Co-op v ICL

Out-Law Guide | 02 Nov 2007 | 8:31 am | 14 min. read

In a dispute as to the formation of an agreement for the provision of services by ICL the judge provided directions on the conduct of, and case management in, substantial project disputes, including guidance on summary judgment, strike-out, and trial on a preliminary issue.

Co-operative Group (CWS) Limited v International Computers Limited

  • MCLR April 2003
  • [2003] EWHC 1 (TCC)
  • [2003] All ER (D) 27 (Jan)

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Facts

In a 192 page judgment Judge Seymour dealt with all the issues between the parties in this predominantly fact based case.  The detailed judgment was given despite the Judge finding, on his review of the statements of case, that ICL (now Fujitsu Services Limited) was not liable. As such, it was open to Judge Seymour to dispose of the matter without hearing or dealing with the factual issues at stake.

Nonetheless the judgment covers in considerable detail the facts relating to the purported agreement between the parties, misrepresentation, alleged breaches of the agreement and the possible damages recoverable as a result. This summary focuses mainly on the Judge's consideration as to whether an actual agreement had been reached between the parties.

The Co-operative Retail Society Limited ("CRS") and the Co-operative Wholesale Society Limited ("CWS"), the Claimant, ran similar grocery retail services in different parts of the UK, albeit that there was a slight overlap in certain regions. In April 2000 the companies merged under the Industrial and Provident Societies Act 1965 ("the 1965 Act") and all former CRS stores were transferred to CWS.

As a further piece of background, at around the same time as the transfer CWS decided to introduce a new loyalty card scheme known as the Dividend Card, as a means to differentiate it from the other small supermarket competitors. A similar scheme had been run in certain CWS shops providing customers with cashback at 5% when purchasing Co-op own and fresh products.  The revised dividend scheme was to offer 3% on Co-op own and fresh products and 1% on specific other items ("the Revised Dividend").

In terms of IT systems each store required an efficient "Electronic Point of Sale" system ("EPoS") to administer checkout functions including payment by credit and debit card and a system to administer the loyalty card.  The latter also involved the back office functions of stock control, inventory etc. Prior to the transfer CWS used ICL's ISS 300 system as its EPoS and a product called "Vision", supplied by PCMS Limited for its loyalty card functionality. CRS did not have a uniform IT platform running across its stores and its systems also suffered from issues relating to Y2K. Accordingly, in 1999 (i.e. before the transfer) CRS entered into an agreement with ICL for an EPoS Harmonisation Programme ("the CRS Agreement") to provide a robust and uniform platform throughout the CRS stores. This agreement took the form of a framework agreement for a minimum term of 3 years but it incorporated a binding contract for the "Store Harmonisation and Stock Management Programme" ("the Store Harmonisation Programme"). ICL's standard terms and conditions were incorporated and an express provision was included stating that the merger of CRS with another Co-op company would not give rise to a terminating event.  In terms of pricing, a fee was agreed for 3 years, however, in the event of the Store Harmonisation Programme being terminated by CRS prior to completion of the works, standard daily rates would apply. These rates were significantly higher than the agreed set prices.  The Store Harmonisation Programme was to take place in 4 phases, the first of which being the replacement of CRS' existing EPoS system with the ICL ISS 400 system.  This was successfully completed before the transfer to CWS.

The additional 3 phases involved the development, trial and roll-out of the “GlobalSTORE” back office application, which would deal with stock control management etc. However, before this commenced, the transfer to CWS took place. Accordingly, after a strategic review of the merged entity’s systems, a new project commenced for the harmonisation of the CWS and CRS platforms and the introduction of common functionality dealing with the Dividend Cards. Various options were available to CWS including (1) replacing CRS' ISS 400 with CWS' ISS 300 plus Vision; (2) replacing CWS' Vision with the, to be developed, GlobalSTORE system; or (3) leaving CWS stores as they were and developing GlobalSTORE to offer the former CRS stores, as a minimum, the same functionality as provided by ISS 300 plus Vision.  This third option was adopted and became known as the GlobalSTORE Project.

No written agreement was entered into between the parties for the GlobalSTORE Project. However, CWS pleaded that in or around March and April 2000 CWS entered into a contract with ICL in relation to the GlobalSTORE Project, for the provision of an EPoS back office and stock management system in all former CRS stores, ("the CWS Agreement"). This CWS Agreement was entered into via conduct and/or by implication. To this extent, CWS pleaded that: the essential components of the agreement had been "worked out" between December 1999 and April 2000; on 10 March 2000 CWS made a final decision to install GlobalSTORE in all former CRS stores; from that date both parties treated the CWS Agreement as being in force; ICL performed the agreed works and rendered invoices; it was both parties' intention to reduce the CWS Agreement to writing but that was not done; and, both parties treated the CWS Agreement as being "on foot". As to the essential terms, CWS pleaded that ICL was to develop, supply and install hardware and software necessary to provide the GlobalSTORE system in all CRS stores; the solution was to be based on ISS 400; the functionality was to contain at a minimum all the functionality of ISS 300 plus Vision systems used at CWS; the system would be capable of operating the Dividend Card in all stores; the system would be ready for pilot in August 2000 and roll-out in September 2000; and, the agreement brought to an end the CRS Agreement. Further, implied terms included that ICL would exercise all proper and professional care and skill and that performance would be within a reasonable time.

In its Request for Further Information, ICL requested further detail regarding the CWS Agreement, particularly as to the offer and acceptance thereof and how the essential components were "worked out". CWS' response referred to a letter and other evidence which identified that an agreement had been reached and as a result made the issues of offer and acceptance immaterial.  As to the essential terms, CWS responded that there was negotiation to a point where the matters referred to were “agreed in principle”.  CWS accepted that agreement had not been reached on whether ICL's standard written terms would apply or whether liquidated damages would be included.

Judgment

From the beginning of the trial Judge Seymour expressed surprise at, and difficulty in understanding, the Claimant's case as to how the CWS Agreement was reached.  As he saw it, the Claimant's case depended fundamentally on showing that an agreement could be made other than by demonstrating acceptance by one party of an identified offer made by the other. During the trial the submission put forward by Mr Mawrey QC, Counsel for CWS, was that Judge Seymour should extract from the exchanges in correspondence and discussions between CWS and ICL any element ever apparently agreed and aggregate such elements so as to make an overall agreement at the end. During the trial the Judge specifically referred Mr Mawrey to the judgments in G.Scammell and Nephew Limited v Ouston [1941] AC 251 and Pagnan Spa v Feed Products [1987] 2 Lloyd’s Rep 601. In the first case, it was held by Wright LJ in the Court of Appeal that if the parties were still in negotiation about the terms of an intended contract and did not intend to be bound until those negotiations were concluded, they had not entered into any agreement. The critical question therefore was whether the parties intended, objectively, to conclude a legally binding agreement. In the latter case, Lloyd LJ found that it was not for the Court to decide which terms it regarded as important and which terms it regarded as less important or as matters of detail and on that basis to decide whether the parties had agreed all that which the Court considered necessary for there to be a workable agreement.  The correct principle was that it was for the parties to decide whether they wished to be bound and if so by what terms.  Despite putting this to Mr Mawrey, the matter was not directly addressed.  This legal point was also relevant to ICL's main case. ICL contended that the work was performed under the CRS Agreement as amended. The Judge found that as a matter of existing law, an existing agreement could only effectively be varied by the making of a further legally binding agreement by which the parties to the original agreement agreed to the variation.

Judge Seymour found it difficult to understand how CWS' case could ever seriously have been put forward.  The Judge considered, after Mr Mawrey's opening, whether it was appropriate to exercise his management powers to seek to deal with the case on a summary basis, since both the claims for breach of contract and misrepresentation fell in their entirety in the event that no agreement was found to exist. Nevertheless, the Judge heard all the evidence and passed a lengthy judgment on all the issues between the parties, including the various heads of damage claimed by the Claimant.

The Judge held that both at law and on the facts no agreement of any sort existed between the parties.  Accordingly, the Claimant's case failed in its entirety. On the same basis the work could not have been performed under the CRS Agreement as the works under that agreement were not varied by agreement between the parties.  Obiter, the Judge found that ICL might have had a successful claim on a quantum valebat basis. Nevertheless, the CRS Agreement did not run its course and therefore ICL's claim for additional sums payable at the daily rates under the CRS Agreement was successful. ICL was awarded its counterclaim £1,018,034 as damages.

In terms of the facts, the Judge found that agreement had not been reached on the issue of liquidated damages. CWS was absolutely insistent on a liquidated damages provision being included. Conversely, ICL insisted that such provision was not to be included. The Judge rejected Mr Mawrey's contention that if it were found that liquidated damages were not agreed, then no liquidated damages provision existed and this was not fatal to an agreement having been reached. Instead, the key question was whether the parties had any intention of entering into an agreement without the issue of liquidated damages being resolved.  The Judge found they did not. Further, the Judge found that CWS was reluctant to enter into any agreement with ICL and only entertained the idea because it knew it was otherwise exposed under the CRS Agreement to additional costs.

On the basis the Judge was asked to deal with all issues, he considered whether, had there been a CWS Agreement, ICL was in breach by failure to deliver the GlobalSTORE system by January 2001. The Judge found ICL could not be in breach of contract (had there been any such agreement) because time was not of the essence and in any event the software ICL delivered was of satisfactory quality, particularly given the project difficulties ICL had encountered as a result of CWS' failings. As such, CWS' decision to walk away from the project in January 2001 was its choice and made on the basis that it bore whatever costs were thrown away as a result.

As to the heads of damage claimed, the Judge rejected these both at law and on the facts. CWS claimed (i) additional cost incurred by CWS as a consequence of ICL failing to deliver the GlobalSTORE system in accordance with the terms of the contract; (ii) CWS' wasted costs incurred; and (iii) loss of profits incurred (during mitigation) as a consequence of the delay in installing a back office system.  The Judge found that CWS' claim for additional costs could not be claimed in addition to loss of profit.  CWS had to elect whether it sought to claim damages on the expectation basis or the reliance basis. Mr Mawrey argued that CWS could recover those additional costs it was charged as a result of changes etc. that ICL was forced to make, on the basis that these were additional costs to those that would have been paid had the system been implemented in accordance with the contract.  Judge Seymour rejected this on the basis of the facts and that CWS had not provided the correct evidence to support this claim. CWS had not correctly claimed in its Statement of Claim for the alleged extra expenditure caused as a result of some breach of contract other than that which was said to have justified the termination of the project.

As to the loss of profits claim, the Judge found that CWS had not established that a loss had been caused because of an alleged delay to the introduction of the Revised Dividend Scheme.  In any event, the loss was neither foreseeable nor communicated to ICL at the time the alleged agreement was formed, and consequently fell foul of the second limb in Hadley v Baxendale.

Commentary

Judge Seymour indicated early in his judgment that he could have dealt with the main claim as a summary issue.  The reason he gave for not doing so was that, the proceedings having reached full trial and the allegations against ICL being serious, he felt that ICL should have the opportunity to present its position at length.  This resulted in ICL being fully vindicated and justice being seen to be done.

Satisfactory as this judgment must have been to ICL, it throws an interesting light on the manner in which a judge’s discretion over case management may be used.  While a party to an action might well want its ‘day in court’, it might equally well want the matter to be disposed of as quickly and economically as possible. If it is left to the discretion of the judge to determine what best suits the party’s interests then, notwithstanding the injunctions of Lord Woolf and others as the need to shorten proceedings, a case may be left to run its full course.  The case therefore emphasises the importance of attempting to achieve resolution of disputes in advance of a full trial wherever possible, and serves as a useful peg on which to hang a brief review of the alternative procedures which are available.

The civil procedure rules offer various procedures that may be used to achieve a speedy resolution in a dispute, including:

  • Striking out;
  • Summary judgment;
  • Trial of preliminary issues.

This commentary assesses the situation where these procedures may be appropriate. In brief, a statement of case will be struck out if it discloses no reasonable grounds for bringing or defending the claim; summary judgment will be awarded if a party has no real prospect of succeeding on or successfully defending the claim or issue, and there is no compelling reason why the case for issue should be disposed of at trial; and, the court will give judgment on a preliminary issue if by doing so will avoid the need for a trial or significantly reduce the issues in dispute. 

A strike out application is appropriate where the statement of case, on its face, is vague, incoherent, obviously ill-founded and does not amount to a legally recognised claim or defence. Any such application will focus on the statements of case rather than the evidence. This may well have been the cheapest course of action available to ICL since there is no need to put any evidence before the Court and the decision is made based purely on the statements of case.  Little risk is involved in strikeout applications; if the party is unsuccessful the applying party will lose nothing other than costs and this will have no bearing on any subsequent trial of the matter.  Further, it is open to a party to “cherry pick” the issues it wishes to strike out, for example, seeking strikeout of perhaps two of the claimant’s five claims.  If successful, the issues between the parties are reduced and this will likely save costs.  Similarly, tactically, cherry picking may wear down the opposition’s relish for the claim.

Summary judgment applications are similar to a strikeout procedure albeit that they go further, with the Court considering the evidence in addition to statements of case. The Court is required to consider the evidence which can reasonably be expected to be available at trial or the lack of it.  This may include witness statements, though no cross examination is made.  Thus, the Court is able to decide disputed factual issues in the case.  Practice would show, however, that Courts do tend to shy away from granting summary judgment when the outcome is dependent on rejecting one party’s factual evidence.

To successfully bring a summary judgment application a party must show that the other side has no real prospect of success.  Thus, the burden of proof is higher than the “balance of probabilities” test that will be applied to a full trial or at the hearing of a preliminary issue.  With this added burden, and the fact that evidence and the law must be considered which will increase costs, summary judgment is not always appropriate.  Nevertheless, again, a party who seeks summary judgment and is unsuccessful is, prima facie, in no worse position in terms of the litigation, save in respect of wasted costs.

When a Court determines a summary judgment application it has the power to make a conditional order requiring a party to pay money into Court or take a specified step in relation to the action.  No such power exists in relation to a striking out action.  In Anglo-Eastern Trust Limited v Kermanshahchi [2002] EWCA Civ 198, the Court of Appeal held that:

  • a conditional order should not be made without considering a party’s means;
  • the Court should not require a defendant, as a condition of defending a claim, to make a payment that he might not be able to make;
  • the right to a fair trial pursuant to Article 6 of the ECHR also requires that a conditional order should be reasonable; and
  • a Court should not as a general rule make a conditional order in the absence of any evidence about the defendant’s means unless it was satisfied that the defendant had been given appropriate prior notice (which could be given informally by letter) to the effect that if a summary judgment application failed, the claimant would be seeking a conditional order.

A party may apply for summary judgment at any time, save that a claimant may not do so until the defendant has filed an acknowledgement of service or a defence, or unless the Court gives permission.

As to the hearing of a preliminary issue, this may be used to resolve any issue which the Court accepts as appropriate for determination at a preliminary stage. The burden of proof is that normally found at trial, namely, the balance of probabilities and therefore is lower than the test for summary judgment.  Preliminary issue hearings should only be sought if the hearing of that issue will decide the whole or much of the case in favour of one party or it is bound to lead to settlement. If this were not the case, the procedure would merely give rise to two hearings, namely the preliminary issue hearing and the subsequent full trial. This would lead to a substantial increase in costs.  It is therefore essential to exercise care when considering to apply for a preliminary issue since they are expensive exercises and the opposing party merely has to show the matter will not dispose of the substantive issues.

One final point to note is that even if an application for any of the three orders identified here is unsuccessful, the application may well form a platform for the successful negotiation and settlement of the matter, since the parties will have had their cases tested to a greater or lesser degree by the Courts.

End note

CWS has been granted permission to appeal to the Court of Appeal against the judgment of Judge Seymour.