ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
HHJ MCKENNA (SITTING AS A DEPUTY HIGH COURT JUDGE)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE SULLIVAN
| Obsession Hair and Day Spa Ltd
|- and -
|Hi-Lite Electrical Ltd
Mr Philip Shepherd QC (instructed by Fox Hartley Solicitors) for the respondent
Hearing date: 31st August 2011
Crown Copyright ©
LORD JUSTICE WARD:
"1. Following a contested preliminary trial, His Honour Judge McKenna handed down judgment in favour of the Appellant on 11th December 2008. Since the claim had been pleaded and argued in both contract and tort and there was nothing in the judgment to indicate that the Appellant had not been successful in both causes of action, the Appellant and its lawyers concluded that it had succeeded in establishing concurrent liability.
2. The parties then went about litigating quantum. An application for an interim payment was heard in January 2009. Between August 2009 and June 2010 the parties exchanged substantial forensic accountancy reports as well as quantity surveying and lay evidence and generally prepared for trial.
3. The quantum trial was heard by His Honour Judge McKenna between 12th and 20th July 2010. The parties were then in dispute as to the true nature of the earlier liability judgment. By a judgment handed down on 8th November 2010 the judge clarified for the first time that "in his mind" the judgment that he had handed down in 2008 was solely in contract. Furthermore the judge assessed damages in contract at £847,171 while he found that if damages should have been assessed on tortious principles, the award would have been £2,578,123. …
5. Although the liability judgment was handed down a considerable time ago, it was only with the handing down of the quantum judgment that the appellant learnt that its claim in negligence had been dismissed. Further it is clear, as set out more fully in the skeleton argument filed in support of this appeal, that the negligence claim has been dismissed without any consideration whatsoever being given to its merits but on the basis of the judge's recollection of his 2008 unarticulated thought process.
6. The appellant has therefore been denied additional damages of over £1.7 million without judgment being given on the merits of its negligence claim. …"
"1. In the unusual circumstance that the applicant did not know that the judge considered that the basis of the defendant's liability was a strict liability in contract until the judge revealed that in paragraph 5 of his quantum judgment, the applicant's failure to appeal the liability judgment can be excused and time to appeal extended accordingly.
2. Since the liability judgment gave no reasons for limiting the claim to one for damages for breach of contract and, by implication, dismissing the claim for damages in negligence, the applicant has a real prospect of success in his liability appeal. If that appeal is allowed, this Court may have to grapple with Robinson v Jones Contractors Ltd  EWCA Civ 9 but it does not seem to me that the applicant should be denied the opportunity to advance its case on the merits.
3. Consequently permission to appeal the liability judgment is granted.
4. In view of the fact that the judge proceeded to assess damages for breach of contract only and did not have regard to the claim for damages in negligence then, absent full reasons for his so doing, there is a like prospect of success for the quantum judgment and permission to appeal should be granted."
"The extension of time to appeal was granted on the basis that the Appellant did not know that its claim in negligence had been dismissed until the quantum judgment was handed down. In fact, His Honour Judge McKenna made clear at a hearing on 21st January 2009 that the judgment was in contract and not in negligence. Had the Court of Appeal known this, I believe that the learned Lord Justice would not have granted permission to appeal or the extension of time."
It is this application to set aside the grant of permission to appeal which is now before us.
The history of this litigation
"It is of course accepted that as a matter of law liability is strict in the sense that taking care in supplying unsatisfactory goods is no defence. However satisfactory quality is to be determined objectively and it is necessary to take into account not only the price but all the other relevant circumstances. This shows that the enquiry is fact sensitive. The defendant denies that the W300 caused the fire in any event and the entire legal and evidential burden is on the Claimant."
As for the allegation that the work of fitting the pump was not carried out with reasonable skill and care he observed that "this appears to focus on the alleged shortening of the cable (which is denied)" and "the failure to fit an RCD [the residual current device] which is irrelevant to causation." His closing submissions argued that there was nothing to lead to a conclusion that contrary to the fitter's evidence the cable was shortened – the 3 cm assumption was not based on either empirical evidence or sound deduction as the defendant's expert explained. Common sense would suggest that it was inherently unlikely that an experienced and qualified tradesman would fit the pump so that it snagged or that he would ignore the instructions.
"7. … whether the Claimant can prove on the balance of probabilities that the JET W300 pump supplied by the Defendant was the cause of the fire rather than, for example, carelessly discarded smokers' materials or deliberate ignition by an intruder."
"As to the cause of the fire, I conclude that a probable cause of the fire was a fault in the pump which is as I have found consistent with the seat of the fire being in the cupboard."
He eliminated the other possible causes of the fire, the carelessly discarded smoking materials and deliberate ignition by an intruder.
"114. On the balance of probabilities I conclude that the cause of the fire was the fracturing of the wire in the float cable. … fracturing of the wire in the float cable was the more probable cause in the particular circumstances of this case and therefore the probable cause of the fire.
115. It being conceded on behalf of the defendant that if I were to conclude that the pump was the cause of the fire, liability would follow, judgment should be entered for the claimant for damages to be assessed."
"Bearing in mind, my Lord, this is a claim in both contract and tort, the defendant is not entitled to reap the benefit of an insurance policy that has been placed by the injured party. One ignores wholly, in my respectful submission, the question of whether there is insurance or not."
The judge did not interrupt or comment. Neither did he do so when Mr Shepherd was making his submission during which he said (p.26C):
"… indeed your Lordship's judgment came to the conclusions on the basis of breach of contract, on the basis of implied terms under the Supply of Goods and Services Act, that it is relevant to consider whether it was within the reasonable contemplation of the parties at the time the contract was made, that, in fact, the claimant was running its business at a loss and that, in fact, the Claimant had no insurance."
The defendant was quite clearly approaching the assessment as an assessment of damages for breach of contract and Mr Shepherd's skeleton argument made that plain in its very first paragraph and thereafter throughout his written submissions.
"The Judge: No, but if this argument is going to be run at trial does not the court have to decide what was in the reasonable contemplation of the parties at the time this unfortunate contract was entered into? Is it not inappropriate for me to pre-judge that when I have not heard evidence on it, unless, of course, you are saying that as a matter of law it is unarguable?
Mr Ashworth: I am saying, as a matter of law, it is wrong, not least because this is a claim which is brought in tort and contract, my Lord, and what happened your Lordship never actually had to rule on whether it was the breach of contract or liability in negligence because my learned friend conceded that if we are right about how the fire started he lost. Now your Lordship may remember right at the end of your judgment there is about one sentence where you say, "In those circumstances -
The Judge: I do not need to so I have not done. The judgment is on the basis of contract though is it not?
Mr Ashworth: Well my Lord, the argument was put before your Lordship and pleaded and in my closing submission I referred to contract and tort."
There that exchange ended.
"… he [Mr Shepherd] is wrong on the question of impecuniosity because, impecuniosity here, this was a claim in contract and in tort, it goes to mitigation. If we had the insurance monies and decided not to use them then he would say, "Well, you have not mitigated your losses because I had not been kept out of the premises as a result." We did not. So, my Lord, the defendant having [conceded] effectively, liability on any basis, and they did not stand up and say, we concede liability in contract only but not in tort, we concede liability if your Lordship was right, or I was right, which your Lordship found I was.
Mr Shepherd: No, no.
Mr Ashworth: Well perhaps my learned friend would be kind enough to make it clear where and when he said to your Lordship I concede liability in contract and contract only?
Mr Shepherd: In my skeleton argument.
Mr Ashworth: There is nothing said in your skeleton argument at all and had that been the case, my Lord, he may well have had an argument in tort as well but it follows from your Lordship's findings that they are liable in tort as well. But impecuniosity, therefore, is a relevant matter. …"
Again there was no intervention from the judge.
"25. … If an application for permission to appeal on the ground of lack of reasons is made to the trial judge, the judge should consider whether his judgment is defective for lack of reasons, adjourning for that purpose should he find this necessary. If he concludes that it is, he should set out to remedy the defect by the provision of additional reasons refusing permission to appeal on the basis that he has adopted that course. If he concludes that he has given adequate reasons, he will no doubt refuse permission to appeal. If an application for permission to appeal on the ground of lack of reasons is made to the appellate court and it appears to the appellate court that the application is well founded, it should consider adjourning the application and remitting the case to the trial judge with an invitation to provide additional reasons for his decision or, where appropriate, his reasons for a specific finding or findings. Where the appellate court is in doubt as to whether the reasons are adequate, it may be appropriate to direct that the application be adjourned to an oral hearing, on notice to the respondent."
"4. Given that in the circumstances described in this draft judgment the original liability judgment did not address the case in negligence and so that the claimant understands the Court's reasons for rejecting its claim in negligence it enquires (in accordance with the Court of Appeal's guidance in English v Emery Reimbold …) whether its claim in negligence is dismissed on the basis that:
4.1 the entire focus was to the judge's mind on causation in the context of a contractual claim [para 50];
4.2 no findings were made in 2008 of causative negligence [para 50];
and 4.3 the Defendant's concession was to be read as only being made in contract [paras 50-51]
or whether there are any further reasons for such ruling."
The judge made no changes to his draft.
"5. In the light of the Defendant's concession that it was liable in the event that the court found that the pump had caused the fire, I did not have to analyse the legal basis for such liability in my Judgment although at the time I considered that the basis of the defendant's liability was a strict liability in contract under sections 4(2) and/or 4(5) of the Supply of Goods and Services Act 1982.
When should the salon be treated as re-opening?
42. This issue turns on a number of different questions. Is the liability judgment in contract or in tort; should the court apply the test for remoteness in contract (not unlikely) or in tort (reasonably foreseeable); were the losses arising from delays in reinstatement not unlikely or reasonably foreseeable?
43. On this issue it was submitted on behalf of the Claimant that in view of the concession made by the Defendant to which I have referred the judgment was concerned with establishing the cause of the fire and not with analysing the legal basis for such liability but that on a true construction of a judgment there was plainly a finding in both contract and tort in support of which it was submitted:
- Negligence was pleaded …
- Negligence was opened by leading counsel for the claimant.
- From the outset leading counsel for the Defendant implicitly conceded that liability would follow if the pump was the cause of the fire but without clarifying the legal basis for such liability.
- The plea of negligence was not abandoned but repeated in closing.
- The concession was not limited to contract but even if it was so limited, such a limitation would be neither here nor there since the claimant did not abandon its plea of negligence and it is not suggested that it did; the judgment recited the fact that the claim was brought in both contract and negligence and while stopping short of using the label negligence, it was submitted that the judgment clearly found that there had been a failure to use reasonable skill and care in the shortening of the float cable beneath the manufacturer's recommended minimum length.
44. The defendant on the other hand submitted that although a claim in negligence was pleaded, no findings were made in relation to it at trial. The material extract from the judgment being at … 115 as follows:
"It being conceded on behalf of the Defendant that if I were to conclude that the pump was the cause of the fire liability would follow, judgment should be entered for the Claimant for damages to be assessed."
45. The Court did not, it was submitted, make a finding of negligence as was clear from paragraph 101 of the Judgment. … What the Court did find it was submitted was that the fire was caused by a failure in the pump and the defendant was strictly liable on the basis of the Defendant's concession. This, it was submitted, could only have been a liability in contract.
46. Counsel for the Defendant went on to submit that the negligence claim was in any event very much an afterthought. The claim was put predominantly in contract and in negligence was pleaded in terms which largely repeated those allegations … The fact that the claim in negligence was pleaded and never abandoned it was submitted was wholly irrelevant. The only issue was whether the judgment included a finding of causative negligence against the defendant. It was not relevant that the Court may have made actual findings on which it could have based a finding of negligence.
49. The entire focus of the liability trial was therefore on the cause of the fire. It was further submitted on behalf of the Defendant that it was simply not open to the Claimant at this late stage to ask the Court to make a further finding. The liability trial was over and in relation to this issue the Court had handed down judgment and was now functus officio. No liability issues were before the Court and it was therefore no longer capable of revisiting them. If the Claimant felt that the Court had not dealt with an issue put before it, this could and should have been raised at the time it was circulated and before it was formally handed down. Once handed down the Claimant's only remedy was to appeal and the reality is that the Claimant was content to have a judgment in contract until it belatedly realised the difference it might make to quantification of loss.
50. I have already made it clear that at the time that the liability judgment was written the entire focus was to my mind on causation in the context of a contractual claim. I did not make any factual findings of causative negligence nor was I asked to do so whatever the outcome of the claim in contract. Moreover it seems to me the Defendant's concession was only ever made on the basis that in law, as the Claimant itself contended, once causation was established then in contract liability followed, whilst allegations of failure to take care were always vigorously defended. Thus the case on liability was put on three bases:
1. That the pump was not reasonably fit for its purpose or as not of satisfactory quality and the Defendant was strictly liable for the consequences under the terms of the contract, implied by the Supply of Good and Services Act 1982 …
2. That the pump was not installed using reasonable care in breach of the implied terms of the contract; … and
3. The pump was negligently installed …
51. Read in context the Defendant's concession, the terms of which I have already referred to at paragraph 47 above, was to my mind only that taking reasonable care was no defence to a claim on basis 1 above. There was no dispute that such liability was strict whilst as I have recorded the allegations of failure to take care relevant to bases 2 and 3 above were always vigorously defended. It follows in my judgment that the liability judgment was only in contract and the contractual test for remoteness plainly applies."
"1. The dismissal of the claim in tort was unjust because of a serious procedural irregularity in that (as now clarified) the learned judge failed to give any judgment in respect of the pleaded claim in negligence.
2. If, as is implicit in failing to give judgment in negligence, the learned judge dismissed such a claim then he erred in law in that:
2.1 He failed, contrary to Article 6 of the European Convention on Human Rights, to afford the appellant a fair hearing of its tortious claim in that:
(a) he failed to consider such claim upon its merits; and
(b) he failed to give any, or any proper reasons for dismissing the claim in negligence and
2.2 Upon the evidence and the judge's findings:
(a) the Respondent clearly owed a concurrent duty of care in tort; and
(b) the Respondent's act of shortening the float cable to less than the manufacturer's recommended minimum length was a clear breach of the Respondent's duty of reasonable skill and care, both at common law and pursuant to section 13 of the Supply of Goods and Services Act 1982."
The ground of appeal in respect of the quantum judgment was:
"3. In clarifying the basis of the earlier liability judgment, the learned judge erred in law in that he dismissed the claim in negligence on the basis of:
3.1 His recollection of his earlier unarticulated thought process;
3.2 His own failure to make any findings of causative negligence in his December 2008 judgment; and
3.3 His conclusion, not articulated in 2008, that the Respondent's concession (that the issue in the case was the cause of the fire) was to be read as only being made in contract.
4. In dismissing the claim in negligence upon such grounds, alternatively in failing to give judgment upon such a claim, the learned judge failed, contrary to Article 6 of the European Convention on Human Rights, to afford the Appellant a fair hearing of its tortious claim in that he failed to consider such claim upon its merits."
"Judge McKenna: That is just plainly not true.
Mr Montagu-Smith: Well your Honour has a point there.
Judge McKenna: It is outrageous.
Mr Pepperall: Sorry, I don't understand your Lordship's concern?
Judge McKenna: There was even argument about it at one of the hearings I had to deal with in London. It was, clearly there was –
Mr Pepperall: There was some argument at the –
Judge McKenna: - by the defendant in what they said.
Mr Pepperall: Your Lordship's right. In January 2009.
Judge McKenna: Well that is misleading, frankly.
Mr Pepperall: Well I'm not sure that it is my Lord because the only time –
Judge McKenna: It is not a matter for me anyway –
Mr Pepperall: No –
Judge McKenna: - but I think it is misleading.
Mr Pepperall: Well I'm concerned your Lordship might think so because plainly [inaudible] wasn't involved in 2009. I am now involved, but my Lord, all we are saying is that there was no ruling by your Lordship until this year, or last year now, that it was a liability only –
Judge McKenna: Well I really do not want to get involved in that issue. I find that a surprising way to put it.
Mr Pepperall: Well in 2009 –
Judge McKenna: But –
Mr Pepperall: It's right to say that the issue arose to this extent: that at the interim payment application then made, that Mr Ashworth dealt with it and Mr Shepherd on behalf of the Defendant, rival views were put forward but your Lordship did not actually rule upon them at that stage.
Judge McKenna: Well I did not have to, because I had already dealt with them.
Mr Pepperall: No, but because there was nothing in the liability judgment one way or the other to say contractual [sic – I think this should read "contract or"] negligence, and because although differing views were put forward at that stage, and there was again no ruling, we believe we are right in saying to the Court of Appeal that the only time your Lordship actually ruled that it was contract was after hearing submissions last year in handing down the quantum judgment.
Judge McKenna: Well I am not sure I would regard that what I have just heard as being a fair representation, but it really is not a matter for me, so it does not matter.
I readily understand how the judge felt as he did and can sympathise: I have, however, also to understand how Mr Pepperall took the stance he did.
"10. It was my view at the time [the handing down of the liability judgment] (and for what it is worth continues to be my view) that this [the shortening of the cable] was a finding of negligence on the part of Mr Fletcher [the electrician who floated the pump] and therefore the Respondent in the manner in which he installed the pump, which negligence was the cause of the fire.
11. The Respondent was represented at the trial on liability by Philip Shepherd Q.C. appearing without a junior. I note the suggestion … that there was a concession made in Mr Shepherd's skeleton argument, however I did not understand this at any stage to be anything more than an acceptance that taking care in supplying unsatisfactory goods is no defence to a claim brought under section 4(2) of the Supply of Goods and Services Act 1982. It was not a concession of liability in the event that the cause of the fire was the pump but an acknowledgement of law. Had I understood this to be a concession of liability attaching in the event that the court found that the cause of the fire was the pump, there would have been no need for me to have included paragraphs 57-59 of my written closing or to have referred back to the paragraphs in my written opening dealing with liability in contract and in tort. …
14. … Far from challenging that such finding of fact [about the cable shortening issue] would necessarily lead to a finding of negligence, Mr Shepherd argued that it was inherently improbable that an experienced workman such as Mr Fletcher would have ignored the manufacturer's instructions …
16. Thus Mr Shepherd appeared to me to be arguing that shortening the cable was inherently improbable because it was so obviously negligent. Such stance was plainly consistent with conceding liability in both contract and tort in the event that the judge found that the fire had been caused by an electrical fault in the pump which had in turn been caused by shortening the cable.
17. I was not therefore concerned that Judge McKenna did not expressly set out the legal basis of his liability judgment. It was my view that the case had always been pleaded and argued in both contract and tort. In paragraph 115, the judge recorded the concession. He did not say he had understood it to be limited to the claim in contract. Had he done so, he would have had to deal with the claim in negligence. He did not deal with the claim in negligence. Since the concession was not limited to contract, I considered that the judgment found liability on the part of the respondent in both contract and tort. …
24. I was genuinely surprised when I heard from counsel who appeared on the quantum trial that in giving judgment on the issue of quantum, His Honour Judge McKenna had held that his judgment on liability was solely in contract."
Setting aside a grant of permission to appeal
"52.9-(1) The appeal court may –
(b) set aside permission to appeal in whole or in part;
(2) The court will only exercise its powers under paragraph (1) where there is a compelling reason for doing so. …"
"Save in exceptional circumstances, it is a misuse of the court's resources and a waste of costs for the court to consider the substance of an appeal on some intermediate date between the permission hearing and the full appeal."
Approving that observation, Longmore L.J. went on to say in Nathan v Smilovitch  EWCA Civ 759 at :
"For my part, unless the nature of the application shows that some decisive authority or decisive statutory provision has been overlooked by the Lord Justice granting permission to appeal, an application would normally have to show that the single Lord Justice had actually been misled in the course of the presentation of an application."
In Barings Bank Plc (in liquidation) v Coopers & Lybrand  EWCA Civ 1155 Laws L.J. added this:
"It seems to me to be of the highest importance that the court should very firmly discourage the bringing of satellite litigation under the guise of an application under CPR r.52.9. The rule is there to cater for the rare case in which the Lord Justice granting permission to appeal has actually been misled. If he has, the court's process has been abused and that is of course a special situation. There may be cases where, as Longmore L.J. indicated in Nathan v Smilovitch  EWCA Civ 759, some decisive authority or statute has been overlooked by the Lord Justice granting permission. But where such a state of affairs is asserted, the learning in question must in my view be plainly and unarguably decisive of the issue. If there is anything to argue about, an application to set aside the grant of permission will be misconceived."
These authorities establish that an applicant has a high hurdle to jump if he is to succeed in knocking out an appeal at this intermediate stage.
(1) I unreservedly acquit the appellant's solicitors and counsel of deliberately misleading the court. I accept that they genuinely believe that the first time they unequivocally knew that the case had succeeded for breach of contract and not in negligence was on the handing down of the approved judgment on quantum on 8th November 2010.
(2) A fair reading of the liability judgment arguably permitted the appellant to believe that the judge had made the necessary findings of fact which supported its case of negligence. (I emphasise "arguably" because the full court will have to reach its own conclusions about this). The essential elements to be distilled from  to  above are:
(i) negligence was at all times a live issue;
(ii) there was no express finding that the claim in negligence had been rejected or that the judge was limiting liability to liability for the breach of contract;
(iii) the judge did find that the electrician had shortened the cable, ;
(iv) there are indications that he accepted the evidence of the expert, Mr Braund. That would (or could) include his evidence that the shortening of the cable would lead to its fracturing  and fracturing was the cause of the fire ;
(v) there was a dispute about the effect of Mr Shepherd's concession.
(3) Judge McKenna's comment on 20th January 2009 (see  above) that "the judgment is on the basis of contract though, is it not?" ought to have put the appellant on notice of what the judge thought he had decided. It is just unfortunate that no opportunity was taken by the judge either in his ex tempore judgment or in his considered judgment to make the position clear but, in saying this, I do not intend to convey any criticism of the judge.
(4) The appellant could have, and perhaps should have, sought clarification. It was a course also open to the respondents. I do not regard the appellant's failure to be fatal.
(5) That the appellant still believed that it was open to argue that the negligence was still in play is shown by the submissions advanced at the quantum hearing (see  above), the request for clarification made when the quantum judgment was in draft ( above) and Mr Pepperall's defence of his position ( above).
(6) If it be the case that the claim in negligence was dismissed then the appellant has a real prospect of arguing that no satisfactory reasons have been given for the rejection of its case, especially in the light of the facts as found. Justice will not be done if it is not apparent to the parties why one has won and the other has lost.
(7) If the findings are as clear as the appellant submits, then a re-trial may not be necessary.
(8) The considerable sum of £1.7 million is now in issue.
Lord Justice Sullivan: