Peregrine Systems Ltd v Steria Ltd.

A contract for time-and-materials implementation services, capped at a stated amount, does not without clear language oblige the supplier to complete the entire implementation. Its construction must give coherent effect to provisions contemplating a blueprint and later detailed estimates.

A party with knowledge of alleged repudiatory breaches affirms the contract if its words and conduct are consistent only with continuing it. Continued use of the contractual product, acceptance of performance, and negotiations to make the relationship work may amount to affirmation. An implied reservation of a right to terminate cannot prevail where the evidence unequivocally shows election to affirm.

Whether performance was within a reasonable time is assessed broadly, with hindsight and in light of all circumstances then known. Breach of such an obligation is repudiatory only if it deprives the innocent party of substantially the whole contractual benefit.

Peregrine licensed call-centre software to Steria and agreed to provide implementation services under a Technical Services Schedule for a total of £200,000. After disputes about performance, Steria purported to terminate the agreement and Peregrine claimed the unpaid contractual sum. Steria counterclaimed, alleging misrepresentation and repudiatory breaches.

In the Technology and Construction Court, HHJ Richard Seymour QC held that the termination was wrongful, awarded Peregrine £732,602.74 inclusive of interest, and dismissed the counterclaim: [2004] EWHC 275 (TCC). He held that Peregrine had not contracted to complete implementation and that Steria had, in any event, affirmed the agreement.

Steria appealed on 23 grounds. The Court of Appeal confined the hearing to whether delayed implementation was repudiatory and whether Steria had waived its assumed right to terminate.

1. Appeal dismissed unanimously. Maurice Kay LJ, with whom Dyson and Auld LJJ agreed, held that the two selected issues were sufficient to dispose of the appeal.
2. The Technical Services Schedule was properly construed as an agreement to provide £200,000 worth of implementation services as Steria required, not an obligation to complete implementation of every listed module for a fixed task price. The reference to an implementation blueprint and detailed estimates confirmed that further work required a further agreement. Once the £200,000 had been exhausted, Peregrine had no continuing obligation to complete implementation within a reasonable time. Steria therefore established neither the asserted contractual obligation nor a repudiatory breach of it.
3. In any event, a breach of an obligation to perform within a reasonable time would not automatically be repudiatory. Time being reasonable is distinct from time being of the essence. Applying the standard stated by Diplock LJ in Hongkong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd, [1962] 2 QB 26, the breach would have had to deprive Steria of substantially the whole contractual benefit. The court also accepted that reasonable time is assessed broadly, with hindsight and by reference to all circumstances known when breach is alleged, rather than solely by reference to an anticipated completion date.
4. Assuming the alleged breaches, Steria had affirmed the agreement. The court applied the election principle described in The Kanchenjunga, [1990] 1 Lloyd’s Rep 391. Steria continued to use the software, accepted further benefits and services, and sought to preserve the long-term relationship. Those acts, with knowledge of the alleged breaches, were consistent only with affirmation. An implied reservation of termination rights could not displace that unequivocal election. By the same reasoning, any assumed right to rescind for misrepresentation was also lost.

• Court of Appeal (Civil Division): Steria’s appeal was dismissed unanimously: [2005] EWCA Civ 239.
• Technology and Construction Court: HHJ Richard Seymour QC held that Steria had wrongfully terminated the agreement, entered judgment for Peregrine for £732,602.74 inclusive of interest, and dismissed Steria’s counterclaim: [2004] EWHC 275 (TCC).