Huktra (UK) Ltd. v Huktra NV

LORD PHILLIPS, MR: L ord Justice Rix will give the first judgment.

This case concerns an appeal and a cross-appeal from the first judgment in the proceedings below, given on 12 April 2000 by His Honour Judge Michael Kershaw QC sitting as a judge of the High Court.

In 1982 Peter Meyrick and Mr Van Poucke decided to cooperate in a business venture. Roland Van Poucke was already operating a business on the Continent called Huktra NV ("NV"), a Belgian company, concerned with the carriage of chemicals. Mr Meyrick and Mr Van Poucke decided to form a new company in the United Kingdom, Huktra UK ("UK"), which would operate with NV in cross channel carriage of chemicals into and out of the United Kingdom and into and out of the Continent.

Mr Meyrick and Mr Van Poucke took directorships and shareholdings in each other's companies. The effect of such cross shareholdings and cross directorships was that in the early days the two companies were operating in partnership. There came a time, however, once UK had built up its own tank pool (the tanks being the containers in which the chemicals were transported on the backs of articulated lorries) when the cross directorships and cross shareholdings were dissolved. The date at which this occurred has not been clearly established, but it appears to have been a material time before the years with which these appeals are concerned, which focus on 1993 through to the beginning of 1996. Possibly because in their initial venture Mr Meyrick and Mr Van Poucke were operating almost as partners, they began their cooperation with an agreement which was entirely oral. It has not been reflected in any written documents. Moreover, even after the two principals had ceased their partnership and were operating, albeit in cooperation, as individual principals of their own separate companies, their relationship was almost entirely driven by oral agreements. In effect they continued as they had begun.

Thus it is that the agreements with which the judgment below and these appeals are concerned are oral agreements and go under the rubric of various names which it has been convenient to give to them. Starting in 1982 I can refer to the "cooperation agreement" with which the parties' venture first began. Coming forward many years to the period with which these appeals are concerned, there was a further agreement in November 1993 called the "powder tank and equipment agreement" ("the powder agreement"), which sought to regulate on varied terms the basis upon which the parties' powder tanks, as distinct from liquid tanks, were going to be used.

Moving forward towards the end of the period with which we are concerned, there is either at the very end of 1995 or some time early in 1996 a "termination agreement", under which the parties, who had in recent years not been getting on as well as they had been, brought an end to their relationship. One element of that termination agreement can be referred to as the "compromise agreement", an agreement which Mr Meyrick and his company UK alleged had been made by Mr Van Poucke on behalf of NV in order to achieve an accord and satisfaction of certain claims and cross-claims then in existence. That compromise agreement was conventionally dated to December 1995. Having introduced those agreements, I would flesh out those bare bones.

One of the issues at trial, and which arises on the cross-appeal, concerned the terms under which as part of the cooperation agreement the parties agreed to deal with each other. Their business involved four elements in the transport of chemicals backwards and forwards between the UK and Continent. One element was the cost of carriage. That is the cost of subcontracting in carriers to carry the tanks in question. One element of that carriage cost was the cost of sea freight over the channel. Another element was the cost of cleaning the powder tanks.

The parties operated both tanks for liquid chemicals and tanks for powder chemicals. The powder chemicals required additional powder equipment to assist in their loading and discharge. Unlike the, liquid chemicals, they did not pour easily into and out of containers.

The problem of cleaning operated in the case of both powder and liquid tanks. One of the bones of contention between the parties, about which I will say more when I turn to the cross-appeal, is whether the carriage element, apart from sea freight and the cleaning element, was agreed by the parties to be provided for each other at cost or at commercial rates which reflected profit as well. I speak of the services which each of the parties provided because, as each party's tanks crossed the channel between the United Kingdom and the Continent, so each party provided to the other party services which had to be paid for. The question was whether they were to be paid for at cost or on a commercial profit basis. That issue goes back to the beginning of the relationship.

I turn to the years 1993 and following. In November 1993 the powder agreement was made. Previously to the powder agreement, UK had charged NV a hire charge for both powder tanks and powder equipment when the tanks and equipment belonging to the UK were used on the Continent by NV. The November 1993 powder agreement sought to regulate this use on a different basis which no longer involved the charging of a hire for those tanks and equipment, but instead sought to split on a 50/50 basis any profit which NV might make out of the use of such tanks and equipment on the Continent. That agreement came into being towards the end of the first year of a three year period embracing 1993, 1994 and 1995 in which there was an ongoing dispute between the parties as to the payment by UK of NV's invoices in respect of the services provided by NV to UK, and as to the charging by UK to NV of the services provided by UK to NV. That dispute ultimately led to a counterclaim by NV in respect of under-payments by UK of NV's invoices and alleged over-charging by UK in respect of its invoices to NV, which NV submitted should have been charged at cost rather than on a profit basis.

At the end of 1995, or early 1996, the parties went their separate ways. At that time NV had in its possession 19 tanks belonging to UK which they retained. NV retained these tanks as part of the ongoing dispute in relation to its under-payment and over-charging claims. When it came to these proceedings, in which UK claimed as claimant for the return of its tanks and for damages for their detention, loss of profit and lost hire charges etc, NV gave up its claim to be entitled to retain these tanks. So the claim which UK brought became, certainly by the time of trial if not before, one in respect of which there were disputes essentially of quantum, albeit some of those disputes might also have involved certain points of principle. This court has not been concerned with the details of that UK claim or its quantification, and I do not need to refer to it.

However, when that claim was brought on 28th August 1997 with the issue of UK's writ (which referred to 22 and not 19 containers being retained), NV responded with a defence and counterclaim in which it put forward its under-payment and over-charging claims. UK's response to those claims distinguished between the under-payment claim and the over-charging claim. UK pleaded that the under-payment claim had been settled by means of the compromise agreement, to which I have referred, made in December 1995 by means of which the parties expressly agreed to set off by way of accord and satisfaction claims which UK came to assert it had been making, or was entitled to make, under the powder agreement on the one hand, and on the other hand the under-payment claim made by NV. The over-charging claim made by NV on the other hand was not said to have been compromised as part of the compromise agreement, but was nevertheless said to have been dealt with by proper accounting between the parties. It was otherwise said to be an insubstantial if not inane claim.

The issue on the appeal which is brought by NV as appellant, is whether the judge was entitled to find, not that the parties' claims and counterclaims had been settled under the December 1995 compromise agreement (for he found that there was no such compromise agreement), but that there had been a series of earlier six-monthly agreements of accord and satisfaction in 1993, or if not 1993 in 1994 and 1995, down to June 1995 which, as he ultimately concluded, had been expressly agreed by way of accord and satisfaction by the parties at regular six-monthly intervals in relation to the drawing up of their respective end of year accounts. One of the companies had a year end at the end of June and the other company had a year end at the end of December.

The second issue which arises, this time on UK's cross-appeal, was whether the judge was right to find that the parties had agreed to charge each other for cleaning costs at cost as distinct from commercial rates inclusive of profit.

Because these proceedings, longstanding as they have been, have not reached the stage of the determination of quantum, I am not able to put any figure on the importance, by itself, of the difference between cleaning services being costed at cost as distinct from at profit rates.

The claims brought by UK fell essentially into two parts. There was an extensive claim arising out of detention of its tanks. I say nothing further about that. There was also a claim for hire of powder tanks and powder equipment in the total sum of £294,000. As for the cross-claims, first, that for under-payment was in the sum of £438,000 odd as amended from a previous figure of £197,000. Secondly, NV's over-charging cross-claim was in the sum of £565,000 as amended from a previous figure of £217,000. Ultimately there arose between the parties, in the context of the issue relating to compromise of claim and cross-claim, £294,000 on the part of the claimant, UK, and a total as amended of £913,000 on the part of NV's cross-claim, a total between the parties in excess of £1.2 million.

It follows that the judge found that NV's cross-claims totalling £913,000 had been compromised, so far as that portion of them which related to the period down to June 1995 was concerned -- and that must on any view be the greater part of them -- in consideration of the waiver of UK's claim for hire under the powder agreement, that claim being quantified at the figure £294,000 to which I have referred.

Two essential points are taken on NV's appeal. The first is that it simply was not open to the judge to find a series of six monthly compromises in 1993, 1994 and down to June 1995 in place of the pleaded compromise agreement of December 1995. Secondly, even if it was open to the judge to find in favour of such an alternative case, it was nevertheless a finding in respect of which there was no sufficient evidence to support it, or a finding against the weight of the evidence and one which should not have been made in preference for the evidence of Mr Meyrick as against that of Mr Van Poucke. I need only state those two grounds in outline to make it clear that it becomes necessary in order to evaluate them to follow the history of these proceedings throughout their course, both before trial as a matter of pleadings and witness statements, and at trial as a matter of evidence and submissions.

It is the submission of Mr Hunter QC, on behalf of NV, that the six monthly compromise case favoured by the judge had never been pleaded and had never been made at trial, and one in respect of which there had been no evidence worthy of calling its name produced at trial.

I refer, first, to UK's amended points of claim. That document subsequently went on to further re and re-re-amendments, but which I take at the initial point of first amendment which occurred some time in 1998. Under paragraph 4A of the amended points of claim, UK pleads under the heading "The Powder Equipment Agreement" that the parties had first made the powder agreement in November 1993, and had then compromised UK's entitlement under it against the waiver of NV's under-payment claim. I stress "under-payment claim" as distinct from "over-charging claim". Under paragraph 4A of this pleading, UK alleged that, under the November powder agreement, hire charges would no longer be made or invoiced, as they had been previously, at weekly and per tank rates by UK against NV, but instead NV agreed to account to UK in respect of its earnings in respect of the use of such tanks and equipment. The pleading went on to say that, nevertheless, NV had never accounted to UK and that, ultimately, the rights of UK under the powder agreement were compromised in December 1995 as already stated.

At paragraph 8 of this same pleading, UK quantified its claim under the powder agreement (on the hypothesis that its allegation of the December 1995 compromise did not succeed) in sums which were scheduled elsewhere, and summed up under paragraph 2 of the prayer at £117,600 in respect of equipment hire and £176,400 in respect of powder tank hire charges, making a total of £294,000. It was UK's case that in the absence of any accounting by NV for a share of the profits on the use of such tanks and equipment by some means or other, the hire charges which had been expressly foregone, as pleaded under the powder agreement, somehow came back into being. No express claim appears to have been made. It is not clear whether an express claim was made in the alternative for an accounting, but it may have been. It is made clear in the amended points of claim that the powder agreement claim made by UK only arose in the absence of the December 1995 compromise.

Under paragraph 3A of NV's amended points of defence and counterclaim dated 2 October 1998, it was agreed that, under the powder agreement, hire charges for tanks or equipment had been dropped. It was alleged that the tanks would thereafter be freely available to whoever could utilise them profitably. The December 1995 compromise agreement was denied. It was alleged that the powder tanks were not capable of generating any profit. It was said that in December 1995 UK had belatedly sought to raise powder tank and equipment hire invoices but that the claim in respect of those invoices was denied and certainly not compromised. At paragraph 19.2 of the same pleading, NV made its under-payment claim, and under paragraph 19.3 it made its overcharging claim.

UK's further and better particulars of its points of claim were served on 4 June 1999. Numerous particulars had been requested of its pleading relating to the powder agreement and compromise agreement under paragraph 4A of the amended points of claim. In response to those detailed requests, UK pleaded, inter alia, that, although it could not be more precise as to the date of the December 1995 compromise agreement, it had taken place in about December 1995 at a meeting between Mr Meyrick and Mr Van Poucke in Zeebrugge when the agreement to compromise the parties' respective claims was reached. It was pleaded that the agreement was retrospective only, but that it applied to all NV's claims as of December 1995. Paragraph 11 of the further and better particulars specifically pleaded as follows:

It will readily be apparent that that pleading is inconsistent with the six monthly compromise agreements found by the judge.

As for the alleged liability of NV to account, the particulars went on in paragraphs 15 to state:

There followed later in 1999 an amended reply and defence to counterclaim in which UK pleaded separately to the under-payment counterclaim in paragraph 19.2 of the amended counterclaim and the over-charging counterclaim pleaded at paragraph 19.3. As to the under-payment counterclaim, it was said that all queried matters had been properly accounted for and had been compromised under the December 1995 compromise. The pleading went on to restate that, if that December 1995 compromise was not found at trial, then UK would seek to set off against the under-payment counterclaim the two figures totalling £294,000.

The over-charging counterclaim in paragraph 19.3 was dealt with in paragraph 16 and 16A of the amended defence to counterclaim. There is no mention of the December 1995 compromise agreement, but it is pleaded that all those matters had been dealt with as a matter of routine accounting procedure and that the counterclaim was otherwise "wholly without foundation and misconceived and its quantum wholly unintelligible". Although there is some ambiguity in UK's further and better particulars as to whether in those particulars under paragraph 4A of the amended points of claim it was intended to draw into the alleged compromise the over-charging claim in addition to the under-payment claim, it is made clear in the amended defence to counterclaim that those two counterclaims are dealt with separately and it is only the under-payment counterclaim which is said to have been compromised in December 1995.

At the request of the judge, the parties then went to some trouble (because the document went to a fourth draft) to define the issues arising at trial. That document is dated 11 June 1999. It deals at paragraph 8 with the parties' agreement as to the powder tank fleet; whether it was that pleaded in paragraph 4A of the amended points of claim or whether it was that alleged in paragraph 3A of the amended points of defence. There could not, of course, be any reference to an alternative alleged compromise at six monthly intervals.

Witness statements were then exchanged. I should refer briefly to the witness statement of Mr Meyrick dated 8 November 1999. Paragraph 47 is relied on by Mr Wingate-Saul QC, who appears for UK on this appeal. That reads as follows:

The parties served opening skeleton arguments for the beginning of trial. UK's opening skeleton argument is dated 22 January 2000, NV's is dated 20 January 2000. UK's skeleton deals with the compromise agreement. Consistently with its pleaded case, in paragraph 20 of its skeleton under the heading "Powder Equipment Agreement", reflecting the heading to paragraph 4A of the amended points of claim, is a brief restatement of the November 1993 powder agreement and the December 1995 compromise agreement. It is clear from paragraph 20.2(7) that the compromise agreement is limited to the under-payment counterclaim by reference to paragraph 19.2 of the counterclaim. It states that if the compromise agreement is not found at trial then the tank and equipment charges alleged remain payable.

A reference is made in that skeleton to a matter which had emerged on discovery, the brief history of which is as follows. In UK's ledgers the under-payments of NV's invoices had remained entered on those ledgers as an accumulating total, but, subsequently to December 1995, a contra entry had been made in respect of the alleged powder hire equipment charges claimed at trial. It was suggested that that inclusion constituted a normal and acceptable accounting practice.

NV's opening skeleton dealt with the powder agreement and the compromise agreement under paragraph E9. It contended that UK's claim under the powder agreement was factually and legally unsustainable, and that UK, on its own case, in December 1995 did not have any existing right to receive hire charges, such rights having been subsumed in a right to share profits under the powder agreement. It was on that basis that evidence at trial was then deployed.

In cross-examination on 27 January 2000 a passage appears at pages 55 to 57 of the transcript which has been referred to on this appeal. I will quote from 55B to C where Mr Meyrick had just been shown his pleaded case at paragraph 4A of the amended points of claim. It reads:

It seems to me that that that series of questions and answers amounts to very little except to a very serious undermining of UK's pleaded case that there was a definitive compromise agreement as pleaded in December 1995. Mr Meyrick's language alternates between agreement and discussion in a situation where he says that the agreement was ongoing, and also in circumstances where it is not clear whether the agreement which he is talking about is the powder agreement on the basis of which some liability is to be incurred by NV, or some kind of compromise agreement.

On the next trial day, on the other side of the weekend, the matter was referred to in cross-examination in a passage in the transcript for 31 January 2000 at pages 14 and 15. Mr Meyrick there says that agreements on powders were ongoing from 1993, through 1994 down to December 1995. When he was asked why if that was his view it had not been pleaded in the further and better particulars of claim, Mr Meyrick inaccurately said that, as far as he was concerned, the further and better particulars said just that. At pages 16 and 17 of the same transcript there are further references to discussions at various times throughout 1993, 1994 and 1995:

On the following day, 1 February 2000, at pages 15 to 17, the matter is reverted to again. The effect of the evidence there was that Mr Meyrick reverted to relying upon the December 1995 agreement as one that had covered a whole series of points which had been discussed previously and which had built up over a period of time. For instance, this passage appears at page 16:

Ultimately, Mr Meyrick's evidence in cross-examination involved a reversion to an ongoing dispute and a build up of that dispute over a period of time down to December 1995 when it was settled.

On 7 February 2000, in reexamination, the question was revisited at pages 25 and 26 of the transcript. Mr Meyrick said:

In that passage in reexamination Mr Meyrick appears to revert, albeit in his usual language which varies between talking about agreement and talking about discussion, to periods prior to December 1995. At the conclusion of Mr Meyrick's reexamination, the Judge asked Mr Meyrick a series of questions at pages 30 to 33 of the same transcript. The judge began by going right back to the beginning of the relationship. Thus he asked Mr Meyrick:

The questions continued along that line. Then at 31E, the judge departed from the position in the early 1980s and turned to 1993. He asked:

At 33A the judge asked:

Although this passage has been relied on by Mr Wingate-Saul on the appeal, it seems to me that this evidence given by Mr Meyrick is wholly ambivalent. He speaks of a practice of seeking to resolve outstanding financial queries going back to the beginning of the relationship in the early 1980s; but when it comes to the critical years of 1993 to 1995, the judge put to Mr Meyrick not a case, or even an alternative case, of six monthly compromises, but the primary case of an agreement at the end of 1995 embracing claims under the powder agreement and cross-claim. The effect of that question is made completely clear in the follow-up question and answer at 33A to B when the judge elicits from Mr Meyrick the answer that, if that case of a December 1995 compromise agreement fails, then it is a matter of going back to the detailed questions of claim and counterclaim.

On 21 February 2000 at page 64 of the transcript, Mr Van Poucke was asked whether there had been in the past a custom and practice of ruling off respective indebtedness at the year ends of each of the parties. He was asked:

At that point in cross-examination a question was put in the most general terms relating to the custom and practice of the past. The matter was reverted to two pages later at page 66 of the transcript in another equally brief passage:

Those two brief passages are the only places in which any form of case relating to regular six monthly accord and satisfaction was put to Mr Van Poucke. It is noticeable that the questions were put in the most general terms relating to the whole course of the relationship back to the cooperation agreement in 1982. It was not put in terms in any way to Mr Van Poucke that in 1993, 1994 or 1995 there had been express agreements at the respective year ends or thereabouts of the parties' accounting periods in which the particular claims in dispute at trial had been settled by mutual waiver and accord and satisfaction. Moreover, it is equally clear that, in as much as Mr Van Poucke accepted that there had been one or two occasions on which there had been a form of mutual accord, perhaps a unilateral if not a mutual waiver of unsolved matters, he was speaking there of the past and not of the claims which were in issue at trial.

In the light of those answers, it was never suggested to him that, in truth, there had been regular six monthly accord and satisfaction within the relevant time period of these claims in 1993, 1994 or 1995. That is how the matter was left in cross-examination.

At the end of Mr Van Poucke's reexamination at the end of February 2000, the judge, as he had done at the end of Mr Meyrick's evidence, addressed to him a number of questions. The judge's questions cover from page 10 to page 18 of the transcript. It is impossible concisely in this judgment to quote from those passages. In effect, the judge began by asking him if there had been "discussions" (the word used by the judge, not agreements) between him and Mr Meyrick at the year end of each of their companies' accounting periods. That question led to a lengthy discussion in which Mr Van Poucke made it clear that, although there had been discussions, they were not done on yearly periods, but there had been meetings continuously to seek to resolve disputed matters between the parties.

There was a passage of evidence in which Mr Van Poucke explained, quite accurately as I understand accounting matters, that in order to draw up one's annual accounts there is no need then and there to resolve disputed matters because, in as much as you have for instance an under-payment of invoiced amounts, until those amounts have a provision made against them on the basis that they cannot or will not be recovered, the invoiced claim remains part of the revenue of the company.

At this point, Mr Van Poucke's evidence made it perfectly clear that if there had been a pleaded and investigated case as to whether regular six monthly discussions between the parties ending in agreements to waive and counter-waive claims and cross-claims in order to clarify the parties' statutory accounts, then one would have seen accounting documents, first in draft and finally in their ultimate form, in which any changes would have become clear. The first drafts would have shown the invoiced position, and the ultimate statutory accounts would show any provisions made against the invoiced position and any ultimate write-offs.

However, the judge's general question as to whether there had been discussions between the parties at their companies' respective year ends did give Mr Van Poucke the opportunity to make his position clear on that point. I would accept, therefore, that Mr Van Poucke was given that opportunity to state his evidence. I would not accept that the judge was there putting, in terms, to Mr Van Poucke a case alternative to the pleaded December 1995 compromise agreement case, that the relevant compromises had been made not in December 1995 but at six monthly intervals over the years 1993,1994 and 1995. Not only was that alternative case not expressly put by the judge to Mr Van Poucke, as it had not been put by UK's counsel in cross-examination to Mr Van Poucke, but at a later stage, at page 15B of the transcript, the judge did put to Mr Van Poucke UK's case:

At page 17, the judge put it this way:

These eight pages of the judge's questions were directly raised with Mr Wingate-Saul in the course of submissions on this appeal. Having gone through the passage in a very brief submission, Mr Wingate-Saul accepted that there were two stages to these questions. First, the question was raised about discussions at serial meetings; secondly, UK's case in relation to the December 1995 compromise agreement was discussed. In my judgment that is correct. Although those series of questions gave Mr Van Poucke an opportunity to deal with any suggestion of any earlier agreement prior to December 1995, in respect of which he made his evidence extremely plain, nonetheless the judge did not at any time expressly put an alternative case in terms of six monthly compromise agreements in 1993 to 1995.

The written submissions were exchanged in April 2000, very shortly before final oral speeches began on 4 April. At paragraph 164 of UK's closing written submissions there is the heading "The Compromise Agreement." It said:

That is an express statement that the claimant's contention on this issue remained at the close of trial as it had been at the beginning of trial, namely reliance upon a December 1995 compromise agreement. Paragraph 167 says:

Paragraph 168 was a detailed paragraph, which was broken into six subparagraphs, in which the evidence at trial was reviewed for the purpose of making good UK's continued reliance on the December 1995 agreement. Paragraph 168 began with the general submission:

The judge was then asked to consider the following matters in six subparagraphs. Paragraph 168.1 relied upon discussions prior to December 1995. It said:

Further submissions in support of the same December 1995 compromise agreement are made in subparagraphs 168.2 and 168.3. 168.3 said that:

There is a reference to commercial realism in not wishing to have to review work extending over a two year period. That makes it absolutely plain that the case is based upon the December 1995 agreement. Subparagraph 168.4 contains this passage:

NV's closing written submissions contain these paragraphs at 12.5 and 12.6, under the heading at paragraph 12 of "The Compromise Agreement". 12.5 reads:

At that passage Mr Hunter is referring to Mr Meyrick's evidence for the purpose of undermining his pleaded case at trial. That he was not intending to allow an alternative unpleaded case to be set up as a fall-back position to the December 1995 compromise agreement, was made expressly clear in a subsequent passage, at paragraphs 21.11 to 21.13:

In a series of subparagraphs Mr Hunter underlined the difficulties with any such alternative case.

It seems to me that in that passage Mr Hunter was taking, and not abandoning, a pleading point. He was saying that the position was unclear in relation to a possible alternative compromise, but that if it emerged (because the parties were due to meet again before the judge for the purpose of oral submissions) that an alternative case was being put forward, then the right to object was reserved.

Mr Hunter went first on 4 April 2000. He was, of course, speaking in advance of the final oral submissions on behalf of UK by Mr Wood (Mr Wingate-Saul's junior) who represented UK at trial. In a passage at pages 83 and 84 of the transcript for 4 April, Mr Hunter submitted that the case that UK was seeking to make in respect of any earlier agreements between 1993 and 1995 was not understood. He said that he would therefore await the development of Mr Wood's skeleton submissions. He said:

It seems to me that in those passages Mr Hunter was continuing to reserve the point that any alternative case was not pleaded. He went on to say that it was not open on the evidence and that, pending further oral submissions, the position was not understood.

I now turn to Mr Wood's final speech which continued into 7 April 2000. At page 21 Mr Wood said:

At page 22 Mr Wood moved to subparagraph 168.1 of his written submissions. Again he relies upon the pleaded compromise agreement. In that context he said:

Finally, at page 23 Mr Wood came to subparagraph 168.4 of his closing written submissions. That read:

In his written and oral submissions Mr Wood was properly cautious about seeking to put a positive alternative compromise case. He was, no doubt, conscious that if he had sought to do so, it would have raised a substantial argument as to whether such a case could possibly be open to UK in the light of the whole history of the trial to date. He therefore put the matter only evidentially in support of the one pleaded case, that of the December 1995 compromise, which was before the court.

After the parties' final oral submissions, the judge had reserved time (half-a-day has been mentioned) for his own questions, but whether at the end of the day he did have time for questions of his own is not clear. We have not been taken to any passage in any such judicial question-time in which the judge raises with counsel any possibility that he had it in mind to make a finding of compromise, not in terms "yes or no" of the December 1995 compromise agreement pleaded, but in terms of some unmade alternative compromise case. It must have come as some surprise when in his first judgment, delivered commendably quickly on 12 April 2000, the judge made findings as follows.

The judge began by making findings as to the powder agreement. He said:

In the light of those findings, the judge made it clear that in his view neither party was expecting the powder agreement to generate any revenue in terms of hire, and only a very limited possible shared revenue in respect of a single contract for only a very few months. Already by early 1994 the parties both started to behave on the basis that any use of the powder tanks or equipment would give rise to no hire or sharing of profit. In those circumstances it is very difficult to understand how Mr Meyrick could possibly have thought that he had a real material and genuine claim for some kind of payment, be it called hire charges or a sharing of profit, under the powder agreement over 1994 and 1995, which he could use as a quid pro quo for a mutual accord and satisfaction covering NV's under-payment or over-charging claims.

Nowhere in his judgment does the judge discuss the difficulty of that position for the claimant's case in the light of his express findings about the powder agreement.

The judge then turned to the question of the compromise agreement. He did not approach this by considering the pleaded case first. He went straight into the position at the year end of the companies' respective accounts. He put the matter in this way at pages 31-32 of the judgment:

Having already made those findings in relation to six-monthly agreements down to June 1995, at page 33C-D the judge then dealt with the pleaded case of the December 1995 compromise. He said:

Despite a reference to some later correspondence, it is not immediately clear why, having made his initial findings in favour of six-monthly compromises, the judge was not prepared to extend it a further six months in relation to the period up to December 1995.

Although that result may have caused NV's legal advisers some surprise and there was an attempt to tease out the judge's reasons by requesting him to make more detailed findings covering this aspect of the case for the purposes of a second judgment that the judge gave in relation to the facts, an invitation which he declined, Mr Hunter explained that in the situation in which he found himself part way through the trial and only with the first in a series of judgments having been delivered by the judge, he felt that he was not in a position at that time to complain.

Nevertheless, there did come a time in April 2002, two years later in the context of an application by UK for an interim payment, when NV's concern about these findings surfaced. Mr Hunter submitted that the judge should not be willing to make an interim payment order in favour of UK in circumstances where there was a large question mark over the compromise findings. Mr Hunter requested the judge, deploying well-known authorities relating to the position before a final order is drawn up, to ask the judge to reconsider his first judgment relating to the compromise findings. This led to an adjournment in the course of that interim payment application and the lodging of skeleton arguments for the purposes of an adjourned hearing.

Following that adjournment and the judge's consideration of those skeletons (which are not before this court) and the hearing of further submissions, the judge went on to deliver a judgment in which he said that he was not willing to reconsider his judgment on the compromise question, but that it was a matter which would have to go to appeal. He gave permission to appeal on this question. In the course of his judgment, however, he said at page 7F-H:

Mr Wingate-Saul submits that the adverb "correctly" in that last sentence only qualifies the submission that the twice-yearly compromises were not pleaded, but in my judgment that is an impossible construction of the judge's language. It does appear that, after the matter had been fully argued before the judge, he was satisfied that the twice-yearly compromises had not been pleaded, were not in Mr Meyrick's witness statements and were not argued by Mr Wood. In my judgment that is a correct assessment of the position, subject only to the fact that the twice-yearly compromises were relied upon by Mr Wood as evidential support for a case of a December 1995 compromise.

In a later passage in his judgment the judge referred to Mr Hunter not taking a pleading point. He said, quite rightly, that in many cases purely technical points on pleadings or admissibility of evidence are not taken in the face of developments at trial. Although the matter is not completely clear, or free from doubt, it is my view of this passage of the judge's fourth judgment that the judge was not saying that Mr Hunter had permitted an alternative unpleaded case of twice-yearly compromises to be raised without taking a pleading point, but that the judge was explaining that where NV's complaint about his finding of six-monthly compromises had lain dormant for a period of two years (during which the judge had delivered two other judgments, one further judgment on the facts and one on the law), he was not minded to invoke the jurisdiction, which he accepted did, in theory, exist to reconsider and correct a judgment prior to formal order.

This is the history of events in the proceedings against which NV's appeal has to be considered. In my judgment it is plain that the alternative case on six-monthly compromises was never properly in issue. I would accept Mr Hunter's first ground of appeal that a finding of such compromises, standing on their own in the way that the judge dealt with the matter, was not open to the judge.

An alternative case on six-monthly compromises had never been pleaded. It was not a mere pleading or lawyer's point. If there had been six-monthly compromises of the nature found, it was a matter about which Mr Meyrick must have been aware and on which he must have been expected to have instructed his lawyers. It is plain from the pleadings that he did not. Not only is the alternative case of six-monthly compromises an unpleaded case, but it is a case which is inconsistent with the pleaded case. Thus UK and Mr Meyrick were clear that, in the absence of a December 1995 compromise, his full claim for powder agreement hire charges dating back to November 1993 was open to him.

The alternative case was not to be found in Mr Meyrick's witness statement, despite some references to a practice of drawing the line at year end accounting occasions. It was nowhere to be found in opening submissions. It was not to be found as an alternative case in closing submissions, written or oral. At most there was some evidence from Mr Meyrick, albeit of a most equivocal kind, relating to discussions, and on occasions he said agreements, at six-monthly periods. Such a case was wholly rejected by Mr Van Poucke, save that he did accept that there had been some occasions, albeit going back to a period prior to the years in question, when there had been meetings which had successfully resolved outstanding disputes.

It is clear from the general conduct of these proceedings that such an alternative case on compromise would have necessitated pleading. The proceedings were conducted at all pre-trial levels with full formality with regard to pleadings. Moreover, an alternative case of six monthly compromises would have necessitated discovery that went wider than that permitted by the judge. The judge was rightly anxious not to have the proceedings overwhelmed by enormous discovery going back over the whole period of the parties' relationship. Therefore he required, even in the context of a claim which had begun life before the introduction of the CPR, that discovery be conducted on the basis of what is now known under the CPR as standard disclosure. if an alternative case of six-monthly compromises had been properly pleaded, there would undoubtedly have been important discovery to be elicited relating to the drawing up the companies' year end accounts.

Such an alternative case would also have required clear evidence from Mr Meyrick in chief. The proper pleading and appropriate disclosure of relevant documents would also have given Mr Van Poucke an opportunity to get to the bottom of such an alternative pleaded case.

As for whether a pleading point was taken by Mr Hunter at trial, in my judgment, for the reasons I have already explained in going through the material at trial, a pleading point was taken and properly reserved and was not given up. In the event, that pleading point did not have to be pursued because Mr Wood made it clear in both his written and oral submissions that he was only advancing reliance upon evidence of year end meetings in relation to accounts as a matter of evidential support for the single pleaded case of the December 1995 compromise.

Mr Hunter was prepared to take the risk that the evidential weight, if any, of the material deployed about six-monthly discussions or agreements, might support the pleaded compromise issue. But he was not prepared to, and in my judgment did not, take the risk that the compromise agreement of December 1995 would fail, but that at the same time UK would be rescued by the finding of an alternative and inconsistent series of earlier six-monthly compromises.

The importance of the change to an alternative case of earlier six-monthly compromises can be seen in the fact that, as embraced by the judge, the six-monthly compromises down to June 1995 overwhelmed not only the under-payment counterclaim but also the over-charging counterclaim, even though the pleaded case of the December 1995 compromise agreement only related to the under-payment counterclaim.

The judge ultimately accepted, after full argument, that the alternative case had never been advanced. In all these circumstances, it seems to me that it was impossible and not open to the judge to conclude the compromise issue by adopting an alternative case of earlier six-monthly compromises.

Such a matter goes to the underlying fairness of the proceedings and hardly needs the citation of any authority. However, one case relevant to such a situation, although ultimately turning on its own facts, is The 'Vimeira' [1984] 2 Lloyd's Reports 66 where, in proceedings arising out of an arbitration, this court set aside an award on the ground that it had been based upon an issue which was not before the arbitrator. At page 74 Robert Goff LJ said:

I have sought to show from the whole course of the proceedings in this action that the six-monthly compromise case never became an alternative case in the proceedings.

In this case it cannot be said that Mr Van Poucke had no opportunity to address the practice of six-monthly compromises. He certainly took that opportunity as far as it went. However, NV never had an opportunity of addressing such a case by reference to disclosure and the proper formulation of evidence and so forth.

Finally Ackner LJ said at 76:

I turn next to Mr Hunter's second ground on this appeal, and conclude that, even if a finding of six-monthly compromises was open to the judge, it was not only made against the weight of evidence, but was based on evidence which was wholly inadequate. It cannot be said that there was no evidence whatsoever in relation to this point, but there was, in my view, next to no evidence.

Such evidence as was given has to be seen against the background that it was given pursuant to a case which, if it was to be made at all, was one which should have been pleaded and one which it turned out was inconsistent with the pleadings. It was in the circumstances an unlikely finding, particularly in view of the judge's findings in relation to the terms of the powder agreement and the size of NV's counterclaims. Most of Mr Meyrick's evidence on the point was put in terms of discussions rather than agreement. The point was roundly, comprehensively, and in my view most credibly, denied by Mr Van Poucke. Moreover, if, as the judge found, there was no December 1995 compromise, when that was the focus of these proceedings so far as compromise was concerned, then that finding against the December 1995 compromise throws a long shadow upon the possibility of earlier six-monthly compromises.

Where a point of this kind is raised out of the blue and inconsistently with detailed pleadings in the case, and is roundly rejected by an opposing witness and only supported most equivocally by a claimant's witness, then unless it is strongly supported by the probabilities of the case and documentary evidence, even assuming fair disclosure of documents was given, in my view it is unlikely to be right to find in favour of it. In my judgment therefore, if it had been necessary, Mr Hunter would succeed on his second ground as well.

This concerned the question whether the judge was right to find that cleaning costs were to be invoiced at cost rather than on a commercial profit basis. In this respect UK's argument has changed since the notice of appeal upon which permission was obtained. At that time, the point was made that the judge had inconsistently found in favour of an at cost basis for cleaning costs alone, whereas he found that all other items charged between the parties were on a commercial with profit basis. Further analysis, however, has shown that not to be the position at all. As a result, Mr Wingate-Saul had to radically amend his argument for the purposes of this hearing.

There were four items in question: (i) carriage costs; (ii) sea-freight element of the carriage costs; (iii) cleaning costs; and later during the parties' relationship (iv) an administrative charge between the parties of Belgian FR 1,000 per job. It was already common ground between the parties that sea-freight was to be charged at cost and that the later administration fee was an element to cover not only overhead costs of administration but also an element of profit. There were only two items in dispute at trial. One was carriage costs, excluding sea-freight, and the other was cleaning costs. The judge found that carriage costs were to be paid for on a with profit basis, but cleaning costs were to be paid for at cost. Therefore, his finding on cleaning costs was not an exception to the general run of argument or judicial conclusion.

Mr Wingate-Saul, on his amended case nevertheless persevered with his two essential submissions that, because the parties at trial had argued for no distinction between carriage and cleaning costs, the judge was wrong to distinguish between them, and that the judge should have been loyal to his own express principle to the effect that a variation from one cost basis to another cost basis over time would have to be shown with precision. In this connection Mr Wingate-Saul relied on a passage in the judge's judgment at paragraph 24F which he suggested was a finding that, if there was an agreement for cleaning costs on an at cost basis, it came in only by way of variation to a previous agreement for a with profit basis for cleaning costs. It seems plain to me that in that passage the judge is merely commenting on the effect of Mr Van Poucke's evidence rather than making a finding for himself.

The position is that, over a series of pages, the judge entered into a careful analysis of the question of carriage and cleaning costs and of their cost basis. In the course of his analysis he pointed to strong factors in favour of cleaning costs being chargeable on an at cost basis. Thus there were the facts that both parties had conducted their business with one another on the basis that cleaning costs were to be paid on a cost basis. So much so that, if the costs had been initially invoiced to one another on a basis by reference to a figure which turned out ultimately to be higher than the actual sub-contracted cost, then credit notes were issued. Moreover, NV had a software system which was specifically designed to ensure that cleaning costs, but not carriage costs, were policed on an at cost basis. So, if they had originally been invoiced at a higher rate, a credit note would be generated.

There was a document originating from Mr Meyrick to Mr Van Poucke which is only intelligible on the basis that it was the mutual understanding of both parties, including UK, that cleaning costs were on an at cost basis. So far as carriage costs were concerned, the judge pointed in his analysis to factors favouring a costs basis for them on a with profit basis. He was particularly impressed with his view that an at cost basis for carriage costs would be an impossible and unrealistic one for the parties because it would effectively put UK in the power of NV's allocation of costs in respect of various journeys over the Continent. Whether that analysis is ultimately as powerful a factor as it appeared to the judge to be, is another question and one that is not relevant to this appeal. There is no appeal on this costing question on the part of NV, only on the part of UK. Nevertheless, the judge gave his detailed reasons for finding in favour of one cost basis for carriage costs but another cost basis for cleaning costs.

In this connection he was also able to point to correspondence between the parties which referred to the carriage and cleaning costs in different terms. Cleaning charges were referred to by reference to "real costs" as distinct from carriage charges which were referred to by reference to "tariffs".

For all those reasons, it seems to me that the judge was perfectly entitled to distinguish between carriage and cleaning costs. Moreover, he was entitled to choose between the cost basis for carriage and cleaning, despite the fact that, forensically, both parties argued for both carriage and cleaning costs to be on the same basis. The number of times when a court has adopted only part but not the whole of one or other party's case must be legion.

As for Mr Wingate-Saul's other ground that the judge erred in being prepared to find an at cost basis by way of variation, in my judgment he did not do so. My understanding of his judgment is that the agreed but distinct basis for carriage and cleaning charges went back to the beginning, or what was for all purposes the relevant beginning, of the parties' relationship. Even if the judge had found that the charging basis for cleaning had varied over the period of the relationship, he was perfectly entitled, whatever the precision for the variation that he required, to find that by 1993 cleaning was charged on an at cost basis. It was perfectly plain from the parties' mutual dealings with one another that that was how they dealt with cleaning costs. That clear evidence was material which the judge accepted in reaching his conclusion.

For those reasons, therefore, the cross-appeal fails. NV's appeal succeeds, with the result that the judge's findings in relation to the six-monthly compromises cannot stand, and the cross-appeal fails.

LORD JUSTICE SCOTT-BAKER: I agree.

LORD PHILLIPS, MR: The first stage of the trial in this matter, which was devoted to issues of liability lasted 29 days. The unfortunate length and complexity of the proceedings is in large measure a product of the informality with which Mr Meyrick and Mr Van Poucke carried on what was essentially a joint venture through the medium of their two companies, UK and NV.

When their business relationship broke down, I would anticipate that they were urged to resort to alternative dispute resolution to resolve their differences. Pity it is that they did not do so.

I sympathise with the lawyers who had the difficult task of identifying and translating into pleadings the cross allegations made by the parties; a difficulty reflected by the number of occasions on which the pleadings had to be amended. I sympathise even more with the judge who was faced with the task of resolving the issues of liability.

For the reasons given by Lord Justice Rix, I consider that the judge's careful analysis of the basis upon which the cost of tank cleaning fell to be apportioned between the parties cannot be faulted. Accordingly, I agree that UK's cross-appeal, by which they seek to challenge the judge's findings on this issue, must be dismissed.

The nature of the challenge made by NV's appeal is, happily, not one that this court often encounters. Lord Justice Rix has meticulously analysed each step in the lengthy procedural history in demonstrating why that challenge is well-founded.

For the reasons given by Lord Justice Rix, the appeal will be allowed.