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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Co-Operative Group (Cws) Ltd. (Formerly Co-Operative Wholesale Society Ltd.) v International Computers Ltd. [2003] EWHC 1 (TCC) (13 January 2003) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2003/1.html Cite as: [2003] EWHC 1 (TCC) |
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QUEENS BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
133-137, Fetter Lane, London, EC4A 1HD | ||
B e f o r e :
____________________
| CO-OPERATIVE GROUP (CWS) LIMITED (formerly CO-OPERATIVE WHOLESALE SOCIETY LIMITED) | Claimant | |
| - and - | ||
| INTERNATIONAL COMPUTERS LIMITED | Defendant |
____________________
Henry Carr Q.C. and Jacqueline Reid (instructed by Baker & McKenzie for the Defendant)
____________________
Crown Copyright ©
H.H. Judge Richard Seymour Q. C. :
Introduction
Contact was made with CRS and, in due course, the transfer of engagements to which I have referred was agreed and implemented."….Neil Braithwaite, General Manager, Finance, and I discussed the position. We were aware that CRS was having difficulties and it occurred to us that a CRS/CWS merger offered CWS the opportunity to acquire a large number of medium and small size stores. It was that end of the market which the strategic review had determined was of most benefit to CWS, on the basis that it would allow us to concentrate on our strengths, which were seen as being the smaller convenience stores, as opposed to the larger supermarket side of the market."
"6. Phil Davies (of CRS) and I were peers in terms of IT responsibility and Phil effectively had the same job in CRS as I had at CWS. In early 1999 I was aware that Phil was addressing the issue of Millennium compliance of the CRS estate. The entire CRS estate faced the potential problem of its EPOS system not working after the Millennium. CRS also had a problem in that it did not have a uniform IT system throughout the stores, using a number of different systems which makes it difficult to service and introduce new developments. I was aware that in 1999 Phil had negotiated with ICL for an EPOS harmonisation programme which would provide CRS with a uniform platform which was also Millennium compliant.
7. Although this meant that CRS had progressed towards EPOS harmonisation, this was only a first step. To advance further would involve CRS addressing its back office functionality which was relatively unsophisticated compared with the CWS estate…."
The CRS Agreement
"The Agreement covers all types of business transactions which ICL may enter into with CRS including the supply of Equipment, licensing of Programs and provision of Services in connection with the overall CRS IT Convergence strategy.
It details the terms and conditions under which ICL agrees to perform these transactions, the various methods of ordering CRS may wish to use, and provides for the procurement under either leasing or purchase terms.
This Agreement details the pricing arrangements which ICL has agreed for certain Equipment, Programs and Services CRS wishes to order.
This Agreement also incorporates a binding contract between the parties for the STORE SYSTEM HARMONISATION & STOCK MANAGEMENT PROGRAMME
as detailed in Schedule Four hereto.
By signing below ICL and CRS each indicate their respective company's acceptance of this Agreement and agree that future Orders accepted by ICL under this Agreement will be subject to its terms and conditions."
"2.1 The parties agree that the supply of Products to CRS will be by means of CRS placing Orders from time to time in accordance with this Agreement. Orders will only be valid when they have been accepted by ICL in accordance with Clause 4.1. All Orders will incorporate ICL Contract Conditions, September 1998 Edition (reference UKGC0998, UKSE0998, UKPL0998, UKES0998, UKPS0998). In addition, leasing arrangements will typically be subject to the Flexible Finance Contract Conditions, January 1999 edition (reference HRFF0199). Any special terms set out in Schedule Three hereto shall apply with precedence…
3.1 CRS agrees that all Orders will be placed in the format agreed in Schedule Two to this Agreement and in accordance with any other details set out therein…
4.2 ICL agrees to supply the Products detailed in Schedule One at the prices detailed therein and according to the terms of that Schedule and of this Agreement.
5.1 This Agreement will come into immediate force and effect on the date hereof and subject to Clause 5.2 below shall remain in force for a minimum of 3 years. Thereafter, either party may terminate this Agreement by providing to the other party not less than three months prior written notice of such termination…
5.2 Either party may by written notice terminate this Agreement at any time if the other party is put into liquidation (other than solely for amalgamation or reconstruction while solvent) or if a receiver administrator or administrative receiver is appointed over any part of the other party's business or if any of the other party's property is seized for non-payment of any debt or is unable to pay its debts as they fall due. A merger between CRS and another member or members of the Co-operative movement in the United Kingdom will not provide cause for the termination of this Agreement under this clause…"
"In return for a 3-year commitment ICL will adopt a services pricing strategy of occupancy cost plus 30%. The table below gives the rates at the date of this Agreement for each role envisaged within the 3-year programme….
A table was then set out which indicated, for each of the "Core Team Roles", amongst other things a "Standard Daily Rate" and a "Special Rate for ICL/CRS 3 Year Agreement". The latter were substantially lower than the former.In the event that this Agreement is terminated prior to completion of all work described in Schedule Four, then the Standard Daily Rates shown below will instead apply to all work carried out under this Agreement."
"Phase 2 – SSM Trial – Will provide the necessary Hardware, Software & Services required to deliver a 2-store trial of SSM. Conducted over a period from May 1999 to June 2000 this activity will provide a detailed definition of the operational and system requirements for the subsequent Pilot and Rollout phases. It will also establish the measurable business benefits expected from full implementation. SSM is as described in Section 4.1.1 below.
Phase 3 – SSM Pilot – During the period of the SSM Trial ICL will develop a GlobalSTORE Back Office application, to meet the needs of the Co-op and wider Convenience store market, which will include the required SSM functionality. This product linked to the ISS400 Front End will be available to Pilot in 5 to 10 stores by the end of June 2000. The Pilot phase will be used to demonstrate the achievement of the identified business benefits.
The expression "pilot", in the jargon of information technology, means the trial of software in a working environment in a sample location or locations. The expression "rollout", which features quite a lot in this action, simply means installation of software in a working environment with a view to operational use.Phase 4 – Rollout – Subject to the successful pilot of the GlobalSTORE Back Office the system will be rolled out to all stores in the CRS estate. Rollout will be completed within 18 months of commencement."
"SSM is aimed at improving the perpetual inventory and replenishment process. SSM consists of a consultancy methodology and also certain core applications.
SSM looks at existing processes and business rules and, by reference to the best practice, SSM targets five main areas: availability, stockholding, wastage, store staff workload and management information.
SSM considers the replenishment cycle, including
- The ordering process – what and when, what algorithms and techniques are used, how are changes dealt with etc.
- Delivery processes – size of deliveries, timing
- Shelf replenishment
- Perpetual inventory
- Processes for handling wasted items
SSM addresses in-store inventory activities and interfaces to other systems which includes EpoS interface, RF interface and interface to other parts of the supply chain and existing central systems. SSM is a store-based system and as such it excludes supply chain systems outside the store (such as warehouse and distribution systems, etc.)."
"9 ICL's Liabilities
9.1 This clause 9 deals with the financial liability of ICL for any Claims for loss or damage made by the Customer and is the exclusive statement of the financial liability that ICL may have to the Customer for any Claims for the Acts or Omissions of ICL, including where any such Acts or Omissions constitute a fundamental breach of a contractual term or a breach of a fundamental term.
9.2 No limit of liability will apply in respect of Claims for death or personal injury as a result of any act or omission of ICL which is negligent (as defined by the Unfair Contract Terms Act 1977 section 1) and no limit of liability will apply to any proven fraud on the part of ICL or of others for which it is at law responsible.
9.3 ICL's liability is limited to £1,000,000 in respect of any Claim for physical loss of or damage to the Customer's property or other property for which it is at law responsible to the extent that such loss or damage is caused by or contributed to by any negligent act or omission of ICL (including any such act or omission in breach of a contractual duty of care).
9.4 If the Customer lawfully terminates the Agreement for the Equipment, Programs or Services by reason of a breach of contract by ICL, it shall be entitled to the return of any sums paid as part of the Contract Price (except as otherwise specifically provided in the Agreement [which limited the sum repayable to £2,500,000]). For Equipment, Programs and Services which are subject to periodic charges the return of sums paid shall be limited to the sums paid over the previous twelve months' period.
9.5 In addition to the rights expressed in Clause 9.4 and subject to Clause 9.6 below, ICL's total aggregate liability under the Agreement for any and all Acts or Omissions which cause or contribute to financial or economic loss or damage to the Customer is limited to 15% of the Contract Price of the Equipment, Programs or Services giving rise to the liability regardless of the time such Claim or Claims may be made by the Customer, of how such Claim or Claims may arise and of what cause of action is used. In calculating the Contract Price for Equipment, Programs and Services which are subject to periodic charges it shall be limited to be the sums paid over the twelve months' period immediately prior to the time the Act or Omission occurred. In calculating the sums that may be claimed as 15% of the Contract Price, no account shall be taken of any sums returned or to be returned to the Customer under Clause 9.4 above. Any such financial or economic loss includes any Claim other than a Claim for compensation for loss of or damage to physical property covered by Clause 9.3 above and in particular includes any Claim made by the Customer in respect of the following types of loss without prejudice to the generality of the applicability of this Clause 9.5, loss of profits, failure to make anticipated savings, additional expenses incurred, increased costs of working and loss of opportunity (including the loss of opportunity for earning additional profits or making savings).
9.6 In no circumstances will ICL be liable to the Customer for any Claim or part of a Claim which seeks compensation in respect of the cost of management time i.e. where a Claim is made by the Customer (by whatever means of calculation) in respect of the time spent by its employees as a result of any act or omission of ICL where that Claim is based on time spent and not based on any other specific proven loss or damage (including any loss of opportunity)…
By a special term of the CRS Agreement the liability of ICL under Clause 9.5 of the General Conditions quoted above was limited to the sum of £375,000 in any event.13.7 The Customer is hereby put on notice that the Agreement does not impose on ICL any obligation to verify the suitability of the Equipment, Programs or Services for the Customer's particular purposes, whether those purposes have been expressed to ICL or not and whether or not ICL could reasonably have been aware of any such purposes. It is therefore the Customer's responsibility to ensure that the Products are suitable for its purposes. The Customer is hereby further put on notice that no employee of or agent acting on behalf of ICL (other than a director) is authorised to make any representation with regard to the suitability of the Equipment, Programs or Services for any purpose of the Customer. ICL is not acting in any fiduciary sense and it is agreed that the parties are acting at arm's length."
Clause 17.1 of those conditions was an entire agreement clause."ICL warrants that the Service will be performed with due diligence and professional standards of care and that the Service will conform in all material respects to the Product Description, provided that ICL will not be liable for breach of any such warranty unless the breach is reported to ICL within three months after completion of the Service and, having been given reasonable opportunity by the Customer to rectify any such breach, ICL fails to do so promptly and without additional charge to the Customer. This warranty excludes all other conditions or warranties, express or implied, statutory or otherwise (including but not limited to fitness for any particular purpose)."
Clause 9.1 of those conditions was an entire agreement clause."The Customer will pay charges for the Service in accordance with the appropriate ICL standard scales in force from time to time. Charges are payable quarterly in advance from the Commencement Date as described in Clause 3.1 above. With the first payment is also due the proportionate charge for the part period (if any) from and including the Commencement Date."
The provision of the Dividend in CRS stores
The claims made in this action
The case of CWS as to a contract
"20. In the course of the negotiations, ICL represented that:
20.1 ICL was capable of adapting the version of GlobalSTORE it was developing from Eurofood to incorporate the additional functionality required by CWS/CRS, including operation of the Dividend;
20.2 GlobalSTORE was sufficiently advanced in its development to permit a pilot project to be run in a former CRS store in August 2000 and the system as a whole to be rolled out across CWS's network of former CRS stores by September 2000 so as to operate in harmony with and with equivalent functionality to the existing systems in the historic CWS stores;
20.3 GlobalSTORE would be capable of providing a stable and robust Microsoft environment.
21. In the course of the negotiations, it was agreed between CWS/CRS and ICL that, if CRS' engagements were transferred to CWS and CWS entered into an agreement with ICL for the provision of a system for the former CRS stores, the CRS agreement would be cancelled without penalty. This was evidenced by a letter from ICL to CWS dated 22 December 1999 (a copy of which is attached to these particulars of claim at schedule 2).
22. In or about March and April 2000, CWS entered into an agreement with ICL for the provision of an integrated EPOS, back-office and stock management system operating in all CRS stores which had been or were about to be transferred to CWS. ("the CWS agreement").
23. The CWS agreement was entered into by conduct and/or by implication by CWS and ICL in that:
23.1 the essential components of the agreement had been worked out by the parties in negotiations between December 1999 and April 2000;
23.2 by 10 March 2000 CWS had made a definitive decision to acquire the ICL system based on GlobalSTORE and install it in all former CRS stores as evidenced by a letter dated 10 March 2000 from CWS to PCMS Group Limited (a copy of which is attached to these particulars of claim as schedule 3);
23.3 after 10 March 2000 (and, in particular, after 2 April 2000 when the CRS stores were transferred to CWS) both CWS and ICL treated the CWS Agreement as being in force:
23.3.1 ICL supplied materials, carried out work and performed services, all of which were exclusively referable to the CWS agreement and not the CRS agreement;
23.3.2 ICL rendered invoices in respect of those materials, work and services and CWS paid those invoices, such invoices and payments being referable to the CWS agreement and different from and inconsistent with those referable to the CRS agreement;
23.4 no further performance of the CRS agreement took place after the transfer of CRS' engagements to CWS and no further invoices were rendered by ICL in respect thereof.
24. Both CWS and ICL intended throughout that the CWS agreement should be reduced to writing but the parties never agreed the precise terms of the document and no written agreement was ever executed. Nonetheless, both parties treated the CWS agreement as being on foot from the date that the CRS stores were transferred to CWS.
25. The following were the essential terms of the CWS agreement:
25.1 ICL would develop, supply and install the hardware and software necessary to create an EPOS, back-office and stock management system operating in all former CRS stores;
25.2 The system would be based on an ISS/400 Lite platform;
25.3 The back-office and stock management functions would be performed by GlobalSTORE;
25.4 The system would contain (as a minimum) all functionality equivalent to that currently in operation in historic CWS stores using Vision on an ISS/300 platform;
25.5 The system would be capable of operating the Dividend in all former CRS stores;
25.6 The system would be ready for a pilot scheme in August 2000 and would be rolled out to all former CRS stores in September 2000;
25.7 As from the date of the transfer of CRS' engagements to CWS, the CRS agreement would be treated as no longer operative and no further materials or work would be supplied or billed under it (but without prejudice to any rights which had accrued to either party before that date).
26. The following were necessarily implied terms of the CWS agreement:
26.1 ICL would exercise all proper and professional care and skill in the manufacture, supply and installation of all hardware and software supplied to CWS;
26.2 All hardware and software supplied by ICL would be reasonably fit for the purpose for which CWS required it and of satisfactory quality;
26.3 Insofar as a time limit for the performance of any part of the contract was not the subject of express agreement, such performance would be delivered within a reasonable time."
"Should the merger between CWS and CRS go ahead we confirmed that the GlobalSTORE trading agreement that is in place between ICL and CRS would be cancelled without penalty provided a new contract could be negotiated to reflect the new project. This is based on the assumption that any new project would generate similar revenue and cash flow profiles to the original agreement."
"REQUEST
16. Please state whether each of CWS and CRS and ICL were parties to the alleged agreement. If not, please state who were the parties to the alleged agreement.
17. State which party or parties made an offer in relation to the alleged agreement, and provide particulars as to the nature of the alleged offer, and without prejudice to the generality of the foregoing state when, where and how the alleged offer was made.
18. State which party or parties accepted the alleged offer, and without prejudice to the generality of the foregoing state when, where and how the alleged offer was accepted.
19. Please identify the consideration for the alleged agreement.
20. State when the alleged agreement was executed.
RESPONSES
16. Yes.
17 & 18 CWS relies upon the contents of ICL's own letter confirming that the agreement was reached in the course of discussions between the parties. That letter is admitted and relied upon by ICL in paragraph 30 of the Defence. In the circumstances, which party technically made the offer and which party accepted it is immaterial.
19. The consideration for the agreement is clearly and sufficiently stated and is apparent on the face of the letter of 22/12/1999.
20. Yes. As set out in the Particulars of Claim, it is CWS's case that, following the merger of the societies, the CRS agreement was treated as having been terminated and replaced by the CWS agreement."
"Under paragraph 22
Of: "In or about March or April 2000, CWS entered into an agreement with ICL…"
REQUEST
21. State which party or parties made an offer in relation to the alleged agreement, and provide particulars as to the nature of the alleged offer, and without prejudice to the generality of the foregoing state when, where and how the alleged offer was made.
22. State which party or parties accepted the alleged offer, and without prejudice to the generality of the foregoing state when, where and how the alleged offer was accepted.
23. Please identify the consideration for the alleged agreement.
24. State with as much precision as possible when the alleged agreement is alleged to have been executed.
RESPONSES
21 & 22 CWS' case is clearly and sufficiently stated in paragraphs 22 to 26 of the Particulars of Claim.
23. The consideration for the agreement is self-explanatory: ICL was to carry out the work agreed for CWS and CWS was to pay for it.
24. This request is not understood. If by the word "executed", the request seeks to know whether CWS alleges that the agreement was reduced to writing and signed by the parties, as is made clear in paragraph 24, that is not CWS's case. If by "executed" the request means "performed", as is pleaded at length in the Particulars of Claim, it is CWS's case that ICL embarked on performance of the agreement but (in the manner and circumstances detailed in the Particulars of Claim) failed to perform it in accordance with its terms or (in any real sense) at all.
Under paragraph 23
Of: "The CWS agreement was entered into by conduct and/or by implication by CWS and ICL…."
REQUEST
25. Please provide particulars of all facts and matters that CWS will rely upon at trial to support the allegations that the alleged agreement was entered into (1) by conduct and/or (2) by implication.
RESPONSE
25. This request is not understood. The matters relied on in support of the general allegation in the opening sentence of paragraph 23 are set out in paragraphs 23.1 to 23.4.
Under paragraph 23.1
Of: "the essential components of the agreement had been worked out in negotiations between December 1999 and April 2000;"
REQUEST
26. Please confirm what is meant in the context of the pleading by "worked out".
27. Please set out in full each of the essential components that CWS alleges had been "worked out", providing, in each case particulars as to when the same occurred and the persons who were present or represented the parties.
RESPONSES
26. The expression means discussed and negotiated to a point where the matters referred to were agreed in principle.
27. The essential components were the terms set out in paragraph 25 of the Particulars of Claim. In addition to the negotiations which (as set out above) took place between October and November 1999, the parties continued negotiating the refining of the project up to the point of the merger of the societies. These components are fully documented in documents common to the parties including (by way of example only):
(a) documents produced and circulated by ICL relating to what ICL itself referred to as "the CWS/CRS Integration Project";
(b) regular minuted meetings between the CWS team and the ICL team from 24/1/2000 onwards;
(c) the drafts of the proposed written agreement passing between CWS and ICL in which the details of the work to be carried out and its costing remain constant…..
Under paragraph 24
Of: "…both parties treated the CWS agreement as being on foot from the date that the CRS stores were transferred to CWS."
REQUEST
34. Please provide full particulars of each and every act or omission by ICL that CWS intends to rely upon to support the allegation that ICL treated the alleged CWS agreement as being "on foot".
RESPONSE
34. It is CWS' case that the work carried out or purportedly carried out by ICL after the inception of the CWS agreement was the work provided for by that agreement and not that provided for by the CRS agreement. In outline, ICL was working to supply an EPOS, back-office and stock management system with equivalent functionality to that already existing in historic CWS stores built around the provision of the Dividend. All contemporaneous documentation is based on this premise and the relevant FRS were designed to specify this functionality. The invoicing referred to above was only one of the many facets of the documentation to make this clear.
Under paragraph 25
Of: "The following were the essential terms of the CWS agreement…."
REQUEST
35. Please provide full particulars of all terms of the alleged CWS agreement.
36. Please explain what is meant, in the context of this case by "essential".
37. Is it alleged that the "essential terms" were expressly agreed by the parties and if so, in relation to each such term please state who on behalf of the parties agreed the said term and the circumstances in which the same was agreed, In each case state whether the term was evidenced in writing and if so provide a copy of the relevant document(s). If not expressly agreed, please provide full particulars as to the basis for the allegation that the term formed part of the alleged CWS agreement.
RESPONSES
35. CWS's case as to the terms of the CWS agreement is as follows. Both parties were familiar with the CRS agreement and the modes of working provided for by that agreement. These provided (amongst other things) for the production of detailed FRS, project plans with delivery timetables, change control and a testing and acceptance regime. The negotiations between CWS and ICL proceeded on the basis that those terms would be carried forward to the CWS agreement and this was reflected by the draft written agreements passing between the parties. What had to be agreed in negotiation was:
(a) precisely what ICL was to deliver under the CWS agreement;
(b) dates of delivery;
(c) costing and modes of payment.
The terms agreed as to (a) and (b) are those set out in the sub-paragraphs of paragraph 25. As to the terms relating to (c), the parties agreed that ICL should be paid daily rates for the services of ICL personnel (varying according to grade) and fixed sums for named items of hardware and software. These went through a number of changes but reached their final form in the draft agreement Version 7 dated 14/6/2000. ICL was to invoice CWS (as happened) on the basis of actual work carried out and goods supplied rather than, as under the CRS agreement, on the basis of monthly payments.
These principal terms of the CWS agreement were agreed and the parties worked to that agreement throughout. Where the parties did not reach sufficiently final agreement to enable the written agreement to be completed and signed was in the areas of whether and to what extent ICL's standard conditions should be incorporated into the agreement and whether and to what extent ICL should be liable to pay agreed liquidated damages for delays in delivery. The CWS agreement was, however, fully workable without terms being agreed in those areas and was so operated by the parties.
36. The word "essential" connotes the principal obligations of the CWS agreement upon which CWS relies for the purposes of this action.
37. This request is not understood. It is CWS' pleaded case that the CWS agreement was formed in the manner stated in paragraph 23.4 of the Particulars of Claim.
Under paragraph 25.7
Of: "As from the date of the transfer ….the CRS agreement would be treated as no longer operative …(but without prejudice to any rights which had accrued to either party before that date)."
REQUEST
38. Is it alleged that the CRS agreement was terminated? If so, please explain the mechanism by which the alleged agreement was terminated.
39. Is it alleged that any rights accruing to CRS or CWS prior to the Transfer, subsist or are relied upon by CWS in this Action? If so, please provide full particulars thereof.
RESPONSE
38. Yes. This is expressly pleaded in paragraph 23.4 of the Particulars of Claim. There was no formal termination of the CRS agreement. Both parties simply treated it as having been superseded by the CWS agreement: they ceased to work to the former and commenced working to the latter.
39. It is CWS's case (as clearly pleaded) that the CWS agreement superseded and replaced the CRS agreement. Neither party treated the other as having been in breach of the CRS agreement as at the date the CRS agreement was abandoned.
If, however, contrary to CWS's primary contention, the court were to decide that the operative contract was the CRS agreement (as varied or novated to incorporate the terms said by CWS to constitute the CWS agreement) then it will be CWS's case that the breaches of the CWS agreement on which it relies were breaches of the CRS agreement as varied or novated."
"Pending the provision of further information in respect of the alleged agreement pleaded in paragraph 21, ICL is unable to plead fully in respect thereof. Without prejudice to the foregoing, it is admitted that by a letter dated 22 December 1999 from John Pickett of ICL to Keith Brydon, General Manager, IT, of CWS Retail Limited, which was copied to Phil Davies, IT Director of CRS, Mr. Pickett confirmed ICL' s proposal as follows:
"Should the merger between CWS and CRS go ahead we confirmed that the GlobalSTORE trading agreement that is in place between ICL and CRS would be cancelled without penalty provided that a new contract could be negotiated to reflect the new project. This is based on the assumption that any new project would generate similar revenue and cash flow profiles to the original agreement."
Save as aforesaid paragraph 21 is denied."
"Save as admitted or not admitted below paragraphs 22, 23, 24, 25, 26 and 28 are denied. Despite negotiations, which started in or around late March or early April 2000 and were aimed at agreeing the terms upon which ICL would provide goods and services to CWS in relation to the new project in place of the Contract [that is to say, the CRS Agreement], ICL and CWS never agreed upon the terms of such agreement. Such negotiations continued until at least mid-October 2000. Accordingly, no separate agreement was concluded with CWS. It is denied that any such agreement was concluded by implication or conduct. It is denied that it was necessary in the circumstances for the alleged agreement to be implied. In any event the alleged terms pleaded in respect of the alleged agreement were not agreed and are insufficiently precise to be capable of being enforced. CWS never communicated to ICL CWS' alleged belief that the alleged "CWS agreement" had come into existence or set out what CWS understood to be the terms of that agreement."
In his closing submissions Mr. Mawrey modified his original position in relation to offer and acceptance in the following passage:-"quite clearly there was a contract; the parties treated there as being a contract afoot."
"16. If it were necessary to identify an offer, then Mr. Pickett's letter of 22nd December 1999 is such an offer. It sets out the work that ICL will undertake in "Phase 4a" and a timescale within which it will be performed.
I shall come to consider that analysis later in this judgment. Remaining for the present with how the case was opened, during the course of the opening I suggested to Mr. Mawrey that there were authorities which might be relevant to the issue whether, in law, a contract could be concluded in the circumstances which he was then asserting on behalf of CWS. I also pointed out that a possible conclusion was that no relevant contract at all was made. Mr. Mawrey explained:-17. Acceptance is more tricky to pin down but there clearly is a date by which acceptance has taken place and it is 3rd March 2000 when the first project plan is produced and agreed. Thereafter until March 2001 both parties behave as if a new contractual relationship has come into existence and, as the presentation of 27th June 2000 shows, actually spoke of "the new contract"."
I asked Mr. Mawrey whether he was intending to refer me to authority during his opening which supported the approach which he was urging me to adopt. He indicated that, at that time, he was not. I was left with the impression that he felt that I was just being difficult and that if I tried harder I would surely see the contract for which CWS contended. I have to say that I did not find that approach at all helpful. By the conclusion of the trial Mr. Mawrey had come to the view that some reference to authority might be of assistance. I consider relevant authority in the next section of this judgment."I accept of course that strict legal analysis may sometimes assist on pinpointing when a contract was made and what its terms were. But if one finds two parties working together in circumstances where quite clearly they both treat a contract as being on foot, then the function of the parties is to show to the court what the contract was and what its terms were. It serves no useful purpose to say, "Well, both of these parties were wholly mistaken. They never had a contract at all. They were all doing it for nothing." That would not be a pragmatic or sensible solution to a problem if… The court may come to the conclusion that they were not working to a contract and they simply hoped that one would be signed, but once the court is convinced that they are working to a contract, then the question has to be asked, what was the contract and how did it arise. It may well be no more than a court says, "It is clear that by point X in time there was a contract because both parties believed there was, both parties were working towards it"."
Contract formation – the law
"My Lords, there may be certain types of contract, though I think they are exceptional, which do not fit easily into the normal analysis of a contract as being constituted by offer and acceptance; but a contract alleged to have been made by an exchange of correspondence between the parties in which the successive communications other than the first are in reply to one another is not one of these."
"The modern commercial practice of making quotations and placing orders with conditions attached, usually in small print, is indeed likely, as in this case, to produce a battle of forms. The problem is how should that battle be conducted? The view taken by the judge was that the battle should extend over a wide area and the court should do its best to look into the minds of the parties and make certain assumptions. In my judgment, the battle has to be conducted in accordance with set rules. It is a battle more on classical 18th century lines when convention decided who had the right to open fire first rather than in accordance with the modern concept of attrition.
The rules relating to a battle of this kind have been known for the past 130-odd years. They were set out by the then Master of the Rolls, Lord Langdale, in Hyde v. Wrench, and Lord Denning MR has already referred to them; and, if anyone should have thought they were obsolescent, Megaw J in Trollope & Colls Ltd. v. Atomic Power Constructions Ltd. called attention to the fact that those rules are still in force. "
That expression of opinion is, I think, if taken on its face, suggestive of the proposition that it is not necessary, in order to find a contract, to ask the traditional question, was there an offer which was unequivocally accepted, and answer that question in the affirmative. Rather, it is, or may be, enough to justify the finding of an agreement, that by trawling through correspondence or other exchanges between the parties one can find that at different times particular matters had been agreed which in sum could be said to amount to an agreement."In considering this question, I do not much like the analysis in the text-books of inquiring whether there was an offer and acceptance, or a counter-offer and so forth. I prefer to examine the whole of the documents in the case and decide from them whether the parties did reach an agreement upon all the material terms in such circumstances that the proper inference is that they agreed to be bound by those terms from that time onwards. "
"Secondly, it is true that the coincidence of offer and acceptance will in the vast majority of cases represent the mechanism of contract formation. It is so in the case of a contract alleged to have been made by an exchange of correspondence. But it is not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance. See Brogden v. Metropolitan Railway (1877) 2 AC 666; New Zealand Shipping Co. Ltd. v. A. M. Satterthwaite & Co. Ltd. [1974] 1 Lloyd's Rep. 534 at p.539 col.1 [1975] AC 154 at p. 167 D-E; Gibson v. Manchester City Council [1979] 1 WLR 294. The third matter is the impact of the fact that the transaction is executed rather than executory. It is a consideration of the first importance on a number of levels. See British Bank for Foreign Trade Ltd. v. Novinex [1949] 1 KB 628 at p. 630. The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometimes be relevant in partly executed transactions. Fourthly, if a contract only comes into existence during and as a result of performance of the transaction it will frequently be possible to hold that the contract impliedly and retrospectively covers pre-contractual performance. See Trollope & Colls Ltd. v. Atomic Power Constructions Ltd. [1963] 1 WLR 333. "
"But it is clear that the parties both intended to make a contract and thought they had done so. Businessmen often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the court should seek to apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam pereat. That maxim, however, does not mean that the court is to make a contract for the parties, or to go outside the words they have used, except in so far as there are appropriate implications of law, as for instance, the implication of what is just and reasonable to be ascertained by the court as a matter of machinery where the contractual intention is clear but the contract is silent on some detail."
"There are in my opinion two grounds on which the court ought to hold that there never was a contract. The first is that the language used was so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention. The object of the court is to do justice between the parties and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found. But I think that it is found in this case. My reason for so thinking is not only based on the actual vagueness and unintelligibility of the words used, but is confirmed by the startling diversity of explanations, tendered by those who think there was a bargain, of what the bargain was. I do not think it would be right to hold the appellants to any particular version. It was all left too vague. There are many cases in the books of what are called illusory contracts, that is, where the parties may have thought they were making a contract but failed to arrive at a definite bargain. It is a necessary requirement that an agreement in order to be binding must be sufficiently definite to enable the court to give it a practical meaning. Its terms must be so definite, or capable of being made definite without further agreement of the parties, that the promises and performances to be rendered by each party are reasonably certain. In my opinion that requirement was not satisfied in this case.
The critical question, therefore, is did the parties intend, objectively, to conclude a legally binding agreement.But I think the other reason, which is that the parties never in intention nor even in appearance reached an agreement, is a still sounder reason against enforcing the claim. In truth, in my opinion, their agreement was inchoate and never got beyond negotiations. They did, indeed, accept the position that there should be some form of hire-purchase agreement, but they never went on to complete their agreement by settling between them what the terms of the hire-purchase agreement were to be. The furthest point they reached was an understanding or agreement to agree upon hire-purchase terms."
It is plainly inconsistent with the sort of mechanism of contract formation in the present case for which Mr. Mawrey contended that either party should be able to withdraw from that which he has agreed until agreement on all issues upon which the parties wish to reach agreement has been achieved. If Mr. Mawrey were right, once a party has agreed anything in principle, he is bound, no matter what has not been agreed."I quite agree with the Lords Justices that (wholly independent of the Statute of Frauds) it is a necessary part of the Plaintiff's case to shew that the two parties had come to a final and complete agreement, for, if not, there was no contract. So long as they are only in negotiation either party may retract; and though the parties may have agreed on all the cardinal points of the intended contract, if some particulars essential to the agreement still remain to be settled afterwards, there is no contract. The parties, in such a case are still only in negotiation. But the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, shew that they continue merely in negotiation. It is a matter to be taken into account in construing the evidence and determining whether the parties have really come to a final agreement or not. But as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed. "
"As to the law, the principles to be derived from the authorities, some of which I have already mentioned, can be summarised as follows:
(1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole (see Hussey v. Horne-Payne).
(2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary "subject to contract" case.
(3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed; see Love and Stewart v. Instone, where the parties failed to agree the intended strike clause, and Hussey v. Horne-Payne, where Lord Selborne said at p.323:
"…The observation has often been made, that a contract established by letters may sometimes bind parties who, when they wrote those letters, did not imagine that they were finally settling terms of the agreement by which they were to be bound; and it appears to me that no such contract ought to be held established, even by letters which would otherwise be sufficient for the purpose, if it is clear, upon the facts, that there were other conditions of the intended contract, beyond and besides those expressed in the letters, which were still in a state of negotiation only, and without the settlement of which the parties had no idea of concluding any agreement [ My [Lloyd LJ's] emphasis]
(4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled (see Love and Stewart v. Instone per Lord Loreburn at p. 476).
(5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty.
(6) It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word "essential" in that context is ambiguous. If by "essential" one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by "essential" one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by an "essential" one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge "the masters of their contractual fate". Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens everyday when parties enter into so-called "heads of agreement"."
The case of ICL as to a contract
"From the date of the Transfer and as evidenced by the payment by CWS of invoices in relation to work carried out prior to the Transfer and by CWS' approval and acceptance of FRS in relation to the Contract, which acceptance varied the Deliverables to be provided under the Contract [that is to say, the CRS Agreement], CWS accepted the benefit and burden of the Contract and stood in the place of CRS in respect thereof."
The misrepresentation case
"212. Although misrepresentation, if proved in this case, would provide tCG with a good cause of action both on the premise that there was an enforceable contract between the parties and on the premise that there was not, in practical terms it will make a significant difference only in the event that there was no contract. If there was a contract and ICL was in breach of it, no damages are likely to be recoverable for misrepresentation that would not equally be recoverable as damages for breach of contract. In that context, therefore, a finding of misrepresentation would add nothing concrete.
213. Similarly, although it is pleaded that tCG was induced to agree to the change from ISS400 to ISS300 by misrepresentations, this only bites if the court were to hold that there was, at the time, no enforceable contract between the parties.
214. The misrepresentations relied on as inducing the contract can be summarised as follows:
(a) ICL represented that it was capable of producing for the existing CRS stores an EPOS and back office system based on ISS400 and GlobalSTORE which would give the proposed new Group a harmonised IT capacity based on the functionality currently in place in CWS stores, including Dividend, ISAs, HISAs and electronic cash management;
(b) ICL represented that it was capable of delivering the new system to an agreed timetable;
(c) ICL represented that it was capable of delivering the new system within five months of FRS being signed off;
(d) ICL represented that it was capable to [sic] delivering the new system to timescales that would fit in with CWS's expressed intentions to re-launch the new Group as soon as practicable after merger;
(e) ICL represented that it could deliver an ISS400/GlobalSTORE system more quickly and more cheaply than its rival, the ISS300/Vision system.
215. Those representations appear quite clearly from the presentations, especially the presentation of December 1999 and from Mr. Pickett's letter of 22nd December 1999.
216. If these representations were incorrect, then whether the onus is on tCG to show that they were made negligently or on ICL to show that they were made without negligence, the result is going to be the same, They were made negligently.
217. Events have undeniably shown these representations to be incorrect. ICL was not able to deliver a system based on ISS400 and GlobalSTORE within any measurable timescale and probably not able to do so at all. Whether the system was based on ISS400 or on ISS300 (allegedly introduced to speed the Project up), it was not delivered to any agreed timetable and was never going to be ready for rollout within five months of being signed off. Going down the GlobalSTORE route was a disaster for tCG; it was neither quicker nor cheaper than it would have been to decide on ISS300/Vision at the outset.
218. Were the misrepresentations negligent? As the evidence has turned out, this seems to be incontrovertible. The fact is that ICL carried out absolutely no internal feasibility exercise on the project. ICL had no idea whether adapting ISS400 to produce Dividend would be easy or difficult and had no idea whether they would be able to source the appropriately skilled staff from the USA to meet any agreed timescale.
219. More significantly, the moment CWS stated that the new system was to replicate the Dividend functionality of CWS's existing system, ICL knew that
(a) it had to discover exactly what that functionality was;
(b) Dividend was going to have to communicate with CWS's existing central systems including the SSC;
(c) although it had supplied the system as a main contractor, ICL's own knowledge of the existing CWS system was partial; in particular it did not know the file formats for communication between the Vision back office system and the central systems including the SSC;
(d) given that reverse engineering was not a practical proposition, ICL would have to discover the relevant file formats and other information from PCMS;
(e) it had made no enquiries either of CWS or of PCMS itself as to whether, when and on what terms PCMS would be prepared to provide this information.
220. Furthermore ICL seems to have contemplated at that stage that it would be producing GlobalSTORE by some form of RAD process which would render any agreement of fixed timescales pointless.
221. In short, ICL knew that it had made none of the appropriate enquiries needed to be able to give the assurances it was giving and it knew that it could not deliver to the desired timescales or any fixed timescales.
222. ICL wanted desperately to persuade CWS to pay for it to develop GlobalSTORE and not to do the obvious thing namely to buy ISS300/Vision, a fully developed product which could be installed quickly and at an ascertainable cost. It revealed none of its difficulties (especially the difficulty with PCMS) to CWS because it knew that if it did so, CWS would almost certainly choose Vision.
223. As for the misrepresentations leading to the change from ISS400 to ISS300, they are relevant as to extending the period of loss. If, in May 2000, ICL had failed to persuade tCG to continue with the Project and tCG had abandoned GlobalSTORE to Vision, then the losses flowing from the December 1999 misrepresentations would have been crystallised. What tCG would have lost was the difference between going down the Vision route following the cancellation of the GlobalSTORE project in June 2000 and going down the Vision route ab initio – a loss of probably no more than 3 or 4 months (say March to June 2000).
224. By persuading tCG to persist with GlobalSTORE, ICL delayed tCG from moving to Vision for a further 9 months (May/June 2000 to February/March 2001).
225. The essence of the May/June misrepresentations was that ICL represented that, if tCG would agree to a change from ISS400 to ISS300, ICL had the ability to meet the August pilot and September rollout dates. This was clearly wrong, as events showed, but was ICL negligent in giving those assurances?
226. As with the earlier misrepresentations, ICL had failed completely to carry out any feasibility exercise before committing itself to delivery [sic] ISS300/GlobalSTORE in time for a pilot date. It had not assessed what work would be necessary, in particular to replace the back office functionality which was going to be removed with the removal of ISS400. If it was contemplating three drops of unvalidated (or only partially validated) software, ICL must have known that any commitment to a definite timetable was going to be impossible.
227. As Mr. Pickett's evidence made clear, communication between the sales team and the technical team was sketchy. The technical team realised that meeting the time limits was not practicable but the sales team, realising that without the assurances, tCG might terminate the contract and buy Vision, chose either not to ask the right questions or not to listen to the answers.
228. The reality is that, at the time ICL's sales team was attempting to persuade tCG that, if it consented to the change to ISS300, the agreed dates could be met, any rational assessment of ICL's capability to achieve this must have indicated that it was not feasible.
229. tCG was undoubtedly misled into thinking that the change to ISS300, which, after all, had been used successfully in the existing CWS system, would put the project back on course.
230. The case on misrepresentation is straightforward and coherent both as to liability and as to damages. It is not contested that, if ICL had failed to persuade tCG to choose ISS400/GlobalSTORE in December 1999 or if ICL had failed to persuade tCG to continue with the project with a changed specification in June 2000, at either point tCG would have chosen the ISS300/Vision solution."
"235. Although there is mention of quantum meruit in ICL's pleadings, neither party has ever contended for the proposition that there was no contract governing the Project. The course of the action has been predicated on there being a dispute between the parties as to whether there was a new contract – the CWS agreement – or a varied version of the CRS agreement.
236. It is still tCG's case that these are the only two viable analyses of the situation but, as the court has raised the matter, the parties must address the consequences of their both being mistaken as to the existence of a contract.
237. One thing can be said with certainty: if there was no contract, both limbs of ICL's counterclaim fail in limine because they are purely contractual claims.
238. What, however, of tCG's claims?
239. Firstly, if there was no contract, as indicated above, tCG's claims based on misrepresentation still hold good. They can succeed on the premise that no contract was entered into because the misrepresentations induced tCG to follow a course of action which it would not have followed if the misrepresentations had not been made at all or if (which comes to the same thing) ICL had correctly represented the position by telling tCG it could not deliver what tCG wanted.
240. Secondly, tCG would have a restitutionary claim, although, of course, tCG's pleaded case, being based on different premises, does not contain one.
241. The way in which a restitutionary claim would be based would be to calculate the sums paid by tCG to ICL referable to the development of GlobalSTORE. Those sums would be recoverable as sums paid on a consideration which has wholly failed. Insofar as tCG has paid for hardware, then, if the hardware is utilisable for other purposes, it is irrecoverable on that basis: if it is not, then the cost is similarly recoverable.
242. ICL cannot set up a claim upon a quantum meruit or, more strictly, quantum valebat because it has not sought to show that any of the work relating to GlobalSTORE provided any benefit to tCG. On the premise that there was no contract, ICL's work on GlobalSTORE must be treated as being speculative work undertaken in the hope that it would lead to a product that would be sold to tCG. Any payment by tCG must be taken as relating to the proposed contract and recoverable if the contract does not take place.
243. If, therefore, the court did come to the conclusion that there was no contract between the parties, the court would be invited first to consider tCG's misrepresentation claim. If that succeeds, tCG recover's [sic] damages and ICL's counterclaim fails. If the misrepresentation claim does not succeed, then ICL's counterclaim still fails but the court should order an account or enquiry into the sums paid by tCG to ICL for GlobalSTORE and for hardware not used by tCG in consequence of the change to ISS300/Vision."
"44. CWS's case is self explanatory. As to paragraph 20.1 ICL represented that it was capable of adapting GlobalSTORE so as to incorporate the additional functionality required by CWS (including the Dividend). As set out in paragraph 27, it was not so capable and admitted as such. Similarly, as to the representation set out in paragraph 20.2, GlobalSTORE was not at the time of the representation (nor ever became) sufficiently advanced in its development to permit a pilot project to be run in August 2000 and the system to be rolled out across the network of former CRS stores in September 2000. So much was admitted as set out in paragraph 27.
45. It is not alleged that the misrepresentations were fraudulent. That said, if CWS establishes that the representations were made and were material, it is for ICL to show either that they were true or, if not, that it had reasonable grounds to believe that they were true. CWS will rely on the Misrepresentation Act 1967 s.2.
Without prejudice to CWS's primary case as set out above, CWS reserve the right to argue that, had ICL however, properly and carefully investigated the current state of its GlobalSTORE system and evaluated the prospects of its being adapted to provide the required functionality, it would have realised that the system could not be adapted to provide that functionality on a platform of ISS/400 Lite within any timescale which would be acceptable to any customer, however indulgent, and, in all probability could never be so adapted. To that extent therefore, and if and insofar as it may be necessary to do so, CWS will contend that ICL was negligent in making the misrepresentations."
Schedule 7 to the Particulars of Claim did not identify any element of claim which was expressly denoted as dependent upon any allegation of misrepresentation. Rather there were set out a number of elements which seemed to be common to all ways in which the case was put. That was confirmed by an "Alternative case" set out in the Further Information in response to a request under paragraph 42 of the Particulars of Claim numbered 73 in these terms:-"By reason of ICL's misrepresentations, breaches of contract and repudiation of contract, CWS is entitled to recover back all monies paid to ICL under the CWS agreement and to damages. A schedule of CWS's claims under these heads is attached to these particulars of claim at schedule 8 [in fact 7]"
The "Alternative case" was:-"Please set out (in Scott schedule or other convenient form) in relation to each alleged item in schedule 7, whether it is alleged that the damage results from a misrepresentation or a breach of contract or (if it is different) a repudiation, and in each case identify the relevant contract and term or representation or act of repudiation relied upon."
"CWS's alternative case, based on misrepresentation, is that if the misrepresentations had not been made CWS would not have contracted with ICL to deliver a system based on ISS/400 Lite and GlobalSTORE (or even ISS/300 and GlobalSTORE). It would have opted to equip the former CRS stores with the existing system ISS/300 and Vision currently installed in historic CWS stores and containing the functionality of the Dividend. There is no reason why that system could not have been acquired and installed before (or, at worst, shortly after) the merger of the societies in April 2000.
On that premise, all the losses and expenditure incurred by CWS and claimed in Schedule 7, with the exception of the cost of acquiring the licences for ISS/300 would have been avoided."
"It also follows that if there is no new agreement, CWS' claims under the Misrepresentation Act 1967 must also fail. Such claims require misrepresentations to have induced a contract. CWS have neither pleaded nor relied upon any common law claim for negligent misrepresentation."
The material facts as to negotiations between CWS and ICL
For the reasons which I have sought to explain, that solution just is not satisfactory. The real question is whether the parties had any intention of entering into any contract at all, whether a fresh agreement or by way of variation of the CRS Agreement, without the issue of liquidated damages being resolved, and so my consideration of the evidence will focus on what the positions of the parties was on that question. Mr. Mawrey's suggested solution really amounts to no more than saying that in order to bring into existence a contract upon which it can sue CWS retrospectively did not seek to insist upon that which at the time was of fundamental importance."Our case on that is that if the parties do not reach agreement on penalties, then there are no penalties, but it is not fatal to there being an agreement with regard to the essentials of the contract."