Sanderson Limited v And

Introduction

By these proceedings, the parties seek damages from one another following the termination of a contract dated 10^th November 2014 (“the Contract”) for the supply of electronic software, equipment and associated services. It is common ground that the Contract has been terminated owing to the acceptance, by one or other of the parties, of repudiatory breaches. However, there are issues as to who committed the material repudiatory breach or breaches so as to furnish the other party with a right of termination and a cause of action in damages. The outcome of the first of these issues dictates when and by whom the Contract was terminated.

The Claimant contracted as supplier. It contends that the Defendant repudiated the Contract upwards of two years afterwards when declining to co-operate in arrangements for a meeting to re-start the project following an agreed delay of some 12 months. In doing so, it is contended that the Defendant renounced the Contract. The Defendant denies that it was in repudiatory breach and maintains that the Claimant itself repudiated the Contract when it purported to accept the Defendant’s putative breach or breaches.

It is axiomatic that, upon termination, the innocent party is discharged from continuing liability under the Contract but the other party is liable for the losses incurred by the innocent party owing to the repudiatory breach or breaches. Neither party is thereby released from liability for anterior breaches but, in the present proceedings, little turns on this.

At the trial before me, both parties were represented by counsel. Mr Christopher Cook appeared on behalf of the Claimant and Mr Jamie Jenkins appeared on behalf of the Defendant. They respectively delivered written closing submissions dated 18^th and 11^th January 2019.

The Claimant was and is in the business of providing business and related IT services in connection with the production and supply of food and drinks. Its products include the so-called Unity F8 system which enables customers to digitise and automate processes in connection with all aspects of production, finance and logistics.

The Defendant is now the chosen vehicle for a family business-first established as long ago as 1977-for the manufacture of cooking sauces, curry pastes, chutneys, pickles and chilli sauces.

The parties entered into the Contract following face to face meetings and email communications in which the Claimant sought to elicit the Defendant’s business and software requirements and submitted an outline proposal with details of the Claimant’s software and implementation methodology. By 25^th September 2014, agreement had been reached in principle although it wasn’t until 10^th November 2014 that the Contract was signed on behalf of the Defendant.

The Contract was contained in a two-page document (“the Two Page Document”) itemising the goods and services to be supplied under the headings “Software”, “Sale of Equipment”, “Estimated Professional Services”, “Support” and “Equipment Maintenance” together with payment schedules. The parties expressly contracted upon the “Sanderson Terms and Conditions (December) 2012 & Appendices hereto” (“the Claimant’s Standard Terms”).

Once the Contract had been signed, the Claimant sought to arrange a site visit to review the Defendant’s business but, at the Defendant’s request, this was postponed to the New Year. On 20^th and 21^st January 2015, the Claimant conducted a review of the Defendant’s business. A draft implementation plan was prepared. Bi-lateral meetings and workshops were then held so as to address and accommodate the Defendant’s business requirements and provide training to the Defendant’s employees in connection with the use of the Claimant’s software. Over time, it was envisaged this would encompass aspects of the Defendant’s business ranging from sales and purchase orders, stock control, recipe management and quality control to issues of financial management. Following a meeting on 10^th March, there were workshops on 26^th March, 30^th April, 8^th, 18^th and 26^th June 2015.

During this period, the Defendant appointed Mr Andrew Davies as its first finance director. His appointment took effect from 1^st June 2015. On that day, Mr Davies joined a project pre-planning meeting between the parties. From the outset, Mr Davies had concerns about the project which he was not slow to raise with the Claimant’s employees.

On 21^st July 2015, there was a further meeting between the parties at which they agreed to put back the project until September 2015. For reasons that are in issue, little progress was made until 4^th February 2016 when a meeting (“the February 2016 Meeting”) was held at the Defendant’s business premises to discuss the way forward.

By the time of the February 2016 Meeting, the Defendant was in substantial arrears under the contract payment schedules. The parties agreed to re-schedule payment and re-start the contract in 2017. There is a dispute as to whether they agreed, as the Claimant maintains, to re-start the project on 1^st February 2017. The Defendant contends that they agreed only that it would re-start “around that time”.

In January 2017, the Claimant emailed the Defendant to clarify whether it remained the Defendant’s intention to restart by the end of the month. Later, it requested the Defendant to provide a date for a “kick-off” meeting. The parties exchanged emails in February and March 2017 but the Defendant declined to provide the Claimant with a date or otherwise provide the commitment that the Claimant required. The Claimant thus engaged Aaron & Partners LLP to act on its behalf and by letter dated 28^th April 2017, Aaron & Partners advised the Defendant that they considered the Defendant to be in repudiatory breach and gave notice of acceptance so as to bring the Contract to an end.

I heard the oral testimony of nine witnesses.

In Gestmin SGPS SA v Credit Suisse (UK) Limited, Credit Suisse Securities (Europe) Limited [2013] EWHC 3560 (Comm), at Para 22, Leggatt J (as he then was) observed that, in the context of commercial cases, the value of “the oral testimony of witnesses “lies largely…in the opportunity which cross examination affords to subject the documentary evidence to critical scrutiny and to gauge the personality, motivations and working practices of a witness rather than…” their recollection of “particular conversations and events”. Leggatt J did not state that conducting a more general qualitative assessment of the recollection of witnesses was of no value. In the present case, it has been helpful for me to have the opportunity to evaluate their testimony in this way. However, it is certainly true that, by observing the witnesses in the present case, I was given an important insight into their “personality, motivations and working practices”.

The Claimant’s employees-in particular, Mr Slater and Ms Cartlidge-showed a good understanding of the Claimant’s methodology and the project requirements. The same was true of the Claimant’s sales director, Mr Gallagher, who conducted the contractual negotiations at the outset. They were all aware of the change of dynamic following the appointment of Mr Davies as the Defendant’s financial director and this was brought to the attention of Mr Bird. Mr Bird came across as a measured and determined business man. As commercial director, Mr Bird was prepared to accommodate the Defendant but only within defined limits. He was willing to delay the project and re-schedule payment but only on the basis that the Defendant undertook to pay defined arrears within a realistic time scale. Once he perceived that the Defendant was raising disingenuous queries and objections so as to obstruct further progress, he took steps to terminate the Contract.

Mr Slater was a confident witness. He was precise and direct in his answers. His answers were generally consistent with the contemporaneous documentation and he provided me with a reliable account of the progress made during 2015 and the meetings he attended with the Defendant in 2015 and 2016. Where necessary, he was not afraid to make concessions to the Claimant’s disadvantage. Ms Cartlidge was less confident than Mr Slater but, again, she was willing to make concessions and I am satisfied she gave me a reliable account of the implementation plan, the workshops and the delays in progress during the period leading up to 1^st June 2015. I am satisfied that Mr Bird and Mr Gallagher were also reliable witnesses. No significant inroads were made, in cross examination, on the grounds for Mr Bird’s perception, following the Defendant’s 21^st February 2017 Email, that the Defendant was seeking to obstruct the project.

Mr Budd’s evidence was illuminating. Between March and September 2015 when he ceased to work for the Defendant, Mr Budd was effectively responsible for the management of the project. In cross examination, Mr Chandarana sought to criticise Mr Budd’s performance as project manager. For his part, Mr Budd was critical of the support he was given; he was plainly unhappy in his role with the Defendant. However, there is nothing to suggest Mr Budd’s evidence was somehow coloured by a sense of grievance. In any event, having heard his evidence, I am satisfied Mr Budd’s factual account is accurate and his explanation for the delay in the project prior to September 2015-which he put down to failures on the part of the Defendant-is broadly correct.

Mr Chandarana was and is positive and optimistic by nature. This was apparent when he gave evidence and it was consistent with the recollection of the other witnesses. These are by no means unattractive qualities. However, in the present case, they shaded into a failure, on the part of Mr Chandarana to address the realities of the situation and engage with the requirements of the project.

Mr Chandarana was not a dishonest witness. He did not say anything which he knew to be untruthful. However, at times, his evidence was coloured by his perceptions of the Defendant’s interests and the Claimant’s shortcomings. For example, when asked whether the Claimant had properly explained to him the measure of resource and commitment required for the successful implementation of the project, he answered that the Claimant had not done so. This was inconsistent with the weight of the contemporaneous documentary evidence and the oral testimony of the Claimant’s witnesses and, in my assessment, it was incorrect.

Once Mr Davies was appointed as finance director, Mr Davies was allowed to take control of the Defendant’s affairs in connection with the Contract. When giving his evidence, Mr Davies was confident and assertive. He gave the impression that he is a man accustomed to getting his own way. By the time of his appointment as the Defendant’s finance director, he was approaching retirement. Again, he was not a dishonest witness and, at times, he was willing to make concessions that were to the Company’s disadvantage. For example, in answer to a question from me, he confirmed that, on receipt of the Claimant’s 13^th February 2017 email (to which I shall refer later), he construed “frustrated” so as to mean “terminated” more widely than the strict contractual sense understood by lawyers. However, he was inflexible in his views and, unlike Mr Chandarana, there is nothing to suggest that he ever had any enthusiasm for the project. When appointed finance director in 2015, it is an inescapable inference that he was immediately unhappy with the contractual commitment owing to the immediate financial implications and his own lack of familiarity with the relevant technology.

The Two-Page Document was in simple terms. After listing the software, equipment and services to be sold and supplied together with the “Payment Terms”, it recorded the Defendant’s order-accepted by the Claimant-for the supply of “…the above Software, Equipment, Professional Services, Support and Equipment Maintenance at the price(s) shown and in accordance with Sanderson Terms and Conditions (December 2012) and Appendices hereto”.

The Payment Terms provided for payments in respect of software of £7,000 on contract signature, to be invoiced in November 2014 and paid within 30 days, two further instalments of £7,000 on 31^st December 2014 and 31^st March 2015, £6,870 on 30^th June 2015 and £3,000 on 30^th September 2015. Maintenance and annual licence fees were additionally payable on installation, initially in quarterly instalments of £1,875. The Defendant was to pay for the Claimant’s services in the sum of £7,661.11 payable monthly in arrears commencing in December 2014. The sum of £37,995 was payable on delivery of the hardware save that a 30% deposit was payable when the Claimant placed a firm order with any third party supplier.

The Claimant’s Standard Terms contained conditions governing the software licence, sale of equipment, professional services and equipment maintenance. By Condition H1, the Claimant agreed to provide the Defendant with Support, which was defined so as to mean “the support services supplied by [the Claimant] under the Contract” and, by Condition H6.1.iii “to provide [the Claimant] with information and up-to-date listings and printouts which Sanderson reasonably requires for the purpose of carrying out its obligations under this Contract”. Following delivery, the Standard Terms also contained Customer Covenants (M6) in connection with the maintenance of equipment. There were also express conditions for termination (G11). There was also an “entire agreement” clause (G14.1) and the parties waived their rights to claim damages owing to unincorporated statements in the absence of fraud (G14.2).

The Contract required close collaboration between the parties to define the Defendant’s business requirements, identify the action necessary to digitise and automate the Defendant’s production and accounting processes, implement the Claimant’s electronic system and ensure that the Defendant’s employees were properly trained in the use of the system. In the absence of specific contractual provision requiring the parties to cooperate with one another in this way, a duty to do so would be implied. In the Interpretation of Contracts (5^th edition) (2011) at Para 6.15, Sir Kim Lewison enunciates the principle that “where performance of the contract cannot take place without the cooperation of both parties, it is implied that co-operation will be forthcoming”. This principle is consistent with the authorities to which he refers, including the observations of Lord Blackburn in Mackay v Dick (1881) 6 Ap Cas 251 at 263. It also survives the recent guidance of the Supreme Court in Marks & Spencer v BNP Paribas [2016] AC 742 in which the tests of necessity and obvious inference have been re-stated. In the absence of express contractual provision to the contrary, I am thus satisfied that a duty of cooperation is to be implied in the present case.

Terms were statutorily implied that the Claimant would carry out the services with reasonable skill and care and the service would be carried out within a reasonable time. Since the Contract was made before 1^st October 2015, Sections 13 and 14 of the Supply of Goods and Services Act 1982 ss13 and 14 applied rather than Section 100(5) and Schedule 1 Para 38(c) of the Consumer Rights Act 2015. Whilst this aspect of the case did not feature in the parties’ arguments, the statutory implied terms were not excluded by the Contract.

Before turning to the critical questions, it is necessary for me to resolve issues between the parties about the reasons for the early delays in the project and the terms of the agreement reached at the February 2016 Meeting.

I am satisfied, on the evidence, that the Defendant was itself responsible for almost the entirety of the relevant delay and lack of progress during late 2014 and 2015.

The February 2016 Meeting was attended by Messrs Bird, Gallagher and Slater on behalf of the Claimant and Messrs Chandarana and Davies on behalf of the Defendant. It took place at the Defendant’s businesses. The Claimant was unaware until significantly later that the Defendant took the opportunity to record the discussion. It did so covertly. A transcript of the recording has been obtained and admitted in evidence together with the oral testimony of the participants. Several issues were raised and discussed. A measure of agreement was reached.

On balance, I am satisfied that, where the parties did reach agreement, their agreement at the February 2016 Meeting did not amount to a binding contract. Mr Gallagher’s comments, recorded in the transcript, about the “the need to put a piece of paper onsign” were made following a question in which he asked whether the Claimant could be provided with a confirmatory email. It is implicit that he envisaged there would be no binding contract until, at the very least, it had been recorded in a document approved by both parties. The comments were apparently made a significant time before the discussions were brought to an end and, when they were brought to an end, the parties did not allude, at that stage, to the need for a written agreement. However, Mr Gallagher was not challenged when he made his comments. Moreover, when the discussions were brought to an end, no steps were taken to clarify and spell out the agreed terms in a way that might reasonably have been expected had the parties envisaged that a binding variation of contract would immediately take effect.

By an email dated 5^th February 2016, Mr Davies asked Mr Bird to send him a copy of the “new contract to incorporate everything discussed yesterday”. By email dated 16^th February 2016, Mr Bird sent Mr Davies and Mr Chandarana a draft “Contract Variation Agreement” providing for the Defendant to make five payments of £3,064.40+VAT in respect of the outstanding invoices of £15,223.23+VAT and two further payments of £2,125+VAT. The draft agreement also provided that the Defendant “commit[ted] to a formal, resourced and prepared implementation restart by no later than February 1^st 2017”.

By emails dated 18^th and 23^rd February 2016, Mr Davies stated the draft had omitted to include items which he had expected to be included. By his email of 23^rd February 2016, Mr Davies also asserted that the “project restart specification” (my italics) had not been raised at the meeting. On this basis, he requested Mr Bird to amend the draft agreement. Mr Bird declined to so. By an email dated 8^th April 2016, he sought to remind Mr Davies that the project had been delayed at the Defendant’s request owing to its “resourcing issues” and asked him to settle the outstanding invoices of £15,322.23+VAT so that they could re-engage and re-start the project, as agreed in “January/February 2017”. In response, by an email dated 21^st April 2017, Mr Davies raised a new issue in relation to the quantification of the invoices for £15,322.23, contending that no more than £7,225 was chargeable. In his reply dated 6^th May 2016, Mr Bird disputed Mr Davies’s calculation and pointed out that it was contrary to the agreement reached at the February 2016 Meeting. However, “in an effort to move this project forward”, he agreed to accept £7,225+VAT only by treating it as a payment for 14.5 days under the Contract.

The draft agreement was never signed. However, mindful that the parties had reached an understanding that the project would be suspended until 1^st February 2017, the Claimant did not take action with a view to the resumption of the project until January 2017.

By emails dated 3^rd and 19^th January 2017 to Messrs Chandarana and Davies, Mr Bird sought confirmation that the Defendant would be in a position to re-start the project “in February” or, at least that they intended to re-start “on the agreed date by the end of the month”.

By his email dated 23^rd January 2017, Mr Davies referred to “the fallout from Brexit” and stated that “the landscape seems to have changed quite dramatically”. He then asked Mr Bird a number of questions, including “what has changed in the original software package:” and “where Sanderson has been implemented in similar sized organisations, how many people were in the implementation team together with the individual roles Simtom has to fill”. By email dated 13^th February 2017, Mr Bird advised that there had been “no software changes that would impact on the delivery of the contracted solution”. However, he also indicated that any questions relevant to the project would be covered at the “project kick-off meeting”. He thus requested Mr Chandarana and Mr Davies to provide a date for the project kick off meeting within the next 4 weeks and warned that “failure to restart the project before the end of March 2017 will leave us little choice but to consider the contract to have been frustrated(sic)”.

Mr Davies responded in a lengthy email dated 21^st February 2017 with a mixed series of comments and questions. He maintained that he was “surprised” and “puzzled” by a number of Mr Bird’s observations, including the suggestion that the module updates should be discussed at the project kick-off meeting rather than provided to him in writing in advance. He also required the Claimant to specify, in advance of the meeting, the “resource requirement, both numbers and knowledge requirements” and, by implication, the “required ongoing support post implementation as it seems we will have both hardware and software capability requirements” and “information as to how “similar sized organisations manage this requirement(sic)”. He asked the Claimant whether the Claimant’s “product and hardware solution [was] now an outdated solution”.

Contrary to Mr Chandarana’s acknowledgments at the February 2016 Meeting (to which I have referred in Paragraph 30.1), Mr Davies asserted that “the numerous issues which arose in 2015…was (sic) down to your project manager producing unrealistic plans which had no realistic prospect for success”. He also stated that “in this light we would like full details of your proposed Sanderson appointee as clearly we cannot accept a repetition of what happened in 2015. We need to have our confidence fully in place before we can proceed”. Once that stage was reached, the Defendant’s own project manager would “devise a workable project plan and Sanderson’s role in the project” was to be reduced to the role of “the senior supplier”.

In the final paragraph of his 21^st February 2017 email, Mr Davies contended that, contrary to Mr Bird’s comments, “we have never committed to any specific date, as you seem to believe, to start the project”.

When Mr Bird replied to state that the Claimant was considering its response, Mr Davies again expressed surprise, maintaining that “I am only looking for straightforward replies to straight questions”.

At this stage, Mr Bird instructed solicitors, Aaron & Partners LLP. By letter dated 28^th April 2017, they advised the Defendant that by rejecting the Claimant’s position and seeking to impose its own, new and onerous terms on the Contract, it was in repudiatory breach. Notice was then given that the Claimant accepted the Defendant’s repudiatory breach so as to bring the Contract to an end.

By his un-dated letter in reply-apparently transmitted by fax on 11^th May 2017-Mr Chandarana stated that “in February 2016 it was agreed to put a standstill on the original contract. There was no firm agreement by either party to reinstate it…” He also stated that “our recent emails do not resile from any agreement” and that “both parties stepped away from the original agreement and there was no agreement to revive it. Therefore, with no agreement in place there can be no repudiatory breach”.

Ultimately, on 4^th October 2017, the Claimant issued the current proceedings in which it seeks damages for breach of contract. By its Defence and Counterclaim dated 30^th October 2017, the Defendant contended that, by attempting to terminate the Contract, the Claimant had itself committed a repudiatory breach. On this basis, the Defendant accepted the Claimant’s repudiatory breach and sought to recover damages for breach of contract calculated with reference to the amounts that it had already paid to the Claimant.

Following the delivery of the parties’ written closing submissions dated 11^th and 18^th January 2019, the essential issues between the parties can be characterised in simple and straightforward terms. Did the Defendant commit a repudiatory breach and renounce the Contract by declining to co-operate with the Claimant in re-starting the project in February or March 2017? How, when and on what basis was the Contract brought to an end?

At one point, there was an issue whether the Claimant was entitled to pursue a claim, analogous to an action for the price, in respect of some outstanding arrears of payment prior to termination. By his closing written submissions, Mr Cook abandoned this part of his claim on the basis that the Defendant was furnished with a good defence based on the principle of equitable forbearance. The claim is thus limited to damages for breach of contract.

Conversely, the Defence and Counterclaim includes an assertion that the Claimant committed repudiatory breaches of its implied contractual obligations to carry out its services with reasonable skill and care and to do so within a reasonable time in support of the Defendant’s own case for rescission. However, Mr Jenkins did not pursue such a case in his closing written submissions. He submits that “the Claimant was…responsible for a number of failings through to mid 2015” but deploys this submission in response to the contention that the Defendant renounced the Contract. He was and is wise to limit his case in this way. In my judgment, there is no room for the proposition that the

In the event that the Claimant succeeds in its claim for damages, I indicated to counsel, during the opening of the trial, that there was insufficient evidence for me to assess the quantum of its claim for loss of profit and it was agreed that, on this hypothesis, the assessment of damages will be dealt with separately.

The critical issue that remains is whether the Defendant committed a repudiatory breach and renounced the Contract when it declined to co-operate with the Claimant in restarting the project in February or March 2017.

The Defendant did not expressly renounce the Contract. The question is thus whether, by words or conduct, it evinced an intention to abandon and refuse to perform its obligations under the Contract. For this purpose, a contracting party is to be treated as having refused to perform its obligations if it evinces an intention to perform but “only in a manner substantially inconsistent with [its] obligations and not in any other way”, Ross T Smyth & Co Ltd v TD Bailey, Son & Co [1940] 3 AER 60,72 per Lord Wright. The same is true if it refuses to perform unless the innocent party complies with conditions not required by the Contract, BV Oliehandel Jorgkind v Coastal International Ltd [1983] 2 Lloyd’s Rep 463. However, “a party who takes action relying simply on the terms of the contract, and not manifesting by his conduct an ulterior intention to abandon it, is not to be treated as repudiating it…”, Woodar Investment Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277, 283A per Lord Wilberforce. The overall question is thus to be addressed by “looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of the innocent party” and asking whether “the contract-breaker has clearly shown an intention to abandon and altogether refuse to perform the contract”, Eminence Property Developments Ltd v Heaney [2011] 2AER (Comm) 223 at Para 61, Etherton LJ. I shall address this question with reference to the circumstances on 28^th April 2017, which is the date on which the Claimant elected to accept the Defendant’s putative breach and thus terminate the Contract.

In my judgment, the Defendant renounced the Contract according to these principles.

In my judgment, the Defendant renounced the Contract by declining to co-operate with the Claimant in re-starting the project at any time in February or March 2017. It forms no part of the Defendant’s case that the Claimant subsequently elected to affirm the Contract. The Contract was thus brought to an end when, by letter dated 28^th April 2017, the Claimant’s solicitors, Aaron & Partners LLP, accepted the Defendant’s repudiatory breach.

The Claimant is thus entitled to judgment on liability with damages to be assessed. I shall hear further from counsel in relation to consequential directions and the issue of costs.