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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Keith Davy (Contractors) Ltd v Ibatex Ltd [2001] EWCA Civ 740 (2 May 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/740.html Cite as: [2001] EWCA Civ 740

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LEEDS MERCANTILE COURT
(HIS HONOUR JUDGE McGONIGAL)

		Royal Courts of Justice Strand London WC2 Wednesday, 2nd May 2001

Wednesday, 2nd May 2001

1. LORD JUSTICE SCHIEMANN: Lord Justice Tuckey will deliver the first judgment.
2. LORD JUSTICE TUCKEY: This is an appeal by the defendants in these proceedings ("Ibatex") with the permission of this court from a judgment of His Honour Judge McGonigal finally handed down on 18th July 2000 in the Leeds Mercantile Court. This judgment found effectively for the claimants, Keith Davy Ltd ("Davy"), on a preliminary issue intended to decide the terms as to quality under which Davy, who are merchants, sold yarn to Ibatex, who are cloth manufacturers.
3. Ibatex's broad submission on this appeal is that there were serious procedural or other irregularities following the hearing which led, or may have led, the judge to reach the wrong conclusion so this court should order a retrial.
4. The facts giving rise to the commercial dispute can be stated shortly. It was common ground that the terms upon which the parties were to trade were agreed in a telephone conversation between Davy's Mr Spink, and Ibatex's Mr Bambage in September 1995. The substance of Mr Spink's evidence was that Davy did not sell first grade or first quality yarn. They sold yarn on terms that if on inspection the customer did not like it he had a right to reject and return it unused but no other right of recourse. Mr Bambage, on the other hand, said that it was agreed that the yarn to be sold would be first grade with therefore a right to reject and a right of recourse.
5. Following this telephone conversation eight contracts, with a value of over £100,000, were made for the sale of varying quantities and types of yarn. The second contract (contract 2) was made on the telephone on 9th October 1995. Complaints by Ibatex about the quality of the yarn delivered to their weavers under this contract led to a breakdown of the trading relationship in March 1996 and these proceeding followed. Davy claimed the balance of the price under the contracts (about £16,000) and Ibatex defended and counterclaimed alleging that the contract 2 yarn was not first grade and that this breach of contract had caused loss now particularised at nearly £150,000. We are told that similar claims have been intimated, but not yet pursued, in relation to the other contract which have resulted in further alleged losses of about £50,000.
6. I now turn to the procedural history. After various adjournments the trial came on for hearing before Judge McGonigal on 23rd November 1998. It was estimated to last four days. A few days before it was due to start Ibatex had applied for the trial to be adjourned again for a number of reasons including the fact that it would take longer than four days. The judge refused this application but allowed Ibatex to make some amendments to their defence and counterclaim. This resulted in Davy applying for an adjournment. I take up the story in the judge's own words:

"I eventually ruled that the trial would proceed but only on the limited issue whether the contract 2 yarn sold by Keith Davy to Ibatex under the second of the eight contracts between the parties had been sold on the basis that it was sold as Grade 1 yarn.

I questioned counsel whether this was the real issue or whether the issue was the liability of Keith Davy for the quality of yarn it sold to Ibatex but both Counsel said they wished to proceed on the basis of this pleaded issue in relation to the second contract. It was common ground that this term, if it was agreed, was agreed in the initial telephone conversation between the parties prior to the first contract when the ground rules for their trading was agreed."

7. I add that it was also common ground that if the yarn was sold as first grade Ibatex had a right of recourse; if not, they had none. Thus the thinking was that resolution of this issue of fact would effectively determine the whole issue of liability. Unfortunately no one recorded the terms of the preliminary issue because if they had much of what followed might not have happened.
8. The judge then proceeded to hear evidence in the remaining three days in November 1998 and for a further two days in February 1999 on this simple issue of fact. One is bound to ask why it took so long. As well as Mr Spink, his principal Mr Davy and Mr Bambage gave evidence. All manner of subjects directed to the issue of credibility were explored. Final submissions were made to the judge which took another two days, at the end of March 1999.
9. On 18th May 1999 the judge produced a draft judgment which was sent to the parties. When he came to write this judgment (as he subsequently admitted) the judge forgot that he had only to decide a preliminary issue. As a result of the findings of fact which he made (which I will have to examine in greater detail later in this judgment), he concluded that Davy were not liable to Ibatex on the counterclaim. He then records:

"There was then great difficulty in arranging a date at which both Counsel could be available for the handing down of the judgment. Both parties wished to amend their pleadings yet again. Unfortunately I was not aware of these difficulties. Eventually, the clerks referred the listing problem to me. Since the problem seemed to be the time needed for the application to amend rather than the handing down of the judgment I fixed 4 October 1999 for the handing down (excusing the attendance of the parties) and ordered the submission of skeleton arguments for the applications to amend.

However, on 4 October 1999 Mr Pipe, Counsel for Keith Davy, attended and pointed out that in preparing my draft judgment I had forgotten that the seven days of trial had not been a trial of the entire action (although it had seemed like it) but had been limited to the issue of whether the second contract had been for the supply of Grade 1 yarn. I indicated I would wish to amend the draft judgment.

I asked both counsel to make written submissions on the matters, including the correction of the draft judgment, they wished to raise. When these were received, the Court file, and with it the draft judgment, were found to be missing so I was unable to start work on the amendment of the draft judgment. Unfortunately, I then forgot to remind the Court staff about the file. I realised this shortly before the hearing fixed for the handing down of the judgment"

- which was 7th January 2000 -

"so that, greatly to my embarrassment, it was not ready for handing down on that date."

10. The judge produced a second draft judgment on 10th March 2000. In the course of that judgment, he said:

"The issue isolated on 23rd November 1998 was whether Keith Davy had agreed to provide Grade 1 yarn on the basis that, if it did, then Keith Davy would be liable to Ibatex if it did not provide Grade 1 yarn.

It became apparent in the course of the evidence that the question whether Keith Davy agreed to provide Grade 1 yarn was inextricably entwined with the question whether the yarn, whether Grade 1 or not, was supplied on non-recourse terms. If it was, then it would be pointless to decide whether it was to be Grade 1 yarn or, indeed, whether it was in fact Grade 1 yarn or not.

The contents of the initial telephone call, when the terms governing the subsequent course of dealing were agreed, were fully investigated in the six days devoted to trial. In accordance with the overriding objective and, in particular, the importance of saving expense, proportionality, expedition, allotting an appropriate share of Court resources and dealing with as many aspects of the case as possible on the same occasion, I have decided that the preliminary issue should be extended to the question whether the contracts were on non-recourse terms.

As this decision is made of the Court's own initiative either party can seek a review of it before this judgment is formally handed down."

11. In response to that invitation Ibatex filed written submissions objecting to the judge extending the preliminary issue and contending that he had still not decided the preliminary issue originally agreed and that it would now be unfair for him to do so. They developed those submissions at an oral hearing before the judge on 5th May 2000. At the end of that hearing the judge agreed to consider the position in the light of these submissions and on 1st June 2000 produced a third-draft judgment in the form which he finally handed down on 18th July.
12. In this judgment the judge deals at length with the submissions made to him on behalf of Ibatex. He accepts that he had not dealt fully with the preliminary issue in his earlier judgment, but says that he has decided on balance that it would be right for him to amend that judgment further, so that:

"It is in the form which it should have been in and decides fully the preliminary issue which was the subject of the hearings in question and the further question of recourse."

13. He concluded by saying:

"I apologise to the parties and their lawyers for the mess that I have made of the preparation of this judgment and for the additional expense and inconvenience that that will have caused them."

14. I now deal with the judge's conclusions and the way in which he amended them. In his first draft judgment the judge summarised the evidence which he had heard in some detail. Before making his crucial findings he compared what he called the "risk positions" of the parties. Davy was buying the yarn unseen from their German supplier, Bauer, without recourse, and were selling it for relatively little profit at prices which were relatively low in comparison with the price of new yarn. Ibatex, on the other hand, was able to inspect and reject the yarn if they thought it was unsatisfactory. If they were buying without recourse the only risk they took was making the wrong decision to keep and use the yarn after they had inspected it. The judge then said:

"In view of the above analysis of the respective risk positions of the two parties Mr Spink's evidence as to the content of the initial conversation between Mr Bambage and himself is more credible. When I listened to Mr Spink giving evidence I assessed him as an obviously honest man who was not interested in paper-work, not very good at it, and, as he frankly admitted, with a bad memory. It was clear that in making his witness statement and in giving evidence he had not properly read and understood the documents in the case. But when a document was put to him that indicated that his evidence was wrong he immediately accepted the fact and did not attempt to defend his evidence. In contrast I had much less confidence in Mr Bambage's evidence. I assessed him as a man who does not like to be seen to have made a mistake. He came over as someone anxious to tell a story that supported the Ibatex case rather than to tell the truth regardless. My conclusion is that in the initial telephone conversation between Mr Spink and Mr Bambage it was agreed that Davy would sell yarn to Ibatex on non-recourse terms. That was the basis on which the parties dealt thereafter."

15. The judge then went on to deal with the telephone conversation on 9th October 1995 in which the second contract had been made. Mr Bambage had sent a fax the following day (which the judge accepted Mr Spink had not read) confirming that the contract was for first grade yarn. Also, Davy's evidence was that Bauer passed on certain information about the yarn they were selling to Davy which Davy in turn passed on to their customers. The judge said:

"I find as a fact that Mr Bambage was told in that telephone conversation on 9th October 1995 that the yarn would be first grade. Mr Spink passed on this information which he got from Bauer. Its significance is commercial rather than contractual. It encouraged Davy to buy from Bauer and Ibatex to buy from Davy in reliance on that information."

16. He made it clear what he meant by this in the preceding paragraph of his judgment, where he said:

"If there was an agreement in the telephone conversation between Mr Spink and Mr Bambage on 9th October 1995 that the yarn to be supplied under the second contract would be of 'first grade quality' or similar words, that term had no contractual effect because the parties had previously agreed in the initial telephone conversation that Davy would sell to Ibatex 'without recourse.'"

17. All of these findings remain unchanged in the second draft and the final judgment. However, in his final judgment in the sentence where he concluded that in the initial telephone conversation it was agreed that Davy would sell yarn to Ibatex on non-recourse terms the judge added the conclusion that "Mr Spink did not agree that Davy would sell yarn as first grade yarn."
18. Having set out the facts at some length I turn to the question of procedural or other irregularity. In his skeleton argument Mr Gerald, for Ibatex, summarised their principal complaints that the judge:

"(a) had forgotten that the trial was of a preliminary issue and what that issue was causing there to be three draft judgments handed down with the final one being circulated 1st June 2000, sixteen months after the end of the trial.

(b) in the absence of the parties, re-defined or extended the ambit of the preliminary issue from whether the yarn was sold as first grade yarn to whether it was sold without recourse.

(c) without the agreement of the parties, over-rode their common ground position on the consequences of the yarn being described as being first grade yarn (namely, that it was sold without recourse)."

19. These errors, he submitted, led the judge to misunderstand the issue he had to decide, and adversely affected his assessment of the evidence and the credibility of the witnesses. He submitted there was no reason for the judge to decide what was said on the telephone on 9th October and so there must be a suspicion that his finding about this was intended to relate to the initial conversation in September 1995 in which case Ibatex should have won the preliminary issue.
20. This court will allow an appeal and order a retrial where the decision of the lower court was "unjust because of serious procedural or other irregularity" (CPR 52.11.3(b)). However, the notes in the White Book (at page 994) make clear that this ground is onerous because it is not enough to show that there has been irregularity; it must be serious and have caused injustice to the affected party.
21. The judge frankly acknowledged that he had made a mess of preparing his judgment. He obviously had. This was unfortunate and can no doubt be characterised as procedural or other irregularity. But the real question is whether this has resulted in injustice to Ibatex.
22. I consider first the question of delay. The judge had prepared the first draft of his judgment within seven weeks (including Easter) of the end of the hearing. As he records in his second draft judgment:

"When the initial trial period in November 1998 proved insufficient, I prepared a note of the evidence I heard in November and my impressions as to credibility at that stage. I was provided subsequently with a transcript of the evidence given both in November 1998 and February 1999."

23. Before preparing his final judgment he records that he had reread the papers, particularly the transcripts of evidence, his notes of that evidence and the witness statements. As I have said a good deal of the delay was caused by the unavailability of counsel, but, looked at as a whole, I do not think that there is anything in this criticism. The facts of this case do not bear any comparison with Goose v William Sanford (Court of Appeal 13 February 1998) to which we were referred where the judge took 20 months to produce any judgment at all by which time he had lost his own notes.
24. It was clearly open to the judge to redefine the preliminary issue. He was not bound by the issue he had directed to be tried or any issue agreed between the parties if by the time he came to prepare his judgment he did not think that it had been formulated widely enough. My experience is that preliminary issues are often reformulated before the end of the hearing. But if judgment is reserved and the judge realises when preparing his judgment that this needs to be done, one would expect him to inform the parties of his concern and give them the opportunity to make further submissions before redefining the issues and producing any judgment. That did not happen in this case because the judge forgot that he had been trying a preliminary issue. However, after circulating his second draft judgment he did give the parties the opportunity to make submissions about the way he had expanded the preliminary issue. I can see nothing wrong with or prejudicial to Ibatex in the process by which this came about.
25. This brings me to Ibatex's principal complaint about this, which is that because the judge saw the real issue as one of recourse or no he misunderstood the preliminary issue. Mr Gerald says that as the parties were agreed that if yarn was sold as first grade there was recourse, and if it was not there was no recourse, the preliminary issue was adequately formulated at the outset of the trial since the finding as to whether or not Mr Spink said the yarn to be sold was first grade would determine the question of recourse. The judge explained why he had reformulated the issue as he did in a passage which appeared in each draft of his judgment. What he said was:

"According to Ibatex the reference to 'first grade yarn' denoted that the yarn was being bought with recourse. However in cross-examination Mr Bambage accepted that you could buy first grade yarn on without recourse terms. The terms are clearly different; 'without recourse' relates to the question of legal liability for defects whilst 'first grade' relates to the quality of the yarn. However it is also clear from the evidence in this case that there was a degree of confusion on both sides in that this distinction was not always borne clearly in mind."

26. Later in each judgment he said:

"In my view, discussions between the parties as to whether the yarn would or would not be first grade are not of central relevance in this case. The central issue is whether Davy was selling yarn, whether first quality or not, to Ibatex without recourse."

27. In his final judgment he added this:

"The preliminary issue as originally phrased expressed this in terms of whether yarn was sold as first grade. But the evidence showed that you can sell first grade yarn either as first grade and with recourse or, first grade yarn but without recourse. "

28. The judge was right that there was evidence to this effect, although none of the contracts between the parties involved in this case were on such terms. It is clear that the judge wanted to make a decision which was effectively determinative of liability. The question of recourse or no was the ultimate question, even though it was common ground that this followed from whether the sales were of first grade yarn or not. I can see nothing wrong as such with the judge's expanded formulation of the issue. More importantly, however, I can see nothing in his judgment to show that he misunderstood the common ground.
29. The crux of the matter, as I see it, is whether the judge's findings about the telephone conversation on 9th October cast doubt on his findings about the initial conversation. Mr Gerald submits that there was no evidence about this conversation, and the judge's finding meant that he did not accept Mr Spink's repeated evidence to the effect that he never sold yarn as first grade. His finding about what was said in this conversation and the absence of any finding in the first draft of the judgment about what was said about the grade of yarn in the initial conversation suggests that he may have confused the two conversations.
30. I do not accept these submissions. The judge's findings about the conversation on 9th October are perfectly explicable. There was evidence in the shape of Mr Bambage's telex of the following day and his oral evidence, that he had been told that the yarn, subject to that contract, was first grade. This could be explained by the fact that Mr Spink had simply passed on information about this yarn which had been provided to him by Bauer. From the outset the judge had made very clear reasoned findings about the initial conversation expressly accepting Mr Spink's and rejecting Mr Bambage's evidence about what was said. The finding that the sales were to be on non-recourse terms meant that Davy were not selling a first grade yarn although the first judgment did not spell out this consequence. That judgment clearly distinguishes between the conversation on 9th October 1995 and what had previously been agreed to explain why Davy had no liability for the second contract yarn despite what Mr Spink had said about its quality.
31. For these reasons I do not think that the regrettable procedural or other irregularities in this case have resulted in any injustice to Ibatex. The judge found from the outset that Davy sold to them on non-recourse terms and that finding was fatal to their case on the preliminary issue in its original or expanded form.
32. This leaves Ibatex's free-standing submission that in any event the judge reached the wrong conclusion. Mr Gerald submits that the judge should not have preferred Mr Spink's evidence because it was demonstrably unreliable, incredible, inconsistent and inconsistent with contemporaneous documents. He also attacks the judge's findings about Davy buying yarn unseen without the right of recourse, and the contrast he drew between Davy's and Ibatex's right to inspect and return. The judge's findings about Davy's low margins and low prices were also unjustified, he submits. These factors, which the judge took into account when assessing Mr Spink's credibility, led him to reach what he believed to be a commercially sensible result rather than one based on the evidence.
33. I do not think it is necessary to consider these submissions in any further detail. The answer to them is the conventional one which this court gives when an appellant seeks to attack judges' findings of fact. The conclusion which the judge reached was obviously open to him on the evidence which he heard. He had the advantage of seeing and hearing the witnesses. His assessment of Mr Spink was not uncritical and the surrounding circumstances which he relied on, notably the risk positions of the parties, obviously did point to the conclusion which he reached. I am quite unable to say that this decision was wrong, even subjecting it to greater scrutiny because of the irregularities which have occurred.
34. For these reasons I would dismiss this appeal.
35. LORD JUSTICE MUMMERY: I agree.
36. LORD JUSTICE SCHIEMANN:I also agree.
(Appeal dismissed with costs awarded to the respondents).