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England and Wales High Court (Queen's Bench Division) Decisions
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Cite as:  EWHC 158 (QB)
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
(Sitting as a Judge of the High Court)
| (1) TELE2 INTERNATIONAL CARD COMPANY SA
|(2) KUB 2 TECHNOLOGY LIMITED (formerly known as C3 CALLING CARD COMPANY (IRELAND) LIMITED)
|(3) KUB 7 TECHNOLOGY LIMITED (formerly known as CALLING CARD COMPANY (UK) LIMITED)
|- and -
|POST OFFICE LIMITED
|POST OFFICE LIMITED
|(1) KUB 2 TECHNOLOGY LIMITED (formerly known as C3 CALLING CARD (IRELAND) LIMITED)
|(2) KUB 7 TECHNOLOGY LIMITED (formerly known as CALLING CARD COMPANY (UK) LIMITED)
Jeffrey Onions Q.C. and Benjamin Strong (instructed by Lovells LLP) for the Defendant/Part 20 Claimant
Hearing dates: 27, 28, 29, 30 November, 3, 4, 5, 6, 7, 10, 11, 14 and 17 December 2007
Crown Copyright ©
HIS HONOUR JUDGE RICHARD SEYMOUR Q.C.:
The material terms of the Agreement
|"Agreement||means the agreement made between Post Office Limited and each of Tele2 Ireland, Tele2 International and Tele2 UK, as appropriate, including these terms and conditions, the attached Schedules and any other documentation specifically identified or referred to in this Agreement.|
|Additional Fees||means the additional fees payable by the Relevant Contractor to POL in further consideration of the performance of POL's obligations under this Agreement, as detailed in Part III of Schedule 4.|
|Change Control||means the agreed process and procedures for making changes to this Agreement using the forms and procedures set out in Schedule 7.|
|Client Relationship Team||means the team set up by the parties for the purpose of this Agreement as detailed in Schedule 3. [Named individuals in the case of the Post Office, but "to be advised" in relation to representatives of the Tele2 parties]|
|Commencement Date||means the date this Agreement shall be deemed to have commenced, being 15th October 2001.|
|Contractors||means, together, Tele2 Ireland, Tele2 International and Tele2 UK, and, as appropriate, their respective employees, agents, assignees and sub-contractors and Relevant Contractor means the Contractor supplying the relevant Phonecards and/or Services, as appropriate.|
|Customer Services||means enquiry, refund, help line and connection assistance relating to the Phonecards and the Services, to include, as appropriate, the Telesales Facility|
|Initial Term||means the period from the Commencement Date up to and including 31st March 2005.|
|International Phonecards||means the POL branded international rechargeable phonecards to be supplied by Tele2 International to POL.|
|Parent Company Letter||means a letter from Tele2 AB to each of the Contractors materially in the form set out in Schedule 6.|
|Pre-paid Phonecards||means the POL branded pre-paid phonecards to be supplied by Tele2 Ireland to POL.|
|POL Outlets||means post offices and sub-post offices.|
|Phonecards||means, together, the Pre-paid Phonecards and the International Phonecards as referred to in Schedules 1 and/or 2.|
|PTS||means all pre-paid phonecard telecommunications services to be provided by Tele2 Ireland in connection with the Pre-paid Phonecards from its headquarters in Ireland, to include Customer Services.|
|ITS||means all international phonecard services to be provided by Tele2 International in connection with the International Phonecards from its headquarters in Luxembourg, to include Customer Services|
|Indicators or KPIs||means the key performance indicators set out in Schedule 9.|
|Marketing Guidelines||means the marketing guidelines set out or referred to in Schedule 10|
|Year or year||means a year commencing from the Commencement Date (or any anniversary thereof, as the case may be), unless otherwise expressed."|
"Post Office Limited agrees to promote the Phonecards and Services to no lesser extent than it promotes similar products and services from time to time through the POL Outlets, in its internal marketing publications and through other suitable communication channels. The nature, method and extent of such communications shall be discussed and agreed by the Client Relationship Team or their duly authorised representatives. The Relevant Contractor recognises that Post Office Limited's support for the Phonecards and Services will be subject to the Marketing Guidelines, permissions and media availability."
"3.1 Tele2 Ireland shall provide the Pre-paid Phonecards and PTS, Tele2 International shall provide the International Phonecards and ITS, and Tele2 UK shall provide the FTS, in accordance in all material respects with the relevant Schedules and as otherwise provided for in this Agreement. [FTS was a fixed land line service which is not directly relevant to the issues in this action, but the service is referred to in some of the documents to which I shall come. It was common ground that the parties agreed that the service should be terminated on 31 March 2005.]
3.10.1 Within 20 days of the execution of this Agreement, each of the Relevant Contractors shall forward to POL a certified copy of the relevant Parent Company Letter for the calendar year commencing 1 January 2001.
3.10.2 7 days prior to the commencement of each subsequent calendar year, each of the Relevant Contractors shall forward to POL a certified copy of the relevant Parent Company Letter for such subsequent calendar year.
3.10.3 Each of the Relevant Contractors undertakes to POL that if in its reasonable opinion it requires capital as referred to in a Parent Company Letter, it will forward a substantiated request to Tele2 AB without delay as referred to in such Parent Company Letter, and confirm in writing to POL that such a request has been forwarded.
"We hereby confirm that Tele2 AB until November 8, 2002 undertakes to provide Tele2 UK Communications Limited, if relevant, with the capital necessary for the continuation of its operations, including that needed to prevent Tele2 UK Communications Limited instituting liquidation proceedings or considerably limiting its activities.
We will pay the necessary capital on demand without undue delay after the Board of Directors of Tele2 UK Communications Limited has forwarded a substantiated request to us."
"In consideration of the parties performing their respective obligations under this Agreement each shall be entitled to invoice the other and to be paid its respective Fees as provided by this Agreement. All Fees shall be exclusive of VAT, unless otherwise specified. Furthermore, any Additional Fees will be invoiced and paid as set out in Part III of Schedule 4. VAT shall be added where appropriate."
"The purchase price of a Phonecard, sold to POL by the Relevant Contractor is 79% of the face value of the Phonecard.
Post Office Limited will account to the Contractor for Phonecards it has purchased and appropriated to Customers, within 30 days after the end of the Post Office Limited monthly accounting period during which the sale to the Customer was made. Post Office Limited does not have to pay for any Phonecards that are not purchased by Customers.
If an International Phonecard is re-charged, then Post Office Limited shall be paid a fee of 21% of the amount by which the International Phonecard is re-charged, such fee to be paid by Tele2 International to Post Office Limited within 30 days after the end of the month in which the re-charging took place."
If a Phonecard or FTS account expires without its full face value or the amount credited having been spent, the Relevant Contractor and Post Office Limited will share the remaining value equally. The Relevant Contractor will account for such monies to Post Office Limited on a monthly basis for all amounts so accrued in the previous month, notwithstanding termination of this Agreement.
2. Additional Fees
Tele2 Ireland and Tele2 International will share equally with Post Office Limited profits realised by each of them in excess of 10% earnings before interest tax and amortization ("EBITA") on revenues generated by the Pre-paid Phonecards and the International Phonecards, as appropriate. Tele2 Ireland and Tele2 International will account to Post Office Limited annually for the Post Office Limited share of profits no later than six months following their respective financial year-end.
"11.1 This Agreement shall commence on the Commencement Date and shall continue in force until the expiry of the Initial Term, and thereafter until terminated by either POL or any of the Contractors giving not less than 24 months' written notice to the other parties, as the case may be, unless terminated earlier in accordance with the provisions set out below.
POL may terminate this Agreement by giving each Contractor not less than 12 months' notice in writing to that effect if any of the Type 2 KPIs have not been met to a material extent.
11.4 Each Contractor or POL may terminate this Agreement at any time by giving notice in writing to POL or each of the Contractors, as the case may be, if:-
11.4.1 any of the other parties, unless such other party is another Contractor in the case of a Contractor giving notice, is in material breach of any of its obligations under this Agreement, including without limitation if any Contractor is in breach of any of Clauses 3.10.1, 3.10.2 and 3.10.3 (and in the case of a breach capable of remedy fails to remedy the breach within three months of receipt of a written notice requiring it so to do, the parties acknowledging that a breach of any of Clauses 3.10.1, 3.10.2 and 3.10.3 is a breach incapable of remedy therefore entitling POL to terminate this Agreement);"
"Without prejudice to the provisions of Clause 12, no party shall bring an action against any of the others in relation to loss of profits, loss of business, loss of revenue or anticipated savings suffered by third parties whatsoever and howsoever arising whether from contract, tort, breach of statutory duty or otherwise."
"In no event shall any delay, neglect or forbearance on the part of any party in enforcing (in whole or in part) any provision of this Agreement be or be deemed to be a waiver thereof or a waiver of any other provision or shall in any way prejudice any right of that party under this Agreement."
The roles of Tele2 Ireland and C3 (UK)
"Curtailment of Operations
With effect from 1 April 2004, the provision of services by C3 Calling Card Company (Ireland) Limited to Post Office Limited have been transferred to Tele2 UK Communications Limited."
"182. There are three Tele2 companies which are parties to the Agreement. Using their names as they were when the Agreement was made, the companies in question are: Tele2 UK Communications Limited; Tele2 International Card Company SA (the First Claimant); and C3 Calling Card Company (Ireland) Limited (the Second Claimant). Under the Agreement the company which was obliged to provide pre-paid phonecards was the Second Claimant, i.e. the Irish company see Clause 3.1.
183. As indicated above, the relevant VAT rules changed with effect from 1 April 2004, such that there was no longer any advantage in the supplier of the cards being an Irish company.
184. In view of this forthcoming change, there was a meeting on 19 February 2004, attended by a number of Tele2 and Post Office representatives. It seems that there was a discussion at this meeting about transferring the Agreement from the Irish company to a UK subsidiary, but no one can recall precisely what was said.
185. Following the meeting, Mr. Clive Smith (then with Tele2 subsequently with Nomi-Call) sent an email to Mr. Gilbert of Post Office, setting out the views of Tele2's legal department as to the actions to be taken. The first point is:
"The Agreement is assigned from C3 Ireland to C3 UK."
186. The reference to "C3 UK" is fairly to be read as a reference to Calling Card Company (UK) Limited, i.e. the Third Claimant, as it was formerly known.
187. No written assignment agreement was ever entered into. However, Post Office's invoices and statements of account after 1 April 2004 until termination were addressed to the Third Claimant.
188. In these circumstances, the position is either that: (i) there was a transfer of the rights and obligations under the Agreement from the Second Claimant to the Third Claimant; alternatively (ii) that the Second Claimant remained the party liable under, and entitled to rights under, the Agreement.
189. Post Office contends that the Agreement was transferred to a different company, namely Tele2 UK Communications Limited.
190. This contention is not based upon what Post Office thought was the case when the Agreement was in force, but rather upon a desire to gain an advantage in these proceedings: Tele2 UK Communications Limited is no longer a company in the Tele2 group, and is not a party to this action.
191. Post Office points out that cards supplied after 1 April 2004 contained a statement that airtime was being supplied by Tele2 UK Communications Limited. However, as Mr. Hashmi explains it is common within Tele2 for one group company to provide services to another; whatever the internal arrangements within Tele2, the phonecard services provided under the Agreement were transferred to the Third Claimant.
192. There is no substance in the point taken by Post Office, and the Court is respectfully invited to reject it."
"6.9 POL certainly knew that, following the introduction of VAT on the sale of phonecards, Tele2 would supply phonecard services from the UK. The only evidence of any discussion during which a particular company was identified as being the new supplier of services is Mr. Gilbert's evidence regarding the meeting on 19 February 2004. He has no recollection of anyone mentioning that the Agreement was to be assigned to C3 UK. Instead, his best recollection is of a throw away remark, probably referring to "Tele2", at the end of the meeting to the effect that the service was moving from Ireland to the UK. Tele2 adduces no evidence from anyone present at this or any earlier meeting.
6.10 The email from Mr. Smith to Mr. Gilbert of 19 February 2004 simply sets out a text provided by Mike Harvey of Tele2' s legal department earlier in the day. There is no evidence that Mr. Harvey attended any meeting with POL. When Mr. Smith reported the outcome of the meeting to Mr. Harvey, he made no mention of any reference to C3 UK; the meeting seems to have been more concerned with whether POL would be treated as a distributor of cards belonging to Tele2 or as a purchaser and reseller. Mr. Smith's email of 19 February 2004 thus provides no evidence whatsoever of any previous agreement between Tele2 and POL as alleged.
6.11 POL's invoices to Tele2 do not assist C3 UK's claim either. The only invoices raised by POL were for expiry revenue. They are summarised at Appendix 9a to Mr. Haberman's report. All invoices in respect of periods prior to April 2004 were addressed to C3 Ireland.
a. The first invoice in respect of a subsequent period was dated 22 April 2005 and was addressed to Tele2 UK. It covered the period April 2004 to January 2005. Mr. Woodrow sent this invoice to Mr. Coles on 11 May 2005. The addressee was not a mistake as Mr. Hashmi speculates. So far as Mr. Woodrow was aware, Tele2 UK was the only UK Tele2 company with which POL had any contractual relationship.
b. On 20 June 2005 Mr. Woodrow sent Mr. Coles an email asking for details to be able to invoice Tele2 in respect of February to May 2005. Mr. Coles did not reply.
c. On 14 July 2005 Mr. Woodrow chased for payment of the April 2005 invoice. Mr. Coles replied saying that invoices for the period from April 2004 onwards needed to be addressed to C3 UK if they were to be paid.
d. POL accordingly issued a credit note dated 20 July 2005 addressed to Tele2 UK in respect of the invoice addressed to it and a replacement invoice dated 21 July 2005 addressed to C3 UK.
e. POL's final invoice is dated 14 September 2004 and is in respect of the period February to June 2005. It was addressed to C3 UK as Mr. Coles had requested.
6.12 Thus, POL only issued invoices addressed to C3 UK after the termination of the Agreement and only because it was told that they would not be paid if it did not do so. The invoices thus provide no evidence at all that POL agreed to the Agreement being assigned to C3 UK (whether in discussions relating to VAT or otherwise).
6.13 Mr. Hashmi refers in his first witness statement to statements of account from May 2004 to April 2005 sent by POL to C3 UK. These do not assist C3 UK either. POL sent monthly statements of account to Tele2 throughout the Agreement. Until April 2004, they were all addressed to The Calling Card Company Limited. That company is not party to the Agreement and no-one alleges any rights were ever assigned to it. POL addressed the statements of account to it because that is what Tele2 asked it to do in an email dated 6 November 2001.
6.14 From May 2004, POL's statements of account were addressed to C3 UK. No-one has disclosed any document explaining why this was done. The only evidence is from Ms Provines, who cannot remember but expects that she received a telephone call from someone, possibly Ms Watson, asking her to change the name on the statements. However, POL continued to make payments into the old bank account i.e. the Calling Card Company Limited account. That was only changed in December 2004 as a result of a request from Ms Watson on 18 October 2004.
6.15 In any event, this is the mere mechanics dealt with by the accounts department. It is not evidence of any variation of the Agreement. The only conclusions that can be drawn from the statements of account are:
a. The fact that a statement of account is addressed to a company does not imply that that company is party to the Agreement.
b. POL sent statements of account to whichever company Tele2 asked it to.
c. The identity of the addressee of statements of account tells one nothing about what company had rights under the Agreement.
6.16 There is thus no evidence to support Tele2's assertion that POL agreed that C3 UK would provide the services which the Agreement requires C3 Ireland to provide. "
"Further to our meeting today and discussion on the logistics of VAT, it transpires that we cannot operate the Trust model option as this only applies or can work for us when in an electronic format.
The following is our legal department's view of the actions to be taken along with the attachment that explains the commission for service approach:
"In response to the changes occurring on 1st April 2004, in respect of the VAT treatment of our relationship with the Post Office, we propose the following amendment to the commercial deal:
1. The Agreement is assigned from C3 Ireland to C3 UK.
"I write to you with reference to your earlier telephone conversations with Steve Bartley regarding the contract the Post Office has with Tele2 and Calling Card Company. In his absence, he has [asked] me to write on his behalf to "start the ball rolling".
Over the past 2 ฝ years, due to circumstances outside of both companies control, the reality of our relationship has moved further and further away from that stated in the contract. We feel it light [sic] of recent developments on both sides, it is an appropriate time to redress this problem by amending or restating our contractual relationship with the Post Office.
I attach a first draft of our proposal for the revised cards contract to work as a means of initiating discussion. This should not be seen as an offer and as such we reserve the right to alter our position on the basis of the negotiations between our two companies.
The basis of our proposal is:
The contract is entered into with Calling Card Company (UK) Limited. We have moved the majority of our phonecards business back to the UK and therefore we would seek to have the relationship transferred to our UK company. In reality this will not change how we supply the services and work with you.
"On 31 October 2003, the business and activities of Alpha Prepaid Limited (APL), another company wholly owned by Tele2 AB, were transferred to Calling Card Company (UK) Ltd. The disposal was carried out in order to have a common legal, management and financial reporting structure within which all of Tele2's prepaid telephony card sales businesses are contained. This disposal took place on 31 October 2003 and the assets and liabilities were transferred at their fair values which were equal to net book values.
The company began trading on 1 November 2003. The directors are satisfied with the progress of the business.
From 1 June 2005, all business activities in the UK are now being operated through Calling Card Company Spain SA."
"Due to the competitive nature of the UK market, the Directors have decided to wind down the business in the UK from 1 June 2005. Consequently, the recovery of debt has proved harder than anticipated. Sales of prepaid calling cards in the UK are now handled via the Spanish operations within the Calling Card Group."
The principal claim of the Claimants
"So it becomes necessary to consider whether the respondents did waive this requirement. "Waiver" is a word which is sometimes used loosely to describe a number of different legal grounds on which a person may be debarred from asserting a substantive right which he once possessed or from raising a particular defence to a claim against him which would otherwise be available to him. We are not concerned in the instant appeal with the first type of waiver. This arises in a situation where a person is entitled to alternative rights inconsistent with one another. If he has knowledge of the facts which give rise in law to these alternative rights and acts in a manner which is consistent only with his having chosen to rely on one of them, the law holds him to his choice even though he was unaware that this would be the legal consequence of what he did. He is sometimes said to have "waived" the alternative right, as for instance a right to forfeit a lease or to rescind a contract of sale for wrongful repudiation or breach of condition; but this is better categorised as "election" rather than as "waiver". "
"It is a commonplace that the expression "waiver" is one which may, in law, bear different meanings. In particular, it may refer to a forbearance from exercising a right or to an abandonment of a right. Here we are concerned with waiver in the sense of abandonment of a right which arises by virtue of a party making an election. Election itself is a concept which may be relevant in more that [sic] one context. In the present case, we are concerned with an election which may arise in the context of a binding contract, when a state of affairs comes into existence in which one party becomes entitled, either under the terms of the contract or by the general law, to exercise a right, and he has to decide whether or not to do so. His decision, being a matter of choice for him, is called in law an election. Characteristically, this state of affairs arises where the other party has repudiated the contract or has otherwise committed a breach of the contract which entitles the innocent party to bring it to an end, or has made a tender of performance which does not conform to the terms of the contract. But this is not necessarily so. An analogous situation arises where the innocent party becomes entitled to rescind the contract, i.e. to wipe it out altogether, for example because the contract has been induced by a misrepresentation; and one or both parties may become entitled to determine a contract in the event of a wholly extraneous event occurring, as under a war clause in a charter-party. Characteristically, the effect of the new situation is that a party becomes entitled to determine or to rescind the contract, or to reject an uncontractual tender of performance; but in theory at least, a less drastic course of action might become available to him under the terms of the contract. In all cases, he has in the end to make his election, not as a matter of obligation, but in the sense that, if he does not do so, the time may come when the law takes the decision out of his hands, either by holding him to have elected not to exercise the right which has become available to him, or sometimes by holding him to have elected to exercise it. Instances of this phenomenon are to be found in s.35 of the Sale of Goods Act, 1979. In particular, where with knowledge of the relevant facts a party has acted in a manner which is consistent only with his having chosen one of the two alternative and inconsistent courses of action then open to him for example, to determine a contract or alternatively to affirm it he is held to have made his election accordingly, just as a buyer may be deemed to have accepted uncontractual goods in the circumstances specified in s.35 of the 1979 Act. This is the aspect of election referred to by Lord Diplock in Kammins Ballrooms Co. Ltd. v. Zenith Investments (Torquay) Ltd.  AC 850 at p.883. But of course an election need not be made in this way. It can be communicated to the other party by words or conduct; though, perhaps because a party who elects not to exercise a right which has become available to him is abandoning that right, he will only be held to have done so if he has so communicated his election to the other party in clear and unequivocal terms (see Scarf v. Jardine (1882) 7 App Cas 345 at p. 361 per Lod [sic] Blackburn, and China National Foreign Trade Transportation Corporation v. Evlogia Shipping Co. SA of Panama (The Mihalios Xilas)  2 Lloyd's Rep 303 at p.307;  1 WLR 1018 at p. 1024 per Lord Diplock). Once an election is made, however, it is final and binding (see Scarf v. Jardine per Lord Blackburn at p. 360). Moreover, it does not require consideration to support it, and so it is to be distinguished from an express or implied agreement, such as a variation of the relevant contract, which traditionally requires consideration to render it binding in English law.
Generally, however, it is a prerequisite of election that the party making the election must be aware of the facts which have given rise to the existence of his new right. This may not always be so. For example, in the law of sale of goods, where goods have been tendered to the buyer which are not in conformity with the contract, he may, if he has had a reasonable opportunity to examine them, be deemed in certain circumstances to have accepted them, thereby electing not to exercise his right to reject them, even though he has not actually examined the goods and discovered the defect (see s.34 and 35 of the 1979 Act). This may flow from the fact that he has waived his right to examine them yet another example of waiver. I add in parenthesis that, for present purposes, it is not necessary for me to consider certain cases in which it has been held that, as a prerequisite of election, the party must be aware not only of the facts giving rise to his rights but also of the rights themselves, because it is not in dispute here that the owners were aware both of the relevant facts and of their relevant rights.
There are numerous examples of the application of this principle of election in English law. Perhaps the most familiar situation is that which arises when one contracting party repudiates the contract. The effect is that the other contracting party then has a choice whether to accept the repudiation (as it is called) and bring the contract to an end; or to affirm the contract, thereby waiving or abandoning his right to terminate it. If, with knowledge of the facts giving rise to the repudiation, the other party to the contract acts (for example) in a manner consistent only with treating that contract as still alive, he is taken in law to have exercised his election to affirm the contract."
The primary case of the Claimants on their principal claim
"Agreement in relation to the provision of Phonecards and related Services dated 9 November 2001 Notice of Termination under clause 11.4.1
I refer to the agreement entered into by your company (and other Tele2 companies) with Post Office Limited dated 9 November 2001 and entitled "Agreement in relation to the provision of Phonecards and related Services" (in this letter, the "Agreement"). Unless otherwise stated, capitalised terms in this letter have the same meaning as in the Agreement.
You have failed to forward to POL a certified copy of a Parent Company Letter in respect of the calendar year 2004 pursuant to clause 3.10.2 of the Agreement. This failure by you amounts to a breach of the Agreement which is incapable of remedy entitling POL to terminate the Agreement pursuant to clause 11.4.1 of the Agreement.
In reliance on the breach of the Agreement to which I have referred in the preceding paragraph POL gives you notice that POL, by this letter, terminates the Agreement with effect from 31 March 2005."
"The principles may be summarised as follows.
(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the "matrix of fact", but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd.  AC 749.
(5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v. Salen Rederierna AB  AC 191, 201:
"if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion which flouts business commonsense, it must be made to yield to business commonsense.""
"I regard the purpose of cl. 9(c) as a matter of prime importance. It was common ground at first instance, and again before us, that the only purpose of the provision is to protect policyholders. The objective is that valid claims of policyholders should be paid promptly. It is conceded on behalf of the agents that it was not even a subsidiary purpose of cl. 9(c) to confer a protection on agents for breaches committed by them in and about the underwriting of insurance business.
I readily accept Mr. Eder's submission that the starting point of the process of interpretation must be the language of the contract. But Mr. Eder went further and said that, if the meaning of the words is clear, as he submitted it is, the purpose of the contractual provisions cannot be allowed to influence the Court's interpretation. That involves approaching the process of interpretation in the fashion of a black-letter man. The argument assumes that interpretation is a purely linguistic or semantic process until an ambiguity is revealed. That is wrong. Dictionaries never solve concrete problems of construction. The meaning of words cannot be ascertained divorced from their context. And part of the contextual scene is the purpose of the provision. In the field of statutory interpretation the speeches of the House of Lords in Attorney General v. Prince Ernest Augustus of Hanover  AC 436 showed that the purpose of a statute, or part of a statute, is something to be taken into account in ascertaining the ordinary meaning of words in the statute: see Viscount Simonds' speech at p. 461, and Lord Somervell of Harrow's speech, at p. 473. It is true that such a purpose may also be called in aid at a later stage in the process of interpretation if the language of the statute is ambiguous but it is important to bear in mind that the purpose of the statute is a permissible aid at all stages in the process of interpretation. In this respect a similar approach is applicable to the interpretation of a contractual text. That is why in Reardon Smith Line Ltd. v. Yngvar Hansen Tangen  2 Lloyd's Rep 621;  1 WLR 989 Lord Wilberforce, speaking for the majority of their Lordships, made plain that in construing a commercial contract it is always right that the Court should take into account the purpose of the contract and that presupposes an appreciation of the contextual scene of the contract.
Corbin on Contracts, 1960, vol. 3, Section 545, explains the role that the ascertainment of the purpose of a contract should play in the process of interpretation:
In order to determine purposes we are obliged to interpret their words in the document of agreement and their relevant words and acts extrinsic to that document. It may seem foolish, therefore, to say that the words of a contract should be interpreted in the light of the purposes that the parties meant to achieve, when we can turn on that light only by process of interpretation. Nevertheless, it is believed that such an admonition serves a useful purpose. As the evidence comes in and as interpretation is in process, the court may soon form a tentative conviction as to the principal purpose or purposes of the parties. As long as that conviction holds (and the court must be ready at all times to be moved by new evidence), further interpretation of the words of contract should be such as to attain that purpose, if reasonably possible.
In the same section of this seminal work the author added that if the Court is convinced that it knows the purpose of the contract, however vaguely expressed and poorly analysed, it should be loath to adopt any interpretation of the language that would produce a different result. In my judgment these observations accurately state the approach to be adopted. And in the present case the purpose of cl. 9(c) is not in doubt."
"The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly plain. "
"This is so unreasonable that it must make me search for some other possible meaning of the contract. If none can be found then Wickman must suffer the consequences. But only if that is the only possible interpretation."
"87. The effect of the Post Office's argument is that, by reason of Clause 11.4.1, the parent guarantee letters for 2004 had to be provided on or by 24 December 2003 and, if they were not, Post Office had a right to terminate: Post Office could thus have refused to accept the letters if tendered on Christmas Day 2003, and terminated forthwith.
88. It is difficult to see the sense in this. That being so, it is unlikely to be what the parties intended. In this regard the attention of the court is drawn to the following passage in the speech of Lord Reid in Schuler v. Wickman  AC 235 itself a case about a party seeking (unsuccessfully) to terminate a contract for a relatively unimportant breach on the ground that it was a breach of a "condition" of the contract. At page 251 Lord Reid said this:
"The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it, the more necessary it is that they shall make that intention abundantly clear."
89. Moreover, in construing any contractual provision the court should always have regard to its purpose. See Arbuthnott v. Fagan  1 Lloyds Reinsurance Law Reports 135 especially at page 140 (Steyn LJ); and see ICS v. West Bromwich  1 WLR 896.
90. The purpose of clause 11.4.1 was to enable either party to terminate in the event of a material breach by the other. A material breach is a serious breach in the particular circumstances of the case, having regard to its consequences. See Glolite v. Jasper Conran (unrep.) 21.1.98 (Neuberger J.); National Power v. United Gas (unrep.) 3.7.98 (Colman J.).
91. The purpose of clause 3.10 was to give Post Office comfort that, for each calendar year of the Agreement, the relevant contracting party would have the financial means to perform its obligations during that year. Not every breach of this clause would be a material breach. Providing the letters late is unlikely to be; on the other hand, refusing to provide them at all, if asked, may well be a material breach.
92. In clause 11.4.1 the words "the parties acknowledging that a breach of any of Clauses 3.10.1, 3.10.2 and 3.10.3 is a breach incapable of remedy", appearing, as they do, in a clause concerned with material breach, must be taken to be referring to a material breach of any of those clauses; they cannot be taken to be referring to any breach, however inconsequential, since this would flout business common sense. Cf. The Antaios  AC 191, a case concerned with a clause in a charterparty giving the owners liberty to withdraw "on any breach of this charterparty". The House of Lords held this only allowed the owners to withdraw in the event of any repudiatory breach. Lord Diplock said at page 201
" I take this opportunity of re-stating that if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."
93. In the present case, Tele2's breach of clause 3.10.2 was not a material breach. It did not occasion any loss, or give rise to any concern. There was never any serious risk that the relevant contracting company would fail financially. Post Office was not worried that it would. And it is evident from what actually happened, that if letters had been sought they would have been provided."
"Agreement in relation to the provision of Phonecards and related Services dated 9th November 2001 ("the Contract")
We enclose pursuant to clause 3.10.2 of the above Contract the Parent Company Letters for the calendar years 2004 and 2005.
For the avoidance of any doubt, we confirm that what is set out in the Parent Company Letter applies equally to all previous calendar years since the effective date of the Contract and that we have been ready and willing to provide Parent Company Letters to this effect at any time in the past three years."
" what I can say is that in the group of Tele2 all entities each year received parental guarantee letter as a part of the full year end closing. And that was something that was necessary to get the auditors to sign off on the group level. So these were internally set-up parental group guarantees and going-concern letters for all entities in the whole group of Tele2, including those companies.
Each year, even though if they were sent or not to the Post Office I don't know, but I know they were being put out by Tele2 to all their entities including the Netherlands, Belgium, France and "
"70. It is well established that a party which has a right to terminate a contract for breach may lose that right by affirming the contract. Affirmation, which is an election, does not mean that the aggrieved party loses its right to claim damages for the breach; but it does mean that the right to terminate the contract is lost.
71. It is equally well established that a party which has a right to terminate, and which knows of that right, will be taken to have affirmed the contract if it accepts performance of the contract from the other party. As the learned editors of Chitty on Contracts put it:
" if the innocent party unreservedly continues to press for performance or accepts performance by the other party after becoming aware of the breach and of his right to elect, he will be held to have affirmed the contract."
72. Thus, for example, where the owner of a vessel the subject of a charterparty has the right to withdraw the vessel for non-payment of hire, he will lose the right to withdraw by accepting payment after default has occurred. See The Brimnes  QB 929; and cf. The Laconia  AC 850.
73. By the same token, a party which knows of its right to terminate but which, despite that right, goes on to perform the contract itself, in order to take the benefit of so doing, will lose its right to terminate. Cf The Kanchenjunga  1Lloyds Rep 391.
74. In the present case, the breach which the Post Office alleges gave it the right to terminate occurred on 24 December 2003 the date by which the parent guarantee letters should have been provided.
75. Post Office therefore waited more than 11 months before serving notices of termination. During that period: (1) Post Office accepted performance of the Agreement by Tele2; and (2) performed the Agreement itself in order to obtain the benefit of so doing.
76. In those circumstances it is obvious, in Tele2's submission, that Post Office affirmed the Agreement.
77. Post Office was not therefore entitled, on 1 December 2004, to terminate the Agreement even if it had purported to do so on that date.
78. However, the position is even worse for Post Office, because it did not purport to terminate on 1 December 2004. It gave notice that it would do so four months in the future on 31 March 2005. In the meantime it continued both to perform the Agreement itself and to accept performance from Tele2.
79. In short, the conclusion that Post Office affirmed the Agreement is overwhelming. An alternative way of putting the matter is that Post Office, by its conduct, represented that it would not terminate the Agreement, that Tele2 relied on this by continuing to perform, and that Post Office is thereby estopped from exercising its right to terminate.
80. The answer which Post Office puts forward to these points is that Post Office is saved by clause 16 of the Agreement, which provides:
81. Post Office contends that this provision prevents the loss of its right to terminate.
82. The effect of Post Office's argument is not to be underestimated. It would lead to the conclusion that Post Office could, if it so wished, keep quiet about Tele2's breach potentially for years, and then, whenever it suited Post Office to terminate, it could do so, with immediate effect, and without warning.
83. This is not the effect of clause 16, which in truth has no application to the issue of whether Post Office affirmed the Agreement by continuing to perform it.
84. Post Office's positive conduct in performing the contract itself, and in accepting performance from Tele2, is not "delay, neglect or forbearance". It is not, therefore, conduct with which clause 16 is concerned.
85. Moreover, clause 16 is concerned with delay etc. "in enforcing any provision of this Agreement". It is thus directed at delay in ensuring compliance with the parties' primary obligations under the contract not with delay in exercising a right under the Agreement."
"5.6 The reason why such clauses are sometimes seen in contracts is because there have been cases where a party has failed to exercise a right for a period of time and is then held to have lost the right to do so as a result. It is said that the party has waived his right. A waiver clause prevents this from happening.
5.7 There are two relevant types of waiver: waiver by election and waiver by estoppel. The former is the "abandonment of a right which arises by virtue of a party making an election". The second type of waiver arises where a party agrees not to raise a defence or is estopped from so doing.
5.8 The effect of clause 16 is to prevent either of these consequences arising where there has been any "delay, neglect or forbearance" by a party in enforcing any right under the Agreement. POL submits that, in this context, the intention of the parties as revealed by the words that they have used could not be clearer. The width of "any delay, neglect or forbearance" indicates that the parties did not intend nice distinctions to be drawn. What was intended was that a party should not be taken to have lost rights which it did not exercise for a period. In any event, POL falls precisely within each of the terms. It forbore from enforcing its right to receive Parent Company Letters and its right to terminate as a result of the failure to provide them until 1 December 2004. POL also delayed in enforcing its rights and neglected to enforce them. The wording and purpose of clause 16 would be defeated if POL was not entitled to rely on its rights on 1 December 2004.
5.9 Tele2 says that the parties cannot have intended that clause 16 would enable one party to rely on a breach occurring months earlier. But POL submits that the question is, why not? The clause says that "any" delay etc shall not "in any way" prejudice "any right". There is no time limit expressed in the clause, and indeed the purpose of the clause is precisely to prevent it being said that the fact that a breach occurred months earlier prevents a party from enforcing its rights. What else is clause 16 for?
5.10 Recognising this difficulty, Tele2 seeks to cast POL's failure to exercise its undoubted rights as "continuing to perform its obligations under the Agreement". Tele2 does not specify which obligations it has in mind, but presumably it is referring to the fact that POL continued to sell phonecards. The parties presumably contemplated that POL would sell phonecards every day that Post Offices are open. If doing so while not simultaneously enforcing an accrued right takes POL outside the scope of clause 16, then clause 16 would never apply. In other words, Tele2's argument renders clause 16 pointless and of no effect. That is hardly likely to have been the intention of the parties.
5.11 Tele2 does not identify when it says POL lost its right. It certainly was entitled to terminate the Agreement on 1 January 2004. If continuing with the Agreement per se amounts to a waiver by election notwithstanding clause 16, then POL would not have been able to exercise its right the following day. But that is hopelessly unrealistic on any basis, and additionally flies in the face of clause 16. If POL was entitled to terminate the Agreement on 2 January 2004, why was it not entitled to do so a week or a month later? Why not 3 months later? Tele2 cannot say at what point POL is alleged to have lost its rights.
5.12 The reason for this is that POL never said that it was not going to exercise its right to terminate. Failing to terminate the Agreement on one day is not a representation that POL would not terminate it the next day. One might add that such a promise not to exercise a right in the future would only be capable of giving rise to a promissory estoppel, and Tele2 does not rely on estoppel.
5.13 POL submits that, by 1 December 2004, nothing had deprived it of its right to terminate the Agreement and it remained entitled to do so."
"Affirmation is sometimes regarded as a species of waiver, the innocent party "waiving" his right to treat the contract as repudiated. But the word "waiver" is used in the law in a variety of different senses and so bears "different meanings". Two types of waiver are relevant here. The first type may be called "waiver by election" and waiver is here used to signify the "abandonment of a right which arises by virtue of a party making an election". Thus it arises when a person is entitled to alternative rights inconsistent with one another and that person acts in a manner which is consistent only with his having chosen to rely on one of them. Affirmation is an example of such a waiver, since the innocent party elects or chooses to exercise his right to treat the contract as continuing and thereby abandons his inconsistent right to treat the contract as repudiated; he does not abandon his right to claim damages for the loss suffered as a result of the breach. A second type of waiver may be called "waiver by estoppel" and it arises when the innocent party agrees with the party in default that he will not exercise his right to treat the contract as repudiated or so conducts himself as to lead the party in default to believe that he will not exercise that right. This type of waiver does not exist as a separate principle but is in fact an application of the principle of equitable estoppel deriving from the classic statement of Lord Cairns in Hughes v. Metropolitan Railway Co."
"13. On 21 December 2004 a meeting took place between representatives of the Claimants and representatives of the Defendant. At that meeting, Per Borgklint (Chief Executive Officer of Tele2 Nederland BV, and the Tele2 AB Market Area director with overall responsibility for the UK, Irish and Benelux operations) expressly stated that any difficulties in the relationship in the past would be fully resolved by the Claimants. Mr. Borgklint also expressly asked at that meeting whether the Defendant wanted to continue the relationship. The representatives of the Defendant present at the meeting (Gordon Steele, the Defendant's Sales and Marketing Director and Simon Carter, Head of Marketing of the Defendant) agreed that the Defendant did want to continue the relationship.
14. On 17 January 2005 a further meeting took place between representatives of the Claimants and representatives of the Defendant. Mr. Borgklint, Nouman Hashmi (the Chief Executive Officer of each of the Claimants), Scott Coles (the Account Director of the Third Claimant) and Giuseppe Funaro (Sales Director of each of the Claimants) attended the meeting on behalf of the Claimants; and Mr. Carter, Mr. Hall and Jeremy Woodrow (Product Manager of the Defendant) attended on behalf of the Defendant.
15. During the meeting on 17 January 2005, the Claimants' representatives presented a number of proposals to the Defendant's representatives as to how the relationship could be taken forward. Mr. Borgklint explained that he and several of his colleagues had invested, and were going to invest, a considerable amount of time in preparing and presenting options for the Defendant and in managing the relationship. However, Mr. Borgklint expressly stated that he was willing to invest such further time and money if the Defendant gave its express agreement that it was committed to the continuation of the Agreement. The Defendant's representatives then indicated that they wished to have some time alone to discuss matters and left the room for several minutes in order to do so. Upon their return, the Defendant's representatives expressly and unequivocally confirmed to the Claimants' representatives that the Defendant was committed to continuing the relationship with the Claimants.
16. It has been suggested by the Defendant that any future relationship between the Claimants and the Defendant was conditional on a new contract being entered into with effect from 1 April 2005. The Claimants maintain that, at no stage, was this understood to be the position. The Claimants accept that the desirability of introducing a new contract was discussed and agreed in principle at the meeting on 17 January 2005 but only because both the Claimants and the Defendant recognised that the Agreement did not fully reflect the services then being provided and which would be provided in the future. However, the clear priority was agreed between the Claimants and the Defendant to be the relaunch of a revised Phonecard product range and pricing structure as part of a new marketing initiative, which was scheduled to take effect on 1 April 2005.
17. By the words and conduct of the Defendant's representatives at the meeting on 17 January 2005, the purported notices of termination of 1 December 2004 were withdrawn and were, therefore, no longer of any effect.
18. Following the meeting on 17 January 2005 both the Claimants and the Defendant proceeded throughout January and February 2005 in a manner which was entirely consistent with the withdrawal of the purported notices of termination and the continuation of the Agreement beyond 31 March 2005. The Claimants will rely at trial on the communications and meetings between the parties in January and February 2005 in this regard. The actions of the Defendant following service of the purported notices of termination of 1 December 2004 were entirely consistent with those notices still being understood by the parties to be valid or effective.
19. By agreeing to commit itself to the existing Agreement, the Defendant abandoned any right to rely upon its complaint in respect of the Parent Company Letters.
20. Further or alternatively, the Claimants contend that the Defendant's conduct, in continuing to perform the Agreement and allowing the Claimants to continue to perform the Agreement amounted to a representation to the Claimants, upon which they relied, that the Agreement would continue and would not be terminated by reason of past events. The Claimants' reliance consisted of committing substantial further resources to the performance of the Agreement, including investing time and money formulating new products and ideas, implementing marketing initiatives and providing phonecards and fixed line services."
The alternative case of the Claimants on their principal claim the facts
"You have asked POL to confirm that its letter dated 1 December 2004 is withdrawn. It is not. The letter is effective notice of termination and POL will be proceeding on that basis."
"POL's view of its position is unchanged as a result of your letter and we repeat the confirmation in our 3 December 2004 letter that POL's notice of termination dated 1 December 2004 is not withdrawn. POL will be proceeding on that basis and expects your clients to work with it in implementing the Exit Management Plan under clause 11.5 and Schedule 8 of the Contract in the period between now and termination of the Contract on 31 March 2005."
"14. Following the letter from Richards Butler on 20 December 2004, a meeting took place on 21 December 2004. This meeting was attended by Lars-Johan Jarnheimer (President and Chief Executive Officer of Tele2 AB), Scot Young (Consultant to Tele2) and me on behalf of the Tele2 companies and by Gordon Steele (the Post Office's Sales and Marketing Director) and Simon Carter (Head of Marketing of the Post Office).
15. I recall that at the beginning of the meeting the Post Office representatives said that the meeting was being held on a without prejudice basis and would not affect the parties' legal positions. However, I am advised by Fox Williams LLP [solicitors acting on behalf of the Claimants from about the end of March 2005] that, given the fact that agreement was reached in relation to the continuation of the Agreement (as explained below), the discussions at the meeting are now open and can be referred to.
16. At the meeting on 21 December 2004, Mr. Young (who told me that he was the person who introduced the Tele2 group to the Post Office) outlined the history of the relationship. The meeting went on to focus on what could be done in relation to the Agreement and also what should be done by the parties in relation to the Agreement. Further, the meeting also focused on the fact that Tele2 had put a considerable amount of effort into obtaining the Agreement in the first place and making it attractive to the Post Office from the outset.
17. I had understood that there had been some difficulties in the relationship. Such difficulties related to account management, and included allegations by the Post Office of poor management of the account by certain Tele2 personnel, and clashes of personality between those working on the account on behalf of Tele2 and those at the Post Office.
18. More particularly, however, the relationship difficulties centred around the refusal by the Post Office to allow Tele2 to introduce competitive tariff structures for customers and discount levels, together with the fact that the Post Office had introduced cards from Nomicall and refused to allow Tele2 to match the rates which Nomicall was offering.
20. I acknowledged at the 21 December 2004 meeting that there had been difficulties with the relationship in the past in respect of the account management (as outlined above) but gave assurances that any such difficulties would be fully resolved going forward. It was therefore agreed at the meeting on 21 December 2004 that there would be "renewed co-operation" and that the previous account management difficulties would be put behind us. I specifically wanted to know at the meeting whether or not the Post Office wanted to continue the relationship and take it forward. Mr. Steele and Mr. Carter on behalf of the Post Office confirmed that they did. In particular, Mr. Carter stated at the conclusion of the 21 December 2004 meeting that there was no reason not to continue. It was therefore also agreed that a further meeting would be arranged for the New Year in order to take matters forward. I assured Mr. Carter and Mr. Steele that I would be personally available to resolve any issues which may arise going forward.
21. In relation to the 21 December 2004 meeting the Post Office have asserted that one of the representatives of the Post Office stated that they would seek to avoid litigation if possible, that they were prepared to try to establish whether some kind of relationship was in both parties' interests and set out the main issues that needed to be addressed if there was going to be a continuation of the Agreement namely improved account management and improved customer propositions.
22. It is correct that at this meeting the representatives of the Post Office explained that they were looking for new creative angles and new products all of which Tele2 had offered previously but which had been rejected by the Post Office.
23. At the meeting the commercial representatives of both sides also discussed the relationship between the Tele2 companies and the Post Office. Such discussion, however, did not focus on the formal Agreement. There were no lawyers in the room and I cannot recall anyone referring to the Agreement or the notices of termination as such. However, my colleagues and I clearly understood at the end of the meeting on 21 December 2004 that the Post Office was committed to the continuation of the relationship (and therefore the Agreement) going forward and that they were no longer relying on the termination notices."
" regardless of whether the notice was valid, you withdrew it in no uncertain terms during the meeting on 21 December 2004 "
"Q. But at page 104, you are saying that the Post Office and I think you are saying Mr. Carter withdrew the notice of termination in no uncertain terms.
He could not have withdrawn the notice of termination in no uncertain terms if he did not refer to it, could he?
A. Um, I am not a person of legal knowledge, especially not on UK law, but my understanding is that by acting and what we were agreeing, the conclusion of that means that he withdrew the termination -
Q. We are not talking about questions of UK law, Mr. Borgklint; we are talking about what you say Mr. Carter said.
In the letter at page 104, you allege that Mr. Carter withdrew the notice in no uncertain terms during the meeting. If he had withdrawn the notice in no uncertain terms during the meeting, he must have referred to it.
A. If that is the case. If that is the case that that is the only way to do it, then then he must have referred to it.
But my recollection is and my understanding of the situation is as follows: that he explicitly said, and also Gordon Steele explicitly said, that they wanted to continue co-operation, that they did not want to have a legal battle, that they wanted to go ahead, go forward, and then if the wording and meaning of it is that the relations were to go on.
And if that can be inconsistent, I am not a you know, a specialist in the matter of inconsistencies. I can only say that the conclusion after that meeting was that we had agreed to continue.
Q. Your recollection is that no one referred to the notices of termination at the meeting, isn't it?
A. That is my recollection, yes.
Q. So, if no one referred to the notices of termination at the meeting, no one could have unequivocally withdrawn the notices, could they?
A. If you are in a meeting and agree on going forward, by definition in my world from business perspective as no lawyer was there by actually acting and agreeing the ways forward, my conclusion would be that that can only mean that you actually decided that you were in together and continue your co-operation.
That is my recollection of the meeting. If it is inconsistent in these two statements I am truly sorry about that and I can only describe what happened in that specific meeting."
- New contract
- comissions [sic]
- Account Managers
- Meeting Mid January create new platform with proposal going forward "
"WITHOUT PREJUDICE COMMERCIAL IN CONFIDENCE
It was good to meet with you today and I trust you got back safely?
As I suggested in the meeting, I am keen to involve my colleague, Nicky Hall, in the workshop, but he is out of the office today. I will therefore drop you an e-mail tomorrow with some suggested dates I think we are looking at the back-end of w/c 10th January (maybe the Wednesday or the following Monday but I will try & suggest a few dates).
We will also send over before the meeting the key areas that we need to discuss, as these are the areas where we feel you are the most adrift & where the most work needs to be concentrated if we are to find a way forward.
I will e-mail you tomorrow."
"We confirmed that we would meet in the New Year and we would hear the proposals that he had to make or that his team had to make."
"Thank you for your letter dated 17th December 2004, on which we are taking our client's instructions.
In the meantime, please provide us with any documentary evidence you may have relating to the alleged contact made by Iain Gilbert of POL with Tele2 UK's former director, Johnny Heron, in late 2002.
This document highlights the main areas that Post Office Ltd. sees as being absolutely critical in the selection of a long-term phonecard partner.
There are six key areas to be addressed:
- Product Portfolio
- Consumer Tariffs
- Marketing Investment
- Post Office Ltd. Commissions
- Account Management
The current product portfolio is limited to the International [i.e. Generic] phonecards and the Holiday phonecard. There have been opportunities in the phonecard market over the last 3 ฝ years that have not been exploited. The matrix in Appendix 1 shows some of the areas that Post Office Ltd. wishes to exploit going forward.
The current tariffs on the current (Tele2-backed) Post Office phonecard are wholly uncompetitive and have been for many months. At the times when the tariffs were competitive in 2003, we showed the potential of the Post Office phonecard. As soon as our rates became uncompetitive some 9 months ago, we began to lose customers.
Post Office Ltd. requires the rates to be:
- among the best consumer rates on the market
- tariffs to be simple and transparent e.g. limited 'break outs'
- tariffs to be regularly bench-marked
- tariff changes to be made in a timely manner
Since we have worked with Tele2, there has been very limited innovation. Whilst the rest of the market has moved forward in terms of innovation, the Post Office phonecard looks and feels very much as it did on launch day in 2001. Post Office Ltd. requires our phonecard supplier to pro-actively seek ways to innovate in the phonecard market and propose ways in which the Post Office phonecard can grow and become more profitable.
Having a market leading phonecard customer proposition is absolutely critical to Post Office Ltd. However in order to drive sales, proactive advertising and marketing is critical to hit the stretching ambitions that we have in this market of selling in excess of ฃ3m of phonecards per month by December 2006.
To this end we would expect a commitment from future partners towards marketing investment, commencing April 2005.
Post Office Commissions
At launch Tele2 paid Post Office Ltd. a commission of 21% of face value sales on all phonecards. To take into account the changes in the way VAT was charged following the 2003 Budget, from April 2004, Post Office Ltd. received 21% plus VAT making a total of 24.7%. Post Office Ltd. also receives 50% of all 'breakage' on phonecards.
The relatively low commissions available has limited our ability to suitably incentivise our Subpostmasters, who are targeted with rival phonecards that pay them great commission. This has undoubtedly been a barrier to growing phonecard sales. Going forward Post Office Ltd. requires:
- a sustainable commission in excess of 35% + VAT
- a sustainable commission that enables us to suitably incentivise our Subpostmasters and colleagues
- a commission structure that can be benchmarked regularly against competitors
The relationship with Tele2 has been through its ups and downs through the 3 ฝ years that the companies have worked together. At its best in the post-Alpha takeover, the relationship was positive and results improved accordingly, as both parties worked together to grow the business.
The relationship soured around 9-12 months ago, with the changes in personnel, culminating with the 2003 VAT discussion. Discussions around rates were painful and indeed there seemed to be a lack of empowerment in Tele2 representatives as all decisions had to go to Sweden for ratification.
In order to work effectively going forward we would need to be working with a dedicated account team who:
- were empowered to take timely decisions
- were pro-active rather than reactive
- had the impact on Post Office customers at the heart of their decision-making
Post Office Ltd. intends to be a serious player in the phonecard market and is committed to achieving this aim. However in order to achieve it, we must:
- have a market-leading customer proposition covering multi-channel access to phonecard products
- have a market-leading commission to enable us to incentivise our subpostmasters and colleagues
- have an experienced, pro-active and innovative dedicated account management team
- receive suitable ongoing investment from our phonecard partner to fund marketing activity
- develop innovative promotional activity to attract phonecard customers."
"That is correct now when I read it here, but I can't of course recall every word of the letter, but I see that that says that up on the top. And that was the reason why he sent it, to sort these things out on 17th January."
"Q. Just looking at this document:
"This document highlights the main areas that Post Office Limited sees as being absolutely critical in the selection of a long-term phone card partner."
So you knew that the purpose of the meeting on 17th January was as part of the process of the selection of a long-term phone card partner, did you not?
Q. Well, if you read this document you must have known that.
A. Well, maybe I read what I wanted to read, but that was not my idea of why we were there on the 17th.
Q. But you knew it was why the Post Office thought you were there?
A. I thought this was a pretty generic document, is what I thought. I did not imagine for a minute this had been written specifically for the meeting on 17th. This to me looked like a fairly generic document that was being sent out.
Q. What do you mean by a "generic document", Mr. Coles?
A. Request for information. This is the stuff we look for. Most companies will have a kind of mother's (?) apple pie statement of what they are looking for in those areas.
Q. It identifies six key areas to be addressed. This is what it is telling you you have to do, isn't it?
A. As I say, it is a wish list.
Q. No, it is telling you what you have to do. These are the six key areas to be addressed?
A. Okay. I think it is interpretation."
"28. I, together with Nouman Hashmi (the Chief Executive Officer of each of the Claimants), Scott Coles (the Account Director of the Third Claimant) and Giuseppe Funaro (Sales Director of each of the Claimants), attended the meeting. Mr. Carter, Mr. Hall and Jeremy Woodrow (Product Manager of the Post Office) attended on behalf of the Post Office.
29. During the meeting on 17 January 2005, we presented a number of proposals to the Post Office in relation to new ideas (such as different card prices, e-vouchers, web payments, SMS and vending machines). We also discussed marketing and how the phonecard services, pricing and the relationship between the parties could be taken forward. The representatives of the Post Office present at the 17 January 2005 meeting were a little apprehensive at the beginning of the meeting. However, following the presentation given by Mr. Hashmi, Mr. Funaro, Mr. Coles and me they had clearly warmed to us, by the conclusion of the meeting, they were fully committed to going forward with the Claimants. I recall that I was very pleased with the favourable reaction to the presentation by Mr. Carter, Mr. Hall and Mr. Woodrow. In particular, I recall that Mr. Carter stated that the presentation we made contained exactly the kind of thing that the Post Office was looking for.
30. During the course of the meeting on 17 January 2005 I explained that I and several of my colleagues had invested, and were going to continue to invest, a considerable amount of time in relation to preparing and presenting options for the Post Office and in managing the relationship. However, I made it clear to the representatives of the Post Office present at the 17 January 2005 meeting that I was only willing to invest such further time and money if the Post Office gave its express agreement that it too was committed to the continuation of the Agreement. I specifically asked them whether they were "in or out" (meaning "in" and committed to the Agreement and a continuing relationship or "out" and the Agreement and relationship would terminate.)
31. The representatives of the Post Office indicated that they wanted to have some time alone to discuss matters between themselves. Accordingly, they left the meeting room for several minutes. Upon their return, Mr. Carter, Mr. Hall and Mr. Woodrow confirmed that the Post Office was committed to continuing the Agreement. Again there were no lawyers in the room, only commercial people, and we all understood following the confirmation from Mr. Carter, Mr. Hall and Mr. Woodrow, that the Agreement would continue.
32. I also confirm that a proposal for a re-launch was discussed at the 17 January 2005 meeting. As part of that proposal I initially confirmed that I was prepared to commit the sum of ฃ150,000 in respect of marketing. The representatives of the Post Office stated that they considered that the sum of ฃ150,000 was not sufficient. Accordingly, I responded that Tele2 would, therefore, commit the sum of ฃ250,000 in respect of marketing for the proposed re-launch and that there would be an overall sum of ฃ1 million available for marketing for the coming year. The representatives of the Post Office were happy with these figures, which represented a significant contribution by Tele2 to the Agreement and was intended to be indicative of the commitment of Tele2 going forward. The representatives of the Post Office also outlined the next steps in order to be able to launch the new products on 1 April 2005.
33. I also understand from Fox Williams that the Post Office has asserted that any continuation of the relationship was conditional upon a new contract being entered into with effect from 1 April 2005. This is not the case. I accept that the desirability of a new contract was discussed at the meeting on 17 January 2005 and that it was agreed in principle that a new contract would be beneficial at some point given that the terms of the Agreement no longer accurately reflected the services then being provided or the services which would be provided in the future. However, the discussions in relation to potential revisions to the Agreement or a new simplified agreement were to be addressed in due course and not as a priority. The continuation of the relationship was not conditional upon a new contract being entered into and any necessary revisions to the Agreement were not linked to the 1 April 2005 date. None of the Post Office representatives said to us at the 17 January 2005 meeting anything about a new agreement having to be in place by 1 April 2005 for the relationship to continue.
34. I understand from Fox Williams LLP that it has been asserted by the Post Office that I stated at the 17 January 2005 meeting that I did not care about Nomicall because the Claimants could "wipe the floor with Nomi". I do not recall using those words. I do, however, recall confirming that Nomicall did not, in my view, have the quality, organisational strength or financial backing of the Claimants.
35. It was very clear to me at the end of the meeting on 17 January 2005 that, given the fact that I had specifically requested commitment to the continuation of the relationship going forward from the Post Office and that commitment had been categorically provided, the Post Office was no longer relying on the notices of termination of 1 December 2004.
36. I am also aware from Fox Williams that the Post Office have asserted that the outcome of the 17 January 2005 meeting was that the Claimants were to produce a business plan and product plan and that the Claimants were aware that they would have to convince the Post Office by those ideas and that the parties would need to enter into a new agreement before the re-launch could take place on 1 April 2005. This is incorrect. The correct position is as explained.
37. I further understand from Fox Williams that the Post Office has asserted that I said that I would be more than happy if the Agreement were "torn up". I do recall that I made reference to "tearing up the Agreement". However, this reference was merely a reflection of the recognition by all those present at the 17 January 2005 meeting that the Agreement no longer accurately reflected the services which were then being provided and which would, in the future, be provided. I also stated clearly that I would not be prepared to "tear up" the Agreement until such time as a new agreement was in place.
38. At the conclusion of the 17 January 2005 meeting, I gave a summary of the position. I stated that:
- the difficulties in the relationship between the parties had been resolved;
- Tele2 had presented what everyone considered to be competitive and cutting-edge proposals;
- I was pleased that agreement had been reached in relation to the way forward;
- there was a lot of work to be done by the parties to work out the detail of, and implement, the new marketing campaign by 1 April 2005;
- a new, simpler contract would be prepared in due course but in the meantime the parties would continue under the old one;
- I would fulfil my promise to resolve any future relationship difficulties; and
- the Post Office's representatives should telephone me directly if they required my input."
"42. During the 17 January 2005 meeting I also recall that Mr. Borgklint explained that he and several of his colleagues had invested, and would invest, a considerable amount of time managing the relationship and preparing and presenting options for the Post Office going forward. However, I specifically recall that Mr. Borgklint also stated that he was only willing to invest such further time and money if the Post Office gave its express agreement that it was committed to a continuation of the Agreement. Mr. Borgklint specifically asked the representatives of the Post Office if they were so committed.
43. Following this request by Mr. Borgklint, the representatives of the Post Office stated that they wanted to have some time alone in order to discuss matters between themselves. Accordingly, they left the meeting room for a short time.
44. When the representatives of the Post Office returned they expressly confirmed that the Post Office was committed to continuing the Agreement. I therefore understood from this confirmation that the Agreement would continue (and would only be replaced or amended when the relevant individuals had time to discuss such replacement or amendment which, given the priorities agreed, was not likely to be for some time)."
"Meeting with Post Office The Way Forward 17/1/2005
PO Team Simon Carter Head of Marketing
- Jermy [sic] Woodrow Product Mgr.
- Nick Hall Telecom team
Convincing to be allowed to sell @ outsource agents.
Looking for firm commitment (PO)
How do we communicate quality?
[illegible] we sell the Shity [?] card?
Emma she wasn't proactive
- lets review in 3 months time
Prepared to move from [illegible] to [illegible]
Seek Advice from C & Ex [Customs and Excise]
- Madeira is OK for VAT
- Supplier issue
[illegible] list of what you want
Redesign existing cards (Pictorial)
Segmented cards Africa (dirty is acceptable)
One page document on each cards (Grid)
Template of what is available
Limited cards MU Card Event Cards Collection Items
Incentive PO Staff Branch wise scheme
- Campaign incentive
Linked product ) should look into
Rechargeable Cards Travel industry
- Call Back cards
PO launching credit card (PO branded) Mastercard
E Vouchers 15k in 15k offices of terminals
- [illegible] system
Concept of POS??
Willing to back up what we presented.
Exclusive deal for 12 months [April 2006]
[illegible] customers (Rates)
Incite subpostmasters (Commission)
Tell people (Marketing)
Business/Marketing Plan (within one week)
Fixed line check our position on refunding customers
Draft a new contract."
"17. Mr. Borgklint also explained at the 17 January 2005 meeting that he and his colleagues (including me) had invested and were going to invest a considerable amount of time in preparing and presenting options to the Post Office and in managing the Agreement (which we all understood would lead to a new agreement in due course). I also recall that Mr. Borgklint wanted specific confirmation from the Post Office that it too was committed to its continuation. Accordingly, Mr. Borgklint stated that he was only prepared to commit time and resources to the Agreement if the Post Office was committed to a continuation of the relationship. The Post Office's representatives responded that they needed some time alone to discuss this between themselves. Accordingly, the Post Office's representatives left the meeting room for several minutes. When they returned Mr. Carter, Mr. Hall and Mr. Woodrow confirmed, on behalf of the Post Office, that the Post Office was indeed committed to continuing the Agreement. I therefore understood from this that the Agreement would continue for the time being, and would subsequently be replaced by a new agreement when people had time to discuss it which I expected would be some months later.
18. At the conclusion of the 17 January 2005 meeting I also recall that Mr. Borgklint gave a summary. He stated that the past difficulties in the relationship had been resolved, that the Claimants had presented what everyone had considered to be cutting edge and competitive proposals, that he was pleased with the fact that agreement had been reached in relation to the way forward, that there was a lot of work to be done in relation to the new marketing campaign and the planned re-launch, that a new, simpler, contract would be prepared in due course (with the clear implication being that in the meantime the parties would continue under the old one), that he would fulfil his promise to resolve any future relationship difficulties and that the Post Office's representatives should telephone him directly if they required his input or if they experienced any problems. In addition, at the conclusion of the 17 January 2005 meeting, Mr. Carter, on behalf of the Post Office stated that the proposal and commitment from the Claimants was exactly the kind of thing the Post Office was looking for."
"A. I can remember the elements of that meeting that made up that paragraph, yes.
Q. What do you mean by "elements of that meeting that made up that paragraph"?
A. Clearly there is a number of different things there which are very clear to me, around Per's commitment, or the commitments he was making, and the resolve, if you like, that he took.
(Transcript Day 3 page 160 line 10 line 18)
So you perhaps do not remember Mr. Borgklint saying, expressly, that the parties would continue under the old one, but otherwise the same; yes?
A. The way that was expressed, as I said earlier, was about the fact that the current the agreement that we had would continue until there was a new one ready, because obviously the fixed term sorry, the fixed element was going. So we continue with the existing one until we had a different one.
(Transcript Day 3 page 161 line 18 to page 166 line 12)
Q. What I suggest to you Mr. Coles, is that that part of your witness statement doesn't contain your recollection at all.
A. No, it does.
Q. That is something which has been drafted for you?
A. Um I think if it was not in there I would not it is not something that I have any issue with in terms of that statement.
Q. But you at least do not remember Mr. Borgklint in his summary saying that the agreement would continue; is that your evidence?
A. I think, as I have always said, you have to bear in mind my perspective at the time was that this was not necessarily a legal matter. So what I am absolutely clear on is that the bit that we were carrying on with was the Calling Card element of the contract. The rest was finishing.
Q. You see, I suggest to you, Mr. Coles, that although Mr. Borgklint gave a summary of the meeting at the end, what you now say he said is a construction which has been produced for the purposes of these proceedings.
A. That is not the way I look at it. Mr. Borgklint's behaviour after the meeting was specific enough to make me believe that he was more than happy with the meeting. He was very
Q. I am sorry?
A. He was very animated, and I don't think I have seen him like that since. So this was not a man who thought there were huge issues to overcome. This was a man who thought that a mandate had been given. That was very clear. And that we knew we knew there were some hurdles to overcome. That is clear too. But Mr. Borgklint is not prone to hyperbole in my experience and he was pretty animated after this meeting. That is my
Q. What difficulties had he been referring to which had been resolved?
A. Well, clearly there is an issue over relationship, I think, in terms of whether that was personality or not, I just don't know, I was not there. But clearly there had been some issues. There were some issues maybe around positioning where the price change under VAT had clearly led to some difficulties really on both sides, where one side had a view and the other side had a view and we had not moved to resolve those. I think then expiry clearly was an element of that. So these things were covered and then summarised at the end.
Q. First of all, expiry had not been resolved, had it, because Tele2 still had to investigate it?
A. Of course, I am sorry. But in terms of that position moving that position showing development against those issues, it was very clear that we were agreed on what the course of action was on those specific issues.
Q. Nothing had been resolved. Suggestions had been made by Tele2 as to how those matters could be resolved in the future. Nothing had actually been resolved?
A. Well, it depended on the issue. I mean, for example, personnel, you can clearly see that there was whole new team in place now, with the exception of one person whose performance was to be monitored. There was a clear commitment on investment. Clear, clear, clear commitment on investment, of a significant, and in the end, seven-figure sum. These are not small movements that people make. You know, this is a dramatic turnaround.
I go back to bearing in mind I am, what, ten days into the business at this point, when your boss's boss is as animated as he was, the lasting impression I take from that meeting is that this had been pretty damn good.
Q. You recollect him saying you say, he presented that Tele2 had presented competitive and cutting-edge proposals. Actually, what had been happening was that you had been putting back to Post Office matters that they had suggested to you in their paper provided prior to the meeting.
A. But there was a whole gamut of different ideas in that first meeting which were then subsequently followed up. Some of them were Post Office led, some of them were not. If the Post Office asked you to come back or the customer asks you to fulfil certain things, of course you do that.
Q. The position was at this point, Mr. Coles, Mr. Borgklint may well have said that he was pleased with the reaction to the presentation, but the point was, as was made clear by the note that Mr. Hashmi made, the position was that Tele2 had to actually back up with hard evidence that what they had said at the presentation they could do. And that was the position.
A. But everything in life is about delivering against what whatever it is you have set out to do. So of course of course that was an expectation.
Q. And there was a lot of work to be done because there was. And the Post Office was saying there was a lot of work to be done.
A. There is always a lot of work to be done.
Q. And there was simply no suggestion that the agreement would continue in Mr. Borgklint's summary of what happened at the meeting?
A. Again, if that meeting would have been conducted under legal auspices, which I had no idea that it was, that would have been something I looked for. But, for me, what I had got here was a clear mandate to go and carry on this business. And that is what I think that refers to in terms of "Right, we are ready to go. We carry on, as is, until something happens differently."
Q. The point is, Mr. Coles, the one difference between your recollection and Mr. Borgklint's and Mr. Hashmi's is actually quite significant, because you do not recollect Mr. Borgklint saying "In the meantime, the parties would continue under the agreement", do you?
A. Because I would not be looking for that, would I?
Q. You actually say that you say in your witness statement that that was the implication?
Q. And the position was that a new agreement was going to be prepared, wasn't it?
A. Ultimately it would have to be, yes.
Q. All the Post Office were committing themselves to was continuing to talk to you?
A. That is not my recollection."
"I believe that I did. I do recall it. I believe it was in the brief that we had from Lovells for the meeting and I therefore believe that I stuck to that brief and therefore I believe that I did say it."
"A. In the situation, I think it is the best message we could have given, in that all they had done, all that Tele2 had done was present some ideas, some promises, some ways of working, we had no detail. And therefore until we had the detail we were not in a position to change our position.
Q. So that is very much on this evidence a very noncommittal response?
A. I believe it is the best response that Tele2 could expect, given the situation, given what they presented.
Q. But it is very much a non committal response on your evidence, isn't it?
A. I believe it was a work-in-progress response, ie there was more to do and they were moving in the right direction.
Q. Well, you say they had a lot to prove and so far had not done so. That is what you say in your witness statement?
A. And up until then they had done nothing. Again, remember up until the meeting in December that was the first time we had ever seen any of the senior management. Scott Coles just joined for the January meeting, so really things were coming very late in the day after months if not years of deterioration."
"Q. He said that Tele2 was only willing to invest time and money if he got a commitment from Post Office. Do you recall that?
A. I do remember words similar to that, yes.
Q. Yes. So he was asking for a commitment that Post Office would continue with the relationship between the parties, wasn't he?
A. Ultimately, yes, but I believe that we responded by saying that they had more to prove before we would be in a position to give that commitment.
Q. He specifically asked Post Office, "Are you in or out?"
A. I do not recall those words.
Q. Do you recall him saying something to that effect?
A. No. Because I well, if he did, the immediate response was "We are not in a position to answer that", although I don't recall whether that was said. But the point that was said by myself was that we had more work to do to understand whether Tele2 could deliver on the promises that were made in that meeting, around account management, around rates and around support. Which is why ..
Q. Mr. Carter, Mr. Borgklint, you see, he put you on the spot. He wanted a yes or no answer: "Are you with us or not? Are you in or out?" He wanted a commitment. And that's why you went out of the room?
A. I do not recall that as being the reason.
Q. That was the reason.
A. I do not recall that.
Q. And when you came back, it was you who spoke, wasn't it?
A. I believe so.
Q. And you may have been equivocal to start with, but Mr. Borgklint wanted a clear yes or no answer. Do you remember that?
Q. And so you gave the commitment that Mr. Borgklint was asking for. That's right, isn't it?
Q. You gave them a clear commitment
A. No, I did not. The commitment I gave was that we would continue working together to get to a position where we were comfortable, whether or not they could deliver on the promises of account management, of rates and supplier support.
Q. You give a clear commitment to continue the relationship between the parties, Mr. Carter.
A. That is incorrect. That is incorrect, sir."
"A. I can't remember exactly, but I think Mr. Carter suggested that we would like to have some time to talk amongst ourselves privately.
A. Just to get a sense of each other's feelings of what Tele2 were presenting.
Q. So there was nothing in particular, is that right, which prompted Mr. Carter to say, "Let's leave the room"?
A. I can't remember exactly what the purpose of leaving the room was.
Q. Is it your evidence that when you came back in Mr. Carter said that Tele2 had Post Office's attention, that you would continue discussions about relaunching the phone card, but that more details were required before a decision could be made? Is that your evidence?
A. I believe that is the the sentiments of what Mr. Carter said, yes.
Q. So you are in a meeting, you decide to go out, you cannot remember why. You come back in and Mr. Carter says, "Well, you have our attention" et cetera. That is it.
Is it your evidence that Mr. Carter said that the claimants had a chance?
A. I think Mr. Carter said that, yes, they had our attention, they had clearly got the right people involved within Tele2 now, they had some more senior people involved. And, yes, I think that we we were prepared to give Tele2 a chance to impress us and there was a lot of things spoken about in that meeting and some good stuff, but we needed more meat on the bones before we could see whether that was what they were saying and what they were going to do was going to actually follow through.
Q. So "You have our attention "
Q. "We will give you a chance to impress us "
Q. "But a lot of work to be done." Is that it?
Q. Was Mr. Borgklint happy with that?
A. I think he was happy that they had got our attention again. "
"Following a meeting at director level between Post Office Ltd. and our existing phonecard provider, Tele2, it seems highly likely that we will not be contracting with Nomi for the provision of physical phonecards this may change but is unlikely. This means that it is likely that we would not contract with them for electronic either."
"So yes. Prior to this Nomi-Call and E-Pay were in serious conversations about providing a Christmas phone card.
As there was a possibility, yes, that Tele2 might continue to be our main supplier, I did I contacted them as per this email to say that there is a good there is a good chance that Tele2 may still be our main supplier because I did not want E-Pay to start working with Nomi-Call to build links between the two companies. I did not want them wasting money doing those things if at a later date we decided we would not be going with that company."
"I think at I think at this stage, as I said, if Tele2 had delivered on the promises that they made on the 19th [sic the reference was to the meeting on 17 January 2005], and delivered the compelling customer proposition, the great rates, the marketing expenditure that they were saying they were prepared to put forward, that it is likely that we would have remained with Tele2."
"In the evening of 19th January 2005 Mr. Smith called me to ask if everything was alright in the terms of our relationship with Nomi-Call. I am not sure what he had heard but he thought that we might be considering going ahead with Tele2 after all. I said we had terminated the contract with Tele2 and that we were now talking through some issues with them. I said that I thought that we would still proceed with Nomi-Call as we had planned, but there were people at a high level involved and I didn't know for sure. I said I thought we would still be working towards an April relaunch with Nomi-Call."
"It was good to met [sic] with you all yesterday. From our perspective the meeting went well and it is clear, from both sides, that the commitment and resource is now in place to realise the potential of the calling card business. We covered quite a lot of ground but we felt there were a few matters which require immediate attention:
1. Relaunch in April
We will work towards and support a relaunch to retailers and consumers at this time. Clearly this will need to be of scale to get the attention of all, as Post Office continues to launch exciting new products and services. We should discuss this urgently to ensure we meet deadlines and are able to get space in your various programmes at store level.
2. Growth and Support
The aim is to take the current ฃ1m per month business and grow that to >ฃ2.5m by April 2006. To this end we will construct and JBP [sic] to deliver activities and products which would achieve this goal. Tele2 indicated that a sum of ฃ250,000 would be available to kick start the new plan. We should then discuss an escalating scale of support as key revenue targets are met. All monies generated to be used to support the JBP.
3. Ongoing Account Management and Review
It was agreed that we should meet for BAU at least once per month (more frequent if required) and we would meet as senior teams once per quarter to review our joint business and set priorities going forward.
4. Pre-paid Fixed line service
This service is to be wound down. We must handle the customers sensitively and ensure that they are offered full refunds where appropriate. There may be opportunity here to offer them the 'Home Phone' service in an attempt to retain them.
5. Tariffs and Commissions
We will work on the combinations of card offers that were discussed along with some other options and look to share these with you over the next few weeks. Clearly differing propositions would attract differing levels of commission.
There are many other matters which we will cover over the coming months but I believe these are the main items. I look forward to the challenge ahead and the opportunity to review progress at the end of Q1!"
"Thanks for your note, was a very good meeting.
From my perspective the most urgent thing we need to address, this week, is fixed-line [which is not material to any issue in this action]
In terms of taking forward phonecards, I would like to try and set up some time next week to discuss plans for April as we will need to get product specs, tariffs etc confirmed quickly to enable us to effectively brief agencies etc. Can you let me know availability next week."
"I had about an hour's chat with Jeremy this afternoon and extracted the following information.
Monday's meeting was deemed a 'breath of fresh air' showing energy and empowerment (to make decisions without going to board level).
Contracts PO lawyers have been briefed and should have a draft ready for Jeremy this week and us by next week. Detail to include our supply of electronic cards on their new 4400 terminals to be rolled-out, third party sales, cease of Fixed
Nomicall They have committed to the 'Olympic Card' until the 31st of July across the entire network. With regard to the Christmas and EU card, this will be withdrawn by the 1st of April VERY IMPORTANT.
"I felt I should let you know that there has been some developments with regard to our current contract with Tele2, as I would not want you to hear something on the 'grapevine'. Whilst we continue to have a valid termination notice in place with Tele2, we are back in dialogue with them. This has come about due to intervention at director level within both companies. It has been agreed that we will meet to discuss whether there is any way that this relationship can be reinvigorated, this meeting will take place at the end of this week or early next.
I realise this will be disappointing to hear at this late stage, however I can re-assure you that no decision has been taken which direction we will go.
In the mean time we should work to make sure that the Olympic card flies and continue to build up a view of what the future would look like."
"This is our quarterly Sales and Marketing Team meeting. This one is being used to cascade the plan for next year and the challenges ahead. It has been decided that we will invite a number of key suppliers to this event. Will give you a great understanding of what the priorities for the PO are going forward. "
"1. SOURCE OF IDEA
A blueprint submitted by Jeremy Woodrow for consideration at the High Level Blueprint forum on 19th January, detailed a potential change of phonecard supplier. Since the blueprint was submitted, a number of developments have occurred. It is now highly likely that, following high-level discussions with Tele2, we will continue to use Tele2 as our supplier of phonecards. However we will be re-launching the existing phonecard with new rates, point of sale and promotional activity in April.
2. REASON FOR CHANGE
This change of direction has come about due to senior management intervention within Tele2 that has seen them address the majority of our issues with them as a supplier. As such they have agreed to significantly improve both our commercial and customer proposition as well as invest in increased resource to manage our account. Additionally they have agreed to put up ฃ250K to re-launch the product in April.
- To withdraw from sale the EU and Xmas phonecard provided by Nomi on 31st March.
New rates to be implemented on or around 31st March. Xmas phonecard must be withdrawn by 31st March due to Trademark License.
6. KNOWN CONSTRAINTS AND RISKS
It is possible that a commercial deal with Tele2 may not be agreed and if this were the case, we would need to re-invoke the previous Blueprint to swap out all Tele2 phonecards. If this was the case, the marketing campaign would still go ahead but for the new supplier's phonecard.
The Claimants' second claim
"In addition to a claim for loss of profits for the 24 months to 31 March 2007, Tele2 has a claim for lost profit due to Post Office's failure to promote Tele2 phonecards in the period from October 2004 to March 2005. Although it is clear that Post Office was in breach of clause 2.1 of the Agreement during this period (something which is important given the difficulties that it shows in the Post Office operating two phonecards suppliers side by side without acting in breach of clause 2.1), Tele2 accepts that it is difficult to calculate what level of sales Nomi-Call would have made during the period in any event (and, therefore, the extent of the sales lost by Tele2) and given the low level of its claim for damages under this head (a maximum of ฃ21,000), does not pursue this claim for damages."
"Therefore, Tele2 invites the Court to find that: Post Office was in breach of clause 2.1 of the Agreement from 10 January 2005 onwards."
"29. Mr. Borgklint wrote to Mr. Carter on 23 March 2005 outlining that the Claimants had instructed an independent marketing company IQ Field Marketing to conduct a survey on their behalf comprising 50 of the Defendant's outlets. The results of this survey highlighted that the vast majority of the Defendant's outlets which had been surveyed had recommended a phonecard which was not supplied by the Claimants (but rather a company called Nomi-Call) and had not promoted the Claimants' phonecards to customers at all.
30. In addition, the Defendant advertised a phonecard produced by Nomi-Call in the Christmas 2004 gift catalogue only, without advertising or promoting the Claimants' phonecards in accordance with clause 2.1 of the Agreement.
31. As a result of the Defendant's breaches of clause 2.1 of the Agreement the Claimants have suffered further loss and damage, namely the additional revenues that the Claimants would have earned in the period prior to termination of the Agreement on 31 March 2005 had the Defendant not acted in breach of clause 2.1 of the Agreement minus the additional costs that the Claimants would have incurred in order to earn those revenues."
"106. Mr. Hashmi will give evidence about Post Office's breach of this provision in promoting Nomi-Call's phonecards ahead of Tele2's phonecards.
107. In summary, in early March 2005 Mr. Hashmi and Mr. Coles visited several Post Office outlets to assess whether Post Office was complying with Clause 2.1. They asked to purchase a calling card to make cheap calls to the USA, and were only offered one card being a card supplied by Nomi-Call.
108. Following this, Tele2 instructed an independent marketing company to undertake a wider review of the situation. The results of the survey thus carried out showed that Tele2's phonecards were not being promoted to anything like the same extent as Nomi-Call's phonecards.
109. None of this is surprising in the light of the disclosure given by Post Office in these proceedings, which shows that express instructions were given by Post Office to promote Nomi-Call's cards ahead of Tele2's cards. The Court will recall that Nomi-Call were paying Post Office a commission of 35% on sales of Nomi-Call cards.
110. In short, there was, in Tele2's submission, a plain breach by Post Office of Clause 2.1 of the Agreement."
"Please continue to offer the Christmas phonecard ahead of our existing phonecard products whilst you have stock available in your branch as it does offer better value for money to our customers.
The Christmas phonecard has the usual phonecard features and benefits i.e.
- per second billing
- no maintenance or connection charges
- Freephone access
However the Christmas card offers in addition:
- FREE CALLS TO AMERICA on Saturdays including Christmas Day between 12 midday and 12 midnight for the lifetime of the card.
- Call rates to other destinations that are on average 25% cheaper than the existing phonecard."
"Following the success of the Christmas phonecard, the limited edition Back the Bid phonecard went live yesterday, 24th January.
This phonecard should be offered ahead of the Tele2 phonecard and the Christmas phonecard as it does offer great value for money to our customers and it also supports Britain's attempt to bring the 2012 Olympic Games to London.
The Back the Bid phonecard has the usual phonecard features and benefits i.e.
- per second billing
- no maintenance or connection charges
- freephone access
However the Back the Bid card ALSO offers:
- Call rates that are on average 25% CHEAPER than the Tele2 phonecard, with international call rates starting at ONLY 1.5p per minute.
- All customers the opportunity to WIN one of 3 Five Star weekends in London or additional call credits 1 in 4 Back the Bid phonecards has 10% or 20% additional call credits pre-loaded on them.
Full details of the promotion are in Operational Focus Week 42.
Please ensure that ALL point of sale is displayed and really get behind the Back the Bid phonecard."
"Post Office Ltd. is supporting the bid by the introduction of the ฃ5 and ฃ10 Back the Bid phonecards. These phonecards SHOULD be offered ahead of ALL our existing phonecards until they are withdrawn in July as they offer customers FANTASTIC value for money and could help bring the Olympic Games to Britain."
"In Mr. Haberman's view:
a) There is no evidence that an increase in promotion would have increased total sales of POL phonecards rather than the relative proportions of those cards supplied by Tele2 and Nomi-Call.
b) It is not possible to separate the effects of POL's alleged failure to promote from Nomi-Call's more competitive call rates.
c) I am unable to apply a scientific approach to quantify the loss of profit suffered by Tele2 as a result of POL's alleged failure to promote its phonecards adequately."
" the call rates on Tele2 cards supplied in July 2004 were on average 59.9% more expensive than the call rates on the standard cards supplied by Nomi-Call in May 2005, and that these call rates continued thereafter. We agree that the Xmas phonecard supplied by Nomi-Call in November 2004 used higher rates than the later Nomi-Call phonecard, so that the call rates on phonecards supplied by Tele2 in July 2004 were 51.2% more expensive than the Xmas phonecard supplied by Nomi-Call."
"5.2 Potential EBITDA
5.2.1 In estimating the potential EBITDA for the period from October 2004 to March 2005, I have adopted the same assumptions and methodology as set out in estimating the loss of profits that Tele2 suffered in the period from 1 April 2005 to 31 March 2007, as outlined in Section 4 of this report.
5.2.2 I have examined these assumptions and the methodology adopted in detail, in the previous section of this report. I have not repeated all my findings here and, therefore, my comments in relation to the period from April 2005 to March 2007, unless otherwise stated, also apply to the period from October 2004 to March 2005.
5.2.3 The detailed calculations of my estimates of the potential EBITDA that Tele2 could have achieved in period from 1 October 2004 to 31 March 2005 are shown in Appendices I.1 and J.1 for scenarios 2 and 3 respectively.
5.3.1 I have used the actual figures, as shown in the monthly management accounts, for the 6 month period from 1 October 2004 to 31 March 2005. These have been amended for the actual :ฃ exchange rate and for the adjustments as outlined in section 3.4 of this report."
"(b) In Scenario 2 in my original [that is, unrevised] report, I considered each of the revenue and cost assumptions used in Mr. Hashmi's forecast against the background of Tele2's previous performance and, in the light of my knowledge of the telecoms market and my own assessment of the market position of Tele2, and reached my own view on each of the revenue and cost assumptions used. Although my analysis involved a critical consideration of Mr. Hashmi's forecast, Scenario 2 in my original report did not rely upon this forecast or any part of Mr. Hashmi's evidence which has been ruled to be inadmissible being accepted by the Court as correct. Having reviewed this scenario in the light of the revised witness evidence of Mr. Hashmi [that is, the version of his second witness statement with the inadmissible evidence struck through], it continues to be my view that Scenario 2 reflects what would have been achievable based on Tele2's historic performance and market positioning and, therefore, the loss that Tele2 would have suffered if the Court concludes that the Agreement was wrongfully terminated.
(c) In Scenario 3 in my original report, I was asked to calculate the loss that Tele2 would have suffered if Tele2's Post Office phonecard business had not grown, but had remained level throughout. Again, in calculating the loss that Tele2 would have suffered in this scenario, although my analysis involved critical consideration of Mr. Hashmi's forecast, Scenario 3 did not rely upon this forecast or any part of Mr. Hashmi's evidence which has been ruled to be inadmissible being accepted by the Court as correct. Having reviewed this scenario in the light of the revised witness evidence of Mr. Hashmi, it continues to be my view that Scenario 3 reflects the loss that Tele2 would have suffered if the Court concludes that the Agreement was wrongfully terminated, but that Tele2's Post Office phonecard business would not have grown in the future."
"4.3 The difference of ฃ18,800 between these figures arises because Tele2 considers that it was agreed with POL that it would offset a marketing campaign expense which they incurred."
"167. There is an issue between the parties about what share of the expiry revenue Post Office is entitled to receive:
(1) Since March 2005, Post Office has argued that this clause entitled it to 50% of the remaining face value on cards which expired without the full value of the credit on the card being used. Thus if the customer paid ฃ10 for the phonecard, but only used ฃ1 of the available credit prior to expiry, Post Office should be paid ฃ4.50 (half of the unused face value of ฃ9).
(2) In Tele2's submission:
(a) On the true construction of this clause, there is a distinction between face value and the windfall arising from a card not being used. The effect of the clause is that Post Office should receive half of the windfall arising, which equates to 25% of the remaining face value.
(b) The parties discussed and agreed in 2002, when the expiry revenue from the first cards sold started to accrue, that this clause would operate in this way and the parties then operated in this way for a period of some years. Post Office cannot resile from that agreement.
168. As shown by the examples below, Post Office's argument is a startling one, once it is borne in mind that (i) Post Office was already entitled to 21% (subsequently 24.7%) of the sale value of the card once it was sold see clause 1 of Part II of Schedule 4; and (ii) for each card sold, Tele2 had to incur certain fixed costs, such as the cost of producing the card (around 2% of card value), as well as certain direct costs known as interconnect costs (around 45% of the value of the call made) in purchasing access to telephone lines in relation to calls made.
169. Thus, if a ฃ10 phonecard was fully used by a customer, the position would be as follows:
[The table need not be set out it showed the Claimants getting ฃ3.20 profit and the Post Office getting ฃ2.10]
170. However, in the example given above, of only ฃ1 worth of calls having been made from a ฃ10 phonecard, the economic impact of Post Office's argument (before the introduction of VAT in 2004) would look something like this:
[Again the table need not be set out it showed the Claimants getting a profit of ฃ2.75 and the Post Office getting ฃ6.60]
171. Therefore, the construction that Post Office now advances would produce the most odd result that Tele2 would be worse off if a card was unused than if it was used, while Post Office's share would increase substantially and become greater than that of Tele2.
172. It was against this background that the parties addressed the issue of expiry revenue in 2002. In particular:
(1) On 8 July 2002 Adam Hayes of Tele2 sent an email to Samantha Conway of Post Office explaining that, if Tele2 paid 25% of final expiry revenue, this equated to 50% of the "excess profit" made by Tele2. Mr. Hayes' email attached a spreadsheet to illustrate his point.
(2) On 20 November 2002 a meeting took place between representatives of Post Office (Messrs. Cromwell and Green) and Tele2 (Mr. Heron). The Note of the meeting shows that the issue of expiry revenue was discussed.
(3) Following that meeting, on 29 November 2002, Mr. England of Tele2 wrote to Mr. Gilbert of Post Office attaching a summary of the money due to Post Office in respect of expiry revenue, together with a supporting breakdown. The letter asked for an invoice to be sent by Post Office for the amount due, as shown in the breakdown. The breakdown calculated the sum due (ฃ41,435) explicitly on the basis of 25% of expiry revenue streams. Following this letter, an invoice was duly issued by Post Office on 10 February 2003 for the sum of ฃ41,435.
(4) After this, Post Office consistently issued invoices for expiry revenue on the agreed 25% basis and Tele2 paid on this basis. It was only in the last month of the Agreement in March 2005, over three years after signature of the Agreement, and after two years of operating on the basis of a 25% share, that Post Office sought to argue that it was entitled to 50% of unexpired face value.
173. In Tele2's submission, as the examples above demonstrate, Post Office's current position on expiry revenue is nonsensical and it is most unlikely that the parties can have intended it. This points strongly to Post Office's interpretation of the relevant clause being wrong. The reasonableness of the result reached is always a relevant factor to be taken into account in construing contractual provisions. See Schuler v. Wickman, referred to above. Moreover, the Court should always have regard to the purpose of the provision which it is construing. See Arbuthnott v. Fagan, also referred to above.
174. The purpose of paragraph 1 of Part III of Schedule 4 was plainly to ensure that if Tele2 received a windfall because a card expired without the customer using the full amount of the available credit, Tele2 should share the windfall equally with Post Office. The purpose was not for Tele2 to be worse off if a card expired without the customer using the full amount of available credit. Thus the "remaining value" referred to in the third line of the clause was intended to refer to the value remaining to Tele2, i.e. the windfall. In practice, it equates to about 25% of the unused credit on the phone card.
175. Even if this were not the result as a matter of simple contractual interpretation, as shown by the events described above, the parties agreed that the clause would operate in this way and operated on this basis for a period of years.
176. In addition, in an internal email from Mr. Bartley, then of Tele2, subsequently of Nomi-Call, dated 29 July 2004, Mr. Bartley recorded that Post Office had agreed to reduce its entitlement to expiry revenue to half its current entitlement, i.e. 12.5%. There is an issue of fact as to whether any such agreement was made."
"As a matter of construction, POL submits that this strained and artificial construction is scarcely arguable;
a. If variable costs are to be taken into account, this would mean that every card which expired with credit remaining would have to be analysed to see what calls had been made on it so that the variable cost of those calls could be deducted.
b. Fixed costs are split between all costs sold. That means that, if fixed costs are to be taken into account, the amount to be deducted from the remaining value of credit depends on how many cards have been sold and would vary over time.
c. The foregoing calculations would be absurdly complicated for the relatively small sums at stake even in the unlikely event of a card expiring with all its credit remaining, the maximum POL entitlement would be ฃ10, ฃ5 or ฃ2.50 depending on the card's denomination.
d. This would also mean that POL's entitlement depended on Tele2's efficiency of operation. If Tele2's costs were high, a matter over which POL had no control, POL's remuneration would reduce. That is a commercially unlikely result.
e. There is no suggestion that any consideration was given to this exercise before the Agreement was entered into and Tele2 apparently accepts that the parties did not intend that the fixed and variable costs attributable to any card should actually be calculated. Instead, it says that splitting the resulting figure would be "about 25%" of unused credit and so that is the figure that should be applied. If that is what the parties intended, they would simply have provided for POL to receive 25% of unused credit. Tele2 cannot explain why they did not.
f. Finally, there is no need for Tele2's strained construction. The words used by the parties clearly provide for POL to receive half the unused credit on a card. There is nothing odd or uncommercial about such a provision, and effect should be given to it."
"attach a copy of spreadsheet that hopefully Johnny showed you.
In summary this shows that if I pay you 25% of final expiry this equates to 50% of "excess profit". Please confirm your agreement and I will get a cheque raised."
"The meeting was arranged to address and agree the outstanding points covered in the note from Johnny to David dated 26 April 2002.
Johnny mentioned at the beginning that he had additional points to raise. These were:
1. Expiry of Phonecards
Johnny said he had made a proposal on sharing benefits to Sam Conway in August.
Action Jim to ask Sam to liaise with Iain Gilbert and provide reply to Johnny asap."
"1. Expiry: Methodology supplied to SC August 02. 50% of excess profit = 25% of expiry balance. Reason: PO already have had 21%. (ฃ50,000)
4. Tariff process: We need to agree a much faster process. Both for unexpected changes (like China) and planned changes. We tried to lower rates for this promotion and PO said no."
"Post Office Phonecard: Expiry sharing of remaining value
Please find attached our summary of the money due to the Post Office for the above at the end of October 2002, together with the supporting calculation.
Please let us have your invoice for the due amount, made to Tele2 Ireland Ltd., at the following address:"
"Post Office Commission payable on Expiry of Cards
As per the contract, 25% of Expiry Revenue streams are payable to the Post Office as a commission.
Expiry Revenue was first appreciated in April 2002, and since then have been such:
[There followed a table]"
"Absolutely not. There was not an agreement, never was an agreement. What is there was a sum of money identified by Tele2 as owed to the Post Office. I requested an invoice be raised."
"I have negotiated a position which I believe they will agree to which contributes 26.3% (ie pre increase level) We have also agreed to reduce PO expiry to half the current level. See model below."
"3/ Breakage The contract states 50%. We have been paying them 25% for the last year, and I have negotiated this down to 12.5%. They are not happy at all about this level as they use breakage to fund a lot of their PR activity."
"178. The clause provides for payment of any profit share due to Post Office to take place annually; however, there is an issue between the parties as to whether the profit share due to Post Office should be calculated on a cumulative basis (Tele2) or on an annual basis (Post Office). This makes a difference because, as is the nature of a business arrangement which involves launching a new product, there were very substantial initial start up costs incurred by Tele2 in the first year (which was in fact only 3 months long October to December 2001) with the result that there were very substantial losses incurred. If this clause operates cumulatively then the profit share would only apply once Tele2 had recovered these initial start-up costs and started making a profit from the business in excess of 10% EBITA. Post Office's construction would treat each year separately and, while there would be no profits to share in the first year, Post Office would then be able to take a share from profits in subsequent years without any account being taken of the initial start up costs.
181. In Tele2's submission, the clear purpose of this clause was to allow Post Office to receive what was, in effect, an increased level of commission if and when their joint phonecard business started generating substantial profits. It would not be consistent with this purpose for Post Office to start to receive higher commission when the joint phonecard business was still loss-making or making a low level of profit. However, Post Office's construction of the clause, by taking snapshots of each year in isolation, would allow this to happen. Therefore, the commercially sensible construction to put on this clause is that Post Office's profit share should be calculated on a cumulative basis."
"2.31 Tele2 again takes a commercially inexplicable approach. It says that at the end of each year the comparison is not of that year's figures but of Tele2's EBITA and revenues from the start of the Agreement until the end of the previous financial year. The effect of this is very peculiar:
a. At the end of 2002, for example, if Tele2 had been very profitable, ฃ100,000 might be due to POL.
b. If then Tele2's percentage profit margin reduced in 2003, the cumulative EBITA might be less than 10% of cumulative revenues at the end of the year.
c. On Tele2's construction, it is not just that POL would be due nothing at the end of 2003; it would turn out at the end of 2003 that POL was not due the ฃ100,000 it had already been paid. Presumably, therefore POL would have to pay the money back.
d. This would be particularly silly since a further sum might then be due to POL for 2004, only to be clawed back again the following year.
2.32 The parties are most unlikely to have intended such a result. If they had intended the calculation to be carried out on a cumulative basis, they would have provided that no accounting would be carried out until the end of the Agreement. They actually provided for annual accounting. There is nothing in Tele2's "cumulative" construction."
"It is, of course, recognised that, in theory, if an account was carried out annually, but on a cumulative basis, balancing payments might need to be made both by Tele2 and the Post Office, since if the Agreement was profitable in the early years, but then less profitable in the later years, sums of Additional Fees already paid to the Post Office might be repayable (or netted off against their next commission payment). However, this is only a theoretical possibility. In practice, it would be likely that, having recovered the initial losses, the Agreement would then settle down into a level of profitability that would broadly prevail thereafter, with the result that Additional Fees would either not be payable at all or be paid every year."
The damages recoverable on the principal claim of the Claimants
"181. The first principle POL relies on is that a claimant is only entitled to damages in respect of matters which the contract required the defendant to do: Lavarack v. Woods of Colchester Limited  1 QB 278.
185. Secondly, and related to the previous point, it is to be assumed that the defendant would have performed the contract in the manner least beneficial to the claimant: Kurt A Becher & Co KG v. Roplak Enterprises (The "World Navigator")  1 Lloyd's Reports 23.
191. Thirdly, it is necessary, where possible, to take into account events which actually happened after the cause of action arose which cast light on what would have happened if the contract had continued: Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd. v. Pontypridd Waterworks Company  AC 426; Golden Strait Corporation v. Nippon Yusen Kubishika Kaisha  UKHL 12;  2 AC 353."
"The authorities show that:
(1) A defendant will not be held liable in damages for failing to do something which, under the contract, he is under no obligation to do. Thus in Lavarack v. Woods  1 QB 278, an employee who had been wrongfully dismissed was not entitled to claim damages for loss in respect of an unexpected increase in salary in lieu of bonus, since his contract did not entitle him to a bonus. The decision in Lavarack v. Woods needs to be read in the light of the later Court of Appeal decision in Horkulak v. Cantor Fitzgerald  EWCA Civ 1287 in which an employee's contract provided that his employer may, in his discretion, pay an annual discretionary bonus. It was held that the employee was entitled to a bonus and the Court's task was to decide how in practice the employer would have fulfilled its obligations. See paragraph 56 in the Judgment of Potter LJ.
(2) Where the contract, on its face, stipulates four [sic] alternative methods of performance, then damages are to be assessed on the basis of the stipulated alternative which is least onerous to the defendant. See Abrahams v. Herbert Reiach  1 KB 477 at 480. Thus, for example, if a contract of carriage provided for delivery at one of two alternative ports, damages for breach would be assessed on the basis that the ship owner was required to deliver to the nearer port. See the example given by Atkin LJ in Abrahams v. Herbert Reiach ibid at page 483.
(3) Where the contract provides for a single obligation which may be performed in a range of ways, the task of the Court is to assess what the defendant, acting reasonably, would have done in performance of its obligation. See Abrahams v. Herbert Reiach ibid. Lion Nathan v. CC Bottlers Limited  1 WLR 1438 (PC), especially at page 1446 (Lord Hoffmann) and cf. the approach of the Court of Appeal in the Cantor Fitzgerald case referred to above."
"In relation to both claims for damages by Tele2, the Court will need to reach a view on (i) how the Tele2/Post Office phonecard business would have developed in the hypothetical world in which the Agreement had not been terminated and Tele2 had continued to supply phonecards to the Post Office from 1 April 2005 to 31 March 2007; and (ii) what costs would have been incurred by Tele2. There is obviously a close connection between these two elements, since higher costs would need to be incurred by Tele2 in order to grow its business than would need to be incurred in order to keep sales level."
"289. POL unequivocally evinced its intention to terminate the Agreement by sending Tele2 notices of termination on 1 December 2004. It was on that date entitled to terminate on 12 months' notice. Thus, if it was not entitled to terminate by the notice given, damages are to be assessed on the basis that it would then have given 12 months' notice. That notice would have expired on 30 November 2005, 9 months after the Agreement in fact terminated and accordingly Tele2's claim should be limited to 9 months' profits.
290. Alternatively, POL was entitled to serve a 12 months' notice on 31 March 2005, when the Agreement came to an end, and so Tele2's claim should be limited to 12 months' profits. It is well established that where a party terminates a contract for a bad reason, he is subsequently entitled to rely on facts which, at the time, would have constituted a good reason for termination: Boston Deep Sea and Ice Company v. Ansell (1888) 39 Ch D 339."
Should it be assumed that the Post Office would have performed the Agreement in the manner least beneficial to the Claimants?
"That being so, Reade v. Bentley lays down a rule of construction which is applicable; a publisher who has agreed to publish a work must publish it, but is not bound to continue publishing it; the author has a right to determine the agreement after publication of an edition unless the agreement otherwise provides. The appellants undertook to publish this book and repudiated their agreement. What are the damages to which the respondents are prima facie entitled? The general rule is that stated by Parke B. in Robinson v. Harman: "Where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed". Mr. Jowitt contended that this was one of those contracts which may be performed in one of several ways and was analogous to those contracts which provide for alternative methods of performance. If this were so the party complaining of a breach must be content to have the damages assessed by the standard which is the least onerous to the defendant. But in my opinion this is not a contract of that kind. In the cases to which we have been referred the contracts provide on the face of them for alternative methods of performance. This contract only imposes one obligation upon the appellants namely, to publish. The question is what will satisfy that obligation? The appellants have a wide discretion; the time of publication, the number of copies to be printed, the price at which they are to be offered, and the form the book is to take are all left to their judgment. That however does not dispose of the case, because they have repudiated their obligation altogether, and the difficult question we have to decide is in what position the respondents would have stood if the appellants had performed their obligation. To answer this question the Court must come to some conclusion on matters on which there is no evidence; how the appellants would have exercised their discretion; what number of copies they would have published; how many editions would be reasonable. On all these points the parties left the learned judge in a difficult position. The case is very bare of materials from which he could draw any conclusion. He rightly emphasised the points which would induce a reasonable expectation of a large sale; the fact that the type was already set up and that the cost of production would be small; the character and reputation of the respondents, and the opportune occasion for publishing the book. But there were other matters to be taken into account, and in my opinion the learned judge made an estimate which was too favourable to the respondents and we cannot allow the judgment for 500l. to stand. The parties have agreed that we may substitute an amount which we think fair, and I think 100l. would be a fair assessment. The judgment will stand for that amount."
"Mr. Jowitt contended that if one copy was published that would satisfy the appellant's obligation. That cannot be laid down as a proposition of law. I think the appellants were bound to make such a publication as could be considered reasonable in the circumstances. Having done that they are not bound to do anything further. Provided that they make a reasonable publication the number and price of the copies are left to them. They broke their contract, and now what is the measure of damages? There are two principles which may seem to clash. One of these is stated by Lord Selborne in Wilson v. Northampton and Banbury Junction Ry Co.: "In the case of damages, as it appears to me, the plaintiff will be entitled to the benefit of such presumptions as, according to the rules of law, are made in Courts both of law and equity against persons who are wrongdoers in the sense of refusing to perform, and not performing, their agreements. We know it to be an established maxim, that in assessing damages every reasonable presumption may be made as to the benefit which the other parties might have obtained by the bona fide performance of the agreement." I am not inclined to be strict in limiting the damages recoverable against wrongdoers, but if their obligation is left so much to their discretion that there are several ways of performing it, I have always understood that the Court assesses damages on the basis that "if the contract could have been performed by the performance of the alternative least beneficial to the plaintiff, the measure of damages would be regulated by the loss occasioned by non-performance of that alternative": Deverill v. Burnell, per Bovill C.J. The simple reason for this is that a defendant is not liable for not doing that which he is not bound to do. In assessing the damages in this case I try first to ascertain what edition of the book would have been a performance of this contract; I do not forget that the respondents cannot recover more than they would have suffered if they themselves acted reasonably; I bear in mind also that the appellants are wrongdoers; and acting on these lines I do not dissent from an assessment of 100l., though I think myself the plaintiffs might have got considerably less. "
"I agree in the result, though I do not go all the way with Scrutton L.J. The contract was to publish a book with illustrations and to pay the authors 4d. for every copy sold. The book would no doubt be published for the benefit of the publishers, and the authors would have an interest in the nature of a royalty in the sale of the book. The transaction resembles an agreement for a joint adventure falling short however of a partnership. There having been a breach of this contract the Court, in order to place the parties in the same pecuniary position as if the contract had been kept, must first ascertain what the contract was. If a merchant makes a contract to deliver goods to a shipowner to be carried by him for reward, and the merchant fails to provide the goods, the Court must first find what is the contract which has been broken; and if it was to carry the goods to one of two alternative ports at different distances from the port of loading at rates of freight differing according to the distance, the only contract on which the shipowner can sue is a contract for carriage to the nearer port. The plaintiff cannot prove a contract for performance of the more onerous obligation. This explains why in cases of this kind the Court regards only the lesser of the two obligations. But in the present case there are no alternatives, and to adjust the rights of the parties the only method is to form a reasonable estimate of the amount the respondents would be in pocket if the appellant had kept his promise. Everything likely to affect the amount of the profit must be considered; the nature and popularity of the subject matter, the reputation of the authors, the cost of producing a book on that subject, the price at which it would command a sale, the business capacity of the publishers and the chances of earning a profit by the sale of the book. On the other hand the publishers are not bound to run risks contrary to their judgment; they would naturally and properly allow for fluctuation in the public taste for literature of this kind. An analogous calculation has to be made when a man having engaged to take another into his service for a time and to pay him a share in the profit of his business, refuses to employ him at all. In assessing the damages for the breach of this contract the question is not how the employer could carry on his business so as to make the least possible profit and so involve himself in the least possible obligation towards the plaintiff. Apart from his contract, he need not carry on business at all. The proper method of assessment is quite different; it is to make a reasonable computation of the amount the respondents would have received had the contract been fulfilled. The sum so arrived at is the measure of damages. This seems to have been the method pursued by Sankey J., but in my view the actual result at which he arrived is too favourable to the respondents, and the learned judge must have omitted some considerations which ought to have been taken into account. To produce 500l. damages there must have been a sale of 30,000 copies of the book, and that is too large an estimate. The evidence warrants the inference that there would have been a substantial sale; but the book may still be published, though perhaps under less advantageous conditions; and the sale may still be large. Moreover the publishers might have exercised their discretion upon a mistaken view of their own interests and have published less copies than they could without difficulty have sold. On the whole I agree that 100l. is a fair assessment of the damages. "
" . I accept as correct the principle stated by Scrutton L.J. in Abrahams v. Reiach (Herbert) Ltd., that in an action for breach of contract "a defendant is not liable in damages for not doing that which he is not bound to do."
One of the most firmly established applications of this general rule was that expressed by Maule J. in Cockburn v. Alexander, thus: "Generally speaking, where there are several ways in which the contract might be performed, the mode is adopted which is the least profitable to the plaintiff, and the least burthensome to the defendant"; and the only question argued by counsel in Abrahams v. Reiach (Herbert) Ltd. was whether or not the contract sued on was one which gave to the defendants an option as to the mode in which it might be performed. All three members of the court held that it did not, but obliged the publishers to publish an edition of the book of a size which was reasonable in all the circumstances. Each member of the court explicitly accepted as beyond argument the correctness of the rule expounded in Cockburn v. Alexander.
The general rule as stated by Scrutton L.J. in Abrahams v. Reiach (Herbert) Ltd., that in an action for breach of contract a defendant is not liable for not doing that which he is not bound to do, has been generally accepted as correct, and in my experience at the Bar and on the Bench has been repeatedly applied in subsequent cases. The law is concerned with legal obligations only and the law of contract only with legal obligations created by mutual agreement between contractors not with expectations, however reasonable, of one contractor that the other will do something that he has assumed no legal obligation to do. And so if the contract is broken or wrongly repudiated, the first task of the assessor of damages is to estimate as best he can what the plaintiff would have gained in money or money's worth if the defendant had fulfilled his legal obligations and done no more.
Where there is an anticipatory breach by wrongful repudiation, this can at best be an estimate, whatever the date of the hearing. It involves assuming that what has not occurred and never will occur has occurred or will occur, i.e., that the defendant has since the breach performed his legal obligations under the contract, and if the estimate is made before the contract would otherwise have come to an end, that he will continue to perform his legal obligations thereunder until the due date of its termination. But the assumption to be made is that the defendant has performed or will perform his legal obligations under his contract and nothing more. What these legal obligations are and what is their value to the plaintiff may depend upon the occurrence of events extraneous to the contract itself and, where this is so, the probability of their occurrence is relevant to the estimate.
The events extraneous to the contract, upon the occurrence of which the legal obligations of the defendant to the plaintiff thereunder are dependent, may include events which are within the control of the defendant: for instance, his continuing to carry on business even though he has not assumed by his contract a direct legal obligation to the plaintiff to do so. Where this is so, one must not assume that he will cut off his nose to spite his face and so control these events as to reduce his legal obligations to the plaintiff by incurring greater loss in other respects. That would not be the mode of performing the contract which is "the least burthensome to the defendant"."
"The question now for consideration is this. Given that the contract provides only for the purchase by the defendants of at least 16,000 dresses, without saying anything about the sizes or styles of the dresses composing the minimum obligation, what assumption should be made as to the nature of the hypothetical purchase when computing the plaintiffs' loss attributable to the premature termination of the agreement? For example, should it be assumed that the whole quantity would have been composed of the cheapest dresses? If this is so, the plaintiffs will recover no damages for they sold sufficient of the more expensive models by way of mitigation to overtop the loss of profit on the larger quantity of the cheaper kind. Or should the putative sales be related to an average, and, if so, what kind of average, price for the range as a whole? Or should a forecast be made of the dresses which would have been sold if the contract had gone ahead?
There are two reasons why this is a difficult question to answer. First, the scheme of the contract is not fully worked out in the document, and it is not easy to complete the scheme by implication. Second, the principles on which damages are to be calculated in situations where the defendant has some freedom of choice as to the manner of performance are not so clearly established that they can easily be applied to the novel situation now arising.
At first sight, it must seem a surprising assertion that the theory of damages in relation to alternative obligations is still open to doubt. In commercial disputes, damages are so often calculated in terms of the minimum quantity of goods to be delivered or cargo to be shipped that this mode of assessment has become a matter of routine, and the principles rarely have to be considered. The principles are, however, less clear cut than might be thought. For example, a dictum of Maule J which is very often cited from Cockburn v. Alexander (1848) 6 CB 791 at 814, 136 ER 1459 at 1468-1469 to the effect that when assessing damages the presumed mode of performance is that which is least profitable to the plaintiff and the least burdensome to the defendant is a possible source of difficulty. Unless this is only an elaborate way of saying that the performance is assumed to be that which will lead to the least award, the two halves of the rule are capable of leading to different answers, for the position of the defendant might be better overall if he chose a mode of performance which involved a greater than minimum liability in damages but avoided losses in other directions. Again, the foundation of the doctrine is very often sought in the statement of Scrutton LJ in Abrahams v. Herbert Reiach Ltd.  1 KB 477 at 482 that a defendant is not liable in damages for not doing that which he is not obliged to do. This dictum looks to minimum performance, not to minimum recovery (although the two will often be the same), nor to minimum detriment for the defendant. Furthermore, the principle is expressed solely in terms of the defendant's obligations, considered in the abstract. Yet there are circumstances where the court has paid regard to evidence of what the defendant would actually have done if the contract had gone ahead: see, for example, Bold v. Brough, Nicholson & Hall Ltd.  3 All ER 849,  1 WLR 201, Maredelanto Naviera SA, v. Bergbau-Handel GmbH, The Mihalis Angelos  3 All ER 125,  1 QB 164 and perhaps also Abrahams v. Herbert Reiach Ltd. itself.
I believe that some at least of the difficulties which arise in this branch of the law can be minimised if it is kept in mind that inquiry always involves a comparison between the plaintiff's actual position in face of the breach, and the position which he would have occupied if the contract had been performed. This must involve an identification of the promise, followed by a valuation of its promised worth to the promisee. Each part of the inquiry may involve considering a choice which would have been open to the promisor.
1. The promisor may have a right of election which fixes the content of the obligation. This can take more than one form. It may, for example, give the vendor the option to deliver 1,500 to 2,000 tons of goods. Here, in accordance with the dictum of Scrutton LJ, the damages are assessed on the basis that the quantity delivered would have been 1,500 tons, for the seller could not have been compelled to deliver more than this amount. Where the obligation is to deliver at A or B, the dictum does not always work so well, for it cannot necessarily be said that A represents more of an obligation than B. So here the presumption is explained in different terms, by looking for the obligation which would have been least detrimental to perform.
2. Even where the obligation has been fixed in advance, or determined by election, the value of it to the promisee, and hence the amount which he has lost through non-performance, may be determined by contingencies. Sometimes, it is possible to be sure what would have happened if the contract had been performed, and (if so) this finding is used to estimate the worth of the promise. More often, the fact that the repudiation has prevented the time for performance from arising means that the best that can be done is to make an estimate of the likelihood that the contingent event would occur, and adjust the damages accordingly. For this purpose it makes no difference that the contingency is one which is under the control of the defendant. Although it is not legitimate to look at what the promisor would have done, but only what he could have done, when identifying the promise, the position is different when, as in The Mihalis Angelos and Bold v. Brough, Nicholson & Hall Ltd. the inquiry concerns the valuation of the promise itself: see especially per Diplock LJ in Lavarack v. Woods of Colchester Ltd.  3 All ER 683 at 691,  1 QB 278 at 295 296.
There is one further distinction which must be mentioned, namely that which exists between (a) an obligation expressed in terms of a range of alternatives from which the promisor may choose and (b) a single obligation expressed in an indefinite way. A duty of the latter kind may often be construed as an obligation to act reasonably, and the damages will be assessed on the basis of what would have been reasonable. That this distinction does exist cannot, I think, be disputed, and it presents no serious theoretical difficulty when it is possible to say that there is one reasonable mode of performance, and one alone. But what of the case where there is more than one reasonable method, or a whole range of reasonable methods, shading into one another? One possible view is that the court should try to forecast how the defendant would have performed but for the repudiation. In my opinion this approach is inconsistent with principle, since the defendant may in the event have done no more than was necessary to qualify as reasonable, and to assess damages on any other basis would be to penalise him for failing to do something which he was not obliged to do. The answer must, in my judgment, be that the court is to look at the range of reasonable methods, and select the one which is least unfavourable to the defendant, bearing in mind, of course, that in deciding what methods qualify as reasonable the question must be approached with the interests of both parties in mind. This is, I believe, the way to account not only for the decision in Abrahams v. Herbert Reiach Ltd., but also for the divergencies of approach which might seem to exist between the various judgments, and within the individual judgments, delivered in that case."
"It appears to me, therefore, that the choice must be made between two alternatives. Either the contract is read precisely as written, requiring the defendants to buy at least 16,000 dresses each season, with the whole range of dresses to choose from without restriction, in which case the application of the ordinary rules demands that the cheapest dresses must form the yardstick for the entire computation. Or it must be subject to an implied term that the choice must be made in a manner which is reasonable in all the circumstances. If so, Abrahams v. Herbert Reiach Ltd.  1 KB 477 shows that a selection must be made from those methods of performance which can be regarded as reasonable, on whatever basis yields the result least unfavourable to the defendants."
"Nor in my judgment is it correct to answer that an implication cannot be made in face of the fact that the defendants would only be in breach of the minimum obligation clause if sales within the territory could not be made in the quantities which the clause required. In my judgment, this approaches the problem from the wrong end. The implication of terms must be assessed on the assumption of performance, not breach. Performance consists of the purchase of 16,000 dresses, or more, if the defendants wanted them. It was explicitly provided that the purchases were to be 'for the territory', not that the dresses were to be left in a warehouse, or put on a bonfire. A purchase of 16,000 garments, and no more, would not be a measure of distress, but would be a full performance of the contract, and there is in my view no justification for distorting what would otherwise be a businesslike interpretation of the agreement, by assuming that the defendants would want, and should be allowed, to carry out that performance in a way which would do nothing but harm to the joint interests of the parties, and which would serve only the self-contradictory purpose of minimising damages which in a case of full performance would never fall due.
Accordingly I consider that the agreement must be construed as subject to an implied term that the garments would be selected in a reasonable manner. Since selection would be a matter of judgment, this leaves open the very strong possibility that there would not be a unique reasonable selection, but a range of such selections, some yielding a greater total price than others for the 16,000 chosen garments. On this basis, the damages should, as I have already suggested, be assessed in terms of that reasonable selection which would yield the lowest price. I am very conscious of the problem which will face the court in establishing the boundaries of the range, since the sales in mitigation go some way towards showing what a reasonable selection would have been, but they do not show what other selections might also have been made which would qualify as reasonable. I can only say that a similar, although less complex, task is one which the Court of Appeal found itself able to perform in Abrahams v. Herbert Reiach Ltd., on the basis of evidence much less comprehensive than is likely to be available at the hearing of the references to damages."
"Mr. Sumption, who appeared for the defendants, said that the court should choose the highest figure, which on the information reasonably available at the time of the forecast, could without negligence have been put forward as the mean. He said that a court should assume that the vendor would have performed the contract in the way least onerous to himself, that is to say, the way calculated to secure for himself the highest possible price consistent with his warranty. In support of this argument he relied upon cases such as Lavarack v. Woods of Colchester Ltd.  1 QB 278 and Paula Lee Ltd. v. Robert Zehil & Co. Ltd.  2 All ER 390 in which the courts had to calculate the damages payable upon a wrongful repudiation or termination of a contract. In order to compensate the plaintiff for what he has lost, the court must in such cases determine what benefits the plaintiff would have derived from the performance by the defendant of his outstanding obligations under the contract. It is well settled that the court will assume that the defendant would have performed those obligations in the way least onerous to himself. If his duty was to act reasonably, it will be assumed that from various reasonable methods of performance he would have chosen the one least unfavourable to himself: see Mustill J. in Paula Lee Ltd. v. Robert Zehil & Co. Ltd.  2 All ER 390, 394.
All this makes perfectly good sense when damages depend upon a prediction of how the defendant would have performed outstanding contractual obligations which gave him a choice of what to do. But this is not such a case."
"Mr. Moore-Bick for the buyers says that if the ship had berthed on June 25, the course of events would have been different: discharging would have started immediately; it would have been completed far more quickly than the contractual rate of 500 tonnes per day; so the buyers have suffered loss by reason of the seller's breach. Or at least those things might have happened, and further facts must be found.
In reply the sellers rely on the well-known principle that, where the defendant to a claim for damages for breach of contract might have performed his obligation in more than one way, he is to be presumed for the purpose of calculating damages to have performed it in the way which is least beneficial to the plaintiff. Thus it is to be assumed that, even if the vessel had berthed on June 25, the sellers would have loaded at no greater than 500 tonnes per day for that was their minimum obligation and would have used all the laytime. There would have been no disadvantage to the sellers, for the Centro terms exclude any right to despatch money. On that view, no damages are payable by the sellers.
The principle itself is beyond dispute, although its precise formulation and rationale have varied: see the judgment of Mr. Justice Mustill in Paula Lee Ltd. v. Robert Zehil & Co Ltd.,  2 All ER 390. "
"That does not in my opinion impinge in any way on the general principle that a defendant, in performing his contractual obligations, is assumed to have chosen to perform them in the way least beneficial to the plaintiff where the contract gave him that choice. It is only in connection with the possible occurrence of events extraneous to the contract, whether in the control of the defendant or of anyone else, that probability has to be considered. But the rate at which the sellers in this case would have chosen to load the ship was not in any sense an event extraneous to the contract; it was expressly provided that they should load at a minimum average rate of 500 tonnes per day, and they were entitled (but not bound) to load faster. In my judgment one must assume that they would have loaded at the minimum rate and no more."
Whether account should be taken of events after the date of termination
"It is true that he [the arbitrator to whom the assessment of compensation was entrusted] probably would not have been able to arrive at that sum [the amount shown by experience to be correct] accurately, but he ought to have contemplated upon such material as he had what would be the true sum. He ought to have considered the possible rise or fall of prices; but, as I have said, he probably would have made a mistake. We now know what would have been the true sum, and the proposition baldly stated appears to be that, because you could not arrive at the true sum when the notice was given, you should shut your eyes to the true sum now you do know it, because you could not have guessed it then.
It is, of course, only an accident that the true sum can now be ascertained with precision; but what does that matter? It seems to me that the whole fallacy of the contention that you may not look to the facts that have occurred rests upon the false analogy of a sale."
"If the question goes to arbitration, the arbitrator's duty is to determine the amount of compensation payable. In order to enable him to come to a just and true conclusion it is his duty, I think, to avail himself of all information at hand at the time of making his award which may be laid before him. Why should he listen to conjecture on a matter which has become an accomplished fact? Why should he guess when he can calculate? With the light before him, why should he shut his eyes and grope in the dark?"
"29. My Lords, the answer to the question at issue must depend on principles of the law of contract. It is true that the context in this case is a charterparty, a commercial contract. But the contractual principles of the common law relating to the assessment of damages are no different for charterparties, or for commercial contracts in general, than for contracts which do not bear that description. The fundamental principle governing the quantum of damages for breach of contract is long established and not in dispute. The damages should compensate the victim of the breach for the loss of his contractual bargain. The principle was succinctly stated by Parke B in Robinson v. Harman (1848) 1 Exch 850, 855 and remains as valid now as it was then:
"The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed."
If the contract is a contract for performance over a period, whether for the performance of personal services, or for supply of goods, or, as here, a time charter, the assessment of damages for breach must proceed on the same principle, namely, the victim of the breach should be placed, so far as damages can do it, in the position he would have been in had the contract been performed.
30. If a contract for performance over a period has come to an end by reason of repudiatory breach but might, if it had remained on foot, have terminated early on the occurrence of a particular event, the chance of that event happening must, it is agreed, be taken into account in an assessment of the damages payable for the breach. And if it is certain that the event will happen, the damages must be assessed on that footing. In The Mihalos Angelos  1 QB 164, 210, Megaw LJ referred to events "predestined to happen". He said that
"if it can be shown that those events were, at the date of acceptance of the repudiation, predestined to happen, then the damages which [the claimant] can recover are not more than the true value, if any, of the rights which he has lost, having regard to those predestined events."
Another way of putting the point being made by Megaw LJ is that the claimant is entitled to the benefit, expressed in money, of the contractual rights he has lost, but not to the benefit of more valuable contractual rights than those he has lost. In Wertheim v. Chicoutimi Pulp Co  AC 301, 307, Lord Atkinson referred to
"the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed"
and, in relation to a claim by a purchaser for damages for late delivery of goods where the purchaser had, after the late delivery, sold the goods for a higher price than that prevailing in the market on the date of delivery, observed, at p308, that
"the loss he sustains must be measured by that price, unless he is, against all justice, to be permitted to make a profit by the breach of contract, be compensated for a loss he never suffered, and be put, as far as money can do it, not in the same position in which he would have been if the contract had been performed, but in a much better position."
31. The result contended for by the appellant in the present case is, to my mind, similar to that contemplated by Lord Atkinson in the passage last cited. If the charterparty had not been repudiated and had remained on foot, it would have been terminated by the charterers in or shortly after March 2003 when the Second Gulf War triggered the clause 33 termination option. But the owners are claiming damages up to 6 December 2005 on the footing, now known to be false, that the charterparty would have continued until then. It is contended that because the charterers' repudiation and its acceptance by the owners preceded the March 2003 event, the rule requiring damages for breach of contract to be assessed at the date of breach requires that event to be ignored.
32. That contention, in my opinion, attributes to the assessment of damages at the date of breach rule an inflexibility which is inconsistent both with principle and with the authorities. The underlying principle is that the victim of a breach of contract is entitled to damages representing the value of the contractual benefit to which he was entitled but of which he has been deprived. He is entitled to be put in the same position, so far as money can do it, as if the contract had been performed. The assessment at the date of breach rule can usually achieve that result. But not always. In Miliangos v. George Frank (Textiles) Ltd.  AC 443, 468 469 Lord Wilberforce referred to "the general rule" that damages for breach of contract are assessed as at the date of breach but went on to observe that
"It is for the courts, or for arbitrators, to work out a solution in each case best adapted to giving the injured plaintiff that amount in damages which will most fairly compensate him for the wrong which he has suffered"
and, when considering the date at which a foreign money obligation should be converted into sterling, chose the date that "gets nearest to securing to the creditor exactly what he bargained for". If a money award of damages for breach of contract provides to the creditor a lesser or a greater benefit than the creditor bargained for, the award fails, in either case, to provide a just result.
38. The arguments of the owners offend the compensatory principle. They are seeking compensation exceeding the value of the contractual benefits of which they were deprived. Their case requires the assessor to speculate about what might happen over the period 17 December 2001 to 6 December 2005 regarding the occurrence of a clause 33 event and to shut his eyes to the actual happening of a clause 33 event in March 2003. The argued justification for thus offending the compensatory principle is that priority should be given to the so-called principle of certainty. My Lords, there is, in my opinion, no such principle. Certainty is a desideratum and a very important one, particularly in commercial contracts. But it is not a principle and must give way to principle. Otherwise incoherence of principle is the likely result. The achievement of certainty in relation to commercial contracts depends, I would suggest, on firm and settled principles of the law of contract rather than on the tailoring of principle in order to frustrate tactics of delay to which many litigants in many areas of litigation are wont to resort. Be that as it may, the compensatory principle that must underlie awards of contractual damages is, in my opinion, clear and requires the appeal in the case to be dismissed. I wish also to express my agreement with the reasons given by my noble and learned friends, Lord Carswell and Lord Brown of Eaton-under-Heywood, for coming to the same conclusion."
"The point at issue in this appeal has never been considered by your Lordships' House and remains open for decision. Lord Bingham has placed strong emphasis in para 23 of his opinion on the importance of certainty in commercial transactions. I do not wish to cast any doubt upon that, but I have come to the conclusion that Langley J and the Court of Appeal were right in holding that the contingency of the outbreak of war, which had occurred before the damages fell to be considered in the arbitration, could be taken into account. I find myself in agreement with Lord Mance when he said  1 WLR 533, 544, para 26 that considerations of certainty and finality have in this case to yield to the greater importance of achieving an accurate assessment of the damages based on the loss actually incurred."
"In my opinion the owners' argument here seeks to extend the effect of the available market rule well beyond its proper scope and to do so, moreover, at the plain expense of Lord Blackburn's fundamental principle: to restore the injured party to the same position he would have been in but for the breach, not substantially to improve upon it. It is one thing to say that the injured party, mitigating his loss as the breach date rule requires him to do, thereby takes any future market movement out of the equation and to that extent crystallises the measure of his loss; it is quite another to say, as the owners do here, that it requires the arbitrator or court when finally determining the damages to ignore subsequent events (save where the defendants can demonstrate that at the date of breach some suspensive condition would inevitably and immediately have operated to cancel the contract). There is no warrant for giving the rule so extended application."
Reasonable performance under the Agreement and whether it should be assumed that the Post Office would have had another supplier of phonecards in addition to the Tele2 parties
"In the present case, Post Office was under a single obligation to promote Tele2's phonecards to no less an extent than it promoted similar products and services from time to time through Post Office outlets. The Court is entitled, and indeed bound, to inquire how Post Office, acting reasonably, would have performed that obligation had the contract continued. The answer, on the evidence which the Court has heard, is that it would have proceeded with Tele2 as its sole supplier of phonecards. There is nothing in the authorities which requires the Court to make a wholly artificial assumption as to how performance would in fact have occurred."
"If Tele2 was not entitled to be POL's exclusive supplier, any assessment of damages must assume that there would have been at least one other supplier: that is the effect of the principle in Lavarack v. Woods and the World Navigator."
Over what period should damages be assessed?
"Please take this Email as confirmation that Post Office will maintain the current breakage element received on all Post Office phonecards sold.
I can also confirm that following implementation of the rate charges discussed, Tele 2 will maintain your cash margin at 21%, increasing your actual margin to 24.7%, to then allow for the VAT element to be netted off.
As discussed I have attached a file showing:
1/ The 0.49p increases on the top 20 rates and breakdown showing overall traffic weighting of 78%.
2/ Full ratesheet showing all worldwide destinations and new rates for each.
I have also maintained the rate for India (Hydrabad [sic]) at 12.5p as per our current ratesheet."
"Hope all is well with you.
At the meeting between you, me and Clive where we discussed the solution for collecting VAT and effect on margin, we agreed that we would implement a 0.49p price increase on the "top 20" routes, with one or two of the subroutes (i.e. specific destinations in Nigeria) increasing by marginally more.
Emma has kindly sent through the new tariffs to Jeremy for implementation and it shows the whole rate card, with just about every route increasing by 0.49p. This is not what was agreed.
Please advise urgently."
"Here is the revised tariff so that only the Top 20 destinations have the 0.0049, remainder have been rounded down."
"Now, regarding rate increases, Jeremy has been doing a piece of work for me and following on from that, I have a couple of comments:
1. We agreed that the top twenty routes would increase by 0.49p. On the spreadsheet dated 20th May there are twenty four destination countries highlighted.
2. We agreed that, within a particular destination country, certain of the breakouts would need to increase by more than 0.49p. In fact what has happened is that in a number of the destinations, one breakout route has increased by 0.49p with the other areas increasing by considerably more, e.g. Brazil, Poland and worryingly, China.
3. You agreed that you would keep Hyderabad at 12.5p, and that you have done. However the rates to the remainder of India have all increased above the 0.49p agreed.
4. Pakistan, one of our key target audiences, has increased by circa 60% (except Muzaffarabad).
5. Above and beyond the twenty agreed destinations, the rates have increased on circa two hundred further routes, in some cases by as much as 445%!!!
This causes me concern, not least because the interpretation of what we agreed is so fundamentally different between you and I, but because Post Office Ltd is devoting significant sums of money towards promoting cards this year and these rates are now non-competitive. Equally, we are about to break a repeat campaign and I am not convinced that the rates advertised are still applicable. We need to be absolutely clear that any advertising carried out does not mislead.
Over the past year we have moved the value of this card significantly from ฃ500k/month to ฃ1m. There is an agreed stated aim to move sales to ฃ2m which I thought was achievable, but now I can see our front line colleagues losing confidence in the product and customers seeking alternatives when they discover the rates charged. Potential damage to the brand is significant and I cannot let that happen.
Can I suggest that we use our time Thursday to bring this issue to a conclusion once and for all, so that we can both move forward and get the sales up to where we both know they should be."
"Further to out [sic] meeting last week, please find attached the spreadsheet with our understanding off [sic] how the rates should have changed. In essence this takes the top 20 routes (in fact there are 23 but have left this) and added 0.49p to each price point. In cases where the additional [sic] of .49p makes a non-customer friendly tariff I have rounded up. In cases where you have proposed a larger rise in mobile rates, on some of these I have met half way.
I have also added a column that shows the percentage increase at each price point. Overall as a basket of price points, the tariff has increased by more than 25%.
In order to remain competitive, we must look at rectifying this as a matter of urgency, before we lose the confidence of both loyal customers and our front line staff."
"Can you get back to me on where we are with the pricing changes. I am starting to get very concerned that we are going to start losing customers if this is not resolved in the very near future. I have had a number of customer and staff complaints in the last few days with people questioning how we can justify such significant price increases.
I would like to get this sorted out this week if possible so that I can get a revised price list sent out in operational focus as soon as possible."
"Attached is an adjusted tariff that we maybe [sic] able to get through approvals at this end, but no guarantee as this reduces our margin even further and we had big negotiations with finance passing the last tariff as our margin was so much reduced.
Unfortunately we cannot accommodate all your proposals as this would be un-viable for us, as we have had to take the full margin impact of absorbing the 17.5% VAT and your increased margin.
Hopefully this tariff moderates some of the larger hikes. The rates I have adjusted are in pale blue. I have shown the % tariff in the B column. Some obscure places such as the Wake Islands have next to no traffic but were highly loss making previously so we brought up to break-even, thus explaining the high % increases. Some routes such as the Asian advertised breakout rates are loss making for us eg. India Hyderabad and Pakistan Muzaffararad [sic]."
"Our team have had a look at the tariff again and the attached shows a revised proposal moderating many of the big % increases where possible. In some situations we simply cannot reduce back to the original as would make the route loss making and tariff overall un-commercial. The spreadsheet is the one you prepared with extra columns to the right with a new revised tariff. This proposal is not approved from our end as we would like your feedback before we send for approval. The current tariff was based on providing an adequate margin for that route as opposed to a % increase. Though you have stated % increases, bare [sic] in mind the traffic weighting, as approx. the top 20 routes make up 80% of the volume and these top routes have typically only increased 10%, so overall % increase is now where [sic] near 25% in these real weighted terms. Our contribution is significantly less than it was pre VAT."
"Thanks for your spreadsheet of revised prices, I have now had time to have a proper look at these and whilst the overall increase is still in excess of 16%, I think we are getting towards a compromise position that we can agree on. The areas that I still have concerns over are the increase in the main rate to Pakistan this is a route that we promote heavily and I have concerns over the size of the gap from the breakout rate of 15p to the main rate of 24p and the size of the increase. The other areas that I would ask you to have a look at are some of the European rates such as Netherlands, Sweden where we have seen significant rate increases. Also I think there may be a mistake, however Liechtenstein Mobile seems to have gone up by 733%, is this correct?
Can I suggest the following:
Pakistan all routes except Muzaffarabad are reduced to 20p
Netherlands reduced to 5p
Sweden reduced to 5p
Liechtenstein Mobile reduced to 10p
According to my calculation, this makes the tariff increase 15%
On the basis that we can look at these rates, I think we can agree to the rest of the rates remaining as suggested. However there are a couple of caveats that I would like to add:
1. We do not raise any rates for the next six months unless there is a significant issue and that this is agreed with Post Office Ltd.
2. We have a commitment from you that where you are able to achieve savings on particular routes, at least 50% of the saving is passed on to the end customer.
3. We meet regularly to look at rate trends
I hope that you think this is reasonable and that you are able to agree to this and we can draw a line under this and get on with growing sales."
"Sweden and Netherlands should not be a problem however Pakistan at 19p brings us to a loss situation on this route, but I can still propose to finance. Liechtenstein at 10p gives us a huge loss, 50p would be break-even, I think this must have been a typo error in the original tariff in that 6p was meant to be 60p. However there is absolutely NO traffic on this route so at present it is not a big risk to keep at 10p if important to you.
I will forward to our finance team the amended tariff taking into account your proposal and get back to you shortly with their feedback.
The caveats are fine."
"I am not precious about Liechtenstein Mob, it was just the size of the increase that made me ask the question am happy to keep at 50p. Glad we can move on the two European routes. On Pakistan, if we are going to promote the route heavily, I would like to make the rate as competitive as possible, can we meet somewhere in the middle?"
"Bill Butler has also been away for the past 2 weeks on summer break, is in Sweden 23rd-25th and is due back in the business next Thursday 26th. Prior to Bill going I had rather a long and heated meeting with him and our CFO on moving the prices back down and Tele2 rational [sic] for the price increase. I did not get approval at this time as Bill wanted to refer to Sweden, hence no movement in the last 2 weeks."
"You will be aware that for some time now I have had concerns regarding the rates charged to customers using Post Office phone cards and the fact that we seem unable to move the per month sales figure upwards from the circa o1m [sic] face value sales that we have been seeing since last year.
Phone cards are an important part of our telephony portfolio, and the situation requires action. Therefore I am undertaking a complete review of our customer proposition, including a supplier rate review, to ensure that Post Office continues to provide value for money products that maximise the opportunities provided by our brand.
Clearly on the basis of the analysis it is difficult to justify spending o150,000 [sic] on a further campaign, so I suggest the activity is stopped whilst the customer proposition review is completed. I attach the summary graphs for your consideration.
Finally, I think you, me, Bill and Nicky need to meet up to discuss the situation perhaps you would let me have your available dates w/c 20th September?"
"135. Although considerable time was spent at the hearing on this issue, there is fortunately no need for the Court to get into this issue in detail, since regardless of whether the Post Office did in fact acquire a right to terminate the Agreement by reason of the 1 June 2004 price increases, it is clear that any such right of termination was lost through affirmation long before 1 December 2004 (or 1 April 2005).
136. The increase in Tele2's rates took place on 1 June 2004 and it is clear from Mr. Woodrow's evidence that he knew that the increase was taking place on this date. However, Post Office did not serve a notice of termination under clause 11.2 in June 2004, or indeed at any time thereafter despite knowing the facts, and despite being advised by Lovells from at least September 2004.
137. Even if Post Office had been entitled to serve a notice of termination in June 2004, it was no longer open to it to do so by 1 December 2004 (6 months later) or by 1 April 2005 (10 months later), since any such right had been lost by affirmation. The Court is referred to the section on affirmation in relation to non-service of the parent company letters of guarantee. Having: (1) accepted performance of the Agreement by Tele2; and (2) performed the Agreement itself in order to obtain the benefit of so doing, it is obvious, in Tele2's submission, that Post Office affirmed the Agreement.
139. Post Office was not therefore entitled to terminate the Agreement by giving 12 months' notice on either 1 December 2004 even if it had purported to do so on that date or on 1 April 2005. Therefore, damages should be assessed on the basis that the Agreement would have continued for the full 24-month period from 1 April 2005."
"289. POL unequivocally evinced its intention to terminate the Agreement by sending Tele2 notices of termination on 1 December 2004. It was on that date entitled to terminate on 12 months' notice. Thus, if it was not entitled to terminate by the notice given, damages are to be assessed on the basis that it would then have given 12 months' notice. That notice would have expired on 30 November 2005, 9 months after the Agreement in fact terminated and accordingly Tele2's claim should be limited to 9 months' profits.
290. Alternatively, POL was entitled to serve a 12 months' notice on 31 March 2005, when the Agreement came to an end, and so Tele2's claim should be limited to 12 months' profits. It is well established that where a party terminates a contract for a bad reason, he is subsequently entitled to rely on facts which, at the time, would have constituted a good reason for termination: Boston Deep Sea and Ice Company v. Ansell (1889) 39 Ch D 339."
"At the time when the company dismissed Mr. Ansell they did not know what had been done by him as regards the contract with Earle's Shipbuilding Company, and it was not, I think, at all disputed that if there was any circumstance, though unknown to the company at the time when they dismissed Mr. Ansell from his position, which would justify them in so acting, it was immaterial whether that was known at the time, and if it was known and established after the time the action was brought, then they could justify the dismissal by proof of that fact."
How that principle was relevant to the present case, as it seems to me, was that, by analogy to what happened in Golden Strait Corp. v. Nippon Yusen Kubishika Kaisha, in assessing damages for wrongful repudiation of a contract, it should be assumed in favour of a defendant that if, at the date of the repudiation, there existed grounds upon which the contract could lawfully have been brought to an end by giving notice, the right to terminate by that notice would have been exercised. In the present case there is no justification for supposing, contrary to the fact, that the Post Office sought to terminate the Agreement by a notice under clause 11.2 given on 1 December 2004. The Post Office might have given such a notice, possibly as an alternative to the notices in fact served, but it chose not to. The effective repudiation of the Agreement, if there had been one, was on 31 March 2005. If the notices given on 1 December 2004 were not in fact justified, until 31 March 2005 they operated, as it seems to me, only as anticipatory breach of the Agreement, because until 31 March 2005 the Agreement was to continue in force. In my judgment, therefore, the date as at which the possibility of termination under clause 11.2 fell to be considered was 31 March 2005, the date of the effective repudiation, if repudiation it had been. Thus the relevant twelve month period would have run from 1 April 2005 to 31 March 2006.
What loss, if any, was suffered, and by whom?
"122. Accordingly, if there is a claim for damages, it is a claim by C3 Ireland. However, Tele2 does not distinguish between the separate Claimants in the Prayer in the Amended Particulars of Claim; nor does Tele2's expert, Mr. Riddiough. Tele2 only claims damages in respect of periods after 1 April 2004 and only in respect of services which, it says, were provided by C3 UK.
123. Accordingly, on Tele2's case, the damages claimed are in respect of losses that have been suffered, as a matter of fact, by C3 UK, the provider of the services. This was Mr. Hashmi's evidence: T4/93-94. There is no explanation as to how C3 Ireland can have suffered loss as a result of the provision of services by C3 UK. "
"And the point of principal [sic] is whether C3 (Ireland) can say it has suffered a loss in that situation. And the loss it is suffering is, essentially, the revenue which it would have received from this accounting obligation under the contract, less the costs saved through not having to provide the cards and provide the Internet [sic] costs."
"Obviously if marketing was not achieving substantial growth in the business, we would not have incurred the same costs, particularly as the Agreement came closer to termination."
"Q. You would have expected, Mr. Carter, that if more effort had been expended on marketing these phone cards and more money spent you would have expected to see higher sales levels than were actually achieved, would you not?
A. I would as marketing director, I would have made a recommendation to the board to invest money if I felt there was a return on the investment on that product. I was not in a position to make that recommendation because I did not believe that spending significantly more on phone cards would have resulted in significantly greater sales at that time [meaning November 2005 to March 2007 see Transcript Day 9 page 3 line 20].
Q. I suggest to you that if more effort had been made, more money spent, then there would have been significantly greater volumes of sales of the Nomi products?
A. As I said, I don't think you can predict that."
"2.20 The primary consideration for the consumer when purchasing a phonecard for the first time is the value for money the headline cost of calls per minute, either on average or to the specific destinations required.
2.21 Thereafter, as a potential repeat customer, there are two other key considerations:
a) quality of service poor quality (such as frequently being cut off and having to redial) makes it likely the customer will not buy the same phonecard again;
b) hidden charges a customer who has been subject to unexpected charges that reduce the calls they were able to make is not likely to buy a similar phonecard again."
"The phonecard market is clearly stagnant in 2004. While there are mixed predictions surrounding its future, the general trend is for a continuing decline in revenue. Despite this prediction, the market remains attractive. 5.5 million users generate ฃ1.05bn a year in revenue, at ฃ190 per user per annum. In a worst-case scenario, even if the Post Office captures only 1% of this market, this represents ฃ10m in additional revenue for the company (margins within the industry typically run at 5 10%, which represent a potential ฃ500,000 - ฃ1m profit)."
"It is possible that Tele2 would have been unwilling to reduce its call rates to this extent [that is to say, to the level charged by Nomi-Call as from May 2005], which would have resulted in the POL phonecard being less competitive in the wider market and hence in lower sales."
"One thing I am pretty sure about though is that it does not really work having 2 suppliers in this field unless the products are very different. We have had to hold back on so much activity because Tele2 were still active and our work would on most occasions result in a Tele2 phonecard sale."
"I agree that having two suppliers is holding us back. What I was proposing, assuming we got the go-ahead was that rather than rush out the generic we remove T2 at the end of March and then for April concentrate solely on driving sales of Olympic."
"I do not think that there would not [sic this "not" is a typographical error] be any particular difficulties in marketing phonecards supplied by two different suppliers with different features alongside each other, as customers would choose which to purchase on the basis of the facts that were presented to them. When POL had phonecards supplied by Tele2 and Nomi-Call nothing happened which caused me to wonder about the wisdom of selling cards supplied by two different companies in principle."
"89. If we had thought that Tele2 was a company that would come up with new ideas and that they would supply a phonecard which gave great rates and transparent charging we would not have needed to look for another supplier. Because Tele2 created a poorer product, however, they were not the only supplier in 2004 and early 2005. I think that, given the deterioration in the relationship, we would have wanted a second supplier if we had had to continue with the Tele2 Agreement after March 2005. As it was, although POL did not have the benefit of competition between different providers, it may have obtained a similar benefit because Nomi-Call would have wanted to prove themselves to us as the new supplier.
90. Considering the matter now, I think that, if there had been two suppliers, I would have been in favour of POL using Tele2 to supply the standard Post Office phonecard and Nomi-Call to provide special edition phonecards for certain niches with spurts of marketing activity."
"Q. .. Can we also agree that selling a Tele2 card alongside a Nomi card which has broadly similar features so multi-purpose card, lots of destinations and similar, perhaps not identical, features, perhaps not identical rates but selling that kind of Nomi card alongside the Tele2 card was not a sensible way forward either?
A. If the two cards were similar, then I would agree with you. Certainly, as I say in my witness statement, I do believe there is room for different types of card, focusing on different types of customer, and in that situation there could well have been two different suppliers providing each of those types of card.
Q. Just in terms of having two cards with similar features, covering multiple destinations, that's not a sensible way forward, is it?
A. Correct "
"If the cards were significantly similar then I would agree with you. Certainly my expectation at that time and I believe that in the evidence there was a matrix in which we talked about different types of cards serving different types of customers. If that matrix was in our portfolio, then we could have had more than one supplier."
"I would say that the Post Office had a number of contracts that were non-exclusive where there was a number of situations where they had to manage competing and differing parties in that, and that's something the Post Office has done and is very good at doing so I would have had every confidence the team would be able to manage the contract in the way you describe."
"49. Because only Nomi-Call supplied phonecards to POL after March 2004 [sic 2005 was meant] while I was at POL, I did not need to consider and discuss with others what we would have done if POL had had both Tele2 and Nomi-Call as suppliers in that period. Considering the matter now, one obvious possibility would have been to split the branch network in two, so that some branches sold Tele2 cards and others sold Nomi-Call cards. Another possibility would have been to have different types of card, marketed for particular destinations, with particular branches selling cards appropriate to their customer base. For example, a card targeted at calls to Australia could be sold in branches in Earls Court.
50. The POL network is big enough that I think it would easily have been possible to have phonecards supplied by two suppliers. However, it would not have been possible to give phonecards more space in branches just because there were two suppliers. They would both have wanted more shelf space, but I could not increase the presence in-store because branches were not big enough. So I do not think that there would have been more marketing of phonecards in POL branches if we had had two suppliers.
51. We did not in fact have a supplier along side Nomi-Call. Phonecards were not proving a success for the reasons I have explained above and we did not think that it would be worth the added complexity of getting another supplier."
"Q. But if you had decided not to try to terminate the contract with Tele2, the reality is you would have put your differences behind you with Tele2, worked out a way forward and gone forward, isn't that right?
A. If we had the confidence that the difficulties were behind us in terms of account management, in terms of rates, in terms of investment in the business, then yes, that's correct. But that's a big if."