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Case No: A3/1999/0764
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
Mr Justice Thomas
Royal Courts of Justice
Strand, London, WC2A 2LL
Friday 3 November 2000
B e f o r e :
LORD JUSTICE KENNEDY
LORD JUSTICE WALLER
and
LORD JUSTICE JONATHAN PARKER
- - - - - - - - - - - - - - - - - - - - -
|
BOOTS
THE CHEMIST LIMITED & anr
|
Plaintiffs/
Respondents
|
|
-
and -
|
|
|
AMDAHL
(UK) LIMITED
|
Defendant/
Appellant
|
- - - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
P Susman Esq QC, Mr Terence Bergin (instructed by D F Charlton for the
Respondents)
C Hollander Esq QC (instructed by Messrs Norton Rose for the
Appellant)
- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE WALLER:
1. This is an appeal from a decision of Thomas J given on 12 March 1999. He
awarded the respondents, Boots, damages finding that the appellants Amdahl had
been under an obligation to repurchase certain computer equipment in August
1996, and were in breach of contract for having refused to do so.
2. In the mid-90s Boots had the policy of continually reviewing their computer
requirements and upgrading their computers at regular intervals. There was
competition between suppliers for Boots' custom. Amdahl were a supplier and
had, under a contract dated 16 February 1994, supplied Boots with computer
processors and upgrades to their existing processors.
3. By an amendment to that contract but executed on the same day (the February
1994 amendment) the parties agreed that between 1 June 1995 and 31 August 1995
Boots had the option on 30 days notice to sell back to Amdahl two processors
which they had purchased from them including
Processor 5995-3570M at a price of £1.2m.
Processor 5995-4570M at a price of £1.718m.
The judge in his judgment suggested that the option related to "three
processors ... including the above", and Mr Hollander QC submitted that this
led him into error when considering the terms of the important letter on which
this case turns.
4. In the summer of 1995 competitive negotiations were proceeding between
Boots and Amdahl and Boots and IBM. Boots were anxious to secure the best deal
they could for up-grading their equipment, and Amdahl were intent on beating
the competition, who were ultimately IBM, or at least limiting the extent to
which IBM secured Boots as a customer. The buy-back terms were of considerable
relevance to the negotiations. An obvious reason for that was that so far as
Boots were concerned they had the option to force Amdahl to repurchase both the
3570 and 4570 in 1995 at the above prices, and then purchase entirely new
equipment from IBM. As pages 88A and 88F of the core bundle show, this was
something about which Amdahl were anxious, and which led them to offer terms
for up-grading the 3570 and the 4570 to 5570 (the "5" series) in 1995, and
further terms for up-grading both processors again in 1996 to a 6570 (the "6"
series). They also provided residual value estimates for their 3570M, their
4570M and their 5570M for August 1996, August 1997 and August 1998, and were
willing to guarantee as buy-back values all August 1996 values (see pages 88M
and 88N). They also proposed terms relating to the costs of maintenance if
Amdahl's proposals were otherwise acceptable (see for example page 88Z).
5. It appears that by mid-July 1995 Boots' real interest lay in either
contracting with Amdahl to up-grade their 4570M to the 5570M, possibly
incorporating a "Coupling facility and the purchase of coupling links", or
exercising the buy-back option for that 4570M and installing IBM equipment. It
seemed they hoped to be able to postpone any decision in relation to the 3570M
(see the letter from Amdahl of 14 July 1995 at page 97). As part of those
negotiations Amdahl wrote a letter on 17 July 1995 which included the
paragraph:
"Further, we confirm that the buy-back price for the installed 3570 submitted
in our previous proposal applies until August 1996. It should be noted that
this buy-back is not conditional on any other purchase."
6. On 20 July 1995 Mrs Craggs on behalf of Boots wrote a fax to Amdahl which
contained the following paragraph:-
"The details of the buy-back arrangements for August 1996 are somewhat
fragmented over various documents, particularly in the light of your latest
letter indicating that a buy-back on the 3570 would not be conditional upon
retention or upgrade of the 4570. So as to ensure no ambiguity exists, could I
ask you please to state in one consolidated document, buy-back values and
associated terms and conditions for a buy-back in August 1996 for one or both
processors."
7. There was a telephone conversation between Mrs Craggs and Mr Lafferty of
Amdahl on that same day which led to the first letter from Amdahl of 20 July
1995, the terms of which appear at page 101. After a further conversation
between Mrs Craggs for Boots and Mr Lafferty for Amdahl, the second letter from
Amdahl of 20 July 1995, at page 102, was sent. That letter is the key document
and I quote it in full:-
"Dear Margaret
Further to our telephone conversation earlier today, I set out below the
values, terms and conditions of our guaranteed buy-back position:
* I agree to delay the August 1995 buy-back deadline by 2 weeks, buy-back
values remain as those quoted for August 1995.
* The August 1996 guaranteed buy-back values are:
US $'000
3570M 1.441
4570M 1.859
5570M 2.442
* I confirm that the guaranteed buy-back value of the 3570M is not dependent
upon Boots upgrading the currently installed 4570M to a 5570M. I also confirm
that the guaranteed buy-back value of the 3570M is not dependent upon the
retention of the 4570M.
I hope this clarifies the position for you, but should you have any further
questions do not hesitate to call me.
My best regards
Trevor Lafferty
Regional Director"
8. The second sentence of the third bullet point was added to the letter at
page 101 after the further conversation between Mrs Craggs and Mr Lafferty.
9. The first point to make on the letter, which was forcibly made by Mr
Hollander, is that the second bullet point refers to a 3570M, a 4570M
and a 5570M. Mr Hollander submits that the judge did not recognise in
his judgement that certainly for the 5570M price to be relevant, Boots would
have to accept the terms being offered by IBM for upgrading the 4570M as at
August 1995. He submitted that the judge's view that the February 1994
agreement covered three processors led him into error in thinking that the
three processors described in the second bullet point were all the subject of
the February amendment which they were not. This point, submitted Mr
Hollander, meant that if Boots were not going to accept Amdahl's terms as to
the upgrading of the 4570M, the letter of 20 July 1995 and/or the terms of the
same were not capable of a simple acceptance.
10. The second point to make on the letter is that the third bullet point
related only to the 3570M ie what was being confirmed was that the buy-back
value for 1996 for that processor was not dependent upon Boots accepting
Amdahl's terms to upgrade the 4570M, and was not dependant thus on Boots not
exercising the buy-back option for the 4570M in 1995.
11. The third point to make is that the values were quoted in dollars and in
the result the price being guaranteed as the buy-back value of the 3570M in
August 1996 was considerably less than the value at which Boots had the option
to insist on a buy-back in August 1995.
12. In the result Boots for the year 1995 made a contract with IBM which
involved replacing the 4570M. Accordingly they took advantage of the extended
period offered by the first bullet point, and exercised the option in relation
to the 4570M in 1995 by a letter dated 8 August 1995, page 103, which reads as
follows:-
"Dear Sir,
Purchase Agreement No. UKPA 947812
Under an amendment to the above agreement the Boots Company PLC ("Boots") has
the option to sell back to Amdahl (U.K.) Limited the 5995-4570M (Serial No.
78007031) at the price of £1,718,000 (One million seven hundred and
eighteen thousand pounds). By virtue of the above amendment as amended by a
letter from Trevor Lafferty dated 20th July 1995 this option is exercisable
upon at least 30 days written notice being given to expire on or before 14th
September 1995.
Boots wishes to exercise this option and I should be grateful therefore if you
would treat this letter as constituting an exercise of the option pursuant to
the terms of the above agreement.
It is our understanding that the 5995-4570M will be removed from Boots premises
on or after 1st September 1995 at the prearranged convenience of both parties.
The method of payment will need to be agreed by both parties prior to this
date.
Would you please acknowledge receipt of this letter by return.
Yours faithfully
Philip Hill
Commercial Manager"
13. Amdahl accordingly repurchased that processor as appears from their letter
at page 104.
14. The dispute arose in the summer of 1996. On 27 June 1996 Boots wrote
seeking confirmation that they had until close of business on 1 August 1996 to
invoke the buy-back option on the 3570M. To that letter they received the
response letter from Amdahl dated 5 July 1996, at page 106, which stated:-
"Dear Philip,
Thank you for your letter of 27 June 1996 which I only received on 4 July 1996.
With regard to your question about the buy-back option for the 3570, contained
in Trevor Lafferty's letter of 20 July 1995, I have since checked this with our
company and I have been told to advise you that, especially in view of the time
lapse since this offer was made, the buy-back offer is withdrawn with immediate
effect.
If you wish to discuss this further, I have an appointment with Margaret Craggs
at 2.30 this afternoon and would be pleased to meet with you then.
Yours sincerely
Peter B Spillan
BTC Account Manager"
15. Boots did not accept that there was any entitlement to withdraw the
option, and purported to exercise it by letter dated 30 July 1996. Amdahl
refused to buy-back; the processor was then sold by Boots and the action was
commenced for the difference in price between what Boots obtained and what
Boots claimed Amdahl were obliged to pay.
16. Amdahl's case as presented to the judge, and as forcibly argued by Mr
Hollander before us, was that no enforceable contract was made in July 1995
which obliged Amdahl to buy-back the 3570M in 1996. Mr Hollander, submitted
that the bullet points contain distinct offers. The first was accepted by
Boots when exercising the option of returning the 4570M in 1995. The second was
not accepted since Boots would have had to have agreed with Amdahl terms to
upgrade the 4570M if they were to accept all three buy-back values. The third
was simply an offer capable of acceptance in only one way by the exercise of
the option; but then only if the offer had not been withdrawn
beforehand. He submitted there was no acceptance before the offer was
withdrawn.
17. He attacked the judge's finding either that there was an agreement reached
orally between Mrs Craggs and Mr Lafferty which the 20 July letter confirmed,
and he attacked the judge's finding that what was agreed was a variation to the
original contract. He further attacked the judge's finding that if no contract
had been formed as at 20 July 1995 that letter was an offer capable of
acceptance and was accepted by Boots' conduct in continuing negotiations with
Amdahl or by the letter exercising the option for the 4570M on 8 August 1995.
He further submitted that even if there was an offer and acceptance or an
attempt to vary the original contract there was no consideration for the
promise by Amdahl, and the agreement would be unenforceable.
18. Mr Susman QC for Boots submitted that the judge was entitled to find that
there was an oral contract varying the February 1994 amendment, confirmed by
the letter. Alternatively, he was entitled to find that even if there was no
oral contract an offer was made by the letter of 20 July which was accepted by
the letter of 8 August 1995. He did not attempt to uphold the judge's finding
that there was an acceptance by conduct. He further submitted that either this
was a variation to the February amendment in which event benefit to either
party would provide consideration (see 4.2.4 of skeleton) or even if in some
other way the bargain was a separate one, there was benefit to Amdahl
sufficient to amount to good consideration.
19. The first question is whether any agreement was reached on 20 July 1995.
To decide that question it seems to me legitimate to seek to explore
objectively what the parties appeared to be seeking, appreciating that the
letters were sent in the course of negotiations which Amdahl hoped would lead
to an order to upgrade one of the processors in 1995, and where both were
contemplating the possibility of postponement of a decision as to the other
until 1996. Amdahl, as it seems to me, were seeking (a) to stop Boots simply
exercising the buy-back option in relation to both processors in 1995 and
switching to IBM; (b) to persuade Boots to upgrade one of the processors (by
the time the letter was written the 4570M) in 1995, but if Boots did not do
that, to at least leave open the possibility that Boots would use Amdahl to
upgrade the 3570M in 1996 rather than force Amdahl to buy it back in 1995; and
(c) Amdahl, consistent with the above, were seeking to give Boots a further
period in which to consider their position in 1995, and would contemplate that
if the option was to be exercised in 1996 it would be exercised at the same
time of year as Boots always considered their upgrading requirements ie between
1 June and 31 August 1996. Boots were seeking maximum flexibility and wanted a
further period in which to consider their position in 1995, and wanted if
possible to be able to postpone a decision in relation to the 3570M to the
period in 1996 when they would normally consider their upgrading requirements
without losing an entitlement to compel Amdahl to buy back at a reasonable
price.
20. The above, as it seems to me, points logically to the parties wishing to
negotiate an amendment to the February 1994 amendment. First, the parties
would wish the basic machinery to be the same ie thirty days notice, and to be
exercised within a specified period. Second, if Boots did not exercise the
option in relation to the 3570M in 1995, they would put themselves at a serious
disadvantage, unless they could rely on still having the option in 1996.
Furthermore, Amdahl would wish Boots to believe that they had the option until
the period 1 June to 31 August of 1996 otherwise Boots might seek to exercise
the options on both processors in 1995.
21. The question is whether there was evidence on which the judge could
conclude that the parties had agreed what objectively it appears likely they
were trying to achieve.
22. Mr Hollander in his argument accepted that the second letter of 20 July
1995 was intended to create legal relations in the following sense. He
accepted that the first bullet point did extend the date for the exercise of
the option in 1995. He also accepted that a combination of bullet point two and
bullet point three created an offer which was open for acceptance but
only by an acceptance which actually exercised the option. He did not accept
that the 30 day notice within the period 1 June to 31 August was
part of the offer, and thus his case was that on a proper construction of the
second letter of 20 July 1995 (1) Boots in relation to the 3570M could have
exercised the option at any time after receipt of the letter requiring Amdahl
to buy-back (presumably) simply at some time in "August" 1996, and without
necessarily giving 30 days notice; (2) that Boots would have to do that even
before they had considered what their requirements were for August 1996 if they
were not to risk the offer being withdrawn; and (3) that Amdahl could withdraw
the offer at any time before it was accepted. He sought to stress that the
second bullet point in its reference to the 5570M could only be construed as an
offer or evidence of an offer as part of a deal to up-grade which might or
might not be accepted for 1995 and he thus submitted the letter as a whole was
not capable of a simple acceptance. He further argued that there was no
evidence of any agreement being reached prior to the sending of the second of
the two letters sent on 20 July 1995, and he took us to the statements of Mrs
Craggs on whose evidence the judge relied and suggested that they do not
provide that evidence. The passages in which she deals with the point are (i)
at page 56
"His fax of 20th July 1995 was written in response. It is quoted in the
Statement of Claim, paragraph 4. I also remember speaking to him by telephone
twice the same day to much the same effect"
and (ii) at page 59 "The letters at D189-D192 from Mr Lafferty confirmed what I
sought from him in telephone conversations with him."
23. Powerfully as Mr Hollander made his points I was not persuaded that his
proposed construction of the terms of the 20 July letter accorded with
commercial reality. First, the fact that the second bullet point contains a
reference to the 5570M, which would only be relevant if Boots agreed to Amdahl
upgrading, does not deflect from the obvious intention of the terms of the
letter which was either an offer by Amdahl, or confirmation of an agreement
already reached, to agree a variation to the February 1994 amendment so as to
allow for the exercise of the buy-back option in relation to the 3570M at a
time in 1996 when Boots would be considering again their requirements, and was
offering or confirming that such entitlement was not to be (a) dependent on
Boots upgrading the 4570M to a 5570M in 1995, or (b) dependent on Boots
retaining the 4570M at all.
24. The terms of the letter are confirmatory of a position already reached in
conversations, and in my view the judge was entitled to form the view that Mrs
Craggs and Mr Lafferty had reached an agreement which was confirmed by the
second letter. The first letter seems to confirm oral negotiations, but the
matter is clearer still when that first letter is amended following a further
conversation.
25. Even if agreement had not been reached on the telephone on 20 July 1995,
it is clear that Mrs Craggs was seeking a variation, that Amdahl's letter of 20
July 1995 contained an offer of a variation, and that Boots' letter of 8 August
1995 constituted an acceptance of that offer. It cannot be said that the first
bullet point of the letter of 20 July 1995 is a separate offer because clearly
Boots were being offered the combination of an extended date for 1995 and the
option for 1996 at the lower price. They were entitled to look at that offer
overall in considering what steps to take prior to the end of the deadline for
1995.
26. As to the question of consideration, it seems to me that the judge was
right on this point too. First the terms of the 20 July 1995 letter whether
agreed orally or whether accepted by Boots, clearly varied the buy-back
provisions of the original contract and that variation was capable of
benefiting either party and had an element of detriment to Boots if they
accepted the benefit. Chitty on Contracts 28th edition
paragraph 3-074 puts the matter this way:-
"(2) Variation which can prejudice or benefit either party. Secondly,
the parties may agree to vary the contract in a way that can prejudice or
benefit either party. Here the possible detriment or benefit suffices to
provide consideration for the promise of each party. . . . . This possibility
of benefit and detriment is sufficient. . . . . If a variation is, taken as a
whole, capable of benefiting either party, the requirement of consideration
will be satisfied even though a particular term of the variation is for the
sole benefit of one."
27. So far as Amdahl were concerned, if Boots were attracted by a delay to the
decision as to whether to sell back the 3570M, Amdahl would not have to buy
both processors in 1995, and would have to pay very much less for the 3570M if
the option was exercised in 1996. In addition they would have a further
opportunity of persuading Boots to allow them back in as suppliers in the year
1996. Boots also gained a benefit from being able to postpone their decision
but suffered the detriment of getting the lower price if they did so.
28. In my view there was consideration for the variation.
29. I accordingly would dismiss this appeal.
LORD JUSTICE JONATHAN PARKER:
30. I agree.
LORD JUSTICE KENNEDY:
31. I also agree.
Order: Appeal dismissed with costs subject to detailed assessment if not
agreed. Leave to appeal to the House of Lords refused.
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