Obsession Hair and Day Spa Ltd v Hi -Lite Electrical Ltd [2011] EWCA Civ 1148

[2011] EWCA Civ 1148

Case No A2/2010/2776 & 2872

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

Venue BIRMINGHAM DISTRICT REGISTRY

HHJ MCKENNA (SITTING AS A DEPUTY HIGH COURT JUDGE)

7BM02606

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 13/10/2011

Before

LORD JUSTICE WARD

LORD JUSTICE SULLIVAN

Between

Obsession Hair and Day Spa LtdAppellant

Hi-Lite Electrical LtdRespondent

Mr Edward Pepperall (instructed by Wragge & Co) for applicant

Mr Philip Shepherd QC (instructed by Fox Hartley Solicitors) for respondent

Hearing Hearing date: 31st August 2011

Judgment

[1]This is an application brought by the respondent, Hi-Lite Electrical Ltd, to set aside my orders made on 7th February 2011 extending the time for the appellant, Obsession Hair and Day Spa Ltd, to appeal and granting permission to appeal two orders made by His Honour Judge McKenna sitting as a Deputy Judge of the High Court in the Birmingham District Registry. The first of those orders made by him on 11th December 2008 was that there be judgment for the claimant for damages to be assessed (“the liability judgment”) and the second order made by him on 8th November 2010 was that there be judgment for the claimant for £847,171 (“the quantum judgment”).

[2]The appellant’s notice in respect of the quantum judgment was filed within time on 29th November 2010 but the appellant’s notice in respect of the liability judgment was not filed until 9th December 2010, two years after the order had been made. The appellant’s solicitor, Mr Mark Hick, gave this evidence in support of the application for an extension of time:

“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. …”

[3]I gave these reasons for extending time and granting permission to appeal:

“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 [2011] 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.”

[4]The respondent immediately applied to set my orders aside pursuant to CPR 52.9(1)(b) “because the claimant’s application for an extension of time was inaccurate in a way which caused the Court of Appeal to grant permission and the Court of Appeal would not have granted permission if the true facts had been known.” In his statement supporting that application, the respondent’s solicitor said this:

“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

[5]The appellant ran a hair salon and day spa centre from a retail unit in Birmingham. Water from the hair washing drained into a sump and was pumped out of the premises by an electrical pump. The pump failed, the premises flooded and the respondent company which carried on business as an independent maintenance company providing electrical and other maintenance services removed the defective pump and purchased a replacement. It was fitted by the respondent on 21st November 2005. In the early hours of 24th January 2006 a fire broke out in the salon which caused such great damage that the salon was closed down and remained closed.

[6]The appellant brought a claim against the defendant for damages, the claim being formulated as the judge noted in paragraph 6 of his liability judgment, not only on the basis of a breach of contract as to satisfactory quality and fitness for purpose implied under the Supply of Goods and Services Act 1982 but also in negligence. The particulars of negligence were pleaded to be fitting a pump that was not suitable, failing to fit a residual current device as recommended by the manufacturer and, this being the crucial allegation, shortening the float switch cable to below the manufacturer’s required minimum of 10 cm. In his written opening submissions on behalf of the claimant, Mr Lance Ashworth Q.C., drew the judge’s attention to the claim in negligence and the allegations of the shortening of the float switch cable. In his closing written submission the claim in negligence was still being pursued and there were detailed submissions as to the lack of care taken by the defendant’s fitter.

[7]For the defendant, Mr Philip Shepherd Q.C. made a concession in his opening written argument saying:

“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.

[8]It is clear from those extracts that, although negligence was a live issue, the “central issue” in the case as

the judge saw it was:

“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.”

[9]It is necessary to consider the liability judgment, not in order to draw any firm conclusions about it because that will be fall to the full court if my grant of permission to appeal survives, but in order to see how the arguments about its scope and effect have been presented to us. He found at paragraph [29] that there were only three possible causes for the fire namely(a) the fracturing of the wire in the cable to the float switch (contended for by the Claimant);

(b) carelessly discarded smokers’ material or

[10]He analysed the evidence of a Mr Anthony Fletcher, the electrician who fitted the pump. He denied shortening the cable but when challenged about its measurements said it was a long time ago and hard to remember. The way in which he gave his evidence and how that evidence changed during the course of cross-examination led the judge to conclude that he could not rely on his account of how he installed the pump: see [66] of his judgment.

[11]The claimant’s expert gave evidence, which seems to have been accepted by the judge, that if the free cable length of the float was shortened to 3 cms, it could lead to fracturing within the relevant time frame and that would have caused the start of the fire: [87]. The judge concluded, [101], that what Mr Fletcher must have done was to shorten the float cable significantly below the 10 cms stipulated in the instruction in an attempt to get the pump to operate without the switch fouling the side of the sump to such an extent that it would not work reliably.

[12]He found at [106]:

“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.

[13]Thus he concluded:

“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.”

[14]The parties are now deeply divided as to the effect of this judgment. Mr Edward Pepperall, who now appears for the appellant, submits that on a fair reading of the judgment as a whole the judge’s findings of fact are consistent with his having found that the central allegation of negligently shortening the cable was established, or at least that the findings he did make are not inconsistent with that conclusion. Mr Shepherd, on the other hand, submits that it is apparent that the judge’s focus was on causation which is consistent with his limiting the claim to one for breach of contract.

[15]The claimant then applied for an interim payment of damages which was heard on 21 January 2009. In the course of his submissions, Mr Ashworth dealt with the fact that the Norwich Union had apparently avoided the claimant’s insurance policy and he said (transcript p.8 D-E):

“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.

[16]Mr Ashworth’s reply gave rise to the matters upon which the respondent now places crucial reliance. Mr Ashworth was replying on the relevance of Parry v Cleaver [1970] A.C. 1 and the availability of insurance.

The judge said at p. 33/4 of the transcript:

“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.

[17]On p. 35F, Mr Ashworth then said this:

“… 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.

[18]The judge was under some pressure of time and said he did not have enough time to give a reasoned decision but would give an indication which he proceeded to do. There is a note of his ex tempore observations. He did not accept Mr Shepherd’s point on impecuniosity. In the result he made an interim award of 80% of the cost of reinstatement as claimed. Later he gave fuller written reasons for his conclusion. Mr Pepperall draws attention to the fact that in his comments after the conclusion of argument and in his later written reasons, the judge did not take the opportunity to rule, one way or the other, whether or not his liability judgment was confined to finding a breach of contract and only a breach of contract, not negligence.

[19]It must, however, also be observed that the claimant did nothing to clarify precisely what the judge had decided and what he had not decided. Neither side availed of the procedure suggested in English v Emery Reimbold

[2002] EWCA Civ 605

“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.”

[20]There the matter rested. The parties prepared for the trial on damages. The respondent quite clearly put its case in terms of damages for breach of contract. In the course of opening Mr Pepperall, who had replaced Mr Ashworth for the claimant, informed the judge that the parties were at odds as to the legal basis of the liability judgment. Although brief submissions were made the judge observed that the judgment was in contract, not in tort but deferred matters for further argument. There was further argument in the course of closing submissions and the judge gave the strong indication in the course of Mr Shepherd’s closing submissions that he would be likely to find the judgment was only in contract. There was no ruling during the course of those submissions.

[21]The judge’s judgment on quantum was circulated in draft on 20th August 2010. Mr Pepperall, who knows all about English v Emery Reimbold,placed written submissions on the draft judgment before the judge in which he questioned whether there was a judgment in contract or in tort. He said:

“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. 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.”

[22]Thus in the approved judgment on quantum dated 8th November 2010

the judge said this:

“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.”

When should the salon be treated as re-opening? • 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. “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.” 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 …

When should the salon be treated as re-opening?

[23]The appellants filed notice of appeal against both liability and quantum judgments on 29th November 2010, which was in time so far as the quantum judgment is concerned. The court office required separate notices in respect of each judgment and so the appeal against the liability judgment was not formally made until some days later on 9th December 2010. The grounds of appeal against the liability judgment were these:

“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.” 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.” 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.

[24]Coincidentally, on the very day I granted permission to appeal, the case was again before His Honour Judge McKenna on the respondent’s application for an interim payment on account of costs. The judge’s attention was drawn to the appellant’s notice and counsel for the respondent read to him passages from the evidence of Mr Hick (see para [2]above) and counsel for the respondent commented that the appellant was saying they did not know the basis of the judgment until the handing down of the quantum judgment. The judge commented that that was surprising. When counsel then read to the judge paragraph 5 of Mr Hick’s evidence that it was only with the handing down of the judgment that the appellant learnt that its claim of negligence had been dismissed this exchange took place:

“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. Mr Pepperall: Sorry, I don’t understand your Lordship’s concern? Mr Pepperall: There was some argument at the – Mr Pepperall: No –

Mr Pepperall: Well in 2009 –

[25]Mr Lance Ashworth Q.C. made a witness statement with regard to his part in the aforegoing. Among other things he said:

“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

[26]This is governed by CPR 52.9. That reads: “52.9-(1) The appeal court may –(a) …

(b) set aside permission to appeal in whole or in part;

(b) set aside permission to appeal in whole or in part; (c) …

[27]The need for the applicant to demonstrate a compelling reason for setting aside the grant of permission to appeal reflects the earlier observations of Lord Donaldson of Lymington MR in The Iran Nabuvat

[1990] 1 WLR 1115

that the court would require some very cogent reasons for disagreeing with the single Lord Justice’s decision to grant permission to appeal. Thus the “cautionary note” in the White Book at 52.9.2:

“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

[2002] EWCA Civ 759

at [9]:

“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

[2002] 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 [2002] 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.

[28]At the heart of this jurisprudence lies the notion of abuse of the process of the court. The obligation of full and frank disclosure which falls on any applicant seeking relief without notice to the other side is an obligation to the court itself. To fail to disclose material information is to abuse the due process of the court and as a consequence to run the risk that the court will deprive the applicant of the fruits of the advantage wrongfully obtained. This condign sanction is also exacted in order to act as a deterrent to others. But there is no inexorable rule that the order granted without knowledge of the full facts must be set aside. A sense of proportion must always be observed. Too mechanistic a strike out will be an instrument of injustice.

[29]Thus the court will have to take into account all the circumstances of the case, the gravity of the breach, the explanations for it, the culpability of it, and, above all, how the case can be dealt with justly in accordance with the overriding objective.

Discussion

[30]The contrast in the respective cases presented to me on paper is stark. The appellant’s notice sought an extension of time because(1) by a judgment handed down on 8th November 2010 the judge clarified for the first time that “in his mind the judgment he had handed down in 2008 was solely in contract” and

(2) “it was only with the handing down of the quantum judgment that the appellant learnt that its claim in negligence had been dismissed.” By contrast, the evidence in support of the application to set aside informed me that “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”. That was obviously highly material information. I simply could not possibly have extended time for the reason I gave which was - see [3] above - that the applicant did not know the basis of the judge’s finding until it was revealed in his quantum judgment. To that extent I was misled in the sense that I was proceeding under a misapprehension. That, however, does not mean that I would have refused to extend time had that fact been placed before me at the time of making my decision. Faced with a conflict of evidence, I could not properly have decided the application without taking steps to resolve the issue which had become so starkly joined between the parties. The only fair way to proceed would have been to have adjourned the application for an extension of time and for permission to appeal for an oral hearing on notice to the respondent. I would probably have tried to impose a time limit shorter than the time it has actually taken before us. As it turned out, we have had very full argument, very ably presented to us by Mr Philip Shepherd Q.C. for the respondent and Mr Edward Pepperall for the appellant.

[31]In the light of that argument and after a careful consideration of the papers, I have reached these conclusions:(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 [8] to [13] 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, [101]; (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 [87] and fracturing was the cause of the fire [114]; (v) there was a dispute about the effect of Mr Shepherd’s concession.

(3) Judge McKenna’s comment on 20th January 2009 (see [16] 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 [20] above), the request for clarification made when the quantum judgment was in draft ([21] above) and Mr Pepperall’s defence of his position ([24] 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.

Conclusions

[32]Armed with the full facts as I now am, I would still extend time because the appellant acted properly once there was an unequivocal finding by the judge. I accept that until then the appellant’s advisers had acted in the genuine, and in the particular circumstances of the case, reasonable belief that the issue had not yet been decided against them.

[33]I find there is a real prospect of success as those words are to be understood of showing that the findings made by the judge amount to a finding of negligence. There is moreover, a real prospect of successfully arguing that it was unfair to dismiss the case in negligence without giving reasons for doing so.

[34]In the result I would dismiss the application to set aside my orders of 7th February 2011.

Lord Justice Sullivan:

[35]I agree.