Instrument Product Development Ltd v W D Engineering Solutions Ltd

[2022] EWHC 1994 (Ch)  

A key to the outcome of this case was a telephone conversation, held in March 2017. However, the two witnesses had critically different recollections of that call, to which they were the only parties. Deputy Judge Farnhill reviewed the case law and summarised the principles that were relevant here: 

(i) In interpreting an oral contract, the parties’ subjective understanding about what they were agreeing is relevant and admissible evidence; 

(ii) What is critical is their understanding at, or immediately after, the point at which contract is entered into; 

(iii) Later statements and actions are much less reliable indicators of what the parties understood to have been agreed. Just as memory is affected by the process of preparing for trial, it is affected by seeing how a transaction works out in practice; 

(iv) Subsequent conduct and statements may be relevant to variations and estoppel. Here, the analysis is principally, but not exclusively, an objective one. The focus is on what the parties said and did, more than on what the parties thought; 

(v) To the extent that it exists, documentary evidence of what was said in meetings and conversations will almost inevitably be a more reliable guide than the witnesses’ unaided recollections.

There was no dispute that the Agreement was formed by way of a telephone call between the two witnesses on 6 March 2017. The parties further agreed that it gave rise to a 50/50 profit share. The disagreement concerned whether that profit share arrangement related to the pilot Nespresso store in Cannes, then specifically in contemplation or whether it was to cover all future supplies to Nespresso of the props designed by IPD. 

The key evidence was not the witnesses’ different recollections of the call, but an email sent the next day. The Judge held that  the Agreement, at least at the point of formation, was wholly oral and the purpose of the email was simply to document what had already been agreed. It was not to supplement or amend that Agreement. The 7 March 2017 email was focussed almost exclusively on the potential Cannes order. Subsequently, the Agreement evolved, and other projects were added. They were not covered by the 6 March 2017 telephone call but were added to the Agreement by virtue of variations agreed by the witnesses.

And when it came to the variations, the Judge noted that evidence of subsequent conduct may also be relevant. However, that process differed from the exercise of interpreting an oral agreement in that it was primarily objective rather than subjective. The focus was on what a reasonable onlooker would have understood from the parties’ words and actions, rather than what the parties themselves thought they meant.

Later in the Judgment, the Judge discussed events at a meeting between the Parties. He considered that this was an instance of the witnesses’ recollection having been influenced by subsequent events. 

Here, the Judge said that the parties went to the meeting expecting to make progress towards an order for the wider rollout but not expecting an order to be agreed. The latter outcome was considered “improbable it was not impossible.” Further than that, it was their ultimate objective. When the improbable happened, at the meeting, the parties attached more weight to that meeting subsequently than they had done in the run-up to it.

The Judge noted that the parties had transacted informally throughout, and he took into account whatever documents there were, including emails and WhatsApp messages. Another point at issue was whether there was an agreement to reinvest sums due or to set them off against a different project. Again, both parties were relying on undocumented discussions. Both could be wrong, but both could not be right because, if the reinvestment was agreed along the lines suggested, there would be no basis for the set-off. 

The Judge, again, preferred the evidence of the witness whose recollection of the original meeting was supported by the follow-up email. Although the witness could not recall the precise timing of the meeting, that was not thought to be especially surprising considering it was five years ago. The witness gave a clear description of the meeting itself and their reaction to it. 

In conclusion, the Judge said that the starting point was obviously the conversation on 6 March 2017, the day on which the Agreement was reached. The email sent the next day was intended to record the Agreement and was by far the best evidence of its terms. 

He also noted that, as a final point, the relationship between the Parties deteriorated, positions inevitably polarised and both parties increasingly prepared for a dispute in some form. The Judge derived no assistance from the exchanges at this time, as all of the difficulties inherent in the process of recollection would have been aggravated by the litigation process.

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