Facts
Boots in the 1990's was in the practice of updating its IT on a
frequent basis and accordingly there was competition between
suppliers to sell products to Boots. Amdahl was one such supplier
and supplied computers and upgrades to Boots under a contract dated
16 February 1994. An amendment of the same date provided that Boots
had the option between 1 June 1995 and 31 August 1995 on 30 days
notice to sell back to Amdahl two processors which they had
purchased from Amdahl. The prices were agreed at £1.2m for the
3570M processor and £1.718m for the 4570M processor.
In 1995, Boots was wavering between going forward with either
Amdahl or IBM. On 17 July 1995, Amdahl in a letter extended the
buyback option until the end of August 1996. On 20 July 1995, Boots
asked Amdahl to set out the terms for the buyback options in one
document.
Amdahl wrote to Boots on 20 July 1995 and in the letter's first
bullet point Amdahl delayed the August 1995 buyback deadline by two
weeks. In the next bullet point, Amdahl provided August 1996
buyback values for the 3570M of US$1.441m, for the 4570M of
US$1,859m and for a 5570M of US$2.442m. Amdahl also confirmed in
the third bullet point that the buyback value of the 3570M was not
dependent on Boots upgrading the current 4570M to a 5570M and also
that the buyback value of the 3570M was not dependent on retaining
the 4570M. The effect of quoting the price in US dollars
meant that the buyback value for the 3570M was considerably less
than the value at which Boots had the option to insist on a buyback
in August 1995.
Boots decided to buy from IBM and so exercised the extended
buyback for the 4570M on 8 August 1995 and Amdahl did indeed buy
back that processor.
The dispute arose in 1996. Boots wrote on 27 June 1996 to ask if
they had until the end of 1 August 1996 to invoke the buyback.
Amdahl responded by advising Boots that the offer to buy back was
withdrawn with immediate effect. Boots thereupon exercised the
buyback option in their letter dated 30 July 1996, which Amdahl
refused to go ahead with.
Judgment
There was an agreement reached by the parties on the basis of
the oral negotiations, which the letter of 20 February 1995 was
intended to confirm. If that was not correct, then Boots' exercise
of the option on 8 August 1995 was a good acceptance.
There was also good consideration. The letter of 20 July 1995
varied the buyback provisions of the original contract. That
variation was capable of benefiting either party and had an element
of detriment to Boots if they accepted the benefit. Looked at from
Amdahl's point of view, if Boots looked to the longer buyback
provision, Amdahl would not have to buy the processors at the
higher price a year earlier. Amdahl also got the advantage that
they had a further year to try to persuade Boots to choose them as
suppliers again in 1996. Boots got a benefit in that they could
postpone their decision until 1996 but had the detriment of getting
the lower price if they did so.
Commentary
This is a fairly simple case but illustrative of a general point
that is often missed. Consideration is rarely an issue in
cases and the issues have by and large been settled since the
nineteenth century, but there are still some occasions where it
arises and the search is on to find some consideration. As this
case demonstrates, there are normally numerous factors which
satisfy the requirement of consideration and it need not consist
only of some payment, or delivery of something tangible.
It can be found in the promises of payment, or simply in
analysing the situation and finding benefits and burdens. It may be
that there is only a possible benefit or detriment, as in this
case. The Court of Appeal approved of a passage in Chitty 28th
edition paragraph 3-074, which states as follows:
"...the parties may agree to vary the
contract in a way that can prejudice or benefit either party. Here
the possible detriment or benefit suffices to provide consideration
for the promise of each party … This possibility of benefit and
detriment is sufficient … If a variation is, taken as a whole,
capable of benefiting either party, the requirement of
consideration will be satisfied even though a particular term of
the variation is for the sole benefit of one.”
So, even though Boots had a good deal in the sense of the
extended deadline, the consideration could be found by examining
the contract as a whole and looking for the possible benefit for
either party. As may be seen from the summary of the judgment, this
was relatively easy to find.
The point to be derived from this case is that complex IT
contracts - outsourcing, systems development and so on - are
frequently varied, either through formal change control or
otherwise by agreement between the parties. Even when it appears
that only one party is receiving a substantial benefit, it may
still be that the variation is valid when a wider view is taken of
the commercial setting within which the variation is agreed.
