Hearing dates: 20-24 and 28 March 2000

1. In 1996 the Ministry of Defence let it be known that it would in the autumn of that year be inviting competitive tenders for the supply of a Satellite Communications System, consisting of an HQ transmitter, receiver and antenna system and a portable patrol system. The defendant, which was interested in tendering for this contract, decided at an early stage of its consideration of the project that it would require to sub-contract the design and development of the antenna element of the system. In July 1996 it entered into discussions with the claimant with a view to exploiting the latter’s design expertise in this connection.

2. The claimant was reluctant to involve itself in the process of working up detailed design proposals without the assurance that it would, if the defendant’s bid was successful, obtain the benefit of the resulting sub-contract. The claimant is a relatively small specialist company. The technical requirements of the project, particularly in relation to the design of the patrol antenna, were demanding. No existing design of antenna met the required specification. The patrol antenna had to meet stringent size and weight requirements, to be capable of being easily assembled and disassembled, to be extremely robust, and to operate electronically (in the radio frequency sense) to a high level of capacity in a wide variety of potential environments. It was clear to the claimant that the necessary design input at the bid phase was likely to be time consuming and expensive. The claimant therefore pressed for an exclusivity arrangement with the defendant before being willing to offer its full co-operation.

3. Negotiations over the form which this exclusivity agreement might take took place by written communication in August and September 1996. I can begin by referring to a letter dated 16 August from Mr Brown, the claimant’s managing director, which was in the following terms:

4. The reference in that letter to the documentation just received was a reference to a specification for the antennas prepared by Mr Williams of the defendant dated 8^th August 1996. That specification required, inter alia, that the patrol antenna should have a weight of 1.25 kg and a volume of 2.5 litres. At a technical meeting on 13 August 1996 the claimant advised the defendant and the latter agreed that these specifications were unrealistic, and a revised specification (Draft Issue 3) revised these to 2.75 kg and 3.5 litres, in each case subject to confirmation.

5. The design to which the claimant was working consisted of an arrangement of six petals, the central hub of which was to form the lid of the radio box seated at the rear of the antenna. It was agreed in the course of technical discussions between the parties on 13 August that the relevant weight budget of 2.75 kg excluded this hub.

6. On 29 August Dr Brown wrote a further letter to Mr Alcock, enclosing comments on the commercial terms for the sub-contract which had been proposed by the defendant, and enclosing a draft form of exclusivity agreement. The letter concluded:

7. The accompanying draft, after reciting the defendant’s request for quotation (RFQ 03) and that "provision of such quotation will reveal preparatory and technical information which is of considerable commercial value" provided as follows:

There then followed some two pages of commentary on the commercial terms.

8. The defendant responded to this by a letter dated 2 September 1996 written by Mr Peter Spencer its sales and marketing director. This was in the following terms:

9. This letter went some of the way to meet the defendant’s concerns, but not far enough altogether to satisfy Dr Brown. On the basis of the letter he was prepared to provide the defendant with quoted prices, to agree terms and conditions, and to provide the defendant with a compliance statement/technical resume (indicating the specification to which the claimant was then in a position to commit itself). He hoped that by going that far the defendant would be prepared to sign an exclusivity agreement with the claimant, in return for which the claimant would then be prepared to release to the defendant the technical data supporting the claimant’s proposal. This hope proved to be well founded. On 3 September the claimant supplied the defendant with prices for the initial supply of the HQ and patrol antennas respectively, a management proposal and a technical resume. So far as the latter was concerned none of the solutions proposed was compliant with the totality of the specification. As the specification then stood it appeared to be impossible to design an antenna which was both mechanically and RF compliant. On the same date the claimant supplied the defendant with a proposed performance bond. The defendant at no stage raised any query on this.

10. Discussions on pricing then took place between the parties, principally at a meeting held on 5^th September. The defendant was concerned that the prices were too high. The claimant was concerned to demonstrate the difficulties (and expense) involved in meeting the specification. The upshot was that two areas were identified as potential areas where costs might be reduced. One related to the paint finish; the other related to the extent to which the claimant was to be responsible for production testing. The claimant was also asked to provide a quotation based on the use of cheaper materials but at a non-compliant weight. As a result the claimant, on 9 September 1996, sent new quotations to the defendant. It also sent a proposed bank guarantee which had been requested.

11. It is clear that by this time the defendant was under considerable time pressure to put in its bid to the MoD, and for that purpose was in increasingly urgent need of obtaining the claimant’s technical data. Against that background the defendant decided to comply with the claimant’s request for an exclusivity arrangement. Mr Alcock for the defendant prepared and signed on 11 September 1996 an agreement the operative part of which was as follows:

12. This was faxed in unsigned form to the claimant on the following day, the signed version being sent by post. This was satisfactory to the claimant, which, on the 13 September 1996, sent on to the defendant the full technical proposal for the patrol antenna. I shall refer to this Agreement, as it was referred to in the pleadings and at trial, as the 15 September Agreement. On 16 September 1996, at the defendant’s request, the claimant supplied quotations for the follow-on quantities for the HQ and patrol antennas for two of the options originally quoted for. On 20 September it further supplied a technical and environmental matrix for the HQ antenna.

13. The defendant next sought from the claimant their detailed drawings of the patrol antenna, so that a demonstration mock-up model ("the space model") could be built with which to tease the fancy of the MoD. The claimant responded with the suggestion that it should construct the space model having regard to the time constraints and that this should be done at a charge to the defendant of a bare half of the materials cost. This suggestion was accepted, and a model in due course built for which the defendant was invoiced (and paid) in the sum of £1,500.00.

14. During the remainder of September and October 1996 the claimant continued to supply the defendant with information needed by the latter in connection with its bid. Some further discussion on prices also took place, the defendant making it clear that for the bid to succeed a keen overall price needed to be achieved. As a result of these discussions the claimant indicated a willingness to reduce its prices by a small amount in respect of the patrol antennas. It did so by a fax dated 4 October 1996 which stressed that "we have an extremely small margin on the project" and that the offered price reduction was "on the understanding that it will not be possible to further reduce prices in later negotiations."

15. The defendant submitted its bid to MoD in about November 1996. The claimant stood ready during the period in which the bid was being evaluated to assist the defendant in any clarifications which might thereafter have been required by the MoD, and on at least two occasions responded to requests for technical information. The claimant’s quotation had been expressed to expire on 30 April 1997. At the defendant’s request that was extended, first to 30 May 1997 then to 30 June 1997 and finally to 31 July 1997. In July 1997 the MoD accepted the defendant’s bid. Discussions thereafter resumed between the parties with a view to entering into a sub-contract for the production by the claimant of compliant versions of the patrol and HQ antennas as had been contemplated from the outset.

16. Before summarising the course taken by those discussions it is necessary to note a number of events of which the claimant had been left in ignorance (and some of which were indeed clarified in the course of this litigation). First, contrary to both the letter and spirit of the 2 September 1996 letter the defendant had approached an alternative supplier of antennas for a quotation. This was a company known as QPAR Angus Ltd, the approach having been made as early as 4 September 1996. This approach was made by personnel employed by the defendant (Dr Owens and Mr Ware) who were apparently unaware of the content of the 2 September 1996 letter or of the concurrent negotiations between the claimant and the defendant for an exclusivity agreement. When Mr Alcock and Mr Spencer became aware of it (on about 23 September), it was a source of irritation and embarrassment to them: irritation because it looked as if Mr Ware was trying to outflank them in an internal turf war; and embarrassment because it had involved them in an actual or potential breach of faith with the claimant. The quotations which Mr Ware obtained from QPAR Angus appeared to indicate that the latter’s prices were dramatically lower than those quoted by the claimant. On the information as it stood at 23 September 1996, the claimant’s price for the initial supply was analysed by Mr Ware at some £1.95m as against QPAR Angus’s £0.87m, with the price for follow-on again being more than double the QPAR Angus prices. Mr Alcock’s internal response was to point to the protection afforded by the "fair and reasonable" criterion in the exclusivity agreement. He asserted to Mr Ware that this gave "room for manoeuvre". No steps were taken to inform the claimant of the fact of the rival quotation, or of any fundamental dissatisfaction with the prices which the claimant had quoted. There were simply further discussions between Mr Alcock and Dr Brown, leading the claimant’s revised quotation of 4 October 1996 (which translated into a quotation for the initial supply of some £1.85m).

17. Secondly, in constructing their own bid price to the MoD, the defendant decided to include QPAR Angus’s prices for the antenna supply. They had concluded that this was necessary in order to achieve a competitive pricing of their bid, and that the risks of so doing (namely the possibility that they would be unable in the event to obtain a technically compliant supply at that price from either the claimant of QPAR Angus or, possibly, some as yet unidentified source) were commercially acceptable. They also decided not to name the claimant as their proposed sub-contractor in the bid. Once again the claimant was not informed of this change of tack. That the defendant’s discussions with QPAR Angus at this stage went beyond simply seeking a "back-up" quotation against which to test the fairness and reasonableness of the claimant’s quotation is demonstrated by the fact that on 15 October 1996 the defendant invited QPAR Angus to agree the terms of a draft sub-contract.

18. The claimant did not get wind of the fact that it had a potential rival until January 1997 when Mr Spencer proposed a meeting. As the signatory of the 2 September letter he felt under some obligation to advise the claimant that the defendant had received a lower quotation on the basis of a different technnological solution. It seems clear that the accent of the meeting stressed the alternative technology (the use of a single skin carbon fibre for the petals). The claimant considered (correctly as subsequent tests showed) that this was not a viable solution. It also guessed (although it was not told) the identity of the rival supplier. It was confident (again with good reason) that QPAR Angus would not in the event prove to be a real source of competition to them whatever the apparent price advantages offered. At a further meeting in early July 1997 Mr Spencer again pressed the claimant to consider the possibility of using a cheaper alternative method of construction, and the claimant responded with a justified scepticism as to whether the alternative method would work, but with a commitment to reduce the price of its quotation should it be wrong.

19. I now return to the period following the acceptance by the MoD on 15 July 1997 of the defendant’s bid. Following a technical meeting between the parties and the defendant’s main electronics sub-contractor (Thomson CSP) on 6 August 1997, the defendant supplied the claimant, under cover of a letter dated 3 September 1997, with new Requirement Specifications for the HQ and Patrol antennas respectively, a draft contract, and a draft IPR agreement. Dr Brown commented in his witness statement that:

20. The revisions to the specifications included a number of matters which appeared to reflect the claimant’s own proposals from the previous autumn. They also included matters in respect of which there had previously been no specification. One important revision related to the weight of the patrol antenna, which was now specified at 2.5kg.

21. The proposed contractual terms and conditions similarly contained a number of provisions which appeared in part to reflect points earlier proposed by the claimant and accepted by the defendant, but also included a number of new provisions. The draft IPR agreement in particular represented a sea change from the earlier terms under which there would have passed to MoD the non-exclusive right to the intellectual property. The new proposal was that all the intellectual property rights would pass to the defendant.

22. The discontinuity in the relationship between the parties represented by this new documentation was paralleled by a change in the personnel of the defendant with whom the claimant now found itself dealing. At the technical level the main point of contact was Mr Stevens. At the commercial level it was Mr Mark Ramsey. By 19 September 1997 the claimant was in a position to supply the defendant with prices, with its up-dated technical proposal, and with its comments on the proposed terms and conditions. The total price quoted amounted to £1,543,390.

23. A major glitch then emerged in relation to the weight specification. Consistently with that they had been told the previous year, the claimant had assumed that the new weight budget of 2.5 kg was exclusive of the hub. In fact the August 1997 specification of 2.5 kg had been drawn on the basis that it included the hub. It appears that the dramatic reduction in the weight budget was the result of the defendant having had to increase the weight budget for other elements of the system, in particular the battery. This reduction in the weight budget, coupled with the inclusion of the hub, caused the claimant a severe problem. Working on the basis of an aluminium hub, the claimant’s original design would have weighed in at 4.3 kg, and its newer modified design weighed 3.8 kg. Mr Dyer explored with Mr Stevens various possibilities for reducing the weight still further. One possibility which Mr Stevens encouraged Mr Dyer to consider was the use of magnesium instead of aluminium.

24. By the 29 September 1997 there had been a full exchange between the parties as to the points of difference between them on the commercial terms. Some points remained outstanding. There had also been the recognition that the claimant’s proposal fell short of what was now being specified in respect of the weight of the patrol antenna. The defendant had also indicated to the claimant (by its letter dated 26 September 1997) that:

25. The meeting referred to was a meeting scheduled for Thursday and Friday, the 2 and 3 October, at which it was hoped to resolve all outstanding matters relating to the proposed sub-contract. The claimant’s response to the request for a reduction in price was, by fax dated 29 September 1997, in the following terms:

26. Underlying the claimant’s response was a belief that the prices they had quoted were fair and reasonable, that consistently with the 15 September Agreement the defendant was not looking elsewhere, and that they were in any case the only realistic supplier. In fact, unknown to them, the defendant had been continuing to explore the possibilities of a contract with QPAR Angus but had concluded that the latter would not be a satisfactory sub-contractor for this particular supply. Also unknown to the claimant, the defendant’s new team was in fact under a fundamental misapprehension as to what figure had gone into the MoD bid in respect of the initial supply. The figure had in fact been some £1.1m. Mr Ramsey was approaching the proposed price re-negotiation on the basis that the figure had been some £1.5m, and that the major disparity between the defendant’s budgeted costings and the claimant’s prices related only to the follow-ons. The flavour of the defendant’s approach to the meetings can be tasted from Mr Ramsey’s internal memo dated 29 September 1997 to the defendant’s commercial director Mark Cook. It was in the following terms:

27. The upshot of the meetings on the 2 and 3 October 1997 was that the claimant and the defendant were able to reach agreement on the outstanding issues with the exception of the prices of the follow-ons and the weight of the patrol antenna. The claimant was given to understand that the defendant had no problem (in the sense that it could "live with") with the price for initial supply, and that the main concern over pricing were the follow-on prices for years 1 and 2. The defendant produced to the meeting its budgeted prices for these follow-ons which were about half the claimant’s original quotation and indicated that unless the claimant were able to reduce its quotation in this respect it would be unable to place the sub-contract. The defendant also indicated that it would be unable to enter into a sub-contract unless the weight specification was no higher than 3 kg with a target of 2.5 kg. The meeting broke up on the basis that the claimant would respond on the issues of price and weight the following week.

28. This they duly did. By fax dated 6 October they supplied revised quotations for follow-ons in years 1 and 2, indicating that they could contract with a weight budget of 3.5 kg using an aluminium hub. They also indicated that a lower weight could be achieved using magnesium at a possible additional cost of £900-00 per unit. The response was that prices needed to be re-quoted for the year 3 follow-ons, and that a weight of 3 kg, with a target of 2.5 kg., was the absolute maximum that could be accepted. On 10 October Mr Dyer came back with revised year 3 prices, and an agreement to the 3 kg maximum weight with the 2.5 kg target, This was, however, on the basis of using magnesium alloy at an additional price per unit of £670-00.

29. By the time this was received and digested by Mr Ramsey (on or after 13 October 1997), a new possibility had opened up for the defendant. Contact had been made with a Massachusetts company (Atlantic Microwave Corporation ("AMC")) which appeared to be prepared to quote for the sub-contract at prices which were lower even than QPAR Angus’s had been. Nevertheless it still appeared to Mr Ramsey, that as a practical matter he would in the near future be required to let the sub-contract to the claimant. With that in mind he had prepared an internal approval to purchase form and had obtained, by about 7 October, four of the five required signatures to it. The dilemma in which he felt he was placed is best captured by his e-mail to Mark Cook and Barbara Garner (which can be dated to sometime on or after 13 October), which stated as follows:

30. What the defendant in fact then did was to devote much time and effort to exploring with AMC the price at which it was able to quote for a compliant supply. In the course of doing so some adjustments to the defendant’s specification made it possible for AMC to meet the weight budget by using carbon fibre as the material for the hub. By 10 November the defendant had satisfied itself that AMC was a credible and viable alternative to the claimant. By that stage its quoted price for the initial supply had in negotiations been driven down from the £1.15m it had quoted on 30 October to some £964,684. It appeared increasingly likely that AMC would be awarded the sub-contract: indeed a memorandum dated 23 October 1997 from Mr Ramsey proposed a target programme for order placement with AMC which was to be achieved almost to the day. In the meantime the defendant took no steps to alert the claimant of what was afoot. The defendant did not respond to Mr Dyer’s fax of 10 October. The claimant had, however, continued to work on some of the technical problems which had been identified at the meetings on 2 and 3 October. On 4 November 1997 Mr Dyer faxed Mr Ramsey with an up-date on these, and confirmed that the "contractual weight of 3kg with a target of 2.5 kg "was acceptable". It is clear from the fax that Mr Dyer must by this time have heard from the defendant’s technical team that the latter had doubts about the robustness of the proposed magnesium alloy hub. He sought to allay those concerns. It is equally clear that the defendant had not informed the claimant of the adjustment which had been made to the specification, or suggested to the claimant the use of carbon fibre for the hub in order to enable to weight budget to be achieved.

31. By 10 November Mr Ramsey was back in his office following his visit to AMC in the US the previous week. He telephoned Mr Dyer to tell him that the defendant now had another supplier who was both technically compliant, in particular as to weight, and at a price which was significantly cheaper than the claimant’s. He told Mr Dyer that the claimant would have until close of business on the following day to put in its best and final offer. Mr Dyer’s notes of this conversation (on p. 1790 of the trial bundle) shows that he was given a good idea of the nature of the price competition to which he was now being exposed ("NRE slightly lower, Production First Batch 50% inside budget, Option 20% inside budget, Large Well below budget").

32. The claimant’s response was to write immediately with a number of new concessions. Principally these consisted of a revision downwards of the year 3 follow-on prices to the budget figures which had been presented at the meeting of 2/3 October, a statement of the initial supply figure at a total of £1,543,390, an acceptance of 2.75 kg as the contractual weight with a target of 2.5 kg (inclusive of the hub) with magnesium construction at no extra cost, and a willingness to improve the transmit/receive isolation of the large antenna at no extra cost. Mr Dyer followed this up the following day with a telephone call to Mr Ramsey. Mr Ramsey made it clear to Mr Dyer that the nub of the problem was not technical but lay in the price. To the question why the defendant was not honouring its agreement to award the sub-contract to the claimant, Mr Ramsey’s response was that "the agreement was based on reasonable price and we have had a much lower price". Mr Dyer responded with a letter dated 11 November, which, for the first time, invoked Easat’s rights under the agreement dated 11 September 1996 and indicated Easat’s willingness "to demonstrate on a open book basis the cost breakdown of the antennas quoted. …….", asserting that "our costings illustrate that we are operating on an average contract gross margin of 37% based purely on input costs with no allowance for overhead recovery or profit".

33. By this time, however, the die was cast. The defendant informed MoD on the following day of the proposed change of sub-contractor, and shortly thereafter a fresh internal approval form was raised in order to authorise the letting of the sub-contract to AMC. That form explained the supplier selection on the basis that AMC were "the lowest priced compliant bid". It also recorded the following:

However, in a letter to the claimant dated 24 November 1997 the defendant sought to justify its conduct not on the ground of the unenforceability of the agreement but on the ground (a) that the claimant’s final offer was not technically acceptable, the final offered weight of 2.75 kg not being compliant with the defendant’s specification of 2.5 kg, and (b) that the prices quoted by the claimant were not fair or reasonable.

34. The claimant’s primary claim was for damages for breach of express terms of the 15 September Agreement. It was also submitted on behalf of the claimant that the defendant had acted in breach of certain implied terms of that agreement, namely an implied term that the defendant would not negotiate with other suppliers while the agreement subsisted, an implied term that the defendant would give the claimant an opportunity to re-price the scheme if its quoted prices were demonstrated to be unfair or unreasonable, alternatively that it would let the sub-contract to the claimant at a reasonable price, and an implied term that the defendant would negotiate with the claimant in good faith.

In his closing written submissions, Mr Dennys QC for the claimant, suggested that there had also been a breach of a yet further implied term of the agreement that the defendant would include the claimant’s prices in its bid to the MoD.

35. The claimant also sought to rely on the statements contained in the letter dated 2 September 1996. The relevant statements were identified as being that the defendant was not and had not been in discussion with any other antenna supplier, that it would not be contacting any other supplier prior to the submission of its bid to the MoD, that the bid would name the defendant as the selected antenna supplier, and that the defendant would inform the claimant as soon as possible if there was a change of approach.

It was alleged that the defendant owed the claimant a duty of care in making these statements, that the claimant had relied on them, and that they were untrue and negligently made. Damages were therefore claimed for negligent reinstatement. In his closing submissions, Mr Dennys further submitted that each of the representations had contractual force, arguing that any defect in the pleading in this respect (which he did not concede) could if necessary be cured simply by reading "promises" for "representations" in the pleading.

36. The claimant alternatively asserted that, if there was no binding agreement, the defendant was estopped by representation from so asserting.

37. In the final alternative, the claimant claimed to be entitled to reasonable remuneration for its services on a quantum merit.

38. As to the first of these claims the defendant submitted that the 15 September Agreement was not supported by consideration, was too uncertain to be enforceable and that, if enforceable, the defendant was not in breach of it since the necessary pre-conditions for the sub-contract did not exist. The suggestion that the agreement was unsupported by consideration was not pressed in argument, and I do not further consider it. As to the second, it denied the existence of a duty of care, and asserted that in any case the representations were true when made. As to the third, it was submitted that no estoppel, however, characterised, can create a contract if none would exist without it. I deal in more detail below with its case on the quantum merit claim.

39. I deal first with the question of uncertainty. Both parties agreed that an appropriate starting point was the statement of the relevant principles by Lloyd LJ in Pagnan SpA v. Feed Products Ltd [1987] 2L1 Rep 601 at 619, in particular

If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty.

It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word "essential" in that context is ambiguous. If by "essential" one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by "essential" one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by "essential" one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge, "the masters of their contractual fate". Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called "heads of agreement"."

40. Mr Cooper for the defendant submitted that the agreement was defective in three respects, namely (1) uncertainty as to the conditions of the proposed sub-contract, (2) uncertainty as to the technical solution, and (3) uncertainty as to price. So far as all three elements are concerned it is necessary to examine the position at each of three dates: first, the date of the agreement (15 September 1996); secondly, the date when the defendant’s bid to the MoD as accepted (July 1997); and thirdly, the date at which the defendant repudiated the agreement (11 November 1997).

41. In relation to the first of these dates there was, in my judgment, no sufficient agreement on the commercial conditions of the proposed sub-contract to render the agreement workable. The agreement provided that these were to be "based upon" the defendant’s RFQ "but amended through good faith negotiations". For a valid sub-contract to be placed it was essential for agreement to be reached on these terms and the parties in terms so contemplated. There was no mechanism laid down for reaching that agreement other than by agreement through negotiations in good faith. I am precluded by high authority from holding that an agreement to negotiate is enforceable as a matter of contract law: see Walford v. Miles [1992] AC 128, HL(E). Mr Dennys QC submitted that the true meaning of the agreement was such that, had the contemplated negotiations failed to result in agreement, the claimant would have been entitled to insist on a sub-contract containing the conditions in the RFQ )i.e. the defendant’s preferred conditions). I do not agree: the submission assumes that the defendant was entitled to insist on those conditions as against the claimant, which was plainly not the intention. The position was no different at the second date. In oral discussions in the previous autumn, the parties had gone far enough to satisfy themselves that the agreement would be possible but those discussions had not reached finality. However, by the third date the position had in my judgment changed. I accept the evidence of the claimant’s witnesses (not seriously challenged by the defendant’s) that what Mr Ramsey called the "drossy" commercial points were resolved at the meeting on 2/3 October 1997. This defect in the agreement was therefore repaired by this stage.

42. So far as the technical solution was concerned there was in my judgment no relevant uncertainty as at 15 September 1996. The claimant had supplied a technical resume, and a technical proposal indicating the precise extent to which it could commit itself technically. The fact that in certain respects the claimant’s proposals were non-compliant with the specification as it then stood is irrelevant on the question of certainty. It was intended that the defendant’s bid to the MoD would be based on that technical proposal and I find that it in fact was. It would be a matter for the MoD to decide whether or not that proposal was acceptable. The fact that the claimant was later to accept the task of meeting a revised technical specification, and indeed that revisions to the specification were contemplated at the time as being probable events in the course of the bid, does not entail that the agreement as at 15 September 1996 was in this respect unworkably uncertain.

43. It is price which, in my judgment, leads to the greatest difficulty for the claimant, and which I have reluctantly concluded is an insuperable one. Dr Brown’s proposal had been that the price should be "in accordance with the quotation". The agreement as concluded had substituted for this "based upon Easat’s quotation subject to demonstration that the prices are fair and reasonable". On behalf of the claimant, it was submitted that this meant that the price would be that contained in the quotation unless the defendant called for a demonstration of the fairness and reasonableness of the price; and that if such a demonstration were called for, the claimant would have to provide it, and would either pass the test or not. If it failed the test, it was suggested that it was a necessary inference from the contract that it would nonetheless be entitled to the sub-contract at whatever was the fair and reasonable price. Moreover, it was submitted by Mr Dennys QC that any request for a demonstration of fairness and reasonableness had to be made before the outcome of the bid was known.

44. I have difficulty with each of these propositions. In the first place the phrased "based on" is plainly not the same (and one can see that this was designedly so) as "in accordance with". Some room was being left by this phrase for further negotiation, and no criteria were laid down as to the circumstances in which the departure from the quoted price was contemplated. One possibility is that it meant, for example, that if a solution presented itself which was cheaper (in terms of materials or manufacturing costs), the savings would be passed on to the defendant by an appropriate reduction in the quoted cost. This was how the claimant interpreted the revelation in January 1997 that the defendant had been in discussion at that time with another supplier. But that would be only one of many events which might have been contemplated as justifying a departure from the quoted price. The meaning objectively given to the phrase "based on" is, in my judgment, that the quoted price was to be no more than a starting point in a subsequent negotiation which the parties expected to have, expected to conduct in an atmosphere of cordiality and good faith, and expected would result in agreement. No less than in the case of the commercial conditions, this amounted to no more than an agreement to negotiate in good faith from an agreed starting point. Viewed in this light the proviso for demonstration that the quoted price was fair and reasonable was itself no more than a negotiator’s reservation about the starting point.

45. Even if I am wrong about the meaning properly to be attributed to the phrase "based upon", there are independent difficulties about the proviso. Fairness and reasonableness are not identical concepts, although I doubt whether the parties paid much heed to the possible differences when they concluded the agreement. In particular it seem to me possible that a quoted price might well be capable of being shown to be reasonable from the supplier’s point of view (in that having regard to his exceptionally high fixed overheads no excessive profit was being made) without it following that the price was a fair one (in the sense of not being outside a range obtainable in the open market in the absence of an exclusivity agreement). I will, however, assume that they add up to the same thing, i.e. a criterion of objective reasonableness. In some contexts a requirement that a price be "reasonable" may give rise to no insuperable difficulty: cf. Foley v. Classique Coaches Ltd [1934] 2 KB 1 and s. 8(2) Sale of Goods Act 1979. The present context, that of the design and supply of a unique prototype article, presents a large number of possible criteria by reference to which "fairness and reasonableness" might be judged. It seems to me that the true meaning of the proviso was to leave the door open to further negotiations and to indicate the spirit in which these negotiations should take place.

46. I have an additional difficulty in accepting that it was implicit in the agreement that, unless a demonstration was called for before the MoD's acceptance of the bid, it could not thereafter be called for. Both the language of the agreement, and the context in which it was made are inconsistent with the implication of such a term. It was not to be expected that the parties would waste time and energy on further negotiations while the outcome of the bid was unknown. Given the measure of agreement which they had reached it was to be expected that there would be time enough for that if and when the bid was successful. That expectation is reflected in the language of the agreement both in relation to price and in relation to the commercial conditions.

47. Accordingly, while I have no doubt that the parties intended to create legal relations by the 15 September Agreement, no enforceable contract was then concluded. Price was left over for later finalisation not because it was inessential to the contract into which they wished to enter, but because it was erroneously thought that the parties could bind themselves, and had bound themselves, to negotiate a successful conclusion to that issue. Once again, the rule that an agreement to negotiate cannot be enforced prevents the claimant from relying on the agreement. Nor, in this case, was the defect in the agreement cured as a result of the subsequent negotiations, close though the parties appeared to be to agreement following the meeting of 2/3 October 1997.

48. In his submissions Mr Dennys QC emphasised that there was at all material times a certain price which could have been accepted by the defendant. That is true, but it seems to me beside the point. The question is whether the defendant (and for that matter the claimant) was bound to contract at a particular price. I do not think it was. I am also unable to accept the submission that, if the parties were unable to agree on a particular price, the agreement meant that both parties were binding themselves to proceed at whatever the court might say was a reasonable price.

49. Accordingly, I conclude that the claimant is not entitled to succeed in its claim for breach of the express terms of the 15 September Agreement. Having concluded that the agreement was too uncertain to be enforceable, consideration of what additional implied or inferred terms it might otherwise have contained seems to me otiose.

50. I turn to the claim in negligent misstatement. As already noted, this is based on the contents of the letter dated 2 September 1996, out of which the pleader has condensed four statements. Of those only one can readily be described as a statement of fact (" … we are not and have not been in discussion with any other antenna supplier …"), and that was true at the time at which it was made. The statement that "we will not be contacting any other antenna supplier prior to submission of our proposal which will name Easat as the selected supplier" and that the defendant "will inform you as soon as possible if we have any change of approach" were only statements of fact insofar as they were statements of the defendant’s then current intentions. As such they were true at the time at which they were made. In order to rely on them, the claimant would in my judgment have to show that by the making of them the defendant assumed a responsibility to correct them when they ceased to be true. They were relied upon as pre-contractual representations which induced the 15 September Agreement. Had they been, then the assertion of a duty to correct could have followed a well-trodden path. As it was, Mr Dennys QC relied simply on the observations of Lord Goff in Henderson v. Merrett Syndicates [1995] 2 AC 145 at 181 F to the effect that liability in tort may arise, in the right circumstances, as much from negligent omissions as from negligent acts.

51. The nub of the matter in my judgment is that the crucial statement in the letter was the assurance that the claimant would be informed as soon as possible of any change of approach. By this statement the defendant was making it clear that it did reserve the right to change its approach, but was offering the promise that in that event the claimant would get early warning. The purpose of the promise was to enable the claimant to decide at that point in time whether it was then prepared to expend further time, money and effort in developing its proposals and assisting the defendant in its bid. It is only if one interprets this statement as a promise that it makes any sense. One is therefore, in my judgment, in the territory of contractual promises rather than tortious misstatements.

52. It was as a result of observations by me to this effect during closing speeches that Mr Dennys QC was in the end moved reluctantly to suggest that the case could just as well be put as one of contractual promise, and that the pleadings readily lent themselves to the necessary amendments. However in my judgment while the promises in the letter are enforceable, if at all, as contractual promises there are two obstacles to so viewing them. The first, arguably a mere pleading point, is that it is nowhere alleged what was the consideration for the promise. The second, to my mind insurmountable one, is that Dr Brown did not accept the offered promises. That is not surprising. What he wanted was a guarantee that the sub-contract would be let to the claimant if the bid was successful. He was willing to take the risk that the bid might not be successful and that the claimant’s time and effort would not for that reason be rewarded. He was not willing to take the risk, if the bid were successful, that the defendant might turn round and inform him that, after all, the defendant had changed its mind. The letter of 2 September, itself a counter-offer to the letter of 29 August, was simply not accepted. The only agreement on which the parties ultimately were ad idem was that of 15 September. There is in my judgment no basis on which one can conclude that the statements in the letter of 2 September had any enduring legal consequences once the later agreement had been concluded.

53. Although pleaded as an estoppel by representation, the estoppel finally relied on by Mr Dennys QC in his closing submissions was an estoppel by convention. He put the argument in this way:

54. I accept that the parties dealt throughout (or at least until 11 November 1996) on the basis that the 15 September Agreement was enforceable. I am unable, however, to see how a shared mistaken belief as to the enforceability of the agreement can itself render enforceable that which ex hypothesi was not. The estoppel relied on did not operate to cure the defects in the agreement which deprived it of its enforceability as a contract.

55. This was put simply by Mr Dennys QC as being an archetypal case of services having been provided under an unenforceable contract, and he referred me to William Lacey (Hounslow) Ltd v. Davis [1957] 1 WLR 932, British Steel Corporation v. Cleveland Bridge & Engineering Co Ltd [1984] 1 AER 504, Craven Ellis v. Canons Ltd [1936] 2 KB 403, Way v. Latilla [1937] 3 AER 759 and the discussion of those authorities in Goff and Jones, Law of Restitution, 5^th edition, Chapter 23. The cost of the services provided by the claimant to the defendant (inclusive of the cost of manufacturing the space model) was agreed to have been £113,138. The claimant elected to claim this sum under this heading rather than seeking to value the benefit to the defendant of the services and claiming that value. It was not disputed by the defendant that it had obtained a benefit as a result of the services.

56. The general principles governing recovery in cases of this kind were not challenged by Mr Cooper. He first drew a distinction between the work on the space model and the other work done by the claimant. As to the former, he submitted that the work was undertaken under a valid contract between the parties which wholly governed the relations between the parties. I will deal separately with this submission below. As to the latter, he advanced two alternative propositions, for the purpose of each of which the 15 September Agreement was assumed to be void for uncertainty.

57. The first proposition was that the claimant could have no restitutionary claim unless the claimant could show that, had the agreement been enforceable, it would have been awarded the sub-contract or been entitled to claim damages for breach: it only had a legitimate expectation of being rewarded for its services if it was able to provide a demonstrably competent and satisfactory specification at demonstrably fair and reasonable prices. He submitted that it had not been able to do this.

58. I agree that the claimant only had an expectation of being rewarded for its work in the event of the bid succeeding and the conditions for the placing of the sub-contract then being satisfied. For reasons which I have already given, the technical standards to which it bound itself by the 15 September Agreement were both certain and capable of fulfilment by the claimant. The discussions which took place from August 1997 onwards, in particular with regard to the weight of the patrol antenna, were the result of the defendant itself revising the earlier specification. Even on that basis, agreement in principle was eventually arrived at. The attempt made both in the letter of 24 November 1997 and at the trial to use the alleged technical deficiencies in the claimant’s ultimate proposals as a justification for the course taken by the defendant was without foundation. Had that been a genuine obstacle it was easily curable. That it was not is evident from the considered reply given by the defendant’s legal department on 27 January 1998 to the outstanding unanswered letters from the claimant’s solicitors. It read:

59. The question therefore resolves into whether it is a condition of being entitled to restitutionary relief in the present case that the claimant should first demonstrate that the price at which it would have been prepared to enter into the sub-contract was a fair and reasonable one, and if so whether that condition has been satisfied. There would, in any event, be a certain illogicality in imposing as a condition of restitutionary relief an obligation to satisfy a standard which is, ex hypothesi, too uncertain to be enforceable as a matter of contract law, but on the view I take of the meaning of the 15 September Agreement and the conduct of the parties I do not consider that such a condition exists or can be invoked. The legitimate expectation of the claimant was that its services would be remunerated under a sub-contract let at a price "based on" its quotation but that it might have to justify that price if called upon to do so by reference to the potentially elusive criterion of "fairness and reasonableness". Neither party had any reason to suppose that this criterion would in the event prove to be an insurmountable stumbling block. Indeed it emerged at the trial that the defendant’s decision to use the claimant as an outside sub-contractor was in part the result of its own calculation that letting the sub-contract "in-house" would be more expensive. The defendant at no stage called upon the claimant to prove that any of the prices at which it, at various times, indicated a willingness to sub-contract were fair and reasonable ones or (until 10 November 1997) indicated to the claimant that those prices were in its view outside the range of what could be described as fair and reasonable. Right up until the last moment the defendant allowed the claimant to believe that the negotiations over price were taking place within such a range. In these circumstances it seems to me immaterial whether, if the defendant had at any stage called for proof that the criterion was satisfied, the claimant would have been able to provide such proof.

60. If I am wrong about that it is necessary to consider what could have been demonstrated by way of fairness and reasonableness. The claimant’s approach to pricing was dealt with in the evidence of Mr Dyer. It involved, first, establishing a projected costing of the project and secondly, applying a mark-up to that costing so as to achieve a target gross margin. The evidence was that the claimant normally sought to quote prices on the basis of a 60% gross margin. The claimant had been given to understand that the contemplated price for each Manpac antenna was approximately £10,000.00. Applying a a 60% gross margin would substantially have exceeded that target price. Accordingly the prices first quoted in September 1996 for initial supply were based on a gross margins of 50% for manufacturing costs (the manufacture itself being sub-contracted) and 40% for the non-recoverable expenditure. Subsequently the claimant was able to revise its costing downwards, enabling it to be satisfied that there was a sufficient margin to cover the high risk inherent in the development project being undertaken. The September 1996 prices for follow-ons were similarly calculated, with assumptions being made about the numbers and timing of follow-ons ordered and a judgment being made as to the likely decrease in risks and cost as experience was gained in the course of the project.

61. When the defendant sought a revised quotation in September 1997, the claimant was able to reduce its quoted price by revising its costings. This in turn was possible due to the significant design effort which had gone into the project since the previous September. The new quotation did not involve the claimant in any reduction of its margin. Indeed the scale of the cost savings was such that the margin was in fact increased in relation to initial supply. Taking an optimistic view as to the level of orders for follow-ons and the prospects of achieving greater efficiencies in production costs in the future, Mr Dyer was able to quote a keener price than before in relation to the follow-ons. According to his evidence (which I accept) the letter of 26 September 1997 (see paragraph 24 above) was the first occasion on which the defendant had indicated any dissatisfaction with price.

62. As already noted, the claimant was led to believe at the meeting of 2/3 October that the only pricing problem for the defendant lay in the follow-on prices for years 1 and 2. Despite its belief that it was entitled to be awarded the sub-contract at these prices, it took the commercial view that it could offer the reduced prices which were supplied to the defendant on 6 October 1997.

63. It was argued on behalf of the defendant that "fairness and reasonableness" could not be proved essentially for two reasons: first, on the ground of market comparison; and secondly, on the ground that the claimant had employed an excessive gross profit margin.

64. So far as market comparison was concerned, reliance was placed on the QPAR Angus quotations and the eventual AMC quotation. In my judgment the defendant did not establish that either were valid comparators. While the defendant had explored the possibility of contracting with QPAR Angus in the autumn of 1996 and continued to do so in the autumn of 1997, it is quite clear that it did not regard QPAR Angus as a satisfactory sub-contractor despite the considerably lower prices which it had quoted (about 71% of the claimant’s final price of £1,543,390). This is amply demonstrated by the internal e-mail which I have set out at paragraph 29 above: despite the difficulties over price and weight the defendant at that stage could see no alternative to contracting with the claimant. The AMC price is also not directly comparable. That it was a significantly lower price (about 61% of the claimant’s final price) is undeniable. But it does not follow from the fact that AMC was able to quote at that level that the claimant’s prices were unfair or unreasonable. In the first place, the specification against which they quoted was not the same as that against which the claimant was quoting. (It is not possible on the evidence to say by how much this would have affected the price quoted by AMC or the price at which the claimant would have been able to quote had it been given the new specification. Such evidence as I had did not persuade me that this factor alone played any very significant part in the difference in pricing). Secondly, and much more importantly, without an investigation of the basis AMC’s pricing it is not possible to say to what extent the AMC price can stand as a criterion of fairness and reasonableness. It is known that that AMC were proposing to use the same sub-contractor as manufacturer of the petals (Cobham Composites) and that AMC and Cobham Composites were themselves both subsidiaries of the same parent company (Chelton plc). It is also known that AMC had been involved (as a potential sub-contractor in relation to the HQ antenna) in a competing unsuccessful bid to the MoD. AMC’s proposals also involved the use of some existing standard components. One does not, therefore, know exactly how AMC were able to quote at such a significantly lower price. The fact that they were able to do so does not entail that the claimant’s quoted price for its solution was unfair or unreasonable. The defendant accepted that, had it sub-contracted within the Racal Group, the price would have been higher than that quoted by the claimant. That does not mean that the relevant Racal subsidiary was itself adopting an objectively "unfair or unreasonable approach". The fairness and unreasonableness of a price quoted by a particular supplier for the development of a particular product is simply not the same thing as the lowest price quoted by any supplier for a product which meets the same (or similar) specifications.

65. I turn to the issue of excessive gross margin. I have no expert evidence directly on this issue. The defendant’s witnesses argued that to have aimed for a margin of over 50% was simply unrealistic pricing, and that on the basis of their experience of defence industry contracts they would expect to have seen a margin of 20% at most. They pointed out that the defendant itself had, in its bid to the MoD, used 20% as its gross margin on the project. The claimant relied on the fact that the 60% margin which it used as a benchmark was necessary in order to enable it to earn a net profit of a reasonable amount having regard (a) to its high level of fixed overheads relative to turn-over and (b) the level of risk inherent in a development project of this kind.

66. The claimant’s risk thesis received some support from an unexpected quarter. Mr William Inglis, chartered accountant and a partner in the Forensic Service Department of Deloitte and Touche, was called by the dependant as an expert witness on the question of the quantum of the claimant’s loss of profits claim. That claim had been pleaded as over £1m on the basis of the September 1996 quotation. Amongst his criticisms of the way in which that had been calculated, he made the general point that the costings on which the claim was based were no more than forecasts of likely results. He was not himself qualified to comment on their accuracy, save to observe that this would depend on numerous factors, such as price increases, problems with sub-contractors and so forth. He therefore suggested that a more reliable way in which to estimate what gross profit would in fact have been achieved had the claimant obtained the sub-contract was to look at what the claimant’s actual experience had been with other contracts over a reasonably long period so far as that could be inferred from its financial statements. As he said in his report "I am not aware of any reasons why this sub-contract, if it had been obtained, would have been any more or less profitable that the rest of Easat’s business". The upshot of his analysis was that the claimant typically earned an average gross profit margin on its contracts of 25.93%.

67. Given the claimant’s evidence that it had used its normal criteria in pricing its quotations in this case, Mr Inglis’ evidence supported the view that the margins adopted in the pricing provided no more than what was, in the claimant’s experience, a necessary safety margin reflecting an appreciation of the risks inherent in the costing and management of sub-contracts of this kind. From that point of view the pricing was in my judgment no more than prudent. It could not be described as unfair or unreasonable.

68. Accordingly had I considered it a necessary condition of its restitutionary claim that the claimant be able to demonstrate that its quoted prices were fair and reasonable, I should have concluded that the condition was satisfied.

69. Mr Cooper submitted that, even on that basis, the restitutionary claim should not succeed. He argued that the costs had been incurred by the claimant not for the purposes of benefiting the defendant, or at its request, but simply in order to obtain the sub-contract (which would only happen if the defendant succeeded in it bid). Reliance was placed on the decision of Rattee J in Regalian Properties plc v. London Docklands Development Corporation [1995] 1 WLR 212, in particular passages at 224G to 225D and 230B-D for this proposition. However, unlike the present case, that was not a case of expenditure under a contract which was void for uncertainty, but expenditure for the purposes of a contract which both parties anticipated would be, but which in fact never was, concluded. In that context Rattee J drew a distinction between, on the one hand, work done in order to obtain and then perform the anticipated contract and, on the other hand, work done at the request of the counter-party by way of accelerated performance under the anticipated contract. He said that he could well understand why in a case of the latter kind (such as that in British Steel Corporation v. Cleveland Bridge and Engineering Co Ltd [1984] 1 AER 504) the party providing the accelerated performance should be entitled to a quantum merit. He clearly thought that expenditure in the former category required different considerations, and, in a context where negotiations had taken place and the service had been rendered expressly "subject to contract", was not prepared to adopt the wide principle adopted by the Supreme Court of New South Wales in Sabemo Pty Ltd v. North Sydney Municipal Council [1977] 2 NSW LR that:

Noting that there was no English authority supporting such a principle, Rattee J declined to apply it in a situation where (as he found) the party who had done the work had done so in circumstances where he had known, or must be taken to have known, that the costs were incurred "at his own risk, in the sense that he will have no recompense for those costs if no contract results." I respectfully agree with that approach.

70. Thus, in a case such as Regalian, the work undertaken in order to obtain the contract gives rise to no restitutionary remedy because the party providing the services is taken to have run the risk that the contract will not eventuate and he will therefore not be paid. Here, however, while the claimant was prepared to take the risk that the defendant’s bid would fail, it was not prepared to run the risk that, if the defendant’s bid succeeded, it would not be rewarded. That was the whole purpose and underlying assumption of the 15 September Agreement. The claimant’s costs were incurred in the belief that it would get them (and more) back under the sub-contract if the defendant’s bid succeeded. That bid did succeed. The contingency on which the services were to be paid for happened. The claim is therefore in my judgment a good one.

71. The position in relation to the construction of costs of the model is arguably different. The 15 September Agreement (had it been enforceable) did not oblige the claimant to provide the model. This was the result of an independent agreement. The terms of that agreement were conditioned by two factors. First, both the defendant and the claimant correctly perceived that the production of such a model would be likely to add to the attractiveness of the defendant’s bid to the MoD. Each had a common interest in promoting that. Secondly, despite the 15 September Agreement, the claimant was anxious not to release to the defendant its detailed design documentation. This had been requested by the defendant so that it could produce the model. To encourage the defendant to allow the claimant to construct the model, it offered it to the defendant on the easy terms that it would only have to pay half the anticipated materials cost. The terms of the supply were therefore partly in order to promote the defendant’s bid, and partly to preserve the confidentiality of the claimant’s own design documentation.

72. I have, however, with some hesitation come to the conclusion that this mixture of motives does not impair the claimant’s right to receive reimbursement of the costs which, at the time, it agreed to absorb. It would not have agreed to incur the costs concerned without re-charge to the defendant had it not believed that they would be recovered under the promised sub-contract. It has not been suggested by the defendant that, had its initial suggestion of doing the work itself been assented to, the costs would have been any less. Moreover, in the light of the standards of commercial morality to which the defendant was working, the claimant may well have been wise not to have released its detailed design documentation.

73. I was at one stage attracted by Mr Cooper’s argument that, since there was a separate contract in relation to the model, it necessarily followed that, in the absence of a rescission that contract, there could be no claim for reimbursement of expenses incurred in connection with it. The answer to that argument is that the defendant knew that the price payable under that contract (a mere £1,500.00) was not intended to cover the claimant's costs in fulfilling it. It was the common understanding that the claimant would recover these, like the rest of its expenditure in relation to the project, from the sub-contract promised by the 15 September Agreement.

74. Accordingly the claimant is, in my judgment entitled to an order that it be reimbursed for its expenses in the agreed sum of £113,138. I will hear further argument as to the rate of interest, and the date or dates from which it should run, when this judgment is handed down.