England and Wales Court of Appeal (Civil Division) Decisions

COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE CHANCERY DIVISION
HIS HONOUR JUDGE LANGAN QC
7LS41649

		Royal Courts of Justice Strand, London, WC2A 2LL
		26/01/2010

Lord Justice Rix :

1. On 19 May 2004 the appellant, Automobile World (UK) Limited ("Automobile World"), took a rare and expensive car on hire purchase from the respondent, Lombard North Central plc ("Lombard"). The car was a Mercedes Benz S600 Pullman (the "car"). This was the kind of car which a country's head of state might order, to an almost bespoke specification. In fact such cars were only manufactured by Mercedes Benz for a few years between 2000 and 2003 (although earlier versions of the Pullman had been manufactured for a number of decades, and there was evidence of what was advertised to have been Chairman Mao's 1973 Pullman being available on the market in about 2008 for £125,000 or near offer).
2. The basic cash price of the car under the contract between the parties was £194,000. Automobile World paid a deposit of £24,000 and agreed to pay 60 instalments of £3,061.28 and a final instalment of £60,000. In fact Automobile World managed to pay only a few of the initial instalments and then fell into default. On 14 January 2005 Lombard issued to Automobile World a notice of termination and threatened repossession. The car was repossessed on 2 March 2005. Lombard sold it in a private sale, following an abortive "fax auction", for £59,900 by at latest 15 April 2005, on which date a balancing item representing the net proceeds of sale of £50,829.72 was credited to Automobile World's running account.
3. On 12 December 2006 these proceedings were commenced by Lombard against Automobile World in the Leeds county court to recover the balance due under the contract. The claim was in the sum of £204,713.31. Mr Aubrey Mulwall, who is a director of Automobile World and whose family is said to own the company, represented it down to and at trial in effect as a litigant in person. Judgment was ultimately given against Automobile World by HHJ Langan QC in the sum of £223,891.47. By that time the case had been transferred to the Leeds mercantile court. Automobile World has had the good fortune, however, to have been represented by counsel pro bono both at a hearing to seek permission to appeal to this court (Mr Matthew Slater) and on the hearing of this appeal (Ms Geraldine Clark).
4. On this appeal two issues have been argued. The less complex of the two arises from the argument, unsuccessfully advanced by Automobile World at trial, that Lombard had failed in its duty to mitigate its loss by reason of the inadequate manner in which it had set out to sell the car. Permission to appeal on this ground was granted by this court on 18 March 2009. At that time a second potential ground was considered, but adjourned for the full court to consider again at this appeal. That second ground went under the (possibly unhelpful, but historical) label of the "set-off point": it arose out of an argument that Lombard had misrepresented or misdescribed the car as having been manufactured in May 2004, when it had in fact been manufactured in February 2000. The judge did not permit that point (or series of points) to be argued at trial, essentially on the ground that it had never been pleaded. We have heard full argument on it at the appeal hearing. It would be better to re-label the point as the "misdescription" point. We grant permission to appeal on it as well. It is accepted by Ms Clark that, were Automobile World to succeed in its appeal, whether on one or other or both grounds, the best that it could achieve at this stage by way of remedy would be an order for a retrial.

The making of the contract

5. It is necessary at this stage to say something further about the making of the contract. Automobile World is, or rather was (for it is now dormant and insolvent), in the business of providing cars to customers at the luxury end of the market. It was planning to use the car in that business. It is based in Bishopthorpe, Yorkshire. It sourced the car from a firm which also specialises in luxury cars, namely William Loughran Ltd ("Loughran"), which is based at Walmer Bridge, near Preston in Lancashire. Loughran advertises itself as dealing "only in the very best examples" of top marques, offering the "rarest and most iconic of prestige motorcars".
6. The circumstances in which Loughran came to sell the car to Lombard for the purpose of Automobile World taking it on hire purchase from Lombard remain somewhat obscure. On the matters which were pleaded as in issue between the parties to these proceedings those circumstances may not have needed much investigation. If, however, a case of misdescription had to be considered, it is less obvious that the background to the supply of the car could be left out of account. Thus, so far as misrepresentation might be in issue, to what extent did Automobile World rely on Lombard and to what extent did it rely on Loughran? Was Loughran, in its pre-contract dealings with Automobile World, acting as an agent on behalf of Lombard, or for its own account?
7. It appears, at any rate, from what the court has been told by Ms Clark, but I do not know whether there was anything to this effect in evidence at trial, that Automobile World had not inspected the car before obtaining it from Lombard. Documents disclosed merely reveal the following. A fax from Loughran to Automobile World bearing the transmission date of 27 April 2004 sets out the car's lengthy specification. Prices are quoted in Euros, apparently from the Mercedes list prices. Thus the basic price of the car is given as €207,247.02, and various extras are also quoted, to provide a net total of €243,147.35. That is converted to £ sterling at £1 = €1.31, to provide a sum of £185,608.66. VAT of £32,608.66 was then added, to give a grand total of £218,090.18. The difference between that figure and the contract price of £194,000 was possibly due to some fluctuation in the exchange rate, but more likely because the car was being sold at a price discounted from list price.
8. By a fax letter dated 30 April 2004 Loughran wrote to Minaur Corporate Finance, who we are told were brokers through whom the finance deal with Lombard was arranged, presumably for passing on to Lombard, as follows:

"I am asked to give an opinion as to the Residual Values for the Mercedes…

The car was built by Mercedes, is not a 'Third Party' stretched version of an S600L saloon and, as an original factory built Pullman Limousine, will have a worldwide appeal, especially in the Far East.

I am told that the car is expected to have an annual mileage of 15,000, that a full Manufacture's Service History will be maintained and that the car will be kept in excellent condition.

On the above basis, and assuming no accident or other 'event' detrimental to the value to the vehicle, it is my opinion that the car would have the following residual values:

After 3 years £140,000…

After 5 years £110,000…

This opinion is based on the market appertaining at the date hereof…"

9. Ms Clark submits that this is good evidence that even after periods of 3 and 5 years, the second hand values of the car would be likely to hold up well.
10. The sale by Loughran to Lombard was evidenced by a document which states the date of transaction to have been 12 May 2004. This document is headed "New Car Sales Invoice". It describes the car as a Mercedes S600 Pullman Limo, gives its chassis number, and its colour ("obsidian black") and states that "month and date first registered in United Kingdom May 2004". The price is £194,000 and the invoice speaks of a deposit of £24,000 as having been already paid, leaving the sum of £170,000 to pay.
11. Ms Clark told us that it was established at trial that 12 May was also the date on which the hire purchase contract between Lombard and Automobile World (subsequently dated 19 May) was actually executed. That is consistent with a deposit of £24,000 being paid.
12. Dated 14 May 2005 there is an internal Lombard document headed "Asset Inspection Report Form". That records that the car has been "seen" at an address near Preston and to the best of the signatory's knowledge is working satisfactorily. The form also states that the inspector has made no comment to the customer, Automobile World, as to the car's suitability for its business.
13. The hire purchase contract between Lombard and Automobile World (the "contract") describes the car as a "Mercedes-Benz S600 Pullman Limousine", and states "May 2004" in manuscript beneath the printed heading "Date of Reg/Manufacture". There is an issue as to whether that means that the date of manufacture as well as of registration was May 2004. No registration number was in fact filled in under the printed heading "Registration Number", and it appears from the registration form which was in evidence that the car was not in fact first registered until 1 June 2004.

The proceedings: how the misdescription point emerged

14. In its original defence, which was never amended, Automobile World took two major points. The first was that the termination notice was bad, in particular because at the time it was given Automobile World was not in arrears under its contract. The second was that Lombard had caused its own loss by selling the car for far less than it was worth. It was said that in consequence Automobile World was entitled to "set off" the difference between the cash price of the car and its net resale proceeds.
15. The proceedings down to trial did not run smoothly. In April 2007 Lombard applied for summary judgment on the ground that Automobile World had no reasonable prospect of successfully defending the claim. It was only in Lombard's skeleton argument dated 24 July 2007 in support of its application that the following was said, in order to meet the point about resale at an under-value:

"27. Mr Mark Treadwell who dealt with the sale of the vehicle following repossession has confirmed the following facts:…

(h) The car sat on the forecourt of William Loughrans for some time and it was offered to them but they showed no interest. When asked if they felt the vehicle was worth £110,000, they made it clear that it was not now and possibly never was given that it was a 2001 model."

16. There was, as far as I understand the matter, at that time no witness statement from Mr Treadwell, but the skeleton went on to say: "If it assists the court, a copy of a note from Mr Mark Treadwell can be produced to the court for consideration at the hearing." Whether it was or was not, I have not seen such a note. When ultimately cross-examined at trial, Mr Treadwell had to withdraw from many aspects of what was at best hearsay. The significant matter for present purposes, however, is that Mr Mulhall's reaction on behalf of Automobile World was that this was the first that he had heard, as he subsequently alleged, of the car being a "2001 model". As still later emerged, the car had in fact been manufactured in February 2000.
17. Within a few days of this skeleton argument being served on Automobile World, Mr Mulhall wrote a letter to Lombard's solicitors, dated 3 August 2007, as follows:

"Notwithstanding any other issue within our Defence, Witness Statement or Skeleton Argument, you now state in these proceedings that the vehicle subject to the above agreement between your client and ourselves was never worth even £110,000 yet your contract with us was at some £194,000.

In the circumstances we hereby formally rescind and terminate the agreement with your client and in doing so we avoid the contract.

We also call upon your client for the return of all the monies paid immediately and shall be seeking damages."

18. It may be observed that at this stage the complaint was as to the value of the car at the time of contract, and not as to its misdescription as a 2004, rather than a, 2001 model, or as to the year of its manufacture. This difference would become clearer as the proceedings continued.
19. On the same day as that letter of rescission or repudiation, 3 August 2007, Mr Mulhall drafted his own skeleton argument for the pending summary judgment application. In it, Mr Mulhall quoted paragraph 27(h) of Lombard's skeleton and continued with a defence of misrepresentation as follows:

"On the basis of what the Claimant now states and relies upon, the Defendant rescinds the contract with the Claimant on the basis amongst others of clear misrepresentation as to the value of the goods which according to the Claimant's own admission now were never worth even £110,000."

20. Mr Mulhall claimed the return of all monies paid under the contract and damages for any loss. The misrepresentation alleged at this stage was as to the value of the car at the time of contract. It appears that Mr Mulhall was alleging that Lombard was in some way responsible for representing that the car was worth the £194,000 which was the cash price under the contract.
21. Also on 3 August 2007 Deputy District Judge Caswell gave summary judgment against Automobile World save on the issue of mitigation of loss. The surviving dispute was allocated to the multi track and standard disclosure was ordered. DDJ Caswell rejected the idea that there had been any misrepresentation as to value, observing in passing that "That has not yet been pleaded in the defence, but [Mr Mulhall] seeks leave, if I allow the defence to continue, to add that to his defence."
22. On 22 August 2004 Mr Mulhall appealed against DDJ Caswell's order and in the same document applied "to amend Defence if so required". In that document he pursued the idea that there had been a misrepresentation as to value. He pointed to the letter dated 30 April 2004 about residual values which Loughran had sent to the broker and argued that Lombard was in some way responsible to Automobile World for the price of the car, as reflecting its value.
23. A hearing for the appeal was fixed for 22 October 2004. There is a skeleton argument from Lombard dated 10 October 2004. In its last paragraph it deals with the suggestion of a misrepresentation as to value, pointing out that Lombard was simply a finance company and as such could not and did not make any representation (express or implied) as to value.
24. A skeleton argument from Mr Mulhall on behalf of Automobile World followed on 18 October 2007. There for the first time Mr Mulhall took the point that the contract represented the car as being manufactured in 2004, whereas on Lombard's own case before the court the car was "not a 2004 model it was a 2001 model". The value of the car was thus linked to its age: "So one impacts upon the other". The skeleton, albeit in a diffuse way, went on to rely on sections 10 to 12 of the Supply of Goods (Implied Terms) Act 1973 and, in anticipation of the contract's exclusion clauses, upon various provisions of the Unfair Contract Terms Act 1977. Thus it pointed out that although Automobile World was not a consumer it was nevertheless dealing on Lombard's standard terms (and in this connection referred to section 3 of the 1977 Act).
25. On 22 October 2007 Automobile World's appeal from the judgment and order of DDJ Caswell was heard by HHJ Behrens. The effect of the order then made was to give Automobile World unconditional leave to defend. Transcripts of the judgment and the proceedings after judgment were obtained by Automobile World at the last moment for the present appeal. It was in part the previous absence of such transcripts which had led this court at the permission to appeal stage to adjourn the misdescription issue to the full court on the basis that not enough was then known as to the background of Judge Langan's refusal to allow the misdescription issue into the ultimate trial. The effect of Judge Behrens' treatment of what has come to be labelled as the misdescription point is not without its complexity.

The proceedings before Judge Behrens

26. In his judgment, Judge Behrens worked through the pleaded issues and concluded that there was a triable issue on liability. DDJ Caswell had therefore been in error in allowing Automobile World to defend only on the quantum issue of mitigation and the appeal fell to be allowed. In the final paragraph of his judgment, Judge Behrens then turned to "other points" and said this:

"12. I should equally mention that other points were taken on the question of liability, for example representations about the value of the car. I express no view about that but I do note the point which is taken by Lombard which is that any representation was not made by their agent, and it may be that is an unanswerable point. But for the reasons that I have given, it seems to me there is a triable issue as to whether there were any arrears when they purported to terminate, and in those circumstances it was not appropriate to give summary judgment."

27. After judgment there was a discussion about what orders the judge should then make. The following passages appear in the transcript:

"Mr Wilson [the solicitor appearing for Lombard]: Your Honour, I am conscious that – I obviously accept that you want to go to trial on liability, but I am conscious that there are umpteen points that have been brought by Mr Mulhall. Are we saying that they all go to trial? Because District Judge Caswell dealt with each one separately, rather than…

Judge: If you want me to…

W: Your current Judgment allows…

J: Yes, everything…

W: …everything, basically

J: Yes.

W: …I am just conscious that it may sort of confuse and complicate the issue if there are parts of the defence that are pursued that frankly have no merit or real prospect of success…

Mr Mulhall: I would ask that we be allowed to extend the defence as to the points that we have raised, because I do think that some of them may perhaps impact on others in some way.

J: I mean, I have not given a ruling, or – but you say there was a misrepresentation about value. I did not quite follow that…I do not suppose that Lombard said anything about that.

M: Well, no, but they did also say that it was a May 2004, whereas now they are saying that it was not worth what it –

J: Lombard did not say it was a May 2004, did they?

M: Well, it is on the document as a May 2004. They contend that that is the registration date, but it does not clearly say that it is the registration date. And my view would be that they have adopted the statements, and from what…

J: Mr Wilson, I am going to [inaudible, but sc allow] these points. They are not going to take long to sort out. They are not going to add significantly…But I am not going to stop – the pleadings are complete, are they?

W: Yes, there is Particulars of Claim, Defence and Reply.

J: Good…[The discussion then moves on to other aspects of an order for directions.]…

W: I do not know if Mr Mulhall wants permission to amend his defence. It is not something he has addressed the court on, but if he wishes to pursue particularly his points on misrepresentation, they are not actually pleaded. I only raise the point out of fairness to Mr Mulhall.

J: That is very kind of you.

M: Thank you.

J: Are you planning to go to a lawyer.

M: Yes, I think I probably will.

J: I do not want to encourage this misrepresentation. I do not think it has got much chance of success. I am not going to give unlimited permission to amend. If your lawyer wants – there is plenty of time between now and next March for the lawyer to raise the points, and if he says he wants permission to amend, well, Mr Wilson will have to think about that. And if he consents it will go through, if he does not consent, there will be an application."

28. In retrospect it was unfortunate that the matter went off in this way. Mr Mulhall had asked for permission to amend, before the judge as in his application to appeal and skeleton argument, and the judge had at first seemed willing, at any rate in outline, to grant him permission to do so. In the final analysis, however, the matter was left on the basis that the pleadings stood for what they said and that if Mr Mulhall wanted to extend them, then Automobile World would need permission to amend, which Lombard could consent to, but if it did not, then an application would have to be taken to court. The judge was comforted by the thought that Automobile World would get legal representation (but that did not prove possible in the event). And so, although in principle the judge had indicated that the issue whether there should be leave to amend should be decided in Automobile World's favour, nevertheless in the end that was postponed for some future event. In fairness to the judge, he did not have a draft amended pleading in front of him, and Mr Mulhall's skeleton argument had been very diffuse. Moreover, it is clear from the discussion which I have cited above that the difference between Mr Mulhall's case as to misrepresentation as to value (which the judge had clearly taken on board, but rightly did not think much of) and his still newer case as to misdescription of the car had not been much if at all explored: thus para 12 of Judge Behrens' judgment had only mentioned the former.
29. Be that as it may, that is how the matter was finally left, and, although it is never easy to say how much of such discussions a litigant in person takes away with him – of course, he did not have the benefit of a transcript as we have had – Mr Mulhall has shown himself in these proceedings in general to be well able to understand the workings of the law and of its procedures. He must have known, as indicated by his own applications, that he needed permission to amend, and that he had not so far been given it.
30. Although the question of permission to amend was not addressed in Judge Behrens' order, the following did appear, viz

"14…A case summary (which should not exceed 500 words) outlining the matters still in issue and referring where appropriate to the relevant documents shall be included in the bundle for the assistance of the Judge in reading the papers before the trial."

Thus Mr Mulhall must have known that the case summary would be an important if not definitive document.

31. Judge Behrens' order also contained a direction relating to expert evidence, which the judge and the parties contemplated might be important on the issue of mitigation of loss. The order stated –

"9. Permission is granted to the parties to obtain expert evidence regarding valuation of the asset…at the point of sale by the Claimant following repossession.

10. If so advised, the Defendant may obtain expert evidence and the report of any expert instructed must be filed and served by 4pm on 7 January 2008."

32. The trial was listed for 12 March 2008, with a two day estimate.

The period of preparations for trial

33. In the event Mr Mulhall neither obtained legal representation nor drafted an amended defence himself. The Case Summary was prepared by Lombard's solicitors and dated 6 March 2008. It was an agreed document, but contained a reservation in its final paragraph, cited below. It was drawn up on the basis of the pleadings as they then stood. The Summary stated that the "issues can be summarised as follows". There then followed a summary divided up into several sections under appropriate headings. The headings will give a flavour of the pleaded issues, and the way in which Mr Mulhall was willing to multiply them:

"1. Disputed terms of the Agreement…

2. Non-registration of the goods…

3. Failure to obtain insurance cover…

4. VAT tax point invoice…

5. Sale at an undervalue…

6. Amount of arrears…

7. Failure to provide a statement…

8. Loss caused by Lombard's reckless actions…

9. Interest…

10. Late payment fee…

11. Set offs."

34. The Case Summary continued:

"These are the issue[s] to be addressed by the court at trial and it is to be noted that the main argument of substance at the hearing regarding the appeal against summary judgment before His Honour Behrens was whether or not the Defendant was in arrears at the date of termination…"

35. Finally the Case Summary ended with this paragraph:

"This case summary is agreed with the Defendant on the basis it does not prejudice any further argument he may seek to raise although in that regard the Claimant similarly reserves its right to argue against any unpleaded grounds for defending the claim being raised at this late stage."

36. It is clear from the Case Summary as a whole and from this final paragraph in particular that both parties were aware how the pleadings stood, and that if any unpleaded issues were to be brought into the trial there would be an argument about it.
37. Lombard's trial skeleton is dated 11 March 2008. It makes no mention of any misrepresentation or misdescription issue, but follows the menu of issues set out in the Case Summary. However, Mr Carr's witness statement for trial dated 8 January 2008 does have a passing reference to the allegation of misrepresentation as to value, but that may be said to be because it is linked to the question of the car's value when when repossessed and resold. Mr Carr said:

"A point raised by the Defendant as part of the appeal of the summary judgment decision in this matter is that the Claimant now believes that the vehicle that was the subject of the finance agreement was never in fact worth the amount originally paid for it (by the Claimant) under the original finance agreement. That is a correct statement of the Claimant's view but the Defendant then seeks to allege that this means that the Claimant is somehow liable for this overvaluation. That of course cannot be correct as the Claimant cannot and did not make any representation as to value and would have entirely relied upon the information supplied to it by the Defendant and the selling agent. The supplier does not act as the Claimant's agent in such circumstances. Therefore, this point raised by the Defendant has no merit and cannot succeed."

Otherwise Lombard's evidence made no reference to unpleaded issues.

38. Mr Mulhall's trial skeleton is undated but was I think presented on the first day of trial, 12 March 2008. It is a lengthy document running to 174 paragraphs. At para 141 Mr Mulhall reaches his heading "Sale at Undervalue", ie the mitigation of loss point. It is in this context that he introduces certain underlying facts such as Lombard's contention that the car was worth less because it was a 2001 model "and not a 2004 as it understood it to be. Lombard stated it was a 2004 on the agreement". It was also in this context that Mr Mulhall referred to Automobile World's letter dated 3 August 2004 purporting to rescind the contract for misrepresentation (as to value). The skeleton then continues as follows:

"169. Consequently there is nothing in the pleadings about this, but it is addressed in the witness statements and the Court have a copy of AWL's termination notice. Lombard represent the vehicle as a 2004 on the agreement, if it is worth any less because it was a 2001 then AWL look upon it that Lombard have misrepresented the vehicle and this should have been discovered upon inspection by Lombard, if it is the case that there is merit in Lombard's assertions."

Misrepresentation – wrong description/original price too much

171. If there has been a misrepresentation by Lombard, then AWL are entitled to rescind…

172. We have submitted regarding the wrong description 2004/2001 and AWL relied upon Lombard's expertise in valuing the vehicle and inspecting the same…

174. AWL say that there [is] liability on Lombard's part if it is proved that the vehicle was never worth the original purchase price. Lombard are not able to rely upon exclusion clauses, if it is unreasonable to do so and AWL rely upon the Unfair Contract Terms Act 1977 and the Supply of Goods (Implied Terms) Act 1973 in this regard as to price."

39. In my judgment it is not possible to discern from this opaque passage (other than perhaps in retrospect) that there was any positive case as to misrepresentation as to the date of manufacture of the car. At the end of this passage the plea appears to be only that in one way or other, either by representation or possibly by an implied term of the contract, Lombard is responsible for the car being worth less than it was priced at under the contract. This seems to revert to the original complaint before DDJ Caswell that there had been a misrepresentation as to value.
40. Mr Mulhall also relied on his two witness statements. The first had been dated 17 July 2007 and had been prepared in support of Automobile World's answer to Lombard's summary judgment application. This first witness statement said nothing about any case in misrepresentation: after all, it had been prepared before Mr Mulhall had received Lombard's skeleton argument (for its summary judgment application) dated 24 July 2007 in which reference had first been made by Lombard to the date of the car being a factor in its resale value. Mr Mulhall's second witness statement, prepared for trial, is dated 21 January 2008. That contains the following about the misdescription issue:

"7. It is the defendant's position that if what the Claimants state is correct or to be believed, that the defendant believe that misrepresentation has taken place and that the defendant is entitled to rescind and terminate the agreement and have agreement set aside by the Court. This was not included in the original defence because there had been no disclosure of this and the statement has only come about from the Claimants shortly before the Summary Judgment hearing.

8. Regardless of any additional defence of misrepresentation that the defendant would rely upon, the defendant in its defence would also rely upon the Supply of Goods (Implied Terms) Act 1973 together with the Unfair Contract Terms (1977) Act if necessary in relation to exclusion clauses which the Claimant seek to rely upon.

9. The Claimants' agreement clearly states and not least implies that the vehicle is a 2004 they now say that it is a 2001 and this is why the sale price achieved was far less…

13. What I can say, however, is this. All Mercedes-Benz S600L Pullman Limousines of the W220 series, that's the model of this, were built between 2000 and 2003."

41. On the question of reliance (for the purpose of misrepresentation), Mr Mulhall said only this:

"25…At all times the Defendant relied on the Claimant in assessing the value of the vehicles [sic] prior to purchase."

42. Once again, it is only perhaps in retrospect that it might appear that Automobile World was saying that there had been a misrepresentation and/or a contractual misdescription of the car's year of manufacture. There is again no positive allegation that the car was a 2001 model, or that the car had been bought on the basis that it was manufactured in 2004. In my judgment, although it might appear from Mr Mulhall's documents and from the Case Summary that there was something beyond the pleaded issues which Automobile World might wish to obtain permission to introduce into the trial, it could not easily be said exactly what that something was.

The trial before Judge Langan

43. In these circumstances, it might be thought that if Mr Mulhall had an unpleaded case that he wanted to introduce at trial, he would have been active in informing the judge about it. If he did not, the Case Summary was an agreed document, prepared under order for the assistance of the trial judge, defining the issues in terms of the current pleadings.
44. As it was, Mr Mulhall did nothing at the commencement of the trial to introduce his misdescription issue or even to raise with the judge in general terms the question-mark to be found at the end of the Case Summary. This was despite the fact that the judge had him almost instantly on his feet to assist as to the likely length of the trial. Mr Mulhall's response was to say that the case "can either be dealt with very quickly or I think it will take two days". The judge naturally asked how it could be dealt with very quickly, and Mr Mulhall's response was to emphasise "one particular point is the actual termination". The judge was inclined to agree: if it could be established whether there were any arrears justifying the termination, and the answer were to be none, would that not be the end of the case? Mr de Marco, counsel for Lombard, said it would. However, Mr Mulhall then said that there was an additional point on whether a termination notice terminated the contract itself, and before long, the judge had said; "well then it probably is best just to steam ahead and try to do everything". Mr de Marco was content, however, to limit his approach and cross-examination "to what Lombard sees as the central issues". He warned the judge that any issue as to the terms of the termination notice itself was a new issue, with which his skeleton had not engaged.
45. Mr de Marco then outlined Lombard's case. He said that the key issue on liability was whether Lombard was entitled to terminate, and the second main issue, on quantum, was mitigation. Mr Carr, Lombard's first witness, was soon in the witness box. Mr Mulhall had no questions for him on what I have called the misdescription point, despite the paragraph in his witness statement which I have cited above.
46. Lombard's next witness was Mr Treadwell. He was only involved after repossession. He was asked some questions which arose out of Lombard's summary judgment skeleton cited at para 15 above, but they were related to Mr Treadwell's dealings with the car and his understandings about it. As it transpired, Mr Treadwell knew nothing about the contract stage, such as the fact that the car had been originally bought by Lombard for £194,000. After Mr Treadwell's evidence had been completed, Mr Carr was recalled for further cross-examination. That was directed to the state of Lombard's accounts and whether Automobile had been in arrears at the time of the termination notice.
47. At the end of the two days for which the trial had been listed, Lombard's case had not yet closed. The trial had to be adjourned until 9 April 2008.
48. In the meantime, Mr Mulhall had nearly a month to prepare detailed closing submissions directed at any rate to the evidence so far. He submitted a document entitled "Submissions in Respect of Claimants Evidence As at 13 March 2008. Closing submissions – Previous Skeleton Arguments also relied upon." It is not dated but it is clear from the transcript of the third and last day of trial that the judge and Lombard had received that document by then.
49. Most of the morning of that third day was taken up by Mr de Marco's cross-examination of Mr Mulhall. Mr Mulhall did not volunteer any further evidence about reliance, and he was not cross-examined about it.
50. After the luncheon adjournment Mr de Marco made his closing speech on behalf of Lombard. He said that he had skimmed Mr Mulhall's closing skeleton, did not understand all of it, but would return to it in his reply if necessary. He proposed to deal with three things: the contract, the arrears and termination, and mitigation. It was not long before Mr Mulhall was on his feet. He asked the judge whether he had read his closing skeleton. The judge said he had only seen it that morning, and that it would be useful if Mr Mulhall began by listing the points he wanted to argue. Mr Mulhall said he appreciated his closing skeleton was a lengthy document (which it was).
51. That closing skeleton at para 180 reached what was said to be Lombard's claim that the car had been "overvalued" at the time of contract. In response, Mr Mulhall sought to put the responsibility for that back onto Lombard by saying that "Lombard have described and represented the vehicle as a 2004, Lombard have put a price on that vehicle of £194,000 on the agreement. AWL was and is entitled to rely upon Lombard's expertise in placing the value on the vehicle…" (at para 185). Mr Mulhall then cited section 9 of the Supply of Goods (Implied Terms) Act 1973 for an implied term that the goods will correspond with their description, and submitted that Lombard had described the car as "a 2004" and had implied that it was worth £194,000. Automobile World had therefore been entitled to rescind and avoid the contract. Issues of unfairness, unconscionability and inequality of bargaining power were also raised; and also allegations of procedural unfairness ("They have camouflaged the facts and attempted to ambush/bounce the Defendant a stealth approach up to the summary judgment…Lombard have of course known the facts throughout" (at para 197). It then appeared that Mr Mulhall was sensitive about whether such matters were open to him for he submitted (at para 198):

"They are not points that have not been before the Court, see Summary Judgment and Appeal, all these points were before Judge Behrens…Lombard cannot claim that they are unaware of such."

52. As a final flourish, Mr Mulhall also submitted that "There are various other lines of Defence available also, such as Estoppel in addition to waiver, Lombard's Fundamental Breach of the agreement, failure by Lombard to give quiet possession, failure of performance by Lombard and AWL is entitled it is submitted to treat itself as being discharged from the agreement by Lombard's variety of breaches (para 199). It was further submitted that Automobile World should be entitled to the return of all monies paid under the agreement, plus interest, plus loss of earnings (para 203).
53. In his final submissions to Judge Langan when Mr Mulhall reached his misdescription point, he very fairly introduced it saying that Mr de Marco would probably want to object. The judge was taken to the contract and there was an exchange about what it might have meant in saying that the date of registration/manufacture was May 2004. Judge Langan observed that "there is no counter-claim in this case for breach of an implied term of the contract" Mr Mulhall then said he should be entitled to have the contract set aside. Judge Langan said: "No. It really is too late, I think, now to go into that. I mean, if you want a contract set aside, you have to plead the thing properly and set out the facts and the misrepresentations on whatever it is that are alleged. I really do not think it is appropriate to go down that route now." The judge then suggested to Mr Mulhall that there were four main points by way of defence, and Mr Mulhall agreed that they were "within my submissions" but asked the judge to take account of his written skeleton argument as a whole, which the judge said he would. Nothing more was said about the misdescription point, and when Mr de Marco replied briefly, he said nothing about it and was not asked by the judge to deal with it.
54. In his judgment, Judge Langan said nothing about the misdescription issue.

The misdescription point

55. The issue here is whether Judge Langan was wrong in principle in refusing to allow the misdescription point into the trial. Another way to put it is to ask whether there was here a substantial procedural error which amounted to an injustice to Automobile World. If there was, then there would have to be a retrial. But if there was not, the point must fail. There could be no middle ground.
56. It may be true that in a perfect world, Judge Langan might have zeroed in on the reservation at the end of the Case Summary, and possibly have connected it with various references to (among other things) misrepresentation and/or misdescription in Mr Mulhall's second witness statement and/or skeleton argument: and so might have raised with the parties right at the start what exactly might have been between the parties as to the proper issues for trial. That, however, would be asking too much. It was clearly for Mr Mulhall to clarify such matters at the start of trial. He knew, as the judge did not, what had happened before Judge Behrens. He knew that he had always formally recognised the possible need for him to plead his misdescription point, and this continued to be reflected in what he said in his skeletons and to the judge in his oral submissions. He knew what the bone of contention was which was reflected in the final paragraph of the Case Summary. As it was, the judge began the trial by seeking to get Mr Mulhall to identify his principal points. This was especially important in a case where Mr Mulhall's approach was a scatter-gun defence of innumerable points. Yet Mr Mulhall failed to identify the misdescription point then and there as one which he wanted to raise, and needed the judge's permission to introduce into the trial. It was only because Mr Slater of counsel, who represented Automobile World at the renewed application for permission to appeal, dropped all the many other points which Mr Mulhall had raised in his notice of appeal and skeleton argument in support of that notice, that the two points remaining, the misdescription and mitigation points, identified at the outset of this judgment, were thrown into high relief.
57. It may also be true that in a perfect world Mr de Marco would have identified for Mr Mulhall, in the face of the judge at the start of the trial, the need for clarity as to the issues to be debated in that trial. After all, Mr Mulhall was a litigant in person, reasonably accomplished as he may have seemed. That, however, would also in my view be asking too much. The need for such clarity had already been made clear to Mr Mulhall not only by Judge Behrens, in that discussion after his judgment which I have set out above, but also in such discussions as had led to the agreement as to the wording of the Case Summary. Moreover, Mr de Marco could not have been sure what, if any, of his additional points Mr Mulhall wished in the final analysis to raise. Nor could it be said that Mr Mulhall's second witness statement or skeleton for trial were clear about the way in which Mr Mulhall wished to put any allegation of misrepresentation or misdescription.
58. In my judgment, that discussion before Judge Behrens, for all that at one stage it had appeared that the judge was willing to be amenable to a development of the pleaded issues, critically made it clear to Mr Mulhall that he had to present any amended case he wished to make in a formal way. He was well able to do that, even if such a case might have needed clarification in due course. So did that judge's order for a Case Summary, required in the terms of his order cited above. So did the ultimate agreed form of the Case Summary prepared for the judge of trial. In those circumstances the practical onus was on Mr Mulhall to seek out whatever permission was necessary to amend his pleadings, either before or at latest at trial.
59. As it was, if Mr Mulhall had done that, he could not in my judgment possibly have succeeded in obtaining permission to amend, at any rate not without an adjournment at Automobile World's expense. This is first, because to the extent that the misdescription point was based on a misrepresentation as to value, the basis of the point was incoherent. That was accepted by Ms Clark at this appeal, the point in this sense being abandoned. Secondly, to the extent that the point was based on a misrepresentation as to the car's age or date of manufacture, which Ms Clark explained as a representation contained in the contract before it was executed, Mr Mulhall would have had to have explained himself for the purpose of showing reliance: and the relations between Mr Mulhall and Loughran would have had to have been explored. Thirdly, to the extent that the point was based on a misdescription of the car in the contract itself, the construction of that document would have had to have been explored, which itself may have involved a consideration of the factual matrix. Was it really being said that the car had been manufactured (in Germany) and registered in the UK in May 2004, the same month as the contract was signed on only the twelfth of that month? And was it a sale by description, or the sale of a specific car? Fourthly, any reliance on misrepresentation or misdescription would have required an investigation of whether Automobile World could avoid the consequences of the contract's exclusion clauses. And fifthly, all versions of the misdescription point involved allegations that Automobile World was entitled to rescind and/or repudiate the contract and claim back either by way of rescission or damages the monies which it had already paid under the contract. And yet no counterclaim had ever been pleaded. In these circumstances, it would have been unfair to have permitted Automobile World to have pleaded these matters without exploring the possibilities of the need for further disclosure and/or evidence, and/or the consideration of further cross-examination. In these circumstances, the likelihood of some or other version of these allegations having been permitted at the outset of the trial, especially against the procedural background to which I have referred above, was in my judgment extremely small.
60. When, however, the misdescription point was clarified, to the extent that it was ever clarified, by Mr Mulhall only in the closing moments of the trial, after all the evidence had been taken and the parties had closed their respective case, the possibility in justice of extending Automobile World's pleaded defence, whatever may have been the position at the start of the trial, had gone.
61. Therefore, for all these reasons, I would dismiss this ground of appeal.

The mitigation point

62. In this connection, Ms Clark on behalf of Automobile World had a reasonable case to make. The complaint was that Lombard, through Mr Treadwell, had failed to realise the nature of the car which it had repossessed for sale. It was a rare car, and could only have been properly marketed through specialist dealers, allowing sufficient time for the right buyer to emerge. As it was, the car had been offered for sale in the standard way through a "fax auction" and had been sold for a fraction of its value. It was not advertised for sale until 4 April 2005. That process on its first round produced a top bid of only £45,600. A second round conducted among those 15 or so dealers who had responded only took the highest bid to £50,000. The car was then withdrawn from the auction and sold in a private sale for £59,500. The date of that sale is unknown but the proceeds were credited to Automobile World's account by 15 April 2005, so that the whole resale process had taken a maximum of only 11 days. This was despite the fact that Lombard had had the car in its possession from 2 March 2005 for over a month before that process had even been started. The reason for this failure, so it had been alleged at trial, was that Mr Treadwell had mistaken the car he had for sale as a Mercedes S600 limousine, a stretched version of a standard production model, whose list price was only some £77,000 and explained Mr Treadwell's modest aspirations for the resale of the car. Thus the repossession report described the car merely as a "Mercedes-Benz S600 Limo", not as a Pullman. Mr Treadwell regarded the S600 class as the closest comparable, of which Lombard sold "20 a month".
63. There was further evidence, submitted Ms Clark, that Mr Treadwell had mistaken the car he had for resale. Thus his witness statement said that at the time of repossession he (or "we") had checked the position with Autotrader and learned that a "new vehicle could be purchased for £59,995 with the bi-turbo engine, fax machine and DVD player". However, the Pullman had never been fitted with a bi-turbo engine, although that was later fitted to the standard S600 L version (there was evidence from Mercedes to that effect). Thus Mr Treadwell had cited the lack of a bi-turbo engine as one reason for its low resale value, whereas it would have been impossible to procure a Pullman with a bi-turbo engine. Moreover, Lombard's computer notes first refer to "Pullman" on 13 April 2004. That was one day after the computer notes record: "Let/Supplier: vehicle was a 2001 import, not a 2004 model". There is no letter from Loughran to this effect, but there was evidence from Mr Carr (in his witness statement) and subsequently from Mr Treadwell at trial that someone (not Mr Loughran himself) at Loughran had opined over the telephone about the value and year of the car.
64. The computer notes do not record when the car was sold. Indeed, one of the most worrying features of the case, as it emerged during the hearing, was that there had been no disclosure whatsoever from Lombard concerning the resale process relating to the car itself (only concerning an illustrative fax auction), no disclosure of any resale document, and no disclosure even of how the resale price, said to be £59,500, resulted in a net credit to Automobile World's account of only £50,829.72 as "Recovery Balance" (although that might reflect the difference between the gross sale price and a net price after VAT at 17.5%, but that would be £50,638.30).
65. Ms Clark also pressed on us the evidence which Mr Mulhall had presented to Judge Langan concerning the value of the car. Thus she relied on inter alia (i) the Mercedes list price for a new Pullman (reflected in Mercedes-Benz's Pullman brochure and also in Loughran's specification fax of 27 April 2004; (ii) various offer details taken from dealers' web-sites illustrating asking prices in the hundreds of thousands, eg a second-hand Pullman of July 2002 with 9,833 kilometres on the clock for sale at €308,745 and one of July 2001 with 21,396 kilometres on the clock for sale at €276,960; and (iii) a letter from Loughran (signed by Mr William Loughran, its principal) dated 24 January 2008 addressed to Mr Mulhall for use at trial, to the effect that £50/60,000 was "an unrealistically low price for the car…probably because they didn't fully understand what they were dealing with" and that "£150,000…would have been a fair offer in the market at that time and possibly more could have been achieved".
66. Whereas on one view this might have made a powerful case at trial, the thesis nevetheless faced considerable difficulties. First, despite the lack of disclosure from Lombard, no case of bad faith was ever made against it or Mr Treadwell. Secondly, Mr Treadwell gave oral evidence at trial, and Mr Mulhall's thesis that Mr Treadwell had gone wrong because he had not realised what he had to sell was put to him, but failed. The judge said (at para 40):

"In my judgment, Mr Treadwell, who was an impressive witness, was careful to obtain the best price obtainable for the vehicle in circumstances in which Lombard was attempting to recoup its losses by what was in effect a forced sale. I do not accept that Mr Treadwell's conduct can be the subject of any valid criticism."

67. It is not possible for this court to say that the judge was not entitled to that assessment. It was in part premised on the judge's rejection of the argument that Mr Treadwell did not know about the car with which he was dealing. Mr Treadwell gave evidence that he did know, and that that was why he was not prepared to accept an offer of only £50,000. As the judge found (at para 38(1)): "He took the car that the nearest equivalent car to the Pullman limousine was the 600 S Class."
68. Thirdly, Automobile World had no expert evidence of values to present to the court. Judge Behrens' order for directions had given permission for such evidence to be used. Mr Mulhall wished to be able to rely on Loughran's letter of 24 January 2008 cited above as such expert evidence, but, although it came from someone who might well have been regarded as an expert, it was not independent evidence, since Loughran had been involved as the supplier of the car in 2004. The judge was not prepared to regard it as expert evidence for the purpose of CPR 36, and I do not think he can be criticised for that. The judge rightly remarked that in what might broadly be called valuation cases, failure to mitigate is ordinarily established by the opinion of an expert as to the inadequacy of the price obtained on the sale of a relevant asset. The judge clearly held against Automobile World the failure to obtain such expert evidence.
69. Fourthly, the judge nevertheless did take account of Mr Loughran's letter. Thus he took account of the fact that "The most Mr Loughran appears to have been willing to do was to take the vehicle on a sale or return basis with a view to selling it on to third parties. That is not an offer to purchase". Moreover, the statement in Mr Loughran's letter that £150,000 would have been a fair offer at the time was premised on his being informed by Mr Mulhall that such an offer had been made. In fact, although Mr Mulhall had claimed to have made such an offer (more than once) both through Automobile World itself and through an associate company, and proffered copies of the faxes to Lombard as evidence, Lombard denied ever receiving such offers. The judge found:

"I am not satisfied that such offers ever reached Lombard, nor, in view of the financial situation of AWL and in the light of the price which Lombard could obtain for the vehicle elsewhere, am I satisfied that any offer of £150,000 would have been a genuine one."

70. That finding did not redound to the credit of Mr Mulhall. There was no evidence of any other bid of £150,000. Therefore, Mr Loughran was expressing his opinion on what turns out to be a false basis. In any event, as Mr Treadwell had commented in cross-examination: Mr Loughran always had the opportunity of buying the car when it was up for sale, and did not do so.
71. Fifthly, the material which Mr Mulhall relied on was only contemporary evidence of offers, not of sales in 2005. It is sales which count, if a price is to be established.
72. Finally, it is well recognised that the duty to mitigate is not a demanding one. Ex hypothesi, it is the party in breach which has placed the other party in a difficult situation. The burden of proof is therefore on the party in breach to demonstrate a failure to mitigate. The other party only has to do what is reasonable in the circumstances. The judge was so far from being satisfied that Automobile World had successfully shouldered the burden of proving that Lombard had failed to meet that burden, that he found on the contrary that Mr Treadwell had been "careful to obtain the best price available".
73. In these circumstances this ground of appeal must be dismissed as well.

Conclusion

74. In sum, permission to appeal was extended to the ground labelled as the "misdescription point". However, the appeal on both of the grounds before the court should, in my judgment, be dismissed.

Lord Justice Rimer :


 


75. I agree. As for the misdescription point, I regard any criticism of the judge as unjust. It remains a basic principle of our system of civil procedure that the factual case the parties wish to assert at trial must ordinarily be set out in their statements of case ('pleadings'). That is not a principle based on mere formalism. It is essential to the conduct of a fair trial that each side should know in advance what case the other is making, and thus what case it has to meet and prepare for. It is the function of the pleadings to provide that information.
76. That principle applies as much to litigants in person as to lawyers. Mr Mulhall is not a lawyer, although he appears to have acquired a fair grasp of the rudiments of civil litigation. It is apparent that by the time of the conclusion of the summary judgment hearing before Deputy District Judge Caswell on 3 August 2007 he was aware that, if he wanted to raise any misdescription point in answer to Lombard's claim, it would be necessary to amend Automobile World's Defence in order to do so. In the appeal to Judge Behrens, Mr Mulhall made an application for any necessary amendment, although he did not follow it up by preparing and asking for any particular form of amendment; and in the post-judgment discussion, Judge Behrens made it clear to him that he would need to amend Automobile World's Defence if he wished to raise a misdescription point. I share Rix LJ's view that in that respect the outcome of the hearing before Judge Behrens was perhaps unsatisfactory, and that hindsight shows that it might have been better if the judge had there and then dealt finally with any amendments to the Defence that Mr Mulhall wished to make. It was instead left that Mr Mulhall would later make such amendment application as he might be advised. In the event, he took no steps towards that end, nor did he even do so after the reservation at the end of the Case Summary pointed out that Lombard reserved its right to object to the raising by Automobile World at the trial of unpleaded defences.
77. When the trial started, Mr Mulhall did not tell the judge that one of the points he wished to raise was the misdescription point. He said nothing about it, although it was admittedly one of several points that he had canvassed, with some imprecision, in his pre-trial witness statements and skeleton argument. He had also pleaded an 11-page Defence raising a variety of points. He instead told the judge that the case was likely to turn 'on one particular point … the actual termination', and Mr De Marco, for Lombard, told the judge (with no dissent from Mr Mulhall) that the case 'really turned on two issues, one is what the arrears in the termination [sic], and the other is quantum and mitigation.' The trial proceeded, and the evidence was called, with no express reference being made to the misdescription point. It was only when he came to his closing submissions that Mr Mulhall raised it with the judge. By then it was obviously far too late to deploy it. It had not been pleaded and the evidence was closed. As Rix LJ has said, it is likely that even if Mr Mulhall had raised the point at the beginning of the trial, and the judge was in principle prepared to allow an amendment to the Defence to enable him to argue it, an adjournment would have been necessary. It is difficult to see that Lombard would have been ready to deal with any misdescription case.
78. Against this background, Automobile World's failure to advance a misdescription case in defence of Lombard's claim is now translated before us as reflecting a procedural error by the judge in the nature of an omission to ensure that Automobile World could and did make that case. The suggestion is misconceived. The judge could not properly have allowed Automobile World to make an unpleaded case of this nature. In Mensah v. East Hertfordshire NHS Trust [1998] IRLR 531, in a judgment with which Henry LJ and Sir Christopher Slade agreed, Peter Gibson LJ said at paragraph [15] that there is no duty on a judge trying a civil claim to check with a litigant in person that he has abandoned any claim in his pleadings that he has not taken and proved. There can, in my judgment, equally be no duty on a judge to inquire as to whether such a litigant wishes to apply to amend his pleadings to raise any particular issue that he has not pleaded. It is for the litigant to decide what case he wishes to make and how to make it. It is not for the judge to step into the arena and inquire of him whether he wishes to make some additional case.
79. In saying this, I make clear that I am not suggesting that courts must adopt an inflexible approach to the question of whether or not a particular unpleaded issue may or may not be the subject of investigation at a trial. There will be cases in which it will be obvious that it would be unjust for the court not to entertain and decide a non-pleaded issue: for example, when it is apparent that both sides have come to court ready to deal with it as an issue in the case despite its omission from the pleadings. That, however, was not this case; and such cases are likely to be rare.
80. As for the mitigation point also argued before us, Rix LJ has indicated various factual features that have caused me some concern as to whether Lombard took reasonable steps to mitigate its loss. For the reasons which he has given, with which I respectfully agree, I am however also of the view that the judge's decision cannot be faulted.
81. I too would dismiss the appeal.

Lord Justice Patten :

82. I agree with both judgments.