Facts
In a 192 page judgment Judge Seymour dealt with all the issues
between the parties in this predominantly fact based case.
The detailed judgment was given despite the Judge finding, on his
review of the statements of case, that ICL (now Fujitsu Services
Limited) was not liable. As such, it was open to Judge Seymour to
dispose of the matter without hearing or dealing with the factual
issues at stake.
Nonetheless the judgment covers in considerable detail the facts
relating to the purported agreement between the parties,
misrepresentation, alleged breaches of the agreement and the
possible damages recoverable as a result. This summary focuses
mainly on the Judge's consideration as to whether an actual
agreement had been reached between the parties.
The Co-operative Retail Society Limited ("CRS") and the
Co-operative Wholesale Society Limited ("CWS"), the Claimant, ran
similar grocery retail services in different parts of the UK,
albeit that there was a slight overlap in certain regions. In April
2000 the companies merged under the Industrial and Provident
Societies Act 1965 ("the 1965 Act") and all former CRS stores were
transferred to CWS.
As a further piece of background, at around the same time as the
transfer CWS decided to introduce a new loyalty card scheme known
as the Dividend Card, as a means to differentiate it from the other
small supermarket competitors. A similar scheme had been run in
certain CWS shops providing customers with cashback at 5% when
purchasing Co-op own and fresh products. The revised dividend
scheme was to offer 3% on Co-op own and fresh products and 1% on
specific other items ("the Revised Dividend").
In terms of IT systems each store required an efficient
"Electronic Point of Sale" system ("EPoS") to administer checkout
functions including payment by credit and debit card and a system
to administer the loyalty card. The latter also involved the
back office functions of stock control, inventory etc. Prior to the
transfer CWS used ICL's ISS 300 system as its EPoS and a product
called "Vision", supplied by PCMS Limited for its loyalty card
functionality. CRS did not have a uniform IT platform running
across its stores and its systems also suffered from issues
relating to Y2K. Accordingly, in 1999 (i.e. before the transfer)
CRS entered into an agreement with ICL for an EPoS Harmonisation
Programme ("the CRS Agreement") to provide a robust and uniform
platform throughout the CRS stores. This agreement took the form of
a framework agreement for a minimum term of 3 years but it
incorporated a binding contract for the "Store Harmonisation and
Stock Management Programme" ("the Store Harmonisation Programme").
ICL's standard terms and conditions were incorporated and an
express provision was included stating that the merger of CRS with
another Co-op company would not give rise to a terminating
event. In terms of pricing, a fee was agreed for 3 years,
however, in the event of the Store Harmonisation Programme being
terminated by CRS prior to completion of the works, standard daily
rates would apply. These rates were significantly higher than the
agreed set prices. The Store Harmonisation Programme was to
take place in 4 phases, the first of which being the replacement of
CRS' existing EPoS system with the ICL ISS 400 system. This
was successfully completed before the transfer to CWS.
The additional 3 phases involved the development, trial and
roll-out of the “GlobalSTORE” back office application, which would
deal with stock control management etc. However, before this
commenced, the transfer to CWS took place. Accordingly, after a
strategic review of the merged entity’s systems, a new project
commenced for the harmonisation of the CWS and CRS platforms and
the introduction of common functionality dealing with the Dividend
Cards. Various options were available to CWS including (1)
replacing CRS' ISS 400 with CWS' ISS 300 plus Vision; (2) replacing
CWS' Vision with the, to be developed, GlobalSTORE system; or (3)
leaving CWS stores as they were and developing GlobalSTORE to offer
the former CRS stores, as a minimum, the same functionality as
provided by ISS 300 plus Vision. This third option was
adopted and became known as the GlobalSTORE Project.
No written agreement was entered into between the parties for
the GlobalSTORE Project. However, CWS pleaded that in or around
March and April 2000 CWS entered into a contract with ICL in
relation to the GlobalSTORE Project, for the provision of an EPoS
back office and stock management system in all former CRS stores,
("the CWS Agreement"). This CWS Agreement was entered into via
conduct and/or by implication. To this extent, CWS pleaded that:
the essential components of the agreement had been "worked out"
between December 1999 and April 2000; on 10 March 2000 CWS made a
final decision to install GlobalSTORE in all former CRS stores;
from that date both parties treated the CWS Agreement as being in
force; ICL performed the agreed works and rendered invoices; it was
both parties' intention to reduce the CWS Agreement to writing but
that was not done; and, both parties treated the CWS Agreement as
being "on foot". As to the essential terms, CWS pleaded that ICL
was to develop, supply and install hardware and software necessary
to provide the GlobalSTORE system in all CRS stores; the solution
was to be based on ISS 400; the functionality was to contain at a
minimum all the functionality of ISS 300 plus Vision systems used
at CWS; the system would be capable of operating the Dividend Card
in all stores; the system would be ready for pilot in August 2000
and roll-out in September 2000; and, the agreement brought to an
end the CRS Agreement. Further, implied terms included that ICL
would exercise all proper and professional care and skill and that
performance would be within a reasonable time.
In its Request for Further Information, ICL requested further
detail regarding the CWS Agreement, particularly as to the offer
and acceptance thereof and how the essential components were
"worked out". CWS' response referred to a letter and other evidence
which identified that an agreement had been reached and as a result
made the issues of offer and acceptance immaterial. As to the
essential terms, CWS responded that there was negotiation to a
point where the matters referred to were “agreed in
principle”. CWS accepted that agreement had not been reached
on whether ICL's standard written terms would apply or whether
liquidated damages would be included.
Judgment
From the beginning of the trial Judge Seymour expressed surprise
at, and difficulty in understanding, the Claimant's case as to how
the CWS Agreement was reached. As he saw it, the Claimant's
case depended fundamentally on showing that an agreement could be
made other than by demonstrating acceptance by one party of an
identified offer made by the other. During the trial the submission
put forward by Mr Mawrey QC, Counsel for CWS, was that Judge
Seymour should extract from the exchanges in correspondence and
discussions between CWS and ICL any element ever apparently agreed
and aggregate such elements so as to make an overall agreement at
the end. During the trial the Judge specifically referred Mr Mawrey
to the judgments in G.Scammell and Nephew Limited v Ouston
[1941] AC 251 and Pagnan Spa v Feed Products [1987] 2
Lloyd’s Rep 601. In the first case, it was held by Wright LJ in the
Court of Appeal that if the parties were still in negotiation about
the terms of an intended contract and did not intend to be bound
until those negotiations were concluded, they had not entered into
any agreement. The critical question therefore was whether the
parties intended, objectively, to conclude a legally binding
agreement. In the latter case, Lloyd LJ found that it was not for
the Court to decide which terms it regarded as important and which
terms it regarded as less important or as matters of detail and on
that basis to decide whether the parties had agreed all that which
the Court considered necessary for there to be a workable
agreement. The correct principle was that it was for the
parties to decide whether they wished to be bound and if so by what
terms. Despite putting this to Mr Mawrey, the matter was not
directly addressed. This legal point was also relevant to
ICL's main case. ICL contended that the work was performed under
the CRS Agreement as amended. The Judge found that as a matter of
existing law, an existing agreement could only effectively be
varied by the making of a further legally binding agreement by
which the parties to the original agreement agreed to the
variation.
Judge Seymour found it difficult to understand how CWS' case
could ever seriously have been put forward. The Judge
considered, after Mr Mawrey's opening, whether it was appropriate
to exercise his management powers to seek to deal with the case on
a summary basis, since both the claims for breach of contract and
misrepresentation fell in their entirety in the event that no
agreement was found to exist. Nevertheless, the Judge heard all the
evidence and passed a lengthy judgment on all the issues between
the parties, including the various heads of damage claimed by the
Claimant.
The Judge held that both at law and on the facts no agreement of
any sort existed between the parties. Accordingly, the
Claimant's case failed in its entirety. On the same basis the work
could not have been performed under the CRS Agreement as the works
under that agreement were not varied by agreement between the
parties. Obiter, the Judge found that ICL might have had a
successful claim on a quantum valebat basis. Nevertheless, the CRS
Agreement did not run its course and therefore ICL's claim for
additional sums payable at the daily rates under the CRS Agreement
was successful. ICL was awarded its counterclaim £1,018,034 as
damages.
In terms of the facts, the Judge found that agreement had not
been reached on the issue of liquidated damages. CWS was absolutely
insistent on a liquidated damages provision being included.
Conversely, ICL insisted that such provision was not to be
included. The Judge rejected Mr Mawrey's contention that if it were
found that liquidated damages were not agreed, then no liquidated
damages provision existed and this was not fatal to an agreement
having been reached. Instead, the key question was whether the
parties had any intention of entering into an agreement without the
issue of liquidated damages being resolved. The Judge found
they did not. Further, the Judge found that CWS was reluctant to
enter into any agreement with ICL and only entertained the idea
because it knew it was otherwise exposed under the CRS Agreement to
additional costs.
On the basis the Judge was asked to deal with all issues, he
considered whether, had there been a CWS Agreement, ICL was in
breach by failure to deliver the GlobalSTORE system by January
2001. The Judge found ICL could not be in breach of contract (had
there been any such agreement) because time was not of the essence
and in any event the software ICL delivered was of satisfactory
quality, particularly given the project difficulties ICL had
encountered as a result of CWS' failings. As such, CWS' decision to
walk away from the project in January 2001 was its choice and made
on the basis that it bore whatever costs were thrown away as a
result.
As to the heads of damage claimed, the Judge rejected these both
at law and on the facts. CWS claimed (i) additional cost incurred
by CWS as a consequence of ICL failing to deliver the GlobalSTORE
system in accordance with the terms of the contract; (ii) CWS'
wasted costs incurred; and (iii) loss of profits incurred (during
mitigation) as a consequence of the delay in installing a back
office system. The Judge found that CWS' claim for additional
costs could not be claimed in addition to loss of profit. CWS
had to elect whether it sought to claim damages on the expectation
basis or the reliance basis. Mr Mawrey argued that CWS could
recover those additional costs it was charged as a result of
changes etc. that ICL was forced to make, on the basis that these
were additional costs to those that would have been paid had the
system been implemented in accordance with the contract.
Judge Seymour rejected this on the basis of the facts and that CWS
had not provided the correct evidence to support this claim. CWS
had not correctly claimed in its Statement of Claim for the alleged
extra expenditure caused as a result of some breach of contract
other than that which was said to have justified the termination of
the project.
As to the loss of profits claim, the Judge found that CWS had
not established that a loss had been caused because of an alleged
delay to the introduction of the Revised Dividend Scheme. In
any event, the loss was neither foreseeable nor communicated to ICL
at the time the alleged agreement was formed, and consequently fell
foul of the second limb in Hadley v Baxendale.
Commentary
Judge Seymour indicated early in his judgment that he could have
dealt with the main claim as a summary issue. The reason he
gave for not doing so was that, the proceedings having reached full
trial and the allegations against ICL being serious, he felt that
ICL should have the opportunity to present its position at
length. This resulted in ICL being fully vindicated and
justice being seen to be done.
Satisfactory as this judgment must have been to ICL, it throws
an interesting light on the manner in which a judge’s discretion
over case management may be used. While a party to an action
might well want its ‘day in court’, it might equally well want the
matter to be disposed of as quickly and economically as possible.
If it is left to the discretion of the judge to determine what best
suits the party’s interests then, notwithstanding the injunctions
of Lord Woolf and others as the need to shorten proceedings, a case
may be left to run its full course. The case therefore
emphasises the importance of attempting to achieve resolution of
disputes in advance of a full trial wherever possible, and serves
as a useful peg on which to hang a brief review of the alternative
procedures which are available.
The civil procedure rules offer various procedures that may be
used to achieve a speedy resolution in a dispute, including:
- Striking out;
- Summary judgment;
- Trial of preliminary issues.
This commentary assesses the situation where these procedures
may be appropriate. In brief, a statement of case will be struck
out if it discloses no reasonable grounds for bringing or defending
the claim; summary judgment will be awarded if a party has no real
prospect of succeeding on or successfully defending the claim or
issue, and there is no compelling reason why the case for issue
should be disposed of at trial; and, the court will give judgment
on a preliminary issue if by doing so will avoid the need for a
trial or significantly reduce the issues in dispute.
A strike out application is appropriate where the statement of
case, on its face, is vague, incoherent, obviously ill-founded and
does not amount to a legally recognised claim or defence. Any such
application will focus on the statements of case rather than the
evidence. This may well have been the cheapest course of action
available to ICL since there is no need to put any evidence before
the Court and the decision is made based purely on the statements
of case. Little risk is involved in strikeout applications;
if the party is unsuccessful the applying party will lose nothing
other than costs and this will have no bearing on any subsequent
trial of the matter. Further, it is open to a party to
“cherry pick” the issues it wishes to strike out, for example,
seeking strikeout of perhaps two of the claimant’s five
claims. If successful, the issues between the parties are
reduced and this will likely save costs. Similarly,
tactically, cherry picking may wear down the opposition’s relish
for the claim.
Summary judgment applications are similar to a strikeout
procedure albeit that they go further, with the Court considering
the evidence in addition to statements of case. The Court is
required to consider the evidence which can reasonably be expected
to be available at trial or the lack of it. This may include
witness statements, though no cross examination is made.
Thus, the Court is able to decide disputed factual issues in the
case. Practice would show, however, that Courts do tend to
shy away from granting summary judgment when the outcome is
dependent on rejecting one party’s factual evidence.
To successfully bring a summary judgment application a party
must show that the other side has no real prospect of
success. Thus, the burden of proof is higher than the
“balance of probabilities” test that will be applied to a full
trial or at the hearing of a preliminary issue. With this
added burden, and the fact that evidence and the law must be
considered which will increase costs, summary judgment is not
always appropriate. Nevertheless, again, a party who seeks
summary judgment and is unsuccessful is, prima facie, in no worse
position in terms of the litigation, save in respect of wasted
costs.
When a Court determines a summary judgment application it has
the power to make a conditional order requiring a party to pay
money into Court or take a specified step in relation to the
action. No such power exists in relation to a striking out
action. In Anglo-Eastern Trust Limited v
Kermanshahchi [2002] EWCA Civ 198, the Court of Appeal held
that:
- a conditional order should not be made without considering a
party’s means;
- the Court should not require a defendant, as a condition of
defending a claim, to make a payment that he might not be able to
make;
- the right to a fair trial pursuant to Article 6 of the ECHR
also requires that a conditional order should be reasonable;
and
- a Court should not as a general rule make a conditional order
in the absence of any evidence about the defendant’s means unless
it was satisfied that the defendant had been given appropriate
prior notice (which could be given informally by letter) to the
effect that if a summary judgment application failed, the claimant
would be seeking a conditional order.
A party may apply for summary judgment at any time, save that a
claimant may not do so until the defendant has filed an
acknowledgement of service or a defence, or unless the Court gives
permission.
As to the hearing of a preliminary issue, this may be used to
resolve any issue which the Court accepts as appropriate for
determination at a preliminary stage. The burden of proof is that
normally found at trial, namely, the balance of probabilities and
therefore is lower than the test for summary judgment.
Preliminary issue hearings should only be sought if the hearing of
that issue will decide the whole or much of the case in favour of
one party or it is bound to lead to settlement. If this were not
the case, the procedure would merely give rise to two hearings,
namely the preliminary issue hearing and the subsequent full trial.
This would lead to a substantial increase in costs. It is
therefore essential to exercise care when considering to apply for
a preliminary issue since they are expensive exercises and the
opposing party merely has to show the matter will not dispose of
the substantive issues.
One final point to note is that even if an application for any
of the three orders identified here is unsuccessful, the
application may well form a platform for the successful negotiation
and settlement of the matter, since the parties will have had their
cases tested to a greater or lesser degree by the Courts.
End note
CWS has been granted permission to appeal to the Court of Appeal
against the judgment of Judge Seymour.
