Filobake Ltd v Rondo Ltd & Anor

At the permission stage, an appeal is arguable where contractual performance warranties may have been construed too narrowly by separating measurable specifications from the promised ability to produce the intended product. An implied fitness-for-purpose obligation may arguably extend to equipment supplied by one contractor working with equipment supplied by another, including responsibility for compatibility. Damages issues may warrant appellate review where the trial judge arguably set too demanding a standard for hypothetical lost sales or rejected a wasted-expenditure case contrary to expert evidence. An application for permission does not itself stay a payment-on-account costs order; a stay requires a separate emergency application.

Filobake contracted with Rondo and Frampton International for equipment forming a line to extrude, bake and cool filo pastry for samosas. The High Court judge construed Rondo’s performance warranty narrowly and did not separately analyse Frampton’s contractual obligations. He found that no damages had been established, apart from one item of equipment worth approximately £12,000.

Filobake sought permission to appeal on the construction of the express and implied obligations, breach, and damages. It also sought a stay of the unpaid balance of a payment-on-account costs order. The central question was whether the proposed grounds were arguable and fit for appeal.

1. Permission. Permission to appeal was granted generally. The proposed appeal was to be heard by three Lord Justices with a time estimate of two to three days.
2. Rondo’s performance warranty. It was arguable that the trial judge had construed the warranty too narrowly. The reference to the equipment’s capacity to produce samosa pastry to the attached recipe arguably extended beyond width, thickness and speed. It could encompass the functional characteristics necessary to produce commercially usable pastry, including sufficient longitudinal strength to permit folding without cracking. The agreed expert evidence arguably showed that the equipment could not produce such pastry. The issue had not been determined on the wider construction.
3. Frampton’s obligations. It was arguable that Frampton’s express or implied obligations included providing an oven capable of working successfully with Rondo’s equipment. It was also arguable that, under an implied term of fitness for purpose, the supplier rather than the buyer bore the risk that the combined equipment could not achieve the required moisture content. The trial judge had not separately analysed those obligations.
4. Damages. If breach were established, the damages conclusions were also open to review. The judge may have imposed too demanding a standard for proving hypothetical sales to new customers and may have overlooked the different quality and efficiency of the old production line. There was also an arguable issue concerning the rejection of a wasted-expenditure allocation which had been accepted in substantial part by the defendants’ own expert accountant.
5. Costs order. The submission of an appeal application containing a request for a stay did not suspend the obligation to pay costs on account. Compliance was required unless an emergency application for a stay was made to the Court of Appeal. The unpaid £30,000 was stayed pending appeal unless the solicitors undertook to repay it if the appeal order required repayment.

• Court of Appeal (Civil Division): On 9 July 2004, Lord Justice Rix allowed Filobake’s application for permission to appeal generally. The appeal was directed to be heard by three Lord Justices, with a two-to-three-day estimate. A conditional stay was granted in relation to the outstanding £30,000 costs payment.
• High Court, Queen’s Bench Division: HHJ Richard Seymour QC construed Rondo’s performance warranty narrowly and concluded that damages were not established, except for approximately £12,000 relating to one item of equipment. The judgment did not separately analyse Frampton’s contractual obligations. The citation of the High Court decision was not stated in the judgment.