[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Jones v Environcom Ltd & Anor [2011] EWCA Civ 1152 (13 October 2011) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2011/1152.html Cite as: [2012] PNLR 5, [2011] EWCA Civ 1152

[New search] [Printable RTF version] [Help]

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE DAVID STEEL
2008 FOLIO 177

		Royal Courts of Justice Strand, London, WC2A 2LL
		13/10/2011

Lord Justice Rix :

1. On 16 September 2007 Environcom, as I shall call the two appellants – there is no need to distinguish between them, suffered a disastrous fire at their premises in Grantham, Lincolnshire, which were totally destroyed. This litigation arose because Environcom's insurers disputed liability, having avoided their policy for non-disclosure.
2. Environcom were in business as waste recyclers of electrical goods and equipment and in particular refrigerators. A dangerous working practice was the use of a hot tool called a plasma cutter or "gun" to remove bolts securing fridge compressors. This tool ionises gas to form a plasma at temperatures of over 15,000ºC and high velocities. Some of the refrigerators contained pentane gas as a refrigerant and blowing agent. Pentane is highly inflammable. The combination of the plasma gun and the pentane was dangerous, and by the end of the trial the judge formed the view that this was probably the cause of the critical fire and at least some of the previous fires which Environcom had suffered.
3. The insurers, various syndicates at Lloyd's, described in the judgment below and here their underwriting agent by the name of as "Woodbrook", were the nominal claimants in these proceedings, for they commenced this action for a declaration of non-liability. Thus Environcom are the nominal defendants. They in turn commenced third party proceedings against their insurance brokers, MS plc trading as Miles Smith Insurance Brokers ("Miles Smith"), alleging that the negligence of their brokers had caused them to lose the security of their insurance by failing to advise them properly as to disclosure.
4. The losses claimed by Environcom are difficult to establish from the documents before us, but are said to amount to "something in the region of £6 million" (para 5 of the judgment of David Steel J [2010] EWHC 759 (Comm)). The claim comprises both material damage and business interruption losses. By an agreement dated 6 November 2009 Environcom and the insurers compromised their dispute for £950,000, and Environcom thereafter continued the proceedings against Miles Smith alone, for the balance of their losses, having withdrawn their claim against the insurers. It is therefore natural to regard Environcom as the claimants and Miles Smith as the defendant. In this court they are appellants and respondent respectively.
5. At trial Environcom succeeded in proving that Miles Smith had breached their duty to advise their client about proper disclosure to the insurers, but they failed to prove that they had suffered any loss thereby. The judge found that, in the light of their unfortunate history of fires and in the light of their risk profile, Environcom were, upon the basis of proper disclosure, simply uninsurable, whether by Woodbrook or anyone else. As it was, Woodbrook had only been persuaded against their initial reluctance to renew the policy in May 2007 by Environcom's willingness to agree a greatly enhanced premium (£104,000) and a 25% co-insurance clause. If they had known the full story of the history of Environcom's fires (one of them, in March 2007, shortly before renewal, was undisclosed) and, in particular, of the dangers inherent in Environcom's business practices, they would have been unwilling to insure Environcom on any terms, and so would anyone else. Even if some form of insurance had been available, it would have included warranties against the use of plasma guns and pentane fridges.
6. One of the issues at trial was Environcom's allegation that, if they had been properly advised, they would have reacted by agreeing any warranties or conditions regarding the use of plasma guns or the scrapping of pentane refrigerators, or by seeking to improve their risk profile. However, while acquitting Environcom of any deliberate bad faith in their approach to risk, the judge found that this allegation was unrealistic. As it was, their case developed during the trial (it might be said was compelled by the structure of the argument to develop) from putting forward a merely reactive approach in relation to the problem of renewal of their insurance to suggesting a strongly proactive one, and one that could be successfully accomplished in time to renew the cover and/or achieve insurance before the September 2007 fire occurred. However, the judge concluded, after setting out his detailed reasons, at para 95:

"In short I do not regard it as made out that there was any realistic chance of the fire risk improvements that Environcom asserts might have been offered to underwriters would in fact have been proposed to underwriters let alone in due time."

7. Environcom's challenge to this finding is ground 1 of their grounds of appeal. It is, as they themselves accept, the necessary first hurdle which they would have to surmount in order to get any appeal on its feet.
8. Environcom's other grounds of appeal include grounds 3, 4 and 5 which respectively challenge the judge's conclusions on insurability, viz that there was no realistic chance that Woodbrook would have quoted (ground 3), that there was no realistic chance that some other underwriter would have quoted (ground 4), and that Environcom would in any event not have been willing to accept quoted terms (ground 5). All these grounds are essentially issues of fact, or factual analysis.
9. However, as Mr Patrick Lawrence QC, on behalf of Environcom, made clear to us albeit only in the course of his oral submissions, those grounds on the issue of insurability (grounds 3, 4 and 5) have been abandoned. They have been abandoned in favour of what even in Environcom's skeleton argument had been promoted to be their primary case on appeal, viz ground 2: namely the submission that, if Environcom could establish their proactive cleansing of their risk profile, by eliminating use of plasma guns and handling of pentane refrigerators (ground 1), then the fire of 16 September 2007 would not have occurred at all: moreover, and this is critical, the fact that it did occur was due to and caused by, and within the scope of the duty to advise (presumably on disclosure) which Miles Smith had breached. So that Miles Smith were directly liable for the fire loss, because without their negligence it would not have occurred. It is no longer contended that they were liable for failing to obtain unimpeachable cover for a loss which otherwise it has been contended would in any event have occurred, even with the proactive risk profile improvements which it was accepted already at trial were necessary for the obtaining of cover.
10. Thus Miles Smith, it is now said, are liable for causing the fire, not for causing the failure of cover. Environcom's loss did not arise out of Miles Smith's failure properly to obtain cover, but out of their failure properly to ensure that their client's working practices were such as to render cover unnecessary.
11. In these circumstances, we requested Mr Lawrence (and Mr Alistair Schaff QC who appears on behalf of Miles Smith) to address us only on the limited issue, which has to be reached at the outset, as to whether this unpleaded case, for Environcom did not plead it at trial, can legitimately be raised on appeal. Does it need pleading at all, and, if it does, should permission be granted to amend Environcom's third party statement of case so as to permit it to be argued? Mr Lawrence submits (in the end without conviction) that it did not need to be pleaded, alternatively that in fairness permission to amend should be granted. Mr Schaff submits to the contrary.
12. How did this new theory of duty and of loss arise? It has something of a history, or even it might be said an absence of history.

The generation of the "no fire" point

13. There was no case at trial, neither pleaded nor argued, on the part of Environcom that the fire could have been avoided but for Miles Smith's negligent breach of duty. On the contrary, it was an essential and inherent plank in Environcom's case that their loss arose because their fire was not covered by insurance. The essence of Environcom's case was pleaded in para 24 of their amended particulars of additional claim, to the effect that but for the third party's breaches of duty there would have been proper disclosure to insurers, Woodbrook would have agreed to renew cover or other insurers would have been persuaded to grant cover, and that Environcom therefore "lost those sums which would have been paid out in respect of the fire had they had unimpeachable insurance cover".
14. However, for the first time in the closing written submissions on behalf of Miles Smith an additional, conditional, argument was raised by Miles Smith to the effect that, even if Environcom were to succeed in proving that they could have improved their game so far as to be able to obtain insurance, they would then be unable to prove that the fire would have occurred in any event. In a (as would now seem prophetic) footnote to para 96 of those written submissions, Mr Andrew Hunter, who was then conducting the case on behalf of Miles Smith and in this court is Mr Schaff's junior, submitted that –

"Environcom does not and could not have advanced the case that Miles Smith's breach of duty caused the September fire i.e. it does not contend that if Miles Smith had advised it properly, insurers would have insisted on risk management measures which would in turn have prevented the fire from occurring at all. Such a case would be legally unsustainable as it is not within the scope of a broker's duty to prevent fires and loss of this type is consequently too remote: The Achilleas [2009] 1 AC 61 (HL)."

15. On behalf of Environcom, Mr Neil Hext, who was then conducting their case and is now Mr Lawrence's junior, addressed Miles Smith's new argument in his final oral submissions. He did not respond by making what is now Environcom's primary and indeed sole point on appeal, which can be dubbed the "no fire but for breach of duty" point. Rather he submitted that the point that no fire would have occurred was not open to Miles Smith; that it was too late in any event to make it; that the possibility that no fire might have occurred was irrelevant; and that "if it is right to characterise my loss as the fire itself" (which is not what Mr Hunter had been saying, nor was Mr Hext saying it), then it would not be right to say that such a loss was outside the scope of the duty of a broker. In this connection he referred to Aneco Reinsurance Underwriting Ltd v. Johnson & Higgins [2001] UKHL 51, [2002] 1 Lloyd's Rep 157. He concluded:

"My Lord, it's conceptually difficult, I accept, but I say that Aneco is a complete answer to the point my learned friend makes. Had my learned friend pleaded this point, then we would have said that in fact if he was right that plasma guns caused the loss, caused the fire, then we were entitled to claim from him the damages that flowed from that fire up to the limit of what the insurance indemnity was."

In other words, Miles Smith's liability was still anchored on their negligent failure to secure proper cover.

16. In his final oral submissions, Mr Hunter responded by submitting that the occurrence of the fire was the pleaded essential basis of Environcom's case on causation, and that he was entitled to draw out that issue in circumstances where, as Mr Lawrence accepts is the case, Environcom had only during the trial itself moved from an assertion of a reactive stance ("We would not have done any risk improvements unless insurers had demanded them of us, in which case we would have complied") to a proactive one ("We would have identified and carried out the necessary risk improvements").
17. In the event, the judge, having rejected Environcom's pleaded case on causation, went on to deal with Mr Hunter's additional, hypothetical, riposte in the following passage of his judgment:

"106. One final point remains. Even if there was a chance of obtaining cover, Miles Smith contend that, because by definition it was a precondition of renewal that there be no deployment of plasma cutters and no throughput of pentane fridges, the September fire would not have occurred. Indeed I am not sure that Environcom argued to the contrary. Certainly there was no disclosure of any investigation by Environcom nor any evidence called to deal with the issue.

107. In my judgment, as a matter of probability, this view must be right…

f) Little is available as regards the September 2007 fire. But in their presentation to obtain insurance cover for their new recycling operation, Environcom's brokers confirmed that it was probably (albeit not conclusively) attributable to a plasma cutter, a view shared by the loss adjusters.

108. It follows that, if Environcom is correct in its analysis, even if cover would have been obtained, it would not have been called upon as no loss by fire would have been sustained. Yet the whole basis of Environcom's claim is that, but for the breach of retainer by Miles Smith, Environcom's claim against underwriters would not have been impaired. The claim was not pleaded in any alternative way.

109. This is a further obstacle to Environcom's claim. In my judgment, even if pleaded, the loss claimed is not of the kind or type which Miles Smith ought fairly to be taken to accept liability: see The Achilleas [2009] 1 AC 61. Even taking the issue of remoteness by reference to more traditional lines, I would not be persuaded that the loss sustained was within the reasonable contemplation of the parties as likely to result from the breach of retainer. Put another way, if no fire would have occurred, it follows that the loss sustained by Environcom was not caused by Miles Smith. The fire and consequential loss was attributable to Environcom's failure to identify and enforce fire precautions by way of changes in the whole working process without which the process was effectively uninsurable."

The draft amendment

18. The draft amendment for which Environcom seek permission is as follows. They now seek to add the words "alternatively the 16 September 2007 fire would itself have been avoided" to the plea that but for the breach of contract and/or negligence relied on they would have recovered in full under their insurance. The substantive particulars added are –

"in seeking such insurance, [Environcom] would have ceased the use of plasma guns on refrigerators and/or would have ceased the throughput of hydrocarbon (pentane) refrigerators on the shredding line. Had the use of plasma guns and/or the throughput of hydrocarbon refrigerators ceased, the fire on 16 September 2007 would not have happened. Alternatively, but for [Miles Smith's] breach of duty, there was a very good chance that it would not have happened."

19. However, what even the new draft pleading does not contain is any account of the duty of Miles Smith and its breach of which the new case of "no fire but for breach of duty" was the alleged consequence. The existing (contractual or tortious) duty or duties alleged were all concerned with the obtaining of insurance without a failure to disclose what needed to be properly disclosed (see para 8 of the statement of case). What was not alleged was any duty to advise and/or assist Environcom with the conduct of their own business so as to eliminate risk. Similarly the breaches of duty alleged were all directed to the giving of proper disclosure for the purpose of obtaining unimpeachable insurance (particulars under para 23 of the statement of case): and these too remain unamended. In effect, Environcom's new case is an attempt to squeeze the incidental hypothetical consequence of "no fire" into the existing case of duty and breach, without any attempt to reformulate those critical primary elements.
20. The importance of a proper pleading becomes the clearer when consideration is given to questions of scope of duty, causation and remoteness: see for instance, among the cases cited to us, South Australian Asset Management Corporation v. York Montague Ltd [1997] AC 191 ("Saamco"), Aneco, Haugesund Kommune v. Depfa ACS Bank [2011] EWCA Civ 33, [2011] 1 All ER (comm.) 985, and The Achilleas. The jurisprudence suggests that such issues are fact sensitive. A distinction must therefore be drawn between matters of fact which the judge considered that he was able to deal with, and which are no longer in issue between the parties (viz the cause of the September and previous fires) and other matters, of scope of duty, causation and remoteness, about which the judge felt able to express a view ("I would not be persuaded that…", at his para 109), but which were hardly the matter of proper investigation at trial, as distinct from some end of the line argument by way of final submissions. It is, after all, one thing to take a view, on a hypothetical basis which the judge had in any event rejected, as to whether a fire could or would have been avoided: it is quite another thing to identify and define the necessary duty, its breach, its scope, and in this context decide whether a broker is responsible for his client's property as distinct from its insurance cover.
21. These considerations are borne out also by the additional jurisprudence which Mr Lawrence has cited, for the first time on this appeal, concerning the scope of enquiry which might be necessary once consideration is given to hypothetical questions which might arise as to what an insured might have done if he had been advised by his broker properly in relation to the placing of his insurance: cases such as Cee Bee Marine Ltd v. Lombard Insurance Co Ltd [1990] 2 NZLR 1.
22. The complexity of the argument is increased by five further factors. One is that the judge's finding that there would have been no fire is explicitly based on the hypothesis, contradicted by his earlier findings of fact, that Environcom would so have conducted its proactive risk assessment as to achieve a state where no fire would have occurred. However, this is not so much a finding as a definition of a situation which was never achieved in fact (and in the judge's view would not have been achieved). Secondly, there is some uncertainty on the part of Environcom as to whether its "no fire" claim is a claim for the loss of a chance (on the basis, I suppose, that the question of what Environcom might have done lay in the uncertain future) or not. Mr Lawrence asserted in the course of submissions that it was a loss of a chance claim. Thirdly, Mr Lawrence expressly stated that his "no fire" claim was capped by the amount of recovery which unimpeachable insurance cover would have produced. He said this was the teaching of Aneco: however, it seems to me that Aneco teaches that, if a negligent defendant is responsible, not merely for negligent advice without which a transaction would not have been entered into, but for advising that a transaction be entered into, then that defendant is liable for the whole of the ensuing loss and not merely for the more limited Saamco consequences. I would have thought that that was a fortiori the position where the claim is not for financial loss but for physical loss. Fourthly, the majority of Environcom's claim, as I understand the matter, is for business interruption losses. Where such losses are expressly covered under the contractual wording of an insurance policy, then that policy creates its own autonomous world for the recovery (and capping) of such losses. Where, however, the claim is that a defendant's negligence has directly caused a loss by fire, then the question of that defendant's liability for consequential financial losses raises possibly quite different issues, which of course have never been considered. Fifthly, and a most important matter which Mr Lawrence expressly conceded had to be taken into account: on the basis of a "no fire" claim, a question of contributory negligence would arise. That has not so far been considered at trial at all. It would involve an investigation into the parties' relative causative and culpable responsibilities.
23. In these circumstances, Mr Lawrence conceded that, even if he were given permission to amend his claim, if permission were needed, (and, I would add, even if he overcame the first vital hurdle represented by ground 1 of his grounds of appeal), and even if he succeeded in his appeal on his ground 2, his "no fire" claim, the only possible outcome of the appeal would be a remission back to the trial court. He submitted that there would be no need for a complete retrial, but that there would have to be limited further investigations of at least some of the matters canvassed in this judgment, including, in particular, contributory negligence. He suggested that some two to three days would be necessary for such a hearing: but that the costs involved would be well worth while given the size of Environcom's claim, even on the hypothesis that that claim had to be divided between the two parties.
24. Mr Lawrence nevertheless submitted that permission to amend was unnecessary, because the burden of proof lay entirely upon Miles Smith; but that even if permission were to be needed, it ought to be given in the interests of fairness and justice. The "no fire" point had emerged at the last moment, but that was not Environcom's fault but Miles Smith's. In any event, the issues at trial had developed in the way that often occurs, and all the facts were before the judge and, after all, had been found in the crucial passage of his judgment cited above. Nevertheless, he accepted that, if he needed permission to amend and did not get it, then his appeal must fail.
25. In the judgment of the court at the time of the hearing of this appeal, these submissions did not bear fruit: and we dismissed the appeal, while reserving our reasons, but indicating that an amendment to Environcom's pleading was necessary, and that permission to amend was refused.

Reasons

26. These are therefore the reasons for which for my part I joined in dismissing this appeal.
27. First, an amendment is necessary, indeed at the end of the day Mr Lawrence did not really contend otherwise. For these purposes it is unnecessary to decide who has the burden of proof (cf Mander v. Commercial Union Assurance Company [1998] Lloyd's Rep IR 93 at 146/7 and Mount v. Barker Austin [1998] PNLR 493 (CA)). The probability is, however, that whereas the claimant has the legal burden of proving both breach of duty and causation, in the ordinary case the evidential burden in many respects rests upon the broker in circumstances where, ex hypothesi, a prima facie and causative loss is set up with the failure (through the broker's negligence) of the insurance cover relied upon. But, wherever the evidential burden may lie or end up lying, it must be necessary for a claimant to articulate and put in issue his claim. An insured cannot seek to recover on the basis that a broker's negligence caused a loss, which would not otherwise have occurred, simply by pleading that a broker's negligence had lost the insured the security of an unimpeachable insurance cover for a loss which had occurred. The two claims are quite different.
28. Secondly, since an amendment is necessary, the question arises whether permission should be given for it at this late stage, viz on appeal. As explained above, the "no fire" claim was never made at trial. Only at the last moment, Mr Hext grappled with an alternative hypothetical argument put up by Mr Hunter, but he did not make, even orally and unpleaded, an alternative claim. Environcom are merely now seeking to climb aboard the hypothetical alternative findings and analysis which the judge dealt with, after rejecting Environcom's pleaded claim, as "One final point…".
29. In my judgment permission is necessary, and should not be granted. It is not in the interests of justice or fairness to accede to Environcom's application. On the contrary. The factual and analytical complexities of the "no fire" claim have been highlighted above. Therefore the new claim needs to be properly and carefully pleaded, which, as I have reasoned above, even now has not yet been accomplished. Mr Lawrence himself accepts that even success on appeal would necessitate a remission and a further hearing of some days. In these circumstances there are two well established principles which militate against permission being granted, whether to amend or to run the point without amendment.
30. First, it is a long-standing and fundamental principle of this court that a new point of law which was not presented to the court of trial may be raised on appeal, but normally only where there is no possibility of any injustice occurring by reason of the fact that, if it had been raised at trial, it might have affected the conduct and in particular the evidence or its evaluation in those proceedings: see Pittalis v. Grant [1989] QB 605 (CA) at 611C/F, citing earlier authority. Chief among such earlier authority is The Tasmania (1890) 15 App Cas 223 where Lord Herschell said this (at 225):

"My Lords, I think that a point such as this, not taken at the trial, and presented for the first time in the Court of Appeal, ought to be most jealously scrutinised. The conduct of a cause at the trial is governed by, and the questions asked of the witnesses are directed to, the points then suggested. And it is obvious that no care is exercised in the elucidation of facts not material to them.

It appears to me that under these circumstances a Court of Appeal ought only to decide in favour of an appellant on a ground there put forward for the first time, if it be satisfied beyond doubt, first, that it has before it all the facts bearing upon the new contention, as completely as would have been the case if the controversy had arisen at the trial; and next, that no satisfactory explanation had been afforded them when in the witness box."

31. More recently in the era of the CPR, in Crane t/a Indigital Satelite Services v. Sky In-home Limited [2008] EWCA Civ 978, this jurisprudence and its principles were revisited at [18] – [23] in the judgment of Arden LJ. Among the authorities she referred to was Jones v. MBNA (CA, 30 June 2000, unreported) where May LJ said this:

"52. Civil trials are conducted on the basis that the court decides the factual and legal issues which the parties bring before the court. Normally each party should bring before the court the whole relevant case that he wishes to advance. He may choose to confine his claim or defence to some only of the theoretical ways in which the case may be put. If he does so, the court will decide the issues which are raised and normally will not decide issues which are not raised. Normally a party cannot raise in subsequent proceedings claims or issues which could and should have been raised in the first proceedings. Equally a party cannot, in my judgment, normally seek to appeal a trial judge's decision on the basis that a claim, which could have been brought before the trial judge, but was not, would have succeeded if it had been so brought. The justice of this as a general principle is, in my view, obvious. It is not merely a matter of efficiency, expediency and cost, but of substantial justice. Parties to litigation are entitled to know where they stand. The parties are entitled, and the court requires, to know what the issues are. Upon this depends a variety of decisions, including, by the parties, what evidence to call, how much effort and money it is appropriate to invest in the case, and generally how to conduct the case; and, by the court, what case management and administrative decisions and directions to make and give, and the substantive decisions in the case itself. Litigation should be resolved once and for all, and it is not, generally speaking, just if a party who successfully contested a case advanced on one basis should be expected to face on appeal, not a challenge to the original decision, but a new case advanced on a different basis. There may be exceptional cases in which the court would not apply the general principle which I have expressed. But in my view this is not such a case."

32. In the present appeal, the new case of "no fire" which Environcom wish to raise is not a new point of law, but a complex fact sensitive issue of mixed fact and law which has not as yet been properly pleaded or, save in the judge's brief concluding and dismissive observations, which Environcom of course wish to challenge, analysed. It is sufficient proof that the matter could not now be raised consistently with the jurisprudence which goes back at least to The Tasmania that even a successful appeal would require a remission to the trial court.
33. Secondly, there is a recent line of jurisprudence that even in the court of trial permission to amend to introduce a late pleading which raises a fundamentally new case is unlikely to be granted: see Worldwide Corporation Ltd v. GPT Ltd [1998] EWCA Civ 1894 (2 December 1998), Savings & Investment Bank v. Fincken [2003] EWCA Civ 1630, [2004] 1 WLR 667, Swain-Mason v. Mills & Reeve [2011] EWCA Civ 14. Although there are elements of common ground between Environcom's original "no insurance" claim and its new "no fire" claim, the fundamentally different nature of the new claim has been recognised, in effect, by Mr Lawrence himself, despite his submissions to the contrary, when he conceded that he could not effectively run his new case and still preserve, even as an alternative, his old case. I am not sure there was any logical impossibility in running both cases as alternatives, but Mr Lawrence's practical or realistic concession goes a long way towards recognising how very different the new case of "no fire" in truth is.
34. Finally, it does not assist the application for permission which has to be made that, although of course we have not grasped the appeal under ground one, that hurdle, which is a factual one and therefore a difficult one to surmount in this court, has yet to be overcome; and, on the submissions which we have heard about the new claim but which it is unnecessary to decide upon, the judge's reasoning in para 109 of his judgment, brief as it is, seems to me prima facie to have much to commend it. However, these last observations were and are not a part of my determination.

Conclusion

35. It was for these reasons that at the hearing of the appeal I joined in dismissing it.

Lord Justice Hooper :

36. I agree with Rix LJ's reasons for the court's decision, given at the hearing, for dismissing this appeal.

Sir Anthony May :

37. I agree with Rix LJ's reasons for the court's decision, given at the hearing, for dismissing this appeal.