England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		15th October 2002

Mr Justice: TOULSON

1. This is an action for damages for breach of contract estimated by the claimant at £18,000,000. The trial has been limited to questions of liability.
2. Three defences have been raised. The first is that there was no contract. If there was a contract, the second and third defences are that it was subject to an unfulfilled condition precedent and that it was procured by misrepresentation.
3. The action was originally brought by Akura Distribution Ltd against World Online UK Limited and World Online Limited. The original claimant has since gone into voluntary liquidation and has assigned its rights in respect of the claim to Spectra International Plc. The first defendant has subsequently changed its name to Tiscali UK Limited. Nothing turns on the distinction between the defendant companies. For convenience I will refer to the parties as Akura and World Online.
4. Akura was run by two brothers, Beri and Henny Goldenberg. The company's business was wholesaling electrical goods including televisions. For many years it dealt with Turkish manufacturers called Telra. Akura's biggest retail customer for televisions was the mail order group Littlewoods.
5. In early 2000 Telra told Akura that it was developing an internet television, i.e. a television incorporating a fairly simple form of computer which could be used for connecting to the internet and for sending and receiving emails. The same equipment could alternatively be supplied in a separate set top box, which could be connected to a television and used for the same purposes. The Goldenbergs were very interested in the idea and approached Littlewoods, who were equally interested in the idea, particularly because of the possibilities which it would offer for internet home shopping. Littlewoods were already intending to buy a 14-inch internet television from a competitor of Akura, but Telra's sets would be larger. Littlewoods were familiar with Telra's televisions because they were already buying them through Akura.
6. Access to the internet would require the involvement of an Internet Service Provider (ISP). Akura approached various companies including World Online. In March 2000 World Online had been publicly floated. In the words of its chief executive at the relevant time, Mr Simon Preston, it was "sitting on a lot of cash" (day 4, p. 25).
7. Mr Quentin Birchall, the managing director of World Online's business division, gave this description of the general state of the internet market at that time (day 3, p. 167):

"It was a rapidly growing market whereby the growth of the users on the internet was very high. So people were signing up the internet in a rapidly growing market. Therefore, the marketing strategies tended to be: get as many customers as you can as quickly as you can and take as much growth as possible. And, once you have got them, try and hold onto them. But it has been difficult in the market to actually retain customers because customers have very little loyalty and so would tend to change around."

The alleged contract

8. Akura's primary case is that at a meeting on 5th September 2000 between Mr Henny Goldenberg and Mr Jeremy Stokes, World Online's consumer director, the parties made an oral contract containing the following terms:

a) World Online would be the ISP for all internet televisions and set top boxes sold by Akura to its retail customers including Littlewoods;

b) For each internet television or set top box sold by Akura it would receive from World Online a payment of £100;

c) Weekly declarations of sale quantities would be made by Akura every Friday and payment would be made by World Online on the following Friday;

d) World Online's homepage access telephone number and telephony access code would be directly or indirectly "hard-coded" into the products;

e) Akura would promote World Online's telephony in the products with brochures being supplied by World Online;

f) The homepage would be the World Online homepage with a facility for a link button to retailers.

9. It is accepted by Akura that there was no discussion at the meeting of 5^th September 2000 about termination, but it is Akura's case that the agreement was by implication terminable on reasonable notice.
10. If no contract was concluded at that meeting, it is Akura's secondary case that a contract was concluded at a meeting on 27^th September 2000, attended by Mr Henny Goldenberg on behalf of Akura and Mr Stokes and Mr Steve Sadler on behalf of World Online. On that occasion it is alleged that there was no discussion or re-negotiation of the financial terms which had already been agreed, but that the parties agreed the following additional terms:

a) That only 10,000 sets would be produced for an initial 6 to 8 week period;

b) That the contract would be yearly;

c) That a 3 to 4 week period would be required to finalise technical arrangements between the parties before sales could commence.

11. World Online denies that a contract was concluded on either 5^th or 27^th September 2000. Its position is that the parties were in negotiation with one another but were some distance from reaching agreement on all necessary financial and technical matters; and that it was also understood between the parties throughout their negotiations that any binding agreement had to be in writing.

The alleged condition precedent

12. If there was a contract between the parties, World Online contends that it was a condition precedent, implicit from the parties' discussions, that Littlewoods would be a retailer of the products. That condition precedent was never fulfilled, for Littlewoods never entered into an agreement with Akura to buy the products or placed any orders for them.
13. Akura's case is that Littlewoods' involvement as a retailer was a matter of expectation at the time when a contract was concluded between the parties, but it was not a condition precedent.

The alleged misrepresentations

14. World Online also alleges that any agreement which may have been made between the parties was induced by misrepresentations on the part of the Goldenbergs that:

a) a contract between Akura and Littlewoods had been reached (or indicated by Littlewoods as likely to be reached) by which Littlewoods would retail the products;

b) Littlewoods had agreed (or indicated that it was likely to agree) that World Online would be the ISP in respect of the products. (Mr Thanki indicated that World Online no longer relied upon this head of misrepresentation following conclusion of the evidence);

c) Littlewoods had placed orders (or decided to place orders) with Akura for internet televisions;

d) Littlewoods had reserved a place (or decided to reserve a place) in its spring/summer 2001 catalogue for Akura's internet televisions.

15. Akura's case is that Littlewoods had led Akura to understand that Littlewoods would be retailing the products, with World Online as the ISP, and had decided to allocate a page to the product in the spring/summer 2001 catalogue. It is admitted that between the 5^th and 27^th September Akura told World Online that Littlewoods had placed orders for the products and that this was an "embellishment", i.e. untrue, but it is denied that this statement induced the contract (either because the contract had already been made or, if not, because it did not influence Mr Stokes).

Witnesses

16. Evidence for Akura was given by Mr Henny Goldenberg, Mr Beri Goldenberg, Mr Eldan Goldenberg, Mr Ken Teague and Mr William Menagh.
17. Mr Eldan Goldenberg is Beri's son. He is self-employed as an internet web designer. He was brought into the project by Akura on a part-time consultancy basis.
18. Mr Teague was Akura's technical manager, but this was his first project involving the internet. It was because of his inexperience in this field that Mr Eldan Goldenberg was brought in to help.
19. Mr Menagh is now retired. From 1998 until September 2000 he was employed by Littlewoods as buying merchandise director for electrical and electronic goods. From September 2000 to February 2001 his job was changed to that of buying development director.
20. Evidence for World Online was given by Mr Simon Preston, Mr Quentin Birchall, Mr Jeremy Stokes, Mr Steve Sadler, Mr Alan McCann and Mr Greg Ball.
21. Mr Preston, Mr Birchall, Mr Stokes and Mr Sadler were employees of, or provided contractual services to, World Online during the relevant period.
22. World Online was going through a time of transition, with various changes of responsibility among senior personnel. In about August 2000 an Italian company, Tiscali, announced its intention of taking over World Online. As Mr Preston explained, Tiscali was essentially acquiring World Online because it wanted access to the cash World Online had raised in its flotation. Tiscali's formal offer to World Online's shareholders was announced on 6^th November. The offer period ended on 6^th December 2000. The offer was supported by World Online's board and was successful.
23. Mr Stokes joined World Online in about March 2000. Before that he had been managing director and joint owner of a small but growing internet company called Local Tel. In March 2000 Local Tel was sold to World Online and the business renamed World Online Telecom. Mr Stokes joined World Online as managing director of World Online Telecom. He became World Online's managing director of consumer services in or around September 2000 and left shortly after Christmas.
24. Mr Stokes took over primary responsibility for negotiations with Akura from 24^th August 2000. He took the matter over from Mr Murray Treece, World Online's commercial director, who had been doing the main negotiating with Akura up to that point. World Online served a witness statement by Mr Treece but did not call him.
25. Mr Sadler was employed in Mr Birchall's department, which was the business division of World Online. He was not a technician but had technical knowledge.
26. Mr McCann and Mr Ball both worked for Littlewoods. Mr McCann was the group buyer responsible for buying products including televisions. His superior was Mr Menagh. Mr Ball was the e-commerce and publishing director.

Events prior to the meeting on 5^th September 2000

(i) Discussions between Akura and Littlewoods

27. Discussions between Akura and Littlewoods began at a meeting on 11^th April. Those present included Mr Beri Goldenberg, Mr Menagh and Mr McCann.
28. In May Mr Beri Goldenberg accompanied Mr McCann and another Littlewoods representative on a visit to Telra's factory in Turkey. At this stage Littlewoods were keen to implement a strategy for the introduction of internet shopping. Mr McCann's report was generally positive but contained some reservations.
29. There were several further meetings between representatives of Akura and Littlewoods between May and August. Mr Beri Goldenberg and Mr McCann were present at all of them. Mr Menagh and Mr Ball were present at most of them, but not at two meetings which are particularly relevant to the allegations of misrepresentation made by World Online. Those meetings were on 7^th June and 22^nd August.
30. According to Mr Beri Goldenberg, at the meeting on 7^th June Mr McCann told him that Littlewoods were going to feature the Akura internet television in their next year's catalogue (2001), and he recorded the words "next year web tv is in catalogue" in a note which he made during the meeting. Mr McCann's evidence was that he said no such thing.
31. An issue which arose at meetings between Akura and Littlewoods on 23^rd May, 13^th June and 25^th July, was who should be the ISP for the internet televisions. Mr Ball, Littlewoods' e-commerce director, wanted Littlewoods to have a single ISP for all internet products. At the meeting on 25^th July Mr Ball was undecided who it should be. On the following day he had a telephone conversation with Mr Treece and gave World Online the opportunity to put a proposal directly to Littlewoods. Mr Treece responded with an outline proposal on 1^st August.
32. On 9^th August Mr McCann emailed Mr Beri Goldenberg as follows:

"As for the internet TV, I am still waiting for Greg Ball to come back to me with his proposals. He also has to work on re formatting out websites so that they can be viewed on a tv screen. Beri, I am as frustrated as you on this and can only apologise for the delays.

I think we should launch anyway with AOL / WOL non customised just to get the thing up and running. After all that's what we are doing with Bush this autumn."

33. On 22^nd August Mr Beri Goldenberg and Mr McCann had a further meeting.
34. Mr Beri Goldenberg recorded in his note made during the meeting that "Alan [McCann] will give web tv full page in ss2001" (spring-summer 2001 catalogue), and he gave evidence affirming the accuracy of the note. He also said, as his note recorded, that Mr McCann told him that the sales of the rival Bush product were not great, and that they agreed prices for the Akura products.
35. Mr McCann's evidence was that at most he may have agreed the prices proposed by Mr Beri Goldenberg in principle, but that he said nothing to the effect that space had been reserved for Akura's product in the ss2001 catalogue. He would not have said any such thing since he had not in fact made any such reservation and by 22^nd August it would have been extremely difficult for space to have been made in the catalogue to accommodate these products. The only catalogue in which the products might have appeared before autumn 2001 would have been a supplementary brochure during the spring/summer season.

(ii) Discussions between Akura and World Online

36. After an initial meeting on the 27th April between Mr Beri Goldenberg and a representative of World Online, the role of main negotiator for World Online was taken on by Mr Treece.
37. On 26^th May Mr Treece emailed Mr Beri Goldenberg as follows:

"I believe the STB you are using is the NetGem box – we have tested it and think it is a very nice, high spec model.

Over the last few months we have been building a back end infrastructure to enable us to do just this type of business, as what many people don't realise is that different equipment is needed at the ISP end to enable these devices to work at their best.

The only thing that I can see that may cause an issue is the amount I believe that you want someone like us to pay per box. I understand your desire to offset some of the price to make the end-user price point attractive, but would need to have a discussion about this…"

38. He was correct in his identification of the set top box (STB) being used by Akura. There followed a period of negotiations over price. Mr Treece was undoubtedly keen on the project because he saw it as an opportunity to log in to a large number of Littlewoods customers, as is apparent from a rare internal email which he sent to Mr Preston and Mr Birchall on 7^th July. I refer to it as a rare email, as there is a surprising shortage of notes of meetings or other internal documents on World Online's side.
39. On 15^th August Mr Henny Goldenberg emailed Mr Treece as follows:

"I am referring to our phone conversations on Wednesday 9^th August when I explained to you that in order to accelerate the process we have decided with the TV buyer at Littlewoods that we will be supplying them with the Web TV including the ISP in the same way as Bush are supplying their TVs. Therefore the ISP deal has to be between Akura and WOL [World Online]….

We will be reporting to you on a weekly basis on the quantities of TVs that we have delivered to Littlewoods and other retailers in the UK and you will be paying us the agreed fee per TV set on the next Friday. We both agreed on the telephone that there is not really a risk that TVs that have been bought by a retailer will not be sold to consumers."

40. Mr Henny Goldenberg's evidence was that he and Mr Treece had discussed, as he said, the risk of sets bought by Littlewoods or any other retailer remaining unsold to consumers and had concluded that it was not a serious risk. This evidence was uncontradicted, because Mr Treece was not called.
41. In his email of 15^th August Mr Henny Goldenberg went on to ask Mr Treece to put forward World Online's final offer on various bases, depending on the facilities which the customer would have to agree to take. The email concluded:

" As soon as we hear from you we will set up a meeting with the Littlewoods buyer with a view to finalising the order. As you are aware they have already reserved a full page for this TV set in their next catalogue."

42. Mr Treece replied on 21^st August:

"My apologies for not getting back to you sooner.

We would very much like to do the Littlewoods (and other business) with Akura. I would like to propose that we try and keep it simple, to enable you to go to the discussion with Littlewoods tomorrow with a clear and concise offering. I would also like this to be an offer that is presented directly to Littlewoods as a deal that we have with yourselves directly, that you can offer to any retail customer.

We would have to look together at the detail, but in short, we would be prepared to offer you £80 per user. This would be for WOL being the ISP with us being able to make the decision on price points etc. We would give your retail partner (Littlewoods in this case) some co-branding on the homepage with links through to their e-commerce facility etc.

If your retail partner was able to offer us additional benefits, such as CD distribution or mandatory telephony etc, then we would add £10 for each qualified benefit, i.e. £100 if both telephony and CD distribution were part of the offering.

I hope that this gives you enough information for tomorrows meeting."

43. It was on the following day that Mr Beri Goldenberg had his meeting with Mr McCann at which, on his evidence, he put forward and agreed prices.
44. On 24^th August Mr Treece emailed Mr Sadler, Mr Stokes and Mr Beri Goldenberg:

" As you know I am away until the 4^th September. I have tried to speak to all of you, but this is to clarify some things that we need to do over the next week to progress this project. Time is of the essence!

The fundamental idea is that Littlewoods are too caught up in their own politics to make a strategic decision. Akura are an authorised product and the buyers have a page reserved for this product and it is going to happen. We have the opportunity for WOL to be the ISP on the TVs (and Akura are talking to NetGem about separate STBs). We have offered £80 per box and an additional £10 if our telephony service is made mandatory. Henny would like to push this to £100 and he needs to reach a certain price point and needs this movement from us as well as movement from themselves, NetGem and the manufacturer.

We need to:-

Confirm the amount.
Sort the method/frequency/verification for payment.
Work out the best way to execute the telephony offer.
As well as then the stuff mentioned below: -

Jeremy – we have failed to make contact to date. I hope that this email explains most things. As these customers are ultimately yours, you should have the final say – this mail summarises my recommendations – can you please talk to Henny at Akura to finalise the deal and draw up a contract or at least heads of terms. It is ultimately your call!!

Steve – please press ahead with getting the sample kit, testing the mail/registration etc. Can you also look at the content side and speak to the relevant people at our end on that subject. Remember that we want an amount of "retailer" (Littlewoods in this case) branding/links on the homepage.

Steve – can you also work with Andrea [Strommer, Akura's marketing manageress] at Akura on the information they need for the manuals/telephony offer etc."

45. On that note Mr Treece departed from the scene, and he played no part in subsequent events.
46. On 25^th August Mr Henny Goldenberg responded by email to Mr Treece's parting message:

" Thank you for your email message of yesterday.

I wish to confirm that in principle we agree with what you say. However, I would like to add two points to avoid any misunderstandings:

1. This deal is not limited to sales to Littlewoods. They will be one of our customers but we will be distributing the product to other retailers as well as in the UK and Ireland.

2. The amount of GBP 100 is imperative for the calculation to work out. I know that you recognise this and that you have recommended it. We need your urgent confirmation of this point so that "we can push the button"."

47. On 30^th August Mr Teague and Ms Strommer travelled to World Online's offices in Cheshire for a technical meeting with Mr Sadler. She produced notes of the meeting which were typed and sent to Mr Sadler. One of the points noted was:

"WOL urgently request supply of many more samples up to 10 receivers. This is for use by WOL for field test, field trial and development."

48. In the event Mr Teague was unable to send production samples to Mr Sadler until October.

The meeting on 5^th September 2000

49. Mr Henny Goldenberg and Mr Stokes met at World Online's premises in Mayfair. Nobody else was present. Mr Henny Goldenberg had made notes in advance and made notes during the meeting. Mr Stokes did not recall making any notes. If he did, they have not survived. World Online's in-house legal counsel, Mr Scott Marshall, said in a witness statement made in response to a disclosure application by Akura:

"At the time of the discussions with Akura, World Online was not only undergoing radical changes in terms of growth and change of identity, it was also faced with the challenge of operating in the rapidly expanding internet market. As a result it was extremely difficult to put in place and implement formal procedures governing the day to day business of the company since, inter alia, World Online was a very new company at the time of the negotiations and was only beginning to develop its internal procedures; and from January 2000 the formulation of procedures within World Online was disrupted by the mergers described [elsewhere in his statement]. The result was that throughout 2000 there were no standardised record-keeping systems or procedures in place that one might expect of a more mature company or a company in an industry other than the internet service provision sector."

(i) Mr Henny Goldenberg's account

50. Mr Henny Goldenberg's evidence was that after preliminary introductions Mr Stokes asked whether World Online's internet access number and homepage would be "hard coded" into the chip or on the smart card. This echoed a point which had been raised by Mr Sadler at the meeting of 30^th August. World Online's concern was that customers should not be able to switch to a different ISP. Mr Henny Goldenberg did not know the answer to the question. However, he promised Mr Stokes that, one way or another, it would be ensured that customers would not be able to migrate, and the rest of their discussion proceeded on that basis. Mr Stokes told Mr Henny Goldenberg that World Online's telephone code would need to be pre-programmed and dialled before its internet access telephone number, so that it could obtain additional telephony income, and he agreed that World Online would design a custom made homepage for each retailer to whom Akura sold the internet television or set top box. According to Mr Henny Goldenberg, Mr Stokes then confirmed that World Online would pay the sum of £100 for each internet television or set top box sold, i.e. the sum for which Akura had been holding out. Mr Stokes also agreed to the proposal which Akura had made for Akura to make weekly declarations of sales and for payment to be made in the following week.
51. Mr Henny Goldenberg's evidence on these points was supported by his notes in the meeting in the form of bullet points, which began as follows:

"WOL – Jeremy Stokes (Director Consumer Business) Can phone number + homepage be hard coded into chip or is it in the smart card? Phone code 1401 Design of custom page for each retailer £100 confirmed Payment weekly declarations + payments in week 2"

52. They then went on to talk about other matters, on some of which (such as details of World Online's registration process) Akura needed further information. At the end of the meeting, which lasted between half an hour and an hour, they agreed that both sides would sign a confidentiality letter and that a written contract would be prepared, which Mr Stokes would ask World Online's lawyer to draft. His notes concluded "contract will advise date tomorrow".
53. In his witness statement Mr Henny Goldenberg said:

" At the end of our meeting Jeremy Stokes expressly acknowledged that we had reached an agreement. He and I then agreed that the terms we had agreed together with other details should be set out in a written contract."

54. During his oral evidence I asked him for his clearest recollection of what was actually said about having reached an agreement. His answer was:

"The clearest recollection I have and, it is a long time, is I said "We have been listed by Littlewoods, we do not want to let them down, can we continue with this agreement?", and he said "yes"".

(ii) Mr Stokes' account

55. Mr Stokes denied reaching any agreement on price. In his witness statement he said:

"There is no way that I would have agreed a subsidy of £100 with no condition or requirement that it was in respect of active users of the internet service. That would have been commercial folly."

56. In his oral evidence he went further. He said that Mr Henny Goldenberg asked for a subsidy of £100 per box to be paid in advance, based on a weekly declaration system with payments the following week, but he rejected the proposal and counter-proposed a payment of £100 per active user, provided that a means was found of substantiating that the customer was an active user. Mr Henny Goldenberg rejected his counter-proposal. Mr Stokes hoped that the matter might be resolved through further negotiations, but there was no further discussion of price at that meeting and they turned to other matters. He could not recall, and did not believe there would have been, any talk of preparing a written contract when the parties had not agreed on commercial terms, but they did agree to having a two way non-disclosure agreement.

The period between 5^th and 27^th September 2000

57. On 6^th September Mr Beri Goldenberg emailed Mr McCann, thanking him for including Akura's internet television for spring/summer 2001. He also enquired what deliveries Littlewoods would require in November and December.
58. On 7^th September Mr Henny Goldenberg emailed Mr Stokes:

"It was nice to meet you on Monday and I feel basically that we have agreed on all points.

You were going to give the replies to a few questions that I had and I would appreciate it if you could please deal with those issues today.

Also you were going to speak to your lawyer in order to prepare a draft contract. Please let me know the schedule for this.

Time is of the essence as we are approaching the end of mail order selections for the spring/summer 2001 catalogues and we have to have a signed contract with you so that we can confirm orders to our customers."

59. There was no reply to this email. Mr Stokes' explanation was that he did not read it because he was too busy, an explanation which he also gave for not replying to a number of other emails sent to him around this time.
60. On 9^th September Mr Henny Goldenberg emailed Mr Stokes:

"I have not heard from you since our meeting last Monday and we have not made any progress on the outstanding issues and on signing the contract.

As we have reached an agreement on all conditions we are now going full steam ahead and collecting orders. Please let me know in what time frame you are now proposing to answer the outstanding questions and finalise the contract."

61. Mr Stokes remaining silent, on 13^th September Mr Beri Goldenberg emailed Mr Birchall:

"Based on our agreement we have now accepted listings and orders from Littlewoods.

We must very urgently move on getting the Homepage etc working as we do not want to be late on any deliveries etc."

62. The statement that Akura had accepted orders from Littlewoods was acknowledged by Henny and Beri Goldenberg to be "an embellishment". The truth was that Akura had invited, but not yet received, orders from Littlewoods.
63. On 14^th September Mr Henny Goldenberg sent a further and more pressing email to Mr Stokes. He said:

"I am quite disappointed that you have not been returning my phone calls recently. In order to avoid any misunderstanding I would like to outline here below brief details of the agreement that we have reached. You must understand that based on this agreement we are going full steam ahead and we are accepting orders. Having said that, unless you start to work on your side of the deal there will be delays which we are not prepared to accept."

64. He then set out details of the terms which he said had been agreed, beginning as follows:

"1) For each set top box or internet TV that we sell you will pay us the amount of GBP £100.

2) We will make weekly declarations to you on Fridays of our weekly sales quantities. You will pay us on the next Friday."

65. On 15^th September Mr Birchall emailed Mr Beri Goldenberg:

" I am very hopeful that we can come to agreement on a deal. For clarity, Jeremy Stokes (MD World Online Consumer) needs to agree and sign off any deal, and I know that Jeremy has been in touch with Henny today with a view to agreeing commercial terms with which both companies are happy. Once this has been agreed we will need to meet to develop and agree an implementation plan, so that we can commit to delivery dates. I appreciate your frustration and the need to reach agreement as soon as possible, and will [do] all I can to help."

66. On the same day Mr Stokes phoned Mr Henny Goldenberg to say that his chief executive officer was concerned that there was no history of the percentage of purchasers of internet television sets who would register with World Online. Later that day Mr Henny Goldenberg emailed Mr Stokes:

"In our existing agreement you have shared with me this morning that your CEO is concerned that there isn't a history of what percentage of purchasers of the set will be registering with WOL.

We have discussed this with the manufacturer and found what I believe is a very good solution. The set will be programmed in the factory in such a way that the full TV functions will not work until the consumers register with WOL. This means we eliminate your concern. "

67. On 18^th September Mr Beri Goldenberg sent an email to Mr Birchall saying that "we must get into the nitty gritty very speedily as we have an order and must ship in October".
68. Akura had not received any orders at that stage. Littlewoods had not replied to Mr Beri Goldenberg's email of 6^th September or to a further email which he had sent on the 16^th September, asking for an indication of Littlewoods' web quantities for November, December and January.
69. Later on 18^th September Mr Beri Goldenberg received an email from Mr McCann saying:

"I cannot confirm internet until Tony [Colebourn] has signed off the product. Please send the sample ASAP."

70. Mr Colebourn was employed by Littlewoods as a quality assurance technician. Littlewoods had asked Akura for a sample of the product but had yet to receive it.
71. On 22^nd September World Online sent Akura a non-disclosure agreement, which was duly executed by both parties.

The meeting on 27^th September 2000

72. Mr Henny Goldenberg's second meeting with Mr Stokes was again at World Online's Mayfair offices. It had been mutually understood that World Online's lawyer, Mr Marshall, would be present, but he did not attend and could not be found. Also present was Mr Sadler, whom Mr Henny Goldenberg had not expected to see. As usual Mr Henny Goldenberg made notes during the meeting. Mr Sadler's evidence was that he would also have made notes, but they had not been kept. Mr Stokes either made no notes or his notes have not survived.
73. Mr Henny Goldenberg's evidence was that in Mr Marshall's absence their discussion was mainly about technical matters. No attempt was made to negotiate or renegotiate price, but it was agreed at Mr Stokes' request that the volume of sales would be restricted to 10,000 sets during the first six to eight weeks of sales, because World Online would need some lead time to meet the anticipated demand. They also agreed to make the contract yearly, but there was no specific discussion about the commencement date. Mr Henny Goldenberg recorded in his notes "Restriction 10K sets 6-8 weeks. Yearly contract." Mr Sadler said that he needed three to four weeks to finalise the "back end", i.e. the technical work necessary for World Online to act as the ISP. He also repeated his request for a sample.
74. Mr Stokes agreed in evidence that during the meeting there were only limited commercial discussions. He accepted that Mr Henny Goldenberg was asking that it should be a yearly contract. The question how long the contract should be was not, as he put it, "high on my list of priorities", because they had not agreed on more fundamental details, but he accepted that he did not say that to Mr Henny Goldenberg.
75. Mr Sadler's evidence was that there were commercial discussions at the meeting, but he could not recall the details. He was focusing on the technical side. He was sure that nothing was said which could have amounted to the parties reaching an agreement. He could not recall whether anything was said which was inconsistent with a deal having already been done.

Events after 27^th September 2000

76. The story after 27^th September can be shortly told. Each side relied on different bits and pieces in support of their respective cases, but I do not consider any of them crucial in determining what was said (or the legal effect of what was said) at the meetings on 5^th and 27^th September or the truthfulness of the representations made by Akura to World Online about Littlewoods.
77. On 3^rd October there was a technical meeting between Mr Teague, Mr Eldan Goldenberg and Mr Sadler. World Online had yet to receive any sample. It was not until around 11^th October that a sample was finally supplied in working order.
78. A sample was supplied to Littlewoods in late September or early October. On 6^th October Littlewoods' quality assessment engineer, Mr Colebourn, produced a rather critical product evaluation report, in which he recommended that the product should not be considered until the autumn/winter 2001 season. This was a set back, but not one which Mr Menagh would have regarded as insurmountable (although he was not shown the report at the time). The matter was discussed between Mr McCann and Mr Beri Goldenberg in Hong Kong on 11^th October. Subsequently Akura provided Littlewoods with further samples.
79. On 26^th October Akura issued a press release, with World Online's approval, announcing that it was launching a range of internet TVs and that World Online was the ISP.
80. On 3^rd November there was a meeting between Mr Stokes, Mr Sadler, Mr Marshall and the Goldenbergs. The Goldenbergs' evidence was that Mr Stokes started the meeting by saying, for the first time, that he would need to present the deal either to his chief executive or to the board. He went on to say that, after reflection, he did not want to inform the board that World Online was going to pay £100 per set and that he would rather present it as an arrangement under which there would be a two stage payment, producing £100. The Goldenbergs did not mind how the matter was presented, as long as they received £100 per television set or set top box. It was left that World Online would come up with a formula and that Mr Marshall would go ahead and draft a contract.
81. Mr Stokes' evidence was that he was sure that he would have mentioned on a previous occasion that he would have to present the matter to the board, and that as far as he was concerned they were still at the negotiating stage. He was presenting a proposal which might have resulted in Akura getting less than £100 or more than £100. Mr Sadler's evidence was that he recalled there being commercial discussions in which World Online offered a lower figure than £100 to be followed by an amount to be paid per usage and that they were going to put a proposal to Akura after the meeting. Mr Marshall was not called as a witness.
82. On 8^th November Mr Marshall told Mr Henny Goldenberg that he had instructed Linklaters to prepare a written contract. (Mr Henny Goldenberg's evidence was challenged about this in cross-examination, but it was supported by a contemporaneous note by Henny to Beri Goldenberg and there was no contradictory evidence from Mr Marshall.)
83. On 10^th November Mr Henny Goldenberg spoke to Mr Stokes, who told him that he had bad news. In view of World Online's situation with Tiscali the money was not available and World Online could not honour their deal.
84. On 21^st November Akura's solicitors sent World Online a letter before action.

The meetings of 5^th and 27^th September: factual conclusions

85. I accept the accuracy of Mr Henny Goldenberg's notes as summaries in bullet point form.
86. I accept that all the witnesses were honest, but their evidence was unavoidably affected by the time which had elapsed since the events they were describing, coupled with the fact at the time of those events they never foresaw that they would one day have to give evidence about them. Inevitably, therefore, there was a degree of reconstruction, most evident in relation to the witnesses with the poorest memories.
87. Because I accept the honesty of the witnesses, their contemporaneous notes are likely to be the best guide of what was said.
88. Of the rival versions as to what was said between Mr Henny Goldenberg and Mr Stokes at their meeting on 5^th September about payment, which was fundamental to the negotiations between the parties, I prefer the evidence of the former.
89. First, it is supported by his note. I accept that Mr Henny Goldenberg was a pushy salesman, but I am not persuaded that this would have caused him to make the note which he did, if it had not reflected what was said.
90. Second, Mr Henny Goldenberg's message to Mr Stokes two days after the meeting, in which he said that he felt that "we have agreed on all points" and that "you were going to speak to your lawyer in order to prepare a draft contract" would have been a peculiar message to send if they had failed to agree on the fundamental question of price and had not agreed to go forward to the stage of preparing a draft contract. As Mr Stokes recognised in his evidence, preparation of a written contract would have seemed premature if they had not reached an agreement on price.
91. Third, in the context that the Goldenbergs were pushing hard for an agreement with World Online and had reached an agreement on price with Littlewoods (or at least had offered to do so), if the meeting of 5^th September had ended in a stale mate on price, the Goldenbergs would surely have continued to press World Online on an urgent basis for an agreement on price. They in fact continued to press about other matters, including the preparation of a written contract, but not for an agreement on price.
92. Fourth, Mr Stokes' evidence about the meeting was less than impressive. For reasons which are perfectly understandable and do not in any way reflect adversely on him, he had no wish to be involved in the litigation. His initial witness statement was short on detail about the meeting on 5^th September. He was not helped by the fact that his laptop had been stolen in December 2000 and he had therefore lost whatever messages and notes he may originally have had on it. At the beginning of his cross-examination he stated that his witness statement contained all the recollection that he had when he made it about the meetings of 5^th and 27^th September, and that since making it he had not recollected any additional matters about them. As the cross-examination developed, he came out with significant additional matters. This is not a personal criticism of Mr Stokes. It is what happens when a person tries to recollect in detail for the first time things said at a meeting nearly two years earlier. However, the result in my view was an unreliable mixture of patchy memory and reconstruction.
93. These considerations in my assessment outweigh the arguments advanced on behalf of World Online. An argument particularly emphasised was that it would have been beyond Mr Stokes' authority to agree to a commercial deal with Akura before obtaining board approval. However, Mr Treece's email of 24^th August to Mr Stokes and Mr Beri Goldenberg stated in terms that it was for Mr Stokes to finalise the deal with Akura, and I have already referred to the passage from Mr Marshall's statement in which he described the rather disorganised state of World Online's internal procedures at the relevant time. It was also argued that Mr Stokes would not have agreed a price per television set or set top box as distinct from a price per active user. Akura's riposte was that the price agreement was predicated on customers not being able to migrate.
94. While I accept the accuracy of Mr Henny Goldenberg's note as a summary of what was said at the meeting on 5^th September, I am not persuaded that at the end of the meeting Mr Henny Goldenberg and Mr Stokes expressly acknowledged that they had entered into an agreement. On this point, Mr Henny Goldenberg's recollection of the words used emerged during his evidence, and he fairly recognised that it had been a long time since the meeting. If one tries to picture the situation at the end of the meeting on 5^th September, Mr Henny Goldenberg must have been well pleased with what he thought that he had achieved. Akura had already reached an agreement on price with Littlewoods, at least in principle, and now he had agreed a price with World Online which promised to give Akura a healthy profit. Early in the negotiations Mr Treece had said that the only thing he could see that might cause an issue was the amount Akura wanted World Online to pay per box, and that had now been agreed. Mr Henny Goldenberg had also agreed with Mr Stokes that a written contract should now be prepared, and he would have had every reason for confidence that this would happen. I do not believe that in the circumstances that he would have felt it necessary to ask Mr Stokes for an assurance that Akura could proceed with Littlewoods. They would both have assumed that Akura would be proceeding with Littlewoods.
95. As to the meeting of 27^th September, I again accept Mr Henny Goldenberg's notes as a summary. I accept that there was no talk about price, because that had already been agreed. I also accept that it was agreed that the contract would be yearly.

The meetings on 5^th and 27^th September: legal conclusions

96. Akura's case is that on 5^th or, if not then, on 27^th September the parties reached agreement on the all the matters that were necessary for the formation of a contract.
97. World Online's case is that the meetings on 5^th and 27^th September were part of continuing negotiations; that even if I were to accept that Mr Henny Goldenberg's notes of the meeting are to be relied upon (as I do), there was no contract because the points agreed were incomplete; and that the entire process was intended to be subject to a written agreement.
98. There was no dispute between the parties as to the principles applicable. I was referred to various authorities including particularly Hussey v Horne-Payne (1879) 4 App Cas 311, Pagnan SpA v Granaria BV [1986] 2 Lloyd's Rep 547 and Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601.
99. In Pagnan SpA v Feed Products Ltd, at p 619, Lloyd LJ summarised the law in a number of principles, which for present purposes can be reduced to the following:

[1] "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. This is the ordinary "subject to contract" case."

[2] "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."

[3] "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 this 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 "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 [Bingham J], "the masters of their contractual fate"."

100. According to these principles, the controlling factor is the intention of the parties, which means their intention as evinced by them or as may be reasonably inferred.
101. If the court is able to find that at the material time there was a clear evincement by the parties of a common intent, it will decide the issue accordingly, but the cases which come to trial are often ones where there has been no such clear evincement of common intent. In such cases the court examines the background circumstances, the nature of the alleged contract and the negotiations between the parties, and seeks to infer what a reasonable person (a projection of the judge) would have taken their common intention to be, if they had been asked to express it, remembering always that the burden of establishing the existence of a contract lies with the party which asserts it.
102. This process of "inference" is not the same as determining as a pure question of historic fact the actual state of mind of the negotiators. The test is objective; so whereas the surrounding conduct of the parties (including sometimes conduct subsequent to the disputed conclusion of a contract) will be taken into account, evidence which is no more than the assertion of one party's subjective intention, unexpressed to the other, is inadmissable.^[1]
103. On 5^th September the parties agreed that World Online would act as ISP for Akura's internet television project and that it would pay Akura £100 for every internet television or set top box sold.
104. Was this agreement intended to be legally binding? I do not accept that there was any express evincement of an intention that it should. The parties agreed to have a written contract drawn up, but said nothing as to whether in the meantime their oral agreement should be legally binding.
105. Should such an intention be inferred? I am not persuaded that it should. Various points were argued for and against the proposition, but I regard two factors as decisive.
106. The first is the subject matter. This was not a simple agreement for a transaction of an everyday kind. It was more in the nature of a joint venture agreement. It was inherently improbable that parties would wish to enter into such a joint venture without a written contract defining their respective rights and obligations, the duration of the agreement and their remedies in the event of default by the other party. The written contract would require to be individually tailored. If, however, the parties wished to have an interim binding agreement, at least it would be expected that they would agree this expressly and would set out heads of agreement.
107. The second is the extent of the matters agreed and not agreed on 5^th September. Mr Stokes and Mr Henny Goldenberg agreed on the principal commercial issue, but other matters had yet to be worked out, particularly on the technical side. Mr Henny Goldenberg's email of 7^th September reflected this. World Online had still to receive a sample of the product for which it had asked. Until it did, it could not be sure what technical problems it might encounter and what terms in relation to technical matters might require to be included in the written contract.
108. On 27^th September the only material difference in relation to the conclusion of a contract was that the parties agreed that it was to be yearly. World Online had still not received a sample of the product and Mr Sadler raised a number of technical issues at the meeting.
109. When World Online later told Akura that it would not be going ahead with the deal for lack of funds, Akura considered that it was going back on a verbal commitment. This was an understandable response, but for the reasons stated I am not persuaded that what was agreed on 5^th September, with or without the additional term as to duration agreed on 27^th September, was legally binding.
110. In view of that conclusion, the issues of condition precedent and misrepresentation fall away. However, because they were fully argued and the allegations of misrepresentation involved conflicting factual evidence, I should state my conclusions if I am wrong on the first issue.

Misrepresentation

111. I accept the evidence of Mr Beri Goldenberg that Mr McCann told him at their meetings on 7^th June and 22^nd August that Littlewoods intended to advertise Akura's internet television in their catalogue, with the obvious implication that Littlewoods intended to place orders for it. More generally, I accept that during the run up to the meeting between Mr Stokes and Mr Henny Goldenberg, on 5^th September, Akura believed with justification that Mr Menagh's department, in which Mr McCann was the relevant buyer, seriously intended to go ahead with the project. Mr Beri Goldenberg's evidence on these matters was supported by his contemporaneous notes, by the evidence of Mr Menagh (whom I considered an impressive witness) and by Mr McCann's encouraging email of 9^th August ("I think we should launch anyway with AOL/WOL non customised just to get the thing up and running").
112. World Online relied on the evidence of Mr McCann and Mr Ball, and also on evidence admitted at a late stage under the Civil Evidence Act (on which Mr Stewart did not have the opportunity to cross examine) regarding the dates on which Littlewoods' spring/summer 2001 catalogue went to the printers. It was argued that Mr McCann would not have said that Littlewoods would put the product in its catalogue because it would have been too late to do so and because it had been decided within Littlewoods to appoint a single ISP (not World Online) for all its internet products.
113. On the latter point, there was a direct conflict of evidence between Mr Ball and Mr Menagh about what Mr Menagh's department was entitled to do. I do not doubt that their evidence reflected honest differences of opinion. In my view it is is clear that when Mr McCann sent his email on 9^th August he thought – and more importantly Akura would have thought – that his department was entitled to go its own way in launching Akura's internet TV with World Online as the ISP.
114. There was, however, a striking contrast between the text of that email and Mr McCann's evidence about it. In particular, he said that when he used the word "launch" what he really meant was nothing more than have further discussions. I accept that he was trying to do his best, but his evidence was unconvincing to say the least. I conclude that this was due to poor memory and faulty reconstruction. When it comes to a choice between accepting Mr Beri Goldenberg's account of what was said on 7^th June and 22^nd August (supported by his note) and Mr McCann's evidence (unsupported by any note), I have no hesitation in preferring the former. As to the timing of the production of the catalogue, it is unfortunate that the detailed evidence put in by World Online was not produced until after Mr Menagh had given his evidence. He had said that the pages of the spring/summer catalogue were normally sent off for printing in November. If Littlewoods decided in August to launch the product without further delay, as McCann's email of 9^th August suggested, I am not persuaded that Mr McCann would have considered it impossible to include it in the catalogue for the next spring/summer, although it is possible that he might have had in mind a supplementary brochure (to which he referred in his evidence).
115. It is alleged by World Online that Akura represented that it had a legally binding agreement with Littlewoods to be a retailer of Akura's internet televisions and set top boxes. I do not accept that any such representation was made. Akura certainly represented that Littlewoods intended to be a retailer and had reserved appropriate space in its catalogue, but Akura so believed and had reasonable cause to believe. I therefore reject the allegation that there was any misrepresentation prior to the meeting of 5^th September.
116. Between 5^th and 27^th September Akura falsely represented that Littlewoods had gone further and placed orders. That conduct was reprehensible, and Mr Stewart has not attempted to suggest otherwise. But while it was no doubt intended to put pressure on World Online, I am not persuaded that it had any effect on the mind of Mr Stokes. He did not read what Akura had said. His evidence in cross examination on the subject went as follows (day 5, pp 627-628):

"Q: Do you have any specific recollection at all of precisely what it was that was said to you about Littlewoods at this time?

A: My recollection was that Littlewoods are very interested in taking the tv sets and that there was a deal being negotiated with Littlewoods at this point.

Q: And that is really what it came to? That is what your recollection is?

A: At that time, yes, that Littlewoods would be the distributor for this product. Otherwise there was no way the tv was going to be sold.

……..

Q: And so far as Littlewoods are concerned can I suggest that the effect of it was, as you say, that they were in negotiations with Littlewoods and had every expectation of making sales to them?

A: Yes. It was fundamental to us that Littlewoods were involved because otherwise there was no distribution channel. As you know, we were trying to – well, certainly Murray Treece and Quentin Birchall were trying to negotiate directly with Littlewoods at the very outset of this negotiation."

117. If, therefore, I had found that a contract was formed on 5^th or 27^th September, I would have rejected the defence based on misrepresentation on the grounds that there was no misrepresentation prior to 5^th September, and that, although there was misrepresentation between 5^th and 27^th September, it had no effect in inducing a contract.

Condition precedent

118. World Online's pleaded case can be summarised as follows:-

1) It was a condition precedent to its obligations under any agreement that Littlewoods would be the, alternatively a, retailer of Akura's internet televisions and set top boxes, purchasing them from Akura and marketing them to Littlewoods' customer base.

2) The condition precedent was never fulfilled, for Littlewoods never entered into any such arrangement with Akura and never placed any orders with Akura for internet TVs or set top boxes.

119. I accept that Littlewoods' role as a distribution channel was a key component in World Online's thinking, as was stated by Mr Preston and Mr Stokes in their evidence and appears from the contemporaneous documents (e.g. Mr Treece's email of 24^th August). I accept also that the tripartite nature of the relationship between Akura, World Online and Littlewoods was something which the draftsman of a legal contract would in all probability have wanted to consider. He might well have wished to insert clauses dealing with the situation if the negotiations between Akura and Littlewoods did not come to fruition or if Littlewoods stopped retailing Akura's internet televisions and set top boxes. However, I am presently considering the matter on the hypothesis that the parties made a binding oral agreement without any express provision regarding Littlewoods.
120. There is in my view a fallacy in World Online's defence. Even if there had been a condition precedent as alleged, World Online would not have been justified in repudiating the contract at a time when Akura still had a prospect of fulfilling the condition precedent. Otherwise, World Online would be entitled to rely on the non-fulfilment of a condition precedent caused or contributed to by its own conduct. It is Akura's case that if World Online had not repudiated the alleged contract when it did, it is likely that Littlewoods would have retailed the product. Its case was supported by the evidence of Mr Menagh. Mr Menagh was a credible independent witness. I accept that there was a real prospect that Littlewoods would have retailed the product. The degree of likelihood that this would have happened and the likely resulting volume of sales would be matters for consideration on an assessment of quantum of damages.
121. It is therefore in my view immaterial whether the alleged contract was subject to the suggested condition precedent. If it were material, I am not persuaded that such a condition precedent was either obviously to be implied or necessary for commercial efficacy. If there were no sales, nothing would be payable by World Online to Akura. If there were only a small number of sales, only a small amount would be payable. Mr Thanki's response to this argument was that it did not take account of World Online's initial expenditure in doing the work necessary to enable it to act as Akura's ISP. However, World Online's own evidence was that it was willing to take the chance of agreeing to act as Akura's ISP without the conclusion of a binding contract between them. This was World Online's explanation for its approval of the issue of Akura's press release before they had entered into a contract.

Conclusion

122. In my judgment the claim fails on the ground that Akura has not established the existence of a contract. If it had succeeded on that issue, I would have rejected World Online's other grounds of defence.

Note 1    “Mr Rokison argued that the parties’ reactions are as irrelevant as their beliefs. I agree of course that the test is objective and the reactions of the parties are not conclusive. But I cannot accept that they are irrelevant.” Pagnan SpA v Feed Products Ltd per Lloyd LJ at p 620.    [Back]