| 1.
| This action concerns disputes arising out of the delivery
of a computer system purchased by the defendant in the original action and
the claimant in the action by counterclaim, Winther Browne ("WB") from
B.M.L. (Office Computers) Limited ("B.M.L."), the second defendant in the
original action and by counterclaim. The purchase was financed by Anglo
Group PLC ("Anglo"), the claimants in the original action and the first
defendant by counterclaim.
|
| 2.
| By a statement of claim endorsed on the writ dated the 21
July 1997, Anglo claims that under a leasing agreement dated 15 April
1996, Anglo leased to WB certain computer equipment for a period of 60
months to be paid for by an initial payment of £4,484.78 plus VAT and by
19 quarterly instalments of a like sum. Anglo claims that WB defaulted
upon payment of the instalments and repudiated the agreement. Anglo also
claims that it accepted WB's repudiation by a letter dated 19 June 1997.
In essence Anglo claims the sum of £269.62 arrears at the date of
termination and £61,736.29 damages making a total claim against WB of
£67,005.91 together with interest from the 19 June 1997.
|
| 3.
| In its defence and counterclaim dated 7 November 1997, WB
claims that the computer system suffered from numerous defects such that
Anglo was in breach of the terms of the leasing agreement. WB contests the
validity of the termination by Anglo but says that if the agreement was
validly terminated, Anglo is entitled, if at all, to damages and not to
the sum of £67,005.91 which has been claimed. It asserts that Clause 10
under which the sum has been claimed is a penalty and that Anglo is not
entitled to reclaim VAT or to recover interest.
|
| 4.
| In its amended counterclaim, WB alleges that BML supplied a
defective computer system. It alleges that between November 1995 and March
1996 BML made a number of representations to WB in order to induce WB to
purchase or hire the computer system. It claims that the effect of the
representations was that WB would be enabled to operate a computerised
tele-sales, order processing, stock control and accounting system which,
as well as being easy to use, would provide comprehensive management
information in accordance with its stated requirements by 1 July 1996. The
alleged defects are set out in a lengthy Scott Schedule originally
containing 55 items but reduced before the hearing to 52 items. WB also
claims that BML agreed on its own behalf and as agent for Anglo to provide
all necessary hardware, maintenance, software support, training and
qualified advice to enable the system to work.
|
| 5.
| WB claims against BML that if the computer system failed to
perform as agreed, it was understood that WB would suffer loss and damage
by way of depression of net profits, additional costs in trying to remedy
faults and breaches, failure to make anticipated costs savings, the costs
of obtaining a replacement system and wasted expenditure on the hire of
the BML system.
|
| 6.
| At the time when this hearing started WB was claiming,
based on the advice of its expert advisers, FMC, as follows:
| (a)
| Claim for damages for alleged loss of gross profit.
| £791,479
|
| (b)
| An additional claim largely representing the
allegedly wasted proportion of salaries paid to WB's own staff.
| £133,780
|
| (c)
| Claim for additional damages in relation to acquiring
the substitute computer system after WB had rejected the computer
system.
| £95,085
|
|
|
|
|
|
|
| £1,020,344 |
|
| 7.
| In the course of the hearing WBs claim was reduced to
£693,000 in respect of gross profit and £112,532 in respect of wasted
salaries making a total claim of £900,916.
|
| 8.
| In its amended defence BML claims that the computer system
which it supplied was sound and worked well notwithstanding that, as in
all systems, there were bugs which needed to be put right. It asserts that
such difficulties as WB had were grossly exaggerated by them. There was,
BML claims, no justification for WB to repudiate the contract. In the
Scott Schedule BML answers WB's detailed claims. Further BML makes a
fundamental attack on all aspects of the damages claimed by WB.
|
| 9.
| BML no longer relies on its written terms and conditions of
sale which limit BML's liability for consequential loss but it relies on
the terms relating to purchaser's responsibilities which require a
purchaser to accept responsibility for the selection of the computer
system to achieve its intended results, the management and supervision of
the computer system and the adequacy and accuracy of its data,
instructions, programs and procedures. It asserts that the terms are fair
within the meaning of the Unfair Contract Terms Act 1977.
|
| 10.
| In its amended reply, Anglo relies on the terms of its
hiring agreement including clauses 3(c) and 6(b) under which WB
acknowledged that Anglo was not responsible for any loss, damage or
expense which it might suffer as a result of the computer system failing
to function properly. Anglo also claims that in the circumstances its
terms satisfy the requirements of reasonableness under the Unfair Contract
Terms Act 1977. Anglo denies that it was in breach of contract or guilty
of any misrepresentation.
|
|
| THE PARTIES
|
| 11.
| BML is a computer company which markets a software package
called Charisma. Charisma is a package of more than 2,500 programs
covering all aspects of a business including sales orders, sales
enquiries, purchase of stock, stock control, payments to suppliers, credit
control, profitability and marketing.
|
| 12.
| Although Charisma is sold as a standard package it is
possible to run bespoke software in conjunction with it.In this case
Charisma was sold to WB as a standard package without bespoke software.
The standard package is updated over time and the improvements are
provided under a maintenance contract.
|
| 13.
| WB is a distributor and reseller of wooden and carved
mouldings and other decorative items. Goods are produced to WB's order
mostly from abroad. It supplies both large DIY stores in the United
Kingdom (also referred to as Sheds) and smaller retail customers from its
premises in North London and by mail order. It also has some export trade.
In 1995 it had a turnover of about £5.27m and employed 26 staff.The
turnover in 1996 was marginally down on 1995. It then rose to £5.41m in
1997 and to £7.30m in 1998. The gross profit increased from £1.68m in 1995
to £2.13m in 1996, £2.58m in 1997 and £3.04m in 1998.
|
| 14.
| Anglo is a finance company of general reputation which
finances various different types of purchases.
|
|
| THE FACTS
|
| 15.
| In July 1995 WB started its search to replace its existing
unsophisticated computer system. It could have used consultants to assist
it in seeking a replacement system but it did not do so. Instead it
entered into discussions with a number of computer suppliers including
BML.
|
| 16.
| On 28 July 1995, Mr David Smith, in charge of computers at
WB, sent by fax a "list of vague system requirements" to BML indicating
that WB wanted to make a decision on a new computer set-up within 12
months for a price in the region of £60,000-£80,000. There was no special
urgency and Mr Smith requested a meeting in October 1995.
|
| 17.
| On 1 August 1995 Mr Fairchild, a salesman employed by BML,
replied sending an information pack, Update magazine and promotional
video. He said that BML's package, Charisma, had been specifically written
to satisfy the needs of both wholesalers and distributors. He emphasised
that in order to gain a full appreciation of its capabilities WB would
need to arrange for a demonstration. The accompanying brochure made it
clear that BML was able to advise on and fulfil every aspect of a
wholesalers' and distributor's requirements. The package which BML had
available included "comprehensive consultancy management and training from
professionals who understand your industry." WB has set out in a schedule
of particulars those parts of the brochure which they say constitute
continuing representations. A preliminary meeting took place on 27
September 1995. At that stage the requirement was for a complete new UNIX
based computer system and EDI (Electronic Data Interchange) to be used for
receiving orders from a number of large multiple DIY stores.
|
| 18.
| EDI enabled documents to be sent direct from one computer
to another by telephone line. When WB raised an invoice and transmitted it
electronically to the store's computer it represented a substantial saving
for the recipient since the invoice did not need to be entered manually.
WB used a stand alone computer for recieving purchase orders from Sheds.
These had to be re-entered on to WB's accounts system(non-integrated EDI).
If EDI could be integrated into the Charisma system, purchase orders from
Sheds would be automatically entered as orders on WB's system (integrated
EDI).
|
| 19.
| WB met a rival bidder, Castle, on 14 November 1995. On 15
November 1995 Ms Eve Labbett, the Buyer Director, Mr Brian Lawson, the
Finance Director and Mr Smith met Mr Fairchild of BML at a meeting at
which Charisma was demonstrated.
|
| 20.
| After the meeting Mr Fairchild wrote to Mr Smith in a
letter dated 20 November 1995 with a formal proposal for BML to sell
computer hardware and software to satisfy WB's requirements based on the
list of requirements of the 15 September 1995 which had been further
clarified during the 15 November 1995 meeting. He advised "certainly we
have no reason to believe your requirements could not be ably satisfied by
standard "Charisma" and IQ".IQ (Intelligent Query) is proprietary software
used to create reports. The letter warned WB that "the early part of our
discussion focused on pricing and discounting which for any company is an
important area, for yourselves it would require a change from your current
methods completely, as the structure you maintain is non-compatible with
computer methodology."
|
| 21.
| There followed a detailed proposal for a standard package
without modifications totalling £65,814 to include hardware, software, IQ
Query/Report Writer and a training package. In addition the draft contract
provided for hardware and software support packages at a total annual cost
of £8,702. It offered lease rental and lease purchase terms over three or
five years. In relation to Electronic Data Interchange it noted, "EDI is
an individual requirement that requires three days consultancy followed by
the package cost and a number of days for document creation. Approximate
costs from previous contracts suggest £4,000". It is said by WB that this
amounts to a representation as to the cost of EDI on which WB relied.
|
| 22.
| BML made further presentations in November 1995 and early
December 1995 in the course of a competitive round of presentations from
BML and other companies.
|
| 23.
| WB changed its requirements to some extent as, of course,
it was entitled to do. On 6 December 1995 Mr Smith wrote to Mr Fairchild
that "the company would not benefit from modern PC style networking."
|
| 24.
| BML's revised proposals on 8 December 1995 increased
slightly the cost of the hardware, software, IQ and training packages to
£67,966 with an annual cost of support of £9,243. The summary at the end
of the offer said that "the computer system proposed combines high quality
powerful and reliable hardware together with the Charisma software
package, providing your company with a sophisticated, multi-terminal
system to meet both your current and future requirements."
|
| 25.
| There was a second demonstration by BML on 11 December 1995
at which Ms Labbett, Mr Lawson and Mr Smith were present. WB's note of the
meeting said that "Elke (O'Toole) would require to utilise IQ to download
and re-order details into Supercalc 3 to manipulate the data to determine
optimum purchasing quantities, then upload into IQ SHOP." Supercalc was a
proprietary and straight forward spreadsheet. It was not a BML product. IQ
SHOP was the program which it was thought was needed to upload data from
the spreadsheets into Charisma.
|
| 26.
| The note of the meeting said of Ms Julie Quinton, then in
charge of credit control, that she "found the cost account screen too
crowded purely because she is used to her existing system.She is very
meticulous in her approach to credit control and resistant to change." It
also noted that Mrs O'Toole would require a German keyboard to allow her
to type faxes in German to be transmitted directly without being printed
out.
|
| 27.
| On 21 December 1995 WB and BML entered into a written
agreement that BML would supply the hardware and Charisma software
specified in the agreement, at a price of £64,133, with an annual hardware
maintenance and software support contract at an annual price of £7,843.
Delivery was agreed to take place in February/March 1996. The contract was
on a BML standard form and was expressed to be subject to BML's
definitions, terms and conditions which were declared to be incorporated
into the contract.
|
| 28.
| The sales order dated 3 January 1996 set out detailed
prices and a schedule for the implementation of the project. The system
was required to go live by July 1996. The schedule also detailed the
amount of training, project management and consultancy which was to be
undertaken by BML and to be included in the contract price.
|
| 29.
| WB still had to organise the finance for the project.On 3rd
January 1996, Mr Forward of F&B Associates followed up an initial
conversation with Mr Lawson having just been introduced to him by Mr
Fairchild of BML. On 11 January 1996, F and B Brokers put forward leasing
proposals to Mr Lawson.On 25 January 1996, they put forward a revised
proposal of an initial payment of £4,809.60 plus VAT followed by a further
19 quarterly instalments of £4,809.60 plus VAT. It is agreed by the
parties that the introduction of Anglo was via a credit broker for the
purpose of the Supply of Goods and Services Act 1982. Under s9 of
that Act there was an implied term that the system would be reasonably fit
for the purpose made known to the credit brokers.
|
| 30.
| After further negotiations, WB entered into a lease
agreement with Anglo on 26 March 1996 for the supply of the Charisma
package for an initial payment of £4,484.78 plus VAT and 19 payments of an
equal amount.This did not include EDI which was the subject of a separate
agreement and was not financed by Anglo The agreement was subject to
Anglo's standard terms and a Finance and Leasing Association (FLA) check
list. WB made its first payment to Anglo on 1 May 1996 and continued to
make the agreed payments until April 1997. Also on 25 or 26 March Anglo
issued a purchase order to BML for the delivery to WB of the Computer
System for £67,137.50 plus VAT.
|
| 31.
| On 12 February 1996 WB ordered EDI and Data Transfer at an
additional cost of £13,650 with a further annual cost of £750 for the EDI
annual software support contract. The delivery was required to be in
conjunction with the main order. The agreement was also on a BML standard
form and contained the same terms as the main order. The contract also
provided for three days consultancy for EDI and one day of training. The
offer was made by BML in a letter dated 1 February 1996. Mr Smith faxed a
reply "Please go ahead". There was no complaint that the cost was
unacceptable in view of the £4,000 figure for EDI mentioned in the
original agreement. I conclude that the original £4,000 figure was not
intended to be a representation as to the actual cost to WB of EDI nor was
it treated as such by WB.
|
| 32.
| On receiving notice that the installation of the new system
was to be in March 1996, WB gave notice on 26 February of the termination
on 31 August 1996of its existing agreements relating to the Valedale
system, which it was then operating, on the basis that the system would
have been replaced by Charisma by September 1996.
|
| 33.
| On 15 March 1996 Ms Fisher (consultant) and Ms Baines
(trainer), both of BML, conducted the initial consultancy meeting with WB.
The initial Project Management meeting took place between BML and WB on 19
March 1996. At this meeting WB said that it was likely that EDI would not
be required until several months after the new system went live.
|
| 34.
| The BML Project sheet of the 25 March 1996 said that EDI
was required for delivery in September 1996 "to be confirmed by the
customer". On 23 May 1996 WB said in a fax to Mr Bishop of BML that they
were still undecided about EDI. On 11 June 1996 Mr Smith told Mr Bishop
that the decision to integrate EDI with Charisma was agreed by WB's
Managing Director subject to sorting out the final details at the final
consultancy meeting. Mr Smith said that WB did not need to integrate EDI
before September 1996 at the earliest .
|
| 35.
| On 18 June 1996 Mr Bishop warned Mr Smith that BML was
organising its work to the end of 1996 and needed to know what WB required
in relation to EDI in order that BML could see if they could find time to
include it in their work schedule. The note warned Mr Smith that WB would
need to establish specific requirements for each document type which WB
required for its EDI customers.
|
| 36.
| On 26 June 1996 Keywill, the suppliers of EDI, sent a fax
to BML. The fax makes it clear that WB had not made a final decision on
whether they needed an integrated or non-integrated solution. It appeared
likely at that stage that WB would need a manual solution at least for the
short term. This would mean that they could transmit invoices
electronically to the Sheds but would continue manually to enter purchase
orders from Sheds.
|
| 37.
| An implementation schedule dated 1st April 1996 relating to
the main agreement envisaged that the Charisma system would go live on 4-5
July 1996 to be followed by training on Purchase Ledger, GRN (Goods
Received Notes) Matching on 15 July 1996, and a final consultancy meeting
on Friday, 23 August 1996.On the 10 June 1996, the date for going live was
fixed as 1 and 2 July 1996.
|
| 38.
| On 11 June 1996 Mr Smith produced a "short list of
queries". These included, IQ SHOP, word processing required on the main
system for use by all dumb terminals/printers, and the German keyboard.
Dumb terminals are terminals which work when connected to a central
computer but not on their own.
|
| 39.
| On the 24 June 1996 BML's Project Sheet noted WB's
complaint that "when logging enquiries, volume discount is not calculated
for printing on quotes." This is an early indication of one of the
complaints of WB.
|
| 40.
| On 25 June 1996, Mr Bishop wrote to Mr Smith with a list of
outstanding issues. This included Timed Save. Mr Bishop said "I understand
you would like to incorporate the invoice update into the script used to
carry out a savefiles at a specific time. We can do this but would have to
charge for the work required to set it up and test it works properly, the
charge for this is likely to be in the region of £375." Later this service
was provided free of charge.
|
| 41.
| On 1 July 1996 the Charisma system went live on time in
accordance with the contract.
|
| 42.
| On 1 July 1996 Mr Fairchild of BML raised a number of
questions with Mr Smith including EDI. In relation to EDI, he said that
"Since our original conversations regarding your EDI requirements we have
been able to define your requirements a little more accurately,however
until such a time as we can confirm the layouts that each trading partner
uses we are unable to give final costs." He then went on to quote a price
based on a number of broad assumptions. A revised purchase order for EDI
was completed on 8 July 1996. It included 3 days of consultancy and 5 days
of Charisma Training. The overall price was similar to that quoted in
February 1996. It is said by BML that the price was understood to be
provisional since BML did not know what were WB's precise
requirements.Although the basic EDI software was installed on 21 August
1996 it was not brought into use. For this to happen a link needed to be
established between Charisma and the EDI software supplied by Keywill. WB
needed to make it clear whether they required a full solution ie. data
transmitted electronically in both directions or a manual solution ie WB
would continue to enter purchase orders manually.
|
| 43.
| On 24 July 1996 Ms Labbett wrote a general letter of
complaint saying that WB was disappointed at some of the limitations which
it was encountering in the system.
|
| 44.
| This was followed by a meeting between Mr Fairchild and Mr
Bishop of BML and Mr Browne, Managing Director of WB, which was noted by
Mr Bishop. It was explained that BML took a two phase approach to the
implementation of Charisma. The first phase concentrated on use of key
parts of the system that were essential to the day to day running of a
customer's business. The second phase would normally take place 3 - 6
months after the system went live. In this phase BML would review how work
was being done on the system and explain to the customer the most
effective way of using the system. This could most usefully be done after
the customer was sufficiently familiar with how Charisma worked. There was
a general complaint by WB that the process of using the programs was too
long- winded. There followed five specific issues. Mr Bishop concluded
that in general the implementation had gone smoothly but that there were
"a number of niggles which needed to be resolved".
|
| 45.
| On 5 August 1996 Mr Lawson listed a number of matters which
WB wanted to have resolved. These concerned, for the most part, routines
which were possible to operate but where either the process was thought by
WB to be too lengthy or there was no possibility to amend a mistake made
in the course of entering data so that if the operator made an error the
whole process had to be started again.
|
| 46.
| On 6 August 1996 Mr Ross, a computer programmer employed by
BML, attended at WB's premises to give IQ training. He told WB that there
was an incompatibility problem in downloading to Supercalc, the computer
spreadsheet used by Ms Labbett, into Charisma. Its software component was
SDI. It was not supplied by BML. Mr Ross' advice meant that BML did not
attempt to transfer data between Supercalc and the Charisma System.
Instead Mr Ross told Mr Smith to use Excel which was another spreadsheet.
Mr Smith said that he tried this approach unsuccessfully and eventually in
January 1997 WB complained to BML.
|
| 47.
| In a letter to Ms Labbett dated 6 August 1996, Mr Fairchild
said that he had asked Mr Bishop to arrange for a Timed Save routine to
allow WB to undertake invoice updates and system backup outside working
hours. The letter also explained that due to circumstances beyond BML's
control, BML was unable to supply UNIX Word Processing. BML proposed an
alternative solution in a constructive manner.
|
| 48.
| In a further letter from BML dated 9 August 1996, Mr Bishop
gave an explanation of a number of the difficulties which WB were finding
in the system. Mr Bishop ended by saying that to achieve some of what WB
required would need modifications to the standard Charisma package. Some
of the other problems were a matter of WB staff having the appropriate
training. He ended "Can I suggest that you keep a log of queries so that
we can agree with you how to resolve the queries? This will also mean you
and your staff can see any problems or concerns with use of the system are
being addressed. As some of my answers would require some discussion can I
ask that you call me so that we can agree how to best progress the various
issues raised?" This was sensible advice.
|
| 49.
| On 6 September 1996 Ms Fisher made her second consultancy
visit. This was an important meeting coming just over two months after the
new system had gone live. She confirmed that the Timed Save script needed
to be sent to WB so that they could do the backup and update invoices and
credit notes automatically overnight. In relation to a number of other
problems where WB staff were having difficulties, she said that these
could be resolved by further training.
|
| 50.
| With regard to the problem over the spreadsheets, Ms Fisher
advised that IQ SHOP worked with certain spreadsheets and it must be
determined to see whether Supercalc was compatible or whether a different
package needed to be used. This tempered the advice which had been given
by Mr Ross on 6 August 1996 that there was an incompatibility problem
between Supercalc and Charisma which was insoluble. Ms Fisher said that
she was referring the problem to Mr Bishop for resolution.
|
| 51.
| There appears to have been genuine confusion on the part of
BML. After speaking to Mr Smith in early October 1996, Mr Bishop thought
that the problem was being resolved by using Excel, as Mr Ross had
suggested, so he took no further action. It was not until the issue was
raised by WB again on 17 January 1997 that BML made any further effort to
resolve the problem. It is surprising in view of the very serious effect
that WB claims that the compatability had on its business resulting in
claimed losses of gross profit of over £400,000 that Ms Labbett did not
take urgent action to resolve the problem.
|
| 52.
| The Time Saved routine was installed on 23 September 1996
together with necessary updates of the existing software.
|
| 53.
| Further attempts were made to resolve problems over word
processing. In a letter from Mr Fairchild to Mr Smith dated 8 November
1996, BML sent confirmation of costings of an alternative solution using
Corel Word Perfect and said that the work could be undertaken at the
beginning of December 1996.
|
| 54.
| There is no doubt that there were problems in the system
between October and December 1996. A number of problems were being sorted
out, albeit not as quickly as WB would have wished. It is conceded by BML
that it could have responded more quickly to resolve some of WB's
problems. I am also satisfied that some problems were caused by WB's
reluctance to adapt its working practices to the standard system which it
had purchased."
|
| 55.
| BML had every reason to have been surprised to have
received a letter from Ms Labbett dated 10 January 1997 in the following
terms.
|
| "I am faxing you a list of problems most of which
have been reported for weeks or even months.This list is long not
forgetting the serious problem reported by David yesterday. The
problems are serious, the failings are intolerable. The general lack
of performance of the system is now having an adverse effect on our
business; the shortcomings of the system are frustrating our
legitimate attempts to obtain the benefits which we were promised
when the system was purchased.
|
|
| "Before embarking on any legal action we feel it is
incumbent upon us to make an effort to settle this situation
amicably. To this end we propose that a meeting be held at Winther
Browne & Co beginning of February. Prior to this meeting we
request from yourselves a full schedule for solving the attached
problems and for addressing all queries." |
|
| 56.
| The list of outstanding items was prepared by 18 December
1996 but was not sent until it accompanied Ms Labbett's letter dated 10
January 1997
|
| 57.
| This letter, which was obviously written with outside
assistance since it is not in Ms Labbett's normal style, appears to show a
breakdown in WB's confidence in BML. The sudden thinly veiled threat of
legal action is inexplicable on the face of the documents. It was not
explained in any of WB's witness statements or in the written or oral
opening. I would have expected that, before the letter dated 10 January
1997 was sent, there would have been expressions of increasing frustration
with the level of performance of Charisma and demands that matters should
be put right. There were no such letters in November or December 1996.I
note also that the complaint was that the general lack of performance "is
now having an adverse effect on our business."
|
| 58.
| The explanation for the sudden change of approach was given
in the course of Dr Salmon's oral evidence as independent computer expert
for WB although not in his expert's report. In fact, his firm, FMC,
(although not Dr Salmon personally) was consulted by WB in December 1996
and it advised WB to write the letter which was sent dated 10 January
1997. Dr Salmon came before the court as an independent expert witness.His
firm was retained by WB to advise on its claim against BML and also to
advise on the new computer system which WB purchased to replace
Charisma.There was no suggestion before the hearing that this firm had
been involved before February 1997.
|
| 59.
| WB's letter dated 10 January 1997 had been preceded by two
letters from Mr Smith dated 9 January 1997 and 10 January 1997 complaining
that the Charisma system had produced cost figures for 1996 which were
distorted by a few credit notes with wild cost values which distorted all
the figures. He asked for the problem to be corrected. Further similar
cost errors from January 1997 were set out in Mr Smith's letter to BML
dated 11 February 1997.
|
| 60.
| The letter from Ms Labbett dated 10 January 1997 prompted
detailed correspondence between the parties. By a letter dated 14 January
1997 Mr Bishop sought to deal constructively and in detail with the
problems which she had raised. These included providing upgrades of BML
software. He took justifiable exception to the threat of legal action
which he did not regard as a fair reflection of the status and type of
issues which Ms Labbett was raising.
|
| 61.
| The response from Ms Labbett dated 17 January 1997 was a
belligerent refutation of Mr Bishop's letter. It also reintroduced the
problem of the compatibility of her spread sheets (Supercalc) with
Charisma. Surprisingly in view of the great impact which WB says that
problem had on its business, this issue had not been raised in the letter
of 10 January 1997.
|
| 62.
| At other levels co-operation continued between the parties.
Also on 17 January 1997, Ms Baines conducted a three hour training session
T12 with Mr Smith and Mr Lawson on various BML software routines. This was
the last of the 12 training sessions, including the additional hours of
training which WB had purchased, and dealt with a number of important
topics including VAT report and year end report.
|
| 63.
| Ms Labbett, whom BML had understood to be ill, (and who had
been in hospital) wrote a letter dated 3 February 1997 to Mr Bishop:
|
| "I am very disappointed that you did not have the
courtesy to respond to my letter of 17 January 1997. Unless we
receive a satisfactory response in seven days we have no alternative
but to seek expert opinion on this matter and seek recourse.
|
|
| We reserve our position in reference of the claim in
damages." |
|
| 64.
| Mr Bishop wrote a further detailed letter in reply dated 4
February 1997 in which he pointed out that he had been in detailed
discussions with Mr Smith since her letter of 17 January 1997. He said
that the issues which Ms Labbett raised split into two categories.
|
| "1.
| Those which are issues which BML is currently dealing
with, some of these are the result of software problems and it is
BML's responsibility to resolve.
|
|
| "2.
| Those that are not problems with the system. Some of
these are issues with how it is used against how Winther Browne wish
to use it" |
|
| 65.
| The letter sets out detailed points to be worked on with Mr
Smith:
|
| 1.2
| Quicker GRN matching (Goods Received Notes) (WB)
|
|
| 1.4
| Stock Processing (WB)
|
|
| 1.5
| SKR 9 Stock Report (BML)
|
|
| 1.6
| Negative Profit - factored items (BML)
|
|
| 1.7
| Analysis on items with stock cost errors(BML)
|
|
| 1.8
| Ref Files (BML)
|
|
| 1.9
| SKM1 Status Code (BML)
|
|
| 1.10
| Detailed in centre pro forma (+ 7 type info)(BML)
|
|
| 1.11
| IQ access to fields(BML)
|
|
| 2.4
| Fax box failing to get an answer(BML)
|
|
| 2.5
| Version 5.6.0 of Charisma (WB) |
|
| 66.
| In the letter Mr Bishop went on to deal with other items.
In particular he explained that often what appeared to be long-winded
processes at the start of working on a completely new computer system were
caused by the way the system was being used. These problems could largely
be solved by use, further consultancy and refinements which avoided the
long-winded processes.
|
| 67.
| He went on in paragraph 3.2 of the letter to set out
benefits he acknowledged which had not been realised
|
| "No WP (word processing) this, as we have advised,
was outside our control, we cannot be held responsible if a third
party supplier is sold and the new company puts a hold on the
product we require." (This had first been explained many months
before).
|
|
| "Can't fax Pro formas". (It was explained that
Charisma was written this way).
|
|
| "Can't use the Prospect file," please advise what you
wish to do or if there is a problem what it is, from the discussion
re Proformas I would think it may be to do with volume discount
pricing."
|
|
| "Cannot use your Supercalc spread sheet, if your
Supercalc spread sheet is compatible with either flat ASCII CSV type
file or a Lotus works 3 file then you can import an IQ Report. IQ
reports can be saved as either of these file types." |
|
| 68.
| Ms Labbett replied on 10 February 1997 again in vigorous
terms emphasising that WB's needs were very basic and representative of a
smallish distribution company on which, according to its brochure, BML
specialised. She said that BML had promised in specific terms what WB had
asked for. She was insistent that at no point before the system was
installed did BML warn WB that there was a problem between her Supercalc
spread sheets and Charisma. She refuted in detail claims that WB had any
responsibility for the items referred to as "WB's responsibility" in Mr
Bishop's letter.
|
| 69.
| Mr Bishop replied by fax on 12 February 1997 saying that it
was clear from her letter that many of the issues were to do with what the
Charisma system will/can do. BML's conditions required purchasers to
satisfy themselves that the software met their requirements "although this
is done in conjunction with any discussions and specific points agreed to
by the sales force." He proposed a meeting between Mr Fairchild and
himself and those at WB involved in the purchase of the system to agree
what was purchased and how in relation to each issue the parties should
move forward. He stressed that this was not intended to be obstructive and
that BML wished to work with WB towards a mutually satisfactory solution.
|
| 70.
| It is clear from Mr Smith's contact log for February 1997
that at a practical level the parties continued to co-operate and that BML
was making significant efforts to deal with the outstanding problems. This
was demonstrated in a separate note in which Mr Bishop set out the state
of progress on a number of the points raised in the 4 February 1997 fax.
Some had been dealt with. Others were being investigated or worked on.
|
| 71.
| On 17 February 1997 Ms Labbett said that WB would be
delighted to attend a meeting in due course but that in the meantime it
was taking advice on the matter. She asked BML to confirm that it would
continue to support the system in line with BML's terms of contract.
|
| 72.
| The reference in her letter to "taking advice" was to the
fact that WB was referring the matter again to FMC who wrote to Mr Smith
on 19 February 1997 that the 7 March 1997 would be a suitable date for a
strategy meeting to determine the way forward in their computer
investigation and that Gary Wilkins, OperationsManager and Christopher
Ball, Project Manager would attend on that date. This marked the end of
cooperation between the parties at director level although cooperation
continued between Mr Smith and BML.
|
| 73.
| B&Q returned all the 1997 invoices to Mr Smith having
issued a new suppliers' requirement on 27 February 1997 that WB (and
B&Q's other suppliers) should trade with B&Q using EDI. Mr Smith
sent a fax to Mr Bishop on 7 March 1997 saying that WB required EDI as
soon as possible and that the most urgent documents required were outgoing
invoices (B&Q first). By a fax dated 24 March 1997 Mr Bishop sent a
schedule for delivery of EDI invoice documents to allow them to be used in
the software from Keywill for invoices in the week commencing 19 May 1997
but gave no date for incoming orders The letter set out the information
which WB needed to supply before EDI invoice documents from Charisma could
be exported into EDI software.
|
| 74.
| Another complaint which caused annoyance to WB was that the
Prospects Diary file was inaccessible for producing reports because it had
been compressed, i.e. could not be used by that level of user although it
could have been accessed by BML. There is a factual dispute between the
parties as to why the problem continued to exist but it is clear that the
problem could have been solved on 10 March 1997 when BML obtained the key
to access the program and tried to activate the function for WB..
|
| 75.
| On 9 April 1997 there was a problem with an operator at WB
who caused the screen to lock by entering an order locking the stock line
on the screen and then entered another stock line. That screen was frozen
but only that individual screen. WB say that they rang BML's help line at
8.40 am. There was no reply. The further call was logged by BML at 9.39 am
and BML fixed the problem at 10 am. There appears to have been a further
problem that day at or before 12.30 pm which was fixed at 1.35 pm. The
first problem was an example of what came to be called "the deadly
embrace". It was a risk which, it was agreed, BML had identified at an
early stage and their trainers had told WB's employees in training how it
was to be avoided. The issue is whether or not training and warnings were
sufficient or whether BML should have devised a system which made the
deadly embrace impossible. It is to be emphasised that the deadly embrace
only involved the one particular screen and did not adversely affect the
whole system.
|
| 76.
| On 15 April 1997 WB instructed its bank to stop payment to
Anglo of the £5,269.61 instalment due on 17 April 1997.
|
| 77.
| On 16 April 1997 WB wrote to Anglo notifying them that WB
had instructed its bankers to terminate further payments to them under
their lease agreement. The letter said:
|
| "As you will know, we entered into the above
Agreement on 26 March 1996, for a Computer System supplied by
BML(Office Computers) Limited.
|
|
| You ought reasonably to know, that since that time,
the system has not worked in several aspects, has not done what it
was supposed to do and therefore has not given our company the
benefits which were reasonably contemplated at the time of entering
into the above Agreement".
|
|
| "We therefore hold your company to be in repudiatory
breach of condition of the above Agreement, accept that wrongful
repudiation and hereby discharge ourselves from that Agreement."
|
|
| "We have instructed our bankers to terminate further
payments to you and immediately reserve our position in damages."
|
|
| 78.
| In a letter to BML dated 16 April 1997, Mr Browne of WB
wrote in somewhat similar terms to BML.
|
| "As you know we entered into a contract with your
Company on 19 March 1996 in respect of a computer system.
|
|
| Since that time, you will also know that this system
has not performed properly and has not provided the facilities which
were reported at the point of sale.
|
|
| The time has come to put an end to this whole affair.
Although we accept your wrongful repudiation of the Agreement, we
are going to attempt to settle this matter with you, and to this
end, we will be writing to you in due course requesting your
attendance at a meeting at our offices, at which time we wish to
consider your Company's proposals for compensation.
|
|
| However we reserve our position in respect of our
right to determine the Contract and our position in damages."
|
|
| 79.
| BML says that this does not amount to an unequivocal notice
of termination because the letter ends by only reserving the position in
respect to WB's right to determine the Contract.It does not say that it
does so unequivocally.
|
| 80.
| WB relies on this letter as notice of termination but says
that if it is wrong about that it relies on the letter of 28 April 1997.
|
| 81.
| It appears that the letter of 16 April 1997 was followed by
a telephone conversation between Mr Doubtfire, a director of BML, and Mr
Browne and by an exchange of letters. The outcome of the list of items in
Mr Bishop's fax of 4 February 1997 followed up in his note of 18 February
1997 was set out in Mr Doubtfire's letter of 25 April 1997.
|
| 82.
| Mr Doubtfire's letter dated 25 April 1997 indicated that
the number of outstanding items had been substantially reduced although
SKR-9 Stock Report, incorrect information appearing on body of Proforma
and Faxbox - failing to get an answer, remained to be worked on by Mr
Smith and Mr Bishop. Mr Doubtfire invited Mr Browne to raise any other
queries to which he said he would respond promptly. He went on
|
| "we would also welcome the opportunity to discuss any
areas of the standard system that cause concern as it may be
possible to handle them in a different way within the Charisma
package."
|
|
| "I look forward to your reply and hope that we can
soon achieve a solution to enable you to gain the maximum benefit
from the system." |
|
| 83.
| WB says that this letter and BML's confirmation on 25 April
1997 on a Customer Contact form that Mr Smith was to send disks containing
all his EDI information and that BML would run the invoice routine on EDI
for all WBs EDI customers wereself-serving and insincere gestures by BML.
I do not find that this was the case. In my view BML was continuing to
make genuine attempts to satisfy the requirements of WB to the extent that
it was able to do so.
|
| 84.
| The letter from Mr Browne dated 28 April 1997 did not
respond to Mr Doubtfire's invitation. It summoned BML to a meeting on 9
May 1997 at 11 am so that WB could hear BML's proposals for financial
compensation. The letter went on, "in the event that you do not confirm
your attendance at this meeting by 2 May 1997 then we shall assume that
you do not wish to amicably settle this matter and proceedings will be
issued against you. We reserve our position in damages."It is clear that
WB regarded the contracts with BML as being at an end.
|
| 85.
| Mr Bishop tried on 28 April 1997 to arrange a meeting with
Mr Smith to discuss the rebuilding of analysis data but in his reply Mr
Smith responded politely that contact could only be made at director
level.
|
| 86.
| A meeting took place between the parties on 9 May 1997. FMC
attended with Mr Wilkins, Dr Salmon's co-director and Mr Dobbs. At the
meeting WB made a claim for £350,000 made up of additional costs incurred
by additional work that had to be done by staff and revenue that could not
be generated by WB but which would have been generated if the computer
system had met its expectations. It also included in the sum a claim for
further losses otherwise unspecified. This figure is 1/3rd of that claimed
at the start of this trial.
|
| 87.
| The specific problems raised at the meeting were that the
GRN matching was too time-consuming and that the ancillary costs routines
were also time-consuming. WB said that they had been faced with unexpected
charges. They said that the cost of EDI had been estimated initially at
£4,00 when in fact it cost £13,000. They said that they had to have it
since large DIY outlets that used the system constituted 65% of their
business.
|
| 88.
| BML did not make an offer of compensation but the Chairman
of the parent company, EDP, sent a final letter dated 14 May 1997 to WB
noting that BML had been expecting detailed input from WB since 18
February 1997 which had not been provided. The letter went on: "the
principle issues raised by Eve Labbett are as follows:
|
| 1)
| SuperCalc - I understand data importing is a standard
feature of this product. I would refer you to the Product Reference
Manuals and the IQ Product Reference Manuals which describe how to
accomplish this task.
|
|
| 2.
| )EDI - This is the subject of a separate agreement.
There is no reason why this facility may not be implemented.
|
|
| 3)
| IQ Reporting on Prospects - We are not aware of any
difficulty remaining outstanding. Perhaps you would be kind enough
to let me have the details of what it is you believe to be the
problem and we shall respond in a timely manner.
|
|
| 4)
| WordPerfect AIX - The solution to the difficulty
arising from the sale of the product by Novel Inc to Corel Inc when
the product was withdrawn from the market for a period of time was
the installation of PC's. WordPerfect for AIX 4.1.4 is now available
as a certified character based product.
|
|
| 5)
| Credit Note Costing - We are awaiting your input
before proceeding further. This issue, Part I was resolved on 11th
February 1997 and Part II on 13th February 1997.
|
|
| 6)
| Pro Forma Invoices - The development work and
certification is completed with the additional functionality of
handling volume discounts via the quotation feature and is available
in Version 5.7.1." |
|
| 89.
| The letter concluded by expressing a willingness to resolve
the matter by constructive discussion but saying that otherwise any
proceedings would be robustly defended.
|
| 90.
| On 19 June 1997 Anglo gave notice to WB of termination of
the hire agreement and claimed the full amount of the loan.
|
| 91.
| On 27 November 1997 WB, using FMC as its consultants,
entered into an agreement with Strategix for the purchase of a new
computer system.
|
| 92.
| WB continued to use Charisma until it was replaced when the
Strategix system went live on 1 April 1998. The lengthy time scale is
surprising. FMC was retained in advance of the purported notice of
termination of the Charisma contract in April 1997. One could have
expected WB to have been able to purchase a system as a matter of urgency,
to go live by 1 January 1998 at the latest, with the assistance of
consultants who not only understood WB's requirements but also the options
which were available to commission an alternative system to replace a
supposedly seriously defective system. There does not appear to have been
the commercial need for WB to proceed with much urgency.
|
|
| THE EXTENT TO WHICH CHARISMA WORKED
|
| 93.
| At the end of the hearing the parties were asked to set out
the extent to which Charisma worked.
|
| 94.
| WB's Case
|
| WB admitted that the hardware worked. The nominal
ledger worked. It said that there were defects in all the other
software but the purchase ledger could be used for sending purchase
orders. The POP module could be used for issuing purchase orders.
The sales ledger could be used for recording sales invoices and the
SOP module could be used for issuing sales orders. It is not
admitted that these items were free from defects. |
|
| 95.
| BML's Case
|
| BML said that each of the 2,500 or more programs that
comprised within the Charisma system was installed and commissioned
in working order subject to the following matters: |
|
| 96.
| Sales
|
| EDI was not yet integrated (Item 2 of the list of
complaints).
|
|
| A bug had only partially been fixed and therefore was
still affecting some credit notes on processed factored stock and a
bug was still printing extraneous addresses on some pro forma
invoices (Item 39). |
|
| 97.
| Purchases
|
| Direct faxes from the German keyboard had the French
circumflex instead of the German umlaut (Item 3). I am not entirely
sure that this is correct. The evidence is that originally the
German keyboard produced circumflexes instead of umlauts but it was
replaced by an English keyboard. This was described by Ms Labbett in
evidence as an entirely trivial complaint.
|
|
| Although IQ Shop was installed and available, this
was not yet on the menu. This may have been as a result of a
misunderstanding but was easily rectified. |
|
| 98.
| Credit Control
|
| RECBAL needed to be re-run periodically possibly
because of a bug. |
|
| 99.
| Profitability Report
|
| A bug was still having a limited effect on figures.
|
|
| 100.
| Marketing Report
|
| One element "Diary at Prospects" file was still
compressed. There is a dispute as to why this was so but BML says
that it could easily have been rectified. |
|
| 101.
| THE 55 COMPLAINTS
|
|
| Of the original 55 listed complaints there is no agreement
between the parties as to how many were raised specifically before FMC had
intervened in December 1996 and WB produced its schedule delivered to BML
on 10 January 1997. The parties agreed that complaints numbered 3, 8-11,
18, 20-23, 32, 34, 35-37, 39, 46-48, 49 and 51 were raised before December
1996. They also agree that Nos.2, 16, 17, 24-26, 40, 42-45 were first
raised after 10 January 1997.
|
| 102.
| The remainder, Nos 1, 7, 12, 14 and 14a, 19, 28-30, 38,
52-54 and 55 are, so WB say, the subject of specific complaint and BML say
are the subject of expressions of general dissatisfaction but not specific
complaint before 10 January 1997.
|
| 103.
| Before the hearing the following complaints had been
withdrawn - Nos 4, 27 and 50. In the course of the hearing five more
complaints, Nos. 5, 6, 13, 15 and 41 were also withdrawn. Although all
these five items are in the category of less important items the claim is
thereby reduced by £44,923.19.
|
|
| THE EXPERTS
|
| 104.
| Before making findings on the claims and addressing the
issue of repudiation it is necessary to consider the position of the
experts.
|
|
| DUTIES OF EXPERTS
|
| 105.
| The Woolf reforms, building largely on the approach which
was developed in this Court and the Commercial Court (with the support and
encouragement of the users of these Courts) sees no inherent conflict
between dispute resolution by parties in the course of the procedure and
dispute resolution by the court at a full hearing at the end of the
procedure. Dispute resolution in the course of the procedure may be
achieved with assistance outside the court procedure by way of independent
mediation; but it may also be achieved by techniques of case management
pioneered in this court, e.g. by "without prejudice" meetings of experts,
joint statements of experts setting out the matters on which they agree or
disagree, early neutral evaluation or by the appointment of a single
jointly appointed expert who may effectively resolve the technical issue
or issues which are preventing the parties from settling their disputes;
or by a combination of constructive case management and mediation. Many of
these innovations underline the importance of experts retained by the
parties acting at all stages as independent experts in order to assist the
parties in reaching a resolution of their disputes or in narrowing the
issues in dispute thus saving time and costs at trial.
|
| 106.
| The starting point in considering the duties of experts is
the well known observation of Tomlin J. in Graigola Merthyr Co Ltd v Swansea Corporation[
[1928] 1 Ch 31 at page 38] that:
|
| "long cases produce evils ... In every case of this
kind there are generally many " irreducible and stubborn facts"upon
which agreement between experts should be possible and in my
judgment the expert advisers of the parties, whether legal or
scientific, are under a special duty to the court in the preparation
of such a case to limit in every possible way the contentious
matters of fact to be dealt with at the hearing. That is a duty
which exists notwithstanding that it may not always be easy to
discharge." |
|
| 107.
| He went on to say that in these classes of case those
concerned with the preparation of cases should more closely address their
minds to restricting the areas of dispute.
|
| 108.
| In the case of The Ikarian
Reefer[ [1993] 2 Lloyds Rep 68, at
81-82] Cresswell J analysed the role of the expert
witness. The analysis, needs to be extended in accordance with the Woolf
reforms of civil procedure.
|
| 109.
|
|
| 1.
| An expert witness should at all stages in the
procedure, on the basis of the evidence as he understands it,
provide independent assistance to the court and the parties by way
of objective unbiased opinion in relation to matters within his
expertise. This applies as much to the initial meetings of experts
as to evidence at trial. An expert witness should never assume the
role of an advocate .
|
|
| 2.
| The expert's evidence should normally be confined to
technical matters on which the court will be assisted by receiving
an explanation, or to evidence of common professional practice. The
expert witness should not give evidence or opinions as to what the
expert himself would have done in similar circumstances or otherwise
seek to usurp the role of the judge.
|
|
| 3.
| He should co-operate with the expert of the other
party or parties in attempting to narrow the technical issues in
dispute at the earliest possible stage of the procedure and to
eliminate or place in context any peripheral issues. He should
co-operate with the other expert(s) in attending without prejudice
meetings as necessary and in seeking to find areas of agreement and
to define precisely arrears of disagreement to be set out in the
joint statement of experts ordered by the court.
|
|
| 4.
| The expert evidence presented to the court should be,
and be seen to be, the independent product of the expert
uninfluenced as to form or content by the exigencies of the
litigation.
|
|
| 5.
| An expert witness should state the facts or
assumptions upon which his opinion is based. He should not omit to
consider material facts which could detract from his concluded
opinion.
|
|
| 6.
| An expert witness should make it clear when a
particular question or issue falls outside his expertise.
|
|
| 7.
| Where an expert is of the opinion that his
conclusions are based on inadequate factual information he should
say so explicitly.
|
|
| 8.
| An expert should be ready to reconsider his opinion,
and if appropriate, to change his mind when he has received new
information or has considered the opinion of the other expert . He
should do so at the earliest opportunity. |
|
|
| It is clear from the Judgment of Lord Woolf MR in
Stevens v Gullis[ (Court of Appeal
Transcript of 27 July 1999)] that the new Civil Procedure
Rules underline the existing duty which an expert owes to the Court as
well as to the party which he represents.
|
|
| The formulation set out above is also consistent with the
judgment of Laddie J in Cala Homes (South) Ltd v
Alfred McAlpine Homes East Ltd[ [1995] FSR 818 at
841] where Laddie J criticised a not dissimilar
approach by an expert to that of FMC in this case. It is also consistent
with the judgment of Pumfrey J in Cantor
Fitzgerald v Tradition UK Ltd[ Judgment Transcript of 15 April
1999 paragraph [70]] where he emphasised the
particular importance of experts being scrupulously independent in highly
technical cases like computer cases.
|
| 110.
| It needs to be recognised that a failure to take such an
independent approach is not in the interest of the clients who retain the
expert, since an expert taking a partisan approach, resulting in a failure
to resolve before trial or at trial issues on which experts should agree,
inflates the costs of resolving the dispute and may prevent the parties
from resolving their disputes long before trial.
|
| 111.
| The fact that most experts, as a matter of course, adhere
to the standards which I have set out, contributes substantially to the
fact that over 90% of the actions in this court settle (excluding those
referred to mediation), in many cases at a very early stage in the
procedure.
|
|
| THE EXPERTS IN THIS CASE
|
| 112.
| In this case Mr Larner, BML's technical expert, and Mr
Taylor, BML's quantum expert adhered fully to these standards. WB's
technical and quantum experts Dr Salmon and Mr Martin both from FMC took a
different confrontational approach. This is surprising beacause in
Gretton v British Millerain Co
Ltd, which His Honour Judge Thornton QC heard in 1998 and
gave judgment on 2 November 1998, he made serious criticisms of FMC and in
particular, of the way in which FMC had carried out its examination of the
computer system and reported on it. ( see paragraphs 66, 72, 73, 82, 89
and 118 of the Judgment). FMC was so concerned about the adverse criticism
that it wrote to the learned Judge as a result of which a new paragraph
66A was added to the judgment to make it clear that the expert in that
case was employed by FMC on a part-time basis as a self-employed
consultant between January 1994 and March 1995 and as a normal full time
employee from then until 26 July 1996. Thereafter FMC's services were
terminated some seven months before the trial started and from that date
the expert was employed directly by MB, (his clients). It was his conduct
in this period of direct employment by his client to which Judge
Thornton's criticisms related. It is surprising in view of the importance
that FMC attached to the criticism that they did not take note of the
comments which His Honour Judge Thornton made in the course of that case
and alter its procedures accordingly.
|
| 113.
| Dr Salmon's approach in this case is consistent with that
set out in his paper on the role of the expert written in the autumn 1995
issue of the Expert, the journal of the Academy of Experts of which Dr
Salmon is a member. This article appeared after the clear guidance given
in 1993 by Cresswell J in The Ikarian
Reefer. Dr Salmon said in this article that the decision of
the House of Lords in Whitehouse v
Jordan[ [1981] 1 All ER 267] was often
misconstrued. It should be noted that at page 276 Lord Wilberforce
concluded his speech by saying that expert evidence presented to the court
should be, and should be seen to be, the independent product of the expert
uninfluenced as to form or content by the exigencies of litigation. To the
extent that it was not, it was likely to be not only incorrect but
self-defeating. This statement is entirely clear.
|
| 114.
| Dr Salmon nevertheless said in his Paper in 1995 that,
|
| "an expert witness appointed under current procedure
is under no duty to the court as an expert."
|
|
| [The decision in Whitehouse
v Jordan "does not mean that an expert must not omit
or understate legitimate points that he believes goes against his
client".
|
|
| "My duty as an expert was simply to help my client
win his case on the facts as defined in the statement of claim on
truthful expert evidence that I had compiled, examined and presented
- nothing more". |
|
|
| He went on
|
| "It does not mean that an expert must be impartial as
demonstrated by the fact that if asked the same question by either
party he would give the same answer." |
|
| 115.
| As an Appendix to his expert evidence in this case, Dr
Salmon included a paper entitled "Gambling with the future of UK
Manufacturing Industry". This paper was written in April 1999. It
describes FMC as having two divisions - 'Resolve' called in to provide
specialist backup in IT cases and 'Consult' which specialises in
rectifying problem systems. Dr Salmon readily agreed that Resolve was all
about claiming and pursuing and winning. Most clients like WB are
contacted by mail shot. The publicity said that over 600 claims had been
handled since FMC was founded by Dr Salmon in 1980. Dr Salmon claimed that
FMC had never lost a case. In cross-examination Dr Salmon admitted that he
had only given evidence in court on two occasions.
|
| 116.
| In oral evidence Dr Salmon sought to make a distinction
between his role as an expert witness and his role as a negotiator or
claims consultant.
|
| "When I am an expert witness I am interested in an
impartial disclosure of facts to the court. When I am a negotiator
on behalf of an insurance company or a supplier maybe I have been
appointed by an insurance company I am interested in settling
through hard nose negotiation claims against the supplier. When I am
representing the client I say "get it settled, get the parties round
the table. It will cost you a fortune if you go ahead. So we get the
suppliers down and negotiate." |
|
| 117.
| It is normally inappropriate for the same expert to
undertake both roles. In this case it is clear that Dr Salmon was unable
to distinguish between them.
|
|
| Apart from his written evidence Dr Salmon produced a video
demonstration. It started by demonstrating the longest possible method of
accessing the programs. Dr Salmon conceded in oral evidence that if I had
not seen the clips produced by BML I could easily have been mislead by his
video.
|
| 118.
| BML supplied Dr Salmon with clips in August 1999 which were
designed to show that Charisma works in a number of respects in which Dr
Salmon said that Charisma did not work. In evidence Dr Salmon was asked
about his challenge to the validity of the clips which he claimed did not
demonstrate what they purported to demonstrate.
|
| 119.
|
|
| "Q-
| If the clips show that it works in a number of
respects in which you say it does not work the clips have a
devastating effect on your work, don't they?
|
|
| A-
| Undoubtedly yes.
|
|
| Q-
| They negate a large part of your report?
|
|
| A-
| Without question.
|
|
| Q-
| And they have a devastating effect on your
credibility as an expert in this case?
|
|
| A-
| I could not agree more." |
|
|
| It was only on the last afternoon of the last day of
evidence that BML was finally notified that WB would not be attempting to
prove Dr Salmon's contentions. Dr Salmon declined to examine the clips to
substantiate his claim although he had ample opportunity to do so.
|
| 120.
| I find that Dr Salmon failed to conduct himself in the
manner to be expected of an expert witness.
|
| 121.
| This view of lack of independence in WB's experts from FMC
is reinforced by the expert quantum reports prepared by Mr Martin, an
employee of FMC. In evidence Mr Martin, with some embarrassment, described
his initial report of 9 January 1998, written to support the defence and
counterclaim and prepared under order of the court for presentation as an
independent quantum expert's report, "as a negotiating tool based on the
representations primarily of Winther Browne. It was not made as an expert
witness report and has never been intended as such." Mr Martin said that
at the time when he had written the first report, he had recently joined
FMC as a claims consultant. He was not trained as an expert witness.
Subsequently he said he wrote the second report as an independent expert.
It relied on the unrealistic and inflated assumptions of the first report.
When asked whether it would have been better for someone else to take on
the role of expert in view of his first partial report Mr Martin said that
this would not have been possible because he was the only quantum expert
witness in FMC.
|
| 122.
| I find that neither Dr Salmon nor Mr Martin conducted
themselves as independent expert witnesses or in a manner acceptable to
the court. I am unable to rely on their evidence in support of WB as
independent expert evidence.
|
|
| THE CONTRACT : PARTIES DUTY OF CO-OPERATION
|
| 123.
| It is important to understand the nature of the contracts
between WB and BML. It is well understood that the design and installation
of a computer system requires the active co-operation of both parties.
Frequently a client employs a consultant to assist it in the process (as
WB subsequently employed FMC to assist it in commissioning and installing
the replacement system for Charisma). WB did not do that in relation to
Charisma. Instead it invited proposals from selected hardware and software
suppliers and developed its requirements in discussions with potential
suppliers. It is clear that WB was always interested only in a package
system and was not prepared to spend money on bespoke software which could
adapt the computer system to WB's particular working practices. It was
almost inevitable in these circumstances that while Charisma ( or any
other standard system) could be expected to provide an 80% fit or better
with WB's existing procedures, it was unlikely to provide a 100% fit. This
meant that it was inevitable that there would be some procedures of WB
which WB would have to adapt to Charisma.
|
| 124.
| Mr Guy for WB accepted in his closing submissions that it
was likely that all WBs requirements would not have been spelt out in
advance. There would be aspects of the system which did not immediately
fulfil the customer's needs and there would have to be a period of
discussion between customer and supplier to see how the problems could be
resolved. When clients of computer companies with limited computer
knowledge like Winther Browne are investigating a new computer system, it
may be difficult for them to discuss the system in technical terms. There
may also be problems of communication when discussing in advance the
client's requirements particularly when the client has not retained
computer consultants. Mr Smith, who undertook the task for WB, was self
taught and perhaps unduly modest about his capabilities. He was an
impressive witness with a good level of knowledge of computers but but he
did not have, and never claimed to have,the knowledge and breadth of
expertise of a computer consultant. This made the need for active
cooperation between WB and BML throughout the project of crucial
importance.
- The parties would have been prudent to reduce to writing precisely
what special needs had been communicated to BML, precisely how it was
agreed that they should be met and what follow up procedures were to be
undertaken eg. systematic noting of problems, review meetings etc.
|
| 125.
| The duty of co-operation in my view extends to the customer
accepting where possible reasonable solutions to problems that have
arisen. In the case of unimportant or relatively unimportant items that
have been promised and cannot be supplied each party must act reasonably,
consistent, of course, with its rights.
|
| 126.
| In relation to a contract for the supply of a standard
computer system it is an implied term that:
|
| a)
| the purchaser communicates clearly any special needs
to the supplier,
|
|
| b)
| the purchaser takes reasonable steps to ensure that
the supplier understands those needs,
|
|
| c)
| the supplier communicates to the purchaser whether or
not those precise needs can be met and if so how they can be met. If
they cannot be met precisely the appropriate options should be set
out by the supplier.
|
|
| d)
| the supplier takes reasonable steps to ensure that
the purchaser is trained in how to use the system,
|
|
| e)
| the purchaser devotes reasonable time and patience to
understanding how to operate the system,
|
|
| f)
| the purchaser and supplier work together to resolve
the problems which will almost certainly occur. This requires active
co-operation from both parties. If such co-operation is not present
it is likely that the purchaser will not achieve the desired results
from the system. |
|
| 127.
| These terms are somewhat similar to BML's written terms of
business relating to purchaser's responsibilities which require a
purchaser to accept responsibility for the selection of the computer
system to achieve its intended results. It is sufficient for the purposes
of this judgment to hold that the terms set out above are incorporated
into this contract. It is not necessary to consider whether BML's own
terms are unfair in so far as they go further.
|
|
| THE CONTRACT REPRESENTATIONS
|
| 128.
| I am satisfied that WB's list of vague system requirements
on 28 July 1995 was not a contractual document. I am also satisfied that
the information from Mr Fairchild of 1 August 1995 contained the
representation that Charisma had been written to satisfy the needs of
wholesalers and distributors and that this representation was true. I am
also satisfied that BML offered a package which also included
comprehensive consultancy project management and training from
professionals. I also accept as correct Mr Fairchild's representation to
Mr Smith in his letter dated 20 November 1995 accompanying his formal
proposal, that there was no reason to believe that WB's requirements could
not be ably satisfied by standard "Charisma" and IQ.
|
| 129.
| The same letter contained the warning that use of standard
Charisma would require a change in current methods of pricing and
discounting.
|
| 130.
| The revised proposal of 8 December 1995 represented that
BML would provide WB with a sophisticated multi-terminal system to meet
WB's current and future requirements. I have no reason to doubt the
truthfulness of this representation.
|
| 131.
| With regard to individual items of complaint, WB says that
the following were the subject of express agreement.
|
| No link from EDI to Charisma (Item 2)
|
|
| The German keyboard (Item 3)
|
|
| The provision of data transfer to/from Supercalc
spread sheets (Item 7)
|
|
| The Prospect Diary for producing reports (Item 19)
|
|
| The provision of a reasonable work around to deal
with multi branch customers (Items 28 -30)
|
|
| Direct faxing of Pro Forma Invoices (Items 35 -37)
|
|
| Some batch updating of the stock records (Item 45)
|
|
| Word processing (Item 51) |
|
| 132.
| In relation to each of the other items of complaint, WB
says that these were required by implied terms necessary to give business
efficacy to the contract. BML says that there was simply an implied term
that the software supplied would be of reasonable quality. It will be
necessary first to consider whether the defects established by WB overall
were such that WB was entitled to treat the contract as repudiated. I must
then consider in relation to each item of alleged defect whether BML was
or was not in breach of contract. I must then consider damages.
|
|
| OVERALL PERFORMANCE
|
| 133.
| Before turning to the individual items of the complaint, I
consider BML's, overall performance set against the general complaints set
out in paragraph 13 of the Defence and Counterclaim. Mr Larner has done a
detailed analysis which is set as Appendix 2 to his first Report. I accept
his general analysis subject to consideration of the specific items of
complaint by WB.
|
|
| I find as follows:
|
| a)
| the computer system would in general allow WB to
operate a computerised telesales, order processing, stock control
and accountancing system which would provide comprehensive
management information. Subject to consideration of WB's specific
requirements, it was easy to use.
|
|
| b)
| since Item 4 in the list of complaints has been
withdrawn, there can be no realistic dispute that the Charisma
software was a fully intergrated specialised package which would
provide the functions in a) above.
|
|
| c)
| the software was ideally suited to distribution
companies.
|
|
| d)
| The software did enable Winther Browne to process
orders quickly and efficiently.
|
|
| e)
| The Charisma software could provide comprehensive
reports and management information. While this was accurate as a
general statement of Charisma's capability, it did not mean that
whatever management information WB required could be provided.
|
|
| f)
| The Charisma software did consist of the following
modules:
|
| (i)
| telephone enquiries/orders
|
|
| (ii)
| quotations and lost order analysis
|
|
| (iii)
| sales order processing and invoicing
|
|
| (iv)
| stock control including kitting
|
|
| (v)
| purchase order processing
|
|
| (vi)
| sales ledger
|
|
| (vii)
| purchase ledger including multi-currency
|
|
| (viii)
| Nominal ledger including fixed assets
|
|
| (ix)
| Intrastat module
|
|
| (x)
| PC emulation software
|
|
| (xi)
| IQ query/report writer
| |
|
|
| THE MAJOR DEFECTS
|
| 134.
| In opening the case, WB divided the alleged defects into
two categories - major and those were which were not in themselves major,
but were serious, individually and collectively. The major items were as
follows:
|
| Item 2 EDI; Item 7 Spread sheets; Items 8 - 12, 14
and 14A GRN matching; Item 18 POP OUT; Item 19 Prospects; Items 20 -
23, 32, 46 - 48 Unit of Measure; Items 28 - 30 Multi Branch; Items
35 - 37 Pro Formas and Item 51 Word processing. |
|
|
| I shall deal with each in turn.
|
|
| EDI (ELECTRONIC DOCUMENT INTERCHANGE) Item 2
|
| 135.
| I have already found that there was no offer by BML to
supply EDI at a cost of approximately £4,000.
- The further complaint is that while WB was already using EDI for
communication with certain large stores (Sheds), BML promised to provide
EDI software to be integrated with Charisma but did not do so. EDI was
the subject of a separate agreement signed on 12 February 1996 but on 19
March 1996 BML was told that "it is likely this (EDI) will not be
required until several months after going live." In evidence Mr Smith
confirmed that this was the case.
|
| 136.
| On 11 June 1996 Mr Smith told Mr Bishop that WB intended to
integrate EDI subject to sorting out the final details. On 18 June 1996 Mr
Bishop warned Mr Smith that BML was organising its work to the end of 1996
and needed to know what was required in order to include it in the work
schedule. Mr Smith agreed in evidence that this was the date on which WB
hoped to have EDI. It is clear from the fax of 26 June 1996from Keywill,
suppliers of EDI, that WB had not in fact made a final decision on whether
to have an integrated or a non -integrated system.
|
| 137.
| On 1 July 1996 Mr Fairchild wrote to Mr Smith that until
such time as BML could confirm the layout (templates) for each trading
partner it was unable to give the final costs. He said that the quotation
was based on certain specific assumptions set out in the letter..
|
| 138.
| On 8 July 1996 a revised order was agreed by WB and BML
based on these assumptions at a price of £13,825 to include three days
consultancy at £475 per hour and five days Charisma training at £350 per
hour.
|
| 139.
| Thereafter as far as BML was concerned, EDI was not a
pressing need for WB until 7 March 1997 when WB faxed through B&Q
requirements set out in a notice to WB dated 27 February 1997 that in
future B&Q required WB to trade with them via the EDI system. Mr Smith
says in his third witness statement that he had not sent through the
templates. He complains that he was not pressed by BML to do so. The
position was that until BQ's requirement was notified to WB, there was no
pressing need for the matter to be advanced because WB had no immediate
need for EDI. In his final submission, Mr Guy accepted that WB hesitated
until the B&Q notice in 1997 on whether or not to have integrated EDI.
This answers WB's complaint of delay against BML. It was only by fax on 7
March 1997 that Mr Smith made it clear that WB wanted integrated EDI. The
fax acknowledged that the most urgent priority was outgoing invoices
starting with those to be sent to B&Q.
|
| 140.
| Mr Bishop's response dated 24 March 1997, set out a
schedule of delivery for Charisma 5.7.1 by the end of April 1997 and for
the setting up of documents to allow their export using EDI in the week
commencing 19 May 1997. The Schedule made it clear what data needed to be
set up by WB before EDI invoice documents from Charisma could be exported
into the Keywill software.The letter did not give a date for the
scheduling of incoming orders. Before incoming orders could be received
using EDI, the system had to be integrated.BML notified Mr Smith on 25
April 1997 that it could run the invoice routine immediately Mr Smith had
sent the information for the templates. He was reminded of this again on 8
May 1997 after all co-operation between the parties had ceased.
|
| 141.
| The issue between the parties is the timeliness of the
delivery of EDI and the ability of WB to export documents from Charisma
into the EDI Software. There is no claim by WB in relation to an alleged
failure of BML to provide EDI for incoming orders. I am satisfied that BML
was under an obligation to provide EDI within a reasonable time after it
had received the information which it needed before EDI could be supplied.
That information was not provided in July 1996 when the purchase order was
given. I am satisfied that between July 1996 and March 1997 Mr Bishop (or
Mr Fairchild) was waiting for templates from Mr Smith. If either side had
thought that implementation was a pressing matter it would have been
raised in discussion and the necessary information would have been given.
|
| 142.
| I am also satisfied that although the response in March
1997 was slower than WB would have wished, it showed an intention by BML
to implement EDI with reasonable speed once WB had decided whether it
wanted integrated or non-integrated EDI and the necessary information had
been given to BML by WB. WB must have known from the warning given by BML
on 18 June 1996 that it might take time for BML to organise the necessary
work. When pressed further about the urgency of the matter about the
matter, I am satisfied that BML made a genuine offer to speed up the
implementation of EDI. I find that this complaint has not been
established.
|
|
| SPREAD SHEET (Item 7)
|
| 143.
| Ms Labbett's spread sheets were designed to allow her to
see the sales that had been made and to assess purchase requirements to
replace stock. There is no dispute that BML agreed specifically to provide
a facility whereby Ms Labbett could transfer data to and from Charisma and
her spread sheets. The measure of damage claimed in respect of the failure
to be able to down load the information into Supercalc is claimed to be
the cost of lost orders because Ms Labbett had to stay in the office
keeping her spread sheets up to date when she would have otherwise been
travelling around the world acting as a buyer for WB. BML did not supply
Supercalc or its software component SDI. This was supplied separately to
WB some time before the contract between WB and BML had been entered into.
|
| 144.
| It is accepted that Mr Ross, a programmer for BML, told WB
at the first training session on 6 August 1996 that the transfer could not
be achieved using Supercalc but that it could be achieved using Excel. The
matter was raised again at the consultancy meeting with Ms Fisher as a
result of which she produced her report on 6 September 1996. The report
said:
|
| 145.
|
|
| "IQ Shop works with certain spread sheets and it must
be determined if Supercalc is compatible or whether a different
package will need to be used." |
|
| 146.
| In her oral evidence Ms Fisher said that she passed the
problem to Mr Bishop. Ms Labbett said in oral evidence that after the
meeting on 6 September 1996, she was uncertain whether or not Supercalc
was compatible with Charisma. I accept this evidence which conflicts with
her assertion at other times in her evidence that she did not raise this
issue more persistently because she was convinced that nothing could be
done about it. I find that she, who had comparatively little computer
expertese left the resolution of the question to Mr Smith. Mr Smith
suceeded in transferring data using the Excel spreadsheet but could not
use the results because of a basic error on his part. He could and should
have asked BML for specific help to complete the process or to see whether
Supercalc was in fact compatible with Charisma. Even if he had been
successful with Excel I am not sure that Ms Labbett would have used Excel.
She was wedded to the Supercalc that she knew.
|
| 147.
| In his oral evidence Mr Bishop said, and I accept, that he
did not take any immediate action but spoke to Mr Smith in early October
1996.
|
| "He (Mr Smith) advised me that he was quite keen to
make use of Excel and I knew at the time that Excel was a
spreadsheet that was compatible with how IQ Shop would work so I did
not progress the matter further at that stage." This, Mr Bishop
said, resolved the compatibility issue in his mind unless it was
raised again. |
|
| 148.
| The matter was raised again by WB on 17 January 1997. It is
surprising, if the results of the inability to transfer data from Charisma
to the spread sheets caused such damage to WB's business, that the point
was not taken up with BML between September (or October) 1996 and January
1997.
|
| 149.
| When asked in evidence if the problem had priority as far
as she was concerned Ms Labbett replied:
|
| "My answer would be yes. It was a priority. But when
I have to work longer hours it does not cost Winther Browne any
money. I worked very hard and very long and often week-ends when
things were not working with BML. If I had a log of my entries I
could truthfully say that I work Saturday and Sunday to make up for
the time." |
|
| 150.
| This answer contradicts WB's case that it was losing
substantial orders but suggests rather that Ms Labbett was carrying out
the work in her own time for which she would not be paid by WB.
|
| 151.
| Mr Larner demonstrated on clips shown to me that, using an
older version of Supercalc with SDI than WBs, it was easy to transfer the
information. (See for example clip SS 5507) Dr Salmon admitted in evidence
that the process of downloading was not cumbersome and long winded as he
had previously said. Dr Salmon also accepted that Mr Smith could use SDI
because he was and is a technical person. Ms Labbett is not a technical
person and it is not surprising that she was unsuccessful in her attempts
to do so. It is surprising that she did not ask Mr Smith to resolve the
problem as a matter of urgency, if necessary with the assistance of BML.
|
| 152.
| The problem with Supercalc is not mentioned in Ms Labbett's
list of problems sent to Mr Bishop on 10 January 1997 and drafted
originally on or about 18th December 1996. It is referred to in Ms
Labbett's letter to Mr Bishop of 17 January 1997 in the following terms
"Prospect File - cannot use my Supercalc spread sheets etc."
|
| 153.
| In his detailed reply of 4 February 1997 Mr Bishop
commented "if your Supercalc spread sheet is compatible with either flat
ASC 11 CSV type file or Lotus 3 file then you can import an IQ Report. IQ
Reports can be saved as either of these file types." This turned out to be
the correct approach. Unfortunately, even then Mr Smith did not follow
this up or ask BML for specific help.
|
| 154.
| In her reply of 10 February 1997 Ms Labbett answered Mr
Bishop's comment in the 4 February 1997 letter by saying in effect "how
should I know this?" She also said that the absence of this facility was a
great disappointment.
|
| 155.
| There the matter rested until Mr Larner made a successful
attempt to down load the information onto Ms Labbett's spread sheets. I am
satisfied that this could have been achieved by WB in the autumn of 1996.
|
| 156.
| It is clear that neither Ms Labbett nor Mr Smith gave this
any priority remotely commensurate with the claim that is now being made.
The explanation that "this is hardly surprising in view of the other
matters which are outstanding" is wholly unconvincing.
|
| 157.
| There was no agreement by BML that it would be responsible
for training for SDI and no focused complaint or request for help was made
by WB to BML.
|
| 158.
| I do not find this allegation proved. Any potential loss
could have been prevented either by Mr Smith consulting BML to find out
how Excel could have worked or, more likely by Ms Labbett and Mr Smith
following up with Mr Bishop in October 1996 and obtaining from him an
explanation of how Supercalc could be made to work with Charisma.
|
|
| GRN MATCHING (Items 8, 10-12 and 14A)
|
| 159.
| Items 8, 10, 14 and 14A relate to complaints by WB that in
the case of over-delivery of stocks purchased by BML, it was difficult, if
not impossible, to carry out a reconciliation between GRN (goods received
notes) and purchase invoices. The only way it could be done, so it was
said by WB, was by a long-winded manual process which required the user to
perform long-winded mathematical calculations. WB claims that it was a
term to be implied from pre-contractual documents and was necessary for
business efficacy that it should be able to carry out the process easily
using Charisma.
|
| 160.
| The tasks were the reconciliation of ancillary costs to
stock items (Item 8); no amendments of lines so that if a mistake was made
the operator must start again (Item 10); manual reconciliation was
necessary if more than one invoice was received for one purchase order
(Item 11); if a facility Intrastat was used for a declaration to Customs
& Excise carriage and goods were not shown separately. Intrastat was
one of the Charisma programs for making Intrastat returns to the Customs
and Excise. The separate recording of carriage costs was not a VAT
requirement (Item 12); Ancilliary costs had to be calculated manually for
each invoice line (Item 14 and 14A)
|
| 161.
| The problems arose because in deliveries, particularly from
abroad, WB often received more than the number of items ordered. It was
explained to me that this was only sensible since even if some items were
damaged in transit, the order would still be filled as contracted. WB
insisted on allocating unit and ancillary costs to such over-deliveries.
The standard Charisma system did not accommodate such accounting methods
easily.
|
| 162.
| Mr Taylor, BML's expert, gave evidence that it was a normal
accounting practice to treat each order as a batch and to disregard any
over-deliveries or to treat over-deliveries as zero cost items. I am
satisfied that this was a normal practice adopted by most companies.It was
explained to me, and I accept, that WB's process of spreading costs among
all goods delivered including over-deliveries is contrary to Intrastat
procedures.
|
| 163.
| In evidence Ms Fisher said, and I accept, that she was
asked at the pre-contract stage if Charisma could handle over-deliveries
and she said that it could. Unfortunately WB did not explain to BML its
system for dealing with over-deliveries. The matter was raised at the
review meeting on 6 September 1996. The report noted that project sheets
had been raised, referring to PLP 10, one of the programs within Charisma
for matching Goods Received Notes to Purchase Orders.
|
| "PLP 10-
| when matching GRN's over deliveries are not always
charged for and cannot easily be reconciled (Project sheet 12058)."
|
|
| "PLP 10-
| if a mistake is made you should be able to amend the
entry rather than having to reject it all" (Project sheet 12059).
|
|
| 164.
| In relation to Project Sheet 12058, the sheet is endorsed
"modified as required" with a date of 20 February 1997. In oral evidence
Mr Bishop said that he did not know of the problem until January 1997. It
is again surprising that, if the problem raised by WB had not been
resolved satisfactorily at a much earlier stage, WB did not ask for a
further meeting or meetings to see whether or not their problems could be
resolved by upgrades or refinements or further training or by WB adapting
its working procedures to conform to its new computer system.
|
| 165.
| I hold that the representation that Charisma could cope
with overdue deliveries was accurate as far as it went. The system would
have worked well if WB had adopted normal business practice and entered
over-delivered stock at zero value. WB was buying a standard Charisma and
not a bespoke system. It was unreasonable of WB to refuse to adapt its
system to Charisma which reflected a business practice which was widely
adopted.In contractual terms I do not accept WB's contentions that there
was an implied term that standard Charisma would be able easily to carry
out the reconciliation between GRN and purchase invoices using WB's
system. I reject these complaints.
|
|
| POP OUT (Items 18 and 34)
|
| 166.
| The facility allows a user to enter a second program
without exiting the program that the user is in. The complaint is that the
risk of locking-in when an operator popped out to access the same
updatable record could and should have been avoided by appropriate
programming. Lock-in is also referred to as a "deadly embrace."Once the
deadly embrace has occurred, it was necessary for the operator to call for
the assistance of Mr Smith who would then require the assistance of the
BML support desk to reset the terminal.
|
| 167.
| The complaint (which was first made on 4 July 1996 in the
form of a screen fault which was fixed in under 10 minutes) was that there
was an elementary program error which could have easily be solved. Dr
Salmon's opinion was that this was the case although he did not explain to
Mr Larner or to the court how it could have been done. In the absence of
any explanation I am unable to accept his opinion.
|
| 168.
| The solution which was found was that users were trained
not to use the program in this way. It was not necessary to do so. There
was an alternative way of retrieving the information through the Charisma
system. If a user did make a mistake, only that screen was frozen. The
evidence is that the training was successful and only very occasionally
did the locking-in occur. On the few occasions when it did happen BML
provided an immediate solution. I regard BML's solution as a reasonable
discharge of its obligations to WB. In this respect I accept the evidence
of Mr Larner. In any event even if training had not been a wholly
acceptable solution this was a relatively minor matter since it affected
only the individual screen and did not cause the whole system to crash.
|
|
| PROSPECTS (Item 19)
|
| 169.
| The complaint is that the Prospects Diary file was
inaccessible for producing reports because it had been compressed and no
key was provided for access to it. WB wanted to know whether persons who
had responded to a particular advertisement by making an enquiry, went on
to make a purchase. This was made clear by Mr Justin Browne, WB's
Marketing Manager, when he gave evidence. It was not made clear earlier.
WB claimed £347,569 damages in respect of this alleged fault.
|
| 170.
| It is agreed that BML had promised expressly that data
entered could be retrieved in the form of a report. WB's case is that they
could not access the file when it was reasonably required for use because
it had been compressed. It is said that the absence of an effective
Prospects file seriously compromised the effectiveness of WB's marketing.
Unfortunately without telling BML, WB ceased to record manually
information which it was entering on the computer.
|
| 171.
| In his expert evidence, Mr Larner says, and I accept, that
by far the greatest number of reports that would assist in targeting
clients came from the company @. information on the Customer files. On
these files WB held details of the type of business the customer was in,
whether the customer had expressed specific or general interest in WB's
products and the source of the contact. This information was readily
available to WB and formed the most important part of the information on
which its marketing was based. I am satisfied therefore that the
information that was crucial to marketing was readily available. If the
information in the Prospects Diary file had been crucial, Mr Browne would
have devised a system for providing at least part of the records manually
and would not have waited until the installation of the Strategix system
in April 1998 to repair the alleged defect. Such an approach would have
been wholly unreasonable if it was likely to cause significant losses to
WB.
|
| 172.
| It is suggested that if WB had the information of Prospect
it would have been possible for it to use IQ to produce a list of the
number of clients to be added to the file. This system depended on WB
logging in enquiries on potential customers.
|
| 173.
| The problem was that access was not obtained for the
compressed files. This problem could have been overcome without any
difficulty. As Mr Larner explained in his second report, it involved
telephoning the supplier of IQ, registering the name of the customer where
the key is to be used, and receiving the information over the telephone.
|
| 174.
| In my view BML should have done this soon after the
original complaint in October 1996. Having said that, the problem was not
raised again until 10 January 1997. The key was obtained on 14 March 1997.
I accept BML's evidence that the modem link had been switched off by WB
before the key could be supplied. It should be emphasised that WB was
deprived of only very limited information. In addition to information
available through Company @ records, Ms Labbett knew her business well.
Had there been a risk of serious loss to WB from not being able to use the
file I am sure that Ms Labbett would have made more specific and
vociferous complaints to BML and would have arranged for manual records to
be kept.I am not satisfied that in the event WB suffered any significant
loss, I accept Mr Taylor's evidence in preference to that of Mr Martin.
|
|
| UNIT OF MEASURE (Items 20 - 23, 32, 46 to 48)
|
| 175.
| Mr Larner accepts that this was a part of the system which
had not been fully used by other customers and a number of bugs appeared.
There is a complaint (item 20) that BML represented that the software
would produce reports identifying the customers who, having placed an
enquiry did not pursue the enquiry to the purchase stage. I find that no
such representation was made. Other complaints are that WB could not trust
reports on profitability and stock reports because of manifest errors. The
fact that they were manifest and obvious means that no one would sensibly
rely on the mistaken figures.The initial complaint was that the system
coped badly when sales representatives were not set up on the system and
the result was that spurious stock figures were produced. This problem was
fixed by 8 August 1996 based on project sheet 11568 (as WB concedes).
|
| 176.
| There was also a bug which caused credit notes to be
generated on occasion with obviously corrupted figures. An example
occurred on 1 November 1996 and was reported immediately to BML. The
problem was fixed from 10 February 1997. Until the earlier figures were
corrected there was a risk that later figures carried forward corrupted
figures from before this date.
|
| 177.
| There was a further bug which gave rise to obviously
incorrect stock figures when stock was purchased in meters instead of
feet. This was fixed on 11 February 1997. WB had to take stock out
manually and re-enter it ( a work-around) from October 1996 to February
1997.
|
| 178.
| Unfortunately the figures on profitability would have been
unreliable in any event because of other errors by WB including the over
valuation of stock lines by 17.5% (the amount of VAT). In the course of
his evidence Dr Salmon eventually conceded that this was the case.
|
| 179.
| I accept Mr Larner's evidence that the bugs were limited to
a small number of records. In most cases they produced results which were
obviously incorrect so that no one would rely on them inadvertently. The
bugs tended to cause a consistent mathematical error so that it was
possible to work out the correct figures. I find that BML was slow in
sorting out some of the bugs. I do not find that WB have proved any losses
attributable to the bugs.
|
|
| HEAD OFFICE/BRANCH OFFICE (Items 28 - 30)
|
| 180.
| It is alleged that BML knew from the beginning that WB
supplied Sheds. Goods were dispatched to branches but invoiced to head
office. It is said that there was no suggestion in the pre-contract
discussions that there would be a problem with credit control and, in
effect, that BML promised to provide the facility.
|
| 181.
| I do not accept that BML made any representation that the
system would be able to produce delivery notes for multiple addresses
while producing invoices for all billing addresses ( Item 28) or that the
system would be able to produce information about the distribution of
goods to each of the multiple addresses. (Item 29). I accept BML's case
that it gave an explicit promise to provide a work-around to deal with
Sheds.
|
| 182.
| Charisma permitted goods to be despatched to branches but
the user was faced with a number of options. If the account address was
the head office there was no analysis of turnover per branch (Option 1).
If the branch was treated as the account there was a problem with checking
credit because credit was arranged with head office (Option 2). Finally
there was no individual credit control on orders placed by branches since
actual invoices were transferred to the head office account.
|
| 183.
| The problem was resolved in the following manner. Where the
customer was a Shed Option 1 was used. For smaller firms, each branch was
set up as an account with a dead status. The orders were then cancelled
and re-keyed into the head office account.
|
| 184.
| In the final written submission WB admits that it ought to
have mitigated its loss by purchasing the "rollup" software offered as a
modification on 12 August 1996 at a cost of £1,620. Until the final
submissions, WB took the position that WB was justified in refusing the
modification (offered six weeks after the system went live) until all
other problems with the BML system had been resolved. Such a refusal was
wholly unjustified and the concession, albeit at a very late stage, was
entirely appropriate.
|
| 185.
| I accept Mr Larner's expert evidence that this was a
problem that WB needed to think through carefully before purchasing the
system. WB was offered a number of work arounds. In his report Mr Larner
concludes "I find it hard to believe that the loss of delivery
instructions was adequate cause for opting to do without management
controls. But in fact there was no need to choose. They could have had
both." There was a simple solution offered at a small cost which they
should have accepted and paid for. I am satisfied that BML was not in
breach of contract and was not therefore required to provide the
modification free of charge.
|
|
| PRO FORMAS (Items 35 - 37 and 42)
|
| 186.
| The complaint is that BML did not supply pro forma invoices
as expressly agreed. BML's case is that WB did not make its requirements
clear and BML entered into no express agreement to supply a facility for
WB to fax proformas precisely in accordance with its existing procedures.
The background is that WB negotiates over the telephone and uses pro forma
invoices for buyers with whom they have not previously traded. Pro forma
invoices are therefore faxed to potential customers who may or may not
purchase goods. The customer telephones WB, is quoted a price and terms,
and is sent a pro forma invoice for the goods he may wish to order. If the
customer wants to take up WB's offer he returns the pro forma invoice with
payment.
|
| 187.
| I accept Mr Larner's evidence that this is unusual. He says
that it is different to any other business he has come across. The normal
method would be to send an invoice to actual customers only when they
intend to buy. It is unusual to send pro forma invoices to potential
buyers who have made an enquiry but have not agreed to buy.
|
| 188.
| The only consequence is that WB was unable automatically to
fax pro forma invoices This carried with it a small administrative cost .
Complaint No.36 is that the customer's name and address were not on the
quotation. This was corrected on 1 October 1996. Complaint No.37 is that
the wrong discount on the quotation was provided. This only applied until
September 1996 when Ms Fisher advised on the preferred procedure to be
followed. BML was not inflexible and did agree to modify the system from
February 1997 to enable WB to calculate volume discounts on
quotations.Complaint 42 could have been avoided had WB taken BML's advice
and dated the forward orders well in advance. I am satisfied that if she
had been asked, Ms Fisher would have given the appropriate advice.
|
| 189.
| Mr Larner accepted that like any company which bought
standard software, WB needed to make some accommodation in its procedures.
This WB employees found it difficult to do.
|
| 190.
| Although WB claim that this was a fundamental requirement,
it is not so described in the claimant's final submissions but only an
express requirement. I do not regard this as a fundamental requirement. I
do not find that it was an express requirement of the contract that BML
would supply pro forma invoices in a form which would satisfy precisely
WB's existing practices. BML was not in breach of contract. Had I found
otherwise the damages would have been very small.
- WORD PROCESSING (Item 51)
|
| 191.
| It is admitted by BML that it agreed in July/August 1996 to
provide multi-user word processing on dumb terminals, ie which worked when
connected to a central server, but was unable to do so. I accept that this
was not caused by the fault of BML who were unable to obtain a licence for
WordPerfect from its new owners. Ms Labbett was informed of the position
by Mr Fairchild in a letter dated 6 August 1996. In place of the original
offer BML gained approval to license a copy of Unix WordPerfect at £145
per user. This proposal was set out in the letter. A quotation for
providing the service was sent to Mr Smith on 16 October 1996. This was
followed by a further amended quotation on 8 November 1996. The offer said
explicitly that, if accepted, delivery would be at the beginning of
December 1996. WB acted unreasonably in refusing to accept the offer which
had been made.
|
|
| THE OTHER DEFECTS
|
| 192.
| In addition WB claims for a number of defects which it says
are less important. Some have been withdrawn. WB claims significant
damages for the remaining items and says that while the defects
individually may not have entitled them to treat the contract as
repudiated, taken cumulatively and with the more serious defects, they
show a pattern of conduct on the part of BML which entitled WB to
repudiate the contract.
|
|
| Item 1
|
| 193.
| The complaint is that time was wasted and sales orders were
lost by the need for WB in the first three months after the system went
live i.e. from 1 July 1996, to run manual backup and update routines
during business hours. On 23 September 1996 the Time Saved routine was
activated. This is a facility which enables backup to be performed at a
time when nobody is operating the system.
|
| 194.
| When the claim was made originally it was said that the
system was closed down for one hour from 4.30 pm each day thus depriving
WB of the opportunity of taking orders after that time. This claim was
maintained by Ms Labbett when she gave evidence. Before the hearing but
after the claim had been formulated, the P-Log was examined by BML. This
showed that the disturbance time had been substantially exaggerated. The
system was not closed down for one hour each day at 4.30 pm. Apart from
end of the month routines, the backup routine took 30 to 35 minutes and
was done at different times of the day although often in the period after
4.30 pm. It was possible for orders to continue to be taken in the half
hour when the manual update and back up routines were taking place. It was
simply that they could not be logged on the computer at that time.
|
| 195.
| In my view it was reasonable for BML to advise that it was
necessary for WB to acquire the necessary experience of a manual routine
for the first three months of the operation from the 1 July 1996. The time
of 30 to 35 minutes was sufficiently short so that it could have been
accommodated in a lunch hour or at the end of a working day. I understand
that in order to accommodate Mr Smith, who told me that he had been
working long hours which was disrupting his home life, WB might have had
to make appropriate arrangements eg. by asking him to start later in the
morning, but this could have reasonably been done. BML did not warrant
that the installation of Charisma could be achieved without any change in
WB's working practices. I therefore reject this complaint. In any event WB
has not proved that it suffered damage. The claim set out in Mr Martin's
report is fanciful. It was substantially reduced before the end of the
hearing but it does not alter my conclusion that no damage has been proved
|
|
| Item 3
|
| 196.
| Under the contract, BML provided a German keyboard for the
purpose of faxing German text direct to German suppliers. Unfortunately
the fax box translated the characters into French rather than German. WB
accepted a replacement English terminal. I accept that this was
particularly disappointing to the secretary, Elke O'Toole, as she said in
her statement. There is a claim under this item for £6,086.25 including
£4,897.80 for the cost of internal management routines. Ms Labbett said in
evidence that this was a trivial complaint and she was embarrassed that it
was still included. This is an example of where BML explained to WB that
it hoped to provide a service but was unable to do so. This explanation
was accepted by WB. The complaint was blown up out of all proportion for
the purposes of these proceedings. I do not accept that WB has proved that
it suffered any loss.
|
|
| Item 4
|
| 197.
| This related to the allegation that comments were not
displayed consistently. The complaint was withdrawn before the hearing in
the face of Mr Larner's evidence that it involved two design decisions
both of which were entirely defensible.
|
|
| Item 5
|
| 198.
| The complaint was that on the Nominal Ledger, cash received
was posted by individual transaction rather than by batches banked so that
it was not possible to reconcile the batch total without manually adding
up the total of the individual transactions and a Batch Book had to be
kept manually for this purpose. This complaint was conceded as invalid by
Dr Salmon on day 8 of the trial and has been withdrawn by WB.
|
|
| Item 6
|
| 199.
| This was a claim that there was no opening or c/f (carried
forward) balance shown on the nominal ledger. This item was conceded by WB
as unfounded in the course of trial.
|
|
| Item 9
|
| 200.
| When reconciling GRN (goods received notes) to purchase
orders for stock, once the reconciliation of a particular line "had been
accepted by the operator, an amendment of that line could be effected only
by starting the operation again." The complaint is that the operator
should have been able to select particular lines rather than having to
cancel the process and start again.
|
| 201.
| I accept Mr Larner's evidence that re-matching need not be
a complex task because the operator can simply tag all lines entered
correctly. The need to alter an already accepted invoice would in normal
trading be a rare event and would not cause difficulty. I also accept Mr
Larner's opinion that this not a fault and does not involve an error in
Charisma.
|
|
| Item 13
|
| 202.
| The complaint was that if the operator wished to delete an
order for purchase of stock by WB the purchase order must be cancelled
line by line. The complaint was conceded as unfounded by Dr Salmon in his
evidence and was subsequently withdrawn.
|
|
| Item 15
|
| 203.
| The complaint was that an operator could not view an old
purchase order for stock ordered by WB without using an IQ report. By the
end of the hearing this complaint had also been withdrawn.
|
|
| Item 16
|
| 204.
| The complaint is that, contrary to an implied term
necessary to give business efficacy to the contract, when a supplier
queried why WB had not paid and WB had in fact paid the supplier, the WB
operator immediately could trace and quote the date of payment but not the
number of the cheque. There is no record of this complaint having been
made by WB until after the litigation began. Mr Larner's opinion, which
was not seriously challenged by Dr Salmon, was that the cheque could be
traced with little effort . This complaint is of no consequence. The
complaint was effectively conceded by Dr Salmon in cross examination as
being unfounded.
|
|
| Item 17
|
| 205.
| The complaint is that once cheques were presented, the
searcher needed to know the supplier's account number or otherwise had to
search the whole print run in order to find the particular cheque.It was
alleged to be an implied term of quality, alternatively to give business
efficacy that the supplier's account number would appear on screen as well
as the name. WB claims that it was not sufficient to know the supplier's
name. This complaint was made for the first time after the litigation had
started. In Mr Larner's view this problem could have been remedied by
assigning an alpha numeric rather than a solely numeric number to the
supplier. Dr Salmon in evidence described this as not a major problem but
an inconvenience. The proposed solution was put to him in evidence and he
seemed to agree with it. In any event I accept BML's contention that the
problem could easily have been remedied. I do not find that the facility
was required under the contract or that WB suffered any damage.
|
|
| Item 24 - 25
|
| 206.
| The complaint is that BML should have introduced WB to the
automatic cash matching routine at the outset and that transactions were
lost by the resultant manual procedure. This complaint also was not made
until after the litigation had commenced. Mr Larner saw no fault nor any
cause for damage. He said that BML's advice to start with manual cash
matching was reasonable. I therefore reject this complaint.
|
|
| Item 26
|
| 207.
| WB's complaint is that it was a term of the contract to be
implied to give it business efficacy that there should be a facility to
sort the sales ledger into an order other than date order. I prefer Mr
Larner's evidence and reject this allegation.
|
|
| Item 31
|
| 208.
| The complaint is that an operator cannot go back a page at
a time through a long list when using the Sales Reconciliation program.
The complaint was made in general terms on 1 August 1996. There is no
record of a detailed complaint until after the dispute began. BML says
that this is a trivial complaint. In the overwhelming number of cases the
operator will know the record the operator wants and will be able to
locate it. I reject this complaint as trivial.
|
|
| Item 33
|
| 209.
| The complaint, that an operator cannot go back a page at a
time in the Customer Aged Analysis routine, is similar to Complaint 31 in
that it is about a design detail that could have been observed prior to
sale. The BML case is that the operator will know the record that he or
she wants and will be able to locate it. I am not satisfied that there was
an implied term that this facility would be provided. In any event I
regard it as a trivial complaint.
|
|
| Item 38
|
| 210.
| This is a general complaint of slow enquiry and order
processing. Mr Larner concluded that this complaint was unjustified if
Charisma was being operated competently. He concluded therefore that the
problem was self-inflicted. I accept his opinion and therefore reject this
complaint.
|
|
| Item 39
|
| 211.
| This complaint refers to erratic printing on Pro-Forma
Invoices. BML would have been able to provide a fix in June 1997. Examples
were faxed to BML from September 1996 onwards. Those documents which
contained errors were unfit for use. A project sheet was raised on 19
March 1997. Mr Larner said that the problem was not insoluble. Dr Salmon
said that it was an elementary program error which would take less than a
morning to cure. I am satisfied that it did cause a minor inconvenience
but not that WB suffered a significant financial loss.
|
|
| Item 40
|
| 212.
| The complaint is that if WB was chasing a payment from a
customer and wanted to send the customer a detailed payment history (as
opposed to a current statement of the state of account), the history could
not be faxed without being printed out first before being faxed.
|
| 213.
| BML argued that faxing a payment history direct was
dangerous because it might go to the wrong recipient. Dr Salmon agreed
that this could be a serious problem. The complaint was not formulated
until after proceeding had started . I do not find that this facility was
required to give business efficacy to the contract.Had I found otherwise I
should have regarded it as a trivial complaint.
|
|
| Item 41
|
| 214.
| This related to the cancellation and deletion routines for
sales lines. The complaint was that if WB sold goods to a customer and got
as far as printing out a delivery note and then wanted to delete the order
it was necessary do to so line by line. It was withdrawn by WB.
|
|
| Item 43
|
| 215.
| The claim of inefficient stock enquiry, i.e. that the
operator could not move directly from one stock enquiry to another, is not
regarded by Mr Larner as justified. I accept his evidence.
|
|
| Item 44
|
| 216.
| This complaint, made in general terms on 1 August 1996, was
not formulated until after the dispute began. It was that if a particular
order changed, the discount was not automatically recalculated. Mr Larner
says that to cause the recalculation to be made it was necessary only to
amend the order quantity on one or more lines. The system then gives the
opportunity to recalculate the volume discount on the order. I was told
and accept that this was how the system worked when it was demonstrated to
WB. There is no breach of contract. The system worked as intended and as
demonstrated. I note that Dr Salmon in cross examination was unable
convincingly to support the complaint. The highest he was able to put this
was that "these items, the non material issues in themselves are not
particularly irksome, not particularly important." I accept Mr Larner's
evidence. I do not accept, therefore, that there was any breach of
contract.
|
|
| Item 45
|
| 217.
| This complaint was not formulated until after the dispute
began. The complaint is that there was some batch updating of stock
records. Free stock and committed stock were updated in real time. Other
updating routines were done by batch updating later although they could
have been done in real time. Physical stock that had not been updated had
to be checked in the warehouse. I accept Mr Larner's evidence that the
system is real time in all necessary aspects. I do not accept that this is
a valid complaint.
|
|
| Item 46
|
| 218.
| The complaint is that BML represented that the software
supplied would enable unit of measure conversion capable of dealing with
stock held in both imperial and metric measurements. I do not accept that
BML made any representation that it would provide this facility.
|
|
| Item 49
|
| 219.
| After creating a new stock item with Status "N" for Nett it
was necessary to go back into the stock record in Stock Amend because the
"N" flag would disappear. All the operator had to do was to go into the
maintenance program to reinstate it. The bug was fixed on 5 November 1996.
This was a trivial complaint which caused, at its highest against BML,
only a nominal loss to WB. It is symptomatic of the way WB's case has been
conducted that there was a claim for £36,614.17 in respect of this item
including a claim of £15,375.17 for unnecessary holding of stock and lack
of savings on forward order financing. This claim was made for the period
up to the 27 March 1998 even though the bug was fixed in November 1996. I
do not accept that there was a breach of contract or that WB suffered any
loss or damage.
|
|
| Items 52 - 55
|
| 220.
| These items relate to claims that training was not carried
out as agreed. Item 52 claims that some of the training time was not used
for proper training and was of negligible value. Item 53 claims that much
of the training was of poor quality and that matters were not clearly
explained to WB staff. Item 54 relates to the claim that some individuals
who should have received training did not do so. Item 55 relates to the
complaint that the support services were inadequate in that they did not
correct many of the defects and those that were corrected were not done
quickly enough. These complaints appeared as separate items for the first
time after the litigation had started. It is not entirely clear from the
comments on the final schedule that Items 53 and 54 are being pursued by
WB. I assume that they are.
|
| 221.
| In my view these are generalised complaints which have
already been considered in relation to the very detailed complaints which
I have already addressed. There was in the early stages of implementation
a complaint in October 1996 about Ms Baines' performance as trainer.
Thereafter the complaints were not made again until after the litigation
had started. Ms Baines was an impressive and careful witness who was not
prepared to give a definite answer unless she was certain of the answer in
her own mind. The complaints may have occurred as a result of a
misunderstanding on the part of Ms Labbett who mistook as diffidence a
desire not to give answers unless Ms Baines was sure that they were
correct. I am satisfied that overall Ms Baines maintained a high standard
of professional competence. I am not satisfied that the complaint that she
spent time on other matters which should have been spent on training was
made out. Indeed on one such occasion when a query was posed she said that
she needed to get on with the training. I reject WBs complaints against
BML under Items 52 - 55.
|
|
| REPUDIATION
|
|
| Introduction
|
| 222.
| WB's case is that it was entitled to repudiate the
agreement with Anglo and BML, alternatively to accept BML/Anglo's
repudiation by conduct in view of not only of major defects in Charisma
but also in view of the number of additional more minor complaints which
meant that WB was entitled to treat the contract as at an end.
|
|
| The Law
|
| 223.
| It is trite Law that in some circumstances an innocent
party may treat itself as discharged from a contract on account of the
other party's breach or breaches of contract.
|
| 224.
| The test is set out by Diplock L.J.in Hong Kong Fur Shipping Co v Kawasaki Kisen Kaisha
Ltd[ [1962] 2 QB 26 at 66].
|
| "Does the occurrence of the event deprive the party
who has further undertakings to perform of substantially the whole
benefit which it was intention of the parties as expressed in the
contract that he should obtain for performing those undertakings.?"
|
|
| 225.
| It is clear that the cumulative effect of a failure to
honour obligations may be taken into account by the court in arriving at a
conclusion as to whether or not substantially the whole benefit of the
contract has been lost. This was made clear by Lord Diplock in Lep Air Services v Rolloswin Ltd[ [1972] AC 331
at 349]. He said:
|
| "The debtor failed to perform voluntarily many of his
obligations under the contract - both the obligation of which
performance was guaranteed and other obligations. The cumulative
effect of these failures by December 22 1967 was to deprive the
creditor of substantially the whole benefit which it was the
intention of the parties that he should obtain from the contract.
The creditor accordingly became entitled although not bound to treat
the contract as rescinded." |
|
| 226.
| Upon discharge, the primary obligation of the party in
default to perform any of the promises by him and remaining unperformed
comes to an end. He is under a duty to pay the other party a sum of money
to compensate him for the loss it has sustained as a result of the failure
of the party in default to perform the remaining obligations - see
Moschi v Lep Air Services[ [1973] AC
331 at 350].
|
|
| At page 350 Lord Diplock also emphasised that a legal
obligation to continue to perform is inconsistent with the withdrawal of a
legal right to do so.
|
| 227.
| As Lord Cross of Chelsea said in his speech in Laksmijt v Faiz Sherani[ [1974] AC 605 at
616],
|
| "where a party has a right to rescission he must make
an election whether or not to exercise it. The party must make it
unequivocally clear that the agreement is at an end. It is only in
these circumstances that the consequences of termination follow.
|
|
| 228.
| In this case the following questions arise:
|
| Was BML's conduct such as to deprive WB of
substantially the whole benefit which it was the intention of the
parties that WB should obtain from the contract?
|
|
| Did WB make it unequivocally clear that it treated
the contract as at an end? |
|
|
| THE FINDINGS
|
| 229.
| I have already found in considering BML's performance that
it performed substantially what it contracted to do under the contract.
BML's conduct was not such as to deprive WB of substantially the whole
benefit which it was intended that WB should obtain from the contract. In
addition I note that WB continued to use the system for nearly a year
after the purported repudiation. If the system had not met substantially
WB's requirements (whether communicated to BML or not) WB would have
proceeded to acquire a new system much sooner than it did. I am also
satisfied that BML made genuine efforts in early 1997 to meet WB's
complaints and that WB was unjustified in withdrawing its full cooperation
in trying to find acceptable solutions to its problems.
|
| 230.
| As far as individual items of complaint are concerned,
while a failure by a computer company to deliver individual requirements
and particularly those which constitute expected enhancements in a
replacement computer system can, in principle, amount taken together to a
fundamental breach leading to a right of of repudiation. This has not
happened in this case. Most of WBs complaints have been rejected. Those
few complaints which I have not rejected either had been or could,given
reasonable cooperation by WB, have been remedied before or 16 or 28 April
1997, the dates on which WB claim that it gave notice of repudiation.
Taken as a whole they do not amount to a fundamental breach of contract
giving a right of repudiation by WB.
|
| 231.
| In my view WB was justified in feeling frustrated by the
slow response by BML in dealing with the problems of implementation of the
system in the autumn of 1996 even though WB could have pressed harder to
have the problems resolved. Mr Smith said in evidence that he did not like
confrontation and he may well have given BML the erroneous impression that
WB's needs were not urgent. On the other hand BML could and should have
responded with more urgency to deal with the outstanding problems. In
these circumstances WB was justified in taking a firm line at the
beginning of January 1997 in insisting that the outstanding problems
should be dealt with as a matter of urgency. BML responded positively to
this approach and was in the course of making every effort to resolve the
outstanding queries when in effect WB management withdrew its co-operation
in February 1997.
|
| 232.
| On the issue of whether or not either the letter of 16
April 1997 or that of the 28 April 1997 was effective as notice of
repudiation, I note that WB's primary case is that the letter dated 16
April 1997, which I have already quoted, was the effective letter of
termination. The question is whether WB made it unequivocally clear in
either letter that the agreement was an end. In my view the 16 April 1997
letter which ends with the sentence "however we reserve our position in
respect of our right to determine the contract and our position in
damages" is not unequivocal.
|
| 233.
| WB's secondary case is that the letter of 28 April 1997 was
effective as a letter of repudiation. This letter must be read in the
context that WB had rebuffed Mr Doubtfire's letters of 21 and 25 April
1997 which he wrote in his capacity as a director of BML. I am satisfied
that the letter of 28 April 1997 was intended to make it clear that the
contract was at an end. BML says that this is unrealistic because at WB's
insistence it continued with the substantial maintenance contract until 1
April 1998 when the replacement system went live. BML points out also that
WB failed to deliver up the system to Anglo when this was demanded by
letters in May and June 1997. I do not find this to be decisive since,
seen from the perspective of April 1997, WB had no option, if it wished to
have a computer system, to continue with Charisma (including the support
contract) until a replacement system was available.
|
|
| DAMAGES
|
| 234.
| A number of issues arise. The first is whether WB was
required to choose between a claim for loss of profit and a claim for
wasted expenditure or whether it could claim both for loss of profit and
wasted expenditure ie. for time spent by employees unnecessarily because
the contract had not been properly performed. In addition WB claims the
cost of obtaining a replacement computer system including the cost of
retaining FMC as consultants although WB did not retain consultants in the
search which resulted in the purchase of Charisma.
|
| 235.
| The law is set out in Lord Denning MRs judgment in
Anglia Television v Reed[ [1972] 1QB
60 at 63].
|
| "It seems to me that a plaintiff in such a case as
this has an election: he can either claim for loss of profits: or
for his wasted expenditure but he must elect between them. He cannot
claim both. If he has not suffered any loss of profit - or cannot
prove what his profit would have been - he can claim in the
alternative the expenditure which has been thrown away that is,
wasted by reason of the breach. That is shown by Cullinane v.British "Rema" Manufacturing Co Ltd
[[1954] 1QB 292, 303, 308]".
|
|
| "If the plaintiff claims wasted expenditure, he is
not limited to the expenditure incurred after the contract was
concluded. He can claim also for expenditure incurred before the
contract provided that it was such as would reasonably be in the
contemplation of the parties as likely to be wasted if the contract
was broken." |
|
| 236.
| At a late stage in the trial I pressed Mr Guy to make his
election on behalf of WB. He said that if he was forced to make an
election it would be to claim for loss of profits. He did not concede that
he was required to make the election. In my view WB is required to choose
between a claim for loss of profits and a claim for wasted expenditure. It
has chosen to claim for loss of profits.
|
|
| Loss of Profits
|
| 237.
| In his expert accountancy report Mr Taylor analyses the
trading results of WB before and after the introduction of the Strategix
system. WB's case is that there were losses amounting to over £400,000 as
a result of Ms Labbett's inability to travel because she was tied to her
spread sheets. Mr Taylor notes that there was no significant increase in
gross profits after April 1998 when the Strategix system was implemented.
He also notes that the turnover in the period prior to the installation of
the BML system in July 1996 is in general lower than the succeeding years.
It appears that the turnover increased after the implementation of the BML
system even though the manual analysis of marketing information was not
maintained by WB.
|
| 238.
| After the installation of the Strategix system in April
1998 there was not a significant increase in the rate of WBs sales.This
also does not support WB's claim. The rate of increase year on year was
24.2% from March 1996 to March 1997; 15.3% to March 1998 and only 5.4% to
March 1999. The gross profit margins of WB have also not increased since
April 1998.
|
| 239.
| Mr Taylor concludes in his Report, and I agree, that:
|
| "4.15 -
| on the basis of the above I consider that a review of
the trading results after the implementation of the Strategix system
does not support the loss of turnover and profits being claimed by
WB." |
|
| 240.
| Having heard WB's witnesses and considered the evidence on
damages, even if I had found substantially in favour of WB on the
individual items of complaint, I should have rejected Mr Martin's evidence
in relation to loss of profit. In my view WB has not proved any loss of
profit overall. WB has in particular not proved any loss of profit arising
from Item 7 or Item 19 which together account for over £750,000 of WB's
claim. WB has not proved that they lost any profits as a result of Ms
Labbett being unable to undertake any buying visits abroad. If WB had
really been suffering significant losses for this reason, they would have
complained vociferously to BML that WB was suffering losses as a result of
the failure of BML to provide, what had been promised, and/or they would
have hired other staff to do the work which was then being done by Ms
Labbett at very significantly less cost than that claimed. WB took neither
course. Equally in relation to Item 19 I have found that the majority of
information needed to determine WB's marketing strategy was readily
available and the lack of access to the Prospects File caused no
significant loss.
|
|
| Additional Cost of Staff
|
| 241.
| WB makes a further claim for the additional cost of staff
in addition to the claim for loss of turnover in the sum of £25,731.
|
| 242.
| Mr Taylor comments from an accountant's point of view.
|
| "5.20-
| In my opinion WBL (WB) and FMC have effectively
doubled-counted the loss by WB by including both the additional
sales expected to be made by WBL through improved efficiencies and
the staff costs that could have been saved through improved
efficiencies regardless of whether those staff would be required to
support the additional sales made." |
|
| 243.
| This view is reinforced in paragraph 5.47 of his report
where Mr Taylor said "In my opinion WBL has not actually incurred any
additional costs for the time it is claimed was spent by WBL employees in
performing the tasks that the BML system should have allegedly performed.
In addition I consider that WBL have effectively double counted the loss
suffered by including both the additional sales expected to be made and
the staff costs that could be saved regardless of the fact that those
staff would be required to support the additional sales made ...
|
| "5.48
| I do not consider that a loss has arisen in respect
of the cost of financing additional stock if stock turnover days are
calculated having regard to stock levels throughout the period."
|
|
| 244.
| Mr Taylor supports from an accounting point of view, the
existing law requiring a party to make an election on whether to claim for
loss of profits or wasted expenditure.
|
| 245.
| I am also satisfied that even if I had accepted WB's claim
on liability and WB had opted to claim for wasted expenditure instead of
loss of profits,I would have concluded that WB had not suffered any
significant loss. I decline to accept Mr Guy's invitation to invent my own
claim for damages "doing the best I can" in respect of those few items
where I have found fault with BML's performance.
|
|
| Cost of acquiring the Strategix System
|
| 246.
| In principle this element of claim can be made alongside a
claim for loss of profit. In view of the fact that it does not arise as a
result of findings which I have already made, I shall deal with it
briefly. In my view this claim is also grossly inflated. The cash price of
the substitute Strategix system was £81,706.57. The cost of Charisma plus
integral EDI and emulation was a total of £76,234. It is conceded by Mr
Martin that on the figure of £81,706.57an allowance of £4,375 has to be
made for software betterment. There is therefore no significant difference
in the cost of the two packages.There is therefore no loss based on a
comparison of the cost of the two packages.
|
| 247.
| As far as the claim for the cost of FMC's consultancy
services in connection with the acquisition of Stratgix is concerned, I am
not satisfied that the cost was reasonable or can be justified as a cost
to BML when WB had not retained consultants to assist with the search
which lead to the contracts with BML. I have not heard detailed evidence
of the Strategix system but in so far as it was not a standard system,
there is an important element of betterment in that WB was buying a system
with the assistance of consultants which was to be adapted to its
particular needs.
|
| 248.
| WB also claims substantial sums of the cost of WB's staff
time in connection with acquiring and installing the Strategix System
including over £4,000 for Mr Browne, nearly £5,000 for Ms Labbett and over
£6,000 for Mr Smith. This part of the claim involves double counting with
the loss of profits claim. In any event Mr Smith's time could not be the
subject of a loss of earnings claim since he was not employed on fee
earning work for WB. I am not satisfied that Mr Browne or Ms Labbett have
proved any losses.
|
|
| THE CONTRACT WITH ANGLO
|
| 249.
| On the basis of my findings, the question of whether Anglo
is liable for breach of contract does not arise. I have already concluded
that the Charisma Computer System supplied to WB was reasonably fit for
the purpose. If I had reached a contrary conclusion this issue would have
arisen. Mr Fairchild of BML introduced Mr Forward of F&B Brokers to Mr
Lawson of WB around 3 January 1996, for the specific purpose of assisting
in the financing of the original contract between itself and WB.
|
| 250.
| The lease document was sent to WB by Anglo by fax to WB on
25 March 1996. This was effectively at the same time that the hardware was
delivered by BML to WB and the lease was signed on behalf of WB (in fact
on 26 March 1996). The lease was countersigned by Anglo on 15 April 1996.
Anglo had no known continuing business relationship with BML whereby, for
example, it regularly provided finance for BML's computer transactions. WB
believed that it had possible alternative sources of finance and was not
bound to enter into a finance agreement with Anglo.
|
| 251.
| By a letter dated 17 April 1997 WB gave notice to Anglo
that it had instructed its bankers to terminate payments on the lease
agreement. By letter dated 19 June 1997 received on 23 June 1997, headed
"Termination of Agreement", Anglo wrote -
|
| "We assume that you no longer wish to be bound by the
Agreement and by this letter we are ending or terminating the
Agreement." |
|
| 252.
| It is clear that, WB having said that it had ceased to make
payments under the Agreement and that it had no intention of doing so in
the future, Anglo was entitled to terminate the Agreement and did so
unequivocally on 19 June 1997.
|
| 253.
| At the time of WB's agreement with Anglo, it was understood
by both WB and BML that the agreement was dependent on WB being able to
obtain the necessary finance. WB was introduced to Anglo by Mr Forward of
F & B, i.e. via a credit broker. It is claimed by WB that Section 9 of
the Supply of Goods and Services Act 1982 applies and that a term must be
implied into the agreement between WB and Anglo that the system would be
reasonably fit for the purposes made known to the credit brokers and also
that BML was Anglo's agent for the purpose of making representations and
for delivery of the Charisma system. It is accepted that the introduction
of Anglo was via a credit broker but Anglo contests that there was a term
in its agreement with WB to be implied by law that the Charisma system
would be reasonably fit for the purpose.
|
| 254.
| Under Clause 6C of the Hire Agreement Anglo expressly
disavows an agency relationship. Clause 6C provides:
|
| "You acknowledge that the supplier is not our agent
and that none of the supplier's employees or anyone else who is not
employed by us is authorised to make any binding statements on our
behalf." |
|
| 255.
| This is not conclusive. The question I have to decide is
whether as a matter of fact an agency exists. If it does exist, the court
will not be deterred by a declaration such as that in Clause 6C. The court
will also look very closely and carefully at any attempt to exclude
liability on the basis of agency.
|
| 256.
| It is agreed that the starting point is the judgment of the
House of Lords in Branwhite v Worcester Works
Finance[ [1968] 30 ER 104] which considered a
similar provision in the Hire Purchase Act 1965. At page 121 Lord
Wilberforce (with whom Lord Reid agreed) explained that while in all hire
purchase cases much must depend on the individual facts "such questions as
arise of the vicarious responsibility of finance companies for the acts or
defaults of dealers cannot be resolved without reference to the general
mercantile structure within which they arise, or if one prefers the
expression, to commercial reality." In the cases to which Lord Wilberforce
is referring of which the purchase of a motor car is the most obvious
example, the commercial reality involved a system whereby customers
expected to acquire goods on hire purchase terms and for those terms to be
made available at the place where the goods were exhibited and sold so
that the transaction was in effect seamless. In such cases the
responsibility of the finance company analagous to agency arose out of a
structure which was to be assumed unless it was displaced by evidence of
particular circumstances.
|
| 257.
| Lord Wilberforce went on to make it clear that this did was
consistent with the existing principles on which the relationship of
agency was based.
|
| 258.
| He cited the speech of Lord Pearson in Garnac Grain Co Inc v HMF Faure & Fairclough[
(1967) 2 ER 353, 358]
|
| "The relationship of principal and agent can only be
established by the consent of the principal and agent. They will be
held to have consented if they have agreed to what amounts in law to
such a relationship even if they do not recognise it themselves and
even if they have professed to disclaim it ...The consent however
must be given by each of them either expressly or by words and
conduct." |
|
| 259.
| Lord Wilberforce went on to say:
|
| "The significant words for the present purpose are
'if they have agreed to what amounts in law to such a
relationship'These I understand as pointing to the fact that while
agency must derive from consent, the consent need not necessarily be
to the relationship of principal and agency itself (indeed the
existence of it may be denied) but may be to a state of facts on
which the law imposes the consequences which results from Agency. It
is consensual not contractual. So interpreted this formulation
allows the establishment of an agency relationship in such cases as
the present." |
|
| 260.
| Section 9 of the Supply of Goods and Services Act 1982
provides that except as provided by sub-sections within Section 9 of the
Act (and Section 10 Sale by Sample which does not apply here), there is no
implied condition or warranty about the quality or fitness for any
particular purpose of goods bailed under a contract for the hire of goods.
|
| 261.
| Section 9 (4) of the Act provides that there is an implied
condition as to fitness for purpose where the bailor bails goods in the
course of a business and the bailee makes known -
|
| "(a)
| to the bailor in the course of negotiations conducted
by him in relation to the making of the contract, or b) to a
credit-broker in the course of negotiations conducted by that broker
in relation to goods sold by him to the bailor for forming the
subject matter of the contract. |
|
| 262.
| By Section 9(6) of the Act, the implied condition does not
apply even in these circumstances where the circumstances show that the
bailee does not rely or that it was unreasonable for him to rely on the
skill or judgment of the bailor or credit-broker.
|
| 263.
| This statute is entirely consistent with the pre-existing
law on agency which I have set out. The exemption under Section 9(6) of
the statute gives statutory force to Lord Wilberforce's exception to the
general rule that in normal hire purchase agreements, agency is to be
implied.
|
| 264.
| In this case the agreement between WB and BML for the
supply of Charisma crystallised effectively on 21 December 1995. The first
approach to Anglo took place only a very few days later taking into
account the Christmas holiday. The hire agreement does not cover all the
items in the supply agreement in particular it does not cover EDI and Word
Processing. The contract between WB and BML required considerable
negotiation between the parties. Its implementation required active
cooperation by WB. There is nothing in the evidence to show that WB relied
on the skill and judgment of Anglo. In the circumstances of this case it
would have been unreasonable for WB to rely on Anglo's skill and judgment.
In these circumstances I hold that Section 9(6) of the Act applies and
there is no implied condition as to fitness of purpose.
|
| 265.
| This finding is subject to the question of whether
contractual terms excluding Anglo's liability are valid under Section 7(2)
of the Unfair Contract Terms Act 1977. Under Section 7 (2) of this Act,
liability can be excluded or restricted only to the extent and in so far
as the term satisfies the test of reasonableness. Under Section 11 the
term must be fair and reasonable having regard to the circumstances which
were or ought reasonably to have been known to or to be in contemplation
of the parties when the contract was made. Schedule 2 of the Act provides
guidelines which require the Court to consider, in particular, five
factors. The factors referred to are a) the relative bargaining positions
of the parties; b) whether the customer received an inducement to agree to
the term; c) whether the customer knew or ought reasonably to have known
of the existence and extent of the term; d) whether it was reasonable at
the time of the contract to expect compliance; and e) whether the goods
were manufactured, processed or adapted to the special order of the
customer.
|
| 266.
| Clause 6 of the Hire Agreement states in full
|
| a)You will bear the cost of any loss, damage or other
expense incurred by us in connection with the Equipment.
|
|
| b)You acknowledge that we are not responsible for any
loss, damage or expense which you may suffer as a result of the
Equipment
|
|
|
|
| i)Failing to function properly
|
|
| ii)Not being delivered on the date you agreed
with the Supplier |
|
|
| c)You acknowledge that the supplier is not our agent
and that none of the Suppliers employees or anyone else who is not
employed by us is authorised to make any binding statements on our
behalf..." |
|
| 267.
| I bear in mind that at all times WB had a right of recourse
against BML and that the inclusion of the clause did not place WB in the
position where aquisition by hire from a finance company rather than by
purchase from a supplier became a trap. See Purnell v LMS[ [1994] CCLR 127 at
137] and Sovereign Finance v
Silver Crest[ [1997] CCLR 76].
|
| 268.
| I also take into account the statutory guidelines and all
the circumstances of the case. In particular I note that WB was not bound
to obtain its finance from Anglo. It could have done so from other
sources. The customer was aware of the terms and accepted them. Although
the system was standard Charisma, the process, to be sucessful, required
considerable input and co-operation from the purchaser. I also take into
account that Anglo had not been involved in the negotiations which led to
the contract between WB and BML. In all the circumstances of this case I
conclude that clause 6 of the Hire Agreement satisfies the test of
reasonableness. I also conclude that clause 3c, excluding consequential
loss arising out of the use of the software, is also reasonable.
|
| 269.
| I do not accept that Anglo's claim under clause 10 of the
agreement amounts to a penalty on the principle of Dunlop Pneumatic Tyre Co v New Garage Motor Co[
[1915] AC 79 at 86-88].
- It is not an extravagent cost to WB in relation to the loss suffered
by Anglo "nor is the sum much greater than the sum which ought to be
paid" as claimed by WB. This finding is supported by Mr Purvis, whose
evidence, which I accept, was that future payments less a discount of 4%
are an industry norm. I accept Mr Underwood's submission that neither
the pre-estimate of damages nor the provision that interest is payable
at 2% a month should be struck down as a penalty. The 2% interest rate
represents a fair reflection of the opportunity cost to Anglo of the use
of the money in 1996 and for the lifetime of the agreement. I note also
that WB was not in fact required to return the computer system but was
able to retain it until Strategix was installed in April 1998.
|
| 270.
| I conclude that WB defaulted on its payment under its hire
agreement with Anglo starting with its instalment of May 1997. It is
entitled to recover £67,005.91 together with interest from 19 June 1997.
|
|
| CONCLUSION
|
| 271.
| In all the circumstances I find that Anglo succeeds on its
claim against WB and is entitled to judgment in the sum of £67,005.91
together with interest from 19 June 1997, making a total of, £110,007.51
WB fails in its claim against BML and its counterclaim against Anglo. I
dismiss Anglo's claim against BML. |