IN THE HIGH COURT OF JUSTICE 1994 ORB NO.728
OFFICIAL REFEREES' BUSINESS
HIS HONOUR JUDGE BOWSHER Q.C.
BETWEEN: (1) COMYN CHING LIMITED
(2) COMYN CHING (SHEFFIELD) LIMITED
(3) LINKIRK HARDWARE LIMITED
PLAINTIFFS
and
RADIUS PLC
DEFENDANTS
JUDGMENT
By order of the judge, no official shorthand note or tape recording is to be taken of this judgment.
THE PARTIES
The first and second plaintiffs are well known and long established architectural ironmongers. The third defendant is a wholesaler of architectural ironmongery in the same group.
Architectural ironmongery consists of such items as door knobs, knockers, door handles, hinges, latches and knobs.
The defendants are the holding company of a group of companies which supply, mainly to businesses, computer hardware, software and services including systems analysis and design. One of the subsidiaries of that group (not a party to this action) was Advanced Business Technology Limited (ABT) formerly known as Pan Computer Systems Limited (Pan).
In the 1980s, the first plaintiffs undertook a programme of expansion. From their head office in Golden Lane in the City of London, they bought branches in Covent Garden, London, Ipswich and Bristol and a central warehouse in Biggleswade. They also bought the entire share capital of the second plaintiffs (carrying on business in Sheffield) and of the third plaintiffs (carrying on business in Biggleswade). Before being taken over, the second plaintiffs were known as Smith Widdowson & Eadem Limited or SWEL and they have been extensively referred to in this case as SWEL. Before the events the subject of this action, the defendants' subsidiary, ABT, supplied computer equipment and software to SWEL.
Other subsidiaries of the first plaintiffs mentioned in evidence but not parties to the action are Comyn Ching (Solray) Limited (Solray), FG Machin Limited (Machin) and Charles H Wood (Security) Limited (Wood). Solray manufactures heating panels and Wood is a locksmith.
THE DISPUTE
To exploit the advantages of size, the plaintiffs wished to computerise their operations. They, or one of them, approached the defendants for computers and software.
There was no formal written contract. The plaintiffs say that they bargained for an integrated stock control and accounting system to cover the whole of the plaintiffs' group operations. The defendants say that there were only individual contracts for individual sites.
Some computers and software were delivered to 3 individual sites and paid for and used for some years but the defendants have not supplied an integrated system to cover the whole of the plaintiffs' group.
The plaintiffs put their case in several ways:
1. Negligent misstatement.
2. Contract made orally or in correspondence.
3. Collateral contract.
4. Misrepresentation.
The plaintiffs also allege various breaches of duty and of contract.
Although the earliest agreement is alleged to have been made on 25 November, 1988, the writ in this action was not issued until 1 September, 1994, when that part of the claim had nearly become statute barred. 4 months later, the plaintiffs served their first Statement of Claim. That Statement of Claim was struck out as disclosing no cause of action. A second Statement of Claim was served but withdrawn when objection was taken to it. It was more than a year after the writ before the plaintiffs served their third, existing, Statement of Claim claiming at least ,3,179,254.66 plus interest at the rate of more than
,1 million per year. On 9 November, 1995, His Honour Judge John Loyd Q.C. ordered the trial of preliminary issues. The date for trial of these preliminary issues was set for 13 May, 1996. The case did not come on for trial on that date, which was fortunate for the plaintiffs because they were not ready for trial, and it was not until 25 June, 1996 that the plaintiffs' solicitor indicated that he was ready to exchange witness statements and expert's report, well out of time.
The preliminary issues ordered by His Honour Judge John Loyd were as follows:
First Question:
"Did the Defendant owe the Plaintiffs a duty of care as
alleged in paragraph 13 of the Statement of Claim on or after 1st September 1988?"
Second Question:
"Did the Defendant and the Plaintiffs (or any of them)
enter into an agreement as alleged in paragraph 19 of the Statement of Claim, and, if so, on what terms?"
Third Question:
"If the Plaintiffs did not enter into an agreement with
the Defendant as alleged in paragraph 19 of the Statement of Claim, did they or any of them enter into the agreements alleged in paragraph 21 of the Statement of Claim, with which parties and on what terms?"
Fourth Question
"Did the Plaintiffs and the Defendant enter into any
agreement as alleged in paragraph 24 of the Statement of Claim?"
Fifth Question
"Did the Defendant make the representations as alleged
in paragraph 25 of the Statement of Claim and, if so, did the Plaintiffs rely on such representations in entering into any of the agreements mentioned in paragraphs 19 to 21 of the Statement of Claim?"
The plaintiffs have made allegations and led evidence going outside those issues. When objection was taken by me, it was said that the allegations and evidence went to the existence of a duty of care. However, having heard the evidence, I am satisfied that much of it goes not to the existence of a duty of care but to alleged breaches of an alleged duty of care. I shall confine this judgment to matters relevant to the questions before me.
THE ANSWERS TO THE QUESTIONS
THE FIRST QUESTION
"Did the Defendant owe the Plaintiffs a duty of care as
alleged in paragraph 13 of the Statement of Claim on or after 1st September 1988?"
Paragraph 13 of the Statement of Claim reads:
"In the premises, the Defendant owed the Plaintiffs a
duty of care which would have been discharged by (1) making no proposals at all, (2) taking the steps mentioned in paragraph 12 hereof before making any proposals, or (3) qualifying any proposals that it might make with a clear, prominent and unambiguous warning that it had not taken essential steps to ascertain the Plaintiff's requirements and that the Plaintiffs should not rely upon such proposals because they may not meet their requirements."
Paragraph 12 of the Statement of Claim is as follows:
"Any competent 'solutions company' or 'experienced computer company' should have known that a user's requirements may be ascertained only by taking the following steps:
- obtaining, reading and digesting as much information as possible about the sites or sites for which a computer system is proposed;
- visiting such sites, examining existing systems carefully and talking to the managers, computer staff and others who will be involved in or affected by such installation;
- considering whether it is cost effective or otherwise feasible to instal such a system;
- if it is feasible, analysing the operations to be automated;
- designing a system to perform such operations; and
- specifying hardware and software for such a system.
Had the defendant taken such steps it would have ascertained the plaintiffs' requirements and proposed a system having the features and facilities and capable of performing the functions that are set out in the left hand column of Part 1 of Appendix 1."
Appendix 1 to the Statement of Claim sets out in minute detail certain computer functions.
Paragraph 13 does not allege a general duty to take reasonable skill and care: it alleges specific duties which amount to saying that if the defendants made any proposals at all they should either take the steps mentioned in paragraph 12 or warn that they had not taken those steps and add a warning of the implications of failure to do so.
On the face of it, it was unnecessary to warn the plaintiffs that the defendants had not taken the steps referred to in paragraph 12 because the plaintiffs could not have been unaware of those steps being taken if they had been taken. If, as I find, the plaintiffs must have known that the defendants had not taken the steps which the plaintiffs say were necessary to ascertain their requirements, it cannot have been necessary to warn that the equipment might not meet the plaintiffs' requirements because, on the plaintiffs' case, the plaintiffs must have known that the defendants did not know their requirements.
However, I have to say that the defendants do not accept the allegations in paragraph 12.
By the opening words of paragraph 13, "in the premises", the plaintiffs indicated that the facts from which it is alleged a duty of care arises are those set out in paragraphs 1 to 12 of the Statement of Claim.
Paragraphs 1 and 2 of the Statement of Claim identify the parties.
Paragraph 3 of the Statement of Claim alleged that in order to obtain the savings of scale to which I have referred, the plaintiffs needed a network of computers or terminals at each of the plaintiffs' sites in constant communication with the others running the same integrated stock control and accounting software and sharing the same data. The defendants object that if there were the need for a network, it was not necessarily best to have constant communication between sites. Constant communication is expensive. In some circumstances, a reporting system might be preferable. Detailed investigation would be required to discover which was preferable.
Paragraph 4 of the Statement of Claim specifies the computer equipment which each of the plaintiffs had in 1987.
Paragraph 5 of the Statement of Claim recites that on 15 September, 1987, the directors of the first plaintiffs appointed a committee to acquire a computer network. The members of the committee were Mr. Culverhouse, Bruce Ching, Mike Herman, Paul Mayhew and Mr. Dearden. None of them knew much about computers except Mr. Dearden who had been executive director of Pan, and, it was alleged, even he could not analyse or design systems.
Paragraph 6 of the Statement of Claim is in the following terms:
"At their first meeting in October, 1987, the computer committee recognised that they had insufficient knowledge to choose a network for themselves. Rather than instruct a consultant they decided to invite proposals from selected hardware and software suppliers. They compiled an information pack which described the businesses and branches of the plaintiff companies, their existing computer systems and what they believed to be the plaintiffs' collective and individual requirements."
The information pack became known as the ITT.
Paragraph 7 of the Statement of Claim recites that copies of the ITT were sent to various companies including Data General Limited (Data General), but not to the defendants or to any company in the defendants' group. There was a covering letter and an appendix, on both of which the plaintiffs rely heavily. I shall return to the terms of those documents.
Paragraph 8 recites that amongst other replies, Data General replied by letter dated 19 April, 1988, saying that they had passed the invitation to the defendants so that they could collaborate in compiling a response.
In fact, by fax dated 7 April, 1988, Data General said that they would be co-operating with Trinity Computer Systems, but as it turned out they co-operated with the defendants who by letter dated 19 April 1988 put forward a proposal.
Paragraph 9 of the Statement of Claim recites the defendants' status as a holding company with ABT as a subsidiary.
Paragraph 10 is a most important paragraph:
"Upon being asked to collaborate with Data General, the defendant foresaw or should have foreseen that the plaintiffs were likely to acquire whatever equipment and software it might propose in reliance on its proposals in the belief that the defendant had the expertise necessary to ascertain their requirements and would apply such expertise when drawing up proposals.
PARTICULARS
(1) The defendant should have realised that it would have been pointless to propose solutions if the plaintiffs did not intend to rely on them.
(2) The defendant had claimed expertise in specifying systems on pages in a booklet entitled 'Radius The Group' (which it sent to the plaintiffs on the 18th April, 1988):
(a) it described itself as 'a solutions company' and as 'an experienced computer company' which had successfully applied computer solutions to a multitude of businesses on page 1 and added that system design was one of the services that it provided;
(b) on page 6 it claimed a 'wealth of expertise in applying computer solutions to computer problems'.
(3) The defendant was particularly well placed to make such proposals because its aforementioned subsidiary ABT must have learned something of the second plaintiffs business.
(4) It was the common experience of the computer industry in 1988 that medium size enterprises outside the information technology industry tended to treat suppliers proposals as recommendations and buy hardware and software in reliance on them."
Paragraph 11 of the Statement of Claim recites that it must have been in the contemplation of the defendants that the plaintiffs would incur considerable expense and fail to make anticipated savings if they acquired hardware and software which did not meet their requirements.
What shines out most clearly from this action is that now, long after the event, the plaintiffs allege that they were entitled to have advice and system design without paying for them.
At the outset they deliberately decided not to employ a consultant even though they claim to have limited knowledge of computers - apart from the experience of Mr. Dearden.
Then, when they approached the defendants, the defendants offered to make an investigation for ,6,930. That offer was rejected.
The plaintiffs now say, many years after the event during which years they have paid for and used equipment supplied, that it was negligent not to make the investigation without request and without payment when investigation was offered to them for payment and refused. That proposition is so unreasonable that it must be wrong in law.
The representations relied on in sub-paragraphs (2)(a) and (b) of the particulars under paragraph 10 of the Statement of Claim could not be read by any reasonable business man to mean that the plaintiffs would design a system and apply computer solutions to business problems for no reward, even though the ITT had asked the supplier to come up with a solution.
In opening, the plaintiffs relied on a statement made by the defendants' sales director, Mike Dixon, in a letter dated 7 October, 1988, "We feel confident we have a comprehensive appreciation of your Group's business..." That letter ran to 8 pages and many statements were made in it and in the accompanying revised proposal/quotation. That statement was said to be supporting evidence of a duty of care. I do not so read it, and in any event it came after the events alleged in paragraph 14 of the Statement of Claim to be breaches of the alleged duty of care.
In opening, the plaintiffs relied on a decision of the Supreme Court of British Columbia, Jonas & Erickson Software v. Fitz-Wright Co. Ltd. (Lexis 5 October, 1990). That case is distinguishable on its facts. At page 6, Selbie J. said:
"The defendant believed the plaintiffs were acting as consultants on its behalf - there can be no question about this and I find it to be a fact. The question is as to whether the plaintiff held itself out to be their consultant."
In the present case, the plaintiffs offered, not to be a consultant, but to make an investigation and were refused. So this case is entirely different from the case of Jonas & Erickson Software. Counsel also cited V Mark Software Inc. v. EMC Corporation 642 NE 2d 587 (Mass. App. Ct. 1994) which is similarly distinguishable on its facts.
In his closing speech, counsel for the plaintiffs went back to first principles. Counsel cited the speech of Lord Reid in Hedley Byrne & Co. Ltd. v Heller & Partners Ltd. [1964] AC, 465, 486:
AA reasonable man, knowing that he was being trusted or that his skill and judgment were being relied on, would, I think, have three courses open to him. He could keep silent or decline to give the information or advice sought: or he could give an answer with a clear qualification that he accepted no responsibility for it or that it was given without that reflection or inquiry which a careful answer would require: or he could simply answer without any such qualification. If he chooses to adopt the last course he must, I think, be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require.@
Counsel further submitted that those principles extend to commercial contracts where one party which Ahas or professes to have special knowledge or skill, [and] makes a representation by virtue thereof to another - be it advice, information or opinion - with the intention of inducing him to enter into a contract with him@ (per Lord Denning MR in Esso Petroleum Co. Ltd. v Mardon [1976] QB 801, 820. He further cited Lord Denning, saying that such party is-
Aunder a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable. If he negligently gives unsound advice or misleading information or expresses an erroneous opinion, and thereby induces the other side to enter into a contract with him, he is liable in damages.@
In the circumstances of this case, I find that the statements relied on in the particulars under paragraph 10 of the Statement of Claim were made in part with the intention of inducing the plaintiffs to enter into a contract with the defendants for investigation and advice which was one of the services offered. Such a contract was offered and refused. The statements also were made with intention of inducing the plaintiffs to buy hardware and software, but even if, which I do not accept, such purchase would normally carry with it a duty to supply investigation and advice, by refusing the investigation and advice, the plaintiffs negated that duty.
I shall return to the question of contract when considering a later question. Although not pleaded, what was said in relation to the alleged making of a contract or contracts is relevant to the existence of a duty of care: I have those statements in mind but to keep some order in this judgment I shall deal with them only under later questions.
What I have said is sufficient to find that there was no duty of care owed as alleged. However, for the sake of completeness, I should refer to some of the evidence concerning the allegations made in paragraph 12 of the Statement of Claim regarding what the defendants knew or ought to have known.
The defendants called as an expert Mr. Larner who is a Chartered Engineer, a Fellow of the British Computer Society, and a Fellow of the Institute of Management Consultants. He began his career in computing in 1967 doing practical work in various companies. From 1976 to 1986 he worked with Arthur Young, Chartered Accountants as a Management Consultant and then started his own consultancy. I accept him as a skilled expert and honest witness. He was recalled for cross-examination as to credit. That further cross-examination did nothing to impeach his credibility or reduce the weight to be given to his evidence.
In his initial cross-examination, Mr. Larner said that the alleged duty of care is unreal and also that paragraph 12 of the Statement of Claim is unreal.
The defendants called as an expert Mr. R.E. Sherwin. Mr. Sherwin has spent 30 years in the computer industry and is now a management and information technology consultant. He said in his written statement that, "The steps set out in the indented sub-paragraphs of paragraph 12 are typical steps that would have been taken by any systems analyst." The defendants in this instance were not acting as systems analysts. They had offered to do so but had been turned down.
Earlier in his statement, Mr. Sherwin said:
"Buying a computer system is not like buying a motor car or consumer durable. There are three methods in which it can be done:
(a) a systematic analysis of the consumer's requirements and the specification of needs.
(b) a supplier describes the functions and attributes of a system to a user who will then decide whether such a system meets his requirements.
(c) a supplier will provide a "hands on" opportunity for the user who will then decide, without further help, whether the system meets his requirements."
I do not see that evidence as being in any way inconsistent with the evidence of Mr. Larner.
The plaintiffs clearly needed Mr. Sherwin's method (a) but on two occasions chose not to take it, first when they decided not to hire a consultant and secondly when they declined the defendants' offer to make an investigation.
If the plaintiffs had hired the defendants to take on the role of consultant as well as supplier, the defendants would have been involved in making recommendations which required management decisions because any purchase of computer equipment, even of a stand alone personal computer, involves decisions as to cost effectiveness. Many important management decisions would have been discussed, among them:
Is permanent on-line communication required?
Which of the different existing systems used by companies within the group is to be preferred as the system to be built on, or should they all be scrapped?
Which supplier is to be preferred?
Not surprisingly, Mr. Larner in cross-examination said that there is no implied obligation on a supplier to take on the role of consultant, and equally unsurprisingly, counsel for the plaintiffs accepted that statement without reservation. It also must be obvious that a customer could not trust a supplier to recommend the product of another supplier without any prejudice.
I accept the submission of the defendants that the duty alleged is unreasonable. It is not "fair just and reasonable" to impose as a duty in tort the making of an analysis for nothing when that analysis would be expensive to undertake, and has been offered for a fee and the offer declined: Caparo Industries plc v. Dickman [1990] 2 AC 605.
The answer to this question is, No.
Second Question:
"Did the Defendant and the Plaintiffs (or any of them)
enter into an agreement as alleged in paragraph 19 of the Statement of Claim, and, if so, on what terms?"
Paragraph 19 of the Statement of Claim is in the following terms:
"Mr Culverhouse met Mr Dixon again in his office on the
25th November 1988 where they agreed inter alia the following terms:
(1) the equipment to be supplied would have the
features and facilities and perform the functions set out in the [ITT], appendix and covering letter, the ["Brief and Timetable for Phase II"] and the said proposals;
(2) the Defendant would deliver the equipment that it
had proposed for the Second Plaintiff's site in Sheffield immediately;
(3) the parties would enter into a written agreement
for the supply of the proposed hardware and software provided that the Plaintiffs could withdraw from such agreement should the hardware and software to be supplied to the Second Plaintiff fail to meet agreed performance levels, response times or requirements;
(4) the said brief [sic] included a term that the
Plaintiffs would not be required to accept delivery of equipment for any site other than Sheffield until after 2 months clear testing with no hardware or software faults at the previous site;
(5) any and all intellectual property rights in any
bespoke software to be developed by the Defendant for the Plaintiffs should belong to the Plaintiffs;
(6) the Plaintiffs would pay a deposit of ,15,000 ...
and deliver formal written instructions to commence delivery of equipment for Sheffield and a "letter of intent" in a form to be agreed by Mr Dixon and Mr Culverhouse; and
(7) the Plaintiffs could finance the acquisition by
entering a leasing agreement with Rentals if it so wished.
Mr Culverhouse thereupon handed to Mr Dixon a cheque
for ,15,000, a "letter of intent" in a form that was agreed by Mr Dixon and formal written instructions to commence delivery to Sheffield. Upon making such payment and delivering such documents, a binding agreement was concluded between the Plaintiffs (or alternatively the First Plaintiff) and the Defendant whereby the Defendant agreed to supply and the Defendants agreed to accept the goods and services upon the terms hereinbefore mentioned."
Very often, what is called a letter of intent is properly construed as a binding agreement or as an offer capable of acceptance. However, I do not so construe the letter of 25 November, 1988.
The correct approach when considering the effect of a letter of intent is Ato look for the purpose of construing it at the document itself, at the surrounding circumstances, and at what happened when it was brought into existence. The fact that it has the particular label that it has does not brand it at the outset as a contractual document or as a non-contractual document@ : Leggatt J, Wilson Smirthett & Cape (Sugar) ltd. v Bangladesh Sugar and Food Industries Corporation [1986] 1 Lloyds L Reps 378, 379.
To begin with, the letter of 25 November is headed "Subject to Contract". In this instance, I believe that those words were intended to mean what they say and the parties had no reason to think otherwise.
It is said that when Mr. Dixon on behalf of the defendants accepted a cheque for ,15,000 from Mr. Culverhouse together with the letter of intent he thereby entered into a contract on the terms of the letter of intent. I do not accept that. By accepting the cheque for ,15,000, the defendants plainly entered into a contract to do certain work ordered by SWEL, and they also, as Mr. Dixon explained, followed normal commercial practice to "get some money up front" for the work they were carrying out. But I hold that they did not enter into any further legal obligation on 25 November, 1988.
In the introduction to his letter of 25 November, 1988, Mr. Culverhouse wrote,
"I am now in a position to confirm our intentions as to the Group Computer System (ex Solray)."
He then wrote:
"1. .... it is our intention to sign a contract for the full installation of computer equipment (Hardware and Software) as detailed in your proposal of the above date. This may be subject to change on both hardware and software as the need arises. ...."
2. It is agreed that if after installation of the SWEL site we find that either the hardware or software do not run to the agreed performance levels, response times or the requirements contained in our brief, then we can withdraw from signing the contract, with all monies then paid to be refundable to Comyn Ching less that already agreed work ordered by SWEL.
.........."
On the last page of his 3 page letter, Mr. Culverhouse wrote,
"All of the above is subject to checking by the committee and therefore amendments may be required. You will obviously appreciate that this document has been written in haste to enable you to collect on Friday 25th November, 1988"
The plaintiffs contend that on 25 November, 1988, there was an agreement evidenced by that letter for the supply of a system to the group with an option to back out of the agreement if the equipment supplied to SWEL was not satisfactory. For my part, I read the letter in the way in which the defendants invite me to read it. The words, "we can withdraw from signing the contract" are, of course, the plaintiffs' words. On 25 November, 1988, the plaintiffs did not make an agreement to buy a system for the whole group: rather, on that date, Mr. Culverhouse wrote (without authority of the Committee) that the plaintiffs would be willing to sign an agreement if the SWEL system was satisfactory.
That is not only my understanding of the letter. It was also the understanding of the writer of the letter, Mr. Culverhouse. In his cross-examination, the following questions and answers were made:
"Q: What you are saying here is: 'These are our intentions and if these remain our intentions and if these remain our intentions we will enter into a contract in these terms and we expect to.'
A: Yes
..........
Q: So you think you know what you may be going to order but there may be some changes, it is a question of tinkering around. We have got the right general gist but we are not sure that all the Is are dotted. Is that what you are saying?
A: We still had not seen the software working.
Q: So if you had seen the software working and it turned out to be an absolute catastrophe, , you would have said: 'Thank goodness we did not sign anything, get rid of these people?
A: Yes."
As is plain from the last passage I have cited from this letter, Mr. Culverhouse when writing it did not have authority to enter into an agreement on behalf of the plaintiffs. That is also plain from the oral evidence of Mr. Culverhouse, Mr. Ching, Mr. Mayhew, and Mr. Dearden. Those gentlemen made it plain that they were free to make changes to the letter of intent. There was no evidence that the letter was checked by the committee or, more importantly, that any notice of such checking or of any required changes was given to the defendants.
The subsequent conduct of the plaintiffs is not admissible under English law in construing the terms of a written contract, but since what is alleged is not a simple written contract, it is worthy of comment that the subsequent conduct of the plaintiffs was inconsistent with a contract in the terms alleged by the plaintiffs.
In particular:
(a) The Plaintiffs decided whether and when to accept
quotations from the Defendant. The Third Plaintiff accepted no hardware or software.
(b) Parts of the system were sought from other
suppliers;
(c) Subsequent proposals were not treated as
amendments to previously agreed binding terms;
(d) No contract was ever demanded or signed.
(e) The Plaintiffs considered alternative proposals
e.g. BCL at Ipswich which would have had the effect of locking the Defendant out.
(f) The contemplated mechanism for determining whether the Defendant's SWEL system was satisfactory (a 2 month test of the ,5K modified software starting on 12th December 1988) was not adhered to but was varied unilaterally.
The "letter of intent" makes it clear that the plaintiffs requirements were subject to change and it is clear from the oral evidence that the plaintiffs' software requirements were a " movable feast" until the defendants drew a "line in the sand" on 5 February, 1990. One letter setting out those changing requirements was a letter from Mr. Chappell on behalf of the defendants dated 8 December, 1988. The analysis attached to that letter began with "Development originally contracted to SWEL" and continued with a number of additional individual items for other sites.
Other letters also were handed over on 25 November,1988, including a letter to Mr. Dixon on behalf of the defendants in the following terms:
"Please accept this letter as our instruction for you to proceed with the SWEL site, and for which we have pleasure in enclosing our cheque in the sum of ,15,000.
The above is to be read in conjunction with the letter of intent dated 25th November and will be further subject to contract which will be agreed at a later date."
It emerged from the evidence that there was what has been called a SWEL side order to upgrade the existing SWEL software with modifications costing ,5,000. That side order forms no part of this action. However, it is to be noted that this latter letter ends with the words:
"... and will be further subject to contract which will be agreed at a later date."
The answer to this question is, No.
Third Question:
"If the Plaintiffs did not enter into an agreement with
the Defendant as alleged in paragraph 19 of the Statement of Claim, did they or any of them enter into the agreements alleged in paragraph 21 of the Statement of Claim, with which parties and on what terms?"
Paragraph 21 of the Statement of Claim is in the following terms:
"The plaintiffs have performed such agreement. In addition to ordering the equipment and software
that was proposed for Sheffield on 25th November 1988, Mr Culverhouse ordered equipment for Ipswich on 25th September 1989 and Golden Lane on the 16th March 1990. They have entered the leasing agreements and paid the moneys mentioned in paragraph 17(1) hereof. If, which is denied, the agreement made by Mr Culverhouse and Mr Dixon was not binding, each of the agreements by which the Plaintiffs ordered equipment and software from the Defendant incorporated the terms set out in paragraphs 19 and 20 hereof."
Counsel for the plaintiffs accepted in his closing speech that if the plaintiffs failed on the second question they would fail on the third. I agree.
There were totally separate orders relating to SWEL,Ipswich, and Golden Lane.
However, I should say something about the terms alleged in the alternative in paragraphs 19 and 20 of the Statement of Claim to be contained in individual agreements.
Paragraph 19 of the Statement of Claim contained 7 sub-paragraphs as follows:
(1) "the equipment to be supplied would have thefeatures and facilities and perform the functions set out in the said information pack, appendix and covering letter, the said brief and the said proposals ....."
In relation to individual sites this allegation cannot make sense. The primary allegation is that the defendants were to install a linked system. It is impossible that such an obligation can apply in the alternative to individual sites.
(2) "the Defendant would deliver the equipment that it had proposed for the Second Plaintiff's site in Sheffield immediately;"
That can only have been a term in the contract for
the supply of equipment to Sheffield. That equipment has been supplied.
(3) "the parties would enter into a written agreement
for the supply of the proposed hardware and software provided that the Plaintiffs could withdraw from such agreement should the hardware and software to be supplied to the Second Plaintiff fail to meet agreed performance levels, response times or requirements;"
I have already rejected this as an alleged term of the letter of intent, and in any event it could not be a term of contracts for individual sites.
(4) "the said brief included a term that the Plaintiffs would not be required to accept delivery of equipment for any site other than Sheffield until after 2 months clear testing with no hardware or software faults at the previous site;"
When making orders for individual sites, it was a matter for the plaintiffs whether the testing at SWEL had been sufficient to satisfy them before they made the order. When the plaintiffs made the order, it was not for the defendants to refuse the order on the ground that any previous requirement by the plaintiffs about testing had not been satisfied.
(5) "any and all intellectual property rights in any
bespoke software to be developed by the Defendant for the Plaintiffs should belong to the Plaintiffs;"
This alleged term is irrelevant to the present dispute and the relief claimed.
(6) "the Plaintiffs would pay a deposit of ,15,000 ...
and deliver formal written instructions to commence delivery of equipment for Sheffield and a "letter of intent" in a form to be agreed by Mr Dixon and Mr Culverhouse"
Plainly this was not a term of each supply
agreement, although if it were, the Plaintiffs are in breach of their pleaded obligation to pay successive deposits of ,15,000.
(7) "the Plaintiffs could finance the acquisition by
entering a leasing agreement with Rentals if it so wished."
This alleged term is irrelevant.
The alleged terms pleaded in paragraph 20 of the Statement of Claim are as follows:
(a) "... it was an implied condition that equipment and software would correspond with that description. The said equipment and software were described in the documents referred to in paragraph 19(1) hereof."
It is plain that the equipment and software must
be supplied in each succeeding contract in accordance with its description. That description is the description set out in the relevant quotation. The documents referred to in paragraph 19(1) are irrelevant to a contract for the supply of part of a system.
(b) "... the goods had been acquired for the purposes
set out in paragraph 3 hereof ... In the premises, it was an implied condition that such would be reasonably fit for such purposes."
That alleged term could only be a term of a contract for the supply of a complete system as opposed to a part thereof. Paragraph 3 of the Statement of Claim does not allege any "purposes" though it does state some opportunities and some "requirements" which seem to have been thought up for the purpose of this litigation. Those requirements referred to in paragraph 3 of the Statement of Claim and detailed in Appendix 1 were not made known to the defendants either expressly or by implication. If the plaintiffs had employed consultants, it may be that similar requirements would have been made known to the defendants expressly by those consultants.
(c) "... it was an implied condition that such goods
should be of merchantable quality. A computer system is of 'merchantable quality' if it outputs data consistently and without interruption to the extent that it can be relied upon by the user."
Each succeeding contract for the supply of goods contained a term that the same should be of merchantable quality.
The answer to this question is, No.
Fourth Question
"Did the Plaintiffs and the Defendant enter into any agreement as alleged in paragraph 24 of the Statement of Claim?"
Paragraph 24 of the Statement of Claim reads, so far as is relevant to the questions before me:
"In the further alternative, by responding to the
Plaintiffs' invitation for tenders of the 24th March 1988, the Defendant impliedly offered to ascertain the Plaintiffs' requirements and to propose equipment and software to satisfy them. Such offer was accepted by the Plaintiffs when they sent the said brief to the Defendant on 12th May 1988. In the premises, an agreement was concluded between the Plaintiffs and the Defendant whereby the Defendant agreed to ascertain the Plaintiffs' requirements and propose equipment and software in consideration of an opportunity to supply such items to the Plaintiffs. Such agreement was "a contract for the supply of a service" within the meaning of section 12(1) of the Supply of Goods and Services Act 1982 and it was an implied term that the Defendant would carry out such service with reasonable care and skill. ..."
The proposition advanced by this paragraph of the Statement of Claim is quite extraordinary and totally unacceptable. It is another example of the plaintiffs demanding something for nothing. The defendants are not entitled to be paid for tendering, but the plaintiffs expect them to undertake burdensome legal obligations in addition to their ordinary costs if they do tender. It would follow that if only two companies tendered and the plaintiffs accepted the lower tender on grounds of price, the plaintiffs might sue the higher tenderer because his tender was negligently prepared and did not give an adequate comparison with the lower tender.
It is instructive to cite a passage from Keating on Building Contracts 6th edition, editor May J., page 15:
"The cost to the contractor of preparing his tender, including any amended tender necessitated by bona fide alterations in the bills of quantities and plans, may be considerable, but in ordinary circumstances there is no implication that the tenderer will be paid for this work":William Lacey (Hounslow) Limited v. Davis [1957] 1 WLR 932. "He undertakes this work as a gamble, and its cost .... he hopes will be met out of the profits of such contracts as are made as a result of tenders which prove to be successful".
I see no difference in principle between a building contract and a computer contract.
Tenderers may become liable for fraud or misrepresentation in their tenders, but if they are to be made liable for breach of contract even if the tender is not accepted, commercial life will break down.
The answer to this question is, "No".
THE FIFTH QUESTION
"Did the Defendant make the representations as alleged
in paragraph 25 of the Statement of Claim and, if so, did the Plaintiffs rely on such representations in entering into any of the agreements mentioned in paragraphs 19 to 21 of the Statement of Claim?"
Paragraph 25 of the Statement of Claim reads:
"In the further alternative, the Plaintiffs were induced to enter the agreement mentioned in paragraph 19 or, alternatively, the agreements mentioned [in] the last sentence of paragraph 21 in reliance on the following representations of the Defendant:
"(1) the profession of expertise mentioned in paragraph (2) of the particulars to paragraph 10 ..."
- paragraph (2) of those particulars is as follows:
"The Defendant had claimed expertise in specifying
systems on pages of a booklet entitled "Radius the Group" (which it had sent to the Plaintiffs on 18th April 1988):
(a) it described itself as "a solutions company"
and as "an experienced computer company" which had successfully applied computer solutions to a multitude of businesses on page 1 and added that system design was one of the services that it provided;
(b) on page 6 it claimed "a wealth of experience
in applying computer solutions to business problems"
Paragraph 25 of the Statement of Claim continues:
"and the further representation on page 1 of the
aforesaid booklet that the Defendant was able to solve day to day problems whatever they might be;
(2) the Defendant had made a great effort to provide a commercially viable system in the .. letter of the 7th October 1988 from Mr Dixon to Mr Culverhouse;
(3) the Defendant would have a total commitment to the project not only contractually but morally in the ... letter of 15th November 1988 from Mr Dixon to Mr Culverhouse.
Each and every one of said representation[s] was untrue. ..."
Those representations in (1) are partly "puff" and partly an offer of services for which the defendants expected to be paid and which were offered specifically and refused. I see nothing in those allegations advancing a claim against the defendants.
In any event, the plaintiffs were not much affected by the brochure, if at all. Mr. Dearden could not remember the brochure. Mr. Mayhew was interested in it to establish the defendants' customer base. Messrs. Culverhouse and Ching said that the brochure would not have affected their views were another system better.
The representation made in (2) is also to a degree "puff". In all probability it is true, but that is not an issue before me. In any event, the plaintiffs did not in reliance on that statement buy a system: instead they chose to buy individual items.
The representations alleged in (3) are again puff. Again this is outside the questions before me, but the representation is probably true and in any event could not be impeached on the pleadings as they now stand.
The answer to this question is "Any representations made, if any, were not relied on".
SUMMARY:
All of the questions before me are answered in favour of the defendants.
At the trial, the plaintiffs sought to go outside the pleadings and rely on other matters not pleaded. I have only considered the allegations in the pleadings. To do otherwise would be unjust to the defendants.
Counsel for the defendants indicated that if the answers I gave to the questions were to the effect of those which I have in fact given, he would apply for the claim to be struck out. He also submitted that the court has the power of its own motion to refuse to allow the claim to proceed:Don Pasquale v. Customs & Excise [1990] 1 WLR 1108.
In the light of the answers I have given to the questions before me, it is impossible for the plaintiffs to succeed in this action and I therefore give judgment for the defendants.
HIS HONOUR JUDGE BOWSHER Q.C.
Plaintiffs:
Counsel: John Lambert
Solicitors: Letts & Co.
Defendants:
Counsel: Graham Shipley
Tamsin Holman
Solicitors: Bates and Partners