England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(HIS HONOUR JUDGE BRADBURY)

		Royal Courts of Justice Strand London WC2A 2LL
		Wednesday 20 March 2002

1. LORD JUSTICE POTTER: In this case the defendants apply for permission to appeal from the judgment of His Honour Judge Bradbury in a case lasting 15 days, at the end of which he gave judgment for the claimants for a balance (after taking into account a counterclaim) of some £343,000, and £150,000 on account of the claimants' costs. The total of £493,000 was to be paid by 13 March 2002.
2. The case concerned the fitness for its purpose of the defendant's T4 ink as used by the claimants in the manufacture of printed circuit boards in the course of which the ink was applied by a process known as curtain coating. After a period of successful applications for upwards of year, a problem of blistering developed which affected boards containing a particular characteristic. The judge faced many problems in a difficult case because of the somewhat nebulous nature of the problem of blistering. Its intermittent nature and uneven occurrence, and the poor record keeping and destruction of samples by the claimants, made life very difficult for the rival experts. The principal difficulty was that the problem had not been widely encountered although T4 was a product which was used worldwide and in many applications.
3. Other cases of customers of T4 who had had problems in the course of manufacture were identified and considered but, for various reasons, no common link could be established. As was common ground, there was a wide variety of potential reasons available, such as if there had been a lack of care by the producer in his methods of cleaning or other treatment of the boards prior to coating, or the thickness of the application of the T4 ink. The claimants' expert could not identify the cause, and the judge held that the expert evidence did not have a sufficiently strong foundation to be decisive one way or the other. He decided the matter on the basis of piecing together a number of factors in order to come to his conclusion.
4. The essential part of his judgment read as follows:

"I remember the statistical position and am conscious that T4 was successful for Leicester in coating the vast majority of designs and that Coates were manufacturers in selling this ink on a worldwide basis. I remember of course the burden of proof and the standard of proof which Leicester have to adhere to. They have to prove their claim on a balance of probabilities. Nonetheless, it does appear that the inadequacy of T4 ink for ground plane designs with narrow gaps at the edges of those planes became cruelly apparent in 1999. Leicester have established on a balance of probabilities that there were times in 1999 when the T4 ink manufactured by Coates was not reasonably fit for its purpose. Seemingly, T4 in those times was not able to withstand normal variations in processing conditions to be consistently successful and it could only function within a too narrow and unrealistic operating window. That was in 1999. I emphasise that I do not seek to make any finding about the suitability of that brand of ink today. This head of claim on unfitness for purpose has thus been established by Leicester."

5. Right up to that conclusion, the judgment had set out with care, length and clarity the general strands of the evidence bearing on the problem. It is for that reason, no doubt, that in mounting an attack upon the judgment, Mr Slater QC, for the defendants, has done so piece by piece in what is misleadingly entitled a skeleton argument, running (as it does) to some 64 pages which have rendered oral argument superfluous on his part on the hearing of this application.
6. The first ground of appeal is that the finding of unfitness for the purpose had no basis, was against the evidence and the proper test in law was not applied. Mr Slater's thesis is that when all the strands which the judge put together are considered, together with a number of aspects of the evidence which do not emerge from the judgment, it can be seen that the claimants simply failed on the burden of proof and that the judge's resort to what in the end was an unparticularised finding of unfitness, is unsustainable. That will be a substantial mountain for the defendants to climb at the hearing of the appeal but I am satisfied that they should have the opportunity of climbing it.
7. There are subsidiary grounds of appeal concerning the question of damage. It was contended at trial that Coates' terms and conditions were impliedly incorporated in the contract governing the supply of the T4 by reason of the course of dealing between the parties and that they were such as to exclude most of the damages claimed and awarded. On this aspect the grounds of appeal state (i) that the finding that Coates' terms and conditions were not incorporated was both against the written and oral evidence and the wrong test in law was applied; (ii) that the judge's construction of Coates' terms as not applying to the losses claimed by Leicester was contrary to the obvious meaning of the relevant clause and was wrong in law. I consider leave should also be granted in respect of those grounds.
8. The defendants applied to the trial judge for permission to appeal and a stay of execution which he refused. On 14 March 2002 Longmore LJ granted a stay of execution until the hearing of a "with notice" application before two Lords Justices for a stay of execution. He directed that the application for permission to appeal would be dealt with in the ordinary course, ie initially on paper by a single Lord Justice. However, the matter has been expedited so that both permission to appeal and the question of a stay of execution are before us today.
9. The defendants' application for a stay of execution is based on the witness statement of their expert accountant, Mr Woolf, exhibiting Leicester's latest filed accounts. Mr Woolf refers to the claimants' bank overdraft of over £150,000; their liability under guarantee, over £279,000; their obligations under hire purchase agreements and finance leases, over £218,000 falling due within one year and over £348,000 falling due within two to five years; and their creditors within one year exceeding £1.8m and exceeding debtors in the same period by £600,000. Mr Woolf states that, but for a one-off "reversal of impairment loss" item in the accounts, Leicester would have been trading at a loss of about £29,000 for the year. He concluded in his witness statement that:

"In circumstances where any funds received by the Claimant will either be utilised to extinguish the bank overdrafts or to meet the company's significant liabilities to hire purchase creditors the risk that the Claimant will be unable to repay such funds [ie damages and costs order on account] back to Coates is very considerable."

10. Following the filing of that witness statement, the claimants filed witness statements of Mr Williams, their managing director, and their own expert accountant, Mr Prior. Mr Prior has provided the court with an account of the claimants' present financial position and his comments on the cashflow forecast produced by the claimants' finance director, Mr Hefford. His conclusion is that, should the claimant be ordered by the court to pay the judgment debt and costs, it will be able to do so. In that respect he relies on a certain upturn in trading, the available support of the bank, and a more optimistic assessment than that of Mr Woolf of the prospects for the company.
11. On the hearing of this application, Mr Slater QC handed to us a fax from Mr Woolf commenting on that statement, he having had only a short opportunity to comment upon it. He concludes, having made a number of points in relation to specific matters in the accounts, that:

"Given the considerable scope for adverse adjustment when the historic management figures are subject to audit scrutiny, as well as the unduly optimistic revenue budgeting, the evidence I have seen supports the concerns I expressed in my witness statement of 11 March."

12. Based on the comments of Mr Woolf, Mr Slater has submitted that this is a case where the stay of execution should be continued either wholly or in part until after the hearing of the appeal. Based on two unreported authorities in this court, namely Winchester Cigarette Machinery v Payne (No 2) CA 10 December 1993, and Combi (Singapore) v Srinam CA 23 July 1997, Mr Slater has submitted, uncontroversially, that the principles to be applied in relation to the application are that, while the general rule is that a stay of judgment will not be granted, the court has an unfettered discretion and no authority can lay down rules for its exercise. It is relevant that the appellant may be unable to recover from the respondent the sum awarded in the event of judgment being set aside on appeal.
13. The proper approach is to make the order which best accords with the interests of justice. Where there is a risk of harm to one party or another, whichever order is made, the court has to balance the alternatives to decide which is less likely to cause injustice. The normal rule is for no stay, but where the justice of that approach is in doubt, the answer may well depend on the perceived strength of the appeal.
14. In my view it would not be in accordance with the interests of justice for a stay to be granted in this case. The claimants are prima facie entitled to their judgment. As I have already stated, I think the defendants have a hard task ahead. While the defendants are a large and rich international business, the claimants are a much smaller company. While I consider on the basis of the evidence produced by the claimants that they are likely to have sufficient substance to survive failing at the hearing of the appeal, I think they should be allowed to make good, and it is hoped profitable, use of the judgment sum meanwhile.
15. I would grant the defendants permission to appeal, but I would refuse their application for a further stay of the execution.
16. In the course of making certain short submissions to us, Mr Sutcliffe QC, who appeared before us on behalf of the claimants, made clear that if permission to appeal were granted, as it has been, he would wish to cross-appeal on two grounds, one of which relates to the part played by a company called Tyco, which appears to have experienced similar problems to those in this case. Mr Slater indicated that he would not object to a cross-appeal on those grounds if permission were granted. Accordingly, I would grant permission in respect of that ground.
17. Similarly following the judgment below, there was argument about the effect of the making, and a subsequent withdrawal, by the claimants of a Part 36 offer. Submissions were made in relation to the effect upon costs which that would have. The judge ruled that he considered the difficulty that the earlier offer had been withdrawn was an insuperable difficulty in the path of the claimants from relying upon it. We are prepared to treat today's hearing as a without notice application for permission to cross-appeal in respect of that matter. We would grant leave, subject in the case of both that matter and the matter already consented to by Mr Slater, to the claimants' submission to the court following this hearing of properly drafted grounds of appeal which can be incorporated into the order for permission which we grant leave in respect of the cross-appeal.
18. LADY JUSTICE ARDEN: I agree with the orders my Lord proposes for the reasons that he gives. I would just add one or two observations about the application for a stay of execution. In considering that matter, I have formed no view as to the likelihood of the appeal succeeding. The prospect of success on an appeal is not without any substance and thus meets the threshold test required for permission to appeal.
19. In those circumstances I turn to the question of a stay of execution. In my judgment it is not enough that the risk that the monies ordered to be paid might not be returned could not be described as immaterial. It is however not useful to attempt to quantify the risk in terms of percentages. Moreover, the respondent could of course enter a period of adverse trading hereafter due to factors which simply turn out differently from the way they seem now. Nothing can be guaranteed. But there is no evidence that the respondent is being managed otherwise than properly or competently and, in my judgment, there is sufficient assurance in the evidence that the respondent would be in a position to discharge his obligations to the appellants if the appeal were successful. Accordingly, I conclude that it would be wrong to grant a stay of execution.
Order: Permission to appeal allowed and to cross-appeal. Stay of Execution refused. Counsel to draw Minute of Order. Costs of application for permission to appeal to be costs in the appeal. Defendant to pay claimant's costs of application for the stay summarily assessed in the sum of £6,800.