COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIS HONOUR JUDGE SEYMOUR Q.C.
TECHNOLOGY & CONSTRUCTION COURT
London, WC2A 2LL
B e f o r e :
LORD JUSTICE RIX
LORD JUSTICE JONATHAN PARKER
| CO-OPERATIVE GROUP (CWS) Ltd.
|- and -
|INTERNATIONAL COMPUTERS Ltd.
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Crown Copyright ©
Lord Justice Tuckey:
This is the judgment of the court to which we have all contributed.
It not infrequently happens that judges find themselves called upon to criticise, sometimes in strong terms, parties or witnesses appearing before them. The subject of such criticisms are apt to complain that the judge was prejudiced or biased against them. But such criticisms will carry no weight for the appellate court provided the criticisms were based on material properly before the judge in that case and were not, in the light of that material, inappropriate. In such a case there is no element of extraneous prejudice or predilection and hence, in the eyes of the law, no question of bias.
More recently in Cairnstores Limited v Hassle  EWCA Civ 1504 this court said that the correct question was whether the losing party could establish that it did not receive a fair trial, not whether, as a disappointed litigant, it believes that the trial was unfair.
Outline facts and issues
Yes Mr Mawrey. Offer and acceptance.
There followed a discussion between the judge and Mr Mawrey in which the judge made it clear that he was having difficulty seeing that there was any contract between the parties. Mr Mawrey responded by saying that it was common ground that there was a contract; the only question was which contract. Mr Henry Carr Q.C., counsel for ICL then as now, maintained ICL's primary case but reminded the judge of the quantum meruit alternative pleaded in the defence.
39. …. 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 of authority might be of assistance. I consider relevant authority in the next section of this judgment.
51. … it is plain in my judgment that the analysis set out in the particulars of claim and amplified in the further information is wholly unsustainable. I find it difficult to understand how it could ever seriously have been put forward.
52. On the first day of the trial I mentioned to Mr Mawrey as possibly being relevant to the issues which I have to decide the cases of Gibson v Manchester City Council, Butler Machine Tool Co. Ltd. v Ex – Cell – O Corporation (England) Ltd. and Pagnan SpA v Feed Products Ltd. Mr Mawrey did not seem to find that of assistance. Nor did he think it appropriate at that time to seek to help me in relation to the possible significance of these decisions. A couple of days later after I had had an opportunity of reading the witness statements served on behalf of CWS, I suggested that Mr Mawrey might like to consider further, sooner rather than later, the passage from the judgment of Lloyd L.J. in Pagnan … in the context of a number of paragraphs of the witness statements …. I cannot say whether he did so, but the trial did not thereafter take a course which indicated that he had. By the end of the trial Mr Mawrey had still not thought to grapple with the statement of principles set out in the judgment of Lloyd L.J. …
53. It was in my mind at the close of Mr Mawrey's opening to consider whether it was appropriate to exercise my management powers to seek to deal in a summary way with the issue of the contract for which Mr Mawrey contended. Mr Mawrey reminded me that the action was listed for trial of all issues and that it had not seemed to anyone, including the judge who had the responsibility for managing the case up to that point, that a trial of any issue preliminary to any other was appropriate. Mr Henry Carr did not suggest that any course should be taken other than that all issues should be tried. I was conscious that ICL had an interest in vindicating, if it could, its commercial reputation in relation to serious allegations of almost a professional negligence character which had been made against it by CWS. In the end I decided to let the trial run its course. However it is clearly necessary to consider what should be the costs consequences of claims being advanced on behalf of CWS against ICL which were, from a legal point of view, doomed from the start, and those claims being persisted in notwithstanding a transparent indication from me on more than one occasion at the beginning of the trial what the difficulties were.
In the event however at the end of the trial the judge declined to make an order for indemnity costs against CWS.
140. The formulation of the case of CWS in this action does not seem to have benefited from any real legal analysis. This comment does not apply only to the failure to consider the application to the facts as to the course of negotiations as to which CWS' own witnesses of fact spoke of the English law of contract formation, but also to the formulation of the alleged breach of contract which was said to amount to a repudiatory breach and thus to have justified CWS treating the contract for which it contended as at an end.
Later when dealing with damages the judge said:
292. It is well known that the modern basis upon which damages are recoverable for breach of contract was first expounded by Alderson B. in Hadley v Baxendale … The decision is much mentioned, but relatively rarely does anyone take the trouble to remind himself or herself of what Alderson B actually said. It is particularly unfortunate that those formulating the claims of CWS in this action did not trouble to remind themselves of the passage in question for the failure to do so seems to have led to claims being advanced which cannot succeed on any view.
"Mr Brydon was not a man concerned with detail". He suggested that it would have been inappropriate for him to have found out about the nature of Globalstore since it would have been usurping the function of others in his team. … However he did have his own agenda in relation to this project. Before ICL had delivered any code [software] he informed the CWS team working on Globalstore [in May 2000] that there was "a complete distrust of ICL at senior levels in CWS". He suggested that "we take a very sceptical view of ICL's abilities to deliver quality product on time". He also stated that Graham Melmoth was "intent on getting his pound of flesh from ICL". When he believed that ICL was not succeeding on the project he expressed his satisfaction, and when he heard ICL was making good progress he expressed his dissatisfaction. He had already decided to throw ICL out by 11th December, at a time when it was being reported to him that the quality of the software was OK. His main concern appeared to be ICL's future and ability to support Globalstore once it had been installed, rather than the quality of the code, in which he was not interested.
58. … None of this was of any relevance if it were not found that the contract contended for had been concluded.
Its relevance was to the position if there was no contract. Here Mr Mawrey submitted that CWS would have a claim for negligent mis-statement or a restitution claim which the judge said was:
59. … A rather desperate attempt to salvage something from the anticipated wreckage of CWS' case as to a contract. It itself contained a number of illogicalities and misconceptions.
In the event the judge rejected these claims on the ground that they had not been pleaded.
75. Before embarking upon a narrative of the principal relevant incidents during the negotiations between the parties it is necessary to record two important circumstances which conditioned the course of the negotiations and the aims and objectives of CWS in them. The first was that, …. Mr Brydon was aware of the provisions of the CRS agreement for [penalty] …. in the event that the CRS agreement did not run its full course. …. Having heard the evidence of Mr Brydon and in the light of a number of references in contemporaneous communications to which I refer later in this judgment, I am entirely satisfied that CWS was a reluctant participant in the negotiations with ICL and that it was induced to enter into those negotiations, and, indeed to deal with ICL at all only because of the perceived need to avoid CWS having to pay the increased sums for which the CRS agreement provided if no new agreement was made. Hence the identification by Mr Brydon as early as December 1999 in his contact with Mr Pickett of ICL of the issue of what was to happen to the CRS agreement.
76. The second circumstance the malevolent influence of which hung over the dealings of CWS and ICL in relation to the Globalstore project was the perception of Mr Melmoth, and, it seems, of Mr Brydon, that a grievous wrong had been done to CWS by ICL over some project concerning the funerals side of the business of CWS, and that ICL's performance under other arrangements between CWS and ICL had been less than satisfactory. This factor is obviously linked to the circumstances to which I have referred in the preceding paragraph, as it would have increased the reluctance of CWS to deal further with ICL. Exactly what the perceived injustice in relation to the funerals side of the business was did not emerge during the course of the trial before me. Mr Hepworth told me in cross-examination that he had heard about it, but he denied that the issue influenced his own actions. I accept that evidence, but, for the reasons which will appear as I consider the course of contemporaneous communications later in this judgment, I am satisfied that the funerals issue did colour the approach of Mr Brydon, and the terms of his reports to Mr Hepworth, who, of course acted on the terms of those reports in good faith. To put it bluntly, I am satisfied that, in the light of whatever it was that was considered to have happened in relation to the funerals side of the business of CRS, Mr Melmoth and Mr Brydon would not willingly have had further dealings with ICL, but felt that they had little choice commercially because of the sums which CWS would have to pay by way of price revisions under the CRS agreement if CWS was not able to negotiate a discharge of that agreement. Had it been necessary to do so, I should have found that CWS was in fact wholly uninfluenced by the alleged representations of ICL which were said to have induced CWS to enter into the contract for which it contended. It was the consideration to which I have referred which was the determining factor in CWS dealing with ICL at all.
77. Having been dragged reluctantly into dealing with ICL at all, there was then a concern on the part of Mr Brydon, and it seems, Mr Melmoth, either to extricate CWS from its dealing with ICL in relation to the Globalstore project, if that could be done without exposing CWS to risk under the CRS agreement or at least to seek to use any opportunity presented by the course of the Globalstore project to exact revenge for what was considered to have happened on the funerals project. Either way, Mr Brydon and Mr Melmoth were looking for trouble, given the slightest pretext. As I shall demonstrate, the feeling of Mr Brydon that a very firm line should be taken with ICL was communicated to his subordinates and influenced their own approach to ICL. While it seems that the festering issue of the problem over the funerals project was the main grievance of Mr Melmoth and Mr Brydon, they also felt aggrieved over the quality of the service which ICL had provided to CWS in relation to what were called "break fix arrangements" and in respect of some other system development, as well as "kit refurbishment". The detail of these other occasions of resentment did not emerge during the trial before me. "Break fix arrangements" were, in general terms, support and maintenance arrangements for ICL for ICL equipment installed in the existing CWS stores. The issue so far as they were concerned seemed to be a perception on the part of Mr Brydon that the service was not provided as quickly as he felt it should be.
To escalate the issues to [the chief executive of ICL] who, can u believe it, is currently unaware of the issues we are having! Graham Melmoth is intent on getting his pound of flesh from ICL so watch this space.
On the matter of the funerals system and where we go from here, Keith Brydon will be following this up in conjunction with the general manager funeral services group.
The judge records the fact that Mr Melmoth did not give evidence. In fact CWS did not take proceedings against ICL in relation to the funeral business and there are no later references to this business in the judgment.
369. This action fails in its entirety and is dismissed. For the reason which I have set out in this judgment, it seems to me that the claims made in this action were ill-considered and misconceived. In the absence of a contract between CWS and ICL there could be no question of ICL being in breach of contract or of CWS having been induced to enter into a contract by misrepresentation. The formidable problems of showing a contract seem never to have been seriously addressed before the trial of this action, and even at the trial Mr Mawrey showed no enthusiasm for grappling with them. The whole focus of CWS' case was how outrageous it was that ICL could have conducted itself as it did, as if indignation would carry the claims forward past the legal and factual difficulties. No attention appears to have been given to the issue whether, assuming that the contract for which CWS contended was made out, CWS was in law justified in treating that contract as having been repudiated at the time the decision to proceed no further with the Globalstore project was taken. No one even seems to have looked at CWS' own evidence as to the ground upon which it was actually decided to proceed no further nor to have wondered whether that ground could seriously be presented as acceptance of some repudiation of the contract contended for. In the formulation of the claims for damages elementary principles as to quantification, foreseeability and the circumstances in which allegedly wasted costs can be claimed were disregarded. The approach to considering the quality of the evidence as to causation of alleged loss of profits was in my judgment so far deficient as to involve a wholesale suspension of disbelief The result is that there was not merely a fatal flaw in CWS' case from the outset, but that that flaw was compounded rather than mitigated by looking at other parts of the case. Making the most generous assessment of the totality of the evidence CWS' case was not worth anything like the sum which it needed to be worth to justify the cost incurred in the litigation.
(1) The way in which Mr Mawrey explained the nature of the case in the passage quoted in the preceding paragraph was a considerable departure from the pleaded case. (2) It was also wholly unsupported by any evidence. (3) I have already set out the passage from the witness statement of Mr Hepworth in which he dealt with the making of the decision to cease going forward with ICL. (4) I have also quoted the letter dated 29 January 2001 written by Mr Hepworth to Mr Christou. (5) What seems plain from those two pieces of evidence is that at the meeting with Mr Christou on 26 January 2001 the question of whether ICL was prepared to agree to pay liquidated damages was raised. Mr Christou indicated that ICL was not prepared to agree to pay such damages. (6) On the CWS side the possibility of a cessation of relationships was then brought up. (7) Mr Christou indicated that ICL would be prepared to accept a termination of its association with CWS in relation to the Globalstore project, if that was the wish of CWS, in which event ICL would co-operate in an orderly process of disengagement. (8) In the letter dated 29 January 2001 Mr Hepworth recorded that it was the wish of CWS to proceed no further with ICL. (9) In the result, therefore, any contract between ICL and CWS in relation to the Globalstore project was either terminated by consent or by reason of the failure of ICL to agree to vary it so as to include a provision for liquidated damages. (10) While Mr Hepworth in his letter professed a lack of confidence on the part of CWS in ICL, neither in his witness statement nor in his letter dated 29 January 2001 did he indicate that the reason for termination of any contract was that ICL had failed to do by a particular date something which it had promised to do by that date. (11) Although Mr Hepworth's letter to Mr Christou was dated 29 January 2001, it would seem that the decision to proceed no further with ICL was in fact taken immediately after the meeting on 26 January 2001 in the light of the refusal of Mr Christou to offer that ICL would agree to pay liquidated damages. (12) Consequently, whatever Mr Mawrey now says, it does not appear that in fact ICL doing something by 29 January 2001 was actually critical to CWS at all. (13) Thus even if I had been persuaded that CWS had made out the contract for which it contends, I should have held that ICL had not, as a matter of law, repudiated that contract, because it had not, as at the date the contract came to an end, been in breach of a term of such significance as to indicate that it did not intend to be bound by its contract. (14) Further and in any event, even if I had found that ICL had been in repudiatory breach of a contract, I should have held that CWS had not accepted such repudiation as bringing the contract to an end. (15) Rather the contract was terminated either by mutual agreement or by CWS in breach of contract on account of the failure of ICL to agree to a variation which CWS wanted, namely the introduction of a provision that ICL should pay liquidated damages. (16) For these reasons also, therefore, the claims of CWS in this action fail.
A further meeting took place between Keith Brydon, myself and Richard Christou of ICL on 26/01/2001. Mr Christou was not prepared to commit to penalties for late delivery. It was felt that ICL could not be trusted to deliver Globalstore and that it would be necessary for tCG [ie CWS] to look elsewhere for an IT solution for the historic CRS stores. Keith Brydon prepared a briefing note confirming this position…
This has, as ICL has known, always been a time critical project and, in terms of delivery of the Society's retail business plan, time is now at an absolute premium. Accordingly, and despite your offer of personal involvement, I must tell you that we have lost confidence in ICL to the point that the limited time we have at our disposal will not be best spent in giving ICL further opportunities to rescue the Global Store project from its present low point.
You said that, if the Society's decision was to proceed no further with ICL, then we should turn the focus of our working relationship to an orderly disengagement process, and I would now wish to receive ICL's proposals for this. However, you should understand that, as I do not see our respective organisations as having been equally culpable, I do anticipate the wind-down arrangements involving some compensation for the Society…
1.52 KB [Mr Brydon] said that he had no faith in the delivery guarantee. JH [Mr Hepworth] reiterated this point.
1.53. BD [Barbara Dixon of ICL] said that on the back of the previous meeting ICL went away and reviewed the plans, and decided that the guarantee of 29 January 2001 could not be achieved. Hence there is a one week slip in the revised plan.
1.54. KB asked if ICL understood the implications of last week's meeting including the potential penalties.
1.55. DC [Mr Christou] replied "Yes".
- In para. 78 the judge refers to the reluctance of Mr Brydon to deal with ICL "at all", and to his "antipathy towards ICL as a result of the real or imagined grievances" to which he had earlier referred.
- In para. 100 the judge in effect repeats the finding made in para. 75, expressing himself as entirely satisfied:
that the determining factor influencing him [Mr Brydon] and CWS in deciding to proceed with ICL and Globalstore was the desire to mitigate the effects of the fact that CWS would, on the transfer of the engagements of CRS, inherit the liabilities of CRS under the CRS Agreement.
- Later in para. 100 the judge describes Mr Brydon as "antipathetic towards ICL", as "dealing with ICL with reluctance", and as being "on the look-out for any serious opportunity for CWS to terminate its connection with ICL". He goes on to find that:
.... [t]he rigid insistence of Mr Brydon and other senior executives of CWS upon the agreement of ICL to pay liquidated damages was .... largely a reflection of this animosity. (Our emphasis)
- In para. 104 the judge finds that Mr Brydon's "real view" was that the change from ISS400 to ISS300 in order to deliver dividend functionality:
.... might provide the chink in the ICL corporate armour for which he was looking in order to justify putting an end to all further dealings with ICL without thereby exposing CWS to liability under the CRS Agreement. (Our emphasis)
- In para. 112, referring to Mr Brydon's e-mail dated 8 June 2000 to (among others) Mr Goodby, in which Mr Brydon referred to suing ICL for the "Funerals fiasco", the judge concludes that the reference to the "Funerals fiasco":
.... only serves to highlight how large in the thinking and attitude of Mr Melmoth and Mr Brydon so far as ICL was concerned that episode, whatever it was, loomed.
- In para. 119 the judge returns once again to the finding which he made in paragraph 75, saying:
It is plain, in my judgment, that by this stage [June/July 2000] Mr Brydon was looking to ICL to slip up in a way which could be used as a justification for terminating all further involvement with it without exposing CWS to the need to pay any compensation for the termination of the CRS Agreement.
- In para. 121 the judge finds that:
.... from about the beginning of December 2000 Mr Brydon was plotting the downfall of ICL and its replacement by PCMS.
- Later in para. 121, the judge says:
It seems to me that the reality is that far from it being the anticipated failure of ICL to deliver software of satisfactory quality that prompted the drafting of [the letter referred to in Mr Brydon's covering e-mail of 8 December 2000 as ["the go away letter"], it was exactly the opposite fear, that the software would be of satisfactory quality, that prompted the drafting of the letter. By this stage, in my judgment, Mr Brydon, at least, had decided to use the Globalstore project as a means of seeking revenge against ICL for the grievances real or imagined to which I have already referred. (Our emphasis)
(It is to be noted that although in paras. 119 and 121 the judge uses the words "by this stage" – referring, in para. 119, to June/July 2000, and in para. 121 to early December 2000 – his finding in paras. 75 and 76 is that from the outset of the negotiations this was CWS' only motivation.)
- In para. 148 the judge finds that Mr Brydon was "always astute to find fault with ICL if he could". He goes on:
It suited his purposes for Mr Young to overlook a vital aspect of equipping ICL to progress the Globalstore development work so that Mr Brydon could be able [sic] to criticise ICL for failing to meet its estimated dates for completion of various activities.
- In para. 210, the judge concludes that a report may have come as a disappointment to Mr Brydon:
.... in the context of his aim of ridding himself and CWS of ICL as long as he could at the same time rid CWS of the obligations accepted by CRS under the CRS Agreement.
- In para. 220, in the context of the issue as to the quality of the software delivered on 17 October 2000, the judge says:
.... it is difficult to resist the conclusion that it was convenient to Mr Brydon to be able to assert to Mr Christou that there had been a rejection in order to manoeuvre for advantage in his continuing campaign to relieve CWS of the need to deal with ICL without incurring any additional liability under the CRS Agreement
- In para. 233, in the context of the process of UAT (user acceptance testing) in November 2000, the judge repeats his finding in paragraph 121 that Mr Brydon was:
.... plainly continuing to manoeuvre to get rid of ICL, preparing a 'go away' letter as early as 8 December 2000.
- In para. 249, the judge describes Mr Brydon's letter to Mr Christou dated 5 January 2001 as "designed to engineer what proved to be a showdown between ICL and CWS", and as "deliberately drafted with a view to upsetting Mr Christou."
- In para. 255, referring to the meeting on 19 January 2001, the judge says:
In fact, unknown to Mr Brouwer at the time, CWS, or at least Mr Brydon and Mr Melmoth, had been plotting what they conceived to be the downfall of ICL for months previously.
- In para. 258, the judge, referring to conversations between Mr Brydon and Mr Brouwer, says:
It seems to me that Mr Brydon heard what he wanted to hear, and what it suited his purpose of justifying terminating relationships with ICL to hear ....
Further, I do not accept that Mr Brydon or any of the witnesses on behalf of CWS, whatever they now say, ever considered that a fresh agreement had been concluded between CWS and ICL. (Our emphasis)
.... understood perfectly well during the course of the negotiations that no agreement had been reached.
Once more I regret to say that I just cannot accept the evidence of Mr Brydon …. No sane and sensible person, and certainly not a person with the duties and responsibilities of Mr Brydon would, one month before it was anticipated that the need to send it might arise, spend time not only drafting, but also seeking comments upon and legal advice in relation to, a letter which might not need to be sent.
This conclusion overlooks the fact that the draft letter contemplated that it would be sent "next week". We would in any event question whether "no sane or sensible person" would prepare in advance for the possible failure of a contract.
That [e-mail] I find was a wholly disingenuous communication. It misrepresented what the problem in fact was, suggesting that what was presented as the problem was simply an excuse. I find that Mr Brydon knew perfectly well what the nature of the problem was and that it was a genuine problem for ICL.
completely out of his depth as project manager of the Globalstore project on the CWS side.
That form of words .... seems to me to be merely indicative of Mr Young's command of 'management speak' being regarded by CWS as a sufficient qualification for his role as project manager of an extremely important project and his own lack of the appropriate drive and initiative for the role which he was supposed to be carrying out.
supine attitude to problems in the project which he was supposed to be managing.
.... Mr Young's general approach to any problem seems to have been simply to have a meeting.
[a]ll of this appears to have eluded Mr Young.
.... the inability of Mr Young to assess properly and resolve firmly the problems which were encountered with the project which he was supposed to be managing.
.... simply telling lies in order to try to support CWS' case that ICL's performance in relation to the Globalstore project was lamentable.
The terms of the e-mail do seem quite extraordinarily belligerent in the context of what should have been a civilised commercial negotiation. It is difficult to resist the conclusion that what Mr Goodby had in mind was provoking a crisis in the negotiations which would be likely to lead to a breakdown.
It is impossible to resist the conclusion that Mr Cook was prepared to support the case of CWS for reasons of his own with evidence which I am satisfied he knew to be false.
It is a worrying feature of this case that significant evidence, in particular in relation to the issue whether Mr Young appreciated that drop 1 would not have been subject to validation by ICL and as to the testing on behalf of CWS of software delivered by ICL, has been led on behalf of CWS which the witnesses giving it must know to be false.
I also suspect that the functionality we have developed will be a poor fit to CWS's requirements/expectations ..... Please be prepared for the shit to hit the fan.
The e-mail concludes:
So, I think the crisis is on us.
Mr Jennings copied the e-mail to Mr Murphy (of ICL), who agreed that the software was:
.... not in a fit state to be released to the customer.
Mr Mawrey thought it appropriate to cross-examine both Mr Jennings and Mr Ogston along the lines, "How did ICL come to deliver such poor quality software in drop 1?" In fact he was inclined to use the word "rubbish" to describe the quality of the software. I do not know what answer he was expecting to his questions. I doubt that he was expecting any of the ICL witnesses to say that a drop known to be defective was consciously sent to CWS in order to cause vexation. Perhaps he was expecting someone to say, "All right, Guv, it's a fair cop". If that was his expectation, he was disappointed.
I am satisfied that ICL did indeed make considerable efforts to produce a drop 1 in useful condition, albeit not validated, and that the decision of Mr Hevican [of CWS] to reject the drop was based on a misunderstanding as to what had been contemplated and discussed.
In all the circumstances, and in particular given that it was not supposed to be validated, it does not seem to me that there is any proper criticism which can be made of the performance of ICL in relation to the quality of the software delivered in drop 1.
274. …His opinion that in early 2000 Globalstore was more of a concept than the product was not shared by any of the ICL witnesses who were asked about it. His conclusion that the reason for changing from ISS 400 to ISS 300 was a lack of appropriately skilled resources, although part of the picture was a long way from being the whole of it. It is diffuclt to resist the conclusion that the Root Cause Analysis was a superficial undertaking which reached glib conclusions for a number of which there was little basis in fact., At all events I do not find that the report was of any assistance to me in making the findings which I felt I should make as to the progress of the Globalstore project.