Instrument Product Development Ltd v W D Engineering Solutions Ltd

In interpreting an oral contract, the parties’ contemporary subjective understanding is admissible, but later conduct is a less reliable guide to the terms originally agreed. Documentary evidence ordinarily carries greater weight than unaided recollection. Subsequent conduct may nevertheless establish a variation or estoppel, assessed principally by reference to what a reasonable observer would have understood from the parties’ words and actions.

An agreement initially limited to one pilot project may be extended by express agreement, acceptance by conduct, or later objective variation. A claim based on the Pallant v Morgan equity requires the necessary common intention to exist before the relevant opportunity is secured.

Instrument Product Development Ltd and W D Engineering Solutions Ltd agreed orally to share profits from the manufacture and supply of products designed for Nespresso. The dispute concerned the scope of that agreement, the effect of subsequent dealings, alleged partnership and fiduciary obligations, a claim based on Pallant v Morgan, and the profits payable.

The court found that the original agreement covered the Cannes pilot only. It was later varied to include further pilot stores, a Lausanne presentation set, and the 2017 rollout. The central issues were the proper interpretation and variation of the oral agreement and the appropriate remedy where the precise profits remained uncertain.

1. Contract scope. The 7 March email was the best evidence of the oral agreement made on 6 March 2017. Properly construed, it concerned the Cannes pilot only. References to distribution and the wider opportunity did not extend the agreement to the whole Nespresso rollout.
2. Interpretation of oral agreements. The parties’ subjective understanding at, or immediately after, formation was admissible and relevant. Later statements and conduct were less reliable indicators of the original understanding because subsequent events and litigation may alter memory. Documentary evidence of conversations was generally more reliable than unaided recollection.
3. Variations. The agreement was subsequently varied to include Madison, Washington, Lausanne, Mexico, Portugal and the UK. Those variations were made expressly or by conduct. In August 2017, the parties objectively agreed that Cannes profits would be reinvested in the anticipated 2017 rollout. That agreement varied the contract to include approximately 500 rollout units.
4. Other claims. Any partnership or fiduciary relationship was closely tied to the agreement and added nothing to the contract claim. The Pallant v Morgan claim failed because the necessary common intention was absent before the opportunity was secured. The October redesign concerned a different product and fell outside the agreement.
5. Remedy. The court declined to assess damages by an evidentially unsupported estimate. Under Civil Procedure Rules 1998, rules 25.1(o) and 25.2, it ordered an account of profits for the specified pilots, Lausanne set and 2017 rollout. WDES was to pay IPD 50% of those profits, subject to allowance for Cannes profits reinvested in the rollout and exclusion of genuinely redesigned products. Costs and directions were reserved.