H.H. Judge Richard Seymour Q. C. :
Introduction
- The Defendant company, Steria Ltd. ("Steria"), is a subsidiary of a French company, Groupe Steria S.A. Steria carries on business as, amongst other things, a provider of managed information technology services. What that means is that it provides support services for the computer systems operated by its customers. At their most basic those support services include providing a service desk to which an employee of a customer who has experienced some difficulty with his computer can refer for advice. In general terms the services also include sending a suitably qualified person to a customer's premises to remedy problems with the customer's information technology systems. The precise services to be provided to any given customer will be governed by what is called a Service Level Agreement (an " SLA").
- Groupe Steria S.A. completed its acquisition of Steria on 16 April 2002. Until that date Steria was called Integris Ltd. It seems that the company was originally a member of the Honeywell group of companies and called Honeywell Information Systems Ltd. It then became associated with the French company Groupe Bull S.A. and was called, successively, Honeywell Bull Ltd. and then Bull Information Systems Ltd., before changing its name to Integris. Under that name it was sold by Groupe Bull S.A. to Groupe Steria S.A.
- So far as is relevant to the matters which have given rise to this action, Steria provides its services to its customers through a customer call centre at Risley, near Warrington, and a data centre service desk at Sunbury. In addition, Steria operates a call centre at Hemel Hempstead through which it provides assistance to its own employees in meeting the needs of customers. The internal service desk is apparently called "777". As I understand it, within the call centre at Risley Steria operates a number of service desks, each one dedicated to meeting the needs of a particular customer in accordance with the terms of the relevant SLA. At present there seem to be twelve service desks at Risley.
- A comparatively recent development in the area of providing support to a customer's information technology systems is what is called the "Intelligent Service Desk" ("ISD"). The idea behind ISD is that, rather than having to send out an engineer to the customer's premises to deal with other than the most straightforward problems, the staff at the service desk, through access to on-line information, should be able to deal with most difficulties, if necessary by obtaining direct access to the customer's hardware and systems. The resolution of a customer's problem by service desk staff in this way is called "First Time Fix".
- The operation of the sort of call centres which Steria has at Risley, Sunbury and Hemel Hempstead depends upon the use of appropriate computer software. In order to function such software needs to interact with an operating system installed on a server or mainframe. An operating system is the basic software installed on computer hardware by means of which other software packages can be made to work. In 2001 the call centre at Risley operated on software called "Red Box", a product of a company called Ultracomp, utilising a UNIX operating system on an IBM RS600 mainframe. The call centre at Sunbury operated on software called "Netman", utilising an OS/390 operating system run on an S/390 mainframe. The internal service desk at Hemel Hempstead operated on software called "Remedy", utilising an NT operating system on an INTEL server. From about September 2001 Steria was interested in replacing the existing software in each of its call centres with a single suite of software by means of which it would be able to offer ISD.
- An operating system can either be installed on a server or mainframe as the sole operating system, in which case it is said to have been installed "natively", or as a secondary operating system over the native operating system on a mainframe, in which case it is described as a "partition".
- An operating system which has become popular over the last few years is "Linux". Linux is a low cost operating system which is available without charge to anyone who wishes to utilise it. Certainly at some stage Steria was interested in the possibility of operating the new suite of software for its call centres on a Linux partition on an OS/390 operating system on an S/390, or Enterprise, mainframe. This is a matter to which I shall have to return.
- The successful operation on a computer system of a suite of software, at least of the type required for the operation of managed information technology services, depends not only upon the use of an appropriate operating system on the hardware, but also upon the use of an appropriate relational database management system ("RDBMS").
- In order to facilitate the provision of managed information technology services and the operation of service desks the Office of Government Commerce has been instrumental in developing what is called the "Information Technology Infrastructure Library" ("ITIL"). As I understand it, ITIL is principally concerned with business processes in relation to management of information technology services. So far as is relevant to this action ITIL includes common definitions of particular expressions used in the context of information technology service management. The expressions material in this action are "Incident" and "Problem". An Incident, for the purposes of ITIL, is defined as "Any event that is not part of the standard operation of a service and that causes, or may cause, an interruption to, or a reduction in, the quality of a service", while a Problem is defined as "Unknown underlying cause of one or more incidents".
- The Claimant company, Peregrine Systems Ltd. ("Peregrine"), is a subsidiary of a California corporation, Peregrine Systems Inc. Peregrine carries on business as a supplier of software, in particular software designed to facilitate the operation of call centres by providers of managed information technology services. "Remedy" software is a product of Peregrine. The software packages supplied by Peregrine which are relevant to this action are called, respectively, "ServiceCenter", "AssetCenter", "InfraTools" and "Get IT".
- ServiceCenter comprises a number of modules. The modules which are relevant to this action are these:-
(i) Incident Management. This is a call logging system which logs calls to a call centre and allocates a unique number to each.
(ii) Change Management. This system enables changes to the constituents of an information technology system (called "infrastructure assets") to be recorded and tracked.
(iii) Inventory & Configuration. This is a database on which can be recorded the infrastructure assets of a customer supported by the call centre.
(iv) Mandanten. This is a security system by means of which a customer seeking data from the call centre on-line is prevented from obtaining information other than that which he is permitted to see.
(v) Service Management. This is the starting point for use of the other modules.
(vi) Knowlix. This is a knowledge database intended to assist staff at the call centre to resolve Incidents.
(vii) Root Cause Analysis. This is a means of considering whether a number of Incidents have an underlying cause common to them all, so that that underlying cause can be addressed.
(viii) Scheduled Maintenance. This highlights when routine maintenance on any infrastructure asset is due.
(ix) SLA Management. This is a mechanism for putting into the software the contractual obligations of the call centre to a particular customer under the relevant SLA.
(x) Contract Management. This is a means by which information as to warranties applicable to particular infrastructure assets, leasing arrangements and the like can be recorded.
(xi) Integration to CA. "CA" is a reference to a company called Computer Associates. That company supplied to Groupe Steria S.A. certain software to which it was desired that Steria could interface.
(xii) Connect It. This is the software by means of which all the other modules can interface and share data.
(xiii) Web Interface. This is a means by which a customer of a call centre can log an Incident via the internet instead of by telephone and can keep track of service calls on-line.
- AssetCenter also comprises a number of modules. Those relevant to this action are Cost Management, Lease Management, Procurement Management and Asset Management. Essentially by means of these modules a customer's infrastructure assets can be recorded, along with information relevant to them.
- InfraTools, so far as relevant to this action, comprises three modules:-
(i) Remote Control. This allows a call centre to undertake remote control of a customer's computer from the call centre and to send software to it.
(ii) Network Discovery. This is a means of ascertaining what infrastructure assets are attached to a particular network. The information so obtained can then be brought into AssetCenter.
(iii) Desktop Discovery. This is a means of ascertaining what software is loaded onto a particular computer.
- The purpose of Get IT is to allow customers of a managed services provider to gain access to the software suite via the internet. The modules which are relevant to this action are:-
(i) Get Answers. By this means a customer can gain access to a knowledge database to seek to answer his own queries without having to go through the call centre.
(ii) Get Service. This enables a customer to log an Incident via the internet and to check the progress of unresolved Incidents logged by him.
(iii) Automated Support. This enables customers to access a virtual helpline via the internet. The virtual helpline analyses reported problems and suggests solutions.
(iv) Password Reset. This enables a call centre to reset user passwords remotely.
- ServiceCenter, AssetCenter, InfraTools and Get IT, and the modules comprising each, are standard products capable in principle of being put into use "out of the box", without any modification. However, each has the capacity to be "tailored", that is to say, to be modified to meet the particular requirements of a customer in largely cosmetic respects, without affecting the underlying core functionality.
- It seems that ServiceCenter, AssetCenter, InfraTools and Get IT are each products which over the course of time have undergone development and enhancement. Thus it is that each exists in different versions. Until 31 May 2002 the then current version of ServiceCenter was version 4. On 31 May 2002 a new version of ServiceCenter, version 5, was placed on general release.
- By an agreement in writing ("the Agreement") dated 29 March 2002 and called a "Managed Services Provider Licence Agreement", having the reference number MSPLA-UK 02 SH 29 03 001 MSPLA, and made between Peregrine and Steria (under the name Integris Ltd.) Peregrine granted to Steria perpetual, non-exclusive, licences to use ServiceCenter, AssetCenter, InfraTools and Get IT, each comprising the modules which I have described, and agreed to undertake certain consultancy services. In this judgment I shall refer to the software the subject of the licences granted by the Agreement comprehensively as "the Software" and to the individual components, with the modules which I have already identified, respectively as "ServiceCenter", "AssetCenter", "InfraTools" and "Get IT".
- I shall return to the detail of the Agreement relevant to the present action. However, the Agreement provided for Steria to pay to Peregrine a definite total sum of £800,000, as to £100,000 on or before 1 July 2002 and as to the balance on or before 28 February 2003. There existed the possibility that a further £300,000 might become payable, but again that is a matter to which I shall return. Steria did make the first payment of £100,000. By a letter dated 5 February 2003 Steria purported to give notice pursuant to clause 7 b)(i) of the Agreement terminating it. In this action Peregrine contended that Steria's purported termination of the Agreement was wrongful and claimed as a debt, alternatively as damages, the sum of £700,000 which fell, or would, but for the termination, have fallen, due on 28 February 2003. Steria, for its part, contended that it was entitled to terminate the Agreement by the letter dated 5 February 2003 on account of breaches of the Agreement on the part of Peregrine, and claimed as damages in respect of such breaches repayment of sums totalling £137,957 paid to Peregrine under the Agreement, on the grounds that such payments had been entirely wasted, as well as a sum quantified at £346,899 in respect of the cost of the time of Steria staff spent on work in connection with the Agreement, which work it was contended was also entirely wasted. As an alternative to the contention that it was entitled to terminate the Agreement by reason of the alleged breaches of Peregrine, Steria contended that it had entered into the Agreement by reason of various misrepresentations on the part of Peregrine, and that it was entitled to rescind the Agreement by reason of those alleged misrepresentations. The same sums were claimed as damages in respect of the alleged misrepresentations as were claimed in respect of the alleged breaches of the Agreement. Peregrine admitted that one of the three representations of which Steria complained was made, but contended that it was not false. Peregrine denied that the other two representations complained of were made. In respect of all representations about which complaint was made by Steria Peregrine relied upon the terms of clauses 8 g) and 19 of the Agreement as excluding liability and upon the terms of clauses 9 b) and c) as limiting the extent of the compensation payable by it. In response it was contended on behalf of Steria that, on proper construction, clauses 8 g) and 19 did not have the effect for which Peregrine contended, or, if they did, they did not satisfy the requirement of reasonableness set out in Unfair Contract Terms Act 1977 s.11(1) as, by virtue of the provisions of Misrepresentation Act 1967 s.3 and Unfair Contract Terms Act 1977 s.2(2) and s.3, they were required to do. It was submitted on behalf of Peregrine that the requirement of reasonableness was satisfied.
The alleged representations
- Before coming to the relevant terms of the Agreement it is convenient to consider the representations relied upon by Steria as misrepresentations.
- The first representation, which it was common ground was made in a document entitled "Peregrine Proposition For Infrastructure Management" dated February 2002 sent by Peregrine to Steria, was that ServiceCenter was "ITIL compliant (meaning that the processes and procedures enabled by the Service Center software conformed to the standards of the Information Technology Infrastructure Library)". It will be necessary to consider later in this judgment whether that representation was false. However, the scope of the issue seems to be quite narrow. ServiceCenter at database level calls an Incident a Problem. It seemed to be common ground that this was of significance only if someone wished to alter the coding of the software, and only then if the person wishing to make the alteration was unaware of the terminology actually used in the coding. There was a dispute as to whether, at the level of a user of the software, the ITIL terminology was used correctly in the version 4 of ServiceCenter delivered to Steria by Peregrine in its "out of the box" condition. Peregrine's case was that it was, but Steria's case was that the software had to be tailored so as to make the terminology correct.
- The second alleged representation went through a process of evolution during the trial. In its original form, in the Amended Defence and Counterclaim, what was alleged to have been represented was that:-
"
the Software
was capable of running on a Linux platform."
That representation was admitted on behalf of Peregrine to have been made and was asserted to be true. In its final pleaded form the representation alleged was:-
"That the Software
was capable of running on a Linux Partition/OS390 platform and was supportable on such a platform."
However, even that version underwent a degree of clarification during closing speeches. I shall return to the questions of what was in fact represented and whether what was represented was untrue, but for the present it is enough to record that Peregrine's case was that nothing had been said about Linux or OS/390 in connection with the Software which was false.
- The third alleged representation, which Peregrine denied, was allegedly contained in an e-mail sent by Mr. Chris Horton of Peregrine to Mr. Christian Manivel of Steria dated 25 March 2002. The fact of the sending of the e-mail and its literal terms were not in dispute. The issue was as to what was the correct interpretation of what was said. As pleaded at paragraph 8A(c) of the Re-Re-Amended Defence and Counterclaim the interpretation of the material passage for which Steria contended was:-
"That the proposed Professional Fees budget of £200,000 was sufficient to ensure a rapid, first class implementation of all the software listed in Schedule A [to the Agreement that is, the Software] at each of the Defendant's three call centres."
- Mr. Horton's e-mail dated 25 March 2002 was in these terms:-
"Having discussed our conversation with Kevin Tumulty on Friday evening, I can confirm our desire to provide you with an offer which would enable a swift decision and the business concluded in March as you suggested. More specifically we discussed the possibility of Peregrine making some commitment towards the RoI [Return on Investment] figures to make it an easier decision for Steria to invest in the Peregrine platform, and the concept of shared risk. As such, Peregrine would like to offer the following:
We will provide the platform, as described in model 1 of the proposal plus a further £120,000 of adapter software required to give the platform an integration capability on day one. This equates to a total of £973,000 of Infrastructure management software. In addition, we propose to include £200,000 of Professional Services, necessary to ensure a rapid, first class implementation plus £146,000 for first years software maintenance. This brings the total charge for the solution to £1,319,000.
However, we will only request a binding commitment from Steria for the payment or financing of £919,000 in March. We would propose that we agree a set of simple to measure RoI milestones with Kim Watson over the next 24 hours. Project implementation would begin in April and these milestones, when achieved and signed off by Steria, over the next 3 6 months, would firmly establish that that [sic] the stated RoI savings can be realised. Only, after the RoI milestones have been signed off will we ask Steria to pay or finance the balance of the solution charges of £400,000.
In effect we have done the following:-
- Provided a total platform in line with Steria team recommendations
- Agreed to split any risk between us.
- Reduced the maximum cost exposure to Steria by reducing entry level software costs from £2,432,500 at MSP list to £973,000.
- Demonstrated our desire to work with your team to a more long term mutually beneficial partnership.
Any additional Professional Services required for the completion of the implementation would be offered to Steria at aggressively reduced rates as previously discussed. We suggest these are contracted for separately.
I trust this creative approach will allow you to contract with Peregrine. We regard it to be compelling in every aspect. Our aim is to provide you with a solution that enables an easy decision when considered in the light of the urgent needs and direction of the business.
I look forward to discussing this with you later today. "
- It was submitted on behalf of Peregrine by Mr. Lawrence Akka that, in interpreting the reference in Mr. Horton's e-mail dated 25 March 2002 to the provision by Peregrine of professional services, it was necessary to read together the sentence, "In addition, we propose to include £200,000 of Professional Services, necessary to ensure a rapid, first class implementation plus £146,000 for the first years maintenance." and the sentence, "Any additional Professional Services required for the completion of the implementation would be offered to Steria at aggressively reduced rates as previously discussed." When those sentences are read together, submitted Mr. Akka, it was plain that Mr. Horton was not saying that rapid, first class implementation of the Software could be had for £200,000 worth of professional services, but rather that the provision of some professional services was necessary to ensure rapid, first class implementation, that £200,000 worth would be included and that any other services which proved to be necessary to complete implementation would be provided at aggressively reduced rates. I accept that submission. I accordingly find that the third representation for which Steria contended was not made.
Return on Investment
- An issue which was considered between Peregrine and Steria during negotiations preceding the making of the Agreement was what financial benefits Steria might obtain if it were to agree to take the Software. This question was referred to by the parties at the time as "Return on Investment", or "RoI". It is necessary to have some understanding of the issue before coming to the terms of the Agreement because of what it was contended on behalf of Steria was the true construction of the Agreement where it referred to Return on Investment. Mr. Gausdal of Peregrine undertook an exercise with Steria which enabled him to produce a report entitled "Return on Investment Analysis for Integris UK" ("the RoI Analysis"). In the RoI Analysis Mr. Gausdal considered what were called three product scenarios. That is to say, he considered what financial benefits, in terms of savings in its internal costs, Steria might derive from acquiring three different combinations of products from Peregrine. The RoI Analysis was not concerned with what benefits Steria might derive in terms of the sums which it might be able to charge its customers once the Software, or some components thereof, had been implemented. Much of the RoI Analysis was taken up with looking at specific areas in which Steria might achieve cost savings, depending upon what combination of Peregrine products it took. Section 1.2 of the RoI Analysis was entitled "Purpose and Scope" and included the following:-
"The purpose of this document is to present the results of Peregrine's Return on Investment (ROI) calculations and analysis based on three potential Peregrine product scenarios. Hereunder most attention will be paid to Product Scenario 1.
The scope of the engagement was agreed to review the management and control of internal IT assets such as PC's [sic], laptops, servers and software owned and leased by Integris UK. Routers, hubs, fax machines, copiers etc were excluded from the analysis. It is likely, however, that Integris will realise some significant cost savings and efficiency gains by implementing Peregrine tools as referred to under the three product scenarios.
The results of the ROI calculations and analysis of the results provides an accurate assessment of return on investment, based upon five-year projections. This will identify the level of savings and efficiency gains that can be achieved through the use of Peregrine products and best practice implementation.
The data used in this ROI calculation has been agreed as the best and most accurate information available to Integris as at 11 March 2001 [sic]. It is important to note that the accuracy of the ROI outcomes depends upon the quality of the data used.
NOTE:
The savings and efficiency gains found under each of the key categories must be interpreted as indicative numbers only. Peregrine does not guarantee the savings presented."
- Section 2 of the RoI Analysis contained an executive summary of the report. For product scenario 1 total savings over five years were shown as £6.13 million and net cumulative savings (that is to say, after allowing for the cost to Steria of acquiring the products in product scenario 1) were shown as £4.24 million. About those results the RoI Analysis stated, in section 2.1:-
"The ROI analysis shows that the Cumulative savings, Net Present Value and Internal Rate of Return provide good reason to invest in smart software and that the payback period is 15 months.
The figures above are believed to be conservative, which means that the level of savings and efficiency gains are likely to be in excess of the figures shown. The conservative approach is strengthened as help-desk licence costs are included in the analysis, and potential gains for serving external customers are not accounted for."
- In a document entitled "Peregrine Proposition For Infrastructure Management" dated March 2002 presented by Peregrine to Steria a comment was made in the "Management Summary" section on the RoI Analysis that:-
"In the Steria ROI study we have discovered that over a 5 year period a saving of £6.13 million is possible."
The relevant terms of the Agreement
- The Agreement took the form of a set of conditions of contract ("the Conditions"), to which were attached two schedules. The first schedule, called "Schedule A", included a listing of the Software and, in particular, a listing of the modules included within it. It indicated that the duration of the licences granted was perpetual. It described ServiceCenter as "Service Center (ITIL)". Schedule A indicated that for ServiceCenter there were permitted to be 35 named and 200 floating users, while for AssetCenter 5 floating users were permitted. What that meant was dealt with in Schedule A under the heading "User Limits":-
"The user limits are as detailed below in respect of each licensed Product(s) and are dependent on the fees as detailed below payable by Licensee. For the avoidance of doubt: (i) the term "Named User" means a specific named user ID. At any given time a Named User can log into the system only once; and (ii) the term "Floating User" means a type of user with a unique ID. A Floating User may log into the system more than once, but each time that the ID is logged on, the system installed on the server will count that ID as one Floating User."
A calculation of monies payable was set out in Schedule A after the listing of the Software. The total shown was £1,100,000, of which £300,000 was said to be "ROI (Licence Fees)". Schedule A concluded with "Payment Terms":-
"Steria agrees to pay Peregrine Systems Limited £800,000 (exclusive of appropriate VAT) according to the following payment schedule:
£100,000 on or before July 1, 2002
£700,000 on or before February 28, 2003
The payments are irrevocable and non-cancellable.
When the ROI milestones (which shall be agreed between the parties and documented in writing by April 30th, 2002 in accordance with a mutually agreed services agreement) are achieved by Peregrine in accordance with mutually agreed performance thresholds set out therein, Steria will within 30 days of the achievement of such milestones pay the remaining licence fees of £300,000 to Peregrine which payment shall in any event not be payable by Licensee to Peregrine before 1 January 2003."
- The second schedule to the Agreement was described as a "Technical Services Schedule" ("the TSS"). It provided for the undertaking by Peregrine of "General Consulting Services" as follows:-
"1. Description of Work
The following tasks will be performed for Steria by Peregrine Systems Professional Services:
- Definition of an implementation Blueprint. This output of the Blueprint will be a Statement of Work and Project Plan containing detailed estimates for the Peregrine product implementation.
- Time and Materials Implementation of Peregrine Systems Applications and Modules listed on the schedule A.
2. Term over which Work is to be performed
Projected start date: 15th April 2002
3. Period over which contract is valid
Until end of December 2002
4. Cost per man day (8hrs per day)
Managing Consultant (£185 per hour) -£1,480
Senior Technical Consultant (£170 per hour) -£1,360
Technical Consultant (£145 per hour) -£1,160
Total amount covered by this schedule £200,000"
- The TSS included a number of conditions. Those material for present purposes were in these terms:-
"2. The requested dates of work overleaf have been provisionally booked. To confirm the booking, the TSS must be signed and returned to PS [that is, Peregrine] within ten working days of the date shown at the top of the TSS.
3. The Customer acknowledges that any times scheduled in the TSS are estimates only of the amount of time required by PS for the provision of the Services following discussions with the Customer. PS shall use all reasonable endeavours to comply with each TSS and every Statement of Work as they form part of this agreement and PS shall use its reasonable skill, care and diligence when delivering the services in accordance with each TSS and every Statement of Work. All work will be performed on a time and materials basis unless otherwise agreed and the Customer will be invoiced for the actual (and not estimated) time spent in providing the Services to the Customer, 30 days in arrears.
7. Upon completion of the assignment, the Customer will be presented with an acceptance certificate. The Customer will be given a two week period (the "Period") in which to sign the certificate or give written notice of any error, default or where the quality of the work is not in accordance with the agreed specifications ("Default"). In the event that the parties mutually agree that there is Default, PS shall use best commercial endeavours to rectify any such Default at its expense within a reasonable period of time. In the event that Customer does not provide PS with an acceptance certificate or a notice of Default, the system shall be deemed accepted at the end of the Period.
12. PS's liability under or in relation to the performance of the Services (whether for negligence, breach of contract or otherwise) shall be limited to an amount equal to one hundred and fifty percent (150%) of the fee payable to PS for all Services as set out in each TSS and Customer's liability in relation to this agreement (whether for negligence, breach of contract or otherwise) shall be limited to an amount equal to one hundred and fifty percent (150%) of the fee payable to PS for all Services as set out in each TSS. Neither party shall be liable (whether for breach of contract, negligence or for any other reason) for any loss of profits, loss of sales, loss of revenue, loss of any software or data, loss of bargain, loss of opportunity, loss of use of computer equipment, software or data, loss of or waste of management or other staff time, failure to meet anticipated savings, or for any indirect, consequential or special loss (however arising).
"
- The terms of the Conditions which are material for present purposes are these:-
"1. SCOPE
This Agreement contemplates the contemporaneous or future execution by the parties of one or more Schedule A(s)
which are referred to in this Agreement as "Product Schedule(s)" and (where applicable) Technical Services Schedule(s) (as defined in Section 14). The terms of the Product Schedule(s) and the Technical Services Schedule(s) will, once accepted and agreed by Peregrine, be incorporated into, and will form part of this Agreement between Peregrine and Licensee.
.
2. DEFINITIONS
h) "Product(s)" shall mean the licensed software program, applications (and updates provided under Maintenance) and all associated documentation including, but not limited to, user manuals and instructional training course materials provided in the English language only licensed by Licensee from Peregrine for the sole purpose of delivering the Services (as defined in Section 3) to Clients. For the purposes of this Agreement, the licence granted hereunder shall apply to the Product(s) in object code form only, unless otherwise set forth in the Product Schedule(s).
3. GENERAL GRANT
a) Peregrine hereby grants to Licensee non-exclusive and (otherwise than in accordance with this Agreement) non-transferable licences to use each Product(s) identified in the Product Schedule(s) during the Term in executable object code form only, in the Territory subject to the terms and conditions in this Agreement, the applicable Product Schedule(s) and applicable Addendum(s), for the sole purpose of providing managed services or outsourced services to its Clients on a Named and/or Floating User basis and/or on any other basis as agreed in writing in the relevant Product Schedule between the parties from time to time (the "Services").
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5. PAYMENT
a) Following the execution of this Agreement and applicable Product Schedule(s) by both parties, Licensee shall pay to Peregrine the charges for the relevant licence fee and any Maintenance services as designated by, and in accordance with, the terms of any Product Schedule(s) or business partner invoice (as applicable).
Without prejudice to its other rights and remedies, Peregrine may charge interest on all sums outstanding under this Agreement from the date such sums were due until the date of payment (before as well as after judgement) at a rate of one percent (1%) per annum above the base rate from time to time of Barclays Bank plc.
6. SUPPORT, MAINTENANCE, AND ENHANCEMENT PROGRAM
a) Peregrine has established a support, maintenance, and enhancement program ("Maintenance") for all outsourcing Licensees. The Maintenance fees shall be set forth in the applicable Product Schedule. Maintenance shall include:
(iv) Supplying all extensions, enhancements, and other changes which Peregrine deems to be logical improvements or extensions ("New Releases") to be incorporated into the Product(s) and which Peregrine elects, at its sole discretion, to generally furnish without additional charge to all Licensees enrolled in Maintenance for the particular Product(s). Licensee shall receive one (1) copy of each New Release, at no additional charge.
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b) Peregrine shall have no support obligations under Maintenance with respect to (i) Product(s) which are modified by or on behalf of Licensee; (ii) malfunctions caused by the use or operation of a Product(s) with any hardware, software or media not authorised by this Agreement, or the applicable Product Schedule, (iii) versions of the Product(s) that are more than twelve (12) months older than the most recent generally available release of the Product(s).
7. TERMINATION
b) Licensee shall have the right to terminate this Agreement or any Product Schedule(s) if: (i) Peregrine breaches any term of this Agreement and (if it is possible to remedy the breach) fails to remedy that breach within thirty (30) days of written notice of the breach being given to it by Licensee;
c)
Either party's termination of this Agreement and/or repossession of the Product(s) shall be without prejudice to any other remedies which a party may lawfully have.
8. WARRANTY
b) Peregrine warrants that in the event that any services are provided to Licensee by Peregrine under or in connection with this Agreement such services will be provided with reasonable care and skill.
c) Peregrine warrants that all documentation supplied with the Product(s) will contain such information and materials as is reasonably necessary to assist the Licensee in the use of the Product(s).
e) Peregrine does not warrant that the functions contained in the Product(s) or in any update or that the operation of the Product(s) or update will be error free. The warranty does not cover any copy of the Product(s) or update which has been altered or changed in any way by Licensee or any third party, their employees or agents. For the avoidance of doubt, additional statements including, without limitations, those made in advertising or presentations, oral or written, do not constitute warranties by Peregrine and shall not be relied upon by Licensee as such. ..
g) LICENSEE ACKNOWLEDGES THAT PEREGRINE'S OBLIGATIONS AND LIABILITIES IN RESPECT OF THE PRODUCT(S) ARE EXHAUSTIVELY DEFINED IN THIS AGREEMENT. LICENSEE AGREES THAT THE EXPRESS OBLIGATIONS AND WARRANTIES MADE BY PEREGRINE IN THIS AGREEMENT ARE IN LIEU OF, AND TO THE EXCLUSION OF, ANY WARRANTY, CONDITION, TERM, UNDERTAKING OR REPRESENTATION OF ANY KIND, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE RELATING TO ANYTHING SUPPLIED OR PROVIDED OR SERVICES PERFORMED UNDER OR IN CONNECTION WITH THIS AGREEMENT INCLUDING (WITHOUT LIMITATIONS) AS TO THE CONDITION, QUALITY, PERFORMANCE, SATISFACTORY QUALITY OR FITNESS FOR THE PURPOSE OF THE PRODUCT(S) OR ANY PART THEREOF.
9. LIMITATION OF LIABILITY
b) Subject to Subsections 9 a) and 9 c), either parties liability under or in relation to this Agreement (whether for negligence, breach of contract or otherwise) shall be limited as follows: i) for all loss or damage in connection with the provision of Maintenance, to an amount equal to one hundred percent (100%) of the fee paid for such Maintenance in the twelve (12) month period prior to the most recent event giving rise to such liability; ii) for all other loss or damage in respect of the use or operation of the Product(s), to an amount equal to one hundred percent (100%) of the licence fee paid for such Product(s) set out in the applicable Product Schedule(s) for such Product(s) in respect of each event; provided that if more than one event results in substantially the same loss or damage then all such events shall be treated as one.
c) Subject to Subsection 9 a), neither party shall not [sic] be liable (whether for breach of contract, negligence or for any other reason) for any loss of profits, loss of sales, loss of revenue, loss of any software or data, loss of bargain, loss of opportunity, loss of use of computer equipment, software or data, loss of or waste of management or other staff time, failure to meet anticipated savings, or for any indirect, consequential or special loss (however arising).
e) Licensee shall be solely responsible for deciding whether or not the Product(s) are suitable for its purposes and for the consequences of any use of the Product(s) including (without limitation) for providing the Services to each Client. Peregrine shall have no liability for any loss or damage suffered by Licensee as a result of such decision to obtain and use the Product(s) pursuant to this Agreement and for the reliance by Licensee on any results or data obtained from the use of the Product(s).
.
13. LICENSEE TRAINING AND INFORMATION TECHNOLOGY CERTIFICATION
Licensee agrees to meet the minimum training and IT Certification requirements as set forth below.
a) Within sixty (60) days of the Effective Date of the applicable Product(s), and at all times during the balance of the Term and any extension to it, Licensee shall have a minimum of two (2) of its employees on its payroll that are designated as Peregrine Certified Applications Engineers for each family of products Licensed by Licensee from Peregrine. The training programme provides the designated attendees with the technical skills to install and adapt the specified Licensed Product(s) to the Client's unique system requirements. Upon successful completion of the program, Licensee's designated attendees shall receive from Peregrine an affidavit designating them as Peregrine Certified Applications Engineers.
. The fees for the above training shall be in accordance with Peregrine's then current published training program rates.
14. IMPLEMENTATION SERVICES AND TRAINING
a) Licensee may elect to engage the services of Peregrine for optional implementation and training services. Such services are provided on a time and materials basis in accordance with a statement of work and the terms and conditions of a Peregrine technical services schedule(s) (the "Technical Services Schedule"). Any Technical Services Schedule duly executed by both parties shall be deemed incorporated by reference in this agreement.
19. ENTIRE AGREEMENT AND AMENDMENTS
This Agreement shall comprise the terms and conditions set out in the main body of this Agreement together with those provisions set out in the applicable Product Schedule(s), the Technical Services Schedule(s) (if any) and Addendum(s) relating to this Agreement and signed by the parties to this Agreement. This Agreement, together with such applicable Product Schedule(s), the Technical Services Schedule(s) and Addendum(s), shall constitute the entire agreement and understanding between the parties and supersedes all prior agreements, representations and understandings between the parties. No other representations or terms shall apply or form part of this Agreement. This Agreement may not be modified or varied in any way except where such amendment or variation is in writing and signed by both parties. The terms and conditions of any Licensee purchase order or other document submitted by Licensee which conflicts with, or in any way purports to amend, any of the terms and conditions herein shall not apply to the subject matter of this Agreement or be of any force or effect nor govern or amend in any way the terms of this Agreement. Peregrine's failure to object to provisions contained in any purchase order or other communication from Licensee shall not be construed as a waiver of this Section 19."
The work to be performed under the TSS
- The description of work in the TSS, which I have quoted, was rather general, but contemplated, first, the definition of an implementation blueprint, and then the production of a statement of work and project plan which would be carried into effect as the means of implementing the Software.
- In fact two "Blueprint Design Documents" were produced by Peregrine. The first in time, dated 30 April 2002, related to AssetCenter version 4. The "Scope of Activities" to which that blueprint design document related was said to be:-
"To install and configure AssetCenter v4 and establish a two-way data connection between the AssetCenter database and ServiceCenter using Connect-It!
To import existing data from "Red-Box", the existing Asset Management system."
- The second blueprint design document, dated 5 May 2002, concerned "ServiceCenter 4", that is to say, version 4 of ServiceCenter. Under the heading "Goals and Objectives" that document provided that:-
"The Goals and Objectives of the Service Management Tools implementation project are:
- Implement the selected ServiceCenter 4 service management tool for the scope of
- Inventory and Configuration Management
- Implement Connect.It scenarios
- Connect.It scenarios to pull and push data from AssetCenter and P.Oddissey (Internal HR System)
- Connect.It scenarios to pull data from the historical systems RedBox, Remedy and NetMan. Open calls and historical data."
- A "Statement of Work" was produced by Peregrine which was dated 8 May 2002. Section 2 of that document was entitled "Situation Overview". That section included:-
"The first phase of the implementation will be for the Risley Call Center. It will cover the implementation of the following products and modules:
- Service Level Agreement Management
- AssetCenter/ServiceCenter Scenario
- P.Oddissey/ServiceCenter Scenario"
- Section 3 of the "Statement of Work" was entitled "Scope of Proposed Services". That section was in these terms:-
"Peregrine has based the estimates provided in this document on their initial understanding of the high level requirements following a discovery process between Steria and Peregrine Systems.
To meet Steria's requirements, Peregrine Systems Professional Services proposes the services described in the next document section. The services provided under this "Statement of Work" are provided on a time and materials basis to assist Steria in the installation and implementation of the Products delivered under the Software License Agreement. The services provided include but are not limited to project management, system design, development and testing and technical documentation for Steria's specific needs.
Peregrine Systems estimates that this effort will cost Steria £123,480, plus travel and living expenses. Steria is responsible for all reasonable and necessary travel and living expenses, and will be billed separately for those expenses. Steria will not be billed for the time Peregrine consultants incur traveling [sic] to and from Steria site. If the project requires a Peregrine consultant to work at the customer's site for any contiguous period longer than one week, the Peregrine consultant will have the option of returning home each weekend at Steria's expense.
Circumstances may necessitate changes to the tasks and/or time estimates. If this occurs, Peregrine and Steria will in good faith discuss these changes at their earliest opportunity. Steria will be billed for the actual hours worked, which may be greater than or less than the number of hours estimated below."
- There was set out in Section 4 of the "Statement of Work" a "Proposed Task List". Task 2 was identified as "Install on Linux Partition" and described as "Install the ServiceCenter system on the Linux partition on the S/390". Mr. Scott Comber, who was the author of the document, told me in cross-examination that the reference to "S/390" was a typographical error and that the intended reference was to OS/390. Task 16 in Section 4 was identified as "Migrate system to Oracle" and described as "Migrate the P4 system to Oracle". "Oracle" is an RDBMS which was chosen as the RDBMS to which ServiceCenter should be migrated, or transferred, from the RDBMS "P4" on which it was supplied by Peregrine, after installation on the operating system.
- The "Statement of Work" to which I have referred on its face related only to part of the work the subject of the TSS, namely what was described as "the first phase". No other "Statement of Work" was ever produced by Peregrine. The only two implementation blueprints ever produced by Peregrine were those to which I have referred, and they also related to only parts of the work the subject of the TSS.
- Peregrine produced a "Project Plan" which was dated 14 May 2002. The first section of that document was a "Work Breakdown Structure", essentially a list of which Peregrine employees were to perform what tasks on what days. Three individuals were named. Mr. Comber was to undertake project management. Most of the other work necessary was to be performed by Mr. Simon Mackay. However, Mr. Ian Walker was to carry some tasks, particularly those involving AssetCenter. The plan related to the greater part, but not the whole, of the first phase of the implementation of the Software as described in the "Statement of Work" to which I have referred. It envisaged that work would have started on 7 May 2002 and would be complete by 9 August 2002.
- Peregrine's case was that it had completed the implementation of the first phase of the work required under the TSS, the installation of ServiceCenter at Risley, by 15 August 2002. That was in dispute. However, Peregrine sought to rely upon the fact that under cover of an e-mail sent by Mr. Comber to Miss Wendy Osborn of Steria, who was the project manager of the scheme for the implementation of the Software at the Steria end, an acceptance certificate was sent to Steria which declared that:-
"Steria accept the functionality provided by the ServiceCenter system delivered by Peregrine Systems for use in the Risley call center."
That acceptance certificate was never signed on behalf of Steria, but equally no notice of any Default, within the meaning of clause 7 of the conditions included in the TSS, was given by Steria in the period of two weeks after 15 August 2002.
The termination of the Agreement
- Mr. Ian Hancock, Legal Services Director of Steria, wrote a long letter dated 5 February 2003 to Peregrine which was expressed to be a notice of termination of the Agreement given under clause 7 b) of the Conditions. The letter also dealt with a claim by a third party that its intellectual property rights had been infringed by some part of the Software, but that issue is not material for present purposes. The relevant part of the letter dated 5 February 2003 was in these terms:-
"We are instructed to write to you, as we understand that the commercial discussions in connection with the Agreement have effectively ceased.
We refer to meetings held between Peregrine Systems Limited ("Peregrine") and Steria Limited ("Steria") during the last quarter of 2002 and Steria regrets that we have not been able to reach agreement in respect of the future of the Agreement. There have been difficulties throughout the term of the Agreement, and Steria has been sympathetic toward the difficulties Peregrine are/and have been enduring, however as we have not been able to reach agreement in relation to the future relationship between the parties, Steria has no alternative but to serve a notice in accordance with Clause 18 c) pursuant to Clause 7 b).
Failure to support ROI
It was a term of the Agreement (set out in Schedule A) that Peregrine would provide a Return on Investment ("ROI") analysis. This analysis was a fundamental term of the Agreement as any party making an investment wishes to ensure that they derive a benefit from that particular investment.
Prior to the signing of the Agreement Peregrine produced a proposal stating that if Steria implemented the full product set it would save £6.13m over a 5-year period giving a return on investment of £5.33m. We appreciate that such a proposal possibly constitutes a pre-contractual representation, and as such may be excluded by the provisions of Clause 19, hence our reliance on the ROI analysis required by the Agreement.
Steria has on several occasions requested Peregrine to provide the ROI analysis, which was due in April 2002, but Peregrine has failed to do so.
The writer understands that during the course of the commercial discussions referred to above Peregrine has verbally agreed that they are incapable of doing so.
It is clear that Peregrine's failure to produce the calculations in support of the ROI is a breach of the Agreement and (as it appears to be admitted that the breach is not remedial [sic]) Steria is, in accordance with Clause 7 b) (i) of the Agreement, hereby accepting your repudiation of the Agreement and serving notice that we consider the Agreement to have terminated with immediate effect.
Lack of training, lack of expertise and delay in delivering phase one.
Notwithstanding the above there are other terms of the Agreement which Steria believes Peregrine to have breached namely:
(i) the delayed and insufficient training of Steria staff (Clause 13 and 14); and
(ii) lack of expertise within Peregrine in relation to delivering phase one (Clause 8b); and
(iii) the delay of delivery of the phase one implementation within the estimated time and within budget (technical services schedule 1).
(i) Training
As part of the contractual negotiation phase of the current contract, Peregrine agreed that they would provide Steria with all of the relevant training free of charge in order to support and use the product set. Steria contracted to receive free training at Peregrines training facilities.
Peregrine were keen to point out that in order to commence the implementation phase, relevant personnel responsible for supporting the applications would require training. Unfortunately it took Peregrine in excess of 5 months to arrange for the relevant training to take place for Steria personnel in order to understand and support the product set. This seriously impacted the implementation phase of the complete product set, as Steria were unable to support the applications within a live environment between April 2002 and November 2002.
By Clause 8 b) Peregrine warranted that any services to be provided pursuant to the Agreement would be provided with reasonable skill and care. We do not believe that a delay of some 5 months can be considered to be a delivery with due care and skill.
In addition to date Peregrine have also failed to sufficiently train the Steria technical support team on the product set which has meant that Steria will not be in a position to implement the tool until end of Quarter 1 2003 as this team can neither complete the Steria elements of phase one implementation or support the Steria business once implementation is completed.
(ii) and (iii) Phase One Implementation
Contemporaneously with the signing of the Agreement Peregrine and Steria entered into a Technical Services Schedule which by Clause 14 a) of the Agreement is deemed to be incorporated into the Agreement.
Peregrine and Steria agreed the Implementation Blueprint in May 2002 (in accordance with paragraph 1 of the Technical Services Schedule) and that £200k of Peregrine professional services would be sufficient to implement at a technical level the peregrine [sic] product set within the Steria environment. The original timescales for implementation were set for completion in August 2002.
However in July Peregrine made the majority of their technical and support personnel within Professional Services, including key members of the team supporting Steria redundant. Steria therefore had to rely on external support for the technical input needed to implement the product set. This led to communication problems between Peregrine and the external consultants adding time and effort to the project all of which was being paid for by Steria.
The period over which the general consulting was to be provided pursuant to the Technical Services Schedule expired at the end of December 2002. The phase one implementation has still not been concluded in that the interoperability of the various modules has not be [sic] completed or demonstrated.
In order to finalise phase one implementation Peregrine stated that an additional 10 days technical consultancy would be required and that Steria would have to pay for the technical consultant. Steria refused to pay for the additional days and as a result Peregrine informed the external technical consultants to stop working on the phase one completion exercise.
Again we believe that Peregrine has failed to provide the services with reasonable skill and care in two material respects. Firstly, the original estimating exercise underestimated the effort needed to implement the system and secondly the actual implementation has been considerably delayed for reasons wholly to do with Peregrine's internal difficulties.
The additional matters set out in the preceding paragraph under this heading should not be taken to be an affirmation of the Agreement or as conduct which should lead you to believe we do not accept your repudiation so as to constitute waiver. It merely anticipates you may wish to respond to this letter and formally alerts you to the fact that we consider that there are other defaults under the Agreement. "
- In the Re-Re-Amended Defence and Counterclaim in this action at paragraph 10 (c) Steria elaborated its contentions that the first phase of the implementation of the Software had not been completed. The particulars given of that assertion were:-
"(i) As at November 2002 the software that had been partly implemented was based on a heavily-modified v4.5 of the Claimant's software. Version 4.5 lacked important features that the Defendant had been promised, including ITIL compliance and the ability to run on a Linux Partition/OS390 platform. In accordance with clause 6(a)(iv) of the Contract the Defendant should have been supplied with the latest version of the Claimant's software, namely v.5 which had been released in January 2002. Accordingly, no implementation on v. 4.5 would have been complete. In any event, even on the v4.5 software supplied, as at November 2002 the following modules (agreed as part of Phase 1) had not been implemented:
- Inventory & Configuration
(ii) In addition the project plan activities of System Test, Migration to RDBMS, and User Acceptance Testing had not been started, and were not therefore signed off as complete.
(iii) Further, in breach of clause 2(h) of the Contract the Claimant failed to provide documentation that was reasonably necessary to assist the Defendant in the use of the software including, but not limited to, user manuals and instructional training materials.
(iv) As at the end of October 2002 approximately 25 days of consultancy were estimated to be required to complete Phase 1 of the implementation on v4.5 but only 15 days remained within the Professional Services budget of £200,000. That budget had been intended to cover implementation of all the software modules listed in Schedule A to the Contract, not only the Phase 1 modules, and had also been intended to cover implementation at all three of the Defendant's call centres, not only Risley.
(v) By a letter from the Defendant to the Claimant dated 27 November 2002 the Defendant confirmed that a further 10 days of consultancy support were then required to complete Phase 1 (up to 15 December 2002) and that a further 60 days consultancy would be required subsequently to complete the remainder of the implementation. All this professional consultancy should have been provided in the Professional Services budget of £200,000 but that budget had been spent as at 27 November 2002.
(vi) The Claimant agreed to provide the 10 days consultancy required to complete Phase 1 at no extra cost, and to provide v.5 of its software to the Defendant. However, the Claimant then withdrew all consultancy support shortly before Christmas 2002. The implementation did not progress at all after that date, and Phase 1 was never completed.
(vii) The Claimant never started the balance of the implementation (ie the implementation of the remaining modules listed in Schedule A at Risley, and the implementation of all modules at Sunbury and Hemel Hempstead."
- In paragraph 12 of the Amended Defence and Counterclaim in its original form were pleaded matters which it was said Steria "relied in its letter, and relies now" as being breaches of contract entitling it to terminate the Agreement under clause 7 b)(i). By re-amendment of that statement of case some further matters were added which did not expressly appear in the letter dated 5 February 2003, but which were relied on as additional respects in which Peregrine had failed to implement the first phase of the Software. Those matters were:-
"(m) In the premises, the Claimant was in breach of its obligations under the Technical Services Schedule and/or clause 8(b) of the Contract. Without prejudice to the generality of the foregoing, the Defendant relies on the fact that the Claimant failed to initiate any review of the Defendant's management processes or to assist in developing those processes in order that the software could be mapped on to ITIL compliant processes, the fact that the installation was not implemented on time and within the budget, the fact that the Claimant implemented the system on Version 4.5 instead of Version 5, the absence of the documentation which was reasonably necessary to enable the Defendant to use the software, and the Claimant's failure to provide any adequate pricing methodology as being in themselves evidence of negligence and/or lack of diligence.
Latest Version
(n) As pleaded in paragraph 7(f) above the Claimant was obliged to supply the latest version of all the software listed in Schedule A and to supply all New Releases without additional charge to the Defendant. In breach of this obligation the Claimant failed until about the end of November 2002 to provide the Defendant with version 5 of the Service Center software, but instead implemented the licensed software on an earlier version.
Documentation
(o) As pleaded in paragraph 7(g) above the Claimant was obliged to supply all documentation relating to the software listed in Schedule A including user manuals instructional training course manuals containing all information and materials as were reasonably necessary to assist the Defendant in the use of the software: as pleaded in paragraph 15(b) below, the Claimant failed to fulfil this obligation.
ITIL
(p) As pleaded in paragraph 7(h) above, the ServiceCenter software should have been ITIL compliant but it was neither.
Linux Partition
(q) As pleaded in paragraph 7(i) above all the software listed in Schedule A was to be capable of running on a Linux Partition/OS390 platform and/or was to be supportable on such a platform, but it was neither. "
- As an alternative to its case that it brought the Agreement to an end by a notice given pursuant to the express terms of the Agreement, Steria contended at paragraph 15 of the Re-Re-Amended Defence and Counterclaim that:-
"Alternatively, the Claimant's breaches of contract, set out above, individually and/or collectively amounted to a repudiatory breach of the Agreement which the Defendant accepted by its letter dated 5 February 2003, alternatively accepts by this Defence. Without prejudice to the generality of the foregoing the Defendant relies on the following repudiatory breaches of the Agreement by the Claimant which entitled the Defendant to determine the Agreement:
(a) In breach of Clause 6(a)(iv) the Claimant provided the Defendant with v.4.5 of its software even though an updated version (v.5) had been released in January 2002. This meant that the software supplied had needed extensive bespoke modifications (which would not have been required had v.5 been supplied) with the consequences that:
(i) the Professional Services budget of £200,000 was used unnecessarily on carrying out bespoke modifications; and
(ii) the software supplied, as modified, could not be upgraded or supported by the Defendant.
(b) In breach of Clauses 3(a) and 8(c) the Claimant failed to provide documents which were reasonably necessary to assist the Defendant in the use of the software including user manuals, instructional training material, or any other relevant documentation relating to the software supplied or the modifications carried out.
(c) In breach of Schedule A the "Service Center" software supplied was not ITIL compliant and/or did not support ITIL processes and relationships.
(d) In breach of the Agreement the software supplied was not capable of running on a Linux Partition/OS 390 platform and/or was not supportable on such a platform..
(e) The Defendant further relies on sub-paragraphs (a) to (d) of this paragraph as evidence of the breach of the obligations to carry out the implementation of the contract with reasonable care and skill and diligence."
- By a letter dated 12 May 2003 written on its behalf by its solicitors, Messrs. Olswang, Peregrine treated Steria's letter dated 5 February 2003 as a repudiation of the Agreement and purported to accept such repudiation.
Peregrine's claim
- The way in which the claim of Peregrine was originally put in the Particulars of Claim in this action was quite straightforward. What was said was this:-
"7. In breach of the Agreement, by letter dated 5 February 2003, the Defendant wrongly terminated the Agreement on the basis that the Claimant had allegedly failed "to produce the calculations in support of the ROI [return on investment]" and had allegedly admitted that the (alleged) breach was not remediable. The said termination was wrongful because:
(1) The factual basis upon which the Defendant relied was wrong. The Claimant had provided the Defendant with a ROI analysis to which the Defendant itself had failed to respond adequately or at all.
(2) In any event, any failure by the Claimant to provide the Defendant with a ROI analysis (which failure is denied) did not as a matter of construction of the Agreement entitle the Defendant to terminate the Agreement.
(3) Even if (which is denied) the Defendant was entitled to terminate the Agreement for failure by the Claimant to provide a ROI analysis the Defendant failed to give 30 days written notice of the alleged breach of the Agreement to the Claimant in order to give the Claimant an opportunity to remedy such alleged breach in accordance with clause 7 b) of the Agreement.
8. By reason of the Defendant's breach of the Agreement the Claimant has suffered loss and damage in the sum of £700,000, that being the sum to which the Claimant was entitled to be paid on or before 28 February 2003 in consideration for the licenced [sic] products, maintenance and professional services purchased by the Defendant."
- During the course of the trial Mr. Akka sought and obtained permission to amend the Particulars of Claim so as to add a new paragraph 7A in the following terms:-
"£700,000 became due from the Defendant to the Claimant pursuant to the Agreement on 28 February 2003."
Steria's answer to Peregrine's claim
- I have already set out the terms of the letter dated 5 February 2003 written by Steria to Peregrine, the elaboration of the contention that the first phase of the implementation of the Software had not been completed by 5 February 2003, the alternative contention that as at 5 February 2003 Peregrine was in repudiatory breach of the Agreement, and the case that Steria entered into the Agreement as a result of misrepresentations allegedly made to it on behalf of Peregrine. One of the lines of defence adopted on behalf of Steria to Peregrine's claim was that it was entitled to rescind the Agreement as a result of the alleged misrepresentations. Apart from the case in relation to misrepresentation the other lines of defence all depended upon the proposition that Peregrine was, as at 5 February 2003, in breach of some term of the Agreement. In that context it is material to notice the assertions contained in paragraph 7 of the Re-Re-Amended Defence and Counterclaim:-
"On the true construction of the Agreement:
(a) The parties were under an obligation to co-operate with each other in order to develop and agree a schedule of ROI milestones, and that as part of that process of co-operation the Claimant would prepare a draft schedule of ROI milestones, and present them to the Defendant.
(b) The Claimant was under an obligation to provide training for a minimum of two of the Defendant's employees in accordance with clause 13 of the Agreement, within 60 days of 29 March 2002.
(c) The Claimant was under an obligation to carry out the implementation of all the software listed in Schedule A ("Schedule A") to the Technical Services Schedule to the Agreement at each of the Defendant's three call centres at Risley, Sunbury and Hemel Hempstead, all in accordance with the Technical Services Schedule, efficiently and by using staff with suitable experience and familiarity with the project and/or with reasonable skill care and diligence.
(d) The Claimant was obliged to complete that implementation within a reasonable time, which the Defendant contends meant by the end of December 2002 as stated in the Technical Services Schedule to the Agreement.
(e) The Claimant was obliged to complete that implementation within the Professional Services budget of £200,000.
(f) The Claimant was obliged to supply the latest version of all software listed in Schedule A and to supply all New Releases without additional charge to the Defendant.
(g) The Claimant was obliged to supply all documentation relating to the software listed in Schedule A including user manuals and instructional training course manuals containing all information and materials as were reasonably necessary to assist the Defendant in the use of the software.
(h) All the software described as "Service Center" in Schedule A was to be ITIL compliant (meaning that the processes and procedures enabled by the Service Center software would conform to the standards of the Information Technology Infrastructure Library).
(i) All the software listed in Schedule A was to be capable of running on a Linux Partition/OS390 platform and/or was supportable on such a platform.
(j) The Claimant was capable of providing and would provide support to the Defendant's system if the Claimant's product Service Center was installed on such a platform."
- At paragraph 8 of the Re-Re-Amended Defence and Counterclaim it was pleaded, in relation to the contentions set out in paragraph 7:-
"Alternatively, there were implied terms in the Agreement, necessary to give it business efficacy, to like effect."
- A new paragraph 11A was added in the Re-Amended Defence and Counterclaim, and repeated in the Re-Re-Amended Defence and Counterclaim, which contained the following averments:-
"In a letter dated the 16th December 2002 and sent by registered post in accordance with clause 18(c) of the Agreement, the Defendant gave notice, pursuant to clause 7(b) of the Agreement, of breach of the Agreement by the Claimant.
Particulars
(1) At a meeting on the 26th November 2002 the Defendant complained of the Claimant's breach of contract in failing to perform its obligations [as pleaded in paragraph 7(a) above] in respect of ROI and the Claimant accepted that this was so and that it could not now perform those obligations.
(2) The matters referred to in (1) above were confirmed in a letter dated the 27th November 2002 written by the Defendant to the Claimant.
(3) In the letter dated the 16th December 2002 and sent by registered post to the Claimant the Defendant stated:-
"As you have not formally responded to my letter of 27th November 2002 re item 6 ROI Methodology Steria assume that Peregrine accept that Peregrine has not delivered this service(s) as per the March 2002 Agreement, and that it is not capable of being delivered under the existing Agreement."
(4) This ("the notice") was an effective notice of breach within the meaning of clause 7(b) of the Agreement."
- At paragraph 16A of the Re-Re-Amended Defence and Counterclaim paragraph 7A of the Amended Particulars of Claim, in which it was alleged that the sum of £700,000 was due to Peregrine as a debt, was denied. Steria's case in relation to the damages claimed by Peregrine in the alternative, in the event that it was found that the termination of the Agreement by Steria was wrongful, was set out in paragraph 19 of the Re-Re-Amended Defence and Counterclaim:-
"As to paragraph 8 of the Amended Particulars of Claim:
(a) It is denied that the Defendant has breached the Agreement, that it has caused the Claimant to suffer loss and damage, or that the Claimant has suffered loss and damage.
(b) The fact that the Claimant will not receive £700,000 pursuant to the Agreement does not constitute loss and damage. It is the simple consequence of the exercise, by the Defendant, of (a) a contractual right which the parties freely agreed it should have, in circumstances where the necessary pre-conditions of the exercise of that right have been met, and/or (b) of the Defendant's right to terminate the Agreement on the grounds of the Claimant's repudiatory breaches of it.
(c) The Claimant is required to give credit in respect of all cost savings made by it as a consequence of the early determination of the Agreement.
(d) Further, any right of recovery (the existence of which is denied) which the Claimant might have under the Agreement is excluded by, alternatively limited, in accordance with the terms of clause 9(c) of the Agreement (pleaded in paragraph 2 of the Amended Reply)."
Steria's counterclaim
- It was contended on behalf of Steria that, by reason of the breaches of the Agreement and misrepresentations of which it complained, it had itself sustained loss and damage. Those claims were put in this way in the Re-Re-Amended Defence and Counterclaim:-
"22. By reason of the Claimant's breaches of the Agreement and misrepresentations, the Defendant has suffered loss and damage, namely:
(a) The sums paid by the Defendant to the Claimant of £137,957 excluding VAT have been entirely wasted.
(b) The time spent by the Defendant's employees in working on the implementation of the Claimant's software between January 2002 and December 2002 has been entirely wasted, at a cost to the Defendant of £346,899.00. A schedule setting out the wasted time spent by the Defendant's employees is attached to this Defence and Counterclaim as Schedule A.
23. Alternatively, the Claimant's failure to perform its obligations under the Agreement amounted to a total failure of consideration, entitling the Defendant to restitution of the £137,957 exc VAT, which it has paid to the Claimant pursuant to the Agreement."
- Although the fact that the sums claimed by way of damages or in restitution were the total sums paid by Steria to Peregrine, and the fact that all time devoted by Steria employees to the implementation of the Software was said to have been entirely wasted, might suggest that the counterclaim was intended as the converse of the defences raised on behalf of Steria, that is to say, the counterclaim was advanced on the premise that the defences, or at least one of them, succeeded, Mr. David Blunt Q.C., who appeared on behalf of Steria, explained that that was not so and that the counterclaim was pursued whether or not any of the defences raised to Peregrine's claims succeeded.
Peregrine's answers to Steria's counterclaim
- At paragraph 5 of the Re-Amended Reply and Defence to Counterclaim the response of Peregrine to the contentions as to the proper construction of the Agreement set out at paragraph 7 of the Re-Re-Amended Defence and Counterclaim, upon which Steria relied as one basis for its counterclaim, was set forth:-
"As to paragraph 7:
(1) (a) is denied;
(2) (b) is denied. Clause 13 of the Agreement obliged the Defendant to enrol two of its employees on the Claimant's training programme, within 60 days of 29 March 2002. The Defendant made no attempt to obtain training for any of its employees within that time.
(3) (c) is denied. The Defendant licensed from the Claimant all of the software listed in Schedule A. The Claimant agreed (by the Technical Services Schedule) to define an Implementation Blueprint, resulting in a Statement of Work and a Project Plan. The Claimant also agreed to provide £200,000 worth of implementation services, on a time and materials basis, in relation to the software listed in Schedule A. Further, the Claimant's obligation (imposed by clause 8(b) was to carry out any implementation of the software in accordance with the Technical Services Schedule with reasonable care and skill.
(4) (d) is denied.
(5) (e) is denied.
(6) (f) is admitted. The Defendant, however, subsequently agreed that the Claimant should not supply the latest version of the software. Details are set out in paragraph 6B(a)(iv) below.
(7) (g) is denied. The Claimant's obligation was to supply such information and materials as was reasonably necessary to assist the Defendant in the use of the software.
(8) (h) and (i) are denied. There were no express terms of the agreement to that effect."
- At paragraph 6 of the Re-Amended Reply and Defence to Counterclaim it was denied that terms to the effect of the constructions contended for in paragraph 7 of the Re-Re-Amended Defence and Counterclaim were to be implied into the Agreement.
- The answer on behalf of Peregrine to the allegations set out in paragraph 10(c) of the Re-Re-Amended Defence and Counterclaim was contained in paragraph 6B of the Re-Amended Reply and Defence to Counterclaim:-
"Paragraph 10(c) is denied. As to the particulars:
(a) (i) is denied:
(i) Phase I had been agreed to comprise certain modules from the Service Center package (Service Management, Incident Management, SLA Management, Contract Management and Inventory Management modules), the Connect IT package, and the Asset Management module from the Asset Center package only.
(ii) As at November 2002, Phase I had been completed. It was based on a modified version 4 of the Claimant's Service Center software, not 4.5 which did not exist. The modifications had been made at the request of Margaret Snowden of the Defendant.
(iii) The software did not lack any of the features alleged. It was ITIL compliant, and was able to run on a Linux platform. The letter from the Defendant's solicitors dated 17 December 2003 states that the only alleged failure to meet ITIL requirements was that the software delivered transposed "incidents" and "problems", and that this would have "caused operational problems at the service desk in terms of Steria's dialogue with customers". This allegation is denied. As to the allegation in that letter that the Claimant "failed to initiate any review of Steria's service management processes or to assist in developing [Steria's] processes
.", it is denied that the Claimant was under any obligation to initiate any review or assist in the manner alleged.
(iv) Although version 5 was released in May 2002, it is denied that the Claimant was obliged to provide the Defendant with that version. At a meeting in April 2002 at Risley, between Margaret Snowden and Wendy Osborn of the Defendant and Simon Mackay and Scott Comber of the Claimant, the Defendant asked the Claimant to deploy version 4 rather than the forthcoming version 5, and the Claimant agreed. In any event, the Defendant was in fact supplied with version 5 of the software in November or December 2002.
.
(b) Paragraph 10(ii) is denied. Further, User Acceptance Testing was not the Claimant's responsibility.
(c) (iii) is denied.
(d) Except that the first sentence is not admitted, (iv) is denied.
(e) (v) is denied, except that it is admitted that the Defendant sent to the Claimant a letter dated 27 November 2002, to which the Claimant will refer.
(f) (vi) is denied. The Claimant offered to provide further consultancy (for a price) to the Defendant, although this had nothing to do with Phase I which had been completed. The Defendant refused to agree the price, and the Claimant withdrew consultancy support shortly before Christmas 2002. Version 5 was in fact supplied to the Defendant.
(g) (vii) is denied."
- The alternative case of Steria pleaded at paragraph 15 of the Re-Re-Amended Defence and Counterclaim was denied at paragraph 9A of the Re-Amended Reply and Defence to Counterclaim.
- Apart from denying the allegations of misrepresentation made in the Re-Re-Amended Defence and Counterclaim, in the Re-Amended Reply and Defence to Counterclaim Peregrine sought to rely upon clauses 8 g) and 19 of the Conditions as excluding liability in respect of representations. Peregrine also sought to rely upon the terms of clause 9 b) and c) of the Conditions as limiting its liability in respect of the types of loss there mentioned. At paragraph 10 of the Re-Amended Reply and Defence to Counterclaim it was pleaded on behalf of Peregrine that:-
"Further or alternatively, if (which is denied) the Defendant was entitled to terminate the agreement for repudiatory or other breach, or was entitled to rescind the contract for misrepresentation, it waived the breach, affirmed the contract and lost any right to terminate or rescind, or is estopped from asserting any such right:
(1) In October and November 2002, the Defendant asked for further work to be done pursuant to the agreement, as evidenced by an e-mail from Wendy Osborn to Scott Comber dated 10 November 2002.
(2) Alternatively, the Defendant did not purport to terminate the agreement until February 2003."
- In an Amended Rejoinder served on behalf of Steria a point taken in respect of the reliance sought to be placed by Peregrine on the terms of clauses 8 g) and 19 of the Conditions was pleaded in paragraph 3 thus:-
"By virtue of:
(1) Section 3 of the Misrepresentation Act 1967 and/or
(2) Section 2(2) and/or Section 3 of the Unfair Contract Terms Act 1977 ("UCTA")
the terms within clauses 8(g) and 19 of the Agreement are ineffective in that they do not satisfy the requirement of reasonableness prescribed by Section 11(1) of UCTA. The Defendant relies upon Section 11(5) of UCTA which provides that in the circumstances which have arisen the burden lies on the Claimant to establish that the above-mentioned terms satisfy the requirement of reasonableness (if in fact the Claimant so contends)."
- In the Amended Rejoinder the case of Steria in answer to the waiver or estoppel contended for on behalf of Peregrine in paragraph 10 of the Re-Amended Reply and Defence to Counterclaim was set out in paragraph 4:-
"The waiver and/or estoppel alleged in paragraph 10 of the Amended Reply are denied. The Defendant terminated the Agreement following the letter dated the 16th December 2002 referred to in paragraph 11A of the Re-Amended Defence and Counterclaim because the breaches of the Agreement alleged in that pleading were continuing at [and following] the date of that letter. At no time did the Defendant either by words or conduct intimate to the Claimant that it condoned or waived those breaches. Any work which the Claimant did between the date of the email relied upon by the Claimant was carried out by the Claimant against the background of:
(1) discussions between the parties at meetings on the 15th and 30th October, the 5th, 13th and 26th November and the 5th December which were held with a view to finding a mutually satisfactory way forward;
(2) the fact that on the 30th October the Claimant had undertaken to provide 10 man days consultancy free of charge, which lead [sic] the Defendant to continue to participate in those discussions rather than to immediately rely on its strict legal rights;
(3) in the course of those meetings (the Defendant cannot specify which) Neil Williamson on behalf of the Defendant informed Chris Gomersall the servant or agent of the Claimant that he (Williamson) and Mr. Singleton had been told by their Board to "fix or forget" the project. As a consequence, the Claimant was aware that the Defendant was considering the option of terminating the Agreement if the discussions did not lead to a satisfactory conclusion."
The proper construction of the Agreement
- As I have indicated, Steria's primary case was that it was entitled by the letter dated 5 February 2003 to terminate the Agreement by reason of the alleged breaches complained of in that letter. Its first alternative case was that, if not entitled to terminate the Agreement by reason of those alleged breaches pursuant to the express terms of clause 7 b)(i) of the Conditions, those alleged breaches were nonetheless repudiatory and thus could be, and were, by the letter dated 5 February 2003, accepted by Steria as bringing the Agreement to an end. Each of those cases involves a need to consider what precisely were the obligations of Peregrine under the Agreement in respect of the matters specifically mentioned in the letter, namely:-
(i) RoI;
(ii) training;
(iii) completion of the implementation of the first phase of the Software and the Software as a whole.
Obligations in respect of RoI
- The only reference to RoI in the Agreement was in Schedule A. I have already set out the relevant passage.
- In his written opening Mr. Blunt contended, at paragraph 61:-
"Under the Contract, therefore, the ROI milestones were to be agreed by the 30th April 2002. This required Peregrine
(1) to carry out the necessary ROI analysis (bearing in mind that the model adopted in the contract was not that used by Peregrine on its March ROI analysis, and that the implementation was to be in accordance with best practise to maximise Steria's ROI).
(2) present some performance related milestones based on the above analysis with a view to their being agreed."
In other words, in the submission of Mr. Blunt, the words quoted in the preceding paragraph imported a positive obligation on the part of Peregrine to undertake an RoI analysis and to report the results to Steria, along with suggestions as to how those results might be transformed into payment milestones. That appeared to mirror the pleas in paragraph 14 (c) and (d) of the Re-Re-Amended Defence and Counterclaim, which were in fact directed to the materiality of the breach of the obligation contended for, that:-
"(c) As the Claimant well knew, one of the principal reasons why the Defendant entered into the Agreement was to achieve the substantial savings which the Claimant asserted it would be able to achieve by buying and implementing the Claimant's software.
(d) The identification by the Claimant of appropriate ROI milestones and the incorporation of such milestones into the Agreement was an important mechanism necessary for the Defendant to measure the return on its investment in the Claimant's software solution, and to achieve that return."
- Mr. Akka, on behalf of Peregrine, submitted, first, that the supposed obligation in relation to RoI was not an enforceable obligation at all, but only an agreement to agree and thus too uncertain to be enforceable. In support of that submission he relied on the decisions in Walford v. Miles [1992] 2 AC 128 and Mallozi v. Carapelli [1976] 1 Lloyds Rep 407. Mr. Akka went on to submit that in any event,
"The only effect of failure by the parties to agree ROI milestones would be that Peregrine would not be entitled to receive £300,000. The risk was entirely upon Peregrine, and clearly Peregrine (although perhaps not Steria) was keen to agree the milestones."
- The point is ultimately a short point of construction of the Agreement. In relation to it I accept the submissions of Mr. Akka. Wisely or not, the deal done by Peregrine with Steria and embodied in the Agreement was that payment of just over 27% of the total remuneration which Peregrine hoped to derive from the Agreement, £300,000 out of £1,100,000, depended upon Steria and Peregrine first being able to agree appropriate RoI payment milestones, and, second, those milestones being met. If, as matters in fact turned out, agreement could not be reached, Peregrine had no chance of receiving £300,000 of the money which it hoped to receive. However, I do not accept the submission that, in addition to accepting the risk to which I have referred, Peregrine assumed some positive obligation to carry out a further RoI analysis or to provide information to enable Steria to make an assessment of the benefit to it of utilising the Software, breach of which exposed Peregrine to liability in damages or to risk of termination of the Agreement.
Obligations in respect of training
- The provision of the Agreement which it was contended on behalf of Steria Peregrine had breached in relation to training was clause 13 of the Conditions.
- In his written opening, at paragraph 113, Mr. Blunt indicated that Steria's case in relation to training was:-
"In the Re-Amended Defence and Counterclaim it is alleged that:-
(1) By clause 13 of the Agreement Peregrine was obliged to provide training for a minimum of two of Steria's employees within 60 days of 29 March 2002.
(2) In breach of its obligation Peregrine failed to provide such training for more than five months.
(3) By its nature, this breach was incapable of remedy."
- Mr. Akka, at paragraph 48 of his written opening, submitted that:-
"In fact, Clause 13 of the contract imposes obligations upon Steria, but not upon Peregrine. Steria was obliged to ensure that two of its employees were designated Peregrine Certified Applications Engineers. If there were no such employees within 60 days of the relevant date, then Steria, but not Peregrine, was in breach. Steria had the option under Clause 14(a) to engage Peregrine for training services upon the terms of a separate statement of work and technical services schedule. No such documents relating to training were ever executed."
- It seems to me that the primary obligation arising under clause 13, in the circumstances of this case, was upon Steria to cause to have two employees trained as Peregrine Certified Applications Engineers. In order to achieve that status it was necessary to obtain an affidavit from Peregrine designating one as such. Consequently I do not consider that upon proper construction of the Agreement Peregrine had no obligations in relation to the training of Peregrine Certified Applications Engineers. It was, under Clause 13, only Peregrine which could provide the training which led to the achievement of the relevant status, so there must, it seems to me, have been an obligation upon Peregrine to provide the training, if requested. The question of when the training had to be provided is less straightforward. On the one hand, Steria could not simply produce two people 59 days into the relevant period and require that they be trained at once. That would be absurd. Equally, if Steria requested training for identified individuals at a time which would have enabled Peregrine, acting reasonably, to have provided it, it defies business common sense to suppose that Peregrine could simply do nothing without thereby being in breach of any obligation. That said, clause 13 itself contemplated that training would be provided by means of attendance at a training course. That suggests that Peregrine ran a regular programme of training courses, rather than arranging them on an ad hoc basis. In the result, in my view, the obligation of Peregrine under clause 13 of the Conditions was, in the circumstances of this case, upon request by Steria to provide training for two employees as Peregrine Certified Applications Engineers, to make places available on the next training course on which there was space. If, through no fault on the part of Steria, such course did not take place within 60 days of 29 March 2002, it would not be open to Peregrine to complain that Steria was in breach of Clause 13. Moreover, provided that Steria had requested, a reasonable time before the expiration of the period of 60 days from 29 March 2002, training as Peregrine Certified Applications Engineers for identified individuals whom it was prepared to make available to attend the next training course on which there was space, it seems to me that it would not be open to Peregrine to complain that Steria was in breach of clause 13 for as long as Peregrine had failed to provide the training requested. Potentially, as it seems to me, Peregrine could be liable in damages for a failure to provide training requested by Steria in order to comply with its obligations under clause 13. However, it is not immediately obvious that Steria would sustain other than nominal damage as a result of a breach of clause 13 on the part of Peregrine. The reason is that the specific requirement for Steria to have Peregrine Certified Applications Engineers only arose under clause 13. While Steria might very well have a requirement for employees to be trained in connection with the Software, Peregrine's obligation in relation to more general training arose, insofar as at all, under clause 14 of the Conditions. Under the Agreement there was no reason, assuming that it was commercially possible, for Steria not to seek to meet general training needs in relation to the Software by resort to someone other than Peregrine.
Obligations in respect of completion of the implementation of the Software
- The starting point in relation to Steria's case concerning Peregrine's obligation to complete the first phase of the implementation of the Software by a particular date seemed to be the allegations in paragraph 7(c) and (d) of the Re-Re-Amended Defence and Counterclaim that, on proper construction of the Agreement, Peregrine was bound to carry out the implementation of all of the Software and bound to complete that implementation within a reasonable time, which it was contended was by the end of December 2002. Those allegations were repeated in paragraphs 2(2) and 3(6) of Mr. Blunt's written opening, with the addition that the cost of implementation was to be £200,000. The next stage in the analysis seemed to involve the contention that the provisions of the Agreement alleged to have given rise to the obligations to which I have just referred were varied so as to substitute an obligation to undertake the work of implementation of the Software in phases. How Mr. Blunt elaborated his submissions from this point in his written opening was:-
"94. The Contract itself did not provide for the phasing of the works, but in May 2002 Peregrine produced a Statement of Work which proposed a phased approach, which Steria accepted:-
[There followed a quotation from the "Statement of Work" in which the first phase of the implementation was described, a passage quoted earlier in this judgment.]
95. The Further Information provided by Steria on the 13th September 2003 crystallizes [sic] Steria's complaint as being that Peregrine failed to complete Phase 1 on time or at all. This gives rise to two questions:-
(1) when should Phase 1 have been completed?
(2) was it completed by then?
96. Steria's contention, so far as Phase 1 is concerned, is set out at paragraph 3(4) in the Further Information (served on the 13th September 2003) as follows:-
"Phase 1 concerned the implementation of only some of the modules listed in Schedule A, and only at Risley. Phase 1 should have been completed within a reasonable time of the commencement of the contract. This would have been by 9 August 2002, as stated in the Project Plan produced by the Claimant dated 14 May 2002. The implementation of Phase 1 should have been completed at a time that allowed completion of the implementation of the remainder of the modules at Risley and the implementation at the other 2 sites by the end of December 2002.
"
This is plainly sound see paragraphs 48-51 above.
97. Steria allege that:-
"(1)
as at November 2002 the following modules (agreed as part of Phase 1) had not been implemented:
- Inventory & Configuration
(2) the project plan activities of System Test, Migration to RDBMS, and User Acceptance Testing had not been started, and were not therefore signed off as complete
(3) in breach of clause 2(h) of the Contract the Claimant failed to provide any documentation including, but not limited to, user manuals and instructional training materials.
(4) The software was not compliant with ITIL and could not run on a Linux platform.
In short, there had only been part implementation of a part of the whole implementation."
- The response to Steria's case concerning the alleged obligations to implement the first phase of the Software set out in Mr. Akka's written opening was this:-
"54. Peregrine's case is that under the contract it was entitled to be paid (in addition to the £300,000 ROI payment) £100,000 on or before 1 July 2002, and £700,000 on or before 28 February 2003. In return it was obliged to provide:
(a) Perpetual licences for the software products listed in Schedule A;
(b) Maintenance for those products, as defined in the Agreement; and
(c) £200,000 worth of professional services, which were defined in the Technical Services Schedule to be:
(i) the definition of an implementation blueprint, the output of which was to be a statement of work and a project plan; and
(ii) time and materials implementation of the software products.
55. Peregrine provided all of this (and more), but Steria purported to terminate the Agreement shortly before the £700,000 payment fell due.
56. There was no agreement to implement all, or even any defined sub-set, of the software, for a fixed price or within a particular time. Peregrine agreed instead to provide implementation services, on a time and materials basis, up to a value of £200,000. This is borne out by (amongst other things):
(a) The various references to the "time and materials" basis of the engagement (eg "Description of Work" on page 1 of the TSS; Clause 3 of the TSS; Clause 14(a) of the main agreement
(b) The fact that hourly rates are given in the TSS (which would not have been necessary for a fixed time/fixed price contract)
(c) The absence of any "end date" in the paragraph dealing with the term of the contract, namely paragraph 2 on page 1 of the TSS. Note that paragraph 3 does not relate to the period of the work, but the period of validity of the hourly rates.
(d) The contemporaneous correspondence.
57. On Peregrine's case, the question of whether Phase 1 of the project was completed is not relevant there was never any promise to complete it. Steria's case is unclear. Paragraph 7 (c), (d) and (e) of the Defence and Counterclaim were amended on 19 December 2003 to allege that Peregrine was obliged to implement all of the software listed in Schedule A, at all three call centres, by December 2002 and in return for £200,000. But the breaches said to give rise to the right to terminate, as set out in paragraph 12, include only an allegation that Phase 1 was not completed.
58. To the extent that it is relevant to establish the provision of any particular module or the completion of Phase I, Peregrine's case is as follows:
(a) All deliverables and modules required by Steria were provided or implemented (as the case may be), and indeed Phase 1 went live and operated the Norwich City Council desk for several months.
(b) Data migration and system tests took place. User acceptance Testing was Steria's, not Peregrine's, responsibility.
(c) Sign-off documentation for Phase I was sent to Steria, who failed to return it or any Notice of Default within two weeks, and accordingly the system was deemed to have been accepted pursuant to Clause 7 of the TSS."
- In my judgment the submissions of Mr. Akka in relation to the alleged obligations of Peregrine concerning implementation of the Software are well-founded and I accept them. What Peregrine agreed to do was to provide £200,000 worth of implementation services, not to implement the Software for £200,000. The implementation services were to be provided as required by Steria, rather than by any particular date, although it was contemplated that they would be provided by the end of December 2002, because that was the "Period over which contract is valid" set out in the TSS.
Subsidiary questions of construction
- The alternative case of Steria set out in paragraph 15 of the Re-Re-Amended Defence and Counterclaim, and the introduction into paragraph 12 of matters not specifically mentioned in the letter dated 5 February 2003, do give rise to a number of other questions of construction of the Agreement. Those are, in particular,
(i) whether Peregrine was bound to supply to Steria the latest version of ServiceCenter;
(ii) whether it was a term of the Agreement that ServiceCenter as supplied to Steria should be ITIL compliant;
(iii) whether it was a term of the Agreement that the Software should be capable of running on a Linux partition on an OS/390 platform;
(iv) whether it was a term of the Agreement that the Software should be supportable on a Linux partition on an OS/390 platform;
(v) whether Peregrine owed Steria any obligation to undertake a review of Steria's business processes;
(vi) whether Peregrine owed Steria any obligation to provide information as to the pricing of future licences which Steria might need.
Obligations in respect of provision of the latest version of ServiceCenter
- It was not in dispute that Peregrine was bound to supply to Steria the version of ServiceCenter which was on general release as at the date of the Agreement. There was, initially, a factual issue as to whether that version was version 4, as was contended on behalf of Peregrine, or version 5, as contended on behalf of Steria. By the end of the trial it was accepted on behalf of Steria that version 5 was not placed on general release until 31 May 2002. A slight wrinkle was introduced by the fact that, on Peregrine's case, it was known as at the date of the Agreement that a new version of ServiceCenter was in the pipeline, being tested with a view to release in the relatively near future. Peregrine's case was that that information was communicated to representatives of Steria, which was offered the choice of receiving an advance copy, as it were, of the new release, but elected not to take it. It was denied on behalf of Steria that any such offer had been made. I shall come to indicate my findings on that issue when I deal with the facts relevant to the issues which I have to determine. However, as, contrary to Steria's initial case, it was version 4 and not version 5 of ServiceCenter which was on general release as at 29 March 2002, the issue as to the nature of Peregrine's obligation disappears.
Obligations as to ITIL compliance
- At paragraph 6B(g) of the Re-Amended Reply and Defence to Counterclaim it was denied on behalf of Peregrine that it was a term of the Agreement that the version of ServiceCenter supplied by Peregrine to Steria should be ITIL compliant. The focus of Mr. Akka's submissions in respect of ITIL compliance was on the contention that ServiceCenter was in fact ITIL compliant, rather than whether there was a contractual obligation that it should be. I think that that focus was realistic. I have already pointed out that in the description of "Products to be licensed" in Schedule A immediately following the words "Service Center" appeared "(ITIL)". It seems to me that the significance of those initials in that bracket can only have been as a warranty that ServiceCenter was compliant with the requirements of ITIL.
Obligations as to running on a Linux partition on OS/390
- There was simply no reference anywhere in the Agreement to any operating system upon which the Software was to be capable of functioning. The word "Linux" nowhere appeared. There was no mention of any partition or of OS/390. On the contrary, clause 9 e) of the Conditions in terms provided that it was for Steria to decide as to the suitability of the Software for its purposes. In the result it seems to me to be plain that there was no term of the Agreement that the Software should be capable of running on a Linux partition on OS/390 platform.
Obligations as to supportability on a Linux partition on OS/390
- The Agreement dealt expressly with the provision of support in clause 6 of the Conditions. In broad terms support for the purposes of clause 6 was the provision of technical advice and assistance in the event that problems were encountered in operational use of the Software. However, clause 6 b) in terms limited the obligation of Peregrine to provide support to the situation in which the Software was being used with hardware specifically authorised by the Agreement. In fact none was. There was no provision of the Agreement which dealt at all with the issue whether the Software, or any part of it, should be supportable, rather than whether there was a contractual obligation to provide support and in what that consisted. It seems to me, therefore, that the term for which Steria contended as to supportability was not a term of the Agreement.
Obligations as to undertaking a review of Steria's business processes
- It was accepted on behalf of Steria that there was no term of the Agreement which in terms imposed an obligation on Peregrine to undertake a review of Steria's business processes. However, it was contended that it was implicit in the obligations to provide the services to which the TSS related with reasonable skill, care and diligence that such a review be undertaken. It was also contended that it was implicit in the notion of ITIL compliance that there be a review. The suggestion was that the Software could not be implemented without such a review. That suggestion was not supported by any evidence other than the assertion of some of the witnesses called on behalf of Steria. No independent expert evidence was called on behalf of either party on this or any other question on which it might have been helpful. Without evidence that it was necessary or usual to undertake a review of business processes in order to implement software of the nature of the Software, which evidence might inform the proper construction of the terms relied upon, it does not seem to me that, just as a matter of usage of the English language, the obligation contended for can be spelled out of those terms.
Obligations as to providing pricing information
- The source of the obligation contended for in respect of the provision of information as to the prices which Peregrine would seek to charge Steria for any future licences which Steria might require in relation to the Software was again contended to be the obligations to provide the services to which the TSS related with reasonable skill, care and diligence. I reject the submission that any obligation, in effect that Peregrine commit itself in relation to the charges which it might make to Steria in the future, can be spelled out of the terms relied upon. In the absence of express provision, it seems to me that the terms upon which the parties were to do business in the future must be a matter for negotiation between them as and when the necessity arose.
Implied Terms
- Although in paragraph 8 of the Re-Re-Amended Defence and Counterclaim it was contended that such of the obligations contended for in paragraph 7 as express terms on proper construction of the Agreement as were not found to be express terms should be implied into the Agreement to give it business efficacy, that contention was not really pursued at the trial. Mr. Akka submitted that none of the implied terms contended for was necessary, and I accept that submission.
RoI the facts
- It was common ground that no RoI milestones were in fact agreed between Peregrine and Steria. It was also common ground that Peregrine did not undertake any further RoI analysis after the making of the Agreement and did not give Steria any advice concerning adaptation of its existing business processes so as to derive maximum benefit from the functionality of the Software. If, therefore, on proper construction of the Agreement, it was necessary for Peregrine to undertake a further RoI analysis or to give Steria any advice concerning its business processes, it was plainly in breach of those obligations.
- In fact no real effort seems to have been made to reach agreement concerning RoI milestones by the date specified in Schedule A, 30 April 2002. Although it appears that it was initially thought by both Peregrine and Steria that the first implementation of the Software would be at Hemel Hempstead for the internal service desk of Steria, where perhaps measurable internal cost savings might have been achieved at a relatively early date, Steria decided in the event that it wished to have the Software, or so much of it as was necessary for this purpose, implemented at the Risley call centre in order to discharge its obligations to a new customer, Norwich City Council, to provide a service desk for it. It was in this way that the "Statement of Work" and the "Project Plan", the material parts of each of which I have quoted, came to be produced. What each of those documents described was essentially the modules of the Software and the work of implementation necessary to enable Steria to perform its contract with Norwich City Council, although actually the work was somewhat more extensive than that strictly necessary to enable a service desk for Norwich City Council to be established. The work proceeded and was successful to the extent that the service desk for Norwich City Council went live on 29 July 2002.
- With the concentration on the work at Risley attention was diverted, it appears, from the question of agreeing RoI milestones. However, that need was not forgotten. On the Peregrine side the negotiation of appropriate milestones was entrusted to Mr. Steve Hurley, who was the account executive who had conducted the bulk of the negotiations which resulted in the conclusion of the Agreement in the first place. He was assisted in relation to RoI by Mr. Roger Mallett. On the Steria side the task of negotiating appropriate milestones was entrusted to Mr. Ray Alder, at the time Service Solutions Group Manager. Mr. Alder was not really involved in questions relating to the Software other than negotiating RoI milestones. Both Mr. Alder and Mr. Hurley gave evidence at the trial, but Mr. Mallett did not.
- It was common ground between Mr. Alder and Mr. Hurley that there were a number of meetings between them and Mr. Mallett over a period and that a final meeting took place on 4 July 2002. In advance of that meeting Mr. Mallett produced a document entitled "Discussion Document Achieving Savings and Efficiency Gains" ("the Milestones Document"). Mr. Alder told me in evidence, and I accept, that the contents of the Milestones Document accorded with the discussions up to that point and in that sense it was a joint document. Certainly Mr. Alder himself never produced any written proposals for milestones. On the first page of the document to which I have referred was set out a "Proposal to Steria" in the following terms:-
"The payments schedule should be balanced as follows:
1. Implementation of Phase 1 - £75k
2. Implementation of Phase 2 - £75k
3. Work with a Steria customer who is experiencing "poor service" problems - £40k when customer is satisfied with performance improvements
4. Savings Achieved:
a. Reduction in the volume of IT Equipment in use by Steria
b. Reduction in the annual software budget (excluding new software not currently in use within Steria)
c. Reduction in the Level 2 Service Desk Costs
d. Higher proportion of calls resolved at Level 1
5. Balance payable when 4. is achieved."
Mr. Alder told me, and again I accept, that following the meeting on 4 July 2002 he reported the position as it then was to Kim Lambert, at that time Director of Managed Services of Steria, and she was reasonably happy. He said that his view at the time was that proposed milestones 1 and 2 were satisfactory, but that milestones 3 and 4 could not really be fleshed out until milestones 1 and 2 had been achieved. He thought that after the meeting on 4 July 2002 it was a question of waiting for confirmation that Phase 1 of the implementation of the Software had been achieved. That confirmation was never received.
- Mr. Hurley was cross-examined to the effect that the milestones proposed in the Milestones Document, or at least the first three of them, were not RoI milestones at all. That is certainly true. However, as I have said, the identification of those milestones was the product of discussions between the parties, and Mr. Alder and Kim Lambert were content with them at the time.
- Sometime towards the end of July 2002 Mr. Hurley was made redundant by Peregrine, as were a considerable number of other people. His role in negotiating milestones with Steria was taken over by the new account executive, Louise Maitland. She was not called to give evidence, but there was no dispute that she made contact with Mr. Alder and tried to progress the agreement of milestones with him. In discussion Mr. Alder orally agreed the first milestone as completion of Phase 1, upon which a sum of £75,000 should be paid. Louise Maitland confirmed that agreement in an e-mail to Mr. Alder sent on 23 August 2002, which included this passage:-
"Discussions with Peregrine Professional Services and Wendy Osborn have confirmed that Phase 1 has been completed with the first customer going live at the end of July. A project acceptance form has been sent to Wendy which is in the process of being signed once data loading has been completed and an outstanding support ticket has been closed.
We would like to formalise the completion of this first milestone with the signed project acceptance form plus the attached draft letter. Would you be happy to accept these documents and take forward to the appropriate management for approval? We would then raise an invoice for £75k with standard payment terms.
Peregrine are keen to gain agreement to this as soon as possible."
Mr. Alder did not reply to that e-mail or to a reminder which Louise Maitland sent on 10 September 2002. He told me that he had no further involvement in the matter after receiving the second e-mail. The matter of milestones thereafter just seems to have been dropped until Mr. Anthony Singleton came on the scene at Steria.
- Within Steria Margaret Snowden, who was originally the manager of the call centre at Risley, but who subsequently became responsible for all three Steria call centres, was the project sponsor in respect of the implementation of the Software. That project was a part of a project called Project Harmony. Project Harmony was substantially wider in scope than selecting and implementing new software. For example, it included seeking new premises for Steria. However, the project did involve considering a range of software which Steria might acquire to fulfil its needs to upgrade its call centres and unify the software used in each. It does not appear that prior to entering into the Agreement Steria had undertaken any review of its business requirements or processes, or formulated any clear idea of what functionality it required of any new software.
- Mr. Singleton was first involved in questions relating to Project Harmony when he was asked in about July 2002 to undertake a review of the project. He carried out that task and produced a report at about the beginning of October 2002. One of the consequences of that report was his appointment as Service Desk Business Manager. In that role he was successor to Mr. Kim Watson, Director of Technical Services, as the person at Steria in charge of Project Harmony. From the time Mr. Singleton became seriously involved matters took a rather different direction from that which they had taken hitherto. One of the matters which now began to loom large was the question of RoI.
- A meeting had been arranged for 15 October 2002 which in the event was attended by Mr. Watson, Margaret Snowden, Miss Osborn and Mr. Singleton on the Steria side, and Mr. Chris Gomersall, at the time Peregrine's General Manager, Europe, Middle East and Africa, and Mr. David Pink on behalf of Peregrine. The meeting had been arranged before Mr. Singleton became the Service Desk Business Manager. For present purposes a convenient summary of the matters discussed at the meeting can be found in an internal Peregrine e-mail circulated by Mr. Pink:-
"Brief summary of the actions from this mornings meeting in no particular order and as its not good form to action people who weren't there I attributed them to Chris and I. Delegation will follow! Any I missed then Chris can add.
1. Confirm with legal that Steria are licensed to use Motive CG
2. Supply an MSP pricing calculator to Steria. Having discussed this after the meeting CG and I agreed that we should supply some sort of per-seat price based on what they've got in total without any granularity [an expression which seems to mean "detail"] they can add that if necessary CG
3. Training. Identified 2 main streams sales and product. Sean is already in discussion about requirements and enablement. CG and I agreed after the meeting that if absolutely necessary we can resource the training out of my team i.e. Sean and I. Need to investigate our training capability moving forward before deciding DP
4. ROI. Still need to come up with the "mutually agreed" measurements for this. Prgn [that is to say, Peregrine]/Steria?
5. Investigate history to understand why implementation was conducted on SC [that is, ServiceCenter] V [version] 4 when SC V5 was apparently already GA [that is, generally available] DP (Scott [Comber] is already researching this for me).
6. Investigate MVS [another name for OS/390]/Linux partition issue i.e. understand which version(s) do or do not run in this environment DP
The meeting obviously had more content, but these were the key actions from my point of view."
- After the meeting on 15 October 2002 a further meeting was arranged for 30 October 2002. In anticipation of that meeting Mr. Singleton sent to Louise Maitland an e-mail on 24 October 2002 which was in the following terms:-
"Louise, the agenda should be as follows
Comments from Peregrine on the actions from the previous Meeting held on 15th October in Birmingham i.e.
Adapter software
Discount Levels
Training
TSS Budget
Return on Investment
Motive vs Peregrine
In addition to the above I would like to explore the following
Why Steria purchased the licenses in Schedule A and what part Peregrine played in agreeing the number of licenses.
As part of the above, I would like to explore how we define when we need to purchase additional licenses.
I also want to understand how we price for future licenses in line with our commercial needs.
How can we prove the full capability of Peregrine on the Steria internal infrastructure and as a result what metrics are to be used for proving ROI
We are nearly at the end of the TSS Budget with little functionality, how can we obtain functionality within current budget constraints.
Finally I would like to explore how we can develop our own internal consultants on what business benefit can be derived form [sic] the use of Peregirne [sic].
I think that this will take sufficient time to discuss and the output is likely to be a series of further meetings to obtain the relevant answers. Hope this makes sense and I look forward to seeing you next Wednesday."
- The meeting which took place on 30 October 2002 was attended by Mr. Singleton and Miss Osborn on the Steria side and by Mr. Comber, Louise Maitland, Brian Hartley, at the time Peregrine's Professional Services Manager for the United Kingdom, Sean Howes, a pre-sales consultant employed by Peregrine, and Kenneth Turbitt, at the time employed by Peregrine as an enterprise architect. Each of Mr. Singleton, Miss Osborn, Mr. Comber, Mr. Hartley, Mr. Howes and Mr. Turbitt gave evidence at the trial. Each of the Peregrine witnesses gave an account of the meeting but tended to concentrate in his evidence on the issue or issues discussed at the meeting of particular concern to him. Only Mr. Turbitt really dealt with the discussion relating to RoI. Miss Osborn did not give any account of the meeting. Only Mr. Singleton did give an account on the Steria side. Both Mr. Turbitt and Mr. Singleton agreed in their accounts that it was recognised that the two of them should have a separate meeting. Mr. Turbitt said in his evidence that he told Mr. Singleton that Peregrine could not advise Steria on potential cost savings or how to pass on to its own customers the costs of the licences for the Software unless Steria provided details of its existing costs for running service desks, which it had not yet done. Mr. Singleton remembered the conversation as being solely about how to calculate sums to be passed on to Steria's own customers and not at all about RoI. It seemed to me that the recollection of Mr. Turbitt was the more accurate, for it was supported by the terms of an e-mail sent by Louise Maitland to Miss Osborn and Mr. Singleton on 31 October 2002:-
"Actions from yesterdays meeting as discussed;
1. Wendy to provide project requirements for 15th December milestone to Scott Comber/Brian Hartley
2. Wendy to discuss technical training requirements with Sean Howes
3. Sean Howes to provide IND appliance to Wendy
4. Anthony to provide dates to Ken Turbitt to discuss production of business case [for purchasing the Software that is, RoI]
5. Louise to provide breakdown of pricing for software within contract
6. Anthony to provide dates to Ken Turbitt to discuss managed services cost model [that is, how to pass on licence costs to Steria's own customers]"
- It was common ground that one of the matters discussed at the meeting on 30 October 2002 was the estimate on the Peregrine side that a further 10 days consultancy work, in addition to the work covered by sum of £200,000 for which the TSS made provision, would be necessary up to 15 December 2002 in connection with the first phase of the implementation of the Software. Mr. Singleton's evidence was that Peregrine agreed to provide the additional time free of charge. That was disputed by Mr. Hartley and Mr. Comber. I accept the evidence of the Peregrine witnesses on this point. I was very impressed by both Mr. Hartley and Mr. Comber as witnesses. The accuracy of their evidence on this point was, as it seemed to me, confirmed by the terms of item 3 in Mr. Singleton's letter dated 15 November 2002 to Louise Maitland, to which I refer a little later in this judgment, and the terms of the item with the same number in his letter dated 27 November 2002, to which I shall also come.
- Mr. Turbitt and Mr. Singleton both agreed in their evidence that they had had a separate meeting, which Mr. Singleton put as having occurred on 13 November 2002. Mr. Turbitt could not recall the precise date, but I do not think that that matters. Both agreed that the meeting was unsatisfactory. Mr. Turbitt's perception was that, although he had produced for discussion at the meeting a spreadsheet on which information could be entered which would produce a pricing model for charging costs to Steria's own customers, Mr. Singleton was not interested in discussing the spreadsheet or costing, but launched into a complaint about the quality of Peregrine's products. Mr. Singleton thought that what Mr. Turbitt was offering for discussion was a means of calculating how much a Steria customer would save if it adopted the Software and that that was related to a calculation of RoI based on external savings, whereas he was interested in an RoI based on Steria's internal savings. Mr. Singleton said in his evidence that he pressed Mr. Turbitt for a breakdown of the price Steria had agreed to pay per licence under the Agreement and that Mr. Turbitt said that he was unable to provide that. In the action list set out in the e-mail sent by Louise Maitland on 31 October 2002 the provision of a breakdown of pricing for the Software was something which she said she would do. It is plain that the meeting was unsuccessful because the expectations of the parties as to the object of it were different.
- After the meeting with Mr. Turbitt Mr. Singleton sent to Louise Maitland by e-mail a letter dated 15 November 2002. That letter was in these terms:-
"I am writing following our recent discussions surrounding the March 2002 Steria purchase and subsequent implementation of the Peregrine Infrastructure Management Suite and the commercial terms that comprise the current Agreement between our parties.
As stated through these initial discussions Steria now require Peregrine to enter into further detailed discussions regarding the current contractual commitments in order to:
1. Assess the implications of Re-profiling the current payment terms in light of the Implementation support issues faced over the last 6 months and given that the implementation project will now not be complete until 1st quarter next year at the earliest.
2. Agree a new ROI assumption and consequent price payable by Steria in Q1 2003.
3. Understand in detail the level of professional services support that Peregrine will supply between now and June 2003 in line with Schedule A of the Peregrine/Steria Agreement.
4. Re-assess the volume and mix of the existing licenses within Schedule A. Steria believe that Peregrine has sold too many licenses in a number of areas and therefore would like to discuss the implications of reducing the license volumes.
5. Understand the ongoing costing methodology to allow Steria to procure additional licenses in a cost effective manner to support Steria's future new business activity. This is a potential key issue for both Steria Limited (UK) and our European colleagues.
I would like to conclude these discussions over the next 10 days in order for Steria to fully understand the commercial implications of the above and assess both the ongoing viability of the Peregrine solution and its future requirements from Peregrine Systems.
The dates we have available are Tuesday the 19th November and Tuesday the 26th November in our Hemel Hempstead location. Please can you confirm whether either of these dates are acceptable and we can then agree suitable times etc.
I look forward to seeing you over the coming weeks."
- It was clear from the evidence of Mr. Gomersall at paragraph 14 of his witness statement dated 8 December 2003, which I accept, that he perceived the letter as a prelude to an attempt on the part of Steria to re-negotiate the Agreement. It seems to me that that was a realistic assessment.
- In the event a meeting took place on 26 November 2002. Mr. Gomersall and Louise Maitland attended on behalf of Peregrine, while Mr. Singleton and Mr. Neil Williamson, Steria's Commercial Manager, attended on behalf of Steria. Mr. Gomersall's evidence at paragraph 15 of his witness statement dated 8 December 2002, which I accept, was that he was told at the meeting that unless Peregrine accepted the commercial terms proposed by Steria Steria would bring the project to an end. Mr. Singleton and Mr. Williamson also gave evidence about the discussion at the meeting on 26 November 2002. Both agreed that Mr. Williamson had said that Steria would not be paying the element of the agreed price of £300,000 which depended on the agreement of RoI milestones. There was a difference between their evidence and that of Mr. Gomersall as to his reaction to the mention of RoI. All agreed that he said that it was no longer possible to produce RoI milestones. Mr. Williamson and Mr. Singleton gave evidence to the effect that Mr. Gomersall said that this was because there was no longer anyone at Peregrine who could undertake an RoI analysis. Mr. Gomersall's evidence was that he said that the agreement of RoI milestones could not be undertaken without there being some base point from which one could identify targets and that base point could not be the position as at the date of the Agreement as matters had moved on. As the parties could not agree on a base point, the milestones could not be agreed. Insofar as it matters, and I do not think that it does really, I prefer the evidence of Mr. Gomersall as to what he said. It plainly was not actually possible to agree RoI milestones other than by reference to some base point, and logically if the base point could not be agreed, the milestones could not be agreed. The evidence of Mr. Gomersall appears to be supported by the terms of a letter dated 27 November 2002 which Mr. Singleton wrote to Louise Maitland concerning the meeting. That letter was in these terms:-
"Following our meeting yesterday I agreed to document the points discussed and to detail the outstanding actions as a result. The following paragraphs highlight the points raised and where applicable who is responsible for addressing any outstanding actions.
1. Peregrine & Chapter 11
Peregrine are continuing to trade despite the voluntary action [of Peregrine's US parent] to enter Chapter 11 in the [United] states. Basically they have taken too much debt and are currently restructuring in order to satisfy their Creditors. They have now confirmed the sale of Remedy to BMC for $355m. The current expectation is to exit Chapter 11 in February 2003 completely restructured, however it is likely that this date will slip somewhat. In the meantime it is business as usual. Peregrine are confident that major customer [sic] are "sticking with them" during this challenging period. Many of the Implementation problems that Steria have experienced over the last 6 months can be attributed to the "trauma" that Peregrine have been going through re Chapter 11.
2. Motive Situation
Chris Gomersall has taken an action to report back by the date of our next meeting 5th Dec, or sooner the true situation regarding Motive. Motive are suing Peregrine re alleged IPR infringement and therefore the situation with regards to Steria continued use of the Peregrine product set needs further clarification.
Steria have been relying upon recent email assertions from Peregrine's legal dept to date in order to continue to use the Peregrine product set.
3. Implementation Costs
AS [Mr. Singleton] explained that Steria has now called off the £200k of professional services originally procured for the Steria implementation of the Peregrine product set, yet there are additional professional services costs required to get Steria to a position whereby we can class the implementation as successful. These costs are approx. 10 days support up to the 15th December and approx. 60 days consultancy support up to the end of June 2003.
Peregrine explained that all the staff capable of performing these services no longer work directly for Peregrine having been "moved out into the reseller channel over the summer months".
In addition Peregrine confirmed that the training costs would be borne by themselves in order to get Steria to a position whereby all of our existing support staff can use and support the product set. Ultimately Steria should be in a position by June 2003 to fully support ourselves both in terms of the internal infrastructure and how Steria would implement Peregrine within our existing and any new customer environment(s).
4. ROI Methodology
Steria explained that we will not pay the figure of £300k detailed in the contract as due on "proof of a Steria return on investment" given that Peregrine could not prove any ROI had occurred. The methodology for agreeing the ROI calculation in the contract had not been completed and now no longer could viably be completed.
Peregrine understood this point and agreed that it would be impossible to backtrack on this point.
5. Future Costing Methodology
Steria articulated why we need to be able to price licenses on an individual customer basis in order to grow our business incrementally. Peregrine model has been to get customers to invest significantly on the basis of future growth. Peregrine agreed that we would work together on a suitable framework for future costs in order to grow the business incrementally. Action was on AS to document the main modules required and the level of functionality needed within each module and in addition to price what Steria believe to be applicable costs for each module in line with market expectations. This is to be sent to peregrine [sic] by close of play Thursday. Peregrine to review this and come prepared to finalise at the next meeting.
For large bids Steria would use Peregrine pre-sales assistance free of charge wherever possible given time constraints CG [Mr. Gomersall] to detail contact names for this service.
6. Volume Mix of licenses
Steria stated that we had procured too many licenses for actual and future medium term needs and therefore Steria only wanted to pay for current actual requirements equating to approx. 600k. Peregrine did not accept this point and stated that they could not credit costs against licenses let, however they would be able to re profile the licenses to take into account future growth requirements. Action again taken by AS to document likely profile of licenses against future growth and cost licenses in line with future costing framework. This should allow Steria and Peregrine to agree a better position on potential future costs as part of the existing contract.
AS and NW [Mr. Williamson] advised CG and LM [Louise Maitland] that failure to move significantly on key points 5 and 6 would mean that Steria would be forced to reconsider its long term commitment to Peregrine and to actively accelerate research on alternative options.
Next Steps
Both parties agreed to meet on the morning of the 5th December in Steria Hemel Hempstead location to agree and finalise the way forward.
I suggest that we aim to meet at 10am on the morning of the 5th December. As highlighted within the meeting I will respond to the outstanding actions on myself by the close of play 28th November 2002. If in the meantime you need to discuss any of the points highlighted above please feel free to make contact with either Neil Williamson or myself. "
- Shortly before the meeting on 26 November 2002 Peregrine had prepared and issued a supplementary TSS to Steria in relation to the additional 10 days work anticipated as being necessary before 15 December 2002. That work was valued in the supplementary TSS at £11,240. Mr. Comber explained his appreciation of the position to Louise Maitland in an e-mail dated 25 November 2002:-
"Steria financial position is last week all the budget on the first TSS (£200k) were completed.
A new TSS (STR03 version 2) has been issued for £11,240, and Anthony needs to sign it. That covers all effort that Wendy has let me know about until 15th December. I have gone through the schedule a couple of times with her to confirm its OK."
Notwithstanding that the second TSS was not signed, Peregrine commenced the provision of additional consultancy time.
- Mr. Hartley told me, and I accept, that he was concerned by the non-signature and return of the second TSS. In an e-mail to Scott Comber and Louise Maitland sent on 3 December 2002 he wrote:-
"this means that we need a clear statement from Anthony that they will pay for this work before we put anyone else on site. We were led to believe that they would agree to this and we've shown goodwill by starting the work before we had the signed paperwork. We are now 7 days in the hole and we will not complete this piece of work until the signed TSS is returned.
When the deal was being put together, Steria were led to expect that the implementation would cost between £300-£400k. When these 10 days are complete we'll be at about £215k, they are talking about a further 60 man days to see them thru to June, this will take the total cost to just under £300k. The work has gone well, Wendy Osborn is pleased by the progress made, they have no reason for contesting the Services component."
- There was then a further meeting between Mr. Singleton and Mr. Williamson on behalf of Steria and Mr. Gomersall and Louise Maitland on behalf of Peregrine. Mr. Singleton and Mr. Williamson in their evidence put the meeting as having taken place on 5 December 2002, while Mr. Gomersall put it as having taken place on 10 December 2002. The precise date does not matter. No witness gave any real account of what was discussed at the meeting. The importance of it is that following it Louise Maitland wrote a letter dated 11 December 2002 to Mr. Singleton in which Peregrine offered to vary the Agreement. The letter referred to "our meeting yesterday" and thus was consistent with there having been a meeting on 10 December 2002. The terms of the variation offered to the Agreement are not material as the offer was not accepted. It is simply material to note that the offer was subject to a number of conditions, one of which was that Steria pay total licence fees of £820,000 by 28 February 2003 and another of which was that Steria approve "the outstanding Peregrine Technical Services Schedule of £11,240 for the remaining 10 days of Professional Services for Phase 1 implementation".
- In the event no more work was done by Peregrine after 3 December 2002.
- Mr. Singleton responded to the letter dated 11 December 2002 in a letter dated 16 December 2002. The letter was headed "Subject to Contract". It set out Steria's reaction to each of the proposals contained in the letter dated 11 December 2002. Much of the detail of that reaction is not material to the issues in this action. However, the letter did include:-
"Currently there are an additional 10 days Professional Services support required from Peregrine in order for Steria to complete Phase one sign off. Peregrine are to provide this additional support within the agreed sum of £200,000.
Please Note: Phase One sign off has been seriously impacted due to Peregrine's current inflexible stance on the above support requirements.
.
As you have not formally responded to my letter of 27th November 2002 re item 6 ROI Methodology Steria assume that Peregrine accept that Peregrine has not delivered this service(s) as per the March 2002 Agreement, and that it is not capable of being delivered under the existing Agreement."
As I have said, the latter comment was relied upon by Steria as being a notice under clause 7 b)(i) of the Conditions in relation to the alleged breach of the obligation on the part of Peregrine contended for that it provide an RoI analysis or other information to Steria in the context of the RoI milestones.
- Mr. Gomersall replied substantively to Mr. Singleton's letter dated 16 December 2002 in an e-mail sent on 17 December 2002. What he said was:-
"My position is clear If we cant have a conversation about securing payment of ?1m (700k plus the 300k ROI element) by 28th Feb 2003, then I would rather leave this until January. I already have a binding contract which requires you to pay 700k on 28/2, so why would I spend time on an agreement which is significantly disadvantageous for Peregrine compared to the one in place today.
I am in the thick of a crucial quarter-end, and need to spend time on business development."
- Although Mr. Gomersall did send Mr. Singleton an e-mail on 31 January 2003 following up on Mr. Singleton's letter of 16 December 2002, nothing of substance occurred after Mr. Gomersall's e-mail of 17 December 2002 until the writing by Steria of the letter dated 5 February 2003, the relevant terms of which I have already set out.
Training the facts
- It is important, in my judgment, to be clear, in considering the evidence as to training concerning the Software, exactly what sort of training one is concerned with. The case advanced on behalf of Steria in relation to training was that Peregrine was in breach of its obligations under clause 13 of the Conditions. As I have indicated already, that clause was concerned only with a specific type of training, namely training as a Peregrine Certified Applications Engineer. The objectives of that training, as set out in clause 13 a) itself, were to provide "the designated attendees with the technical skills to install and adapt the specified Licensed Product(s) to the Client's unique system requirements." The expression "Client" was defined in clause 2 c) of the Conditions as meaning a customer of the licensee under the Agreement, that is to say, in this case, a customer of Steria. In other words, the purpose of the training was to enable the Peregrine Certified Applications Engineers to install and adapt the Software so as to enable Steria to provide to its own customers the services which it had agreed to make available. During the course of the period from the making of the Agreement until the end of 2002 there were many exchanges between representatives of Steria and Peregrine concerning training, but these concerned a number of different types of training. The types of training which Steria was principally interested in obtaining were, first, training in how to alter the Software so as to be able to adapt it to the requirements of Steria and to resolve any problems encountered in using it, which sort of work is called "supporting" software, second, training for Steria's systems administrators to equip them to assist those providing services to Steria's customers on a service desk with problems they might encounter at user level with the Software, and, third, training in how to sell the Software, or component parts of it, to Steria's own customers, which sort of training is called, at least by Peregrine, "enablement". It does not seem that Steria ever in terms sought to have anyone trained by Peregrine as a Peregrine Certified Applications Engineer.
- Wendy Osborn dealt with the question of training in her witness statement in this way:-
"38. Training generally was a key recommendation of Peregrine and consequently a key requirement of the implementation. Steria needed to be able to support and develop the application internally without needing external consultancy. When we went to visit Peregrine at Richmond in November 2001 during the evaluation stage, I recall having a discussion with Steve Hurley. He asked me what I felt would tip us over from using a Remedy solution to using Peregrine. I said that we had Remedy skills in house which enabled us to develop and support our Remedy platform and that would have to be replicated for any product we chose. I saw an email that Steve Hurley wrote to Kim Watson on 29 November 2001
in which he wrote "Peregrine will cross train 50 Integris Professional Service Staff on Peregrine products without charge e.g. System Admin training, tailoring etc". Clause 13(a) of the contract made specific provision for the training of Steria personnel.
39. At the 18 April 2002 meeting, we confirmed that there was a need for training and initially Carole Ross and Tracey Wilkinson, Systems Administrators, needed to be trained to use the application. Steve Hurley said that he would book them on courses but apparently there was a 3-4 week lead time. Nothing ever happened and Carole Ross and Tracey Wilkinson were not trained formally. They were however given ad hoc training by Simon Mackay on the use of the application. We continued pushing for training from July onward as the implementation progressed. I recall that I discussed this verbally with Scott Comber and Simon Mackay, though I do not recall the exact dates.
40. One of the key drivers of the project was that Steria was self-supporting, in that we would be able to support and develop the Peregrine application internally without having to use expensive consultants. We had to support the application once it went live. In this regard, whereas the training of Carole Ross and Tracey Wilkinson in the use of the software would have been very useful, by far the most important aspect of training was the need to train those who were to support the application internally. Such a person was Steve Peake, who was part of the Steria Corporate Applications Group which would be responsible for supporting Peregrine.
41. Eventually in or around August or September 2002, Steven Peake received some training but this was on a different version of Peregrine to the one we had been supplied with. Other than Steve Peake, no training was offered until December 2002
. My belief is that, when Peregrine got rid of their technical staff, it was far more wide-reaching than we were lead [sic] to believe and they may not have had the capacity to carry out training. I recall Steven Peake telling me that the person who trained him was the only person at Peregrine in England who could train on version 5 at that time. "
- It was not in dispute that training for Carole Ross and Tracey Wilkinson, Steria's Systems Administrators, was in fact provided by Simon Mackay of Peregrine in the course of his work of implementing the Software in pursuance of instructions given by Margaret Snowden. From a report attached to an e-mail sent by Simon Mackay to Scott Comber on 13 June 2002 it seems that the training of at least Carole Ross had begun by that time. The nature and timing of the training was not the subject of any complaint contemporaneously.
- Wendy Osborn and Scott Comber met on 5 August 2002. A major matter of discussion at the meeting was the progress towards completion of the implementation of the Software, and that is a matter to which I shall have to return. However, training was also discussed. In her notes of the meeting Wendy Osborn said this about training:-
"2 main areas of training need to be dealt with:
- End user training. Suggestion is that end users have one day with Simon Mackay in Sunbury/HH, then move up to Risley for one day with Carole Ross on the "live" system.
- System administration training: Course running at Bracknell for 5 days on August 19th. For Administrators; Team Leaders and Expert End Users will find it beneficial. Steria to nominate attendees by 9 August.
The end result of these actions is that by mid October we should have Service Center built and deployable to all areas of the business. The only exception may be 777 due to the internal links which may be slightly delayed."
"End users" were simply those members of the staff of Steria who would in practice use the Software on screen in the course of their work. Training of end users does not ever seem to have been perceived by Steria as likely to cause a problem. For reasons which are unclear Steria did not nominate anyone to attend the training course in Bracknell which commenced on 19 August 2002.
- Attention seems to have been diverted at the Steria end from the types of training discussed between Wendy Osborn and Scott Comber at their meeting on 5 August 2002 to the question of training Steria staff, specifically Steve Peake and Stuart Crann, to be able to support the Software. Also an interest developed in the possibility of web-based training, as Peregrine did offer courses on the internet. These matters were the subject of an e-mail sent by Margaret Snowden to Wendy Osborn on 12 August 2002. That e-mail included:-
"I have discussed the training aspects with Simon and he feels that now/next week is the optimum time to bring Steve and Stuart into Risley to start to understand the configuration and macros which lie beneath the final version. He has a couple of issues with functionality which the development team back at Peregrine are sorting out for him this week so next week would be appropriate. Alan is speaking to Stuart today regarding the realignment of his responsibilities so I would appreciate it if nothing were said to him before we are ready.
We are currently sorting and preparing the data for SCF [Save The Children Fund a customer of Steria for which a service desk utilising the Software was intended] in preparation for an available platform
and should be ready for the start next week. Immediately that we have a live with SCF, we will look at moving Simon to Sunbury to start on the analysis of the functionality, which will obviously involve Steve and Stuart. He will also have to go there when the platform is set up to install Peregrine and do the fine tuning, look at WEB etc, so again S & S will be involved.
In the meantime, how have you got on with the key for the WEB training? Simon has looked at the training list I had from Steve Hurley and earmarked those he thought appropriate bearing mind [sic] the existing skills and experience and has come up with [suggestions which were then set out]
Looking at this, I think we have to bear in mind two things, budget and time. This by no means covers everything, including such things as Knowlix or the WEB side and the timescales to migrate the contracts may be prohibitive in itself. Wendy, could you perhaps start looking at the cost of these courses since few of the important ones appear to be WEB based.
It is therefore important that we start bringing Steve and Stuart into the picture ASAP and then have a better view of what they think themselves that they require. Can you please let me have your thoughts on this?"
- As an attachment to an e-mail dated 16 August 2002 to Margaret Snowden Louise Maitland sent descriptions of Peregrine's ServiceCenter and AssetCenter training courses. In the e-mail she indicated that places were available on an AssetCenter course in the United Kingdom beginning on 21 October 2002. In an e-mail sent on 19 August 2002 Mr. Peake informed Wendy Osborn that he was going to start a Web based ServiceCenter Part 1 course straightaway and then book onto ServiceCenter tailoring and other courses when they were available at Peregrine. In the event Mr. Peake attended two one week training courses at Peregrine's premises at Bracknell, the first between 30 September 2002 and 4 October 2002 and the second between 7 October 2002 and 11 October 2002. The aim of the courses, as Mr. Peake explained at paragraph 7 of his witness statement dated 12 January 2004, was "to teach people how the system worked on a technical level and how to modify it." The training was in fact given by reference to version 5 of ServiceCenter, rather than version 4, which was what had been supplied to Steria. I shall return to the issue whether there were differences between version 4 and version 5 of ServiceCenter which were material to the matters with which this action is concerned, but I did not understand Mr. Peake's evidence to be that the training which he received was not useful and did not meet his expectations of it.
- As part of a proposal put to Steria prior to the making of the Agreement Peregrine had indicated that it was prepared to train free of charge 50 Steria staff skilled in the use of "Remedy" software to use the Software. The question whether such training should be provided, and without charge, surfaced at about the end of September 2002. In an e-mail to Mr. Gomersall dated 26 September 2002 Louise Maitland wrote, so far as is presently material:-
"Steria believe they have an agreement with PRGN [Peregrine] for 50 Steria staff skilled in Remedy to be cross trained on PRGN without charge
They refer to a proposal from Steve Hurley dated Dec 2001. There is nothing in the contract / Sched A that confirms this.
I have spoken to Steve H. and at the time of signing (April 2002) Horton & Hurley did verbally agree that this training would be included. They had oked it with CMJ. Proposed fulfillment [sic] was to utilise our partner enablement program etc.
Ref this training issue, we need to decide what we want and what we are able to give them with the limited training and lack of partner enablement resources currently available."
The matter of training 50 Steria staff already skilled in the use of "Remedy" software does not seem to have been pursued. However, the question of whether training required by Steria should be provided by Peregrine free of charge was.
- While the question of training continued to feature in the exchanges between representatives of Steria and representatives of Peregrine, it never seems to have been regarded by Steria at the time as a matter of particular urgency. In an undated e-mail sent, it appears, by Wendy Osborn to Simon Mackay towards the end of October 2002 what was said was:-
"I know you have done this before for me but could you pls let me have your recommendations for training for Steria personnel. In particular Shaun [Berry], Steve and Stuart, also Carol and Tracey. Bear in mind we want a fully trained support structure in place asap and also Steve needs to become our AssetCenter contact asap."
What looks like the response to that e-mail was an e-mail dated 31 October 2002 from Mr. Mackay to Miss Osborn in which he made these recommendations:-
"Training requirements.
Steven Peake SC [ServiceCenter] (completed), AC [AssetCenter]: will need to take the two week course in AC development, again first part will be Web Based Training.
Stuart Crann just SC course.
Carole, Tracy and other admin staff Peregrine should run an admin course (probably 3 days). Once Tracy and Carole have been on this course they should be able to train the others.
Connect.It Hopefully training will be given to Stuart and Steven as part of implementing one adapter.
Knowlix and OAA (formerly Get.It): If following the Knowlix route Stuart should take this forward. Also someone should be aware of the OAA architecture probably Steven.
Any thoughts on this?
We need to discuss the detailed plan asap as there are going to be heavy demands os [sic] Stuarts and Steven's time to develop the skills necessary for them to achieve delivery for 15th Dec."
- The matter of training was taken forward next by Wendy Osborn in an e-mail dated 6 November 2002 to Sean Howes of Peregrine, who was the individual particularly concerned with training. In that e-mail Wendy Osborn wrote:-
"Following on from yesterday's meeting, here is my first pass at what I believe we need to achieve to allow Steria to fully support the Peregrine application. I'm open to discussion of course!
Goals are to have in place
4 cross-trained administrators. These are not developers but people who have an in-depth understanding of all the elements of peregrine [sic] and can talk at a low-level with IT staff on customer sites.
2 ServiceCenter developers plus associated modules.
2 AssetCenter developers plus associated modules.
The developers to have understanding of associated elements such as Connect-it, Get-it etc.
4 administrators. These are people who work on the desk, and who will train external and internal users.
Bearing in mind that we are in the middle of a project, I accept that some training will be carried out on the job. I am assuming for example that as we look at the connect-it module, and implement a number of adaptors, part of that will be classed as "training". I need to understand what elements they should get on the job and what further requirements there will be. Secondly, are Corviz the right people to deliver that training.
Once we have agreed the requirement, we can look at timescales. Obviously, some training is needed prior to 15 December, but I would be happy to leave the AssetCenter part until January."
- Mr. Howes responded immediately, and positively. He discussed the position with Wendy Osborn the day after her e-mail and followed the discussion up with an e-mail of his own, sent on 7 November 2002. He said:-
"Following on from our discussion this afternoon we are going to try to organise a tailored training track for Steria, which will probably be held on site. Louise will be thrashing out the commercials of this next week.
Could you let me have the names and skill sets of the candidates you propose to put forward. This will allow the trainer to "pitch" these courses appropriately.
I the mean time [sic] I would encourage these candidates to view the Peregrine product web cast and also obtain a copy of the product documentation; all available via CenterPoint. Many of Peregrine's products are accompanied by quick start guides which are an invaluable method of product introduction for a candidate.
I look forward to speaking with you next week."
- An issue raised on the Steria side was whether the training contemplated by Wendy Osborn in her e-mail of 6 November 2002 should be provided free of charge by Peregrine. That training was not to be of persons already skilled in the use of "Remedy" software so that they could simply use the Software. Nonetheless Peregrine agreed, as Louise Maitland made plain in an e-mail dated 8 November 2002 to, amongst others, Wendy Osborn and Anthony Singleton, to fund the training. In an e-mail to Miss Osborn sent on 20 November 2002 Mr. Howes indicated that it seemed that Peregrine would be able to offer a course on ServiceCenter for Steria before Christmas 2002 and enquired as to the availability of the Steria employees whom it was intended should attend. Wendy Osborn responded in an e-mail dated 22 November 2002 that:-
"Re training: I ve looked at my project plan and spoken to various people and the bottom line is we cant take up your offer of training in December, BUT we could do it first thing in the New Year. Would that be possible? Presumably you would want all 11 people available at the same time, the administrators would drop out after a couple of days, then the cross-trained admin after 5 days, then the developers stay on for the final 3 days. Is that the scenario?
If I don't hear from you today, we'll speak on Monday."
- Mr. Howes and Miss Osborn then discussed further the question of training. Following those discussions he sent an e-mail on 2 December 2002. The material part of that e-mail was in the following terms:-
"Further to our recent discussions I have created a training track specific to Steria's requirements. Where necessary, I have allowed for training not only on the current version of Peregrine's product but also the version that is being deployed at Steria. This training track will provide the perfect platform for any candidate to move deeper into a product discipline if required.
Based on the requirements supplied supplied [sic] to me I can confirm the courses are available immediately.
All candidates, both Developer and Administrator, should attend the on-line courses outlined below.
[Details of those courses were then set out.]
I have created 20 places each on the AssetCenter and ServiceCenter intro courses.
I am meeting with Dale Kirk on Wednesday to discuss the ServiceCenter training requirements in more details and will update you after this."
- In the event, so it appears, the question of training did not go further because it was overtaken by the difficulties in the commercial relationship between the parties in the period immediately before Christmas 2002, to which I have already referred. Mr. Howes did try to advance matters in relation to training at the beginning of January 2003, but to no avail.
- Looking at the question of the training by Peregrine of Steria staff in the round, it does not seem to me that there was ever a time at which Steria had identified employees who were ready and available to undergo suitable training but Peregrine was unable or unwilling to provide it. Leaving aside the essential pre-condition for training that the person to be trained makes himself or herself available for that purpose, some training was available through the internet. There was no suggestion that access to that training for any staff whom Steria wished to benefit from it was denied. Apart from Mr. Peake, there was no evidence that anyone in fact took advantage of the opportunity provided by the availability of web-based training. When training was sought for Mr. Peake it was provided promptly and seems to have been the sort of training which it was desired by Steria he should have. When it became apparent that Steria wished to have 11 people trained to varying levels, Peregrine not only agreed to provide the training desired at its own cost, as Steria contended that it should, but also devised special training courses which it would have operated before Christmas 2002, but for the fact that it was not convenient to Steria that that should happen.
Implementation the facts
- It was in fact common ground that Peregrine did not implement all of the Software, or, indeed, all of that described in the "Statement of Work" as the first phase, before Steria wrote the letter dated 5 February 2003. Although formally it was Peregrine's case that the first phase of the implementation had been completed satisfactorily, it was actually conceded in a letter dated 6 March 2003 written by Peregrine's European Legal Counsel, Mr. Steven Lewis, in response to Steria's letter dated 5 February 2003 that:-
"Not all the tasks in phase one have been completed
"
That was also accepted by Mr. Comber in cross-examination.
- If Peregrine was contractually bound to implement all of the Software, or that which was described as the first phase, earlier than 5 February 2003, therefore, it was in breach of such obligation as at 5 February 2003. In the light of that position it is not, perhaps, necessary to consider the facts in relation to implementation of the Software in any great detail. However, a number of particular issues were raised in the course of the trial concerning which I should indicate my findings.
- The first of those issues concerned the state of progress as at the beginning of August 2002, following the going live of the Norwich City Council service desk. Mr. Akka, on behalf of Peregrine, relied on the sending by Peregrine to Steria of an acceptance certificate and the failure of Steria to respond to that by giving notice of a Default as precluding Steria now from contending that the first phase of the implementation of the Software had not been completed. The next issue concerned the quality of the documentation produced by Mr. Mackay as a record of the modifications which he had made to ServiceCenter during the course of tailoring it to meet the needs expressed by Steria, particularly in relation to the Incident Management module. Also in relation to the Incident Management module there was the issue of the significance of the existence of an intermittent fault, or "bug", which was not resolved until December 2002. A further question which arose was whether by 5 February 2003 Peregrine had successfully migrated the Software, insofar as implemented, from the "P4" RDBMS used by Peregrine onto the "Oracle" RDBMS which Steria wished to use. Another matter which needs to be mentioned is the decision of Steria in effect to suspend Project Harmony at the beginning of November 2002 and to introduce a new project, Project Enterprise. The object of Project Enterprise was to seek to determine by 15 December 2002 what was called "proof of concept" of version 5 of ServiceCenter in its out of the box form, that is to say, without any tailoring. I deal with these matters in turn.
The Norwich City Council Service Desk
- The service desk operated for Norwich City Council by Steria went live using such of the Software as was necessary on a Windows NT server on 29 July 2002. The service desk was essentially only required to log calls for assistance or advice, and so did not require much of the functionality which the entirety of the Software operating together could have provided. The main part of the Software necessary to be operational was the Incident Management module of ServiceCenter. At the moment of going live for the Norwich City Council service desk the Incident Management module had, it appears, a bug which was described in some of the documents put in evidence as an "alerting issue". The exact nature of the problem is not material. In general terms what happened was that the history of what was logged as an "incident" would, on occasion, but not every time, go backwards. The problem was with the underlying object code and it was eventually resolved by Peregrine's parent company in about mid-December 2002, as appears from an e-mail dated 12 December 2002 sent by Dale Brown of Peregrine's parent company to Mr. Peake at Steria. The materiality of the issue for present purposes is that it is difficult to see how it could be said that the first phase of the implementation of the Software had been completed if there remained unresolved a problem with an essential component of that Software in the form of a bug on the Incident Management module. In cross-examination Mr. Comber agreed that there were other aspects of the work included in the "Statement of Work", in particular the migration of the system to the Oracle RDBMS and the testing for which provision was made in tasks 16 and 17, which had not taken place by the time the Norwich City Council service desk went live. I accept that evidence.
- Mr. Comber had a meeting with Miss Osborn on 5 August 2002, to the notes of which I have already referred in the context of training. In a section of the notes entitled "General" there appeared this:-
"Both agreed that the project end date could be brought forward to the middle of October if certain tasks were run concurrently, and subject to the availability of the platform/personnel. At current rates of expenditure, we will run out of budget in October; it is therefore vital that resources are used sensibly and in a controlled manner to ensure the project aims are met. This will mean a commitment from both sides on personnel and, on the Steria side, of infrastructure. Currently used half of available budget. Expenses are now being charged to budget estimated currently at 12 days.
Assuming the platform is agreed and is available this week, Phase II of the project could kick off on Monday 12 August.
Simon Mackay has finished his work on Phase I as of today, and is confident that Carole Ross is capable of taking over the data loads and testing. This leaves him free to work on the Sunbury implementation (from Sunbury less expenses!), and to support Carole remotely if required.
Steria sign-off for Phase I: You will send me the sign-off for Phase I. We will discuss and agree the way forward."
- Mr. Comber told me in cross-examination, and I accept, that in Peregrine's practice, or at any rate his own, the production to a customer of an acceptance certificate is not so much an assertion that work is actually complete as an invitation to the client to identify precisely that which needs to be done in order for the work to be complete. I am satisfied that it was in that spirit that he sent the acceptance form to Miss Osborn under cover of his e-mail of 15 August 2002. While no doubt Mr. Comber was not anticipating at the time he sent the acceptance form that reliance would be sought to be placed upon it in proceedings such as the present action, that would not mean that the sending of the acceptance form should not be given any effect now which the parties had agreed that it should have. Mr. Blunt submitted that, as a matter of construction of clause 7 of the TSS the "assignment" there referred to was the entirety of the work the subject of the TSS, and not some part of it. I accept that submission. It follows that in my judgment the failure of Steria to give a notice of Default within two weeks of the date of the provision of the acceptance form did not prevent Steria from asserting that the first phase of the implementation of the Software had not been completed by 15 August 2002, if, as is so, that was in fact the case.
Documentation
- Quite a lot of attention at the trial was given to the issue of the quality of the documentation which should have been produced by Peregrine to record the work of tailoring the Software, and in particular the Incident Management module, to meet the requirements of Steria. Although Steria's pleaded case included rather generally expressed complaints about lack of provision of appropriate documentation, in closing Steria's case Mr. Blunt made clear that the only matter of complaint in relation to documentation was the quality of that produced by Mr. Mackay.
- The "Project Plan", to which I referred earlier in this judgment included a section 5 entitled "Change Management Plan". That section was in these terms:-
"Change Management will be handled using the normal Peregrine Systems Change Management Request Form a copy of which is attached. All change requests will be reviewed, clarified and costed by the Peregrine team through the Programme Manager and referred back to the Steria project manager.
The Change Management Request Form once approved and signed by Steria will be returned to the Peregrine Programme Manager to be scheduled into the plan for delivery.
It should be noted that all change requests represent a potential risk to the project delivery dates and therefore should be kept to a minimum. Any new requirements will be categorized [sic] as follows:
- Priority 1 (Critical to the success of the Peregrine Product implementation, and no viable alternatives)
- Priority 2 (Major business benefits achieved, but an alternative could be found)
- Priority 3 (Cosmetic changes)
Once the new work is completed a Release Form will be issued detailing the instructions for applying the release.
See Appendix A for an example Change Request and Appendix B for a sample Release Form to be used for future change requests."
- On the evidence of Mr. Mackay, which I accept, he received instructions as to the requirements of Steria verbally from Margaret Snowden and acted upon those instructions. It was suggested by Mr. Blunt on behalf of Steria that the "Project Plan" contemplated that any request for tailoring would be made in writing in accordance with the procedure which I have quoted in the preceding paragraph. That seems to be correct. However, that in the event was not what happened. Moreover, Mr. Mackay made no written records of the instructions which he had received. Equally, it seems, no written records of requests for tailoring were kept by Steria.
- It was suggested on behalf of Steria by, amongst others, Mr. Peake, Mr. Crann and Miss Osborn in their oral evidence that normal practice would be to document the instructions received in relation to modification of software, so as to identify the purpose sought to be achieved by any particular tailoring, and what changes had been made and how in response to those instructions. It was disputed by Peregrine witnesses, in particular by Mr. Mackay and Mr. Comber, that the sort of records of which the Steria witnesses spoke were usual or necessary, although they did seem inclined to accept that, had they been made, they would have been useful to anyone coming to work on the software subsequently.
- Somewhat unusually, as I have already noted, despite there being a number of technical issues in dispute, including the question of the quality of the documentation of changes made in the course of tailoring, neither party sought to call any independent expert evidence. Steria's case, as advanced by Mr. Blunt, was essentially based upon the terms of section 5 of the "Project Plan" and upon a document produced by Mr. Mackay dated 6 August 2002 and entitled "ServiceCenter System Documentation for Steria" which contained a section entitled "Change Management". That section began in this way:-
"As the system [that is to say, the Norwich City Council service desk] has now gone live all changes must go through a change management procedure. On the server I have set up a Change Management directory."
There followed an example of a change request, which recorded the request itself, details of the design work done in response, a record of extra design requirements and an indication of when the change was done. The section went on:-
"After the change has been requested and accepted the developer should record all changes to the system on an excel spreadsheet. All that is recorded are the areas in the system that have been changed.
[A representation of a screen showing the spreadsheet then appeared.]
This document is held in the same directory as the change request and will aid developers when creating an unload file.
After the change has been developed on dev and has been signed off the developer should create on unload file of the changes and save it in the relevant change directory with the name changexxxx.unl."
Mr. Blunt submitted that Peregrine should have followed the same procedure that it itself advocated in section 5 of the "Project Plan" and in this section in relation to documenting the tailoring work which Mr. Mackay had done. He also relied on what Mr. Peake had been told on his training courses, which Mr. Peake recorded in an e-mail to Miss Osborn dated 8 November 2002:-
"Also in terms of technical documentation for our system, we were told on the courses I have done that it is normal practise [sic] for a change document to be made of every change to a client's system, down to field level, and all the peregrine [sic] consultants are told to follow this method of doing things. I would like peregrine [sic] to give us this document. I know they haven't done it, but to not follow their own "correct" way of doing things is their problem, not ours, and I think they need to do whatever is needed to make this document, with no cost to us. Without it make [sic] the system more the difficult [sic] to work on."
- In the passage quoted from his e-mail of 8 November 2002 Mr. Peake seemed to be saying not that it was normal industry practice to produce the sort of record to which he was referring, but that he understood it to be normal Peregrine practice, and Peregrine should follow it. Peregrine's witnesses, particularly Mr. Mackay, sought to draw a distinction between the sort of records which ought to be made of changes to an operational system and the sort of records which it was appropriate to make of work of tailoring a system to meet the requirements of a customer. So far as the latter was concerned, all Mr. Mackay and Mr. Comber, who were the principal witnesses who dealt with this question, seemed to consider to be necessary was a record of what changes had been made to the out of the box, or standard, system. That is what Mr. Mackay produced and sent to Miss Osborn and Mr. Peake under cover of an e-mail dated 19 November 2002. The main text of the e-mail was:-
"This document lists the items changed from an out of the box system.
The actual dbdicts's [database dictionary] have not been included but they should be simple to work out.
This guide used in conjunction with the original documentation should enable a developer to see what areas have been developed and where they should try and add new modifications."
- Mr. Comber saw the attachment to Mr. Mackay's e-mail dated 19 November 2002 and commented in an e-mail of the same date to Miss Osborn:-
"Wendy, I've reviewed this and don't think it fits the bill. I'll get it resolved with Simon."
- Mr. Mackay then had another go and produced a document which not only listed the areas in which changes had been made, but set out for each the database dictionary, the format, the format control, the link record and display option. That document, which Mr. Comber told me he considered satisfactory, was sent to Miss Osborn under cover of an e-mail dated 28 November 2002 in which Mr. Mackay said:-
"I've grouped relevant areas together in this document but have not explained what has been done. This was for two reasons
1) Carole has produced a document that explains what must be done to enter data for a new customer. These documents will help explain the logic behind the changes. Ask Carole where she has saved them.
2) The original documentation shows how the system was originally set up and should be used in conjunction with the doc provided to gain a fuller understanding.
Now we have a benchmark we should start a change management system for all further changes to the system to ensure there is a verifiable requirement and an audit trail."
- I have already remarked that I was impressed by Mr. Comber as a witness. I was also impressed by Mr. Mackay. They both seemed very straightforward, and also conscientious. I think it unlikely that Mr. Mackay would prepare for Steria, or that Mr. Comber would approve, a record of changes to the Software made during tailoring which they did not consider would meet the needs of Steria for such a record. Logic would suggest that Mr. Mackay's comment that anyone who wished to could see what change had been made to a particular part of the Software by comparing the Software in its modified state with its original state was correct. One would have thought that by that means also it would be possible to ascertain what was the purpose of the change. One could simply see what the Software as modified did and compare it with what unmodified Software would have done in relation to the relevant functionality. That said, documentation of the type contemplated in Section 5 of the "Project Plan" and in the "Change Management" section of the "ServiceCenter System Documentation for Steria" would avoid the need for any comparison by stating in terms what had been done, why and how. While, therefore, it seems that more thorough documentation could have been provided, and that to have done so would have been helpful, the issue is whether that which was provided was sufficient. It was not suggested on behalf of Steria when it received Mr. Mackay's second effort that what was provided was unsatisfactory. Mr. Howes of Peregrine was asked about Mr. Mackay's second effort in re-examination. He said that he did not think it particularly useful and that it lacked substance. I take Mr. Howes's opinion into account. Nonetheless, in the absence of independent expert evidence as to some industry standard which any reasonably competent software installer would meet in relation to documentation of changes in the course of implementation of software I do not feel able to conclude that what Peregrine provided fell below the standard of what was reasonably to be expected, or meant that, by reason of lack of suitable documentation, the implementation of the first phase of the Software, if it had otherwise been complete, was unfinished.
Migration to "Oracle"
- The evidence as to whether Peregrine had migrated the Software, insofar as implemented, from the "P4" RDBMS to the "Oracle" RDBMS on the AIX server which was eventually chosen by Steria as the hardware to use in conjunction with the Software was within a very narrow compass. Mr. Mackay said that he had done it, while Miss Osborn and other Steria witnesses had doubts as to whether it had ever happened. No one on behalf of Steria positively asserted that the migration had not occurred. They simply expressed doubts as to whether it had happened. Mr. Mackay said in his evidence that the migration was first carried out on 4 October 2002. That migration was not entirely successful, as Mr. Mackay reported in an e-mail to Mr. Comber, Miss Osborn and Margaret Snowden dated 7 October 2002. What he said was:-
"The oracle conversion mapping has had problems.
The tables mapped out but some of the fields mapped out incorrectly. It looks like some of the fields have taken on the incorrect data types.
We are going to restore the backup from Friday night. This has started and ServiceCenter should be available in approx 20 mins.
I'll talk to Scott about how we take this forward."
At paragraph 44 of his witness statement dated 20 January 2004 Mr. Mackay said that the problem was later identified as relating to a single file and was able to be resolved by maintaining that file in the "P4" RDBMS. Mr. Mackay then had another attempt at migrating the Software to the "Oracle" RDBMS, as he recorded in an e-mail dated 16 October 2002 to Mr. Comber. That e-mail included:-
"Oracle Mapping
Plan to carry out dev remapping next week. Will take a copy of prod[uct] and copy to dev[elopment]. Will then remap dev environment and fully test. Once we are happy with that the mapping works we will then map prod. The plan will [illegible] the second Friday after rollout."
I accept the evidence of Mr. Mackay that he did in fact migrate the Software successfully to the "Oracle" RDBMS. I therefore find that the implementation of the first phase of the Software was not incomplete by reason of the failure of Peregrine to achieve that migration.
Project Enterprise
- I have already mentioned that Mr. Singleton became directly involved with the project relating to the implementation of the Software at about the beginning of October 2002 when he became Service Desk Business Manager. I have also given an account of the meeting which Mr. Singleton attended which took place on 15 October 2002. Mr. Singleton said in paragraph 28 of his witness statement dated 12 January 2004 that following the meeting on 15 October 2002 it was decided internally within Steria to seek to establish "proof of concept" of version 5 of ServiceCenter in its out of the box form by 15 December 2002, the project called Project Enterprise.
- In his witness statement dated 20 January 2004 Mr. Mackay dealt with the consequences for him of Project Enterprise in this way:-
"47. Some time during late October or early November 2002 Anthony Singleton called me into a meeting with him and Alan Sheehan. Anthony Singleton instructed me to stop work on the rollout programme on which up until then I had been working. Instead he wanted me to assist Steria with a proof of concept phase which would involve installing, on an out of the box basis, all of the products which Steria had bought from Peregrine, in order to enable Steria to test the capabilities of the full suite and assess Steria's potential return on investment from it. This was to be done using dummy data (in contrast to the live implementation which had been effected at Risley for Norwich City Council and was ready to be implemented for other customers of Steria) and to be completed by Christmas 2002.
48. I understood from Wendy Osborn and Margaret Snowden that this meeting was called by Anthony Singleton without reference to either of them. However, from then on Wendy Osborn took over from Margaret Snowden as my source of instructions and pursued the plan which Anthony Singleton had outlined at the meeting. This change of plan by Steria therefore had the effect that the implementation and rollout on which I had been working were suspended and instead I worked from then on the proof of concept strategy. The Norwich City Council desk nevertheless remained live on the implementation which I had carried out. By that time I had also copied over the implementation data at Risley to the production server at Chelmsford, so that Steria was in a position to commence rolling out the implementation to new customer desks using the production platform.
49. The new plan included delivery of version 5 of ServiceCenter to Steria for installation which I undertook and completed together with Shaun Berry. I left the project shortly afterwards, which I understood from Scott Comber to be because Steria's budget for Peregrine's consultancy services had expired. However, by the time l left, all of the software had been successfully implemented and tested at Chelmsford (including version 5 of ServiceCenter) and the concept was therefore proved for Steria. Steria was still carrying out further tests of the software using 3 or 4 of its employees at each of its other sites, though I was not involved in that work."
- As I have indicated, it was in fact common ground before me that Mr. Mackay was wrong in thinking that all of the Software had been implemented by the time his involvement in the work of implementation ceased. However, what was important in the passage from his witness statement which I have quoted in the preceding paragraph was his evidence that he was specifically asked by Mr. Singleton to cease further work on the implementation of the Software, including version 4 of ServiceCenter. Mr. Singleton in his oral evidence denied that he had ever given any such instruction. Later in his evidence he said that he personally had not given such an instruction. I accept the evidence of Mr. Mackay on this point and find that Mr. Singleton did give him an instruction to cease the work he was doing involving version 4 of ServiceCenter. It must follow that it is not open to Steria to complain of the failure of Peregrine to continue with, or to complete, the work which Mr. Mackay was doing which Mr. Singleton instructed him to cease.
Other alleged breaches of contract the facts
Latest version of ServiceCenter
- The issue whether Peregrine provided Steria with the latest version of ServiceCenter current at the date of the Agreement rather disappeared during the course of the trial. Although at one time Steria had apparently believed that version 5 of ServiceCenter had been released in January 2002, it emerged that that belief was based upon a misunderstanding of information on Peregrine's web site which in fact related to another product. In closing Steria's case Mr. Blunt accepted that in fact version 5 of ServiceCenter had been generally released on or about 31 May 2002. It followed that the version of ServiceCenter generally available as at the date of the Agreement was version 4. That was the version originally provided to Steria. In about October 2002 at the time Project Enterprise was launched Steria asked to be provided with version 5 of ServiceCenter. That version was then provided free of charge.
- Mr. Comber told me in his oral evidence that he was aware as at about 18 April 2002 that version 5 of ServiceCenter had been produced and was of a status described as being in "beta testing". "Beta testing", as I understand it, is a pre-general release phase of a version of software in which it is made available to selected, volunteer customers for them to try out in a live environment and make some assessment. Mr. Comber told me that he had explained the position as to the forthcoming version 5 of ServiceCenter to Margaret Snowden and Miss Osborn at a meeting in April 2002, which he thought was also attended by Mr. Mackay. Mr. Comber had said to them, according to his evidence, that if Steria chose to take version 5 there would be an unnecessary risk of the product being unstable. Miss Osborn told me that she only recalled one meeting in April 2002 with Mr. Comber, on 18th, when he had been accompanied by Mr. Hurley, not Mr. Mackay. She did not recall any discussion on that occasion of what version of ServiceCenter Steria should take. She told me in cross-examination that if the issue as to what version of the software to take had arisen the decision would have been for Margaret Snowden to take. She made notes at the meeting which were put in evidence. They contained no reference to any version of ServiceCenter. Mr. Hurley gave evidence before me, but he did not deal with any discussion of versions of ServiceCenter at a meeting with Miss Osborn and Margaret Snowden on 18 April 2002.
- In cross-examination Mr. Comber was invited to consider a comment which he made in an e-mail sent to Mr. Mackay on 15 October 2002 concerning the meeting held that morning to which I have already referred. The comment was:-
"Nothing to report from the meeting this morning. The nearest to us was a concern that we were putting in V4 instead of V5. Going back over the dates we started the project 6 weeks before V5 was GA [that is, generally available], so I don't think that will be a problem."
In a reply sent on 16 October 2002 Mr. Mackay added:-
"Regarding V5, I also think they took the decision that they didn't want to be guinea pigs for the latest version. Unlikely to be documented though."
Mr. Comber was then asked by Louise Maitland to produce an account of why version 4 of ServiceCenter had been supplied rather than version 5. What he said in an e-mail to her of 22 October 2002 about it was:-
"Not sure whether you still need this, as I had a VM [that is, voicemail] from Wendy this morning saying that they were going to move to version 5. However, here goes
When the project started on 18th April 2002 ServiceCenter version 5 was not available. When version 5 was released on 31st May, significant configuration had already been performed and as a result there was reluctance to upgrade to a version that had just been released, compared against the stable version 4. There was no indication that there was a business requirement for functionality that was only available in the new version."
The suggestion put to Mr. Comber in cross-examination was that the account which he gave in his evidence of a conversation about version 5 with Miss Osborn and Margaret Snowden in April 2002 was inconsistent with what he said in the passages which I have quoted from his e-mails of 15 and 22 October 2002, much nearer in point of time to the relevant events than the date of his witness statement of 19 January 2004 in which he dealt with his discussion in April 2002. He maintained that his recollection of the meeting was clear, that it had been in Margaret Snowden's office at Risley and he thought that Mr. Mackay had also been there. The recollection of Mr. Mackay being in attendance at a meeting in April 2002 does seem to have been erroneous. It was not something as to which Mr. Mackay himself spoke.
- While I am not confident as to when the conversation took place, that is to say, whether in April 2002 or about the time version 5 of ServiceCenter was placed on general release, I am satisfied that certainly no later than the date of the general release of version 5 there was a conversation involving both Mr. Comber and Mr. Mackay, as well as some appropriate representative of Steria, probably Margaret Snowden, as to whether Steria should take the new version. From Mr. Mackay's e-mail of 16 October 2002 he does seem to have had some knowledge at that time of a decision on the part of Steria consciously not to take version 5 because it did not wish to be a guinea pig for that version. Mr. Comber's account in his e-mail of 22 October 2002 of what had happened was quite similar to his account in evidence to me, save that it was displaced in time to the time of the general release of version 5. It certainly had the common feature that there was reluctance, which can only have been on the part of Steria, to adopt a version which had just been released. If Wendy Osborn had been present at the relevant conversation, which is, as it seems to me, quite likely, her lack of recollection of the discussion probably reflects the fact that the issue was one for Margaret Snowden to address and decide, not her. There was absolutely no reason for Peregrine representatives to seek to keep the release of a new version of ServiceCenter secret from Steria. As was made clear during the trial, the value of software consists in the intellectual property rights to it. The physical media, compact disks or whatever, by means of which it is delivered to a customer have an infinitesimal value in comparison. It was not, therefore, a case, as it were, of someone having sold last year's model of a Rolls-Royce which otherwise he might not have been able to dispose of, wanting to hide from the purchaser that a new model was now available. Moreover, the main reason which emerged from the accounts of Mr. Comber and Mr. Mackay given in October 2002 as to why Steria should not have wanted to take version 5 of ServiceCenter, namely that it did not wish to be exposed to the risks of using a new version of software, was a perfectly sensible one.
- In the event I do not consider the issue as to whether there was discussion about whether Steria should take version 5, rather than version 4, of ServiceCenter in April or May 2002 to be very important. The initial obligation of Peregrine under the Agreement was to provide to Steria the versions of the various components of the Software which were then the latest on general release. That it did. If, thereafter, Peregrine decided to offer to upgrade generally customers who had acquired version 4 of ServiceCenter to version 5 free of charge, the effect of clause 6 a)(iv) of the Conditions was that Steria had to be offered the upgrade free of charge also. There was no evidence that Peregrine ever had decided to offer to upgrade generally customers who had acquired version 4 of ServiceCenter to version 5 free of charge. For what it is worth, Mr. Comber told me, and I accept, that a number of Peregrine customers still operate version 4 of ServiceCenter. However that may be, Steria got version 5 of ServiceCenter free of charge at about the end of October or beginning of November 2002.
- There were suggestions during the course of the trial that the fact that version 4 of ServiceCenter, rather than version 5, was provided by Peregrine initially meant that a great deal of modification had to be undertaken by Mr. Mackay in effect to bring version 4 up to the functionality of version 5. He said in his evidence that that was not so and that the tailoring which he undertook was done on the instructions of Margaret Snowden to meet her requirements. I accept that evidence. No attempt was made during the trial to demonstrate that version 5 of ServiceCenter had some functionality not possessed by version 4 which Steria wanted and which was provided by Mr. Mackay during the course of tailoring. Indeed the evidence of Mr. Mackay and Mr. Howes was that the tailoring of version 4 of ServiceCenter removed some of the valuable functionality which it had had in its out of the box form. Mr. Peake told me that he considered that there were significant enhancements over version 4 in version 5, but Mr. Howes told me that Mr. Peake was mistaken in that view. I accept the evidence of Mr. Howes on this point.
- Another suggestion made during the trial was that the extent of the modifications to version 4 of ServiceCenter as supplied to Steria in the course of tailoring meant that it could not be upgraded. That was contested by Mr. Comber, who explained that ServiceCenter includes an upgrading tool. Again I accept the evidence of Mr. Comber on this point.
ITIL compliance
- Mr. Blunt accepted in his closing submissions that version 5 of ServiceCenter was ITIL compliant. However, he maintained that version 4 of ServiceCenter, that originally supplied to Steria, was not. There were two aspects to that submission. The first was whether in its out of the box form version 4 of ServiceCenter at user interface level, that is to say, as regards the person seeking to operate ServiceCenter on a computer screen, employed the terms Incident and Problem in the senses defined for the purposes of ITIL. The second was whether the accepted fact that at database level the table in ServiceCenter version 4 which dealt with Incidents was a file called "problem" meant that version 4 of ServiceCenter was not ITIL compliant.
- In relation to the user interface level issue Mr. Blunt relied upon two points. The first was purely dependent upon the oral evidence given at the trial. He invited me to accept the evidence of Miss Osborn that Margaret Snowden had told her that Mr. Mackay had had to alter ServiceCenter so that at user interface level the expressions Incident and Problem were used in the senses defined for the purposes of ITIL as proving the truth of what was reported. He submitted that I should reject as unsatisfactory the evidence of Mr. Mackay that he had made no such alteration, if, which Mr. Blunt contended was unclear, that was in fact the effect of Mr. Mackay's evidence. Mr. Blunt also submitted that I should reject the evidence of Mr. Comber that the alteration which it was contended Mr. Mackay had made was unnecessary in any event because at user interface level ServiceCenter version 4 used the expressions Incident and Problem in the senses required by ITIL. The second point concerned the question whether version 4 of ServiceCenter had in fact been certified as ITIL compliant. Mr. Comber said at paragraph 45.2 of his witness statement dated 19 January 2004 that, so far as he knew, Peregrine had not sought certification as ITIL compliant of version 4 of ServiceCenter or any previous version. In cross-examination he said that he just did not know whether certification had been sought or not. Mr. Blunt submitted that no documentation had been produced on behalf of Peregrine which indicated that version 4 of ServiceCenter had been certified as ITIL compliant and that I should conclude from that circumstance, and the evidence of Mr. Comber that so far as he knew certification had not been sought, that version 4 of ServiceCenter was not in fact ITIL compliant. Mr. Akka countered that I should accept the evidence of Mr. Mackay and Mr. Comber that no alteration to version 4 of ServiceCenter at user interface level was necessary or had been made. He submitted that so far as the question of certification was concerned, it was accepted on behalf of Steria that version 5 of ServiceCenter had been certified as ITIL compliant and there was no evidence, if one considered the release notes for version 5 of ServiceCenter, of any alteration being introduced in that version which had the effect that it was ITIL compliant, whereas the previous version was not.
- On the question whether any alteration to version 4 of ServiceCenter at user interface level to cause it to employ the terms Incident and Problem in the senses defined for the purposes of ITIL was necessary or was in fact made I accept the evidence of Mr. Comber and Mr. Mackay. It was plain from the evidence of Mr. Mackay that he did make some alteration to version 4 of ServiceCenter at user interface level at the request of Margaret Snowden to meet her requirements, but he was not able to explain very clearly in non-technical language what that change had been. However, he was clear, when I sought to clarify the matter with him, that it had nothing to do with making version 4 of ServiceCenter ITIL compliant at user interface level. Miss Osborn's technical knowledge did not need to be, and was not, profound, and it seems to me that she simply misunderstood what Margaret Snowden had told her. At all events I am satisfied that Miss Osborn's impression was not actually correct.
- On the question whether the admitted characteristic of version 4 of ServiceCenter that at database level the table which dealt with Incidents was a file called "problem" meant that ServiceCenter was not ITIL compliant I might have been assisted by independent expert evidence. However, no such evidence was called. Mr. Blunt's submission was that the lack of evidence of the certification of version 4 of ServiceCenter as ITIL compliant, coupled with the evidence of Mr. Comber that, so far as he was aware, certification had not been sought for that version should lead me to infer that version 4 of ServiceCenter with the characteristics which it had was not ITIL compliant. Mr. Akka submitted that the characteristic that at database level the table which dealt with Incidents was a file called "problem" was a characteristic also of version 5 of ServiceCenter, as could be seen from a document entitled "Tailoring Incident Management" relating to version 5 which was put in evidence, and if that version had been, as was accepted, certified as being ITIL compliant, I should conclude at least that the feature which both versions shared at database level did not mean that version 4 was not ITIL compliant. He pointed out that no other specific deficiency in version 4 of ServiceCenter which was alleged to have the consequence that it was not ITIL compliant had been identified. It seems to me that there is force in the submissions of Mr. Akka. I am inclined to accept that the independent certification of version 5 as ITIL compliant by a Canadian testing house called Pink Elephant Inc. is good evidence that version 4 was also compliant, notwithstanding that at database level Incidents were dealt with in a file called "problem", in the absence of any other alleged deficiency. However, it is enough that I am persuaded by the material to which Mr. Akka drew my attention that it would not be appropriate to draw the inference for which Mr. Blunt contended. As it was for Steria to prove that which it asserted, namely that version 4 of ServiceCenter was not ITIL compliant, in the light of my findings it has simply failed to do so.
- The conclusions which I have reached in respect of the allegation that Peregrine was in breach of the Agreement in supplying to Steria a version of ServiceCenter which was not ITIL compliant also dispose of the allegation that Peregrine misrepresented to Steria that ServiceCenter in the then latest version, version 4, was ITIL compliant.
Failure to undertake a review of Steria's business practices
- Peregrine did not in fact ever undertake a review of Steria's business practices.
Failure to provide pricing information
- It was not actually the case that Peregrine did not provide Steria with information as to the prices which it charged for software licences. Its first offering was in electronic form. It was asserted on behalf of Steria that what was provided could not be made to work. What precisely was involved in that assertion was not really investigated in evidence and it may be that the problem from a Steria perspective was that what had been provided did not furnish the desired information. What, by the time Mr. Singleton became directly interested in the Software, at least, Steria seemed to want was an indication from Peregrine on a single unit basis of what it would charge Steria for additional licences in relation to the component parts of the Software in the future. In fact, under cover of an e-mail dated 5 December 2002, Louise Maitland sent to Mr. Singleton a document entitled "Steria MSP costing framework" which set out detailed pricing information, but by reference to specified numbers of packages of licences, and discount scales by reference to value. Thus there was, for example, one price per pack for between 1 and 25 packs of 100 licences, and another price per pack for between 26 and 50 packs of 100 licences. The document set out what the unit price per licence was for each number of packs purchased within a particular band of numbers, but Steria seems to have wanted to be told a fixed and inflexible price per unit regardless of the number of packs purchased.
A Linux partition on OS/390
- The allegations made on behalf of Steria in relation to operation of the Software on Linux developed quite significantly during the course of the trial. I have already indicated my conclusion that there was no term of the Agreement that the Software should be capable of operating on Linux or any other particular operating system. The Agreement was simply silent on that question. The issue of Linux therefore arises solely in the context of alleged misrepresentation. The original misrepresentation case in respect of Linux set out at paragraphs 8A and 15A of the Amended Defence and Counterclaim was that it had been represented that the Software was capable of running on a Linux platform and that that was false. Those allegations were abandoned by Mr. Blunt during his closing submissions. He told me that it was not Steria's case that the Software could not in fact have been run on Linux.
- The final form of Steria's case in relation to Linux, set out at paragraph 8A(b) of the Re-Re-Amended Defence and Counterclaim, was that the representation made was:-
"That the Software listed in Schedule A was capable of running on a Linux Partition/OS390 platform and was supportable on such a platform."
At paragraph 15A(b) of the Re-Re-Amended Defence and Counterclaim that representation was said to be false because:-
"The software supplied was not capable of running on a Linux Partition/OS390 platform."
However, the breaches asserted of the term of the Agreement alleged at paragraph 7(i) of the Re-Re-Amended Defence and Counterclaim to be in like terms to the alleged representation pleaded at paragraph 8A(b) were set out thus at paragraph 12(q):-
"As pleaded in paragraph 7(i) above all the software listed in Schedule A was to be capable of running on a Linux Partition/OS390 platform and/or was to be supportable on such a platform, but it was neither."
I therefore proceed on the basis that the final pleaded case was that the representations alleged were alleged to be false because (i) the Software was not capable of running on a Linux partition on OS/390 and (ii) the Software was not supportable on such a platform. The latter allegation I understand to mean that it was not possible for Peregrine, or anyone else, to maintain the Software in working order on a Linux partition on OS/390. However, in his closing submissions I understood Mr. Blunt to abandon the contention that the Software could not be operated on a Linux partition on OS/390 and also the contention that the Software could not be supported on such a partition, but to advance the case that Steria's complaint was that Peregrine would not support the Software on a Linux partition on OS/390. That complaint corresponded with the evidence, but it did not mean that the representations alleged in the final pleaded version of Steria's case were false.
- Mr. Blunt submitted that the source of the representations concerning Linux upon which Steria sought to rely was a document entitled "Peregrine Proposition For Infrastructure Management Prepared for Integris UK" dated February 2002 of which the author was Mr. Hurley. He relied on two particular passages. The first was paragraph 3.3.10, entitled "Platform support". That was in these terms:-
"It is believed that AHD 4.0 [a product of a competitor of Peregrine] has no support for mainframe servers or clients. This is especially important as an MSP [that is, Managed Service Provider]. Please refer to section 3.4.6. Peregrine Service Center runs on many platforms including OS 390/MVS [MVS is another name for OS/390]."
The second paragraph upon which Mr. Blunt relied was paragraph 3.5.5. That was entitled "Platform Support" and simply contained a table listing servers, databases and clients. In the list of servers the names Linux and OS/390 each appeared separately. Mr. Blunt submitted that the paragraphs to which I have referred amounted to representations that the Software would run on a Linux partition on OS/390. I reject that submission. It is simply not what was said. The material representations contained in the relevant paragraphs were simply, in my judgment, that ServiceCenter, which was all section 3 of the document was concerned with, would run on an OS/390 server and on a Linux server. Mr. Blunt submitted that it was implicit in the representations for which he contended that Peregrine would support the Software on the servers on which it stated that it operated. It seems to me that that was probably explicit, on proper construction of the two paragraphs, but irrelevant to the case which Steria advanced, which related to support for the Software operated on a Linux partition on OS/390.
- Mr. Comber in cross-examination told me that during the sales cycle, as he put it, Steria was told that Peregrine did support the Software running on a Linux partition on OS/390. The fact that such a statement had been made seems to have been reflected, amongst other ways, in the terms in which Task 2 in the "Statement of Work" was formulated. Mr. Comber also told me that he was aware before the Agreement was made that Steria had it in mind to run the Software on a Linux partition on OS/390. However, it does not seem that at that stage Steria had formed a final view as to the infrastructure on which it wanted to run the Software. Mr. Berry of Steria was in fact asked to consider that matter and produced a report dated 7 June 2002 entitled "Peregrine Infrastructure Recommendations". In that report Mr. Berry recommended that:-
"The problem management system Service Center should be placed on the Enterprise Server [yet a further name for OS/390] running under Linux, utilising a database in DB2 also under Linux.
The web interface products Get Services and Get Resources should also be placed under Linux, using Apache as the Web Server.
The asset management product Asset Center should be placed on Windows NT, but with the database hosted on Linux under DB2.
The Asset Center and Service Center databases can pass data between each other or draw information from other sources using Connect It, this component should be placed on Windows NT.
The knowledge base, Knowlix, can only be run on Windows NT."
- Mr. Berry's report was copied to Mr. Comber, who then considered it. He set out his initial reactions in an e-mail to Margaret Snowden dated 5 July 2002:-
"I've taken a look through the infrastructure document. I've also done some investigation about Linux on OS/390 plan. My thoughts and comments are below:
- I cannot find absolute confirmation that Linux on OS/390 is supported. Linux is supported on Red Hat OS, versions 6.2, 7.1, and 7.2. Our compatibility matrices don't indicate the supported or unsupported hardware. I'm trying to get this confirmed. However, I do think that if there are alternatives (such as AIX) it may be worth pursuing these."
- Mr. Comber took the question up with Peregrine's parent company. He then reported to Mr. Berry in an e-mail dated 23 July 2002 that:-
"I have had confirmation from our development team that Linux on OS-390 is not currently a supported platform as a ServiceCenter application server."
Mr. Berry replied in an e-mail of 24 July 2002:-
"I do find this statement a little surprising, as Peregrine knew we were investigating this option, and up to this point have made no reference to support being an issue."
- Mr. Berry then made his own enquiries of IBM, a supplier of Linux and a provider of support to that product under the name "Red Hat". He reported to Mr. Comber in an e-mail also dated 24 July 2002 that:-
"The IBM view is if it can run under Linux it will run under Linux/390. I understand that you also run Peregrine under Linux, albeit on a smaller platform.
Can you provide me with a complete list of you [sic] supported platforms, including operating systems.
Also can we speak directly to the people that are saying Linux/390 is an issue, I assume it is the developers or support team."
- After a further comment from Mr. Berry, Mr. Doug Neilson of IBM said in an e-mail to him dated 25 July 2002:-
"As you say Linux is Linux a vendor may choose to support (or not) any particular platform but there is no functional differences that's the whole point of Linux. Linux on S/390 is compatible with other Linux platforms because it is the SAME Linux. So there is no "compatibility" information I can share with you."
It was in the light of that expression of view, as I understood it, that Mr. Blunt accepted that the Software could in fact have been run on a Linux partition on OS/390. It seems logically to follow that if the Software could have been run on such a partition it could also have been supported on such a partition.
- Peregrine's ultimate position seems to have been that it did not support ServiceCenter running on a Linux partition on OS/390 because that method of running had not been tested. Although the issue did resurface in about October 2002 and was discussed at the meeting on 15 October 2002 to which I have already referred, what actually happened was that, after the Norwich City Council service desk was set up using a Windows NT server, the Software was implemented, insofar as it was, on an AIX server on which Steria had spare capacity.
- For the reasons which I have given it seems to me that the representations as to a Linux partition on OS/390 which were pleaded in the Re-Re-Amended Defence and Counterclaim were not made, and the representations in fact made in the document upon which Steria relied were not false. The question of what support, if any, Peregrine was bound to provide for the Software, in my judgment depended solely upon the terms of the Agreement. Absent any relevant term it was not bound to provide any support at all. If it had agreed by the Agreement to provide support to running the Software on a Linux partition on OS/390 then that was what it had to do. It was no part of Steria's case that Peregrine, in breach of the Agreement, had failed to provide support which it had undertaken to provide.
Conclusions as to liability
- In the result it seems to me that Peregrine was not in fact in breach of the Agreement in the respects alleged in the letter dated 5 February 2003, and consequently Steria was not entitled to terminate the Agreement under clause 7 b)(i) of the Conditions, as it purported to do by that letter. So far as the alleged entitlement to terminate for breach of some obligation in relation to RoI, failure to provide training and failure to complete the implementation of the first phase of implementation of the Software were concerned, in my judgment Peregrine simply had not agreed to do that which it was contended it had not done. That was also the position so far as alleged obligations in relation to the running of the Software on a Linux partition on OS/390 were concerned, a matter not in terms relied upon in the letter dated 5 February 2003, but relied on before me as justifying the termination sought to be effected by that letter. In respect of the other matters relied on before me as justifying that purported termination, but not articulated in the letter itself, namely the alleged failure to provide the latest version of ServiceCenter and to provide upgrades of it, the alleged inadequacy of the documentation of tailoring changes made by Mr. Mackay, the alleged non-compliance of ServiceCenter in the version 4 originally supplied with ITIL, the alleged failure of Peregrine to undertake a review of the business systems of Steria and the alleged failure of Peregrine to provide Steria with pricing information, in my judgment Peregrine was not in breach of any relevant obligations. The misrepresentations alleged on behalf of Steria were either not made or were true. Consequently it is unnecessary to consider the effect of clauses 8 g) and 19 of the Conditions had there been any misrepresentation. It is also unnecessary to consider the effect of clauses 9 b) and c) on any liability on the part of Peregrine to pay any damages to Steria. Thus the various lines of defence of Steria as to liability in respect of Peregrine's claim all fail, and with them Steria's counterclaims fail.
Entitlement of Steria to terminate under clause 7 b)(i) and/or at common law
- As the alleged breaches of the Agreement upon which Steria sought to rely were not made out, it is not strictly necessary to consider whether, had any of them been made out, Steria would have been entitled to terminate the Agreement under clause 7 b)(i) of the Conditions in the manner which it did, or to treat the Agreement as having been repudiated at common law and to accept such repudiation as bringing the Agreement to an end. However, submissions were made to me on these questions and it is right that I should indicate my conclusions on them.
- The first issue which arose in respect of the course which Steria in fact took by sending the letter dated 5 February 2003 was whether it was entitled to proceed under clause 7 b)(i) of the Conditions in respect of any alleged breach of the Agreement, or only a breach which would have been regarded as repudiatory at common law. The next issue was whether Steria was entitled to treat the breaches of which it sought to complain in the letter as incapable of remedy, for it was only if a breach was incapable of remedy that Steria could proceed under clause 7 b)(i) of the Conditions without giving notice of the breach. A related issue was whether Steria's letter dated 16 December 2002 was, as was contended, a sufficient notice in respect of the alleged breach of the obligation in respect of RoI, if a notice in respect of that was required. A further issue, relevant both in respect of determination under clause 7 b)(i) of the Conditions and in respect of treating an alleged breach as repudiatory at common law, was whether, having regard to the date of the alleged breach and the continuation of the performance of the Agreement thereafter, the alleged breach should be treated as having been waived in any event. Finally, in respect of the alleged entitlement of Steria to treat Peregrine as having repudiated the Agreement at common law, the question arose whether any of the alleged breaches, individually or collectively, evinced an intention no longer to be bound by the Agreement.
To what type of breaches did clause 7 b)(i) of the Conditions apply?
- Steria's primary case was that the words "any term" in clause 7 b)(i) of the Conditions, in the expression "if
Peregrine breaches any term of this Agreement" meant what they said, so that it could rely on any breach as justifying a notice under clause 7 b)(i). However, it was also Steria's case that, if a breach needed to be repudiatory at common law for the procedure in clause 7 b)(i) to be operable, the breaches of which it complained in the letter dated 5 February 2003 were of that character.
- Mr. Akka submitted that, upon proper construction of clause 7 b)(i) of the Conditions, it was only a breach which was repudiatory at common law which could be relied upon as justifying proceeding under that provision.
- Mr. Akka supported his submission by reference to the decision of the House of Lords in Antaios Compania Naviera SA v. Salen Rederierna AB [1985] 1 AC 191, and in particular to a passage in the speech of Lord Diplock at pages 200E 201E, with which the other members of the House agreed. The case was concerned with a charterparty a clause of which entitled the owners to withdraw the relevant vessel on "any breach" of it. Lord Diplock said, in the passage upon which Mr. Akka relied:-
"The arbitrators decided this issue against the shipowners. The 78 pages in which they expressed their reasons for doing so contained an interesting, learned and detailed dissertation on the law, so lengthy as to be, in my view, inappropriate for inclusion in the reasons given by arbitrators for an award. Their reasons can be adequately summarised as being (1) that "any other breach of this charter party" in the withdrawal clause means a repudiatory breach that is to say: a fundamental breach of an innominate term or breach of a term expressly stated to be a condition, such as would entitle the shipowners to elect to treat the contract as wrongfully repudiated by the charterers, a category into which in the arbitrators' opinion the breaches complained of did not fall,
To the semantic analysis, buttressed by generous citation of judicial authority, which led the arbitrators to the conclusions as to the interpretation of the wording of the withdrawal clause that I have summarised, the arbitrators added an uncomplicated reason based simply upon business commonsense:
"We always return to the point that the owners' construction is wholly unreasonable, totally uncommercial and in total contradiction to the whole purpose of the N.Y.P.E. time charter form. The owners relied on what they said was "the literal meaning of the words in the clause". We would say that if necessary, in a situation such as this, a purposive construction should be given to the clause so as not to defeat the commercial purpose of the contract".
While deprecating the extension of the use of the expression "purposive construction" from the interpretation of statutes to the interpretation of private contracts, I agree with the passage I have cited from the arbitrators' award and I take this opportunity of re-stating that if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."
- In the end I do not think that Mr. Blunt seriously resisted Mr. Akka's submission. Mr. Blunt himself drew to my attention not only the decision upon which Mr. Akka relied, but also a later, unreported decision of the Court of Appeal, Rice v. Great Yarmouth Borough Council, in which judgment was handed down on 30 June 2000, and was essentially to the same effect as the passage from the speech of Lord Diplock which I have quoted in the preceding paragraph. At all events, I accept the submission of Mr. Akka and hold that a termination under clause 7 b)(i) of the Conditions was only possible in respect of a breach of the Agreement which was repudiatory at common law.
Remediable breach
- Mr. Blunt submitted that the nature of each of the alleged breaches, and in particular the time as at which each of the relevant alleged obligations ought to have been performed, meant that each was irremediable.
- Mr. Akka, in contrast, submitted that, had Peregrine been in breach of the Agreement in any of the respects alleged by Steria, each of the relevant breaches was remediable, so that a notice was required under clause 7 b)(i) of the Conditions. He went on to submit that no relevant notice had been given, with the consequence that on no view had Steria been entitled to terminate the Agreement under clause 7 b)(i). I think that Mr. Blunt accepted that, save with regard to the alleged non-performance of obligations with regard to RoI, no notice had been given, thus if one had been required, the letter dated 5 February 2003 was ineffective to terminate the Agreement under clause 7 b)(i) of the Conditions in reliance on any of the other stated grounds.
- Mr. Akka supported his submission as to the alleged breaches being remediable by reference to authority. He relied, first, upon a passage from the speech of Lord Reid in L. Schuler AG v. Wickman Machine Tool Sales Ltd. [1974] AC 235 at pages 249G 250B:-
"It appears to me that clause 11(a)(i) is intended to apply to all material breaches of the agreement which are capable of being remedied. The question then is what is meant in this context by the word "remedy". It could mean obviate or nullify the effect of a breach so that any damage already done is in some way made good. Or it could mean cure so that matters are put right for the future. I think that the latter is the more natural meaning. The word is commonly used in connection with diseases or ailments and they would normally be said to be remedied if they were cured although no cure can remove the past effect or result of the disease before the cure took place. And in general it can only be in a rare case that any remedy of something that has gone wrong in the performance of a continuing positive obligation will, in addition to putting it right for the future, remove or nullify damage already incurred before the remedy was applied. To restrict the meaning of remedy to cases where all damage past and future can be put right would leave hardly any scope at all for this clause. On the other hand, there are cases where it would seem a misuse of language to say that a breach can be remedied. For example, a breach of clause 14 by disclosure of confidential information could not be said to be remedied by a promise not to do it again."
- The second passage to which Mr. Akka drew my attention in the context of his submission now under consideration was from the judgment of Slade LJ in Expert Clothing Service & Sales Ltd. v. Hillgate House Ltd. [1986] 1 Ch 340 at page 355:-
"Nevertheless, I would for my part, accept Mr. Neuberger's submission that the breach of a positive covenant (whether it be a continuing breach or a once for all breach) will ordinarily be capable of remedy. As Bristow J pointed out in the course of argument, the concept of capability of remedy for the purpose of section 146 [of Law of Property Act 1925] must surely be directed to the question whether the harm that has been done to the landlord by the relevant breach is for practicable purposes capable of being retrieved. In the ordinary case, the breach of a promise to do something by a certain time can for practical purposes be remedied by the thing being done, even out of time. For these reasons I reject the plaintiffs' argument that the breach of covenant to reconstruct by 28 September 1982 was not capable of remedy merely because it was not a continuing breach."
- It seems to me that the whole purpose of a provision in a contract by which a party contemplating the determination of the contract for breach on the part of the other party has to give a notice, if a breach is capable of remedy, is to give the party in default the chance to avoid the consequence of termination of the contract if, in substance, the other party can, at the point at which notice is given, be put in the position in which he would have been but for the breach. It is difficult to see how such a provision could be of any practical utility if the fact that the date for performance of a positive obligation had passed meant that the breach of that obligation was to be taken to be irremediable, even if it could be performed late. Until the last date for performance had passed there was no breach. It would be strange if in those circumstances, the moment there was a breach that breach was irremediable, however quickly thereafter the obligation could be performed. That consideration impressed Lord Reid, it impressed Slade LJ and it impresses me. In my judgment, on proper construction of clause 7 b)(i) of the Conditions, the failure of Peregrine to perform by some particular date a positive obligation did not, of itself, mean that the breach was irremediable. Peregrine had 30 days after notice to perform the relevant obligation.
- It is necessary, then, to consider whether any of the matters relied upon by Steria in the letter dated 5 February 2003 was in truth irremediable. The breach of an obligation to provide some sort of RoI analysis or information does not seem to me to be irremediable. Whatever analysis or information was required to be provided could simply be provided late. No doubt damages could be recovered, if any other than purely nominal had been sustained, in respect of the delay in providing whatever should have been provided. The same analysis applies, in my judgment, to breach of an obligation to provide training or to complete the implementation of the first phase of the Software. These activities could simply be completed late and the deficiency thereby cured in each case. If it were necessary or appropriate to consider in this context non-provision of the latest version of ServiceCenter or provision of inadequate documentation as to changes made to the Software in the course of tailoring, again any deficiencies could be cured by late provision of whatever was required. If Peregrine had been bound to supply ServiceCenter in a version which was ITIL compliant and had not done so, theoretically, at least, that obligation could have been satisfactorily performed late. If Peregrine had been bound to review Steria's management processes or to develop those processes or to supply pricing information, again those activities could have been performed late. Even an obligation to support the Software on a Linux partition on OS/390 was one a decision not to perform which could have been reconsidered and performance then undertaken late. One might think that, if there had been such an obligation, reconsideration was likely if the consequence of not providing support would have been loss of at least £700,000 worth of revenue. Thus my conclusion is that all of the alleged breaches of the Agreement for which Steria contended before me were remediable for the purposes of clause 7 b)(i) of the Conditions. On no view was a notice given in relation to any of them other than the alleged RoI obligation. It follows that, even if Peregrine had owed Steria the obligations for which Steria contended and had been in breach of them Steria was not entitled to terminate the Agreement under clause 7 b)(i) of the Conditions by reason of the breach, save arguably that concerning RoI, because it had not given the appropriate notice.
The notice required by clause 7 b)(i) of the Conditions
- Mr. Blunt submitted that all that was required of a notice for it to be a good notice for the purposes of clause 7 b)(i) of the Conditions was that it was in writing and recorded the breach. A notice did not, he submitted, have to request or require remedial action within 30 days, or at all.
- Mr. Akka submitted that to be a good notice for the purposes of clause 7 b)(i) of the Conditions a notice had to be "clear, definite and absolute". That form of words was taken from the decision of the Court of Appeal in Afovos Shipping Co. SA v. Pagnan [1982] 1 WLR 848. The case was another case of a charterparty with a provision for withdrawal in the event of a breach of the terms of the agreement between the parties, specifically in this case the obligation to pay the hire. The owners were bound to give the charterer 48 hours notice before exercising the option to withdraw the vessel. The issue arose what was required of such a notice if it were to be effective. Lord Denning MR at page 854A, and again at page 854F of his judgment, said that a notice must "be clear, definite and absolute." Griffiths LJ at pages 857H 858A of his judgment said, so far as is presently material:-
"This notice does not say that there has been a failure to pay in time; it is capable of being construed as a warning if payment is not made in time a notice of withdrawal will be given. Withdrawal is so serious a matter for the charterer that it is the duty of the owner to give a clear and unambiguous notice of his intention to withdraw the ship. It should state that payment has not been received and give the charterer 48 hours to pay or lose the ship
Of course no special wording is required, but it is surely not too much to expect men of commerce dealing in huge sums to make their meaning clear."
- I accept the submissions of Mr. Akka as to the necessity for a notice under clause 7 b)(i) of the Conditions to be unambiguous. In my judgment, what, on proper construction of clause 7 b)(i), is required of a notice if it is to be effective for the purposes of that provision is that it should indicate clearly on its face that it is intended as a notice which will produce the consequences for which the clause provides if it is not complied with. There are, no doubt, a number of ways in which that effect can be produced. Perhaps the most obvious is for the notice to state that it is a notice under clause 7 b)(i). Nonetheless, however it is done, the notice should make it clear, as it seems to me, that non-compliance is likely to lead to termination of the Agreement. That requirement was not met by Mr. Singleton's letter dated 16 December 2002. That letter said nothing at all about termination or about taking some action within 30 days to avoid termination. All the material part of the letter did was to record an assumption on the part of Steria that Peregrine accepted that it had not delivered some service in relation to RoI, and a further assumption that Peregrine accepted that whatever that service was was not capable of being delivered. Far from that being some sort of notice to remedy, it was a statement of an assumption that Peregrine accepted that remedy was not possible. In the result I find that Steria did not give a notice falling within clause 7 b)(i) of the Conditions in relation to any of the alleged breaches upon which it has sought to rely as justifying termination of the Agreement.
Waiver
- Mr. Akka relied heavily upon the fact that each of the alleged breaches of the Agreement upon which Steria relied as justifying termination occurred some months prior to the purported termination, and that Peregrine had continued to perform the Agreement, and Steria to enjoy the benefit of that performance, after each of the alleged breaches. Mr. Blunt sought to counter that submission by contending that each of the breaches relied upon was of a continuing nature.
- On this issue I prefer the submission of Mr. Akka.
- Whatever precisely the nature of the obligation which it was contended on behalf of Steria was imposed upon Peregrine in relation to RoI, Steria's case, as Mr. Blunt made plain at paragraph 61 of his written opening, was that the obligation fell to be performed by 30 April 2002, the date by which it was contemplated that RoI milestones would be agreed. Steria's case in relation to training, as Mr. Blunt explained at paragraph 113 of his written opening, was that the relevant training should have been provided within 60 days of 29 March 2002. So far as completion of the first phase of implementation of the Software was concerned, Mr. Blunt at paragraph 96 of his written opening reminded me that Steria's pleaded case was that that phase should have been completed by 9 August 2002. Thus each of the matters alleged in the letter dated 5 February 2003 to justify termination of the Agreement had occurred six months or more before the date of the letter. In the interim, Peregrine, through Mr. Mackay, had continued work on implementation of the Software, Mr. Peake had been trained, version 5 of ServiceCenter had been supplied and Peregrine had co-operated in Project Enterprise, and Steria had had the benefit of an operational Norwich City Council service desk.
- If one takes into account the matters of which Steria ultimately complained, but which did not in terms feature in the letter of 5 February 2003, if version 4 of ServiceCenter was not ITIL compliant, that was the position when that software was supplied to Steria in April 2002, and the breach, if there was one, occurred then. Similarly, any breach which was constituted by the fact that Peregrine did not support the Software operating on a Linux partition on OS/390 probably occurred when the Software was supplied, but at the latest must have occurred when Peregrine made its position plain at the beginning of August 2002. If it was a breach of the Agreement for Peregrine not to make version 5 of ServiceCenter immediately available to Steria once it was on general release, that breach occurred at the beginning of June 2002, following general release of version 5 on 31 May 2002. The complaints about the quality of the documentation produced by Mr. Mackay as to the changes which he made during tailoring were really an aspect of the allegation that the first phase of implementation of the Software had not been completed, amongst other reasons because appropriate documentation had not been produced. However, if one needs to look at the question as a separate item, the documentation in the final form in which Mr. Mackay produced it was sent to Steria at the end of November 2002, two months before the letter dated 5 February 2003. If Peregrine was in breach of the Agreement in not undertaking a review of Steria's business practices or in not providing Steria with information as to the unit prices which Peregrine would charge for additional software licences, it would seem that these also were aspects of the alleged failure to complete the implementation of the first phase of the Software. However, if they fall to be considered separately, it seems that Steria's case was that the review of business practices should have taken place before implementation of the Software commenced, which was in April 2002, and Peregrine's final attempt to provide pricing information to Steria was made when Louise Maitland sent to Mr. Singleton as an attachment to the e-mail dated 5 December 2002 the document entitled "Steria MSP costing framework", two months before the letter of 5 February 2003.
- In the result, it seems to me that, had Peregrine been in breach of the Agreement in any of the respects contended for on behalf of Steria, each such breach had been waived by the time the letter dated 5 February 2003 was sent.
Repudiation
- For the reasons which I have explained, in my judgment Steria was not entitled to treat the Agreement as terminated, whether under clause 7 b)(i) of the Conditions or at common law, unless Peregrine was in repudiatory breach of the Agreement. As I have found that Peregrine was not in breach of the Agreement at all, it is only possible to address the question whether any matter complained of amounted to a repudiatory breach on the hypothesis that there was a breach. This exercise strikes me as rather unreal in the circumstances of the present case, as I have found that most of the obligations of which it was said Peregrine was in breach were not obligations which Peregrine had in fact assumed as against Steria. In principle one cannot really address the significance of an alleged breach without considering the significance of the relevant obligation in the context of the Agreement as a whole. In the present case that would, to a significant extent, involve formulating some hypothetical obligation for the sole purpose of considering the significance of a breach of it. That does not seem to me to be useful.
The quantum of Steria's counterclaims
- For the reasons which I have set out, the counterclaims of Steria fail. It is not necessary in those circumstances to consider the quantum of those counterclaims. However, it is material to make some observations about the evidence relied on in support of the quantum of those claims.
- It was not in dispute how much Steria had in fact paid to Peregrine under the Agreement, namely £137,957. However, it was plain that Steria did derive some benefit from the Agreement, at least insofar as parts of the Software were used to provide the Norwich City Council service desk from 29 July 2002 to some date in about February 2003. Even if otherwise Steria had had no benefit from the Agreement, such that in principle damages calculated so as, amongst other things, to compensate Steria for wasted expenditure were appropriate, the material to enable an evaluation to be made of the worth of the use of some of the Software to provide the Norwich City Council service desk for some six months was not produced at trial. It did appear that the contract between Steria and Norwich City Council was a valuable one for Steria. No copy of the contract itself was produced, but Steria witnesses who were asked about it thought that it was to last for 15 years and that the sums payable to Steria under it totalled £60 million, or perhaps more. If one assumed, possibly erroneously, that a sum of £60 million was paid at a uniform rate over a 15 year duration of the contract, the revenue would amount to £4 million per annum, or £2 million over the six months that the Norwich City Council service desk was operated using parts of the Software. It is a matter of speculation what would have been the cost to Steria of providing that service desk using other software. However, in principle some credit in respect of that cost would seem to be proper against any damages otherwise payable.
- The other element in Steria's alleged claim for damages was for compensation for the time spent by Steria employees in connection with the Software. The evidence in relation to this element of claim came, essentially, from Mr. Williamson. It seems that Steria employees kept limited time records. Most seem not to have made any real record at all, but Miss Osborn, Mr. Berry, and some other individuals whose names have not so far featured in this judgment did make records on a time collection and recording system known as WASP. What Mr. Williamson did was to obtain a print out of the WASP records of those who were involved with the Software in some way and kept such records and to ask other people involved, such as Mr. Peake and Mr. Crann, to give him an estimate of how much time had been spent in connection with the Software. The results of this exercise were not, as it seemed to me, at all satisfactory. Mr. Williamson said that he did not really understand the print out of the WASP records which he produced or what it showed. His interpretation of the WASP records in the case of Miss Osborn she told me was incorrect, Mr. Williamson including time for her which was actually not spent in connection with the Software. The WASP print out appeared on its face to include the first three months of 2002, that is to say, the three months prior to the making of the Agreement. Mr. Peake and Mr. Crann each told me that he had made an estimate of his time spent in connection with the Software and had passed it on to Mr. Williamson, but each was unable to say how, in any sort of detail at all, he had made his estimate. The estimates were made in about July 2003, as long as a year after the events to which they related. Mr. Watson could not remember even giving Mr. Williamson an estimate. The Schedule to the Re-Re-Amended Defence and Counterclaim, in which were set out what Mr. Williamson said were the results of his enquiries in relation to time, named 14 individuals. It did not include the names of the six individuals, in addition to Miss Osborn and Mr. Berry, whose names appeared in the WASP print out. It did include the names of two lawyers and the names of five other people who did not give evidence at the trial, respectively, Kim Lambert, Tony Southwell, Margaret Snowden, Ian French, and Alan Sheehan. Who Mr. French may be or what his role was did not emerge at trial at all his name only appeared in the Schedule. Although the nature of the involvement of Margaret Snowden was pretty clear from the evidence, the same could not be said of the roles of Mr. Sheehan, who seems to have been the manager of the call centre at Sunbury, or Mr. Southwell, who Mr. Singleton told me was an independent consultant, not an employee of Steria, who was brought in for the purposes of Project Enterprise.
- In my judgment the quality of the evidence in relation to allegedly wasted time of Steria employees was quite insufficient to enable any worthwhile conclusion to be reached as to how much time was spent by any individual in connection with the Software or whether that time had been usefully spent. While I should not want to suggest that estimates of time devoted to a task can never be sufficient proof of how long was spent, the further one gets away from a detailed contemporaneous record of time, the greater is the possibility of error. Moreover, it is difficult to see that estimates of time made by persons who do not themselves give evidence spent on tasks the nature of which is not explained and whose roles are to an extent obscure will ever be of much assistance to a court.
A defence to the quantum of Peregrine's claim?
- As originally formulated Peregrine's claim in this action was for damages, quantified at £700,000, which were said to have been suffered as a result of the wrongful termination of the Agreement. At paragraph 8 of the Particulars of Claim it was pleaded that the sum of £700,000 was "the sum to which the Claimant was entitled to be paid on or before 28 February 2003 in consideration for the licenced [sic] products, maintenance and professional services purchased by the Defendant."
- In his written opening at paragraphs 139 and 140 Mr. Blunt sought to rely on clause 9 c) of the Conditions as excluding the pleaded claim for damages in the Particulars of Claim. What he said was:-
"139. Clause 9(c) of the Contract is in the following terms:-
"
neither party shall not be liable (whether for breach of contract, negligence or for any other reason) for any loss of profits, loss of sales, loss of revenue, loss of any software or data, loss of bargain, loss of opportunity, loss of use of computer equipment, software or data, loss of or waste of management or other staff time, failure to meet anticipated savings, or for any indirect, consequential or special loss (however arising)."
The double negative is an obvious error.
140. The effect of this as against Peregrine, is that the £700,000 is plainly irrecoverable, being a loss of "sales" of computer licences or of "revenues" etc therefrom. Alternatively, it has the same effect by reason of the fact that it excludes loss of or waste of time and profit: the time spent by Peregrine personnel was wasted as a result of the termination of the contract, and the remainder of its loss would have been profit the licence fees were for "out of the box" software which had already been developed, and so were all profit. Similar points arise in relation to loss of "opportunity" etc."
- The point which was set out at paragraphs 139 and 140 of Mr. Blunt's written opening was subsequently incorporated into a Re-Amended Defence and Counterclaim for which permission was sought and obtained during the course of the trial, and thence carried forward into the ultimate Re-Re-Amended Defence and Counterclaim.
- Mr. Akka, in his turn, sought and obtained permission during the trial to amend the Particulars of Claim so as to add the new paragraph 7A which I have already quoted.
- In the Re-Re-Amended Defence and Counterclaim a new paragraph 16A was added in which paragraph 7A of the Amended Particulars of Claim was denied. The basis of that denial, as I understood it, was that it was contended that the Agreement had been lawfully terminated before the payment of £700,000 became due. It was not suggested that, if that was not correct, there was any other answer to the claim for £700,000 as a debt. Peregrine's case was that the Agreement in fact came to an end when the wrongful termination of the Agreement by the letter dated 5 February 2003 and the subsequent failure of Steria to perform its obligations under the Agreement were accepted by Messrs. Olswang's letter dated 12 May 2003 as bringing the Agreement to an end.
- It seems to me that the claim advanced on behalf of Peregrine in the Amended Particulars of Claim for the sum of £700,000 as money due before the Agreement came to an end is the more conventional way of analysing the circumstances of the present case, in the light of my findings, than the claim for damages for, in effect, being deprived of the right to receive that sum. Actually, in my view, Peregrine was not deprived of the right to receive the sum of £700,000, because that sum fell due before the Agreement was terminated. In those circumstances it is not necessary to consider whether clause 9 c) of the Conditions provided a defence to the quantum of a claim for damages on the part of Peregrine.
Conclusion
- For the reasons set out in this judgment, there will be judgment for Peregrine in the sum of £700,000. By clause 5 a) of the Conditions Peregrine is entitled to interest on that sum from 28 February 2003 until payment at a rate of 1% per annum above the base rate from time to time of Barclays Bank plc. Interest at that rate has been claimed in the Amended Particulars of Claim, and no doubt Counsel will be able to agree a calculation of the sum due as at the date this judgment is formally handed down, and the daily rate thereafter until payment.
