was actually required to decide but to every point which properly belonged to the subject of that litigation and which the parties, exercising reasonable diligence, might have brought forward in the initial case.

2 This principle is known in English law as the rule in Henderson v Henderson1 (“Henderson”). The principle exists in the laws of many countries in the Asia Pacific region, including Singapore,2 Hong Kong,3 Malaysia,4 Australia5 and New Zealand.6 The question to be addressed is whether this principle applies when parties have participated in a prior arbitration and then seek to commence a new arbitration (or new proceedings in a national court) raising matters that could and should have been brought in the earlier arbitration. The first part of this article seeks to explain why the Henderson rule does apply in such cases. Support for the authors' conclusion is found in old and modern case law and in the International Law Association's (“ILA”) Recommendations on Lis Pendens and Res Judicata in Arbitration.7

3 On the assumption that the Henderson rule does apply in such cases, the second part of this article considers which law an arbitral tribunal should apply when faced with an objection based on the Henderson rule. Is the rule best characterised as procedural, and therefore governed by the lex arbitri, or substantive, and therefore governed by the lex causae? The suggestion by the ILA and by some commentators that arbitral tribunals should apply transnational preclusion rules applicable to international arbitration instead of national laws will also be considered. The authors conclude that while there are a number of benefits associated with applying a transnational approach, the uncertainty of its content and its application may persuade some arbitrators to apply national laws.

II. Does the Henderson rule apply in arbitration?

A. Historical foundations of the Henderson rule

4 There are two justifications for the res judicata doctrine, encapsulated by the Latin maxims nemo debet vexari pro una et eadem causa— no person ought to be vexed twice by the same cause — and interest reipublicae ut sit finis litium— there is a public interest in the finality of litigation.8 There are compelling reasons why those justifications apply to a cause of action or an issue which has actually

been adjudicated upon, whether by a court or an arbitral tribunal. The parties have submitted their dispute to a decision-maker, participated in the adjudicative process, presented arguments on behalf of their clients and received a decision on the cause of action or issue. There would be no end to dispute resolution if parties were not bound by the decision on those matters. The pleas of cause of action estoppel and issue estoppel appropriately prevent the re-adjudication in subsequent proceedings of identical causes of action or issues between the same parties or their privies which have been finally adjudicated upon.

5 The two justifications which have been identified above apply with less force where the cause of action or issue has not actually been adjudicated upon in earlier proceedings but which one party wishes to advance in later proceedings. It was omitted from one party's case, the parties did not present argument on the matter and they did not receive a decision from the court or tribunal. Nevertheless, absent special circumstances, the Henderson rule prevents the adjudication of matters which properly belonged to the subject matter of the earlier proceedings between the same parties (or their privies) and which could and should have been raised in those proceedings. The rule in Henderson in fact predates that decision and was applied in two English cases, both involving arbitrations.

6 In 1812 in Smith v Johnson,9 a ship owner bought and paid for goods which were shipped on board his vessel for the joint account of himself and his master. After the vessel returned to port, disputes arose relating to the voyage accounts. The parties referred all of their disputes to two arbitrators who ordered the defendant to pay certain sums to the plaintiff. The plaintiff applied to the Court of King's Bench for an attachment order against the defendant for non-payment of the sums ordered to be paid. The defendant claimed that he was entitled to a set-off for sums allegedly owed to him by the plaintiff. The defendant did not submit the set-off issue to the arbitrators and it did not form any part of their award. The court held that the defendant could not raise the set-off issue in the court proceedings. Lord Ellenborough said:10

Here is a reference of all matters in difference, and it appears that the subject in respect of which the deduction is now claimed was a matter in difference at the time, and within the scope of the reference, notwithstanding which the defendant contends that he was not obliged to bring forward the whole of his case before the arbitrators, but might keep back a part of it in order afterwards to use it as a set-off. But it was competent to him to have brought the whole under the consideration of the arbitrators; and therefore … I think that where all matters in difference are referred, the party as to every

matter included within the subject of such reference ought to come forward with the whole of his case.

7 A similar case came before the English courts a few years later in Dunn v Murray.11 The defendant employed the plaintiff to report judicial and parliamentary proceedings for a period of one year for publication in the defendant's newspaper. The defendant dismissed the plaintiff from his employment some five months after he began reporting. The plaintiff sued the defendant for wrongful dismissal. The parties referred all matters in difference between them to arbitration. The arbitrator found the dismissal was wrongful and awarded the plaintiff the relief he sought, namely, wages up to the date he had commenced his claim. When the plaintiff sought to recover further damages (beyond the date of his claim) in a subsequent writ, Lord Tenterden CJ said:12

Now it is clear that the present claim might have been brought before the arbitrator on that occasion; and in the case of Smith v Johnson… Lord Ellenborough lays it down, that where all matters in difference are referred, the party, as to every matter included within the scope of such reference, ought to come forward with the whole of his case. So here the present claim was within the scope of the former reference: it was the duty of the plaintiff to bring it before the arbitrator if he meant to insist upon it as a matter in difference, and he cannot now make it the subject-matter of a fresh action.

8 These cases demonstrate that in order for the Henderson rule to apply, the matter which the party seeks to raise in subsequent proceedings must fall within the scope of the matters which have been referred to arbitration. Unlike courts, arbitrators of course only have subject-matter jurisdiction to determine matters which have been referred to them for decision. In both of these cases, the parties submitted all matters and differences to arbitration. They entered into a submission agreement for this purpose. The matters which one party sought to litigate in subsequent court proceedings could therefore have been brought in the earlier arbitral proceedings.

B. The applicability of the Henderson rule in arbitration

9 In their leading text, Mustill and Boyd doubt whether the rule in Henderson applies to “issues which are outside the scope of the matters

referred to the arbitrator even though they fall within the terms of the arbitration agreement”.13 On this view, if the dispute is not included within the terms of reference for the arbitration, a party may be free to raise the dispute at a later stage. In the analogous context of foreign court proceedings, Peter Barnett has canvassed the arguments against the application of the Henderson rule in subsequent proceedings in England where the earlier proceedings took place in a foreign court.14 And in its Interim Report on Res Judicata and Arbitration, the ILA stated that “it is generally assumed that arbitral tribunals do not apply any principle akin to abuse of process”.15 The ILA had earlier observed in its Interim Report that the Henderson rule is “considered as a category of the ‘abuse of process doctrine’ rather than an extension of the principles of estoppel”.16

10 Others have doubted the view that parties are not equally obliged to raise issues in arbitrations as in national court litigation. Gary Born suggests it is wrong to assume that parties...