England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		27/07/2007

Mr Justice Aikens :

A. Introduction

1. This action arises out of an Asset Sale Agreement ("the ASA") which was concluded by a Deed under Seal dated 22^nd April 1996. The parties to the ASA were the claimant ("Mr Harper"), Copystatic Limited ("Copystatic"), the claimant and two others acting as Trustees of the Copystatic Directors' Pension Fund ("the Pension Fund") and the defendant ("Interchange"). The first three parties were the sellers of the assets. Interchange was the purchaser. The consideration for the acquisition of the assets included the payment of £300,000 to be divided between the sellers. The ASA also provided for certain payments to be made to Mr Harper by way of commission on earnings to be made on various contracts. Effectively, Mr Harper claims in this action that he has not been paid all the commissions due to him under the ASA.
2. The present trial concerns four preliminary issues. These were ordered originally by Tomlinson J in June 2006, then modified in the light of amendments to the defence by Cresswell J in November 2006. The preliminary issues to be tried are, broadly, whether:

i) on the proper construction of clause 3.3 of the ASA, Mr Harper is entitled to further commission from Interchange beyond what he has already been paid in respect of contracts known collectively as "the Unisource Contracts";

ii) if the correct construction of clause 3.3 is that alleged by Mr Harper, he is nevertheless prevented from recovering this additional commission from Interchange because Mr Harper has failed to operate the contractual machinery for dealing with payment disputes that are set out in clauses 3.4 and 3.5 of the ASA;

iii) if Mr Harper's construction of clause 3.3 is correct, he is nevertheless prevented from recovering additional commission claimed because, on the basis of events after the conclusion of the ASA, there has arisen (a) an estoppel by convention which prevents Mr Harper from making the claim; or (b) there is an "account stated" between the parties;

iv) If the construction of clause 3.3 of the ASA is as alleged by Mr Harper, Interchange is entitled to claim rectification of clause 3.3?

3. The trial of the preliminary issues took place between 18-21^st June, 25^th June and 28^th June. I heard oral evidence from Mr Harper, his daughter Rebecca Harper, and Mr Canice O'Regan on behalf of the claimant. I heard oral evidence from Mr Philip Jones, Mr Nigel Griffiths and Mr Brian Ellis on behalf of the defendant. A witness statement of Mr Arthur Spee was put before the court on behalf of Mr Harper under the Civil Evidence Act.
4. For reasons that I set out in the narrative below, I found Mr Harper an unsatisfactory witness, on whose evidence I could not rely. On the other hand, I found the evidence of Mr Jones, Mr Ellis and Mr Griffiths, so far as relevant, to be honest, helpful and reliable. All of them were careful to say when they could not remember matters. Their evidence accorded with the contemporaneous documents.
5. Unfortunately much of the oral evidence was, in my view, irrelevant or unhelpful. This is almost bound to be so when witnesses are invited to remember, in considerable detail, meetings, statements and conversations that took place 11 years ago. The parties also prepared 5 lever arch files of contemporary documents and 3 lever arch files containing drafts of the ASA. Once again, many of these documents were irrelevant. Unfortunately no Core Bundle had been prepared for the trial in accordance with paragraph 4 of Appendix 10 to the Admiralty & Commercial Courts Guide (7^th Edition 2006).
6. However I was greatly assisted by the outline arguments that Counsel for the parties had prepared before the hearing. After the evidence was completed Counsel then prepared written closing submissions. These were most helpful and it enabled all closing submissions to be short and confined principally to dealing with questions raised by me. At the end of the trial on Thursday, 28^th June 2007 I reserved judgment.

B. The parties and the background facts giving rise to the ASA

7. Mr Harper is a businessman. In the 1970s he set up various companies in the photocopier rental business. The main company was Copystatic Limited, one of the parties to the ASA. In the 1980s Mr Harper developed a computerised system which could be adapted by customers for various uses concerned with collecting and recording information and statistics. The uses included stock control and parts replenishment; billings based on meter readings; revenue and cost reports and other items of data collection and analysis. Mr Harper, through his companies, sold the use of the software he developed by a system of licences. Associated with the software systems that were licensed there were also maintenance agreements and consultancy and systems support agreements. The whole of this system was eventually known as "Servasure".
8. In 1994 the copier business was sold. In the same year one of the Copystatic companies, Copystatic Systems Limited, was renamed Servasure Systems Limited ("Servasure").
9. In 1995, although the software licensing business of Servasure was highly valued, it suffered from cashflow problems. A valuation of the business was undertaken by N M Rothschild and Samuel Montagu. They gave it a value of between £6 million and £12 million. N M Rothschild went on to introduce Mr Geoffrey Butcher as a possible Managing Director of Servasure. It was said that he could introduce new capital into the business.
10. Over the years, Mr Harper had developed contracts for the use of the Software by various companies abroad. In late 1995, there was the possibility of a large contract with the Dutch PTT. At about the same time, Servasure's bankers, Natwest, appointed KPMG to prepare a formal report on the future viability of Servasure.
11. Matters concerning Servasure's financial viability came to a head in December 1995. After much discussion, it was agreed that Servasure Systems Limited ("SSL") would go into Administration under the Insolvency Act 1986. Mr Myles Halley and Mr Michael McLoughlin of KPMG were appointed to act as administrators. An order for this administration was approved by the High Court in Liverpool on Monday, 11^th December 1995. At the time SSL went into Administration, it was a private limited company, whose total share capital was held by Copystatic Limited.
12. Questions arose at this stage concerning which legal entity owned the intellectual property rights to the software which was being used to provide the services sold by SSL to its customers on licence. The two possible owners were Copystatic Limited and the Pension Fund. The latter fund had been established for the sole benefit of Mr Harper.
13. On 24^th January 1996 Hammond Suddards, Solicitors acting for Mr Harper and the Pension Fund wrote to Eversheds, who were the solicitors acting for the Administrators of SSL. The upshot of the opinion of Hammond Suddards was that the intellectual property rights in the software were owned by a combination of SSL, Mr Harper and the Pension Fund. The letter also advised that the Servasure Software could not be exploited without the consent of Mr Harper and the Pension Fund. However, Mr Harper and the Pension Fund could exploit most of the software without the consent of Copystatic Limited or SSL (in Administration).
14. After the Administration order was made, the Administrators appointed Mr Butcher Managing Director designate of SSL. He was keen to make an offer to buy SSL. On 4^th February 1996, Mr Butcher faxed a letter dated 2^nd February 1996 to Mr Harper, which contained a revised offer for the purchase of SSL. The relevant terms of the revised offer were:

i) A cash payment of £250,000, in return for which all intellectual property rights would be transferred to a new company;

ii) Mr Harper would receive 35% of the "net revenue" (as defined in the letter) received in year 1 from the Dutch PTT;

iii) Mr Harper would receive 15% of all net revenues over £2 million per annum (excluding the Dutch PTT) received in year one and 15% of all net revenue over £2.2 million per annum received in year 2;

iv) further provisions for paying a percentage of net revenue after year 2.

15. In about late January 1996, another businessman, Mr Canice O'Regan (who had first met Mr Harper in 1988/89) got in touch with Mr Harper. Mr O'Regan offered to assist in the search for a purchaser of the business of SSL. One of the potential purchasers Mr O'Regan identified was Interchange Group Limited, ie. the defendant. Interchange had been created as a result of a management buyout led by Mr Ellis. By early 1996, he was the chairman of Interchange and the largest single shareholder (via a holding company), although he did not hold a majority of the shares. The management buyout had been funded by equity share capital and loans from 3i Group plc and its subsidiaries. The issued share capital of Interchange was owned by a holding company which was formed in connection with the management buyout. That company was known as IG Holdings Limited.
16. In 1991, Interchange had bought the business of Optim Computers Limited, for whom Mr Philip Jones had previously worked. Subsequently Mr Jones became the Managing Director of Interchange.
17. On 7^th March 1996 there was a meeting at the offices of SSL at Lockington, Derbyshire. Mr Harper, Mr Jones and Mr Ellis (amongst others) were present. Mr Harper gave a presentation of the Servasure product. Mr Harper also talked about the ownership of the intellectual property rights for the Servasure software, indicating that they were owned by the Pension Fund. Mr Ellis, however, was doubtful whether that was the correct analysis, although he did not say so at the time.
18. After that meeting Mr Jones and Mr Ellis met Mr Gary Robins of 3i Group. Mr Robbins indicated that he was attracted to a deal which would involve purchasing the Servasure business from the Administrators of SSL.
19. On 18^th March 1996 there was a meeting of the board of Interchange. The board resolved to authorise Mr Ellis, Mr Jones and Mr Gerry O'Donnell (the Finance Director of Interchange) to continue with negotiations "with a view to acquiring Servasure". This was a reference to SSL, rather than any rights held by the Pension Fund or Mr Harper personally.
20. It was the evidence of Mr Ellis and Mr Jones, which I accept, that if Interchange engaged in negotiations then Mr Jones was the person who engaged in the negotiations with the other party, but he had to report back to Mr Ellis and the Interchange board, who would make final decisions. That pattern was adopted in the negotiations that took place with Mr Harper.
21. On 20^th March 2996, Interchange wrote to Mr Harper, as Chairman of the Copystatic Group. In the letter Interchange made an offer to acquire the intellectual property rights of SSL, which Interchange understood to be owned by the Penson Fund. The letter also made an offer to employ Mr Harper as consultant "to the ongoing business with a commission incentive based on future performance of the SSL business". The offer was made contingent upon Interchange completing the acquisition of the goodwill, trade and assets of SSL from the Administrators. The offer to Mr Harper was also stated to be subject to contract.
22. The letter also set out the proposed terms of the contract. One of them was that commission would be payable to Mr Harper in connection with future sales performance of the business of SSL. The letter provided as follows:

"(i) Licence Fees: commission calculated on 7.5% on income received for three years post completion.

(ii) Dutch PTT Contract: commission calculated as 10% on the Gross Margin earned on this contract on the 2 years post completion.".

23. Mr Harper rejected this offer and made a counter offer based on a higher rate of commission for the Dutch PTT contract and other contracts concluded within "Unisource". That word described a group of European telecoms companies to which the Dutch PTT belonged.
24. On 22^nd March 1996, Grant Thornton, accountants acting on behalf of Interchange and IG Holdings Limited, wrote to the Administrators of SSL. The letter contained an offer to purchase the trade and certain assets of SSL. The letter stated that the offer assumed that the Pension Fund and/or Mr Harper had the principal claim to the intellectual property rights of SSL. The offer was stated to be subject to Interchange/IG holdings Limited agreeing terms with Mr Harper and the Pension Fund. A copy of that letter was sent to Mr Harper the same day.
25. Also on 22^nd March 1996 a draft letter "for discussion" was sent by Mr Jones to Mr Harper, as Chairman of the Copystatic Group. This letter contained a revised offer to acquire the intellectual property rights of SSL. The letter stated that it was understood that those rights were "currently owned by the Copystatic Directors' Pension Fund". The letter also contained an offer to employ Mr Harper as a sales consultant "to the ongoing business with a commission incentive based on future performance of the SSL business". The letter set out the proposed terms for Mr Harper's commission on future sales performance. It also set out the value of these commissions, based on current business plans.
26. In particular the letter proposed a commission of 7.5% of Licence Fees on licence income received for three years after completion of the proposed contract. A projection of the income from this was given, based on current business plans. In respect of any contract with the Dutch PTT, the letter proposed a commission of 10% of the "gross margin" earned in the 3 years after completion of the contract. Again an example was given of the commission that would be earned, based on current projections for the Dutch PTT business. This indicated, assuming a commission of 10%, that Mr Harper would earn total commission of £218,000 over a 3 year period. The letter also proposed a commission of 10% on contracts with other Unisource companies for a period of three years post completion. These proposals were subject to further terms set out in the letter.
27. On 24^th March 1996 there was a meeting between Mr Harper and Mr Jones at Lockington concerning the proposed purchase of the intellectual property rights. The letter of 22^nd March 1996 was used as the basis for discussion. Following that meeting, which took place over some hours, Mr Harper wrote a letter dated 24^th March 1996 to Mr Ged O'Neill of Hammond Suddards, solicitors. That firm had been appointed by Mr Harper to handle the sale of the intellectual property rights to either Interchange or to Mr Butcher.
28. The letter, which Mr Harper said in evidence was written in the early hours of 25^th March 1996 when he was very tired, stated:

"……. I confirm the deal agreed with Philip Jones of Interchange ……..

(i) IPR

They will acquire the IPR for £200,000 on completion and £100,000 payable 90 days after completion …….

(ii) Sales Consultancy Agreement

Two years only. Year 1 commitment is 100 days and Year 2 commitment is 80 days at £40,000 per annum payable monthly in arrears. Thereafter negotiable.

(iii) Further consideration

7.5% on all Licence Fees on regular deals secured within first 3 years (uncapped and no hurdle), payable on 25^th month following receipt of the due monies; rising to 10% of the Gross Margin earned against Dutch PTT/Unisource Partnership".

29. Mr Harper sent this letter as a fax to Mr O'Neill. The fax coversheet is dated 24 March 1996. The following day (25 March) Mr Harper also sent a copy to Grant Thornton (accountants acting for Interchange) by fax.
30. On 25^th March 1996 there was a meeting between Mr Harper, Mr Jones and Mr David Brooks, (of Interchange) who accompanied Mr Jones. The meeting was at the Leicester offices of KPMG, the Administrators of SSL. Prior to the meeting, Mr Jones had sent a fax to Mr Harper which contained a letter dated 25^th March 1996 from Mr Jones, on behalf of IP Holdings and Interchange. This letter contained a revised offer. It was headed "subject to contract". This letter formed the basis of discussion at the meeting. It contained similar terms to the letter of 22^nd March concerning commission. It also provided examples of the value of the fee commission based on current business plans, as had the letter of 22 March 1996.
31. During the meeting at KPMG, Mr Harper spoke by telephone to Mr O'Neill. As a result some manuscript was added to the end of the letter. It is agreed that this is in Mr Jones' handwriting. He also initialled this addition.
32. At the trial, Interchange's case was that this letter of 25^th March 1996 constituted the "Heads of Agreement" and contained terms which had been definitively agreed between the parties, although they were still "subject to contract".
33. On 25^th March 1996, IG Holdings Limited concluded an Agreement by Deed with SSL, its Administrators and others. By the Deed, IG Holdings Limited agreed to pay to the Administrators £75,000. In return, SSL and the Administrators agreed not to enter into any contract to sell SSL and various assets (as defined in the Deed), until after 3^rd April 1996. Effectively, IG Holdings Limited paid the Administrators £75,000 for a period of "exclusivity" so it could conclude a deal with the Administrators regarding SSL. The sum of £75,000 was non-refundable.
34. This Deed provided, at clause 4(b), that Copystatic Ltd, Mr Harper and the Pension Fund trustees had agreed to conclude it "as evidence of their intention to sell assets to Interchange on substantially the terms set out in the letter annexed as Appendix 1 to this deed and agrees not to sell the assets to any other party until after 3 April 1996". The letter at Appendix 1 is the so – called "Heads of Agreement" letter, including the manuscript additions of Mr Jones.
35. From 26^th March 1996 drafts of the Asset Sale Agreement were passed between Hammond Suddards, solicitors acting for Mr Harper and others on the side of the sellers and Coley & Tilley ("C&T), solicitors for Interchange. At the same time, Interchange undertook its "due diligence" on SSL.
36. Mr Harper's written evidence (paragraph 118 of his witness statement) was that, at some time during the week of 25^th – 31^st March 1996, he realised that he had "done a rather stupid deal over Licence Fees". Mr Harper's oral evidence on the question of what "deal" had been made at the meeting on 24 March 1996 was confused and contradictory. First he confirmed his witness statement (in chief). This included (at paragraph 98) his evidence that at the meeting on 24 March he had agreed to 7.5% on gross licence fees "rising to 10% on the net of the cost of sales from Dutch PTT". Under cross – examination he confirmed the statement at paragraph 11A2 of the Amended Reply that there had been an agreement on 24 March (subject to contract) for 7.5% of licence fees on regular deals, "rising to" 10% of the gross margin earned against Dutch PTT/Unisource contracts.
37. But he then gave evidence in cross - examination that this was not what was agreed and that he thought that the deal he had done with Mr Jones was for a commission totalling 17.5% for licence fees on Dutch PTT/Unisource contracts. He said in cross – examination that, being very tired when he wrote the letter dated 24 March 1996 to Mr Ged O'Neill, he made a fundamental error in the way he had described the deal in that letter.^[1]
38. I was not impressed by Mr Harper's attempts to reconcile what he had written to Mr O'Neill in his letter of 24 March 1996, the statement at paragraph 11A2 of the Amended Reply (which has Mr Harper's signature under the statement of truth at the end of the pleading) and his current case on what was agreed on 24 March 1996. The terms of the letter of 24 March certainly do not suggest that there was a deal which would have given Mr Harper a total commission of 17.5% on Dutch PTT/Unisource contracts. Mr Harper's prevarication on this issue severely dented his credibility on other matters which were in dispute on the oral evidence. My conclusion was that, generally speaking, I was not prepared to accept the oral evidence of Mr Harper unless it was corroborated by contemporaneous documents or some other reliable evidence that I accepted.
39. Paragraph 118 of Mr Harper's statement says that he realised he had "done a rather stupid deal over licence fees" as a result of a telephone conversation between him and Mr Ged O'Neill of Hammond Suddards, the solicitor acting for Mr Harper for the Asset Sale. Mr Harper's evidence in cross – examination was that Mr O'Neill had pointed this out to Mr Harper in a telephone call on the evening of Sunday, 31 March 1996.^[2] I was struck by the fact that Mr O'Neill was not called to give evidence on behalf of Mr Harper, despite his central role in the preparation of the ASA on behalf of Mr Harper. There is no documentary evidence to confirm Mr Harper's evidence about a telephone call between him and Mr O'Neill on 31 March 1996 on this topic. Mr Harper accepted that Mr O'Neill did not send any fax to confirm their conversation.^[3] Given what happened subsequently, this issue is not particularly material, except to Mr Harper's credibility. On the evidence before me I would not have been prepared to decide this matter in Mr Harper's favour, particularly given my comments above on his evidence on the nature of the deal he had struck on 24 March 1996.
40. On 1^st April 1996 there as a meeting between Mr Harper and Mr Jones in the bar of the Metropole Hotel at the NEC in Birmingham. Mr Harper told Mr Jones that he wished to pull out of the deal. The two men went to the offices of C&T, where Mr O'Neill was working on a further draft Agreement with Mr Griffiths, solicitor for Interchange. The exchanges between Mr Harper and Mr Jones became acrimonious. I am satisfied on the evidence (particularly that of Mr Griffiths and the contemporaneous manuscript note of Mr Jones) that at that meeting Mr Harper demanded that the basic commission of 7.5% on Licence Fees be doubled to 15%. He also demanded that the 10% on Gross Margin for contracts with the Dutch PTT and other Unisource contracts must be doubled to 20%. Mr Harper also said that the increased Licence Fees must apply to all enhancements and derivatives of the software. He has said that if his demands were not met then the deal would be off. The meeting ended inconclusively.
41. On 2^nd April 1996, there was a further meeting between Mr Jones and Mr Harper at the Lockington premises of SSL. This meeting was also acrimonious. Mr Harper's evidence was that in this meeting he once again demanded a basic 7.5% on Licence Fees for all contracts and an additional 10% of Gross Margin in respect of the Dutch PTT contract or any other contract concluded with a "Unisource" company. The written evidence of Mr Harper (as set out in paragraphs 126 – 130 of his witness statement) was that Mr Jones effectively agreed to this principle. Mr Jones' evidence, both written and oral, was to the contrary.
42. I am quite satisfied that there was no such agreement as Mr Harper alleges. This is for several reasons. First, there is no documentary evidence to support it. Indeed, there is documentary evidence to the contrary effect. On Wednesday 3^rd April 1996 Mr Harper sent a letter by fax to Mr Jones. This refers to the meeting the previous evening at Lockington. The letter then goes on to set out "relevant Extracts from the Butcher deal" which Mr Harper says Mr Jones may use to "illustrate our issue to your colleagues in confidence". Amongst the matters that were set out are agreements concerning commission, said to have been agreed in principle by Mr Butcher. These included commission of 15% "across the board …… of all revenues above low hurdle"; and commission of 35% on "Dutch PTT and Unisource Gross Margin". The last paragraph of this letter states:

"I hope you can exercise a considerable level of pragmatism in return to recognise the commerciality of the package on offer and afford us the necessary protection in order to complete the deal and go forward in confidence together."

43. I am satisfied that if there had been agreement in principle as Mr Harper suggested in evidence there would have been absolutely no point in sending this letter to Mr Jones. Mr Harper, who was a fluent letter writer, would have sent a letter to Mr Jones setting out what had been agreed at the meeting, just as he sent the letter of 24 March to Mr Ged O'Neill. No such letter was sent.
44. Secondly, there is no reflection of such an agreement in the draft contract that Mr O'Neill sent to Mr Griffiths that day: (see Mr Griffiths' statement paragraph 28, which I accept).
45. Lastly, I accept the evidence of Mr Jones, given at paragraph 37 of his witness statement and confirmed in oral evidence, that although Mr Harper attempted to renegotiate rates, Mr Jones did not agree to anything at that meeting. Mr Ellis stated that this is what Mr Jones reported to him. I accept Mr Ellis' evidence (at paragraph 29 of his witness statement) that both he and Mr Jones were absolutely resolute that there would be no renegotiations to the basic deal which had apparently been agreed at the meeting of 24^th March, albeit "subject to contract".
46. On 3^rd April 1996 there was a joint Board meeting of IG Holdings Limited and Interchange. The Boards agreed to conclude a deal for the purchase of SSL in administration. The Boards also discussed the proposed deal with Mr Harper.
47. The Minute of the meeting, at paragraph 2, records discussion on the commission payable to Mr Harper. It states:

"Mr D C Harper would also receive commission on various Licence Fees and other Fees and the terms of these were considered. In connection with the commissions, or earn out arrangement, with Mr Harper, Mr Harper was looking for various provisions to protect his interest including a liquidated damages clause of £500,000. It was reported that further negotiations on the exact terms, particularly on the earn out protection provisions was required."

48. The two Boards resolved that the terms of the proposed acquisition of the intellectual property rights from Mr Harper and others be approved. It was also resolved that the final terms of any Asset Sale Agreement between Mr Harper and others and IG Holdings Limited and Interchange should be negotiated by Mr Jones, Mr Ellis and any other directors present at any meeting that was anticipated would be held later that day.
49. In his evidence, Mr Griffiths stated that these Minutes had been prepared in draft beforehand and were, to an extent "pro forma". He stated that he had taken notes at the Board meeting. However, these were not produced at the trial. No reason was given for this. The matter was not particularly pressed by Mr Davies for Mr Harper.
50. Later on 3^rd April 1996 there was a meeting of all parties at the offices of Eversheds, solicitors for the Administrators. At that meeting the Asset Sale Agreement between the Administrators and Interchange Group Limited was signed.
51. A further meeting took place later that evening and into the early hours of 4^th April 1996 at the offices of C&T, solicitors acting for Interchange. Mr Harper and his legal representatives were present at that meeting. Mr Ellis, Mr Jones, Mr O'Donnell and Mr Griffiths were present on behalf of Interchange. In his evidence, Mr Ellis said that Mr Harper once again raised the issue of increasing the commission on Licence Fees and on the Unisource contracts to 15% and 20% respectively. I accept this evidence. I also accept that this demand was rejected out of hand by the Interchange team. Eventually the terms of the ASA were agreed and signed by the parties. However the Agreement was held in escrow pending completion of certain conditions. The actual date of the ASA is 22^nd April 1996.

C. The terms of the Asset Sale Agreement

52. I have set out all the terms that I consider relevant to the present disputes in Appendix 1 to this judgment. I will set out particular parts of relevant clauses later on in this judgment when dealing with specific issues.

D. Events after the conclusion of the Asset Sale Agreement

53. Under clause 3.4 of the ASA, Interchange was obliged to deliver a statement to Mr Harper when making a payment to him pursuant to clause 3.3. The statement had to set out the Gross Margin, as defined in the ASA, and the Licence Fees, as defined in the ASA. Those figures were to form the basis of the payment made. Clause 3.4 provides that Mr Harper then has 28 days from the delivery of the statement to notify Interchange of "the basis on which he objects to the statement". It was accepted by both sides at the hearing that there had been a variation in the terms of clause 3.4 to the extent that it was agreed that once Interchange had served its statement pursuant to that clause, then Mr Harper would forward an invoice for the sum he claimed, after which Interchange would pay against the invoice submitted by Mr Harper.
54. On 25^th June 1996 Eileen Barr, the accounts office manager of Interchange, sent a letter to Mr Harper enclosing a revised commission statement and inviting him to submit his invoice for £5,224.50 which she said was the commission due on payments received by Interchange on all relevant contracts. The letter enclosed a commission statement dated 24^th June 1996.
55. The statement identifies the customer, whether or not a payment has been made under a Licence or for enhancement or maintenance; and whether the relevant contract is a Unisource contract or not. The statement identifies the sale value, the Gross Margin and the date when the payment was made by the customer to Interchange. It also sets out the commission. It is easy, using simple arithmetic, to work out the percentage rate for the total commission.
56. Commission statements in this format were served on Mr Harper monthly thereafter. Not all the commission statements were produced at the trial.
57. Mr Harper replied to Ms Barr's letter of 25^th June 1996 on 30^th July 1996. In this letter Mr Harper said his delay in replying was, amongst other things, "because of lack of access to copies of the books and records relevant to the calculation of the additional consideration due under the Asset Sale Agreement, needed in order to verify the accuracy of your statements from time to time". However Mr Harper did not identify what "additional consideration" he considered due under the ASA.
58. A further commission statement was sent on 31^st July 1996. On 5^th and 12^th August 1996, Ms Barr and Mr O'Donnell wrote to Mr Harper offering to provide him with access to copies of books and records relating to SSL's sales.
59. Another commission statement was sent on 31^st August 1996. On 29^th September 1996 (that is one day outside the 28 day period provided for in clause 3.4), Mr Harper wrote to Miss Barr raising several points on the latest commission statement. In the letter Mr Harper pointed out that the commission on two invoices (090087 and 090118) was wrong. Mr Harper said that the commission rate for those invoices should have been 10% rather than 7.5%. Both these invoices related to Unisource contracts. Mr Harper did not then assert that he was due to be paid a total of 17.5% on those invoices.
60. Thereafter commission statements were sent to Mr Harper on 30^th November 1996, then at intervals throughout 1997, 1998 and up to and including 7^th April 1999. Mr Harper did not respond specifically to any of those commission statements by raising the objection that, in respect of Unisource contracts, he was not being paid a total commission of 17.5%, as he now asserts is his due.
61. A contract between Interchange and the Dutch PTT was signed on 21 January 1997, whereby the Dutch PTT bought a licence to use the Servasure system. The contract did not run its full intended course and was terminated by agreement between Interchange and the Dutch PTT. That early termination gives rise to other claims by Mr Harper but they are not the subject of the present preliminary issues.
62. There was some activity between the parties between November 1996 and 1997. Mr Harper made it clear in a number of letters (eg that of 3^rd October 1996, 7^th October 1996) that he was unhappy with the detail and accuracy of information provided to support the commission statements produced by Interchange. In the letter of 7^th October 1996 Mr Harper indicated that he proposed to instruct Coopers & Lybrand ("C&L") to perform a detailed audit "…on my behalf under the terms of clause 3.5…" of the ASA. Mr O'Donnell replied on 10^th October 1996. He said he was happy to comply with this request on the understanding the Coopers & Lybrand's fees were borne by Mr Harper and the staff of Interchange were not expected to carry out any significant additional work as a result of the proposed audit.
63. Mr Harper accordingly instructed C&L. In a letter dated 25^th November 1996 to Mr O'Donnell, Mr Harper set out his instructions to C&L in the following terms:

"…… to conduct an audit of all transactions under the Asset Sale Agreement and determine the extent to which my consideration has been short paid (if at all). The terms of the Agreement empower them to act as experts (not arbitrators) whose decision shall be final and binding on the parties ….. Hopefully their involvement will ensure that adequate systems and safeguards will be put in position to ensure that the Agreement will, in future, be complied with promptly and without errors or omissions".

64. Mr O'Donnell replied to this letter on 3^rd December 1996. (Mr Griffiths said in evidence that it was probable that he was involved in the drafting of this letter.) Mr O'Donnell took issue with Mr Harper on the basis upon which C&L were to be instructed. He said that he had no objection to C&L checking the books and records to verify the commission statements on behalf of Mr Harper. The letter continued:

"However, I must stress that they [C&L] have not been appointed as an independent expert pursuant to the terms of clause 3.5 of the Asset Sale Agreement. If you wish to invoke clause 3.5 then you must raise specific objections and it is only if we are unable to agree on these that the independent expert is appointed. We would not approve Messrs Coopers & Lybrand as the independent expert as they are your accountants."

65. Following a further letter from Mr Harper dated 28^th November 1996, Mr Jones wrote to Mr Harper on 9^th December 1996. This emphasised that Interchange had not agreed to C&L being appointed as experts. To emphasise this point Mr O'Donnell wrote to C&L on 9th December 1996 to record that C&L's assignment was on behalf of Mr Harper, who would be responsible for C&L's fees. The letter also stated:

"In our opinion Interchange are not in dispute with Doug Harper and we will be happy to clarify any questions you may have."

66. Subsequently the terms of C&L's engagement to act on behalf of Mr Harper were agreed and confirmed in a letter from C&L to Mr Harper dated 10^th December 1996. C&L visited the Interchange premises in mid December. They submitted a report to Mr Harper in a letter dated 6^th January 1997.
67. On 23^rd January 1997, C&L wrote to Mr O'Donnell. The letter raised a number of specific points which are not relevant for present purposes. However, the last point raised in the letter was as follows:

"Reading the Asset Sale Agreement closely suggests that under clause 3.3 "Unisource contracts" (which to November relate only to PTT Telecomm) are included both within 3.3.1 and 3.3.2/3. Again do you have any comments on this as the Agreement does not make these clauses exclusive to each other".

68. Mr O'Donnell responded to this letter on 7^th February 1997. With regard to the point set out above, Mr O'Donnell stated, at paragraph 5 of his letter:

"Unisource Contracts: such an interpretation is clearly incorrect and I do not really believe that you are seriously putting it forward. The Agreement very clearly provides that where there is a Unisource contract, or where enhancements are provided, then Doug Harper is entitled to the higher margin of 10% and not the basic 7.5% as with other Licence Fees. Paragraph 3.3.3 clearly backs this up when it refers to a differential rate of payment for recurring income originated from Licence Fees and recurring income originated from Gross Margin."

69. This letter was forwarded to Mr Harper on 21^st February 1997 under cover of a letter written by Mr David Belbin, the C&L manager who had conducted investigations at Interchange on behalf of Mr Harper. At the end of his letter Mr Belbin said:

"I hope this answers some of the questions raised in your January letter but I am not surprised by his answers at paragraphs 4 and 5 as this is only likely to be resolved by a legal interpretation."

70. Following this investigation by C&L, Mr Harper modified the terms of the invoices that he submitted to Interchange after monthly commission statements were produced. Each subsequent invoice states in the bottom right-hand corner:

"This invoice is compiled from unverified information provided by Interchange and the totals are subject to confirmation under the Terms and Conditions of the Asset Sale Agreement."

However, the invoices do not attempt to claim commission on Licence Fees of 7.5% and commission on Gross Margin of 10% cumulatively in respect of Unisource contracts.

71. On 28^th May 1997, Mr Harper wrote a long letter to Mr Jones. The letter set out Mr Harper's current complaints. These included Interchange's interpretation of the commission provisions of the ASA and the accuracy of payments made under it. Mr Harper identified 27 "financial issues" that he demanded be resolved urgently to his entire satisfaction. Item 23 of this list states:

"You have failed to account for or remit the logical 10% plus 7.5% consideration on all qualifying Dutch PTT Telecom revenues."

This is the first time that this particular point had been raised by Mr Harper in writing. There is no contemporaneous written evidence to suggest that the matter had been raised by Mr Harper before this date, either in writing or orally. Mr Harper rather weakly stated in evidence that he had raised the point orally prior to this letter. This evidence is not supported by any contemporaneous documents. Given my general doubts about the credibility of Mr Harper, I am not prepared to accept this evidence without any supporting corroboration.

72. On 18^th June 1997, C&T wrote to Mr Harper in response to his letter of 28^th May 1997 and other correspondence. On the third page of the letter, C&T protest that Mr Harper has not followed the dispute procedures laid down in clauses 3.4 and 3.5 of the ASA. The letter asserts that Mr Harper had not made any specific objections with regard to commission payments. It also states that an independent chartered accountant would only be appointed under the terms of the Agreement "where there is a dispute on a statement". The letter called on Mr Harper to identify genuine disputes which, if not settled, could result in the right to apply for the appointment of an independent expert under clause 3.5 of the ASA.
73. Thereafter there was inconclusive correspondence between Interchange and Mr Harper. Eventually, Mr Harper and his daughter Rebecca attended Interchange's premises at Kenilworth to carry out an audit on 4^th March 1998. Mr Harper complained in his evidence that he and his daughter were only allowed to look at a small number of files containing sales invoices and not the full breadth of documentation that they wished to look at. An Interchange employee was present with them in the room when they conducted their inspection. Mr Harper felt that he was unable to complete his work that day. That was also Ms Harper's view, although she is not a qualified accountant.
74. A further day's inspection took place on 30^th March 1998 which was also attended by Ms Harper. Mr Harper wished to see the account management files in order to verify the basis upon which invoices to customers of Interchange had been compiled. This request was refused.
75. In 1999 further disputes arose between Mr Harper and Interchange which are not relevant to the preliminary issues. In 2000 Mr Harper put the whole matter into the hands of his solicitors. Hammond Suddards, acting for Mr Harper, wrote to Interchange on 26 May 2000, setting out various claims. These did not include the present claim for additional commission totalling 17.5% on Unisource Contracts.
76. On 24 July 2002 a different firm of solicitors, Standley & Co, wrote to C&T. The letter enclosed a draft of proposed particulars of claim. That made the claim for a total of 17.5% commission on Unisource Contracts. The claim form in the current action was issued on 22^nd June 2005. The particulars of claim setting out Mr Harper's argument on construction of the ASA and his other claims. Those are set out in detail in two schedules to the particulars of claim which were served on 19^th October 2005.

E. The arguments of the parties

77. On behalf of Mr Harper, Mr John Davies QC submits that clause 3.3. of the ASA provides that in respect of Unisource contracts Mr Harper is entitled to 7.5% of all "Licence Fees" as defined and also 10% of the "Gross Margin" as defined. Further, he submits that Mr Harper is also entitled to 10% of all "recurring Income originating from Gross Margin". Mr Davies submits that this construction is to be preferred on an ordinary reading of clause 3, in the context of the ASA as a whole and the factual matrix in which it was concluded. He further submits that this construction is in accordance with commercial sense, given the circumstances in which the ASA was concluded.
78. On behalf of Interchange, Mr Corbett QC submits that on the proper construction of clause 3, the rights of Mr Harper under clause 3.3.1, 3.3.2 and 3.3.3 are separate and not cumulative.
79. Interchange has raised further issues in defence to the claim of Mr Harper with regard to commission. First, Mr Corbett submits that clauses 3.4 and 3.5 of the ASA provide a mechanism for the determination of disputes concerning commission by way of reference to an expert to determine the sums in dispute. Mr Corbett submits that Mr Harper has failed to use this mechanism in accordance with the terms set out and it is now too late for him to do so. The consequence is that even if the claimant's submissions on the interpretation of clause 3.3.1, 3.3.2 and 3.3.3 were correct, the claimant cannot now pursue his claim for additional submission. In this regard, Mr Corbett relies in particular on the decision of the Court of Appeal in Infiniteland Limited v Artisan Contracting Limited.^[4]
80. Mr Corbett submits that if Interchange is wrong on the question of construction of clause 3.3 and the effect of clauses 3.4 and 3.5, then Interchange is entitled to an order for rectification of clause 3.3. Mr Corbett's submission is that there was a continuing common intention of the parties with regard to the definition of Licence Fees in clause 1.1 of the ASA. He submits that the continuing common intention was that the phrase "any other contracts" in the definition of "Licence Fees" should exclude Unisource contracts. Therefore that definition should be rectified so as to add the words "save for the Unisource contracts" after the words "any other contracts" in the definition. Mr Corbett submits that the parties struck a deal to this effect at their meeting on 24^th March 1996 and that this remained the common continuing intention of the parties throughout all subsequent meetings and correspondence up until the ASA was signed in the early hours of 4^th April 1996.
81. The last argument put forward by Mr Corbett, which is made on the assumption that the Court were to accept the claimant's construction of clause 3.3 of the ASA (but the other defences of Interchange fail), is that Mr Harper is estopped by convention from advancing the claimant's construction. Mr Corbett submits that, at and after the conclusion of the ASA, there was a common (but mistaken) underlying assumption of both Mr Harper and Interchange that clause 3.3 of the ASA would be construed such that the words "save for the Unisource contracts" should be inserted after the words "or any other contracts" when applying the definition of "Licence Fees" to clause 3.3.1 and 3.3.3. He submits that the parties conducted their dealings after the conclusion of the ASA on this common assumption and by their acts and correspondence each indicated to the other that it understood this to be the proper construction of the ASA.
82. Mr Corbett submits that there are now three reasons why it would be unfair or unjust to allow Mr Harper to go back on this common assumption. First, Interchange has organised its business on the basis that no more commission is owed to Mr Harper. (Mr Ellis gave some evidence in that regard). Secondly, it is now long past the limitation period for any claim to be made by Interchange against its solicitors, C&T, who advised on the drafting of the ASA in 1996. Thirdly, Mr Harper only issued his claim form in 2005, some nine years after the common assumption began and after it had been acted upon for many years.

F. The Issues for Decision

83. Logically, the first issue for decision should be that concerning the effect of the provisions of clauses 3.4 and 3.5 and whether Mr Harper is precluded, in the circumstances, from bringing his present claim for more commission because of those provisions. However, as I have formed a clear view on the correct construction of clause 3.3, which is in favour of Interchange and against Mr Harper, I think that I should deal with that issue first.
84. I will then deal with the issue of the effect of clauses 3.4 and 3.5 in the context of the facts of this case. Next I will deal with the issue of estoppel by convention. Lastly I will deal, very briefly, with the argument on rectification.

G. Correct construction of clause 3.3

85. There was no disagreement between Mr Davies and Mr Corbett on the correct legal principles to be applied when a court has to construe a commercial document. In Absalom v TCRU Ltd, I attempted to summarise the principles to be derived from the House of Lords cases of Investors Compensation Scheme Ltd v West Bromwich Building Society,^[5] Bank of Credit and Commerce International SA v Ali,^[6] Sirius General Insurance Co v FAI General Insurance Ltd,^[7] and Antaios Compania Naviera SA v Salen Rederierna AB.^[8] That summary was approved by the Court of Appeal in the Absolom case,^[9] so I set it out here.

"……

The key principles can be summarised as follows:

(i) the aim of the exercise is to ascertain the meaning of the relevant contractual language in the context of the document and against the background to the document. The object of the enquiry is not necessarily to probe the "real" intention of the parties, but to ascertain what the language they used in the document would signify to a properly informed observer.

(ii) The interpretive exercise must not be done in a vacuum, but in the milieu of the admissible background material. That comprises anything that a reasonable man would have regarded as relevant in order to comprehend how the document should be understood, provided that the material was reasonably available to both parties at the time (ie up to the time of the creation of the document).

(iii) However, evidence of negotiations and subjective intent are not admissible for the purposes of this exercise.

(iv) A commercial document must be interpreted so as to make business common sense in its context. But if a "detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense", see Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201 per Lord Diplock."

86. In the very recent decision of Briggs J in Chartbrook Ltd v Persimmon Homes Ltd,^[10] the judge considered in detail a submission that, in certain circumstances, a court can have recourse to the parties' negotiations as an aid to construction of a contract. The submission made was that if the parties have, in their negotiations, agreed that a particular meaning should be given to a word or phrase and then they have used that word or phrase in a contract without defining it, the court can look at the negotiations to decide what is the "private dictionary" meaning of the word or phrase that the parties have assigned to it.
87. Briggs J analysed the cases and concluded as follows:^[11]

"In my judgment, it is at least reasonably clear that the private dictionary inroad into the exclusion of the parties' negotiations from the admissible background ought not to extend to any case in which the word, phrase, clause or term is itself the subject of an express definition in the contract itself. In none of the private dictionary cases was the word, phrase or terms so defined…"

88. The judge went on to set out a number of "sound reasons of policy, logic and common sense for drawing a line in such a way as to exclude the private dictionary principle from being used for the construction of defined words, phrases or terms".^[12] I respectfully agree with both the judge's analysis and with his reasons why the line should be drawn as he states.
89. In this case the issue of construction concerns the meaning of clauses 3.3.1, 3.3.2 and 3.3.3 of the ASA in general; and in particular the meaning of "Licence Fees" and "Gross Margin" when applied in those clauses. Those terms, as well as the terms "Recurring Income" and "Enhancements" which are both relevant to the present issue of construction, are all defined in clause 1.1 of the ASA. On the case law as I understand it, therefore, there is no scope for considering the negotiations of the parties as an aid to the construction of clause 3.3. Rectification is a different matter, of course, as Briggs J recognised in the Chartbrook case.^[13] I will deal with rectification below.
90. The relevant parts of clause 3.3 are as follows:

"In addition to the consideration payable pursuant to Clause 3.1 and 3.2, Mr Harper shall, subject to the provisions of Clauses 3.4, 3.5 and 3.6 be entitled to:

3.3.1 7.5% of all Licence Fees received by the Purchase in the 3 years following Completion (including all payments of Licence Fees received after the third anniversary of Completion were the order culminating in such Licence Fees is received prior to the third anniversary of Completion), such percentage to be paid in respect of each and every Licence Fee on the 25^th day of the month following the month in which the Purchaser receives payment of all or any part of a Licence Fee.

3.3.2 10% Of the Gross Margin and/or the Enhancements realised by the Purchaser in each of the 3 years following Completion (including all payments contributing to Gross Margin and/or the Enhancements received after the third anniversary of Completion where the order culmination in such contribution to Gross Margin and/or the Enhancements is received prior to the third anniversary of Completion), such percentage to be paid on the 25^th day of the month following the month in which the Purchaser receives payment of all or any part of the Enhancements and/or the fees, income or revenue referred to in paragraphs (i) to (iv) of the definition of Gross Margin.

3.3.3 7.5% of all Recurring Income originating from Licence Fees and 10% of all Recurring Income originating from Gross Margin whenever such Recurring Income may be received by the Purchaser after the date of this Agreement such percentages to be paid on the 25^th day of the month following the month in which the Purchaser receives payment of any such Recurring Income."

91. In my view these terms must be construed against the following factual background: first, both Mr Harper and Interchange knew, at the time of the ASA, that there were existing, long term, contracts relating to the software to which Mr Harper and/or the Pension Fund claimed the IP rights. Secondly, both parties knew that there were no existing contracts with the Dutch PTT. Thirdly, both parties knew, however, that a contract might be agreed with the Dutch PTT and possibly other members of the Unisource group. Fourthly, the parties' assessments of the prospects of the Dutch PTT contract were very different. Mr Harper believed that the Dutch PTT contract would be concluded and that it would be long term and highly profitable to the purchasers of SSL. The assessment of Mr Ellis and Mr Jones on the prospects for a Dutch PTT contract was much less optimistic. Each side knew of the other's assessment. Fifthly, each party to the ASA, ie. Mr Harper and Interchange, were intent on driving as hard a commercial bargain as it could get and it would not be generous to the other simply for the sake of peace and quiet. Each knew the other's aim. Lastly, each party knew that Interchange were attempting to agree a deal on the sale of SSL in administration. Mr Harper may have thought that Interchange believed that it must obtain both SSL and all the IP rights that might be held by Mr Harper and/or the Pension Fund. However, Interchange were not, in fact, desperate to do both deals. I am satisfied that they were not prepared to do a deal with Mr Harper "at any price".
92. Clause 3.3.1 sets out the first and general entitlement of Mr Harper to a commission. He is to have 7.5% of "all Licence Fees received by [Interchange] in the 3 years following Completion…". The term "Licence Fees" is defined as meaning:

"all income received or receivable by [Interchange] or any member of [Interchange's] Group under the Contracts or any other contracts (relating to the Software and/or the Business) entered into by… [Interchange]… after Completion in connection with the sale, lease or other provision of the Software".

93. The definition of "Licence Fees" is sufficiently general and wide so as to include income from Unisource Contracts, in particular from the Dutch PTT contract. That contract was concluded after Completion by Interchange and it is connected with the sale, lease or other provision of the Software. On the face of clause 3.3.1 read alone, Mr Harper would be entitled to receive commission of 7.5% of income from the Dutch PTT contract. Mr Davies submits that, given the definition of "Gross Margin" in clause 3.3.2, it therefore follows that Mr Harper is entitled not only to a commission of 7.5% of the Licence Fees on the Dutch PTT and any other Unisource contracts concluded since Completion, but a further commission of 10% of "Gross Margin" in respect of the Dutch PTT contract and other Unisource contracts.
94. However, there is no connecting word "and" between either clause 3.3.1 and 3.3.2, nor 3.3.2 and 3.3.3. This is significant, particularly when that fact is considered in conjunction with the wording of those clauses and the definitions of "Gross Margin"; "Enhancements" and "Recurring Income" in clause 1.1.
95. Taken on its own, clause 3.3.2 entitles Mr Harper to "…10% of Gross Margin and/or the Enhancements realised by [Interchange] in each of the 3 years following Completion…". "Gross Margin" is defined as follows:

"in relation to any Unisource Contract, the aggregate of:

i) all licence fees relating to the sale, lease or other provision of the Software received by [Interchange] less [various items]…

ii) all revenues received by [Interchange] for consultancy services derived from or provided in connection with any such Unisource Contract less [various sums]…

iii) all revenues received by [Interchange] for enhancement services derived from or provided in connection with any such Unisource Contract less [various sums]…

iv) all incremental revenues received by [Interchange] in relation to the provision of maintenance with any such Unisource Contract, less [various sums]…"

96. The term "Enhancements" (with a capital "E") is defined in clause 1.1 of the ASA. Its definition is:

"all income received or receivable by [Interchange]…under the Contracts or any other contracts (relating to the Software and/or the Business) entered into by the Purchaser or any member of the Purchaser's Group after Completion in connection with the upgrading or enhancement of the Software".

97. Therefore, clause 3.3.2 entitles Mr Harper to a 10% commission of the "Gross Margin", as defined "and/or" the "Enhancements" as defined. Unsurprisingly, Mr Davies did not argue that Mr Harper would be entitled to obtain 10% on the "Gross Margin" of Unisource Contracts and also, in relation to such contracts, a further 10% commission in respect of any Enhancements (as defined) in relation to Unisource Contracts. If that had been argued it would mean that Mr Harper would be seeking a 20% commission in total for Unisource Contracts which had had "Enhancements" as defined.
98. Before considering further the interaction of clauses 3.3.1 and 3.3.2, I should set out the relevant provisions of clause 3.3.3. This entitles Mr Harper to:

"7.5% of all Recurring Income originating from Licence Fees and 10% of all Recurring Income originating from Gross Margin whenever such Recurring Income may be received by [Interchange] after the date of this Agreement…".

99. The term "Recurring Income" is also defined in clause 1.1. The definition is:

"any Licence Fees or any fees falling within paragraphs (i) and/or (iii) of the definition of Gross Margin, which are contracted for in the three years following Completion but which are received as rental or lease payments or which are deferred or which are paid in instalments (rather than in one off payments)".

100. The effect of clause 3.3.3 is, in my view, clear. It is dealing with cases where a Licence Fee is paid in a particular form, ie. as a rental or lease payment, or where the Licence Fee is deferred or paid in instalments. Clause 3.3.3 contemplates that there may be "Recurring Income" (in one or other of the forms indicated in the definition) from one of three sources. First, from a Contract that exists at the time of the ASA; secondly, from any other contracts relating to the Software or the Business that are entered into by Interchange after Completion, provided the contract is in connection with the sale, lease or other provision of the Software; and thirdly, "Recurring Income" originating from "Gross Margin", that is: Unisource Contracts. The three classes are intended to be separate and distinct.
101. In the case of the first two, the clause clearly states that Mr Harper will be entitled to 7.5% of "Recurring Income". In the case of the third, he will be entitled to 10% of "Recurring Income". In my view it is plain that the word "and" after "Licence Fees" in the first line of clause 3.3.3 is acting only as a conjunction, rather in the sense of "in addition". Therefore, Mr Harper could not claim 7.5% commission on "Recurring Income" on a Unisource Contract on the ground that it related to an "other contract (relating to the Software and/or the Business)", then also claim a further 10% commission on all Recurring Income originating from Gross Margin.
102. There is a further comment to be made about the relationship between clauses 3.3.1 and 3.3.3. It is plain that the parties intended that Mr Harper would only be entitled to a commission in relation to "Licence Fees" either under clause 3.3.1 or clause 3.3.3. Whether his commission of 7.5% was to be paid under the one or other clause would depend on whether the payment received by Interchange as a "Licence Fee" fell within the definition of "Recurring Income" or not.
103. As I have already noted, "Gross Margin" is defined by reference to "…any Unisource Contract", which is, itself, a defined term in the ASA. It is clear from its definition that "Gross Margin" is the aggregate of income, in relation to any Unisource Contracts, from (a) all licence fees relating to the sale (etc) of the Software; (b) all revenues for consultancy services provided; (c) all revenues for enhancement services; and (d) all incremental revenues for maintenance.
104. Having considered the overall shape of clauses 3.3.1, 3.3.2 and 3.3.3, I ask the question: did the parties intend, by the language of the ASA, to give Mr Harper an entitlement to 7.5% commission on the "Licence Fees" on "any other contracts" including Unisource Contracts, and 10% commission on "Gross Margin", which relates exclusively to Unisource Contracts? In my view the answer is, plainly, "No".
105. First, it must be noted that the entitlements given to Mr Harper under clauses 3.3.1 and 3.3.2 and also 3.3.3 are not expressly stated to be cumulative. There is no "and" or "in addition" between each of the three parts to clause 3.3. Secondly, clause 3.3.2 clearly deals with two particular items in respect of which Mr Harper is entitled to receive 10% commission. Those items are "Gross Margin" and "the Enhancements" that are realised by Interchange in each of the three years following Completion.
106. Thirdly, the definition of "Licence Fees" refers in general to "…any other contracts (relating to the Software and/or the Business)…". By contrast, "Gross Margin" is defined by specific reference to the Unisource Contracts only. The obvious inference is that the proper construction of the general words "..any other contracts…" in clause 3.3.1 is: any other contract apart from those specifically dealt with in any other part of this clause 3.3. The opposite construction would lead to the conclusion that the parties intended, by the language of the ASA, to entitle Mr Harper to recover commission on the same Unisource Contract under both clause 3.3.1 and 3.3.2. That, in my view, is a very unlikely intention in a contract where the parties have been careful to define the terms used and have been careful to sub – divide Mr Harper's entitlements to commission into the three parts of clause 3.3. It would have been very easy for the parties to agree wording at the start of clause 3.3.2 such as "in addition to the entitlement in clause 3.3.1, 10% of Gross Margin and/or the Enhancements…". But that wording is not present.
107. Fourthly, my construction of the relationship between clauses 3.3.1 and 3.3.2 is consistent with my analysis of Mr Harper's entitlement to commission within clause 3.3.2 itself. As I have pointed out, it is clear that Mr Harper is entitled to 10% commission on Gross Margin, which includes "enhancements", in respect of Unisource Contracts. But Mr Harper is not entitled, nor is he claiming, a further 10% commission under clause 3.3.2 in respect of "Enhancements" of Unisource Contracts, even though they would fall within the phrase "…any other contracts…", in the definition of "Enhancements" in clause 1.1. In short, the entitlement to 10% commission in clause 3.3.2 is either on "Gross Margin" or on "Enhancements". It cannot be claimed twice.
108. Fifthly, this construction is consistent with what the parties knew and contemplated at the time the ASA was signed. They knew that Unisource Contracts might be concluded, but there was no certainty that they would be. They also knew that Mr Harper had been involved in negotiations with the Dutch PTT directors, so it is easy to conclude that the parties intended that those particular contracts should be dealt with in a particular way with regard to commission.
109. But, sixthly, the parties also contemplated at the time that the ASA was signed that there might be other, new contracts, that did not fall within the definition of Unisource Contracts. Commission on those new contracts also had to be catered for; hence the enlarged definition of "Licence Fee"; and "Enhancements". So, on this construction, the ASA deals with Mr Harper's entitlement to commission on all types of existing and potential contracts, without any kind of overlap or double commission.^[14]
110. This construction is, in my view, consistent with commercial sense. Both sides wanted to get the best bargain, of course. But it does not make commercial sense for the parties to agree that Mr Harper should be entitled to 10% commission on the licence fees of Unisource Contracts under the express terms of clause 3.3.2 and then be able to claim a further 7.5% commission on the same licence fees for the same contracts under the general wording of clause 3.3.1, unless it was obvious from the wording that the parties so intended. It is not obvious. In fact, in my view it is obvious from the wording of clauses 3.3.1 and 3.3.2 that the parties intended precisely the opposite.

H. Is Mr Harper precluded from claiming 10% plus 7.5% commission on Unisource Contracts by virtue of the operation of clauses 3.4 and 3.5 of the ASA?

111. As I have found against Mr Harper on the construction issue, strictly speaking I do not need to decide this issue. But I will do so because the point was fully argued and in case I am wrong on construction.
112. Mr Corbett argues that the effect of clause 3.4 is that Mr Harper has a period of 28 days from delivery of the "Statement" to him to notify Interchange of any basis on which he objects to the Statement. Clause 3.5 provides that if the parties cannot resolve their differences, the dispute is to be referred to an independent chartered accountant. Mr Corbett submits that the effect of clause 3.4 and 3.5 is that if Mr Harper does not object to the Statement within the 28 day period, he cannot challenge the Statement and the basis on which the commission has been calculated thereafter, whether in proceedings or otherwise.
113. Mr Davies submits that the wording of those two clauses does not stipulate that if the procedure laid down is not followed then the parties have agreed that any right of action is barred or terminated. He further submits that the wording of the clauses contemplates that the dispute resolution mechanism applies only to mathematical calculation disputes and does not apply to issues of construction, such as those in the present case.
114. Mr Corbett relies strongly on the Court of Appeal decision in Infiniteland Ltd v Artisan Contracting Ltd.^[15] In that case there was a contract for the sale of three companies. The contract provided, by clause 4, for the adjustment to the purchase price if the net asset value of the companies sold proved to be substantially different to that contemplated by the parties at the time of the contract. After the sale, the purchaser assigned his rights to the appellant. It brought proceedings against the sellers of the companies, claiming relief under clause 4 of the sale contract to adjust the purchase price of the companies bought, on the ground that there was a shortfall in the asset value of the three companies. The judge dismissed the claim under clause 4. That conclusion was upheld by the Court of Appeal, which held that the appellant's failure to initiate and operate the clause 4 machinery was fatal to its claim for a price adjustment.
115. Clause 4.3 of the contract in that case provided that the purchaser would prepare a valuation of the Net Asset Value of the companies by a certain date and then submit it to the sellers. Clause 4.4 of the contract stated:

"If the parties are unable to reach agreement on the Net Asset Value within 56 days of delivery of the purchaser's calculations under clause 4.3 an independent accountant…shall be appointed…to certify in writing the sum that in his opinion represents the Net Asset Value…The certificate of the Nominated Accountant (who shall act as an expert and not as an arbitrator) shall be binding on both parties".

116. Clause 10.6 of the contract provided for time to be of the essence. It stated:

"Time shall be of the essence of this agreement, both as regards the dates and periods specifically mentioned and as to any dates and periods which may be substituted by agreement…"

117. The Court of Appeal held that the purchaser did not initiate the clause 4.4 procedure within the 56 days provided. It further held that the purchaser was, on the true construction of clauses 4.3 and 4.4, required to take those steps under the contract in order to establish its entitlement to an adjustment of the purchase consideration. If a party did not utilise the contract procedure laid down to calculate a price adjustment, then it could not evade the contractual mechanism by trying to bring an action to obtain the price adjustment instead.^[16]
118. Chadwick LJ referred to and relied upon the decision of the Court of Appeal in Gillat v Sky Television Ltd.^[17] That case concerned a contract which provided for the valuation of shares of a company by an independent chartered accountant in certain circumstances where one party was claiming a payment under the contract based on the value of shares. The party claiming a payment based on the value of the shares did not call for the appointment of an independent accountant, but issued proceedings instead. The question for the court was whether the failure to have the share value determined by the independent accountant meant that no sums were due to the party claiming payment. Both Lloyd J and the Court of Appeal held that the determination by the independent accountant was a pre – condition to any entitlement to payment. There was no entitlement to any payment in the absence of such a determination.
119. Mummery LJ gave the leading judgment. He considered other cases,^[18] but concluded that the question of whether the appointment of an independent accountant to determine the value of the shares was an essential pre – condition to the party's entitlement to payment was a matter of construction of the contract.
120. The clauses in question in these two cases were dealing with two different situations and both are different in terms from the present case. But in each case the contract clauses provide a mechanism for determination of the value of a payment to be made by one party to the other. As Mummery LJ pointed out (at page 111 of the report), the cases emphasise the importance of upholding, if possible, the validity of contracts and the intention of the parties to them. They also illustrate the approach of the court in seeking to prevent contracts from becoming ineffective as a result of one party taking advantage of its failure to perform a contractual obligation. In another context the court's willingness in principle to enforce a dispute – resolution agreement between parties was emphasised by Lord Mustill in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd.^[19]
121. So what, on their true construction, do clauses 3.4 and 3.5 provide that the parties must do? The clauses set out the following steps: (i) Interchange must make payments to Mr Harper in accordance with the terms and the timetable set out in clause 3.3; (ii) at the same time as payment is made, Interchange must deliver to Mr Harper a statement of the Gross Margin and/or Licence Fees forming the basis of the payment made; (iii) Mr Harper has 28 days in which to agree the Statement or to notify Interchange of the basis on which he objects to the Statement (an "Objection"); (iv) if Mr Harper makes an "Objection", then the parties will endeavour to resolve it within 28 days; (v) if Interchange and Mr Harper are unable to agree the Statement issued or settle the objection then the dispute will be referred to an independent chartered accountant; (vi) once the accountant is appointed he will act as an expert, not as an arbitrator. His decision shall be final and binding on the parties in the absence of manifest error.
122. In my view, those steps constitute a comprehensive agreement between the parties of a contractual mechanism for resolving disputes about payments to be made to Mr Harper by Interchange under clause 3.3. I do not accept the argument of Mr Davies that the mechanism is only to apply to mathematical calculations of sums due, as opposed to any issue about the interpretation of the provisions of clause 3.3. Clause 3.4 entitles Mr Harper to object to the Statement made on any basis. The fact that he can object when Interchange have not made a payment but Mr Harper believes that it should have done strongly suggests that this mechanism is to cover all types of dispute that might arise out of the operation of clause 3.3.
123. I have also concluded that, on the correct construction of clauses 3.4 and 3.5, the parties agreed that this mechanism should operate for each Statement delivered by Interchange to Mr Harper. As Statements were delivered on a regular basis, this means that in respect of the payment made with each Statement, the contractual dispute resolution mechanism should have been invoked by Mr Harper if he was dissatisfied with the way in which the payment had been calculated by Interchange.
124. In my view the effect of the words in clause 3.4, that Mr Harper will have 28 days in which to agree the Statement "…or to notify [Interchange] of the basis on which he objects to the Statement…", is that Mr Harper must set out in his objection the nature of his complaint with sufficient particularity so that Interchange can respond to it sensibly.^[20] A general objection that the sum paid is not correct would not, in my view, be sufficient.
125. Mr Davies did not suggest that the mechanism was incapable of being operated because of the agreement by the parties that Mr Harper should send an invoice to Interchange once it had sent a Statement to him of the Gross Margin and/or Licence Fees forming the basis of the payment to be made to him. He was right not to do so.
126. Nor did Mr Davies suggest that the machinery had, for some other reason, become inoperative or incapable of being performed by the parties. If Mr Harper had wanted to raise the construction point, he could easily have seen from each Statement how the commission had been calculated. He could then have objected that this was wrong and not in accordance with the correct construction of clause 3.3.
127. So the next question that arises is: did Mr Harper attempt to follow the contractual mechanism with regard to his complaint that he had not been paid what he thought his due in respect of Unisource Contracts? I have already set out the history of post contract events in the earlier part of this judgment. In summary, Mr Harper's first possible objection was when he responded (after 28 days) to the first commission statement of 25^th June 1996, but did not specify the grounds for his objection to the payment that had been made. The next objection that Mr Harper rose was on 29^th September 1996, again outside the 28 day limit for the 31^st August Statement. He raised a question about the rate of commission but not the present issue. Thereafter, Mr Harper did periodically respond to the Statements sent by Interchange, but he did not raise the objection that is now made.
128. In November 1996 Mr Harper commissioned C&L. The terms of his letter to Mr O'Donnell dated 25 November 1996 make it clear that Mr Harper thought that C&L were being appointed under the terms of clause 3.5 of the ASA. But, as Mr O'Donnell stated in his response of 3 December, that could not be so, because Mr Harper had not raised specific, identified, objections to the Statements issued by Interchange.
129. Therefore, I have no doubt that when C&L wrote their letter of 23^rd January 1997 to Mr O'Donnell, commenting on the construction of clauses 3.3.1, 3.3.2 and 3.3.3, C&L was not acting as an independent accountant appointed by the parties under clause 3.5. Mr Davies did not suggest that they were so acting.
130. The only occasion on which Mr Harper specifically raised the issue of 7.5% plus 10% commission for the Dutch PTT contract was in his letter dated 28 May 1997 to Mr Jones. The letter raised 27 financial issues, of which this particular one was number 23. That issue was not related to any specific Statement that had been issued by Interchange.
131. Although there was further correspondence between the parties prior to the issue of proceedings, the issue of 7.5% plus 10% commission for the Dutch PTT contract was not raised specifically; nor was that issue brought up in connection with any particular Statement sent by Interchange under clause 3.4.
132. Therefore, if I had needed to determine this point, I would have held that the parties were bound by the terms of clauses 3.4 and 3.5 of the ASA to deal with disputes about payments to Mr Harper under clause 3.3 by the mechanism set out in those clauses. Mr Harper did not invoke them at any time, as he was contractually bound to do if he had any objection to the Statements made by Interchange in connection with Statements issued by ASA. He is not now entitled to bring an action in which he claims that he has been wrongly paid under clause 3.3 because he failed to invoke the contractual machinery for dealing with such a dispute.

I. Is there an "estoppel by convention" that prevents Mr Harper from making his current claim in relation to the 7.5% and 10% commission?

133. Once again, this does not arise for decision. But it was also fully argued so I will set out my findings on the point. The argument of Mr Corbett, based on the leading cases on estoppel by convention, ^[21] is that there was an agreed state of affairs as between Interchange and Mr Harper, which arose at the conclusion of the ASA or thereafter, which was that, on the correct construction of clauses 3.3.1 and 3.3.2 of the ASA, Mr Harper was only entitled to 10% commission on the Dutch PTT or other Unisource Contracts under clause 3.3.2, not 17.5% commission under clause 3.3.1 and 3.3.2. Mr Corbett submits that the correctness of that state of affairs was assumed by both parties thereafter and they have conducted transactions on the basis of that common assumption. Those transactions are the Statements sent by Interchange, the invoices submitted by Mr Harper and the payments made by Interchange as a result. Mr Corbett submits that it would now be unconscionable to permit Mr Harper to question the truth of that assumption.
134. I am prepared to accept, for the sake of argument and contrary to my conclusion on the construction of clauses 3.3.1 and 3.3.2 of the ASA, that at the time of the conclusion of the ASA, there was a common assumption by both Interchange and Mr Harper that he was entitled only to 10% commission on the Dutch PTT/other Unisource Contracts under clause 3.3.2 and that he could not also obtain a further 7.5% under clause 3.3.1 of the ASA. I would also be prepared to accept that both parties assumed the truth of that state of affairs.
135. In his judgment in The August Leonhardt,^[22] Kerr LJ set out the kind of action that has to occur after the common assumption and upon its basis, in order to establish an estoppel by convention:

"…All estoppels must involve some statement or conduct by the party alleged to be estopped on which the alleged representee was entitled to rely and did rely. In this sense all estoppels may be regarded as requiring some manifest representation which crosses the line between representor and representee, either by statement or conduct. It may be an express statement or it may be implied from conduct, eg. a failure by the alleged representor to react to something said or done by the alleged representee so as to imply a manifestation of assent which leads to an estoppel by silence or acquiescence. Similarly in cases of so – called estoppels by convention, there must be some mutually manifest conduct by the parties which is based on a common but mistaken assumption. The alleged representor's participation in this conduct can then be relied on by the representee as a basis for this form of estoppel".

136. The "mutually manifest" conduct of the two parties in this case (on the basis of the common –but for these purposes mistaken - assumption) constituted: (i) the Statements sent at intervals by Interchange. (ii) The acceptance of the money sent to Mr Harper by Interchange following receipt of his invoices, which were based on 10% commission in the case of the Dutch PTT contract or other Unisource contracts. (iii) Generalised complaints from time to time by Mr Harper that he was not satisfied that he was being correctly paid by Interchange what he was due under clause 3.3. (iv) An inconclusive exchange after Mr Harper specifically raised the issue of the 10% plus 7.5% in the letter of 28 May 1997. (He did not raise the issue again until the action was started). (v) No specific attempt by Mr Harper to act on the C&L letter of 21 January 1997, which raised the construction issue with Interchange. In fact, Mr Harper continued to send invoices based on 10% for the Dutch PTT and other Unisource contracts, although he did add a "footer" which reserved Mr Harper's position generally. ^[23] (vi) Continued general protests by Mr Harper about what he regarded as Interchange's inadequate payments under clause 3.3.
137. I have concluded that this evidence is sufficient "mutually manifest conduct" between the parties to create the necessary representations by Mr Harper to establish the estoppel by convention. In particular it is significant that at all times Mr Harper sent invoices based on a 10% only commission for the Dutch PTT and other Unisource contracts and Interchange paid him on that basis.
138. Mr Corbett has to establish also that it would now be unconscionable to permit Mr Harper to go back on this assumption and conduct thereafter. In addition to the "manifest mutual conduct" referred to above, Mr Corbett relied on three further matters. First, the considerable delay until the issue was raised in the action which was started in 2002, that is 8 years after the ASA was signed. Secondly, the fact, as Mr Ellis said in evidence, that Interchange had ordered its business on the basis that it was paying Mr Harper correctly under clause 3.3. Thirdly, that the time limit for any action against C&T, who advised Interchange on the wording of the ASA, had now passed so that Interchange would have no recourse if Mr Harper was, in fact, due more commission than he had been paid.
139. The first point is not independent of the other two. It adds nothing to them. As for the second point, I was not impressed by Mr Ellis' evidence on this issue. Moreover, Interchange were continually being told by Mr Harper that they had grossly underpaid him commission. Expenditure was nevertheless incurred by Interchange on various projects, as identified by Mr Ellis. There was no evidence that Interchange had taken a particular course of action because they relied on an assumption that Mr Harper accepted that he was only entitled to 10% commission on the Dutch PTT contract.
140. As for the third point, Mr Davies pointed out, correctly, that neither Mr Jones nor Mr Ellis had given any evidence on the question of whether Interchange would have considered suing C&T if it had been known earlier that Mr Harper was saying he was due 17.5% commission on the Dutch PTT contract. Mr Davies submitted, and I accept, that this point has no force unless there was evidence that Interchange would have seriously considered exercising the right to sue C&T if the construction issue had been raised earlier by Mr Harper, suggesting that C&T had negligently advised on the wording of clause 3.3 of the ASA. There was simply no evidence on this point and I am not prepared to infer what Interchange may or may not have done from the evidence that was given by Mr Ellis, Mr Jones and Mr Griffiths.
141. Ultimately, Interchange's complaint is simply that Mr Harper has taken a very long time to raise this construction issue and it is now unfair for him to pursue it. But the ASA was made as a Deed under Seal, which can be sued on up to 12 years after its conclusion. In my view, if estoppel by convention were the only point, I would not be prepared to hold that it would be unconscionable to permit Mr Harper to raise the point now, in spite of all that has happened between 1996 and 2002.
142. Paragraph 1.3(b) of the Preliminary Issues poses the question whether there is an "account stated" between the parties, so as to preclude Mr Harper from making a recovery against Interchange, even if he is correct on his construction of clause 3.3. On analysis, there is no argument in addition to the ones raised on clauses 3.4 and 3.5 and "estoppel by convention". Mr Corbett did not press any particular argument on "account stated" in his closing submissions and I therefore say no more about it.

J. The Rectification Claim

143. This issue is also unnecessary to decide in the light of my conclusions on construction and the effect of clauses 3.4 and 3.5. I would have decided it against Interchange, if the point had been live. I will briefly say why.
144. The remedy of rectification can be granted when there has been a mistake in the manner in which an agreed transaction has been expressed in writing. Mr Corbett's case (which assumes I would have found in Mr Harper's favour on the construction issue) was that there was a common mistake between the parties in the manner in which clause 3.3 was expressed. Instead, it ought to have expressed an agreement that Mr Harper would only be entitled to receive 10% commission on all Unisource Contracts, not 17.5% commission.
145. It is very well established that a claim for rectification can only be made if it is established (by "strong, irrefragable evidence"),^[24] that there was a common intention between the parties with regard to the particular provision and that this continued up until the date of the written agreement, together with some outward expression of that common intention.^[25]
146. The evidence of Mr Jones and Mr Griffiths was that after the "Heads of Agreement" letter of 24 March 1996, there was no change in the position and intention of Interchange on the question of commission. Its intention was that Mr Harper should receive only 10% commission on all Unisource Contracts, not 17.5% commission. I accept that evidence.
147. But it was also the clear evidence of Mr Jones and Mr Ellis that in the meetings of 1 and 2 April 1996, Mr Harper demanded changes to the proposals for commission in respect of the Unisource Contracts. Both of those meetings ended inconclusively. Mr Harper was still pursuing his demands for higher commission when he sent his fax to Mr Jones on 3 April 1996, which referred to the "relevant extracts from the Butcher deal". The minute of the Interchange Board Meeting that day indicates that further negotiations were still to take place. Mr Ellis said in his evidence that at the meeting in the evening of 3 – 4 April 1996, Mr Harper again raised the issue of the rate of commission on the Unisource Contracts. Therefore it is clear that Mr Harper's intention was that he should have more than 10% commission on Unisource contracts and that he did not accept the wording of the ASA until the last moment on 4 April 1996.
148. In short, there was no agreement on the terms relating to commission until the very last minute of negotiations. Effectively, Mr Corbett's argument is: even if there was no agreement on what commission should be paid until the last moment, there was a common intention on what the terms that were eventually in the ASA (and had been in draft), should mean, if and when those provisions became the agreed terms. On the cases, that cannot be a foundation for the remedy of rectification. There has to be a common intention on what has been agreed between the parties from a period before the formal document until the time it is executed. In this case there was no such common intention. Mr Harper's intention was to get more commission, particularly in relation to the Unisource Contracts.
149. Therefore, if the point were live, I would have found against Interchange on the issue of rectification.

J. Conclusions and answers to the Preliminary Issues

150. My conclusions and answers to the preliminary issues (adopting the terms of the Order of Tomlinson J dated 30^th June 2006, as amended by that of Creswell J dated 17^th November 2006), are as follows:

i) The proper construction of clause 3.3 of the ASA in its factual matrix, is that contended for by Interchange in its Defence;

ii) If (contrary to (1)), I had concluded that the proper construction of the ASA was that contended for by Mr Harper in the Particulars of Claim and Reply, I would have concluded that Mr Harper was nevertheless precluded from recovering against Interchange by reason of a failure to operate the contractual machinery set out in clauses 3.4 and 3.5 of the ASA.

iii) If, (contrary to (1)), I had concluded that the proper construction of the ASA was that contended for by Mr Harper in the Particulars of Claim and Reply, I would have concluded that Mr Harper was not prevented from recovering against Interchange in accordance with such construction by virtue of the "estoppel by convention" raised in the Defence.

iv) If, (contrary to (1)), I had concluded that the proper construction of the ASA was that contended for by Mr Harper in the Particulars of Claim and Reply, I would have concluded that Interchange was not entitled to rectification of the ASA, as claimed in the Amended Defence and Counterclaim.

v) Interchange did not pursue the defence of "account stated".

A P P E N D I X 1

"…………..

RECITALS

…….

(B) The copyright in the Software may be owned by more than one party (including without limitation, Mr Harper, Copystatic, the Trustees and Servasure) although the Vendors agree that the copyright in the original development of the Software is owned by Mr Harper personally and that all other copyright in the Software cannot be exploited without the consent of Mr Harper as the owner of such original copyright in the Software.

(C) The Purchaser proposes to acquire all rights in the Software and has requested that, for the avoidance of any doubt, Copystatic and the Trustees join in this Agreement to sell whatever right, title and interest (if any) each may have in the Software. The Purchaser also proposes to acquire all Servasure's right, title and interest (if any) in the Software pursuant to the terms of the Servasure Agreement.

(D) The Trustees have agreed to enter into this Agreement solely to pass whatever right, title and interest (if any) that the Fund may have in the Software and for no other purpose whatsoever, it being acknowledged by the Vendors that they do not believe the Fund has any financially beneficial interest in exploiting the Software.

……………

151. INTERPRETATION

……….

"the Contracts"

all contracts relating to the Software to which Copystatic and/or the Trustees are a party including those set out in Part B of the Disclosure Letter;

………

"Enhancements"

all income received or receivable by the Purchaser or any member of the Purchaser's Group under the Contracts or any other contracts (relating to the Software and/or the Business) entered into by the Purchaser or any member of the Purchaser's Group after Completion in connection with the upgrading of enhancement of the Software;

"Gross Margin"

in relation to any Unisource Contract the aggregate of:

(i) all licence fees relating to the sale, lease or other provision of the Software received by the Purchaser less related purchase or licence costs of third party software products or essential mobile data devices which the Purchaser has to acquire to achieve an operational system.

(ii) All revenues received by the Purchaser for consultancy services derived from or provided in connection with any such Unisource Contract les £250 for each man day contracted to be provided or reasonably estimated to be provided at the time such Unisource contract is executed;

(iii) All revenues received by the Purchaser for enhancement services derived from or provided in connection with an y such Unisource Contract less £175 for each man day contracted to be provided or reasonably estimated to b provided at the time such Unisource Contract is executed; and

(iv) All incremental revenues received by the Purchaser in relation to the provision of maintenance with any such Unisource Contract less the cost to the Purchaser of any third party back to back maintenance agreements entered into (as commercially required and as commercially reasonable in all the circumstances) in order to provide such maintenance;

"Licence Fees"

all income received or receivable by the Purchaser or any member of the Purchaser's Group under the Contracts or any other contracts relating to the Software and/or the Business entered into by the Purchaser or any member of the Purchaser's Group after Completion in connection with the sale, lease or other provision of the Software;

"Maintenance Income"

all income received or receivable by the Purchaser in the first year after Completion in respect of the Contracts or any other contract entered into by the Purchaser or any member of the Purchaser's Group following Completion in relation to the Software and/or the Business;

…………….

"Recurring Income"

any Licence Fees or any fees falling within paragraphs (i) and/or (iii) of the definition of Gross Margin which are contracted for in the three years following Completion but which are received as rental or lease payments or which are deferred or which are paid in instalments (rather than in one off payments);

………….

"the Unisource Contracts"

any contact concluded between the Purchaser or any member of the Purchaser's Group and:

i) PTT Telecom BV (Holland)

ii) Telia (Swedish PIT)

iii) Suisse Telecom

iv) Telefonica of Spain

relating to the sale of and/or the implementation, enhancement, installation and/or maintenance of the Software or any part of the Software.

……………

3.3 In addition to the consideration payable pursuant to Clause 3.1 and 3.2, Mr Harper shall, subject to the provisions of Clauses 3.4, 3.5 and 3.6 be entitled to:

3.3.1

7.5% of all Licence Fees received by the Purchase in the 3 years following Completion (including all payments of Licence Fees received after the third anniversary of Completion were the order culminating in such Licence Fees is received prior to the third anniversary of Completion), such percentage to be paid in respect of each and every Licence Fee on the 25^th day of the month following the month in which the Purchaser receives payment of all or any part of a Licence Fee.

3.3.2

10% Of the Gross Margin and/or the Enhancements realised by the Purchaser in each of the 3 years following Completion (including all payments contributing to Gross Margin and/or the Enhancements received after the third anniversary of Completion where the order culmination in such contribution to Gross Margin and/or the Enhancements is received prior to the third anniversary of Completion), such percentage to be paid on the 25^th day of the month following the month in which the Purchaser receives payment of all or any part of the Enhancements and/or the fees, income or revenue referred to in paragraphs (i) to (iv) of the definition of Gross Margin.

3.3.3

7.5% of all Recurring Income originating from Licence Fees and 10% of all Recurring Income originating from Gross Margin whenever such Recurring Income may be received by the Purchaser after the date of this Agreement such percentages to be paid on the 25^th day of the month following the month in which the Purchaser receives payment of any such Recurring Income.

3.4 Upon any payment Upon any payment being made by the Purchaser to Mr Harper pursuant to Clause 3.3, the Purchaser will deliver to Mr Harper a statement ("the Statement") of the Gross Margin and/or Licence Fees forming the basis of such payment. Mr Harper will have 28 days in which to agree the Statement or to notify the Purchaser of the basis on which he objects to the Statement ("an Objection"). Mr Harper may also make an Objection in the event that Mr Harper believes that the Purchaser should have it has failed to make a payment under Clause 3.3. Mr Harper may make an Objection notwithstanding that Mr Harper may have accepted any payment made under Clause 3.3. If Mr Harper makes an Objection the Purchaser and Mr Harper will endeavour to resolve the Objection within the following 28 days.

3.5 If the Purchaser and Mr Harper are unable to agree the Statement and/or settle any Objection then the dispute shall be referred, with the agreement of the Purchaser and Mr Harper, or in the absence of such agreement, by the {President for the time being of the Institute of Chartered Accountants in England and Wales on the application of either of them, to an independent chartered accountant (being a partner of one of the "big six" firms) who, once appointed, shall act as expert (not as arbitrator) and whose decision shall, in the absence of manifest error, be final and binding on the parties. The costs of such accountant shall be paid as such accountant determines is fair and reasonable in all the circumstances or, in the absence of such determination, shall be borne equally by Mr Harper and the Purchaser.

3.6 The amount payable by the Purchaser to Mr Harper pursuant to Clause 3.3 shall be reduced by 50% of the shortfall in the Maintenance Income below a threshold in the year following Completion of £873,486.

3.7 All amounts paid or payable by the Purchaser under this Clause 3 are exclusive of Value Added Tax which shall be paid immediately upon delivery of an appropriate VAT invoice to the Purchaser.

………….

7.3 Until Mr Harpooner has received all sums to which he is entitled under Clause 3, Mr Harper (and his professional advisors) shall have access to and shall be entitled to take and retain copies of the books and records of the Purchaser which are relevant to the calculation of any sums to which Mr Harper is or may be entitled under Clause 3 and shall have the right to receive from the Purchaser explanations as t the accounting records of the Purchaser provided that Mr Harper and his professional advisors shall keep confidential any information which they may obtain from such books and records.

……………….

9.3 This Agreement shall be governed by English Law and the parties submit to the non-exclusive jurisdiction of the English Courts.

………."

Note 1    See transcript for 19.6.07 at page 99 lines 6 – 8; page 108 lines 14 – 25; page 111, lines 6 – 11; page 147 line 17.    [Back]

Note 2    Transcript for 19 June 2007, page 168 lines 3 – 9; page 169 lines 8 – 20.    [Back]

Note 3    Transcript 19.6.07 at page 169 lines 21 – 23.    [Back]

Note 4    [2006] 1 BCLC 632    [Back]

Note 5    [1998] 1WLR 896 at 912 – 3.    [Back]

Note 6    [2002] 1AC 251 at 269    [Back]

Note 7    [2004] 1 WLR 3251 at 3257.    [Back]

Note 8    [1985] AC 191 at 201.    [Back]

Note 9    [2006] 2 Lloyd’s Rep 129 at para 7.    [Back]

Note 10    [2007] 1 All ER (Comm) 1083 (Ch D)    [Back]

Note 11    At para 44 of his judgment.    [Back]

Note 12    At para 45 of his judgment.    [Back]

Note 13    At para 63 of his judgment.    [Back]

Note 14    As I have already pointed out, Mr Davies did not submit that Mr Harper would have been entitled to 10% commission of the Gross Margin which includes “enhancements” and a further 10% commission for “Enhancements” of Unisource Contracts, even though that would fall within the definition of “Enhancement” in clause 1.1.    [Back]

Note 15    [2006] 1 BCLC 632    [Back]

Note 16    See the judgment of Chadwick LJ at paras 51, 52, 55, 57 and 59. Pill and Carnwarth LJJ agreed with Chadwick LJ on this point.    [Back]

Note 17    [2000] 2 BCLC 103.    [Back]

Note 18    These included the House of Lords’ decision in Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444, to which I was referred by Mr Davies QC in argument.    [Back]

Note 19    [1993] AC 334 at 352. The other members of the House agreed on the question of the court’s power to grant a stay of the proceedings before them.    [Back]

Note 20    Compare A/S Rendal v Arcos Ltd (1937) 58 Ll.L.Rep 287, per Lord Wright at page 292 and Lord Maugham at page 298.    [Back]

Note 21    Viz: Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84; K Lokumal & Sons (London) Ltd v Ltte Shipping Co Pte Ltd (The “August Leonhardt”) 1985] 2 Lloyd’s Rep 28; Norwegian American Cruises A/S v Paul Mundy Ltd (The “Vistafjord”) [1988] 2 Lloyd’s Rep 343, all in the Court of Appeal.    [Back]

Note 22    [1985] 2 Lloyd’s Rep 28 at page 34, second column.    [Back]

Note 23    And he did send the letter of 28 May 1997, which raised the construction issue at point xxiii.    [Back]

Note 24    Countess of Shelbourne v Earl of Inchquin (1784) 1 Bro.CC 338 at 341 per Lord Thurlow LC.    [Back]

Note 25    Jocelyne v Nissan [1970] QB 86.    [Back]