Vogon International Ltd. v The Serious Fraud Office

Contractual charging provisions must be construed objectively, in their documentary and commercial context. The court must identify what the words meant in the contract, rather than deciding what they were capable of meaning in isolation. Where technical terminology has several possible meanings, the surrounding correspondence, description of the work and contractual structure may determine the intended meaning. Commercial purpose alone may shed no light on the basis of remuneration. A party cannot avoid its own written contract merely because it later asserts that it intended different terms.

Vogon International Limited carried out forensic computer work for the Serious Fraud Office under Contract 38118B. The contract followed a quotation charging for setting up and populating an MS Exchange database and processing data from each database. Vogon invoiced on the basis that each backup file was a database, producing a claim for £314,375 plus VAT. The SFO contended that the contract charged by reference to the two servers from which the data originated and tendered £22,500 plus VAT.

The central issues were the proper construction of “per database” and Vogon’s alternative arguments based on mistake, uncertainty and estoppel.

1. The court construed the contract objectively and in context, applying the guidelines identified in Investors Compensation Scheme Ltd. v West Bromwich Building Society [1998] 1 WLR 896. The question was not what “database” could mean generally, but what it meant in the phrase “per database” in Contract 38118B.

2. Although “database” had no single invariable technical meaning, the court accepted that a backup file was not itself a database because it required restoration before its contents could be accessed or manipulated. More importantly, the quotation and covering letter consistently used “database” in the relevant operational context to refer to an MS Exchange server or the data maintained on it.

3. The covering letter was particularly important. It referred to determining the number of databases, creating each database, setting up the server and processing each database. Its references to backups, the number of databases and the condition of the Exchange Database would have been materially irrelevant if remuneration depended on the number of backup files rather than servers.

4. The contractual breakdown into three charging stages did not support Vogon’s construction. Nor did the commercial purpose of obtaining accessible data determine the charging basis. The construction advanced by Vogon was commercially unlikely in light of the earlier estimate, the short timetable and the relatively straightforward nature of the work.

5. Vogon’s alternative cases based on unilateral mistake, uncertainty and estoppel were abandoned, but the court stated that they would have failed. A party that prepared the contractual documents could not avoid them because their objective meaning differed from its alleged intention. The SFO’s silence did not estop it from relying on the proper construction.

6. Vogon was therefore entitled to £22,500 plus VAT, and no more. The court was to hear counsel on the appropriate form of order.