Computer Supply Contracts - Sprint Electric Ltd v Buyer's Dream Ltd.
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| Jane Lambert |
Chancery Division (HH Judge Hacon) Sprint Electric Ltd v Buyer's Dream Ltd and Another [2020] EWHC 2004 (Ch) (24 July 2020)
Although this case was listed in Business List it was, in fact, an intellectual property case. It related to a software development contract. It was tried by an Enterprise judge and the parties were represented by intellectual property counsel. One of the issues at trial was whether the claimant customer or the defendant developer owned the copyright in the software.
The Trial
In Sprint Electric Ltd v Buyer's Dream Ltd and another [2018] EWHC 1924 (Ch) (30 July 2018) Mr Richard Spearman QC tried two sets of proceedings: an action for breach of contract brought by Sprint Electric Ltd. ("Sprint") against Dr Aristides George Potamianos ("Dr Potamianos") and his company, Buyer's Dream Ltd. ("Dream") and an unfair prejudice claim by Dr Potamianos against the principal shareholder and director of Sprint's holding company. Dr Potamianos was successful in his unfair prejudice claim but not in the contract action. Mr Spearman ordered an inquiry as to damages against Dr Potamianos and his company which was taken by HH Judge Hacon on 14, 15, 18, 20 and 21 May 2020. His Honour delivered judgment in Sprint Electric Ltd v Buyer's Dream Ltd and another [2020] EWHC 2004 (Ch) on 24 July 2020.
The Claim
The contract claim arose out of a software development contract. Mr Spearman found that Dream had failed to deliver software known as PL/X or to amend software known as JL/X to enable it to run on new hardware. The inquiry was to assess the damage suffered by Sprint as a result of Dream's failure to deliver PL/X and amend JL/X.
The Law
Judge Hacon referred to the judgment of Baron Parke in Robinson v Harman (1848) 1 Ex Rep 850, 154 ER 363:
"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."
He referred to recent cases in which that passage has been cited with approval such as Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 2 AC 353, Bunge SA v Nidera BV [2015] UKSC 43 and Morris-Garner v One v One Step (Support) [2018] UKSC 20.
According to the judge, the words "by reason of a breach of contract" implied the need for a causal connection between the defendant's breach of contract and the claimant's loss. The need for causation was explained by Mr Justice Mance in Famosa Shipping Co. Ltd v Armada Bulk Carriers Ltd (The Fanis) [1994] 1 Lloyd's Rep 633, at 636-7:
The damage claimed, in this case, was the loss of profit including future profits occasioned by the breach of contract. At its simplest, that is the difference between the net profit (i.e. income minus relevant costs) which the claimant would have made absent the breach less the actual net profit made over the same period. However, there are a number of complexities when contemplating losses for the future. These included the appropriate cut-off period for future loses, the circumstances when a claim becomes too speculative to be entertained, damages for the loss of a chance and claimants duty to mitigate their loss.
On the duty to mitigate, he said at [61]:
"It seems to me that where the innocent party claims to have acted in mitigation and its actions are found to have been in part reasonable (in the mitigation sense) but in part collateral to mitigation of the harm suffered, damages are again assessed by comparing the no breach counterfactual with the mitigation counterfactual and evaluating the extent to which the innocent party would have been financially worse off at the conclusion of the mitigation counterfactual. However, the mitigation counterfactual will exclude any conduct by the innocent party which was collateral to mitigation of the harm but generated at least part of the harm."
"It seems to me that where the innocent party claims to have acted in mitigation and its actions are found to have been in part reasonable (in the mitigation sense) but in part collateral to mitigation of the harm suffered, damages are again assessed by comparing the no breach counterfactual with the mitigation counterfactual and evaluating the extent to which the innocent party would have been financially worse off at the conclusion of the mitigation counterfactual. However, the mitigation counterfactual will exclude any conduct by the innocent party which was collateral to mitigation of the harm but generated at least part of the harm."
As for the loss of a chance, he concluded at [118]:
"......... the head of damage is the loss of the chance which the claimant had to attain a beneficial outcome, i.e. to obtain a benefit or avoid a loss. The claimant must prove, on the balance of probability, that the breach of contract caused the loss of that chance – not that it caused the loss of the beneficial outcome itself. If proved, and provided the chance was substantial and not merely speculative, the court will go on to quantify the value of the chance lost and thus the damage suffered. Quantification will involve the valuation of the beneficial outcome and the application of a discount commensurate with the likelihood that the chance would have led to the beneficial outcome."
"......... the head of damage is the loss of the chance which the claimant had to attain a beneficial outcome, i.e. to obtain a benefit or avoid a loss. The claimant must prove, on the balance of probability, that the breach of contract caused the loss of that chance – not that it caused the loss of the beneficial outcome itself. If proved, and provided the chance was substantial and not merely speculative, the court will go on to quantify the value of the chance lost and thus the damage suffered. Quantification will involve the valuation of the beneficial outcome and the application of a discount commensurate with the likelihood that the chance would have led to the beneficial outcome."
Date of Breach
As Sprint had claimed all sorts of losses resulting from Dream's failure to deliver the PL/X and amend the JL/X software, Judge Hacon directed himself to ascertain the precise date of those breaches. He found that 8 Jan 2016 was the date upon which the company failed to deliver the PL/X software at [153] and that the 3 June 2016 was the date upon which it failed to amend the JL/X software at [155].
Dr Fells
As soon as it became clear that Dream would not deliver the PL/X software, the majority shareholder of Sprint's holding company recruited a Dr Fells to complete the work that Dr Potamianos was to have done for Sprint on behalf of Dream.
Heads of Claim
Sprint had set out its claim as follows.
Head 1 (a) (ii): Sprint claimed £4,542 for the procurement of 43 Intel boards for one of its customers because it could not correct faults on its own products without access to the PL/X software. Judge Hacon rejected that claim because the problems must have occurred at least a year before the breach of contract.
Head 1 (b) (i): Sprint claimed £42,308 as the loss of profits on sales of drives that it was unable to make as it could not access software that was to have been provided by Dr Potamianos. The judge refused to entertain this claim because the problems with the drives had arisen in 2013 and 2014. Those problems were in fact remedied by Sprint's customer and access to Dr Potamianos's software would have made no difference. There was also evidence that the faults were hardware and not software related.
Head 1 (b) (ii): Sprint alleged that its principal customer had lost sales as a result of Dream's breach. The customer said that some of those customers had not been lost permanently. The learned judge rejected the claim because causation has not been proved.
Head 1 (b) (i): Sprint claimed £42,308 as the loss of profits on sales of drives that it was unable to make as it could not access software that was to have been provided by Dr Potamianos. The judge refused to entertain this claim because the problems with the drives had arisen in 2013 and 2014. Those problems were in fact remedied by Sprint's customer and access to Dr Potamianos's software would have made no difference. There was also evidence that the faults were hardware and not software related.
Head 1 (b) (ii): Sprint alleged that its principal customer had lost sales as a result of Dream's breach. The customer said that some of those customers had not been lost permanently. The learned judge rejected the claim because causation has not been proved.
Head 1 (b) (iii): Sprint claimed loss of profits on sales that might have been made by other customers. The claim was linked to Head 1 (b) (i). As the judge had declined to make an award under Head 1 (b) (i) he could not make an award under Head 1 (b) (iii).
Head 1 (b) (iv): The claim here was for losses under Head 1 (b) (i) extrapolated until 2023. As the judge had rejected the claim under that Head be could not entertain the extrapolation.
Head 1 (b) (v): This was a claim for £2,068,866.. It was for an estimated loss of sales of drives between 2019 and 2023 caused by a delay in the improvement of the PL/X software. The judge rejected the claim. It was not clear to him that any loss of sales had been occasioned by Dream's breach. He tested his conclusion by comparing the counterfactual of no breach with the counterfactual of mitigation of the loss through the work of Dr Fells and could find no difference in outcome. He also thought that the claim was speculative and the damage remote.
Head 1 (b) (v): This was a claim for £2,068,866.. It was for an estimated loss of sales of drives between 2019 and 2023 caused by a delay in the improvement of the PL/X software. The judge rejected the claim. It was not clear to him that any loss of sales had been occasioned by Dream's breach. He tested his conclusion by comparing the counterfactual of no breach with the counterfactual of mitigation of the loss through the work of Dr Fells and could find no difference in outcome. He also thought that the claim was speculative and the damage remote.
The following heads were for the failure to amend the JL/X software.
Head 1 (c): This was for £4,522 being the cost of the Intel boards mentioned in Head 1 (a) (ii). The judge rejected the claim because the boards had been stockpiled long before the alleged breach.
Head 1 (d) (i): This was for the loss of an opportunity to sell drives to Fuji India to be incorporated into cranes. The judge rejected the contention that Dr Potamianos was to blame. Dr Fells had plenty of time to correct any faults in the drives. No award was made under this head.
Head 1 (d) (ii): This was for Sprint's failure to supply JL/X drives to a Swedish-Swiss multinational crane manufacturer. The evidence suggested a number of reasons why this opportunity was not seized. It could not be attributed to Dr Potamianos.
Head 1 (d) (iii): The judge rejected the claim for loss of sales under Head 1 (d) (ii) projected to 2023.
Head 2 (i) and (ii): This was for the loss of conveyed sales of PL/X and JL/X drives. In view of the judge's earlier findings, this claim was rejected too.
Head 3: This was for the completion of the work on the amendment of the JL/X software. The judge found that Dr Fells had carried out that task in two weeks and allowed Sprint two weeks of Dr Fells's time.
Head 4 (a): The judge allowed £91,564. being 5 months of Dr Fells's time on completing the work on the PL/X software that Dr Potamianos had failed to finish.
Head 4 (b) - (d): Sprint claimed £21,473 for work done by Dr Fells's assistants and rent for their laboratory. There was evidence that they had spent time on testing Dr Fells's code for which the judge awarded £2,000. He could see no basis for awarding damages for rent or related expenses.
Heads 4 (e) - (i): Sprint claimed £13,533 for lost management time. The judge awarded £2,250 for determining how to deal with the loss of access to Dr Potamianos's code and £1,000 for discussions with Sprint's main customer.
Sprint was therefore awarded 2 weeks of Dr Fells' time for amending the JL/X software. 5 months for writing the PL/X, £2,000 for Mr Lock's and Mr Kelly's time and £3,250 for loss management time. The judge fixed interest at 2% over base rate. This was a substantial one but much less than the amount claimed.
Sprint was therefore awarded 2 weeks of Dr Fells' time for amending the JL/X software. 5 months for writing the PL/X, £2,000 for Mr Lock's and Mr Kelly's time and £3,250 for loss management time. The judge fixed interest at 2% over base rate. This was a substantial one but much less than the amount claimed.
Comment
It is unusual for computer supply disputes to proceed in the Chancery Division. They are usually tried in the Technology and Construction Court which specializes in the assessment of damages for non-performance of contracts. As I noted earlier, there was a copyright issue in this case and it was tried with an unfair prejudice claim which usually proceeds in the Companies Court. Should anyone wish to discuss this article or computer supply disputes in general, call my clerk on +44(0)7986 948267 or send me a message through my contact page while this emergency continues, I shall gladly respond by phone, VoIP or email.
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