Boots v Amdahl

Out-Law Guide | 02 Nov 2007 | 8:31 am | 3 min. read

This case considered whether consideration, a fundamental prerequisite for a binding agreement, was given for a variation to an exising contract.  This case shows that consideration can arise in many forms.

(1) Boots the Chemist Limited and (2) The Boots Company Plc v Amdahl (UK) Limited

  • [2000] Masons C.L.R. 43

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Facts

Boots in the 1990's was in the practice of updating its IT on a frequent basis and accordingly there was competition between suppliers to sell products to Boots. Amdahl was one such supplier and supplied computers and upgrades to Boots under a contract dated 16 February 1994. An amendment of the same date provided that Boots had the option between 1 June 1995 and 31 August 1995 on 30 days notice to sell back to Amdahl two processors which they had purchased from Amdahl. The prices were agreed at £1.2m for the 3570M processor and £1.718m for the 4570M processor.

In 1995, Boots was wavering between going forward with either Amdahl or IBM. On 17 July 1995, Amdahl in a letter extended the buyback option until the end of August 1996. On 20 July 1995, Boots asked Amdahl to set out the terms for the buyback options in one document.

Amdahl wrote to Boots on 20 July 1995 and in the letter's first bullet point Amdahl delayed the August 1995 buyback deadline by two weeks. In the next bullet point, Amdahl provided August 1996 buyback values for the 3570M of US$1.441m, for the 4570M of US$1,859m and for a 5570M of US$2.442m. Amdahl also confirmed in the third bullet point that the buyback value of the 3570M was not dependent on Boots upgrading the current 4570M to a 5570M and also that the buyback value of the 3570M was not dependent on retaining the 4570M.  The effect of quoting the price in US dollars meant that the buyback value for the 3570M was considerably less than the value at which Boots had the option to insist on a buyback in August 1995.

Boots decided to buy from IBM and so exercised the extended buyback for the 4570M on 8 August 1995 and Amdahl did indeed buy back that processor.

The dispute arose in 1996. Boots wrote on 27 June 1996 to ask if they had until the end of 1 August 1996 to invoke the buyback. Amdahl responded by advising Boots that the offer to buy back was withdrawn with immediate effect. Boots thereupon exercised the buyback option in their letter dated 30 July 1996, which Amdahl refused to go ahead with.

Judgment

There was an agreement reached by the parties on the basis of the oral negotiations, which the letter of 20 February 1995 was intended to confirm. If that was not correct, then Boots' exercise of the option on 8 August 1995 was a good acceptance.

There was also good consideration. The letter of 20 July 1995 varied the buyback provisions of the original contract. That variation was capable of benefiting either party and had an element of detriment to Boots if they accepted the benefit. Looked at from Amdahl's point of view, if Boots looked to the longer buyback provision, Amdahl would not have to buy the processors at the higher price a year earlier. Amdahl also got the advantage that they had a further year to try to persuade Boots to choose them as suppliers again in 1996. Boots got a benefit in that they could postpone their decision until 1996 but had the detriment of getting the lower price if they did so.

Commentary

This is a fairly simple case but illustrative of a general point that is often missed.  Consideration is rarely an issue in cases and the issues have by and large been settled since the nineteenth century, but there are still some occasions where it arises and the search is on to find some consideration. As this case demonstrates, there are normally numerous factors which satisfy the requirement of consideration and it need not consist only of some payment, or delivery of something tangible.

It can be found in the promises of payment, or simply in analysing the situation and finding benefits and burdens. It may be that there is only a possible benefit or detriment, as in this case. The Court of Appeal approved of a passage in Chitty 28th edition paragraph 3-074, which states as follows:

"...the parties may agree to vary the contract in a way that can prejudice or benefit either party. Here the possible detriment or benefit suffices to provide consideration for the promise of each party … This possibility of benefit and detriment is sufficient … If a variation is, taken as a whole, capable of benefiting either party, the requirement of consideration will be satisfied even though a particular term of the variation is for the sole benefit of one.”

So, even though Boots had a good deal in the sense of the extended deadline, the consideration could be found by examining the contract as a whole and looking for the possible benefit for either party. As may be seen from the summary of the judgment, this was relatively easy to find.

The point to be derived from this case is that complex IT contracts - outsourcing, systems development and so on - are frequently varied, either through formal change control or otherwise by agreement between the parties. Even when it appears that only one party is receiving a substantial benefit, it may still be that the variation is valid when a wider view is taken of the commercial setting within which the variation is agreed.