Carl-Zeiss-Stiftung v Rayner & Keeler Ltd
|''Carl-Zeiss-Stiftung v Rayner & Keeler Ltd''|
|House of Lords|
|Date decided:||15 May 1966|
|Full case name:||Carl-Zeiss-Stiftung v Rayner & Keeler Ltd, Degenhardt & Co. Ltd, and Carl-Zeiss-Stiftung (No. 2)|
|Citations:|| 1 A.C. 853-978;  2 All E.R. 536-592;  3 W.L.R. 125;  R.P.C. 497; (1966) 110 S.J. 425|
|Judges sitting:||Lord Reid, Lord Hodson, Lord Guest, Lord Upjohn, Lord Wilberforce|
|Cases cited:||* Lazard Bros. & Co. v Midland Bank Ltd ( All E.R. Rep. 571) followed.|
* Godard v Gray ((1870), L.R. 6 Q.B. 139) considered.
* Nouvion v Freeman ((1889), 15 App. Cas. 1) considered.
* Simpson v Fogo ((1863), 1 Hem. & M. 195) criticised.
|Prior actions:||* Court of Appeal (Harman, Danckwerts, Diplock, L.JJ.), 17 December 1964 ( Ch. 596;  1 All E.R. 300;  2 W.L.R. 277;  R.P.C. 141; (1965) 109 S.J. 51)|
* Cross, J., 6 March 1964
|Diplomatic recognition; Issue estoppel|
CARL-ZEISS-STIFTUNG v RAYNER AND KEELER LTD AND OTHERS (No. 2).
 2 All E.R. 536
[House of Lords (Lord Reid, Lord Hodson, Lord Guest, Lord Upjohn and Lord Wilberforce), December 1, 2, 6, 7, 8, 9, 13, 14, 15, 16, 1965; January 31, February 1, 2, 3, 7, 8, 9, 10, 14, 15, 16, May 18, 1966.]
Conflict of Laws—Foreign law—Recognition—Law as declared by courts of foreign country—Zonal government in Germany—German Democratic Republic not recognised by United Kingdom government as independent sovereign state, but U.S.S.R. recognised as having de jure sovereignty in Eastern Zone of Germany—Council of Gera, created by laws of German Democratic Republic, exercised authority in the district of the Eastern Zone that included Jena—Council entitled according to law of Eastern Zone to act as the special board (the governing authority) of Carl-Zeiss-Stiftung, a corporation domiciled at Jena in Eastern Zone—Council authorised the bringing of an action in England in the name of the foundation—Whether action brought without authority.
Estoppel—Estoppel by record—Issue estoppel—Foreign judgment—Issue of want of authority to institute action—Judgment in foreign proceedings that Council of Gera, the effective plaintiff, was not entitled to represent foreign corporation—Council of Gera authorised issue of writ to bring passing-off action in England in name of foreign corporation—Defendants in English action applied for stay of proceedings on ground of want of authority to issue writ—Whether defendants entitled to succeed on this application on ground that English solicitors estopped by foreign judgment from maintaining that they were duly authorised.
Solicitor—Costs—Payment by solicitor personally—Want of authority to institute action—Action in name of foreign corporation—Corporation domiciled in Eastern Zone of Germany—Law applicable to determine authority to sue.
In 1896 the Carl-Zeiss-Stiftung, a charitable foundation, was incorporated under articles of constitution at Jena, which was in the district of East Germany that was then the Grand Duchy of Saxe-Weimar. The foundation was administered by a "special board" and the two businesses which it owned—one an optical works (founded in 1846 by Carl Zeiss) and the other a glass works—were run each by a separate board of management. The rights and duties of the special board were (by r. 5 of the constitution) to pertain to "that department of the State Service of the Grand Duchy of Saxe-Weimar under which the affairs of the University of Jena were for the time being placed". Rule 113 of the constitution provided that if political changes were made the rule regarding representation of the foundation untenable, the rights and duties of the foundation were to be made over to that department of state which occupied with regard to the University of Jena the place of the state department of the Grand Duchy acting as the special board, provided it had its seat in Thüringia, otherwise to the "highest administrative authorities in Thüringia". In 1918 under the Weimar Republic, the Grand Duchy of Saxe-Weimar was abolished and a new state of Thüringia was set up under which the Minister of Education became the special board. After 1935 under the National Socialist regime, a Reich-Stathalter became the special board in place of the Minister of Education. In 1945 when Thüringia was occupied by American forces, a new provisional government of Thüringia was set up and its Minister of Education became the special board. In July, 1945, by agreement between the allied powers, East Germany, including Thüringia, was taken over by the Russians. When the Americans left in 1945 the members of the boards of management, and a number of scientists and executives went with them to West Germany, where they developed interests that the Stiftung and the firm of Carl Zeiss had there. In 1945, as a result of Russian confiscatory decrees, assets of the two firms were confiscated. In 1948 by further decrees of the Russian authorities both businesses became nationalised industries, referred to as V.e.Bs. In 1949 the U.S.S.R. set up the German Democratic Republic to govern that part of Germany occupied by Russia and purported to make it an independent sovereign state. The Minister of Education continued to be allowed to act as the special board. In 1952 the German Democratic Republic abolished the state of Thüringia and divided the territory of East Germany into districts. Jena was in the district of Gera and the Council of Gera assumed the position corresponding to the Minister and acted as the special board. In proceedings brought by the appellant in Eastern Germany to restrain the firm of Carl Zeiss of West Germany from using the name "Carl Zeiss" in Eastern Germany the reached, in and before 1961, the conclusions that the Carl-Zeiss-Stiftung continued to exist as a legal entity and that the Council of Gera was its special board. The writ in the present action, dated Oct. 20, 1955, which was a passing-off action for an injunction to restrain the respondent from using the word "Zeiss" and from selling optical or glass instruments under that name unless the goods were those of the appellant, was issued in the name of Carl-Zeiss-Stiftung as plaintiff on instructions on behalf of the foundation (and the V.e.B.) given by a Dr. S. under his authority as mandatory derived from the Council of Gera. Thus the authority of the English solicitors to issue the writ in the name of the present appellant depended on the authority of the council to act as the special board of Carl-Zeiss-Stiftung, the appellant. On Nov. 15, 1960, the in West Germany upheld a preliminary objection that the foundation was not properly before the German court as the Council of Gera had no authority to represent the foundation. In those proceedings the effective plaintiff was the Council of Gera, and the third defendant in the present action (the West German firm of Carl Zeiss of Heidenheim) was defendant. In February, 1956, the respondents to this appeal applied in the English action that all further proceedings should be stayedon the ground that the action was brought and was being maintained without the authority of the foundation. On Nov. 6, 1964, Her Majesty's Secretary of State gave a certificate which certified, among other matters, "that Her Majesty's government has not recognised either de jure or de facto any other authority," viz., in the context any other authority than the government of the U.S.S.R., "purporting to exercise governing authority in or in respect of the [Eastern Zone of Germany]. Her Majesty's government, however, regards the aforementioned governments as retaining rights and responsibilities in respect of Germany as a whole". The governments last referred to were those of the French Republic, the United Kingdom, the United States of America and the Union of Soviet Socialist Republics.
Held: (i) as the Council of Gera had authorised this action being brought in the name of the appellant, the respondents had not established want of authority on the part of the appellant's solicitors to issue the writ, for the following reasons—
- (a) as the court was bound to accept the information afforded by Her Majesty's government as conclusive concerning the sovereignty of a foreign state, the East German Democratic Republic set up by the U.S.S.R. in East Germany must be regarded, in accordance with the Foreign Office certificate of Nov. 6, 1964, as a subordinate organisation whose acts, being done with the consent of the government of the U.S.S.R., derived authority from the sovereignty of the U.S.S.R. in East Germany and could not be regarded by the English court as nullities (see p. 547, letter G, p. 548, letter D, p. 559, letter G, p. 564, letter F, p. 569, letter E, p. 580, letter B, and p. 581, letter A, post).
- (b) since a foreign corporation was governed by the law of its domicil, and the appellant's domicil was in East Germany, the capacity of the appellant was governed by East German law, which should be taken to be the law declared by the East German courts (not by the West German courts) as Germany was for the time being divided; and by German law the appellant remained in existence and the Council of Gera was entitled to act as the special board of the appellant (see p. 556, letter D, p. 558, letter G, p. 562, letter H, p. 568, letters A and H, p. 574, letter H, p. 582, letter A, and p. 589, letters A, E and I, post).
- Lazard Bros. & Co. v. Midland Bank, Ltd. ( All E.R. Rep. 571) followed.
- (ii) the decision of the Federal High Court in West Germany that the Council of Gera had no authority to represent the appellant in the proceedings there did not give rise to an estoppel per rem judicatam entitling the respondents to succeed without further inquiry on their application for a stay of proceedings in the present action on the ground of want of authority of the appellant's solicitors to issue the writ for the following reasons—
- (a) (Lord Wilberforce dissenting as to identity of parties) there was not identity of parties or privity of interest for the purposes of issue estoppel, since the Council of Gera was the effective plaintiff[ed 1] in the West German proceedings, the English solicitors for the appellant were not parties to those proceedings and there was no privity as regards the English solicitors (see p. 550, letters B and G, p. 551, letter A, p. 556, letter C, p. 561, letter I, p. 566, letter G, p. 567, letter C, and p. 572, letters C and D; cf. p. 586, letters D and I, post).
- (b) the question of res judicata in the present case was one of issue estoppel as distinct from cause of action estoppel and, although issue estoppel could be based on a foreign judgment[ed 2] the burden of establishing that the judgment of the court in West Germany was a final and conclusive judgment, such as was required to raise estoppel, was on the respondents and (Lord Hodson, dissenting, see p. 560, letter I, to p. 561, letter A, post) they had not adduced evidence to satisfy the court of that (see p. 556, letter A, p. 566, letter D, p. 574, letter E, and p. 588, letter A, post); moreover (per Lord Upjohn) the question of the solicitors' want of authority could never be an issue in the action and issue estoppel should not apply (see p. 573, letter E, and p. 574, letter C, post).
- Godard v. Gray ((1870), L.R. 6 Q.B. 139) and Nouvion v. Freeman ((1889), 15 App. Cas. 1) considered.
- Simpson v. Fogo ((1863), 1 Hem. & M. 195) criticised.
- Decision of the Court of Appeal ( 1 All E.R. 300) reversed.
[As to the court's taking judicial notice of the status of a foreign state, see 7 Halsbury's Laws (3rd Edn.) 265, 266, para. 569, 15 Halsbury's Laws (3rd Edn.) 336, 337, para. 612; and for cases on the subject, see 22 Digest (Repl.) 142-144, 1290-1303.
As to the proper law for determining the powers of a foreign corporation, see 7 Halsbury's Laws (3rd Edn.) 12, para. 21.
As to the essentials of estoppel per rem judicatam, see 15 Halsbury's Laws (3rd Edn.) 185, para. 358; and p. 182, para. 355; and for cases on the need for identity of parties or privity, see 21 Digest (Repl.) 256-261, 367-409.
As to the liability of a plaintiff's solicitor for costs where he institutes an action without authority, see 36 Halsbury's Laws (3rd Edn.) 76, 77, para. 107; and for cases on the subject, see 43 Digest (Repl.) 370-372, 3924-3952, 374, 3971-3975.]
Cases referred to:
- Aksionairnoye Obschestvo A. M. Luther v. Sagor (James) & Co.,  1 K.B. 456; rvsd. C.A.,  All E.R. Rep. 138;  3 K.B. 532; 90 L.J.K.B. 1202; 125 L.T. 705; 22 Digest (Repl.) 143, 1296.
- Banco de Bilbao v. Sancha, Banco de Bilbao v. Bey,  2 All E.R. 253;  2 K.B. 176; 107 L.J.K.B. 681; 159 L.T. 369; 11 Digest (Repl.) 612, 420.
- Bankers and Shippers Insurance Co. of New York v. Liverpool Marine and General Insurance Co., (1925), 21 Lloyd L.R. 86; rvsd., H.L., (1926), 24 Lloyd L.R. 85.
- Behrens v. Sieveking, (1837), 2 My. & Cr. 602; 40 E.R. 769; 21 Digest (Repl.) 274, 483.
- Berne (City of) v. Bank of England, (1804), 9 Ves. 347; 32 E.R. 636; 22 Digest (Repl.) 142, 1290.
- Brunsden v. Humphrey, [1881-85] All E.R. Rep. 357; (1884), 14 Q.B.D. 141; 53 L.J.Q.B. 476; 51 L.T. 529; 49 J.P. 4; 21 Digest (Repl.) 281, 526.
- Buerger v. New York Life Assurance Co.,  All E.R. Rep. 342; 43 T.L.R. 601; 35 Digest (Repl.) 202, 97.
- Bullard & Co. v. Grace & Co., (1925), 1285 N.Y. 388.
- Callandar v. Dittrich, (1842), 4 Man. & G. 68; 134 E.R. 29; 11 Digest (Repl.) 529, 1417.
- Duff Development Co., Ltd. v. Kelantan Government,  All E.R. Rep. 1;  A.C. 797; 93 L.J.Ch. 343; 131 L.T. 676; 22 Digest (Repl.) 143, 1293.
- Fidelitas Shipping Co., Ltd. v. V/O. Exportchleb,  2 All E.R. 4;  2 W.L.R. 1059.
- Flitters v. Allfrey, (1874), L.R. 10 C.P. 29; 44 L.J.C.P. 73; 31 L.T. 878; 21 Digest (Repl.) 232, 253.
- Godard v. Gray, (1870), L.R. 6 Q.B. 139; 40 L.J.Q.B, 62; 24 L.T. 89; 11 Digest (Repl.) 522, 1360.
- Guaranty Trust Co. of New York v. Hannay & Co., [1918-19] All E.R. Rep. 151;  2 K.B. 623; 87 L.J.K.B. 1223; 119 L.T. 321; 6 Digest (Repl.) 152, 1091.
- Hancock v. Welsh and Cooper, (1816), 1 Stark. 347; 30 Digest (Repl.) 377, 196.
- Henderson v. Henderson, [1843-60] All E.R. Rep. 378; (1843), 3 Hare, 100; 1 L.T.O.S. 410; 67 E.R. 313; 21 Digest (Repl.) 244, 306.
- Houlditch v. Donegal (Marquess), (1834), 8 Bli. N.S. 301; 2 Cl. & Fin. 470; 5 E.R. 955; 11 Digest (Repl.) 502, *720. :Hoystead v. Taxation Comr., (1921), 29 C.L.R. 537; rvsd. P.C.,  All E.R. Rep. 56;  A.C. 155; 95 L.J.P.C. 79; 134 L.T. 354; 21 Digest (Repl.) 249, 330.
- Jones v. Garcia del Rio, (1823), 1 Turn. & R. 297; 37 E.R. 1113.
- King v. Hoare, (1844), 13 M. & W. 494; 14 L.J.Ex. 29; 4 L.T.O.S. 174; 153 E.R. 206; 21 Digest (Repl.) 293, 591.
- Kingston's (Duchess) Case, (1776), 1 East, P.C. 468; 20 State Tr. 355; 21 Digest (Repl.) 225, 223.
- Kinnersley v. Orpe, (1780), 2 Doug. K.B. 517; 99 E.R. 330; 21 Digest (Repl.) 265, 428.
- Laidlaw v. Blackwood, (1843), 15 Sc. Jur. 484; 21 Digest (Repl.) 259, *309.
- Lazard Brothers & Co. v. Midland Bank, Ltd.,  All E.R. Rep. 571;  A.C. 289; 102 L.J.K.B. 191; 148 L.T. 242; affg. sub nom. Lazard Brothers & Co. v. Banque Industrielle de Moscou,  1 K.B. 617; 22 Digest (Repl.) 613, 7070.
- Lockyer v. Ferryman, (1877), 2 App. Cas. 519; 21 Digest (Repl.) 272, 478.
- Marginson v. Blackburn Borough Council,  1 All E.R. 273;  2 K.B. 426; 108 L.J.K.B. 563; 160 L.T. 234; 21 Digest (Repl.) 235, 276.
- Mercantile Investment and General Trust Co. v. River Plate Trust, Loan and Agency Co.,  1 Ch. 578; 63 L.J.Ch. 366; 70 L.T. 131; 11 Digest (Repl.) 523, 1367.
- Myers v. Elman,  4 All E.R. 484;  A.C. 282; 109 L.J.K.B. 105; 162 L.T. 113;43 Digest (Repl.) 375, 3981.
- New Brunswick Ry. Co. v. British and French Trust Corpn., Ltd.,  4 All E.R. 747;  A.C. 1; 108 L.J.K.B. 115; 160 L.T. 137; 21 Digest (Repl.) 231, 247.
- Nouvion v. Freeman, (1887), 37 Ch.D. 244; affd. H.L., (1889), 15 App. Cas. 1; 59 L.J.Ch. 337; 62 L.T. 189; 11 Digest (Repl.) 513, 1282.
- Outram v. Morewood, (1803), 3 East, 346; 102 E.R. 630; 21 Digest (Repl.) 256, 372.
- Petrogradsky Mejdunarodny Kommerchesky Bank v. National City Bank, (1930), 253 N.Y. 23; 170 N.E. 479.
- Preston (orse. Putynski) v. Preston (orse. Putynska) (orse. Basinska),  3 All E.R. 928;  P. 141;  3 W.L.R. 1401; affd. C.A.,  2 All E.R. 405;  P. 411;  2 W.L.R. 1435; Digest (Cont. Vol. A) 238, 966f.
- Queensland Mercantile & Agency Co., Ltd., Re, Ex p. Australasian Investment Co., Ex p. Union Bank of Australia,  1 Ch. 219; 61 L.J.Ch. 145; 66 L.T. 433; 8 Digest (Repl.) 607, 498.
- R. v. Bottrill, Ex p. Kuechenmeister,  2 All E.R. 434;  K.B. 41; 175 L.T. 232; sub nom. R. v. Kuechenmeister, Ex p. Bottrill, 115 L.J.K.B. 500; 22 Digest (Repl.) 311, 3238.
- R. v. Hartingdon Middle Quarter (Inhabitants), (1855), 4 E. & B. 780; 24 L.J.M.C. 98; 24 L.T.O.S. 327; 19 J.P. 150; 119 E.R. 288; 21 Digest (Repl.) 203, 51.
- Ricardo v. Garcias, (1845), 12 Cl. & F. 368; 8 E.R. 1450; 11 Digest (Repl.) 530, 1422.
- Richmond v. Branson & Son,  1 Ch. 968; 83 L.J.Ch. 749; 110 L.T. 763; 33 Digest (Repl.) 695, 1491.
- Russian Commercial and Industrial Bank v. Le Comptoir d'Escompte de Mulhouse,  All E.R. Rep. 381;  A.C. 112; 93 L.J.K.B. 1098; 132 L.T. 99; 21 Digest (Repl.) 199, 10.
- Simpson v. Fogo, (1863), 1 Hem. & M. 195; 32 L.J.Ch. 249; 8 L.T. 61; 71 E.R. 85; 11 Digest (Repl.) 380, 426.
- Society of Medical Officers of Health v. Hope (Valuation Officer),  1 All E.R. 317;  A.C. 551;  2 W.L.R. 404; 124 J.P. 128; 21 Digest (Repl.) 249, 333.
- Sokoloff v. National City Bank of New York, (1924), 239 N.Y. 158; 145 N.E. 917; on appeal, (1929), 250 N.Y. 69; 163 N.E. 745.
- Taylor v. Barclay, (1828), 2 Sim. 213; 7 L.J.O.S. Ch. 65; 57 E.R. 769; 22 Digest (Repl.) 142, 1291.
- Thoday v. Thoday,  1 All E.R. 341;  P. 181;  1 W.L.R. 371; 3rd Digest Supp.
- Thompson v. Powles, (1828), 2 Sim. 194; 57 E.R. 761; 11 Digest (Repl.) 448, 872.
- U.S. v. Home Insurance Co., U.S. v. Southern Insurance & Trust Co., (1874), 89 U.S. 99; 22 Law Ed. 816.
- Upright v. Mercury Business, (1961), 13 A.D. (2nd) 361.
- White, Child & Beney, Ltd. v. Simmons; White, Child & Beney, Ltd. v. Eagle Star & British Dominions Insurance Co.,  All E.R. Rep. 482; (1922), 127 L.T. 571; 22 Digest (Repl.) 143, 1297.
- Yonge v. Toynbee, [1908-10] All E.R. Rep. 204;  1 K.B. 215; 79 L.J.K.B. 208; 102 L.T. 57; 43 Digest (Repl.) 56, 441.
This was an appeal and a cross-appeal. The appeal was by the appellant, Carl-Zeiss-Stiftung, and the cross-appeal was by the respondents, the defendants hereinafter mentioned, from an order of the Court of Appeal (Harman, Danckwerts and Diplock, L.JJ.) dated Dec. 17, 1964, and reported  1 All E.R. 300, reversing so much of the order of Cross, J., dated Mar. 6, 1964, as dismissed the application of the respondents by summons dated Feb. 7, 1956. The summons was for an order that all further proceedings in the action by the appellant should be stayed and that the action should be dismissed on the ground that it was begun and maintained without the appellant's authority. The Court of Appeal ordered that the writ and all subsequent proceedings should be set aside, that the respondents should bear their own costs of the action and of applications to the Court of Appeal and that the solicitors for the appellant (Carl-Zeiss-Stiftung) should pay to the respondents the costs occasioned by the appeal, such costs to be taxed on the common fund basis. On Mar. 17, 1965, the respondents presented a petition of appeal to the House of Lords naming as sole respondents to the cross-appeal so instituted the partners in the firm of solicitors acting on behalf of Carl-Zeiss-Stiftung, the petition being for an order for the payment of costs of the action and other costs.
The action was commenced by writ dated Oct. 20, 1955. In it the appellant claimed an injunction to restrain the respondents and each of them from advertising, offering for sale or selling any optical instruments or any articles containing or consisting of glass under or by reference to the name "Carl-Zeiss" or any name containing "Zeiss", unless such goods should be those of the appellant or an organisation associated with the appellant, and generally from passing off any business or goods as and for those of the appellant or an organisation associated with the appellant. The appellant claimed also an injunction to restrain the third defendants from using the name "Carl-Zeiss-Stiftung" or "Carl-Zeiss" or any name containing "Zeiss" in relation to their business or goods. The plaintiff in the action, Carl-Zeiss-Stiftung, was a German foundation founded, so it was alleged, in 1889 and having its registered office at Jena in that part of Germany now constituting the German Democratic Republic. The defendants were Rayner and Keeler, Ltd., Degenhardt & Co., Ltd., and Carl-Zeiss-Stiftung. The first two defendants were retailers of optical instruments, who did not deal in the defendant's goods. The third defendant was, so it was alleged, a German organisation with its registered office at Heidenheim in the Western zone of Germany. Originally the third defendant's name on the record was "Carl-Zeiss". On service of notice of a concurrent writ on the third defendant at Heidenheim, the third defendant entered appearance as Carl-Zeiss-Stiftung trading as "Carl-Zeiss". Thereafter the writ was amended to describe the third defendant as "Carl-Zeiss-Stiftung". The appellant's statement of claim was amended and redelivered. By para. 3 of the amended statement of claim the appellant pleaded that in pursuance of r. 113 of certain articles of constitution drawn up by one Dr. Ernest Abbé in 1896, the administration of the appellant (viz., Carl-Zeiss-Stiftung domiciled at Jena) had been transferred to the Council of the District of Gora, in which district of the Eastern Zone Jena was then situated. It was alleged that the third respondents to the present appeal had used without the appellant's consent the names "Carl-Zeiss-Stiftung" and "Carl-Zeiss" in relation to their business and goods, such use being calculated to lead to their business and goods being thought to be the business and goods of the appellant. The appellant also alleged that for very many years and at all material times the name "Carl Zeiss" and any name including "Zeiss" had indicated, when used in relation to a business concerning glass or optical instruments the appellant's goods, and that for very many years the name "Carl-Zeiss-Stiftung" had indicated the appellant exclusively. The appellant then alleged that the respondents and each of them with full knowledge had passed off the third respondent's business and goods as and for the business and goods of the appellant or an organisation associated with the appellant, whereby the appellant had suffered damage.
On the application of the respondents[ed 3], the Court of Appeal (Lord Denning, M.R., Pearson and Salmon, L.JJ.) made an order dated July 27, 1964, that a letter be sent to the Secretary of State for a certificate relating to recognition by Her Majesty's government of the German Democratic Republic or its government. By certificate dated Sept. 16, 1964, the Secretary of State replied that Her Majesty's government had not granted any recognition de jure or de facto to the German Democratic Republic or its government. By supplemental notice of appeal dated Sept. 28, 1964, the respondents gave notice that they would rely, inter alia, on the following grounds of appeal—(i) that Cross, J., erred in recognising the existence of the Council of Gera, which was established by a law of the German Democratic Republic or was an organ thereof, notwithstanding that Her Majesty's government did not recognise the German Democratic Republic as a state or its authorities as a government; (ii) that Cross, J., erred in paying attention to the decisions of courts which were established by the law of the German Democratic Republic, and (iii) that the action was an attempt to enforce extra-territorially the prerogative or other public laws of the German Democratic Republic. On Oct. 29, 1964, the Court of Appeal (Harman, Danckwerts and Diplock, L.JJ.) on the application of the appellants, ordered that a further letter be written to the Secretary of State requesting him to certify to the court the answer to the following questions, among others—
"What (a) states or (b) governments or (c) authorities (if any) had since July 1, 1945, up to the present date been recognised by Her Majesty's government as entitled to exercise or exercising government authority in the area of Germany outside the zones allocated to the governments of the United Kingdom, the United States of America and the French Republic by the Protocol of Sept. 12, 1944, and the agreement of July 26, 1945, concluded between the governments of the said states and the Union of Soviet Socialist Republics. Has such recognition been de jure or de facto?"
In reply to that request Her Majesty's Secretary of State gave the answer dated Nov. 6, 1964, which is set out at p. 545, letters D to H, post, to the effect that Her Majesty's government had recognised the U.S.S.R. as de jure entitled to exercise governing authority in respect of that zone.
The facts and the relevant rules of the articles of constitution of Carl-Zeiss-Stiftung appear in the opinion of Lord Reid.
G. T. Aldous, Q.C., E. Lauterpacht and D. W. Falconer for the appellant.
Mark Liftman, Q.C., T. M. Shelford and Philip Lewis for the respondents.
Their lordships took time for consideration.
May 18. The following opinions were delivered.
LORD REID: My Lords, in this action the appellant, Carl-Zeiss-Stiftung, is seeking an injunction against the respondents to restrain them from selling optical instruments under the name Carl Zeiss and for other relief. The present appeal arises out of a summons taken out by the respondents on Feb. 7, 1956, for an order for a stay of proceedings and dismissal of the action on the ground that it was commenced and is being maintained without the appellant's authority. At various dates thereafter lengthy affidavits were filed and after long cross-examination Cross, J., on Mar. 6, 1964, refused to stay the proceedings, having decided against the respondents on the three grounds then put forward by them. The respondents appealed and, having received new advice, put forward a new and quite different ground based on the non-recognition by Her Majesty's Government of the German Democratic Republic. The Court of Appeal on Dec. 17, 1964, allowed the respondents' appeal on this new ground and so found it unnecessary to reach any decision on the grounds maintained before Cross J.
I think that it will be convenient first to deal with the new point raised for the first time in the Court of Appeal and then to deal separately with the other grounds. The issues raised are complex and difficult and your lordships are confronted with some 1,500 pages of affidavits, cross-examination and documents. I shall therefore try to restrict my narrative to those matters which are directly relevant to the issues to be decided.
It is necessary to have the appellant's history in mind. About 1846 Carl Zeiss founded an optical business in Jena. He later assumed as a partner Ernst Abbé of Jena University. Then they and Otto Schott founded a glass works. By 1891 Abbé was the owner of the whole (subject to Schott's interest) and he decided to set up a Stiftung or charitable foundation to own and carry on the two businesses under the name of the Carl-Zeiss-Stiftung. The main objects were to promote "precise technical industry" (which may not be an adequate translation) and to benefit the employees and the working population of Jena.
The constitution of the Stiftung was elaborately set out. First there was to be a special board for the administration of its estate and the supreme direction of its affairs and the rights and duties of the special board were to pertain to "that department of the state service of the Grand Duchy of Saxe-Weimar under which the affairs of the University of Jena are for the time being placed." Then "for directing the industrial operations of the Stiftung" there were to be "boards of management of the various establishments of the Stiftung for the time being" and a permanent official, the Deputy (Stiftungs Kommissar), was to be appointed to represent the special board on the boards of management, and finally article 113 provided:
"Should, in consequence of political changes in the state, the provision according to 5 of this statute with reference to the representation of the Stiftung become untenable, this representation including the appointment of the Deputy of the Stiftung within the meaning of 5 and the statutory administration of the Carl-Zeiss-Stiftung shall be made over to that department of state, which with regard to the University of Jena occupies the place of the State Department of the Grand Duchy of Saxe-Weimar acting as special board, provided that its seat is in Thüringia, otherwise to the highest administrative authorities in Thüringia."
In 1918 under the Weimar Republic the Grand Duchy was abolished and a new state of Thüringia was set up; thereupon the Minister of Education of that state became the special board. Then after 1935 under the National Socialist regime his place was taken by a Reichs-Stathalter; and when Thüringia was occupied by American forces in 1945 a new provincial government of Thüringia was set up by them and its Ministry of Education became the special board. On July 1, 1945, by agreement between the allied powers Thüringia came under Russian occupation and the present controversy turns on what happened thereafter.
We do not have precise evidence about this, but it is said that in 1949 the U.S.S.R. set up the German Democratic Republic to govern that part of Germany then occupied by Russia, and purported to make it an independent state. Moreover it is further said that thereafter the German Democratic Republic purported to act as an independent state in legislating for and administering the Russian zone of Germany. That there is a body calling itself the German Democratic Republic and that it does operate in that zone is, I think, common knowledge. I do not think that common knowledge goes farther than that, but, for the purposes of this appeal, I am prepared to assume that the U.S.S.R. did purport to confer independence on the Democratic Republic and that that body does purport to act as if it were an independent state.
Shortly stated, the respondents' case is that we are bound to have regard to the basis on which the Democratic Republic purports to act, and that as Her Majesty's Government has never granted recognition de jure or de facto to that Republic or its Government, we must refuse to recognise as effective all legislation emanating from it, and all acts done under such legislation. For reasons which I shall give later I do not think that that is right, but first I shall explain why, if it were right, it would be decisive of the point I am now dealing with.
In 1952 the Democratic Republic passed legislation re-organising local government in its "territory," and in fact this legislation was put into effect. The old state or land of Thüringia was abolished and in its place Districts were created, each with a Diet and a Council or Rat. Jena fell within the District of Gera, and the Council of Gera did in fact operate as the special board of the appellant, and did in fact authorise the raising of the present action. If the respondents' argument based on nonrecognition is well founded, then it must follow that British courts cannot recognise either the existence of the Council of Gera or the validity of anything done by it, and in particular cannot recognise any authority given by it for the raising of the present action. So I must now examine the principles on which this argument is founded.
In the normal case a law is made either by the sovereign directly or by some body entitled under the constitution of the country to make it or by some person or body to which the sovereign has delegated authority to make it. On the other hand, there are many cases where laws have been made against the will of the sovereign by persons engaged in a rebellion or revolution: then until such persons or the government which they set up have been granted de facto recognition by the Government of this country, their laws cannot be recognised by the courts of this country, but after de facto recognition such laws will be recognised. So far there is no difficulty. But the present case does not fit neatly into any of these categories. We are considering whether the law of 1952 under which the Council of Gera was set up can be recognised by our courts and therefore we must ascertain what was the situation in East Germany in 1952.
It is a firmly established principle that the question whether a foreign state ruler or government is or is not sovereign is one on which our courts accept as conclusive information provided by Her Majesty's Government: no evidence is admissible to contradict that information.
"It has for some time been the practice of our courts ... to take judicial notice of the sovereignty of a state, and for that purpose (in any case of uncertainty) to seek information from a Secretary of State; and when information is so obtained the court does not permit it to be questioned by the parties"
(per Viscount Cave in Duff Development Co., Ltd. v. Kelantan Government).
"Such information is not in the nature of evidence; it is a statement by the sovereign of this country through one of his ministers upon a matter which is peculiarly within his cognizance"
(per Lord Finlay). In the present case the Court of Appeal twice received such information from the Foreign Secretary. First on Sept. 16, 1964. it was stated: "Her Majesty's Government has not granted any recognition de jure or de facto to (a) the 'German Democratic Republic' or (b) its 'Government,' "and secondly on Nov. 6, 1964, a further answer was given to questions which had been asked on Oct. 29.
In my opinion, this latter answer is decisive on the question which I am now considering and I must therefore quote the relevant question and the relevant parts of the answer or certificate given by the Foreign Secretary. The question was:
"What (a) states or (b) governments or (c) authorities (if any) have since July 1, 1945, up to the present date been recognised by Her Majesty's Government as (a) entitled to exercise or (b) exercising governing authority in the area of Germany outside the zones allocated to the Governments of the United Kingdom, the United States of America and the French Republic by the protocol of Sept. 12, 1944, and the agreement of July 26, 1945, concluded between the Governments of the said states and the Union of Soviet Socialist Republics. Has such recognition been de jure or de facto?"
The relevant parts of the certificate are as follows:
"The area of Germany to which the question is understood to refer comprises (a) the zone of occupation allocated to the Union of Soviet Socialist Republics under the protocol of Sept. 12, 1944, and the agreement of July 26, 1945, as modified by the protocol of the proceedings of the Berlin Conference of Aug. 2, 1945, and (b) the 'Greater Berlin' area. The question is understood not to relate to the areas of Germany placed under Soviet or Polish administration in pursuance of the aforesaid protocol of Aug. 2, 1945.
"(a) From the zone allocated to the Union of Soviet Socialist Republics Allied forces under the Supreme Allied Commander, General Eisenhower, withdrew at or about the end of June, 1945. Since that time and up to the present date Her Majesty's Government have recognised the state and Government of the Union of Soviet Socialist Republics as de jure entitled to exercise governing authority in respect of that zone. In matters affecting Germany as a whole, the states and Governments of the French Republic, the United Kingdom of Great Britain and Northern Ireland, the United States of America and the Union of Soviet Socialist Republics were jointly entitled to exercise governing authority. In the period from Aug. 30, 1945, to Mar. 20, 1948, they did exercise such joint authority through the Control Council for Germany. Apart from the states, Governments and Control Council aforementioned, Her Majesty's Government have not recognised either de jure or de facto any other authority purporting to exercise governing authority in or in respect of the zone. Her Majesty's Government, however, regard the aforementioned Governments as retaining rights and responsibilities in respect of Germany as a whole."
It was not argued that the matter which I am now considering is one affecting Germany as a whole; so the rights of the other three allied Governments do not affect this question, and I need only consider what the certificate says with regard to the U.S.S.R. and the inferences which must be drawn from it.
The purpose of a certificate is to provide information about the status of foreign governments and states and therefore the statement that since June, 1945,
"Her Majesty's Government have recognised the state and Government of the Union of Soviet Socialist Republics as de jure entitled to exercise governing authority in respect of that zone"
cannot merely mean that Her Majesty's Government have granted this recognition so as to leave the courts of this country free to receive evidence as to whether in fact the U.S.S.R. are still entitled to exercise governing authority there. The courts of this country are no more entitled to hold that a sovereign, still recognised by our Government, has ceased in fact to be sovereign de jure, than they are entitled to hold that a government not yet recognised has acquired sovereign status. So this certificate requires that we must take it as a fact that the U.S.S.R. have been since 1945 and still are de jure entitled to exercise that governing authority. The certificate makes no distinction between the period before and the period after the German Democratic Republic was set up. So we are bound to hold that the setting up of that Republic made no difference in the right of the U.S.S.R. to exercise governing authority in the zone; and it must follow from that that the U.S.S.R. could at any time lawfully bring to an end the German Democratic Republic and its Government and could then resume direct rule of the zone. But that is quite inconsistent with there having in fact been any abdication by the U.S.S.R. of its rights when the German Democratic Republic was set up.
The judgment of the Court of Appeal appears to me to be based on the view that the courts of this country can and must accept the position that the U.S.S.R. have recognised the German Democratic Republic as an independent sovereign state. Harman, L.J., said:
"It is in fact notorious that the U.S.S.R. has recognised the German Democratic Republic as a sovereign state and treats its law-making capacity accordingly"
and Diplock, L.J., says:
"All that I am prepared to assume—and I think it is a matter of which I can take judicial notice—is that the Government of the U.S.S.R. recognises the 'Government of the German Democratic Republic' as the independent sovereign government of an independent sovereign state for whose territory the Government of the U.S.S.R. claims no power to make laws."
The learned judges of the Court of Appeal, however, do not appear to have had their attention directed to the true import of the certificate of the Secretary of State. The U.S.S.R. may have purported to confer independence or sovereignty on the German Democratic Republic but, in my judgment, that certificate clearly requires us to hold that, whatever the U.S.S.R. may have purported to do, they did not in fact set up the German Democratic Republic as a sovereign or independent state. If they retained their right to govern its territory, they could not possibly have done so; and the certificate requires us to hold that they did retain that right.
If we are bound to hold that the German Democratic Republic was not in fact set up as a sovereign independent state, the only other possibility is that it was set up as a dependent or subordinate organisation through which the U.S.S.R. is entitled to exercise indirect rule. I do not think that we are concerned to enquire or to know to what extent the U.S.S.R. in fact exercise their right of control. At a late stage in the argument before your lordships counsel for the respondents made an application that further questions should be addressed to Her Majesty's Government. That would be a perfectly proper thing to do if your lordships were of the opinion that the existing certificate is ambiguous or insufficient. But I can see no ambiguity or insufficiency in this certificate and therefore I agree that this application was properly refused.
It was argued that the present case is analogous to cases where subjects of an existing sovereign have rebelled and have succeeded in gaining control of a part of the old sovereign's dominions. When they set up a new government in opposition to the de jure sovereign that new government does not and cannot derive any authority or right from the de jure sovereign, and our courts must regard its acts and the acts of its organs or officers as nullities until it has established and consolidated its position to such an extent as to warrant our government according de facto recognition of it. The case of Banco de Bilbao v. Sancha affords a fairly recent example of this: there General Franco's adherents had succeeded in gaining control of a large part of Spain and the government which they set up in opposition to the Republican Government was recognised de facto by the British Government. Giving the judgment of the Court of Appeal, Clauson, L.J., said:
"this court is bound to treat the acts of the government which His Majesty's Government recognise as the de facto government of the area in question as acts which cannot be impugned as the acts of an usurping government, and conversely the court must be bound to treat the acts of a rival government claiming jurisdiction over the same area, even if the latter government be recognised by His Majesty's Government as the de jure government of the area, as a mere nullity, and as matters which cannot be taken into account in any way in any of His Majesty's courts."
Aksionairnoye Obschestvo A. M. Luther v. Sagor (James) & Co. is another good example. The case turned on whether the courts of this country could recognise a decree made in 1918 by officers of the U.S.S.R. which had by revolutionary means assumed power in Russia. At the time when the case came before Roche, J., His Majesty's Government had not recognised the U.S.S.R. and therefore Roche, J., properly held that he could not give effect to that decree. But before the case was decided by the Court of Appeal the court were informed by the Secretary of State that His Majesty's Government recognised the Soviet Government as the de facto government of Russia. Accordingly the Court of Appeal were able to give effect to the decree.
The present case is, however, essentially different. The German Democratic Republic was set up by the U.S.S.R. and it derived its authority and status from the Government of the U.S.S.R. So the only question could be whether or not it was set up as a sovereign state. But the certificate of our Government requires us to hold that it was not set up as a sovereign state because it requires us to hold that the U.S.S.R. remained de jure sovereign and therefore did not voluntarily transfer its sovereignty to the Democratic Republic. And, if the Democratic Republic did not become a sovereign state at its inception, there is no suggestion that it has at any subsequent time attempted to deprive the U.S.S.R. of rights which were not granted to it at its inception. The courts of this country must disregard any declarations of the Government of the U.S.S.R. in so far as they conflict with the certificate of Her Majesty's Secretary of State, and we must therefore hold that the U.S.S.R. set up the German Democratic Republic, not as a sovereign state, but as an organisation subordinate to the U.S.S.R. If that is so, then mere declarations by the Government of the Democratic Republic that it is acting as the government of an independent state cannot be regarded as proof that its initial status has been altered, and we must regard the acts of the German Democratic Republic, its government organs and officers as acts done with the consent of the Government of the U.S.S.R. as the government entitled to exercise governing authority.
It appears to me to be impossible for any de jure sovereign governing authority to disclaim responsibility for acts done by subordinate bodies which it has set up and which have not attempted to usurp its sovereignty. So, in my opinion, the courts of this country cannot treat as nullities acts done by or on behalf of the German Democratic Republic. De facto recognition is appropriate—and, in my view, is only appropriate—where the new government have usurped power against the will of the de jure sovereign. I would think that where a sovereign has granted independence to a dependency any recognition of the new state would be a recognition de jure. The general practice of the British Government was stated in Parliament on Mar. 21, 1951, by the Secretary of State for Foreign Affairs (Hansard, Vol. 485, col. 2410) as follows:
"... it is international law which defines the conditions under which a government should be recognised de jure or de facto, and it is a matter of judgment in each particular case whether a régime fulfils the conditions. The conditions under international law for the recognition of a new régime as the de facto government of a state are that the new régime has in fact effective control over most of the state's territory and that this control seems likely to continue. The conditions for the recognition of a new régime as the de jure government of a state are that the new régime should not merely have effective control over most of the state's territory, but that it should, in fact, be firmly established. His Majesty's Government [considers] that recognition should be accorded when the conditions specified by international law are, in fact, fulfilled and that recognition should not be given when these conditions are not fulfilled. The recognition of a government de jure or de facto should not depend on whether the character of the régime is such as to command His Majesty's Government's approval."
Recognition implies independence and refusal to recognise the German Democratic Republic or its Government is entirely consistent with that statement if independence was never in fact granted by the U.S.S.R., for no one suggests that the Democratic Republic has, or could have, seized independence in defiance of the U.S.S.R. So there can, in my view, be no question of awaiting de facto recognition before we can recognise as lawful the acts of the German Democratic Republic. We recognise them, not because they are acts of a sovereign state, but because they are acts done by a subordinate body which the U.S.S.R. set up to act on its behalf.
I am reinforced in my opinion by a consideration of the consequences which would follow if the view taken by the Court of Appeal were correct. Counsel for the respondents did not dispute that in that case we must not only disregard all new laws and decrees made by the Democratic Republic or its Government, but we must also disregard all executive and judicial acts done by persons appointed by that Government because we must regard their appointments as invalid. The result of that would be far-reaching. Trade with the Eastern Zone of Germany is not discouraged. But the incorporation of every company in East Germany under any new law made by the Democratic Republic or by the official act of any official appointed by its Government would have to be regarded as a nullity, so that any such company could neither sue nor be sued in this country. And any civil marriage under any such new law, or owing its validity to the act of any such official, would also have to be treated as a nullity, so that we should have to regard the children as illegitimate; and the same would apply to divorces and all manner of judicial decisions, whether in family or commercial questions. That would affect not only status of persons formerly domiciled in East Germany but property in this country the devolution of which depended on East German law.
It was suggested that these consequences might be mitigated if the courts of this country could adopt doctrines which have found some support in the United States of America. Difficult questions arose there with regard to acts of administration in the Confederate states during the Civil War and again out of the delay in recognition of the U.S.S.R. A solution of the earlier difficulty was found by the Supreme Court in U.S. v. Home Insurance Co., and other similar cases; and for the latter difficulty solutions were suggested, particularly by Cardozo, C.J. in such cases as Sokoloff v. National City Bank of New York and Petrogradsky Mejdunarodny Kommerchesky Bank v. National City Bank. In the view which I take of the present case, it is unnecessary to express any opinion whether it would be possible to adopt any similar solutions in this country, if the need should ever arise.
Finally on this branch of the case I must deal briefly with three grounds on which the appellant argued that the raising of this action should be held to have been properly authorised even if the actions of the Council of Gera must be disregarded. These grounds involved the interpretation and effect of a power of attorney granted to Dr. Schrade in 1951 and questions as to his powers by virtue of appointments in the Stiftung which he then held. These matters involve German law. They only became important after the respondents put forward their new case in the Court of Appeal, so they were only dealt with cursorily, if at all, in the affidavits and in the evidence led before Cross J. The Court of Appeal found it possible to decide these questions without receiving further evidence of German law, which the appellants wished to adduce. In my opinion, these questions could not properly be decided on the evidence as it stands, and, if they should ever arise in any other litigation, the judgment of the Court of Appeal cannot be regarded as res judicata or as having binding effect.
The next question for consideration is whether by reason of a decision of theof West Germany the subject-matter of the issue now before this House is res judicata so that the respondents must succeed without further inquiry. I can deal briefly with the events which led up to that decision. When the American forces left Jena in 1945 a number of officers of the Stiftung and of the firm Carl Zeiss went with them to West Germany. The Stiftung and the firm already had interests there and these were developed in particular by three of these officers. After a time relations between them and Jena became strained and legal proceedings of various kinds were begun. Decrees were obtained in West Germany to the effect that the domicile of the Stiftung was removed from Jena to Heidenheim in Würthemberg, and goods were manufactured and sold under the name Carl Zeiss. Then the West German firm Carl Zeiss sought to prevent sale in West Germany of the products made in Jena, and in 1953 an action was commenced at Stuttgart by "the Carl-Zeiss-Stiftung of Jena represented by the Council of the District of Gera" against the firm Carl Zeiss of Heidenheim and the three individuals who were directing it. The main purpose of this action was to restrain these defendants from using the name Carl Zeiss. Those defendants at once raised the preliminary objection that the Stiftung was not properly before the court, as the Council of Gera was not the legal representative of the Stiftung. The proceedings on this objection were elaborate and prolonged, but ultimately on Nov. 15, 1960, it was sustained by the Federal Supreme Court. I do not attempt at this point even to summarise the reasons: the various judgments given in this action occupy Cover two hundred closely typed pages of which the final judgment occupies more than thirty.
The respondents maintain that this decision must be held decisive of the question now before this House, because the issue in this appeal is the same as that which was decided by the Federal Supreme Court. So, in the first place, it is necessary to make clear what is the question now before this House. On Feb. 7, 1956, the respondents took out a summons for an order that all further proceedings in this action be stayed and that this action be dismissed on the ground that the same was commenced and is being maintained without the plaintiffs' authority and that Messrs. Courts & Co., the solicitors purporting to act for the plaintiffs herein, do pay to the defendants the costs of this action ... to be taxed as between solicitor and client. This question, whether these solicitors are maintaining this action without the authority of the Stiftung, is the sole question which your lordships now have to determine.
There is a vast amount of authority on estoppel per rem judicatam.
"The object of the rule of res judicata is always put upon two grounds—the one public policy, that it is the interest of the state that there should be an end of litigation, and the other, the hardship on the individual, that he should be vexed twice for the same cause"
(per Lord Blackburn in Lockyer v. Ferryman). The general principle is clear that the earlier judgment relied on must have been a final judgment, and that there must be identity of parties and of subject matter in the former and in the present litigation. But each of these three requirements can give rise—and in the present case does give rise—to difficult questions.
Let me take first identity of parties. In this preliminary or interlocutory matter the issue is whether the nominal plaintiff is before the court at all. If it is decided in favour of the defendant, that establishes that the nominal plaintiff never was before the court. So I do not see how the nominal plaintiff, here the Stiftung, can be a party to that issue; and it is admitted that the Stiftung was not a party to the German proceedings. The defendants are of course parties—they raise the issue. But who is their opponent? We are not told the precise implications of the requirement of German procedure as to "representation," but I am content to assume that the Council of Gera was a party to the German proceedings: that council was ordered to pay the costs. But who is the appellant in this House? Again, I think, not the Stiftung. The issue is whether the solicitors are maintaining the action without authority and surely they must be parties—how else could they be made personally liable to the respondents in costs? I can see no other party—no other appellant. It was argued that the Council of Gera can be regarded as parties but I can see no ground for that. There may be a question when I come to deal with privity. But the Council of Gera has never sought to be a party and no one has sought to make them a party.
Again there is no doubt that the requirement of identity of parties is satisfied if there is privity between a party to the former litigation and a party to the present litigation. The only way in which that could be satisfied in this case would be if there were privity between the Council of Gera and the solicitors. We have a letter from the Council of Gera in their capacity of special board of the Stiftung authorising the raising of this action, but we do not know whether that council has taken any further part, whether it has given any further instructions, or whether it is using the funds of the Stiftung to finance this litigation. The most that can be said is that the council is the "client" instructing the solicitors, though I doubt whether that is proved; the real question may be whether there is a "client" at all. Does this make it a privy? It has always been said that there must be privity of blood, title or interest: here it would have to be privity of interest. That can arise in many ways, but it seems to me to be essential that the person now to be estopped from defending himself must have had some kind of interest in the previous litigation or its subject-matter. I have found no English case to the contrary. If that is right, then there can be no privity here because these solicitors had no connection with and certainly no interest in the German litigation.
There does, however, seem to me to be a possible extension of the doctrine of privity as commonly understood. A party against whom a previous decision was pronounced may employ a servant or engage a third party to do something which infringes the right established in the earlier litigation and so raise the whole matter again in his interest. Then, if the other party to the earlier litigation brings an action against the servant or agent, the real defendant could be said to be the employer, who alone has the real interest, and it might well be thought unjust if he could vex his opponent by relitigating the original question by means of the device of putting forward his servant. But this is not a case of that character. The Council of Gera has no substantial interest in this litigation. If the plaintiff succeeds, the only persons who can benefit are the Stiftung or the two nationalised firms in Jena to which I shall refer later. The Council of Gera is merely a local public authority, like a county council, on which there has been imposed the duty of acting as the special board of the Stiftung and there is nothing to show that the council or any of its members will gain anything if the plaintiff wins, or lose anything if the plaintiff loses this case. Further, here the respondents are seeking to make these solicitors personally liable to them in solicitor and client costs—in effect seeking damages against them for breach of warranty of authority. In my view, the solicitors cannot properly be held to be estopped from defending themselves, and showing that they have authority to act, by a judgment which had nothing to do with them.
There is little authority bearing on a question of this kind. The only modern English case cited was Mercantile Investment and General Trust Co. v. River Plate Trust, Loan and Agency Co.. The facts were complicated but it is sufficient, for present purposes, to say that the plaintiffs in this action had obtained a judgment against another company ("the American company") and they maintained this as an estoppel against the defendants in this action ("the English company") on the ground that, by reason of an indemnity given by the English company, the English company had assisted the American company in the previous action and had paid their costs, so that they were virtually parties to the previous action. Romer, J., dealt with this point very briefly and held that there was no estoppel.
I should also refer to Kinnersley v. Orpe, which was cited as relevant on privity. There Dr. Cotton claimed a right to fish and sent a servant, Orpe, to assert it. Kinnersley brought an action of trespass and succeeded. Then Dr. Cotton sent another servant, also called Orpe, to fish and this action was brought against him. The plaintiff simply produced the record in the former case and Perryn, B., held this evidence conclusive, "both the Orpes having acted under the authority of Cotton, who was the real defendant in both causes". On a rule "the court also thought that the record in the former cause, though admissible evidence, was not conclusive." With regard to this case Lord Ellenborough, C.J., said in Outram v. Morewood:
"As to the case of Kinnersley v. Orpe it is extraordinary that it should ever have been for a moment supposed that there could be an estoppel in such a case. It was not pleaded as such, neither were the parties in the second suit the same with those in the first."
And a little later he referred to "the defendant, who was no party to the former action". One should not attach too much weight to this, because it was a very minor point in Lord Ellenborough's elaborate and learned judgment. But at least it never occurred to him that the doctrine of privity could be stretched to affect a defendant from whom a penalty was claimed and who had no connection with the previous case, merely because his employer had been concerned with it.
The respondent sought to rely on American authorities. Their effect is summarised in the American Restatement of the Law of Judgments, Ch. 4. The only section which seemed to me to come near to applying to the appellant solicitors is para. 85 (2):
"Where a person is bound by or entitled to the benefit of the rules of res judicata because of a judgment for or against him with reference to a particular subject-matter, such rules apply in a subsequent action brought or defended by another on his account."
With that I would agree; and, if these solicitors were bringing this action on account of or for the benefit of the Council of Gera, I would hold that res judicata could be pleaded against them. But I have already stated my view that this action is not brought on account of or for the benefit of the Council of Gera and, in particular, these solicitors are not contesting the issue now before your lordships for the benefit of that council. In so far as they are not acting to protect their own interests they are seeking to act for the benefit of the Stiftung, and it is not alleged that the plea of res judicata would be good against the Stiftung.
The second requirement for res judicata is identity of subject-matter. As to this, it has become common to distinguish between cause of action estoppel and issue estoppel. There is certainly no cause of action estoppel here. The question before the German court was whether the Council of Gera were the legal representatives of the Stiftung at one date. The question here is whether at a different date the solicitors had the authority of the Stiftung to raise this action. An answer, yes or no, to the first question does not necessarily imply a similar answer to the second. What the respondents maintain is that the grounds on which the German court in fact decided the first question are such that we cannot decide this case in favour of the solicitors without disagreeing with at least some of the findings on which the German court based their decision. I think that that is true and the question is whether we are entitled to do that.
Issue estoppel may be a comparatively new phrase, but I think that the law of England—unlike the law of some other countries—has always recognised that estoppel per rem judicatam includes more than merely cause of action estoppel. The earliest case commonly referred to on res judicata is the Duchess of Kingston's Case. The Duchess of Kingston was prosecuted for bigamy in this House. She put forward in defence a decision of an ecclesiastical court that her first marriage was invalid. The first question put to the judges who were in attendance was whether a sentence of the spiritual court against the marriage was conclusive evidence. The unanimous opinion of the judges was given by De Grey, C.J., and in the course of it he said:
"From the variety of cases relative to judgments being given in evidence in civil suits, these two deductions seem to follow as generally true: first, that the judgment of a court of concurrent jurisdiction, directly upon the point, is as a plea, a bar, or as evidence, conclusive, between the same parties, upon the same matter, directly in question in another Court: secondly, that the judgment of a court of exclusive jurisdiction, directly upon the point, is, in like manner, conclusive upon the same matter, between the same parties, coming incidentally in question in another court, for a different purpose. But neither the judgment of a concurrent or exclusive jurisdiction is evidence, of any matter which comes collaterally in question, though within their jurisdiction; nor of any matter incidentally cognizable: nor of any matter to be inferred by argument from the judgment."
In referring to a judgment being conclusive on the same matter "coming incidentally in question in another court for a different purpose" the judges were clearly going beyond cause of action estoppel, but I need not attempt to discover just how far they meant to go because this has been developed in many later decisions.
In R. v. Inhabitants of the Township of Hartington Middle Quarter it appeared that in a previous litigation it had been decided that two young children had a settlement in the defendants' township. The question at issue in this case was the settlement of their mother and it was held that the defendants were estopped from denying that she had the same settlement. The cause of action was obviously not the same. Coleridge, J., in delivering the judgment of the court, said:
"The question then is, whether the [former] judgment concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide, and which was actually decided, as the groundwork of the decision itself, though not then directly the point at issue. And we think it does conclude to that extent. ... Now, it cannot be said that the facts we are considering were merely collateral to the decision in the former case. The question then was where two unemancipated children were settled: and it was answered by showing that they were the legitimate issue of William and Esther, that is, that these two were lawfully married, and the children born after, and that William was settled with the now appellants. Strike either of these facts out, and there is no ground for the decision: these facts therefore were necessarily and directly matter of enquiry. The question now is, where is Esther settled: and this is answered by showing the same two facts, the marriage of Esther and William, and the settlement of William, the two facts already decided. The judgments in the two cases therefore rest on the same foundation; which, having been settled in the first, cannot be, as between the same parties, unsettled in the latter."
In Flitters v. Allfrey a landlord alleging a weekly tenancy obtained a warrant for the eviction of the tenant and then sued him in the county court for 29 weeks' rent. He failed in this action because the judge held there was a yearly tenancy. Then the tenant sued for damages for eviction. Lord Coleridge, C.J., said:
"The now plaintiff succeeded upon the trial of a plaint in the county court which involved the same question of fact as that which was in issue in this cause, viz., whether his tenancy under the defendant was a weekly or a yearly tenancy. The defendant thought the decision of the county court wrong. Upon the trial of this cause, the jury thought so too; and I agreed with them: but the plaintiff, against the right, succeeded upon an estoppel."
Counsel had pointed out that failure to succeed in the action for rent did not on the face of it or necessarily involve any decision that the tenancy was yearly and not weekly: but that was in fact the ground on which the county court judge decided the case and the landlord was not allowed to relitigate that issue in the tenant's subsequent action for damages.
These two cases appear to me to be authorities directly in favour of issue estoppel, but the complications in each were such that it is easy to miss the point, and little attention seems to have been paid to this form of estoppel until comparatively recently.
A case which has given rise to some difficulties is Hoystead v. Taxation Comr.. There an appeal with regard to income tax for an earlier year had been decided on an assumption that certain beneficiaries under a will were joint owners. Then in a case as to liability to tax in a later year the commissioner tried to maintain that that assumption had been wrong but he was held to be estopped. Lord Shaw in delivering the judgment of the Board, after citing numerous authorities, including the judgment of Lord Ellenborough in Outram v. Morewood, said:
"It is seen from this citation of authority that if in any court of competent jurisdiction a decision is reached, a party is estopped from questioning it in a new legal proceeding. But the principle also extends to any point, whether of assumption or admission, which was in substance the ratio of and fundamental to the decision."
Comments were made on that passage in New Brunswick Ry. Co. v. British and French Trust Corpn., Ltd. by Lord Russell of Killowen and Lord Romer and in Society of Medical Officers of Health v. Hope (Valuation Officer) by
. There may well be a difference between a case where an issue was in fact decided in the earlier case and a case where it was not in fact decided because the earlier judgment went by default or was founded on an assumption. Indeed, I think that some confusion has been introduced by applying to issue estoppel without modification rules which have been evolved to deal with cause of action estoppel, such as the oft-quoted passage from the judgment of Wigram, V.-C. in Henderson v. Henderson. But it is unnecessary to pursue that matter because in the present case the issues with regard to which the respondents plead estoppel were fully litigated in the West German court.
In Marginson v. Blackburn Borough Council both the parties had been defendants in a county court action in which a plaintiff claimed damages for negligence and they had been held both to blame. This was held to estop the plaintiff in this action from maintaining (in his personal capacity) that he was not to blame.
"In such a case the question arises, what was the question of law or fact which was decided [in the earlier case]? and for this purpose, it may be vital in many cases to consider the actual history of the proceedings"
(per Slesser, L.J., delivering the judgment of the court).
"... there may be cases in which a party may he held to be estopped from raising particular issues, if those issues are precisely the same as issues which have been previously raised and have been the subject of adjudication."
Diplock, L.J., dealt with the matter on more general lines, however, and what he says is further explained in Fidelitas Shipping Co., Ltd. v. V/O. Exportchleb. He drew a distinction between issue estoppel and fact estoppel which I find difficult to understand. Suppose that as an essential step towards the judgment in an earlier case it was decided (a) that on a particular date A. owed B. £100 or (b) that on that date A. was alive. The first is, or at least probably is, a question of law, the second is a pure question of fact. Are these findings to be treated differently when issue estoppel is pleaded in a later case? Or take marriage—an issue in the earlier case may have been whether there ever was a ceremony (a pure question of fact) or it may have been whether the ceremony created a marriage (a question of law). I cannot think that this would make any difference if in a later case about quite different subject matter the earlier finding for or against marriage was pleaded as creating issue estoppel.
The difficulty which I see about issue estoppel is a practical one. Suppose the first case is one of trifling importance but it involves for one party proof of facts which would be expensive and troublesome; and that party can see the possibility that the same point may arise if his opponent later raises a much more important claim. What is he to do? The second case may never be brought. Must he go to great trouble and expense to forestall a possible plea of issue estoppel if the second case is brought? This does not arise in cause of action estoppel: if the cause of action is important, he will incur the expense: if it is not, he will take the chance of winning on some other point. It seems to me that there is room for a good deal more thought before we settle the limits of issue estoppel. But I have no doubt that issue estoppel does exist in the law of England, and if it does it would apply in the present case, if the earlier judgment had been a final judgment of an English court.
Next I must consider whether it makes any difference that the former judgment was the judgment of a foreign court. At one time foreign judgments were regarded as being only evidence and not conclusive. But at least since the decision in Godard v. Gray they have been regarded as equally conclusive with English judgments (subject to any difference there may be resulting from there being no merger of a cause of action in a foreign judgment). The same pleas, for example, fraud or lack of jurisdiction, are good against both. It would seem that the only plea which may be available against foreign judgments alone is perversity, if Simpson v. Fogo  was rightly decided. In that case Sir William Page Wood, V.-C., refused to give effect to a judgment of the Supreme Court of Louisiana. There was no question of perversity in the ordinary sense of obstinately or dishonestly shutting one's eyes to what one knows to be right. The Supreme Court had applied what they believed to be their common law, but it was at variance with a generally accepted rule of private international law, which required foreign (in this case, English) law to be applied in the circumstances of that case. Sir William Page Wood, V.-C., called this "a perverse and deliberate refusal to recognise the law of the country by which title has been validly conferred". I shall have to return to this case later.
I can see no reason in principle why we should deny the possibility of issue estoppel based on a foreign judgment, but there appear to me to be at least three reasons for being cautious in any particular case. In the first place, we are not familiar with modes of procedure in many foreign countries, and it may not be easy to be sure that a particular issue has been decided or that its decision was a basis of the foreign judgment and not merely collateral or obiter. Secondly, I have already alluded to the practical difficulties of a defendant in deciding whether, even in this country, he should incur the trouble and expense of deploying his full case in a trivial case: it might be most unjust to hold that a litigant here should be estopped from putting forward his case because it was impracticable for him to do so in an earlier case of a trivial character abroad, with the result that the decision in that case went against him. These two reasons do not apply in the present case. The case for the Stiftung, or on this issue those who purported to represent it, was fought as tenaciously in West Germany as this case has been fought here, and it is not difficult to see what were the grounds on which the West German judgment was based. But the third reason for caution does raise a difficult problem with which I must now deal.
It is clear that there can be no estoppel of this character unless the former judgment was a final judgment on the merits. But what does that mean in connection with issue estoppel? When we are dealing with cause of action estoppel it means that the merits of the cause of action must be finally disposed of so that the matter cannot be raised again in the foreign country. In this connection the case of Nouvion v. Freeman is important. There had been in Spain a final judgment in a summary form of procedure. But that was not necessarily the end of the matter, because it was possible to reopen the whole question by commencing a different kind of action: so the summary judgment was not res judicata in Spain. I do not find it surprising that the House unanimously refused to give effect in England to that summary judgment.
When we come to issue estoppel I think that, by parity of reasoning, we should have to be satisfied that the issues in question cannot be relitigated in the foreign country. In other words, it would have to be proved in this case that the courts of the German Federal Republic would not allow the re-opening in any new case between the same parties of the issues decided by the Supreme Court in 1960, which are now said to found an estoppel here. There would seem to be no authority of any kind on this matter, but it seems to me to verge on absurdity that we should regard as conclusive something in a German judgment which the German courts themselves would not regard as conclusive. It is quite true that estoppel is a matter for the lex fori but the lex fori ought to be developed in a manner consistent with good sense.
The need to prove whether West German law would permit these issues to be re-opened there appears to have escaped the notice of the appellant's advisers and your lordships are left in considerable difficulty. On the one hand, there is always a presumption that the foreign law on any particular question is the same as English law unless the contrary is proved. On the other hand, it would be remarkable if German law had reached precisely the same stage of development on issue estoppel as the law of England has, and there are some indications in the German judgments that it has not. I have had an opportunity of reading the views of my noble and learned friend Lord Wilberforce on this matter. I do not dissent from them. But I must rest my judgment that there is here no res judicata or estoppel on there being no sufficient identity of parties in the West German proceedings and in the matter now before your lordships.
As I am of opinion that the respondents do not succeed on these preliminary pleas I must now turn to the substantial question in this appeal—have the respondents proved that the plaintiff's solicitors have commenced and are maintaining this action without the plaintiff's authority? The plaintiff is a foreign corporation and it is not maintained that it has ceased to exist. Further, it is not disputed that the capacity of a foreign corporation and the functions and powers of its organs or officers are matters for the law of its domicile. So the first question is—what is the legal domicile of the Stiftung? Its constitution provides in r. 3: "The legal domicile of the Stiftung shall be Jena". I have mentioned West German decrees to the effect that the domicile shall be Heidenheim, but counsel for the respondents stated that he did not rely on these decrees in the present appeal. He did, however, argue that, according to German law, its domicile is in Germany as a whole. But Germany is, for the time being at least, divided; the Federal Republic being sovereign in West Germany, and the U.S.S.R. having sovereign authority in the Eastern Zone, and the law in those two parts of Germany may now not be the same.
The respondents submitted in argument that we must regard the law of West Germany as paramount. They relied on the language of the second Foreign Office certificate given on Nov. 6, 1964. This contained an extract from a Foreign Minister's communiqué which stated:
"Pending the unification of Germany, the three Governments consider the Government of the Federal German Republic as the only German government freely and legitimately constituted and, therefore, entitled to speak for Germany as the representative of the German people in international affairs."
This is followed in the certificate by the following words: "This statement does not constitute recognition of the Government of the Federal Republic of Germany as the de jure Government of all Germany." It was argued that the determination of the status of and the right to represent a body incorporated under the law of the State of Germany prior to 1945 are matters which affect Germany as a whole and which, if arising outside Germany, are within the scope of the Foreign Office communiqué. But for the reason given by my noble and learned friend Lord Hodson I cannot accept this argument.
What then is the law of the Eastern Zone with regard to these matters? It is well settled that you do not take the code or statutes or other sources of law and construe them according to English ideas. Foreign law is a question of fact to be decided by evidence.
"The evidence it is clear must be that of qualified experts in the foreign law. If the law is contained in a code or written form, the question is not as to the language of the written law, but what the law is as shown by its exposition, interpretation and adjudication:"
(per Lord Wright in Lazard Bros. & Co. v. Midland Bank, Ltd.). On several occasions it has been necessary to decide in a case here what is the law of a foreign country on a point which has already been the subject of a decision by a court of that country. A good example is Bankers and Shippers Insurance Co. of New York v. Liverpool Marine and General Insurance Co.. In that case the question was whether according to the law of New York State it was necessary to the validity of an award that an order of court should have been obtained. The Court of Appeal in England held that it was not. Then in another case, Bullard & Co. v. Grace & Co. the Court of Appeal of New York decided that it was necessary. Then this House reversed the decision of the Court of Appeal and followed the American decision. Lord Buckmaster said: "Unaided by that authority your lordships would I think have supported the judgment appealed from." Lord Sumner said:
"Evidence of the opinion of the highest court of the foreign state whose law happens to form the subject matter of proof in this country, is obviously for an English court the best available evidence upon the question, and is such that, if it is clearly directed to the point in dispute and is insusceptible of any but one interpretation, other evidence of that law could hardly be set against it."
There is a quotation with approval of what Scrutton, L.J., had said in the Court of Appeal:
"I agree with the view of Pickford, L.J., in Guaranty Trust Co. of New York v. Hannay & Co.  that, while it is almost certain that an English court would not differ from a decision of the Supreme Court of the state on the law of that state, a decision of a subordinate court is only an opinion of an expert on the fact, to be treated with respect, but not necessarily conclusive."
In the present case we have not only two judgments of the Supreme Court of the Eastern Zone but also uncontradicted evidence of skilled witnesses that every court in the Eastern Zone would hold that the Council of Gera is entitled to act as the special board of the Stiftung; and we have evidence that the Stiftung has brought a number of actions in recent years in East Germany and has obtained judgments in its favour. How, then, did the West German courts come to decide as they did?
Cross, J., was inclined to hold that the West German courts were acting perversely in disregarding the judgments of the Eastern courts. I do not take that view. I am certainly not prepared to hold that the West German courts gave judgments which they knew to be wrong. They may have erred, but honest error is a very different thing from perversity. Counsel for the appellants argued that this case fell within the ratio of Simpson v. Fogo, to which I have already referred. That case was cited more than once with approval in the nineteenth century but in Luther v. Sagor Scrutton, L.J., said that it had been the subject of considerable adverse comment. In my view if Simpson v. Fogo can stand at all it must be limited to cases where the law of the foreign country applied in the foreign judgment is at variance with generally accepted doctrines of private international law. But then one must bear in mind what was said by Lindley, L.J., in Re Queensland Mercantile & Agency Co., Ex p. Australasian Investment Co., Ex p. Union Bank of Australia about different countries taking different views on international law; and Sir William Page Wood, V.-C., himself indicates that there might be a difference if the foreign judgment were founded on a statute or on mistake—distinctions which I have difficulty in appreciating. To distinguish Simpson v. Fogo it is sufficient to say that the West German courts did not refuse to apply the law of East Germany: they applied what they thought was the law of East Germany.
It is not easy to summarise the long judgment of the Federal Supreme Court, but it appears to me to be based on the view that Germany is still one country and that the law of Germany applies equally in the East as in the West, subject only to new local enactments, of which there are none relevant to this case. On that view the West German courts hold themselves entitled to override the decisions of the East German courts, if they regard those decisions as wrong in law.
The main question which has given rise to this conflict in the present case is the effect of confiscatory decrees of the Russian Military Administration. It is not disputed that as a result there was confiscation of the assets of the two firms Carl Zeiss and Schott & Co., and these two businesses were then carried on as nationalised industries—Volks Eigene Betriebe, referred to as VEBs. But it is not clear how far this affected other assets of the Stiftung, and it is proved that in recent years the Stiftung has been treated by the East German authorities as owning a large amount of property; it has an annual revenue of some £180,000 and employs a staff of about 170. The Council of Gera has in fact acted as the special board and in particular has authorised the raising of various local proceedings in the Eastern Zone.
The main ground of the West German judgment is that after the businesses of these two firms were separated from the Stiftung by confiscation it became legally impossible under its constitution for the Stiftung to carry on any activities. The only lawful course was to wind up the Stiftung as provided in its constitution, and neither the Stiftung nor any of its organs had any power to carry on any other activity, so the Council of Gera could not authorise the proceedings in West Germany which were brought to an end by the judgment of the Supreme Court. That court was aware that the East German Supreme Court had reached a decision to the contrary, but in effect it held that the East German court had wrongly applied the law of Germany.
I am not impressed by the reasoning in this judgment but, even if it were convincing, I cannot see how it would be relevant. The West German courts have no jurisdiction over East Germany. The two parts of Germany are at present under different sovereignties: they have separate legal systems and are separate jurisdictions. According to the commonly accepted doctrine of private international law, the courts of one state or jurisdiction cannot of their own knowledge determine what is the law in a different state or jurisdiction. That has to be proved by evidence and, if it is clear, as in this case it was, and is, that all courts in one state or jurisdiction have decided and will decide a particular question in one way, the courts of another state or jurisdiction have no right to decide that that question ought to have been decided in a different way.
Let me take an analogy. Many countries formerly under the British Crown still follow the common law. Suppose that this House were to reach a decision on a point of common law which did not meet with general acceptance. All courts in this country must follow that decision, but courts in other common law jurisdictions are free to decide otherwise. Suppose, however, that in one of those other countries a question arose as to what is the law of England on that point: the principles of private international law would require the courts of that other country to decide that the law of England is what the House of Lords has said it is, and they could not say that the House of Lords had reached a wrong decision on this point of common law, however much they might disagree with it. If they did substitute their own view for that of the supreme authority in England, they would then be deciding what they thought the law of England ought to be and not what in fact it is. It appears to me that the only legitimate ground for rejecting a decision of a foreign court as to its own law is an expectation that, if the point arose again in the foreign country and were carried to the Supreme Court, it would be decided differently. The West German courts appear to take a different view of the principles of private international law. The German Federal Republic is a sovereign state and its courts are entitled to their own view. But so are we; and I would not accept their view.
Then it is said that the courts of East Germany are influenced by political considerations. It is true that when one examines the judgments of the East German Supreme Court—and particularly the second of them—one finds them plentifully sprinkled with Communist cliches. No doubt professing Communists find it necessary to adopt this form of embellishment. But going behind this ornamentation I find a judicial approach and a reasonable result. Further, even if political considerations were apparent, it would remain true that what the courts have decided is in fact the law which is being enforced in the foreign country.
Finally it is said that, because the members of the Council of Gera are Communists and bound to act as Communist theory and government directions require, therefore they cannot act as the special board in the interests of the Stiftung as the constitution of the Stiftung requires. This may be common knowledge in West Germany, but I cannot agree that it is common knowledge here. On the contrary, it is common knowledge here that individuals often fail to live up to—or live down to—their principles. This is an action to vindicate the right of the Stiftung to its own property: this Communist body has authorised it, whatever view Communist theory might take about it.
That brings me to an important question which was raised in the West German case and before Cross, J. The respondents found on the principle that English courts will not assist the enforcement of foreign confiscatory laws, and argue that therefore the appellant cannot be given the relief which it seeks in this case. Your lordships did not permit that matter to be argued in this appeal because it is not relevant on the only question now before this House—the authority of the solicitors to act for the Stiftung. But the respondents will be free to raise that issue in their pleadings and at the trial of this action, and nothing that Cross, J. may have said on this matter can hamper or limit the power of the trial judge to deal with it.
On the whole matter I would allow this appeal and restore the order of Cross, J.
LORD HODSON: My Lords, on the first part of the case I agree entirely with the opinion which has been given by my noble and learned friend, Lord Reid. In my view, the Foreign Office certificate was conclusive against the view taken by the Court of Appeal. The U.S.S.R. having the de jure sovereignty over the so-called German Democratic Republic there is no room for any other de facto recognition and the courts of this country must hold that the U.S.S.R. is still entitled to exercise authority over the territory and to bring to an end the German Democratic Republic which only exists on sufferance. This effect of the certificate holds good so far as this country is concerned and is not affected by any pronouncement of the U.S.S.R. itself as to whether or not it recognises the German Democratic Republic as a sovereign state.
On the second part of the case, the respondents have argued that the solicitors, Messrs. Courts & Co., who have the conduct of these proceedings on behalf of the appellant have no authority to do so, since they are estopped by the judgment of thein an action brought in the name of the appellant as plaintiff against the respondents in this action. This is a formidable argument and involves consideration of the operation and effect of foreign judgments.
The courts have moved a long way since the opinion was expressed by Lord Brougham, L.C., in 1834 in the Irish appeal of Houlditch v. Marquess of Donegal that the judgment of a foreign court in courts of this country is only prima facie evidence if liable to be averred against and not conclusive. The modern doctrine accepted since the decision of Godard v. Gray is that a foreign judgment may be pleaded and is conclusive. If this is so, I see no reason why the rule of estoppel per rem judicatam should not be applied, subject to the caution contained in Lord Brougham's observations in the Houlditch v. Donegal case as to the difficulties which arise from the differences in the course of procedure as between one jurisdiction and another.
Although estoppel operates most commonly in those cases which cover "cause of action" the English rule has always been wide enough to cover "issue estoppel"—see the Duchess of Kingston's Case, a passage from which has been quoted by my noble and learned friend Lord Reid and R. v. Inhabitants of the Township of Hartington Middle Quarter,, likewise quoted by my noble and learned friend. The estoppel here, if any, must be issue estoppel, the issue being that of want of authority to bring an action. Upon this the respondent succeeded in the West German action in which judgment was delivered by the Federal Supreme Court on Nov. 15, 1960. On principle the judgment should be binding on the parties and their privies, to whom I will later refer. There may be difficulties in applying the principle through the necessity of following the course of procedure when pleadings and evidence have to be examined to ascertain what issues have been determined. There may be cases of manifest injustice, i.e., in a case, perhaps, where a defendant having a minimal interest in a matter allows a case to go by default, exposing himself to the risk of being bound by the judgment when the issue turns out to be more serious for him. None of these difficulties appears to exist in this case. The West German judgment is detailed and elaborate and leaves no doubt as to the precise issue about which the parties were contending, an issue which was regarded as of prime importance by both sides.
In order to comply with r. 183 as stated in Dicey's Conflict of Laws (7th Edn.), p. 992, the judgment must be conclusive in order to create an estoppel. In the Foreign Judgments (Reciprocal Enforcement) Act, 1933, the expression "final and conclusive" is to be found, but these words are repetitive and "conclusive" in the sense of the rule must mean that it cannot, although it may be subject to appeal, be varied by the court which made it, as are, for example, some maintenance or alimony orders. Nouvion v. Freeman is an example of an action which had been tried in Spain under a summary form of procedure leading to a "remate" judgment but held by this House not to amount to res judicata, since it was possible to reopen the matter which had been tried and obtain a "plenary" judgment rendering the "remate" judgment inoperative. One asks, about what is the judgment to be final and conclusive? The answer is that it must be on the merits and not only as to some interlocutory matter not affecting the merits. The question here may, I think, properly be described as "on the merits," the issue being whether or not there was authority to proceed in an action representing the foundation. On this point I would respectfully dissent from the opinion expressed by Cross, J., although I do not disagree with his main conclusion which distinguishes this action from that commenced by the foundation suing by the Council of Gera. There was, in my opinion, a decision against the Council of Gera on the merits of its claim to represent the foundation.
There is admittedly a gap in the evidence as to whether the judgment was final and conclusive. It is for the defendants to show the estoppel and, to prove it, they must establish as a matter of German law that the judgment is final and conclusive. This they have failed to do by express evidence and, as my noble and learned friend Lord Wilberforce points out in his opinion, there are passages in the evidence which at least suggest the possibility of want of authority being relitigated in the German courts. For my part, I think it would be legitimate to rely on the assumption commonly made in English courts that in the absence of evidence of foreign law it is taken to be the same as English law and to hold that the judgment relied on for the estoppel is final and conclusive.
Another argument against the estoppel was put forward by the appellant, which I do not find it possible to accept. It was based on the rule which still subsists in English law, notwithstanding animadversions which have been passed on it, that the cause of action in a foreign case does not merge in the judgment but remains available to be sued upon, the foreign judgment being only evidence of the cause of action not, as in this country, that in which the cause of action has merged. It seems to me that this argument does not logically involve that there can be no estoppel in the case of a foreign judgment. Indeed, the cases are consistent in admitting that there may be an estoppel notwithstanding the absence of merger. If the fact that the cause of action does not merge prevents the estoppel where issue estoppel is concerned, it must similarly, one would suppose, do so where cause of action is in question. No one has suggested that the latter contention is sound.
There was a further contention, accepted by the learned judge, that there could be no estoppel because the judgment of the West German court was perverse in that they knowingly and wilfully declined to give effect to the relevant law, that of East Germany. Like others of your lordships, I find this conclusion too difficult to sustain, although, in fairness to the learned judge, it should be said that there was strong support for this conclusion in the case of Simpson v. Fogo , upon which reliance was placed on behalf of the appellant. "Perverse" is a strong word in this context, meaning, I would say, "obstinate in error" and inappropriate to describe the reasoning of the West German court.
There remains only the question of privity. On this I am in agreement with the learned judge. There was here no privity in estate. The only privity could be privity in interest. The action in West Germany was begun by the Council of Gera claiming to represent the foundation and, upon the issue of the right to represent, judgment was given against the Council of Gera, which was ordered to pay the costs. The Council of Gera itself never had any interest in the subject-matter of the action. It was only required to act in order that the foundation might seek to enforce its rights, that is to say, the rights of the foundation itself.
This action is in truth an action by the foundation suing by Messrs. Courts & Co., a firm of solicitors, who again have themselves no interest in the subject-matter of the action. The Council of Gera is not itself before the court. The way in which the respondents seek to put the matter of privity is founded on an extended view of privity taken in America, where authorities show a broader concept of the privity necessary to establish estoppel. This is to be found in the American Restatement, s. 85 (2) which reads:
"Where a person is bound by or entitled to the benefit of the rules of res judicata ... such rules apply in a subsequent action brought or defended by another on his account."
The argument is that the solicitors are bringing this action on account of the Council of Gera but this is not my view of the case. They are acting on behalf of the foundation, and the judgment given in the West German court against the Council of Gera on their claim to represent the foundation does not raise an estoppel against the solicitors acting in this action.
It is upon this last ground, namely, absence of privity, that I would hold that there is no estoppel against the solicitors, preventing them from representing the foundation in this action.
If there is no estoppel, there remains to be considered whether the effect of the confiscation of the foundation's business was to make it legally impossible to carry on under its constitution. On this question I am in entire agreement with the learned judge, and would accept his finding that the foundation still maintained its existence so as to enable it to give authority to the solicitors to sue on its behalf. This is partly a question of law and partly one of fact. If it is right to apply the law of the domicile of the foundation—Jena is in East Germany and the law applicable is that administered in the court of that part of Germany. The respondents argued that the law applicable to the matters in dispute between the parties should, in any event, be the law of the Federal German Republic. They relied on the language of the second Foreign Office certificate given on Nov. 5, 1964. This contained an extract from a Foreign Ministers' communiqué which stated:
"Pending the unification of Germany, the three Governments consider the Government of the Federal German Republic as the only German government freely and legitimately constituted and, therefore, entitled to speak for Germany as the representative of the German people in international affairs." This is followed in the certificate by the following words: "This statement does not constitute recognition of the Government of the Federal Republic of Germany as the de jure government of all Germany."
It was argued that the determination of the status of and the right to represent a body incorporated under the law of the State of Germany prior to 1945 and now having its "Sitz" in the territory of the zone allocated to the U.S.S.R. are matters which affect Germany as a whole and, if arising outside Germany, are within the scope of the Foreign Office communiqué.
It is true that the judicial system is an organ of the sovereign power, but the explanatory footnote to the communiqué indicates the limits to be put on the Foreign Office certificate and does not support the contention that the West German courts, as courts of the Federal German Republic, are entitled to speak for Germany as a whole. That the communiqué is directed to political representation only is, I think, clear from the language of the certificate, which makes clear that the Government of the Federal Republic is not thereby to be regarded as being recognised as the de jure government of all Germany. There are in the two parts of Germany two separate legal systems operating independently of one another, the East German courts deriving their authority from the sovereignty of the U.S.S.R. and the West German courts from the sovereignty which lies in the Federal Republic of Germany as at present constituted. I do not think that there is any justification for the view that the law common to the whole of Germany as distinguished from zonal law should be applied on the ground that the Carl-Zeiss-Stiftung came into existence many years ago before Germany was divided and that this case concerns operations and issues outside Germany as a whole, namely, in England and not in the Soviet Zone itself. The law in the two parts of Germany not being the same, we must apply the law of the Eastern Zone.
The facts as to the activities of the foundation are not in dispute, and if the law in operation in the Eastern Zone is applied to those facts the appellant must succeed on this issue.
I would allow the appeal.
LORD GUEST: My Lords, the somewhat complicated facts out of which this appeal arises have been so fully rehearsed in the courts below that I find it necessary only to state them in broad outline in order to decide the various points at present in issue between the parties.
The history of Carl-Zeiss-Stiftung begins in 1846, when optical works at Jena were founded by Carl Zeiss. Thereafter, glass works were founded and Zeiss was joined by Ernst Abbé and Otto Schott. In 1891 a "Stiftung" or foundation was formed which was administered by a special board, the optical business and the glass business being run by two separate boards of management. The articles of the Stiftung and constitution have been set out in the courts below, and it is only necessary now to state that the legal domicile of the Stiftung was Jena (r. 3) and that the organisation of the Stiftung was to be, by r. 4, by a special board for representing the Stiftung as an incorporated body, for the administration of its estate and effects and for the supreme direction of its affairs. Rule 113 is in the following terms:
"Should, in consequence of political changes in the state, the provision according to 5 of this statute with reference to the representation of the Stiftung become untenable, this representation including the appointment of the Deputy of the Stiftung within the meaning of 5 and the statutory administration of the Carl-Zeiss-Stiftung shall be made over to that department of state, which with regard to the University of Jena occupies the place of the State Department of the Grand Duchy of Saxe-Weimar acting as special board, provided that its seat is in Thüringia, otherwise to the highest administrative authorities in Thüringia."
The business owned by the Stiftung prospered and their products have become world famous. Besides the business the Stiftung owned a large amount of property and substantial capital investments.
In terms of r. 113, owing to the changing political situation in Germany, certain changes in the constitution of the special board took place. Upon the amalgamation in 1918 of certain States in Germany, including the Grand Duchy of Saxe-Weimar-Eisanach, in which Jena was situated, into the state of Thüringia, the Thüringia Minister of Education became the special board. In 1935, when the Weimar Republic was replaced by the Third Reich, the "Reichs-Stathalter" as the highest administrative authority in Thüringia became the special board of the Stiftung.
In April, 1945, when the Hitler regime collapsed, the office of Reichs-Stathalter was abolished. Jena was first occupied by American troops, but shortly after it became part of the Russian Zone of Occupation and on July 1, 1945, it was occupied by the Soviet forces. When the Americans left they took with them all the members of the boards of management, a number of leading scientists, engineers and senior executives and a large amount of material.
On Oct. 30, 1945, Marshal Zhukov, Head of the Russian Military Administration, made an order, "SMAD 124," providing for the sequestration of certain types of property within the Russian Zone which included the foundation. Russian officers were stationed in the works until March, 1947, and nearly all the machinery and plant was taken to Russia by way of reparations, together with a number of workpeople. At the same time great efforts were made on the German side to get the works running again, and by the beginning of 1948 the works at Jena had been re-equipped.
In January, 1948, a central body known as the German Economic Council was set up with legislative authority in East Germany, subject to the overriding power of the Russian Military Administration. Between April and June, 1948, orders were made by the Russian authorities confiscating the optical and glass business of the Stiftung. The confiscated business became the "People's Owned Enterprises"—"Volks Eigene Betriebe" (VEBs)—and became known as VEB Carl-Zeiss Jena and VEB Schott Jena respectively.
It is now possible to pass over a great amount of history recited in the opinion of Cross, J., and come to 1949. In that year the German Democratic Republic came into being. As a result of an East German law dated July 23, 1952, and an order made under it, the Province of Thüringia was divided into three districts and the governmental functions of the province transferred to the administrative organs of the respective districts. The district in which Jena is situated is the District of Gera, and this body, which stands in the same relation to the University of Jena as the State Department of the Grand Duchy stood to it in the old days, is the Council (Rat) of Gera. It is common ground that, as a matter of political geography, the Council of Gera would be the special board within the meaning of r. 113.
This action, which is an action for passing off, was commenced on Oct. 20, 1955, by the appellant. On Feb. 7, 1956, the respondents issued a summons against the appellant asking that all further proceedings in the action be stayed and the action dismissed on the ground that it had been commenced and was being maintained without the appellant's authority. Affidavits were lodged by both parties and the application to stay was heard by Cross, J., with cross-examination during November and December, 1963, and January, 1964. The judge gave judgment on Mar. 6, 1964, dismissing the summons. When the case came before the Court of AppealAppeal the respondents applied for an order that a letter be addressed to Her Majesty's Secretary of State for Foreign Affairs concerning the recognition of the German Democratic Republic, a point which had not been taken in the court below, and had been expressly disclaimed before Cross, J. The Court of Appeal accepted the respondents' arguments based upon the non-recognition by Her Majesty's Government of the German Democratic Republic and ordered that the writ and all subsequent proceedings be set aside on the grounds that the action was instituted and all subsequent proceedings on behalf of the appellant had been taken without the authority of the appellant.
The position, accordingly, is that the special board of the Stiftung is now, as a matter of geography, the Council of Gera, established by the law passed on July 23, 1952, by the German Democratic Republic. The decision of the Court of Appeal was that as the Council of Gera was set up by the German Democratic Republic, a government not recognised by Her Majesty's Government, the special board has no locus to commence proceedings in the English courts, and the action accordingly was commenced without authority.
Several arguments not including the non-recognition point were taken before Cross, J., and decided adversely to the respondents. The Court of Appeal, in view of their decision on the non-recognition point, did not deal with these other points.
I have had the advantage of reading in advance the speech prepared by my noble and learned friend, Lord Reid, on the question of the recognition by the English courts of the Council of Gera as authorising the present action. I agree with his opinion, and I have nothing to add.
The first question which arises on what may conveniently be described as the second stage of the case is whether the appellant is estopped per rem judicatam by thefrom arguing, in answer to the respondents' summons to stay the proceedings, that the appellant has authority to raise this action in name of the Carl-Zeiss-Stiftung. A considerable part of the argument was devoted to this question, which is not without difficulty and raises a number of complicated issues.
The doctrine of estoppel per rem judicatam is reflected in two Latin maxims, (i) interest rei publicae ut sit finis litium, and (ii) nemo debet bis vexari pro una et eadem causa. The former is public policy and the latter is private justice. The rule of estoppel by res judicata, which is a rule of evidence, is that where a final decision has been pronounced by a judicial tribunal of competent jurisdiction over the parties to and the subject-matter of the litigation, any party or privy to such litigation as against any other party or privy is estopped in any subsequent litigation from disputing or questioning such decision on the merits (Spencer Bower on Res Judicata, p. 3).
As originally categorised, res judicata was known as "estoppel by record." But as it is now quite immaterial whether the judicial decision is pronounced by a tribunal which is required to keep a written record of its decisions, this nomenclature has disappeared and it may be convenient to describe res judicata in its true and original form as "cause of action estoppel." This has long been recognised as operating as a complete bar if the necessary conditions are present. Within recent years the principle has developed so as to extend to what is now described as "issue estoppel," that is to say, where in a judicial decision between the same parties some issue which was in controversy between the parties and was incidental to the main decision has been decided, then that may create an estoppel per rem judicatam. The issue arising upon the summons to stay the proceedings is whether Messrs. Courts, purporting to act for the plaintiffs, the Carl-Zeiss-Stiftung, have the necessary authority to raise the action in name of the Carl-Zeiss-Stiftung. The estoppel which is alleged to have been created is by the decision of the West German courts where in an action between the Carl-Zeiss-Stiftung of Jena, represented by the Council of the District of Gera, and the Carl-Zeiss-Stiftung Heidenheim, Brenz, the present respondents, to restrain the defendants from, inter alia, using the name of Zeiss or Carl Zeiss and from using certain trade marks, it was held that the action was inadmissible on the ground that the constitution of the Stiftung is no longer effective, so that the legal basis for administration of the Stiftung in accordance with the article has been removed and that the Council of Gera has no authority to represent the Carl-Zeiss-Stiftung before the court. The English action is of a different character, namely, a summons to stay proceedings on the ground of lack of authority. It is, therefore, plain that there is no cause of action estoppel because the cause of action in each case is different. Accordingly, if there is estoppel it must be "issue estoppel."
The law on the matter is not altogether clear, but I am prepared to assume that, at any rate in relation to estoppel founded on an English judgment there may be issue estoppel. This was referred to as early as 1776 in the Duchess of Kingston's case as interpreted in R. v. Inhabitants of the Township of Hartington Middle Quarter. It has been approved recently by Lord Denning, M.R., and Diplock, L.J., in Fidelitas Shipping Co., Ltd. v. V/O. Exportchleb (see also Thoday v. Thoday, per Diplock, L.J.). Although not described as "issue estoppel," it is inferentially approved in the most recent textbook on Res Judicata by Spencer Bower at p. 9, where he speaks of a judicial decision which involved "a determination of the same question as that sought to be contraverted in the litigation in which the estoppel is raised." The doctrine of issue estoppel has also been accepted as good law by the courts in Australia for a number of years.
The requirements of issue estoppel still remain (i) that the same question has been decided; (ii) that the judicial decision which is said to create the estoppel was final, and (iii) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies. I have for the moment postponed the question whether issue estoppel, if valid in relation to an English judgment, applies to a foreign judgment. There is little doubt that the same question was incidentally decided in the West German action as arises in the present summons, namely, whether the Council of Gera have authority to raise the action in name of the Carl-Zeiss-Stiftung.
I turn, therefore, at once to the question of finality. This is understood to mean "final and conclusive on the merits" of the cause (Dicey's Conflict of Laws (1st Edn.), r. 196, p. 1052). The decision upon which the issue estoppel arises must itself be final in this sense. In other words, the cause of action must be extinguished by the decision which is said to create the estoppel (see per Lord Herschell in Nouvion v. Freeman)—"It puts an end to and absolutely concludes that particular action". The West German judgment was not a judgment on the merits, but on a preliminary point relating to the capacity of the Carl-Zeiss-Stiftung to sue and it was there held that the Council of Gera had no authority to raise the action in name of the Carl-Zeiss-Stiftung. I have difficulty in seeing how a decision on capacity to sue can ever be final or conclusive. The West German judgment related to the position in 1960 when it was pronounced, but non constat the position is the same when the English action was tried. The appellant would clearly be entitled to show that a change of circumstances had occurred to affect their capacity to sue. If this is so, it would defeat the whole purpose of estoppel which is to preclude them from leading evidence to that effect. I can best illustrate the position by reference to what would happen if the decision in West Germany had been given by the Scots courts. The decision would have been to sustain the plea of "no title to sue", but this would not have been final and conclusive as the interlocutor sustaining the plea would have been one of dismissal. A subsequent action would not be barred per rem judicatam.
Another aspect of finality relates to the requirement that the decision relied upon as estoppel must itself be res judicata in the country in which it is made. This is made clear in Nouvion v. Freeman, per Lord Herschell (see also Cheshire's Private International Law (7th Edn.), p. 562; Dicey's Conflict of Laws (1st Edn.), p. 1036). It would, indeed, be illogical if the decision were to be res judicata in England, if it were not also res judicata in the foreign jurisdiction. I am not satisfied that the respondents have discharged the burden of proof upon them of establishing that the West German judgment is res judicata in West Germany. I would, accordingly, hold that the West German judgment is not final and conclusive and for these reasons does not create an estoppel.
The next requirement is that the judgment should have been between the same parties or their privies. The parties to the West German judgment, it is conceded, were the Council of Gera, on the one hand, and the respondents on the other hand. The parties to the present proceedings are the respondents and the Carl-Zeiss-Stiftung. As the question is whether the Carl-Zeiss-Stiftung is properly a party to the proceedings, the Stiftung is plainly not the other party for the purposes of res judicata, notwithstanding Mr. Aldous's ingenious argument that the only party he appears for is the Stiftung. Who are the other parties? I am unable to agree that the Council of Gera are parties. They do not appear on the proceedings as parties, they are not represented, and no order for costs could be made against them. They have no interest in the subject-matter of these proceedings. They only come into the picture as the body who, according to r. 4 of the constitution, is entitled to represent the Carl-Zeiss-Stiftung. In these circumstances, the only other possible parties to the proceedings are the solicitors, Messrs. Courts, to whom the summons is directed. As they were not parties to the West German proceedings, they would only be obnoxious to the plea of res judicata, if they were the privies of the Council of Gera. There is a dearth of authority in England upon the question of privies. The two cases of Kinnersley v. Orpe and Hancock v. Welsh and Cooper, referred to by the respondents are, in my opinion, of no assistance. "Privies" have been described as those who are "privy to the party in estate or interest" (Spencer Bower, p. 130). Before a person can be privy to a party there must be community or privity of interest between them. Messrs. Courts have no interest in the merits of this action. Their interest is merely to defend themselves against the claim made against them for costs by the respondents which is on the basis of breach of warranty of authority (see Yonge v. Toynbee). In this matter the Council of Gera have no interest. It is only, as I understand, by the form of procedure chosen by the respondents that Messrs. Courts have been made parties to these proceedings. Assuming that the summons had not been directed to them, but that the respondents had been successful in the West German proceedings and in this summons, the latter would then have been entitled on the authorities to raise an action against the solicitors for breach of warranty of authority claiming the costs in the action. Could it possibly have been said in these circumstances that the solicitors were estopped by the West German judgment, of which they had no knowledge, from arguing that they had authority to raise the present action? I apprehend not, and this must be on the basis that they are not privies to the Council of Gera. It was argued for the respondents, although without clear authority in this country, that "privy" covers a person who is in control of the proceedings. Reference was made to the American Restatement of the Law of Judgments, ch. 4, para. 84, where it is said that a person who is not a party but who controls an action is bound by the judgment as if he were a party if he has a proprietary or financial interest in the judgment as a privy. But this cannot apply to the solicitors who are not in control of the proceedings and have no proprietary or financial interest in the judgment. They are instructed by the Carl-Zeiss-Stiftung who, on their side, control the proceedings. No case has been referred to in England in which a solicitor has been held privy to the party instructing him. In Scotland an attempt to make a solicitor a party for the purpose of res judicata failed (Laidlaw v. Blackwood). We were referred to a number of American cases dealing with privies. I am not prepared in this country to extend the doctrine to the extent which it apparently has reached in that country.
I now pass to the question reserved in an earlier part of my speech, namely, whether issue estoppel can ever be operated by a foreign judgment. This was doubted by Cross, J. It is clear that a foreign judgment can operate as res judicata in a cause of action estoppel properly so called (Dicey's Conflict of Laws (1st Edn.), rr. 182, 183, pp. 981, 992); but different considerations may, I apprehend, apply to issue estoppel. The first matter to be observed is that a foreign judgment does not have the same finality and conclusiveness as an English judgment. In the case of the latter the cause of action is merged with the judgment, so that action can only be brought to enforce the judgment. Not so in the case of foreign judgments. Sub-rule 183 of Dicey's Conflict of Laws, p. 996, states: "A foreign judgment does not of itself extinguish the original cause of action in respect of which the judgment was given." The plaintiff, therefore, has the option either of suing on the judgment or on the original cause of action. The doctrine of non-merger stated in Nouvion v. Freeman is still, as I understand it, good law, notwithstanding the animadversions of Professor Read in his book Recognition and Enforcement of Foreign Judgments (1938) pp. 120-121, and the doubt expressed in Dicey's Conflict of Laws (1st Edn.) at p. 997. If this be sound, it means that the unsuccessful litigant can, if he is defendant, table fresh defences to the original cause of action. From this it follows that "issue estoppel" could never operate to shut out the defendant from litigating issues which may have incidentally been determined in the foreign suit.
There are, in my view, moreover, considerations of policy and expediency which make it undesirable that the doctrine of issue estoppel should be introduced in the case of foreign judgments. There has been no case in which it has been applied in England and while, perhaps, not all estoppels are odious, considerable caution, in my view, should be exercised before the principle is extended any further. In operating issue estoppel it may be necessary, in order to ascertain what issues have been inferentially or incidentally decided, to look, not only at the judgment, but also at the pleadings and, it may be, at the evidence. We are not familiar in this country with the practice and procedure in foreign countries, and it may be a matter of considerable nicety in certain cases to find out what issues were determined and whether they were incidental or collateral to the main decision.
For all these reasons I would concur with Cross, J., in holding that the plea of res judicata is not open to the respondents.
If the appellant is not estopped per rem judicatam by the West German judgment from arguing that the Council of Gera are entitled to represent the Carl-Zeiss-Stiftung, then the matter is at large for the decision of this House. Whether this action is properly authorised by the Carl-Zeiss-Stiftung is a question of foreign law to be decided as a question of fact. The law to be applied is the law of the domicile of the Stiftung, which is in Jena, and the law is that of East Germany as shown by "its exposition, interpretation and adjudication" (Lazard Bros. & Co. v. Midland Bank, Ltd.). It must be the law as in practice interpreted and enforced by the courts of law of the foreign country. A considerable volume of expert evidence on both sides was devoted to the question. But in this case one starts with the judgment of the East German courts that the Carl-Zeiss-Stiftung still exists as a juristic person, notwithstanding the confiscation of its assets in East Germany by the Soviet authorities. This judgment is embodied in the opinion of the Supreme Court of the German Democratic Republic, dated Apr. 6, 1954, as confirmed by the , affirming the judgment of the District Court of Leipzig. Technically, no foreign judgment would bind the courts of this country, but prima facie a judgment would be accepted by the English courts as representing the law. "The comity of international affairs would require special and unusual circumstances to lead this House away from the clear decision of a final court" (Bankers and Shippers Insurance Co. of New York v. Liverpool Marine and General Insurance Co., Ltd., per Lord Buckmaster):
"Evidence of the opinion of the highest court of the foreign state whose law happens to form the subject-matter of proof in this country, is obviously for an English court the best available evidence upon the question, and is such that, if it is clearly directed to the point in dispute and is unsusceptible of any but one interpretation, other evidence of that law could hardly be set against it"
(see per Lord Sumner. The experts on foreign law from both sides were unanimous that all East German courts would follow the decision of the Supreme Court of the German Democratic Republic that the Carl-Zeiss-Stiftung still exists as a juristic person with its domicile at Jena, and that the Carl-Zeiss-Stiftung had the capacity to sue for the protection of its name, trade-marks and goodwill. The only criticism which is made by the West German lawyers of the East German judgment is that there are no free judges in East Germany and that no East German court would dare to come to a contrary conclusion. But this is only the opinion of the West German lawyers, and there is not a shred of evidence to support it. Upon the question of fact as to what the East German law is, the evidence is really all the one way, consisting of the judgment of the highest court in East Germany and the opinion of the East and West German lawyers who gave evidence.
In this state of evidence there is no need to examine further the decisions of the West German courts or the East German courts. Indeed, in this state of affairs the English courts would not be entitled, in my view, to express their views as to the soundness or otherwise of either decision (see Buerger v. New York Life Assurance Co.). The English courts must accept the East German decision as being the law of East Germany.
On the whole matter, I would allow the appeal and restore the judgment of Cross, J.
LORD UPJOHN: My Lords, the issues between the parties in this singularly complicated appeal fall into two watertight compartments. Into the first compartment falls an issue which has been described in argument as the "non-recognition" point. It has been admirably and elaborately argued before your lordships, but in the end the point may shortly be stated: whether the English courts will recognise the legislative and other acts of the German Democratic Republic which operates in the Russian Zone of Germany, having regard to the fact that Her Majesty's Government has not granted any de jure or de facto recognition to that Republic or its Government. This issue was raised for the first time in the Court of Appeal who held that, as it was common knowledge that the U.S.S.R. had recognised the German Democratic Republic as an independent sovereign state but Her Majesty's Government had not done so, the courts of this country would not recognise any acts done by that Government or by any person appointed by it. This conclusion necessarily led to the result on the facts of this case, to which I shall refer later, that the action was not properly authorised and that the solicitors who issued the writ were acting without authority to do so. The result of the decision of the Court of Appeal is of course to deny in the courts of this country to the inhabitants, organisations and institutions of East Germany any lawful origin to any acts or events based on any executive, judicial or legislative acts or directions of the Government of the German Democratic Republic since it was set up by the U.S.S.R.: a most deplorable result in respect of any highly civilised community, with which we have substantial trading relationships, I believe, which should be avoided unless our law compels that conclusion.
My Lords, my noble and learned friend, Lord Reid, whose opinion I have had an opportunity of reading, has advanced very powerful reasons for preferring the view that the answers of Her Majesty's Secretary of State for Foreign Affairs, to the requests for information submitted to him by the Court of Appeal in accordance with the well-settled practice, must lead to the conclusion that, so far as the courts of this country are concerned, we ought to assume that, whatever may be thought to be common knowledge on this point, the German Democratic Republic is a subordinate body set up by the U.S.S.R. as the de jure Government of East Germany to act upon its behalf, and that its legislative executive and judicial acts must receive recognition. I agree entirely with the reasons and conclusions of my noble and learned friend, and I cannot usefully add anything upon this issue.
It, therefore, becomes necessary to examine the second compartment with which the Court of Appeal quite reasonably did not deal, having regard to their decision on the non-recognition point. The issues here are even more complex, and are threefold. Taking them in the order which I think is most convenient, they may be described (as in the arguments addressed to your lordships) as (i) the confiscation point, (ii) the estoppel point and (iii) the Supreme Court point.
The confiscation point depends on proof of the fact that the commercial assets of the Stiftung (Jena) abroad have been confiscated by legislation in East Germany and upon the respondents' argument that in such event the English courts would not assist the enforcement of expropriatory or penal legislation outside the territorial jurisdiction of that country. But that plainly is an issue in the action itself; it is a matter for allegation in the pleadings and goes to the question of the relief (if any) that should be granted. It is not a matter which can be dealt with on this appeal, which is concerned solely with the authority of Messrs. Courts & Co. to issue a writ in the courts of this country on behalf of the Stiftung, which has nothing to do with the issues in the action, a matter I shall develop later. Apart from this, I should be very reluctant to deal with this matter, even if it were open to your lordships to do so, on the materials at present available. Plainly there is much scope for further exploration of the relevant facts before this issue in the action can be satisfactorily decided. When (if pleaded) the matter comes on for trial the learned trial judge must not consider himself hampered, restricted or in any way bound by any findings or observations of Cross, J., on this matter.
I turn, then, to the estoppel point. This raises a matter of some general importance.
This is an appeal based on a summons dated Feb. 7, 1956, whereby the respondents claimed against the solicitors, Messrs. Courts & Co. (respondents to the summons), that they issued a writ in the name of the Stiftung as plaintiffs without authority to do so and that, therefore, the action should be stayed and Messrs. Courts & Co. ordered to pay the respondents' costs on a common fund basis. This form of summons is well known and is based not on any misconduct on the part of the solicitor, as was at one time thought to be necessary to empower the court to exercise its summary jurisdiction over a solicitor, but, as was pointed out by Lord Porter in Myers v. Elman, is based on the proposition that
the solicitor is not party to the action, but that the court exercises its summary powers over the solicitor who by issuing a writ warrants his authority to do so",
and so, if he has no authority, may I add, commits a tort against the so-called defendants; he therefore has to pay them damages by indemnifying them against the expenses to which they have been put by paying costs taxed on the common fund basis rather than on a party and party basis.
It is alleged by the respondents that upon this summons Messrs. Courts & Co. cannot contest this issue, for it has already been tried conclusively between the parties or their privies in earlier proceedings in the West German Federal Court so that they are estopped per rem judicatam, or more shortly this matter is res judicata. It is clear that a party relying on such a plea must at least prove that the earlier proceedings were determinative of the issues arising in the second proceedings; that the same parties or their privies are common to both proceedings and that the earlier proceedings were within the jurisdiction of the court and were final and conclusive of the relevant issues.
This makes it necessary to answer to a number of questions: 1. Are the issues in the former proceedings the same as in the latter? 2. Who are the parties to the earlier proceedings? 3. Who are the parties to these subsequent proceedings? 4. If there is no complete identity of parties in (2) and (3) above, are the different parties properly described as in privity one with another for the purpose of the doctrine? 5. Even if the answer to question (1) is yes, is the matter of the lis between the parties such as to give rise to res judicata? 6. Does the doctrine if applicable between two sets of English proceedings apply where the former proceedings were in a foreign court? 7. If so, were these proceedings final and conclusive between the parties?
To answer these questions some facts must necessarily be set out but I shall be as brief as I can. For this purpose it may be taken as common ground that a local government body acting in that part of Eastern Germany known as Thüringia and called the Council of Gera (to which I will refer as "the council") is the special board within the meaning of r. 113 of the Articles of Association of the Stiftung and, as such (as provided by r. 4) entitled to represent the Stiftung in the supreme direction of its affairs, including, of course, the power and right to instruct its legal advisers to bring or defend actions on its behalf. However, in proceedings culminating in the Supreme Court of the Federal Republic of West Germany it was held that the council had no right to instruct anyone to act for the Stiftung in proceedings in those courts because, since the confiscation of its industrial assets by certain decrees of the Russian occupying forces in 1948, the Stiftung, though continuing as a legal entity, became an empty shell incapable of giving any instructions and the council was in effect divested of its powers to act on its behalf. Whether this is a correct conclusion is the Supreme Court point which I shall examine later, though with extreme brevity.
It must be noted that in contrast to our procedure it appears that in the West German courts the person giving the instructions on the part of a purely juridical person appears on the record, at all events, in the West German proceedings in the Supreme Court the plaintiff is described as "the Carl Zeiss Foundation of Jena represented by the Council of the District of Gera plaintiffs and appellant". In the proceedings before your lordships Messrs. Courts & Co. at once concede that they have received instructions to issue the writ in the name of the Stiftung from the council.
That is a sufficient statement of the facts to answer the first two questions: 1. The issue whether the council had authority to give instructions to begin proceedings in the name of the Stiftung in this country depends on precisely the same facts, circumstances and arguments as were advanced before the West German courts and decided against it. It is not suggested that there has been any relevant change in those facts or circumstances since 1960, when judgment was delivered in the Supreme Court. 2. The parties to the West German proceedings I am prepared to assume are (a) the council, and (b) the third respondents.
The third question has given rise to much argument and some difference of opinion among your lordships. Counsel for the appellant has argued that the Stiftung are parties to the summons; a somewhat dangerous argument, I would have thought, for it seems to presuppose that, regardless of the question of Messrs. Courts & Co.'s authority to sue, they are parties and so the same argument must apply to the West German proceedings and, if so, identity of parties seems to be established. However, I reject the argument. If the summons succeeds it does so on the footing that the Stiftung is not a party to the writ or the summons and for that reason the action is stayed and the solicitor made personally liable for breach of warranty of authority. Under our procedure in such circumstances no order of any kind, even for costs, can be made against the Stiftung.
Secondly, it seems to me clear that the council are not, under our procedure, parties to the writ or the summons. It can make no difference that in this case in some earlier proceedings in another country they are named in the record of those proceedings. The solicitor is in a special position, for, in respect of a purely juridical person, only a solicitor can issue a writ. He does not thereby, become a party to the proceedings but, for the reasons already mentioned, as an officer of the court, he can be made a respondent to a summons to strike out the writ. His liability depends not on agency, for if the summons succeeds he has no principal; it depends solely upon his position as a solicitor issuing a writ and thereby warranting his authority to do so to the defendants named in the writ. I am quite unable to understand the argument that those de facto instructing him become parties to the writ or to the summons seeking to strike out the writ. It may be that such body of persons may be liable to the solicitor for breach of warranty of authority, if they have no principal, but that does not make them party to the proceedings nor liable for breach of warranty to the defendants for they, unlike the solicitor who has issued the writ, have warranted nothing to them. To hold the contrary would make all those along the line who may have given instructions to the solicitors to issue a writ from a junior clerk of the instructing body upwards liable as parties to the defendants; but this has never been the law of our country.
So I answer this question by saying that the parties to the summons under appeal are (a) Messrs. Courts & Co., (b) the third respondents.
As to question 4, the third respondents are parties to both proceedings but there is no identity between the Council and Messrs. Courts & Co.; so the next question is whether they are in privity one with another for the purpose of the doctrine. The position of the solicitor in proceedings such as these is clear-cut, as I have already pointed out, he is no party to the proceedings; the sole question is as to his authority to initiate proceedings. It is not an issue in the action at all, and that is why it cannot be taken as a plea in defence in contrast to the confiscation point. This House in Russian Commercial and Industrial Bank v. Le Comptoir D'Escompte de Mulhouse approved the decision of Warrington, J., in Richmond v. Branson & Son where he said:
"But the real question is the authority of the solicitor. Is that a question which can be raised as a relevant issue in the action and at the trial? ... it is impossible, according to the ordinary practice and procedure of the court, to justify that proposition."
The solicitor has no interest in the action as such, nor under our system (unlike that pertaining, for example, in the U.S.A.) is he permitted even to participate in the proceeds of a successful judgment. His duty is to render his services to his client in the litigation to the best of his skill and ability and his sole reward is the costs which by law he may charge. I can see nothing in the solicitors' relationship with his client which renders them privy to one another in the ordinary sense in which privy or privity is used for the purposes of the doctrine. As has been said in 15 Halsbury's Laws of England, para. 372, privies are of three classes: (i) privies in blood, (ii) privies in law and (iii) privies in estate, but they all have an interest in the subject-matter of the action. Though your lordships have been referred to a number of authorities in other courts which may expand the meaning of privy, none touch on the question before your lordships, where the lis has nothing to do with the substance of the action itself. In my opinion, Messrs. Courts & Co. cannot be described as privy to the council so as to preclude them from trying to establish their authority to issue the writ, unless, by reason of some requirement of the law to meet new conditions, a greatly extended meaning beyond anything it has borne before is to be given to the word, a matter to which I shall return later.
I turn to the fifth question I have posed. Res judicata may be divided into a number of classes or branches. The most ancient is estoppel by record, strictly so called. It still exists, though is usually overtaken by the broader principles I shall next discuss. A defendant who has failed even to enter an appearance and who has taken no part in the earlier litigation may be estopped by record if his defence in the second action was necessarily and with complete precision decided by the previous judgment (see per Lord Maugham, L.C., in New Brunswick Ry. Co. v. British and French Trust Corpn., Ltd.). How narrow is the estoppel in such a case is shown by the actual decision there. This narrow concept of estoppel has no application to the present case, for the questions are different; the first is as to the authority of the council to initiate proceedings on behalf of the Stiftung in West Germany, and the second as to the authority to initiate proceedings in these courts. Nor is the judgment of the foreign court one of record.
The broader principle of res judicata is founded upon the twin principles so frequently expressed in Latin that there should be an end to litigation and justice demands that the same party shall not be harassed twice for the same cause. It goes beyond the mere record, it is part of the law of evidence for, to see whether it applies, the facts established and reasons given by the judge, his judgment, the pleadings, the evidence and even the history of the matter may be taken into account (see Marginson v. Blackburn Borough Council). Res judicata itself has two branches:
(a) cause of action estoppel—that is where the cause of action in the second case has already been determined in the first. To such a case the observations of Wigram, V.-C., in Henderson v. Henderson apply in their full rigour. These observations have been so often approved in your lordships' House that I will not repeat them. I need not pursue this matter further for the alleged res judicata with which your lordships are concerned certainly has nothing to do with any cause of action in the proceedings.
(b) Issue estoppel—a convenient phrase first coined apparently by Higgins, J., in the High Court of Australia in Hoystead v. Taxation Comr. whose dissenting judgment was upheld by the Privy Council; but issue estoppel has been recognised ever since the Duchess of Kingston's Case and there are many quite early examples of it (see e.g. R. v. Inhabitants of the Township of Hartington Middle Quarter and many others).
Recently in Thoday v. Thoday and in Fidelitas Shipping Co., Ltd. v. V/O. Exportchleb the Court of Appeal applied to issue estoppel the full breadth of the observations of Wigram, V.-C., in the Henderson case. While in this case it is not necessary to decide whether that is right, because for the reasons given in the answer to the first question that I posed for myself it does not arise, I should be reluctant to support that view. As my noble and learned friend, Lord Reid, has already pointed out there may be many reasons why a litigant in the earlier litigation has not pressed or may even for good reason have abandoned a particular issue. It may be most unjust to hold him precluded from raising that issue in subsequent litigation (and see Lord Maugham, L.C.'s observations in the New Brunswick case. All estoppels are not odious but must be applied so as to work justice and not injustice and I think the principle of issue estoppel must be applied to the circumstances of the subsequent case with this overriding consideration in mind. My Lords, I only desire to add one observation upon those cases; once it is clear that the principle of res judicata is part of the law of evidence I find it difficult to understand the distinction drawn by Diplock, L.J., in Thoday between issue estoppel and fact estoppel, but that does not call for further consideration here.
So if Messrs. Courts & Co. are debarred from arguing their authority to issue the writ, it is because of an issue estoppel. But I have already shown that this lis is not and cannot be an issue in the action at all. It is a matter which would seem, to paraphrase the words of De Grey, C.J., in the Duchess of Kingston's Case quoted by Lord Reid, to be a matter collateral or incidentally cognisable and therefore not the subject of estoppel. No authority has been cited to your lordships which bears any resemblance to the present case. All the authorities we have examined on issue estoppel have been cases where the earlier action dealt with issues or points which, however inferentially or incidentally, arose in the course of trying the substance of the issues between the parties to the action; not with a lis having nothing to do with those issues, which arises only between the defendant and the solicitor issuing the writ.
Ought the principles of issue estoppel to be extended to a case such as this? I can see no reason for doing so. Under our system the respondent to the summons is necessarily a solicitor, an officer of the court. It would require strong reasons to preclude him from defending his issue of a writ by reason of some decision to which he was no party and of which he may be in complete ignorance. Justice does not require the invocation of the doctrine to protect the defendant from being doubly harassed, for if an officer of the court with full knowledge of some earlier proceedings in these courts which covers exactly and precisely the question of his authority issues a writ, the arm of the court is long enough and strong enough to prevent an abuse of its process without resort to the doctrine. The application of the doctrine may, on the other hand, lead to much injustice. Such summonses are normally heard at a very early stage of the proceedings on evidence frequently hurriedly prepared (in marked contrast to this most exceptional case) and some point may have been overlooked or misunderstood in the earlier proceedings.
I would deny to these purely incidental proceedings in the action the doctrine of issue estoppel and for the same reasons I would refuse to extend the meaning of the word privy to cover the case of two successive solicitors (for that is what it amounts to) who have issued writs in the name of a common principal; the only so called privity between them is that they have successively issued writs upon the instructions of some persons purporting to act for the principal but that person cannot himself or itself be a party to any proceedings. So I would regard the doctrine as entirely inappropriate to this form of proceedings.
My Lords, in these circumstances, I can answer the remaining questions 6 and 7 very shortly.
I accept at once that for the purpose of the doctrine of res judicata in general a prior foreign judgment may be just as effective as an English one. But, even if I had come to the conclusion that the doctrine applied to successive summonses, the first of which was decided in our courts, raising the question of authority to issue a writ, I would deny the benefit of the doctrine to a prior foreign judgment, for the simple reason that I do not think it is necessary in the interests of justice to do so and it may easily be productive of grave injustice. Questions of authority and, indeed, the very concept of authority for this purpose depend so much on matters of procedure in each court and on the precise rules governing the issue of writs therein by persons other than the parties themselves that it is difficult to apply a judgment in the one case to another under a different jurisprudence. This case provides a good example; under our system the council could never be a party to the writ or the summons.
Finally with regard to question 7 the respondents have failed to prove that the proceedings in West Germany were final and conclusive as must necessarily be proved for an estoppel to be successfully established (see Nouvion v. Freeman).
In conclusion upon the estoppel point, even if I had reached a contrary conclusion as between the third respondents and Messrs. Courts & Co., I should require much persuasion that the first and second respondents who are alleged to be passing off the goods of the third respondents as and for the goods of the Stiftung and thus committing independent torts in this country, are entitled to the benefit of the alleged estoppel, but the point is not an important one.
So it is necessary to turn to the Supreme Court point. I have already set out very briefly the grounds upon which the Lord Reid, in his opinion and by Cross, J., in the court of first instance. I agree entirely with what my noble and learned friend has said and also with what Cross, J., said, though I think he went too far in describing the judgment of the West German Supreme Court as perverse. As a piece of legal reasoning the decision of the West German courts seems to me quite unconvincing and, for my part, I can see no ground for holding that the council ceased to have any authority to act on behalf of the Stiftung or that the Stiftung itself was but an empty shell in existence but incapable of acting when all the known facts indicate the contrary. I only desire to add that the respondents, in inviting us to prefer the decision of the West German Federal Supreme Court, advanced an argument based on the certificate dated Nov. 6, 1964, given by Her Majesty's Secretary of State for Foreign Affairs when in answer to question (2) submitted to him he quoted a communiqué dated Sept. 19, 1950, where it was stated that "pending the unification of Germany the three Governments consider the Government of the Federal Republic as the only German Government freely and legitimately constituted and therefore entitled to speak for Germany as the representative of the German people, in international affairs." It was said that this statement authorised the West German Government to speak in the name of the whole German people and this gave a superior sanctity to the decision of the West German Supreme Court over the decision of the Last German Supreme Court. The argument seems to me to be fallacious. It has never been the practice of Her Majesty's Secretaries of State to express any views upon the law. While they constantly express views on recognition in answer to questions submitted to them by the courts, the legal consequences that flow from recognition is a matter which is always left to these courts.held that the council had not authority to act for the Stiftung, and the real issue is whether that decision is right or whether on the same facts the decision of the Supreme Court of the East German Republic deciding that the council had authority to issue a writ is to be preferred. This is a question of foreign law which by the law of this country is essentially a matter of fact. It has been discussed very fully by my noble and learned friend,
My Lords, for these reasons I would allow this appeal and restore the order of Cross, J.
LORD WILBERFORCE: My Lords, the substantive issue in this litigation is whether the right to use in this country the name of Carl Zeiss, or Zeiss, in relation to certain glass, or optical, goods, and to profit from the goodwill attached to those names, belongs to a body of persons in the West German Federal Republic, or to a body of persons in that part of Germany which is outside of, and to the east of the Republic, which I will call for convenience "East Germany." The rights in question are claimed by both sides to belong to a corporate entity called Carl-Zeiss-Stiftung (the word "Stiftung" denotes approximately a foundation with corporate status), the contest being as to which body of persons is entitled to control that corporate entity. The writ in the action was issued in the name of the Stiftung through English solicitors on the authority of a Dr. Schrade, who in turn claimed to act on the authority of the Council of Gera (alleged to be the "special board" of the Stiftung), and also in other capacities, and in accordance with accepted procedure, the issue must be tested in limine, whether the Stiftung is legally before the court. This procedure has some inconveniences, both because it normally (and here) takes the form of an application against the solicitors (the difficulty as to which will hereafter appear) and also in that it is traditionally carried out by a motion or summons, supported by affidavit evidence, but without pleadings defining the precise matters in dispute. In a case such as the present, where important and difficult questions of law, including foreign law, arise this may result in some confusion, and I think that it would be advantageous if some method could be found in such cases of defining the issues to be presented to the court.
The issues as to the right or otherwise of Dr. Schrade to authorise the proceedings on behalf of the Carl-Zeiss-Stiftung, as these were debated before Cross, J., in the Chancery Division, and to which the evidence was directed, were issues, under several headings, of German law and no question arose as to the status, internationally, of East Germany or of the "government" which claims authority in Eastern Germany. The affidavits on either side were drafted on the basis that, for the purpose of the summons to stay the proceedings, no challenge was made to the validity of East German legislation, and before the court leading counsel for the defendants (the respondents in this appeal) disclaimed any intention to question the status of that government, or to inquire whether it was recognised by Her Majesty's Government. The facts with regard to, or bearing upon recognition, were therefore not examined at that stage; but in the Court of Appeal the respondents sought to base their case upon non-recognition of the "government" in East Germany and that court, inevitably as I think because of the public interest involved, allowed them to take the point. Inquiry was made in the usual manner of the Secretary of State and, certificates given by him having shown that Her Majesty's Government does not recognise the "government" of East Germany either de jure or de facto, the respondents argued, and the Court of Appeal accepted, that the ground on which Cross, J., held the action to be validly commenced no longer existed. The Court of Appeal also decided against various alternative claims by the appellant as to the authorisation of the proceedings, which Cross, J., had not found it necessary to consider. Correspondingly, the Court of Appeal did not find it necessary to deal with some difficult issues decided in the appellant's favour by Cross, J., I leave all these aside for the moment in order to concentrate upon that contention which is affected by the non-recognition argument.
First, I must explain how the right of Dr. Schrade to authorise the proceedings is connected with the question of non-recognition. I can do this quite summarily, since the history and the constitution of the Carl-Zeiss-Stiftung have already been fully explained.
Since the establishment of the Carl-Zeiss-Stiftung in 1891 at Jena as a charitable foundation, it has by its constitution been linked with the public administration of that district in Germany in which Jena lies. This was at that time the Grand Duchy of Saxe-Weimar. The "special board" of the foundation, which is the organ of the Stiftung which (under the issue I am now considering) authorised the present action to be brought, was then the department responsible for the University of Jena. Later, under the Weimar Republic, the appropriate district was the state of Thüringia and the authority its Minister of Education. There was a displacement during the National Socialist regime but in 1945, when American forces occupied this part of Germany, Thüringia was restored as a province or Land and its Minister again became the special board. It is interesting, and relevant to a later argument, to note that this reconstitution of the regional administration in this part of Germany was apparently accomplished without any formality; it simply took place under the authority of the occupant and, as one of the expert witnesses said, I think correctly, the fact, that the occupation authorities allowed the Ministry of Education to operate, endowed the acts of that Ministry with legal validity. This factual state of affairs seems to have continued without change when in July, 1945, East Germany, including Thüringia, was taken over by the forces of the U.S.S.R. The local administration continued: the Minister continued to act as the special board and, as regards this period which lasted until 1952, no challenge has been made to the validity of that board or to action taken by it. Its legal life-blood can only have been derived from the Minister of Thüringia, who in turn derived authority either from the U.S.S.R. as the holder of sovereign power (I shall explain this later) or possibly from the previous authority of the U.S.A.
It is on events occurring in 1952 that the respondents rely for their contention that the special board which authorised this action had, so far as the courts of this country are concerned, no legal existence. On July 23, 1952, under a "law" passed by the "government" of the German Democratic Republic (as East Germany is called by those in control of it) and an order made on the following day under that law, the Province or Land of Thüringia was divided into three districts and its functions were transferred to the administrative organs of the respective districts. The district in which Jena is situated is that of Gera and the body which (admittedly) assumed the position corresponding to the former Minister of Thüringia was the Council of Gera.
On these facts, the respondents contend that, since the Council of Gera depends for its creation upon a legislative act of the "government of the German Democratic Republic" and as no such government is recognised in this country, there is no legal basis for the Council of Gera as the special board, so that the purported authority is simply a nullity.
It is as well, before considering the legal consequences of nonrecognition, to appreciate what the respondents' contention involves. The Stiftung is a corporate body established for industrial and trading purposes under the law of Germany; one of whose constitutional organs—the special body—is an administrative authority exercising power at the place of the body's operations. As a fact, there is no doubt that at the relevant date this authority was there, that it was exercising its functions, that it was operating as the special board, that (this is proved by the evidence) it would be recognised by the local courts as so doing. Yet, so it is said, because the law and the order which set it up are derived from a body not recognised as a lawful government, this authority, qua organ of the Stiftung, has no legal existence: all its transactions in private law are void, as are presumably all other transactions carried out under its authority or by persons who derive their authority from it. By logical extension it seems to follow, and counsel for the respondents accepted, that there is, for many years has been and, until the attitude of Her Majesty's Government changes, will be, in East Germany a legal vacuum; subject only, it may be, to the qualification that pre-existing German law, so far as it can continue to be operated or have effect, may continue in force. Whether in fact it can continue to be operated to any great extent if its operation depends upon administrative or judicial authorities set up by the non-existent "government" must be doubtful. But the respondents, so far from shrinking from these consequences, insist upon them as the necessary and, as they say, intended consequences of non-recognition. and correspondingly, they argue that if recognition were to be given by the courts to legislative acts of the non-recognised "government" that would be tantamount to recognition of that government, and so in conflict with the policy of the executive.
My Lords, if the consequences of non-recognition of the East German "government" were to bring in question the validity of its legislative acts, I should wish seriously to consider whether the invalidity so brought about is total, or whether some mitigation of the severity of this result can be found. As Locke said: "A government without laws is, I suppose, a mystery in politics, inconceivable to human capacity and inconsistent with human society," and this must be true of a society—at least a civilised and organised society—such as we know to exist in East Germany. In the United States some glimmerings can be found of the idea that non-recognition cannot be pressed to its ultimate logical limit, and that where private rights, or acts of everyday occurrence, or perfunctory acts of administration are concerned (the scope of these exceptions has never been precisely defined) the courts may, in the interests of justice and common sense, where no consideration of public policy to the contrary has to prevail, give recognition to the actual facts or realities found to exist in the territory in question. These ideas began to take shape on the termination of the Civil War (see U.S. v. Home Insurance Co., and have been developed and reformulated, admittedly as no more than dicta, but dicta by judges of high authority, in later cases. I mention two of these: Sokoloff v. National City Bank of New York and Upright v. Mercury Business, a case which was concerned with a corporate body under East German law. Other references can be found conveniently assembled in Professor O'Connell's International Law (1965) pp. 189 ff. No trace of any such doctrine is yet to be found in English law, but equally, in my opinion, there is nothing in those English decisions, in which recognition has been refused to particular acts of non-recognised governments, which would prevent its acceptance or which prescribes the absolute and total invalidity of all laws and acts flowing from unrecognised governments. In view of the conclusion I have reached on the effect to be attributed to non-recognition in this case, it is not necessary here to resort to this doctrine but, for my part, I should wish to regard it as an open question, in English law, in any future case whether and to what extent it can be invoked.
I return now to consideration of the effect of the refusal to recognise the "government" of East Germany. The respondents, claiming that non-recognition of a government entails automatically non-recognition of all laws enacted by that government. rely upon the well-known line of cases following on Aksionairnoye Obschestvo A. M. Luther v. James Sagor & Co., where non-recognition had these consequences. Before their argument can be made good, however, they must show that the present refusal of recognition is given in a situation comparable with that which is found in the cases. This is the critical issue here and it is on this that the respondents' argument, in my opinion, breaks down. For the present situation, as regards sovereignty in Germany, is incomparable with any that has previously come before our courts and, as I shall hope to show, gives rise to different consequences.
The classic cases of non-recognition of governments arise in two types of situation: first, where some new state comes into existence, as by separation from another state or states (in such a case there may be a question of non-recognition of the state itself as well as of the government); instances of this are cases concerned with breakaway Spanish colonies—Jones v. Garcia del Rio (Peru); Thompson v. Powles (Guatemala); Taylor v. Barclay (Colombia). Secondly, where a new government claims authority over an existing state, or part of it. Instances of this are The City of Berne v. Bank of England; Luther v. Sagor (U.S.S.R.); White Child & Beney, Ltd. v. Simmons; White Child & Beney, Ltd. v. Eagle Star & British Dominions Insurance Co. (U.S.S.R.) and numerous cases relating to Russian banks. Neither of these is the situation in East Germany. When Germany surrendered unconditionally to the Allied Powers in 1945, instead of proceeding to the traditional status of belligerent occupancy, they brought a novel legal situation into being. The state of Germany remained (and remains) in existence; governing authority or supreme authority in respect of Germany as a whole was reserved to the four Allied Powers acting jointly, and governing authority in respect of each zone was left to be exercisable by that one of the Allied Powers to which the zone was allocated; in the Eastern part of Germany in which Jena is situated by the U.S.S.R. There is no controversy about this: the facts were so stated by the executive and accepted by the courts in the cases of R. v. Bottrill, Ex p. Kuechenmeister and Preston v. Preston. It is against this background that the certificates of the Secretary of State were given in these proceedings in September and November, 1964. The certificate of Nov. 6, 1964, and the questions to which it was directed have been set out in the opinion of my noble and learned friend, Lord Reid, and I shall not repeat them here. The following are, in my opinion, the conclusions to be drawn from the certificate—(i) the governments of the four allied powers retain rights and responsibilities in respect of Germany as a whole; (ii) in respect of the Eastern Zone—called "the zone of occupation allocated to the U.S.S.R." in which Jena is—the state and Government of the U.S.S.R. are recognised as de jure entitled to exercise governing authority; (iii) this recognition is stated to extend to the period since "at or about the end of June, 1945" to the "present date", i.e., Nov. 6, 1964; (iv) apart from the four allied states and their Governments and the control council for Germany (an organ of the four allied governments) Her Majesty's Government have not recognised de jure or de facto any other authority purporting to exercise governing authority in or in respect of the Eastern Zone.
There should be added to these facts that stated by the earlier certificate dated Sept. 16, 1964, that (v) Her Majesty's Government have not granted any recognition de jure or de facto to the "German Democratic Republic" or its "Government"—the inverted commas are as in the certificate itself.
The first question for a court when presented with this certificate (for convenience I treat the two as a single statement) is to consider whether it completely states the facts and whether there is any ambiguity in it. If so, it may be appropriate to ask the Secretary of State for a supplementary statement. There are only two questions which might arise in relation to the Eastern Zone. The first is whether it is admissible in the courts of this country to take account of the fact (if such be the case, as to which I shall make some observation later) that the U.S.S.R. itself considers that there is in existence in the Eastern Zone a government independent of the U.S.S.R., viz., the "government" of the "German Democratic Republic." In my opinion, the answer to this must be negative: to make any such assertion would be in direct contradiction to the certificate which states without qualification that the U.S.S.R. and its Government is entitled de jure to exercise governing authority there and that nobody else is, either de jure or de facto. What view another state may take as to the legal or factual situation in any territory is irrelevant to the recognising (or non-recognising) state and, after the latter has defined its own attitude, is inadmissible in its courts. As a well-known international law authority puts it—"The recognising state is not concerned with the question whether the state of things which it is recognising"—and I add "or not recognising"—"is legal by the national law of another state" (The Law of Nations (1963) Brierly/Waldock, p. 147). The second question is whether consistently with the certificate it is possible to assert that the U.S.S.R. is not de facto exercising governing authority or control in the Eastern Zone. It was, indeed, suggested by the respondents that there was a deliberate and significant abstention in the certificate from any positive assertion to this effect, two points being particularly relied on. First it was said that although the question was put what state or governments have been recognised as "exercising governing authority" in the Eastern Zone, no answer to this was specifically given. Secondly, although in relation to Germany as a whole it was said that until Mar. 20, 1948, the four Allied Powers "did exercise ... joint authority through the Control Council for Germany" no comparable statement was made concerning the Eastern Zone. Either, therefore, the inference should be drawn that Her Majesty's Government did not regard the U.S.S.R. as "exercising governing authority" in the Eastern Zone, or at least the certificates were ambiguous and further inquiry ought to be made.
I have no temptation, in a matter of this kind, to speculate or to read into the certificate anything which is not there, but I cannot find that the certificate is either incomplete or ambiguous. In stating that the U.S.S.R. is exercising de jure governing authority and that no other body is exercising de facto authority, the two certificates to my mind say all that need or can be said. De jure recognition in all cases but one is the fullest recognition which can be given: the one exception is the case where there is concurrently some other body de facto exercising a rival authority to that of the "de jure" sovereign (as in the case of Banco de Bilbao v. Sancha); but any such possibility as this is excluded by the terms of the certificates. Moreover, some more enlightenment (if any be needed) as to what is meant by de jure recognition may be drawn from the official statement made by Mr. Secretary Morrison on Mar. 21, 1921, (quoted in full by my noble and learned friend, Lord Reid) in which he said:
"The conditions for the recognition of a new regime as the de jure government of a state are that the new regime should not merely have effective control over most of the state territory, but that it should, in fact, be firmly established"
—a statement which is not necessarily binding on successor Secretaries of State but which is reproduced, as still effective, in the 1963 edition of Brierly's Laws of Nations (p. 148). This shows that, if nothing more is said, de jure recognition presupposes effective control in fact. It is consistent with this approach that Mr. Secretary Gordon Walker, when asked what states or governments are recognised as (a) entitled to exercise or (b) exercising governing authority, answered only the first question: after doing so there was no occasion to go further. That in doing so there was no intention to deny effective control in fact to the de jure sovereign is shown by the fact that the reply relates, without distinction, to the whole period from 1945-1964. For at any rate for some years after 1945, it would not be possible to dispute that the U.S.S.R. was directly governing the Eastern Zone, which must dispose of any conjecture that in the words he has used for the period as a whole the Secretary of State is distinguishing between what could be done and the actuality of the situation. The certificates therefore in my opinion establish the U.S.S.R. as de jure entitled to exercise governing authority and in full control of the area of the Eastern Zone.
This makes possible a determination of what is the legal character of enactments by the "German Democratic Republic". To say that this is an unrecognised government, though in a sense correct, may be misleading: it is so in a sense quite different from the sense in which the expression was used of, for example, the Russian revolutionary government prior to (de facto) recognition in 1921, whose status and the validity of whose legislation was considered in Luther v. Sagor. If that government was not recognised, there was nothing which could give international validity to its laws. But the "German Democratic Republic" is making laws in and as to a territory where a recognised "sovereign" exists. Is there, then, any reason for denying validity to its acts? The respondents say that there is: that no documentary authority has been proved to show that the "German Democratic Republic" had power, under the U.S.S.R., to make the law in question, or any law: that there must be either a constitution, or some enabling provision, or some express authority from the "sovereign" or proof positive of some other connection with the government, to avoid the consequences that the law is simply a nullity, and that none such has been proved.
This argument, in my opinion, is unduly formalistic. The U.S.S.R. and the other Allied Powers assumed power in Germany after a military collapse followed by a declaration that they had done so: an exceptional, if not unprecedented step which, and the consequences of which, however, we are bound to recognise. Thereafter, for a period, they exercised their power directly through their military commanders-in-chief. After a time they set up or allowed to be set up zonal or regional authorities to carry out tasks of government or administration. The United States military authorities, as we know, set up or allowed a "government" in the Land of Thüringia, which was continued by the U.S.S.R. when they took over. It is unnecessary in circumstances such as these to seek for a formal constitutional chain of power. Given the continuance of de jure authority and complete control, it follows that acts done by what are (as we are bound to hold) necessarily subordinate bodies are done under the governing authority of the occupying power. The argument to the contrary becomes all the more unrealistic when it is seen that the respondents themselves, in the evidence filed in these proceedings, have gone to considerable pains to demonstrate the subservient, or puppet, character of the "German Democratic Republic" and its Government. Thus Dr. Walter David, after stating that the Eastern section of Germany (including Jena) remains under the occupation of a foreign power, Russia, continues that the intentions of Dr. Abbé, the founder of the Carl-Zeiss-Stiftung, "cannot be implemented if the Council of Gera (or indeed any authority under Russian or communist control) were the special board": and Dr. Richard Moser von Filseck says:
"In East Germany a centralised régime has been set up by the Soviet Union to which it is subservient. ... The Council of Gera is, therefore, the representative of that political power which carried out the expropriation of the assets of the foundation enterprises."
The latter power was the U.S.S.R. Other passages are to a similar effect. Together with the certificate they present a consistent picture of subordinate central and local authorities exercising authority under the sovereignty or control of the U.S.S.R. as occupying power.
I must notice here two arguments: (i) In the Court of Appeal, it was assumed, as a matter of which judicial notice should be taken, that the "German Democratic Republic" was independent of the U.S.S.R., the conclusion from this being that its acts could not be derived from or attributed to the authority of the latter. Thus Harman, L.J., said:
"It is in fact notorious that the U.S.S.R. has recognised the German Democratic Republic as a sovereign state and treats its law-making capacity accordingly."
and Diplock, L.J., thought that he could take judicial notice that
"the government of the U.S.S.R. recognises the 'government of the German Democratic Republic' as the independent sovereign government of an independent sovereign state for whose territory the government of the U.S.S.R. claims no power to make laws."
I have already stated my opinion that, in the face of the Foreign Office certificate, recognition (if given) by the U.S.S.R. of the German Democratic Republic is something of which the courts of this country cannot take account. But, in addition, as to judicial knowledge, or notoriety, it is not shown, at any rate to my satisfaction, that in 1952 when the critical "law" was enacted even the U.S.S.R. was claiming that the German Democratic Republic was independent of it or was disclaiming its own authority. Without elaboration, it is sufficient to say that from official documents to be found in Command Paper 1552, which the respondents made available to us, the contrary is seen to be clearly the case, and such is also the effect of the respondents' evidence. There is only one piece of evidence to the contrary, a single answer given by Professor von Moser in cross examination to the effect that sovereignty was transferred to the German Democratic Republic in 1949 But this was not directed to the issue now being considered (which had not at that time been raised) and its true meaning was not explored, its apparent meaning seems to be contradicted both by the facts and by the considered evidence on affidavit of the same witness to which I have referred. The Court of Appeal did not rely on it and it should be disregarded.
(ii) It was said by the respondents that to recognise the law setting up the Council of Gera of July 23, 1952, would in effect be to recognise the Government of East Germany and to create a conflict with the views of the executive. The principle is well established that the courts of Her Majesty do not speak with a different voice from that of Her Majesty's executive government (it was stated as early as Taylor v. Barclay and has been accepted ever since) but we are not here under the risk of committing the courts to action of this kind. Merely because in the class of case, of which Luther v. Sagor is an example, non-recognition of a "government" entails non-recognition of its laws, or some of them, it does not follow that in a different situation this is so, nor that recognition of a law entails recognition of the law-maker as a government with sovereign power. The primary effect and intention of non-recognition by the executive is that the non-recognised "government" has no standing to represent the state concerned whether in public or private matters. Whether this entails non-recognition of its so-called laws, or acts, is a matter for the courts to pronounce on, having due regard to the situation as regards sovereignty in the territory where the "laws" are enacted and, no doubt, to any relevant consideration of public policy. I can see no inconsistency in (a) accepting the view of the executive that there is no recognised (i.e. independent) government in the Eastern Zone apart from the de jure governing authority of the U.S.S.R. and (b) attributing legal validity, if no other legal obstacle exists, to a "law" or act of that "government" as a subordinate or dependent body.
On consideration, therefore, of the whole of the situation in the Eastern Zone of Germany I reach the conclusion that the challenge to the validity of the law of July 23, 1952, setting up the Council of Gera fails. I should add that, even if there was a change in the situation in the Eastern Zone between 1952 and the issue of the writ in 1955 (in the direction of a discontinuance of Russian control), it has not been suggested that this would have invalidated a law already passed.
I must next mention the alternative contentions of the appellant with regard to the right to institute the present proceedings. These are three, namely, that Dr. Schrade (who instructed solicitors on behalf of the plaintiffs) had authority so to do (i) under a power of attorney granted on June 29, 1951, by the then special board, namely the Ministry of Education of the Land of Thüringia, (ii) as mandatory or proxy mandatory under r. 9 of the constitution, (iii) as the (i.e. the sole member of the) board of management of the optical works, entitled to act, under r. 114, in the absence of a special board. These alternative contentions were not dealt with by Cross, J., because he held that the action was validly authorised by the Council of Gera as the special board so that the alternatives did not arise. They were considered by the Court of Appeal and rejected there after careful examination by both Harman, L.J., and Diplock, L.J. It was complained by counsel for the appellant that the learned lords justices, on certain points, came to conclusions on what were essentially matters of German law without sufficient evidence, and your lordships were invited to receive fresh affidavits as to these matters. In my opinion, the expert evidence filed at the trial by either side was on some points incomplete and obscure, and if these three points had to be decided it would be unsafe to agree or disagree with the conclusions of the Court of Appeal on the existing material.
If, however, the appellant is entitled to succeed on the other points raised in this appeal, it would be unnecessary for it to rely on these alternatives or to call any further evidence, and they could be left undetermined, as they were left by Cross, J. I proceed, therefore, to consider the issues which Cross, J., decided in favour of the appellant, and which the respondents now contest. These are: (i) whether the appellant is estopped from contending that the Council of Gera had authority to commence this action on behalf of the Stiftung by certain judgments given in the Federal Republic of Germany; (ii) whether, if there is no estoppel, it has been established on the evidence that the Council of Gera had such authority; (iii) whether the appellant is entitled to bring the present proceedings in view of the confiscation in East Germany of the optical business. The third question was dealt with briefly by Cross, J., but he expressed some doubt whether it was not more properly one which should be left for decision at the trial rather than decided at the present preliminary stage. In my opinion, this doubt was justified and the issue, which may be a substantial and difficult one, cannot properly be decided on this appeal. It should be left to the trial as an open issue on which the parties can put their case unfettered by the tentative conclusions of Cross, J. The remaining two questions require decision.
(i) Estoppel. The judgment mainly relied on by way of estoppel is the judgment in West Germany of the Cross, J.) of Nov. 15, 1960. There are other decisions, but they carry the matter no further. This judgment was given in proceedings commenced in the Provincial Court (Landgericht) at Stuttgart on April 28, 1954, the parties to which were the Carl-Zeiss-Stiftung represented by the Council of Gera as plaintiff and three individuals (Bauersfeld, Heinrichs and Kuppenbender) and the firm of Carl Zeiss of Heidenheim as defendants. As regards these parties it is not disputed (a) that the Carl-Zeiss-Stiftung named as plaintiff is the same as the body named as plaintiff in this action, (b) that the firm Carl-Zeiss of Heidenheim named as defendant is the same body as that named as the third defendant to this action. It was also accepted that the effective plaintiff in those proceedings was the Council of Gera and that the substantive claim sought to be brought for trial related to the use of the names Zeiss or Carl-Zeiss and of certain trade marks in the Federal Republic of Germany, so differing from the substantive claim in the present action, which relates to similar matters in this country. Objection was taken, before the West German action could be tried on the merits, to the right of the Council of Gera to represent the Stiftung and proceedings on this preliminary issue went through a number of stages and appeals. Finally, the Federal High Court, by its judgment of Nov. 15, 1960, held that the action was inadmissible, on the ground that the Council of Gera had no authority to represent the Carl-Zeiss-Stiftung. The action was, therefore, dismissed and the Council of Gera was ordered to pay the costs.(I take the translation which was used before
Several questions, some of difficulty, arise in considering whether the respondents in the present action can rely on the judgment of the Federal High Court by way of estoppel or as res judicata. The first question arises from the fact that what is relied on here is not the mere fact of a judgment and not a decision on the substantive "cause of action" or claim which the Carl-Zeiss-Stiftung was trying to make good, but only a decision on a particular issue: in other words, what has come to be called an "issue estoppel." I must begin by ascertaining what is meant by "issue estoppel" in English law and then consider how far this kind of estoppel, or something analogous to it, may be applied to judgments of foreign courts.
A convenient starting point, as regards the English doctrine, is to be found in the judgments of the Court of Appeal in Fidelitas Shipping Co., Ltd. v. V/O. Exportchleb. The case was concerned with an interim award made in a commercial dispute embodied in a special case on which the court had given a decision and it was held that an issue raised by the special case so determined was the subject of "issue estoppel" so that it could not be raised again. Lord Denning M.R. said this:
"The law, as I understand it, is this: if one party brings an action against another for a particular cause and judgment is given on it, there is a strict rule of law that he cannot bring another action against the same party for the same cause. Transit in rem judicatam; see King v. Hoare. But within one cause of action, there may be several issues raised which are necessary for the determination of the whole case. The rule then is that, once an issue has been raised and distinctly determined between the parties, then, as a general rule, neither party can be allowed to fight that issue all over again ..."
He goes on to deal with "points" within issues, including those which though not actually raised could have been raised, an argument which is not material here, and which I prefer to leave open. Similarly in the judgment of Diplock, L.J., there is a useful passage which contains these words:
"The final resolution of a dispute between parties as to their respective legal rights or duties may involve the determination of a number of different 'issues,' that is to say, a number of decisions as to the legal consequences of particular facts, each of which decisions constitutes a necessary step in determining what are the legal rights and duties of the parties resulting from the totality of the facts ..."
He continues by making a distinction between issue estoppel and fact estoppel which may deserve some further exploration, but it does not arise here.
The doctrine of issue estoppel generally is not a new one. It can certainly be found in the opinion of the judges delivered by De Grey, L.C.J., in the Duchess of Kingston's Case, a passage from which has been quoted by my noble and learned friend, Lord Reid, and an accepted re-statement of it was given by Coleridge, J., in R. v. Inhabitants of the Township of Hartington Middle Quarter, which is also quoted by my noble and learned friend. Mr. Spencer Bower, in his work on Res Judicata states (at p. 9) the principle as being "that the judical decision was, or involved, a determination of the same question as that sought to be controverted in the litigation in which the estoppel is raised"—a formulation which invites the inquiry how what is "involved" in a decision is to be ascertained. 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" (R. v. Inhabitants of the Township of Hartington Middle Quarter). 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) and if necessary other material to show what was the issue decided (Flitters v. Allfrey). The fact that the pleadings and the evidence may be referred to, suggests that the task of the court in the subsequent proceeding 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.
This being the position as regards English judgments, one must next inquire whether a similar principle should apply as regards foreign judgments. It has taken some time before the recognition of foreign judgments by English courts was placed on a logical footing. Unlike English judgments, they were not considered to be judgments of a court of record so that the simplest form of estoppel—by record—could not be applied to them. They were, in the early stages of private international law, considered only to be prima facie evidence of the rights of the parties and were examinable on the merits. This attitude can be found as late as 1834 in the Irish appeal of Houlditch v. Marquess of Donegal where Lord Brougham, L.C., expressed his disagreement with the opinion of the Lord Chancellor of Ireland that an English Chancery decree was conclusive, in strong terms. He said:
"The leaning of my opinion is so strong that I can hardly call it the inclination of an opinion; and we know it is the general sense of lawyers in Westminster Hall (notwithstanding dicta of considerable weight coming from very learned judges' obiter dicta to the contrary) that the judgment of a foreign court in courts of this country is only prima facie evidence—is liable to be averred against and not conclusive. One argument is clear—that the law in the course of procedure abroad sometimes differs so mainly from ours in the principles upon which it is bottomed, that it would seem a strong thing to hold that our courts were bound conclusively to give execution to the sentence of foreign courts ..."
But the Lord Chancellor's remarks showed that the tide was running in the direction of recognition and in Ricardo v. Garcias this House assented to the view that when a foreign judgment "comes in collaterally, or the defendant relies upon it under the exceptio rei judicatae, it is then received as conclusive" and Lord Brougham's earlier remarks came to be explained as referring only to the limited grounds on which foreign judgments may be examined such as fraud, public policy or want of jurisdiction (see Spencer Bower on Estoppel, p. 38). In this respect, foreign judgments retain their distinction from English judgments. But, these limitations apart, the modern doctrine (usually derived from Godard v. Gray is that a foreign judgment may be pleaded and is conclusive.
Is, then, what may be pleaded in defence to a claim limited to what may be called "cause of action" estoppel, that is, a judgment which negatives the plaintiff's cause of action, or does it extend to any matter raised between the parties necessary to the decision and actually decided? There is no clear authority on the point. Henderson v. Henderson, in any event a decision of a colonial court, was a simple example of cause of action estoppel, and the same appears to be true of the more complicated case of Callandar v. Dittrich.
The appellant, arguing against issue estoppel in the case of foreign judgments, invoke a rule by which it appears that a plaintiff who has obtained a foreign judgment may sue here either on that judgment or on his original cause of action, a rule vouched by a number of decided cases, which maintains a precarious foothold as a sub-rule in Dicey's Conflict of Laws, 7th ed., p. 996. But this rule, which, if surviving at all, is an illogical survival, affords no sound basis for denying a defendant the benefit of a decision on an issue, if it proves anything it proves too much, and would deny both parties to a foreign proceeding the benefit of any estoppel at all.
As a matter of principle (and we are really thrown back upon principle), whether the recognition of judgments is based upon a recognition of vested rights, or upon considerations of public interest in limiting relitigation, there seems to be no acceptable reason why the recognition of foreign judgments should not extend to the recognition of issue decisions. From the nature of things (and here it is right to recall Lord Brougham's warning) this, in the case of foreign judgments, may involve difficulties and necessitate caution. The right to ascertain the precise issue decided, by examination of the court's judgment, of the pleadings and possibly of the evidence, may well, in the case of courts whose procedure, decision-making technique, and substantive law is not the same as our own, make it difficult or even impossible to establish the identity of the issue there decided with that attempted here to be raised, or the necessity for the foreign decision. and I think that it would be right for a court in this country, when faced with a claim of issue estoppel arising out of foreign proceedings, to receive the claim with caution in circumstances where the party against whom the estoppel is raised might not have had occasion to raise the particular issue. The fact that the court can (as I have stated) examine the pleadings, evidence and other material, seems fully consistent with its right to take a broad view of the result of the foreign decision. But with these reservations, where after careful examination there appears to have been a full contestation and a clear decision on an issue, it would in my opinion be unfortunate to exclude estoppel by issue decision from the sphere of recognition. If that is so, in this case where an explicit statement is available of the decision of the Federal High Court, of the reasons for it, and of the issue as defined between the parties to it, and where the English court has the assistance of expert witnesses to explain the foreign decision, the difficulty should not be too great in ascertaining whether the same issues as were there decided are involved in the present action.
The appellant, indeed, says that the issue is not the same: that in the German proceedings it was whether the Council of Gera representing the Carl-Zeiss-Stiftung could sue in respect of certain matters in Germany and that here the issue is whether this can be done in respect of matters arising here. But that is to argue for "cause of action" estoppel only. If issue estoppel exists, the issue is whether (briefly) the Carl-Zeiss-Stiftung has become paralysed or its organs rendered ineffective so that it cannot act in the manner in which it is purporting to act. Identity of issue is, to my mind, clearly shown.
Next as to identity of parties. Normally to establish this should be the simplest part of the case. But there is a peculiar difficulty here because of the way in which the present issue arises. The proceedings profess to be brought by the Carl-Zeiss-Stiftung but since it is a legal person there must be some actual person, or persons, to bring it before the court, who has or have power to do so. The Council of Gera claims to be the relevant organ for this purpose; and it is clear that it is on their authority that the action was started. The question to be decided is whether the Carl-Zeiss-Stiftung is before the court or whether it is not: so according to the eventual decision the plaintiff may or may not be the Carl-Zeiss-Stiftung. Obviously in these circumstances the test of identity of parties cannot be the formal test of identity on the record, so what is it to be? Cross, J., decided that there was not identity of parties and I understand that the majority of your lordships agree with him. I regret that I cannot share this view. The point, no doubt, merits longer argument, but in view of the numerous points discussed in this appeal I shall abstain from giving at any length the reasons why I think identity of parties exists. Briefly, in my opinion, one must look to see who in reality is behind the action: and the reality is that a body of persons, namely, the Council of Gera, is seeking in these proceedings, precisely as in Germany they sought, to set the Carl-Zeiss-Stiftung as plaintiff in motion before the court. One may consider the simpler case of a limited company. If certain persons, claiming to be its directors, start an action in the company's name, the defendant may seek and may obtain a decision that the company is not properly before the court because the persons concerned had no right to commit the company to the action. As a result the action is struck out. Can it be that those same persons may start another action in the company's name against the same defendant making the same claim? According to the appellant's argument the relevant party as regards the application to strike out the action is the solicitors, so that if the directors started their second action through the same firm there would be an estoppel, but if they employed a second—or a third—firm there would not be. I can hardly think so bizarre an argument can be correct. There must surely be an estoppel in the second action for the reason that the effective Party to the decided issue (not to the action) is the same in each case—namely the directors. Admittedly, as I mentioned at the start of this opinion, the involvement of the solicitors in the proceedings, according to our practice, introduces a complication. But this does not, to my mind, prevent the party to the proceedings (who is behind the solicitors as we know) being the Council of Gera. To treat the solicitors as the parties to these proceedings seems to me, with respect to the argument, both lacking in reality and unduly technical. There is naturally no authority which deals with such a situation as this but I find of assistance a passage from the American Restatement of the Law of Judgments, Ch. 4, para 85 (2), which reads:
"Where a person is bound by or entitled to the benefit of the rules of res judicata ... such rules apply in a subsequent action brought or defended by another on his account."
We were also referred to passages from the 50 Corpus Juris Secundum Judgments, paras. 756 et. seq., and to American authorities there cited which show that U.S. courts take a flexible view of the requirements of these estoppel rules. The present case seems to me one which does not require much, if any, adjustment, to fit into the rules as to parties. If the Council of Gera is not itself the party, then the case seems to fall within the "Restatement" rule. So I do not think that the estoppel fails on this ground.
To my mind, a more serious obstacle to the efficacy of the estoppel is to be found in the requirement that the foreign judgment should be final and conclusive or, as it is sometimes put, conclusive on the merits. I have no difficulty as to the latter element, for I cannot accept the argument that, for this purpose, the merits means the merits of the action as stated in the plaintiff's claim. The defendants' contention that the Stiftung's ability to act has been fatally impaired is just as much an argument on the merits: indeed, the issue which group of persons is entitled to control the Stiftung is at the root of the present dispute. But the remaining requirement is more difficult.
The text books are in agreement in stating that for a foreign judgment to be set up as a bar in this country it must be res judicata in the country in which it is given (see Dicey's Conflict of Laws (7th Edn.), p. 1036; Cheshire's Private International Law (7th Edn.), p. 562). The chief authority cited for this is Nouvion v. Freeman in which both Lindley, L.J., in the Court of Appeal and Lord Herschell in this House expressed themselves strongly in this sense. No doubt that was rather a special case since the remate judgment was no more than provisional, but, generally, it would seem unacceptable to give to a foreign judgment a more conclusive force in this country than it has where it was given. In relation to the present case I think that "conclusive" must be taken in the sense that if the Stiftung represented by the Council of Gera were to attempt to commence another action in West Germany against the same defendants as were parties to the previous action they would, by the force of the previous judgment, be prevented from proceeding with it. Moreover, I think that it is for the defendant, who sets up the bar, to establish the conclusive character of the judgment. This must be so on principle and there is support for it in Behrens v. Sieveking. Unfortunately there is no clear evidence whether the judgment of the Federal High Court is res judicata (in the sense I have mentioned) in Germany or not. The respondents rely on the accepted presumption that the foreign law is the same as English law, but this presumption, never more than a fragile support, is less than ever reliable here when the question is what is the effect of a particular judgment which has no exact parallel in English law. There are in fact indications in the evidence to the contrary.
In 1957 an action, commenced in Dusseldorf in West Germany, came on appeal before the Federal High Court. The parties to that action were "the firm Carl Zeiss of Heidenheim, represented by Dr. Bauersfeld" as plaintiff and (inter alios) V.e.B. Carl Zeiss Jena as defendants. The defendants took the point that the plaintiff lacked capacity to sue and was not properly represented, alleging that Dr. Bauersfeld had resigned from the board of management of the Stiftung. The Federal High Court in its decision of July 24, 1957, rejected this objection, on the ground that it was not satisfied that Dr. Bauersfeld had resigned.
In 1959 another action, also commenced in Dusseldorf in West Germany, came on appeal before the Federal High Court with the same plaintiff and (inter alios) the same defendants as in the 1957 appeal. The defendants again took the point that the plaintiff had not the capacity to sue and was not properly represented because Dr. Bauersfeld had resigned from the board of management of the Stiftung. The Federal High Court again rejected the objection and in doing so used these words:
"It had already negatived the question by its judgment dated July 24, 1957, with detailed reasons. This must stand even after repeated examination and assessment of the objections raised against it by the appeal";
and later: "The court maintains its view even after a re-examination." The significance of these two judgments in relation to the conclusive effect, in a subsequent action, of a decision, by way of objection, that a plaintiff was not properly represented in an earlier proceeding between the same parties, was not explored at the trial. But, if the fate of the estoppel turned on this point (as it would on my view as to identity of parties) I should be strongly inclined to hold that the defendants (the present respondents) had not established to the satisfaction of the court that the judgment of Nov. 15, 1960, was conclusive in West Germany as regards other proceedings, even between the same parties, and that consequently it could not be conclusive as regards other proceedings here. The estoppel fails in any event in view of the conclusion reached by your lordships as to identity of parties. This being so, it is not necessary to consider whether the appellants, for their part, could set up the judgments given in East Germany as a counter-estoppel, or to decide on the effect of an estoppel as regards the first and second defendants to the present action.
(ii) Whether Council of Gera had authority in the absence of estoppel. I now consider, free from any estoppel, whether the Council of Gera had authority to commence these proceedings on behalf of the Stiftung. The evidence before the learned judge consisted in the main, of decisions of courts in both East and West Germany. There were also affidavits by experts on each side, on which extensive cross-examination took place. On the appellant's side most reliance was placed on two judgments of the Supreme Court in East Germany, an advisory opinion given on April 6, 1954, and a . This judgment was given in proceedings brought by the Stiftung (represented by the Council of Gera as the special board and by its mandatory, Dr. Schrade) and V.e.B. Carl Zeiss (the public body which had taken over the optical works in 1940) against "the firm Carl Zeiss of Oberkochen" (a description intended to apply to the present third defendants) to restrain them from using the name Carl-Zeiss in the German Democratic Republic. Notice of these proceedings was apparently given to the defendants but they did not appear or take any part in the action. These two decisions, which enter in great detail into both the facts and the law, state as the conclusions of the Supreme Court, (i) that the Stiftung continued to exist as a legal entity, (ii) that the Council of Gera was the special board of the Stiftung, (iii) that article 116, which provided for liquidation of the Stiftung, had not come into play.
On the side of the respondents, reliance was in the main placed on the judgment of the Federal High Court of West Germany of Nov. 15, 1960, coupled with that of the Provincial Court of Appeal of Stuttgart dated Oct. 29, 1958, the reasoning of which was approved by the Federal High Court. The effect of these judgments was that, under East German law, the articles of the Stiftung had been inoperable since and by reason of the confiscations of the undertakings of the Stiftung in 1948 and that in any event the Council of Gera was not capable of exercising the functions of the special board by reason (inter alia) of the political and economic conditions in the "German Democratic Republic."
There is thus a direct conflict between the views of the two highest courts. The expert evidence divides itself similarly into two sides supporting the one or the other set of judgments. The existence of the Stiftung as a legal entity, though at one time disputed, is now accepted by both sides and the essential questions which have to be decided may be summarised as being (i) whether the Stiftung, from 1948 onwards, was incapable of acting and its articles were inoperative and (ii) whether the Council of Gera was capable or incapable of fulfilling the functions conferred by the articles on the special board.
Each of these questions may be "classified" as questions relating to the constitution of a foreign corporation, and so, according to English private international law, to be decided according to the law prevailing at the place where the Stiftung was incorporated (see Dicey's Conflict of Laws (7th Edn.), r. 78 (2)). So far as German private international law is concerned, it appears that account is taken of the law prevailing at the place of the "domicile" of the corporation. There is no dispute that the place of incorporation was Jena, and although an attempt has been made to transfer the domicile or seat of the Stiftung to West Germany, the courts of West Germany have been prepared to assume for the purpose of their decisions (rightly in my opinion) that this remains in Jena. The question, then, on either approach, is, what is the relevant applicable law prevailing at Jena? The expert evidence establishes, in my opinion, that the law applicable to Stiftungen in Germany rests on the triple foundation of (a) the German Civil Code (BGB) of 1900 and in particular arts. 80-88; (b) the Legal Code of the Land of Thüringia of 1923, and (iii) the articles. From this it would seem to follow that the relevant law should be that stated by the courts having jurisdiction in Thüringia, or whatever geographical area corresponds to Thüringia, namely, the Provincial Court at Leipzig and on appeal the Supreme Court in East Germany.
In general, it may be taken to be the case that the best evidence as to the law of a foreign country is the law as stated by its court of last resort. All five speeches in this House in Bankers and Shippers Insurance Co. of New York v. Liverpool Marine and General Insurance Co., Ltd. accepted this. Lord Buckmaster ponted out that, while no foreign judgment is technically binding, yet it would require "special and unusual circumstances" to lead the House away from a clear decision of a final court. His opinion was expressed in relation to a matter of construction of a statute, but the principle must apply equally to other matters of foreign law. I need not quote from the other speeches which were, if anything, expressed in still stronger terms. Similarly, in Lazard Bros. & Co. v. Midland Bank, Ltd. Lord Wright said that the question is what the foreign law is shown to be by its exposition, interpretation and adjudication. So it would seem that there are strong reasons—if not quite conclusive—why courts in this country should accept the East German judgments as stating the relevant law.
The respondents contest this conclusion on several grounds. They submit that the questions of law, as to the constitution of the Stiftung, should properly be considered to be questions not of East German law but of German law. The questions relate, they say, to the issue how the Stiftung may be represented in Germany as a whole and internationally and how, if at all, it may protect assets outside the Eastern Zone. Formally, the questions of law concern the interpretation, or application of the German Civil Code , under which the Stiftung was formed, not of any zonal law. As to such a legal question the decisions of courts of the Federal Republic of Germany have a superior or (alternatively) an equal right to international recognition as compared with those of East German courts.
The claim for superior status was based principally upon the terms of the certificate of the Secretary of State given on November 6, 1964, already considered in another context and set out in the opinion of my noble and learned friend, Lord Reid. This certificate makes it clear, so it is said, that the rights of the U.S.S.R. as de jure "sovereign" in the Eastern Zone are confined to that zone and explicitly recognises (following a communique of the Western Allies on Sept. 19, 1950) the Government of the Federal Republic as "entitled to speak for Germany as the representative of the German people in international affairs." So, it is argued, in what is essentially an international matter, the courts of the Federal Republic should be accepted as the proper organ to declare what the law of Germany is.
I recognise the ingenuity of this argument but I am not convinced by it. Read as a whole, the certificate gives recognition to the U.S.S.R. as de jure entitled to exercise governing authority in respect of the Eastern Zone; and (negatively) the certificate also states, after the passage on which the respondents rely, that the communiqué of 1950 does not constitute recognition of the government of the Federal Republic as the de jure Government of all Germany. The right to exercise governing authority includes, in my opinion, the right to set up or maintain courts and the recognition of the one carries with it the recognition, as a source of law, of the decisions of the courts. The right to "speak for Germany as the representative of the German people in international affairs" is a right of diplomatic representation which is not coincident with, and does not impinge upon, the right of the governing authority in each part of Germany to make and state the law in the part over which it has power. Furthermore, it by no means follows from the fact that the present claim of the Stiftung extends beyonds the frontiers of East Germany that the legal question we are considering is one of international or inter-zonal concern. The legal question relates to the constitution of the Stiftung, which depends on the law of the place where it is localised. Your lordships were invited by the respondents to consult the Secretary of State on the matters discussed above, and to seek a further certificate as to the proper authority to determine the status of and right to represent the Stiftung. This course, in my opinion, should not be followed. The questions, which it was suggested should be asked, were questions of law which it is the function of the courts to determine and which they are in a position to determine on the basis of the certificate previously given, the terms of which are sufficiently clear.
The argument therefore that superior recognition should be given to the West German judgments, in my opinion, should not be accepted. But there remains the further submission that the West German judgments should at least be considered side by side with those of the East German courts—as rival pieces of evidence entitled to equal weight—and a decision reached on their respective merits. The arguments for this are that the circumstances prevailing in Germany are unusual, that the legal questions involved are common to both parts of divided Germany, that the East German judgments consist of an advisory opinion and a default judgment, whereas those of West Germany were given in contested proceedings brought at the present appellant's choice in the courts of West Germany, and (ultimately if the comparison is admissible) that the West German judgments are superior in legal reasoning.
These are difficult questions indeed. I am prepared to go so far with the respondents as to agree that it may be right in the present circumstances to look beyond the decisions of the East German courts and to consider, and at least to test them by, the rival decisions in West Germany. But, in making this comparison, there are two points to bear in mind. First: the question to be resolved is not merely one of interpretation of a common code—the Civil Code of 1900—(I pass over for this purpose the Thüringian Law of 1923, whose provisions are of a general character with no direct bearing on the issues). It is a question of the application of the somewhat general provisions of the Civil Code to a factual situation peculiar to the Eastern Zone, the answer to which, by agreement of both sets of courts, depends upon a consideration of the effect of the 1948 (Eastern Zone) decrees on the actual business undertaking in Jena of the Stiftung. Both sets of courts in fact give considerable attention to the factual situation prevailing in Jena since 1948. On such matters, prima facie, preference should be given to the East German courts, as the appropriate tribunal to deal with the impact of East German legislation on an organisation in their zone. Secondly: in so far as the questions for decision are general questions of law, rather than questions depending on local considerations, there is no reason why, given a separation of de jure sovereignty between the two parts of Germany, there should not be differences of interpretation and application of rules of law formerly common to the whole of Germany. The respondents' experts, indeed, asserted that there were such differences: their contentions were that decisions in East Germany were those appropriate to a centralised socialist state whose courts were guided by considerations of policy. If this argument could have been carried to the point of showing that the courts of East Germany are not courts of law at all or that their decisions were corrupt or perverse, that might (I do not say would) be a ground for disregarding them in favour of decisions of other courts shown to act more judicially. But the evidence did not, in my opinion, approach this point, and a mere difference in philosophy, or even of method, so far from entitling us to prefer the West German approach, on the contrary gives support to those who argue that the East German variety of German law should be taken as being the law in East Germany. With these considerations in mind, I consider the two sets of judgments. They have been analysed in detail by Cross, J., and (subject to the one point to which I return later) I am satisfied to accept his analysis. I only make some observations of my own in recognition of their careful re-examination by counsel in the present appeal and because these issues have not been considered by the Court of Appeal.
The East German Supreme Court bases its decisions on the following main points: (i) the confiscations which took place in 1948 were not of the whole business of the Stiftung but were separate acts of confiscation of the assets of the two individual businesses—the optical works and the glass works; (ii) the Stiftung as such retains considerable assets: these produce an income of some £180,000 per annum. It is able with these assets to fulfil many of the charitable functions for which it was created. The Supreme Court refers to establishments for the development and training of optical personnel, for the promotion of studies, research and training in natural sciences and mathematics, as well as for social and health care of the employees of the plants of the foundation, for example, schools for opticians, libraries, clinics, recreation and rest homes, and their findings as to these matters were supported by evidence before Cross, J. There was also evidence as to the ownership of trade marks and other industrial property and as to assets of the Stiftung outside East Germany, but this was perhaps controversial and it is safer to leave these matters out of account; (iii) the Stiftung employs over 400 persons and there are about 4,000 pensioners who are paid according to the pensions statute of the Stiftung. There remain also other beneficiaries within the purposes of the Stiftung; (iv) the Stiftung is in a position to take and does take legal action for the protection of its assets; (v) the resolution of the German Economic Commission of June 16, 1948, contemplated that the Stiftung should remain in existence and that its constitution should be amended to reflect its changed position. This was not done, but it is consistent with the resolution to hold that the original articles continue in effect.
The principal reasons for the judgment of the West German Supreme Court are (a) that the articles became unworkable after 1948 because they were dependent for their working on the continued ownership of some business by the Stiftung. After 1948 the Foundation ceased to have any interest in its former businesses which became nationalised undertakings. According to the "Soviet Zone view," as interpreted by the Federal High Court, this interfered with the organisation of the Stiftung to such a far-reaching effect that in the Eastern Zone the Stiftung no longer had capacity to act as a juristic person; (b) that the centre of gravity of the Stiftung's organisation lay in the industrial enterprises and the removal of these destroyed the balance on which the organisation of the governing bodies of the Stiftung depended; (c) that the Council of Gera, because of its political complexion, cannot act as a special board or represent the interests of the Stiftung or carry on the affairs of the Stiftung consistently with the intentions of the founder, Abbé.
As between these opinions, and taking also into account the expert evidence on them, much of which was not challenged, and certain supplementary evidence (particularly of Dr. Schrade) regarding the factual position at Jena, I think that the learned judge was fully justified in coming to the conclusion that the East German decisions should be preferred. The decisions of the West German courts carry less conviction: on points (a) and (b) because they were less fully informed than the East German courts as to the existing activity and assets of the Stiftung and because they based their decisions on a view as to the law in the Eastern Zone which is not in agreement with that law as declared by the Supreme Court in that zone; on point (c) because it is really impossible to say that, and if so when, the authority designated as the special board diverged from the intentions of the founder so radically that it ceased to be capable of acting. In fact both Supreme Courts claimed that the intentions of the founder were reflected in the very different philosophies prevailing in their respective zones so that, as Cross, J., observed, the only safe course is to keep to the natural sense of the articles which base the constitution of the special board on considerations of administrative geography.
I must add one point as to the respective merits of the judgments. The learned judge, in that part of his judgment dealing with res judicata, after a careful analysis of the West German judgments, expressed the view that these were perverse, and so in any case ought to be disregarded. He, of course, had the advantage of hearing the expert witnesses which we have not, but even allowing for this, I do not think that a finding of perversity ought to stand. In my opinion, the case amounts to this: (1) that the law prevailing in East Germany should be taken to be that declared by the East German courts; (2) that the West German decisions proceeded on a view as to the law in East Germany which, for reasons I have given, ought not to be accepted in preference to the view of the East German courts themselves. Further than this I do not think that the evidence requires or indeed entitles us to go. For my part, I accept the West German decisions as judicial in the fullest sense, which could readily be accepted if they stood alone. This being so, I do not consider it necessary (as on some future occasion it may be) to examine the limits in law of the doctrine of perversity, some of the authorities on which (for example Simpson v. Fogo  seem to me to present difficulties.
My Lords, in this long and involved case we have heard many arguments from counsel on either side and many authorities have been referred to. It involves I hope no disrespect to those arguments not to examine them all. In the end, and on the whole of the case, the conclusion emerges that the respondents' preliminary attack on the validity of the action fails: I would allow the appeal and restore the judgment of Cross, J.
Solicitors: Courts & Co. (for the appellant); Herbert Smith & Co. (for the respondents).