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	England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Pegler Ltd v. Wang (UK) Ltd [2000] EWHC Technology 137 (25th February, 2000) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2000/137.html Cite as: [2000] EWHC 137, [2000] ITCLR 617, 70 Con LR 68, [2000] EWHC TCC 137, [2000] Masons CLR 19, [2000] BLR 218, [2000] EWHC Technology 137

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Pegler Ltd v. Wang (UK) Ltd [2000] EWHC Technology 137 (25th February, 2000)

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

BEFORE: HIS HONOUR JUDGE BOWSHER Q.C.

BETWEEN:

PEGLER LIMITED

Claimants

and

WANG (UK) LIMITED

Defendants

Case number: 1997 TCC No. 219
Dates of Trial: 4 October - 2 December, 1999
Date of Judgment: 25 February, 2000

Nicholas Dennys Q.C. and David Foxton for the claimants (Solicitors, Curtis Davis Garrard)

Michael Douglas Q.C. and Duncan McCall for the defendant (Solicitors, Stephenson Harwood)

JUDGMENT

I direct that no further note or transcript be made of this judgment.

INDEX

The text of the Judgment of His Honour Judge Bowsher Q.C. is as follows:

JUDGMENT

INTRODUCTION

1. This action comes before me for an assessment of damages payable by the defendants to the claimants for admitted breaches of a contract to supply computer hardware and software and associated services. The claimants claim sums totalling in excess of £22.8 million.
2. The defendants (Wang) are suppliers of computer hardware, software, and associated services.
3. The claimant company (Pegler) is part of the Building Products Division of a Group of companies headed by F.H. Tomkins plc (Tomkins). Pegler was established in 1899. Its main business is the manufacture of Engineers' and Plumbers' Brassware including domestic taps and mixers, radiator valves and plumbing fittings. The product range includes about 4,000 items.
4. In 1990, Pegler had about 3,600 customers. Some of them were large builder's merchants such as Wolseley and Graham, and others were much smaller merchants. Some of the larger merchants allowed branches to buy independently, so that they had to be treated as constellations of small customers. Pegler bought raw materials and some manufactured items from about 1,500 suppliers. The bought-in manufactured items were divided between "bought-out" goods, usually plastic parts for fitting into other items made by Pegler, and "factored goods" which were complete items made by outside suppliers.
5. In 1990, Pegler's manufacturing process was vertically integrated from the production of brass billets by continuous casting, through extrusion, gravity and pressure die casting, machining, polishing and electroplating to final assembly, warehousing and distribution. Much of its machinery was old and badly maintained. A large variety of items was produced in one assembly area, necessitating frequent retooling with considerable inefficiency and waste of time. Production was not driven by customer demand. Largely, Pegler produced what was convenient for Pegler at any one time and the sales force were required to sell it.
6. In 1990, Pegler had a high reputation for the quality of its products (which it still enjoys) but its trading was severely impeded by poor service and delivery. Without corrective action, the company was headed for extinction.
7. Well aware of the deficiencies of their company, the directors determined to find and implement radical remedies.
8. From 1991 to May, 1995, the Managing Director of Pegler was Mr. Ron Lasseter, a Chartered Accountant. When he took over, the industry was in a recession which began in the second half of 1989 and continued into 1995 after a slight improvement in 1994.
9. In his evidence, Mr. Lasseter said:

"When I joined Pegler in 1991, it was apparent that in line with the majority of companies in the sector, Pegler needed to take steps to get its house in order following the recession in the construction industry from the second half of 1989 onwards. My predecessor, Malcolm Aitken, had begun the process of addressing the business issues and I followed on from where he left off. The main problems as I saw them when I took over were that (1) the team at board level were not working well together and not getting results; (2) although the company had a reputation for good quality and a good product range, it had a poor reputation for service, and was perceived not to be customer-orientated; (3) there had been a lack of investment in the business in the 1980s as a result of which the plant layout was inefficient and there had been no real product development; and (4) although the product range was good, it was unexciting and not geared for growth.

In the course of 1991 we developed a "New Ways of Working" strategy following a strategic review meeting held at Stratford in June that year, which had largely confirmed my impressions as set out above. In particular it showed that Pegler enjoyed a good reputation for its quality, but the price of its products were perceived to be high, the service poor and the product range dated."

10. The strategic objective of the New Ways of Working was to reach a return on controllable capital employed (ROCCE) of at least 30%. In Mr. Lasseter's experience, a healthy manufacturing business should aim to achieve a ROCCE of around 35%. That strategic objective has assumed considerable importance in the formulation of the claim in this action. In Pegler's language, controllable capital employed is capital within its control as a subsidiary, as opposed to capital under the control of the parent company. (This case is bedevilled with technical words and business school jargon with specialised (though frequently shadowy) meanings, and also with initials. A combined glossary and list of abbreviations is set out in an Appendix to this judgment.)
11. The New Ways of Working also had further strategic objectives summarised by Mr.Lasseter as follows:

"As I set out in the discussion draft of the New Ways of Working document dated 24 October 1991, we were anticipating growth of around of 20% of sales value over the next three years. This envisaged an average annual sales growth of around 7% which was achievable provided we were able to improve service delivery and reliability, which was seen as a key measure of performance from the customer's point of view. We set ourselves a goal of delivering on time in full (OTIF) in excess of 95% of customer order lines."

The anticipated growth there mentioned has also featured in the presentation of the claim. (I should add here that the significance of OTIF for Pegler was that not only had many orders not been delivered on time, but in many instances, only part of an order was delivered and what was delivered was useless without the balance of the order, like the legendary left boots delivered to the army in the Crimean War - so the hot taps might be delivered without the cold taps).

12. Mr. Lasseter planned that alongside the aim of delivery on time and in full, the company should work towards being able to give a reliable delivery pledge, so that one class of goods should be promised for delivery in 3 days, another in 10 days, and so on. For that purpose a careful classification of the company's products was required.
13. Other changes were planned. The first step was to bring the whole operation onto one 18 acre site at Doncaster. That was to be done by August, 1991.
14. Another step was to reorganise the manufacturing process so that instead of having vertical integration with one line of production, there would be separate Business Units for different groups of products.
15. Thirdly, it was decided to replace existing aged computers with a new integrated computer system. In July, 1990, a consultant was engaged to help define the business requirements of the company, assessing its IT needs and selecting a new system.
16. On 29 April, 1991, Pegler issued an Invitation to Tender (ITT) to suppliers including Wang.
17. On 20 May, 1991, Wang made a written Response to Tender. On 8 August, 1991, Pegler informed Wang that it intended in principle to contract with Wang.
18. In November, 1991, Pegler asked Tomkins for the capital for the computer. That request was made in a document called a Capital Expenditure Proposal (CEP or CAPEX).
19. A written contract was signed by the parties on 20 and 31 December, 1991 for the supply of computer hardware, software, bespoke programming, and services for a total price of £1,198,130 plus £235,000 annually for three years for maintenance and Business Process Management (BPM). It is admitted that the ITT and the Response to Tender were incorporated into the contract. There is some dispute about some terms, and there are applications for rectification of the contract from each party.
20. Wang's performance was disastrous. The parties have agreed that by the end of December, 1995 Wang had ceased to offer any relevant performance. Problems had arisen long before that. One of the elements of the package sold by Wang to Pegler was the provision of Business Management Services. In February, 1994, Wang closed the London office from which Business Management Services were to be provided. When Wang stopped work, they had implemented Phase 1, some of Phase 2, and some elements for Phase P. I shall say more about those Phases later.
21. By letter dated 27 February, 1997, Pegler gave Wang formal notice of specified breaches of contract and required Wang to remedy those breaches. It was no surprise that Wang took no steps to remedy the breaches: Wang had long since abandoned the contract. By letter dated 1 April, 1997, Pegler accepted Wang's repudiation of the contract and also claimed to exercise a contractual right under clause 43 (a)(i) of the contract to terminate the contract. In May, 1997, KPMG were appointed as consultants to review Pegler's IT needs and advise on installation of an integrated system. Up to that time, Pegler had tried to make good some of Wang's deficiencies piecemeal.

THE LITIGATION

22. Pegler started proceedings in the Commercial Court by Writ dated 2 February, 1996. No further step was taken in that action save that on 23 May, 1997, I ordered that action to be consolidated with an action begun by Writ issued out of the Official Referees' Registry on 7 April, 1997.
23. By their first Defence in this action, Wang denied breach of contract, but by amendment they admitted breach and their liability was recorded in a Declaratory Judgment made by consent on 13 August, 1998 in the following terms:

"It is declared that ... by reason of the admissions in paragraphs 15, 16, 17, 17a and 18 of the Re-amended Defence and Counterclaim, the defendant was in breach of contract to the extent admitted in those paragraphs."

24. By the Defence it is admitted that there were terms of the contract as pleaded in the Statement of Claim as follows:

"Further, there were the following express, alternatively implied, terms of the Contract (such terms to be implied by law and to give business efficacy to the Contract):

(1) that the System, and its constituent hardware and software, would be reasonably fit for its intended purpose, namely to meet the Plaintiff's requirements as set out in the ITT;

(2) that the System, and its constituent hardware and software, would be of merchantable quality and free from all material defects;

(3) that the services to be supplied by the Defendant to the Plaintiff would be supplied with reasonable care and skill.

Further, the Defendant undertook:

(1) to supply the System and its constituent elements in accordance with the terms of the Outline Schedule agreed between the Plaintiffs Kenneth Blackwood and Roger Salt and the Defendant's David Flemming a copy of which appears at Schedule 1 hereto."

That Schedule provided dates for the completion of certain phases:

July 1992 Phase 1

October 1992 Phase 2

including Sales Forecasting

MRP (Materials Requirement Planning)

MPS (Master Production Schedule)

March 1993 Phase 3

including SOP (Sales Order Processing)

August 1993 Phase 4

February 1994 Phase 5

including Planned Maintenance.

There was also a Phase P concurrent with all those Phases.

25. The Defence admits breaches alleged in the Statement of Claim as follows:

26. Pegler claim damages (amended to some extent in the light of the evidence) under 12 heads:

1. Lost home Sales £12,530,000
2. Lost opportunity to increase margins (included in A)
3. Lost opportunity to make staff cost savings £ 2,124,642
4. Amounts paid to third parties £ 150,217
5. Ongoing expenditure (up to 31 July, 1999) £ 47,334
6. Further expenditure to be incurred £ 1,744,206
7. Contract sales discounts £ 205,279
8. Planned maintenance £ 2,637,217
9. Reduction in home trade debtors £ 107,920
10. Reduction in inventory £ 774,400
11. Wasted management time £ 1,114,056
12. Purchasing. £ 1,463,200

27. The defendants say that those claims are grossly inflated and they also say that Pegler have failed in their duty to mitigate their loss. Wang also aver that certain clauses in the contract operate to exclude or limit their liability.

TERMINATION OF THE CONTRACT

28. Pegler claim damages arising out of termination of the contract both at common law and under a term of the contract at Schedule B clause 43 (a)(i):

1. Wang commits any material breach of its obligations hereunder and fails to remedy such breach within thirty days of written notice from Customer requiring the remedy thereof; in which case the Customer reserves the right to recover any deposits or advances and make claim for any other financial loss caused by the breach."

29. Wang claim rectification of that clause to make it read as follows:

"43(a) The Customer shall be entitled at its option and without prejudice to its other rights to cancel or suspend the Contract or any unperformed part thereof by notice in the event that either:

(i) Wang commits any material breach of its obligations hereunder and fails to remedy such breach within thirty days of written notice from Customer requiring the remedy thereof; in which case the Customer reserves the any right which it may have independently of this clause to recover any deposits or advances and make claim for any other financial loss caused by the breach."

30. It is agreed that the amount of the damages is unaffected by the issue whether the contract was terminated at common law or under clause 43(a)(i), save that one of the arguments put forward by Pegler in relation to the exclusion of liability clauses is that the right to damages under clause 43(a)(i) is unaffected by the exclusion clauses.
31. Pegler claim that the letter dated 27 February, 1997 to which I have referred was a written notice under this clause. Wang admit receipt of that letter. Wang also admit receipt of the letter dated 1 April, 1997 by which Pegler purported first to make common law acceptance of Wang's repudiation of the contract, and in the alternative to "cancel" the contract pursuant to clause 43(a)(i).
32. By their Defence in this action, Wang do not admit that Pegler became entitled to terminate the contract for repudiatory breach at common law, and denied that Pegler were entitled to terminate the contract pursuant to clause 43(a)(i).
33. So far as concerns acceptance of repudiation at common law, it is clear that Wang had long since evinced an intention no longer to perform the contract. Wang do not allege that their repudiation had been accepted earlier either by conduct or express statement, however, since the date of acceptance may be of importance, I have considered whether Pegler may have accepted the repudiation by the issue of the writ of 2 February, 1996 in the Commercial Court. That writ is generally indorsed as follows:

"The plaintiff's claim is for:

(1) Damages for breach of a written and/or oral agreement made in or about December 1991 between the plaintiff and defendant for the provision of goods and services by the defendant to the plaintiff, and/or breach of duty;

(2) Interest etc."

That is not an acceptance of repudiation. That writ, unlike the later action, is consistent with a claim for damages for breach while the contract is still on foot.

Accordingly, I find that Wang's repudiation of the contract was accepted by Pegler by the letter of 1 April, 1997.

34. By their Defence in this action, Wang contend that the letter of 27 February, 1997 was not a valid notice pursuant to clause 43(a)(i) because, Wang allege, Pegler had waived their right to operate the provisions of that clause. Wang allege that the right to terminate under that clause had "crystallised" by or shortly after the respective dates pleaded as the "Expected date of termination" and in any event long before 1 April, 1997. Wang further state, correctly, that after the right to terminate had "crystallised", Pegler instead of exercising its right to terminate continued to press for performance of the contract and remedied or attempted to remedy certain defects in what was supplied. Wang then allege that Pegler thereby waived their right to terminate and represented that they did not intend to exercise their right to terminate and are therefore estopped from exercising their right to terminate. Wang do not allege that they acted in reliance on any such alleged representation. I do not accept that there was either waiver or estoppel as alleged. It was perfectly reasonable and sensible for Pegler to try to get what they could from the contract both from Wang and by their own efforts. They did not thereby or in any other way express any waiver of rights nor make any representation that they would not exercise their rights. Wang did not in fact at the trial pursue the pleaded arguments as to waiver and estoppel.
35. By the letters of 27 February and 1 April, 1977 Pegler validly exercised their rights under clause 43(a)(i) of the contract, even though there was no expectation that Wang would in fact comply with the notice given by the letter of 27 February.

THE CONTRACT

36. Although Pegler informed Wang on 8 August, 1991 that Pegler had decided, in principle, to award the contract to Wang, it was not until the end of December, 1991 that a contract was signed.
37. The contract is a lengthy document in several parts. The main body of the contract was extensively modelled on Wang's standard terms and conditions. Schedule A to the contract incorporated Wang's Response, and also, it is now accepted, the ITT with which the Response has to be read to make sense of it. Schedule A also incorporated some correspondence. Schedule B contains "special conditions" modelled on Pegler's standard terms. As to Schedule B, the contract provides:

"The 'Special Conditions' set out in Schedule B hereto are hereby incorporated into the Contract and are to be considered a part hereof, with the special conditions taking precedence in the event of a conflict with the Contract."

The words italicised are particularly relied on by Pegler with regard to clause 43(a)(i).

38. In addition to clause 43(a)(i), Pegler also rely on the following clauses in Schedule B:

1. Clauses 1 to 9 setting out Wang's obligation to provide the system, and delivery obligations;
2. Clause 40 setting out Wang's admitted obligations as to description, merchantable quality and fitness for purpose.

39. Pegler apply for the contract to be rectified so that it is read as including certain correspondence additional to the correspondence specifically referred to, namely letters from Wang to Pegler dated 8, 12, 21 and 29 August, 1991 and a list of questions sent by Pegler to Wang on 13 August, 1991. Cross-references within that correspondence to other correspondence and to the ITT and the Response indicate that all the documents were intended to be read together. Evidence was given by Mr. Kenneth Blackwood, then Pegler's Commercial Director charged with responsibility for the project with Wang, that the ITT and the Response together with the correspondence, were intended by the parties to be included in the contract and were omitted in error. That evidence was not challenged and I accept it. On the basis of that evidence, I make the order for rectification requested by Pegler. At a later stage in this judgment, when considering the application made by Wang for rectification, I shall consider certain authorities on the law regarding rectification, and I do not consider it necessary to make such reference at this stage.
40. Having regard in particular to some criticisms made by Wang of the adequacy of the ITT, it should be noted that clause 11 of Schedule B to the Contract provided:

"The Response is based on the information provided in Customer's ITT which latter document Wang acknowledges sets out all information Wang required to design and implement the computer system being obtained by Customer."

EXCLUSION OF LIABILITY CLAUSES

41. Clause 5.15 of the contract contains exclusion of liability clauses. Not all of the sub-clauses are now relied on by the defendants, but they have significance by providing the context for those that are relied on.
42. Clause 5.15, like the rest of clause 5, is limited by the following words preceding clause 5:

"GENERAL TERMS AND CONDITIONS

The following terms and conditions shall apply to any Hardware sold or to be sold and/or Software licensed or to be licensed (hereinafter individually or collectively referred to as "Products") and/or Hardware Service and/or Software Service excluding Wang Professional Services, i.e. consultancy, (hereinafter collectively referred to as "Services"), provided or to be provided to Customer pursuant to the Sales Order."

43. Clause 5.15 is as follows:

"5.15.1 The Products have been manufactured or developed by Wang or by third parties to standard specifications. There are no warranties, conditions, guarantees or representations as to description, merchantability or fitness for a particular purpose or other warranties, conditions, guarantees or representations whether express or implied by statute or otherwise, oral or in writing, except as provided herein and except as to statutory implied terms about title.

5.15.2 If Wang is unable other than through the act or default of the Customer within a reasonable time to replace or repair defective Hardware or correct non-conforming Software in accordance with the warranties set forth herein, and where the Hardware or Software in question is totally unusable due to the defect or non-conformity, the Customer may reject it and upon its return to Wang's premises is entitled to recover the purchase price of the Hardware or the initial licence fee for the Software, as appropriate.

5.15.3 Without prejudice to Clause 5.18.7 below, if Wang without cause fails to perform the Services in accordance with its obligations hereunder the Customer may recover an amount to compensate for any direct physical loss which is suffered as a result of this failure subject always to a maximum aggregate liability equal to the total amount of the Contract as set forth in the Sales Order.

5.15.4 Wang shall be liable for death or personal Injury arising from the use of Products or performance of the Services to the extent that it results from the negligence of Wang or its employees. Wang shall also be liable to the Customer for any other direct loss of or damage to tangible property caused solely by the negligence of Wang or its employees subject always to a maximum aggregate liability equal to the total amount of the Contract, as set forth in the Sales Order.

5.15.5 The Customer agrees that Wang will not be liable for any loss arising out of the provision of goods or services by any company, organisation or person other than Wang and its Subcontractors or for any loss caused by the Customer's failure to perform his obligations in relation to this Contract.

5.15.6 Wang shall not in any event be liable for any indirect, special or consequential loss, howsoever arising (including but not limited to loss of anticipated profits or of data) in connection with or arising out of the supply, functioning or use of the Hardware, the Software or the Services even if Wang shall have been advised of the possibility of such potential loss and shall not be liable for any loss except as provided for in this Contract.

5.15.7 Except in respect of the liability of Wang for death or personal injury resulting from the negligence of Wang or its employees or in respect of a claim for non-payment of monies due under this Contract, no action, regardless of form, arising out of the transactions in relation to this Contract may be brought by either party more than two years after the cause of action has occurred."

44. Wang rely on clauses 5.15.6 and 5.15.7.
45. Clause 5.15 should be read in conjunction with clause 40 of Schedule B, it being remembered that the Special Conditions of Schedule B are expressed to take precedence in the event of any conflict with the Contract:

"It is a condition of the contract between Wang and the Customer that the Hardware and Software shall conform with the quality and description and other particulars of the Hardware and Software stated in the Sales Order, shall conform to all samples, drawings and descriptions furnished, shall be of merchantable quality and fit for their intended uses and free from all material defects and shall comply with any and all performance specification stated in the order or if none, those generally applicable in this trade or industry."

46. Counsel for Pegler submits that clause 5.15.6 only applies after the product has been supplied. Counsel submits that clauses 5.15.2, 5.15.3, and 5.15.4 (none of which is relied on by the defendants) all relate to liability arising after supply, and the same scheme is maintained in clause 5.15.6: there can be no functioning or use of the hardware or software until after it has been supplied and the clause refers to supply, not non-supply or late supply. Counsel for the defendants replies that clause 5.15.6 is referring to claims which can only arise if, in some respect, there has been a failure to supply, function or provide use in accordance with Wang's contractual obligations. Counsel said:

"Pegler seeks to take the point that this clause only applies to the supply as opposed to non-supply and the functioning as opposed to non-functioning and the use as opposed to inability to use the Hardware and Software. This interpretation is incorrect. The clause is referring to claims which can only arise if, in some respects, there has been a failure to supply, function or provide use in accordance with Wang's contractual obligation. This clause would be meaningless if it only referred to supply etc in conformity with the contract. In this case supply did take place but it took place late or deficiently. The quality and quantity of the contractual supply is at the very heart of Pegler's claim: why they terminated the contract. Pegler's loss does arise in connection with or out of the supply of the system and associated services. Further loss caused by the partial functioning of the system or its failure to function as an integrated system is a claim which arises in connection with or either the functioning of the hardware or the software or associated services."

47. In considering those opposing submissions, I bear in mind that the burden of proof is on the defendants to show that the claims come within the exclusion of liability condition on its true construction: The Glendarroch [1894] P 226 at 231 per Lord Esher. Moreover, the court will be reluctant to ascribe to an exemption condition a meaning which effectively absolves one party from all duties and liabilities: Suisse Atlantique v. NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 at 432. I also bear in mind the general words of Lord Hoffman as to the approach to the interpretation of contractual documents in Investor's Compensation Scheme Limited v. West Bromwich Building Society [1998] 1 WLR 898 at 913.
48. I accept the submission of counsel for Pegler that the clause is not meaningless if it refers only to supply and events after supply. The whole of clause 5.15 envisages first supply and then function and use and provision of services. If the defendants had wished to exclude liability for delay in supply or failure to supply, they should have said so. In fact, the parties did make explicit provision for delay in supply and failure to supply. In a different term of the contract, not referred to by counsel for either party, it was agreed that liability for delay in supply or failure to supply should only be excluded in very limited circumstances. Clause 5.18.7 provides:

"Neither party shall be liable to the other for any delay in or failure to perform its obligations hereunder (other than a payment of money) provided that such delay or failure is due to causes beyond its reasonable control."

Wang does not suggest that its delays and failures were due to causes beyond its reasonable control, and accordingly, clause 5.18.7 does not exclude liability for those delays and failures. That result sits neatly with my reading of clause 5.15.6: as I read it, the latter clause also does not exclude liability for Wang's delays and failures before supply.

49. Further, and in any event, none of clause 5.15 applies to exclude liability for or in relation to project management, consultancy, or BPM (Business Process Management), all of which were part of the package which Wang contracted to supply. That is the result of the words quoted above under the heading "General Terms and Conditions". Those words indicate that the exclusion clauses are to refer to hardware, software, hardware service, and software service "excluding Wang Professional Services, i.e. consultancy". Project management, consultancy and BPM are encompassed in Wang professional services, and were important elements in Wang's breaches.
50. Moreover, clause 5.15.6 only excludes liability for "indirect, special or consequential loss, howsoever arising (including but not limited to loss of anticipated profits or of data)". Counsel for Pegler submits, and I agree, that those words, particularly when taken with the words, "even if Wang shall have been advised of the possibility of such potential loss..." refer to loss under the second limb of Hadley v. Baxendale (1854) 9 Ex 341 and the loss claimed by the claimants is under the first limb of Hadley v. Baxendale: see Croudace Construction Limited v. Cawoods [1978] 2 Lloyds Rep 55; Miller's Machinery Co. Limited v. David Wray & Son (1935) 40 Com Cas 205; Deepak Fertilisers and Petrochemicals Corporation v. ICL [1999] 1 Lloyds Rep 387 at pages 402-403; British Sugar plc v. NEI Power Projects Limited and anr (1997) 87 BLR 45; Saint Line Limited v. Richardsons Westgarth & Co. [1940] 2 KB 99, 104-105; and Wraight Limited v. PH & T (Holdings) Limited (1968) 13 BLR 29 at 35. The reference by the words in brackets to loss of anticipated profits does not mean that the exclusion effected by this clause includes all loss of profits: it is plain from the context that only loss of profits which are of the character of indirect, special or consequential loss are referred to. As was explained in Victoria Laundry v. Newman Industries [1949] 2 KB 528 at 536, claims for loss of profits may fall into either the first or the second rule in Hadley v. Baxendale, depending on the circumstances.
51. The claimants rely on the Unfair Contract Terms Act, 1977. On its true construction, clause 5.15.6 does not exclude Wang's liability for the admitted breaches. It is therefore not necessary for me to consider whether the Act does apply to this term, but for the sake of completeness I shall do so. First, I shall consider 5.15.7.
52. Clause 5.15.7 imposes a contractual limitation period for the commencement of actions. For present purposes, it provides that no action may be brought "more than two years after the cause of action has occurred". Counsel for the defendants submits that a cause of action which arises in respect of late delivery of a module arises when the failure or delay first occurs. That is correct if the complaint is of damage caused by the delay. Counsel further submits that the two year period begins to run from the first day of delay. But delay in delivery is a continuing breach and there is a fresh cause of action every day until the duty to perform ceases by acceptance of repudiation or in some other way: Johnson v. Agnew [1980] AC 367 at 398-9 and Segal Securities Limited v. Thoseby [1963] 1 QB 887 at 901-2. Similarly with total failure to perform: the breach continues until Wang's repudiation is accepted. Where late delivery is complained of, the damage arising from the first day alone is likely to be so small that it would be disregarded if delivery were effected on the next day. The parties as commercial men cannot have intended that the term should be read as if the words were "more than two years after the cause of action or any similar cause of action first occurred". Performance in this contract (including the giving of post-installation services) was intended to continue over a number of years. It cannot have been intended that a party should be forced to begin proceedings to preserve its rights at a time when performance was still due and being offered. Legal refinements should be overlooked in the construction of this clause, and a continuing breach should be regarded as one cause of action with the two year period beginning when the duty to perform ceases either by performance or termination of the contractual duty to perform.
53. Since the action which I am trying is a consolidated action, the claim for damages at common law must be taken to have begun at the date of the first writ, 2 February, 1996, even though at that date the repudiation had not been accepted and the cause of action under clause 43(a)(i) had not then arisen. It is agreed that performance ceased to be offered from December, 1995, and accordingly, on the view which I take of the construction of this clause, it is ineffective to bar any proceedings even if it is not unenforceable by virtue of the Unfair Contract Terms Act
54. The claimants have a further argument in relation to the exclusion clauses. The claimants submit that, having terminated the contract under clause 43(a)(i) of Schedule B, they have an additional right of action for damages which is not subject to the exclusion clauses in the main body of the contract. I have already recited the terms of clause 43(a)(i) when considering the termination of the contract.
55. Schedule B to the contract, which is expressed to take precedence in the event of a conflict with the contract, sets out a number of obligations undertaken by Wang. Clause 43(a)(i) gives to Pegler, "without prejudice to its other rights" an entitlement to cancel or suspend the contract. To "cancel" a contract may be thought equivalent to the common law right to accept a repudiation of a contract, but to "suspend" a contract is additional to any common law right. The rights reserved, including the right to "make claim for any other financial loss caused by the breach" are exercisable only after notice and after giving a locus poenitentiae. Pegler submit, and I accept, that the clause gives a right of redress independent of any right to damages at common law. Pegler submit, and I also accept, that that right of redress is not restricted by the exclusion clauses on which Wang rely because the Special Conditions take precedence in the event of any conflict with the contract.
56. Wang submit that if that is the correct interpretation to be put upon clause 43(a)(i), the clause should be rectified to give it a meaning indicating that the clause is subject to the exclusion clauses.
57. As I have already indicated, Wang claim rectification of that clause to make it read as follows:

58. When previously referring to another issue of rectification, I deferred reference to the law on the topic. This is a topic attractive to academic writers and to appellants. I do not wish to rehearse all the authorities cited to me. The approach to be adopted by the court when faced with an application for rectification was stated by Lord Denning MR in Frederick E. Rose (London) Limited v. William H. Pim Junior & Co Limited [1953] 2 QB 450 at 461:

"Rectification is concerned with contracts and documents, and not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard you do not look into the inner minds of the parties - into their intentions - any more than you do in the formation of any other contract. You look at their outward acts, that is, at what they said or wrote to one another in coming to their agreement and then compare it with the document which they have signed"

The burden of proof on the party asking for rectification is high: Joscelyne v. Nissen [1970] 2 QB 86. Rectification is not available where the written agreement fails to deal with an issue because the parties have overlooked it: The Ypatia Halcoussi [1985] 2 Lloyds Rep 364 at 370. Rectification will not be available where the mistake is one of law as to the legal effect of particular terms, rather than a mistake of fact: Midland GW Railway of Ireland v. Johnson (1858) 6 HLR 798 at 811.

59. In support of the claim for rectification, Wang rely entirely on the evidence of Mr. Lambert, Wang's legal adviser at the time. Mr. Lambert is a Canadian lawyer, now in private practice in Canada, who at the time was in-house lawyer to Wang. His involvement in this matter lasted for about one month in 1991. It was in early 1998 that he was asked for his recollection of events. Not surprisingly, Mr. Lambert did not have a good or clear recollection of what was said so long ago. In his written witness statement, he said that in no circumstances would Wang accept any liability for consequential losses as set out in clause 5.16.6. He also stressed Wang's reliance on clause 5.15.5, not now relied on in this action. His written evidence regarding Clause 43(a)(i) is as follows:

"I understand Pegler are now seeking to rely upon clause 43(a)(i) of Schedule B to override clause 15.5 and impose a liability upon Wang for consequential losses. My reading of that clause when I reviewed those conditions was that the phrase "any other financial loss caused by the breach" means "any other financial loss (of the same nature as deposits and advances) caused by the breach". It was not intended by either of the parties to extend Wang's liability in any way beyond that imposed by clause 5.15. It was my opinion that clause 5.15 applied to exclude consequential losses in all circumstances and that would apply to clause 43(a)(i) (i.e. to all "financial losses"). It is inconceivable that, had the clause been read by me as having any other meaning, I would not have objected to such clause. Indeed, if Pegler has insisted on any such clause, this would have been a deal breaker."

Thus far in this paragraph there is nothing to support a claim for rectification. Mr. Lambert is simply saying that his interpretation of the contract was different from the interpretation now being put forward by Pegler, and if he had realised that there was that difference of interpretation, he would have objected. But Mr. Lambert's statement continued:

"One of the reasons why I did not understand clause 43(a)(i) of Schedule B to give Pegler a right to claim any indirect, special or consequential loss (including loss of profits) was that such an interpretation of that clause would have been contradictory of Hammond Suddards' acceptance, which was never revoked, that Wang would not be liable for such losses." (Hammond Suddard were the solicitors acting for Pegler at the time).

60. The reference by Mr. Lambert to "Hammond Suddards' acceptance, which was never revoked, that Wang would not be liable for such losses" was a reference back to an earlier part of his written statement in which he wrote:

"Right from the very beginning of my dealings with Hammond Suddards, I made it expressly clear that in no circumstances would Wang accept any liability for consequential losses as set out in clause 5.15.6. It is my distinct and firm recollection that Hammond Suddards accepted this as being perfectly normal in this type of contract and agreed to it. If Hammond Suddards had not accepted my insistence that Wang was not to be liable for such losses, I would not have allowed the negotiations to go any further."

It was plain from Mr. Lambert's oral evidence that he could not recall any particular conversation with anyone from Hammond Suddards.

61. It is no criticism of Mr. Lambert that he cannot remember details of conversations so long ago, or even whether such conversations took place. In cross-examination he was asked specifically about clause 43(a)(i):

"Q. The next point that I want to ask you about, and probably the final point, is clause 43(a)(i) which has assumed an importance in these proceedings which, no doubt, nobody anticipated at the time.

A. Yes.

Q. You tell us, and remind us, and it is clear from the agreement, that in case of conflict, Pegler's conditions were going to take precedence?

A. That is correct.

Q. This clause again was the subject of brief discussion during the course of the negotiation, was it not, do you recall?

A. I do not actually.

Q. So far as your recollection goes, it was a subject of no discussion at all, would that be fair?

A. I am really saying I do not remember. It is a long time. I cannot remember at this moment about that particular clause.

Q. I will see if I can prompt your memory in this respect. So far as our researches go, the change, and it may or may not be a significant change, firstly is in numbering, because this was originally 44 but it became 43 but that is insignificant, and then at 43(a)(i) you will see the Notice of Termination was triggered by Wang committing a material breach of its obligations and the word "material" was an insertion. Do you recall that?

A. No I do not. I am certainly not denying anything in that regard, I just do not recall.

Q. And there was no, apart from that, negotiation of this clause at all. Would you agree?

A. That would be my recollection. I believe that to be true.

Q. And certainly therefore there was no discussion or understanding as to what the effect of this clause would be?

A. That is correct. In terms of an actual discussion on this particular clause with respect to the subject matter, no.

Q. If I can paraphrase and see if we can agree this. What you are essentially saying in clause 17 of your witness statement was that if this termination provision gives Pegler a right to claim indirect consequential losses, as you describe it in paragraph 14 of your witness statement, then that was not something to which you would, if you had been aware of it, have agreed?

A. Yes."

On that evidence, and Mr. Lambert's was the only evidence on this point, there was no agreement sufficient to justify an order for rectification of the contract.

62. My findings regarding clause 43(a)(i) provide further reason why consideration of the Unfair Contract Terms Act is unnecessary, but in case of an appeal, and for the sake of completeness, I now consider issues raised under that Act.

THE UNFAIR CONTRACT TERMS ACT

63. By their Reply, Pegler rely on the Unfair Contract Terms Act, 1977 and say that clauses 5.15.6 and 5.15.7, on the construction contended for by the defendants, are unreasonable.
64. The claimants contend that the terms of contract relied on are governed by sections 3, and 6, of the Unfair Contract Terms, Act, 1977:

65. Pegler made the contract in the course of a business and accordingly did not deal as a consumer: section 12 of the Act. Pegler does, however, contend it dealt "on the other's written standard terms of business". Pegler also contends that section 6 applies because of the terms alleged in paragraph 10 of the Statement of Claim.
66. Wang accepts that the Unfair Contract Terms Act applies insofar as clauses 5.15.6 and 5.15.7 seek to exclude liability for obligations to act with reasonable skill and care or for breaches of statutory implied terms as to fitness for purpose and merchantable quality. However, Wang contends that the terms on which they rely are not to be treated as their "written standard terms of business". In support of the latter contention, Wang submit:

"However, Wang does not accept that this was a contract entered into on Wang's Standard Terms and Conditions. The contract was entered into after a process of negotiation in which significant terms were lifted straight from Pegler's Standard Terms and Conditions and indeed were stipulated to take precedence in the event of a conflict between those and other terms and conditions. The fact that certain terms relied upon were terms which Wang endeavoured to include in all its contracts does not mean that the end product falls within Section 3 of UCTA 1977."

67. That submission raises an issue whether the words "the other's written standard terms of business" refer only to a situation where the whole of a parties standard terms are applied or, on the other hand to a situation where only some standard terms are incorporated into a contract. In this connection, it is to be observed, that in the part of the Act applying to Scotland, reference is made to "a Standard form contract" rather than to "the other's written standard terms of business": see section 17. Sometimes, of course, a party is presented with a printed form to which the only permitted alterations are the filling in of blanks, but in other cases, as here, some terms are tailor made for the contract in question and others are in a standard form.
68. The words "on the other's written standard terms of business" are not defined or explained by the Act. As I pointed out in my judgment in British Fermentation Products Limited v. Compair Reavell (1999) 66 Con LR and [1999] BLR , the Law Commissioners made a deliberate decision not to recommend such a definition. The Law Commission and the Scottish Law Commission wrote (Law Com No.69; Scot Law Com No. 39 paragraphs 151-157):

"152. Broadly speaking, standard form contracts are of two different types. One type is exemplified by forms which may be adopted in commercial transactions of a particular type or for dealings in a particular commodity, such as the different forms of sale contracts used by the Grain and Feed Trade Association or the forms for building and engineering contracts sponsored by the Royal Institute of British Architects, the Institution of Civil Engineers and the Federation of Associations of Specialists and Sub-contractors. Such forms may be drawn up by representative bodies with the intention of taking into account the conflicting interests of the different parties and producing a document acceptable to all. The other type is the form produced by, or on behalf of, one of the parties to an intended transaction for incorporation into a number of contracts of that type without negotiation. Examples include a multitude of printed documents setting out conditions of various kinds, terms found in catalogues and price lists, and terms set out or referred to in quotations, notices and tickets. Although it is the second type of standard form contract that has attracted most criticism, both types have in common the fact that they were not drafted with any particular transaction between particular parties in mind and are often entered into without much, if any, thought being given to the wisdom of the standard terms in the individual circumstances."

69. The Law Commissioners then said that although lawyers are familiar with the idea conveyed by the terms "standard form contract" it is not easy to formulate a precise definition. One possible distinguishing mark, the lack of negotiation was considered and rejected as a defining feature:

"156. The essential element that has led us to the decision that there must he some measure of control over terms in standard form contracts between persons in business is the lack of negotiation that exists in most situations where they are used. Nevertheless it does not seem to us that the lack of negotiation, or of any opportunity for negotiation, can itself be regarded as the distinguishing feature of standard form contracts. In many contracts there may be negotiation as to some terms, such as the quantity or price, with no opportunity to negotiate the exempting terms with which we are concerned. Moreover, an expressed willingness to discuss terms may not in practice mean that the terms are any the less proffered on a "take it or leave it" basis. Accordingly our conclusion is that the lack of opportunity to vary or negotiate terms should not be made a feature of a statutory description of standard terms."

70. Finally, the problem was left to the courts:

"157. We think that the courts are well able to recognise standard terms used by persons in the course of their business, and that any attempt to lay down a precise definition of "standard form contract" would leave open the possibility that terms that were clearly contained in a standard form might fall outside the definition. In our view this would be unfortunate. We have not, therefore, attempted to formulate a statutory description of a standard form contract."

71. Some guidance is to be found in a Scottish decision. In McCrone v. Boots Farm Sales Limited [1981] SLT 103 at 105, a decision on a point of pleading, Lord Dunpark considered the meaning of the words "standard form contract" in the part of Unfair Contract Terms Act, 1977 applicable to Scotland:

"The Act does not define "standard form contract", but its meaning is not difficult to comprehend. In some cases there may be difficulty deciding whether the phrase properly applies to particular contract. I have no difficulty deciding that, upon the assumption that the defenders prove that their general conditions of sale were set out in all their invoices and they were incorporated by implication in their contract with the pursuer, the contract was a standard form contract within the meaning of the said section 17.

Since Parliament saw fit to leave the phrase to speak for itself, far be it from me to attempt to formulate a comprehensive definition of it. However, the terms of s. 17 in the context of this Act make it plain to me that the section is designed to prevent one party to a contract from having his contractual rights, against a party who is in breach of contract, excluded or restricted by a term or condition, which is one of a number of fixed terms or conditions invariably incorporated in contracts of the kind in question by the party in breach, and which have been incorporated in the particular contract in circumstances in which it would be unfair and unreasonable for the other party to have his rights so excluded or restricted. If the section is to achieve its purpose, the phrase "standard form contract" cannot be confined to written contracts in which both parties use standard forms. It is, in my opinion, wide enough to include any contract, whether wholly written or partly oral, which includes a set of fixed terms or conditions which the proponer applies, without material variation, to contracts of the kind in question. It would, therefore, include this contract if the defenders' general conditions of sale are proved to have been incorporated in it. In that event, it would be for the defenders to prove that it was fair and reasonable for their condition 6 to be incorporated in this contract."

72. Lord Dunpark's words, "It is, in my opinion, wide enough to include any contract, whether wholly written or partly oral, which includes a set of fixed terms or conditions which the proponer applies, without material variation, to contracts of the kind in question", if applied to this case would bring the exclusion clauses on which Wang rely within the Act. The evidence shows that while Wang was prepared to negotiate on matters such as clauses defining the moments of delivery, performance, passing of risk and similar matters, Wang was also determined to use its standard exclusion clauses which, apart from one small and inconsequential exception, were not negotiable. The evidence of that determination was given in the affidavit evidence of Mr. Roger Whitehead, a director of Wang, in answer to interrogatories and in the written and oral evidence of Mr. Lambert, Wang's legal adviser at the time. Mr. Whitehead produced copies of the 1986 and 1988 editions of Wang's standard terms and conditions, including the terms under consideration. Mr. Whitehead's evidence was that even in cases where there were on the file standard terms of both Wang and a customer, it had never been the intention of Wang's sales staff to bind Wang contractually on any terms other than those contained in Wang's Standard Terms and Conditions. The evidence of Mr. Lambert was that "the way that the contract was put together was that the main body of the contract essentially comprised Wang's standard terms". He also said that clause 5.15 was "in Wang's standard form". He confirmed that in his oral evidence. The small exception was the willingness to change the closing words of clause 5.15.4 to substitute the total price of the contract for a stated sum of money, namely £250,000. That exception is of no consequence because Mr. Lambert said in evidence that it was the practice of Wang, and indeed of the whole computer industry, to limit a supplier's liability to direct losses with a maximum limit of the contract price or more rarely to a fixed monetary amount in excess of the contract price, and that accorded with the evidence of Mr. Whitehead. A standard term is nonetheless a standard term even though the party putting forward that term is willing to negotiate some small variations of that term.
73. I find that, so far as concerns the exclusion clauses, Pegler were dealing "on the other's written standard terms of business", and that is sufficient to cause the Act to apply to those terms. For the Act to apply, it is not necessary for the whole of the contract to be "on the others' written standard terms of business".

REASONABLENESS UNDER THE UNFAIR CONTRACT TERMS ACT

74. The Act puts the burden of proof of reasonableness on the defendants. Section 11(5) provides:

"It is for those claiming that a contract term or notice satisfies the requirement of reasonableness to show that it does."

75. In considering whether a condition is reasonable, the relevant date to be taken is the date of making the contract. Section 11(1) of the Unfair Contract Terms Act, 1977 states the test of reasonableness:

"(1) In relation to a contract term, the requirement of reasonableness for the purpose of this part of the Act .... is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made."

76. In considering reasonableness the Guidelines set out in Schedule 2 to the Act should be applied. Those Guidelines are prescribed by section 11(2) of the Act to sections 6 and 7. Those sections do not apply to this case and the Guidelines have no direct application, but they are usually regarded as of general application to the question of reasonableness: Stewart Gill Limited v. Horatio Meyer & Co. Limited [1992] 1 QB 600 at 608 per Stuart-Smith L.J. The Guidelines are in the following terms:

"The matters to which regard is to be had in particular for the purposes of sections 6(3), 7(3) and (4), 20 and 21 are any of the following which appear to be relevant-

(a) the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer's requirements could have been met;

(b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term;

(c) whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties);

(d) where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable;

(e) whether the goods were manufactured, processed or adapted to the special order of the customer."

77. As to Guideline (a), Pegler is a substantial company backed by a substantial holding company. However, in its dealings with Wang, Pegler had burnt its boats by accepting a deal in principle and allowing work to start before standard terms were discussed.
78. As to Guideline (b), the evidence of both Mr. Lambert and of Dr. Worden (an expert witness called on behalf of Wang) was to the effect that all computer companies contract on similar terms as to exclusion of liability.
79. As to Guideline (c), Pegler were advised by solicitors throughout their negotiations, and were well aware of the terms on which they were contracting. The terms of the legal advice given to Pegler are privileged and have not been disclosed. It should not be assumed that the advice given to them as to the meaning of the terms was the same as Mr.Lambert's understanding of those terms.
80. As to Guideline (d), Pegler stress that the system was "oversold" by Wang, by which Pegler mean that Wang represented their system was far more suitable to Pegler's purposes than it in fact was, and that Wang knew that the system was oversold. Pegler had every reason to have confidence in the suitability of what they were buying and they were let down disastrously.
81. As to Guideline (e), a part of the "overselling" consisted of substantial misrepresentations of the "fit" of Wang's standard package to Pegler's requirements.
82. Perhaps with the help of the advice they took before going out to tender, Pegler were very aware both of the importance of their specification in the Instructions to Tender (ITT) and of the importance of the degree of "fit" which would be provided by whatever software package they bought. It had to be accepted that no software could be bought and used straight off the shelf without adaptation to the special needs of Pegler. But the more adaptation or "bespoking" was required, the greater the possibility of delay or error.
83. Important evidence was given by Mr. Keith Laughton in writing under a Civil Evidence Act notice. Mr. Laughton gave the evidence in New Zealand where he works as a manufacturing systems consultant. For many years before April, 1994, Mr. Laughton worked for Geac Computers Limited, a New Zealand software company which developed and sold a system named FACT. It was that system which Wang offered to supply to Pegler. Wang was the distributor of FACT for the European market. In May and November, 1994, Mr. Laughton visited Pegler to consider certain problems being experienced in the use of FACT there. Mr. Laughton found that Wang had represented to Pegler in their Response to the ITT that FACT was a "perfect fit" for many of their requirements when it was not, requiring skill, time, and expense it making it a fit.
84. Wang have themselves acknowledged that to provide what was promised by Wang, bespoke programming was required in many more respects than was indicated in the Response. More than 100 admitted breaches have been listed by Pegler: all were in respect of items where Wang had alleged that there was a perfect fit but bespoking was required in the event. Dr. Worden, an expert called by Wang, gave his opinion that many of the statements in the Response were salesmen's puff. He added,

".....I have seen how salesmen operate in various companies and it is often the case that the line management for sales is separate from the line management for delivery and they have different motivations and there is insufficient control of what the salesman is offering"

and he agreed that it would be fair to say that that was his impression of Wang's Response. Dr. Worden said that while the system was sold on the basis that it would be an 85% fit with Pegler's requirements, in his view it was no more than a 70% fit.

85. Wang portrayed their solution to Pegler's problems as a "low risk" solution. In the Response, Wang stated:

"We believe that we have, by a long chalk, the easiest, least disruptive, and fastest migration path from your current situation to a demand driven manufacturing system at an early phase of the project".

86. It would be one thing for Wang to include in their contract standard terms intended to exclude liability in the event of some not readily foreseeable lapse on their part, but quite another to do so when they had so misrepresented what they were selling that breaches of contract were not unlikely.
87. In the circumstances, it was unreasonable to impose the standard terms on Pegler, who had no choice but to accept them.
88. I find that the exclusion of liability clauses relied on by Wang are unenforceable by reason of the Unfair Contract Terms Act, 1977.
89. For all those cumulative reasons, both of construction and under the Unfair Contract Terms Act, 1977, I find that the exclusion of liability clauses on which Wang rely do not assist them.

THE PROOF OF THE CLAIM

90. Counsel for Pegler has been at pains to point out that because liability has been admitted by Wang during the course of the preparations for trial, the enormity of Wang's wrongdoing has not been painted in full colour at the trial. Certainly, Wang's conduct has been appalling. In the first place Wang misrepresented what it was selling. Then it failed repeatedly to deliver modules on time or at all. In 1994, Wang closed down the UK Business Process Management (BPM) department which was essential to the success of the project, and the only BPM service provided (out of a total package priced at £272,000) was a sales mapping report. In 1994, Wang ceased to sell FACT and became unable to support it although by its contract it undertook in perpetuity to support with updates. During 1994, Wang did little to make progress with the contract and then abandoned the job entirely when it was far from complete at the end of 1995. Pegler was left with a system that was far short of complete, and what had been supplied was in many respects defective. Using its own resources, Pegler wrote its own software for Sales Order Processing (SOP) which it put into action in mid-1996. But the fact that those circumstances induce disapproval of Wang is not relevant to the enquiry before me. My task is to assess compensatory damages. It is not open to the claimants in this case to claim either aggravated or punitive damages. The purpose of compensatory damages is to compensate, not punish. The question is not what Wang deserve to have to pay, but what Pegler can prove is its entitlement in compensation.
91. Pegler suffers unusual difficulties of proof in this case. The claim falls under various categories, but the bulk of the claim in amount concerns loss of profits which Pegler would have made or the failure to make savings which Pegler would have made if Wang had not been in breach. The computation of expectations of profit or savings is severely complicated by the intrusion of other imponderables such as variations in the market, the effect of other changes in Pegler's business, and labour relations, to name but a few.
92. During some pre-trial hearings, I thought I understood it to be said on behalf of Wang that Pegler could not prove any loss despite Wang's breaches. But at the trial, counsel for Wang made it plain that it was accepted by Wang that some loss had been suffered by Pegler, but nothing like the sums claimed.
93. Wang point to the substantial upwards revisions of the amount of Pegler's claim over the years from the writ in the current action to further revisions during the trial:

Date	Amount
1 October 1997	£10,726,530
5 March 1998	£15,697,630
1 September 1998	£22,181,573
6 July 1999	£22,872,718
25 November 1999	£22,898,472

94. Whatever sympathy I may have for Pegler, I bear well in mind that the burden is on Pegler to prove its loss and the amount of that loss on the balance of probabilities, though the amount in most instances in this case is a matter of estimation rather than calculation. I also bear in mind that Pegler has failed to keep records of important matters where records might have been expected in the circumstances of this case.
95. The evidence before me consisted of:

1. Contemporaneous documents;
2. Oral and written evidence of directors of Pegler;
3. Oral and written evidence of employees of Pegler;
4. Oral and written evidence from some traders;
5. Oral and written evidence from one of Wang's lawyers;
6. Written evidence of market surveys and the like;
7. Expert evidence.

96. I have heard evidence from five expert witnesses.
97. Mr. Graham Stevens, a partner in KPMG, gave evidence concerning manufacturing systems on behalf of the Pegler. Dr.Robert Worden gave evidence concerning manufacturing systems on behalf of the defendants, and also gave evidence concerning planned maintenance. Mr. David Nicholson of Norwood Consulting Associates, gave evidence concerning planned maintenance on behalf of the defendants.
98. Accountancy evidence was given on behalf of the claimants by Mr. David Lee of Lee and Allen, and on behalf of the defendants by Mr. Frank Ilett of Ernst and Young.
99. The differences and agreements between experts have been most helpfully elucidated in Joint Reports of Experts. Mr. Lee and Mr. Ilett explain that while they are largely agreed on arithmetical calculations, they have had a difference of approach. They say, "Mr Lee's approach has been to calculate Pegler's loss from the evidence of Pegler's witnesses and Pegler's financial records on a basis which he considers appropriate and reasonable. Mr Ilett's approach has been to review the calculations of loss put forward by Pegler and Mr Lee and to test their reasonableness in the light of all the contemporaneous financial and other records disclosed by Pegler and Wang. Where Mr Ilett has found the statements of Pegler's witnesses or the assumptions used in Pegler's calculations to be unsupported, or contradicted by these contemporaneous financial and other records, he has calculated loss on an alternative basis using the records which he considers to be reliable for this purpose." One of the documents used by Mr. Ilett as a check on the evidence of the witnesses of Pegler is a written Capital Expenditure Proposal (CEP or CAPEX) submitted by Pegler to its parent company, F.H. Tomkins plc (Tomkins), in 1991 to support its application to make capital expenditure by entering into a contract with Wang in accordance with the ITT and Wang's Response to the ITT. (Pegler had to apply to Tomkins for authority to make any expenditure in excess of £6,000). The CEP is relied on by Mr. Ilett and Wang as showing the reasonable expectation of the directors of Pegler at the time of the contract and as a good starting point for assessing damages. Mr. Lee disagrees. Mr. Lee's evidence depends on the extent to which the evidence of the directors of Pegler and other witnesses is accepted as reliable.
100. Mr. David Nicholson and Dr. Robert Worden state, "Generally we believe that most of the areas of disagreement, listed below, are differences of emphasis rather than of fundamental principle."

CLAIMS A and B:

101. The bulk of Pegler's sales were Home Sales, sales within the UK to companies outside the Tomkins Group. In 1992, Pegler made £33.4m of Home Sales, £12.4m export sales, and £5.4m sales within the Group, which they call "inter-company sales".
102. No claim for damages is made against Wang in respect of export sales. I do not have precise figures, but there is evidence that in some parts of the relevant period, the claimants did rather well with their exports, due largely to currency variations, particularly when the United Kingdom left the ERM in September, 1992. Each of the monthly Management Reports for September, 1992 to March, 1993 mentioned export sales being over budget.
103. Home sales are predominantly to builders' merchants, with much of the demand being created by local authority and housing association projects and maintenance. Although Pegler prides itself in competing on quality, much of its business is at the lower end of the quality market. The size of the market in any year is dependent on the national economy and the number of "home starts". Some of the builders' merchants are very large companies, but ordering by some of those companies is done on a Branch basis so that their orders have to be dealt with as though there was not one large customer but a number of small customers.
104. Claims A and B are based on the failure of Wang to deliver SOP (sales order processing) by the agreed date 31 March 1993. Pegler developed its own stand alone SOP which came into operation in July, 1996. There was an absence of SOP for 3 years and a less efficient SOP thereafter because what was developed was not integrated with a system of total business control.
105. It is accepted by Wang that Pegler would have been better able to deal with increasing competition if Wang had not been in breach of contract. But Wang contend that Pegler's claims are inflated and also that it is wrong to attribute the whole of the loss to the absence of the computer. Changes in business methods had to precede benefits from the computer. Pegler's rejoinders to this contention are: (a) they did make some changes in business methods; (b) it was Wang's contractual duty to advise them of the changes in business methods required and Pegler would have made any changes required by Wang.
106. Pegler does not formulate the claim for lost home sales by identifying specific customers lost or specific orders lost. Some reference was made to a comparatively small number of specific customers in evidence, but only by way of corroboration of a much more general case and in support of the proposition that poor delivery resulted in continuing loss of business right up to 1996. That evidence was given in particular by Mr. Shirley and further evidence can be found in the documents. Some of the evidence was of business directly lost and some was of loss of a chance to tender for business, in particular the Swan range of taps.
107. Pegler makes a claim for lost opportunity to increase margins. That claim amounts to little more than assertions that if the company had been doing better in 1993 it could have increased its margins. It was said that the climate for negotiations has become more competitive since 1996 being more open to foreign imports. For Pegler it is asserted that if Pegler had had the benefit of SOP in 1993 it would have been better able to negotiate price increases of the order claimed, namely about 2%. Such assertions were supported by similar assertions that Pegler customarily competed on quality rather than on price, but such assertions were contradicted by evidence that from time to time Pegler lost business on price. On the other hand, the Management Reports show that in 1993, 1994 and 1995, Pegler did increase its margins before getting SOP without apparently any perceptible loss of business: see Bundle 8.8 pages 276 and 280, bundle 8.10 page 188 and bundle 8.12 page 211. SOP was said to contribute to better and more reliable delivery. There was evidence that better and more reliable delivery would help Pegler to keep business rather than lose it to the competition, but there was a lack of evidence that better delivery would not only persuade customers to stay with Pegler, but would also persuade them to pay more than they otherwise might. There was a lack of evidence comparing Pegler's performance with the competition. Pegler had difficulties with the size of the market: the recession in the building industry reduced the number of new housing starts and hence reduced the demand for taps and radiator valves and other of Pegler's products. But there was also substantial competition, particularly from the Italian suppliers of luxury goods. It is not suggested that the Italians were making inroads into the market by giving better delivery than Pegler. So it could not be said with any degree of confidence that Pegler would have done better in competition with the Italians either as to market share or as to margin if they had had SOP. That is only one example of the problems I face in assessing damages in this case.
108. In respect of Claims A and B, hindsight has done little to diminish the uncertainties and difficulties of foresight and forecasting. Pegler's financial records show that Pegler's sales were in decline in the early 1990s. That decline flattened and recovered in 1996/7 after the introduction of own SOP. Mr. Lee and Mr. Ilett agree that it is not possible to make direct comparisons between those records and the market statistics. The available statistics themselves are not directly comparable because they relate to the whole BMF "lightside" building supply industry rather than to that part of the lightside industry which includes the business of Pegler. If Pegler's case is correct, Pegler's own figures should have shown a much greater improvement in 1996/7 to show an increase over and above the market. But between August 1996 and July 1999, sterling increased markedly in strength, particularly against the Lira and Italians and others penetrated the UK market to a much greater degree. Pegler's case that they would have been in a stronger position to resist that penetration if they had had SOP in 1993 cannot be proved or disproved by reference to the figures. The accountancy experts are agreed an that.
109. Pegler puts forward its case in relation to three periods identified by Mr. David Lee, Pegler's expert accountant:

April 1993 - July 1996. This is the period beginning with the date when Wang should have implemented SOP until Pegler implemented its own replacement SOP system, and referred to by Mr. Lee as the primary "but for" period;

The period between July 1996 and the date of trial; being the period during which Pegler has enjoyed the functionality provided by its "own SOP", and over which period performance statistics are available, but during which it claims to have suffered from a loss of competitive advantage;

The period from 1999 - 2004. This is the period over which Mr. Lee has projected the calculation of future loss. Mr Lee explained this as a period during which Pegler continue to suffer from the loss of competitive advantage caused by Wang's failure to implement SOP in April 1993. Initially, Mr. Lee, basing himself on evidence given by some directors of Pegler, formulated this as a claim in perpetuity. Then, on no particular principle that I could discern, he limited that to 5 years.

110. In respect of the first period, Pegler claims £1,939,000 for loss of profits on Home Sales said to have been lost as a result of having no SOP. In respect of a slightly different period, December, 1993 to November, 1996, Pegler claim £1,922,000 for profits lost as a result of being unable to increase margins on home sales.
111. In respect of the second period, Pegler claims £3,349,000 for ongoing losses.
112. In respect of the third period, Pegler claims £5,320,000.
113. The total claimed for the three periods is £12,530,000.
114. Mr. Lee said that normally this sort of claim would be formulated by what he called "the classic but-for test". He explained that by an example. If a claimant's factory was burnt down at the beginning of 1994 and rebuilt at the end of 1994 and trading was resumed at the same level as before, it could be said that but for the fire the claimant would have had one year of trading at the level of 1993 and 1995 and should receive compensation for loss of trading at that level. In the present case, the market was by no means constant, and it was impossible to apply a simple "but-for" test. So far, both parties are agreed. The defendants also stress that in addition to variations in the market there were many other variables.
115. The approach of both parties to the claim has been to apply a percentage figure to actual sales results and say that the percentage addition is what was lost. The percentage applied by the claimants was assessed by directors of Pegler after the event. The percentage applied by Wang was derived from what has been called the "computer CAPEX", the document submitted by Pegler to Tomkins to support its application for capital to invest in the computer project.
116. Mr. Lee said that the basis of calculation of damages under this head of Pegler's claim had been to apply the expected percentage increases in sales to actual sales in each product group for the period 1 April 1993 to 30 June 1996 to derive the "lost sales". The contribution to profit and fixed overheads on these lost sales which Pegler would have earned if Wang had delivered SOP on time was then calculated by applying the relevant gross profit margin to the lost sales.
117. The sterling value of Pegler's actual home sales for 7 product groups has been calculated for the period April 1993 to June 1996. It is agreed that if Pegler had provided a more reliable delivery service, they would have been able to sell more. It is also accepted that if Wang had provided the SOP promised when it was promised, that would have helped Pegler to give a better delivery of its products. What has taken so much time to consider in this trial is the question, by how much would the provision of SOP have benefited Pegler?
118. Mr. Lee said,

"The first approach which was considered was that a review of Pegler's actual home sales performance following the implementation of SOP in July 1996 would provide an indication of the effect of improved customer service on sales. However, difficulties were encountered in isolating the effects of improved customer service from the other factors which have affected Pegler's sales. In particular it has not been possible to determine the general market movements for each of the markets in which Pegler's products are sold. Although there are various statistics which provide general indications of trends in these markets they do not, as set out in Mr Shirley's statement, provide reliable measurements of overall increases or decreases in the markets for Pegler's products. There has also been an important general economic factor which is likely to have had a significant impact on sales of certain of Pegler's products. The general strength of sterling against foreign currencies, and in particular the Italian Lira, has meant that Pegler's foreign competitors have been able to price their products very competitively when compared with Pegler and the other UK manufacturers. The strength of sterling has had the effect of decreasing Pegler's sales in the year to 30 April 1998. However, it has not been possible to quantify the effects of either the general market movements post-July 1996 nor the effect on Pegler's sales of the strength of sterling. As a result it has not been possible to eliminate these factors in order to isolate the effect on sales of improved customer service pursuant to the introduction of SOP. For the various reasons set out above it has not been possible to quantify the effect of improved customer service on Pegler's sales on the basis of its actual results following the implementation of SOP. The alternative approach has been to consider the views of Pegler's directors."

119. The views of Pegler's directors referred to by Mr. Lee were the views of Mr. Lasseter and Mr. Shirley (Sales and Marketing Director) as given in their witness statements. Mr. Lasseter and Mr. Shirley gave estimates which can only be said to have been plucked out of the air. The estimates of the two witnesses were very close to each other, and Mr. Lee took the lower of the figures proffered:

Product Group	Increase in sales %
GM Engineers	2%
HP Gate Valves	2%
Standard Chrome	5%
Luxury Chrome	4%
GB Fittings	6%
Radiator	5%
Prestex	10%

120. The most straightforward presentation of the claim would have been a statement by the claimants that in the year following the introduction of SOP in July 1996 sales figures increased by x% and margins increased by y% and all of that increase was due to SOP and it was reasonable to infer that such increases would have been achieved from April 1993 if Wang had delivered SOP on time. Not surprisingly, Pegler have to present a much more complex picture. In the case of some products, the results are improved, in other cases, it is said that were it not for the introduction of "Own SOP" Pegler's performance would have suffered still further. One of the problems was that the strong pound enabled foreign competitors, particularly Italians, to penetrate the market especially in the luxury end of the trade. The thesis of the Pegler witnesses has been generally that Pegler's trade is not affected by price, but that service and delivery are the competitive factors which determine Pegler's success or failure in the market. Even on Mr. Shirley's evidence, that cannot be correct in the light of the admitted competitive edge of the Italians in the luxury market from 1997 onwards. The Italian penetration of the market was certainly largely based on price, and because the goods were imported it was unlikely to have been aided by delivery considerations.
121. Not being satisfied with the actual increases or the actual reductions in figures shown in Pegler's accounts after the introduction of "own SOP", Mr. Shirley and Mr. Lasseter made their own estimates of what ought to have been achieved. Counsel for Wang describe Pegler's claim as being just the application of a layman's arbitrary percentage to the actual figures for 1996 and then applying the 1996 "loss" thereafter. Pegler would describe the process as the application of a percentage assessed by those in the best position to make an assessment, namely the directors of Pegler. In fairness to those directors, I should remark that they have made adjustments to their assessments in the light of the views of others involved in this action. It is for me to decide whether to accept the evidence of Mr. Lasseter and Mr. Shirley. If I do not accept that evidence, then I have to decide on what other basis the admitted damage should be assessed. The defendants urge that I should be guided by the figures put forward by those same directors in the computer CAPEX.
122. Mr. Lee has made his own assessment of whether the percentage increases proposed by the Pegler directors were reasonable. He has been criticised for making that assessment because, it is said, that is a matter for the judge. However, since the preparation of his evidence has cost an enormous sum of money, it was reasonable for him and in the interest of the claimants that he should test the basis of that evidence before he embarked on his task. It is also helpful to me that Mr. Lee should have stated his reasons for believing that the assessments made by Pegler's directors were reasonable, and that Mr. Lee's reasons should have been tested in cross-examination. At paragraph 3.40 of his first report, Mr. Lee put forward several points in support of the proposition that the assessments were reasonable.
123. The first point made by Mr. Lee was that Mr. Lasseter said in his witness statement that Pegler in 1991 was "anticipating growth of around of (sic) 20% of sales value over the next three years. This envisaged average annual sales growth of around 7% which was achievable provided we were able to improve service delivery and reliability, which was seen as a key measure of performance from the customer's point of view. We set ourselves a goal of delivering on time in full in excess of 95% of customer order lines." That statement made by Mr. Lasseter reflected the first objective stated by the company's Strategic Plan for 1991-1993.
124. Annual growth of 7% linked to improved service delivery and reliability was anticipated as an objective in 1991, but it was not achieved. The Strategic Plan for 1992 -1994 began:

125. Mr. Lee's next point was:

"Pegler's delivery statistics measure deliveries to customers in terms of those which have been delivered OTIF. Pegler's OTIF statistics show that between December 1996 and April 1998 a 94.1 % OTIF average was achieved"

Wang responds that Pegler's OTIF statistics had improved very significantly before the introduction of Pegler's "own SOP" in July 1996. The OTIF statistics were improved before the introduction of "own SOP" by other very substantial improvements in Pegler's business practices. It is reasonable to infer that a substantial portion of the improvements in the OTIF statistics after July 1996 were attributable not to SOP but to the continuing improvements in Pegler's business practices. Moreover, Mr. Lee's point about 94.1% average OTIF should be read in conjunction with his next point:

"The percentage increases which Pegler has used to project lost sales are equivalent to overall annual sales increases of 5.2 – 5.3%, as compared with the 7% which Mr. Lasseter felt could be achieved if OTIF deliveries could be improved to 95%."

Mr. Lasseter accepted in his evidence that he had assumed that there would be much more favourable market conditions than there in fact were in the years following 1991. The recession in the building industry lasted much longer than he had anticipated. Moreover, the increase in OTIF deliveries was expected to be achieved by many means in addition to SOP. I agree with the submission made by counsel for Wang that those two points together militate against accepting 5.2% or 5.3% as a reasonable estimate of what the computer SOP alone would achieve.

126. Mr. Lee's next point was:

"the CEP prepared by Pegler in respect of the Wang System projected a conservative 1% increase in UK and Export sales. Although the 1% is significantly lower than the 5.2 - 5.3% now projected it should be noted that the CEP was prepared on a conservative basis in order to establish the viability of the investment in the System rather than to quantify the full extent of all the financial benefits of the System"

The 1% increase projected in the CAPEX (on which Wang rely) was a 1% increase on both home and export sales. In actuality, the export sales increased very considerably, and they may have taken some of the company's effort away from the home sales. But the point on which considerable attention has been focused was that the CEP or CAPEX for the computer made a "conservative" estimate of the anticipated return on the investment. I should explain that Pegler were entirely dependent on Tomkins for capital investment. All Pegler's profits were taken from them by Tomkins at the end of the financial year so that Pegler never had any funds of their own to plough back into investment. If Pegler's Board wanted to make a capital investment, they had to put up a case to the main Board of Tomkins in the form of a CEP or CAPEX stating the amount of the capital required and the anticipated return on the capital. In making such an application for capital, Pegler's Board would plainly not wish to be over optimistic because they might be held to account for unjustified optimism. Equally, if they were unduly pessimistic, they might be held accountable for that, and further they might not get the capital to enable them to expand their business. Some of the directors of Pegler gave evidence that the CEP for the computer was "conservative". But the initial reaction from their Chairman to the first sight of the CEP was that they were projecting an inadequate return on the capital yet in response to that reaction they were not persuaded to make a more generous estimate. Mr. Lasseter said that the projection was "cautious" but he also accepted the descriptions "fair - reasonable". As a responsible director, how could he say anything else? Mr. Blackwood accepted the description "accurate". Mr. Brooks stood out for a 50% margin, that is, as I understood his evidence, he said that an estimate of 1.5% would have been as reasonable as the stated 1%, though if that is so, it is difficult to understand why the directors did not say so in the CEP. That evidence caused Mr. Ilett to accept 1.5% as the prediction on which he worked, mainly as an act of generosity to Pegler. However conservative the CAPEX prediction was, no one has given any logical reason for an increase from 1% as the reasonable expectation at the time to 5.2% now put forward.

127. Mr. Lee's next points were:

"It appears reasonable to apply different percentage increases to the various product groups to reflect that it is likely that they would be affected to different extents by the introduction of SOP. It also seems reasonable to apply higher percentage increases to those products of a 'commodity' nature where improvements in customer service are more likely to differentiate Pegler's products from those of its competitors which are broadly similar in terms of price and quality. It therefore appears reasonable that higher percentage increases should be applied to Prestex, GBF, radiator valves and standard chrome taps and mixers - the commodity products - whereas lower percentage increases should apply to Engineers' valves and luxury chrome products where factors other than delivery performance can be more important; and the percentage increases proposed do not appear unreasonable in comparison with the percentages put forward by the respondents to the telephone survey carried out by KGS, the results of which are summarised above."

There, is no challenge to the assertion that it is reasonable to apply different percentage increases to the various product groups. The reliance on the KGS Reports as to figures is challenged, as is the reliance on those reports in other respects.

128. The KGS Reports were reports made by Keith Gorton Services Limited, a marketing research agency specialising in the building services market. KGS were asked to make telephone surveys of the industry for the purpose of these proceedings. The first report was made on the instruction of Pegler in 1995, and two more reports were made on Mr. Lee's instruction.
129. No objection was taken to the admissibility of those surveys, but objection was taken to the weight to be given to them.
130. The admissibility of market surveys and the weight to be attached to them have been considered in trade mark and patent actions and in actions for passing off. During the course of the trial in Reckitt & Colman Products Limited v. Borden Inc. [1987] FSR 407, Walton J. ruled that such evidence was not expert evidence. In Customglass Boats Limited v. Salthouse Brothers Limited [1976] RPC 589, Mahon J. in the Supreme Court of New Zealand considered such evidence in greater depth. Mahon J. considered the English authorities A. Baily & Co v. Clark Son and Morland [1938] AC 557 and General Electric Co. v. General Electric Co. Limited [1969] RPC 418 and [1970] RPC 339. In the earlier case, Lord Russell in the House of Lords suggested a practice widely followed in later trade mark, patent and passing off cases of filing affidavits from a limited number of respondents to the survey and filing a further affidavit proving the number of other persons who had replied and making their answers available for perusal.
131. At page 594, Mahon J. said:

"So far as I can see, public opinion or survey evidence is not now in practice treated as hearsay in trade mark or patent cases in the United Kingdom notwithstanding that the party adducing such evidence relies not only upon the affidavits of persons responding to a questionnaire but also upon answers not sworn to but available for inspection by the other side in terms of the direction given in A. Baily & Co. v. Clark, Son & Morland. The latter class of answers, unsanctified by judicial oath, are resorted to by the other side in order to verify the assertion that the sworn answers in fact represent a proportion of a total number tending to the same evidentiary conclusion, and subject to that right of inspection the total number of answers is accepted, in the absence of objection as to their factual existence in due form, as comprising a legitimate assembly of class opinion or impression in respect of the trade name or mark under consideration. In such a case, as in the case of conventional evidence by retailers as to the oral terms of buying orders or inquiries by customers, the Courts plainly accept evidence which is technically overshadowed by a general hearsay objection. The unsworn persons responding to a questionnaire and the anonymous customers who order or inquire about goods are all people making statements out of Court to a witness called in the proceedings, and although the basis of admissibility does not appear to be overtly founded upon anything except established practice and procedure under the trade mark and patent legislation, I can for myself see no objection to the classification of such evidence either as proving a public state of mind on a specific question, which is an acknowledged exception to the hearsay rule, or as proving an external fact, namely, that a designated opinion is held by the public or a class of the public, this not being a matter of hearsay at all."

Under the modern practice, in the type of case now before me, where witness statements are disclosed, affidavits are not required and would not be welcomed. But some evidence supporting the reliability of the surveys is required if the surveys are to carry any weight. It is to be noted that Mahon J. referred to "people making statements out of Court to a witness called in the proceedings". In this case, the person to whom statements were made out of Court was not called as a witness.

132. As regards the weight to be accorded to such surveys, Mahon J. said at page 595:

"There are obvious difficulties in the acceptance of testimony which purports to convey to the appropriate legal tribunal a number of individual assertions or opinions uttered in relation to the subject matter of the inquiry by persons not called as witnesses and, therefore, not subject to cross-examination, but the considerations which I have mentioned lead me to the conclusion that the result of a market research survey is admissible in this class of case to prove a fact in issue, whether it be reputation or likelihood of confusion or deception, even though the persons responding to the form of questions are not called as witnesses. The weight of such evidence, which was the basis of Mr. Gault's objection in this case as opposed to technical admissibility, will depend upon the circumstances. There must be a formulation of questions cast in such a way as to preclude a weighted or conditioned response, there must be clear proof that the answers were faithfully and accurately recorded, and there must be evidence that the answers were drawn from a true cross-section of that class of the public or trade whose impression or opinion is relevant to the matter in issue. A properly drawn market research questionnaire, carefully framed so as to elicit opinions or beliefs held by persons adequately informed, can only reveal in my opinion the existence or otherwise in a defined proportion of the persons interviewed of the relevant opinion or belief, and I do not think it can be right in cases involving trade mark infringement or passing off where evidence of reputation is relevant, and especially in a passing off action where affidavit evidence is not receivable to compel a party to produce in the Courtroom an interminable parade of witnesses to depose individually as to their knowledge and understanding of the trade association involved in a particular trade mark or design, so long as there are followed the cautionary procedures recommended in the article in the New York University Law Review above cited. The evidence obtained by research surrey is in my view legitimate proof of the fact the opinions obtained had in fact existed, whether rightly held or not and on that view of the matter it is my opinion that such evidence is not hearsay at all and that, even if it did fall within the technical concept of hearsay or representing a collation of individual statements made out of Court then the evidence would still be admissible by way of exception to the hearsay rule because it exhibits the existence of a state of mind shared in common by a designated class of persons. In the present case the method and procedure of taking this research survey has already been described and I am satisfied that those methods and procedure were not only adequate but exemplary, and that the results thus obtained are admissible in evidence as proving the reputation of the name in question in relation to the manufacturer and the designer and the place of origin as held by persons properly informed on the general subject matter of the relevant enquiry."

133. The nature of the surveys can be illustrated by the September, 1998 Report. The writer of the report (who is not identified) stated at paragraph 2.0:

134. These surveys were very different from the surveys considered by Mahon J. The trade mark/patent/passing off surveys are directed to general perception of the public regarding a product or product name. The surveys put before me were used as a means of putting before the court the evidence of ten anonymous witnesses on matters largely of opinion. We are given the terms of questions asked, but there is no information about the identity or seniority of the people answering the questions or the degree of seriousness or levity with which they approached the whole process or the skill of the questioner or of the writer of the report. The KGS surveys produce hearsay evidence much of it opinion evidence. Much hearsay evidence is extremely valuable, but before accepting it as valuable, one needs to have evidence of its value. Such evidence is absent in this case. The surveys were conducted on the telephone. Although it is said that the respondents were "those responsible for customer service", it is not stated in the report that they were directors. Whoever answers the telephone will know that the questions are not being asked for the benefit of that person's employer. Some company (whose identity may or may not have been disclosed to the respondent) was asking KGS to get information which will help that possibly unknown company without helping, and possibly damaging, the business of the respondent. So why should the answers given be full frank and honest? Why should the respondent spend his or her employer's time in helping some other company? I have been given no evidence to show me that the KGS surveys are reliable. In the circumstances, it is not necessary for me to rehearse the submissions, which I accept, that the wrong questions were asked. I disregard the KGS surveys in coming to my decision in this case.

135. The really difficult question asked repeatedly in this trial has been, what is the benefit which Pegler has lost from the absence of SOP alone? Mr. Lee, in paragraph 3.31 of his first report tried to marshal the evidence for the proposition that the introduction of SOP would have resulted in an increase in home sales for Pegler. Mr. Lee set out five bullet points.

136. It has been said that it was not the job of Mr. Lee to seek to evaluate the evidence of the directors of Pegler, but he has sought to put forward arguments in support of their evidence and I find those arguments far from convincing. Whatever criticism may be made of Mr. Lee's five bullet points, the evidence there referred to, and other evidence, and Wang's admissions, all support the proposition that SOP would have resulted in an increase in Pegler's Home Sales. But what was the amount of that increase? I cannot see any logical basis for the figures chosen by the Pegler directors, nor, it seems, can Mr. Lee put forward any other than unconvincing general observations. Counsel, whose job it is to marshal the arguments in support of Pegler's evidence, have failed to present any stronger arguments on this head. Wang has been at pains to point out that the Management Reports show a considerable fall-off in customer complaints of poor delivery long before the new SOP in 1996, and Wang argues that it follows that the contribution to the improvement in business due to SOP was not as great as has been painted: other factors had already produced a considerable improvement. As I have already indicated, Mr. Shirley gave evidence of loss of business continuing up to 1996: he also gave evidence of successes in quotations which went in the other direction:

137. The Computer CEP was proposed by Pegler at the end of October and the beginning of November, 1991. It is the only document produced in the litigation in which an attempt was made to assess the likely return on the capital investment in the computer alone. It has to be said that it was a difficult assessment to make because just installing a computer alone would achieve nothing. The benefit depended on what was done with it and what was done to initiate and improve other business systems that could be managed and exploited by the computer.
138. As a part of the general overhauling of the business of Pegler to which I have referred, there were other CEPs. The dates of the CEPs should be regarded alongside the dates of their implementation. Those dates, as shown by monthly Management Reports, are as follows:

Engineering improvements and machine refurbishment continued until August, 1994

Improvements to the radiator valves Business Unit were still required in October, 1994

This unit only reached full potential with robotic and linishing machines being commissioned in April, 1995

139. Pegler's Monthly Management Reports to which I have earlier referred are important contemporary source documents. Each month, each director made a written report of the results for his department for the previous month and where appropriate made forecasts and reviews for the future. Those reports went to each other director of Pegler and also went to the main Board. Any inaccuracy in one director's report would have been corrected by others. Sometimes, directors reported successes and in other reports they reported that things were not going as well as they should. For example, it might be reported that production had been hit by bad labour relations resulting in a strike or go-slow. On other occasions it was reported that business had been lost due to competition on price. More frequently it was reported that business was lost due to bad deliveries. But at no point did any director report or complain that business was being lost because Wang had not delivered SOP. The Monthly Management Reports occupy many files. It is not possible to reproduce them in this judgment to show what is not there. All I can say is that the Monthly Management Reports do not contain material corroborative of the directors' evidence as to the damage suffered from lack of SOP which I would have expected to see if that evidence had been well founded. The absence of that contemporaneous evidence is a serious deficiency in Pegler's case. There was an attempt by some witnesses to suggest that reports made by Mr. Lewis, the then Production Director were written so as to cast his department in as good a light as possible because he was keen to be promoted to Managing Director after Mr. Lasseter's announcement of his departure in March 1995. Such suggestions were made to counter the evidence of the Management Reports that Pegler had many successes due to reorganisation of the factory before introduction of own SOP in 1996. But when challenged, those witnesses were unable to point to any falsity in any report from Mr. Lewis, and no objection was taken to any of his reports at the time. I reject those attempts to undermine the reliability of the reports of Mr. Lewis.

140. For all these reasons, I reject the evidence of the Pegler directors as to the computation of damages under heads A and B. I prefer to rely on the assessment made by those same directors before the event in the computer CEP. The evidence of the directors after the event is so far divorced from their expectations before the event and so lacking in independent confirmation that I find it incredible. Moreover, it is out of keeping with the general principle of the law. In Victoria Laundry v. Newman Industries [1949] 2KB 528 at 539 Asquith L.J. set out a number of propositions applicable to the computation of damages:

141. The computer CEP anticipated a yearly profit from improved sales generated by the computer at £160,000 in years 2, 3, and 4. From that starting point, but making certain fairly generous concessions in favour of Pegler, Wang concedes that the total damages payable under heads A and B, lost home sales and lost margins, should be £640,000.
142. SOP was due to be delivered by 31 March, 1993, so if no benefit was anticipated in the first year, no damages should be payable for the year to March, 1994, but Wang concedes that some damages should be paid for that period.
143. Dr. Worden stated his view that Pegler would not have completed its BPM work by 31 March, 1993 and that without that BPM work Pegler would not be able to reap the full benefit of SOP until January, 1996. Dr. Worden is a very impressive expert in some respects though he seemed to be distracted by his enthusiasms at times. He is not an expert on whether Pegler would or would not have completed its BPM work at any particular time, and I reject that evidence. He later modified that opinion. If the implementation of the system had gone according to plan from the start, I have no doubt that Pegler, without the distractions and injury to confidence flowing from Wang's delays and failure to advise on BPM, would have ensured that their part of the BPM work was done on time so that they could take the benefit of SOP as soon as possible. Happily, Mr. Ilett on behalf of Wang made computations based on that approach, but the final concession made by counsel for Wang put more generous figures into Mr. Ilett's computations, and I accept that latter concession.
144. The concession made by Wang is made up as follows:

Month of April 1993 1/12 x£160,000 13,000

Year to April 1994 £160,000 160,000

Year to April 1995 £160,000 160.000

8 months to 31/12/95 8/12 x £160,000 107,000

6 months to 30/06/96 6/12 x £160,000 80,000

Period to regain position (18 months)) 9/12 x £160,000 120,000

Total 640,000

I regard that computation as entirely reasonable and I adopt it.

145. I need to say something about the last figure in that list, "period to regain position". Pegler's claim at its highest has been that it was entitled to damages for a loss in perpetuity on the basis that business once lost is lost for ever. Mr. Lee, relying on some arcane accountancy principle, said that it was reasonable to limit such a claim to 5 years, but said in cross-examination that the period of 5 years would last from the date of the trial, whenever the trial might be, even accepting that in certain events the trial might have taken place some months earlier or some months later than it did.
146. For reasons given in later paragraphs of this judgment, I do not accept that the claim should be calculated on the basis of a permanent loss, even if that loss is shortened to 5 years. I accept that it would take some period of time after Pegler put its own SOP into operation to recover lost ground, but I have rejected Pegler's only contention about recovery of lost ground, and it has proved no fall-back case. I am left with no authoritative evidence of what length of time would be required to recover lost ground. The best evidence I have is the evidence of Mr. Ilett. He frankly accepted that he was not an expert businessman and certainly had no experience of the market in taps and so forth, but he had seen many businesses as their professional adviser and his evidence is of some value and it is the best I have. He said that it would take 18 months for Pegler to recover its position. There being no other evidence which I accept as to the length of the period, I accept the evidence of Mr. Ilett at least as a matter of concession.
147. Evidence was given by Mr. Barker, Mr. Virr and Mr. Shirley that lost business is very difficult to win back, and it will only be won back if the substitute supplier performs badly. No doubt, when a company has switched its business from one supplier to another there is a reluctance to switch back again except for a good reason, but that is not the same as saying that business once lost is lost forever. Moreover, the witnesses to whom I have just referred were overstating their case. A good reason for giving business back to Pegler may come from at least two sources, firstly the efforts of Pegler's sales force and secondly the mistakes of the competition. Much, indeed most, of the evidence before me has ignored the likely successes and failures of the competition. If Pegler lost sales after April, 1993 due to lack of SOP it was due to a continuation of the previous situation. Customers did not say to themselves, "Pegler have not got SOP so, we will not deal with them". Any customers who went elsewhere said to themselves, "Pegler's deliveries are bad and getting no better, let's try our luck elsewhere", or they said "Pegler's prices are too high". Some of those who changed must have been dissatisfied, sooner or later, with their new supplier. Some of those who changed and were satisfied with their new supplier with regard to delivery might well have been tempted back by an energetic sales staff offering favourable discounts or some other inducements. That view is supported by independent evidence in this case. I will give only some examples.
148. Mr. Ronald Walker, Commercial Director of Plumbing Trading Supplies plc (PTS) gave evidence. PTS sells plumbing and heating equipment and has a turnover in the United Kingdom approaching £95 million. In his witness statement he said, "If we let our customers down persistently, they go to our competitors and it is extremely hard to win them back again". That is easily understood. In the same statement, Mr. Walker said that during the autumn of 1996 Pegler's sales department were telling him about Pegler's customer service pledge, Customcare. In dealing with Pegler, Mr. Walker had been so wary of their bad performance that he had instituted a requirement called "overnight delivery service". I need not describe what that requirement was because by November, 1996 Mr. Walker was so happy with Pegler's improved delivery service that he dropped the requirement for "overnight delivery service". That is evidence both that bad service lost work and that renewal of good service was able to regain work. Mr. Walker is only one customer, but he gave evidence contrary to Pegler's case that business lost was lost for ever. In cross-examination Mr. Walker made the point more strongly in favour of Wang.

Q "Does it follow from that that whatever the nature of the problems you have had in the past with Pegler that you told us about this morning, now that you perceive improvements you are willing to give them new business and a lot of it?

A. Yes.

Q. To what extent, if at all, have Pegler got back that share of the market which they started to lose in 1994?

A. I would not even hesitate to guess. It would be unsafe to guess.

Q. To the best of your recollection do you know of Pegler winning back some share of that market after 1996 or not?

A. Yes, we have regained certain Pegler business, yes."

149. Another example of the same attitude is to be found in a visit report by Pegler representatives to Plumb Centre at Ripon on 12 January, 1994. On that occasion, Plumb Centre told the Pegler representatives that they were giving certain work to new suppliers because they had "found out that prices were better and also the service was very good." The note continued that

"Plumb Center told us that nothing lasts for ever and we could get back the business in the future, if for example, the suppliers have a price increase or let them down on service."

150. That note of a site visit, which I mention as only one example, shows that Pegler did have to compete on price as well as on service, and also and more importantly for present purposes, in the words reported by Pegler's representative, "nothing lasts for ever". Business lost was not permanently lost.
151. I reject the submission that there was a permanent loss, or even that there was a loss for 5 years. Again, in the absence of any reliable evidence of what would have happened, I accept the concession made on behalf of Wang that it would have taken 18 months to regain Pegler's position and that the loss should be averaged out over those 18 months as 9/12 x £160,000.
152. There is the further consideration that the "new SOP" did not have the "functionality" of the SOP offered by Wang, that is, it could not do all that the Wang SOP should have done. In particular, as Mr. Blackwood in his evidence indicated, the system was not integrated with the rest of the system and it operated on a daily not a real time basis. As to the lack of integration, it is enough to indicate that, for example, with the new SOP, the recording (or "capturing") of an order did not of itself initiate any actions in the manufacturing process or in the ordering of raw materials or factored goods. In that sense, (as well as in the sense that it was late) the new SOP was not as good as old SOP ought to have been. But I have no evidence to convert that lack of quality into money. There was some continuing lack of functionality for which compensation should be given. Unfortunately, Mr. Blackwood could only talk in general terms, and Mr. Lee could not relate his figures to the general terms. This loss is not quantified. It would in any event not be permanent. At some stage it would become the duty of Pegler to mitigate their loss still further by purchasing some form of SOP which would be integrated with the rest of the system. When that would be reasonably required would depend on the cost of not doing it, which is unknown. I can only say that this is a loss of unproven amount, which may well be adequately covered by the concessions made by Wang.
153. In summary, the total figure I allow for claims A and B is £640,000.

CLAIM C: LOST OPPORTUNITY TO MAKE STAFF COST SAVINGS

154. Under this head, the claimants claim £2,124,642. That claim is divided into two parts. As to forecasting, purchasing and costing, Pegler claims £169,779: that part of the claim is admitted and I need say no more about it. In respect of MRP/MPS, the claim is for £1,954,862: For that head of claim, Wang admits an amount between £120,000 and £180,000.
155. One of Pegler's aims in acquiring Manufacturing Resource Plan (MRP) module and Master Production Schedule (MPS) module was to achieve savings in staff costs by employing fewer staff and reducing overtime working.
156. MPS is the module which assists a planner in making a detailed schedule of production orders for specific products which will emerge from the factory in the near future, in response to actual and forecast customer demand, and which helps to keep finished goods stock at required levels.
157. MRP is the module that assists planners in preparing detailed schedules of works orders to ensure that the production orders in the MPS can be met on time. It ensures that parts and raw materials are available when needed for all stages of manufacture.
158. Pegler employed some staff on a full time permanent basis and some on a temporary basis, though some "temporary" staff were in fact employed for quite long periods. Some staff were employed part time. There was also some overtime working for some, but not all, employees. Salaried staff were not paid overtime: some worked immensely long hours with no overtime payment. Because of these variables, staff costs and staff savings have been measured in FTEs, or Full Time Equivalents. One FTE represents the equivalent of one employee working 37 hours per week without overtime. Some of the FTEs were comprised of part time workers added together.
159. Pegler claims that because Wang implemented the promised MRP/MPS modules late, Pegler was denied the opportunity to make staff cost savings for the period of delay. MRP/MPS should have been implemented by the end of October, 1992 and were in fact implemented in part only by the end of February, 1994, a delay of 1 year and 4 months, or 70 weeks. MRP/MPS were only partially implemented by Wang in February, 1994, but Pegler make no claim for the fact that the implementation was only partial.
160. Wang initially contended that Pegler should have mitigated its damage under this claim by purchasing substitute modules earlier, but that contention was abandoned during the trial. It would not be reasonable to expect Pegler to buy substitute modules elsewhere while Wang were still working on the project.
161. The experts, Mr. Lee and Mr. Ilett are agreed that the basis of the calculation of the claim should be to multiply the cost per employee for the period of delay in implementing the system elements by the number of employees whose redundancy was delayed. The cost per employee is agreed at £14,809.56 and the period of delay is agreed as 70 weeks. The parties are at issue as to the number of employees whose redundancy was delayed.
162. The approach of the claimants has been to compare the number of FTEs employed and the amount of overtime worked at a point following the introduction of MRP/MPS with the figures at the date of that introduction. That comparison shows a reduction in the labour force and overtime working following the introduction of MRP/MPS. Some of the reduction can be attributed to other causes. Mr. Lee on behalf of the claimants has made allowances for some reductions for extraneous causes. The defendants dispute the initial calculation and also contend that Mr Lee has not made sufficient allowances.
163. Dr. Worden, called on behalf of Wang, said that as Pegler's claim in respect of MRP/MPS was made by subtraction, he had no basis for assessing this element of the claim, but he did make certain comments on it while leaving the figures to Mr. Ilett.
164. Dr. Worden said that MPS/MRP is likely to reduce some of the inefficiencies involved in manufacturing, and if the purpose of reducing inefficiencies is to reduce staff costs, they will be effective to do that. On the other hand, the intention might be to increase sales by improving quality or customer responsiveness. I accept that an increase in sales through greater efficiency might mean that the employer continued to employ the same number of staff, but it is evident from the CEP that one aim was to reduce staff costs, which is not surprising in a limited market.
165. Dr. Worden also said that there are labour costs involved in introducing MRP/MPS, particularly in the gathering and maintaining of information. But since that cost would have been incurred whether the modules were implemented early or late, that feature can be disregarded.
166. Dr. Worden also makes the important point that MRP/MPS is most effective in producing savings if implemented at the same time as other improvements such as Just in Time (JIT) manufacturing, a set of techniques for manufacturing operations to minimise the amount of unnecessary work in progress and the introduction of KANBANS. Kanbans are bins used in a factory floor technique intended to ensure that part-made goods are available behind each stage in the manufacturing process, each stage in the process being provided with bins of part-made goods and when the bin is empty it is sent back a stage in the manufacturing process to be filled. By this means, manufacturing delays are reduced, but the benefit is to some extent balanced by an increase in the value of work in progress. This consideration illustrates one of the difficulties in isolating redundancies from MRP/MPS. JIT and Kanbans were introduced along with other improvements in efficiency at varying times. Moreover, When MRP/MPS were implemented in February 1994, Pegler's manufacturing processes were not in the best state to benefit from them. Pegler's product specifications and the routing of the process of manufacture were very complex, and when the necessary recording processes were introduced, the workforce were reluctant to implement them because they could see little benefit from the extra work involved. Considerable effort had to be put into motivating the workforce in that regard.
167. Dr. Worden developed this point by reference to two studies put in hand by Pegler in the autumn of 1994, entitled "Taps and Mixers Business Unit MRP Review (August-October 1994" and a study by York "MRP II - Implementation Review (November 1994)". From those studies, Dr. Worden concludes that significant changes and simplifications of the manufacturing process were needed to make MRP/MPS work, and those changes were not made until 1995 with initiatives such as the Pegler "Centre of Excellence in Taps and Mixers Project". Therefore, says Dr. Worden, "the delays in obtaining business benefits from MRP/MPS, including any benefits in staff reduction, were caused not by Wang's late delivery but by Pegler's delays in making changes to their business. In my opinion therefore there are no losses attributable to Wang's delays". That extreme position is not reflected in the evidence of fact, nor is it adopted by counsel for Wang in closing submissions. Dr. Worden later modified his view, in terms which I shall later indicate. The evidence of the witnesses of fact called for Pegler showed that there were teething difficulties but they were overcome. It is true that it was not until July 1995 that Mr. Lewis, the Production Director reported,

"The very significant reorganisation of all production areas is now complete and efficiencies were maintained in most cases with the exception of the new Valve Business Unit where as expected the level of change had the most traumatic effect on both the management and the work force in general".

The CEPs for other business improvements date from 1991, and though there were delays in implementing them, there were many improvements in hand, if not fully implemented, before 1995 (see paragraph 138 above). If MRP/MPS had been delivered on time, there would have been similar difficulties. Some improvements to the manufacturing process were made before 1995. More would have been made earlier if MRP/MPS had been delivered on time. They would also have been made earlier if Wang had performed their contractual duty to advise Pegler in that regard. Mr. Brooks said that there were substantial improvements in what was known as "the rump" at the end of 1994 and in early 1995. The rump was that part of the factory not modernised by new investment. I reject the contention made by Dr. Worden that there was no damage suffered from the failure to deliver MRP/MPS. I also reject his modified view.

168. Because there are considerable difficulties in making a "before and after" comparison, Mr. Ilett takes a similar approach to his approach to the SOP.
169. Mr. Ilett starts with the CEP for the computer.
170. Mr. Lee, on the other hand, starts with figures from the evidence of Mr. Brooks and the accounting documents of Pegler. In his evidence, Mr. Brooks made a number of concessions and Mr. Lee also made further concessions.
171. One of the problems in making the comparison has been that Pegler has an agreement with the Trades Union that when redundancies are to be made, voluntary redundancies are taken first, and then temporary staff are made redundant before permanent staff. As a result, when a particular post is no longer required to be filled, it is not necessarily the holder of that post who is made redundant. Someone else is made redundant and the holder of the redundant post is moved in a musical chairs process so that the place of the person made redundant was filled. In addition to redundancies, some staff savings have been achieved by not replacing natural wastage. Unfortunately, in formulating their claim, the claimants did not say, "as a result of the introduction of MRP/MPS we were able to reduce the staff in a particular office from x to y and reduce workers in a particular production centre from a to b". It is regrettable that Pegler did not keep records that would have enabled them to make that more satisfactory approach. Such records as there are attribute redundancies to some general cause such as "lack of work" without stating why there was a lack of work and sometimes to a downturn in the market. Instead of calculating the number of redundancies known to be attributable to MRP/MPS, the total reduction in labour is taken as the starting point and from that total, some redundancies are removed as attributable to other causes. Since the causes are often concurrent, that process of calculation is difficult and imprecise.
172. Mr. Lee's starting point was to calculate gross reductions in FTEs:

Headcount reduction 239.5

Overtime reduction 51.8

291.3

Mr. Lee has made allowances against those gross reductions:

Redundancies identified in other CEPs 68.2 FTEs

50% increase in those CEP figures 34.1

Sunvic redundancies 11.0

System related redundancies 6.0

Concessions made by Mr. Brooks 40.0

159.3

Net claimed reduction in FTEs 132.0

If the whole of Mr. Lee's 159.3 allowances were set against the 239.5 headcount reduction, one would have a headcount reduction of 80 and an overtime reduction of 51.8 which together would make the claimed reduction of 132.

(The concessions made by Mr. Brooks were that 40 redundancies were attributable to Sales and Marketing, Administration, and Technical staff rather than MRP/MPS)

The figures I have given come from Pegler's Schedule of Loss dated 2 July, 1999. Although the end result is almost identical to Pegler's Schedule of Loss dated 1 September, 1998, there were considerable differences in the figures making up the two schedules.

173. In response to criticisms of the formulation of Pegler's case, Mr. Brooks consulted with 8 leading members of Pegler's staff to obtain their estimates of the numbers of staff saved by MRP/MPS. He gave the results of those consultations in a supplemental witness statement. The total number of FTEs saved ascribed to MRP/MPS by the members of staff consulted was 90. Mr. Brooks divided those 90 between various categories, but he did not name the individuals or give the dates of their departure, save that he did name and give the dates of departure of 5 managers. It was not possible to test that evidence effectively.
174. Mr. Lee calculated his figures by comparing the number of FTEs employed at February, 1994 (when MRP/MPS was introduced) with FTEs employed at April, 1996 (by which time Pegler alleges that all relevant staff reductions had occurred). Mr. Lee had at first compared the 1996 figures with February, 1993. By taking the later year, he met criticism that staff numbers for February, 1993 had been unusually swollen by exceptional exports following the departure of the United Kingdom from the ERM. There remains the criticism that it would have been more natural to have compared the period immediately before the implementation of MRP/MPS with the period immediately following. The answer to that criticism is that 1995 was a particularly bad year in the depressed state of the building industry and the comparison would, for that reason, be a false one.
175. Wang contends that Mr. Lee's approach is the wrong approach, but that if his approach should be adopted, his starting figure of 291 FTEs should be reduced and the allowances he makes against that starting figure should be increased.
176. Wang particularly criticises the inclusion of 30 redundancies occurring before July, 1994. The basis for that criticism is twofold. First, the systems experts are agreed that it would take some time, say about 3 months, for MRP/MPS to begin to be effective in producing staff savings. While Mr. Brooks said that it was about 18 months before MRP/MPS was operating in an acceptable manner, I find that it was beginning to produce substantial staff reductions after 3 months and there may have been some small savings within the 3 months. Secondly, it was the evidence of Mr. Brooks, which I accept, that redundancies were not made piecemeal: as a matter of staff policy, spare capacity was carried until it was decided to make a block of redundancies. I do not think it would be right to remove those 30 staff savings from Mr. Lee's figures without more detailed examination of the figures. Sufficient time had elapsed since the implementation of MRP/MPS for some redundancies to have been produced by it and be included in the block of redundancies then made, and one ought not to remove the block of 30 from the starting figure without reducing the allowances made by Mr. Lee. One simply does not know how many of that block of 30 are allowed for by the allowances made by Mr. Lee. If Mr. Lee's approach is satisfactory, all of the individuals in that block of 30 should be either redundancies caused by MRP/MPS or redundancies caused by one of the causes for which Mr. Lee has made allowance. The only justification for removing or reducing that block of 30 would be if Mr. Lee has not made sufficient allowance for the causes which he has mentioned, or if he has not taken into account a cause which he ought to have taken into account. One allowance in particular which has been made and which appears to be relevant to this block of redundancies is the Sunvic allowance for 11 FTEs made redundant on 1 May, 1994. Another possible cause not taken into account is the effect of the market, on which Wang rely and about which I shall have to say more later.
177. The systems experts, Dr. Worden and Mr. Stevens, are agreed that staff savings would have been achieved by a combination of MRP/MPS and the introduction of the relevant business units and new machinery. Those experts do not seek to quantify the savings.
178. The CEPs for the new business units and new machinery contained estimates for anticipated staff savings. Mr. Schurch and Mr. Brooks in their evidence said that it was easier to predict numbers of staff savings due to factory reorganisation or investment in new machinery than to predict savings from a new computer and explained why. Nonetheless, Mr. Lee accepted that for the purpose of making an allowance against Pegler's claim, the predicted figures should be increased by 50% because they were conservative predictions. Mr. Lee was able to check his figures in relation to some but not all business units by looking at records. That checking persuaded him, justifiably, that the 50% increase was excessive. For example, his checking of the Engineers Valve business unit showed that where he had allowed a reduction of 40 FTEs, the reduction was in fact 14. That is the highest discrepancy shown by the checking process.
179. The Sunvic related redundancies are for redundancies due to the transfer from Pegler of business known as Sunvic. No dispute of substance arises concerning that or the figures for System related redundancies or the concessions made by Mr. Brooks.
180. The greatest dispute between the parties concerned the effect of the market. For Wang, it was contended that most of the reductions in staff were due to the market resulting in reduced demand for Pegler's products. Mr. Lee did not mention the effect of the market in his calculation, but he said in evidence that the effect of the market was amply allowed for by the over generous allowance of 50% on the initial figure.
181. Contemporaneous documents relating to redundancies refer to the amount of work available as a reason for redundancy, but not to MRP/MPS or other system improvements. Pegler have disclosed redundancy files for 75 employees. Those files show that the reason for redundancy given in redundancy letters was "shortage of work" or "present work situation". Mr. Brooks explained that by saying that Pegler did not want to emphasise that people were being laid off due to computerisation otherwise motivation to make the computerised system work would be endangered. In fact, the letters were not false. There was a shortage of work for the individuals laid off in the sense that there were more workers than the work required: the letters did not have to state whether the shortage was due to computers or the market, and it would have been difficult to be specific about that even if Pegler had wanted to be specific. A stronger point made by Wang was that the monthly Management Reports in general make no mention of MRP/MPS being responsible for redundancies whereas there are many mentions in those reports of the adverse effect of market conditions on Pegler and on competitors. There is no reason why those reports, if they were intended only for directors of Pegler and Tomkins should be less than frank. Indeed, Pegler's directors had a strong motive for telling the Tomkins board that their capital investment was producing the predicted staff savings. But Mr. Brooks said that the circulation of the Management Reports was not confined to the two Boards. By contrast, in the September, 1995 Management Report, Mr. Lewis did refer to 45 redundancies announced on 6 October, 1995, saying, "The reduction is either in indirect areas or as a result of the new ways of working in the factory and therefore the savings will continue into the future regardless of any upturn in business". Mr. Lewis, as Production Director, was always more frank about savings due to efficiency. Two redundancy announcements addressed to the staff mentioned only the downturn in business. Those announcements were in 1995, the worst year for Pegler's market. On 6 June and 6 October, 1995, Mr. Lasseter announcing the loss of 70 and 45 jobs to be completed by 28 July and 4 November respectively. Each notice referred to "the significant downturn in business" and the depressed state of the housing market as well as export business falling below expectations. Each notice said that the Board had no alternative but to cut back production and reduce costs. Again, the explanation given is the reasonable one that Pegler did not want to demotivate the staff in operating NWOW. I accept the evidence of Mr. Brooks that some part of those redundancies was due to MRP/MPS. Mr. Brooks also conceded that some part of those redundancies was due to an anticipated upturn in the market.
182. Mr. Brooks put in evidence a list of 171 people (without mentioning names) who were made redundant or took early retirement between April, 1993 and April, 1996. In cross-examination he was constrained to admit that many individuals left employment for reasons not related to MRP/MPS: indeed some of them were dismissed for misconduct. It would, of course, be an over simplification to remove from consideration those who were dismissed for misconduct: as with other forms of "natural wastage", a decision not to replace that individual, if taken, would be a means of reducing the workforce.
183. Since it is accepted that MRP/MPS produced some savings, I have no doubt that within the redundancies referred to in those announcements in 1995 there were some savings from MRP/MPS but it would not have been attractive to say so. Equally, I have no doubt that further savings were effected by the non-replacement of some of those redundancies when the work picked up again after 1995. It would therefore be wrong to say that the 135 job losses announced in 1995 should be deducted from Mr. Lee's figures. Because 1995 was an exceptionally disastrous year from the point of view of the market, it is valid, when making a "before and after" comparison, to use the 1996 figures for the "after" figures.
184. Mr. Lee and Mr. Ilett tested the validity of the "before and after" comparison by producing graphs and charts comparing fluctuations in FTEs with production, measuring Pegler's production both by monetary value (adjusted for price increases) and by items produced. Those graphs and charts were much discussed in evidence and argument and many anomalies and exceptional factors were identified as matters for which allowance should be made. It would take many pages illustrated by coloured appendices to rehearse all the evidence and arguments. Insofar as any conclusion can be drawn from those graphs and charts, they tend to support Mr. Lee's general propositions rather than detract from them. The graphs do show a relationship between FTEs and production. But one of Mr. Ilett's graphs very fairly demonstrates that there was some reduction in FTEs not attributable to reduction in production. The graphs and the evidence supporting them do not materially assist in quantifying the reduction in FTEs attributable to causes other than reduction in production. Here, as elsewhere, in quantifying an undoubted loss, I am forced to rely more on impression than on precise calculation.
185. Overtime has been considered in detail. The amount of overtime worked has been extracted from overtime records by Mr. Brooks and set out in the form of a graph. That graph shows considerable fluctuations in overtime. Mr. Lee has compared the overtime worked in February 1994 with the overtime worked in April 1996 and shown the difference as a saving of overtime due to MRP/MPS. In between those dates, there were peaks of overtime much higher than the figures for either of the two dates compared. In particular, there is a very large peak between about August 1994 and March 1995. Mr. Lee was criticised on two counts, first for including in the claim all the overtime shown as the difference between the two dates and secondly for missing out of his calculations the year ended April 1995 which immediately followed the introduction of MRP/MPS. In response to that criticism, Mr. Lee in re-examination produced figures based on different dates and also a calculation that he called "the straddle method". By the latter method, he compared an average for the 13 month period to August, 1994 with a 13 month period to October, 1996. All of those calculations show that his first calculation was, in his word, conservative. He was still criticised for his choice of dates, because the one date he did not choose was the date 70 weeks after February, 1994. If he had taken that date, it would have shown very little change in overtime worked. The difficulty about choosing a date for comparison was that the latter part of the 70 weeks, when the benefits of MRP/MPS would probably have been most apparent in normal times, fell within the extreme slump of 1995. Moreover, there were labour difficulties and overtime bans that would have been one cause of peaks and troughs. (An overtime ban would produce a trough in overtime figures followed by a peak as management tried to catch up lost production and labour tried to make up for lost earnings). There was a further unusual feature. 70 weeks after February, 1994 came towards the end of June, 1995, and it should be remembered that on 5 June, 1995, Mr. Lasseter announced the shedding of 70 jobs to be completed by 28 July, 1995. June 1995 was the bottom of a trough in overtime, as would be expected at the time of an announcement of redundancies, but overtime immediately began to rise to one of the smaller peaks in September, 1995. It is difficult not to believe that this rise in overtime during June was not related to the redundancy announcement. For those reasons, taking the date 70 weeks after February, 1994 would not have shown a fair result because the situation at that date was untypical. I think that the date chosen by Mr. Lee for his calculations was a fair date to choose, as was confirmed by his further calculations put in during re-examination.
186. I do not think it fair to take the whole of the overtime loss calculated by Mr. Lee. Some overtime was in all probability saved by the other matters in respect of which allowances were made by Mr. Lee and some was saved by reductions in output. As for the effect of the market, I can only form an impression in the absence of precise figures, but I find it difficult to accept Mr. Lee's view that the effect of the market on overtime is adequately provided for by what he claims were over generous allowances made in his calculations.
187. In his supplemental statement, Mr. Ilett made some calculations based on the savings anticipated by the CEP as modified by modified evidence given by Dr. Worden. The CEP anticipated saving of 20 employees, which could be uplifted by 50% if the CEP is taken as conservative. The evidence of Dr. Worden referred to by Mr. Ilett was:

"Pegler would not have made significant staff savings from MRP/MPS until they had also made the necessary changes to manufacturing procedures. They did this by mid-1995; but as discussed under other heads of claim, had Wang delivered MRP and MPS to the contract schedule, Pegler might have completed the manufacturing procedures changes up to three months earlier than they did, in early 1995."

188. Having cited that evidence, Mr. Ilett said:

"Based on Dr Worden's view, I consider it appropriate to assume that the delay in MRP and MPS implementation caused Pegler to suffer loss at the rate of:

(a) 25% of its full benefit (as estimated in the Capex) from the agreed implementation date for MRP and MPS of October 1992 to November 1993. My interpretation of Dr Worden's expression 'would not have made significant staff savings' of 25% benefit is consistent with other areas of my loss calculations; and

(b) 100% of the full benefit from MRP/MPS from December 1993 to February 1994. This calculation represents my assumption in favour of Pegler, that had the factory reorganisation been completed three months earlier, its redundancies would have been brought forward by three months.

Applying the above assumptions leads to a loss figure regarding MRP and MPS of £101,552. This figure comprises £50,776 (calculated as follows: £1,954,862/132 X 20 x 48/70 x 25%) and £50,776 (£1,954,862/132 x 20 x 12/70 x 100%). These figures represent the current amount claimed by Pegler of £1,954,862 in relation to 132 staff. The Capex forecast 20 staff savings. The period of delay in implementing MRP and MPS was 16 months, equal to 70 weeks."

189. Using those calculations, Mr. Ilett put forward a loss due to delay in delivery of MRP/MPS rounded to £100,000 or £150,000 if 50% was added for conservatism of the CEP. Those figures were modified by the written agreement between experts to £120,000 and £180,000.
190. Mr. Ilett, in reliance on his watered down version of Dr. Worden's evidence, took only 25% of his gross figure for the first 48 weeks. I have already given my reasons for rejecting that part of Dr. Worden's evidence and it is notable that neither Mr. Ilett nor Wang accept Dr. Worden's evidence as he originally gave it, namely that there was no loss arising from the delay in implementation of MRP/MPS. In my view, therefore, Mr. Ilett's calculation is not to be relied on, even if the approach were accepted in principle.
191. A better approach to Mr. Ilett's calculations would be to take his calculation on the basis of a saving of 30 (that is, CEP plus 50%) and without the "Worden reduction". That calculation would then be:

£1,954,862/132 x 30 x 60/70 = £380,815

Even on that revised reduction, there is a very great difference between figures produced by Mr. Ilett's approach and Mr. Lee's approach.

192. It may be said that, having taken the CEP approach to the calculation of loss for SOP I ought for the sake of consistency to take the same approach in relation to MRP/MPS. The difference between the two heads of claim is that in relation to the SOP head of claim Pegler did not produce evidence which satisfied me that they should receive more than the CEP approach, whereas I am satisfied by the evidence I have heard that the CEP approach is inadequate in relation to MRP/MPS. I prefer Mr. Lee's general approach to MRP/MPS. There remains the question whether I should accept Mr. Lee's opinion that the effect of the market is adequately allowed for in respect of both overtime and the rest of this claim by the over generous allowances he made in his calculations. The difficulty about that is that no one has calculated the effect of the market and Mr. Lee has not calculated the totality of the amount by which he says his allowances were over generous.
193. In the result, I am left with the wholly unsatisfactory position that I am satisfied that Mr. Ilett's figures are far too low and I am also satisfied that Mr. Lee's figures are too high by an unascertainable amount.
194. In the circumstances, I return to Mr. Brooks's supplemental evidence. As I have said, he interviewed leading members of staff best placed to know what was saved by MRP/MPS and obtained estimates of savings totalling 90 FTEs. On their own, and introduced into evidence at second hand and with little supporting detail, those estimates would be subject to some doubt, but they are not far out of line with Mr. Lee's evidence. The estimate of 90 FTEs was an estimate of headcount reduction and was clearly not intended to include overtime. Mr. Lee's allowances total 159, and if those are taken from his headcount total, one is left with a balance of 80. If one were to accept the figure of 90 from Mr. Brooks, that would mean that Mr. Lee has reduced the headcount total by 10 too many and that would mean that a balance of 10 has been deducted from his overtime figure of 51.8. But I am reluctant to accept that untested figure of 90 since almost all figures that have been tested have been reduced. One objection to the figure of 90 might be that Mr. Brooks considered that staff savings continued over a period of 18 months whereas the experts have agreed on a period of 70 weeks. I think Mr. Brooks's figure of 90 can properly be regarded as a corroboration that Mr. Lee's figure of 80 is about the right figure for headcount reduction after taking into account all proper allowances including the market, that is, that Mr. Lee's allowances were sufficiently over generous to account for the market in the headcount figures. Mr. Brooks's figure of 90 does not, in my view, support the proposition that the 80 figure was produced by making allowances that were so over generous that no allowance need to be set against the reduction for overtime.
195. Mr. Lee's figure for overtime requires to be reduced because it should take account of savings in respect of the other allowances made by Mr. Lee and more particularly on account of the market. There is no way of making that reduction by strict calculation, but I think it fair to reduce it in the same proportion as the headcount would be reduced if one were to attribute all Mr. Lee's allowances to headcount. I think it fair to reduce Mr. Lee's overtime figure in the same proportion as the headcount, that is 51.8 x 80/239 = 17.4.
196. To reflect the revised figure for overtime, one has to turn to Mr. Lee's Appendix 4.6 to his supplementary report. Mr. Lee has made separate calculations for salaried employees (who worked no overtime) and weekly paid employees. The figure for weekly employees is based on a total reduction of 113.5 FTEs, which included both headcount reduction and 51.8 for overtime. If one substitutes 17.4 for 51.8, the total reduction for salaried employees is 79.1. The figure for weekly paid employees is then calculated as £192.38 weekly cost x 79.1 FTEs x 70 weeks = £1,065,208. To that should be added the unchanged figure for salaried employees, £426,403 making a total of £1,491,611 for MRP/MPS.
197. To that figure for MRP/MPS should be added the agreed figure for forecasting, purchasing and costing, £169,779 making a total for Claim C of £1,661,390.

CLAIM D. AMOUNTS PAID TO THIRD PARTIES

198. Pegler claim under this head £150,218 paid to third parties for substitute software and consultancy services.
199. Wang accept that payments were made to that amount.

200. Dr. Worden questioned whether the invoices for the amounts paid related to the subject matter to which they are intended to relate, but that is not pursued in the closing speech of counsel for Wang.
201. The only point made by Wang is that against this amount it would be convenient to set an amount of £150,195.25 allegedly underpaid by Pegler treating this head of claim as cancelled out. Counsel says that this amount is not related to Claim D but it would be convenient to treat it here rather than as a set-off against the whole claim because of the coincidence of the amounts.
202. This point is not pleaded and is not mentioned in the list of issues prepared by counsel. It was, however, mentioned in the opening of counsel for Wang.
203. Wang's point is based on a statement by Mr. Ilett that "It appears Pegler has not paid about £150,000 due to Wang under the Contract". He deduced that from two statements in different paragraphs of his written statement: (a) that it was agreed that Pegler would pay a fixed sum of £1,198,130 for hardware and software and (b) that the total amounts paid to Wang under the contract were £1,045,934.75 in respect of hardware and software. Mr. Brooks added that Pegler had paid in addition £948,361.25 for maintenance, BPM, consultancy and training, giving a total of £1,994,295.00. Mr.Brooks also said that the agreed price for hardware and software was a discounted price and the invoice value was often based on a higher list price and might not bear any relation to the agreed price. Mr. Blackwood at paragraphs 92 to 96 of his first statement went into greater detail about the agreement of the price. He said, amongst other things, that Pegler agreed to pay £325,000 per annum for 3 years for maintenance and BPM.
204. Mr. Blackwood ended paragraph 96 of his statement with the words:

"Wang subsequently submitted invoices, (which we paid) based on the list price of hardware and software supplied. This was simply a convenient means of billing for Wang".

205. Mr. Blackwood was cross-examined about the negotiation of the price but not about any alleged underpayment.
206. To take an account of the payments made would not be straightforward. There were several invoices and several payments over the long period of the project. There were payments for hardware, software, training and consultancy delivered in parts, and there were also payments for annual maintenance. There was at least one adjustment because of a decision to make maintenance payments in arrears. Pegler continued to make payments for software maintenance until the end of 1997.
207. In the Management Report for December, 1994 Pegler's Commercial Director reported a review of the project with Wang. He reported that "all outstanding invoices have been ... examined jointly with Wang and where appropriate have now been paid". Wang were saying that they were underfunded and they asked for "payment of additional money into the project". Counsel for Pegler submits that that suggests that Wang were asking for more money than they were entitled to under the contract to finance the project: that may or may not be correct.
208. Wang's late allegation of underpayment requires more investigation if an informed decision is to be made about it. I am most reluctant to allow pleading points. However, it would not be fair to say that Pegler had been given adequate notice of this point by Wang's opening statement. Wang themselves should have advanced evidence on the matter and they did not.
209. I am not satisfied that there was any underpayment as alleged now by Wang and I do not allow the deduction claimed.
210. Under Head D I therefore award £150,218.

CLAIM E. ONGOING EXPENDITURE

211. Wang contends that Pegler should have mitigated its loss under this head to £10,000.
212. There are two items under this head, Microfiche and Desk-Top Publishing (DTP).
213. The claim for Microfiche under this head is a claim for £15,514 paid to a Microfiche agency. Wang contend that this expenditure would not have been required if Pegler had bought a substitute imaging system earlier. That is correct, but the question is whether it was reasonable for Pegler to delay purchasing a substitute imaging system. They have not yet bought one and its future cost forms part of claim F.
214. Mr. Blackwood in his evidence explained that when Wang ceased performance of the contract, Pegler had enormous difficulties to overcome. They could not do everything at once and they decided to concentrate on SOP first. Then they delayed purchasing imaging because they wanted to "bolt it on" to the substitute for SOP. Wang had promised that they would supply imaging thoroughly integrated with SOP with considerable resulting advantages.
215. Mr. Stevens supported Mr. Blackwood's evidence. Mr. Stevens said that in his view it was entirely reasonable for Pegler to give priority to one task before another. He supported that view with a detailed appendix listing the order of events.
216. I accept Mr. Blackwood's evidence in this regard. Pegler acted perfectly reasonably in this respect in a most difficult situation
217. I allow the claim for £15,514 for microfiching.
218. The claim in relation to DTP is for £30,776 incurred in connection with the production of product price lists by external publishing.
219. Dr. Worden said that Pegler should have purchased alternative and easily obtainable DTP software for a few thousand pounds. Mr. Blackwood said that such alternative software would not have produced documents of sufficient quality and the software would have been insufficiently integrated. Dr. Worden did not accept that Mr. Blackwood's evidence was correct. Based on Dr. Worden's evidence, Mr. Ilett put a value on both heads of claim under Claim E at £10,000.
220. Mr. Blackwood said:

"Pegler's DTP requirements were set out at section 4.16 of the ITT. Wang claimed an "A" fit in their Response and explained the system they proposed to implement at page 86. There was, however, no separate quote for DTP hardware or software. Alistair Stewart of Wang forgot to include a quote in his calculations and this was not noticed until after the contract had been signed. I do not know whether DTP would have required additional hardware to that specified in the quote, but Wang had contracted to meet our requirements and therefore would have had to provide whatever was needed in this regard.

I agree with Dr Worden that it is possible to purchase DTP software at fairly low cost.

However, this would not suffice for Pegler. Product brochures require a high specification product which would cost substantially more. Wang were also to integrate DTP with FACT (so that we could draw on FACT data to produce accurate price lists), imaging (so that we could incorporate drawings) and word processing. A product which can be integrated in this way will be far more expensive than a simple, standalone product."

221. I accept that evidence of Mr. Blackwood. On the grounds of both quality and the need to integrate DTP with the substitute system together with the need to do first things first, it was reasonable to delay the purchase of a substitute DTP system and to employ outside contractors meanwhile.
222. I therefore allow the claim for DTP in the sum of 30,776.
223. I assess claim E at £30,776 + £15,514 = £46,290.

CLAIM F. FURTHER EXPENDITURE TO BE INCURRED

224. I have had considerable difficulty marrying up the figures given in the Re-Re-Amended Schedule of Damages with those given in the closing speeches of counsel for the Claimants and the Defendants and the Schedules summarising the claim and the defences given to me by counsel. Here I have taken the figures from the closing speech of counsel for Pegler. This claim is for £1,770,316 comprising:

(a)Three agreed claims in respect of

a personnel system £15,250,

a tool management system £14,728

and an imaging system £87,000.

(b)Disputed claims for

KPMG Consultancy £426,924

Replacement system £1,000,000

plus modifications. £200,302

225. KPMG Consultancy

The breakdown of the claim for KPMG fees is:

Review of processes and IT requirements £115,857

Solution refinement, CEP and project planning £ 21,551

Implementation support phase 1 £234,009

Phase 2 £ 55,507

226. Replacement system

The breakdown of the cost of the replacement system is:

System £1,000,000

Contract pricing and customisation of the

front end of the order screens £57,800

Additional hardware £116,507

Migrating from Wang VS e-mail to

Microsoft Exchange e-mail £25,986

Total £1,200,302

227. Pegler decided that even after installing their own SOP and making various other improvements to what Wang had delivered they should buy a new system. They went out to tender and accepted a tender from SSI for £1,000,000 to which was added the additional features listed above. Pegler took advice from KPMG in the preparation of the tender and in certain work following contract.

The first question is whether Pegler is entitled to be recompensed for the cost of obtaining a replacement system at all. As to this, counsel for Pegler submits that Wang agreed to supply the functionality: Wang did not supply it, both because the few modules it did supply were deficient and because it did not supply many modules. In those circumstances, it was submitted, Pegler is presumptively entitled to the cost of obtaining what Wang agreed to provide. The only exception to this principle, it was said, is where the economic purpose of the contract had been substantially achieved so that purchasing the replacement would be "out of all proportion" to the benefit to be obtained. The burden lies on the contract breaker to show that the prima facie rule is inappropriate. Counsel rely on the authority of Darlington v. Wiltshier [1995] 1 WLR 68 at page 79 and Ruxley Electronics Limited v. Forsyth [1996] AC 344.

228. I do not agree with the proposition that Pegler is presumptively entitled to the cost of obtaining what Wang agreed to provide. What Pegler is entitled to is that it "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": Robinson v. Harman (1848) 1 Exch 850, 855. That is not necessarily the cost of obtaining what Wang agreed to provide. In the building cases, it has been said that there are three possible bases for assessing damages, (a) the cost of reinstatement, (b) the difference in cost to the builder of the actual work done and the work specified, (c) the diminution in value of the work due to the breach of contract. That is taken from Hudson on Building and Engineering Contracts 8^th edition approved by Lord Cohen in East Ham Corporation v. Bernard Sunley [1966] AC 406, 434-435. The same passage continues "There is no doubt that wherever it is reasonable for the employer to insist upon reinstatement the courts will treat the cost of reinstatement as the measure of damage". The editors of Hudson might have added three further bases for assessing damage, namely, (d) nil, (e) consequential losses, (f) loss of amenity. (I would also add that the passage in Hudson would be better if it omitted the words "to the builder"). The words I have underlined indicate that reinstatement is only the appropriate basis for assessment where it is shown to be reasonable. It is for the claimant to show that it is reasonable for him to insist on reinstatement. It is not right to say that there is a presumption in favour of reinstatement with the burden on the defendant to show that it would not be reasonable. It is for the claimant to show reasonableness. The tenor of the speeches in the House of Lords in Ruxley Electronics Limited v. Forsyth [1996] AC 344 was that reasonableness is a part of the primary assessment of damages as well as of mitigation of damage. I do not see that as inconsistent with the passage from the judgment of Steyn L.J. in East Ham Corporation v Wiltshier at 79. In citing that passage, Lord Lloyd of Berwick in Ruxley at 369 said:

"One other very recent authority may be mentioned, although it is currently subject to appeal to your Lordships' House. In Darlington Borough Council v. Wiltshier Northern Ltd. [1995] 1 WLR 68, 79, Steyn L.J. said

"in the case of a building contract, the prima facie rule is cost of cure, i.e., the cost of remedying the defect: East Ham Corporation v. Bernard Sunley & Sons Ltd. [19661 A.C. 406. But where the cost of remedying the defects involves expense out of all proportion to the benefit which could accrue from it, the court is entitled to adopt the alternative measure of difference of the value of the works . . ."

It seems to me that in the light of these authorities-and many other authorities cited were to the same effect, including C. R. Taylor (Wholesale) Ltd. v. Hepworths Ltd. [1977] 1 W.L.R. 659, Minscombe Properties Ltd. v. Sir Alfred McAlpine & Sons Ltd., 2 Const.L.J. 303 and leading textbooks both here and in the United States, Mr. McGuire was right when he submitted, and Dillon L.J. was right when he held, that mitigation is not the only area in which the concept of reasonableness has an impact on the law of damages.

If the court takes the view that it would be unreasonable for the plaintiff to insist on reinstatement, as where, for example, the expense of the work involved would be out of all proportion to the benefit to be obtained, then the plaintiff will be confined to the difference in value."

229. I read the passage from Steyn L.J. as saying that the prima facie rule is that the cost of cure is reasonable, but the burden remains on the claimant to show that he comes within that prima facie "rule". That follows from the whole of the speeches in Ruxley: the whole decision is of immense value and it is difficult to select one citation. However, I cite particularly a passage from the speech of Lord Jauncey of Tullichettle at page 358:

"What constitutes the aggrieved party's loss is in every case a question of fact and degree. Where the contract breaker has entirely failed to achieve the contractual objective it may not be difficult to conclude that the loss is the necessary cost of achieving that objective. Thus if a building is constructed so defectively that it is of no use for its designed purpose the owner may have little difficulty in establishing that his loss is the necessary cost of reconstructing. Furthermore in taking reasonableness into account in determining the extent of loss it is reasonableness in relation to the particular contract and not at large."

Lord Tullichettle did not say that there is a presumption in favour of reinstatement which must be rebutted by the contract breaker. He said that on one set of facts it may not be difficult to conclude that reinstatement is the right basis for assessment of damages. Every case must be treated on its own facts. Reasonableness is the key. In particular, "in taking reasonableness into account in determining the extent of loss it is reasonableness in relation to the particular contract and not at large".

230. The principles enunciated in the building cases are not confined to building cases. As Lord Lloyd pointed out in Ruxley, they have also been applied directly in a case of the sale of a ship with a spare propeller: Sealce Shipping Company Limited v. Oceanvoice Limited [1991] 1 Lloyds Rep 120. They can also be applied as principles to cases for the provision of a computer and to many other cases, provided the principles are related to the facts of those different types of case.
231. It is important to bear in mind what was the contractual objective of this contract. The objective of this contract was that Pegler should be provided with hardware, software, training, advice and maintenance in accordance with the written contract including the ITT and the Response. The terms of the contract show that its objective was to provide a system which would be maintained, working and upgraded in a suitably modified form for 5 years, which I construe as 5 years from the date of completion. In addition, there was an expectation that the system would last much longer than 5 years. Those features can all be seen in the contract. In addition to the term providing for maintenance for 3 years, the contract included important terms, expressed as "overriding terms", that

"Wang (UK) Ltd acknowledges that the prime requirement of the computer system is that its hub will be a UNIX implementation of FACT manufacturing software, and that it will be achieved via migration through a Wang VS Implementation of FACT manufacturing software, and subsequent conversion/port to the UNIX environment.

Wang (UK) Ltd undertake to provide a migration path from VS to UNIX platforms of all core and application software at a point in time between three and five years from contract date at no cost to Pegler Ltd.

Wang (UK) Ltd undertake to provide such migration on a "seamless basis" at screen, functional and interactive levels in so far as is allowed by the constraints of the UNIX operating system

Wang undertakes to provide alternative core CPUs to the installed VS CPUs to work within the configuration specified in the Response to Tender. Such alternatives will be supplied at current market rates less the following minimum allowances for the VS processors.

Year 4 30% of purchased price

Year 5 20% of purchased price

Year 6 10% of purchased price

Wang (UK) Ltd will provide all functionality on the new VS processors as is currently installed within the contract price.

Wang (UK) Ltd undertakes together with GEAC that all development on FACT software currently undertaken on VS will run concurrently on VS and UNIX over the next three years.

Wang (UK) Ltd commits to provide support for all hardware software and application software itemised in the response for a minimum period of five years."

232. In their Response, a contractual document, Wang made a number of important promises relevant to this issue:

233. It appears from the evidence of Mr. Blackwood that by the end of 1995 it became clear to Pegler that Wang was neither going to complete the implementation of FACT nor make realistic proposals to migrate to a UNIX version of the software. By then, Pegler had embarked on its project to develop its own SOP. That was a mammoth task. The new SOP went live in July, 1996. Pegler then tried to fix faults in what had been delivered by Wang in other areas. That was another mammoth task which Pegler would not have been required to undertake under the contract. By the beginning of 1997, the Board of Pegler had decided to review Pegler's overall IT needs as opposed to looking at separate discrete areas. The Board wished to consider the implementation of one integrated and compatible system across the company, which was what Wang had contracted to provide. They took some trouble about appointing consultants, eventually selecting KPMG in May, 1997. With the advice of KPMG, they chose Tropos as a suitable system and Tropos MPS, MRP, CRP, and RCCP went live in September, 1999.
234. Dr. Worden said that Pegler would in any event have had to replace FACT because it was not year 2000 compliant. The short answer to that is that, in the time scale envisaged as the life of the FACT system, it ought to have been year 2000 complaint. Year 2000 compliance began to be talked about generally in late 1995. If Pegler had migrated the system to UNIX, as they had contracted to do, they would in any event have then dealt with year 2000 compliance. Pegler was aware of the Year 2000 problem. The version of FACT supplied was not year 2000 compliant, and Pegler employed one man for more than one year to analyse and modify the FACT source code to make it 2000 compliant (a cost which they have not included in this claim). Because Pegler makes selections more than 18 months ahead, the parts of the system available to them would have failed in mid-1998 if Pegler had not made it compliant. I accept Mr. Blackwood's evidence that the question of year 2000 compliance was not a factor in the decision to obtain a substitute system.
235. Dr. Worden said that the FACT system was generally coming towards the end of its natural life, that it would not have been possible to upgrade it and that it would require replacement by 2000 or 2001 (regardless of year 2000 compliance problems). Relying on that evidence, it was submitted on behalf of Wang that Pegler's damage should be limited to interest on the expenditure for a period of about 2 years, and it was further said that because Pegler borrows money interest free from Tomkins the loss is either nil or about £240,000 (i.e. £1,203,786 x 10% x 2 years).
236. If Dr. Worden's view that FACT would require replacement by 2000 or 2001 is correct, it is inconsistent with the intention of the contract. Mr. Stevens' view was that, given proper upgrades, it could have remained in use until 2005 or possibly 2010. Given the cost of about £2 million and upheaval involved in replacement, Mr. Stevens' view seems a more commercial proposition and it is consistent with the representations and promises made by Wang.
237. The reasons given by Dr. Worden for his view that the FACT system would require replacement by 2000 or 2001 have been subjected to close scrutiny. However, I do not think that the validity or invalidity of those reasons is relevant and I shall not discuss them. What matters is the objective of the contract. For what it is worth, I am of the opinion that if they had tried, and if they had maintained their business in Europe, Wang could have satisfied the objective of the contract. For example, there is some evidence, albeit obtained from a web site at a late stage in the trial, that FACT in its UNIX equivalent is still being marketed in South East Asia by the New Zealand company GEAC. But what matters is that Wang promised to satisfy the objective of the contract.
238. It was also said by Dr. Worden that TROPOS had various features which Wang had not promised to provide. If correct, this raises two questions:
     1. Did Pegler buy TROPOS because it was better than FACT?
     2. Should allowance be made for betterment?

239. The features mentioned by Dr. Worden were, Euro compliance, better EDI, back flushing, ability to work with Pegler's NWOW, and e-commerce.
240. It has been demonstrated that some of those features were in fact promised by Wang. In any event, I have no doubt that they would have been provided as part of the promised upgrades. For example, if Wang had continued to sell FACT in Europe, it is inconceivable that all versions of FACT in use would not have been made Euro compliant. Equally, as e-commerce becomes of increasing importance, I have no doubt that Wang would have produced upgrades to cope with it.
241. As to the first question I have posed, I am satisfied by the evidence of Mr Blackwood and Mr. Blagden that those additional features did not affect them in making the decision to buy TROPOS. Mr. Blagden in particular dealt convincingly with the matter of e-commerce. Pegler's ITT for the new system did not require e-commerce and e-commerce was not an issue when Pegler ordered the new system. The version of TROPOS provided does not contain e-commerce, though it is expected to be provided as an upgrade in 2000.
242. As to the second question, it would have been impossible as well as commercially nonsensical for Pegler to buy a system which had not been advanced technically beyond the system sold to them some years earlier by Wang. The pace of computer development has been so fast that one simply cannot buy new computers built to old specifications. Moreover, it would have been an act of madness for Pegler to buy a second hand computer and no one has suggested that they could or should have done so. When buying a replacement computer, Pegler was inevitably going to get something better than the 1994 FACT. Sometimes, replacement of defective goods involves paying a higher price, but a refreshing feature of the remarkable advances in development of computers is that they have been accompanied be equally remarkable reductions in price: hence TROPOS cost less than FACT.
243. In putting forward the case on betterment, Dr. Worden said:

"It is clear that TROPOS contains a number of extra features above and beyond those which are standard on most modern systems. There are difficulties in addressing the costs of these extra features, as they are usually not separable from the cost of the main TROPOS product. I shall not attempt to estimate some notional cost for each individual feature, but shall estimate in order of magnitude terms the element of the total cost of TROPOS which in my opinion is represented by all its distinctive features.

This element of the cost of TROPOS can be envisaged as 'the amount by which SSI are able to raise the price of TROPOS because it has those features, while certain competing products do not. it represents an amount which typical customers such as Pegler are prepared to pay to have those features. Clearly it can only be estimated in the most broad order-of-magnitude terms.

I believe that about 5 - 10% of the price of TROPOS is sustained because it has distinctive features compared with typical competitive products."

244. It follows from Dr. Worden's evidence that Pegler could not have bought TROPOS more cheaply by omitting those features which he says are betterment because "they are usually not separable from the cost of the main TROPOS product". If Pegler could have bought a package omitting the alleged "betterment" features, it would have been possible (if the case on betterment were accepted) to compare the price of TROPOS as bought with the price of TROPOS without the alleged betterment features and deduct the difference from the damages. An alternative approach might have been to compare TROPOS with other systems on the market without the alleged betterment features. Neither Dr. Worden nor any other witness sought to identify another cheaper product which did not contain those features. If he had done so, it would have both been possible to put a precise figure on the sum which, according to Wang, ought to have been saved and to investigate whether Pegler ought reasonably to have bought that other system. There is no evidence that SSI were able to raise the price of TROPOS above the cost of competing products because of the alleged betterment features other than Dr. Worden's bland assertion. Before Pegler contracted with SSI, they went out to tender. There was no attempt to suggest to Pegler that they ought to have accepted a tender given at a lower price. I do not even know whether other tenders were at higher or lower prices than the price tendered by SSI. Pegler had the advice of KPMG when they contracted with SSI and the contract was made to satisfy what was in the new ITT, not to obtain those additional features. It is not suggested that the new ITT required features which constituted betterment.
245. Dr. Worden's approach is a wholly unsatisfactory foundation for an allegation of betterment. The evidential burden of establishing betterment is on the defendant: Oswald v. Countrywide Surveyors Ltd. (1996) 50 Con L.R. 1 at 6, Skandia Property (UK) Ltd. v. Thames Water Utilities (1997) 57 Con. L.R. 65 at p.80. Wang have not satisfied that burden and accordingly I make no allowance for betterment.
246. Having dealt with the issue of betterment without so far citing authority other than the decisions mentioned in the previous paragraph, I should mention the authorities taken as my guide.
247. The leading authorities are cited in McGregor on Damages 16^th edition paragraph 17. The leading authority in modern times is Harbutt's Plasticine v. Wayne Tankship [1970] 1 QB 447. In that case, Widgery LJ at page 473 said:

"The plaintiffs rebuilt their factory to a substantially different design, and if this had involved expenditure beyond the cost of replacing the old, the difference might not have been recoverable, but there is no suggestion of that here. Nor do I accept that the plaintiffs must give credit under the heading of `betterment' for the fact that their new factory is modern in design and materials. To do so would be the equivalent of forcing the plaintiffs to invest their money in the modernising of their plant which may be highly inconvenient for them."

248. The mere fact that a party purchasing a substitute product acquires something with a longer life span, or which is more modern, or has additional features than the original would have had does not require an allowance for betterment, still less recovery limited to the financing cost of acquiring the replacement early: Harbutt's Plasticine v. Wayne Tank; Bacon v. Cooper Metals [1982] 1 All ER 397; Dominion Mosaics v. Trafalgar Trucking [1990] 2 All ER 246. In particular, where there is no ready second hand market for goods, or where there might be uncertainty as to the reliability of such goods, no credit need be given for the fact that a new and up-to-date replacement has been purchased: Moore v. DER Ltd. [1971] 1 WLR 1476.
249. Although I reject Wang's case on betterment even before considering the evidence of Pegler's expert on that topic, I should add that Dr. Worden's evidence on this topic is disputed by Mr.Stevens whose evidence I prefer. Mr.Stevens said that it would not have been possible in 1997 to obtain a package which did not offer some advantages over the Wang system, because of changes in technology and because no two systems are identical in what they offer. That accords with commonsense and my experience. Mr. Stevens also said that some competing packages would not have offered some features offered by the original Wang contract while at the same time offering other features not in the Wang contract. It would not be possible to get a match of all the features. That again is only to be expected. Equally, when considering TROPOS in comparison to its competitors, some competitors would not have offered some features offered by TROPOS while at the same time offering other features not offered by TROPOS. Because of that sensible approach, I prefer the evidence of Mr. Stevens that, "Whilst TROPOS is superior to FACT, the additional functionality is 'standard' in a medium package in today's market. The scope of the identified betterment is due primarily to current market requirements which are taken account of in most modern systems".

250. Wang's objections to the KPMG fees fall with their objections to the cost of the replacement system. Wang object to Wang's fees for Review of processes and IT requirements and Solution refinements CEP and project planning. It is said that those items relate to new business requirements and therefore relate to improvements on what Wang had been asked to provide. Counsel for Wang said, "Mr Blagden's oral evidence confirmed that Pegler derived advantages from KPMG's service which were beyond anything that Wang had agreed to supply". He agreed that KPMG's brief was "to look to the future and see what Pegler's information technology requirements were, looking at them with a fresh eye", to "re-define, if necessary what [Pegler's] information technology requirements were for the foreseeable future", and to conduct a business process review prior to formulating Pegler's computer requirements. He also confirmed that KPMG's services include preparation of the CEP for the new system. What Pegler got was an entirely new ITT based on entirely new business processes and requirements."
251. Being forced against their will by Wang's breaches of contract to make a very heavy investment in a new system, it would have made no sense for Pegler to have used the old ITT. The contractual objective of the contract with Wang was that the Wang system would be adaptable to new business requirements. I repeat by way of example one quotation already made from the old ITT and Wang's answer:

"It is imperative that the system and hardware will relate to all current and emerging developments in the business community in a fully integrated matter. It is also essential that the supplier intends to develop all aspects of the system for the next five years as a minimum and preferably for the next ten years"

Wang replied:

"We continue to develop all aspects of our product portfolio and intend to do so over the foreseeable future. We see no difficulty in providing Pegler with the assurances sought"

If Wang had performed their contract, the system they provided would have been, in 1997 and thereafter, relating to emerging developments in the business community. It was therefore reasonable for Pegler to spend money on consultants to ensure that the replacement system did relate to those emerging developments, as they did. I find that damages should be awarded to Pegler for the whole of the KPMG fees claimed.

252. I therefore award under this head the totality of the damages claimed, namely, £1,770,316.

CLAIM G: CONTRACT SALES DISCOUNTS

253. Under this head, the claimants claim £205,279. The claim is formulated as follows:

"In breach of Contract the Defendant failed to provide any functionality for the administration of contract sales (defects numbered 2.0.06 and 5.04.01 in Scott Schedule 3). As a result the Plaintiff has been unable to monitor the number of products sold at contract prices or to maintain a history of such sales, as a consequence of which customers have been able to obtain products at excessive discounts."

254. In opening, Counsel for Pegler elaborated on that:

"Many of Pegler's sales were made under contracts with special terms, under which special rebates were offered for limited purposes below the terms at which the customer usually traded. This might be by way of support for a specific project (goods required by the merchant-purchaser for a specific Local Authority housing tender), for a specific period (for example to "introduce" the project to a particular branch or to shift excess stock). Such contracts will limit the terms by some or all of the following factors: a limit to a certain amount of goods; a limit to goods supplied within a certain period; a limit to goods supplied to a certain branch or to goods supplied to a certain project (or delivery address). In these circumstances it is important for Pegler, when receiving orders, to ensure that the terms on which such discounts are offered are complied with and that discounts are not obtained by customers in circumstances in which there is no entitlement to them.

255. In closing submissions, counsel for Pegler emphasised:

"The claim only relates to discounts payable on purchases made under contracts - arrangements whereby a third party (such as a local authority or British Gas) goes out to tender for the supply of products to a particular project. Merchants and manufacturers, usually in combination, try to win these contracts by offering to supply the requisite goods at a special price. Pegler offers the same special price to all customers who seek to tender for a specific job, to ensure a level playing field.

This has nothing to do with the other types of pricing benefits and discounts offered by Pegler (such as volume rebates), to which Mr Shirley refers in his evidence (Shirley (2) para 13 - 18, Bundle 3.1 pp. 412 - 413) and which were discussed with him by Mr McCall in cross-examination on this head of claim (Day 8 pp. 55 - 63). These other pricing benefits and discounts are irrelevant to the claim, as are any benefits which they may bring to Pegler."

256. Before trial, Mr. Ilett and Mr. Lee agreed,

"It is probable that Pegler has given some customers excess discounts.

The maximum period of loss is from 1 May 1994 to 30 April 1997 and is agreed.

The total population for contract sales discounts for the year ended 30 April 1997 is £511,117.61 and is agreed.

The value of total year end contract sales are £11,661,239, £10,039,564 and £10,680,241 for the years ended 30 April 1995, 1996 and 1997 respectively.

Insufficient records remain at Pegler to allow a detailed exercise to be undertaken to evaluate excess discounts given by Pegler in 1995 and 1996.

Mr. Lee has calculated the loss to be £205,279.

Mr. Ilett considers that the loss is no more than £50,000 before mitigation and £25,000 after mitigation."

257. The claimants claim the sum calculated by Mr. Lee. Notwithstanding Mr. Ilett's calculations, having heard the evidence, Wang contend that Pegler have proved no loss under this head. In closing, counsel for Wang submitted,

"Neither Mr Shirley nor Mr. Lee came anywhere close to satisfying the burden of proof in relation to the samples in Bundles G8 and G9. Perhaps the most alarming of the numerous assumptions made by Mr Lee in relation to various heads of claim was his assumption that Mr Hardwick had not carried out verification of claims for discounts when he expressly stated that he had carried out such verification.

Mr Lee's assumption certainly conflicted with Mr Shirley's evidence: "Derek [Hardwick] was a very methodical man". Mr Shirley did not doubt that if Mr Hardwick stated that he had checked a claim, he would have done so accurately."

258. Mr. Shirley has been the sales and marketing director of Pegler since 1992. Mr. Hardwick was Pegler's employee responsible for checking discounts.
259. Pegler's system for dealing with discounts was inadequate before the contract with Wang. Mr. Shirley gave evidence of that system. Pegler's existing system did not provide the means to monitor discounts. When a contract was in-put into the system (which would happen when Pegler quoted for a contract to record the terms offered), it was not possible to prevent the contract becoming operational immediately (enabling the client to draw on the special price), even if the agreement to provide the discount was conditional on a future event which had not yet occurred (for example success of a particular tender, confirmation of the amount to be supplied or a future date). In addition, Pegler's system allowed such contracts to be set up with no entry in the volume field, with the result that from the outset there was no volume limitation on the stock which could be ordered under the contract. Nor was it possible to up-date the contract to allow for a progressive reduction in the discount, even though this was often the basis on which a special discount was given. The system could not be set up to prevent a customer claiming discounts at both the contract and "claim back" stages. When a request for a credit note was made, it was not possible to check the volume of goods supplied against the contract. The claim back process was entirely manual. Nor was it possible to check that a contract used for a specific branch or project only was not being used to purchase goods for other branches or projects. The difficulty of accessing the relevant information meant that Pegler had to take the claims on trust.
260. Wang agreed to provide a system which would store details of specific contract discounts, a history of orders under the contract as a check against specially negotiated prices, with discounts to be period specific but amendable (subject to appropriate management approval). Sales information could be accessed by customer and by delivery address, and to identify contract sales by product line, sales force, region, customer, end-user and by reference to agreed volume. It would also display relevant contract numbers at point of sale to enable the correct contract to be selected.
261. Wang ought to have provided that functionality by 1 May, 1994. They provided none of it. Pegler provided its own substitute system. The substitute system was functioning by April, 1997. The substitute system is inadequate, but Pegler limits its claim to the period May, 1994 to April, 1997.
262. Pegler has had difficulty in calculating its claim even for that limited period because of lack of records. Mr. Lee took the records for the year ending 1 April, 1997 (the only records available). He found that 67.7% of the records for that year were claimed by only three major customers. So he analysed the figures for those companies, extrapolated them to cover all customers for that year, and then extrapolated the figures for that year to cover the two preceding years.
263. In contesting this claim, Wang raises the following issues:

264. I heard much evidence and cross-examination concerning the method used by Mr. Lee. Wang complained that relevant documents had not been disclosed, but it appeared that they had been disclosed, but copies were not requested by Wang's solicitors until a late stage. Certainly, Mr. Ilett did not see them until very late in relation to the trial. However Mr. Ilett acknowledged that if he had been provided earlier with documents he was given late, he would have been able to comment in detail on Mr. Lee's calculations and probably produce a calculation of loss following Mr. Lee's approach. I accept Mr. Lee's evidence that his method of extrapolation was reasonable and if anything may have understated the claim. In particular, 1997 included a larger number of sales where the ultimate customer was British Gas. Those sales were not subject to excess discounts, and so the proportion of excess discounts in 1997 was disproportionately low.
265. The point made most strongly on behalf of Wang was that Mr. Lee included many claims for discount as unjustified even where Mr. Hardwick, described by Mr. Shirley as a very methodical man, had himself marked the document as "investigated and approved". As to that, I accept the evidence of Mr. Shirley that Pegler generally and Mr. Hardwick in particular were placed in a difficult position by not having the appropriate information available to them. They did not want to lose customers by disputing claims unless they were sure of their ground. "Derek Hardwick used his knowledge of the project and the customers' trading patterns to carry out a rough 'reasonableness' check. Derek Hardwick has to accept (unless it is patently wrong) the customer's statement of the customer's standard price (where this is offered, below list price) on which it seeks a discount." In the circumstances, it is not surprising that Mr. Lee found examples of cases marked by Mr. Hardwick as authorised which would not have been so authorised if the system promised by Wang had been functioning.
266. Sometimes staff gave informal discounts which should not have been given. If a proper system had been in operation, that would have been prevented.
267. I cannot accept the argument that Pegler received a benefit from giving unauthorised discounts. The argument was based on speculation about a customer who might be attracted by becoming aware of unauthorised discounts. It is just as likely that he would be deterred by such inefficiency in business: equally, other customers also are likely to have been deterred if they became aware of unfair advantages given to competitors.
268. The arguments regarding mitigation of damage came largely from Dr. Worden.
269. Claiming back excess discounts would certainly have upset customers and would be unlikely to have yielded much net monetary gain, given that unauthorised discounts were awarded in the first place because of lack of firm information.
270. To change discount procedures would have been difficult in advance of computerisation. The discount system was complex. Ultimately, Dr. Worden agreed with Mr. Stevens that the most cost-effective ways of controlling discounts must involve computer support.
271. More staff could have been allocated to the administration of discounts, but more staff would not necessarily have been able to find out better information. To take on more staff would have been inconsistent with Tomkin's expectations of Pegler.
272. The suggestion that Pegler could have implemented their substitute system some 6 months earlier was considered in detail. Wang accept that the obligation to mitigate by installing replacement equipment only began on 1 January, 1996. Pegler did not begin to deal with this particular problem until late 1996. If Pegler had begun to deal with the problem earlier, a replacement system could probably, as Dr. Worden suggests, have been installed about 6 months earlier than it was. But it is clear, and Dr. Worden accepted, that Pegler's first priority was reasonably to install replacement SOP, and that took all their available effort until its installation in July, 1996. I also heard evidence from the programmers themselves that they were working long hours ironing out problems in SOP from July to December, 1996. I reject the suggestion that outside IT consultants should have been hired to help in this endeavour. It would have been necessary to educate outsiders in the peculiar requirements of Pegler's discount system, and the presence of outsiders would have been a further irritant in delicate labour relations regarding the installation of computers. I find that the steps taken by Pegler both in relation to SOP and to computerisation of discounts were reasonable.
273. For all those reasons, I find that Pegler has proved its claim under this head in full in the amount of £205,279.

CLAIM H: PLANNED MAINTENANCE

274. Under this head, Pegler claims £2,637,217. Wang's calculation is either nil or £305,000 before mitigation or £175,000 after mitigation.
275. Wang supplied no Planned Maintenance System (PMS).
276. The first issue is, What did Wang contract to provide?
277. By the ITT Pegler stated its requirement:

"A proposal on a software and hardware solution for Planned Maintenance that is capable of being integrated with the remainder of the ITT proposal is required".

By their Response Wang replied:

"PLANNED MAINTENANCE

The proposed solution to the scope and objectives of the tender utilises a package called "Total Maintenance System" (TMS), which runs on a Xenix 486 PC that was developed specifically for plant maintenance.

The solution runs on industry standard PCs that are linked via a local area network to the WANG VS to enable file transfer.

The system provides a facilities maintenance and inventory management system which provides for the administration and accomplishment of both corrective repair maintenance and preventive maintenance. Preventive maintenance task lists are prepared, these lists reflect a level of equipment maintenance necessary for proper operation. From this data, weekly packets of presorted work orders are produced for each craft group for accomplishment.

The implementation of a maintenance system will significantly increase the machine tool up time, thus enabling considerably higher plant utilisation.

The system will lead to a reduction in both the frequency and in the time required to accomplish Corrective Maintenance. Planned Maintenance can be organised and executed with the optimum utilisation of resources and minimal disruption to service levels. The consequences will be reduced costs, improved machine performance and life, and greater manufacturing efficiency.

This module will be implemented in Phase IV."

In another section of the Response, TMS was listed as having a purchase price of £10,000.

In yet another section of the Response, Wang made further statements about TMS:

"TMS is a complete facilities and equipment maintenance software system. This means you can take all the activities associated with facilities maintenance such as Corrective Maintenance Work Orders, Preventative Maintenance Work Orders, Purchase Orders, Inventory Control, Equipment History, Scheduling etc. and automate the entire process. Once automated, numerous reports can be generated along with on-line inquiries. With TMS, you will increase productivity and capacity through less machine down time. Your corrective maintenance will decrease and you will optimise your preventive maintenance scheduling."

Following that statement, Wang set out a number of Benefits, including the following:

"BENEFIT

Total Maintenance System

TMS will track and report on all maintenance activities necessary for the efficient operation of your facility.

Inventory Management System

Allows facilities managers to fully control and report on the status of all parts, suppliers and equipment. This ability is fully integrated into TMS system.

Improved Productivity

By reducing corrective maintenance work orders through better preventive maintenance scheduling, productivity will increase because of greater machine up-time.

On-Line enquiry

You can access historical information on-line for any piece of equipment, tool part, work order, purchase order, contract, or maintenance employee."

278. The contention put forward on behalf of Wang was that there was a distinction between what Wang said about the features they would deliver and statements made by Wang about benefits: the former was binding and the latter were simply an indication of what the system would do if the buyer changed its business processes to get the benefits. In the final analysis, this came down to saying that Wang was bound to provide no more than a TMS system which could do all that a TMS system could do and the statements in the Response were simply non-binding "benefit statements". It followed, on this argument, that if Wang did not provide a TMS Pegler should simply go out and buy one for £10,000.
279. Dr. Worden argued this case with enthusiasm in relation to FACT:

"I am aware of the many statements of benefit in the Wang response. When looking at the Wang response, I in my mind, had a fairly clear distinction between the things Wang were saying about features that they would deliver. In other words, FACT can do MRP, whatever is it, and statements Wang made about benefits. I am aware that the statements Wang made about benefits were, in my opinion, quite often through rose-tinted spectacles. In other words, they were pretty bullish, pretty upbeat about the benefits Pegler might have from the system. But I will tell you, my Lord, how I interpret those benefit statements because I believe it is a matter of commercial practice that when one is selling something, one can make a benefit statement which assumes certain things on behalf of the customer. In other words, if I am to sell you a cooker, I would talk about the features, I would talk about the high level grill, and so on and so forth, and I would talk about the benefits, the excellent things you could cook with it, but I will not qualify every one of those benefit statements with the qualification, "But only if you can cook" because that would be insulting the customer and it would not be very effective. So I believe it is commercial good practice to be able to make benefit statements, as Wang did throughout their response to the tender, without always putting in the qualification which in this case is, "providing you make the changes to your business processes to get the benefits". Whenever one is selling a large IT system, it is known, and Wang pointed it out, that in order to gain the benefits from the system, certain things the customer must do about changing his business processes. So I regard those benefit statements in the Wang tender as being, as I say I think they are somewhat optimistic benefit statements, but they are conditional on the business process changes."

But in answer to a question, Dr. Worden qualified that evidence:

"Q. If there is a benefit that is promised that the FACT system is not capable of providing, you discount the benefit statement?

A. No. If there is a benefit statement which FACT made, if Wang say, "Here is FACT. It has these features and it will provide these benefits". If one of those benefits is not achievable with the FACT system, then Wang have made a wrong statement."

280. Counsel for Wang sought to make a similar point based on the pleadings. The Scott Schedule pleaded the breach:

"Wang has failed to fulfil Pegler's requirements in relation to this section of the ITT, Planned Maintenance."

Counsel relied on the statement of Mr. Nicholson that the requirement of the ITT was a very general and vague requirement. But the ITT did very plainly require that the PMS should be "capable of being integrated with the remainder of the ITT proposal", and the Response stated how that integration would be achieved and also stated the benefits that would be given by that integration. Plainly, integration could not be achieved if Wang did not deliver other parts of the system with which PMS should be integrated, and plainly, Pegler had to play its part by reorganising their manufacturing process, but I reject the contention that Wang were not contractually bound to provide what they said in their Response they would provide, including statements which were labelled or could be construed as benefit statements.

281. Integration was required so that preventive maintenance could take place at times and places where machinery was not urgently required for production and that meant involvement in the planning of production to meet demand as shown in the sales orders. Lists of periodic maintenance tasks would have to be prepared for each machine and the tasks recorded in the computer as they were done. The system was to produce lists of preventive maintenance tasks which could be done with minimal downtime. At the same time, there would be management of the inventory for spares and integration with the spares and consumables (lubricants etc.) purchasing system so that spares and consumables were available when required but not kept in wasteful quantity. Properly planned maintenance would reduce unplanned reactive maintenance with its accompanying disruption to production, and would also increase machine life.
282. When Wang were asked to quote, Pegler's maintenance system was chaotic. For example, one basic requirement of a manual system of maintenance would have been the maintenance of a manual card system recording for each machine the periodic maintenance required and a record of when it had been done. There were no such cards, and most maintenance was purely reactive.
283. For the purpose of discussion of cost savings from PMS, benefits have been divided into

Direct benefits - reduced maintenance costs and improved machine performance and life

Indirect benefits - avoidance of the consequences to business of an interruption to supply and delivery caused by machine breakdown or unplanned maintenance taking machinery out of commission.

284. The claim is for £2,637,217, the calculated loss of a direct benefit, namely the loss of the opportunity to reduce Pegler's maintenance costs. The claim is for the years ended 30 April, 1995, 1996, 1997, 1998, and 1999. PMS should have been implemented by 1March, 1994. The loss is calculated by percentages of annual sales by value. Pegler claim that the level of maintenance expenditure which would have been achieved in 1998 as a result of implementation of PMS, based on industry average, would have been 4.1% of sales by value. Pegler claims that it would have achieved, with the aid of PMS, 20% reduction on their annual cost of maintenance. The annual cost of maintenance has been calculated and 20% of that annual cost is claimed as damages.
285. Pegler makes no claim for indirect benefits lost, which would have been considerable.
286. In support of this head of claim, Pegler called evidence of Mr. Nicholson, an expert in Planned Maintenance. Wang did not call an expert in Planned Maintenance, though given leave to do so. Instead, Wang relied on the evidence of Dr. Worden. Pegler also relied on the factual evidence of Mr. Brooks, Mr. Haycock the Engineering Director responsible for maintenance, and Mr. Stanley the Business Unit Manager of the Radiator Valves Business Unit. Mr. Lee and Mr. Ilett gave evidence regarding the figures.
287. Mr. David Nicholson was one of the consultants retained by the Department of Trade and Industry to investigate and report upon the extent of the adoption of a planned maintenance strategy in British industry, and the benefits which might flow from more widespread adoption of this practice. He has advised on over 150 maintenance assignments in 25 years as a maintenance consultant. Mr. Nicholson's evidence was criticised on the basis that he spent only one day walking round Pegler's factory, 1 day analysing the data and 4 half days on visits to the factory. However, he spent more time than anyone else studying the maintenance problem and in his very expert view, he spent enough time.
288. The figures for maintenance costs were examined in great detail. Figures were extracted and apportioned principally by Mr. Brooks with further details from Mr. Haycock and Mr. Stanley. Mr. Nicholson considered those figures and formed the view that apportionments were reasonable. The attack on those figures took the form of questioning Pegler's evidence rather than putting forward other contrary evidence. Pegler's witnesses were plainly doing their best to be fair and reasonable, and in some respects it was plain that their figures were unduly conservative. That evidence, the criticisms of it, and the answers to those criticisms were discussed in great detail in the written closing submissions of counsel for Pegler, section H pages 30 - 40. I need say no more than that I accept the evidence of Pegler's witnesses and the submissions of Pegler's counsel in relation to the figures for maintenance costs. Moreover, the written agreement between Mr. Lee and Mr. Ilett includes, "Although not fully investigated by Mr. Ilett, he has no reason to disagree that the actual maintenance costs and overheads have been accurately extracted from Pegler's accounting records". Accordingly, I accept Mr. Lee's figures, which are the pleaded figures, for annual cost of maintenance.
289. However, following again the evidence of Mr. Nicholson, I take the view that the period for which maintenance costs is claimed should be reduced. Mr. Lee has taken a period of 4 years beginning with 1 May, 1994. PMS ought to have been implemented by 1 March, 1994, so Mr. Lee has allowed 2 months for the system to begin to make a 20% saving. Mr. Nicholson said that it could take a "3 to 6 month, 9 month time scale" after implementation for Pegler to realise the potential savings of 20%. Naturally, Mr. Nicholson could not be definite, saying that it depended on circumstances, and there would be a build up to the 20%. It might be over generous to Wang to allow another 6 months allowance to the 2 months already allowed by Mr. Lee, but I think that is a reasonable course. I therefore reduce Mr. Lee's first year cost of maintenance by 50%, that is, £1,412,081. The total of his annual maintenance costs thus becomes £11,774,008 of which 20% is £2,354,802.
290. I next consider whether 20% is the appropriate proportion to apply to the maintenance cost.
291. Mr. Nicholson was cross-examined about a Report referred to in this action as the March Report, a report by March Consulting Group dated April, 1989 commissioned by the Department of Trade and Industry to investigate current maintenance practice in the UK manufacturing industry. Mr Nicholson was a founding partner of the March Consulting Group and a co-author of that report. In that report, it was said that conservatively an 8% improvement potential was available "to these manufacturing and process industries, provided they adopt and implement improved maintenance policies which will go some way towards the appropriate best practice for their particular business sector". Asked to explain the difference between that figure of 8% and the figure of 20%, Mr. Nicholson said that the report was dealing with a much wider range of industry sectors than that referred to in general engineering and metal processors. He gave as an example of a different type of industry, the oil and gas industry. Many were so efficient already with the aid of computers that there was little room for further improvement. Reference to his March Report did not shake his adherence to the figure of 20%.
292. Mr. Nicholson said that the figure of 20% was based on his experience. It was suggested that the date of his report in this action showed that he was basing himself on experience of more highly developed systems than systems available when Wang tendered. He agreed that there had been considerable technical advances, but his answer indicated that he was comparing days when PMS packages were based on mainframes and weekly batch processing with technology allowing instant response. The instant response type of technology was certainly available to Wang, and it was at the heart of what they were promising throughout the promised system.
293. Mr. Nicholson was asked about a reference in one of his reports for use in this action to a range of improvement between 15% and 30%. He explained that there was such a range in many maintenance improvement assignments, but there were other improvements outside that range. He said:

"Organisations that might already have a computer-based application but not being used very sensibly or effectively might only offer a 10% improvement at the end of the day. An organisation that does not have the benefit of a full information system would probably offer more than 30%".

Pegler fell into the latter category, and so on that evidence one would regard 20% as conservative.

294. Mr. Nicholson supported his reliance on his general experience with specific examples: 20% was achieved by David Brown Gears in Huddersfield, 25% in the carpet industry. He said:

"Over 150 maintenance assignments that I have carried out in my 25 years as a maintenance consultant, 20 per cent is an eminently achievable figure particularly from a low base at which Pegler appeared to be in ...

They [the companies he has experience of] encompass features of Pegler's manufacturing process - I think we have agreed that it was very complex - that generally an organisation will be a metal smelter. Another organisation will be a stamping firm. Another organisation will concentrate solely on shell moulding and another one will be a machine shop.

I have seen and managed improvements of 20 per cent in those individual organisations that concentrate on one product. Pegler is a very diverse combination of all those activities"

295. Dr Worden accepted that a "20% reduction of direct maintenance costs may be a reasonable industry average of the savings achievable by a full maintenance improvement programme", although he believed that the larger part of any such reduction would be attributable to management measures rather than a PMS. He also said that the figure of 20% was "a figure with very large uncertainties depending on the individual circumstances of the company" Having heard and read Mr. Nicholson's evidence, I am satisfied that he has fully taken into account the individual circumstances of Pegler.
296. Dr. Worden's reference to management measures rather than a PMS relates to two points made on behalf of Wang. It is said that only part of the 20% could have been due to PMS, the other unquantified part being attributable to management steps, and secondly, in the absence of PMS, Pegler ought to have mitigated their loss by taking management steps to improve maintenance without PMS. The answer to both is that maintenance generally in industry and in Pegler's case in particular has become so complex that it cannot be satisfactorily managed without the aid of a computer. Pegler have 815 pieces of plant and equipment and a further 500 pieces of equipment that have to be maintained such as cooling towers, furnaces, transformers, electrical supplies, ventilation equipment (to remove dangerous fumes) and air compressors driving many machines. Large quantities of data have to be collected for each piece of equipment. Once collected, the data has to be analysed and actions formulated. The quantity of data is so great that it cannot be analysed without the aid of a computer. One of the problems found by Pegler was that when they tried to apply management improvements in the collection of data, they were unable to do much with the data without a computer and the workforce became demoralised, not seeing much point in collecting data that were not used. Mr.Haycock and Mr. Stanley gave eloquent evidence of that. While the computer certainly needed effective management to ensure that data were properly collected and recorded and that tasks assigned with computer aid were done and recorded, those management steps were ineffective on their own. It is quite wrong to say that part of the 20% improvement could have been achieved without the computer. In fact, the computer gives power to the management to improve its decision making and motivates the workforce to co-operate intelligently with management. Dr.Worden's suggestion that management could, "if necessary walk around the factory and look at the machines that are working and not working and get the data that way" was bizarre.
297. Another wholly unfounded and dangerous suggestion from Dr. Worden was that Pegler could have simplified its maintenance by basing maintenance plans on periods of time rather than on hours worked. As Mr. Nicholson pointed out, periodic maintenance results in over maintenance of machines that are infrequently used and under maintenance of more frequently used machines. As Mr. Stanley pointed out, the demands of production for different products at different times resulted in wide variations in the use of different machines at different periods.
298. Management is also helped by the computer in policing compliance with maintenance tasks. Jobs required to be done can be easily compared by computer with jobs recorded as done. That again was confirmed by both Mr. Haycock and Mr. Nicholson, both of them from practical experience, which Dr. Worden lacks in this area.
299. Pegler's management showed its great concern about planned maintenance by commissioning MCP Management Consultants to make an audit of the efficiency of their maintenance systems. MCP reported in a report known as the Amis Audit. The overall result was 12% which, they reported, placed Pegler in the "chaotic" area with a reactive approach to maintenance and a significant lack of procedures in all areas. That supports Mr. Nicholson's view that there was plenty of room for the 20% improvement which he envisaged. Examination of the report also indicates that the improved procedures could only come at the same time as computerisation.

300. Finally, Wang suggest that Pegler should have bought alternative PMS for a cost of between £20,000 and £50,000 shortly after December, 1995. It was suggested that given the comparatively low cost of substitute systems, one should have been bought even if it did not meet all Pegler's requirements or could not be fully integrated.
301. The duty to mitigate did not begin before 1 January, 1996. In fact, Pegler made considerable efforts to obtain a replacement system, but it took a long time because of obstacles.

(1) By February 1996, a decision had been taken to prepare a specification of requirements covering future needs and to visit an exhibition of PMS to evaluate a solution.

(2) After that visit there were various site visits.

(3) By 28 July 1967 Mr. Shores and Mr. Cooke had prepared a detailed specification for a PMS.

(4) By November 1996, 6 suppliers were short listed, discussions were taking place with them and quotations were awaited. Those were received by December and a short list of 2 drawn up.

(5) By February 1997, Matrix was chosen.

(6) Matrix updated their quotation on 10 February 1997 and again on 17 March 1997.

(7) By April 1997, Pegler had asked for and been refused access to source codes for integration. Communications about this continued to the beginning of June when the process began again with the involvement of the DP department.

(8) The DP department was very stretched at that time as a result of work in providing temporary fixes to Wang problems (purchasing, query tracking) and assisting in the selection of the replacement system when it was stated the evaluation could not be completed until September 1997.

(9) New companies were then approached and quotes provided in September: for example Wolfson on 22 September, 1997 and Mercia on 29 September, 1997. All potential suppliers attended a meeting with Pegler on 26 September 1997. Correspondence was exchanged with the suppliers in October 1997 and an ITT sent out in November.

(10) Consideration was given to whether a temporary system should be implemented pending the introduction of one which could be integrated with the production control schedule but it was decided that this would simply divert time. That was a reasonable decision.

(11) Replies to the ITT were received by the end of December 1997, but consideration of them was delayed when Mr. Graham Shores, who was heavily involved in the project, had to devote time to a backlog of maintenance items caused by the resignation of the Central Plant engineering technician.

(12) In February 1998 a demonstration was arranged of an additional package, which was found to be unsuitable. In May 1998, data were provided to the various suppliers to permit them to demonstrate their systems. Presentations took place in August and September by some suppliers. However one supplier had still not replied in October.

(13) Visits were arranged to suppliers, but the visit to Mercia was rearranged to February 1999 at Mercia's request. The visit to the other principal contender, PSDI, was also delayed at PSDI's request because they were involved in an internal reorganisation. The visit only took place in May 1999, when a presentation by the third supplier, SSI, also took place.

(14) Revised quotations were received in May 1999 and a site visit to Mercia took place. The Mercia package was then selected and as Mr. Haycock indicated in evidence, a CEP is being written up.

302. Dr Worden believes that Pegler should not have rejected the Matrix software, both because in his view integration was not as important as Pegler believe, and because also in his view, access to the source code was an unrealistic expectation.
303. Integration certainly was important to Pegler. Pegler made it the sole requirement in the ITT. In Mr. Nicholson's view also it was important. Indeed, integration seems an obvious requirement of the Just in Time philosophy of Pegler.
304. The experience of Pegler in dealing with other suppliers indicated that access to the source codes was in no way an unrealistic aspiration, indeed it was offered on occasions without being requested. Mr. Nicholson gave similar evidence of his own experience. It is also notable that by their Response Wang themselves offered the source code for FACT without being asked for it (see the Response to section 4 para 10.3 of the ITT).
305. I find that there should be no reduction of Pegler's damages on account of failure to mitigate damage.
306. I therefore assess the damages under this head at the sum claimed less an amount related to the first 6 months of the period in respect of which the claim is made. I award for this head of damage £2,354,800.

CLAIM I: REDUCTION IN HOME TRADE DEBTORS

307. Under this head, Pegler claims £107,920. Wang estimates the claim at £40,000 before mitigation or £25,000 after mitigation.
308. Pegler claims that Wang's failure to implement SOP and a dispute tracking system deprived Pegler of the opportunity to reduce the level of home trade debtors.
309. Pegler complain of two separate effects on debtors. The lack of SOP increased the likelihood of disputes over debts. The lack of a dispute tracking system made it more difficult to resolve those disputes which did arise.
310. SOP and Wang's dispute tracking system should have been implemented by 1 April, 1993. Pegler's own SOP came into operation in July, 1996. Pegler's dispute tracking system came into operation in March, 1997.
311. Mr. Blackwood described how, before the use of SOP, orders were not efficiently "captured" on Pegler's old computer. By "capture" is meant the receipt and recording of information and putting the information into the system. Similar inefficiencies ran through the paperwork up to delivery and invoicing. Much of Pegler's order information was entered by hand rather than selected from pre-determined fields. As a result there was a considerable room for operator error. In addition, important information was not readily available and so relevant fields would not be filled. As a result invoices frequently contained errors as to the identity or amount of products, or failed to include the correct contract number and price. In addition, the lack of integration between its records, and the absence of computer records of issues meant that queries took a long time to resolve. Paperwork would be passed from department to department. There was no record of how long disputes were taking to resolve. It was also the case, of course, that inefficiencies outside the accounts department resulted in a large number of genuine queries, as for instance when the wrong goods were despatched or when only part of an order was despatched. As a result, Pegler had built up a 6 month backlog of queries worth £250,000 at the date the CEP was submitted.
312. As part of the SOP, Wang promised a Sales Order Entry System (SOE) designed to cope with the inefficiencies on capture of orders. The ITT contains four pages of requirements for credit control. In the Response, Wang promised:

"In order to meet the objectives and requirements of this section of the invitation to tender, we propose to use a PACE development in order to enhance the facilities included in the FACT package.

This software runs on the Wang VS and is supplied with a PACE data dictionary, enabling extensive report and query features over and above those already supplied with the module.

It will provide Pegler with customer vetting and approval procedures and with the ability to conduct on-line checks and transfer the essential information to the customer record. The system will incorporate automatic re-application for E.C.G.D and will maintain payment performance records over specified periods. Dispute tracking will be included with imaging facilities for the storage and retrieval of all correspondence. Facilities will also be included for EDI, FAX, and TELEX transmissions, and the system will incorporate facilities for the generation of communications, - for example, based on semi-standard letters. Facility for logging actions will be included, and debtors reports will be provided as specified in the invitation to tender.

The software will provide extensive controls and reporting whilst eliminating considerable administrative effort. Thus it will ensure the reduction of risk on new and existing accounts whilst assisting with collection of debt."

313. As with other claims in this action, the formulation of this claim is impeded by lack of records. Mr. Lee has compared two periods. One calendar year up to 31 December, 1996 was selected to show the pre-computerisation state of affairs. For the post computerisation period, two years from March, 1997 were considered. January and February 1997 were omitted because in January there was an untypical large debt disputed by one customer, and in those two months, Pegler had a drive to get in debts owing. The latter period was extended to two years to cover a time when disputed debt increased due to staff difficulties. Over those periods, only three customers were considered and the position shown was extrapolated to cover all customers. The three customers concerned were the three with the largest trade debts, carrying 33% of the debt. The fairness of that sample has been disputed, but I am satisfied that if anything the sampling understates Pegler's case because the remainder of the debt was spread among a large number of smaller customers where the number of difficulties would be greater in relation to the sums involved. Having by this means obtained a figure of disputed debt for one year, the resulting figure was extrapolated to cover the whole period from 30 April 1994 to 28 February, 1997.
314. Mr. Ilett questioned the extrapolation of one year's figures to cover the whole of the period in question at a standard rate. He said that he would expect there to be a correlation between the amount of disputed debt and the amount of total debt outstanding. During the period in question, the amount of total debt owed by the three customers examined declined by 21% and as a result, he would expect about 40% of the reduction in value of disputed debts to be related simply to that reduction in the value of debtors. However, after discussion with Mr. Lee, Mr. Ilett agreed that he was satisfied on this point.
315. It is agreed that the appropriate measure of Pegler's loss is the cost to it, if any, of the lost working capital tied up in debts under query. Accordingly, once the annual figure of capital tied up is established, as it has been, an appropriate percentage is to be applied to that sum. Pegler says that the appropriate figure is the ROCCE, a figure varying between 21% and 33% in the years in question. Wang submits that the percentage should be either nil or 10%. Mr. Ilett has made calculations on the basis of 10%.
316. Wang's submission that there should be no compensation is based on the arrangement of the Group that Tomkins acts as the central treasury. As I have explained, all Pegler's profits go to Tomkins and when Pegler needs capital it has to ask Tomkins for that capital by a CEP. If the argument is carried to its extreme, Pegler should receive no compensation in this action at all because any profits it has lost as a result of Wang's breaches would in any event have gone to Tomkins and any losses suffered will have been financed by Tomkins. Moreover, the price paid to Wang came ultimately, not from Pegler, but from Tomkins. I assume, though I have not been told so expressly, that the damages awarded in this action will be paid over to Tomkins. If there were anything in this point, I would have suggested that Tomkins be added as a co-claimant and some extra paragraphs added to the pleadings. If the point were a good one, it would affect many actions brought by companies since, as Mr. Ilett confirmed, the arrangement in this Group is a common one. I am satisfied that the point taken by Wang is ill-founded and that the Group arrangements are to be treated as res inter alios acta in the same way as arrangements with insurers: H Cousins & Co. Ltd. v. D & C Carriers [1971] 2 Q.B. 233; Metal Box Co Ltd. v. Curreys [1988] 1 WLR 175; Empresso Cubana v. Octainer [1986] 1 Lloyd's Rep. 273 at p.292.
317. In considering what percentage is to be applied to sums tied up in disputed debt, the question is, What was the value of the money tied up? The Claimant says that the percentage should be ROCCE. Wang contends that if anything is to be awarded, the value should be assessed at the cost of borrowing equivalent capital on commercial terms. Both parties are agreed that the latter rate should be taken as 10%.
318. In closing submissions, counsel for Pegler asks, How do you measure the value to Pegler of the money which would have been freed up? He answered that question by saying that Pegler's ROCCE is the best estimate of the return which Pegler makes on working capital. I agree that ROCCE is the best estimate of the return which Pegler makes on working capital, but I do not agree that ROCCE is the value to Pegler of the capital tied up. ROCCE is not the value of the capital but is the value added to the capital by Pegler's skill and effort. In any one year, the return on the capital invested varies with the skill and effort of Pegler's directors and workforce, but the return does not affect the value of the capital put into the business. I can illustrate that by examples. Suppose a company buys a racing car with a view to making profit from advertising, sponsorship, and prize money. In Year 1 they employ a driver of only moderate skill and the ROCCE is moderate or nil. In year 2 they employ a record breaking driver and the ROCCE is very large. The value of the capital employed in buying the car and associated equipment is not increased in Year 2, if anything it is reduced by depreciation. In this example, if the car was wrongfully destroyed by a third party at the end of Year 1, the owners of the car would only be entitled to claim the lost ROCCE (if they could prove it) if they could show that the car was irreplaceable in time for racing in Year 2. If a substitute car were obtainable, the owners would only be entitled to claim the cost of the substitute car, whether they bought one or not. By comparison, take the example of a trader whose whole working capital is unlawfully frozen for one year by his Bank. Is that trader entitled to take a holiday for the year and claim as damages from the Bank the money he would have earned in that year by exploiting his capital in trade – his ROCCE? The answer must be, No. He would be limited to claiming the cost of obtaining an equivalent amount at commercial rates: otherwise he would be paid both the cost of his capital and the value of the work he had not performed. If a rich aunt lent him an amount equivalent to his capital interest free, he would still be awarded the cost of obtaining that amount at commercial rates. The principle to be applied is similar to that applying to the awarding of interest on damages between the date of the loss and judgment, where also the aim is to compensate the claimant for the cost of being deprived of the money which he should have had. In Tate & Lyle v. GLC [1981] 3 All ER 716 at 722, Forbes J. explained:

"Despite the way in which Lord Herschell LC in London, Chatham and Dover Railway Co v South Eastern Railway Co [1893] AC 429 at 437 stated the principle governing the award of interest on damages, I do not think the modern law is that interest is awarded against the defendant as a punitive measure for having kept the plaintiff out of his money. I think the principle now recognised is that it is all part of the attempt to achieve restitutio in integrum. One looks, therefore, not at the profit which the defendant wrongfully made out of the money he withheld (this would indeed involve a scrutiny of the defendant's financial position) but at the cost to the plaintiff of being deprived of the money which he should have had. I feel satisfied that in commercial cases the interest is intended to reflect the rate at which the plaintiff would have had to borrow money to supply the place of that which was withheld. I am also satisfied that one should not look at any special position in which the plaintiff may have been; one should disregard, for instance, the fact that a particular plaintiff, because of his personal situation, could only borrow money at a very high rate or, on the other hand, was able to borrow at specially favourable rates. The correct thing to do is to take the rate at which plaintiffs in general could borrow money. This does not, however, to my mind, mean that you exclude entirely all attributes of the plaintiff other than that he is a plaintiff. There is evidence here that large public companies of the size and prestige of these plaintiffs could expect to borrow at 1% over MLR, while for smaller and less prestigious concerns the rate might be as high as 3% over MLR. I think it would always be right to look at the rate at which plaintiffs with the general attributes of the actual plaintiff in the case (though not, of course, with any special or peculiar attribute) could borrow money as a guide to the appropriate interest rate. If commercial rates are appropriate I would take 1% over MLR as the proper figure for interest in this case."

319. The amount of outstanding debt has been reduced by the issuing of credit notes, and it is agreed that 5% should be allowed against the claim. That deduction has been made by Mr. Lee in his calculations.
320. The systems experts, Dr. Worden and Mr. Stevens made two important agreements:

"We agree that many of the problems of home trade debtors were a symptom of more fundamental problems related to the effectiveness of Pegler's historical SOP system. If sales order capture and processing were inaccurate so customers were sent incorrect orders, they would delay payment. It was reasonable, for Pegler to have addressed the root cause of inaccurate sales order capture and processing prior to resolving issues of home trade debtors.

We agree that it would have been less cost-effective for Pegler to use temporary staff to resolve issues of home trade debtors on the basis that resolution of these issues would have required the individual to have had some knowledge of Pegler; the organisation, ways of working and its people in order to resolve problems quickly and effectively."

321. Dr. Worden qualified the first of those agreements by saying that Pegler needed to change its business processes for sales order processing in order to gain the benefit of SOP in terms of reduced home trade debtors, and the claim should be reduced accordingly. The changes to which he referred were (a) changes to the manufacturing organisation, (b) defining the terms of the delivery pledge, (c) moving the sales order entry department into the production planning department, (d) simplifying its discount structure. I do not see how either (a) or (b) could possibly affect disputed debt. Moving the sales order entry department into the production planning department was discussed in evidence by Pegler witnesses. Such a move might have had some advantages before SOP but not after its introduction. Simplifying the discount structure would probably have reduced disputes over debts, but the structure was not simplified (for good reasons) even after the introduction of the systems by Pegler, and a reduction in debt was still effected. I reject this point.
322. Despite the second agreement, Wang, and Dr. Worden advanced an argument that Pegler ought to have mitigated its loss by employing extra staff or redeploying staff to reduce the disputed debt before the systems were installed. Dr. Worden put this case by qualification to his agreement:

"Dr. Worden believes that while ideally you should address root causes before addressing symptoms, nevertheless there can on occasion be value in tackling the symptoms. Simply focusing attention on payment problems can resolve many of them, without resolving their root cause. While it may have taken time to get temporary staff up to speed for this task, nevertheless temporary staff can do the job effectively or it may be possible to re-deploy permanent staff into the role."

That statement is a reasonable summary of the evidence Dr. Worden later gave. Dr. Worden is far from saying that Pegler ought reasonably to have employed temporary staff or redeployed permanent staff. Pegler did recognise that there can on occasions be value in tackling symptoms, but Mr. Brooks explained that there were many other calls on Pegler staff caused by Wang's breaches and staff could not be spared to deal with a situation which would have recurred as soon as it had been alleviated. It was not acceptable to hire temporary staff for the purpose. Intimate knowledge of Pegler's affairs was needed for the task of chasing up disputed debts and skill and tact was required in dealing with the matter without upsetting valued customers. Examples of difficulties arising out of changes in staff were given. To train the temporary staff would itself have taken up much valuable time of permanent staff. Mr. Stevens and Mr. Ilett agreed that Pegler acted perfectly reasonably in not devoting staff time to such an effort before tackling the root cause of the problem. Instead, as Mr. Brooks explained, there were meetings from time to time with debtors in attempts to sort out the problem.

323. I allow this claim in full with the important exception that the multiplier should be 10% and not ROCCE. On that basis I recalculate the claim. The claim is for £132,000 excess debt from 1 January, 1994 to 28 February, 1997 i.e. 3 years and 2 months @ 10% = £41,800 less allowance for credit notes £5,680 = Total: £36,120.
324. Under this head, I allow £36,120.

CLAIM J: REDUCTION IN INVENTORY

325. Pegler claims that because of the failure to implement SOP, Pegler was deprived of the opportunity to reduce its stock of finished goods. After implementation of SOP in July, 1996, Pegler was able to reduce its stock of finished goods. If Pegler had been able to do that earlier, it would have had more capital on which a return would have been earned. The amount claimed is £774,400.
326. The aim of the Just in Time philosophy was to manufacture what was wanted when it was wanted so that finished goods were both delivered on time and with the minimum of finished goods waiting in stock before delivery. That could only be done with SOP and improved forecasting. A similar philosophy was to be applied to both bought in and factored goods. Without SOP and efficient forecasting, Pegler had held unnecessarily high stocks to meet anticipated orders, and even then had failed to meet orders on time because they often did not have sufficient stock of what was actually required.
327. By making a "before and after" calculation, Mr. Lee has calculated the reduction of stock of both manufactured and factored goods which ought to have been made from 1 March, 1993 to 30 June, 1996. Applying ROCCE to the stock reduction, he came to the figure of £759,000. To this he later added £15,400 by excluding the figures for March, 1993, resulting in the final total of £774,400. SOP ought to have been implemented in March, 1993.
328. This head of claim has been the subject of much examination and discussion. I have heard evidence on many different points from Mr. Lee, Mr. Ilett, Mr. Stevens Dr. Worden, Mr. Rout, Mr. Blackwood, and Mr. Brooks. Happily, in the light of most helpful concessions made by counsel for Wang in closing submissions, I need only deal with two matters, the application of ROCCE and factored stock.
329. Wang make the same submissions with regard to the use of ROCCE as were made in relation to Claim I, reduction in Home Trade debtors. For the same reasons as I gave before, I find that 10% should be applied as a multiplier instead of ROCCE.
330. Mr. Lee and Mr. Ilett approached the calculation of the reduction in stock from different starting points but so far as manufactured stock is concerned, their end figures are not so very far apart, and while Wang consider Mr. Lee's figures to be on the high side, they are not concerned to dispute them, so far as they relate to manufactured goods.
331. Wang strongly dispute Mr. Lee's calculations so far as they relate to factored goods. Counsel pointed out that in his first statement Mr. Lee said:

"Bought Out Components are purchased items which require no further work by Pegler other than to be fitted to the finished product. It has not been possible to isolate the effect the functionality so far implemented may have had on this category of inventory from those of purchasing initiatives, such as negotiating shorter lead times with suppliers"

Bought Out Components are parts not manufactured by Pegler (for example, plastic washers) bought from others to be fitted to items manufactured by Pegler. They are different from factored goods which are complete items bought from others. Mr. Ilett in his oral evidence said that Bought Out Components are similar to factored goods in that there was the ability to negotiate shorter lead times for the delivery of factored goods, as was shown in the Management Reports. Pegler replies that shorter lead times for amongst other things factored goods was one of the very benefits desired from the purchasing strategy made possible by computer support. However, when one looks at the Management reports one can see that at least some of the improved lead times with factored goods were not the result of computer support. In late 1995 and early 1996, Shipham were late in their deliveries and Pegler decided to make some products in-house which would otherwise have been supplied by Shipham. Pressure was brought to bear on Shipham to improve their delivery. In mid-1996, similar problems with another supplier persuaded Pegler to bring production of the Sequel Bath Shower Mixer in house. By such means, Pegler moved items from factored goods where stock holding times were much longer than with in-house products. Moreover, it was pointed out in cross-examination that figures for factored stock were distorted by unusual movements in certain items, such as luxury chrome, radiator valves and gun metal. Mr. Lee said that these things averaged themselves out, but Wang submit that if the figures were recalculated to leave out such distortions the picture would be very different and nothing should be allowed for factored goods because reductions cannot be demonstrated to have resulted from the introduction of SOP.

332. I find myself in the difficulty that while I am satisfied that Mr. Lee's figures for factored goods are too high, I also believe that it is likely that there was some loss in relation to factored goods, but I have no reliable figures on which to base a calculation. I cannot take any figure without the risk of being unfair. In the end I must find that Pegler have not proved any loss in respect of factored goods.
333. Extracting figures from paragraphs 11.3.5 and 11.3.6 of Mr. Lee's first Report, I calculate the loss for manufactured goods as follows:

Stock Reduction

£'000 x 10% £'000

2 months ended 30 April 1993 469 10% 7.8

y/e 30 April 1994 484 10% 48.4

y/e 30 April 1995 492 10% 49.2

y/e 30 April 1996 560 10% 56.0

2 months ended 30 June 1996 521 10% 8.7

Total: £170,100

To his calculation, Mr. Lee added £15,400. That addition was made by removing the loss for March 1994 from the figures. The £15,400 includes the loss both for manufactured and factored goods. Since it would have taken at least one month for computer support to have had substantial effect in reducing stock, I think it reasonable to add a figure in respect of manufactured goods. I am unable to separate from that figure the sum in respect of factored goods, but I do not think that any injustice will be caused by my failing to do so.

334. Accordingly, for this head of claim I award a total of £185,500.

CLAIM K: WASTED MANAGEMENT TIME

335. Under this head, by the latest amendment to the pleading, Pegler claims £1,114,056. However, by the Schedule of damages provided by Counsel, the claim is limited to £1,079,737 to be adjusted down to £1,067,274 to reflect evidence concerning Mr. Tony Hirst. Pegler claims that as a result of all Wang's breaches, Wang has spent time implementing, investigating and installing additional standalone hardware and software to remedy some of Wang's breaches, and investigating an integrated replacement system in respect of which it claims damages. Pegler gives credit for the time it would have had to spend if Wang had fulfilled its contractual obligations.
336. Once again in this case, a claim is put forward with little support from records. Pegler have recorded the time spent on implementation of the new system but did not keep records of time spent over earlier periods. Relying on Tate & Lyle v. GLC, Wang submit, "no records, no recovery". In the Tate & Lyle v. GLC case at pages 720 to 721, Forbes J. indicated that in principle, there should be compensation for the cost of managerial time in dealing with remedial measures. He also found that there was evidence that managerial time had been so spent. Recognising the difficulties in recording such time, he nonetheless considered that there were methods of recording time spent by managerial staff on particular projects. But in the absence of any evidence at all on amount, he was not prepared to speculate. He rejected an invitation to apply a rule of thumb measure taken from Admiralty practice.
337. The case before me differs from the case before Forbes J. in that while he had no evidence of the amount of time spent, there is before me evidence in the form of a reconstruction from memory of events from the past: often from the long distant past. I cannot and do not say, in the absence of records there is to be no recovery. I must examine the evidence before me and consider whether and to what extent Pegler has proved the amount of its loss. The comment that Pegler could have recorded the time and had good reason to do so since a claim was likely is forceful and I bear it in mind in my approach to the evidence.
338. If Wang had done what was promised without breach of contract, Pegler would have had to devote a considerable amount of time to the implementation of the project. Pegler has given credit for that effort, though Wang says not enough credit has been given. Due to Wang's breaches, Pegler had to devote much effort over a period of years trying to achieve what Wang had promised. There was much aggravation and inconvenience, for which compensation is rightly not claimed. Wang's failures created a negative attitude in the workforce to the whole concept of computerisation and that made it the more difficult to introduce remedial measures.
339. Pegler has not shown that any day to day work has been neglected However, one can readily infer that when the time of a director or manager is taken up with remedial measures that person is diverted from his proper job of managing the company. Time spent quietly and without distraction thinking is valuable to the company. Pegler has also claimed for the time of employees who may have the label of "management" for Pegler's purposes but who are white collar office workers, systems experts, computer programmers and the like. Wang submits that workers in the latter capacity should be treated differently, but I do not see why that should be so.
340. I consider first the credit given by Pegler for the time that would have been taken by Pegler employees if Wang had performed the contract. Mr. Stevens made an estimate. He said that it would have taken 18 months to 2 years to implement the Wang system, but, as Wang point out, he based his calculations on a period of 18 months. Mr. Stevens gave evidence of other implementations of which he had experience. He said, and I accept, that if the period of 18 months were extended to 2 years, that would lower the level of intensity, but would not affect the total time taken. Mr. Stevens very fairly said that his estimate was subject to a plus or minus variation of 20% either way. In the circumstances, it is reasonable to take the middle figure which he has chosen. Dr. Worden suggested that the allowance proposed by Mr. Stevens should be multiplied by up to 3 times. To achieve that figure, it would have been necessary either to increase the implementation team to an unmanageable and unreasonable size or to lengthen the period of implementation beyond the period of 2 years predicted by Wang. I reject that evidence of Dr. Worden. If he is right in his opinion about the work required in implementation, that is another feature of Wang's breaches. I therefore accept that the estimate given by Pegler for contractual implementation was reasonable.
341. I turn to the evidence of the time actually spent by Pegler. A reconstruction exercise was conducted in 1997. Because Pegler was looking back over a long period of years, discrepancies, exaggerations, and errors were to be expected. Much time and effort was taken in checking and cross-checking the reconstruction. Mr. Blagden and Mr. Blackwood were in charge of that process and they gave evidence about it. I also heard evidence from Mr. Rout, Miss Storr, Mr. Fairs, Miss Havenhand, Mr. Hirst, Miss Stevenson, and Mr. Blake. Challenges were made to their evidence and it was examined in cross-examination. Having regard to the great care taken in making the reconstruction, I am satisfied that Pegler has not overstated the hours worked.
342. Before hearing Miss Storr's evidence, Dr. Worden made the reasonable point that her work on programming required such a high degree of concentration that she could not have worked the hours claimed. Having heard her evidence, I am satisfied that she did work those hours. However, she worked such long hours (including a double working week and over the Easter holiday at a peak period) that her efficiency must have been affected during her normal working hours as well as during the overtime. Nonetheless, she did do all her work, though she no doubt took longer to do it than she would have done if she had been working shorter hours. It also appeared from the evidence of Miss Storr and others that these employees were not paid for overtime, but the claim has been so formulated that a claim is made for their overtime. For example, if Miss Storr worked a 15 hour day, she would be paid for one day but the claim is for 2 days of her time.
343. Mr. Ilett put forward the proposition that it was only when remedial work done by any one employee reached a threshold of about 10 or 15 hours per week that other work of that employee would be affected. Applying that proposition, Mr. Ilett calculated, so far as he could, the time spent by individuals above 15 hours per week and said that only those hours should be allowed. On the one hand, I do not accept that Pegler employed people on the basis that they each had 15 hours per week to waste. There was constant pressure to reduce the workforce. I heard evidence, which I accept, that normal work was disrupted. For example, Mr. Blake, Stock Controller and then Marketing Information Manager, said:

"We found there were certain tasks which I was doing which I had to drop. Obviously when you are putting in an extra 30 hours or something you have still got some other tasks to perform. Some were passed to other members of the department, but then we also had to drop certain tasks which we performed at that time prior to starting the implementation."

When asked if he believed that other jobs would have been found for him if he had not been working on the system, he replied:

"Most definitely"

On the other hand, there was no evidence that specific identified tasks were simply not done at all. I have the impression that much of what was lost was made up in unpaid overtime. The very large quantity of unpaid overtime suggests that during normal working hours also there was a willingness to work beyond the call of duty, but there will still have been some appreciable loss to the employer.

344. If these damages are to be approached as a matter of calculation, I certainly think that the unpaid overtime hours should be removed from the calculation, but I do not have the information which would enable me to do that. I do find that the hours of all the individuals referred to in Pegler's calculations should be taken into account. There is no magic in who is or is not to be included in "management".
345. Counsel for Wang invited me to take a broad brush approach and allow a third of Pegler's time for wasted time in relation to the implementation and remedying of the Wang system. The suggestion of one third is on the basis that I accept Mr. Ilett's proposal that added work less than 15 hours in one week is not wasted time. I do not accept that proposal.
346. Counsel for Wang also submitted that the time spent in implementing the new system should be only for the cost of acceleration of the expenditure on a new system since a new system would have been required in any event. Counsel suggested that a cost of 10% for 2 years should be allowed. I reject that suggestion because it is inconsistent with my findings about the length of time that the Wang system ought to have lasted.
347. In the end, unsatisfactory as it is, I accept the invitation to adopt a broad brush approach for want of any other means of quantifying this undoubted loss.
348. I allow half of Pegler's claim under this head rounded to £534,000.

CLAIM L: PURCHASING

349. Under this head, Pegler claims £1,463,200. By its claim Pegler alleges:

"As a result of the Defendant's failure to implement properly or at all effective Purchasing, Delivery Scheduling, Accounts Payable, Consumables, Supplier Performance and Supplier Appraisal modules, the Plaintiff has been unable to reduce the cost of its purchases from third party suppliers.

The modules referred to were due to be implemented in October 1992 (Consumables and Accounts Payable), March 1993 (Purchasing and Delivery Scheduling) and February 1994 (Supplier Performance and Supplier Appraisal).

Had the Defendant fully implemented the modules referred to, the Plaintiff would have had the functionality set out in the ITT which in turn would have enabled the Plaintiff to achieve the following benefits:

the establishment of a database of suppliers;

an evaluation of the number and suitability of its suppliers;

a reduction in the number of suppliers;

reduced administration in the processing of purchase orders and invoices;

lower purchase costs;

reduced lead times for purchases and lower inventory.

This in turn would have enabled the Plaintiff to reduce the cost of its purchases (excluding metal, the price for which is largely non-negotiable) by a minimum of 2% in each of the financial years ending April 1993 to April 1997.

The cost of non-metal purchases in each of those years was:

April 1993 - 30 April 1997 £73.160,000

Lost savings at 2% £ 1,463,200"

Pegler had, of course, known in 1991 in general terms that their purchasing needed reorganising with the aid of a computer, which was why Pegler required Wang to provide the modules to which reference has been made.

350. By their Response to the ITT, Wang agreed to provide various modules related to purchasing and that those modules would provide the following functions and benefits:

"Purchasing"

"provide tighter control over the performance and selection of suppliers, ensure that goods are ordered efficiently and that supply to customers and manufacturing operations occurs in a timely manner without the accumulation of excess stock".

"Supplier performance"

"provide Pegler with extensive control over supplier performance against all criteria and the resultant ability not only to apply corrective measures but to ensure that suppliers are sourced in line with service target levels to the most effective criteria."

"Supplier appraisal"

"provide the ability for the maintenance and amendment of various records including supplier assessments, SQA visit reports, supplier quality targets, etc. It will interface with areas of the system such as Purchasing, Goods Receiving, Supplier Performance, etc., to collect and provide data relating to supplier appraisal and to provide the appropriate levels of reporting and enquiry. It will also be able to utilise the specification change system to action and control requests for temporary changes to specification."

"Delivery scheduling"

"increase and enhance the level of control of supplier performance and selection and ensure that the appropriate information is available to control all activities associated with the use and purchase of externally sourced goods and services. The effect will be reduced levels of cost throughout the operation with concomitant increases in levels of performance in all areas including manufacturing and customer delivery"

"permits the creation and maintenance of delivery schedules against suppliers, incorporating firm, tentative mid forecast requirements. It integrates fully with MRP, receiving requirements from this module and flagging to it any out of line situations. It will additionally support fax, telex, or EDI transmissions........ Benefits accruing to Pegler from this application include the ability to ensure that requirements are rapidly transmitted to suppliers and that these incorporate adequate warning of future likely needs. The integration to the planning facilities ensures delivery in line with sales and manufacturing needs, which is enhanced by the modification to incorporate nominated delivery days thus adjusting the availability of materials to precisely the right point. This latter facility further assists the planning of stock receiving, whilst integration with planning ensures any changes in material availability result in rapid action to adjust shop floor, purchasing, or sales activity to maintain service levels."

"Accounts Payable"

"It will provide all of the necessary features of a Purchase Ledger and will additionally incorporate the ability to support EDI or BACS payments and the processing and retrieval of images.

Implementation of the software will provide Pegler with full integration with all other relevant areas of the information system, and will facilitate the effective control of payments, enhanced by the provision of electronic payment facilities reducing the effort and cost involved in administration. The provision of imaging will enable rapid resolution of queries by - for example - enabling documentation such as signed proofs of delivery to be retrieved immediately on screen and matched with transactions."

"Consumables"

"It will provide the ability to exercise all of the available options applicable to other materials when reordering, including all options from re-order point to MRP. Thus it will permit the identification of the use of a material against the product to which it has been applied and permit the assessment of future planned requirements. Because of backflushing facilities within the inventory module, it will further obviate - where it is deemed appropriate - the need for additional transactions to account for the use of consumables against products. All other movement types will be supported, and stock issues sequenced on a FIFO basis. Full reporting as requested in the invitation to tender will be provided together with extensive additional features.

There will be no modifications required.

The provision of this facility will ensure that all controls and planning techniques which can be applied to direct materials may also be applied to consumables.

This module will be implemented in Phase 1."

351. Wang admits that some damage has been caused, but challenges all three elements of the claim, that is, the period over which the claim is made, the amount of the purchases in respect of which there is said to be a saving, and the percentage figure to be applied to the purchases.
352. Pegler's evidence of fact on this claim came from Mr. Malcolm Brooks. Although he was appointed Finance Director in 1992 and took up many responsibilities in that position, it was not until May, 1997 that he became responsible for purchasing. It is no coincidence that it was after he took over that responsibility that Pegler began to take active steps to control purchasing. That is relevant to Wang's submissions about mitigation of loss.
353. Mr. Brooks said in evidence:

"I have been responsible for purchasing since May 1997. It was soon apparent to me that the purchasing function was suffering badly from the lack of computer systems arising from Wang's failure to implement properly or at all effective Purchasing, Delivery Scheduling, Accounts Payable, Consumables, Supplier Performance and Supplier Appraisal modules. In particular, the manual administration involved in dealing with purchase orders, requisitions and the matching of orders and invoices meant that the purchasing personnel had little or no time to address the key problems of poor supply, long lead times, excessive cost and excessive inventory. In addition, Wang's failure to provide the consumables module meant that more items which should have been recorded on the system as stock (in respect of which orders are generated automatically by MRP) were not, and a correspondingly higher number of orders have had to be raised manually.

In order to address these problems, we first asked the Data Processing department to write a programme to enable us to assess the number of suppliers with whom we were dealing, and to break these down by material category, and to extract certain key information. Information that we identified we needed was as follows:

Number of suppliers on vendor database;

Accounts payable listing for the last two years;

A commodity code to be allocated to each supplier;

A report identifying all commodity groups and all suppliers, including the value of business, within each group;

Sub-division of commodity categories, e.g. factored and components;

Identify spend profile;

Identify the number of suppliers and total spend within each commodity category."

354. Mr. Brooks continued:

"The DP department began work on the above in about June 1997, and from then on we have progressively reaped some of the benefits we would have obtained with the modules Wang had contracted to provide, and have been able to achieve a reduction in the cost of supplies."

The DP department supplied the software in June, 1997 and the reports first came through at the beginning of January, 1998.

355. Mr. Brooks said that the efforts of the DP department revealed that in the 1996/7 financial year:

"we had a total of 1320 suppliers, more than one for every employee.

only 48% of our 29,000 purchase orders per annum directly matched an invoice.

only 70% of orders were subject to prior price negotiation.

only 50% of purchase orders were generated by the system. The balance were generated manually."

356. Mr. Brooks added, "We have now reduced the total number of preferred suppliers to 892, and in the last financial year dealt with 804 suppliers". Of the 804, 7 were utilities with a spend of £1.6 million and 15 were suppliers of metal with a spend of £8 million. The price of metal is dictated by dealings on the London Metal Exchange and is not included in the claim.
357. Mr. Brooks achieved those improvements by setting up what was known as the Vendorcare strategy. The extent to which that strategy needed to be dependent on the computer is a matter of dispute.
358. The saving from the purchasing module predicted by Pegler in the CEP was 1% per annum. Mr. Ilett favoured that figure (which he was prepared to increase to 1.5%) as more appropriate than the 2% used by Pegler in its calculations. As was pointed out to Mr. Ilett in cross-examination, the 1% forecast was in respect only of a limited part of the benefits to be expected from the purchasing module. The CEP stated:

"Purchase Prices

The improved planning will allow a more efficient purchasing schedule, allowing negotiation of contracted purchasing on a "call off' basis, and also by avoiding the penalties of "emergency buying" and leading to negotiated price reductions. Typically emergency buying arises in areas of packaging resulting from short term schedule changes.

Target saving is 1%, equal to £120K p.a., effective from end Year 1.

Other benefits resulting from new systems such as reduced scrap and avoided emergency sub-contract costs have not been taken into this justification as our present systems do not allow us to measure these criteria. There will be a reduction in the stock obsolescence experienced within the company, but again it is not possible to quantify this."

Mr. Ilett considered that the CEP also included in the forecast such other benefits as rationalising the supplier base enabling Pegler to track the performance of particular buyers. I do not agree.

359. Pegler calculates its loss by calculating the percentage reduction in purchase prices in the year immediately following the implementation of the system created by Pegler's DP department in 1977. The percentage was reduced to take account of certain items not related to the system and then the resulting percentage, 2%, was applied to the earlier years when the Wang system should have been operating.
360. The total saving in the first year was £1,463,200 or 5.16%. 1% was attributable to reduced metal prices and 2.15% was attributable to foreign exchange movements: both were deducted to produce the 2%.
361. Wang accepts that it may often be possible for a manufacturing company to achieve purchase cost reductions of 2% by pursuing a well-managed purchasing strategy, but submits that the figure of 2% in the present case is unreliable and is overstated
362. Pegler was criticised for taking only the year ending 30 April, 1998 as the base for calculation. The response from Mr. Brooks is that by taking the first year, Pegler claimed only for one benefit from the strategy, namely a reduction in the number of suppliers leading to better terms and negotiation with the suppliers who remained. It was not until the following year that other aspects of the purchasing strategy were implemented and an even greater reduction was achieved. The first year saw a reduction from 1300 to 804 suppliers, the second year a further reduction to 710. The 6% price reduction in the first year had reached 9.8% in the second. The reject rate had fallen from 2.6% down to 1.5%, and automatic document matching had increased.
363. Wang point out that the purchasing programme was not implemented until the beginning of 1998, more than half way through the base year. It was suggested to Mr. Brooks that at least some of the savings achieved in the base year, must have been due to increased efficiency caused by manual improvements. Mr. Brooks took the view that reductions unconnected with the system were likely to have been balanced out by increases unconnected with the system. Mr. Ilett was unable to form a view whether that was right or wrong but thought it a dangerous assumption. This feature would have caused me to have considerable doubts about using the year ended 30 April, 1998 as the base year were it not for two considerations. First the figures for the following year showed even greater reductions. Secondly, I accept the evidence of Mr. Stevens, to which I shall refer later, that reduction in purchase costs was heavily dependent on the computer.
364. Wang also suggested that Mr. Brooks should have made an allowance for bought out and factored goods. The argument was that just as metal was excluded from the figures because Pegler had little influence over its price on the London Metal Exchange, so bought out and factored goods had a high metal content and the price ought to be affected by the price of metal. Counsel for Wang submits: "Given that the cost of bought out and factored goods in 1997/8 was almost £9 million (i.e. £1 million more than direct metal purchases, for which Mr Brooks stripped out 1% from his overall reduction of 5.16%) this is a significant matter. Assuming that the cost to Pegler of purchasing bought out and factored goods followed a similar pattern to the cost of purchasing raw metal, and even if only half of the price reductions to bought out and factored goods were attributable to a fall in metal prices as opposed to other factors, this would mean that Pegler's figure of 2% (or whatever lower figure is appropriate) should have about 0.5% taken out". I do not accept that this argument has much force. It is not right to assume that the cost to Pegler of purchasing bought out and factored goods followed a similar pattern to the cost of purchasing raw metal. Bought out goods had a very low metal content. They were small parts such as washers and mainly made of plastic or other non-metal materials. Factored goods did have a high metal content. Vendors of factored goods would not readily reduce the price when the price of metal fell, any more than Pegler would readily accept a price increase when the price of metal rose. Mr. Brooks accepted that a fall in the price of metal would be used in negotiations about price, but in his experience suppliers would not readily give a price reduction just because the price of metal had fallen: "they will always have a counter argument as to something offsetting the price of metal". The proportion of the price of a metal item of factored goods would only be about 20%, most of the price relating to added value and profit. Moreover, in the base year, only gunmetal showed a reduction in price as a trend. Most metals were volatile in price but showed an overall trend to rise in price. In any event, the price reduction from a supplier, if any, would have to be asked for and negotiated, it would not just follow trends in metal prices and negotiations would be facilitated by information from the computer.
365. A number of detailed criticisms were made of Mr. Brooks's calculation of the 2%. In fact in a revised statement he calculated 2.1%, but 2% is claimed. Those criticisms related to utilities, metal prices, exchange rates, and inter-company dealings. Those criticisms were shown to be inconsequential.
366. Mr. Ilett made reference to a number of Management Reports to show that reductions in price were on occasions achieved for no reason related to Vendorcare or the computer. This had been put to Mr. Brooks in a general way before Mr. Ilett's supplemental report had been prepared. He said that any such decreases would be offset by corresponding increases. Mr. Ilett produced extracts from the Management Reports prepared by a member of his staff. Counsel for Pegler has demonstrated that those extracts were selective and that there are many other Reports referring to increases. It is impossible to make a precise calculation, but I think it likely that Mr. Brooks's answer was correct.
367. Mr. Brooks was asked a number of questions about Pegler's accounting system, particularly in relation to volume mix and price variations. Mr. Brooks accepted that Pegler's system did not allow a precise calculation in all respects, but in his view the accounting was reasonable. Having heard his detailed answers on this topic, given with great skill, I agree. In any event, the figures, which were taken from contemporaneous company accounts not prepared for this litigation, were the subject of agreements between the experts, Mr. Lee and Mr. Ilett. Mr. Lee and Mr. Ilett agreed in the joint agreement between experts that where the other had taken a figure from an identified item of Pegler's contemporaneous financial documents, the other accepts that the figure is the same as that contained in the document and is accurate.
368. Mr. Brooks's figures were also criticised by Mr. Ilett because he calculated his 2% on the cost of materials but then applied the 2% to a wider range of costs including overheads and other operating costs. It was suggested that the 2% should only be applied to bought out components and factored goods. But when Mr. Brooks listed the breakdown of the 804 suppliers used in place of the previous number of 892, he listed categories including utilities, manufacturing and maintenance consumables, packaging, and overheads. The passages I have quoted from the Response indicate that Wang's argument particularly in relation to consumables is simply not sustainable. I repeat a short passage from my quotation from the section on consumables:

"The provision of this facility will ensure that all controls and planning techniques which can be applied to direct materials may also be applied to consumables".

It is notable that that module was to be implemented in Phase 1, that is, by July, 1992. Mr. Ilett acknowledged in cross-examination that for the purpose of Vendorcare, Pegler produced product codes which included those items. Mr. Brooks, Mr. Lee, and Mr. Stevens all agreed that savings can be achieved be achieved in those areas and the documents show that that was the intention. Finally, a question was put to Mr. Ilett:

"Mr Foxton If it were the case that by looking at the CEP and by looking at the various Vendorcare documents that we have, and by looking at Mr Brooks' evidence, there are references to savings that will be achieved in those other categories of maintenance consumables, elements of overhead, manufacturing consumables, etc. you are not able to offer any evidence as to why in principle those savings could not be achieved ?

Mr Ilett No, I am not"

I reject this submission made by Wang.

369. Wang also submit that the 2% should not be applied to all of Pegler's purchases of materials but only to some of them. The argument is that price reductions are obtainable not from the main suppliers, because Pegler would have a relationship with them, nor from the least important suppliers, but from the suppliers in the middle. The amount of purchases from those suppliers should be identified, it is said, and the 2% applied only to them. This argument was founded on evidence of both Dr. Worden and Mr. Stevens.

Dr. Worden said:

"... you can probably get 80% of the benefit of reducing [purchase costs] by looking at 20% or considerably less of the types of suppliers and types of goods and so on".

Mr. Stevens said:

"In terms of the main saving, it is probably actually not the top 5 or 10 [suppliers] because you have a relationship with those. It is probably not the bottom 5 or 10. The heartland will probably be in the second quartile, that sort of area, where there is a level of activity which is worth attacking."

370. The same line of thought was used to support an argument that two people could manually collect the information needed for purchasing. It was put to Mr.Stevens that if the 400 main suppliers were identified, those two individuals could cope manually. Mr. Stevens gave a number of answers strongly disagreeing with that proposition. His answers included:

"But if you look at the number of purchase orders and the activities you are asking them to analyse those purchase orders and those activities to determine the performance of those vendors, to work with them to hopefully improve their performance if necessary. So you might get lots of data, but we would not get the management information that you could support the negotiation process.

You are talking about a lot of data that you would have to try in some way capture and then analyse to get an insight into how he was performing.

I suspect because of the top 400, the level of activity associated with those could be quite high, so I could still end up with a fairly awesome task"

As on other points, Mr. Stevens was convincing. It would not be sensible to isolate, say, 400 suppliers, and even if one did, it would not be possible by concentrating on those 400 to perform the required purchasing functions manually. Mr. Brooks, who has actual experience of using the computer in the particular circumstances of this company, does not believe it would be possible to perform the required functions without the computer. One has only to look back at what was promised by Wang in the Response to the ITT to appreciate the impossibility of doing manually what was promised by Wang. I say that bearing in mind that many of the activities and benefits mentioned in the passages I have quoted are not directly relevant to this limited head of claim. It was not open to Dr. Worden to say as he did that the statements in this contractual document were merely "salesmen's puff". It would not be right to apply the 2%, obtained as an average of all suppliers, to only some of them.

371. Dr. Worden also said that Vendorcare was only "weakly dependent" on computer support. Mr. Ilett was of the same opinion He said, "the majority [of benefits] relate to non-systems factors such as parts of the Vendorcare programme and the departmental organisation and credit card scheme". However, in cross-examination, Mr. Ilett acknowledged that to be incorrect. Mr. Stevens said:

"Pegler's purchasing function is sufficiently complex that it would have benefited substantially from the purchasing functionality which Wang had contracted to deliver, in a manner which would simply not have been achievable through manual or existing systems. The link between systems and purchasing savings is, therefore, strong in terms of providing the appropriate information to support the development and execution of a purchasing strategy and to carry out efficiently the large number of purchase orders transactions. The more complex the environment, the greater the need for computer support".

In cross-examination, Mr. Stevens said that he had not been instructed to consider the amount of savings to be expected from use of a computer in purchasing, but as regards a figure of 2 to 3% put to him, "Having been involved in a number of strategic purchasing initiatives, then I am comfortable with the number." Having agreed that the precise percentage reduction would depend on factors varying between different companies, he was asked to comment on the factors applying to Pegler. Mr.Stevens replied:

"Looking at Pegler as a manufacturing business which has somewhere in the region of 1,000 plus suppliers with a lot of purchase material, then I would expect there to be significant opportunity through the use of good systems to support the management information to operate a strategic purchasing initiative".

372. I have already commented on Mr. Stevens' great experience. In this particular connection, he was able to say that he had led a number of strategic procurement initiatives aimed at reducing the cost of purchasing. Dr. Worden on the other hand had been involved in no such projects. Dr. Worden's experience of purchasing was limited to his experience of purchasing at Logica, a company providing IT services of which he was a director. The purchasing at Logica was nothing like the complex operation at Pegler. I prefer the evidence of Mr. Stevens.
373. Dr. Worden also suggested that there should be some reduction in the claim on account of what he called "trade-offs", namely that reductions in price would result in reductions in quality or reductions in service and delivery and that plant availability would suffer. Mr. Stevens, rightly in my view, rejected that suggestion. He said that the object of a purchasing strategy was to produce teamwork with the supplier by letting him know what was wanted and when. He said that on the contrary, by reducing the number of suppliers he would expect better service. There is no evidence that the purchasing strategy did cause damaging side effects. Some alleged examples were examined and found to have no validity. On the contrary, in the year following the base year, the number of rejections was reduced.
374. Several points were made by Wang in relation to the period in respect of which the claim is made.
375. Dr. Worden said that the claim was overstated because most of the benefits would have accrued after February, 1994, when the Supplier Performance module should have been implemented, not April, 1993. Dr. Worden's opinion was that the Supplier Performance module was the only module offered by Wang that would have provided real benefit to Pegler.
376. In cross-examination, Dr. Worden departed very substantially from that view. He accepted that other modules would reduce the administrative load on staff and free-up time for attending to price reductions. He accepted that delivery scheduling would bring benefits by giving suppliers a better picture of long-term requirements. He accepted that supplier appraisal could lead to a reduction in costs as the Response stated. He admitted he had not looked deeply into that module. He added that while he believed the supplier performance module was the dominant module, he was not saying that the others had no effects. He was not asked about the consumables module, due to be implemented by July, 1992.
377. Mr. Brooks said, and I accept, that all of the modules would have delivered benefit. The absence of the purchasing and consumable modules meant that orders had to be produced by hand rather than being generated by the system, leaving less time for negotiating.
378. Mr.Stevens' opinion, which was as consistent with the Response as Dr. Worden's was inconsistent, was that all of these modules had an important part to play, delivering incremental benefit. This evidence was not the subject of cross-examination. I reject Dr. Worden's opinion on this point.
379. Mr. Ilett suggested that the period of claim should not begin until June, 1994. He based that suggestion on the evidence of Mr. Brooks that it takes some time after receiving the computer module to implement the strategy. Mr. Brooks's evidence was borne out by the delay between Pegler receiving the software in June, 1997 and the first reports being received at the beginning of January, 1998. There is accordingly some force in Mr. Ilett's suggestion. However, I accept the reply on behalf of Pegler that that if the period of loss were to be pushed forward, there is room for a period of the same length as Pegler's claim to be taken up at the end of the period. The end date of the period of loss calculated is 30 April, 1997. There is a further period of loss between the end of April, 1997 and the beginning of January, 1998 for which no claim is made. If the claim were cut off at the beginning as Mr. Ilett suggests and extended into the latter period, Pegler's claim would be increased. Mr. Ilett's suggestion should not therefore be allowed to reduce the claim and for that reason I reject it.
380. Mr. Ilett also suggested that it might have been difficult to secure the reductions in the earlier years. That suggestion was disposed of by Mr. Brooks's' evidence that reductions increased above the level of claim as the system was used.
381. Wang put forward two submissions in mitigation of damage.
382. First, it was said that two individuals should have performed the function of the purchasing strategy manually for the top 400 suppliers. I have already dealt with that submission.
383. Secondly, it is said that the new programme was relatively easy to implement and it should have been implemented by mid-1996 rather than June, 1997. The convincing answer from Pegler is that the demands made on Pegler's staff by Wang's breaches were such that they were unable to cope with everything at once and had to assign different priorities to different tasks. Mr. Blackwood, Mr. Blagden, and Mr. Brooks explained that the first priority was to get SOP and Customcare running. It was not until May, 1997 that Mr. Brooks was able to devote time to purchasing. Pegler's DP department were fully occupied with getting SOP and Customcare running as well as with other tasks, and staff in that department as well as elsewhere were working long hours with no extra pay. In an appendix to his statement (which I will not reproduce) Mr. Stevens supported the evidence of Messrs. Blackwood, Blagden and Brooks with convincing detail of the work done and the time taken. It was suggested that Pegler should have employed outside consultants to do the work, but as Mr. Brooks pointed out, that would have involved a lengthy and time consuming task in selecting and giving instructions to those outside consultants for which again Pegler did not have the resources available. In my view, Pegler acted entirely reasonably and I do not find that they ought to have taken additional steps to mitigate their loss beyond those which they did so competently accomplish.
384. Under this head of claim, I award Pegler the totality of the claim, £1,463,200.

CONCLUSION

385. I order rectification of the contract as referred to in paragraph 39 above. I also assess the damages in the sums mentioned and summarised on the next sheet. There is also a claim for interest on which I invite submissions.

SUMMARY

386. I award damages to the claimants as follows:

Claims A and B: 640,000

Claim C: 1,661,390

Claim D: 150,218

Claim E: 46,290

Claim F: 1,770,316

Claim G: 205,279

Claim H: 2,354,800

Claim I: 36,120

Claim J: 185,500

Claim K: 534,000

Claim L: 1,463,200

Total: £9,047,113

APPENDIX

ABBREVIATIONS AND GLOSSARY

15. BMS Business Management Services.

16. BOUGHT OUT GOODS Parts bought from other suppliers to fit into items made by Pegler.

17. BPM Business Process Management: a consultancy method proposed by Wang to help Pegler analyse their business processes and improve them.

18. BUSINESS UNITS Independent manufacturing units within Pegler's factory.

19. CAPEX Capital Expenditure Proposal made by Pegler to Tomkins.

20. CEP Capital Expenditure Proposal made by Pegler to Tomkins.

21. CRP Capacity Resource Planning: techniques to check in detail that manufacturing plans do not exceed any of the capacity limitations of a factory.

22. DELIVERY PLEDGE-Promise of delivery of categories of goods within stated times.

23. DP Data Processing: the department within Pegler which supports computers and their applications.

24. DTP Desk-Top Publishing: Software for editing and producing publication-quality documents on a desk-top computer.

25. EDI Electronic Data Interchange: the electronic interchange of messages defining commercial transactions between companies, replacing the exchange of paper documents.

26. ERP Enterprise Resource Planning: An extension of Manufacturing Resource Planning to encompass a wider range of business operations, such as logistics.

27. FACTORED GOODS Complete items bought by Pegler from other suppliers.

28. FIFO First In, First Out: a technique for managing the movement of inventory items in and out of stock points, and for accounting for them.

29. FTEs Full Time Equivalents - a measurement of labour - one FTE represents one person working 37 hours per week at normal rates without overtime.

30. IT Information Technology.

31. ITT Invitation to Tender: document issued by a user organisation describing its requirements for a computer system, and inviting suppliers to bid to supply it.

32. JIT Just in Time (manufacturing): a set of techniques for manufacturing operations to minimise the amount of unnecessary work in progress.

33. KANBANS A factory floor technique intended to ensure that part-made goods are available behind each stage in the manufacturing process – each stage in the process is provided with bins of part-made goods and when the bin is empty it is sent back a stage in the manufacturing process to be filled - reduction in manufacturing delays is balanced by an increase in the value of work in progress.

34. MBML Multiple Bins, Multiple Locations: a term used by Pegler to describe their particular requirements for inventory management.

35. MRP Materials Requirement Planning: technique for planning manufacturing and operations and materials purchases to ensure that manufacturing orders can be completed on time.

36. MRP Manufacturing Resource Planning; the module which assists planners in preparing detailed schedules of works orders to ensure that the production orders in the MPS can be met on time. It ensures that parts and raw materials are available when needed for all stages of manufacture.

37. MPS Master Production Schedule: the module which assists a planner in making a detailed schedule of production orders for specific products which will emerge from the factory in the near future, in response to actual and forecast customer demand, and to keep finished goods stock at required levels.

38. NWOW New Ways of Working: term used by Pegler, to describe several different initiatives to improve their competitiveness.

39. OTIF On Time In Full: the percentage of manufacturing orders which are delivered from the factory on time and in full.

40. PEGLER Pegler Limited, the claimants.

41. PMS Planned Maintenance System: a computer system to support the planning and management of maintenance operations.

42. RCCP Rough-Cut Capacity Planning: a set of approximate checks that a master production schedule does not exceed various capacity limitations of the factory.

43. ROCCE Return on Controllable Capital Employed.

44. ROCE Return on Capital Employed.

45. SCM Short Cycle Manufacturing: techniques to reduce the lead times for manufacturing.

46. SOP Sales Order Processing: the process of recording and organising details of sales orders from customers.

47. SOUR Statement of User Requirements: a term used by Pegler for a document describing user requirements for a computer system, or for changes to a computer system.

48. SSI Strategic Software International Ltd: the suppliers of TROPOS.

49. TOMKINS F.H.Tomkins plc, parent company of Pegler.

50. TQM Total Quality Manufacturing: manufacturing techniques aimed at delivering total quality, or zero defects.

51. TROPOS SOP bought by Pegler as a substitute for the SOP offered by Wang.

52. WANG Wang (UK) Limited, the defendants.