Vogon International Ltd. v Serious Fraud Office [2004] EWCA Civ 104

Case No A1/03/1712[2004] EWCA Civ 104
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
TECHNOLOGY AND CONSTRUCTION COURT
(HIS HONOUR JUDGE RICHARD SEYMOUR QC)
Venue Royal Courts of JusticeDate Wednesday, 4 February 2004
Strand
London, WC2A 2LL
B E F O R E:
THE MASTER OF THE ROLLS
(Lord Phillips of Worth Matravers)
LORD JUSTICE MAY
LORD JUSTICE JONATHAN PARKER
Between
VOGON INTERNATIONAL LIMITEDAppellant-v-
Between
THE SERIOUS FRAUD OFFICERespondent
(Computer-Aided Transcript of the Palantype Notes ofSmith Bernal Wordwave Limited190 Fleet Street, London EC4A 2AGTel No: 020 7404 1400 Fax No: 020 7831 8838(Official Shorthand Writers to the Court)
MR ANDREW GREEN (instructed by DLA, Birmingham, B2 4DL) appeared for AppellantMR DURRAN MCCALL (instructed by Messrs Bird and Bird, London, EC4A 1JP) Appeared for Respondent
J U D G M E N T
[1]LORD PHILLIPS, MR: Lord Justice May will give the first judgment.

LORD JUSTICE MAY: This appeal concerns the meaning in its context in a written agreement of the word "database" or "databases". The expression in computer terminology has a range of meaning. The parties called expert witnesses to explain their understanding of the possible meanings. HH Judge Richard Seymour QC, the judge, correctly in my view, did not find this evidence particularly helpful.

[3]In general, a database is a structured body of data stored in some digital format. The data is often repetitive as to content. Each individual entry in a database is often referred to as a record or a row. The individual components of each record are often referred to as fields. Thus, a simple database may consist of numerous records comprising, for instance, the names, addresses and telephone numbers of a large number of people. There will be fields for first names, surnames, individual parts of the addresses and the telephone numbers. Database programmes are capable of sorting and ordering the data in each field in accordance with instructions from a person operating the programme.[4]Although this is a description of a simple database, databases may take many different and often sophisticated forms, and an abstract attempt to define the expression "database" does not resolve the problem of construction in the present appeal.[5]In August 2001, the Serious Fraud Office were carrying out investigations on a case whose details are of no relevance. They wanted to recover e-mail data from computerised tapes which had come into their possession. They needed to contract the work out. The contractor who they engaged was the claimant, Vogon International Limited. Vogon have a considerable reputation for work of this kind. There was an initial contract based on Vogon's quotation number 38118. The details of this do not matter. This led to the possibility of further work which Vogon described in an attachment to their letter of 10 August 2001. There were some 33 relevant tapes. Vogon had the tapes in their possession at this stage. The attachment contained this paragraph:
"The tapes that contained MS Exchange Server Backup will have MS Exchange Server files in it. We will restore these files for you. However if you need the individual PST files recovering from these files it will involve recreating the Exchange Server and extracting the appropriate files. We estimate an initial set-up charge of around £2,000 and approximately £500 per backup set process. If you would like a quotation for this work we are more than happy to provide one."
There were further descriptions of possible work in subsequent e-mails, including those dated 14 and 16 August 2001.[6]In the context of this paragraph, a backup file is in the nature of a copy of an active file, or a set of files, at the time the backup was made. The backup will not be in immediately accessible form. It needs to be restored. The process of restoration described was, first to restore the Exchange Server files so that they contained the bulk data and, second, if this was needed, to recover from these files individual PST files. PST files are Personal Store files which can be read using Microsoft Outlook. The intermediate stage of restoring an MS Exchange Server Backup would produce what are referred to elsewhere as Exchange Database files. In loose terminology, the data in any one of the three stages of this process is capable as being referred to as contained in one or more databases.[7]As it turned out, when the tapes were restored, there were 49 blocks of data of which 39 were capable of being processed into PST files. If this work had been priced in accordance with the estimate accompanying Vogon's letter of 10 August 2001, the cost would have been in the order of £21,500.[8]The Serious Fraud Office wanted this work done in a hurry and asked for a quotation. They needed to have it completed by 31 August 2001. Vogon supplied a quotation, number 38118a, with a letter dated 20 August 2001. The letter stated:
"Further to our e-mail correspondence, we are able to quote for the processing of the Microsoft Exchange Databases from the tapes that are in bags 377, 384 and 387. The processing requires that we examine the contents of each tape to determine the number of databases and identify the necessary security and system information required to allow the creating of each database. Once this process is completed we must then, for each database, set up the Exchange Database with the correct configuration and then populate it from the data from tape. It will then remain for us to extract each mail box from the database as a PST (MS Outlook) file. Each of these stages of the process is costed according to the time required. The initial set up of the server and the particular database would take approximately five working days (subsequent databases would require a further 2/3 days each). To process each tape would then take an additional day or two. Note that at present there only appears to be backups of one database however we cannot guarantee this without carrying out the work. These figures and time estimates are based on the Exchange Database being in full working order and the data held on the tape being uncorrupted. We are able to extract individual e-mails from PST files and can send a quote to do that if required."
[9]This letter describes the stages of the process which found their way into Vogon's quotation. It is, in my judgment, quite clear that the use of the word "database" or "databases" in this letter (where these words are used without an initial capital letter) refer either to an Exchange Server Backup or the Exchange Database recovered from the backup. The words do not refer to one or more PST files. Although the process may have involved recreating the same server on multiple occasions, as Mr Sear said in evidence, that does not in my view affect the clear meaning of the word "database" or "databases" which emerges from this letter.[10]The material part of the quotation was in the following terms:
"To inspect and determine the configuration of each MS Exchange Database from each tape £3,500.00 total. Set-up and population MS Exchange Database. £1,500 per database. To process the data from each database to produce one PST file per mailbox £1,250.00 per database."
[11]The quotation provided for an addition to these figures of 200% if completion was to be by the end of August 2001. The Serious Fraud Office negotiated a reduction of this increase to 150%. On 21 August 2001 Vogon resubmitted their letter and a revised quotation, number 38118B, including the 150% increase for completion by the end of August 2001. The contract was formed on the basis of this quotation.[12]It was and is Vogon's case that the words "per database" following the second and third amounts of money in the quotation are to be construed as referring to each of the resulting PST files or the individual backups of each of these. On this basis they invoiced the Serious Fraud Office for £314,375 plus VAT and claimed that amount plus interest in the proceedings. The defendants' case is that the words "per database" are to be construed as referring to each MS Exchange Database. On this basis, they contend that Vogon were entitled to charge a maximum of £22,500 plus VAT. They tendered this amount, but Vogon refused to accept it. It was accepted by each side that the other's money calculations were correct if their construction of the agreement was correct.[13]The judge decided the issue of construction in favour of the defendants. He did not give a money judgment against them, since the amount had already been tendered and the Serious Fraud Office undertook to pay it. He did not award interest on that amount. He ordered Vogon to pay the defendants' costs on an indemnity basis. Vogon had pleaded other grounds in support of their claim, but did not pursue them at trial. The judge refused permission to appeal. Permission to appeal was granted on paper by Aldous LJ. This is the hearing of Vogon's appeal.[14]The judge did not consider that any definition of the commercial purpose of the contract shed any light on the issue of construction. I agree. He noted that Mr Green, who appears for Vogon, relied heavily on the fact that in the critical expression the word "database" did not have an initial capital, whereas it did have an initial capital in the expression "MS Exchange Database". He considered that to be a false point. The judge said:
"In the expression 'set up and population MS Exchange Database £1500.00 per database', the most obvious way of reading the reference to 'database' in the phrase "per database" is as a reference back to the database in relation to which the activity specified is to be carried out, namely 'MS Exchange Database'. The references to 'database' in the expression 'to process the data from each database to produce one PST file per mailbox £1250.00 per database' are no doubt more equivocal, but again, in the context of the quotation number 38118B as a whole, the obvious way in which to read those references, as it seems to me, is as referring to the databases more specifically identified earlier, that is to say 'MS Exchange Database'. In order to grapple with the proper construction with contract 38118B it is, therefore, in my judgment, necessary to adopt a more sophisticated approach than just to notice that the word 'database' where it appears in the quotation number 38118B sometimes is introduced with a capital letter and sometimes is not."
[15]The judge also rejected Mr Green's submission that the breakdown of the scheme of charging into three stages was unnecessary if what was contemplated was that charging would be by reference to how many servers the data on the tapes had originally been on. The first stage fixed a lump sum fee no matter how many servers there proved to be. The second and third stages could have been covered by a single rate of fee, but the fact that that was not done was not of great significance.[16]The judge considered that the terms of the letter which the quotation accompanied shed important light on the proper interpretation of the quotation. He considered that all the relevant references suggested that the expression "database" was used to refer to a server on which the data on the tapes had originally been stored. He considered each of the uses of the word "database" or "databases" in the letter concluding, as I do, that they were to a server or servers or, as I would add, to the data recovered from them in the Exchange Database. He noted that Mr Green accepted this for at least some of the references in the letter. The judge regarded the single most important indicator as being in the sentence, "Note that at present there only appears to be backups of one database however we cannot guarantee this without carrying out the work"; and in the sentence, "These figures and time estimates are based on the Exchange Database being in full work and the data held on the tapes being uncorrupted". Both Mr Sear and Mr Warner accepted that the reference in the first sentence to database was to an MS Exchange Database. The judge noted that the first of these sentences would have been irrelevant if the critical determinant of fee entitlement was not the number of servers, but the number of backup files.[17]The judge also noted that the Serious Fraud Office's case was commercially consonant with the estimate given in Vogon's letter of 10 August 2001. By contrast, Vogon's construction produced a monetary result which was commercially extravagant for work which had been carried out essentially by two people over 10 days. The time estimates in the letter of 21 August 2001 only make sense if the Serious Fraud Office's construction is correct.[18]In this appeal, Vogon contend that the judge's construction of the contract was wrong. Mr Green submits that the judge should have found that the words "MS Exchange Database" referred to a server and the word "database" in the phrase "per database" referred to a backup file containing e-mail data. He submits that the pre-contractual correspondence, including the note attached to the letter of 10th August 2001, supports Vogon's construction of their quotation. He submits that the pre-contractual correspondence referred to three stages:(1) the recreation of MS Exchange servers,(2) so as to convert backup files,(3) into PST files. He submits that the word "database" referred to the backup files. However, the note attached to the letter of 10 August 2001 does not refer to processes in the terms of Mr Green's submission. It refers to the tape as containing MS Exchange Server Backup. These were to be restored into MS Exchange Server Files. From these the individual PST files were to be recovered. Backup files as an intermediate stage do not feature in this passage. Mr McCall submits that the expressions "database" and "backup" are not the same. Mr Green accepts that the expression "£500 per backup set processed" refers to the resulting PST files.[19]Mr Green refers to the quotation itself. He draws the distinction between "MS Exchange Database" with an initial capital letter and "database" without an initial capital. The distinction appears in the second paragraph of the quotation. On the judge's construction that paragraph did not identify the fact that the Database was to be populated with each individual backup file. There was no reason for the judge's conclusion that the two uses of the word "database", one with an initial capital and the other without, referred to the same thing. Mr Green submits that in the third paragraph of the quotation the word "database" is to be construed as a reference to the individual backup files to be converted into PST files.[20]Mr Green submits that the commercial purpose of the contract was to provide the Serious Fraud Office with individual backup files in readable form. In agreement with the judge, I do not find this helpful as an aid to construction of the expression "per database". Mr Green submits that, on the judge's construction, the quotation contains no reference to either the server or the backup files with which it was to be populated. He also submits that the precise meaning of the letter of 20 August 2001 is far from clear. Vogon accept that their construction of the contract produced an invoiced amount which was substantial. By contrast, he submits that the defendants' contention gave an absurdly low amount for the work involved.[21]I have no hesitation in concluding that the judge's construction of this contract was correct. I have already indicated my view that the letter of 20 August 2001, re-sent on 21 August 2001 with the revised quotation, is clear as to its use of the word "database" or "databases". It does not refer to individual backup or PST files. It does not support Vogon's construction. On the contrary, it positively supports the Serious Fraud Office's construction both in its use of the word "database" and for the particular reasons given by the judge. I agree with the judge that the use of initial capitals in the expression "MS Exchange Database" in the quotation does not in the context indicate a different meaning when in the expression "per database" there is no initial capital. I agree with the judge that each use of the expression "per database" is a reference to an "MS Exchange Database" and not to an individual backup or PST file. That seems to me to be the clear meaning of the second paragraph of the quotation.[22]In the third paragraph of the quotation, the work quoted for is to process the data from each MS Exchange Database to produce one PST file per mailbox. In my judgment, this construction is consonant with the description of the work in the note attached to the letter of 10 August 2001. It also produces a commercially sensible amount for the work carried out. I would not regard £22,500 as an absurdly low amount for what was essentially 10 days' work by two people, even if they did work very long hours during those 10 days.[23]Vogon have another ground of appeal. They rely on what they submit was a serious procedural irregularity. The judge, having determined the point of construction and as a separate section of his judgment, made findings of fact as to the actual intentions of Vogon's representative. He said that he was satisfied that the contentions as to the meaning of the expression "per database" did not reflect what those at Vogon actually believed that expression meant at the time the contract was made. He made this finding having heard the evidence of Mr Warner and Mr Sear. He was particularly critical of Mr Sear, the Technical Director of Vogon. He regarded Mr Sear as an unsatisfactory witness. He examined at length the written witness statements of Mr Sear and Mr Warner, with particular reference to events surrounding the giving to the defendants on 29 August 2001 of a likely total cost of the work of £150,000.[24]The judge considered that rendering of the eventual invoice was simply an opportunistic attempt to exploit the perceived commercial naivety of the Serious Fraud Office. It was preceded by an effort on the part of Mr Sear to find out the likely reaction of the Serious Fraud Office to being requested to pay that sum. Mr Sear was encouraged by the lack of a robust denial by the defendants of liability to pay a sum of that magnitude. These observations were, in my view, entirely unnecessary to any decision that the judge had to reach.[25]When it came to a decision about costs, as I have said, the judge awarded the defendants costs on an indemnity basis. He did so because the defendants had tendered the full sum that he had held them liable to pay and because they had made a payment into court substantially in excess of that amount. He decided that the claimants should recover no interest. The judge also referred to his findings in his principal judgment as to Vogon's intentions. He said this in his costs judgment:
"Those observations can perhaps be summarised in this way: That my conclusion is that this was an opportunistic claim, which was formulated and pursued principally because of a perceived lack of robust resistance on the part of the Serious Fraud Office. It follows logically from that finding that this was a claim which was known by the claimants to have no legitimate prospect of success. Indeed, it may be fair to stigmatise the claim as a dishonest claim. At all events, the claim being for a very large sum of money, being in my judgment entirely unjustified and being pursued against a perceived weak victim, it does seem to me to be appropriate to make an order for costs on an indemnity basis."
[26]It was never the defendants' case that Vogon were opportunistic, let alone dishonest. There was no cross-examination to this effect. We are told that the judge gave no indication to Vogon's witnesses or to their counsel that he was thinking of making findings of this kind. It is submitted that the findings, and in particular the finding of dishonesty, were unfair.[27]We have a witness statement from Gordon Stephenson, the Managing Director of Vogon International Limited, who attended the hearing. He gives details of Vogon's substantial commercial standing. He explains how he is genuinely distressed and surprised at the conclusions at which the judge arrived as to Vogon's dishonesty and the dishonesty of Mr Sear. He explains that the attack on Mr Sear and Vogon came solely from the judge. It had not been raised by the defendants or by the judge at any time prior to the judgment. The allegation was not part of the defendants' case, nor was it raised with any witness. He maintains that Mr Sear and Vogon have been completely unable to defend themselves against these serious findings, which had no relevance to the issue of construction in the proceedings. They are findings which are likely to have a serious adverse effect on both Mr Sear and Vogon.[28]The defendants agree that it was never suggested on their behalf that Vogon were opportunistic or dishonest. They take a neutral position on this ground of appeal except to submit that(a) it does not impinge on or impugn the judge's findings on construction, and(b) that the indemnity costs' order was entirely justified for other independent reasons.[29]I agree with both these submissions. But I also consider that the judge was entirely wrong in the circumstances of this case to make these unnecessary findings. It is, I regret to say, elementary common fairness that neither parties to litigation, their counsel, nor judges should make serious imputations or findings in any litigation when the person against whom such imputations or findings are made have not been given a proper opportunity of dealing with the imputations and defending themselves. In the absence of such an opportunity, it is of little consequence to examine details of the evidence given to see whether the judge's findings might have been justified.[30]In my judgment the judge was wrong to make the findings he did in his principal judgment as to Vogon's original true intentions. He was also wrong to rely on those findings and elaborate them into an explicit finding of dishonesty in his judgment as to costs. Neither was remotely necessary to the decisions which the judge had to make. More importantly, however, findings of this kind ought not to have been made when those involved had not been put on notice that they might be and had not been given the opportunity to defend themselves.[31]Although, in my judgment, for the reasons which I have given, the substantive appeal should be dismissed, as should the appeal as to costs, Vogon and Mr Sear are entitled to a finding by this court which they can hold out in support of their reputations that the judge's adverse findings as to their intentions and honesty were unjustified and should not have been made.

LORD JUSTICE JONATHAN PARKER: I agree.

[33]LORD PHILLIPS, MR: I also agree. I would only add that the award of costs on the indemnity basis made by the judge was justified, first by the fact that the Serious Fraud Office had always admitted liability for the sum awarded and tendered that sum, and, secondly, that the Serious Fraud Office, in an attempt to reach a compromise, had resorted to mediation and paid into court the sum of £77,948 which had been available, had they wished to take advantage of it, to Vogon.

ORDER

Appeal dismissed with costs.

Cited in 36 later judgments

and 27 more of the most senior