England and Wales Court of Appeal (Civil Division) Decisions

Case No: A2.2000/0468

Lower Court Reference: 1997 A No. 1817

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Mr Peregrine Simon, Q.C. Sitting as a Deputy Judge

Royal Courts of Justice

Strand, London, WC2A 2LL

Friday 8^th December, 2000

LORD PHILLIPS MR:

1. This is the judgment of the Court.

2. On the evening of 6^th April 1993 a fire broke out at Lyndon Farm, Poolhead Lane, near Solihull in the West Midlands. Lyndon Farm consisted of two businesses: first, an egg production business located in three large chicken sheds ("the chicken sheds") and associated premises; and second, an adjacent egg-packing and distribution facility ("the egg-packing factory").

3. Both the chicken sheds and the egg-packing factory were badly damaged by the fire. The first claimant ("Becketts") is the freehold owner of all of Lyndon Farm. The second claimant ("Stonegate") is the owner of the poultry farming business and the lessee of the chicken sheds pursuant to a lease dated 4^th January 1993. The third claimant ("Primrose") was formed in 1983 as a joint venture between Becketts and Stonegate. It had previously been the operator of the poultry farming business; but from 4^th January 1993, when it became a wholly owned subsidiary of Stonegate, it operated the egg packing and distribution business from the egg-packing factory and was the lessee of those premises.

4. The fire was electrical in origin. Electricity was supplied to Lyndon Farm by the Defendant, ("Midland") a public electricity supplier under the Electricity Act 1989.

5. On 25^th February 2000 Mr Peregrine Simon, QC, sitting as a Deputy Judge of the High Court, gave a judgment which determined a number of preliminary issues. He held that the fire was caused by negligence on the part of Midland and that Midland was liable in damages to each of the Claimants. Against that finding there is no appeal. He further held that, so far as Stonegate and Primrose were concerned, Midland's liability for economic loss was excluded by a term of the conditions under which Midland supplied electricity to those companies. This is an appeal against that finding. It raises two issues:

(i) Was the relationship between Midland on the one hand and Stonegate and Primrose on the other subject to a condition which excluded Midland's liability for economic loss? If so

(ii) On its true construction, did the term apply to the economic loss suffered by Stonegate and Primrose in the circumstances of this case?

The Cause of the Fire

6. The main issue at the trial was where and how the fire started. The Judge held that the fire originated in a meter box that formed part of the installation for the supply of electricity to the egg-packing factory. The meter box was sealed and secured. It and its contents were owned by and under the control of Midland. The cause of the fire was the incorporation of obsolete `Lucy Oxford' fuses in the system that were not suitable for their purpose and were not installed and maintained so as to prevent danger. The largest part of the claims for damages made by Stonegate and Primrose relate to economic losses alleged to have been suffered as a result of the interruption of their businesses.

The Judge's Finding on Incorporation of the Exclusion Clause

7. The basis upon which the Judge found that the relationship between Midland and its customers, Stonegate and Primrose, was governed by an exclusion clause appears from the following passages of his judgment:

"As at 6^th April 1993, both Stonegate and Primrose were registered customers of the defendant. The legal relationship between a supplier of electricity and its tariff customer was the subject of analysis in Norweb plc v Dixon [1995] 3 All ER 952 at 959. In that case the Divisional Court described the relationship as statutory rather contractual since legal compulsion, both as to the creation of the relationship and the fixing of terms, was inconsistent with a contract. There is no room for negotiation by either party: the supplier must accept the customer and the customer must accept the supplier.

The Electricity Act 1989 provides:

16 Duty to supply on request

(1) ...a public electricity supplier shall, upon being required to do so by the owner or occupier of premises:

(a) give a supply of electricity to those premises; and

(b) so far as may be necessary for that purpose, provide electric lines or electrical plant or both.

(2) Where any person requires a supply of electricity... he shall give... a notice...

(3) Where a public electricity supplier receives from any person a notice under subsection (2) ... the supplier shall... give to that person a notice under subsection (4) below.

(4) A notice under this subsection shall- ...

(e) specify any other terms which that person will be required to accept under section 21 below...

21 Additional terms of supply

A public electricity supplier may require any person who requires a supply of electricity... to accept in respect of the supply -

(b) any terms restricting any liability of the supplier for economic loss resulting from negligence which it is reasonable in all the circumstances for that person to be required to accept.

The Defendant published Conditions of Supply which included at clause 11:

The Company shall not be liable for economic loss resulting from negligence in respect of the supply.

This was repeated on p.31 of the defendant's booklet of prices for April 1993. According to the statement of Mr Jones (the Insurance Manager of the defendant) this booklet was at all material times included in Tariff Notices sent to customers.

The claimants make two points. First, the machinery of the Act for importing these conditions as a term of supply was not complied with; and, secondly, the exclusion clause was not apt to exclude liability for economic loss resulting from negligence in respect of the installation of plant (as in this case) in contradistinction to the supply of electricity.

As to the first point, it seems clear that the defendant intended its tariff customers to accept a term which restricted the defendant's liability for economic loss resulting from negligence. It was not suggested that this term was unreasonable within the meaning of the Act. If it had, it might have been necessary to look at the general law as to the recoverability of economic loss. Mr Moxon-Browne QC submitted that the defendant did not have to do very much but this it should have done more than it did, without suggesting specifically what should have been done. In my judgment, bearing in mind that the relationship is statutory and that concepts relating to contractual notices are not directly applicable, the defendant did sufficient to bring itself within the protection of the Act and effectively excluded itself from liability for economic loss resulting from negligence."

8. The following points should be noted in relation to this passage:

(1) The Judge found that an identical term, in the wording of clause 11, was published by Midland both in Conditions of Supply and in a booklet of prices.

(2) The Judge referred to evidence that the booklet of prices was included in tariff notices sent to customers.

(3) The Judge made no finding as to the manner in which Midland published Conditions of Supply.

(4) The Judge did not identify what it was that was done by Midland which he considered `brought Midland within the protection of the Act and effectively excluded itself from liability for economic loss resulting from negligence'.

9. It is common ground that the first of these findings does not accurately reflect the evidence.

10. Mr Jones, Midland's insurance manager, gave evidence of a booklet, setting out Midland's tariffs, which included at page 31 the following clause:

"Midland's Electricity PLC will not be liable for economic loss resulting from negligence."

11. In his witness statement he stated:

"The booklet also refers, in the introduction on page 4, to our `Terms and Conditions' applying to our tariffs, i.e. the Conditions of Supply. A copy of the current Conditions of Supply is attached... Clause 11 restates that Midland Electricity shall not be liable for economic loss resulting from negligence in respect of the supply."

12. Page 4 of the booklet gave the following information about Midland's Terms and Conditions:

"This booklet contains details of all of MEB's published prices. Full terms, conditions and definitions are near the end of this booklet in the section `DEFINITIONS'.

... MEB have a statutory and legal obligation to publish all available tariffs together with Terms and Conditions which apply to them. Throughout this booklet, therefore, specific details of tariffs will be printed on grey backgrounds similar to this paragraph."

13. The section in the booklet headed `DEFINITIONS' included page 31 and the exclusion clause there set out. It did not include the Terms and Conditions of which clause 11 formed part.

14. Thus there are in this case two different exclusion clauses in play:

(i) `Midland Electricity PLC will not be liable for economic loss resulting from negligence' I shall call this `the wide exclusion clause',

(ii) `The Company shall not be liable for economic loss resulting from negligence in respect of the supply'. I shall call this `the narrow exclusion clause'.

Midland's Pleaded Case

15. Midland's pleaded case as to the exclusion clause, after amendment and re-amendment was as follows:

"3. The Defendants supplied electricity to the premises pursuant to its statutory obligation contained in the Electricity Act 1989 and in accordance with additional terms of supply imposed pursuant to Section 21 of the Act.

4. There were express terms of the additional terms of supply: .... (2) that the Defendant should not be liable for economic loss resulting from negligence in respect of the supply of electricity (pursuant to Section 21 of the Act)."

16. Midland was asked for further and better particulars of any matters other than those pleaded in support of the allegation that the Plaintiffs became bound by the terms alleged. To this Midland replied:

"The Defendant's case is that the supply of electricity was made pursuant to a statutory scheme and its own conditions of supply as permitted by Section 21 of the Electricity Act 1989.

Sections 16, 18, 31, 31 and Schedule 7 of the Electricity Act 1989, and:

a. a booklet entitled: "Electricity Prices - April 1993"."

17. Midland further provided these particulars as to the manner in which notice of the exclusion clause had been given to the Plaintiffs:

"Prior to supply being commenced to a particular address and/or to a change of customer, a prospective customer would have completed an Application for Supply of Electricity, which would have stated that electricity would be supplied subject to the Defendant's Conditions of Supply. Further, the Defendant's Conditions of Supply were referred to within their tariff notice booklets which were available at their various premises."

Confusion

18. Counsel for both Midland and the Claimants provided the Judge with written opening statements, each dated 10^th December 1999. The Claimants' opening statement said this in relation to the exclusion clause:

"(e) Limitation of the Defendants' liability by reason of the terms and conditions of their contract of supply

36. The Defendants allege that all three of the Claimants were their consumers for the purposes of the Electricity Act 1989, and bound by particular conditions of supply as permitted by section 21 of that Act. The particular condition relied upon by the Defendant is that set out in Clause 11 of their Conditions of Supply:

`11. The Company shall not be liable for economic loss resulting from negligence in respect of the supply'.

37. The Claimants will contend:

(a) that the machinery of the Act for importing this condition as a term of supply to any of the claimants was not complied with; and that

(b) in any event, the clause is not apt to exclude liability for economic loss resulting from negligence in respect of the installation and/or maintenance of plant (as opposed to negligence in respect of the supply of electricity or failure thereof). For the distinction between `supply' and the `provision of plant' see, e.g. section 20 of the Act."

19. Midland's opening said this:

"24. As authorised by section 21, the Defendant acted to exclude its liability for economic loss to its registered customers in the following ways:

(a) By inclusion as clause 11 of the Additional Terms of Supply which stated that `Midlands Electricity shall not be liable for economic loss resulting from negligence in respect of the supply' (Mike Jones, Vol B, Tab 23, page 249);

(b) The Additional Terms of Supply were referred to in the application form which would have been completed by a consumer of electricity before a supply of electricity was commenced and which were at all times available for inspection at the Defendant's premises or on application;

(c) In the Tariff Notice Booklets: the booklet current at the time of the fire was entitled Electricity Prices - April 1993 - the Definitions section stated `Midlands Electricity plc will not be liable for economic loss resulting from negligence' (Mike Jones, Vol B, Tab 23, p.240). These booklets were also available for inspection at the Defendant's premises."

20. We were told by Counsel that the issues which form the subject of this appeal occupied only a short portion of the argument below. The terms of the Judgment suggest that argument presented to the Court did not address the fact that there were two clauses in different terms, nor that the evidence as to notification differed in respect of each.

21. In opening the appeal on behalf of Stonegate and Primrose Mr Moxon-Browne, QC, addressed us on the basis that the relevant exclusion clause was clause 11. It was this clause which Midland had to prove had been notified to Stonegate and Primrose. It was this clause which fell to be construed. Mr Moxon-Browne contended that there was no evidence that this clause and the Terms and Conditions of which it formed part were communicated to his clients. Before us he conceded that it was probable that his clients would have received the tariff booklet. As to the wide exclusion clause at p.31 of that booklet, he remarked that this was not the clause relied upon - it was far too wide and ultra vires.

22. At this point Mr Fenwick, QC, for Midland intervened to state that the clause at p.31 certainly was relied upon and that it was not open to Stonegate and Primrose to contend that the clause was too wide and ultra vires as they had not taken this point below.

23. This led to a degree of exploration of the past history which we have set out above. It seemed to us that to attempt to resolve what was and was not open to the respective parties to argue at this stage was likely to occupy more time than was available and would risk unfairness in that neither side had come prepared to deal with this.

The Way Ahead

24. Before the Judge the argument in relation to the construction of the exclusion clause appears to have proceeded on the premise that the ambit of the clause was co-extensive with the exclusion that S.21 of the 1989 Act expressly permitted to be made in respect of economic loss resulting from negligence. The skeleton arguments provided to us indicated that the same approach was likely to be pursued on appeal. In these circumstances we decided, with the agreement of Counsel, that we should hear argument and rule on the true interpretation of Section 21 of the 1989 Act. A decision on that question might suffice to resolve the appeal.

The Appellants' Case on Construction

25. Mr Moxon-Browne submitted that the Electricity Act 1989 makes a repeated distinction between the supply of electricity and the provision and installation of the plant for the purpose of making such supply. He drew attention in particular to the following provisions in Part 1 of the Act:

"4(4) In this part, unless the context otherwise requires-

`supply', in relation to electricity, means supply through electric lines...

16 Duty to supply on request

(1) Subject to the following provisions of this Part and any regulations made under those provisions, a public electricity supplier shall, upon being required to do so by the owner or occupier of any premises-

(a) give a supply of electricity to those premises; and

(b) so far as may be necessary for that purpose, provide electric lines or electrical plant or both."

(5) In this section and sections 17 to 23 below-

(a) any reference to giving a supply of electricity includes a reference to continuing to give such a supply;

(b) any reference to requiring a supply of electricity includes a reference to requiring such a supply to continue to be given; and

(c) any reference to the provision of an electric line or an item of electrical plant is a reference to the provision of such a line or item either by the installation of a new one or by the modification of an existing one.

19 Power to recover expenditure

(1) Where any electric line or electrical plant is provided by a public electricity supplier in pursuance of section 16(1) above, the supplier may require any expenses reasonably incurred in providing it to be defrayed by the person requiring the supply of electricity to such extent as is reasonable in all the circumstances.

(2) The Secretary of State may, after consultation with the Director, make provision by regulations for entitling a public electricity supplier to require a person requiring a supply of electricity in pursuance of section 16(1) above to pay to the supplier, in respect of any expenses reasonably incurred in providing any electric line or electrical plant used for the purpose of giving that supply, such amount as may be reasonable in all the circumstances.

20 Power to require security

(1) Subject to the following provisions of this section, a public electricity supplier may require any person who requires a supply of electricity in pursuance of subsection (1) of section 16 above to give him reasonable security for the payment to him of all money which may become due to him-

(a) in respect of the supply; or

(b) where any electric line or electric plant falls to be provided in pursuance of that subjection, in respect of the provision of the line or plant;

26. So far as Section 21 was concerned, Mr Moxon-Browne submitted that this permitted a supplier to exclude liability for economic loss caused by negligence in relation to the provision of the power itself to a customer, but not in relation to the installation of equipment in order to enable the provision of power to take place. Thus the type of situation envisaged by clause 21 was economic loss resulting from negligence which affected the supply of power.

Midland's Case on Construction

27. Mr Fenwick submitted that, when Section 21 was considered as a whole, it became clear that `the supply' had to be given a meaning which embraced the installation of plant in order to provide the supply of electricity. The Section provides:

"21 Additional terms of supply

A public electricity supplier may require any person who requires a supply of electricity in pursuance of section 16(1) above to accept in respect of the supply-

(a) any restrictions which must be imposed for the purpose of enabling the supplier to comply with regulations under section 29 below; and

(b) any terms restricting any liability of the supplier for economic loss resulting from negligence which it is reasonable in all the circumstances for that person to be required to accept."

28. Mr Fenwick pointed out that the words `in respect of the supply' governed both subsections (a) and (b). He submitted that when subsection (a) was considered, it was quite clear that `in respect of the supply' necessarily encompassed the installation and maintenance of electrical equipment. This, he said, necessarily followed from the following provision of Section 29:

"29 Regulations relating to supply and safety

(1) The Secretary of State may make such regulations as he thinks fit for the purpose of-

(a) Securing that supplies of electricity are regular and efficient;

(b) Protecting the public from dangers arising from the generation, transmission or supply of electricity, from the use of electricity supplied or from the installation, maintenance or use of any electric line or electrical plant; and

(c) Without prejudice to the generality of paragraph (b) above, eliminating or reducing the risks of personal injury, or damage to property or interference with its use, arising as mentioned in that paragraph.

(2) Without prejudice to the generality of subsection (1) above, regulations under this section may-

(e) Make provision requiring compliance with notices given by the Secretary of State specifying action to be taken in relation to any electric line or electrical plant, or any electrical appliance under the control of a consumer, for the purpose of -

(f) preventing or ending a breach of regulations under this section; or

(ii) eliminating or reducing a risk of personal injury or damage to property or interface with its use;"

29. When one asks what restrictions `in respect of the supply' does Section 21(a) contemplate that a supplier of electricity might wish to impose, Mr Fenwick submitted that the most obvious restrictions would be those in relation to plant installed by a supplier on the premises of a consumer. Mr Moxon-Browne countered by contending that the restrictions contemplated by S.21(a) referred to no more than reduction or interruption to the current being supplied to the customer.

30. We found these rival contentions based on textual analysis of the Statute to be nicely balanced and inconclusive. Nor could we readily identify from the Statute a purpose for the inclusion of Section 21 that would illuminate its true interpretation.

31. In this regard, Mr Fenwick advanced a broader argument to counter the construction contended for by Mr Moxon-Browne. He submitted that if Section 21 was given Mr Moxon-Browne's construction it would be of little use to the supplier of electricity. This was because interruption of supply was likely to result in economic loss that was free standing rather than consequent upon physical damage. Liability for free standing, or `pure' economic loss could not arise in any event under the law of negligence.

32. When considering this argument after the hearing was concluded, it impelled us in the opposite direction to that suggested by Mr Fenwick. We accepted that interruption of supply was liable to result in pure economic loss, but it seems to us that for this reason this might be precisely the type of loss that would concern a supplier of electricity. When the Electricity Bill was being promoted the law of negligence was on the move and we were not persuaded that a supplier would have been unconcerned about possible liability for pure economic loss.

33. The possibility that `economic loss' in Section 21 might mean `pure economic loss' had not been canvassed in argument. We invited Counsel to address this possibility, either in written argument or in a further hearing. They provided written submissions which they elaborated in a short further hearing. These submissions we have found of great assistance.

34. In accordance with Pepper v Hart [1993] AC 593 Counsel referred us to passages of parliamentary debate in relation to the clause in the Bill which was to become Section 21. These immediately made clear what had previously been obscure. The concern that led to Section 21(b) of the Act related to the liability that might flow from the interruption of the supply of electricity to computers. Thus Mr Spicer, who was moving the adoption of the addition of the clause in the House of Commons explained:

"...in some instances a couple of seconds of lost power could have highly significant effects, especially in these days when so such dependence is placed on computers.

...There might be little or no actual physical loss, but the economic consequences could be major, far outstripping the actual value of any supply lost. In cases in which the degree of sensitivity to the loss of supply is so much greater than normal, under the Bill as it stands the supplier would have to take on the role of insurer for the consumer involved. The costs of insurance in such cases are likely to be high and could be met only through increased charges to consumers as a whole. We do not believe that it is justified to require the mass of consumers to face increased charges because of the particular sensitivity to loss of supply to a very small number of consumers."

35. Later in the debate he added:

"We say that there should be a test or reasonableness. We are making a distinction - that is what the new clause is about - between physical loss which is incurred through a breakdown in supply and which is fully insurable, and unreasonable economic loss - vast losses because of a temporary, perhaps few seconds' disruption of supply. For large computer companies or large companies owning computers - the type of consumer the new clause addresses - it would be surprising if they were not properly insured against such eventualities."

36. At the outset, Mr Spicer had also made it plain that the provision which became Section 21(a) was also aimed at permitting restrictions to be imposed on the supply of current:

"The first of the contexts in which additional terms of supply will be permitted is in respect of safety. At present, the Bill does not allow the supplier to impose the restrictions necessary to allow him to comply with safety regulations. That could give rise to a potential anomaly. The supplier could be obliged to provide a supply under clause 15 although in doing so he would contravene the requirements of regulations made under clause 27 on safety. The new clause would therefore give the supplier the right to impose restrictions on the supply where necessary to enable him to comply with those safety regulations."

[Hansard: 5 April 1989 pp.204, 216]

37. In the House of Lords, the Government spokesman, Lord Sanderson, explained:

"Clause 21(2)(b) was introduced in recognition of the fact that in a few instances the loss of a supply of electricity for a very short period of time could result in substantial economic loss without there being any accompanying physical loss. The economic loss in such cases would well exceed the actual value of the supply lost."

38. These passages do not support the proposition that `economic loss' in Section 21 is restricted to pure economic loss, for as Mr Fenwick demonstrated by reference to subsequent case law, loss of information from a computer as a result of the interruption of supply of electricity may be consequent upon a degree of physical damage. What they demonstrate quite clearly, however, is that Section 21 was introduced to permit exclusion of liability in negligence for economic loss resulting from the interruption or variation of the supply of electricity.

39. We have concluded that this is a rare case where material admitted under Pepper v Hart has resolved an ambiguity in the Statute being construed. Section 21 permits terms restricting liability for economic loss to be imposed only in relation to loss resulting from the effect upon the supply of current that results from the negligence in question. We anticipate that this conclusion is likely to lead to the resolution of this litigation.