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You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Tele2 International Card Company SA & Ors v Post Office Ltd [2008] EWHC 158 (QB) (25 February 2008) URL: http://www.bailii.org/ew/cases/EWHC/QB/2008/158.html Cite as: [2008] EWHC 158 (QB) |
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
(Sitting as a Judge of the High Court)
____________________
| (1) TELE2 INTERNATIONAL CARD COMPANY SA |
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| (2) KUB 2 TECHNOLOGY LIMITED (formerly known as C3 CALLING CARD COMPANY (IRELAND) LIMITED) |
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| (3) KUB 7 TECHNOLOGY LIMITED (formerly known as CALLING CARD COMPANY (UK) LIMITED) |
Claimants |
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| - and - |
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| POST OFFICE LIMITED |
Defendant |
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| And Between: |
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| POST OFFICE LIMITED |
Claimant |
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| -and- |
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| (1) KUB 2 TECHNOLOGY LIMITED (formerly known as C3 CALLING CARD (IRELAND) LIMITED) |
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| (2) KUB 7 TECHNOLOGY LIMITED (formerly known as CALLING CARD COMPANY (UK) LIMITED) |
Defendants |
____________________
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.:
Introduction
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 |
| Key Performance | |
| 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."
"1. Expiry
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.
11.2
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 ½ 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.
Cards
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. [1971] 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) [1979] 2 Lloyd's Rep 303 at p.307; [1979] 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. [1997] 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 [1985] 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 [1957] 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 [1976] 2 Lloyd's Rep 621; [1976] 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 [1974] 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 [1996] 1 Lloyds Reinsurance Law Reports 135 especially at page 140 (Steyn LJ); and see ICS v. West Bromwich [1998] 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 [1985] 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 [1975] QB 929; and cf. The Laconia [1977] 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 [1990] 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.
19.
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.