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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies Plc [2023] EWHC 2506 (TCC) (13 October 2023) URL: https://www.bailii.org/ew/cases/EWHC/TCC/2023/2506.html Cite as: [2023] EWHC 2506 (TCC) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (KBD)
Fetter Lane London, EC4A 1NL |
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B e f o r e :
____________________
PINEWOOD TECHNOLOGIES ASIA PACIFIC LIMITED |
Claimant |
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- and - |
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PINEWOOD TECHNOLOGIES PLC |
Defendant |
____________________
Tamara Oppenheimer KC and Max Kasriel (instructed by Trowers & Hamlins LLP) for the Defendant
Hearing dates: 12 & 13 July 2023
____________________
Crown Copyright ©
This judgment has been handed down by the judge by circulation to the parties' representatives by email and released to The National Archives. The date for hand-down is deemed to be 2 pm, 13 October 2023.
Mrs Justice Joanna Smith:
a. to construe the provisions of an exclusion clause contained at clause 16.2 of two similar contracts on which the claim is based dated respectively the 28 July 2017 and the 8 January 2019 ("the First Reseller Agreement" and "the Second Reseller Agreement"; together "the Reseller Agreements"). In particular, to grant reverse summary judgment on the basis that PTAP's claim for breach of various general obligations imposed on Pinewood under the Reseller Agreements is excluded by clause 16.2 by virtue of being a claim for "loss of profit", alternatively for "any costs or expenses…incurred in reliance on" those agreements; alternatively
b. to declare that Pinewood's liability is limited by reason of the provisions of clause 16.3 of the Reseller Agreements to £134,528 in respect of the First Reseller Agreement and to £0 in respect of the Second Reseller Agreement;
c. to enter summary judgment on Pinewood's counterclaim for outstanding sums due under the Reseller Agreements in the sums of US$212,105 and THB 15,517,413 plus interest in circumstances where PTAP has no legally recognisable defence. Pinewood relies upon a "no set off" provision in clause 8.10 of the Reseller Agreements in support of the proposition that there is no proper basis to deny it judgment on its counterclaim, inviting the court to construe that provision now.
a. an amendment to the Reply and Defence to Counterclaim to plead that clause 16 of the Reseller Agreements formed part of Pinewood's written standard terms of business within the meaning of section 3(1) of the Unfair Contract Terms Act 1977 ("UCTA 1977"), such that Pinewood is not entitled to seek to exclude or restrict its liability by reference to clause 16. PTAP contends that clauses 16.2 and 16.3 of the Reseller Agreements do not meet the requirement of "reasonableness" under section 11 UCTA 1977 ("the UCTA Argument"). By a letter sent on the second day of the hearing, PTAP's solicitors also indicated that PTAP wished to make a similar amendment so as expressly to aver that clause 8.10 of the Reseller Agreements also formed part of Pinewood's written standard terms of business such that Pinewood is not entitled to exclude the application of equitable set off by reference to clause 8.10 because that clause also does not meet the requirement of reasonableness under section 11 UCTA 1977. It is common ground that I should treat this as part of the PTAP Application.
b. specific disclosure in respect of eight categories of document, two of which are designed to obtain additional information to support the UCTA Argument. The remaining six categories are designed to explore the possibility that PTAP has a claim against Pinewood for "fraud or fraudulent misrepresentation", in respect of which clause 16.1 of the Reseller Agreements makes clear that Pinewood's liability is not excluded ("the Fraud Argument").
The Background:
8. Clause 4 sets out competition restrictions that apply to the parties during the Term. Clause 4.2(c) places an obligation on PTAP not to "for the Term, promote, market, sell, licence, resell, supply or otherwise provide or deal in any software, licence or services to or in relation to Motor Vehicle Dealerships, which is or are similar to or may compete with the [Pinewood DMS] and/or [Pinewood DMS] Services…". Clause 5 identifies the targets that PTAP was to achieve for new users for each year that the agreement was in force and clause 6 provides for Pinewood to grant a non-exclusive licence to PTAP in relation to the Pinewood DMS.
"Deductions and Withholding Taxes
The Pinnacle User Account Monthly Fees (and all value added taxes and sales taxes thereon) shall be the net amount payable by the Reseller, and shall be made in full without withholding, deduction or set-off, including in respect of any taxes, charges, and other duties that may be imposed by any law or country on the same or on either party (with the exception of any corporation tax charged by the UK government on Pinewood's net income), and the Reseller shall be responsible for paying any such taxes, charges and other duties, except in so far as any such taxes, charges and other duties may be credited in full by Pinewood against its own tax liabilities. The parties agree to co-operate in all respects necessary to take advantage of such double taxation treaties as may be available, and each party agrees to assist the other party to mitigate or obtain a credit or reduction of such taxes, charges and other duties, including providing any information, certificates and documentation reasonably required."
"Future Developments
Pinewood will keep [PTAP] advised about all releases and further development of the [Pinewood DMS] which may assist [PTAP] in the successful operation and promotion and sale of [Pinewood DMS] Services. Pinewood will make any necessary changes to ensure that the [Pinewood DMS] meets the legal requirements of the Territory, provided that [PTAP] provides Pinewood reasonable notice and detail of the changes required. Pinewood will use its best endeavours to make any necessary changes to ensure that the [Pinewood DMS] meets the vehicle manufacturer franchise standards of the franchises held by Contracting Customers."
11. PTAP's claim in these proceedings is that this clause imposes three distinct obligations on Pinewood (referred to compendiously as "the Development Obligations"), namely: (i) "the Update Obligation" (to "keep [PTAP] advised about all releases and further development of the [Pinewood DMS] which may assist PTAP in the successful operation and promotion and sale of [Pinewood DMS] Services"); (ii) "the Legal Requirements Obligation" (to "make any necessary changes to ensure that the [Pinewood DMS] meets the legal requirements of the Territory…"); and (iii) "the Franchise Standards Obligation" (to "use its best endeavours to make any necessary changes to ensure that the [Pinewood DMS] meets the vehicle manufacturer franchise standards of the franchises held by the Contracting Customers"). PTAP also asserts an implied term ("the Localisation Obligation") that Pinewood was required to complete what it refers to as localisation items, i.e. Development Items necessary to ensure that the Pinewood DMS could operate and be sold in the particular Territory.
"LIABILITY OF PINEWOOD [UK]
16.1 Liability not limited
Pinewood does not exclude its liability for death or personal injury resulting from its negligence, for fraud or fraudulent misrepresentation, or for breach of Clause 13 (Confidentiality).
16.2 Excluded Types of Loss
Subject to Clause 16.1, Pinewood excludes, in relation to any liability it may have for breach of this Agreement, negligence under, in the course of or in connection with this Agreement, misrepresentation in connection with this Agreement, or otherwise howsoever arising in connection with this Agreement, any such liability for: (1) special, indirect or consequential loss; (2) loss of profit, bargain, use, expectation, anticipated savings, data, production, business, revenue, contract or goodwill; (3) any costs or expenses, liability, commitment, contract or expenditure incurred in reliance on this Agreement or representations made in connection with this Agreement; or (4) losses suffered by third parties or the Reseller's liability to any third party.
16.3 General Liability Limit
Subject to Clause 16.1, Pinewood limits its liability for breach of this Agreement, negligence under, in the course of or in connection with this Agreement, or otherwise howsoever arising in connection with this Agreement, in aggregate for all events giving rise to such liability, to the yearly average of the total Pinnacle User Account Monthly Fees invoiced averaged over each complete Agreement Year to date, or in the case of any claim arising in the first Agreement Year, to the amount reasonably expected to be invoiced on account of Pinnacle User Account Monthly Fees for that Agreement Year."
a. Damages for costs and expenses incurred by PTAP in reliance on Pinewood's anticipated performance of clause 10.5, said to be "currently assessed in the sum of at least USD 7.2 million". It is common ground that this is a claim for wasted expenditure;
b. Lost profits under the Second Reseller Agreement said to be "currently assessed in the sum of USD 32.5 million";
c. Lost profits arising out of the failure of the launch of the Pinewood DMS in Japan with contracted customers under the Second Reseller Agreement "currently assessed in the sum of at least USD 85.8 million"; and
d. Lost profits under the First Reseller Agreement said to be "currently assessed in the sum of at least USD 187.2 million".
"additional costs beyond that which could be recouped through additional Customer charges in developing its AutoBI tool to produce reports that complied with Vietnamese Accounting Standards ("VAS Reports"). This was only necessary following Pinewood's failure to deliver the necessary functionality to produce VAS Reports in the Pinewood DMS, in breach of the Legal Requirements Obligation in the First Reseller Agreement. This loss is currently assessed in the sum of at least USD 896,535.39".
"42.4. It is denied that [PTAP] is entitled to damages in respect of lost profits (as pleaded in sub-paragraphs 37.2 and 37.3) by virtue of the exclusion of Pinewood's liability for such losses in clause 16.2 of the Reseller Agreements.
42.5. Alternatively, any liability of Pinewood is subject to the following general limits pursuant to clause 16.3 of the Reseller Agreements:
(a) Under the First Reseller Agreement: £134,528; and
(b) Under the Second Reseller Agreement: £0".
These paragraphs are the subject of bare denials in PTAP's Reply and Defence to Counterclaim.
"Moreover, pending further disclosure, [PTAP] infers that clause 16 of the Reseller Agreements formed part of [Pinewood's] written standard terms of business within the meaning of section 3(1) of [UCTA]. [Pinewood] is not entitled to seek to exclude or restrict its liability in respect of its breaches of the Reseller Agreements under clause 16.2 and 16.3 of the Reseller Agreements pursuant to section 3(2)(a) UCTA. It is averred (if alleged by [Pinewood]) that clauses 16.2 and 16.3 of the Reseller Agreements do not meet the requirement of "reasonableness" under section 11 UCTA".
"For the avoidance of doubt, [PTAP] is not entitled to set off the sums due under the Invoices and/or the Further Invoices against any sums due or claimed as due by [PTAP] (including by way of the claims brought by [PTAP] in these proceedings), by reason of clause 8.10 of the First Reseller Agreement".
22. In its Reply and Defence to Counterclaim, PTAP admits the issue of the Invoices and admits that they have not been paid. However, it asserts an entitlement to withhold payment of the Invoices on the basis of equitable set off, pleading that "…on its proper construction, clause 8.10 of the First Reseller Agreement does not operate to exclude the applicability of equitable set off, including in the circumstances of [PTAP's] claims in these proceedings".
"Further or alternatively, pending further disclosure, [PTAP] infers that clause 8.10 of the Reseller Agreements formed part of Pinewood's written standard terms of business within the meaning of section 3(1) of UCTA. Pinewood is not entitled to rely on clause 8.10 of the Reseller Agreement to prevent the set off of sums claimed under the Reseller Agreements against the sums claimed by way of counterclaim. It is averred (if alleged by Pinewood) that clause 8.10 of the Reseller Agreements does not meet the requirement of 'reasonableness' under section 11 UCTA".
The Evidence
Approach to the Applications
The Amendment Application and related application for specific disclosure
"3 Liability arising in contract.
(1) This section applies as between contracting parties where one of them deals... on the other's written standard terms of business.
(2) As against that party, the other cannot by reference to any contract term—
(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or
(b) claim to be entitled—
(i) to render a contractual performance substantially different from that which was reasonably expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to render no performance at all,
except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness".
"(1) In relation to a contract term, the requirement of reasonableness for the purposes of this Part of this Act, section 3 of the Misrepresentation Act 1967 and section 3 of the Misrepresentation Act (Northern Ireland) 1967 is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made
…
(5) It is for those claiming that a contract term…satisfies the requirements of reasonableness to show that it does".
The relevant legal principles
"21 The fourth requirement is that the deal must be done on the written standard terms of business. That raises the question whether the Act applies in cases where there has been negotiation between the parties the result of which is that some but not all the standard terms are applicable to the deal. In St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481 (the only other case, so far as counsel were aware, which has come before this court on this issue since the Act was passed), the party relying on the Act submitted that, if there were any negotiation of any kind, the Act could not apply. That broad submission was rejected by this court in an obiter passage of the judgment of Nourse LJ with whom Hirst LJ and Sir Iain Glidewell agreed, but Nourse LJ went on to approve (at p 491G) the statement of Scott Baker J at first instance that the deal in that case had been done on the defendant's standard terms of business because those terms remained "effectively untouched" by the negotiations that had taken place. That leaves open the question of the correct approach when some of the standard terms are not part of the deal.
22 Here there is also some first instance authority. Shortly after the Act was passed Lord Dunpark in McCrone v Boots Farm Sales Ltd 1981 SLT 103 had to construe the phrase "standard form contract" in the part of the Act which applied in Scotland. He said (at p 105):
"It is, in my opinion, wide enough to include any contract, whether wholly written or partly oral, which includes a set of fixed terms or conditions which the proponer applies, without material variation, to contracts of the kind in question."
23 In Hadley Design Associates Ltd v Westminster City Council [2004] TCLR 1, Judge Seymour said, at para 78:
"The concept underlying the provisions of Unfair Contract Terms Act 1977 section 3, in my judgment, is that there should exist a stock of written, no doubt usually, at any rate, printed, contract conditions which was simply drawn from as a matter of routine and intended to be adopted or imposed without consideration or negotiation specific to the individual case in which they were to be used. That seems to me to be the force of the words 'written' and 'standard' in the expression 'written standard terms of business'. In other words, it is not enough to bring a case within Unfair Contract Terms Act 1977, section 3, that a party has established terms of business which it prefers to adopt, as, for example, a form of draft contract maintained on a computer, or established requirements as to what contracts into which it entered should contain, as, for example, provision for arbitration in the event of disputes. Something more is needed, and on principle that something more, in my judgment, is that the relevant terms should exist in written form prior to the possibility of the making of the relevant agreement arising, thus being 'written', and they should be intended to be adopted more or less automatically in all transactions of a particular type without any significant opportunity for negotiation, thus being 'standard'."
24 In Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2011] Bus LR 360 Edwards-Stuart J adopted the same approach, at para 21:
"The conditions have to be standard in that they are terms which the company in question uses for all, or nearly all, of its contracts of a particular type without alteration (apart from blanks which have to be completed showing the price, name of the other contracting party and so on). One encounters such terms on a regular basis - whether when buying goods over the internet or by mail order or when buying a ticket for travel by air or rail."
25 I would also approve these first instance decisions and hold that it is relevant to inquire whether there have been more than insubstantial variations to the terms which may otherwise have been habitually used by the other party to the transaction. If there have been substantial variations, it is unlikely to be the case that the party relying on the Act will have discharged the burden on him to show that the contract has been made "on the other's written standard terms of business".
42. Second, Longmore LJ said (at [35]) that even if he was wrong on the approach to be taken to deciding whether the terms being relied upon were standard business terms of the relevant party, he would also uphold the judgment "on the basis that there were in fact detailed negotiations in the present case which render it impossible to say that either the [loan facility] model form was, or the terms ultimately agreed were, the claimant's standard terms of business". He pointed to the three amendments identified by the judge which he described as "undoubtedly of considerable substance" and said that these showed that "there was a substantial negotiation which suffices to demonstrate that the terms ultimately agreed were not standard business terms. It certainly cannot be said that the terms were "effectively untouched"…". At [36], Longmore LJ made it clear that "[t]here is…no requirement that negotiations must relate to the exclusion terms of the contract, if the Act is not to apply".
The Evidence
a. On 8 December 2016, Mr Hopkinson sent an email to Mr Neilsen attaching a first draft proposal to supply the Pinewood DMS to PTAP. Amongst other things the email attached "our reseller agreement for partners". Mr Hopkinson asked Mr Neilsen to give him a call "[o]nce you have had a chance to digest this". It appears to be accepted that the attached reseller agreement was in the form held by Pinewood on its internal system. Every page had a footer "Pinewood – Reseller Agreement".
b. The following day, Mr Neilsen responded, thanking Mr Hopkinson for the information and asking some preliminary questions "to get an idea of the investment required on my side". On 13 December 2016, Mr Hopkinson responded to the questions posed.
c. On 10 April 2017, after a delay of several months, Mr Neilsen emailed Mr Hopkinson with his comments on the proposed reseller agreement, saying "Sorry for the delay in getting back to you – lawyers are slow during these holidays in HK. I've bypassed their final round of comments and captured them as noted in the markup". Mr Neilsen asked Mr Hopkinson to let him know "when you have time to discuss this week". The markup made various changes of the "fill in the blanks" variety (e.g. the identity of the contracting party, the Territory to be included and the Targets), made some other suggested amendments (including at clauses 2.2, 3.1, 3.2, 3.6 and 9.1) and also included comment boxes making observations about ways in which various clauses needed to be revised. No proposals were made in respect of clauses 8.10 and 16, and this remained the position throughout the parties' subsequent exchanges.
d. On 12 April 2017, Mr Hopkinson responded by email, saying that he had added some comments to the draft agreement and suggesting a call once Mr Neilsen had had a chance to consider them. He said he had "not spoken to our legal guys at this stage, let's see if we can get a closer understanding first". Mr Hopkinson also observed that "[t]hese things are always a bit awkward, our SA agreement has been in place since 2009 and have never needed to call each other out over it". Mr Hopkinson's attached markup of the draft agreement responded to Mr Neilsen's comments using separate comment boxes, providing clarification and also rejecting some of the proposals made. Mr Neilsen's suggested amendment to clause 2.2 was rejected as "completely unacceptable", his amendment to 3.1 and 3.2 was "unnecessary" and his amendment to 3.6 was rejected. No comment was made in relation to the amendment at clause 9.1.
e. It seems from an email from Mr Neilsen to Mr Hopkinson of 25 April 2017 that a call then took place "just before Easter". In his email, Mr Neilsen said "I believe we are aligned on most of the terms and the agreement now reflects that. The only remaining issues revolve around your obligations for modifications, our risk in an outage scenario and toher (sic) related liabilities. My lawyers tried to make the language way too complicated, so what you will see if (sic) the same comments as before in the section related to your obligations. Why don't you have your team take a crack at it and we will respond with any modifications". Mr Neilsen ended by saying: "Have fun with the lawyers today and let me know if you need anything from me in the meantime". The attached markup of the draft agreement shows that Mr Neilsen's original amendments to clauses 3.1, 3.2 and 9.1 are no longer in issue and that there has been movement by Pinewood in relation to clause 3.6. Further comments suggest revised wording for clause 2.2 and raise additional points of clarification.
f. This markup appears to have prompted another call, because an email from Mr Neilsen to Mr Hopkinson of 9 May 2017 includes the following: "Thank you for your patience with the delay in getting back the changes after our call. I have worked with the team and scoped out the markets we intend to enter first. Hopefully these revisions get us over the line and I would like to execute this contract by 19th May if possible. Let me know if you think that will be an issue". Another markup of the draft agreement was attached to this email, showing a revised list of Territories and retaining comments from the earlier markup.
g. On 2 June 2017, Mr Neilsen again emailed Mr Hopkinson referring to modifications he had made to the Territories in the draft agreement and saying that "I know you are struggling for priorities with the legal team at group" but that he hoped to get to execution "this coming week".
h. On 11 July 2017, Mr Hopkinson emailed Mr Neilsen attaching the draft agreement and saying "Assuming all OK we can get this signed up. We have added the SLA provisions, Guam and converted to US$. We have also redefined the Mobile licence situation as a mobile user is only required for Tech+ the other Apps are available as part of the regular licence". The attached draft makes clear that the additional wording proposed by Mr Neilsen in relation to clause 2.2 has been rejected, inserts new wording at the end of clause 3.6 and inserts a new clause at 10.6, together with a new Schedule 4 addressing Service Levels (this was confirmed by Pinewood during the hearing as the SLA provisions referred to in the covering email).
i. On 18 July, Mr Neilsen responded, apologising for the delay and saying "It took a while to debate some items back and forth with our counsel. Attached you will find the agreement with some minor changes that I'd like to talk through with you". These changes included crossing out some of the new words inserted by Mr Hopkinson into clause 3.6, and suggesting new (and substantive) changes to clauses 18 (concerning assignment) and 20.3.
j. On 24 July 2017, Mr Hopkinson emailed Mr Neilsen attaching a further version of the draft agreement and summarising his position on the "outstanding" points, some of which concerned targets and payment. Mr Hopkinson pointed out that a change had been made to clause 18 to make it "mutual" but that Pinewood was unable to accept the proposed change to clause 20.3. The First Reseller Agreement was subsequently signed on 28 July 2017.
a. Clause 9.1 involved a change from "best" endeavours to "all reasonable endeavours" in connection with PTAP's obligation to secure as many customers for the Pinewood DMS Services and sales of User Accounts as possible in the Territory. In isolation, Ms Oppenheimer accepted that this was probably not material (and I agree), but she maintained that it must be taken together with the substantive changes to clauses 3.6, 10.6 and 18.
b. Clause 3.6 – this clause provides for Pinewood to give notice to PTAP in the event that it wishes to appoint a reseller in a different Territory and gives PTAP a period of time in which to accept or reject the appointment. The amendment by way of additional wording at the end of the clause provided that it would "only apply where [PTAP] has met the last applicable targets as set out in clause 5.1". If PTAP has not met that target then "Pinewood shall not be obliged to make an Offer to [PTAP] and notwithstanding any provisions of exclusivity shall be entitled to appoint any other reseller as it sees fit".
c. Clause 10.6 introduced an entirely new provision whereby Pinewood was to "provide hosting for the [Pinewood DMS] Services in accordance with the Service Levels set out in Schedule 4".
d. Clause 18 altered the original provision as to assignment (which permitted Pinewood freedom to assign the agreement but restricted PTAP's ability to assign without prior written consent) so that the restriction on assignment without written consent was mutual.
Conclusion on the amendment application and related application for specific disclosure
The remaining application for specific disclosure and the Fraud Argument
a. of requests from Pinewood between September 2019 and January 2021 for PTAP's growth strategies and client proposals which he says coincided with a change in leadership at Pendragon and a substantial slowdown in the delivery of development updates required to launch the Pinewood DMS with existing and prospective customers;
b. of his suspicion that the information provided pursuant to these requests had led Pinewood to form the view that it wanted PTAP's customers and markets for itself, albeit in conjunction with an acknowledgment that the factual position can only be established by sight of internal communications from Pinewood and Pendragon at the time;
c. that almost immediately following termination of the Reseller Agreements, Pinewood approached each of PTAP's former customers seeking to require them to enter into direct contracts for the provision of the Pinewood DMS;
d. that since contracting directly with these customers, Pinewood has delivered a number of longstanding Development Items;
e. of his concern that the combination of the above factors indicates that Pinewood and Pendragon "may have made a conscious decision either not to carry out, or at least not to deliver, development work while [PTAP] was the contracted reseller, with the ultimate aim of driving PTAP out of business and taking [its] contracts directly". Mr Neilsen goes on to say that "[i]t is also entirely possible in my view that Pinewood was in contact with underlying customers to prepare for that eventuality".
"38…the proper exercise of that power should be informed by the Practice Direction and the purposes for which it was imposed, namely to provide a structure and a set of rules which limit disclosure to what is reasonable and proportionate.
39…the court would only [make] the order sought under its residual power if it was satisfied that it was not thereby running contrary to the regime imposed by the Practice Direction having regard both to its literal terms and its overall purpose".
"…A residual contextual jurisdiction oils the cogs of the formal machinery. Specific disclosure which is reasonable and proportionate can, in exceptional situations, be ordered even when the document is not "mentioned" in a formal sense and even if it proves to be "adverse" to the disclosing party as a matter of jurisdictional analysis. This does not undermine the integrity of PD57AD…"
"[t]he court will be concerned to ensure that disclosure is directed to the issues in the proceedings and that the scope of disclosure is not wider than is reasonable and proportionate…in order fairly to resolve those issues and specifically the Issues for Disclosure (as defined in paragraph 7.6)".
71. Mr Sprange accepts that the categories of document that he seeks would not be disclosable in the proceedings in the absence of an amended case to plead the Fraud Argument and I reject his case that they are disclosable absent such a case. The application for disclosure to determine whether there is a case to be run amounts, to my mind, to no more than a fishing expedition. Mr Sprange submitted that an order requiring Pinewood to hand over "a small body of documents at an early stage in the proceedings…makes a lot of practical sense", but this does not come close to engaging the residual jurisdiction. That the disclosure exercise may not be onerous (a suggestion that was rejected by Ms Oppenheimer) is nothing to the point.
Summary Judgment – law and practice
"i) The court must consider whether the claimant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 2 All ER 91;
ii) A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8];
iii) In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman;
iv) This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]
v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;
vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;
vii) On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725".
"14. Easyair principles (vi) and (vii) contain echoes of the law's traditional disapproval of 'a desire to investigate alleged obscurities and a hope that something will turn up...' as a basis for defending a summary judgment application; a case that is 'all surmise and Micawberism' will not do: see The Lady Anne Tennant v Associated Newspapers Ltd [1979] FSR 298, 303 (Sir Robert Megarry V-C). The focus is not just on whether something more might emerge, but also - and crucially - on whether, if so, it might 'affect the outcome of the case'; and the court's task is to assess whether there are 'reasonable grounds' for believing that both these things would occur: see Doncaster Pharmaceuticals Group Ltd v The Bolton Pharmaceutical Company 100 Ltd [2006] EWCA Civ 661 [2007] FSR 63, [18] (Mummery LJ).
15. As Mummery LJ warned in the Doncaster case at [10], on applications for summary judgment the court must be alert to 'the defendant, who seeks to avoid summary judgment by making a case look more complicated and difficult than it really is'. But as he also said at [11], the court should beware 'the cocky claimant who ... confidently presents the factual and legal issues as simpler and easier than they really are and urges the court to be efficient...'. Efficiency is not a ground for entering summary judgment. Judgment without a trial may sometimes result in huge savings of time and costs; that would have been so in the hugely expensive litigation in Three Rivers District Council v Bank of England. But neither Part 24, nor the overriding objective, permits the court to enter judgment on the basis that the claimant has a strong case, the defence is not likely to succeed, and the time and costs involved in a trial are disproportionate to the potential gains.
16. The overriding objective of 'deciding cases justly and at proportionate cost' does have a role to play if the court concludes there is no realistic prospect of a successful defence, and the question arises whether there is 'some other compelling reason' for a trial. At that point, the court would be bound to have regard to considerations such as saving expense, proportionality, and the competing demands on the scarce resources (CPR 1.1(2)(b), (c) and (e)). It is rare for the court to find a compelling reason for a trial, when it has concluded there is only one realistic outcome. The defendant has not suggested that this is such a case. My focus must be on whether it is realistic or fanciful to suppose the claims might fail at trial."
"…in forming an assessment of the prospects of success for the purpose of applying the test in Part 24, the court may take a view on what is an issue between the parties on the pleadings and the merits of the points that have been raised but are not yet pleaded. The key question is whether the arguments raised, whether pleaded or unpleaded, give rise to a real prospect of success".
Approach to the construction of Exclusion Clauses
a. The exercise of construing an exclusion clause must be undertaken in accordance with the ordinary methods of contractual interpretation. Commercial parties are free to make their own bargains and to allocate risks as they think fit; exclusion and limitation clauses are an integral part of pricing and risk allocation. The principle of freedom of contract requires the court to respect and give effect to the parties' agreement (see Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2004] 2 Lloyds Rep 251 per Gross J at [130]; Tradigrain SA v Intertek Testing Services (ITS) Canada Ltd [2007] 1 CLC 188 at [46] per Moore-Bick LJ; Interactive E-Solutions JLT v O3b Africa Ltd [2018] BLR 167 at [14] per Lewison LJ and Triple Point Technology Inc v PTT Public Co Ltd [2021] AC 1148 at [108] per Lord Leggatt with whom Lord Burrows agreed).
b. However, a vital part of the setting in which parties contract is a framework of rights and obligations established by the common law. In construing an exclusion clause, the court will start from the presumption that in the absence of clear words the parties did not intend to derogate from those normal rights and obligations. (Modern Engineering (Bristol) Ltd v Gilbert Ash (Northern) Ltd [1974] AC 689 per Lord Diplock at page 717H; Triple Point at [108]-[110]).
c. The more valuable the right, the clearer the language of the exclusion clause will need to be if it is to be given effect (Triple Point at [110]).
d. However, "[i]n commercial contracts negotiated between business-men capable of looking after their own interests and of deciding how risks inherent in the performance of various kinds of contract can be most economically borne…it is…wrong to place a strained construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning only…" (Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 per Lord Diplock at page 851 and Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] 1 CLC 353 per Carr J at [49]).
e. Notwithstanding (a)-(d) above, an exclusion clause will not normally be interpreted as extending to a situation which would defeat the main object of the contract or create a commercial absurdity, notwithstanding the literal meaning of the words used. This is a context in which it is open to the court to strain to avoid a particular construction, rather than one which requires ambiguity on a fair reading before the principle comes into play, because it is inherently unlikely that the parties intended that the clause should have so wide an ambit as in effect to deprive one party's stipulations of all contractual force such that the contract becomes 'a mere declaration of intent' (Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013] EWCA Civ 38, per Tomlinson LJ at [19] citing from the speech of Lord Wilberforce in Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 at pages 431-432; AstraZeneca UK v Albemarle International [2011] 2 CLC 252, per Flaux J at [313]; and CNM Estates (Tolworth Tower) Ltd v VeCREF I Sarl [2020] 2 CLC 243, per Foxton J at [33]).
f. However, even in this context, where language is fairly susceptible of one meaning only, that meaning must be attributed to it unless "the meaning is repugnant to the contract" (see Kudos at [20]). This is a principle which "should be seen as one of last resort and there is authority that it applies only in cases where the effect of the clause is to relieve one party from all liability for breach of any of the obligations which he has purported to undertake: see Great North Eastern Rly Ltd v Avon Insurance plc [2001] EWCA Civ 780, [2001] Ll Rep IR 793. Only in such a case could it be said that the contract amounted to nothing more than a mere declaration of intent" (Transocean Drilling UK Ltd v Providence Resources plc (The GSF Arctic III) [2016] EWCA Civ 372, per Moore-Bick LJ at [27]).
"…rejecting any artificial distinctions between different kinds or degrees of breach of contract or presumptions against the application of exclusion or limitation clauses and saying that, whilst such clauses are construed strictly against the party who seeks to rely on the clause, it is a question of construction of the clause in every case, as to whether it covers the particular breach in question."
87. The decision in Kudos is in no way inconsistent with this proposition. It concerned a claim for lost profits arising by reason of the repudiatory breach of a contract for the provision of catering services. The Court of Appeal construed an exclusion clause (appearing as a sub-clause within a section of the agreement entitled "Indemnity and Insurance"), which provided that there should be "no liability whatsoever in contract, tort…or otherwise for any loss of…profits…suffered by the Contractor or any third party in relation to this Agreement…", so as to have a narrow meaning, namely lost profits arising by reason of the defective performance of the agreement and not lost profits arising by reason of a refusal or disabling inability to perform it. In so doing, Tomlinson LJ expressed the view that the wide construction adopted by the judge at first instance rendered the agreement "effectively devoid of contractual content".
90. Mr Sprange submitted that at [27], Tomlinson LJ held that the expression "in relation to this Agreement" meant "in relation to the performance of this Agreement", and thus did not extend to losses suffered in consequence of a refusal to perform or to be bound by the Agreement. However, to my mind this is a misunderstanding of this passage of the judgment. Tomlinson LJ prefaced his observations as to the construction of the expression "in relation to this Agreement" with the words "[i]n order to construe the provision consistently with business common sense" and went on to say how he "would regard the expression…in this context". In my judgment this was not a general statement as to the meaning in every case of the words "in relation to this Agreement", but rather an interpretation of those words in their specific context and against the background of his earlier observations that the alternative construction adopted by the judge was devoid of contractual context. For similar reasons, McCombe LJ observed in his very short judgment that he "would have been prepared to hold that in clause 18.6 the words '…in relation to this Agreement…' as they appear in that clause should be taken to mean '…in performance of this Agreement'".
"Thus, in my judgment, the judgment in MARhedge is heterodox and regressive and does not properly represent the current state of English law. If necessary, I would decline to follow it. Even if the breach by Albemarle of its obligation to deliver DIP had been a deliberate repudiatory breach as AZ contends, the question whether any liability of Albemarle for damages for that breach was limited by clause M would simply be one of construing the clause, albeit strictly, but without any presumption".
Should the court "grasp the nettle" and construe clauses 8.10 and 16?
a. In the context of clause 8.10, Mr Sprange pointed to the Scott Schedule setting out the parties' respective positions as to Development Items not provided by Pinewood in support of the submission (as I understood it) that the nature of claims made after the event will inform the court as to the mindset of the parties at the time of entry into the Reseller Agreements. I reject this submission. Any relevant factual matrix material together with evidence of contractual context must date back to before entry into the contract – evidence as to failures on the part of Pinewood after the event cannot conceivably assist (see Mott MacDonald Ltd v Trant Engineering [2021] BLR 440 at [68]).
b. Mr Sprange then focused on clause 10 of the Reseller Agreements making submissions as to its purpose and relevance to the interpretation of clause 8.10, albeit not explaining how this gave rise to a factual issue that requires evidence at trial. Indeed he accepted that "there is sufficient matrix evidence for you to understand what the parties were trying to achieve". He went on to describe that as follows: "you have a sophisticated, large scale platform that, if sold to car dealers, allows them to run their entire business from the moment somebody walks in to buy a car, all the way to the end when they sell it, after having had it serviced for five years. So you can imagine the scale and complexity of that. [Pinewood] wanted that software sold in Asia Pacific. [PTAP], owning a dealership in Hong Kong, is there to get penetration in the territories that were chosen…[it] cannot do that successfully unless it gets this software and gets it so it works appropriately and properly in all the territories…[PTAP] was at the mercy of [Pinewood] in terms of 'Can you please fix or provide us with all of these things that we need in all of the jurisdictions?'" This explanation provided contractual context, all evident from the material before the court, but did not suggest the need for the court to consider any disputed issues of fact, or factual matrix evidence.
c. Although Mr Sprange later contended that there would be further relevant evidence at trial as to the nature of the business, the bargaining positions of the parties, the detail of the software, the real purpose of the provisions in clause 10 of the Reseller Agreements and the drafting history, including all of the negotiations, he never identified more specifically what that evidence would be, where it would come from, and (more importantly) how it was said by PTAP that such evidence would be relevant to the issue of construction such that it would provide PTAP with a real prospect of success on that issue at trial. Insofar as Mr Sprange's description of that likely evidence appeared to stray into subjective evidence from the parties as to the negotiations and their understanding of the terms of the Reseller Agreements, it could not possibly be admissible in any event. Insofar as he was intending to suggest the availability of relevant factual matrix evidence, PTAP has not begun to satisfy the requirement to show a real prospect of such evidence affecting the approach of the court to construction. It was open to PTAP to serve further evidence for this hearing to support Mr Sprange's submissions but it did not do so.
a. The question of the true interpretation of clauses 16 and 8.10 is a short point of construction, largely dependent upon an analysis of the terms of the Reseller Agreements themselves;
b. I am satisfied that the court has before it all the evidence necessary for the proper determination of that point of construction. There is no obvious conflict of fact on any issue which is likely to bear upon that question. The matters raised by Mr Sprange as providing legitimate contractual context are not in dispute. There is no factual matrix evidence which takes matters any further and no suggestion (beyond mere vague and unsubstantiated assertion) that additional relevant factual matrix evidence will be available at trial. Accordingly, there is no reason to believe that a fuller investigation into the facts of the case would materially add to, or alter, the evidence available to the trial judge and so affect the outcome of the case; and
c. I do not consider there to be any other reason why I should decline to decide the Construction Arguments, and none was suggested.
Is Pinewood's liability to PTAP in respect of its claims for breach of clause 10 of the Reseller Agreements excluded by clause 16.2? If not, is it nevertheless limited by clause 16.3?
109. Pinewood says that the wording of clause 16.2 is clear – it was intended to exclude liability for specified heads of loss. Amongst other things, it was intended to exclude "any liability… for breach" of contract for "loss of profit" and for "costs or expenses…incurred in reliance on the Reseller Agreement". It was not intended to exclude all and any liability for breach of contract, only liability that gave rise to the specified heads of loss in sub-clauses (1)-(4). This, says Pinewood, explains (and sits comfortably with) the provisions of clause 16.3 which is intended to limit liability for any head of loss not caught by 16.2. Pinewood points out that the Incurred Costs now pleaded by PTAP (by way of its Further Information and Reply and Defence to Counterclaim), which arose as a direct consequence of the alleged breach, but which neither amount to loss of profit, nor costs or expenses incurred in reliance on the Reseller Agreement (and do not fall under any of the other heads of loss identified in 16.2) would be caught by 16.3.
a. Its primary case is that the word "breach" in clause 16.2 (and also 16.3) cannot properly be construed as a repudiatory breach because there is nothing in the clause that makes it clear beyond peradventure that the parties intended it to cover a repudiatory breach. This submission is made by reference to the points with which I have already dealt in respect of Kudos.
b. Its secondary case is that the types of loss identified at clause 16.2(2), (3) and (4) are, on their true and proper construction, species of indirect or consequential loss falling within the second limb of Hadley v Baxendale. That is so because clause 16.2(1) expressly introduces the excluded categories of loss as "special, indirect or consequential loss" and this reference governs the scope of the heads of loss identified in sub-paragraphs (2)-(4), all of which are capable of falling within the words "special, indirect or consequential loss".
115. It is not suggested by PTAP that the loss of profits and wasted costs or expenses claimed in the Particulars of Claim are incapable of falling within the scope of the words used in the clause, save by reference to its secondary case on construction. However, that secondary case is in my view unsustainable on the clear words of clause 16.2. Sub-clauses (1)-(4) make up a series of separate and distinct categories of loss that are to be excluded as is clear from the conjunction "or" before sub-clause (4). There is nothing whatever to indicate that sub-clauses (2)-(4) are intended to be governed by sub-clause (1). The words of clause 16.2 are very different from the clause to which my attention was drawn by PTAP in 2Entertain Video Ltd (at [218]) which precluded liability for any indirect or consequential loss or damage including (to the extent only that such are indirect or consequential loss or damage only) but not limited to loss of profits…" (emphasis added). The wording of clause 16.2 does not support the proposition that it was only intended to cover defective performance.
"14.1 Repudiatory Breach
A party may, by Legal Notice to the other party, terminate this Agreement immediately, or on such date as the party terminating may specify in its Legal Notice of termination, if the other party is in repudiatory breach of this Agreement".
Is Pinewood entitled to summary judgment on its Counterclaim?
Conclusion
Note 1 Mr Sprange said during his submissions that his clients were “surplus to requirements” once they had sold the software to clients. [Back]