Tele2 International Card Company SA & Ors v Post Office Ltd [2008] EWHC 158 (QB)

[2008] EWHC 158 (QB)Case No HQ06X00067
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 25/02/2008
Before
HIS HONOUR JUDGE RICHARD SEYMOUR Q.C.(Sitting as a Judge of the High Court)
Between
TELE2 INTERNATIONAL CARD COMPANY SAClaimantsKUB 2 TECHNOLOGY LIMITED (formerly known as C3 CALLING CARD COMPANY (IRELAND) LIMITED)ClaimantKUB 7 TECHNOLOGY LIMITED (formerly known as CALLING CARD COMPANY (UK) LIMITED)ClaimantPOST OFFICE LIMITEDDefendant(By claim)AND BETWEEN:POST OFFICE LIMITED Claimant
Between
KUB 2 TECHNOLOGY LIMITED(formerly known as C3 CALLING CARD(IRELAND) LIMITED)
Between
KUB 7 TECHNOLOGY LIMITED(formerly known as CALLING CARD COMPANY(UK) LIMITED)Defendants(By counterclaim)
John McCaughran Q.C. and Matthew Cook (instructed by Fox Williams LLP) for Claimants and the Part 20 DefendantsJeffrey Onions Q.C. and Benjamin Strong (instructed by Lovells LLP) for Defendant/Part 20 ClaimantHearing Hearing dates: 27, 28, 29, 30 November, 3, 4, 5, 6, 7, 10, 11, 14 and 17 December 2007
Approved JudgmentI direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic..............................HIS HONOUR JUDGE RICHARD SEYMOUR Q.C.
[1]The background to this action lay in the desire of the defendant, Post Office Ltd. (“the Post Office”) to offer to its customers the facility of using what was described as a “phonecard”. Historically there have, at different times, been various types of phonecard. The type with which this action was concerned was one which could be used by a holder to obtain access to telephone services, whether from a land line or from a mobile telephone, at prices below those charged by the provider of the relevant land line or the operator of the network to which the mobile telephone was attached. It is in that sense that I shall use the expression “phonecard” in this judgment.[2]The intention of the Post Office in offering phonecards to customers was that the phonecards in question should be branded as coming from the Post Office by using its name and logo on the front, although the actual services would not be provided by the Post Office itself, but by those with whom the Post Office contracted for the provision of phonecards.[3]As I understood it, the principal circumstance in which it was likely to be advantageous to a holder of a phonecard to use it to make a telephone call was if the holder desired to make an international call, although it was also possible to use one to make calls within the United Kingdom.[4]The way in which a phonecard is used is that each is assigned a Personal Identification Number (“a PIN”) and the user is provided with a telephone number to dial when he or she wishes to take advantage of the rates afforded by the phonecard. On dialling the relevant telephone number, and communicating the PIN, access is afforded to a telephone line by means of which the holder of the card can make contact with his or her desired interlocutor.[5]Typically phonecards are sold in pre-determined values. In the present case the values were £5, £10 and £20. The provider of the facility of using the relevant brand of phonecard determines what charges to levy for calls made to particular destinations. It is convenient to refer to such charges in this judgment as “Rates”. If the only charge levied is a declared rate per second or per minute for each call made the phonecard is described as “transparent” or “clean”. In practice, it appears, most brands of phonecard are not transparent, because the providers of them levy undisclosed charges in addition to the declared call charges. Examples of such undisclosed charges are connection charges, that is to say, a charge is levied for making a connection to the telephone the user wishes to contact, in addition to the charge related to the length of the call, and service charges, a daily charge for the facility of having the phonecard at all. Obviously the net amount which a user of a phonecard has to pay to make use of it depends upon the incidence of all the charges levied in respect of the phonecard.[6]The principal variable costs to the provider of phonecards to the public are the costs of production of the physical card and the costs of providing the telephone route by means of which the holder of the phonecard could use it to speak to others by telephone. The latter type of cost is called “interconnect costs”. Interconnect costs include what are called “termination costs”. Termination costs are the costs incurred by the telecommunications supplier for connecting calls to their destinations, as opposed to the routing of such calls through the telecommunications system. In addition to incurring interconnect costs, a provider of phonecards might undertake marketing of the benefits of using his phonecards.[7]Phonecards, it seems, have to some extent been overtaken by improvements in technology. In particular, the availability of what is called “Voice Over Internet Protocol”, or “VOIP”, using the internet to make telephone calls at no cost in addition to a broadband connection, has meant that it is no longer necessary to use a telephone to speak to someone, if one has the VOIP facility and the person to whom one wishes to speak has it also. Again, it appears that there are direct dial suppliers through whom cheap international Rates can be obtained without the cumbersome procedure of having to dial a phonecard provider’s access telephone number and provide a PIN before being able to make a call.[8]One of the largest telecommunications groups in Europe is that headed by Tele2 AB (“the Parent Company”), a company incorporated in Sweden. That group is also one of the largest suppliers in Europe of phonecards.[9]All of the claimants in this action are ultimately subsidiary companies of the Parent Company. The immediate parent of each is a company incorporated in the Netherlands called CCC Holding BV. The first claimant, Tele2 International Card Company SA (“Tele2 International”), is a company incorporated in Luxembourg. The second claimant, Kub 2 Technology Ltd., was formerly called C3 Calling Card Company (Ireland) Ltd. and it is convenient to refer to it in this judgment as “Tele2 Ireland”, although there was in fact another company the name of which was actually Tele2 Ireland Ltd. Unsurprisingly, Tele2 Ireland was incorporated in Ireland. The third claimant, Kub 7 Technology Ltd., was formerly called Calling Card Company (UK) Ltd. It was incorporated in England and Wales, and I shall refer to it in this judgment as “C3 (UK)”. In this judgment I shall refer to Tele2 International, Tele2 Ireland and C3 (UK) collectively as “the Claimants”.[10]For present purposes it is necessary to mention a number of other companies in the group headed by the Parent Company. One of these is a company incorporated in England and Wales called Tele2 UK Communications Ltd., to which I shall refer in this judgment as “Tele2 UK”. A second is Tele2 Nederland BV, a company incorporated in the Netherlands, to which I shall refer in this judgment as “Tele2 Nederland”. A third is a company incorporated in Spain called Calling Card Company Spain SA, to which I shall refer in this judgment as “Tele2 Spain”. In addition there is a company called, simply, The Calling Card Company Ltd., to which I shall refer in this judgment as “C3”.[11]The claims in this action all arose out of an agreement (“the Agreement”) in writing dated 9 November 2001 and made between(1) the Post Office(2) Tele2 UK(3) Tele2 International and(4) Tele2 Ireland. In this judgment I shall refer to Tele2 UK, Tele2 International and Tele2 Ireland collectively as “the Tele2 parties”. Tele2 UK was not a party to this action. C3 (UK) was a party to this action, but was not named as a party to the Agreement. The claims of the Claimants in this action were not differentiated as between the individual claimants, but put on behalf of the three of them collectively. Where, in this judgment, it is necessary to refer to an undifferentiated member of the Tele2 group of companies I shall adopt the designation “Tele2”. Where I use that expression, therefore, it is because it is not possible, from how the Claimants have put their case, to identify a specific company as that said to be involved.[12]The claims were, first, for damages for alleged wrongful determination of the Agreement and, second, for damages for alleged breach of an obligation on the part of the Post Office in the Agreement not to promote the services to be provided under the Agreement by the Tele2 parties to a lesser extent than it promoted similar products and services. There were two cross-claims on the part of the Post Office. One was in respect of the share to which the Post Office contended it was entitled of what was called “Expiry Revenue” or “breakage”. The other related to an alleged entitlement of the Post Office to what can conveniently be called “Additional Fees”.[13]In order to explain these various claims and cross-claims it is necessary to set out the material terms of the Agreement.

The material terms of the Agreement

[14]It is convenient to set out together all of the provisions of the Agreement to which it will be necessary to refer in this judgment, notwithstanding that some of the terms were material not to issues of liability, but to issues of quantum in the event that liability in respect of a particular claim was established.[15]Clause 1 of the Agreement contained definitions for the purposes of the Agreement. In clause 1 the various Tele2 parties to the Agreement were identified individually by the names which I have adopted for the purposes of this judgment, while the Post Office was variously called Post Office Limited or “POL”. Other relevant definitions were:- “Agreement means the agreement made between Post Office Limited and each of Tele2 Ireland, Tele2 International and Tele2 UK, as appropriate, including these terms and conditions, the attached Schedules and any other documentation specifically identified or referred to in this Agreement. Additional Fees means the additional fees payable by the Relevant Contractor to POL in further consideration of the performance of POL’s obligations under this Agreement, as detailed in Part III of Schedule 4. Change Control means the agreed process and procedures for making changes to this Agreement using the forms and procedures set out in Schedule 7. ... Client Relationship Team means the team set up by the parties for the purpose of this Agreement as detailed in Schedule 3. [Named individuals in the case of the Post Office, but “to be advised” in relation to representatives of the Tele2 parties] Commencement Date means the date this Agreement shall be deemed to have commenced, being 15th October 2001. … Contractors means, together, Tele2 Ireland, Tele2 International and Tele2 UK, and, as appropriate, their respective employees, agents, assignees and sub-contractors and Relevant Contractor means the Contractor supplying the relevant Phonecards and/or Services, as appropriate. … Customer Services means enquiry, refund, help line and connection assistance relating to the Phonecards and the Services, to include, as appropriate, the Telesales Facility … Initial Term means the period from the Commencement Date up to and including 31st March 2005. … International Phonecards means the POL branded international rechargeable phonecards to be supplied by Tele2 International to POL. Parent Company Letter means a letter from Tele2 AB to each of the Contractors materially in the form set out in Schedule 6. Pre-paid Phonecards means the POL branded pre-paid phonecards to be supplied by Tele2 Ireland to POL. … POL Outlets means post offices and sub-post offices. Phonecards means, together, the Pre-paid Phonecards and the International Phonecards as referred to in Schedules 1 and/or 2. PTS means all pre-paid phonecard telecommunications services to be provided by Tele2 Ireland in connection with the Pre-paid Phonecards from its headquarters in Ireland, to include Customer Services. ITS means all international phonecard services to be provided by Tele2 International in connection with the International Phonecards from its headquarters in Luxembourg, to include Customer Services … Key Performance Indicators or KPIs means the key performance indicators set out in Schedule 9. … Marketing Guidelines means the marketing guidelines set out or referred to in Schedule 10 Year or year means a year commencing from the Commencement Date (or any anniversary thereof, as the case may be), unless otherwise expressed.” … Key Performance

Marketing Guidelines means the marketing guidelines set out or referred to in Schedule 10

[16]The principal obligations of the Post Office under the Agreement were contained in clause 2. So far as is presently material, the main obligation was that in clause 2.1:- “Post Office Limited agrees to promote the Phonecards and Services to no lesser extent than it promotes similar products and services from time to time through the POL Outlets, in its internal marketing publications and through other suitable communication channels. The nature, method and extent of such communications shall be discussed and agreed by the Client Relationship Team or their duly authorised representatives. The Relevant Contractor recognises that Post Office Limited’s support for the Phonecards and Services will be subject to the Marketing Guidelines, permissions and media availability.”[17]It was the case for the Claimants that the Post Office had been in breach of that obligation in the period October 2004 to 31 March 2005 in having promoted phonecards supplied by a rival, Nomi-Call Ltd. (“Nomi-Call”), but not those of the Claimants. The phonecards supplied by Nomi-Call were, respectively, a phonecard focused on calls to other member states of the European Union, to which phonecard I shall refer in this judgment as “the EU Card”, a phonecard issued in relation to Christmas in 2004, to which phonecard I shall refer in this judgment as “the Xmas Card”, and a phonecard issued in connection with attracting support for the application of London to the International Olympic Committee to be appointed the venue for the Olympic Games in 2012, to which phonecard I shall refer in this judgment as “the Back the Bid Card”.[18]The principal obligations of Tele2 Ireland, Tele2 International and Tele2 UK in the Agreement were contained in clause 3. So far as is presently material those obligations were:- “3.1 Tele2 Ireland shall provide the Pre-paid Phonecards and PTS, Tele2 International shall provide the International Phonecards and ITS, and Tele2 UK shall provide the FTS, in accordance in all material respects with the relevant Schedules and as otherwise provided for in this Agreement. [FTS was a fixed land line service which is not directly relevant to the issues in this action, but the service is referred to in some of the documents to which I shall come. It was common ground that the parties agreed that the service should be terminated on 31 March 2005.] …3.10.1 Within 20 days of the execution of this Agreement, each of the Relevant Contractors shall forward to POL a certified copy of the relevant Parent Company Letter for the calendar year commencing 1 January 2001.3.10.2 7 days prior to the commencement of each subsequent calendar year, each of the Relevant Contractors shall forward to POL a certified copy of the relevant Parent Company Letter for such subsequent calendar year.3.10.3 Each of the Relevant Contractors undertakes to POL that if in its reasonable opinion it requires capital as referred to in a Parent Company Letter, it will forward a substantiated request to Tele2 AB without delay as referred to in such Parent Company Letter, and confirm in writing to POL that such a request has been forwarded. …”[19]The form required of a Parent Company Letter, which expression I shall use in this judgment in the sense defined for the purposes of the Agreement, was set out in Schedule 6 to the Agreement. It was to be addressed to the relevant company by the Parent Company, was to be headed “Guarantee” and was to read, in substance, but plainly with alterations to indicate the company to which it related and the date of the duration of the letter:- “We hereby confirm that Tele2 AB until November 8, 2002 undertakes to provide Tele2 UK Communications Limited, if relevant, with the capital necessary for the continuation of its operations, including that needed to prevent Tele2 UK Communications Limited instituting liquidation proceedings or considerably limiting its activities. We will pay the necessary capital on demand without undue delay after the Board of Directors of Tele2 UK Communications Limited has forwarded a substantiated request to us.”[20]It was common ground that no certified copies of Parent Company Letters were provided by any of the Tele2 parties in respect of the calendar year 2004 by 24 December 2003.[21]Clause 4 of the Agreement was concerned with the sums to be paid under the Agreement. Clause 4.1 was in these terms:- “In consideration of the parties performing their respective obligations under this Agreement each shall be entitled to invoice the other and to be paid its respective Fees as provided by this Agreement. All Fees shall be exclusive of VAT, unless otherwise specified. Furthermore, any Additional Fees will be invoiced and paid as set out in Part III of Schedule 4. VAT shall be added where appropriate.”[22]The payments relevant to this action were dealt with in Schedule 4 to the Agreement. Paragraph 1 in Part II was concerned with the payments to be made in relation to the sale or recharging of phonecards:- “The purchase price of a Phonecard, sold to POL by the Relevant Contractor is 79% of the face value of the Phonecard. Post Office Limited will account to the Contractor for Phonecards it has purchased and appropriated to Customers, within 30 days after the end of the Post Office Limited monthly accounting period during which the sale to the Customer was made. Post Office Limited does not have to pay for any Phonecards that are not purchased by Customers. If an International Phonecard is re-charged, then Post Office Limited shall be paid a fee of 21% of the amount by which the International Phonecard is re-charged, such fee to be paid by Tele2 International to Post Office Limited within 30 days after the end of the month in which the re-charging took place.”[23]The fees payable in respect of Expiry Revenue and Additional Fees were dealt with in Part III of Schedule 4 to the Agreement, so far as is presently material as follows:- “1. Expiry If a Phonecard or FTS account expires without its full face value or the amount credited having been spent, the Relevant Contractor and Post Office Limited will share the remaining value equally. The Relevant Contractor will account for such monies to Post Office Limited on a monthly basis for all amounts so accrued in the previous month, notwithstanding termination of this Agreement. 2. Additional Fees Tele2 Ireland and Tele2 International will share equally with Post Office Limited profits realised by each of them in excess of 10% earnings before interest tax and amortization (“EBITA”) on revenues generated by the Pre-paid Phonecards and the International Phonecards, as appropriate. Tele2 Ireland and Tele2 International will account to Post Office Limited annually for the Post Office Limited share of profits no later than six months following their respective financial year-end. … ”[24]Duration and termination of the Agreement were dealt with in clause 11. For present purposes the material terms of clause 11 were:- “11.1 This Agreement shall commence on the Commencement Date and shall continue in force until the expiry of the Initial Term, and thereafter until terminated by either POL or any of the Contractors giving not less than 24 months’ written notice to the other parties, as the case may be, unless terminated earlier in accordance with the provisions set out below. 11.2 … POL may terminate this Agreement by giving each Contractor not less than 12 months’ notice in writing to that effect if any of the Type 2 KPIs have not been met to a material extent. … 11.4 Each Contractor or POL may terminate this Agreement at any time by giving notice in writing to POL or each of the Contractors, as the case may be, if:- 11.4.1 any of the other parties, unless such other party is another Contractor in the case of a Contractor giving notice, is in material breach of any of its obligations under this Agreement, including without limitation if any Contractor is in breach of any of Clauses 3.10.1, 3.10.2 and 3.10.3 (and in the case of a breach capable of remedy fails to remedy the breach within three months of receipt of a written notice requiring it so to do, the parties acknowledging that a breach of any of Clauses 3.10.1, 3.10.2 and 3.10.3 is a breach incapable of remedy therefore entitling POL to terminate this Agreement);”[25]Schedule 9 to the Agreement was concerned with KPIs. Type 2 KPIs, so far as is presently relevant, concerned the process by which changes could be made in Rates. The material reference in Schedule 9 was in fact a cross-reference to Schedule 2, section 8, which in turn referred one to Schedule 7. In Schedule 7 was set out the detail of the process to be followed to effect a change to the Rates. That detail is not material to any issue in this action. It is enough to record that changes in the Rates were effected in relation to the use of phonecards supplied under the Agreement as from 1 June 2004 without the procedure in Schedule 7 being followed.[26]It is material to notice the provisions of clause 13.4 of the Agreement:- “Without prejudice to the provisions of Clause 12, no party shall bring an action against any of the others in relation to loss of profits, loss of business, loss of revenue or anticipated savings suffered by third parties whatsoever and howsoever arising whether from contract, tort, breach of statutory duty or otherwise.”[27]Clause 16 of the Agreement was concerned with waiver:- “In no event shall any delay, neglect or forbearance on the part of any party in enforcing (in whole or in part) any provision of this Agreement be or be deemed to be a waiver thereof or a waiver of any other provision or shall in any way prejudice any right of that party under this Agreement.”[28]In fact, as was common ground, the International Phonecards envisaged by the Agreement were never required or issued, and Tele2 International never became engaged in the performance of any obligations under the Agreement. The only phonecards issued and sold under the Agreement were those described in the Agreement as Pre-paid Phonecards. In this judgment I shall use that expression in the sense defined for the purposes of the Agreement.

The roles of Tele2 Ireland and C3 (UK)

[29]The reason for the inclusion in the Agreement of provision for Pre-paid Phonecards to be supplied by Tele2 Ireland was that at the date of the Agreement it was possible to avoid the payment of Value Added Tax on the sale of phonecards in the United Kingdom if the provider of the phonecard was a company based in the Republic of Ireland. In those circumstances, as I understood it, Value Added Tax was payable neither in the United Kingdom nor in the Republic of Ireland. That situation changed, so far as phonecards sold by the Post Office was concerned, with effect from 1 April 2004. From that date Value Added Tax was payable in the United Kingdom on the sale by the Post Office of a phonecard in the United Kingdom, regardless of the country of origin of the provider of the services to which the phonecard afforded access. The change in the treatment of phonecards for Value Added Tax purposes in fact took effect for most vendors as from April 2003, but the Post Office negotiated a special deferment with HM Customs and Excise.[30]How the Tele2 group re-organised itself in the light of the change in the Value Added Tax position was in issue in the trial. Note 16 to the Directors’ Report and Financial Statements of Tele2 Ireland for the year ended 31 December 2003, signed by the directors on 30 May 2006, explained the position in this way:- “Curtailment of Operations With effect from 1 April 2004, the provision of services by C3 Calling Card Company (Ireland) Limited to Post Office Limited have been transferred to Tele2 UK Communications Limited.”[31]The case for the Claimants in this action was that, despite what was said in Note 16 to the Directors’ Report and Financial Statements of Tele2 Ireland for the year ended 31 December 2003, what actually happened was that the provision of the services previously provided to the Post Office by Tele2 Ireland was undertaken as from 1 April 2004 by C3 (UK) and not by Tele2 UK. It was important to the case of the Claimants that that should be so. Not only was Tele2 UK not a party to the action, but it had in fact been sold out of the Tele2 group to The Carphone Warehouse Group plc. From the Report and Financial Statements of Tele2 UK, renamed Old TalkTalk UK Communication Services Ltd., in respect of the 15 months ending on 31 March 2006, it appeared that the sale had been effected on 16 December 2005.[32]The issue which company performed, as from 1 April 2004, the obligations accepted by Tele2 Ireland under the Agreement was important to the Post Office also. It was contended on behalf of the Post Office by Mr. Jeffrey Onions Q.C. that the damages claimed by the Claimants in this action represented losses allegedly sustained by C3 (UK). If it were so, submitted Mr. Onions, that losses had been suffered by C3 (UK), those losses could not be recovered against the Post Office because C3 (UK) was not a party to the Agreement. It was common ground that the Agreement had not been expressly novated as between the Post Office, Tele2 UK, Tele2 International, Tele2 Ireland and C3 (UK) so as to substitute C3 (UK) for Tele2 Ireland as a party to the Agreement. It was also common ground that there had been no assignment to C3 (UK) of the benefit of the Agreement insofar as Tele2 Ireland had been entitled to such benefit. Mr. Onions relied on the terms of clause 13.4 of the Agreement as preventing any of the parties to it claiming damages in fact suffered by C3 (UK). On behalf of the Post Office Mr. Onions submitted that on no view could Tele2 Ireland contend that it had suffered damage as a result of the matters complained of as against the Post Office in this action, because it was common ground that Tele2 Ireland had ceased to perform any of the services for which the Agreement provided, and, said Mr. Onions, had therefore ceased to be entitled to any of the payments for services prescribed by the Agreement, some eight months before the giving by the Post Office of notice of termination of the Agreement. Mr. Onions also pointed out that, if and insofar as Tele2 UK had a claim against the Post Office, the Post Office remained exposed to such claim, notwithstanding this action and whatever was determined in it.[33]In the Amended Particulars of Claim no explanation was pleaded as to the role of C3 (UK). There was no plea as to the basis upon which it was contended that C3 (UK) was entitled to claim damages from the Post Office. All of the claims of the Claimants were put compendiously as being put by all of them. However, the issue of the status of C3 (UK) having been raised on behalf of the Post Office, it was addressed by Mr. John McCaughran Q.C. and Mr. Matthew Cook, who appeared at the trial on behalf of the Claimants, in their written skeleton argument. What they said about it was:- “182. There are three Tele2 companies which are parties to the Agreement. Using their names as they were when the Agreement was made, the companies in question are: Tele2 UK Communications Limited; Tele2 International Card Company SA (the First Claimant); and C 3 Calling Card Company (Ireland) Limited (the Second Claimant). Under the Agreement the company which was obliged to provide pre-paid phonecards was the Second Claimant, i.e. the Irish company – see Clause 3.1.183. As indicated above, the relevant VAT rules changed with effect from 1 April 2004, such that there was no longer any advantage in the supplier of the cards being an Irish company.184. In view of this forthcoming change, there was a meeting on 19 February 2004, attended by a number of Tele2 and Post Office representatives. It seems that there was a discussion at this meeting about transferring the Agreement from the Irish company to a UK subsidiary, but no one can recall precisely what was said.185. Following the meeting, Mr. Clive Smith (then with Tele2 – subsequently with Nomi-Call) sent an email to Mr. Gilbert of Post Office, setting out the views of Tele2’s legal department as to the actions to be taken. The first point is:
“The Agreement is assigned from C3 Ireland to C3 UK.” 186. The reference to “C3 UK” is fairly to be read as a reference to Calling Card Company (UK) Limited, i.e. the Third Claimant, as it was formerly known. 187. No written assignment agreement was ever entered into. However, Post Office’s invoices and statements of account after 1 April 2004 until termination were addressed to the Third Claimant. 188. In these circumstances, the position is either that: (i) there was a transfer of the rights and obligations under the Agreement from the Second Claimant to the Third Claimant; alternatively (ii) that the Second Claimant remained the party liable under, and entitled to rights under, the Agreement. 189. Post Office contends that the Agreement was transferred to a different company, namely Tele2 UK Communications Limited. 190. This contention is not based upon what Post Office thought was the case when the Agreement was in force, but rather upon a desire to gain an advantage in these proceedings: Tele2 UK Communications Limited is no longer a company in the Tele2 group, and is not a party to this action. 191. Post Office points out that cards supplied after 1 April 2004 contained a statement that airtime was being supplied by Tele2 UK Communications Limited. However, as Mr. Hashmi explains it is common within Tele2 for one group company to provide services to another; whatever the internal arrangements within Tele2, the phonecard services provided under the Agreement were transferred to the Third Claimant. 192. There is no substance in the point taken by Post Office, and the Court is respectfully invited to reject it.”
[34]In his oral opening (Transcript Day 1 page 134 lines 4 – 16) Mr. McCaughran made plain that the Claimants’ case on the role of C3 (UK) was that either there was an actual novation to substitute it for Tele2 Ireland as a party to the Agreement in the period February to April 2004, or, if not, Tele2 Ireland remained the appropriate party to claim damages in respect of the alleged premature termination of the Agreement.[35]Mr. Onions contested the assertion of Mr. McCaughran that the e-mail of Mr. Smith, in fact dated 19 February 2004, to Mr. Gilbert, with the reference to an assignment by Tele2 Ireland to “C3 UK”, and the sending by the Post Office of invoices and statements to C3 (UK) were evidence of an actual novation to substitute C3 (UK) for Tele2 Ireland as a party to the Agreement. In his written skeleton opening argument Mr. Onions dealt with the contention in this way:- “6.9 POL certainly knew that, following the introduction of VAT on the sale of phonecards, Tele2 would supply phonecard services from the UK. The only evidence of any discussion during which a particular company was identified as being the new supplier of services is Mr. Gilbert’s evidence regarding the meeting on 19 February 2004. He has no recollection of anyone mentioning that the Agreement was to be assigned to C3 UK. Instead, his best recollection is of a throw away remark, probably referring to “Tele2”, at the end of the meeting to the effect that the service was moving from Ireland to the UK. Tele2 adduces no evidence from anyone present at this or any earlier meeting. 6.10 The email from Mr. Smith to Mr. Gilbert of 19 February 2004 simply sets out a text provided by Mike Harvey of Tele2’ s legal department earlier in the day. There is no evidence that Mr. Harvey attended any meeting with POL. When Mr. Smith reported the outcome of the meeting to Mr. Harvey, he made no mention of any reference to C3 UK; the meeting seems to have been more concerned with whether POL would be treated as a distributor of cards belonging to Tele2 or as a purchaser and reseller. Mr. Smith’s email of 19 February 2004 thus provides no evidence whatsoever of any previous agreement between Tele2 and POL as alleged. 6.11 POL’s invoices to Tele2 do not assist C3 UK’s claim either. The only invoices raised by POL were for expiry revenue. They are summarised at Appendix 9a to Mr. Haberman’s report. All invoices in respect of periods prior to April 2004 were addressed to C3 Ireland.a. The first invoice in respect of a subsequent period was dated 22 April 2005 and was addressed to Tele2 UK. It covered the period April 2004 to January 2005. Mr. Woodrow sent this invoice to Mr. Coles on 11 May 2005. The addressee was not a mistake as Mr. Hashmi speculates. So far as Mr. Woodrow was aware, Tele2 UK was the only UK Tele2 company with which POL had any contractual relationship.b. On 20 June 2005 Mr. Woodrow sent Mr. Coles an email asking for details to be able to invoice Tele2 in respect of February to May 2005. Mr. Coles did not reply.c. On 14 July 2005 Mr. Woodrow chased for payment of the April 2005 invoice. Mr. Coles replied saying that invoices for the period from April 2004 onwards needed to be addressed to C3 UK if they were to be paid.d. POL accordingly issued a credit note dated 20 July 2005 addressed to Tele2 UK in respect of the invoice addressed to it and a replacement invoice dated 21 July 2005 addressed to C3 UK.e. POL’s final invoice is dated 14 September 2004 and is in respect of the period February to June 2005. It was addressed to C3 UK as Mr. Coles had requested. 6.12 Thus, POL only issued invoices addressed to C3 UK after the termination of the Agreement and only because it was told that they would not be paid if it did not do so. The invoices thus provide no evidence at all that POL agreed to the Agreement being assigned to C3 UK (whether in discussions relating to VAT or otherwise). 6.13 Mr. Hashmi refers in his first witness statement to statements of account from May 2004 to April 2005 sent by POL to C3 UK. These do not assist C3 UK either. POL sent monthly statements of account to Tele2 throughout the Agreement. Until April 2004, they were all addressed to The Calling Card Company Limited. That company is not party to the Agreement and no-one alleges any rights were ever assigned to it. POL addressed the statements of account to it because that is what Tele2 asked it to do in an email dated 6 November 2001. 6.14 From May 2004, POL’s statements of account were addressed to C3 UK. No-one has disclosed any document explaining why this was done. The only evidence is from Ms Provines, who cannot remember but expects that she received a telephone call from someone, possibly Ms Watson, asking her to change the name on the statements. However, POL continued to make payments into the old bank account i.e. the Calling Card Company Limited account. That was only changed in December 2004 as a result of a request from Ms Watson on 18 October 2004. 6.15 In any event, this is the mere mechanics dealt with by the accounts department. It is not evidence of any variation of the Agreement. The only conclusions that can be drawn from the statements of account are: a. The fact that a statement of account is addressed to a company does not imply that that company is party to the Agreement. b. POL sent statements of account to whichever company Tele2 asked it to. c. The identity of the addressee of statements of account tells one nothing about what company had rights under the Agreement. 6.16 There is thus no evidence to support Tele2’s assertion that POL agreed that C3 UK would provide the services which the Agreement requires C3 Ireland to provide. ”[36]The e-mail dated 19 February 2004 from Mr. Smith to Mr. Gilbert began in this way:- “Further to our meeting today and discussion on the logistics of VAT, it transpires that we cannot operate the Trust model option as this only applies or can work for us when in an electronic format. The following is our legal department’s view of the actions to be taken along with the attachment that explains the commission for service approach:
“In response to the changes occurring on 1st April 2004, in respect of the VAT treatment of our relationship with the Post Office, we propose the following amendment to the commercial deal: 1. The Agreement is assigned from C3 Ireland to C3 UK. …”
[37]Subsequent to the sending of that e-mail, Mr. Bruce Macmillan, at that time effectively the in-house legal adviser of the Tele2 parties, sent a letter dated 7 July 2004 to Mr. Gilbert which included these passages:- “I write to you with reference to your earlier telephone conversations with Steve Bartley regarding the contract the Post Office has with Tele2 and Calling Card Company. In his absence, he has [asked] me to write on his behalf to “start the ball rolling”. Over the past 2 ½ years, due to circumstances outside of both companies control, the reality of our relationship has moved further and further away from that stated in the contract. We feel it light [sic] of recent developments on both sides, it is an appropriate time to redress this problem by amending or restating our contractual relationship with the Post Office. … Cards I attach a first draft of our proposal for the revised cards contract to work as a means of initiating discussion. This should not be seen as an offer and as such we reserve the right to alter our position on the basis of the negotiations between our two companies. The basis of our proposal is: The contract is entered into with Calling Card Company (UK) Limited. We have moved the majority of our phonecards business back to the UK and therefore we would seek to have the relationship transferred to our UK company. In reality this will not change how we supply the services and work with you. …” Cards

The basis of our proposal is:

[38]Mr. Onions submitted that the terms of the letter dated 7 July 2004 written by Mr. Macmillan made it plain that C3 (UK) had not become a party to the Agreement by that date, for, if it had, there would have been no need to justify why a new agreement should be made with that company.[39]Sallyann Provines’s witness statement was accurately summarised by Mr. Onions in the passage from his written opening skeleton argument from which I have quoted. She was not required to attend the trial to be cross-examined as to her statement.[40]Mr. Onions also accurately summarised in paragraphs 6.11, 6.13 and 6.14 of his written opening skeleton argument the invoices and statements there referred to.[41]Thus, as it seems to me, the evidence put before me during the trial supported the submissions of Mr. Onions as to what it showed. I accept his submissions that the correct interpretation or significance of the various matters with which he dealt in his written skeleton opening argument in the passage which I have quoted was as he contended. I am thus not satisfied that there was ever any novation the effect of which was to substitute C3 (UK) for Tele2 Ireland as a party to the Agreement.[42]However, that conclusion does not, in my judgment, dispose of the question whether any of the Claimants, and if so which, was entitled in principle to recover damages in respect of loss of the profit, if any, which would otherwise have been earned on the sale of Pre-paid Phonecards to the Post Office, if I reached the conclusion that the Post Office had terminated the Agreement wrongfully. Under the Agreement it was Tele2 Ireland which was bound to supply Pre-paid Phonecards to the Post Office and Tele2 Ireland which was entitled to receive payment for the Pre-paid Phonecards supplied. However, Tele2 Ireland was not obliged personally to supply the Pre-paid Phonecards. There was no provision of the Agreement preventing the sub-contracting of the provision of the services to which the Pre-paid Phonecards afforded access to another company in the Tele2 group. I reject the submission of Mr. Onions that Tele2 Ireland could not recover damages because it personally did not supply any Pre-paid Phonecards to the Post Office after 1 April 2004. In the absence of any novation so as to substitute another party as a party to the Agreement, Tele2 Ireland remained entitled to be paid the sums due for the Pre-paid Phonecards supplied, and thus remained entitled to any damages in the form of loss of profits which would otherwise have been made on the sale of Pre-paid Phonecards sustained as a result of any wrongful termination of the Agreement.[43]It follows that in fact Tele2 Ireland was the only one of the Claimants which, subject to establishing liability, had any claim. The other Claimant which was a party to the Agreement, Tele2 International, was not alleged to have suffered loss, and was presumably joined as a party because of the principle that all parties to a contract should be parties to an action upon it.[44]The issue of entitlement to sue was not, however, the only relevance of the role of C3 (UK). Its fate was material also to the issue of the quantification of damages, if I found that the Post Office had terminated the Agreement wrongfully. I shall consider later in this judgment the issue of what loss, if any, recoverable by Tele2 Ireland was in fact sustained.[45]What the involvement of C3 (UK) in the operations of the Tele2 group in the United Kingdom during its active life, which seems to have run from 1 November 2003 to 31 May 2005, actually was emerged from the Directors’ Reports for the years ended, respectively, 31 December 2003 and 31 December 2004. In the section entitled “Review of business and future developments” in the report for 2003 was set out this:- “On 31 October 2003, the business and activities of Alpha Prepaid Limited (APL), another company wholly owned by Tele2 AB, were transferred to Calling Card Company (UK) Ltd. The disposal was carried out in order to have a common legal, management and financial reporting structure within which all of Tele2’s prepaid telephony card sales businesses are contained. This disposal took place on 31 October 2003 and the assets and liabilities were transferred at their fair values which were equal to net book values. The company began trading on 1 November 2003. The directors are satisfied with the progress of the business. From 1 June 2005, all business activities in the UK are now being operated through Calling Card Company Spain SA.”[46]The last sentence of that report was somewhat misleading. In the equivalent section of the Directors’ Report for the year ended 31 December 2004 it was explained that:- “Due to the competitive nature of the UK market, the Directors have decided to wind down the business in the UK from 1 June 2005. Consequently, the recovery of debt has proved harder than anticipated. Sales of prepaid calling cards in the UK are now handled via the Spanish operations within the Calling Card Group.”[47]It was in fact the case, as Mr. Onions contended, that the information on actual Pre-paid Phonecards sold to the Post Office changed as from 1 April 2004. There were two types of Pre-paid Phonecards. One was an ordinary UK and International phonecard (“the Generic Card”) intended to be used for dialling from the United Kingdom. The other was called a “Holiday Phonecard” (“the Holiday Card”) and was intended to be used for dialling to the United Kingdom from abroad. On the reverse of each of these types of card used before 1 April 2004 appeared at the end in small letters the words, “Service provided by TELE2, Ireland”. On the Generic Card sold after 1 April 2004 the reference to Tele2 Ireland was replaced by the words, “Telecoms services supplied by Tele2 UK Communications Ltd.”, followed by an address for Tele2 UK. However, the wording on the reverse of the Holiday Card sold after 1 April 2004 was different. It was, “Card supplied by Calling Card Company (UK) Ltd, air time supplied by Tele2 UK Communications Limited, both of”, and the address was then set out.[48]The only evidence to suggest that what was printed on the reverse of the Generic Card and the Holiday Card after 1 April 2004 did not accurately represent the position, that is to say, that in respect of the Generic Card the services were provided by Tele2 UK and in respect of the Holiday Card the air time was provided by Tele2 UK and the actual card by C3 (UK), was that of Mr. Nouman Hashmi, the former chief executive officer of each of the Claimants. He said that the air time for the Generic Card and the Holiday Card had always been provided by Tele2 UK. If anything, that evidence seemed to make the situation even more obscure. However, it did not, as it seemed to me, impact either on the issue of title to sue or on the quantum of damages. What was material, potentially, to the quantification of damages, was the withdrawal of C3 (UK) from the United Kingdom market. As to that Mr. Hashmi told me that phonecards had continued to be supplied in the United Kingdom by Tele2 Spain.

The principal claim of the Claimants

[49]It was common ground that the Post Office had sought, by letters each dated 1 December 2004 addressed, respectively, to Tele2 UK, Tele2 International and Tele2 Ireland, to terminate the Agreement on 31 March 2005 by reason of the breaches by the various Tele2 parties of their obligations under clause 3.10.2 of the Agreement to provide certified copies of Parent Company Letters in respect of the calendar year 2004 by 24 December 2003.[50]The nature of the principal claim of the Claimants was very straightforward. While it was accepted that each of the Tele2 parties had been in breach of the obligation in clause 3.10.2 to forward to the Post Office by no later than 24 December 2003 a certified copy of a Parent Company Letter addressed to it and covering the calendar year 2004, that failure, it was contended, did not amount to a “material” breach for the purposes of clause 11.4.1 of the Agreement. Alternatively, if it did amount to a “material” breach, that did not automatically give rise to a termination of the Agreement, but only gave the Post Office an option to determine it. By continuing to perform the Agreement on its side, and by accepting performance on the part of the Tele2 parties, for over 11 months after the date for performance of the obligations arising under clause 3.10.2, the Post Office affirmed the Agreement, and so was not able to terminate it by the notices which it gave dated 1 December 2004.[51]The case for the Post Office was equally straightforward, namely that by clause 16 of the Agreement it was not to be treated as having waived any right to terminate for the breaches relied upon by reason of delay, neglect or forbearance.[52]The answer on the part of the Claimants to that point was that, as a matter of construction, clause 16 did not apply to an affirmation.[53]The counter to that submission on behalf of the Post Office was that an affirmation was a species of waiver and that clause 16 plainly covered it.[54]In support of his contentions Mr. McCaughran reminded me of the observations of Lord Diplock in Kammins Ballrooms Co. Ltd. v. Zenith Investments (Torquay) Ltd. [1971] AC 850 at pages 882H – 883B:- “So it becomes necessary to consider whether the respondents did waive this requirement. “Waiver” is a word which is sometimes used loosely to describe a number of different legal grounds on which a person may be debarred from asserting a substantive right which he once possessed or from raising a particular defence to a claim against him which would otherwise be available to him. We are not concerned in the instant appeal with the first type of waiver. This arises in a situation where a person is entitled to alternative rights inconsistent with one another. If he has knowledge of the facts which give rise in law to these alternative rights and acts in a manner which is consistent only with his having chosen to rely on one of them, the law holds him to his choice even though he was unaware that this would be the legal consequence of what he did. He is sometimes said to have “waived” the alternative right, as for instance a right to forfeit a lease or to rescind a contract of sale for wrongful repudiation or breach of condition; but this is better categorised as “election” rather than as “waiver”. ”[55]Both Mr. McCaughran and Mr. Onions relied on the analysis of Lord Goff of Chieveley, delivering the only substantive speech of the House of Lords, in Motor Oil Hellas (Corinth) Refineries SA v. Shipping Corporation of India (The “Kanchenjunga”) [1990] 1 Lloyd’s Rep 391 at pages 397 – 399:- “It is a commonplace that the expression “waiver” is one which may, in law, bear different meanings. In particular, it may refer to a forbearance from exercising a right or to an abandonment of a right. Here we are concerned with waiver in the sense of abandonment of a right which arises by virtue of a party making an election. Election itself is a concept which may be relevant in more that [sic] one context. In the present case, we are concerned with an election which may arise in the context of a binding contract, when a state of affairs comes into existence in which one party becomes entitled, either under the terms of the contract or by the general law, to exercise a right, and he has to decide whether or not to do so. His decision, being a matter of choice for him, is called in law an election. Characteristically, this state of affairs arises where the other party has repudiated the contract or has otherwise committed a breach of the contract which entitles the innocent party to bring it to an end, or has made a tender of performance which does not conform to the terms of the contract. But this is not necessarily so. An analogous situation arises where the innocent party becomes entitled to rescind the contract, i.e. to wipe it out altogether, for example because the contract has been induced by a misrepresentation; and one or both parties may become entitled to determine a contract in the event of a wholly extraneous event occurring, as under a war clause in a charter-party. Characteristically, the effect of the new situation is that a party becomes entitled to determine or to rescind the contract, or to reject an uncontractual tender of performance; but in theory at least, a less drastic course of action might become available to him under the terms of the contract. In all cases, he has in the end to make his election, not as a matter of obligation, but in the sense that, if he does not do so, the time may come when the law takes the decision out of his hands, either by holding him to have elected not to exercise the right which has become available to him, or sometimes by holding him to have elected to exercise it. Instances of this phenomenon are to be found in s.35 of the Sale of Goods Act, 1979. In particular, where with knowledge of the relevant facts a party has acted in a manner which is consistent only with his having chosen one of the two alternative and inconsistent courses of action then open to him – for example, to determine a contract or alternatively to affirm it – he is held to have made his election accordingly, just as a buyer may be deemed to have accepted uncontractual goods in the circumstances specified in s.35 of the 1979 Act. This is the aspect of election referred to by Lord Diplock in Kammins Ballrooms Co. Ltd. v. Zenith Investments (Torquay) Ltd. [1971] AC 850 at p.883. But of course an election need not be made in this way. It can be communicated to the other party by words or conduct; though, perhaps because a party who elects not to exercise a right which has become available to him is abandoning that right, he will only be held to have done so if he has so communicated his election to the other party in clear and unequivocal terms (see Scarf v. Jardine (1882) 7 App Cas 345 at p. 361 per Lod [sic] Blackburn, and China National Foreign Trade Transportation Corporation v. Evlogia Shipping Co. SA of Panama (The Mihalios Xilas) [1979] 2 Lloyd’s Rep 303 at p.307; [1979] 1 WLR 1018 at p. 1024 per Lord Diplock). Once an election is made, however, it is final and binding (see Scarf v. Jardine per Lord Blackburn at p. 360). Moreover, it does not require consideration to support it, and so it is to be distinguished from an express or implied agreement, such as a variation of the relevant contract, which traditionally requires consideration to render it binding in English law. Generally, however, it is a prerequisite of election that the party making the election must be aware of the facts which have given rise to the existence of his new right. This may not always be so. For example, in the law of sale of goods, where goods have been tendered to the buyer which are not in conformity with the contract, he may, if he has had a reasonable opportunity to examine them, be deemed in certain circumstances to have accepted them, thereby electing not to exercise his right to reject them, even though he has not actually examined the goods and discovered the defect (see s.34 and 35 of the 1979 Act). This may flow from the fact that he has waived his right to examine them – yet another example of waiver. I add in parenthesis that, for present purposes, it is not necessary for me to consider certain cases in which it has been held that, as a prerequisite of election, the party must be aware not only of the facts giving rise to his rights but also of the rights themselves, because it is not in dispute here that the owners were aware both of the relevant facts and of their relevant rights. There are numerous examples of the application of this principle of election in English law. Perhaps the most familiar situation is that which arises when one contracting party repudiates the contract. The effect is that the other contracting party then has a choice whether to accept the repudiation (as it is called) and bring the contract to an end; or to affirm the contract, thereby waiving or abandoning his right to terminate it. If, with knowledge of the facts giving rise to the repudiation, the other party to the contract acts (for example) in a manner consistent only with treating that contract as still alive, he is taken in law to have exercised his election to affirm the contract.”[56]Mr. McCaughran emphasised that an election may be communicated by words or conduct. Mr. Onions emphasised the need for a communication of an election to be clear and unequivocal.[57]It was not suggested in the present case that the Tele2 parties had repudiated the Agreement by failing to perform their obligations under clause 3.10.2 in respect of the calendar year 2004. Mr. Onions simply relied upon the contractual right to terminate given by clause 11.4.1.[58]It was not in dispute that, after 24 December 2003, the Post Office did continue to perform the Agreement, insofar as the Agreement required performance on the part of the Post Office, and it did continue to receive the benefit of the performance of the Tele2 parties. Consequently all of the issues in relation to the principal claim of the Claimants as it was primarily put in fact turned on questions of construction of the Agreement. There was an alternative case that, if the Agreement was validly terminated at the time the letters dated 1 December 2004 were received, the Post Office subsequently waived reliance on that termination. I shall come to that alternative case. However, it is convenient before doing so to consider the primary case of the Claimants.

The primary case of the Claimants on their principal claim

[59]As I have noted, the Post Office sought to terminate the Agreement by separate letters, each dated 1 December 2004, addressed to each of Tele2 UK, Tele2 International and Tele2 Ireland. The letters were mutatis mutandis in the same terms, and plainly carefully drafted. They were each signed by Mr. Nicky Hall on behalf of the Post Office. The material part of the letter sent to Tele2 UK was in these terms:- “Agreement in relation to the provision of Phonecards and related Services dated 9 November 2001 – Notice of Termination under clause 11.4.1 I refer to the agreement entered into by your company (and other Tele2 companies) with Post Office Limited dated 9 November 2001 and entitled “Agreement in relation to the provision of Phonecards and related Services” (in this letter, the “Agreement”). Unless otherwise stated, capitalised terms in this letter have the same meaning as in the Agreement. You have failed to forward to POL a certified copy of a Parent Company Letter in respect of the calendar year 2004 pursuant to clause 3.10.2 of the Agreement. This failure by you amounts to a breach of the Agreement which is incapable of remedy entitling POL to terminate the Agreement pursuant to clause 11.4.1 of the Agreement. In reliance on the breach of the Agreement to which I have referred in the preceding paragraph POL gives you notice that POL, by this letter, terminates the Agreement with effect from 31 March 2005.”[60]Mr. McCaughran submitted that the terms of the letter, although purporting to be a termination of the Agreement, in fact operated in law as an affirmation by prescribing that the termination should not take effect for four months, during which period the parties were expected to continue to operate the Agreement normally. Mr. Onions submitted that the deferred period before the termination took effect was again covered by clause 16.[61]Both Mr. Gordon Steele, at the material time the Director of Sales and Marketing of the Post Office, and Mr. Simon Carter, at the material time his deputy, described as Head of Marketing, candidly accepted in cross-examination that the commercial reasons of the Post Office for wanting to terminate the Agreement as at 1 December 2004 with effect from 31 March 2005 had nothing to do with the breaches relied upon. However, the motivation for terminating the Agreement was, as it seems to me, immaterial to the issue whether the Post Office was entitled, as at 1 December 2004, to terminate on the grounds relied upon.[62]It was, I think, common ground that the principles to be applied by the Court to the construction of a document were, essentially, those conveniently summarised by Lord Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 WLR 896 at pages 912H – 913E:- “The principles may be summarised as follows.(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.(2) The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] AC 749.(5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v. Salen Rederierna AB [1985] AC 191, 201:
“if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion which flouts business commonsense, it must be made to yield to business commonsense.””
[63]Mr. McCaughran relied in particular upon the citation of Lord Hoffmann from the speech of Lord Diplock in Antaios Compania Naviera SA v. Salen Rederierna AB. He submitted that the construction of clause 11.4.1 that it permitted the termination of the Agreement on any failure to perform the obligation in clause 3.10.2 did flout business common sense.[64]Mr. McCaughran also relied heavily upon some observations of Steyn LJ in Arbuthnott v. Fagan [1996] 1 Lloyd’s Reinsurance Law Reports 135 at pages 140 -141:- “I regard the purpose of cl. 9(c) as a matter of prime importance. It was common ground at first instance, and again before us, that the only purpose of the provision is to protect policyholders. The objective is that valid claims of policyholders should be paid promptly. It is conceded on behalf of the agents that it was not even a subsidiary purpose of cl. 9(c) to confer a protection on agents for breaches committed by them in and about the underwriting of insurance business. I readily accept Mr. Eder’s submission that the starting point of the process of interpretation must be the language of the contract. But Mr. Eder went further and said that, if the meaning of the words is clear, as he submitted it is, the purpose of the contractual provisions cannot be allowed to influence the Court’s interpretation. That involves approaching the process of interpretation in the fashion of a black-letter man. The argument assumes that interpretation is a purely linguistic or semantic process until an ambiguity is revealed. That is wrong. Dictionaries never solve concrete problems of construction. The meaning of words cannot be ascertained divorced from their context. And part of the contextual scene is the purpose of the provision. In the field of statutory interpretation the speeches of the House of Lords in Attorney General v. Prince Ernest Augustus of Hanover [1957] AC 436 showed that the purpose of a statute, or part of a statute, is something to be taken into account in ascertaining the ordinary meaning of words in the statute: see Viscount Simonds’ speech at p. 461, and Lord Somervell of Harrow’s speech, at p. 473. It is true that such a purpose may also be called in aid at a later stage in the process of interpretation if the language of the statute is ambiguous but it is important to bear in mind that the purpose of the statute is a permissible aid at all stages in the process of interpretation. In this respect a similar approach is applicable to the interpretation of a contractual text. That is why in Reardon Smith Line Ltd. v. Yngvar Hansen Tangen [1976] 2 Lloyd’s Rep 621; [1976] 1 WLR 989 Lord Wilberforce, speaking for the majority of their Lordships, made plain that in construing a commercial contract it is always right that the Court should take into account the purpose of the contract and that presupposes an appreciation of the contextual scene of the contract. Corbin on Contracts, 1960, vol. 3, Section 545, explains the role that the ascertainment of the purpose of a contract should play in the process of interpretation: In order to determine purposes we are obliged to interpret their words in the document of agreement and their relevant words and acts extrinsic to that document. It may seem foolish, therefore, to say that the words of a contract should be interpreted in the light of the purposes that the parties meant to achieve, when we can turn on that light only by process of interpretation. Nevertheless, it is believed that such an admonition serves a useful purpose. As the evidence comes in and as interpretation is in process, the court may soon form a tentative conviction as to the principal purpose or purposes of the parties. As long as that conviction holds (and the court must be ready at all times to be moved by new evidence), further interpretation of the words of contract should be such as to attain that purpose, if reasonably possible. In the same section of this seminal work the author added that if the Court is convinced that it knows the purpose of the contract, however vaguely expressed and poorly analysed, it should be loath to adopt any interpretation of the language that would produce a different result. In my judgment these observations accurately state the approach to be adopted. And in the present case the purpose of cl. 9(c) is not in doubt.”[65]In addition, Mr. McCaughran emphasised the observation of Lord Reid in L. Schuler AG v. Wickman Machine Tool Sales Ltd. [1974] AC 235 at page 251E:- “The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly plain. ”[66]Mr. Onions drew to my attention that later in his speech, at page 251G, Lord Reid said:- “This is so unreasonable that it must make me search for some other possible meaning of the contract. If none can be found then Wickman must suffer the consequences. But only if that is the only possible interpretation.”[67]It was not in doubt before me that material considerations to be taken into account in the construction of those provisions of the Agreement about which there was dispute were the purpose, or purposes, of the Agreement and the purpose, or purposes, of the particular terms to be construed. However, any process of construction of the meaning of a provision in a document has to start somewhere, and it is material to notice that Steyn L.J., in the passage quoted, readily accepted that the starting point must be the language of the contract. That, I think, has not always been recognised by those who have sought to emphasise the importance of the understanding of the purpose, or purposes, of a document. However, it should, as it seems to me, be recognised that, at least in general, the reason a document intended to have legal effect has been produced is that the parties to it intended to achieve particular results, and sought, by adopting the words which they did, to achieve those results. Thus it is likely that the purpose, or purposes, underlying a document such as a contract can be discerned, at least to some extent, from considering the document to be construed and the language used. It would certainly be wrong, in my judgment, to proceed on the basis that the parties have, or are likely to have, failed to achieve their objectives by the language which they have used. They may have failed, but they may not.[68]It is important also, in construing a document, as it seems to me, to recognise the proper limits of the process of construction. The function of the Court is to determine objectively that which is the meaning of the document. It is not to determine what meaning would be appropriate in order to achieve what the Court considers should have been the purpose, or purposes, of the document, if that is not, objectively, what the parties in fact agreed. The problem is familiar in the area of the implication of terms in a contract. It is notorious that it is not for the Court to impose, by implication of terms, a contract on the parties which they have not made for themselves. Unless a degree of rigour is adopted, the search for the purpose, or purposes, of a document to be construed exposes the Court to the risk of imposing on the parties, by the process of construction, the agreement which the Court considers that the parties ought to have made.[69]Another aspect of the problem of construction may be that, as was memorably said by Lord Bingham of Cornhill whilst a judge of first instance, it is the parties who are the masters of their contractual fate. That means, in particular, that it is for them to determine what matters they consider of importance for the purposes of their contract, and what matters they consider of little significance. It is for them to decide, for example, what should be the consequences of default or delay in taking some step relevant to their agreement. In my judgment, it is not the role of the Court to tell the parties that that which they considered important is not, because the court does not think that it should be important. Again, it is not for the Court to overrule whatever provision the parties have made for the effect of default or delay on the basis of some vague feeling that, as matters have turned out, the application of that which the parties have agreed would produce an unfair result. In this context what is fair is the application by the Court of that which the parties themselves have agreed should follow from the material default or delay.[70]While it may be obvious, it is perhaps worth emphasising that the Court charged with the task of interpretation of some term or terms in a document may be confronted with a situation in which there is not so much a dispute as to the meaning of what the parties did in fact agree, but rather one in which there is a regret on the part of one side that it had not made a different agreement.[71]The way in which Mr. McCaughran, in his written opening skeleton argument, put the Claimants’ case that the failure of the Tele2 parties to provide, by 24 December 2003, certified copies of Parent Company Letters for the calendar year 2004 did not amount to a “material” breach, so as to entitle the Post Office to terminate, was this:- “87. The effect of the Post Office’s argument is that, by reason of Clause 11.4.1, the parent guarantee letters for 2004 had to be provided on or by 24 December 2003 and, if they were not, Post Office had a right to terminate: Post Office could thus have refused to accept the letters if tendered on Christmas Day 2003, and terminated forthwith. 88. It is difficult to see the sense in this. That being so, it is unlikely to be what the parties intended. In this regard the attention of the court is drawn to the following passage in the speech of Lord Reid in Schuler v. Wickman [1974] AC 235 – itself a case about a party seeking (unsuccessfully) to terminate a contract for a relatively unimportant breach on the ground that it was a breach of a “condition” of the contract. At page 251 Lord Reid said this:
“The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it, the more necessary it is that they shall make that intention abundantly clear.” 89. Moreover, in construing any contractual provision the court should always have regard to its purpose. See Arbuthnott v. Fagan [1996] 1 Lloyds Reinsurance Law Reports 135 especially at page 140 (Steyn LJ); and see ICS v. West Bromwich [1998] 1 WLR 896. 90. The purpose of clause 11.4.1 was to enable either party to terminate in the event of a material breach by the other. A material breach is a serious breach in the particular circumstances of the case, having regard to its consequences. See Glolite v. Jasper Conran (unrep.) 21.1.98 (Neuberger J.);National Power v. United Gas (unrep.) 3.7.98 (Colman J.). 91. The purpose of clause 3.10 was to give Post Office comfort that, for each calendar year of the Agreement, the relevant contracting party would have the financial means to perform its obligations during that year. Not every breach of this clause would be a material breach. Providing the letters late is unlikely to be; on the other hand, refusing to provide them at all, if asked, may well be a material breach. 92. In clause 11.4.1 the words “the parties acknowledging that a breach of any of Clauses 3.10.1, 3.10.2 and 3.10.3 is a breach incapable of remedy”, appearing, as they do, in a clause concerned with material breach, must be taken to be referring to a material breach of any of those clauses; they cannot be taken to be referring to any breach, however inconsequential, since this would flout business common sense. Cf. The Antaios [1985] AC 191, a case concerned with a clause in a charterparty giving the owners liberty to withdraw “on any breach of this charterparty”
. The House of Lords held this only allowed the owners to withdraw in the event of any repudiatory breach. Lord Diplock said at page 201 “… 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.” 93. In the present case, Tele2’s breach of clause 3.10.2 was not a material breach. It did not occasion any loss, or give rise to any concern. There was never any serious risk that the relevant contracting company would fail financially. Post Office was not worried that it would. And it is evident from what actually happened, that if letters had been sought they would have been provided.”[72]It is certainly correct that the immediate response to the service of the letters dated 1 December 2004 was a letter dated 2 December 2004 written by the Parent Company to Mr. Jeremy Woodrow, Telephony Product Manager of the Post Office, in the following terms:- “Agreement in relation to the provision of Phonecards and related Services dated 9th November 2001 (“the Contract”) We enclose pursuant to clause 3.10.2 of the above Contract the Parent Company Letters for the calendar years 2004 and 2005. For the avoidance of any doubt, we confirm that what is set out in the Parent Company Letter applies equally to all previous calendar years since the effective date of the Contract and that we have been ready and willing to provide Parent Company Letters to this effect at any time in the past three years.”[73]Three Parent Company Letters were enclosed with that letter, one in relation to each of Tele2 UK, Tele2 International and Tele2 Ireland. Rather curiously, those in relation to Tele2 International and Tele2 Ireland gave confirmation until 31 December 2004 in the terms required, whilst that in respect of Tele2 UK gave confirmation until 31 December 2005.[74]The actual significance of the provisions of clause 3.10.2 of the Agreement in practical terms merits some analysis. On its face clause 3.10.2 required simply provision of a certified copy of a Parent Company Letter by each of the Tele2 parties by 24 December in each year, covering the following year. All the provision of that document did was to confirm to the Post Office that the original Parent Company Letter had been delivered. The only matter to which the provision of the certified copy of the Parent Company Letter was linked in the Agreement was the obligation of each of the Tele2 parties under clause 3.10.3 to call upon the Parent Company in accordance with the terms of the relevant Parent Company Letter in case of need.[75]The evidence of Mr. Per Borgklint, formerly chief executive officer of Tele2 Nederland and Parent Company market area director for the area including the United Kingdom, (Transcript Day 2 page 87 lines 9 – 20) was:- “… what I can say is that in the group of Tele2 all entities each year received parental guarantee letter as a part of the full year end closing. And that was something that was necessary to get the auditors to sign off on the group level. So these were internally set-up parental group guarantees and going-concern letters for all entities in the whole group of Tele2, including those companies. Each year, even though – if they were sent or not to the Post Office I don’t know, but I know they were being put out by Tele2 to all their entities including the Netherlands, Belgium, France and …”[76]The evidence of Mr. Borgklint was thus to the effect that the production of forms of Parent Company Letter was a standard procedure within the Tele2 group and was considered to be of importance in securing the approval of the auditors of the group.[77]So far as the Post Office was concerned, it seems that, at the date of the Agreement, it had a concern about the financial stability of the Tele2 parties which the provisions of clause 3.10.2 and 3.10.3 were intended to alleviate. If the obligation in clause 3.10.3 was to have value, it was necessary for the Post Office to know each year whether a Parent Company Letter had been issued to each Tele2 party to the Agreement. It was also necessary to secure the production by the Parent Company, which was not a party to the Agreement, of a Parent Company Letter to the relevant Tele2 party, and to ensure that the Parent Company would stand by the Parent Company Letter, if called upon. The Post Office had no direct means of ensuring either of these things.[78]On the face of clause 11.4.1 of the Agreement the parties agreed that what was a “material” breach of the Agreement “include[d] without limitation if any Contractor is in breach of any of Clauses 3.10.1, 3.10.2 and 3.10.3”. The language, as it seems to me, was clear. The parties agreed that any breach of any of those clauses was to be material. Later in the sub-clause they also agreed that any such breach was to be irremediable. They thus plainly attributed great significance to compliance with those provisions. As it seems to me, that was a matter for them to decide. It was not a case of perhaps rather unfocused, general words being contended to have a particular effect which seemed surprising. The parties had specifically provided for the consequences of any breach of clauses 3.10.1, 3.10.2 and 3.10.3.[79]Insofar as it is relevant to consider whether, objectively, a breach of any of the provisions of clause 3.10.2 was a “material” breach of the Agreement, it seems to me that it was, for it indicated that the party in breach might not have received a Parent Company Letter, and that in turn was an indication that perhaps the financial stability of the party to which a Parent Company Letter might not have been sent was at risk. Such risk of financial stability was obviously of concern to the Post Office because it could impact upon the ability of the Post Office to sell phonecards to customers, or, perhaps even more worrying, upon the delivery to Post Office customers of phonecards of the services for which they had paid.[80]Thus I am satisfied that, as at the date of service of the letters of termination dated 1 December 2004, each of Tele2 UK, Tele2 International and Tele2 Ireland was in breach of clause 3.10.2 of the Agreement, and that such breach was a material breach, prima facie entitling the Post Office to terminate the Agreement under clause 11.4.1.[81]The question then arises whether, given the lapse of time since the date when certified copies of the Parent Company Letters for 2004 should have been provided, and the continued performance of the Agreement on the part of the Post Office, and the Post Office’s acceptance of performance from the Tele2 parties, since that date, the Post Office should be taken to have affirmed the Agreement.[82]Mr. McCaughran developed the Claimants’ case in relation to affirmation in his written opening skeleton argument as follows:- “70. It is well established that a party which has a right to terminate a contract for breach may lose that right by affirming the contract. Affirmation, which is an election, does not mean that the aggrieved party loses its right to claim damages for the breach; but it does mean that the right to terminate the contract is lost. 71. It is equally well established that a party which has a right to terminate, and which knows of that right, will be taken to have affirmed the contract if it accepts performance of the contract from the other party. As the learned editors of Chitty on Contracts put it:
“… if the innocent party unreservedly continues to press for performance or accepts performance by the other party after becoming aware of the breach and of his right to elect, he will be held to have affirmed the contract.” 72. Thus, for example, where the owner of a vessel the subject of a charterparty has the right to withdraw the vessel for non-payment of hire, he will lose the right to withdraw by accepting payment after default has occurred. See The Brimnes [1975] QB 929; and cf. The Laconia [1977] AC 850. 73. By the same token, a party which knows of its right to terminate but which, despite that right, goes on to perform the contract itself, in order to take the benefit of so doing, will lose its right to terminate. Cf The Kanchenjunga [1990] 1Lloyds Rep 391. 74. In the present case, the breach which the Post Office alleges gave it the right to terminate occurred on 24 December 2003 – the date by which the parent guarantee letters should have been provided. 75. Post Office therefore waited more than 11 months before serving notices of termination. During that period: (1) Post Office accepted performance of the Agreement by Tele2; and (2) performed the Agreement itself in order to obtain the benefit of so doing. 76. In those circumstances it is obvious, in Tele2’s submission, that Post Office affirmed the Agreement. 77. Post Office was not therefore entitled, on 1 December 2004, to terminate the Agreement – even if it had purported to do so on that date. 78. However, the position is even worse for Post Office, because it did not purport to terminate on 1 December 2004. It gave notice that it would do so four months in the future – on 31 March 2005. In the meantime it continued both to perform the Agreement itself and to accept performance from Tele2. 79. In short, the conclusion that Post Office affirmed the Agreement is overwhelming. An alternative way of putting the matter is that Post Office, by its conduct, represented that it would not terminate the Agreement, that Tele2 relied on this by continuing to perform, and that Post Office is thereby estopped from exercising its right to terminate. 80. The answer which Post Office puts forward to these points is that Post Office is saved by clause 16 of the Agreement, which provides: … 81. Post Office contends that this provision prevents the loss of its right to terminate. 82. The effect of Post Office’s argument is not to be underestimated. It would lead to the conclusion that Post Office could, if it so wished, keep quiet about Tele2’s breach potentially for years, and then, whenever it suited Post Office to terminate, it could do so, with immediate effect, and without warning. 83. This is not the effect of clause 16, which in truth has no application to the issue of whether Post Office affirmed the Agreement by continuing to perform it. 84. Post Office’s positive conduct in performing the contract itself, and in accepting performance from Tele2, is not “delay, neglect or forbearance”
. It is not, therefore, conduct with which clause 16 is concerned. 85. Moreover, clause 16 is concerned with delay etc. “in enforcing … any provision of this Agreement”. It is thus directed at delay in ensuring compliance with the parties’ primary obligations under the contract – not with delay in exercising a right under the Agreement.”[83]The submissions of Mr. McCaughran thus gave rise to two short points of construction. The first was whether clause 16 of the Agreement applied to an affirmation at all. The second was whether it could be relied upon in relation to a termination of the Agreement by reason of a breach of a material term, or whether its application was confined to securing compliance with the primary obligations of the parties under the contract – that is to say, in this case, compliance with the obligations in clause 3.10.2.[84]Mr. Onions, in his written skeleton opening argument advanced his client’s case in relation to clause 16 in this way:- “5.6 The reason why such clauses are sometimes seen in contracts is because there have been cases where a party has failed to exercise a right for a period of time and is then held to have lost the right to do so as a result. It is said that the party has waived his right. A waiver clause prevents this from happening. 5.7 There are two relevant types of waiver: waiver by election and waiver by estoppel. The former is the “abandonment of a right which arises by virtue of a party making an election”. The second type of waiver arises where a party agrees not to raise a defence or is estopped from so doing. 5.8 The effect of clause 16 is to prevent either of these consequences arising where there has been any “delay, neglect or forbearance” by a party in enforcing any right under the Agreement. POL submits that, in this context, the intention of the parties as revealed by the words that they have used could not be clearer. The width of “any delay, neglect or forbearance” indicates that the parties did not intend nice distinctions to be drawn. What was intended was that a party should not be taken to have lost rights which it did not exercise for a period. In any event, POL falls precisely within each of the terms. It forbore from enforcing its right to receive Parent Company Letters and its right to terminate as a result of the failure to provide them until 1 December 2004. POL also delayed in enforcing its rights and neglected to enforce them. The wording and purpose of clause 16 would be defeated if POL was not entitled to rely on its rights on 1 December 2004. 5.9 Tele2 says that the parties cannot have intended that clause 16 would enable one party to rely on a breach occurring months earlier. But POL submits that the question is, why not? The clause says that “any” delay etc shall not “in any way” prejudice “any right”. There is no time limit expressed in the clause, and indeed the purpose of the clause is precisely to prevent it being said that the fact that a breach occurred months earlier prevents a party from enforcing its rights. What else is clause 16 for? 5.10 Recognising this difficulty, Tele2 seeks to cast POL’s failure to exercise its undoubted rights as “continuing to perform its obligations under the Agreement”. Tele2 does not specify which obligations it has in mind, but presumably it is referring to the fact that POL continued to sell phonecards. The parties presumably contemplated that POL would sell phonecards every day that Post Offices are open. If doing so while not simultaneously enforcing an accrued right takes POL outside the scope of clause 16, then clause 16 would never apply. In other words, Tele2’s argument renders clause 16 pointless and of no effect. That is hardly likely to have been the intention of the parties. 5.11 Tele2 does not identify when it says POL lost its right. It certainly was entitled to terminate the Agreement on 1 January 2004. If continuing with the Agreement per se amounts to a waiver by election notwithstanding clause 16, then POL would not have been able to exercise its right the following day. But that is hopelessly unrealistic on any basis, and additionally flies in the face of clause 16. If POL was entitled to terminate the Agreement on 2 January 2004, why was it not entitled to do so a week or a month later? Why not 3 months later? Tele2 cannot say at what point POL is alleged to have lost its rights. 5.12 The reason for this is that POL never said that it was not going to exercise its right to terminate. Failing to terminate the Agreement on one day is not a representation that POL would not terminate it the next day. One might add that such a promise not to exercise a right in the future would only be capable of giving rise to a promissory estoppel, and Tele2 does not rely on estoppel. 5.13 POL submits that, by 1 December 2004, nothing had deprived it of its right to terminate the Agreement and it remained entitled to do so.”[85]In his oral opening submissions Mr. Onions contended that, as affirmation was a form of waiver, it was obvious that clause 16 could be relied upon in answer to the assertion that the Post Office had affirmed the Agreement after knowledge of the breaches on the part of the Tele2 parties of the requirements of clause 3.10.2. Mr. Onions reminded me of the passage in Chitty on Contracts, 29th edition, 2004, at paragraph 24.007 on waiver and estoppel:- “Affirmation is sometimes regarded as a species of waiver, the innocent party “waiving” his right to treat the contract as repudiated. But the word “waiver” is used in the law in a variety of different senses and so bears “different meanings”. Two types of waiver are relevant here. The first type may be called “waiver by election” and waiver is here used to signify the “abandonment of a right which arises by virtue of a party making an election”. Thus it arises when a person is entitled to alternative rights inconsistent with one another and that person acts in a manner which is consistent only with his having chosen to rely on one of them. Affirmation is an example of such a waiver, since the innocent party elects or chooses to exercise his right to treat the contract as continuing and thereby abandons his inconsistent right to treat the contract as repudiated; he does not abandon his right to claim damages for the loss suffered as a result of the breach. A second type of waiver may be called “waiver by estoppel” and it arises when the innocent party agrees with the party in default that he will not exercise his right to treat the contract as repudiated or so conducts himself as to lead the party in default to believe that he will not exercise that right. This type of waiver does not exist as a separate principle but is in fact an application of the principle of equitable estoppel deriving from the classic statement of Lord Cairns in Hughes v. Metropolitan Railway Co.”[86]The accuracy of the statement of the law contained in that paragraph was not in dispute between Mr. Onions and Mr. McCaughran. It was equally not in dispute that there was no question in this case, insofar as the breaches of clause 3.10.2 were concerned, of any waiver by estoppel. The affirmation contended for was said to be found in the Post Office electing to continue the Agreement by performing it, and having it performed by the other parties, after it was aware of the breaches of clause 3.10.2 by failure to produce, by 24 December 2003, certified copies of Parent Company Letters for 2004. But that, said Mr. Onions, was a classic waiver by election.[87]Mr. Onions also emphasised that, by its express terms, clause 11.4 of the Agreement contemplated that a termination under that sub-clause might be effected “at any time”. Thus it was postulated that the exercise of the right of termination did not need to be undertaken at the moment the entitlement to terminate arose, but could be undertaken at any time thereafter. As I understood it, the suggestion was that that feature of clause 11.4 lent support to the construction of clause 16 for which Mr. Onions contended.[88]I accept the submissions of Mr. Onions as to the proper construction of clause 16 of the Agreement. That clause was apt, as framed, to include any alleged delay, neglect or forbearance to enforce any provision of the Agreement, and in particular to include within its scope an alleged affirmation. In my judgment there was no justification for construing the types of enforcement which fell within the scope of clause 16 as in any way limited to securing compliance with primary obligations, as opposed to exercising a right to terminate. Indeed, it is difficult to envisage what sort of enforcement could be covered by clause 16 if not exercising a right to terminate. The question of delay, neglect or forbearance was not material to a claim for damages, which could be pursued notwithstanding an affirmation. Mr. McCaughran did not submit that any particular circumstance surrounding the making of the Agreement led to the construction of clause 16 for which he contended.[89]In the result, I am satisfied that the Post Office was entitled to terminate the Agreement by the notices dated 1 December 2004 at the time they were given, notwithstanding that, but for the provisions of clause 16, the length of time which had elapsed from the date upon which the certified copies of Parent Company Letters in respect of 2004 should have been provided, and the continuation of the performance of the Agreement on both sides after that date, would otherwise have resulted in the inference being drawn that the Post Office had elected not to terminate the Agreement on that account.[90]However, that conclusion does not dispose of the principal claim of the Claimants because of the alternative basis of the claim, pleaded in the Amended Particulars of Claim in this way:- “13. On 21 December 2004 a meeting took place between representatives of the Claimants and representatives of the Defendant. At that meeting, Per Borgklint (Chief Executive Officer of Tele2 Nederland BV, and the Tele2 AB Market Area director with overall responsibility for the UK, Irish and Benelux operations) expressly stated that any difficulties in the relationship in the past would be fully resolved by the Claimants. Mr. Borgklint also expressly asked at that meeting whether the Defendant wanted to continue the relationship. The representatives of the Defendant present at the meeting (Gordon Steele, the Defendant’s Sales and Marketing Director and Simon Carter, Head of Marketing of the Defendant) agreed that the Defendant did want to continue the relationship.14. On 17 January 2005 a further meeting took place between representatives of the Claimants and representatives of the Defendant. Mr. Borgklint, Nouman Hashmi (the Chief Executive Officer of each of the Claimants), Scott Coles (the Account Director of the Third Claimant) and Giuseppe Funaro (Sales Director of each of the Claimants) attended the meeting on behalf of the Claimants; and Mr. Carter, Mr. Hall and Jeremy Woodrow (Product Manager of the Defendant) attended on behalf of the Defendant.15. During the meeting on 17 January 2005, the Claimants’ representatives presented a number of proposals to the Defendant’s representatives as to how the relationship could be taken forward. Mr. Borgklint explained that he and several of his colleagues had invested, and were going to invest, a considerable amount of time in preparing and presenting options for the Defendant and in managing the relationship. However, Mr. Borgklint expressly stated that he was willing to invest such further time and money if the Defendant gave its express agreement that it was committed to the continuation of the Agreement. The Defendant’s representatives then indicated that they wished to have some time alone to discuss matters and left the room for several minutes in order to do so. Upon their return, the Defendant’s representatives expressly and unequivocally confirmed to the Claimants’ representatives that the Defendant was committed to continuing the relationship with the Claimants.16. It has been suggested by the Defendant that any future relationship between the Claimants and the Defendant was conditional on a new contract being entered into with effect from 1 April 2005. The Claimants maintain that, at no stage, was this understood to be the position. The Claimants accept that the desirability of introducing a new contract was discussed and agreed in principle at the meeting on 17 January 2005 but only because both the Claimants and the Defendant recognised that the Agreement did not fully reflect the services then being provided and which would be provided in the future. However, the clear priority was agreed between the Claimants and the Defendant to be the relaunch of a revised Phonecard product range and pricing structure as part of a new marketing initiative, which was scheduled to take effect on 1 April 2005.17. By the words and conduct of the Defendant’s representatives at the meeting on 17 January 2005, the purported notices of termination of 1 December 2004 were withdrawn and were, therefore, no longer of any effect.18. Following the meeting on 17 January 2005 both the Claimants and the Defendant proceeded throughout January and February 2005 in a manner which was entirely consistent with the withdrawal of the purported notices of termination and the continuation of the Agreement beyond 31 March 2005. The Claimants will rely at trial on the communications and meetings between the parties in January and February 2005 in this regard. The actions of the Defendant following service of the purported notices of termination of 1 December 2004 were entirely consistent with those notices still being understood by the parties to be valid or effective.19. By agreeing to commit itself to the existing Agreement, the Defendant abandoned any right to rely upon its complaint in respect of the Parent Company Letters.20. Further or alternatively, the Claimants contend that the Defendant’s conduct, in continuing to perform the Agreement and allowing the Claimants to continue to perform the Agreement amounted to a representation to the Claimants, upon which they relied, that the Agreement would continue and would not be terminated by reason of past events. The Claimants’ reliance consisted of committing substantial further resources to the performance of the Agreement, including investing time and money formulating new products and ideas, implementing marketing initiativesand providing phonecards and fixed line services.”[91]The matters alleged gave rise to disputed issues of fact, for it was not accepted on behalf of the Post Office that it, through its representatives at the meetings of 21 December 2004 and 17 January 2005, had done more, in effect, than indicate that the Post Office was prepared to continue to talk to the Claimants about whether the relationship between the parties could survive. It is therefore necessary to consider the events of the meetings on 21 December 2004 and 17 January 2005, and the dealings between the various parties between about 21 December 2004 and 3 March 2005, when Mr. Carter sent a letter to Mr. Borgklint making clear that the Post Office intended to rely upon the letters of 1 December 2004 as bringing the Agreement to an end on 31 March 2005.

The alternative case of the Claimants on their principal claim – the facts

[92]It is material to record that, following the sending of the letters dated 1 December 2004, one of the steps taken on behalf of the Claimants was to instruct Messrs. Richards Butler (“RB”), at that time solicitors acting on behalf of the Claimants, to engage in correspondence with the Post Office and, subsequently, with the solicitors acting on behalf of the Post Office, Messrs. Lovells (“Lovells”).[93]RB’s opening salvo was a letter dated 2 December 2004 written to Mr. Woodrow, the person with whom Tele2 staff had most daily contact. In the letter dated 2 December 2004 RB said that it was writing on behalf of Tele2 UK and contended that the letter dated 1 December 2004 addressed to it was invalid, essentially on the grounds relied upon by the Claimants in this action.[94]The Post Office instructed Lovells to respond to RB’s letter dated 2 December 2004. That Lovells did in a letter dated 3 December 2004. In the letter dated 3 December 2004 Lovells enquired whether RB also acted on behalf of Tele2 Ireland and Tele2 International. It explained that the Post Office was relying upon clause 16 of the Agreement as an answer to the suggestion that the Post Office had affirmed the Agreement after knowledge of the breaches of clause 3.10.2. The letter ended:- “You have asked POL to confirm that its letter dated 1 December 2004 is withdrawn. It is not. The letter is effective notice of termination and POL will be proceeding on that basis.”[95]RB replied to Lovells’s letter dated 3 December 2004 in a letter dated 13 December 2004. In that letter RB explained that it did also act for Tele2 Ireland and Tele2 International. It contested the ability of the Post Office to rely on clause 16 of the Agreement, again essentially on the grounds advanced during the trial.[96]Lovells responded to the letter dated 13 December 2004 from RB in a letter dated 17 December 2004. In it Lovells contended that RB had not dealt with the point in relation to clause 16 of the Agreement correctly. The detail of the argument set forth in the letter is not presently material. However, the letter concluded:- “POL’s view of its position is unchanged as a result of your letter and we repeat the confirmation in our 3 December 2004 letter that POL’s notice of termination dated 1 December 2004 is not withdrawn. POL will be proceeding on that basis and expects your clients to work with it in implementing the Exit Management Plan under clause 11.5 and Schedule 8 of the Contract in the period between now and termination of the Contract on 31 March 2005.”[97]Thus the formal position of the Post Office immediately prior to the meeting on 21 December 2004 was that the notices of termination of the Agreement were effective and that the Agreement was going to come to an end on 31 March 2005.[98]The only witness called on behalf of the Claimants in relation to what occurred at the meeting on 21 December 2004 was Mr. Borgklint. His account of the meeting set out in his witness statement was:- “14. Following the letter from Richards Butler on 20 December 2004, a meeting took place on 21 December 2004. This meeting was attended by Lars-Johan Jarnheimer (President and Chief Executive Officer of Tele2 AB), Scot Young (Consultant to Tele2) and me on behalf of the Tele2 companies and by Gordon Steele (the Post Office’s Sales and Marketing Director) and Simon Carter (Head of Marketing of the Post Office).15. I recall that at the beginning of the meeting the Post Office representatives said that the meeting was being held on a without prejudice basis and would not affect the parties’ legal positions. However, I am advised by Fox Williams LLP [solicitors acting on behalf of the Claimants from about the end of March 2005] that, given the fact that agreement was reached in relation to the continuation of the Agreement (as explained below), the discussions at the meeting are now open and can be referred to.16. At the meeting on 21 December 2004, Mr. Young (who told me that he was the person who introduced the Tele2 group to the Post Office) outlined the history of the relationship. The meeting went on to focus on what could be done in relation to the Agreement and also what should be done by the parties in relation to the Agreement. Further, the meeting also focused on the fact that Tele2 had put a considerable amount of effort into obtaining the Agreement in the first place and making it attractive to the Post Office from the outset.17. I had understood that there had been some difficulties in the relationship. Such difficulties related to account management, and included allegations by the Post Office of poor management of the account by certain Tele2 personnel, and clashes of personality between those working on the account on behalf of Tele2 and those at the Post Office.18. More particularly, however, the relationship difficulties centred around the refusal by the Post Office to allow Tele2 to introduce competitive tariff structures for customers and discount levels, together with the fact that the Post Office had introduced cards from Nomicall and refused to allow Tele2 to match the rates which Nomicall was offering.19. …20. I acknowledged at the 21 December 2004 meeting that there had been difficulties with the relationship in the past in respect of the account management (as outlined above) but gave assurances that any such difficulties would be fully resolved going forward. It was therefore agreed at the meeting on 21 December 2004 that there would be “renewed co-operation” and that the previous account management difficulties would be put behind us. I specifically wanted to know at the meeting whether or not the Post Office wanted to continue the relationship and take it forward. Mr. Steele and Mr. Carter on behalf of the Post Office confirmed that they did. In particular, Mr. Carter stated at the conclusion of the 21 December 2004 meeting that there was no reason not to continue. It was therefore also agreed that a further meeting would be arranged for the New Year in order to take matters forward. I assured Mr. Carter and Mr. Steele that I would be personally available to resolve any issues which may arise going forward.21. In relation to the 21 December 2004 meeting the Post Office have asserted that one of the representatives of the Post Office stated that they would seek to avoid litigation if possible, that they were prepared to try to establish whether some kind of relationship was in both parties’ interests and set out the main issues that needed to be addressed if there was going to be a continuation of the Agreement – namely improved account management and improved customer propositions.22. It is correct that at this meeting the representatives of the Post Office explained that they were looking for new creative angles and new products – all of which Tele2 had offered previously but which had been rejected by the Post Office.23. At the meeting the commercial representatives of both sides also discussed the relationship between the Tele2 companies and the Post Office. Such discussion, however, did not focus on the formal Agreement. There were no lawyers in the room and I cannot recall anyone referring to the Agreement or the notices of termination as such. However, my colleagues and I clearly understood at the end of the meeting on 21 December 2004 that the Post Office was committed to the continuation of the relationship (and therefore the Agreement) going forward and that they were no longer relying on the termination notices.”[99]The account given by Mr. Borgklint in his witness statement did not give the impression that anything as momentous as the formal withdrawal on the part of the Post Office of the termination of the Agreement effected by the letters dated 1 December 2004 took place. According to Mr. Borgklint himself, no reference was made to the Agreement or to the notices of termination. However, he said he formed the impression that the representatives of the Post Office present were interested in taking matters forward and continuing some form of co-operation, and from that, so it seems, he concluded that the Post Office would not rely on the letters of 1 December 2004. The matter was not pleaded as definitely as that at paragraph 13 of the Amended Particulars of Claim. There the way in which the matter was put was simply that the Post Office representatives agreed that the Post Office did want to continue the relationship with the Tele2 parties. No conclusion was sought to be drawn from that in the Amended Particulars of Claim. The pleaded case focused on what was allegedly said at the meeting on 17 January 2005.[100]However, in a letter dated 18 March 2005 written to Mr. Carter in response to Mr. Carter’s letter dated 3 March 2005 Mr. Borgklint contended that, “…regardless of whether the notice was valid, you withdrew it in no uncertain terms during the meeting on 21 December 2004…”[101]Not surprisingly Mr. Borgklint was asked about that assertion during his cross-examination. It was suggested to him (Transcript Day 2, page 143 lines 10 – 17) that what was said was not true. However, he maintained that the passage quoted from his letter dated 18 March 2005 did indeed represent his opinion. He was pressed by Mr. Onions (Transcript Day 2 page 144 line 22 to page 146 line 19):- “Q. But at page 104, you are saying that the Post Office – and I think you are saying Mr. Carter – withdrew the notice of termination in no uncertain terms. He could not have withdrawn the notice of termination in no uncertain terms if he did not refer to it, could he? A. Um, I am not a person of legal knowledge, especially not on UK law, but my understanding is that by acting and what we were agreeing, the conclusion of that means that he withdrew the termination - Q. We are not talking about questions of UK law, Mr. Borgklint; we are talking about what you say Mr. Carter said. In the letter at page 104, you allege that Mr. Carter withdrew the notice in no uncertain terms during the meeting. If he had withdrawn the notice in no uncertain terms during the meeting, he must have referred to it. A. If that is the case. If that is the case that that is the only way to do it, then – then he must have referred to it. But my recollection is – and my understanding of the situation – is as follows: that he explicitly said, and also Gordon Steele explicitly said, that they wanted to continue co-operation, that they did not want to have a legal battle, that they wanted to go ahead, go forward, and then if the wording and meaning of it is that the relations were to go on. And if that can be inconsistent, I am not a – you know, a specialist in the matter of inconsistencies. I can only say that the conclusion after that meeting was that we had agreed to continue. Q. Your recollection is that no one referred to the notices of termination at the meeting, isn’t it? A. That is my recollection, yes. Q. So, if no one referred to the notices of termination at the meeting, no one could have unequivocally withdrawn the notices, could they? A. If you are in a meeting and agree on going forward, by definition in my world from business perspective – as no lawyer was there – by actually acting and agreeing the ways forward, my conclusion would be that that can only mean that you actually decided that you were in together and continue your co-operation. That is my recollection of the meeting. If it is inconsistent in these two statements I am truly sorry about that and I can only describe what happened in that specific meeting.”[102]Mr. Borgklint produced a note book in which he had written a brief record of matters discussed at the meeting on 21 December 2004. The record was this:- “- innovations - New contract - Rates - comissions [sic] - Account Managers - Meeting Mid January create new platform with proposal going forward ”[103]That record did not include any suggestion that the notices of termination of the Agreement had been withdrawn.[104]Following the meeting Mr. Carter sent an e-mail to Mr. Borgklint at 16.46 hrs. the same day. The e-mail was in these terms:- “WITHOUT PREJUDICE – COMMERCIAL IN CONFIDENCE Per, It was good to meet with you today … and I trust you got back safely? As I suggested in the meeting, I am keen to involve my colleague, Nicky Hall, in the workshop, but he is out of the office today. I will therefore drop you an e-mail tomorrow with some suggested dates – I think we are looking at the back-end of w/c 10th January (maybe the Wednesday or the following Monday … but I will try & suggest a few dates). We will also send over before the meeting the key areas that we need to discuss, as these are the areas where we feel you are the most adrift & where the most work needs to be concentrated if we are to find a way forward. Thanks. I will e-mail you tomorrow.” I will e-mail you tomorrow.”[105]Again, the terms of Mr. Carter’s e-mail did not seem to be consistent with an agreement or acceptance that the Post Office and the Tele2 parties would definitely be going forward together, or that the Post Office would not be relying on the notices of termination dated 1 December 2004. Rather the impression created by the terms of the e-mail was that the Post Office was prepared to discuss its main areas of concern and to consider what proposals the Tele2 parties might make to address those concerns, so as to be able to reach a decision whether a way forward together was possible.[106]Both Mr. Carter and Mr. Steele, the representatives of the Post Office at the meeting on 21 December 2004, gave evidence at the trial. They agreed that at the outset of the meeting Mr. Steele said that the meeting was “without prejudice” and that that meant that the discussions would not affect the legal positions of the parties. The case for the Post Office was that that situation did not change during or as a result of the meeting, but I was nonetheless told by Mr. Carter and Mr. Steele what had been said at the meeting. In essence the evidence of Mr. Carter and Mr. Steele was that what was discussed at the meeting was the possibility of a relationship between the Post Office and Tele2 continuing after the termination of the Agreement pursuant to a new contract. They said that they were prepared to consider that, but it depended upon what Tele2 had to offer. They were looking for creative innovations in the phonecards to be offered, and in particular at the Rates to be offered, bearing in mind that they considered that the Tele2 Rates were considerably in excess of the Rates charged by Nomi-Call. Another issue was the commission to be paid to the Post Office. Nomi-Call paid commission at the rate of 35%, and the Post Office expected that Tele2 should match that level, if there was to be a continuing relationship. There had been problems in the past in the dealings between Post Office representatives and the Tele2 account managers and they wanted those problems to be addressed. The whole purpose of the meeting proposed for mid-January 2005, from the point of view of the Post Office, was to afford Tele2 time to consider the matters raised in the discussion on 21 December 2004 and to prepare proposals to deal with those matters.[107]Both Mr. Steele and Mr. Carter were cross-examined about their evidence of the meeting on 21 December 2004. Mr. Carter, who gave evidence first, was taken through the account of Mr. Borgklint and invited to comment on his various assertions. Mr. Steele’s cross-examination proceeded on a rather more general basis. Both denied that either of them had said, in unqualified terms, that the Post Office wanted the relationship with Tele2 to continue or that Mr. Carter had said that there was no reason for it not to continue. Mr. Steele told me that he recalled Mr. Borgklint wanting the relationship to continue and that he had said that the Post Office would want the relationship to continue if all of the difficulties between the parties could be resolved. He also told me that he recalled that they had said that there was no reason not to have another meeting at which the proposals of Tele2 could be further examined. Mr. Carter’s oral evidence was very much to the same effect. As to what the Post Office confirmed at the meeting he said (Transcript Day 8 page 137 lines 8 – 10):- “We confirmed that we would meet in the New Year and we would hear the proposals that he had to make or that his team had to make.”[108]Mr. Borgklint struck me as a man of intelligence who was fluent in English. I am afraid that I just cannot accept his attempt at an explanation of the inconsistencies between the evidence in his witness statement concerning the discussion at the meeting on 21 December 2004, and the outcome of that meeting, and how he sought to present matters in his letter dated 18 March 2005. Mr. Borgklint’s contemporary record of the meeting seemed to me to support entirely the evidence of Mr. Carter and Mr. Steele and not at all his own evidence, where it differed from theirs. I regret that I came to the conclusion that Mr. Borgklint was capable of presenting events, both in his letter dated 18 March 2005 and in his evidence, as he wished that they had been rather than as he knew they had actually been. It seemed to me that in fact at the meeting on 21 December 2004, and thereafter until 3 March 2005, insofar as he was involved, Mr. Borgklint was trying to finesse the Post Office into a position in which it felt that it had to continue with Tele2 by inviting Post Office representatives to express rather vague interest in continuing co-operation and then lead them into a feeling that matters would continue as before. I think that it was his failure ultimately to achieve that result that influenced the evidence of Mr. Borgklint, so that, in effect his evidence was of what he had wanted to achieve, rather than what he knew perfectly well he had failed to achieve.[109]In contrast to the evidence of Mr. Borgklint I have to say that I was very impressed by both Mr. Steele and Mr. Carter as witnesses. Each of them struck me as being fair and balanced in his evidence. Each was plainly intelligent and thoughtful, and took care to answer all questions put as accurately as possible. I have no hesitation in accepting the evidence of each.[110]My finding concerning what was said, or, more importantly, not said, at the meeting on 21 December 2004 is significant, for the other principal witness of fact on behalf of the Claimants, Mr. Nouman Hashmi, formerly, as from the beginning of January 2005, chief executive officer of each of the Claimants, told me in cross-examination that he understood from Mr. Borgklint that the outcome of the meeting on 21 December 2004 had been that the notices of termination of the Agreement had been withdrawn. Thus, according to Mr. Hashmi, the important principle that the relationship between the Post Office and Tele2 was to continue had already been established, as he understood it, before the meeting on 17 January 2005. It was that meeting which he attended, along with Mr. Borgklint and Mr. Scott Coles, who commenced employment as account director of C3 (UK) at the beginning of January 2005, and upon which so much emphasis was placed in the Amended Particulars of Claim.[111]RB replied to Lovells’s letter dated 17 December 2004 in a letter dated 24 December 2004. The letter was short. Between the heading and the signature all it said was:- “Thank you for your letter dated 17th December 2004, on which we are taking our client’s instructions. In the meantime, please provide us with any documentary evidence you may have relating to the alleged contact made by Iain Gilbert of POL with Tele2 UK’s former director, Johnny Heron, in late 2002. Yours faithfully,” Yours faithfully,”[112]Mr. Borgklint was cross-examined on that letter, Mr. Onions pointing out that RB made no reference to any withdrawal of the notices of termination at the meeting on 21 December 2004. Mr. Borgklint responded that he personally had had no contact with RB, and instructions to RB were given by Mr. Macmillan.[113]On 4 January 2005 arrangements were made for a meeting to take place between representatives of the Post Office and representatives of Tele2 on 17 January 2005, starting at 14.00 hrs.[114]Under cover of an e-mail dated 12 January 2005 Mr. Carter sent to Mr. Borgklint two attached documents, one a suggested agenda for the meeting on 17 January 2005 and the other what was described as “a background paper”. The background paper was in fact entitled “Post Office® Phonecard Workshop with Tele2 – 17th January 2005”, and it is convenient to refer to it in this judgment as “the Workshop Paper”.[115]The Workshop Paper was an important document and it is material to quote a large part of it, although it is not necessary to repeat the habit of the Post Office of marking all references to the words “Post Office” to indicate that those words are a registered trademark:- “Phonecards Background This document highlights the main areas that Post Office Ltd. sees as being absolutely critical in the selection of a long-term phonecard partner. There are six key areas to be addressed:• Product Portfolio• Consumer Tariffs• Innovation• Marketing Investment• Post Office Ltd. Commissions• Account Management Product Portfolio The current product portfolio is limited to the International [i.e. Generic] phonecards and the Holiday phonecard. There have been opportunities in the phonecard market over the last 3 ½ years that have not been exploited. The matrix in Appendix 1 shows some of the areas that Post Office Ltd. wishes to exploit going forward. Consumer Tariffs The current tariffs on the current (Tele2-backed) Post Office phonecard are wholly uncompetitive and have been for many months. At the times when the tariffs were competitive in 2003, we showed the potential of the Post Office phonecard. As soon as our rates became uncompetitive some 9 months ago, we began to lose customers. Post Office Ltd. requires the rates to be:• among the best consumer rates on the market• tariffs to be simple and transparent – e.g. limited ‘break outs’• tariffs to be regularly bench-marked• tariff changes to be made in a timely manner Innovation Since we have worked with Tele2, there has been very limited innovation. Whilst the rest of the market has moved forward in terms of innovation, the Post Office phonecard looks and feels very much as it did on launch day in 2001. Post Office Ltd. requires our phonecard supplier to pro-actively seek ways to innovate in the phonecard market and propose ways in which the Post Office phonecard can grow and become more profitable. Marketing Investment Having a market leading phonecard customer proposition is absolutely critical to Post Office Ltd. However in order to drive sales, proactive advertising and marketing is critical to hit the stretching ambitions that we have in this market of selling in excess of £3m of phonecards per month by December 2006. To this end we would expect a commitment from future partners towards marketing investment, commencing April 2005. Post Office Commissions At launch Tele2 paid Post Office Ltd. a commission of 21% of face value sales on all phonecards. To take into account the changes in the way VAT was charged following the 2003 Budget, from April 2004, Post Office Ltd. received 21% plus VAT making a total of 24.7%. Post Office Ltd. also receives 50% of all ‘breakage’ on phonecards. The relatively low commissions available has limited our ability to suitably incentivise our Subpostmasters, who are targeted with rival phonecards that pay them great commission. This has undoubtedly been a barrier to growing phonecard sales. Going forward Post Office Ltd. requires:• a sustainable commission in excess of 35% + VAT• a sustainable commission that enables us to suitably incentivise our Subpostmasters and colleagues• a commission structure that can be benchmarked regularly against competitors Background• Product Portfolio• Consumer Tariffs• Innovation• Marketing Investment• Post Office Ltd. Commissions• Account Management Consumer Tariffs• among the best consumer rates on the market• tariffs to be simple and transparent – e.g. limited ‘break outs’• tariffs to be regularly bench-marked• tariff changes to be made in a timely manner Marketing Investment Post Office Commissions• a sustainable commission in excess of 35% + VAT• a sustainable commission that enables us to suitably incentivise our Subpostmasters and colleagues• a commission structure that can be benchmarked regularly against competitors Account Management The relationship with Tele2 has been through its ups and downs through the 3 ½ years that the companies have worked together. At its best in the post-Alpha takeover, the relationship was positive and results improved accordingly, as both parties worked together to grow the business. The relationship soured around 9-12 months ago, with the changes in personnel, culminating with the 2003 VAT discussion. Discussions around rates were painful and indeed there seemed to be a lack of empowerment in Tele2 representatives as all decisions had to go to Sweden for ratification. In order to work effectively going forward we would need to be working with a dedicated account team who:• were empowered to take timely decisions• were pro-active rather than reactive• had the impact on Post Office customers at the heart of their decision-making Summary Post Office Ltd. intends to be a serious player in the phonecard market and is committed to achieving this aim. However in order to achieve it, we must:• have a market-leading customer proposition covering multi-channel access to phonecard products• have a market-leading commission to enable us to incentivise our subpostmasters and colleagues• have an experienced, pro-active and innovative dedicated account management team• receive suitable ongoing investment from our phonecard partner to fund marketing activity• develop innovative promotional activity to attract phonecard customers.”

Post Office Commissions

[116]As it seems to me, it was plain to anyone reading the Workshop Paper that what the Post Office was looking to do was to make a decision as to which long-term phonecard supplier to select, and did not, at the date of production of the Workshop Paper, consider that it was under any obligation to continue to deal with Tele2. Rather, the Post Office had specific criticisms of how the Tele2 parties had conducted themselves, certainly during the latter part of the period since the Agreement came into effect.[117]Unsurprisingly Mr. Borgklint was cross-examined about the Workshop Paper and it was put to him that it was plain from the wording in the “Background” section of the paper that the Post Office was looking at selecting a long-term phonecard partner. Mr. Borgklint’s reply to the question seemed to me to be evasive in relation to the main thrust (Transcript Day 5 page 12 line 24 to page 13 line 3):- “That is correct now when I read it here, but I can’t of course recall every word of the letter, but I see that that says that up on the top. And that was the reason why he sent it, to sort these things out on 17th January.”[118]Mr. Coles in his cross-examination was also asked about the Workshop Paper. His evidence (Transcript Day 3 page 42 line 1 to page 43 line 4) seemed to me to be odd, given the fairly clear terms of the paper:- “Q. Just looking at this document:
“This document highlights the main areas that Post Office Limited sees as being absolutely critical in the selection of a long-term phone card partner.”
So you knew that the purpose of the meeting on 17th January was as part of the process of the selection of a long-term phone card partner, did you not? A. No. Q. Well, if you read this document you must have known that. A. Well, maybe I read what I wanted to read, but that was not my idea of why we were there on the 17th. Q. But you knew it was why the Post Office thought you were there? A. I thought this was a pretty generic document, is what I thought. I did not imagine for a minute this had been written specifically for the meeting on 17th. This to me looked like a fairly generic document that was being sent out. Q. What do you mean by a “generic document”, Mr. Coles? A. Request for information. This is the stuff we look for. Most companies will have a kind of mother’s (?) apple pie statement of what they are looking for in those areas. Q. It identifies six key areas to be addressed. This is what it is telling you you have to do, isn’t it? A. As I say, it is a wish list. Q. No, it is telling you what you have to do. These are the six key areas to be addressed? A. Okay. I think it is interpretation.” Q. But you knew it was why the Post Office thought you were there? Q. What do you mean by a “generic document”, Mr. Coles? A. Okay. I think it is interpretation.”

Q. What do you mean by a “generic document”, Mr. Coles?

[119]It fell to Mr. Coles to prepare a presentation on behalf of Tele2 for the meeting on 17 January 2005. A presentation was duly undertaken at the meeting. The detail of the presentation, which seems to have taken the form of a Powerpoint exercise, is not really material to any issue in this action. However, it is of interest that one slide was entitled “Product Comparison” and took the form of a comparison between a Tele2 offering and the existing offering to the Post Office of Nomi-Call.[120]The evidence of Mr. Borgklint in his witness statement as to what occurred at the meeting on 17 January 2005 was this:- “28. I, together with Nouman Hashmi (the Chief Executive Officer of each of the Claimants), Scott Coles (the Account Director of the Third Claimant) and Giuseppe Funaro (Sales Director of each of the Claimants), attended the meeting. Mr. Carter, Mr. Hall and Jeremy Woodrow (Product Manager of the Post Office) attended on behalf of the Post Office. 29. During the meeting on 17 January 2005, we presented a number of proposals to the Post Office in relation to new ideas (such as different card prices, e-vouchers, web payments, SMS and vending machines). We also discussed marketing and how the phonecard services, pricing and the relationship between the parties could be taken forward. The representatives of the Post Office present at the 17 January 2005 meeting were a little apprehensive at the beginning of the meeting. However, following the presentation given by Mr. Hashmi, Mr. Funaro, Mr. Coles and me they had clearly warmed to us, by the conclusion of the meeting, they were fully committed to going forward with the Claimants. I recall that I was very pleased with the favourable reaction to the presentation by Mr. Carter, Mr. Hall and Mr. Woodrow. In particular, I recall that Mr. Carter stated that the presentation we made contained exactly the kind of thing that the Post Office was looking for. 30. During the course of the meeting on 17 January 2005 I explained that I and several of my colleagues had invested, and were going to continue to invest, a considerable amount of time in relation to preparing and presenting options for the Post Office and in managing the relationship. However, I made it clear to the representatives of the Post Office present at the 17 January 2005 meeting that I was only willing to invest such further time and money if the Post Office gave its express agreement that it too was committed to the continuation of the Agreement. I specifically asked them whether they were “in or out” (meaning “in” and committed to the Agreement and a continuing relationship or “out” and the Agreement and relationship would terminate.) 31. The representatives of the Post Office indicated that they wanted to have some time alone to discuss matters between themselves. Accordingly, they left the meeting room for several minutes. Upon their return, Mr. Carter, Mr. Hall and Mr. Woodrow confirmed that the Post Office was committed to continuing the Agreement. Again there were no lawyers in the room, only commercial people, and we all understood following the confirmation from Mr. Carter, Mr. Hall and Mr. Woodrow, that the Agreement would continue. 32. I also confirm that a proposal for a re-launch was discussed at the 17 January 2005 meeting. As part of that proposal I initially confirmed that I was prepared to commit the sum of £150,000 in respect of marketing. The representatives of the Post Office stated that they considered that the sum of £150,000 was not sufficient. Accordingly, I responded that Tele2 would, therefore, commit the sum of £250,000 in respect of marketing for the proposed re-launch and that there would be an overall sum of £1 million available for marketing for the coming year. The representatives of the Post Office were happy with these figures, which represented a significant contribution by Tele2 to the Agreement and was intended to be indicative of the commitment of Tele2 going forward. The representatives of the Post Office also outlined the next steps in order to be able to launch the new products on 1 April 2005. 33. I also understand from Fox Williams that the Post Office has asserted that any continuation of the relationship was conditional upon a new contract being entered into with effect from 1 April 2005. This is not the case. I accept that the desirability of a new contract was discussed at the meeting on 17 January 2005 and that it was agreed in principle that a new contract would be beneficial at some point given that the terms of the Agreement no longer accurately reflected the services then being provided or the services which would be provided in the future. However, the discussions in relation to potential revisions to the Agreement or a new simplified agreement were to be addressed in due course and not as a priority. The continuation of the relationship was not conditional upon a new contract being entered into and any necessary revisions to the Agreement were not linked to the 1 April 2005 date. None of the Post Office representatives said to us at the 17 January 2005 meeting anything about a new agreement having to be in place by 1 April 2005 for the relationship to continue. 34. I understand from Fox Williams LLP that it has been asserted by the Post Office that I stated at the 17 January 2005 meeting that I did not care about Nomicall because the Claimants could “wipe the floor with Nomi”. I do not recall using those words. I do, however, recall confirming that Nomicall did not, in my view, have the quality, organisational strength or financial backing of the Claimants. 35. It was very clear to me at the end of the meeting on 17 January 2005 that, given the fact that I had specifically requested commitment to the continuation of the relationship going forward from the Post Office and that commitment had been categorically provided, the Post Office was no longer relying on the notices of termination of 1 December 2004. 36. I am also aware from Fox Williams that the Post Office have asserted that the outcome of the 17 January 2005 meeting was that the Claimants were to produce a business plan and product plan and that the Claimants were aware that they would have to convince the Post Office by those ideas and that the parties would need to enter into a new agreement before the re-launch could take place on 1 April 2005. This is incorrect. The correct position is as explained. 37. I further understand from Fox Williams that the Post Office has asserted that I said that I would be more than happy if the Agreement were “torn up”. I do recall that I made reference to “tearing up the Agreement”. However, this reference was merely a reflection of the recognition by all those present at the 17 January 2005 meeting that the Agreement no longer accurately reflected the services which were then being provided and which would, in the future, be provided. I also stated clearly that I would not be prepared to “tear up” the Agreement until such time as a new agreement was in place. 38. At the conclusion of the 17 January 2005 meeting, I gave a summary of the position. I stated that:• the difficulties in the relationship between the parties had been resolved;• Tele2 had presented what everyone considered to be competitive and cutting-edge proposals;• I was pleased that agreement had been reached in relation to the way forward;• there was a lot of work to be done by the parties to work out the detail of, and implement, the new marketing campaign by 1 April 2005;• a new, simpler contract would be prepared in due course but in the meantime the parties would continue under the old one;• I would fulfil my promise to resolve any future relationship difficulties; and• the Post Office’s representatives should telephone me directly if they required my input.”• the difficulties in the relationship between the parties had been resolved;• Tele2 had presented what everyone considered to be competitive and cutting-edge proposals;• I was pleased that agreement had been reached in relation to the way forward;• there was a lot of work to be done by the parties to work out the detail of, and implement, the new marketing campaign by 1 April 2005;• a new, simpler contract would be prepared in due course but in the meantime the parties would continue under the old one;• I would fulfil my promise to resolve any future relationship difficulties; and• the Post Office’s representatives should telephone me directly if they required my input.”[121]In his first witness statement, dated 24 May 2007, Mr. Hashmi gave an account of the meeting on 17 January 2005 which was very similar, in some respects strikingly similar, to that of Mr. Borgklint in his witness statement. For example, paragraphs 37 and 38 of Mr. Hashmi’s statement were in almost exactly the same terms as paragraph 33 of Mr. Borgklint’s statement, and paragraph 48 of Mr. Hashmi’s statement was almost word for word in the same terms as paragraph 38 of Mr. Borgklint’s statement. The heart of Mr. Hashmi’s evidence of the meeting on 17 January 2005 was really this:- “42. During the 17 January 2005 meeting I also recall that Mr. Borgklint explained that he and several of his colleagues had invested, and would invest, a considerable amount of time managing the relationship and preparing and presenting options for the Post Office going forward. However, I specifically recall that Mr. Borgklint also stated that he was only willing to invest such further time and money if the Post Office gave its express agreement that it was committed to a continuation of the Agreement. Mr. Borgklint specifically asked the representatives of the Post Office if they were so committed.43. Following this request by Mr. Borgklint, the representatives of the Post Office stated that they wanted to have some time alone in order to discuss matters between themselves. Accordingly, they left the meeting room for a short time.44. When the representatives of the Post Office returned they expressly confirmed that the Post Office was committed to continuing the Agreement. I therefore understood from this confirmation that the Agreement would continue (and would only be replaced or amended when the relevant individuals had time to discuss such replacement or amendment which, given the priorities agreed, was not likely to be for some time).”[122]Mr. Hashmi made a note of the meeting on 17 January 2005. A copy of his note was put in evidence. He made it in manuscript. As he very fairly said, his handwriting is not all that easy to read. He was not invited during his evidence to read the note in its entirety for the benefit of others. Hole punches rendered obscure three words in the text in any event. Each individual item recorded had an asterisk beside it, which it is not necessary to reproduce for the purposes of this judgment. Doing the best I can, what Mr. Hashmi seems to have written in his note was this:- “Meeting with Post Office – The Way Forward 17/1/2005 PO Team – Simon Carter – Head of Marketing - Jermy [sic] Woodrow – Product Mgr. - Nick Hall – Telecom team Convincing to be allowed to sell @ outsource agents. Looking for firm commitment (PO) How do we communicate quality? [illegible] we sell the Shity [?] card? Emma – she wasn’t proactive - lets review in 3 months time Prepared to move from [illegible] to [illegible] Seek Advice from C & Ex [Customs and Excise] – Madeira is OK for VAT – Supplier issue [illegible] list of what you want Redesign existing cards (Pictorial) Rechargeable phonecards Student market Segmented cards – Africa (dirty is acceptable) One page document – on each cards (Grid) Template of what is available Limited cards – MU Card – Event Cards – Collection Items Incentive PO Staff – Branch wise scheme - Campaign incentive Linked product ) should look into Segmented products) Rechargeable Cards – Travel industry - Call Back cards PO launching – credit card (PO branded) Mastercard E – Vouchers – 15k in 15k offices of terminals - [illegible] system Online PINS?? Concept of POS?? Willing to back up what we presented. Exclusive deal for 12 months [April 2006] [illegible] customers (Rates) Incite subpostmasters (Commission) Tell people (Marketing) Business/Marketing Plan (within one week) Fixed line – check our position on refunding customers Draft a new contract.” - Jermy [sic] Woodrow – Product Mgr. - Nick Hall – Telecom team Looking for firm commitment (PO) How do we communicate quality? [illegible] we sell the Shity [?] card? - lets review in 3 months time – Madeira is OK for VAT – Supplier issue Redesign existing cards (Pictorial) Rechargeable phonecards Student market Segmented cards – Africa (dirty is acceptable) One page document – on each cards (Grid) Template of what is available Limited cards – MU Card – Event Cards – Collection Items - Campaign incentive Segmented products) - Call Back cards - [illegible] system Concept of POS?? Exclusive deal for 12 months [April 2006] [illegible] customers (Rates) Incite subpostmasters (Commission) Tell people (Marketing) Business/Marketing Plan (within one week) Fixed line – check our position on refunding customers Draft a new contract.”

Fixed line – check our position on refunding customers

[123]Thus the note Mr. Hashmi made at the time concentrated not on the matters of which he and Mr. Borgklint gave evidence in their respective witness statements, but on what it was said that the Post Office wanted and how Tele2 at a practical level might meet the identified requirements. Mr. Hashmi accepted in cross-examination that that was the principal focus of the meeting.[124]The other representative of Tele2 who attended the meeting on 17 January 2005 and who gave evidence was Mr. Coles. In his witness statement his evidence was generally to the same effect as that of Mr. Borgklint and that of Mr. Hashmi. The core of his evidence about the meeting was:- “17. Mr. Borgklint also explained at the 17 January 2005 meeting that he and his colleagues (including me) had invested and were going to invest a considerable amount of time in preparing and presenting options to the Post Office and in managing the Agreement (which we all understood would lead to a new agreement in due course). I also recall that Mr. Borgklint wanted specific confirmation from the Post Office that it too was committed to its continuation. Accordingly, Mr. Borgklint stated that he was only prepared to commit time and resources to the Agreement if the Post Office was committed to a continuation of the relationship. The Post Office’s representatives responded that they needed some time alone to discuss this between themselves. Accordingly, the Post Office’s representatives left the meeting room for several minutes. When they returned Mr. Carter, Mr. Hall and Mr. Woodrow confirmed, on behalf of the Post Office, that the Post Office was indeed committed to continuing the Agreement. I therefore understood from this that the Agreement would continue for the time being, and would subsequently be replaced by a new agreement when people had time to discuss it – which I expected would be some months later. 18. At the conclusion of the 17 January 2005 meeting I also recall that Mr. Borgklint gave a summary. He stated that the past difficulties in the relationship had been resolved, that the Claimants had presented what everyone had considered to be cutting edge and competitive proposals, that he was pleased with the fact that agreement had been reached in relation to the way forward, that there was a lot of work to be done in relation to the new marketing campaign and the planned re-launch, that a new, simpler, contract would be prepared in due course (with the clear implication being that in the meantime the parties would continue under the old one), that he would fulfil his promise to resolve any future relationship difficulties and that the Post Office’s representatives should telephone him directly if they required his input or if they experienced any problems. In addition, at the conclusion of the 17 January 2005 meeting, Mr. Carter, on behalf of the Post Office stated that the proposal and commitment from the Claimants was exactly the kind of thing the Post Office was looking for.”[125]Mr. Coles was cross-examined about his evidence in paragraph 18 of his witness statement. Mr. Onions (Transcript Day 3 page 157 line 22 to page 158 line 10) read out the greater part of it and asked, “That is quite a mouthful, isn’t it? And can you remember him saying all of that? The cross-examination on this point continued until Transcript Day 3 page 166 line 12. It is not necessary to set out for the purposes of this judgment the entirety of the exchanges between Mr. Onions and Mr. Coles, but some questions and answers give the flavour of those exchanges, starting with Mr. Coles reply to the question quoted in this paragraph:- “A. I can remember the elements of that meeting that made up that paragraph, yes. Q. What do you mean by “elements of that meeting that made up that paragraph”? A. Clearly there is a number of different things there which are very clear to me, around Per’s commitment, or the commitments he was making, and the resolve, if you like, that he took. (Transcript Day 3 page 160 line 10 – line 18) Q. … So you perhaps do not remember Mr. Borgklint saying, expressly, that the parties would continue under the old one, but otherwise the same; yes? A. The way that was expressed, as I said earlier, was about the fact that the current – the agreement that we had would continue until there was a new one ready, because obviously the fixed term – sorry, the fixed element was going. So we continue with the existing one until we had a different one. (Transcript Day 3 page 161 line 18 to page 166 line 12) Q. What I suggest to you Mr. Coles, is that that part of your witness statement doesn’t contain your recollection at all. A. No, it does. Q. That is something which has been drafted for you? A. Um – I think if it was not in there I would not – it is not something that I have any issue with in terms of that statement. Q. But you at least do not remember Mr. Borgklint in his summary saying that the agreement would continue; is that your evidence? A. I think, as I have always said, you have to bear in mind my perspective at the time was that this was not necessarily a legal matter. So what I am absolutely clear on is that the bit that we were carrying on with was the Calling Card element of the contract. The rest was finishing. Q. You see, I suggest to you, Mr. Coles, that although Mr. Borgklint gave a summary of the meeting at the end, what you now say he said is a construction which has been produced for the purposes of these proceedings. A. That is not the way I look at it. Mr. Borgklint’s behaviour after the meeting was specific enough to make me believe that he was more than happy with the meeting. He was very – Q. I am sorry? A. He was very animated, and I don’t think I have seen him like that since. So this was not a man who thought there were huge issues to overcome. This was a man who thought that a mandate had been given. That was very clear. And that we knew – we knew there were some hurdles to overcome. That is clear too. But Mr. Borgklint is not prone to hyperbole in my experience and he was pretty animated after this meeting. That is my – Q. What difficulties had he been referring to which had been resolved? A. Well, clearly there is an issue over relationship, I think, in terms of – whether that was personality or not, I just don’t know, I was not there. But clearly there had been some issues. There were some issues maybe around positioning where the price change under VAT had clearly led to some difficulties really on both sides, where one side had a view and the other side had a view and we had not moved to resolve those. I think then expiry clearly was an element of that. So these things were covered and then summarised at the end. Q. First of all, expiry had not been resolved, had it, because Tele2 still had to investigate it? A. Of course, I am sorry. But in terms of that position moving – that position showing development against those issues, it was very clear that we were agreed on what the course of action was on those specific issues. Q. Nothing had been resolved. Suggestions had been made by Tele2 as to how those matters could be resolved in the future. Nothing had actually been resolved? A. Well, it depended on the issue. I mean, for example, personnel, you can clearly see that there was whole new team in place now, with the exception of one person whose performance was to be monitored. There was a clear commitment on investment. Clear, clear, clear commitment on investment, of a significant, and in the end, seven-figure sum. These are not small movements that people make. You know, this is a dramatic turnaround. I go back to – bearing in mind I am, what, tendays into the business at this point, when your boss’s boss is as animated as he was, the lasting impression I take from that meeting is that this had been pretty damn good. Q. You recollect him saying – you say, he presented – that Tele2 had presented competitive and cutting-edge proposals. Actually, what had been happening was that you had been putting back to Post Office matters that they had suggested to you in their paper provided prior to the meeting. A. But there was a whole gamut of different ideas in that first meeting which were then subsequently followed up. Some of them were Post Office led, some of them were not. If the Post Office asked you to come back – or the customer asks you to fulfil certain things, of course you do that. Q. The position was at this point, Mr. Coles, Mr. Borgklint may well have said that he was pleased with the reaction to the presentation, but the point was, as was made clear by the note that Mr. Hashmi made, the position was that Tele2 had to actually back up with hard evidence that what they had said at the presentation they could do. And that was the position. A. But everything in life is about delivering against what whatever it is you have set out to do. So of course – of course that was an expectation. Q. And there was a lot of work to be done because there was. And the Post Office was saying there was a lot of work to be done. A. There is always a lot of work to be done. Q. And there was simply no suggestion that the agreement would continue in Mr. Borgklint’s summary of what happened at the meeting? A. Again, if that meeting would have been conducted under legal auspices, which I had no idea that it was, that would have been something I looked for. But, for me, what I had got here was a clear mandate to go and carry on this business. And that is what I think that refers to in terms of “Right, we are ready to go. We carry on, as is, until something happens differently.” Q. The point is, Mr. Coles, the one difference between your recollection and Mr. Borgklint’s and Mr. Hashmi’s is actually quite significant, because you do not recollect Mr. Borgklint saying “In the meantime, the parties would continue under the agreement”, do you? A. Because I would not be looking for that, would I? Q. You actually say that – you say in your witness statement that that was the implication? A. Yes. Q. And the position was that a new agreement was going to be prepared, wasn’t it? A. Ultimately it would have to be, yes. Q. All the Post Office were committing themselves to was continuing to talk to you? A. That is not my recollection.” Q. What do you mean by “elements of that meeting that made up that paragraph”? Q. … Q. That is something which has been drafted for you? Q. I am sorry? Q. What difficulties had he been referring to which had been resolved? A. Because I would not be looking for that, would I? Q. All the Post Office were committing themselves to was continuing to talk to you? A. That is not my recollection.”

Q. All the Post Office were committing themselves to was continuing to talk to you?

[126]I have commented already on some rather odd evidence of Mr. Coles in cross-examination. The passages which I have just quoted were, perhaps, even more unusual, given the evidence in chief of Mr. Coles in his witness statement. His answer to the question whether he could remember Mr. Borgklint saying all that Mr. Coles said in his witness statement Mr. Borgklint said when summarising the meeting was not, as one might suppose, in the light of his witness statement, “yes”, but a curious sort of evasion. Again, he seemed very reluctant to commit himself definitely on the issue whether or not Mr. Borgklint had said that the Agreement was to continue until a new agreement was made. Mr. Onions tried twice on that issue, at Transcript Day 3 page 160 lines 10 to 18, and again at Transcript Day 3 page 165 line 13 to page 166 line 12. Essentially Mr. Coles’s final position seemed to be that he was not expecting Mr. Borgklint to say that the Agreement would continue until replaced, and therefore could not say whether he had said that or not. That evidence did not seem to me to be very satisfactory. Also unsatisfactory was the way in which Mr. Coles sought to deal with the suggestions from Mr. Onions concerning the case of the Post Office as to what had been discussed at the meeting on 17 January 2005. Mr. Coles seemed to say that all of the matters which the Post Office contended the meeting was about would have had to have been discussed any way, and the actions which the Post Office alleged were agreed as following from the meeting would have been necessary in any event. Those responses did not, as it seemed to me, really grapple with the thrust of what was being put.[127]Mr. Carter, in his witness statement, contended that it had been agreed at the start of the meeting of 17 January 2005 that the meeting would be without prejudice to the legal position of any of the parties. None of the witnesses called on behalf of the Claimants accepted that that had been the position. Mr. Woodrow did not recall it being said. Mr. Hall, the other representative of the Post Office present at the meeting, did not give evidence. Mr. Carter was asked about the point in cross-examination. His answer to the suggestion that he had not stated that the meeting was to be without prejudice was (Transcript Day 8 page 139 line 23 to page 140 line 1):- “I believe that I did. I do recall it. I believe it was in the brief that we had from Lovells for the meeting and I therefore believe that I stuck to that brief and therefore I believe that I did say it.”[128]I have already commented that I was impressed by Mr. Carter as a witness. I was also impressed by him as a person of diligence who took care in the activities in which he engaged. I have no hesitation in accepting that Mr. Carter was given a brief by Lovells in advance of the meeting on 17 January 2005 in which he was told to make clear that the meeting was being conducted on a without prejudice basis. Having received a brief in those terms I am completely satisfied that he followed it. I accept his evidence that he did make plain at the commencement of the meeting on 17 January 2005 that the discussion was on a without prejudice basis. It follows from that that in my judgment nothing said at the meeting on behalf of the Post Office can be relied upon as some kind of admission or waiver of rights on the part of the Post Office.[129]On the main factual point, whether it had been said on behalf of the Post Office that the Agreement would continue until replaced by a new agreement, both Mr. Carter and Mr. Woodrow were adamant that that had not been said. They were equally adamant that nothing to the same effect had been said.[130]Mr. Carter was referred in cross-examination to the Post Office’s Defence in relation to the events of the meeting on 17 January 2005. It was suggested to him that the outcome of the meeting, as pleaded, was not very positive. His response, and the ensuing questions and answers (Transcript Day 8 page 143 line 21 to page 144 line 19), were:- “A. In the situation, I think it is the best message we could have given, in that all they had done, all that Tele2 had done was present some ideas, some promises, some ways of working, we had no detail. And therefore until we had the detail we were not in a position to change our position. Q. So that is very much on this evidence a very noncommittal response? A. I believe it is the best response that Tele2 could expect, given the situation, given what they presented. Q. But it is very much a non committal response on your evidence, isn’t it? A. I believe it was a work-in-progress response, ie there was more to do and they were moving in the right direction. Q. Well, you say they had a lot to prove and so far had not done so. That is what you say in your witness statement? A. And up until then they had done nothing. Again, remember up until the meeting in December that was the first time we had ever seen any of the senior management. Scott Coles just joined for the January meeting, so really things were coming very late in the day after months if not years of deterioration.” Q. So that is very much on this evidence a very noncommittal response?

Q. But it is very much a non committal response on your evidence, isn’t it?

[131]Mr. Carter was also asked whether he recalled Mr. Borgklint asking the Post Office for a commitment. The exchanges with Mr. Carter in cross-examination about that (Transcript Day 8 page 147 line 7 to page 149 line 2) were:- “Q. He said that Tele2 was only willing to invest time and money if he got a commitment from Post Office. Do you recall that? A. I do remember words similar to that, yes. Q. Yes. So he was asking for a commitment that Post Office would continue with the relationship between the parties, wasn’t he? A. Ultimately, yes, but I believe that we responded by saying that they had more to prove before we would be in a position to give that commitment. Q. He specifically asked Post Office, “Are you in or out?” A. I do not recall those words. Q. Do you recall him saying something to that effect? A. No. Because I – well, if he did, the immediate response was “We are not in a position to answer that”, although I don’t recall whether that was said. But the point that was said by myself was that we had more work to do to understand whether Tele2 could deliver on the promises that were made in that meeting, around account management, around rates and around support. Which is why .. Q. Mr. Carter, Mr. Borgklint, you see, he put you on the spot. He wanted a yes or no answer:
“Are you with us or not? Are you in or out?”
He wanted a commitment. And that’s why you went out of the room? A. I do not recall that as being the reason. Q. That was the reason. A. I do not recall that. Q. And when you came back, it was you who spoke, wasn’t it? A. I believe so. Q. And you may have been equivocal to start with, but Mr. Borgklint wanted a clear yes or no answer. Do you remember that? A. No. Q. And so you gave the commitment that Mr. Borgklint was asking for. That’s right, isn’t it? A. No. Q. You gave them a clear commitment – A. No, I did not. The commitment I gave was that we would continue working together to get to a position where we were comfortable, whether or not they could deliver on the promises of account management, of rates and supplier support. Q. You give a clear commitment to continue the relationship between the parties, Mr. Carter. A. That is incorrect. That is incorrect, sir.” Q. He specifically asked Post Office, “Are you in or out?” Q. Do you recall him saying something to that effect? Q. And when you came back, it was you who spoke, wasn’t it? Q. You gave them a clear commitment – A. That is incorrect. That is incorrect, sir.”

Q. You gave them a clear commitment –

[132]In cross-examination Mr. Woodrow was asked why, as was common ground, the representatives of the Post Office left the meeting room during the meeting on 17 January 2005. His answer and the exchanges which followed (Transcript Day 7 page 149 line 1 to page 150 line 17) were:- “A. I can’t remember exactly, but I think Mr. Carter suggested that we would like to have some time to talk amongst ourselves privately. Q. Why? A. Just to get a sense of each other’s feelings of what Tele2 were presenting. Q. So there was nothing in particular, is that right, which prompted Mr. Carter to say, “Let’s leave the room”? A. I can’t remember exactly what the purpose of leaving the room was. Q. Is it your evidence that when you came back in Mr. Carter said that Tele2 had Post Office’s attention, that you would continue discussions about relaunching the phone card, but that more details were required before a decision could be made? Is that your evidence? A. I believe that is the – the sentiments of what Mr. Carter said, yes. Q. So you are in a meeting, you decide to go out, you cannot remember why. You come back in and Mr. Carter says, “Well, you have our attention” et cetera. That is it. Is it your evidence that Mr. Carter said that the claimants had a chance? A. I think Mr. Carter said that, yes, they had our attention, they had clearly got the right people involved within Tele2 now, they had some more senior people involved. And, yes, I think that we – we were prepared to give Tele2 a chance to impress us and there was a lot of things spoken about in that meeting and some good stuff, but we needed more meat on the bones before we could see whether that was – what they were saying and what they were going to do was going to actually follow through. Q. So “You have our attention …” A. Um-hm Q. “We will give you a chance to impress us …” A. Um-hm Q. “But a lot of work to be done.” Is that it? A. Yes. Q. Was Mr. Borgklint happy with that? A. I think he was happy that they had got our attention again. ” Q. Why? Is it your evidence that Mr. Carter said that the claimants had a chance? Q. So “You have our attention …” A. Um-hm Q. “We will give you a chance to impress us …” A. Um-hm Q. “But a lot of work to be done.” Is that it? Q. Was Mr. Borgklint happy with that? A. I think he was happy that they had got our attention again. ”

Q. Was Mr. Borgklint happy with that?

[133]Mr. Woodrow was much pressed by Mr. McCaughran to the effect that Mr. Carter had announced that the Post Office was going to continue with Tele2 and that the Agreement would continue until replaced by a new agreement, but Mr. Woodrow would not have it.[134]Mr. Carter’s evidence in cross-examination as to the reason for leaving the meeting of 17 January 2005 was also (Transcript Day 8 page 141 line 12), “To discuss in private what we had just seen”.[135]One of the documents which was put to Mr. Woodrow in cross-examination and used as a basis for suggesting that indeed Mr. Carter had indicated at the meeting on 17 January 2005 that the Agreement would continue was an e-mail sent by Mr. Woodrow on 18 January 2005 to a Mr. Dellow of a company called E-Pay. E-Pay was involved at that time in possibly co-operating with Nomi-Call to produce an electronic phonecard. What Mr. Woodrow wrote in his e-mail was:- “Following a meeting at director level between Post Office Ltd. and our existing phonecard provider, Tele2, it seems highly likely that we will not be contracting with Nomi for the provision of physical phonecards – this may change but is unlikely. This means that it is likely that we would not contract with them for electronic either.”[136]Mr. Woodrow said about that document (Transcript Day 7 page 155 lines 3 – 14):- “So – yes. Prior to this Nomi-Call and E-Pay were in serious conversations about providing a Christmas phone card. As there was a possibility, yes, that Tele2 might continue to be our main supplier, I did – I contacted them as per this email to say that there is a good – there is a good chance that Tele2 may still be our main supplier because I did not want E-Pay to start working with Nomi-Call to build links between the two companies. I did not want them wasting money doing those things if at a later date we decided we would not be going with that company.”[137]Mr. McCaughran suggested to Mr. Woodrow that his use of the expression “a good chance” did not fairly summarise the effect of the e-mail. Of more importance, he suggested that the reason why it was “highly likely” that the Post Office would not be contracting with Nomi-Call was because of the alleged commitment of Mr. Carter to Tele2 given the previous day. Mr. Woodrow denied that any commitment had been given. He explained his thinking at that stage (Transcript Day 7 page 156 lines 20 – 25) in this way:- “I think at – I think at this stage, as I said, if Tele2 had delivered on the promises that they made on the 19th[sic – the reference was to the meeting on 17 January 2005], and delivered the compelling customer proposition, the great rates, the marketing expenditure that they were saying they were prepared to put forward, that it is likely that we would have remained with Tele2.”[138]I accept that explanation. I was impressed by Mr. Woodrow as a witness. He seemed to me to be straightforward and frank for the most part in answering the questions put to him. It is fair to say that in relation to some issues about which he was asked he felt somewhat uncomfortable. One was when he was invited to compare what he had said in his e-mail to Mr. Dellow of 18 January 2005 with what he told Mr. Clive Smith of Nomi-Call on 19 January 2005 the present state of play was. According to his first witness statement, at paragraph 126, what happened in relation to Mr. Smith was:- “In the evening of 19th January 2005 Mr. Smith called me to ask if everything was alright in the terms of our relationship with Nomi-Call. I am not sure what he had heard but he thought that we might be considering going ahead with Tele2 after all. I said we had terminated the contract with Tele2 and that we were now talking through some issues with them. I said that I thought that we would still proceed with Nomi-Call as we had planned, but there were people at a high level involved and I didn’t know for sure. I said I thought we would still be working towards an April relaunch with Nomi-Call.”[139]Mr. Woodrow struck me as plainly embarrassed by the inconsistency between what he had written to Mr. Dellow and what he had told Mr. Smith. However, he told me that he had said what he had said to Mr. Smith because he wanted to keep Nomi-Call in the game. I accept that explanation. Contrary to the suggestion of Mr. McCaughran, it did not seem to me that that episode, or any of the other areas in which Mr. Woodrow was discomforted, demonstrated that he was someone whose evidence before me could not be relied upon.[140]In fact, as it seems to me, the terms of the e-mail dated 18 January 2005 to Mr. Dellow were rather equivocal in terms of supporting the case of the Claimants. Whilst it is true that Mr. Woodrow there contemplated the most likely outcome as being that the Post Office would remain with Tele2, he certainly did not say that a decision to that effect had been made. Indeed, he specifically envisaged that the likelihood expressed might change.[141]Mr. Coles wrote an e-mail dated 18 January 2005 to Mr. Carter, Mr. Hall and Mr. Woodrow. It was suggested to Mr. Woodrow by Mr. McCaughran that the terms of the e-mail were consistent with the Claimants’ case as to what had been said by Mr. Carter at the meeting the day before. In my view, that was overstating the position. The e-mail seemed to pre-suppose that the parties would be continuing to work together, but it certainly did not include any assertion that it had been agreed at the meeting that the Agreement would continue in force for the time being. What Mr. Coles wrote was:- “It was good to met [sic] with you all yesterday. From our perspective the meeting went well and it is clear, from both sides, that the commitment and resource is now in place to realise the potential of the calling card business. We covered quite a lot of ground but we felt there were a few matters which require immediate attention: 1. Relaunch in April We will work towards and support a relaunch to retailers and consumers at this time. Clearly this will need to be of scale to get the attention of all, as Post Office continues to launch exciting new products and services. We should discuss this urgently to ensure we meet deadlines and are able to get space in your various programmes at store level. 2. Growth and Support The aim is to take the current £1m per month business and grow that to >£2.5m by April 2006. To this end we will construct and JBP [sic] to deliver activities and products which would achieve this goal. Tele2 indicated that a sum of £250,000 would be available to kick start the new plan. We should then discuss an escalating scale of support as key revenue targets are met. All monies generated to be used to support the JBP. 3. Ongoing Account Management and Review It was agreed that we should meet for BAU at least once per month (more frequent if required) and we would meet as senior teams once per quarter to review our joint business and set priorities going forward. 4. Pre-paid Fixed line service This service is to be wound down. We must handle the customers sensitively and ensure that they are offered full refunds where appropriate. There may be opportunity here to offer them the ‘Home Phone’ service in an attempt to retain them. 5. Tariffs and Commissions We will work on the combinations of card offers that were discussed along with some other options and look to share these with you over the next few weeks. Clearly differing propositions would attract differing levels of commission. There are many other matters which we will cover over the coming months but I believe these are the main items. I look forward to the challenge ahead and the opportunity to review progress at the end of Q1!”[142]Mr. Woodrow replied to Mr. Coles’s e-mail of 18 January 2005 in an e-mail of the next day. For present purposes the material parts of the response were these:- “Thanks for your note, was a very good meeting. From my perspective the most urgent thing we need to address, this week, is fixed-line [which is not material to any issue in this action] … In terms of taking forward phonecards, I would like to try and set up some time next week to discuss plans for April as we will need to get product specs, tariffs etc confirmed quickly to enable us to effectively brief agencies etc. Can you let me know availability next week.”[143]In cross-examination Mr. Woodrow explained that it was not possible to go forward to any re-launch of phonecards supplied by the Claimants without agreement on product specifications, tariffs and commissions. The business/marketing plan mentioned in Mr. Hashmi’s note of the meeting of 17 January 2005 was never provided.[144]Mr. Woodrow was asked in cross-examination about an internal Tele2 e-mail written by Emma Watson to Mr. Coles and Mr. Hashmi on 19 January 2005 following a telephone conversation with him. Miss Watson’s e-mail included:- “I had about an hour’s chat with Jeremy this afternoon and extracted the following information. Monday’s meeting was deemed a ‘breath of fresh air’ showing energy and empowerment (to make decisions without going to board level). Contracts – PO lawyers have been briefed and should have a draft ready for Jeremy this week and us by next week. Detail to include our supply of electronic cards on their new 4400 terminals to be rolled-out, third party sales, cease of Fixed … Nomicall – They have committed to the ‘Olympic Card’ until the 31st of July across the entire network. With regard to the Christmas and EU card, this will be withdrawn by the 1st of April – VERY IMPORTANT. …”[145]Mr. McCaughran suggested to Mr. Woodrow that the significance of the withdrawal of the EU Card and the Xmas Card by 1 April 2005 was that it was consistent with the commitment which it was contended Mr. Carter had given at the meeting on 17 January 2005. Mr. Woodrow rejected that suggestion and said that in fact the position concerning the Xmas Card had something to do with expiry of the licence of the Post Office to use the design. However that may be, in my judgment the terms of Miss Watson’s e-mail were actually more consistent with the position of the Post Office as to what had been said at the meeting on 17 January 2005 than with the position of the Claimants. If Mr. Carter had indeed given the commitment for which the Claimants contended, the information contained in Miss Watson’s letter was not exactly news. It was at best confirmation that the Post Office was taking steps to implement the alleged commitment. If, on the other hand, there had been no commitment, then the information was of significance as indicating what the Post Office was actually doing and what opportunities were available for the Claimants.[146]In an e-mail dated 24 January 2005 to Mr. Simon Black of Nomi-Call Mr. Woodrow wrote as follows:- “I felt I should let you know that there has been some developments with regard to our current contract with Tele2, as I would not want you to hear something on the ‘grapevine’. Whilst we continue to have a valid termination notice in place with Tele2, we are back in dialogue with them. This has come about due to intervention at director level within both companies. It has been agreed that we will meet to discuss whether there is any way that this relationship can be reinvigorated, this meeting will take place at the end of this week or early next. I realise this will be disappointing to hear at this late stage, however I can re-assure you that no decision has been taken which direction we will go. In the mean time we should work to make sure that the Olympic card flies and continue to build up a view of what the future would look like.”[147]It was suggested to Mr. Woodrow in cross-examination that the terms of that e-mail were inconsistent with the terms of the e-mail dated 18 January 2005 to Mr. Dellow. Indeed they were. However, the terms of this e-mail were actually entirely consistent with the case of the Post Office during the trial before me.[148]A matter upon which Mr. McCaughran relied heavily in support of the case of the Claimants as to Mr. Carter giving a commitment at the meeting on 17 January 2005 to continue the Agreement was the fact that Mr. Coles was invited by the Post Office to attend a meeting of an internal Post Office body, Sales and Marketing Team. Mr. Coles received an invitation by e-mail sent on 27 January 2005 to attend the meeting. He sent an e-mail the same day to Mr. Woodrow asking the purpose of the meeting. Mr. Woodrow in his turn replied the same day as follows:- “This is our quarterly Sales and Marketing Team meeting. This one is being used to cascade the plan for next year and the challenges ahead. It has been decided that we will invite a number of key suppliers to this event. Will give you a great understanding of what the priorities for the PO are going forward. ”[149]Mr. McCaughran emphasised the reference in the e-mail to “key suppliers”. He suggested that the fact that Mr. Coles was being described as a representative of a “key supplier” showed that it had indeed been agreed at the meeting on 17 January 2005 that the Agreement was to continue. Neither Mr. Woodrow, who wrote the e-mail, nor Mr. Carter, who was also asked about it, accepted that proposition. Mr. Carter told me that it was he who had requested that Mr. Coles be invited to the Sales and Marketing Team meeting, with a view to Mr. Coles becoming better informed of the Post Office’s aims and objectives, so as to be able to come back to the Post Office and demonstrate the commitment of the Tele2 parties. Mr. Carter accepted that no representative of Nomi-Call was invited to the meeting.[150]Another document upon which Mr. McCaughran placed considerable reliance was also produced by Mr. Woodrow on or about 27 January 2005, this time a “High Level Blueprint Proposal to Business Solutions & Finance” (“the Blueprint”). The Blueprint included:- “1. SOURCE OF IDEA A blueprint submitted by Jeremy Woodrow for consideration at the High Level Blueprint forum on 19th January, detailed a potential change of phonecard supplier. Since the blueprint was submitted, a number of developments have occurred. It is now highly likely that, following high-level discussions with Tele2, we will continue to use Tele2 as our supplier of phonecards. However we will be re-launching the existing phonecard with new rates, point of sale and promotional activity in April. 2. REASON FOR CHANGE This change of direction has come about due to senior management intervention within Tele2 that has seen them address the majority of our issues with them as a supplier. As such they have agreed to significantly improve both our commercial and customer proposition as well as invest in increased resource to manage our account. Additionally they have agreed to put up £250K to re-launch the product in April. 3. OBJECTIVE• To withdraw from sale the EU and Xmas phonecard provided by Nomi on 31st March. … 5. TIMESCALE New rates to be implemented on or around 31st March. Xmas phonecard must be withdrawn by 31st March due to Trademark License. 6. KNOWN CONSTRAINTS AND RISKS It is possible that a commercial deal with Tele2 may not be agreed and if this were the case, we would need to re-invoke the previous Blueprint to swap out all Tele2 phonecards. If this was the case, the marketing campaign would still go ahead but for the new supplier’s phonecard. … ”• To withdraw from sale the EU and Xmas phonecard provided by Nomi on 31st March.[151]Mr. McCaughran emphasised paragraphs 1 and 2 and the first bullet point in paragraph 3. He suggested to Mr. Carter that this was all consistent with him having agreed at the meeting on 17 January 2005 that the Agreement continue. Mr. Carter denied that. He explained that the Blueprint was produced to get the ball rolling so that, if a new commercial deal were made with Tele2, everything would be in place for a re-launch of the Tele2 phonecard on 1 April 2005. That there was no commercial deal with Tele2 at the date of the Blueprint was clear from the terms of paragraph 6. Again, Mr. McCaughran rather ignored the provisions of paragraph 5 in stressing the withdrawal of the EU Card and the Xmas Card. He also overlooked the fact that the Nomi-Call supplied Back the Bid Card was not mentioned at all in the Blueprint and was in any event intended to continue to be offered by the Post Office until 6 July 2005.[152]Apart from the documents to which I have referred, Mr. McCaughran relied upon the fact, not really in dispute, that, from 17 January 2005 until Mr. Carter sent his letter dated 3 March 2005 to Mr. Borgklint, contact and co-operation continued between representatives of Tele2 and representatives of the Post Office in connection with an anticipated re-launch of the Tele2 phonecard on 1 April 2005. In particular, Mr. Woodrow and Mr. Michael Tettey of the Post Office went to a meeting with Mr. Coles and others at the offices of Tele2 in Richmond on 28 January 2005. There was contact, mostly by e-mail, about Rates and promotions. However, by about the middle of February the Post Office had more or less decided not to proceed with Tele2.[153]I have already commented on my views of the evidence of Mr. Carter and Mr. Woodrow, as well as on my view of Mr. Borgklint as a witness. I have noted the rather strange evidence of Mr. Coles about matters relevant to the events of 17 January 2005. I do not feel able to accept the evidence of Mr. Coles concerning the meeting where it conflicted with the evidence of Mr. Carter and that of Mr. Woodrow. Mr. Hashmi’s evidence to the same effect as the evidence of Mr. Borgklint and Mr. Coles in their respective witness statements about the meeting on 17 January 2005 was not supported by his own contemporaneous note. Moreover, an unfortunate question mark hung over all of the evidence of Mr. Hashmi because, as he accepted in cross-examination, he had ceased to be employed within the Tele2 group at the end of May 2007 and had thereafter been employed on behalf of the Claimants as a consultant working on this litigation at an hourly rate of £150. That rate, as I understood it, was payable during the period he was being cross-examined. He also attended the whole of each day of the trial. He plainly had a financial interest in this action, and one in promoting the prospects of success of the Claimants. He was not, I thought, a good witness under cross-examination, and I felt that I could not accept his evidence in preference to that of the witnesses called on behalf of the Post Office where his evidence conflicted with their evidence. In the end, therefore, I do not accept that Mr. Carter, or any other attendee of the meeting on behalf of the Post Office, gave any commitment at the meeting on 17 January 2005 that the Agreement should continue in force between the parties until superseded by some new agreement. It follows that the principal claim on behalf of the Claimants fails and is dismissed.[154]I can, perhaps, permit myself the comment that the case for the Claimants as to what was allegedly said on behalf of the Post Office about the Agreement continuing in force until replaced by some new agreement in fact made no logical or commercial sense. The Post Office had taken advice from an eminent firm of solicitors as to whether it could get out of the Agreement, and, if so, how. Acting on that advice, the notices contained in the letters dated 1 December 2004 had been despatched. Advice had been taken from the same firm as to how the representatives of the Post Office should conduct the meetings on 21 December 2004 and 17 January 2005. What the case for the Claimants posited was that the advantage obtained by the service of the notices of 1 December 2004 was just given up. For what? For nothing at all definite on the part of the Claimants. In effect, I think, what Mr. McCaughran was suggesting in cross-examination to Mr. Steele, Mr. Carter and Mr. Woodrow was that Mr. Borgklint, through the force of his personality, insisted that the Post Office surrender the termination of the Agreement. That does not seem at all likely, just as a matter of common sense, quite apart from the evidence which I have accepted. Mr. Borgklint essentially held no cards. He came to the meetings of 21 December 2004 and 17 January 2005 as a supplicant, craving the indulgence of the Post Office reconsidering the decision to terminate the Agreement. If he had sought to insist that the Post Office declared whether it was “in” or “out” in respect of a continuing relationship, the overwhelmingly probable answer was “out”. Mr. Borgklint was, and is, far too intelligent to have run the risk of obtaining such a reaction.

The Claimants’ second claim

[155]The Claimants’ second claim was one of far less moment than the principal claim. By the time of the commencement of the trial the value of the claim was put at just £21,000. At the end of the trial, as I understood it, it was abandoned. At paragraph 177 of the written closing skeleton argument of Mr. McCaughran he said:- “In addition to a claim for loss of profits for the 24 months to 31 March 2007, Tele2 has a claim for lost profit due to Post Office’s failure to promote Tele2 phonecards in the period from October 2004 to March 2005. Although it is clear that Post Office was in breach of clause 2.1 of the Agreement during this period (something which is important given the difficulties that it shows in the Post Office operating two phonecards suppliers side by side without acting in breach of clause 2.1), Tele2 accepts that it is difficult to calculate what level of sales Nomi-Call would have made during the period in any event (and, therefore, the extent of the sales lost by Tele2) and given the low level of its claim for damages under this head (a maximum of £21,000), does not pursue this claim for damages.”[156]Notwithstanding that it appeared that the claim for damages for alleged breach of clause 2.1 of the Agreement was abandoned, confusingly paragraphs 118 to 124 inclusive of the written closing skeleton argument was a section entitled, “Was Post Office in breach of clause 2.1 of the Agreement in the latter part of 2004 and early 2005 in promoting Nomi-Call’s phonecards ahead of Tele2’s phonecards?”, with paragraph 124 concluding:- “Therefore, Tele2 invites the Court to find that: Post Office was in breach of clause 2.1 of the Agreement from 10 January 2005 onwards.”[157]Just in case, contrary to my understanding, the claim for damages for alleged breach of clause 2.1 of the Agreement is of some continuing relevance, it is appropriate to indicate my conclusions concerning it. In the course of doing so I shall explain the significance of the date 10 January 2005.[158]In the Amended Particulars of Claim the claim for damages for alleged breach of the provisions of clause 2.1 of the Agreement was put in this way:- “29. Mr. Borgklint wrote to Mr. Carter on 23 March 2005 outlining that the Claimants had instructed an independent marketing company – IQ Field Marketing – to conduct a survey on their behalf comprising 50 of the Defendant’s outlets. The results of this survey highlighted that the vast majority of the Defendant’s outlets which had been surveyed had recommended a phonecard which was not supplied by the Claimants (but rather a company called Nomi-Call) and had not promoted the Claimants’ phonecards to customers at all.30. In addition, the Defendant advertised a phonecard produced by Nomi-Call in the Christmas 2004 gift catalogue only, without advertising or promoting the Claimants’ phonecards in accordance with clause 2.1 of the Agreement.31. As a result of the Defendant’s breaches of clause 2.1 of the Agreement the Claimants have suffered further loss and damage, namely the additional revenues that the Claimants would have earned in the period prior to termination of the Agreement on 31 March 2005 had the Defendant not acted in breach of clause 2.1 of the Agreement minus the additional costs that the Claimants would have incurred in order to earn those revenues.”[159]In his written opening skeleton argument Mr. McCaughran gave but little attention to this second claim. After quoting clause 2.1 of the Agreement he said, simply:- “106. Mr. Hashmi will give evidence about Post Office’s breach of this provision in promoting Nomi-Call’s phonecards ahead of Tele2’s phonecards. …107. In summary, in early March 2005 Mr. Hashmi and Mr. Coles visited several Post Office outlets to assess whether Post Office was complying with Clause 2.1. They asked to purchase a calling card to make cheap calls to the USA, and were only offered one card – being a card supplied by Nomi-Call.108. Following this, Tele2 instructed an independent marketing company to undertake a wider review of the situation. The results of the survey thus carried out showed that Tele2’s phonecards were not being promoted to anything like the same extent as Nomi-Call’s phonecards.109. None of this is surprising in the light of the disclosure given by Post Office in these proceedings, which shows that express instructions were given by Post Office to promote Nomi-Call’s cards ahead of Tele2’s cards. The Court will recall that Nomi-Call were paying Post Office a commission of 35% on sales of Nomi-Call cards.110. In short, there was, in Tele2’s submission, a plain breach by Post Office of Clause 2.1 of the Agreement.”[160]As it turned out, the case for the Claimants in relation to alleged breach of the provisions of clause 2.1 of the Agreement had a very narrow focus. The evidence of Mr. Woodrow, which was not contested, was that Pre-paid Phonecards had been promoted in the period October 2004 to March 2005 in a variety of ways. In particular leaflets, posters and display ladders had been placed in Post Office branches in October 2004 targeted at persons wishing to telephone India, Pakistan or Bangladesh. From mid-October to mid-November 2004 there had been promotional activity associated with the festival of Diwali. From mid-November 2004 to mid-January 2005 the focus of promotional activity of Pre-paid Phonecards was the Chinese New Year. Amongst other things, a quantity of £1 value phonecards was distributed as a promotion in red envelopes. In the period mid-February to mid-March there was a promotion of Pre-paid Phonecards in connection with the launch of a Bollywood film. Pre-paid Phonecards were promoted on the March 2005 page of the Post Office calendar. Thus it was not, in the end, suggested that the Post Office had not promoted Pre-paid Phonecards at all, although Mr. Hashmi had advanced that contention in paragraphs 100 and 101 of his first witness statement.[161]Again, it was not suggested that positive promotion, in the form of advertising, of Nomi-Call supplied phonecards exceeded in quantity or quality the advertising devoted to Pre-paid Phonecards. The undisputed evidence of advertising of Nomi-Call supplied phonecards was that in the limited number (less than 500) post offices in which the EU Card was offered on a trial basis there were leaflets and posters advertising that card. The Xmas Card was advertised in the Post Office Christmas gift brochure and in A6 size stickers and A5 size leaflets made available to branches. The Back the Bid Card was advertised by posters in post offices from 24 January 2005 and in radio advertisements and posters at railway stations from 30 January to 28 February 2005.[162]The complaint of the Claimants centred, as was made plain by the terms of paragraph 119 of the written closing skeleton argument of Mr. McCaughran, on a limited number of instructions sent by Mr. Woodrow to post offices from 10 January 2005 in the form of documents entitled “Message Broadcast Service – Urgent Cascade” (a “Cascade”). The Cascade dated, erroneously, 10 January 2004, but in fact despatched on 10 January 2005, included the injunction:- “Please continue to offer the Christmas phonecard ahead of our existing phonecard products whilst you have stock available in your branch as it does offer better value for money to our customers. The Christmas phonecard has the usual phonecard features and benefits i.e. - per second billing - no maintenance or connection charges - Freephone access However the Christmas card offers in addition: - FREE CALLS TO AMERICA on Saturdays including Christmas Day between 12 midday and 12 midnight for the lifetime of the card. - Call rates to other destinations that are on average 25% cheaper than the existing phonecard.”

However the Christmas card offers in addition:

[163]A further Cascade sent out by Mr. Woodrow on 25 January 2005 urged post offices to sell the Back the Bid Card:- “Following the success of the Christmas phonecard, the limited edition Back the Bid phonecard went live yesterday, 24th January. This phonecard should be offered ahead of the Tele2 phonecard and the Christmas phonecard as it does offer great value for money to our customers and it also supports Britain’s attempt to bring the 2012 Olympic Games to London. The Back the Bid phonecard has the usual phonecard features and benefits i.e. - per second billing - no maintenance or connection charges - freephone access However the Back the Bid card ALSO offers: - Call rates that are on average 25% CHEAPER than the Tele2 phonecard, with international call rates starting at ONLY 1.5p per minute. - All customers the opportunity to WIN one of 3 Five Star weekends in London or additional call credits – 1 in 4 Back the Bid phonecards has 10% or 20% additional call credits pre-loaded on them. Full details of the promotion are in Operational Focus Week 42. Please ensure that ALL point of sale is displayed and really get behind the Back the Bid phonecard.”

However the Back the Bid card ALSO offers:

[164]The final relevant Cascade was dated 15 February 2005. It was similar in terms to the previous Cascade concerning the Back the Bid Card. In particular, it included the same analysis of the benefits of the card. That analysis was preceded by the words:- “Post Office Ltd. is supporting the bid by the introduction of the £5 and £10 Back the Bid phonecards. These phonecards SHOULD be offered ahead of ALL our existing phonecards until they are withdrawn in July as they offer customers FANTASTIC value for money and could help bring the Olympic Games to Britain.”[165]It is, I think, clear that the circulation of the Cascades from which I have quoted amounted to breach of the requirements of clause 2.1 of the Agreement, for each contained a positive instruction to promote a Nomi-Call supplied phonecard ahead of Pre-paid Phonecards. That was manifestly not promoting “the Phonecards and Services to no lesser extent than it promotes similar products and services”. The issue was not the quality or quantity of advertising, as to which opinions might legitimately differ, but a positive instruction to push competitor phonecards.[166]However, the next question was what loss the Claimants had suffered in consequence of the giving of the relevant instructions. Although no damages in the event were claimed, it is material to the issue of the quantification of loss on the principal claim of the Claimants, to which I shall come, to consider how the original evaluation of £21,000 was made.[167]Expert accountancy evidence was called on behalf of each of the Claimants and the Post Office. The expert called on behalf of the Claimants was Mr. James Riddiough, while that called on behalf of the Post Office was Mr. Philip Haberman. It was Mr. Riddiough who calculated the loss sustained by the Claimants as a result of the breaches of clause 2.1 of the Agreement at £21,000. Mr. Haberman’s position was conveniently set out in paragraph 3.19 of a joint statement which he and Mr. Riddiough prepared, dated 19 October 2007, setting out those matters about which they were in agreement and those matters about which they disagreed:- “In Mr. Haberman’s view: a) There is no evidence that an increase in promotion would have increased total sales of POL phonecards rather than the relative proportions of those cards supplied by Tele2 and Nomi-Call. b) It is not possible to separate the effects of POL’s alleged failure to promote from Nomi-Call’s more competitive call rates. c) I am unable to apply a scientific approach to quantify the loss of profit suffered by Tele2 as a result of POL’s alleged failure to promote its phonecards adequately.”[168]In the end, the Claimants accepted the force in Mr. Haberman’s comments.[169]So far as the more competitive Rates of Nomi-Call were concerned, Mr. Riddiough and Mr. Haberman were in agreement, recorded at paragraph 2.1d) of their joint statement, that:- “…the call rates on Tele2 cards supplied in July 2004 were on average 59.9% more expensive than the call rates on the standard cards supplied by Nomi-Call in May 2005, and that these call rates continued thereafter. We agree that the Xmas phonecard supplied by Nomi-Call in November 2004 used higher rates than the later Nomi-Call phonecard, so that the call rates on phonecards supplied by Tele2 in July 2004 were 51.2% more expensive than the Xmas phonecard supplied by Nomi-Call.”[170]The Rates for the Pre-paid Phonecards fixed as from 1 June 2004 prevailed until the end of the Agreement on 31 March 2005. They were thus those in force during the period of the breaches of clause 2.1 of the Agreement.[171]Mr. Riddiough sought to explain the methodology of his calculation of the loss of £21,000 in his first report thus:- “5.2 Potential EBITDA5.2.1 In estimating the potential EBITDA for the period from October 2004 to March 2005, I have adopted the same assumptions and methodology as set out in estimating the loss of profits that Tele2 suffered in the period from 1 April 2005 to 31 March 2007, as outlined in Section 4 of this report.5.2.2 I have examined these assumptions and the methodology adopted in detail, in the previous section of this report. I have not repeated all my findings here and, therefore, my comments in relation to the period from April 2005 to March 2007, unless otherwise stated, also apply to the period from October 2004 to March 2005.5.2.3 The detailed calculations of my estimates of the potential EBITDA that Tele2 could have achieved in period from 1 October 2004 to 31 March 2005 are shown in Appendices I.1 and J.1 for scenarios 2 and 3 respectively. Actual EBITDA 5.3.1 I have used the actual figures, as shown in the monthly management accounts, for the 6 month period from 1 October 2004 to 31 March 2005. These have been amended for the actual €:£ exchange rate and for the adjustments as outlined in section 3.4 of this report.”

Actual EBITDA

[172]“EBITDA” I understand is an acronym for “earnings before interest, tax, depreciation and amortization”. What Mr. Riddiough thus seemed to have done was to compare the actual EBITDA – essentially net profit – earned by the Claimants in the period 1 October 2004 to 31 March 2005 with what he considered the net profit would have been if either “Scenario 2” or “Scenario 3” had applied. What were “Scenario 2” and “Scenario 3” was explained by Mr. Riddiough in a re-submitted, revised first report. The report was revised and re-submitted because the original depended upon forecasts of sales made by Mr. Hashmi which I ruled during the course of the trial were inadmissible. It is because the report was revised during the trial that the explanations of “Scenario 2” and “Scenario 3” read rather oddly, and also why there was no “Scenario 1”. The explanations of “Scenario 2” and “Scenario 3” given in paragraph 4.1.2 of the revised report were:- “(b) In Scenario 2 in my original [that is, unrevised] report, I considered each of the revenue and cost assumptions used in Mr. Hashmi’s forecast against the background of Tele2’s previous performance and, in the light of my knowledge of the telecoms market and my own assessment of the market position of Tele2, and reached my own view on each of the revenue and cost assumptions used. Although my analysis involved a critical consideration of Mr. Hashmi’s forecast, Scenario 2 in my original report did not rely upon this forecast or any part of Mr. Hashmi’s evidence which has been ruled to be inadmissible being accepted by the Court as correct. Having reviewed this scenario in the light of the revised witness evidence of Mr. Hashmi [that is, the version of his second witness statement with the inadmissible evidence struck through], it continues to be my view that Scenario 2 reflects what would have been achievable based on Tele2’s historic performance and market positioning and, therefore, the loss that Tele2 would have suffered if the Court concludes that the Agreement was wrongfully terminated. (c) In Scenario 3 in my original report, I was asked to calculate the loss that Tele2 would have suffered if Tele2’s Post Office phonecard business had not grown, but had remained level throughout. Again, in calculating the loss that Tele2 would have suffered in this scenario, although my analysis involved critical consideration of Mr. Hashmi’s forecast, Scenario 3 did not rely upon this forecast or any part of Mr. Hashmi’s evidence which has been ruled to be inadmissible being accepted by the Court as correct. Having reviewed this scenario in the light of the revised witness evidence of Mr. Hashmi, it continues to be my view that Scenario 3 reflects the loss that Tele2 would have suffered if the Court concludes that the Agreement was wrongfully terminated, but that Tele2’s Post Office phonecard business would not have grown in the future.”[173]Scenario 2 thus involved assuming an increase in the revenues received by the Claimants over time, while Scenario 3 involved the assumption that the revenues were static. However, each started from October 2004 and assumed that the revenues of the Claimants in that month were £975,000. Each ran through to the end of March 2007. Where they differed was that in Scenario 2 it was assumed that the monthly revenue would have increased in June 2005 to £1,315,000 (+34.87%), and would have increased again in June 2006 to £1,485,000 (+12.92%), whereas in Scenario 3 the monthly revenue was assumed to be £975,000 throughout the period. So far as is relevant to the calculation of alleged loss as a result of the breaches which I have found of clause 2.1 of the Agreement, Scenario 2 and Scenario 3 did not differ – each assumed a monthly revenue of £975,000 in each month between 1 October 2004 and 31 March 2005. The monthly revenue figures were, as I understood it, the gross proceeds of the sale of Pre-paid Phonecards before the deduction of the commission payable to the Post Office.[174]Mr. Woodrow produced an appendix to his first witness statement in which he set out the actual sales of phonecards by the Post Office in the period October 2001 to March 2007, both months inclusive. The appendix showed separately the sales of Pre-paid Phonecards, on the one hand, and sales of Nomi-Call supplied phonecards, on the other. The figures were provided on the basis of “Post Office months”, rather than actual months. Post Office months comprise four weeks in most months, but five weeks in January, April, July and October. Mr. Riddiough recalculated the figures to make each month 30 days. It is convenient in this judgment to use his recalculations.[175]In October 2004 the actual sales of Pre-paid Phonecards totalled £1,035,072. However, the sales in the succeeding months were much lower. They were, for November, £738,916, for December, £541,832, for January, £477,810, for February, £214,873, and for March, £344,673. More relevant, as it seems to me, however, was the combined total sales value of all phonecards sold by the Post Office. The figures were, for October, £1,053,942, for November, £963,524, for December, £958,114, for January, £905,108, for February, £881,274, and for March, £691,724.[176]In the light of those figures for the total monthly actual sales, the obvious question is why should one assume, contrary to the fact, that, but for the breaches of clause 2.1, sales of Pre-paid Phonecards would have totalled £975,000 each month? In relation to this element of claim the complaint of the Claimants was that sales which they should have had were diverted to Nomi-Call. In other words, the Claimants’ complaint was that they did not receive a fair share of the cake, not that the cake should have been bigger. Consequently there can, in my judgment, be no justification in logic for assuming that sales in excess of those actually achieved would have been achieved but for the breaches of clause 2.1. The justification in law for looking at the evidence of what actually happened is a matter to which I shall come. For now I merely record that, in my judgment, on this issue the law and logic coincide.[177]Moreover, Mr. Riddiough’s approach to the calculation of loss ignored completely the highly significant fact, as it seemed to me, that the rates charged to retail customers who purchased the Xmas Card or the Back the Bid Card were substantially less than the rates charged to purchasers of Pre-paid Phonecards. I accept the evidence of Mr. Haberman that the single most important feature of a phonecard to a retail purchaser is the net cost of use. Indeed, it seems to me that that is obvious. The Xmas Card had particularly attractive Rates for calls to the United States. Quite apart from the free calls on Saturdays, the ordinary cost of a call was 3.5p. per minute, as compared with 5.49p. per minute with the Pre-paid Phonecards. The position thus is that anyone who enquired in a post office as to the cheapest phonecard must have been told, if given the truth, that the Xmas Card or the Back the Bid Card was better value than the Pre-paid Phonecards. Specifically, if a prospective purchaser, like Mr. Hashmi or Mr. Coles when doing the test purchases of which they spoke in evidence, and which prompted the pleaded market research, requested a card to be used to call the United States, he could only properly have been advised to buy the Xmas Card or the Back the Bid Card. In fact, the evidence of sales of the respective Xmas Card and Back the Bid Card, on the one hand, and of Pre-paid Phonecards, on the other, in the months in which Mr. Woodrow gave his instructions to favour the Xmas Card and the Back the Bid Card, January and February 2005, and thereafter until the Agreement came to an end, showed sales of the Xmas Card and the Back the Bid Card totalling £1,440,750, and sales of Pre-paid Phonecards totalling £1,037,356. Thus, despite the differences in the Rates charged to retail customers, Pre-paid Phonecards attracted 41.86% of the total sales of Post Office phonecards in the three month period 1 January 2005 to 31 March 2005.[178]In my judgment it is impossible to conclude on the material put before me that the Claimants sustained some identifiable loss as a result of the breaches of clause 2.1 of the Agreement which I have found proved, that is to say the instructions which Mr. Woodrow gave in the various Cascades. Any loss as a result of those instructions could only have been sustained after the giving of the earliest of the instructions.[179]Consequently, had the claim for damages for breach of clause 2.1 of the Agreement been pursued, I should have found that, in respect of the breaches of clause 2.1 of the Agreement which I found proved, the Claimants were entitled to nominal damages in the traditional sum of £2.

Expiry Revenue

[180]The counterclaim of the Post Office in respect of Expiry Revenue was based on the simple proposition that what the Post Office was entitled to under paragraph 1 of Part III to Schedule 4 to the Agreement was half the face value remaining unspent of any phonecard which expired without its full face value having been spent. Thus, if a £10 phonecard expired with only £6 having been spent, the Post Office was entitled to half of the balance, £4. In this example the Post Office was to get £2. Mr. Onions submitted that the expression “the remaining value” in the paragraph referred back to the words “its full face value”.[181]Both this element of claim, and the claim in respect of Additional Fees, were pursued against Tele2 Ireland only.[182]What had in fact happened was that the Claimants had accounted to the Post Office, insofar as at all, for an amount of 25% of the face value of expired Pre-paid Phonecards. It was common ground that a further amount remained to be accounted for. It was contended at the start of the trial that that remaining amount should be accounted for, in respect of Pre-paid Phonecards expiring after July 2004, at a rate of 12.5% of the face value of the unexpired cards. However, by the end of the trial the latter contention was not pursued.[183]It was common ground between Mr. Haberman and Mr. Riddiough that, if the contention of the Post Office were correct, the sum due to the Post Office in respect of amounts already invoiced by the Post Office at 25% was at least £214,018.25. I put it like that because the difference between Mr. Haberman and Mr. Riddiough in relation to the sum due was £18,800, Mr. Haberman’s view of the sum due in respect of amounts already invoiced, if the Post Office were correct, being £232,818.25. As it was put in the joint statement of Mr. Haberman and Mr. Riddiough, “4.3 The difference of £18,800 between these figures arises because Tele2 considers that it was agreed with POL that it would offset a marketing campaign expense which they incurred.”[184]No evidence was led to support the supposed agreement to offset a marketing expense of £18,800, so it seems to follow that there was in fact no dispute as to the figure of £232,818.25 being that due in respect of invoices rendered already by the Post Office, if the Post Office established liability. In addition there was an amount of £600,332.75 which the Post Office contended had not been invoiced at all and was due if its contentions as to the proper construction of paragraph 1 of Part III of Schedule 4 to the Agreement were correct. I understood that the figure of £600,332.75 was not in dispute if the Post Office established the correctness of its position.[185]The case for the Claimants in answer to the claim of the Post Office for Expiry Revenue was set out by Mr. McCaughran in his written opening skeleton argument in this way:- “167. There is an issue between the parties about what share of the expiry revenue Post Office is entitled to receive:(1) Since March 2005, Post Office has argued that this clause entitled it to 50% of the remaining face value on cards which expired without the full value of the credit on the card being used. Thus if the customer paid £10 for the phonecard, but only used £1 of the available credit prior to expiry, Post Office should be paid £4.50 (half of the unused face value of £9).(2) In Tele2’s submission: (a) On the true construction of this clause, there is a distinction between face value and the windfall arising from a card not being used. The effect of the clause is that Post Office should receive half of the windfall arising, which equates to 25% of the remaining face value. (b) The parties discussed and agreed in 2002, when the expiry revenue from the first cards sold started to accrue, that this clause would operate in this way and the parties then operated in this way for a period of some years. Post Office cannot resile from that agreement. 168. As shown by the examples below, Post Office’s argument is a startling one, once it is borne in mind that (i) Post Office was already entitled to 21% (subsequently 24.7%) of the sale value of the card once it was sold – see clause 1 of Part II of Schedule 4; and (ii) for each card sold, Tele2 had to incur certain fixed costs, such as the cost of producing the card (around 2% of card value), as well as certain direct costs – known as interconnect costs (around 45% of the value of the call made) – in purchasing access to telephone lines in relation to calls made. 169. Thus, if a £10 phonecard was fully used by a customer, the position would be as follows: [The table need not be set out – it showed the Claimants getting £3.20 profit and the Post Office getting £2.10] 170. However, in the example given above, of only £1 worth of calls having been made from a £10 phonecard, the economic impact of Post Office’s argument (before the introduction of VAT in 2004) would look something like this: [Again the table need not be set out – it showed the Claimants getting a profit of £2.75 and the Post Office getting £6.60] 171. Therefore, the construction that Post Office now advances would produce the most odd result that Tele2 would be worse off if a card was unused than if it was used, while Post Office’s share would increase substantially and become greater than that of Tele2. 172. It was against this background that the parties addressed the issue of expiry revenue in 2002. In particular: (1) On 8 July 2002 Adam Hayes of Tele2 sent an email to Samantha Conway of Post Office explaining that, if Tele2 paid 25% of final expiry revenue, this equated to 50% of the “excess profit” made by Tele2. Mr. Hayes’ email attached a spreadsheet to illustrate his point. (2) On 20 November 2002 a meeting took place between representatives of Post Office (Messrs. Cromwell and Green) and Tele2 (Mr. Heron). The Note of the meeting shows that the issue of expiry revenue was discussed.(3) Following that meeting, on 29 November 2002, Mr. England of Tele2 wrote to Mr. Gilbert of Post Office attaching a summary of the money due to Post Office in respect of expiry revenue, together with a supporting breakdown. The letter asked for an invoice to be sent by Post Office for the amount due, as shown in the breakdown. The breakdown calculated the sum due (£41,435) explicitly on the basis of 25% of expiry revenue streams. Following this letter, an invoice was duly issued by Post Office on 10 February 2003 for the sum of £41,435.(4) After this, Post Office consistently issued invoices for expiry revenue on the agreed 25% basis and Tele2 paid on this basis. It was only in the last month of the Agreement in March 2005, over three years after signature of the Agreement, and after two years of operating on the basis of a 25% share, that Post Office sought to argue that it was entitled to 50% of unexpired face value. 173. In Tele2’s submission, as the examples above demonstrate, Post Office’s current position on expiry revenue is nonsensical and it is most unlikely that the parties can have intended it. This points strongly to Post Office’s interpretation of the relevant clause being wrong. The reasonableness of the result reached is always a relevant factor to be taken into account in construing contractual provisions. See Schuler v. Wickman, referred to above. Moreover, the Court should always have regard to the purpose of the provision which it is construing. See Arbuthnott v. Fagan, also referred to above. 174. The purpose of paragraph 1 of Part III of Schedule 4 was plainly to ensure that if Tele2 received a windfall because a card expired without the customer using the full amount of the available credit, Tele2 should share the windfall equally with Post Office. The purpose was not for Tele2 to be worse off if a card expired without the customer using the full amount of available credit. Thus the “remaining value” referred to in the third line of the clause was intended to refer to the value remaining to Tele2, i.e. the windfall. In practice, it equates to about 25% of the unused credit on the phone card. 175. Even if this were not the result as a matter of simple contractual interpretation, as shown by the events described above, the parties agreed that the clause would operate in this way and operated on this basis for a period of years. 176. In addition, in an internal email from Mr. Bartley, then of Tele2, subsequently of Nomi-Call, dated 29 July 2004, Mr. Bartley recorded that Post Office had agreed to reduce its entitlement to expiry revenue to half its current entitlement, i.e. 12.5%. There is an issue of fact as to whether any such agreement was made.”[186]Before turning to the alleged agreements that only 25%, or 12.5%, of the face value of any Pre-paid Phonecard which expired without the full face value having been spent should be paid to the Post Office, it is necessary to reach a conclusion as to the correct construction of paragraph 1 of Part III of Schedule 4 to the Agreement.[187]As a matter of language it seems to me to be plain that the expression “remaining value” must refer back to the expression “its full face value”. The expression “remaining value” was not defined, and, without a definition, the question arises, in relation to the words “remaining value”, of what value it is that there is that which remains. That can only be the value previously mentioned in the paragraph, “its full face value”. The contention on behalf of the Claimants was that the words “remaining value” should be read as if they were followed by the words “to the Relevant Contractor”. I see no linguistic justification for so reading the words.[188]It is then necessary to consider what is the proper construction of the words “remaining value”, whatever their literal effect. The case for the Claimants included demonstrating that, if the construction contended for by the Post Office were correct, the Post Office received in respect of an unexpired Pre-paid Phonecard, where the unexpired face value was greater than 20%, a higher revenue than the net proceeds received by the relevant Tele2 party, after allowing for interconnect costs incurred and the cost of physical production of the card. It was not in dispute that that happened. However, it is material to notice that it was not suggested that in any case the relevant Tele2 party would make a loss. In practical terms the issue was simply about how an available amount of profit should be shared. It is also right to say that the circumstances in which the profit in question would come to be realised were unpredictable, as was the precise amount of the profit.[189]Mr. Onions, at paragraph 2.26 of his written opening skeleton argument, responded to the construction for which Mr. McCaughran contended:- “As a matter of construction, POL submits that this strained and artificial construction is scarcely arguable;a. If variable costs are to be taken into account, this would mean that every card which expired with credit remaining would have to be analysed to see what calls had been made on it so that the variable cost of those calls could be deducted.b. Fixed costs are split between all costs sold. That means that, if fixed costs are to be taken into account, the amount to be deducted from the remaining value of credit depends on how many cards have been sold and would vary over time.c. The foregoing calculations would be absurdly complicated for the relatively small sums at stake – even in the unlikely event of a card expiring with all its credit remaining, the maximum POL entitlement would be £10, £5 or £2.50 depending on the card’s denomination.d. This would also mean that POL’s entitlement depended on Tele2’s efficiency of operation. If Tele2’s costs were high, a matter over which POL had no control, POL’s remuneration would reduce. That is a commercially unlikely result.e. There is no suggestion that any consideration was given to this exercise before the Agreement was entered into and Tele2 apparently accepts that the parties did not intend that the fixed and variable costs attributable to any card should actually be calculated. Instead, it says that splitting the resulting figure would be “about 25%” of unused credit and so that is the figure that should be applied. If that is what the parties intended, they would simply have provided for POL to receive 25% of unused credit. Tele2 cannot explain why they did not.f. Finally, there is no need for Tele2’s strained construction. The words used by the parties clearly provide for POL to receive half the unused credit on a card. There is nothing odd or uncommercial about such a provision, and effect should be given to it.”[190]The Agreement contained, as I have explained, provision for various payments to be made to the Post Office in different circumstances. There was the basic commission, 21%, payable on each Pre-paid Phonecard sold. In addition there was the provision in respect of Expiry Revenue now under consideration. There were also the Additional Fees, to which I shall come. In financial terms all of the provisions for payment to the Post Office were a package. It was not inevitable that the package be composed as it was. The package agreed between the Post Office and Nomi-Call, I was told, included provision for a commission of 35% on each phonecard sold, but no provision for a sharing of Expiry Revenue. One might suppose that the provision for sharing of Expiry Revenue was taken into account in agreeing the rate of commission payable under the Agreement at 21%. Essentially, therefore, it was for the parties to agree whatever they thought commercially sensible in relation to what sums should be paid to the Post Office under the Agreement, and in what circumstances those sums were payable. It cannot sensibly be said, as it seems to me, that some particular provision in respect of Expiry Revenue must have been intended by the parties, as commercial men.[191]As Mr. Onions submitted, the construction of paragraph 1 of Part III of Schedule 4 to the Agreement for which he contended had the merit that the sum to be paid to the Post Office on the expiry of a given Pre-paid Phonecard before all the credit on it had been spent could be ascertained quickly and easily, whereas the construction for which Mr. McCaughran contended potentially involved a need for complex investigations and calculations. That consideration plainly favoured Mr. Onions’s construction. One should not readily suppose that commercial men would envisage sophisticated enquiries and calculations, likely to cost sums in excess of the amounts at stake, in respect of modest claims for money. That consideration coincides with the result achieved simply by reading paragraph 1 of Part III of Schedule 4. Thus I am satisfied that the construction for which Mr. Onions contended is correct.[192]It is then necessary to consider the alternative way in which the Claimants put their answer to the claim for Expiry Revenue, namely that, whatever the effect, on proper construction, of paragraph 1 of Part III to Schedule 4 of the Agreement, the parties agreed subsequent to the making of the Agreement that the Post Office would accept first 25% of Expiry Revenue, and then 12.5%.[193]A curiosity of the case for the Claimants was that no one who contended that either of the agreements asserted had been made by him or her was called to give evidence on the Claimants’ behalf. The case depended entirely upon inferences which I was invited to draw from documents put before me, the failure of the Post Office to dispute payment of Expiry Revenue at 25% prior to 2005, and (hopefully, but in the event unsuccessfully) admissions in cross-examination by witnesses called on behalf of the Post Office.[194]The first document relied upon was an e-mail dated 8 July 2002 written by Mr. Adam Hayes of Tele2 to Mrs. Samantha Conway of the Post Office. The e-mail said:- “attach a copy of spreadsheet that hopefully Johnny showed you. In summary this shows that if I pay you 25% of final expiry this equates to 50% of “excess profit”. Please confirm your agreement and I will get a cheque raised.”[195]The spreadsheet attached to the e-mail did not in fact demonstrate that which Mr. Hayes asserted. In essence it simply showed what was half of half of various numbers.[196]Mrs. Conway was called to give evidence on behalf of the Post Office. She told me that there had been some discussion within the Post Office about the spreadsheet and the Tele2 proposal, but that no conclusion had been reached. The issue had just been parked. I accept that evidence.[197]Mrs. Conway’s job at the Post Office in July 2002 was Personal Communications Market Manager. Her line manager was Mr. Jim Green, Head of Consignia and Utilities Markets. In October 2002 there was a re-organisation, as a result of which Mrs. Conway’s duties in relation to phonecards were taken over by Mr. Iain Gilbert, who had the title Senior Product Manager. Mr. Gilbert’s line manager was Mrs. Vickers.[198]In the period in which the old team responsible for phonecards at the Post Office was handing over to the incomers a meeting took place on 20 November 2002. Those who attended were Mr. Johnny Heron, on behalf of the Tele2 parties, and Mr. David Cromwell and Mr. Green, on behalf of the Post Office. Mr. Green gave evidence on behalf of the Post Office at the trial. He said that he attended the meeting principally to take notes.[199]A number of versions of the notes of the meeting held on 20 November 2002 were put in evidence. The reason was that Mr. Green submitted his notes, once drafted, to Mr. Heron for agreement. Mr. Heron proposed an addition to the notes. Mr. Green proposed a further addition. Then Mr. Heron proposed yet a further addition. The ultimate version agreed between both parties seems to have been produced about 3 December 2002. However, the part of the note material for present purposes was not altered from the original version. It was in these terms:- “The meeting was arranged to address and agree the outstanding points covered in the note from Johnny to David dated 26 April 2002. Johnny mentioned at the beginning that he had additional points to raise. These were: 1. Expiry of Phonecards Johnny said he had made a proposal on sharing benefits to Sam Conway in August. Action – Jim to ask Sam to liaise with Iain Gilbert and provide reply to Johnny asap.”

Johnny mentioned at the beginning that he had additional points to raise. These were:

[200]It was plain on the face of the notes that no agreement about the proposal referred to, which seems to have been related to the spreadsheet sent by Mr. Hayes under cover of the e-mail dated 8 July 2002, was reached at the meeting. Mr. Green was asked in cross-examination whether he had performed the action recorded as for him in the passage quoted. I think it fair to say that his answer (Transcript Day 6 page 151 lines 2 – 8) was that he really did not recall what he had done.[201]A rather odd document, a copy of which was put in evidence, was entitled “Contract Issues 20/11/02”. It included this:- “1. Expiry: Methodology supplied to SC August 02. 50% of excess profit = 25% of expiry balance. Reason: PO already have had 21%. (£50,000) … 4. Tariff process: We need to agree a much faster process. Both for unexpected changes (like China) and planned changes. We tried to lower rates for this promotion and PO said no.”[202]Mr. Green was asked about that document. He was asked whether the document had been produced at the meeting on 20 November 2002. He said not. He said that he had not seen it before becoming involved in this action. He commented, rightly as it seems to me, that the document looked, from the terms of paragraph 4, as if it were an internal Tele2 document.[203]Mr. Andy England, a director of the company actually called Tele2 Ireland Ltd. (that is to say, the company which had that name, not the second claimant, which I have referred to in this judgment as “Tele2 Ireland”) wrote to Mr. Gilbert a letter dated 29 November 2002. The material part of the letter was in these terms:- “Post Office Phonecard: Expiry – sharing of remaining value Please find attached our summary of the money due to the Post Office for the above at the end of October 2002, together with the supporting calculation. Please let us have your invoice for the due amount, made to Tele2 Ireland Ltd., at the following address:”[204]The enclosure to the letter began:- “Post Office Commission payable on Expiry of Cards As per the contract, 25% of Expiry Revenue streams are payable to the Post Office as a commission. Expiry Revenue was first appreciated in April 2002, and since then have been such: [There followed a table]” Expiry Revenue was first appreciated in April 2002, and since then have been such: [There followed a table]”

Expiry Revenue was first appreciated in April 2002, and since then have been such:

[205]Mr. Gilbert was called as a witness on behalf of the Post Office. Mr. McCaughran suggested to him that he had in fact agreed that the Post Office would accept 25% of the face value remaining unspent of Pre-paid Phonecards which expired without the whole credit being expended as the sum due under paragraph 1 of Part III of Schedule 4 to the Agreement. His evidence was firm (Transcript Day 7 page 36 lines 16 – 19):- “Absolutely not. There was not an agreement, never was an agreement. What is – there was a sum of money identified by Tele2 as owed to the Post Office. I requested an invoice be raised.”[206]Mr. Gilbert also told me (Transcript Day 7 page 26 lines 7 – 9) that he had not had any discussion with Mr. Heron about the issue of expiry revenue or replied to the proposal mentioned in the notes of the meeting on 20 November 2002. He said that he had passed Mr. England’s letter and enclosure to the finance department to raise an invoice for payment without remarking that the level of commission said to be payable was 25% and not 50%.[207]I accept the evidence of Mr. Gilbert without hesitation. I was very impressed by the careful nature in which he gave his evidence in cross-examination. It is also right to comment that the enclosure to Mr. England’s letter was misleading, in that it recorded, contrary to the true position, that the figure of 25% was payable “As per the contract”. How Mr. England came to make that misstatement was not investigated, as he was not called to give evidence.[208]The high point of the Claimants’ case in relation to an agreement on the part of the Post Office to accept 25% of the face value remaining unspent of a Pre-paid Phonecard which expired without the full credit having been expended as due performance of the obligation in paragraph 1 of Part III of Schedule 4 to the Agreement was really the letter dated 29 November 2002 written by Mr. England to Mr. Gilbert, and the enclosure thereto, coupled with the rendering on the part of the Post Office of an invoice in the sum which Mr. England had contended was due. In the light of my acceptance of the evidence of Mr. Gilbert to which I have referred, it follows that I am not satisfied that the agreement contended for was ever made. All that happened, as it seems to me, was that the Post Office was presented from time to time with a calculation of what the Tele2 parties, which alone had the means of knowing what the amount of the Expiry Revenue was, said was due, and invoiced the amounts so stated. The representatives of the Post Office merely failed to notice that what was alleged to be due had been calculated on the basis that the Post Office was entitled to 25% of Expiry Revenue, rather than 50%.[209]The case of the Claimants that the Post Office agreed to accept only 12.5% of Expiry Revenue as satisfying the obligation in paragraph 1 of Part III of Schedule 4 to the Agreement depended upon the flimsiest of foundations, which was no doubt why it was not pursued at the end of the trial. It came down to two e-mails written by Mr. Bartley of Tele2 to Mr. Bill Butler, at the material time a director of Tele2 UK, Tele2 Ireland and C3 (UK).[210]The first e-mail was dated 29 July 2004. It was written in the context of negotiations concerning the increase in the Rates for Pre-paid Phonecards following the application of Value Added Tax to those cards. In the material part of the e-mail Mr. Bartley wrote:- “I have negotiated a position which I believe they will agree to which contributes 26.3% (ie pre increase level) … We have also agreed to reduce PO expiry to half the current level. See model below.”[211]The second e-mail was dated 30 July 2004. The relevant passage was:- “3/ Breakage – The contract states 50%. We have been paying them 25% for the last year, and I have negotiated this down to 12.5%. They are not happy at all about this level as they use breakage to fund a lot of their PR activity.”[212]Mr. Bartley was not called to give evidence at the trial. Neither of the e-mails in question was copied to anyone at the Post Office. No person was identified as being the one with whom the alleged agreement had been made. Mr. Woodrow and Mr. Gilbert both denied making any such agreement. They were not even challenged in cross-examination to the effect that either of them had agreed to the rate of 12.5%.[213]Consequently I find that Tele2 Ireland is liable to pay to the Post Office the sum of £833,151.

Additional Fees

[214]It was, I think, common ground that an amount was due to the Post Office in respect of Additional Fees. The claim of the Post Office in relation to Additional Fees was for a sum of £202,000. The issue what sum was due depended simply on the proper construction of paragraph 2 of Part III of Schedule 4 to the Agreement.[215]In his written opening skeleton argument Mr. McCaughran explained the nature of the issue, and the position of the Claimants in relation to it, in this way:- “178. The clause provides for payment of any profit share due to Post Office to take place annually; however, there is an issue between the parties as to whether the profit share due to Post Office should be calculated on a cumulative basis (Tele2) or on an annual basis (Post Office). This makes a difference because, as is the nature of a business arrangement which involves launching a new product, there were very substantial initial start up costs incurred by Tele2 in the first year (which was in fact only 3 months long – October to December 2001) with the result that there were very substantial losses incurred. If this clause operates cumulatively then the profit share would only apply once Tele2 had recovered these initial start-up costs and started making a profit from the business in excess of 10% EBITA. Post Office’s construction would treat each year separately and, while there would be no profits to share in the first year, Post Office would then be able to take a share from profits in subsequent years without any account being taken of the initial start up costs. … 181. In Tele2’s submission, the clear purpose of this clause was to allow Post Office to receive what was, in effect, an increased level of commission if and when their joint phonecard business started generating substantial profits. It would not be consistent with this purpose for Post Office to start to receive higher commission when the joint phonecard business was still loss-making or making a low level of profit. However, Post Office’s construction of the clause, by taking snapshots of each year in isolation, would allow this to happen. Therefore, the commercially sensible construction to put on this clause is that Post Office’s profit share should be calculated on a cumulative basis.”[216]Mr. Onions’s response at paragraphs 2.31 and 2.32 of his written opening skeleton argument was:- “2.31 Tele2 again takes a commercially inexplicable approach. It says that at the end of each year the comparison is not of that year’s figures but of Tele2’s EBITA and revenues from the start of the Agreement until the end of the previous financial year. The effect of this is very peculiar:a. At the end of 2002, for example, if Tele2 had been very profitable, £100,000 might be due to POL.b. If then Tele2’s percentage profit margin reduced in 2003, the cumulative EBITA might be less than 10% of cumulative revenues at the end of the year.c. On Tele2’s construction, it is not just that POL would be due nothing at the end of 2003; it would turn out at the end of 2003 that POL was not due the £100,000 it had already been paid. Presumably, therefore POL would have to pay the money back.d. This would be particularly silly since a further sum might then be due to POL for 2004, only to be clawed back again the following year. 2.32 The parties are most unlikely to have intended such a result. If they had intended the calculation to be carried out on a cumulative basis, they would have provided that no accounting would be carried out until the end of the Agreement. They actually provided for annual accounting. There is nothing in Tele2’s “cumulative” construction.”[217]In his written closing skeleton argument Mr. McCaughran, at paragraph 115, accepted the logic of Mr. Onions’s analysis:- “It is, of course, recognised that, in theory, if an account was carried out annually, but on a cumulative basis, balancing payments might need to be made both by Tele2 and the Post Office, since if the Agreement was profitable in the early years, but then less profitable in the later years, sums of Additional Fees already paid to the Post Office might be repayable (or netted off against their next commission payment). However, this is only a theoretical possibility. In practice, it would be likely that, having recovered the initial losses, the Agreement would then settle down into a level of profitability that would broadly prevail thereafter, with the result that Additional Fees would either not be payable at all or be paid every year.”[218]In my judgment, the only sensible construction of paragraph 2 of Part III of Schedule 4 to the Agreement is that the accounting between the parties takes place on an annual basis. That is actually what the paragraph says in its second sentence, “Tele2 Ireland and Tele2 International will account to Post Office Limited annually for the Post Office Limited share of profits no later than six months following their respective financial year-end”. I am afraid that, on the wording adopted, the contentions of the Claimants seem to me to be unarguable. They are also totally uncommercial, for the reasons articulated by Mr. Onions.[219]Consequently I find that there is due to the Post Office from Tele2 Ireland in respect of Additional Fees the sum of £202,000, the sum claimed by the Post Office.

The damages recoverable on the principal claim of the Claimants

[220]Most of the evidence, and a good deal of the submissions, deployed during the course of the trial were in fact focused on the issue of the quantum of damages recoverable by the Claimants in the event that they succeeded on their principal claim. As that claim fails, strictly it is unnecessary to embark upon a consideration of the issues which were raised in relation to quantum. However, since so much time and effort was put into this aspect of the case, it seems appropriate both to consider the issues identified and to indicate the conclusions which I have reached in relation to those issues.[221]It is convenient, first, to identify in general terms the nature of the issues raised in relation to the assessment of damages on the Claimants’ principal claim. There were disputes as to the law applicable to the assessment and also as to the facts.[222]In his written closing submissions Mr. Onions contended for three propositions:- “181. The first principle POL relies on is that a claimant is only entitled to damages in respect of matters which the contract required the defendant to do: Lavarack v. Woods of Colchester Limited [1967] 1 QB 278. … 185. Secondly, and related to the previous point, it is to be assumed that the defendant would have performed the contract in the manner least beneficial to the claimant: Kurt A Becher & Co KG v. Roplak Enterprises (The “World Navigator”) [1991] 1 Lloyd’s Reports 23. … 191. Thirdly, it is necessary, where possible, to take into account events which actually happened after the cause of action arose which cast light on what would have happened if the contract had continued: Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd. v. Pontypridd Waterworks Company [1903] AC 426; Golden Strait Corporation v. Nippon Yusen Kubishika Kaisha [2007] UKHL 12; [2007] 2 AC 353.”[223]The first of those propositions was not contested by Mr. McCaughran. However, the other two were. Mr. McCaughran set out his submissions as to the applicable law at paragraph 153 of his written closing skeleton argument:- “The authorities show that:(1) A defendant will not be held liable in damages for failing to do something which, under the contract, he is under no obligation to do. Thus in Lavarack v. Woods [1967] 1 QB 278, an employee who had been wrongfully dismissed was not entitled to claim damages for loss in respect of an unexpected increase in salary in lieu of bonus, since his contract did not entitle him to a bonus. The decision in Lavarack v. Woods needs to be read in the light of the later Court of Appeal decision in Horkulak v. Cantor Fitzgerald [2004] EWCA Civ. 1287 in which an employee’s contract provided that his employer may, in his discretion, pay an annual discretionary bonus. It was held that the employee was entitled to a bonus and the Court’s task was to decide how in practice the employer would have fulfilled its obligations. See paragraph 56 in the Judgment of Potter LJ.(2) Where the contract, on its face, stipulates four [sic] alternative methods of performance, then damages are to be assessed on the basis of the stipulated alternative which is least onerous to the defendant. See Abrahams v. Herbert Reiach [1922] 1 KB 477 at 480. Thus, for example, if a contract of carriage provided for delivery at one of two alternative ports, damages for breach would be assessed on the basis that the ship owner was required to deliver to the nearer port. See the example given by Atkin LJ in Abrahams v. Herbert Reiachibid at page 483.(3) Where the contract provides for a single obligation which may be performed in a range of ways, the task of the Court is to assess what the defendant, acting reasonably, would have done in performance of its obligation. See Abrahams v. Herbert Reiach ibid. Lion Nathan v. CC Bottlers Limited [1996] 1 WLR 1438 (PC), especially at page 1446 (Lord Hoffmann) and cf. the approach of the Court of Appeal in the Cantor Fitzgerald case referred to above.”[224]Thus it was in dispute whether it should be assumed in favour of the Post Office that, but for the termination of the Agreement, it would have performed the Agreement in the manner least beneficial to the Tele2 parties, or whether the correct approach was to consider what the Post Office, acting reasonably, would have done in performance of its obligations under the Agreement. Mr. McCaughran did not expressly, in his written closing skeleton argument, take issue with the proposition that the Court should take into account, in assessing damages, what actually happened after the cause of action arose. However, the way in which Mr. McCaughran identified at paragraph 162 of his skeleton the tasks for the Court was consistent with actual events either being irrelevant, or at least not of great significance. He said:- “In relation to both claims for damages by Tele2, the Court will need to reach a view on(i) how the Tele2/Post Office phonecard business would have developed in the hypothetical world in which the Agreement had not been terminated and Tele2 had continued to supply phonecards to the Post Office from 1 April 2005 to 31 March 2007; and(ii) what costs would have been incurred by Tele2. There is obviously a close connection between these two elements, since higher costs would need to be incurred by Tele2 in order to grow its business than would need to be incurred in order to keep sales level.”[225]Why this issue of having regard to actual events was important was that, of course, by the date of the trial the whole of the period in respect of which damages would have fallen to be assessed, if liability had been established, had expired. The Post Office in fact had engaged Nomi-Call as its sole supplier of phonecards throughout the relevant period. There was put in evidence the sales in fact achieved by the Post Office in relation to phonecards over the period 1 April 2005 to 31 March 2007 inclusive. The case for the Post Office was that the sales in fact achieved was good evidence of the sales which would have been achieved by the Post Office if the supplier of phonecards had continued to be the Tele2 parties, and that I should not suppose that the sales, had the Tele2 parties supplied the phonecards, would have been any higher. The approach of the Claimants, on the other hand, was to proceed on the basis of what was contended to be the historic performance of Pre-paid Phonecards before the Tele2 parties fell out with the Post Office, identified as occurring in about October 2004, the month after the Post Office had started to sell the EU Card, and to extrapolate from that.[226]In addition to the issues of law which I have mentioned, and the question of how to approach the likely sales of phonecards supplied by the Claimants but for the termination of the Agreement, there were two other issues in relation to damages. One was whether it should be assumed that the Tele2 parties would have been the sole supplier of phonecards to the Post Office. The other was over how long a period damages should be assessed.[227]The first of these issues arose because there was no obligation on the part of the Post Office under the Agreement only to offer to retail customers Pre-paid Phonecards, and, between September 2004 and March 2005, it offered phonecards supplied by Nomi-Call in addition to Pre-paid Phonecards. In essence, therefore, the issue was whether the assessment of damages should be undertaken on the basis that both Tele2 and Nomi-Call would have continued to supply phonecards to the Post Office over the period relevant to the assessment of damages. The case for the Post Office was that the assessment should proceed on that basis. It was contended that the adoption of that approach was required by the principle that it should be assumed that the contract would have been performed in the manner least beneficial to the Claimants. It was also contended that, on the evidence put before me, there was nothing impractical about the Post Office having more than one supplier of phonecards. The case for the Claimants was that the use of two suppliers was not in fact how the Post Office would have proceeded if the Agreement had not been terminated. It was pointed out that the Tele2 parties had been the only source of supply until September 2004, and that Nomi-Call was the only source of supply from 1 April 2005 to 31 March 2007. While the case for the Claimants was that it was actually impractical for the Post Office to have had more than one supplier of phonecards, it was not in fact relevant whether that was so or not, because, on the evidence, so it was contended, that is not what the Post Office would have done.[228]The second issue, the duration of the period over which damages fell to be assessed, arose because of the admitted failure of the Claimants to comply with the requirements of the Agreement in relation to the increase in the Rates charged to retail users of Pre-paid Phonecards as from 1 June 2004. The case for the Post Office was that, as a result of that failure, it became entitled to terminate the Agreement under clause 11.2 by giving twelve months notice. In his written closing skeleton argument Mr. Onions put his submissions in this way:- “289. POL unequivocally evinced its intention to terminate the Agreement by sending Tele2 notices of termination on 1 December 2004. It was on that date entitled to terminate on 12 months’ notice. Thus, if it was not entitled to terminate by the notice given, damages are to be assessed on the basis that it would then have given 12 months’ notice. That notice would have expired on 30 November 2005, 9 months after the Agreement in fact terminated and accordingly Tele2’s claim should be limited to 9 months’ profits. 290. Alternatively, POL was entitled to serve a 12 months’ notice on 31 March 2005, when the Agreement came to an end, and so Tele2’s claim should be limited to 12 months’ profits. It is well established that where a party terminates a contract for a bad reason, he is subsequently entitled to rely on facts which, at the time, would have constituted a good reason for termination: Boston Deep Sea and Ice Company v. Ansell (1888) 39 Ch D 339.”[229]Mr. McCaughran accepted that the decision in Boston Deep Sea and Ice Co. v. Ansell established the proposition for which Mr. Onions contended and that, if that principle was applicable in the present case, the effect of it was to limit the period in respect of which damages fell to be assessed to twelve months from 1 April 2005. However, he submitted that, on the evidence led during the trial, I should conclude that the Post Office had actually agreed to the increase in Rates applicable as from 1 June 2004. He also contended that in any event the Post Office had affirmed the Agreement after any breach by continuing to perform the Agreement, and to accept the benefit of the performance of the Tele2 parties, after any breach.[230]Mr. Onions countered the latter submission by seeking to rely on clause 16. Mr. McCaughran in his turn submitted that clause 16 could not be relied upon as an answer to an affirmation. I have already set out my conclusion on that point. The factual issue in relation to the increase in Rates was, therefore, whether, as was asserted on behalf of the Claimants, the Post Office had in fact agreed to the increase.[231]Before addressing the factual issues in relation to the assessment of damages it is convenient to deal with the legal issues between the parties. Should it be assumed that the Post Office would have performed the Agreement in the manner least beneficial to the Claimants?[232]The question of how, in principle, to approach the assessment of damages in a case such as the present was a matter of vigorous debate between Mr. McCaughran and Mr. Onions. A number of authorities were cited to me, and it is necessary to refer to each.[233]In point of time the first of the authorities to which it is necessary to refer is the decision of the Court of Appeal in Abrahams v. Herbert Reiach Ltd. [1922] 1 KB 477. In that case the defendant publishers agreed to print and publish in a magazine a series of articles to be written by the claimants, and thereafter to produce the articles together in book form. The claimants were entitled to a royalty of a fixed amount per book sold. The defendant printed and published the articles in the magazine, but refused to publish the articles in book form. The question arose how damages for breach of that obligation were to be calculated. The defendant’s case was that the royalties lost should be calculated on the basis of the smallest number of books that could properly be described as a publication of the book. The judgments of the members of the Court of Appeal were not all to the same effect.[234]The leading judgment was that of Bankes LJ. Having referred to the decision of the trial judge on liability, he went on, at pages 479 – 481:- “That being so, Reade v. Bentley lays down a rule of construction which is applicable; a publisher who has agreed to publish a work must publish it, but is not bound to continue publishing it; the author has a right to determine the agreement after publication of an edition unless the agreement otherwise provides. The appellants undertook to publish this book and repudiated their agreement. What are the damages to which the respondents are prima facie entitled? The general rule is that stated by Parke B. in Robinson v. Harman:
“Where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed”
. Mr. Jowitt contended that this was one of those contracts which may be performed in one of several ways and was analogous to those contracts which provide for alternative methods of performance. If this were so the party complaining of a breach must be content to have the damages assessed by the standard which is the least onerous to the defendant. But in my opinion this is not a contract of that kind. In the cases to which we have been referred the contracts provide on the face of them for alternative methods of performance. This contract only imposes one obligation upon the appellants – namely, to publish. The question is what will satisfy that obligation? The appellants have a wide discretion; the time of publication, the number of copies to be printed, the price at which they are to be offered, and the form the book is to take are all left to their judgment. That however does not dispose of the case, because they have repudiated their obligation altogether, and the difficult question we have to decide is in what position the respondents would have stood if the appellants had performed their obligation. To answer this question the Court must come to some conclusion on matters on which there is no evidence; how the appellants would have exercised their discretion; what number of copies they would have published; how many editions would be reasonable. On all these points the parties left the learned judge in a difficult position. The case is very bare of materials from which he could draw any conclusion. He rightly emphasised the points which would induce a reasonable expectation of a large sale; the fact that the type was already set up and that the cost of production would be small; the character and reputation of the respondents, and the opportune occasion for publishing the book. But there were other matters to be taken into account, and in my opinion the learned judge made an estimate which was too favourable to the respondents and we cannot allow the judgment for 500l. to stand. The parties have agreed that we may substitute an amount which we think fair, and I think 100l. would be a fair assessment. The judgment will stand for that amount.”[235]The learned Lord Justice’s judgment contained little in the way of guidance beyond the indication that the focus of the enquiry was what the defendant would have done, had it performed its contractual obligation.[236]Scrutton LJ, the second member of the Court of Appeal, began his judgment by stating that he agreed with Bankes LJ. His consideration of the question of damages, at pages 481 – 482, was:- “Mr. Jowitt contended that if one copy was published that would satisfy the appellant’s obligation. That cannot be laid down as a proposition of law. I think the appellants were bound to make such a publication as could be considered reasonable in the circumstances. Having done that they are not bound to do anything further. Provided that they make a reasonable publication the number and price of the copies are left to them. They broke their contract, and now what is the measure of damages? There are two principles which may seem to clash. One of these is stated by Lord Selborne in Wilson v. Northampton and Banbury Junction Ry Co.:
“In the case of damages, as it appears to me, the plaintiff will be entitled to the benefit of such presumptions as, according to the rules of law, are made in Courts both of law and equity against persons who are wrongdoers in the sense of refusing to perform, and not performing, their agreements. We know it to be an established maxim, that in assessing damages every reasonable presumption may be made as to the benefit which the other parties might have obtained by the bona fide performance of the agreement.”
I am not inclined to be strict in limiting the damages recoverable against wrongdoers, but if their obligation is left so much to their discretion that there are several ways of performing it, I have always understood that the Court assesses damages on the basis that “if the contract could have been performed by the performance of the alternative least beneficial to the plaintiff, the measure of damages would be regulated by the loss occasioned by non-performance of that alternative”: Deverill v. Burnell, per Bovill C.J. The simple reason for this is that a defendant is not liable for not doing that which he is not bound to do. In assessing the damages in this case I try first to ascertain what edition of the book would have been a performance of this contract; I do not forget that the respondents cannot recover more than they would have suffered if they themselves acted reasonably; I bear in mind also that the appellants are wrongdoers; and acting on these lines I do not dissent from an assessment of 100l., though I think myself the plaintiffs might have got considerably less. ”[237]The emphasis of the judgment of Scrutton LJ was thus on what reasonable performance of the contractual obligation required.[238]The third member of the Court of Appeal in Abrahams v. Herbert Reiach Ltd. was Atkin LJ. In his judgment, set out at pages 482 – 484, he said:- “I agree in the result, though I do not go all the way with Scrutton L.J. The contract was to publish a book with illustrations and to pay the authors 4d. for every copy sold. The book would no doubt be published for the benefit of the publishers, and the authors would have an interest in the nature of a royalty in the sale of the book. The transaction resembles an agreement for a joint adventure falling short however of a partnership. There having been a breach of this contract the Court, in order to place the parties in the same pecuniary position as if the contract had been kept, must first ascertain what the contract was. If a merchant makes a contract to deliver goods to a shipowner to be carried by him for reward, and the merchant fails to provide the goods, the Court must first find what is the contract which has been broken; and if it was to carry the goods to one of two alternative ports at different distances from the port of loading at rates of freight differing according to the distance, the only contract on which the shipowner can sue is a contract for carriage to the nearer port. The plaintiff cannot prove a contract for performance of the more onerous obligation. This explains why in cases of this kind the Court regards only the lesser of the two obligations. But in the present case there are no alternatives, and to adjust the rights of the parties the only method is to form a reasonable estimate of the amount the respondents would be in pocket if the appellant had kept his promise. Everything likely to affect the amount of the profit must be considered; the nature and popularity of the subject matter, the reputation of the authors, the cost of producing a book on that subject, the price at which it would command a sale, the business capacity of the publishers and the chances of earning a profit by the sale of the book. On the other hand the publishers are not bound to run risks contrary to their judgment; they would naturally and properly allow for fluctuation in the public taste for literature of this kind. An analogous calculation has to be made when a man having engaged to take another into his service for a time and to pay him a share in the profit of his business, refuses to employ him at all. In assessing the damages for the breach of this contract the question is not how the employer could carry on his business so as to make the least possible profit and so involve himself in the least possible obligation towards the plaintiff. Apart from his contract, he need not carry on business at all. The proper method of assessment is quite different; it is to make a reasonable computation of the amount the respondents would have received had the contract been fulfilled. The sum so arrived at is the measure of damages. This seems to have been the method pursued by Sankey J., but in my view the actual result at which he arrived is too favourable to the respondents, and the learned judge must have omitted some considerations which ought to have been taken into account. To produce 500l. damages there must have been a sale of 30,000 copies of the book, and that is too large an estimate. The evidence warrants the inference that there would have been a substantial sale; but the book may still be published, though perhaps under less advantageous conditions; and the sale may still be large. Moreover the publishers might have exercised their discretion upon a mistaken view of their own interests and have published less copies than they could without difficulty have sold. On the whole I agree that 100l. is a fair assessment of the damages. ”[239]Atkin LJ thus also concentrated on what reasonable performance of the contractual obligation amounted to, but tempered it somewhat to factor in the possibility of the defendant genuinely, but mistakenly, deciding to limit the scale of the publication, had the book in fact been published.[240]In point of time, the next authority to which my attention was drawn by Mr. McCaughran was the decision of the Court of Appeal in Lavarack v. Woods of Colchester Ltd. [1967] 1 QB 278. As I have noted, the issue of principle for which that decision is authority was not in dispute before me. However, in the judgment of Diplock LJ, the leading speech for the majority, some consideration was given to the decision in Abrahams v. Herbert Reiach Ltd. The material passages are at page 293C – E, page 294B – F and page 295F to page 296A:- “…. I accept as correct the principle stated by Scrutton L.J. in Abrahams v. Reiach (Herbert) Ltd., that in an action for breach of contract “a defendant is not liable in damages for not doing that which he is not bound to do.” One of the most firmly established applications of this general rule was that expressed by Maule J. in Cockburn v. Alexander,

Thus:

“Generally speaking, where there are several ways in which the contract might be performed, the mode is adopted which is the least profitable to the plaintiff, and the least burthensome to the defendant”; and the only question argued by counsel in Abrahams v. Reiach (Herbert) Ltd. was whether or not the contract sued on was one which gave to the defendants an option as to the mode in which it might be performed. All three members of the court held that it did not, but obliged the publishers to publish an edition of the book of a size which was reasonable in all the circumstances. Each member of the court explicitly accepted as beyond argument the correctness of the rule expounded in Cockburn v. Alexander. … The general rule as stated by Scrutton L.J. in Abrahams v. Reiach (Herbert) Ltd., that in an action for breach of contract a defendant is not liable for not doing that which he is not bound to do, has been generally accepted as correct, and in my experience at the Bar and on the Bench has been repeatedly applied in subsequent cases. The law is concerned with legal obligations only and the law of contract only with legal obligations created by mutual agreement between contractors – not with expectations, however reasonable, of one contractor that the other will do something that he has assumed no legal obligation to do. And so if the contract is broken or wrongly repudiated, the first task of the assessor of damages is to estimate as best he can what the plaintiff would have gained in money or money’s worth if the defendant had fulfilled his legal obligations and done no more. Where there is an anticipatory breach by wrongful repudiation, this can at best be an estimate, whatever the date of the hearing. It involves assuming that what has not occurred and never will occur has occurred or will occur, i.e., that the defendant has since the breach performed his legal obligations under the contract, and if the estimate is made before the contract would otherwise have come to an end, that he will continue to perform his legal obligations thereunder until the due date of its termination. But the assumption to be made is that the defendant has performed or will perform his legal obligations under his contract and nothing more. What these legal obligations are and what is their value to the plaintiff may depend upon the occurrence of events extraneous to the contract itself and, where this is so, the probability of their occurrence is relevant to the estimate. … The events extraneous to the contract, upon the occurrence of which the legal obligations of the defendant to the plaintiff thereunder are dependent, may include events which are within the control of the defendant: for instance, his continuing to carry on business even though he has not assumed by his contract a direct legal obligation to the plaintiff to do so. Where this is so, one must not assume that he will cut off his nose to spite his face and so control these events as to reduce his legal obligations to the plaintiff by incurring greater loss in other respects. That would not be the mode of performing the contract which is “the least burthensome to the defendant”.”
[241]Those passages, to which my attention was directed by Mr. McCaughran, do not really address the question of the assumptions to be made in assessing damages for breach of contract beyond emphasising the point which was not in dispute, namely that the assessment must proceed on the basis that the defendant was not bound to do more than perform the obligations which, by his contract, he accepted.[242]A rather complex problem of how to assess damages for breach of contract faced Mustill J, as he then was, in Paula Lee Ltd. v. Robert Zehil & Co. Ltd. [1983] 2 All ER 390. The claimants were manufacturers of dresses. The defendants were appointed the sole distributors of the claimants for sale of their range of garments in a number of territories in the Middle East. Under the agreement the defendants agreed to purchase not less than 16,000 garments per season from the claimants, but the agreement made no provision as to the sizes or styles of garment to be comprised in the minimum order quantity. The defendants terminated the agreement prematurely. The issue which arose before Mustill J was whether it should be assumed in favour of the defendants on the hearing of the assessment of damages that the defendants would, but for the termination of the agreement, have performed their obligations by choosing the cheapest garments in the claimants’ range in each of the seasons in respect of which an assessment of damages fell to be made. In his judgment at pages 392G – 394D Mustill J dealt with the issue of principle:- “The question now for consideration is this. Given that the contract provides only for the purchase by the defendants of at least 16,000 dresses, without saying anything about the sizes or styles of the dresses composing the minimum obligation, what assumption should be made as to the nature of the hypothetical purchase when computing the plaintiffs’ loss attributable to the premature termination of the agreement? For example, should it be assumed that the whole quantity would have been composed of the cheapest dresses? If this is so, the plaintiffs will recover no damages for they sold sufficient of the more expensive models by way of mitigation to overtop the loss of profit on the larger quantity of the cheaper kind. Or should the putative sales be related to an average, and, if so, what kind of average, price for the range as a whole? Or should a forecast be made of the dresses which would have been sold if the contract had gone ahead? There are two reasons why this is a difficult question to answer. First, the scheme of the contract is not fully worked out in the document, and it is not easy to complete the scheme by implication. Second, the principles on which damages are to be calculated in situations where the defendant has some freedom of choice as to the manner of performance are not so clearly established that they can easily be applied to the novel situation now arising. At first sight, it must seem a surprising assertion that the theory of damages in relation to alternative obligations is still open to doubt. In commercial disputes, damages are so often calculated in terms of the minimum quantity of goods to be delivered or cargo to be shipped that this mode of assessment has become a matter of routine, and the principles rarely have to be considered. The principles are, however, less clear cut than might be thought. For example, a dictum of Maule J which is very often cited from Cockburn v. Alexander (1848) 6 CB 791 at 814, 136 ER 1459 at 1468-1469 to the effect that when assessing damages the presumed mode of performance is that which is least profitable to the plaintiff and the least burdensome to the defendant is a possible source of difficulty. Unless this is only an elaborate way of saying that the performance is assumed to be that which will lead to the least award, the two halves of the rule are capable of leading to different answers, for the position of the defendant might be better overall if he chose a mode of performance which involved a greater than minimum liability in damages but avoided losses in other directions. Again, the foundation of the doctrine is very often sought in the statement of Scrutton LJ in Abrahams v. Herbert Reiach Ltd. [1922] 1 KB 477 at 482 that a defendant is not liable in damages for not doing that which he is not obliged to do. This dictum looks to minimum performance, not to minimum recovery (although the two will often be the same), nor to minimum detriment for the defendant. Furthermore, the principle is expressed solely in terms of the defendant’s obligations, considered in the abstract. Yet there are circumstances where the court has paid regard to evidence of what the defendant would actually have done if the contract had gone ahead: see, for example, Bold v. Brough, Nicholson & Hall Ltd. [1963] 3 All ER 849, [1964] 1 WLR 201, Maredelanto Naviera SA, v. Bergbau-Handel GmbH, The Mihalis Angelos [1970] 3 All ER 125, [1971] 1 QB 164 and perhaps also Abrahams v. Herbert Reiach Ltd. itself. I believe that some at least of the difficulties which arise in this branch of the law can be minimised if it is kept in mind that inquiry always involves a comparison between the plaintiff’s actual position in face of the breach, and the position which he would have occupied if the contract had been performed. This must involve an identification of the promise, followed by a valuation of its promised worth to the promisee. Each part of the inquiry may involve considering a choice which would have been open to the promisor. Thus: 1. The promisor may have a right of election which fixes the content of the obligation. This can take more than one form. It may, for example, give the vendor the option to deliver 1,500 to 2,000 tons of goods. Here, in accordance with the dictum of Scrutton LJ, the damages are assessed on the basis that the quantity delivered would have been 1,500 tons, for the seller could not have been compelled to deliver more than this amount. Where the obligation is to deliver at A or B, the dictum does not always work so well, for it cannot necessarily be said that A represents more of an obligation than B. So here the presumption is explained in different terms, by looking for the obligation which would have been least detrimental to perform. 2. Even where the obligation has been fixed in advance, or determined by election, the value of it to the promisee, and hence the amount which he has lost through non-performance, may be determined by contingencies. Sometimes, it is possible to be sure what would have happened if the contract had been performed, and (if so) this finding is used to estimate the worth of the promise. More often, the fact that the repudiation has prevented the time for performance from arising means that the best that can be done is to make an estimate of the likelihood that the contingent event would occur, and adjust the damages accordingly. For this purpose it makes no difference that the contingency is one which is under the control of the defendant. Although it is not legitimate to look at what the promisor would have done, but only what he could have done, when identifying the promise, the position is different when, as in The Mihalis Angelos and Bold v. Brough, Nicholson & Hall Ltd. the inquiry concerns the valuation of the promise itself: see especially per Diplock LJ in Lavarack v. Woods of Colchester Ltd. [1966] 3 All ER 683 at 691, [1967] 1 QB 278 at 295 – 296. There is one further distinction which must be mentioned, namely that which exists between(a) an obligation expressed in terms of a range of alternatives from which the promisor may choose and(b) a single obligation expressed in an indefinite way. A duty of the latter kind may often be construed as an obligation to act reasonably, and the damages will be assessed on the basis of what would have been reasonable. That this distinction does exist cannot, I think, be disputed, and it presents no serious theoretical difficulty when it is possible to say that there is one reasonable mode of performance, and one alone. But what of the case where there is more than one reasonable method, or a whole range of reasonable methods, shading into one another? One possible view is that the court should try to forecast how the defendant would have performed but for the repudiation. In my opinion this approach is inconsistent with principle, since the defendant may in the event have done no more than was necessary to qualify as reasonable, and to assess damages on any other basis would be to penalise him for failing to do something which he was not obliged to do. The answer must, in my judgment, be that the court is to look at the range of reasonable methods, and select the one which is least unfavourable to the defendant, bearing in mind, of course, that in deciding what methods qualify as reasonable the question must be approached with the interests of both parties in mind. This is, I believe, the way to account not only for the decision in Abrahams v. Herbert Reiach Ltd., but also for the divergencies of approach which might seem to exist between the various judgments, and within the individual judgments, delivered in that case.” Thus:[243]The learned judge then turned to consider the contract before him, and specifically an argument on behalf of the claimants to the effect that damages should be computed by applying to the shortfall the average price of all of those dresses which were of a style and size suitable for sale in the territory covered by the defendants. After analysing authorities referred to him, the learned judge said, at page 396C – D:- “It appears to me, therefore, that the choice must be made between two alternatives. Either the contract is read precisely as written, requiring the defendants to buy at least 16,000 dresses each season, with the whole range of dresses to choose from without restriction, in which case the application of the ordinary rules demands that the cheapest dresses must form the yardstick for the entire computation. Or it must be subject to an implied term that the choice must be made in a manner which is reasonable in all the circumstances. If so, Abrahams v. Herbert Reiach Ltd. [1922] 1 KB 477 shows that a selection must be made from those methods of performance which can be regarded as reasonable, on whatever basis yields the result least unfavourable to the defendants.”[244]A little later, at pages 396H – 397D, the learned judge addressed the argument that the term which he had mentioned should not be implied in the face of the express terms of the contract:- “Nor in my judgment is it correct to answer that an implication cannot be made in face of the fact that the defendants would only be in breach of the minimum obligation clause if sales within the territory could not be made in the quantities which the clause required. In my judgment, this approaches the problem from the wrong end. The implication of terms must be assessed on the assumption of performance, not breach. Performance consists of the purchase of 16,000 dresses, or more, if the defendants wanted them. It was explicitly provided that the purchases were to be ‘for the territory’, not that the dresses were to be left in a warehouse, or put on a bonfire. A purchase of 16,000 garments, and no more, would not be a measure of distress, but would be a full performance of the contract, and there is in my view no justification for distorting what would otherwise be a businesslike interpretation of the agreement, by assuming that the defendants would want, and should be allowed, to carry out that performance in a way which would do nothing but harm to the joint interests of the parties, and which would serve only the self-contradictory purpose of minimising damages which in a case of full performance would never fall due. Accordingly I consider that the agreement must be construed as subject to an implied term that the garments would be selected in a reasonable manner. Since selection would be a matter of judgment, this leaves open the very strong possibility that there would not be a unique reasonable selection, but a range of such selections, some yielding a greater total price than others for the 16,000 chosen garments. On this basis, the damages should, as I have already suggested, be assessed in terms of that reasonable selection which would yield the lowest price. I am very conscious of the problem which will face the court in establishing the boundaries of the range, since the sales in mitigation go some way towards showing what a reasonable selection would have been, but they do not show what other selections might also have been made which would qualify as reasonable. I can only say that a similar, although less complex, task is one which the Court of Appeal found itself able to perform in Abrahams v. Herbert Reiach Ltd., on the basis of evidence much less comprehensive than is likely to be available at the hearing of the references to damages.”[245]The decision of Mustill J in Paula Lee Ltd. v. Robert Zehil & Co. Ltd. was considered by the Privy Council in Lion Nathan Ltd. v. C-C Bottlers Ltd. [1996] 1 WLR 1438. That was a case about an alleged breach of a warranty of a forecast of profits. The advice of the Privy Council was given by Lord Hoffmann. In considering an argument on behalf of the appellants, Lord Hoffmann said this, at page 1446C – G:- “Mr. Sumption, who appeared for the defendants, said that the court should choose the highest figure, which on the information reasonably available at the time of the forecast, could without negligence have been put forward as the mean. He said that a court should assume that the vendor would have performed the contract in the way least onerous to himself, that is to say, the way calculated to secure for himself the highest possible price consistent with his warranty. In support of this argument he relied upon cases such as Lavarack v. Woods of Colchester Ltd. [1967] 1 QB 278 and Paula Lee Ltd. v. Robert Zehil & Co. Ltd. [1983] 2 All ER 390 in which the courts had to calculate the damages payable upon a wrongful repudiation or termination of a contract. In order to compensate the plaintiff for what he has lost, the court must in such cases determine what benefits the plaintiff would have derived from the performance by the defendant of his outstanding obligations under the contract. It is well settled that the court will assume that the defendant would have performed those obligations in the way least onerous to himself. If his duty was to act reasonably, it will be assumed that from various reasonable methods of performance he would have chosen the one least unfavourable to himself: see Mustill J. in Paula Lee Ltd. v. Robert Zehil & Co. Ltd. [1983] 2 All ER 390, 394. All this makes perfectly good sense when damages depend upon a prediction of how the defendant would have performed outstanding contractual obligations which gave him a choice of what to do. But this is not such a case.”[246]Consequently, although obiter, it appears that the approach of Mustill J in Paula Lee Ltd. v. Robert Zehil & Co. Ltd. has been approved by the Privy Council.[247]The remaining authority to which Mr. McCaughran drew my attention in the present context was the decision of the Court of Appeal in Cantor Fitzgerald International v. Horkulak [2004] EWCA Civ 1287. That was a case about a discretionary bonus. The main issue was whether the claimant had a contractual right to the bonus, but the issue also arose of how compensation for breach of the contractual right which the Court of Appeal, upholding the trial judge, found existed should be calculated. The judgment of the court was delivered by Potter LJ. At paragraph 66 Potter LJ cited the passage from the judgment of Mustill J in Paula Lee Ltd. v. Robert Zehil & Co Ltd. set out at page 394B – D. At paragraph 67 he noted that that passage had been approved by Lord Hoffmann in Lion Nathan Ltd. v. C-C Bottlers Ltd. However, at paragraph 68 he expressed the view that the circumstances of the case before the Court of Appeal were far from those of Paula Lee Ltd. v. Robert Zehil & Co Ltd.[248]The issue in the case upon which Mr. Onions particularly relied in support of his submission that it was to be assumed that the Post Office would have performed the Agreement in the manner least beneficial to the Tele2 parties was not concerned directly with that contention, but was, in effect, whether the claimant had suffered a loss at all. The decision upon which Mr. Onions relied was Kurt A. Becher GmbH & Co KG v. Roplak Enterprises SA (The “World Navigator”) [1991] 2 Lloyd’s Rep 23. In summary, the facts of the case were that sellers sold a quantity of maize to buyers on terms which provided for loading onboard ship at a rate of 500 tonnes per day. At that rate of loading the time permitted for taking the maize onboard amounted to 24 days. The ship was delayed in mooring alongside the loading berth by reasons for which the sellers were responsible, but once alongside loading took place much faster than was required under the contract, with the result that the period of delay, plus the time taken to load, together amounted to less than 24 days. The buyers claimed damages essentially on the basis that, had the ship not been delayed, it would still have been loaded in the time which it in fact took to load, and so they should be compensated for the delay caused by the sellers. The Court of Appeal, unsurprisingly, held that the buyers had not suffered any loss as a result of the breach of contract on the part of the sellers in causing the delay, because of the time permitted by the contract for loading. The leading judgment was that of Parker LJ. However, Mr. Onions relied upon some observations of Staughton LJ in support of his submission. The first passage is at pages 31 – 32:- “Mr. Moore-Bick for the buyers says that if the ship had berthed on June 25, the course of events would have been different: discharging would have started immediately; it would have been completed far more quickly than the contractual rate of 500 tonnes per day; so the buyers have suffered loss by reason of the seller’s breach. Or at least those things might have happened, and further facts must be found. In reply the sellers rely on the well-known principle that, where the defendant to a claim for damages for breach of contract might have performed his obligation in more than one way, he is to be presumed for the purpose of calculating damages to have performed it in the way which is least beneficial to the plaintiff. Thus it is to be assumed that, even if the vessel had berthed on June 25, the sellers would have loaded at no greater than 500 tonnes per day – for that was their minimum obligation – and would have used all the laytime. There would have been no disadvantage to the sellers, for the Centro terms exclude any right to despatch money. On that view, no damages are payable by the sellers. The principle itself is beyond dispute, although its precise formulation and rationale have varied: see the judgment of Mr. Justice Mustill in Paula Lee Ltd. v. Robert Zehil & Co Ltd., [1983] 2 All ER 390. ”[249]Later in his judgment, at page 33, Staughton LJ said:- “That does not in my opinion impinge in any way on the general principle that a defendant, in performing his contractual obligations, is assumed to have chosen to perform them in the way least beneficial to the plaintiff where the contract gave him that choice. It is only in connection with the possible occurrence of events extraneous to the contract, whether in the control of the defendant or of anyone else, that probability has to be considered. But the rate at which the sellers in this case would have chosen to load the ship was not in any sense an event extraneous to the contract; it was expressly provided that they should load at a minimum average rate of 500 tonnes per day, and they were entitled (but not bound) to load faster. In my judgment one must assume that they would have loaded at the minimum rate and no more.”[250]Mr. Onions did not really address the question of the correctness of the decision of Mustill J in Paula Lee Ltd. v. Robert Zehil & Co Ltd. Certainly he did not, as I understood it, suggest that that decision was wrongly decided or should not be followed. While the decision has not been approved in a technical sense by the Court of Appeal or the House of Lords, the approach adopted by Mustill J was taken as accurately representing the law by both Lord Hoffmann in Lion Nathan Ltd. v. C-C Bottlers Ltd. and by Potter LJ in Cantor Fitzgerald International v. Horkulak. I respectfully find the analysis of Mustill J, and his explanation of the decision of the Court of Appeal in Abrahams v. Herbert Reiach Ltd., entirely convincing and I accept it as representing the law.[251]The way in which Mr. Onions referred to the comments of Staughton LJ in The World Navigator perhaps created the impression that he was submitting that Staughton LJ was there expounding an approach different from that adopted by Mustill J. However, in my judgment, Staughton LJ was not intending, in the passages which I have quoted, to indicate any dissent from the approach of Mustill J. Rather he was addressing a somewhat different issue, which was an aspect of the principle not in dispute before me, namely that in assessing damages for breach of a contract the court should have regard only to that which the defendant was bound by the contract to do. In essence Staughton LJ was merely pointing out that it was necessary in the case before him, in order to assess whether the claimants had suffered any damage, to recognise that, under the contract, the defendants had been entitled to take as long to load the vessel as the total amount of the delay plus the actual time of loading. In one sense that is “assuming” that the defendant would have performed the contract in the way least beneficial to the claimant, but, as it seems to me, it would be misleading to elevate that description used by Staughton LJ into some gloss on the principle explained by Diplock LJ in Lavarack v. Woods of Colchester Ltd., or as encapsulating some new or more onerous principle.

Whether account should be taken of events after the date of termination

[252]The proposition underlying the question whether account should be taken of events after the date of termination of the Agreement was that damages fall to be assessed as at the date of a breach of contract. Consistently with that proposition, so it might be thought, for the purposes of assessing damages the Court has to put itself in the position of being at the date of the breach and seek to forecast, so far as relevant, future events. If that which in fact happened could not have been forecast, or would not have been predicted as likely, if it could have been recognised as possible, it should be left out of account. While not in terms expressly contending for such an approach in the present case, the nature of the case advanced on behalf of the Claimants certainly involved ignoring what had actually happened and proceeding on the basis of assumptions extrapolated from pre-termination events.[253]As long ago as 1903, in The Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd. v. The Pontypridd Waterworks Co. [1903] AC 426, the House of Lords had to consider whether it was appropriate, in assessing the value of coal payable as statutory compensation for a prohibition on working it, to take account of the fact that the price of coal rose after the date of the notice giving rise to the entitlement to compensation. It was argued that the value of the coal should be assessed as at the date of the notice. About that Earl of Halsbury LC said, at page 429:- “It is true that he [the arbitrator to whom the assessment of compensation was entrusted] probably would not have been able to arrive at that sum [the amount shown by experience to be correct] accurately, but he ought to have contemplated upon such material as he had what would be the true sum. He ought to have considered the possible rise or fall of prices; but, as I have said, he probably would have made a mistake. We now know what would have been the true sum, and the proposition baldly stated appears to be that, because you could not arrive at the true sum when the notice was given, you should shut your eyes to the true sum now you do know it, because you could not have guessed it then. It is, of course, only an accident that the true sum can now be ascertained with precision; but what does that matter? It seems to me that the whole fallacy of the contention that you may not look to the facts that have occurred rests upon the false analogy of a sale.”[254]Lord Macnaghten, at page 431, put his view equally trenchantly:- “If the question goes to arbitration, the arbitrator’s duty is to determine the amount of compensation payable. In order to enable him to come to a just and true conclusion it is his duty, I think, to avail himself of all information at hand at the time of making his award which may be laid before him. Why should he listen to conjecture on a matter which has become an accomplished fact? Why should he guess when he can calculate? With the light before him, why should he shut his eyes and grope in the dark?”[255]However, those observations, in which all of their Lordships concurred, do not seem to have been treated generally as indicating the approach which should be adopted to the assessment of damages for breach of contract. Indeed, it has only been in the last year that the House of Lords has, by a majority, in Golden Strait Corp. v. Nippon Yusen Kubishika Kaisha [2007] 2 AC 353, finally established the principle that the Court may have regard, in assessing damages, to matters demonstrated to have happened after the date of the breach which are relevant to the assessment of damages. In that case charterers repudiated in December 2001 a charterparty of a ship due to run until mid-2005. A provision of the charterparty gave both parties the right to cancel the charter if war broke out between certain countries, including the United States, the United Kingdom and Iraq. As is notorious, on 20 March 2003 the Second Gulf War began between, on the one hand, the United States and the United Kingdom, and, on the other, Iraq. The issue was whether that fact was to be taken into account in assessing damages. The leading speech for the majority was that of Lord Scott of Foscote. His consideration of the issue, and conclusion, so far as presently material, were:- “29. My Lords, the answer to the question at issue must depend on principles of the law of contract. It is true that the context in this case is a charterparty, a commercial contract. But the contractual principles of the common law relating to the assessment of damages are no different for charterparties, or for commercial contracts in general, than for contracts which do not bear that description. The fundamental principle governing the quantum of damages for breach of contract is long established and not in dispute. The damages should compensate the victim of the breach for the loss of his contractual bargain. The principle was succinctly stated by Parke B in Robinson v. Harman (1848) 1 Exch 850, 855 and remains as valid now as it was then:
“The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”
If the contract is a contract for performance over a period, whether for the performance of personal services, or for supply of goods, or, as here, a time charter, the assessment of damages for breach must proceed on the same principle, namely, the victim of the breach should be placed, so far as damages can do it, in the position he would have been in had the contract been performed. 30. If a contract for performance over a period has come to an end by reason of repudiatory breach but might, if it had remained on foot, have terminated early on the occurrence of a particular event, the chance of that event happening must, it is agreed, be taken into account in an assessment of the damages payable for the breach. And if it is certain that the event will happen, the damages must be assessed on that footing. In The Mihalos Angelos [1971] 1 QB 164, 210, Megaw LJ referred to events “predestined to happen”. He said that “if it can be shown that those events were, at the date of acceptance of the repudiation, predestined to happen, then … the damages which [the claimant] can recover are not more than the true value, if any, of the rights which he has lost, having regard to those predestined events.” Another way of putting the point being made by Megaw LJ is that the claimant is entitled to the benefit, expressed in money, of the contractual rights he has lost, but not to the benefit of more valuable contractual rights than those he has lost. In Wertheim v. Chicoutimi Pulp Co [1911] AC 301, 307, Lord Atkinson referred to “the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed” and, in relation to a claim by a purchaser for damages for late delivery of goods where the purchaser had, after the late delivery, sold the goods for a higher price than that prevailing in the market on the date of delivery, observed, at p308, that “the loss he sustains must be measured by that price, unless he is, against all justice, to be permitted to make a profit by the breach of contract, be compensated for a loss he never suffered, and be put, as far as money can do it, not in the same position in which he would have been if the contract had been performed, but in a much better position.” 31. The result contended for by the appellant in the present case is, to my mind, similar to that contemplated by Lord Atkinson in the passage last cited. If the charterparty had not been repudiated and had remained on foot, it would have been terminated by the charterers in or shortly after March 2003 when the Second Gulf War triggered the clause 33 termination option. But the owners are claiming damages up to 6 December 2005 on the footing, now known to be false, that the charterparty would have continued until then. It is contended that because the charterers’ repudiation and its acceptance by the owners preceded the March 2003 event, the rule requiring damages for breach of contract to be assessed at the date of breach requires that event to be ignored. 32. That contention, in my opinion, attributes to the assessment of damages at the date of breach rule an inflexibility which is inconsistent both with principle and with the authorities. The underlying principle is that the victim of a breach of contract is entitled to damages representing the value of the contractual benefit to which he was entitled but of which he has been deprived. He is entitled to be put in the same position, so far as money can do it, as if the contract had been performed. The assessment at the date of breach rule can usually achieve that result. But not always. In Miliangos v. George Frank (Textiles) Ltd. [1976] AC 443, 468 – 469 Lord Wilberforce referred to “the general rule” that damages for breach of contract are assessed as at the date of breach but went on to observe that “It is for the courts, or for arbitrators, to work out a solution in each case best adapted to giving the injured plaintiff that amount in damages which will most fairly compensate him for the wrong which he has suffered” and, when considering the date at which a foreign money obligation should be converted into sterling, chose the date that “gets nearest to securing to the creditor exactly what he bargained for”. If a money award of damages for breach of contract provides to the creditor a lesser or a greater benefit than the creditor bargained for, the award fails, in either case, to provide a just result. … 38. The arguments of the owners offend the compensatory principle. They are seeking compensation exceeding the value of the contractual benefits of which they were deprived. Their case requires the assessor to speculate about what might happen over the period 17 December 2001 to 6 December 2005 regarding the occurrence of a clause 33 event and to shut his eyes to the actual happening of a clause 33 event in March 2003. The argued justification for thus offending the compensatory principle is that priority should be given to the so-called principle of certainty. My Lords, there is, in my opinion, no such principle. Certainty is a desideratum and a very important one, particularly in commercial contracts. But it is not a principle and must give way to principle. Otherwise incoherence of principle is the likely result. The achievement of certainty in relation to commercial contracts depends, I would suggest, on firm and settled principles of the law of contract rather than on the tailoring of principle in order to frustrate tactics of delay to which many litigants in many areas of litigation are wont to resort. Be that as it may, the compensatory principle that must underlie awards of contractual damages is, in my opinion, clear and requires the appeal in the case to be dismissed. I wish also to express my agreement with the reasons given by my noble and learned friends, Lord Carswell and Lord Brown of Eaton-under-Heywood, for coming to the same conclusion.”[256]The kernel of the speech of Lord Carswell was at paragraph 63:- “The point at issue in this appeal has never been considered by your Lordships’ House and remains open for decision. Lord Bingham has placed strong emphasis in para 23 of his opinion on the importance of certainty in commercial transactions. I do not wish to cast any doubt upon that, but I have come to the conclusion that Langley J and the Court of Appeal were right in holding that the contingency of the outbreak of war, which had occurred before the damages fell to be considered in the arbitration, could be taken into account. I find myself in agreement with Lord Mance when he said [2006] 1 WLR 533, 544, para 26 that considerations of certainty and finality have in this case to yield to the greater importance of achieving an accurate assessment of the damages based on the loss actually incurred.”[257]Again, the essence of the opinion of Lord Brown of Eaton-under-Heywood was to be found at paragraph 83:- “In my opinion the owners’ argument here seeks to extend the effect of the available market rule well beyond its proper scope and to do so, moreover, at the plain expense of Lord Blackburn’s fundamental principle: to restore the injured party to the same position he would have been in but for the breach, not substantially to improve upon it. It is one thing to say that the injured party, mitigating his loss as the breach date rule requires him to do, thereby takes any future market movement out of the equation and to that extent crystallises the measure of his loss; it is quite another to say, as the owners do here, that it requires the arbitrator or court when finally determining the damages to ignore subsequent events (save where the defendants can demonstrate that at the date of breach some suspensive condition would inevitably – and immediately – have operated to cancel the contract). There is no warrant for giving the rule so extended application.”[258]In my judgment, in the light of the speeches in Golden Strait Corp. v. Nippon Yusen Kubishika Kaisha from which I have quoted, the current state of the law is that damages for breach of contract fall to be assessed as at the date of the breach, but that in making that assessment it is appropriate to take into account matters which have occurred and which impact upon the question how valuable the contractual rights lost or broken would have proved to be, but for the breach of contract complained of. Reasonable performance under the Agreement and whether it should be assumed that the Post Office would have had another supplier of phonecards in addition to the Tele2 parties[259]In the light of my conclusions concerning the legal issues in dispute between the parties it is appropriate to consider what in fact was the obligation, or were the obligations, of the Post Office under the Agreement which fell to be performed in a manner reasonable from the point of view of both sides to the Agreement.[260]The only significant obligation of the Post Office under the Agreement was that contained in clause 2.1. At paragraph 154 of his written closing skeleton argument Mr. McCaughran contended:- “In the present case, Post Office was under a single obligation to promote Tele2’s phonecards to no less an extent than it promoted similar products and services from time to time through Post Office outlets. The Court is entitled, and indeed bound, to inquire how Post Office, acting reasonably, would have performed that obligation had the contract continued. The answer, on the evidence which the Court has heard, is that it would have proceeded with Tele2 as its sole supplier of phonecards. There is nothing in the authorities which requires the Court to make a wholly artificial assumption as to how performance would in fact have occurred.”[261]That submission seems to me to confuse two issues. The first is what performance of clause 2.1 was reasonably to be expected of the Post Office in the period 1 April 2005 to 31 March 2007, if the Agreement had not been terminated. The second is whether it should be assumed that the only supplier of phonecards during that period would have been the Tele2 parties. The Tele2 parties were not expressly entitled under the Agreement to be the exclusive suppliers of phonecards to the Post Office, and I do not see how such an entitlement could be created out of the express obligation in clause 2.1 in relation to promotion.[262]On the other hand, at paragraph 270 of his written closing skeleton argument, Mr. Onions submitted that:- “If Tele2 was not entitled to be POL’s exclusive supplier, any assessment of damages must assume that there would have been at least one other supplier: that is the effect of the principle in Lavarack v. Woods and the World Navigator.”[263]That submission, as it seems to me, demonstrates a fallacy in the approach adopted on behalf of the Post Office. What the authorities establish, in my judgment, is that, for the purposes of assessing damages for breach of contract, first, regard is to be had only to the contractual obligations of the defendant and speculation as to what the defendant might have done, but for the breach, which would have been of benefit to the claimant, but which the defendant was not bound by his contract to do, is to be left out of account; and, second, that in considering the contractual obligations of the defendant in respect of which the defendant has the option how to perform, a term is to be implied into the contract that the defendant will so perform his obligations as to produce a result reasonable from the point of view of both parties to the contract. The first principle interacts with the second to produce the result that, in assessing damages in respect of breach of obligations covered by the second principle where there is a range of possible reasonable ways of performing the obligations, it is the means least unfavourable to the defendant which should form the basis of the assessment of damages. What, as it seems to me, Mr. Onions has sought to elevate the first principle to, is a principle that all possible factual assumptions should be made against the claimant in favour of the defendant. The assumption that there would have been at least one other supplier of phonecards to the Post Office in the period 1 April 2005 to 31 March 2007, but for the termination of the Agreement, does not arise out of not assuming that the Post Office would have conferred upon the Tele2 parties a benefit which it was not bound by the Agreement to confer. It arises out of contemplating that the Post Office, if the Agreement had not been terminated, would have sought to act, so far as it could, without breach of a positive obligation in the Agreement, to frustrate the maximisation by the Tele2 parties of their income from supplying Pre-paid Phonecards. In other words, to suppose that the Post Office would have had another supplier is not like the assumption rejected in Lavarack v. Woods of Colchester Ltd. that the employer would have increased the salary of the employee on termination of the discretionary bonus scheme, that is to say a benefit to be enjoyed by the claimant, but an assumption that, had the Agreement not been terminated, the Post Office would have taken action hostile to the Tele2 parties whilst the Agreement continued. I see no warrant in any of the authorities to which my attention was drawn, or in principle, for adopting such an approach.[264]The issues in respect of whether any assumption, and if so what, should be made about the Post Office having another supplier of phonecards if the Agreement had not been terminated do not, in my judgment, arise out of any contractual obligation of the Post Office under the Agreement. The Agreement was silent upon the question of the Post Office having another supplier or other suppliers. The Post Office had a free choice as to whether to have any other supplier, and, if so, how many. In those circumstances, as it seems to me, the proper focus of the enquiry arises from the principle that, to use Lord Scott’s words in Golden Strait Corp. v. Nippon Yusen Kubishka Kaisha at paragraph 29, “the victim of the breach should be placed, so far as damages can do it, in the position he would have been in had the contract been performed”. The application of that principle, I think, involves considering what would actually have happened, had the breach of contract not occurred, not proceeding on the basis that the wrongdoer, out of spite, would have sought, so far as it could without a breach of contract, to minimise the benefit of the contract to the victim. Reasonableness on the part of the Post Office in whatever decision, on the evidence, it would have made is not relevant, because, in the absence of any limiting contractual obligation, the Post Office could have done as it liked.[265]Thus, as it seems to me, the assessment of damages for termination of the Agreement should not assume that the Post Office would have had a supplier of phonecards in the period 1 April 2005 to 31 March 2007 in addition to the Tele2 parties. Rather the issue is whether, on the evidence, it is likely that that would have been so.[266]It is, perhaps, worth commenting, that, if the assumption for which Mr. Onions contended were appropriate, there is no obvious reason for limiting the number of competitor suppliers to one. The Post Office could have had a hundred, or a thousand, other suppliers. That consideration perhaps emphasises the fact that the proper focus of the assessment of damages is what the evidence showed was likely to have happened, not fanciful possibilities adverse to the Claimants’ case on damages.[267]Coming back to that case, clause 2.1 is the provision which it was contended should, but for the termination of the Agreement, have been performed reasonably from the point of view of both parties. I accept in principle that that is correct, although it is right to say that the implied term of which Mustill J spoke in Paula Lee Ltd. v. Robert Zehil & Co Ltd was not pleaded in the Amended Particulars of Claim. Mr. Onions did not take objection to the point on that ground. However, the question then is, what was it that the Post Office would have had to have done reasonably? Mr. McCaughran contended, in effect, that the Post Office would have had to continue to undertake marketing in support of the Pre-paid Phonecards of the amounts and at the levels provided in the period up to the introduction of the EU Card.[268]There were, as it seemed to me, a number of difficulties in that contention. It surfaced rather late in the trial and thus there was no real evidence in support of it. There was evidence of what marketing activities had been undertaken by the Post Office before October 2004 and some evidence of expenditure on such marketing. However, what had been done in the past was, given the terms of clause 2.1, rather limited evidence of what reasonable compliance with the clause on the part of the Post Office required.[269]The first sentence of clause 2.1 was in the nature of a prohibition, rather than a positive obligation. Indeed the second claim of the Claimants was based on alleged breaches of that prohibition. Nonetheless, the agreement to promote was phrased in positive, rather than negative, terms, and the second sentence of clause 2.1 envisaged that discussion would take place between representatives of the parties concerning the nature, method and extent of “such communications”. The latter expression, in the context, can, I think, only refer to the types of marketing identified in the first sentence. Thus, pausing at this stage, what the provision seemed to contemplate was marketing by the Post Office of a nature, method and extent to be discussed and agreed with representatives of the Tele2 parties. However, the third sentence of clause 2.1 appears to recognise that what the Post Office actually did would depend, amongst other things, on “the Marketing Guidelines”. They were set out in Schedule 10 to the Agreement. The Marketing Guidelines, apart from in respect of the initial launch of Pre-paid Phonecards, essentially amounted to a set of procedures to be followed within the Post Office. They were lengthy, but the general effect was that any proposed expenditure had to be justified in accordance with the internal requirements of the Post Office. It seems fairly obvious that the probability is that any proposed expenditure on the part of the Post Office on marketing in the period 1 April 2005 to 31 March 2007 would have depended on the anticipated benefit and the funds available. It is difficult to suppose that the Post Office, acting reasonably in considering marketing of Pre-paid Phonecards, could have been expected to spend money for which it did not consider that there was likely to be an appropriate return, or money which it did not have.[270]In order to be able to consider what the Post Office, acting reasonably in pursuance of clause 2.1 of the Agreement, would have undertaken in respect of marketing in the period 1 April 2005 to 31 March 2007 it would be necessary, first, to have evidence of specific proposals for particular campaigns at particular points in time, properly costed, with indications of what contribution, if any, the Tele2 parties were prepared to make. It would then be necessary to have evidence of how the Client Relationship Team worked in practice, to be able to form a view as to which, if any, of the proposed campaigns would have been likely to have been approved, having regard to the financial situation of the Post Office at the material times, and how the Marketing Guidelines were operating, or would have been operating, at those times. Without such evidence, as it seems to me, one could reach no conclusions as to how clause 2.1 would have operated in the period 1 April 2005 to 31 March 2007, if the Post Office had been acting reasonably in the interests of both sides to the Agreement. It seems likely that a range of conclusions of what marketing would have been approved would have been possible, had the appropriate evidence been put before me. In fact, there was no evidence of what marketing would have been proposed, considered or approved in relation to Pre-paid Phonecards in the period 1 April 2005 to 31 March 2007. The only evidence relating to that period put before me related to the marketing of phonecards supplied by Nomi-Call.[271]The marketing of Pre-paid Phonecards was relevant to the damages claimed by the Claimants only insofar as it would have impacted on the sales which would have been achieved. It was known, and not in dispute, what revenue had been raised in the period 1 April 2005 to 31 March 2007 from the sale of phonecards supplied to the Post Office by Nomi-Call.

Over what period should damages be assessed?

[272]By the end of the trial two issues had been identified which were said to be relevant to the question over what period damages should be assessed. One was whether the Post Office was entitled, as at 1 December 2004 and thereafter, to terminate the Agreement under clause 11.2 for breach of the Type 2 KPIs consisting in the revision of Rates from 1 June 2004 without the consent of the Post Office. The other was whether the Post Office was entitled to terminate the Agreement on and after 25 December 2004 by reason of the failure of each of the Tele2 parties to provide certified copies of Parent Company Letters in respect of the calendar year 2005 by 24 December 2004. The latter point had not been pleaded and was not seriously deployed by Mr. Onions until his closing submissions. However, it is fair to say that he had foreshadowed the point in his opening submissions. Mr. McCaughran objected to the taking of the point as it had not been pleaded. Mr. Onions indicated a desire to apply for permission to amend to plead the point, if that was considered necessary. He submitted that no prejudice would be caused to the Claimants by such amendment, because on the facts it was plain that the Tele2 parties had failed to comply with the requirements of clause 3.10.2 of the Agreement in respect of the year 2005. Factually it appeared that that was so. As matters have turned out, it is unnecessary for the Post Office to rely on this alleged breach. Had it been a matter of importance I should have needed to consider at the trial a draft amended statement of case on behalf of the Post Office and heard Mr. McCaughran on the application for permission. The course which was in fact followed, after the end of the trial, was that Mr. Benjamin Strong, junior counsel instructed on behalf of the Post Office, wrote a letter to me setting out a proposed amendment to paragraph 31 of the Re-Amended Defence, which proposed amendment he copied to Mr. Cook, on behalf of the Claimants. Mr. Cook then wrote to me objecting to the amendment, and Mr. Strong then wrote again answering the objections of Mr. Cook. That way of proceeding did not seem to me to be satisfactory. In my judgment, if an application for permission to amend further the Re-Amended Defence was to be made, it should have been made during the trial, or at any rate at a hearing.[273]What loomed quite large in the evidence was the matter of whether the Post Office had in fact agreed to the increase in Rates with effect from 1 June 2004, and, if not, whether it was open to the Post Office to rely upon the breach of the requirements of Schedule 7 to the Agreement as justifying a termination in reliance on clause 11.2 on or after 1 December 2004.[274]The background to the increase in Rates as from 1 June 2004 was the introduction of Value Added Tax on the Pre-paid Phonecards as from April 2004. The face value of each of the Pre-paid Phonecards remained unaltered, so some adjustment to the Rates was necessary unless the full impact of Value Added Tax was to be borne by Tele2 Ireland. Moreover, the Post Office insisted, and the Tele2 parties agreed, that the Post Office share of each Pre-paid Phonecard sold remain at 21% net of Value Added Tax. That meant that the share of each Pre-paid Phonecard to be allowed to the Post Office increased to 24.7%.[275]A meeting took place on 20 April 2004 between Mr. Gilbert and Mr. Steve Bartley and Mr. Clive Smith on behalf of the Tele2 parties. The upshot of the meeting was that it was agreed that the Tele2 parties would prepare proposals for revised Rates. In an e-mail to Mr. Gilbert dated 22 April 2004 Mr. Bartley wrote, so far as is presently material:- “Please take this Email as confirmation that Post Office will maintain the current breakage element received on all Post Office phonecards sold. I can also confirm that following implementation of the rate charges discussed, Tele 2 will maintain your cash margin at 21%, increasing your actual margin to 24.7%, to then allow for the VAT element to be netted off. As discussed I have attached a file showing: 1/ The 0.49p increases on the top 20 rates and breakdown showing overall traffic weighting of 78%. 2/ Full ratesheet showing all worldwide destinations and new rates for each. I have also maintained the rate for India (Hydrabad [sic]) at 12.5p as per our current ratesheet.”

As discussed I have attached a file showing:

[276]The rate sheet attached was headed “PO Proposed Tariff 22.04.04”. That rate sheet was attached to an e-mail dated 7 May 2004 sent by Miss Watson to Mr. Woodrow. He checked it and realised that what was shown on it was not simply the increase of the top 20 destinations by 0.49p, as he had been led to expect by Mr. Gilbert following the latter’s meeting of 20 April 2004 with Mr. Bartley and Mr. Smith. Mr. Woodrow told Mr. Gilbert what he had discovered. Mr. Gilbert then sent an e-mail dated 20 May 2004 to Mr. Bartley, in which he said:- “Hope all is well with you. At the meeting between you, me and Clive where we discussed the solution for collecting VAT and effect on margin, we agreed that we would implement a 0.49p price increase on the “top 20” routes, with one or two of the subroutes (i.e. specific destinations in Nigeria) increasing by marginally more. Emma has kindly sent through the new tariffs to Jeremy for implementation and it shows the whole rate card, with just about every route increasing by 0.49p. This is not what was agreed. Please advise urgently.” Please advise urgently.”[277]That e-mail was despatched at 9.22 hrs. At 12.33hrs. the same day Miss Watson sent Mr. Gilbert a further e-mail:- “Here is the revised tariff so that only the Top 20 destinations have the 0.0049, remainder have been rounded down.”[278]The revised tariff was headed “PO Revised Tariff 20.05.04”. The Rates set out in that tariff were those put into effect as from 1 June 2004. As part of that operation Mr. Woodrow caused the revised Rates to be advertised on the Post Office’s website. He did that, he told me, and I accept, without checking to ensure that the Rates were what he understood Mr. Gilbert had agreed to. It was necessary, Mr. Woodrow told me in cross-examination, to ensure that the Rates advertised on the website were those which were actually being charged to users of the Pre-paid Phonecards. Mr. McCaughran contended that by putting the Rates on the website the Post Office agreed to them. However, I cannot accept that. The Tele2 parties alone had control of what Rates were in fact levied for the use of the Pre-paid Phonecards. It was up to them to debit any Pre-paid Phonecard used the amount which they wished to charge for whatever service was provided. The Post Office, on the other hand, having no control over what charges were levied, nonetheless had an obligation to its customers for Pre-paid Phonecards to notify them what charges were in fact being made. That it did so is no evidence in itself that it had agreed that the notified charges were those to be applied.[279]Mr. Gilbert did, by 15 June 2004, realise that the Rates in fact included in those put into effect from 1 June 2004 were not those he was expecting. He sent an e-mail to Mr. Bartley about it on 15 June 2004. The material part of the e-mail was to this effect:- “Now, regarding rate increases, Jeremy has been doing a piece of work for me and following on from that, I have a couple of comments: 1. We agreed that the top twenty routes would increase by 0.49p. On the spreadsheet dated 20th May there are twenty four destination countries highlighted. 2. We agreed that, within a particular destination country, certain of the breakouts would need to increase by more than 0.49p. In fact what has happened is that in a number of the destinations, one breakout route has increased by 0.49p with the other areas increasing by considerably more, e.g. Brazil, Poland and worryingly, China. 3. You agreed that you would keep Hyderabad at 12.5p, and that you have done. However the rates to the remainder of India have all increased above the 0.49p agreed. 4. Pakistan, one of our key target audiences, has increased by circa 60% (except Muzaffarabad). 5. Above and beyond the twenty agreed destinations, the rates have increased on circa two hundred further routes, in some cases by as much as 445%!!! This causes me concern, not least because the interpretation of what we agreed is so fundamentally different between you and I, but because Post Office Ltd is devoting significant sums of money towards promoting cards this year and these rates are now non-competitive. Equally, we are about to break a repeat campaign and I am not convinced that the rates advertised are still applicable. We need to be absolutely clear that any advertising carried out does not mislead. Over the past year we have moved the value of this card significantly – from £500k/month to £1m. There is an agreed stated aim to move sales to £2m which I thought was achievable, but now I can see our front line colleagues losing confidence in the product and customers seeking alternatives when they discover the rates charged. Potential damage to the brand is significant and I cannot let that happen. Can I suggest that we use our time Thursday to bring this issue to a conclusion once and for all, so that we can both move forward and get the sales up to where we both know they should be.”[280]The envisaged meeting duly took place. Following it Mr. Woodrow sent Mr. Bartley an e-mail dated 23 June 2004:- “Further to out [sic] meeting last week, please find attached the spreadsheet with our understanding off [sic] how the rates should have changed. In essence this takes the top 20 routes (in fact there are 23 but have left this) and added 0.49p to each price point. In cases where the additional [sic] of .49p makes a non-customer friendly tariff I have rounded up. In cases where you have proposed a larger rise in mobile rates, on some of these I have met half way. I have also added a column that shows the percentage increase at each price point. Overall as a basket of price points, the tariff has increased by more than 25%. In order to remain competitive, we must look at rectifying this as a matter of urgency, before we lose the confidence of both loyal customers and our front line staff.”[281]Mr. Woodrow received no response to his e-mail of 23 June 2004. On 30 June 2004 he sent an e-mail to Miss Watson:- “Can you get back to me on where we are with the pricing changes. I am starting to get very concerned that we are going to start losing customers if this is not resolved in the very near future. I have had a number of customer and staff complaints in the last few days with people questioning how we can justify such significant price increases. I would like to get this sorted out this week if possible so that I can get a revised price list sent out in operational focus as soon as possible.”[282]Miss Watson did reply by e-mail the same day:- “Attached is an adjusted tariff that we maybe [sic] able to get through approvals at this end, but no guarantee as this reduces our margin even further and we had big negotiations with finance passing the last tariff as our margin was so much reduced. Unfortunately we cannot accommodate all your proposals as this would be un-viable for us, as we have had to take the full margin impact of absorbing the 17.5% VAT and your increased margin. Hopefully this tariff moderates some of the larger hikes. The rates I have adjusted are in pale blue. I have shown the % tariff in the B column. Some obscure places such as the Wake Islands have next to no traffic but were highly loss making previously so we brought up to break-even, thus explaining the high % increases. Some routes such as the Asian advertised breakout rates are loss making for us eg. India Hyderabad and Pakistan Muzaffararad [sic].”[283]Under cover of an e-mail dated 13 July 2004 Miss Watson sent Mr. Woodrow a further proposed revised rate card. Her explanation of the further revisions, so far as is presently material, was:- “Our team have had a look at the tariff again and the attached shows a revised proposal moderating many of the big % increases where possible. In some situations we simply cannot reduce back to the original as would make the route loss making and tariff overall un-commercial. The spreadsheet is the one you prepared with extra columns to the right with a new revised tariff. This proposal is not approved from our end as we would like your feedback before we send for approval. The current tariff was based on providing an adequate margin for that route as opposed to a % increase. Though you have stated % increases, bare [sic] in mind the traffic weighting, as approx. the top 20 routes make up 80% of the volume and these top routes have typically only increased 10%, so overall % increase is now where [sic] near 25% in these real weighted terms. Our contribution is significantly less than it was pre VAT.”[284]Mr. Woodrow replied to the e-mail dated 13 July 2004 in an e-mail dated 22 July 2004. What he wrote was:- “Thanks for your spreadsheet of revised prices, I have now had time to have a proper look at these and whilst the overall increase is still in excess of 16%, I think we are getting towards a compromise position that we can agree on. The areas that I still have concerns over are the increase in the main rate to Pakistan – this is a route that we promote heavily and I have concerns over the size of the gap from the breakout rate of 15p to the main rate of 24p and the size of the increase. The other areas that I would ask you to have a look at are some of the European rates such as Netherlands, Sweden where we have seen significant rate increases. Also I think there may be a mistake, however Liechtenstein Mobile seems to have gone up by 733%, is this correct? Can I suggest the following: Pakistan all routes except Muzaffarabad are reduced to 20p Netherlands reduced to 5p Sweden reduced to 5p Liechtenstein Mobile reduced to 10p According to my calculation, this makes the tariff increase 15% On the basis that we can look at these rates, I think we can agree to the rest of the rates remaining as suggested. However there are a couple of caveats that I would like to add: 1. We do not raise any rates for the next six months unless there is a significant issue and that this is agreed with Post Office Ltd. 2. We have a commitment from you that where you are able to achieve savings on particular routes, at least 50% of the saving is passed on to the end customer. 3. We meet regularly to look at rate trends I hope that you think this is reasonable and that you are able to agree to this and we can draw a line under this and get on with growing sales.” Can I suggest the following: Pakistan all routes except Muzaffarabad are reduced to 20p Netherlands reduced to 5p Sweden reduced to 5p Liechtenstein Mobile reduced to 10p

According to my calculation, this makes the tariff increase 15%

[285]In her turn, Miss Watson replied in an e-mail dated 23 July 2004:- “Sweden and Netherlands should not be a problem however Pakistan at 19p brings us to a loss situation on this route, but I can still propose to finance. Liechtenstein at 10p gives us a huge loss, 50p would be break-even, I think this must have been a typo error in the original tariff in that 6p was meant to be 60p. However there is absolutely NO traffic on this route so at present it is not a big risk to keep at 10p if important to you. I will forward to our finance team the amended tariff taking into account your proposal and get back to you shortly with their feedback. The caveats are fine.” The caveats are fine.”[286]Mr. Woodrow responded immediately, without waiting for a response from the Tele2 finance team:- “I am not precious about Liechtenstein Mob, it was just the size of the increase that made me ask the question – am happy to keep at 50p. Glad we can move on the two European routes. On Pakistan, if we are going to promote the route heavily, I would like to make the rate as competitive as possible, can we meet somewhere in the middle?”[287]A meeting took place between representatives of the Tele2 parties and representatives of the Post Office on 28 July 2004, but no agreement was reached concerning Rates. In an e-mail dated 4 August 2004 to Mr. Woodrow Miss Watson told him that the issue of Rates had been referred to Mr. Butler. How matters then progressed, or rather did not, was explained by Mr. Bartley in an e-mail dated 20 August 2004 to Mr. Gilbert;- “Bill Butler has also been away for the past 2 weeks on summer break, is in Sweden 23rd-25th and is due back in the business next Thursday 26th. Prior to Bill going I had rather a long and heated meeting with him and our CFO on moving the prices back down and Tele2 rational [sic] for the price increase. I did not get approval at this time as Bill wanted to refer to Sweden, hence no movement in the last 2 weeks.”[288]Nothing further was heard by the Post Office by the middle of September 2004. At that stage Mr. Gilbert decided that it was unlikely that the Tele2 parties would agree to reduce the Rates, and that the Post Office should move to an alternative supplier. He communicated his thoughts to Mr. Bartley in an e-mail of 13 September 2004. The principal passages of the e-mail were these:- “You will be aware that for some time now I have had concerns regarding the rates charged to customers using Post Office phone cards and the fact that we seem unable to move the per month sales figure upwards from the circa o1m [sic] face value sales that we have been seeing since last year. … Phone cards are an important part of our telephony portfolio, and the situation requires action. Therefore I am undertaking a complete review of our customer proposition, including a supplier rate review, to ensure that Post Office continues to provide value for money products that maximise the opportunities provided by our brand. Clearly on the basis of the analysis it is difficult to justify spending o150,000 [sic] on a further campaign, so I suggest the activity is stopped whilst the customer proposition review is completed. I attach the summary graphs for your consideration. Finally, I think you, me, Bill and Nicky need to meet up to discuss the situation – perhaps you would let me have your available dates w/c 20th September?”[289]Meetings took place on 23 September 2004 and 6 or 7 October 2004. The upshot was that the Tele2 parties prepared new proposals. Those new proposals were sent by Miss Watson to Mr. Hall and Mr. Gilbert as attachments to an e-mail dated 15 October 2004. The proposals involved new cards and new rates of commission. The Post Office considered those proposals and a meeting was held to discuss them. It appears that the meeting was on 27 October 2004. Following the meeting, on 1 November 2004 Miss Watson sent revised proposals to Mr. Gilbert as an attachment to an e-mail. The revised proposals related to Rates to be charged in respect of two of the proposed new phonecards. Mr. Woodrow analysed the Rates suggested, but there was no immediate response to the Tele2 parties concerning them. Mr. Butler chased for a reaction in an e-mail dated 19 November 2004. A conference call took place on 26 November 2004. During that call it was pointed out to Mr. Butler that on a number of routes the Rates charged by the Tele2 parties were significantly higher than those charged by Nomi-Call. Mr. Hall told Mr. Butler that the Post Office was in the process of reviewing its relationship with Tele2. Later that day Miss Watson sent an e-mail to Mr. Woodrow in which she offered on behalf of the Tele2 parties to match all of the Rates applicable to the EU Card. In an e-mail to Mr. Woodrow sent on 30 November 2004 Miss Watson said that the Tele2 parties would match the Rates charged in respect of the Xmas Card. The next day the notices of termination were despatched.[290]It is, in my judgment, quite plain from the exchanges between the parties which I have set out that the Post Office never in fact agreed to the Rates put into operation by the Tele2 parties with effect from 1 June 2004. Although Mr. McCaughran argued vigorously, relying in particular on some internal Post Office documents in which there were some rather loose references to agreement to increase in Rates, that there had been actual agreement, in his written closing skeleton argument he placed greater emphasis on the allegation that the Post Office had lost the right to terminate in reliance on clause 11.2 by affirmation before 1 December 2004. He said:- “135. Although considerable time was spent at the hearing on this issue, there is fortunately no need for the Court to get into this issue in detail, since regardless of whether the Post Office did in fact acquire a right to terminate the Agreement by reason of the 1 June 2004 price increases, it is clear that any such right of termination was lost through affirmation long before 1 December 2004 (or 1 April 2005). 136. The increase in Tele2’s rates took place on 1 June 2004 and it is clear from Mr. Woodrow’s evidence that he knew that the increase was taking place on this date. However, Post Office did not serve a notice of termination under clause 11.2 in June 2004, or indeed at any time thereafter – despite knowing the facts, and despite being advised by Lovells from at least September 2004. 137. Even if Post Office had been entitled to serve a notice of termination in June 2004, it was no longer open to it to do so by 1 December 2004 (6 months later) or by 1 April 2005 (10 months later), since any such right had been lost by affirmation. The Court is referred to the section on affirmation in relation to non-service of the parent company letters of guarantee. Having:(1) accepted performance of the Agreement by Tele2; and(2) performed the Agreement itself in order to obtain the benefit of so doing, it is obvious, in Tele2’s submission, that Post Office affirmed the Agreement. … 139. Post Office was not therefore entitled to terminate the Agreement by giving 12 months’ notice on either 1 December 2004 – even if it had purported to do so on that date – or on 1 April 2005. Therefore, damages should be assessed on the basis that the Agreement would have continued for the full 24-month period from 1 April 2005.”[291]I have already indicated my view of Mr. McCaughran’s submissions concerning affirmation. Consequently I reject the submission that the Post Office should be taken to have affirmed the Agreement following the breach constituted by the Tele2 parties increasing the Rates charged in respect of the Pre-paid Phonecards with effect from 1 June 2004. I find that the Post Office was entitled as at 1 December 2004 and thereafter to terminate the Agreement by twelve months notice under clause 11.2.[292]The question then arises what should be the start date of the period of twelve months notice, if it were relevant to the assessment of damages. Mr. Onions in his written closing skeleton argument put his client’s case in the alternative:- “289. POL unequivocally evinced its intention to terminate the Agreement by sending Tele2 notices of termination on 1 December 2004. It was on that date entitled to terminate on 12 months’ notice. Thus, if it was not entitled to terminate by the notice given, damages are to be assessed on the basis that it would then have given 12 months’ notice. That notice would have expired on 30 November 2005, 9 months after the Agreement in fact terminated and accordingly Tele2’s claim should be limited to 9 months’ profits. 290. Alternatively, POL was entitled to serve a 12 months’ notice on 31 March 2005, when the Agreement came to an end, and so Tele2’s claim should be limited to 12 months’ profits. It is well established that where a party terminates a contract for a bad reason, he is subsequently entitled to rely on facts which, at the time, would have constituted a good reason for termination: Boston Deep Sea and Ice Company v. Ansell (1889) 39 Ch D 339.”[293]The Post Office did not in fact serve notice of termination under clause 11.2 of the Agreement on 1 December 2004 or at all. The principle for which the decision in Boston Deep Sea and Ice Co. v. Ansell is authority is not one relating to damages as such, but to justification of termination of a contract. The principle was set out conveniently in the judgment of Cotton LJ at page 352:- “At the time when the company dismissed Mr. Ansell they did not know what had been done by him as regards the contract with Earle’s Shipbuilding Company, and it was not, I think, at all disputed that if there was any circumstance, though unknown to the company at the time when they dismissed Mr. Ansell from his position, which would justify them in so acting, it was immaterial whether that was known at the time, and if it was known and established after the time the action was brought, then they could justify the dismissal by proof of that fact.” How that principle was relevant to the present case, as it seems to me, was that, by analogy to what happened in Golden Strait Corp. v.Nippon Yusen Kubishika Kaisha, in assessing damages for wrongful repudiation of a contract, it should be assumed in favour of a defendant that if, at the date of the repudiation, there existed grounds upon which the contract could lawfully have been brought to an end by giving notice, the right to terminate by that notice would have been exercised. In the present case there is no justification for supposing, contrary to the fact, that the Post Office sought to terminate the Agreement by a notice under clause 11.2 given on 1 December 2004. The Post Office might have given such a notice, possibly as an alternative to the notices in fact served, but it chose not to. The effective repudiation of the Agreement, if there had been one, was on 31 March 2005. If the notices given on 1 December 2004 were not in fact justified, until 31 March 2005 they operated, as it seems to me, only as anticipatory breach of the Agreement, because until 31 March 2005 the Agreement was to continue in force. In my judgment, therefore, the date as at which the possibility of termination under clause 11.2 fell to be considered was 31 March 2005, the date of the effective repudiation, if repudiation it had been. Thus the relevant twelve month period would have run from 1 April 2005 to 31 March 2006.

What loss, if any, was suffered, and by whom?

[294]Having dealt with the issues of law and principle relevant to the question of the quantum of damages, if the Post Office had terminated the Agreement wrongfully, it is appropriate to turn to the factual issues of whether it was proved that anyone suffered a loss as a result of the termination of the Agreement, and, if so, who.[295]It is convenient to take the second of these points first. I have already dealt with the issue of who was entitled to sue in respect of wrongful termination of the Agreement and concluded that the proper party was Tele2 Ireland. In his written closing skeleton argument Mr. Onions contended that Tele2 Ireland had suffered no loss as a result of the termination of the Agreement, and therefore could recover no damages. How he put the point was:- “122. Accordingly, if there is a claim for damages, it is a claim by C3 Ireland. However, Tele2 does not distinguish between the separate Claimants in the Prayer in the Amended Particulars of Claim; nor does Tele2’s expert, Mr. Riddiough. Tele2 only claims damages in respect of periods after 1 April 2004 and only in respect of services which, it says, were provided by C3 UK. 123. Accordingly, on Tele2’s case, the damages claimed are in respect of losses that have been suffered, as a matter of fact, by C3 UK, the provider of the services. This was Mr. Hashmi’s evidence: T4/93-94. There is no explanation as to how C3 Ireland can have suffered loss as a result of the provision of services by C3 UK. ”[296]I think that in his oral closing submissions Mr. Onions accepted that the correct approach was not to consider whether the real economic benefit of the Agreement was enjoyed by a party other than the party entitled to sue, such that Tele2 Ireland could recover nothing simply because the Pre-paid Phonecards were in fact produced, and the services supplied, by some other company in the Tele2 group, but rather to consider what evidence Tele2 Ireland had produced that it had suffered a loss as a result of the termination of the Agreement. Prima facie any damages to which Tele2 Ireland was entitled fell to be assessed as the amount which, but for the termination of the Agreement, would have been payable to it under the Agreement until it could lawfully have been terminated, less the amount saved by not having to perform its own contractual obligations. If it sought to sub-contract the contractual obligations in question, one would suppose that the sum which would have been saved by not having to perform those obligations would have been whatever amount did not have to be paid to the sub-contractor.[297]In fact no evidence was led as to the terms upon which Tele2 Ireland obtained any services from any other company in the Tele2 group. I have already noted that it was wholly unclear which party undertook, as from 1 April 2004, the performance of the obligations of Tele2 Ireland under the Agreement. Mr. Hashmi in cross-examination (Transcript Day 4, page 93 line 15 to page 94 line 1) seemed to accept that the loss suffered as a result of the termination of the Agreement was C3 (UK), although it is right to say that he also contended that the loss had been suffered by the Parent Company.[298]In his oral closing submissions (Transcript Day 13 page 140 lines 6 to 12) Mr. McCaughran accepted that:- “And the point of principal [sic] is whether C3 (Ireland) can say it has suffered a loss in that situation. And the loss it is suffering is, essentially, the revenue which it would have received from this accounting obligation under the contract, less the costs saved through not having to provide the cards and provide the Internet [sic] costs.”[299]However, he contended that it was immaterial by whom those costs would have been incurred. Specifically he submitted that as long as it would have been incurred by some company in the group, it was immaterial what the position of Tele2 Ireland would in fact have been.[300]The approach adopted by Mr. McCaughran, as it seemed to me, just did not address the true nature of the problem. Only a party to the Agreement could sue on it, and only in respect of its own loss. Thus, in relation to a claim by Tele2 Ireland, a party to the Agreement, the issue was what loss had it sustained as a result of the termination of the Agreement? The first part of the enquiry no doubt was to determine what sums would have been payable to Tele2 Ireland under the Agreement if it had not been determined, a question to which I shall come. However, once it was accepted, as it had to be, that costs saved needed to be deducted from the amounts which would have been payable under the Agreement but for the termination, the assessment of damages just could not be undertaken without evidence of what the costs to Tele2 Ireland would have been. Thus the conclusion has to be that Tele2 Ireland had not proved that it had suffered any loss because it had not put before the Court the evidence necessary to show loss.[301]Although the evidence was somewhat exiguous, I consider that it does justify going further and concluding that in fact Tele2 Ireland suffered no loss as a result of the termination of the Agreement. The note which I have quoted from the Directors’ Report and Financial Statements for the year ended 31 December 2003 showed that Tele2 Ireland ceased to provide services under the Agreement as from 31 March 2004. The note did not say that Tele2 Ireland had sub-contracted its obligations under the Agreement, but that the provision of services had been transferred to Tele2 UK. It thus appears that it was decided within the Tele2 group to re-arrange how the obligations under the Agreement were to be met, without the formality of novating the Agreement, or anything like that. If the matter was dealt with on what might have appeared to be a practical level, it would have been unnecessary to set up any kind of sub-contracting arrangement, unless it was desired to transfer funds from the actual provider of the Pre-paid Phonecards and the services to which each gave access to Tele2 Ireland. Mr. Hashmi’s evidence that the loss was suffered by C3 (UK) rather confirmed that the matter was dealt with casually, and thus that in fact Tele2 Ireland received no benefit from the Agreement after 31 March 2004. That is what I find.[302]In the circumstances it really is rather academic to become involved in the detail of the evidence of Mr. Riddiough and Mr. Haberman as to how damages should be assessed. However, some questions of principle arose from their respective reports and it is appropriate at least to indicate my conclusions on those points of principle. In addressing them I assume, contrary to my finding, that the elements of cost which it is necessary to consider, would have been incurred by Tele2 Ireland.[303]I have already commented upon the approach of Mr. Riddiough to assessing the revenue which would have been generated from the sale of Pre-paid Phonecards but for the termination of the Agreement. His approach seemed to me to be artificial and contrived. There was no logic, in my judgment, in starting Scenario 2 and Scenario 3 in October 2004. While the sale of Nomi-Call supplied phonecards had commenced in September 2004 and had had an effect on the sales of the Pre-paid Phonecards over the period from then until 31 March 2005, the Post Office had been entitled to sell Nomi-Call supplied phonecards and the effect of having done so on sales of the Pre-paid Phonecards could not be ignored in assessing the likely sales of the Pre-paid Phonecards in the period starting on 1 April 2005. The only sensible place to start in assessing damages was with the actual level of sales of the Pre-paid Phonecards in the month of March 2005.[304]Looking forward from that point, it seems to me that the best evidence of what sales of Pre-paid Phonecards were likely to have been achieved but for the termination of the Agreement was the actual sales made of Nomi-Call supplied cards. Logically that evidence must be relevant. It also showed what real sales had been achieved by persons making active efforts to sell them and to make money. Thus the evidence represented a starting point, at least, in considering the likely level of sales. If it was not also to be the finishing point, there had to be evidence to show that, by some means, if the Claimants had been supplying Pre-paid Phonecards during the relevant period, they would have done better.[305]The case for the Claimants that they would have done better depended in part upon the contention that the Post Office was bound to devote marketing effort to promote the sales of Pre-paid Phonecards. I have indicated my view of that submission in dealing with the issue of the Post Office acting reasonably in performing its obligations under the Agreement. However, the Claimants also contended that they would have devoted funds to marketing, independently of the Post Office, and would thereby have achieved higher sales than the sales of the Nomi-Call supplied phonecards. I am unpersuaded of that. Apart from anything else, I am not sure how it could have worked. The Pre-paid Phonecards were supplied to the Post Office with the Post Office name prominently upon it and with little prominence given to the provider of the services to which the cards gave access. Nothing worthwhile in terms of increasing sales of Post Office phonecards would have been achieved by promoting Tele2 or a company in the Tele2 group. The only sensible marketing could have been of Post Office phonecards as such. However, in practical terms that could not be undertaken without the consent of the Post Office. The name “Post Office” is itself a registered trademark. On the evidence led before me, a part of marketing, at least in the past, had been promotion actually inside post offices, by means of leaflets and posters. Plainly that could only happen with the agreement of the Post Office. Mr. McCaughran submitted that the Post Office was under an obligation reasonably to agree to independent marketing by the Claimants, and to provide whatever consents and assistance were necessary. However, there was no term of the Agreement to that effect.[306]Another aspect of the issue is that it is not, as it seems to me, self-evident that advertising and promotion increases sales by tangible amounts. I do not think that that was actually in dispute. There was quite a lot of evidence that marketing was desirable to keep the existence of Post Office phonecards in the public mind. A particular advertising campaign in the summer of 2003 had been very successful in increasing sales of the Pre-paid Phonecards from a figure hovering around £660,000 to over £1 million per month, at which level sales remained until October 2004. However, other marketing campaigns had not met with comparable success. A repeat in the summer of 2004 of the campaign in the summer of 2003 only succeeded in raising monthly sales to just under £1,200,000 for two months. The September 2004 sales were back to the level of sales in June 2004, before the 2004 campaign took place. It was accepted by Mr. Carter, and other witnesses on behalf of the Post Office, that one would expect sales of phonecards to decline if they were not promoted. Nonetheless, there was no specific criticism of how the Post Office had actually set about marketing phonecards in the period 1 April 2005 to 31 March 2007. In the year to March 2006 the Post Office spent about £800,000 on promoting phonecards and Nomi-Call provided free extra credit to a value of £153,107. Sales achieved amounted to £12,800,000. Mr. Riddiough envisaged that a total of £1,741,000 (£828,000 in the year to March 2006) would have been spent on marketing on Scenario 2 over the period 1 April 2005 to 31 March 2007, with £1,334,000 (£667,000 each year) being spent on Scenario 3. Thus it seemed that the Post Office itself actually spent in the year to March 2006 almost as much on marketing as Mr. Riddiough assumed the Claimants would on Scenario 2, and rather more than he assumed on Scenario 3. The position was different in the year to March 2007. In that year the Post Office budget for marketing of phonecards was £711,000, of which only about £350,000 was spent. As I understood it, a major reason for that underspend was that the Post Office generally at that time was strapped for cash.[307]The evidence was that, following the change to the Post Office only selling Nomi-Call supplied phonecards from 1 April 2005, the Post Office phonecards were re-launched with a considerable marketing effort. That seems to have been successful in raising sales from £691,724 in March, to £790,757 in April and to £1,317,192 in May. However, sales then fell back to £1,173,942 in June, to £1,143,312 in July, and, apart from a brief rally in August, sales were thereafter essentially back down to the level of about £1 million per month. That general level was maintained until about October 2006, but from that point there was a steady decline to £783,551 in March 2007. Thus again it appeared that the expenditure of money on marketing produced only limited effects.[308]It was suggested on behalf of the Claimants that a reason for the decline in sales of phonecards by the Post Office experienced after November 2005 was the decision then made that phonecards should no longer be “focus products”. “Focus products” were those specifically promoted by the Post Office. Prior to November 2005 there had been about twenty focus products, including phonecards. As from November 2005 there were three focus products, not including phonecards. However, it was not suggested that the decision to reduce the number of focus products was irrational or not taken for what were considered to be sound commercial reasons. While Mr. Riddiough in his Scenarios 2 and 3 proceeded on the basis that, but for the termination of the Agreement, phonecards would have continued to be focus products, it seems to me that there was no justification for that assumption.[309]In my judgment, the issue of marketing was best put into context by evidence of Mr. Hashmi and Mr. Carter, essentially to the same effect, that expenditure on marketing is only sensible if it generates a satisfactory return.[310]Mr. Hashmi, in his second witness statement at paragraph 23 d, commented that:- “Obviously if marketing was not achieving substantial growth in the business, we would not have incurred the same costs, particularly as the Agreement came closer to termination.”[311]Mr. Carter was asked about marketing in cross-examination (Transcript Day 9 page 5 line 13 to page 6 line 2):- “Q. You would have expected, Mr. Carter, that if more effort had been expended on marketing these phone cards and more money spent you would have expected to see higher sales levels than were actually achieved, would you not? A. I would – as marketing director, I would have made a recommendation to the board to invest money if I felt there was a return on the investment on that product. I was not in a position to make that recommendation because I did not believe that spending significantly more on phone cards would have resulted in significantly greater sales at that time [meaning November 2005 to March 2007 – see Transcript Day 9 page 3 line 20]. Q. I suggest to you that if more effort had been made, more money spent, then there would have been significantly greater volumes of sales of the Nomi products? A. As I said, I don’t think you can predict that.” A. As I said, I don’t think you can predict that.”[312]Thus I am not satisfied that by increased marketing efforts the Claimants could have achieved higher sales than were in fact achieved by sales of Nomi-Call supplied phonecards. In reaching that conclusion I have been heavily influenced by the consideration that the Nomi-Call supplied phonecards sold in the period 1 April 2005 to 31 March 2007 offered very competitive Rates to retail customers. Mr. Haberman expressed the view in his expert report, and, indeed it is obvious from the nature of the service to which possession of a phonecard gives access, that the single most important factor in generating initial sales was perceived value for money. At paragraphs 2.20 and 2.21 of his report he wrote:- “2.20 The primary consideration for the consumer when purchasing a phonecard for the first time is the value for money – the headline cost of calls per minute, either on average or to the specific destinations required. 2.21 Thereafter, as a potential repeat customer, there are two other key considerations: a) quality of service – poor quality (such as frequently being cut off and having to redial) makes it likely the customer will not buy the same phonecard again; b) hidden charges – a customer who has been subject to unexpected charges that reduce the calls they were able to make is not likely to buy a similar phonecard again.”[313]I accept that evidence. It is material to another point asserted on behalf of the Claimants as indicating that they would have achieved higher sales than were in fact achieved with the Nomi-Call supplied cards, namely additional advantages offered by the Pre-paid Phonecards. These alleged additional advantages were that the Pre-paid Phonecards were valid for six months, rather than the 90 days for which Nomi-Call supplied cards were valid, that any balance remaining on a Pre-paid Phonecard could be transferred to a new card of the same type, which was not possible with a Nomi-Call supplied card, and that Tele2 offered a customer care line accessible free, 24 hours a day, in contrast to Nomi-Call, in respect of the customer care line of which a local call charge was made, and which was not available between 11 pm and 7 am. Mr. Haberman’s evidence pointed to these differences between the Pre-paid Phonecards, on the one hand, and the Nomi-Call supplied cards, on the other, being marginal.[314]However, the matter does not rest simply with the opinion of Mr. Haberman. The Post Office commissioned market research from Competitive Intelligence & Consulting Ltd. That company produced a report (“the CIC Report”) entitled “Phonecards and ePhonecards Market Scope”. The first paragraph of the CIC Report said:- “The phonecard market is clearly stagnant in 2004. While there are mixed predictions surrounding its future, the general trend is for a continuing decline in revenue. Despite this prediction, the market remains attractive. 5.5 million users generate £1.05bn a year in revenue, at £190 per user per annum. In a worst-case scenario, even if the Post Office captures only 1% of this market, this represents £10m in additional revenue for the company (margins within the industry typically run at 5 – 10%, which represent a potential £500,000 - £1m profit).”[315]That evidence, which I think was not really challenged, indicated, first, that the retail market for phonecards was declining from 2004, so that in order to have achieved higher sales than the Nomi-Call supplied cards actually achieved, the Claimants would have had to have increased their share of a reducing market – in other words, higher sales could not have been achieved by attracting new customers and thereby increasing the size of the market – and, second, that the average phonecard user spent £190 per annum on phonecards. From the latter it can be appreciated that, if the user purchased £5 phonecards, he did so on average 38 times per annum, or about every 10 days. If the user purchased £20 phonecards, he purchased on average 9.5 cards per annum, or one every 38 days. At those levels of frequency of purchase, the fact that a phonecard was valid for six months rather than 90 days seems immaterial to the decision to purchase. It also suggests that the ability to carry forward the unexpired balance of an existing phonecard to a new one was unlikely to be important.[316]While there was no direct evidence about it at all, I find it difficult to suppose that an important element in the decision to purchase a particular phonecard is likely to be whether the customer call centre is available 24 hours a day, or whether access is free, rather than the cost of a local call. One would imagine that a purchaser of a phonecard does not, at the point of purchase, imagine that there will be difficulty in obtaining the services purchased, such that there may be a need to contact a customer call centre.[317]Mr. Haberman, at paragraph 3.15 of his report, expressed the view that the Pre-paid Phonecards, on the one hand, and the Nomi-Call supplied phonecards, on the other, had user features which were broadly similar, and I agree.[318]In his written closing skeleton argument, at paragraph 196, Mr. McCaughran accepted that, if the Agreement had not been terminated, the Claimants would have had to have reduced their Rates to retail customers. He contended that they would not have had to reduce them to the Rates in fact charged by Nomi-Call, because of the additional features of the Pre-paid Phonecards which I have just been considering, but he accepted that they would have been reduced to the rates applicable to the Xmas Card, which were slightly higher than those charged after 1 April 2005.[319]That, as it seemed to me, amounted to an implicit acceptance that, in order to have achieved as many sales as, or more sales than, were achieved with the sales of Nomi-Call supplied phonecards, the Rates charged for use of Pre-paid Phonecards would have had to have been reduced. The impact of that on profits I shall come to, but for the moment it is material to notice that the lower Rates to retail customers was not the only advantage which Nomi-Call supplied cards had over the Pre-paid Phonecards. The other main advantage was that Nomi-Call paid the Post Office a commission not of 21% of the face value of the phonecards sold, but 35%. That higher commission enabled the Post Office to pay a reasonable sub-commission to sub-postmasters on sales of phonecards. That obviously, but to an unascertainable extent, provided sub-postmasters with an incentive to promote sales of Nomi-Call supplied phonecards. The actual sales of Nomi-Call supplied phonecards were achieved with the benefit of that incentive to sub-postmasters. Whatever that benefit in fact amounted to, it was a benefit which would not have been available had the Post Office continued after 31 March 2005 to sell the Pre-paid Phonecards. It was thus a factor making it likely that the sales of Nomi-Call supplied phonecards in fact achieved were higher than the sales which would have been achieved had sales of the Pre-paid Phonecards continued.[320]In the result, in my judgment, it was not demonstrated by the evidence that the Claimants would have achieved higher sales than those in fact achieved by sales of Nomi-Call supplied phonecards in the period 1 April 2005 to 31 March 2007, or over any part of that period.[321]It was common ground that an important aspect of the assessment of damages was the gross margin which the Claimants would have made on the sales of Pre-paid Phonecards which would have been achieved after 1 April 2005. Gross margin, in this context, is an expression, as a percentage of the total revenues received, of the sum remaining after the deduction from those revenues of interconnect costs. In other words, in this case, ignoring the issue of which company would have incurred the interconnect costs, the contention of the Claimants was that it was the gross margin on the lost sales of Pre-paid Phonecards which was the primary basis for calculation of the amount of the losses sustained. However, other elements, in particular the cost of production of the physical phonecards, the commissions payable to the Post Office, marketing expenses and administrative expenses also fell to be deducted in calculating the net loss.[322]Historically the gross margin achieved by the Tele2 parties during the currency of the Agreement fluctuated. However, the average in the period January to March 2005 inclusive was 68.53%. In his Scenario 2 Mr. Riddiough took a gross margin of 55.8% until June 2005, 54.6% thereafter until May 2006, and then 53%. In his Scenario 3 he took a constant 55.8%. These margins were less than the historic margins to reflect the impact of reducing the Rates. It was common ground that if the Claimants had had to match the Rates charged by Nomi-Call as from May 2005 the gross margin would have been reduced to 50.5%.[323]In his closing submissions Mr. McCaughran produced a calculation showing a gross margin figure of 53.13%. That was the result, as I understood it, of re-doing the calculation of the figure of 50.5%, but substituting the Xmas Card Rates for the Nomi-Call May 2005 Rates.[324]In his report at paragraph 4.9 Mr. Haberman commented that:- “It is possible that Tele2 would have been unwilling to reduce its call rates to this extent [that is to say, to the level charged by Nomi-Call as from May 2005], which would have resulted in the POL phonecard being less competitive in the wider market and hence in lower sales.”[325]That seems to me to be self-evident. Thus what I have to postulate is, on the one hand, the Claimants reducing the Rates to the same level as the Nomi-Call May 2005 Rates, and achieving a gross margin of 50.5%, or reducing them to a lesser extent, achieving a higher gross margin, but on a lower level of sales. It may be that in the end the results of the different approaches would not be dramatically diverging sums.[326]I am confident that, if the Agreement had not been terminated, the Claimants would have sought to maximise profits. They may, in consequence, have sought to maintain Rates higher than those charged by competitors. After all, that is exactly what was done in the period 1 June 2004 to 31 March 2005. However, over that period the monthly sales of Pre-paid Phonecards declined from £1,088,282 to £344,673. Given that, by the end of November 2004, the Tele2 parties were prepared to reduce the Rates applicable to Pre-paid Phonecards to those charged by Nomi-Call for the Xmas Card, it seems to me most likely that, in order to maintain revenue, the Claimants would in fact have reduced their Rates to those charged by Nomi-Call. I think that they would have had to have done so either to persuade the Post Office not to continue with Nomi-Call, or, if the Post Office was going to continue with Nomi-Call in any event, to avoid remaining in the invidious position that had prevailed since September 2004 of the Post Office selling a different phonecard which offered better value to the customer than the Pre-paid Phonecards.[327]Thus I find that the gross margin which the Claimants would have earned on any sales achieved was 50.5%.[328]I have already identified the issue of how many suppliers of phonecards to the Post Office there would have been after 1 April 2005, but for the termination of the Agreement, as giving rise to a question of fact rather than law. It is therefore necessary to return to that factual issue.[329]In an e-mail dated 24 January 2005 to Mr. Woodrow Mr. Simon Black of Nomi-Call commented, so far as is presently material:- “One thing I am pretty sure about though is that it does not really work having 2 suppliers in this field – unless the products are very different. We have had to hold back on so much activity because Tele2 were still active and our work would on most occasions result in a Tele2 phonecard sale.”[330]Mr. Woodrow responded in an e-mail dated 10 February 2005:- “I agree that having two suppliers is holding us back. What I was proposing, assuming we got the go-ahead was that rather than rush out the generic we remove T2 at the end of March and then for April concentrate solely on driving sales of Olympic.”[331]At paragraph 45 of his second witness statement Mr. Woodrow said:- “I do not think that there would not [sic – this “not” is a typographical error] be any particular difficulties in marketing phonecards supplied by two different suppliers with different features alongside each other, as customers would choose which to purchase on the basis of the facts that were presented to them. When POL had phonecards supplied by Tele2 and Nomi-Call nothing happened which caused me to wonder about the wisdom of selling cards supplied by two different companies in principle.”[332]That view was different from that expressed by Mr. Woodrow in his e-mail to Mr. Black dated 10 February 2005, and, understandably, he was pressed on the point in cross-examination. However, the issue which I am now considering is not what Mr. Woodrow thought at any particular time, but whether in fact the Post Office would have continued to have more than one supplier if the Agreement had not been terminated on 31 March 2005. So far as that is concerned, the contemporaneous documents produced by Mr. Woodrow, to which I have referred in the context of what was in fact said at the meeting on 17 January 2005, show that he was then envisaging that the Post Office would proceed with either Tele2 or Nomi-Call, but not both.[333]Mr. Woodrow was relatively junior in the organisation of the Post Office and the decision as to how many suppliers of phonecards to have was not his. The decision at least involved consultation with Mr. Carter. In his first witness statement he said:- “89. If we had thought that Tele2 was a company that would come up with new ideas and that they would supply a phonecard which gave great rates and transparent charging we would not have needed to look for another supplier. Because Tele2 created a poorer product, however, they were not the only supplier in 2004 and early 2005. I think that, given the deterioration in the relationship, we would have wanted a second supplier if we had had to continue with the Tele2 Agreement after March 2005. As it was, although POL did not have the benefit of competition between different providers, it may have obtained a similar benefit because Nomi-Call would have wanted to prove themselves to us as the new supplier. 90. Considering the matter now, I think that, if there had been two suppliers, I would have been in favour of POL using Tele2 to supply the standard Post Office phonecard and Nomi-Call to provide special edition phonecards for certain niches with spurts of marketing activity.”[334]The question of what was possible in terms of having two suppliers was raised with Mr. Carter in cross-examination. At Transcript Day 9 page 10 lines 8 – 24 there were these exchanges:- “Q. .. Can we also agree that selling a Tele2 card alongside a Nomi card which has broadly similar features – so multi-purpose card, lots of destinations and similar, perhaps not identical, features, perhaps not identical rates – but selling that kind of Nomi card alongside the Tele2 card was not a sensible way forward either? A. If the two cards were similar, then I would agree with you. Certainly, as I say in my witness statement, I do believe there is room for different types of card, focusing on different types of customer, and in that situation there could well have been two different suppliers providing each of those types of card. Q. Just in terms of having two cards with similar features, covering multiple destinations, that’s not a sensible way forward, is it? A. Correct ” A. Correct ”[335]Mr. McCaughran came back to the point later and received this answer (Transcript Day 9 page 20 lines 4 – 10):- “If the cards were significantly similar then I would agree with you. Certainly my expectation at that time and I believe that in the evidence there was a matrix in which we talked about different types of cards serving different types of customers. If that matrix was in our portfolio, then we could have had more than one supplier.”[336]Mr. McCaughran then asked Mr. Carter how it could have worked, having two suppliers of phonecards, in the light of the obligations of the Post Office in clause 2.1 of the Agreement. The answer (Transcript Day 9 page 23 lines 18 – 25) was:- “I would say that the Post Office had a number of contracts that were non-exclusive where there was a number of situations where they had to manage competing and differing parties in that, and that’s something the Post Office has done and is very good at doing so I would have had every confidence the team would be able to manage the contract in the way you describe.”[337]In his first witness statement Mr. Steele also dealt with the issue of the Post Office having more than one supplier of phonecards. He said:- “49. Because only Nomi-Call supplied phonecards to POL after March 2004 [sic – 2005 was meant] while I was at POL, I did not need to consider and discuss with others what we would have done if POL had had both Tele2 and Nomi-Call as suppliers in that period. Considering the matter now, one obvious possibility would have been to split the branch network in two, so that some branches sold Tele2 cards and others sold Nomi-Call cards. Another possibility would have been to have different types of card, marketed for particular destinations, with particular branches selling cards appropriate to their customer base. For example, a card targeted at calls to Australia could be sold in branches in Earls Court.50. The POL network is big enough that I think it would easily have been possible to have phonecards supplied by two suppliers. However, it would not have been possible to give phonecards more space in branches just because there were two suppliers. They would both have wanted more shelf space, but I could not increase the presence in-store because branches were not big enough. So I do not think that there would have been more marketing of phonecards in POL branches if we had had two suppliers.51. We did not in fact have a supplier along side Nomi-Call. Phonecards were not proving a success for the reasons I have explained above and we did not think that it would be worth the added complexity of getting another supplier.”[338]The focus of the evidence of Mr. Carter and Mr. Steele to which I have referred seemed to me to be how it might have been possible to have had two suppliers of phonecards, rather than whether the Post Office would actually have done so, but for the termination of the Agreement. Mr. McCaughran emphasised that only between September 2004 and March 2005 did the Post Office actually have two suppliers. He submitted that I should conclude that, if the Agreement had not been terminated, the Post Office would have got rid of Nomi-Call as a supplier of phonecards.[339]However, the critical evidence on this point seemed to me to be that of Mr. Carter in cross-examination (Transcript Day 9 page 22 lines 6 – 13):- “Q. But if you had decided not to try to terminate the contract with Tele2, the reality is you would have put your differences behind you with Tele2, worked out a way forward and gone forward, isn’t that right? A. If we had the confidence that the difficulties were behind us in terms of account management, in terms of rates, in terms of investment in the business, then yes, that’s correct. But that’s a big if.”[340]What, in that passage, I think Mr. Carter really meant to convey, bearing in mind his comment at paragraph 89 of his first witness statement that, “I think that, given the deterioration in the relationship, we would have wanted a second supplier if we had had to continue with the Tele2 Agreement after March 2005”, was that, given the problems in the recent history of dealings between the Post Office and the Tele2 parties, and given that there was actually in place a second supplier, if the Agreement had not been terminated the Post Office would have wanted to continue with two suppliers so that Nomi-Call could serve as a means of keeping the Tele2 parties up to the mark. I accept that, and it seems to me to have been an eminently sensible way forward. Thus I find that, but for the termination of the Agreement, the Post Office would have continued to obtain supplies of phonecards both from the Tele2 parties and from Nomi-Call.[341]It was contended on behalf of the Post Office that, if the Claimants had not merely reduced their Rates to the level of Nomi-Call’s May 2005 rates, but also had paid the Post Office a commission of 35%, as was discussed at the beginning of 2005, on the sales of phonecards in fact achieved by the Post Office over the period 1 April 2005 to 31 March 2007 the Claimants would have made a loss. That proposition was not contested, but Mr. McCaughran contended that the Tele2 parties were not obliged under the Agreement to allow commission to the Post Office at a rate of 35%, and that it should be assumed for the purpose of assessing damages that the rate of commission payable under the Agreement to the Post Office would be unchanged. I accept that submission.[342]There was at one stage a suggestion on behalf of the Claimants that damages should be assessed on the assumption that the Tele2 parties would have so arranged their affairs as to have substituted for Tele2 Ireland a Madeiran company as the supplier of phonecards. The purpose of that would have been to take advantage of a lower rate of Value Added Tax payable in Madeira, as compared with the United Kingdom. Mr. McCaughran did not pursue this point. He accepted that the assumption contended for would have involved an assessment not on the basis that the Agreement would have been observed, but on the footing that a different agreement would have been substituted for it.[343]For the reasons which I have given, in my judgment it was not proved that Tele2 Ireland had suffered any loss as a result of the termination of the Agreement with effect from 31 March 2005, if, contrary to my view, such termination amounted to a breach of the Agreement.

Conclusion

[344]In the result, the claims of the Claimants fail and are dismissed. There will be judgment for the Post Office against Tele2 Ireland on the Expiry Revenue claim in the sum of £833,152. There will also be judgment for the Post Office against Tele2 Ireland on the Additional Fees claim in the sum of £202,000. The total sum in respect of which there will be judgment for the Post Office against Tele2 Ireland is thus £1,035,152.

Cited in 5 later judgments