Ho Lai Chuen Cadia t/a Resolution Software Consultants v. Xerox (Hong Kong) Ltd.

HCA006454A/1997

HCA6454/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 6454 OF 1997

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Coram: Deputy High Court Judge Andrew Cheung in Court

Date of Hearing: 3 to 7, 10 to 14, and 17 to 21 December 2001

Date of Handing Down Judgment: 16 January 2002

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J U D G M E N T

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1.In this action, the Plaintiff sues the Defendant for breach of contract for the supply and installation of a computer software system and related products.

2.The Plaintiff is the sole proprietor of a computer software business known as Resolution Software Consultants ("RSC"), which is and was since late 1996 the sole distributor in Hong Kong of software products of Astea International Inc. ("Astea"), an international software manufacturer and supplier based in the States and amongst other places, Australia in relation to the Asia Pacific region.

3.The Defendant is the local company of the well-known multinational Xerox group, selling office equipment and providing general maintenance service.

4.In about 1993, the Defendant (then known as Rank Xerox (Hong Kong) Limited) recognised that its mainframe computer system then in use was becoming obsolete and instructed Price Waterhouse Management Consultants to evaluate the position. Price Waterhouse examined the business requirements of the Defendant and identified various potential software packages including the software ultimately "ordered" (to use a less-controversial word at this stage) by the Defendant, namely, a software product known as "Dispatch-1" developed by Astea. Price Waterhouse came up with two detailed reports running to over 200 pages in total. Dispatch-1 was one of the software packages short-listed by Price Waterhouse. Various options were recommended and the various packages were rated. Astea was then invited to tender a proposal for the supply of an integrated information system for the Defendant's consideration. This Astea did by a written proposal in October 1994 in relation to its Dispatch-1 service management system.

5.The Defendant retained EDS Hong Kong, a member of a well-known international computer consultancy group, to which it had outsourced its IT department, to conduct the evaluation of the various proposals obtained by the Defendant from those shortlisted, including the one from Astea. In May 1995, EDS asked Astea for more details about its proposal, including a price summary, a detailed implementation schedule, and a proposed hardware configuration for Astea's system. The requested details, in the form of an addendum to the original proposal, were supplied by Astea to EDS within days. The original proposal and the addendum went to over 100 pages.

6.EDS obviously conducted detailed evaluation of the various products or solutions put forward by those shortlisted, including Astea; there were presentations, demonstrations and workshops held as well as correspondence passing between EDS and, amongst others, Astea, as part of the evaluation process. EDS eventually came up with a Software Evaluation Report, the long version of which went to almost 250 pages, in August 1995. EDS recommended Astea (Dispatch-1), which was, according to EDS' recommendation, to work together with another software known as Oracle Financial System also recommended by EDS.

7.EDS realised that Astea's Dispatch-1 was written in a computer language known as Progress (4 GL), whereas the Oracle Financial System used an Oracle database to store data (accessible only by an Oracle language known as SQL), and this would give rise to an "interface" requirement between the two systems, in order to enable Dispatch-1 to access the data stored in the Oracle database. Following EDS' recommendation of Dispatch-1, EDS produced a Conversion and Interface Report for Astea Implementation for the Defendant "to summarise all the technical findings at that stage so as to ease the implementation in the future" in November 1995. The document spelt out "the system interfacing between given modules and how the critical data to be converted into new system".

8.In late 1995 and the early part of 1996, the Defendant put on hold its intention of purchasing a new system from outside to pursue the option of implementing an internal system or "solution" developed by one of its sister companies in Europe (known as "XES"), which was however abandoned subsequently as it was considered that the solution could not meet the Defendant's requirements. Further the Defendant was busy with implementing the Oracle Financial System as a first step towards the modernisation of its computer system.

9.Negotiations between Astea and EDS/Defendant really began in the second half of 1996. On the side of Astea, the negotiations were conducted both by its Sydney office as well as its then Hong Kong office comprising Mr. Alfred Ng and Mr. Steven Ho. Basically, Alfred Ng was the salesperson whereas Steven Ho was responsible for answering technical questions. Alfred Ng and Steven Ho admitted that they entered into negotiations with the Defendant without first having read the documentation which had been generated before between EDS and Astea, such as the request for tender by EDS/the Defendant and the proposal documents by Astea, relating to what was required by the Defendant or what had been suggested by Astea by way of solution or possible solution. Indeed they accepted that they had never read these documents at any stage. But they maintained that Alfred Ho had detailed discussions with the EDS people during the second half of 1996 regarding the requirements of the Defendant.

10.On the Defendant's side, the negotiations were mainly conducted by its Financial Director Ms. Pamela Chen. She was assisted by her junior, Mr. Allan Ho, manager of Business Process and Information Management of the Defendant at the time, who had some but not full technical knowledge, as well as the EDS people whom it was Allan Ho's responsibility to supervise in relation to the technical matters. Allan Ho only took over his post in mid 1995 and did not have very detailed knowledge of what had happened before. He basically relied on the EDS people in relation to the technical matters, who reported the same to him. However, it would appear that the EDS people involved in the project from the outset had either left or been transferred to some other project by late 1996 when the negotiations for the supply and installation of the Dispatch-1 system were progressing to a mature stage. In any event, there were meetings, demonstrations and correspondence between the people on both sides dealing with the terms of the supply, the prices as well as the technical matters.

11.Two matters should be mentioned at this stage. First, in 1996, Astea started appointing distributors in Asia, and in Hong Kong RSC was chosen as Astea's sole distributor. This was eventually finalised in November (per Alfred Ng's oral evidence) or December (per Alfred Ng's witness statement) the same year. The original Astea team in Hong Kong was absorbed into RSC and both Alfred Ng and Steven Ho became employees of RSC, although Alfred Ng continued to act also as Astea's country manager as before. Alfred Ng said in evidence that he informed Xerox about the (intended) change in November both in correspondence and a meeting with Pamela Chen on 20th November 1996. Alfred Ng said he announced to Pamela Chen in the meeting that the Plaintiff had been appointed the sole distributor of Astea in Hong Kong. The meeting was also attended by Mr. Paul Fauth from Astea Australia who according to Alfred Ng confirmed what he had told Pamela Chen in the meeting and Alfred Ng's authority in the matter. But Paul Fauth was not called to give evidence at trial.

12.On the other hand, Pamela Chen acknowledged in evidence the receipt of the correspondence (a fax dated 13th November 1996) but denied that any detailed or clear disclosure of the identity of the distributor was made to her in November and she only learned of the Plaintiff's name and some details in mid December the earliest. She denied ever being notified of the Plaintiff's appointment as sole distributor by Alfred Ng in the meeting on 20th November 1996 (as claimed by Alfred Ng) or anyone else. She said she believed that she was dealing with Astea throughout, and at most the Plaintiff only acted as an agent or distributor of the software for Astea. In all correspondence she had with Alfred Ng, Alfred Ng wrote in his capacity as Astea's country manager writing under Astea's letterhead. She also pointed out that in Astea's fax dated 13th November 1996, Astea did not name the distributor to be appointed and it actually said that the appointment of the local distributor meant to the Defendant "additional local resources to Astea's Australia-based team". This, according to Pamela Chen, reinforced her belief that notwithstanding Astea's intended appointment of a local distributor, she was continuing to deal with Astea Australia, but with the added benefit of the availability of local resources represented by the distributor to be appointed.

13.Second, whilst the Sydney office sought to reach a deal with the Defendant by the end of September 1996 which proved to be over-ambitious, Alfred Ng was more patient and was targeting to clinch a deal with the Defendant with the incentive of a 45% discount on the listed price either by the end of the year or the early part of 1997. The special discount was represented to the Defendant as valid only up to a particular date, which was however repeatedly extended. But the downside of only accepting the offer in 1997 instead of 1996 was that even though the special discount could be extended beyond 1996 the discount would be based on Astea's higher listed price for 1997 instead of 1996. So there was some pressure on the Defendant to conclude something with Alfred Ng by the end of the year if possible.

14.There were obviously some hard negotiations between Alfred Ng and Pamela Chen regarding the pricing. In particular, the parties negotiated about capping the service charges during the estimated fifteen-month implementation stage of the software. And according to the evidence, the parties negotiated about the payment terms, i.e. the amount of deposit payable, up to the last minute. But eventually, in the afternoon of 31st December 1996, the last day of the year, Alfred Ng managed to persuade Pamela Chen to write her signature on behalf of the Defendant on an "Order Confirmation of Dispatch-1 Implementation for Xerox". The Order Confirmation set out, amongst other things, the various modules of the Dispatch-1 software system and the related Progress modules required for running the Dispatch-1 software particularly in conjunction with the Defendant's Oracle-based system to be supplied, the number of users as well as the prices, and all these were divided into two implementation stages or phases lasting nine months and six months respectively. As mentioned above, the service charges were capped during the two phases. For the phase 1 software and service, the total price amounted to US$649,440, whereas that for phase two amounted to US$965,480. The Order Confirmation also contained various "Notes" setting out the pricing scheme, the special year end incentive "if" a minimum purchase was obtained, the software warranty, the annual maintenance charges, the service rate, the condition for capped service charge and the payment terms.

15.At the bottom of the last page of the Order Confirmation, there were three signing columns or spaces. First, under "Offered by: [RSC]", Alfred Ng signed as the country manager of RSC. Next to it, one finds Pamela Chen as Financial Director signing on behalf of the Defendant under the words "Accepted by: [the Defendant]". Her signature was expressly back-dated to 15th December 1996 which was the last deadline for accepting the 45% discount offer (there having been made an application for the extension of the deadline beyond 1996 by Alfred Ng on behalf of the Defendant). On the right-hand side, under the words "Acknowledged by [Astea]", Alfred Ng signed the document again but on behalf of Astea as its country manager. Alfred Ng explained in evidence that he included Astea as a party co-signing the Order Confirmation so as to secure and confirm the 45% special discount for the Defendant. Alfred Ng said in evidence that he made clear to Pamela Chen during the meeting on 31st December 1996 that the Plaintiff was the "prime contractor" or "acted as prime" under the Order Confirmation the parties were going to sign.

16.According to Pamela Chen, at the meeting on 31st December 1996 which lasted in total around 30 minutes only, she did not pay any attention to the three signing columns at the bottom half of the last page of the Order Confirmation, and indeed did not quite notice that the same comprised something "offered by [RSC]" and "acknowledged by" Astea. She said she thought she was signing the document with Astea to fix the prices for the (intended) purchase of the computer software and the related service and maintenance cost and so forth only. She said she was dealing, or at least thought that she was dealing, with Astea, and no binding or concluded contract had been made with Astea in that detailed terms had yet to be agreed. By that she had in mind a signed Master Software Agreement ("MSA"), a detailed implementation plan and a signed maintenance contract with Astea. She said similarly she had not paid attention to the fact that in an earlier draft of the Order Confirmation sent to her by Alfred Ng for negotiation purpose on 14th December 1996, the name of RSC already appeared as the offeror under the draft. (It should be noted however that in yet another earlier draft of the Order Confirmation dated 27th November 1996, i.e. one week after Alfred Ng had supposedly told Pamela Chen in meeting that RSC had been appointed the sole distributor of Astea in Hong Kong, Astea instead of RSC was still named as the offeror of the Dispatch-1 system.)

17.Pamela Chen disagreed strongly that by signing the Order Confirmation, she had entered into a binding contract with the Plaintiff. The gist of her evidence was that throughout, i.e. from almost the beginning, the Defendant was considering buying the Dispatch-1 product from Astea, proposals were submitted by Astea, detailed technical discussions were conducted with Astea, and her negotiations with Alfred Ng were conducted in Alfred Ng's capacity as country manager of Astea. It was Astea, an internationally known computer software manufacturer and supplier, that she and her company knew and trusted, particularly in terms of the quality of its consultants, analysts, trainers and programmers as well as its service in general relating to the installation and operation of the Dispatch-1 system that the Defendant was ordering from Astea. It was Astea that she was or she believed she was dealing with. By way of sharp contrast, the Plaintiff was a total unknown to her and her company, as well as EDS to which her company had outsourced its IT department, and all she knew about the Plaintiff was represented by the few lines of notes she jotted on an envelope of the Plaintiff which her company received on 18th December 1996. Had she thought she was dealing with the Plaintiff, she would have done all sorts of evaluation and checks relating to the Plaintiff before deciding to contract with the Plaintiff in place of Astea.

18.Moreover, the service rate agreed under the Order Confirmation for the consultants, i.e. US$800 per day, was based on the rate chargeable by an overseas consultant from Astea (Australia). This was the rate offered by the Australian salespeople back in September 1996 before there was any mention of the appointment of a local distributor, and the rate represented a 33% discount from Astea Australia's standard rate of US$1,200 per man-day. Pamela Chen pointed out that had it been the case that her company was dealing only with a local distributor for the installation of the Dispatch-1 product by consultants of the local distributor (as opposed to consultants from an internationally known and reputable computer software company like Astea), the chargeable rate would be nowhere near that of US$800, let alone the undiscounted rate of US$1,200, and there would be no discount to talk about. She said the rate would have been around HK$500 to 600 per man-day only.

19.The Order Confirmation provided that upon its signing, a 50% deposit had to be paid. According to Alfred Ng, during the meeting with Pamela Chen on 31st December, Pamela Chen queried whether the amount of deposit was too high, and Alfred Ng agreed that both sides could check the normal software industry practice and if the practice dictated a lower percentage, the payment terms would be changed accordingly, as evidenced by a side letter dated 31st December 1996 written by Alfred Ng to Pamela Chen.

20.According to this side letter, Alfred Ng, writing as country manager of Astea, confirmed in relation to the signed Order Confirmation that the requirement of 50% deposit in the payment schedule of the Order Confirmation was subject to confirmation according to normal software industry practice, and moreover, "whenever possible, Astea will assign to the project the consultant most experienced with Dispatch-1 implementation for JOS", a reference to another Astea sale and installation job of Dispatch-1 for a major competitor of the Defendant, namely, Jardine Office System.

21.According to Pamela Chen, this last confirmation in the side letter reflected what had been promised her orally by Alfred Ng during their oral discussion, and reinforced further her belief that she was dealing with Astea in signing the Order Confirmation. She emphasised that in the case of the Defendant's intended purchase of the Dispatch-1 system, not only was the system itself important, the actual people who were going to provide the service like installation, implementation, training, maintenance, and so forth, would also be very important, she wanted the most experienced consultants from Astea to provide the same, and she thought she was getting this under the Order Confirmation as well as the side letter.

22.In this regard, Allan Ho also said in evidence that Pamela Chen was anxious to secure the service of the most experienced consultant(s) from Astea Australia and/or involved in the JOS implementation project in respect of the Defendant's intended purchase of the Dispatch-1 system because during the negotiation stage he and the EDS people had noticed that Steven Ho did not seem to have the necessary technical experience or competence in relation to the Dispatch-1 system although he was the technical representative of Astea/RSC during the negotiation stage. Allan Ho considered Steven Ho as a sort of pre-sale person rather than a technical consultant. He did not realise that Steven Ho was intended (by RSC) to be a leading member of the project team from the Astea/RSC's side in the implementation stage.

23.According to RSC's documents, upon the signing of the Order Confirmation, a purchase order for the Dispatch-1 modules in question was immediately placed by RSC with Astea at the same total price of the Dispatch-1 modules set out in the Order Confirmation (which already represented a 45% discount from Astea's 1996 listed prices) but subject to yet another "VAR Discount" of 50%, and further an order was signed by RSC with the Progress software supplier for the supply of the Progress products covered by the Order Confirmation at a 30% discount from the listed prices. (Under the Order Confirmation, the prices for the Progress products were said to represent an effective 25% discount from the listed prices.)

24.An invoice for the 50% deposit under the Order Confirmation was duly issued by the Plaintiff to the Defendant on 2nd January 1997. According to some internal documents of the Defendant, it would appear that Alfred Ng subsequently agreed to change the amount of deposit to 30% after confirmation about the normal software industry practice, and indeed this was the amount paid by the Defendant to the Plaintiff under the invoice. Alfred Ng said in evidence that he did subsequently agree to the reduction of the deposit but only on terms as per his letter (on behalf of RSC) to Pamela Chen dated 10th March 1997 which however was never countersigned by the Defendant as required in the letter. Pamela Chen denied that she or her company ever received this alleged letter from RSC. As regards the payment of the invoice issued in the name of RSC, Pamela Chen explained that when she received the invoice, she recalled what Alfred Ng had previously told her about Astea's appointment of a local distributor the name of which she had subsequently learned to be that of RSC in mid December or thereafter. She thought RSC was issuing the invoice as distributor of Astea, collecting the payment as agent for the latter, and therefore she found no difficulty in making payment of the deposit in favour of RSC although she still believed that she was dealing with Astea. In any event, Alfred Ng accepted that the bargaining power of his side was relatively weak and at the end of the day he had no real choice but to accept the 30% payment as deposit.

25.According to Alfred Ng and Steven Ho, on 17th January 1997 they had a meeting with Allan Ho and gave him a revised draft MSA, a previous version having been supplied prior to the signing of the Order Confirmation. They told Allan Ho that Astea would demand a signed MSA before the software product could be delivered to the Defendant. It is the Plaintiff's case that subsequently on 13th February 1997, at the request of Allan Ho, Steven Ho prepared a draft letter for the Defendant to sign to confirm the purchase of the Dispatch-1 system, the delivery of the software product, the signing of the MSA within a matter of days and the payment of a 30% deposit. The letter was duly signed by Herbert Hui, a financial controller who was working under Pamela Chen and was acting in Pamela Chen's post whilst she was on vacation at the time.

26.The Defendant's case in this regard, however, is that the letter was only signed as a favour to the Plaintiff and Astea as the Defendant had been told by Steven Ho that Astea was approaching the end of its financial year and needed, for internal purposes, to confirm that an order had been placed and that the transaction was progressing. In this regard, it should be noted that according to a covering fax enclosing the draft letter, Steven Ho explained to Allan Ho that the letter was requested by the auditor of Astea in USA from the Defendant to confirm the sale of Dispatch-1. Anyhow, according to Steven Ho's evidence, on the same day after receiving the promise of Allan Ho to sign the letter, he delivered personally a CD-ROM containing the Dispatch-1 modules ordered by the Defendant to the Defendant's office. This however is disputed by the Defendant.

27.In any event, as regards the signing of the MSA which was a document between Astea as licensor and the Defendant as licensee, it is clear from the documents that the parties discussed about the terms in the revised draft MSA, and further drafts were produced, but until the eventual cancellation of the Order Confirmation by the Defendant, no MSA was ever signed. It should be noted at this stage that one of the amendments to the earlier draft was that the terms of payment were changed from a 50% deposit to a deposit of 30% to be followed by another 10% upon finalisation of a project plan, as evidenced by a letter dated 10th March 1997 written by Alfred Ng as country manager of Astea to Pamela Chen. As mentioned above, Alfred Ng said on the same day he had also written a letter on behalf of the Plaintiff to Pamela Chen agreeing to vary the payment terms under the Order Confirmation along the same lines but on the condition that the installation of the Dispatch-1 system be completed on or before 30th April 1997 failing which interest would be charged as from 1st May 1997, to which letter the Defendant never replied. Pamela Chen said she and the Defendant never received the letter from the Plaintiff nor did they ever agree to the proposed conditions.

28.Another matter to note in relation to the MSA drafts, which provided for the grant of a licence by Astea to the Defendant for the use of the Dispatch-1 modules upon the payment of licensee fees (which were the same sums of money or prices for the Dispatch-1 modules referred to in the Order Confirmation), is that the same referred to the payment of licensee fees to the Plaintiff (called the "Distributor" in the drafts) "as Astea's agent" (clause 4.1). The Plaintiff was not to be a party to the intended MSA. This is at variance with Alfred Ng's understanding as he explained the position in the witness box. He said he thought Astea was to grant a licence to the Plaintiff, and in turn the Plaintiff was to grant a sub-licence in favour of the Defendant. He could not quite explain why there was this difference in the MSA drafts put forward by his side.

29.In early 1997, the Defendant began to look for a project manager to head the implementation or project team responsible for the implementation of the Dispatch-1 software ordered by the Defendant. Although EDS was interested in becoming the project manager, eventually a couple, Mr. and Mrs. Louis Bilella, were chosen from Xerox UK to be the joint project managers for the implementation of the Dispatch-1 system. Louis Bilella was in fact the person in Xerox responsible for implementing the in-house Xerox computer solution in Europe (i.e. "XES"). As mentioned above, at one stage the Defendant considered adopting the European solution in Hong Kong, and Louis Bilella had made presentation to the management of the Defendant about the European solution, but eventually the Defendant decided to go ahead with Dispatch-1. Apart from that, according to Allan Ho, Louis Bilella also helped the Defendant in evaluating the Dispatch-1 system in late 1996 by contrasting the same with XES, which he had implemented for Xerox in Europe and was introducing to the Defendant in Hong Kong. Allan Ho said in evidence that prior to the signing of the Order Confirmation, Louis Bilella was in favour of the XES solution he had implemented in Europe rather than the Dispatch-1 system. That notwithstanding, when it came to the implementation stage of the Dispatch-1 solution, the Defendant decided to retain Louis Bilella and his wife to head the project team.

30.The Bilellas who had since left Xerox, did not give evidence at trial; but their signed witness statements were admitted as evidence at trial as a hearsay notice had been served in respect of the statements and they were residing overseas.

31.The Bilellas started meeting the RSC people in March 1997. There were meetings and a demonstration held. The RSC team for the implementation project included or was intended to include Steven Ho as team leader, a local Ms. Hannah Chang as project manager within the RSC team, a system consultant and a business analyst from Astea Sydney, another local Mr. Ken Chan as the application consultant, and another application programmer from Sydney. According to Steven Ho's evidence, he and Ken Chan had some general training as well as hands-on experience of installing some of the Dispatch-1 modules in Australia and the local JOS project in terms of months and weeks. Anyhow, according to Steven Ho, the service of Steven Ho, Hannah Chang and Ken Chan would be charged in accordance with the rate set out in the Order Confirmation (i.e. US$800 per man-day) as capped. The service of the Australian consultants, which would be provided on a "need" basis, would however be charged separately and would not be subjected to the capped man-days set out in the Order Confirmation. It was the intention of the Plaintiff that the Plaintiff's team, together with the Defendant's team, would comprise the project management team, headed by the Bilellas, and the team (at least according to the Plaintiff's understanding) would be responsible for compiling a detailed implementation plan for implementing the Dispatch-1 system.

32.It is quite apparent from the internal documents generated by the Bilellas as well as the signed witness statements of the Bilellas that they soon became dissatisfied with the Plaintiff's local team and, to use a loose word, the compatibility of the Dispatch-1 system with the Oracle Financial System that the Defendant had already installed for use. The problem areas identified by the Bilellas at one stage or another included the belated supply of the user manual, the Y2K compliant problem, the lack of a reference site, the conversion of a 16-character account code used by Dispatch-1 to a 29-character account code used by the Oracle Financial System, the potential performance degradation in terms of delay resulting from the use of a gateway (i.e. a sort of computer language translator) between Dispatch-1 which was written in the Progress computer language and the Oracle database used by the Defendant that was written in the Oracle SQL language, and the absence of Astea Australian experts to handle the implementation of Dispatch-1 onto a Oracle database. According to the evidence, the Defendant's side considered that although the drawing up of the detailed implementation plan was to be a joint effort of the people from Astea/RSC and that from the Defendant comprising the project implementation or management team, the former had a more important role to play because it was after all their product which was to be implemented by their expert consultants.

33.The internal documents generated by the Bilellas show that the Bilellas increasingly saw the task of implementation in general and that of drawing up a detailed implementation plan in particular as a difficult if not unworkable one, given the problems they had been identifying. They also foresaw a substantial increase in costs from that budgeted if the implementation process was to go ahead. All this, however, was not fully reflected in the correspondence between RSC and the Bilellas, and the RSC's side could be forgiven if it did not realise at the time that its counterpart was taking an increasingly pessimistic view about the successful implementation of the Dispatch-1 modules.

34.On the face of the correspondence between the parties, all one could really see was that on the one side the Bilellas asked RSC to fly in an experienced Astea consultant from Australia to help draw up the detailed implementation plan (which was quite understandable from the subjective viewpoint of the Bilellas given the problems they perceived to be facing them), and on the other RSC's insistence that the MSA had to be signed first before the Australian consultant would be made available.

35.The Bilellas eventually came to the conclusion that the problems that they had identified were insoluble and that the whole project should be abandoned. This conclusion was apparently reached after a meeting between Louis Bilella and Alfred Ng on or about 10th April 1997 in which Alfred Ng said Louis Bilella asked him for postponement of payment of money payable under the Order Confirmation because of the Defendant's budgeting problem, which Alfred Ng refused. On the other hand, according to Louis Bilella's signed witness statement, he asked Alfred Ng to confirm Steven Ho's earlier agreement with his wife for the project to go into a three-month analysis phase, one of the aims of which would be to produce a project work plan which the Bilellas viewed as an obligation on the part of RSC to do. But Alfred Ng refused.

36.Anyhow the Defendant's management was apparently persuaded by the Bilellas and agreed with the conclusion that they had reached. Therefore by a letter dated 2nd May 1997 written by Louis Bilella to RSC (not Astea), Louis Bilella on behalf of the Defendant cancelled the Defendant's order placed with RSC for the Dispatch-1 modules on the ground that the software would not integrate satisfactorily into the Defendant's Oracle-based system. RSC did not accept this unilateral cancellation of the Order Confirmation, and this eventually led to the present litigation. It may be added that after the cancellation of the Dispatch-1 system, the Defendant adopted a modified XES system used by Xerox in Europe and implemented by Louis Bilella earlier. He and his wife were also involved in implementing the same system as modified in Hong Kong for the Defendant after the cancellation of the Dispatch-1 system.

37.In this action, the Plaintiff claims the balance of the 50% deposit for the Dispatch-1 modules and the related Progress products payable upon the signing of the Order Confirmation in the sum of US$109,632, 50% of the price of the phase 1 Dispatch-1 modules and 50% of the price of the related Progress products as well as the first year maintenance charge in the total sum of US$195,103, the minimum service charges and annual maintenance charges said to be payable in any event under the Order Confirmation, the 50% purchase price payable under phase 2 implementation for the Dispatch-1 modules as well as the expected maintenance charges for the 2nd to 6th years after installation in the total sum of US$1,011,579, and the anticipated service charges for modification as well as charges for 100 additional users in the total sum of US$671,540.

38.On the other hand, apart from denying liability, the Defendant counterclaims for repayment of the 30% deposit paid to the Plaintiff in the sum of HK$1,270,807, repayment of a sum of US$5,440 said to have been wrongly paid as service charge, and damages relating to the Bilellas' expenses (US$85,555.40) and resulting losses allegedly suffered as a result of the alleged failure of the Dispatch-1 system to satisfactorily integrate with the Defendant's Oracle-based system.

The issues

39.Broadly speaking, apart from the question of quantum in relation to the Plaintiff's claim and the Defendant's counterclaim, the issues raised include whether the parties intended to conclude a binding contract; if one was intended and concluded, what was the scope of the concluded contract; if a full-scale contract was intended to be concluded, were the terms of the intended contract sufficiently certain and complete to constitute a binding contract; on the assumption that there was such a concluded contract, whether RSC was a contracting party under it; and on the assumption that there was a concluded contract, whether the Defendant was entitled not to proceed with it. I shall deal with these issues in the following way.

Intention to contract? What contract?

40.The Plaintiff's position is simple. Its case is that there was a concluded and binding contract for the supply and installation as well as the subsequent maintenance of the Dispatch-1 system and the related Progress modules, as embodied by or contained in a signed written contract, namely, the Order Confirmation dated 31st December 1996.

41.Mr. Jat, counsel for the Defendant, argued otherwise. His primary argument was that there was only a "limited contract" made between the parties (and I shall deal with his submission relating to the parties to this limited contract in a subsequent section), as represented by the Order Confirmation. His secondary or alternative submission was that there was no contract at all between the parties.

42.Turning to Mr. Jat's primary submission first, the main thrust of his argument was this. The Order Confirmation only represented a limited contract fixing the prices for the supply, installation and right to use the Dispatch-1 system and the related Progress modules, if they were to be subsequently contracted for by the Defendant. There was, as yet, no concluded contract for the supply, installation and right to use the Dispatch-1 system and the related Progress modules between the parties. On the other hand, that notwithstanding, Mr. Jat argued that the Order Confirmation did represent a legally binding contract albeit of a very limited scope as indicated above.

43.In elaboration of his argument, Mr. Jat submitted that the purpose of the Order Confirmation was to "lock-in" the price, as the Defendant was told that there was an imminent price increase as from 1997, and that the Defendant should sign the Order Confirmation first "to protect the price" and the parties could discuss about other details relating to implementation later as per a fax dated 19th December 1996 sent by Alfred Ng to Pamela Chen, in which Pamela Chen was urged to sign the Order Confirmation before the year end to take advantage of the special discount based on the 1996 listed price. According to Mr. Jat, the Defendant wanted to lock-in the price and the service rate, and the Defendant was prepared to pay a deposit as earnest. The advantage to Astea/RSC was that there was an immediate payment of a deposit of over HK$ 1 million and there was also an increased prospect of a full deal, as opposed to the risk of not having any business at all if the price did go up and/or discount cut.

44.Mr. Jat further argued that the way this limited contract would work in case the Defendant ultimately decided not to acquire the Dispatch-1 system was that the Defendant could not get back the deposit paid under the Order Confirmation in such a case. This would be the result, according to Mr. Jat, because the money was paid as a "deposit", an earnest, and the Defendant would not be entitled to recover the deposit if subsequently for reason of its own the Defendant decided not to acquire the Dispatch-1 system. Alternatively, the same result would be achieved because in the absence of any wrongdoing by the other party to this limited contract, the Defendant would simply have no reason or justification to demand for the refund of the money paid under the Order Confirmation which according to Mr. Jat was a legally binding contract albeit of a limited scope. In that case, there was no failure of consideration for the payment as the other side had under this limited contract agreed to the fixed price and service rate if a contract for the acquisition of the Dispatch-1 system was eventually concluded.

45.As I said, this was Mr. Jat's primary position; and it was only under his secondary or alternative position that he contended that there was no contract whatsoever. On the face of it, this approach is slightly surprising, because under the primary position of the Defendant Mr. Jat accepted that the Defendant could not ask for the return of the money already paid, i.e. the 30% payment made soon after the signing of the Order Confirmation, whereas under his secondary or alternative argument, as there was no contract whatsoever between the parties, there would be a total failure of consideration for the 30% payment which should therefore be refunded in entirety to the Defendant.

46.This approach of Mr. Jat really betrayed the difficulty faced by the Defendant in this case in relation to the Order Confirmation. As Mr. Jat accepted in almost so many words during final submission, judging from the available documents and contemporaneous correspondence between the parties, as well as the circumstances or background of the case, quite clearly the parties intended, by the signing of the Order Confirmation, to create a certain legally binding relationship. After all, the obvious intention of the Defendant in signing the Order Confirmation was to "protect the price", and one may reasonably ask: how could that be achieved by the Defendant without making some sort of commitment towards the purchase or acquisition of the Dispatch-1 system in return? In my judgment, the only reasonable conclusion to be drawn from the facts is that quite clearly both sides intended that the Order Confirmation should create some legally binding relationship between the parties. If nothing legally binding was to be created by the signing of the Order Confirmation, why should Astea/RSC be tied to any special discount based on whatever listed price at all? And if Astea/RSC was not by virtue of the signing of the Order Confirmation tied to a 45% discount based on the 1996 listed price, how was the price "protected" by the signing of the Order Confirmation, which was what the Defendant set out to achieve by signing the Order Confirmation?

47.In any event, as Mr. Kerr, counsel for the Plaintiff, submitted, if the parties did not intend to create any legally binding relationship by the signing of the Order Confirmation, they could have easily achieved that by the insertion of the label "subject to contract" or words to similar effect into the Order Confirmation, and there could be no doubt that the persons involved on both sides, namely, Pamela Chen and Alfred Ng, were individuals of sophistication, high education and great experience in the commercial world. And certainly, with a company like Xerox, it must have known how to avoid entering into a legally binding relationship by the signing of any document if that really was its intention to do so.

48.In my judgment, it was not only wise but quite inevitable for Mr. Jat to put forward this argument of limited contract as his client's primary position, in place of the argument that there was no contract between the parties which was the Defendant's only position prior to a last-minute amendment to the pleading made by Mr. Jat on the first day of the trial.

49.But then is this new primary argument of Mr. Jat a correct one? This argument quite obviously faces a number of difficulties. First and foremost, the Order Confirmation did not say that it only represented a limited contract for fixing or locking in the price or the service rate only. It was actually entitled "Order Confirmation of Dispatch-1 Implementation for Xerox". It was an "Order Confirmation", meaning, prima facie, a document confirming the placing of an order by the Defendant for the acquisition (used loosely here to include the supply, installation, right to use and maintenance) of the Dispatch-1 system and the related Progress modules. It did not say that it was only a contract to fix or lock in the price or service rate if the system and modules were to be subsequently acquired by the Defendant.

50.Furthermore, the Order Confirmation did not call the 50% (or 30%) payment payable upon the signing of the Order Confirmation a "deposit"; rather it was a partial payment of the licence fees of the Dispatch-1 system and Progress modules "ordered" under the Order Confirmation. And it goes without saying that generally speaking, one does not pay a price or any part thereof unless one has contracted to buy the goods or service in question that the price represents. This really quite contradicts the argument of the Defendant that all that the Order Confirmation did was to fix the price or service rate. If that was the only purpose and effect of the Order Confirmation, certainly one should not be making payment of the price or any part thereof at all.

51.To be sure, in the side letter dated 31st December 1996, it would appear that both sides regarded the 50% payment also as a payment of a deposit, and as mentioned above, this was subsequently reduced to 30%. But this should not distract one from the basic fact that this payment represented first of all a partial payment of the licence fees for the Dispatch-1 system and Progress modules ordered under the Order Confirmation. It is trite that a payment may constitute a partial payment as well as a deposit at the same time. The important point here is that under the Order Confirmation, the 50% payment was clearly a partial payment for the licence fees of the Dispatch-1 and Progress software products ordered under the Order Confirmation.

52.More fundamentally, it is quite clear from the Order Confirmation that the 50% payment required to be made upon the signing of the same was never expressed as a consideration or price paid by the Defendant for the promise in return by Astea/RSC to fix or lock-in the price or service rate. According to the Order Confirmation, the payment payable upon the signing of the Order Confirmation was, as per what was set out under a caption "Payment" on the last page of the Order Confirmation, the first out of three payments payable for the Dispatch-1 licence, the Progress module licence and the Progress module first-year maintenance charge, the individual breakdowns of which could be found on the first two pages of the Order Confirmation. The payment had nothing whatsoever to do with the fixing of the price or service rate at all. And indeed there was no wording in the Order Confirmation which one could fairly construe as meaning or suggesting that the document was for the fixing of the price or service rate only. It would require the reading of many words that were not there into the Order Confirmation, and at the same time the deletion and alteration of many that were indeed there, in order to turn this Order Confirmation into a limited contract of the sort contended for by Mr. Jat. Obviously, the Court does not sit here to rewrite parties' contracts. I therefore reject both of Mr. Jat's primary and secondary positions, and conclude that the parties did intend, by the signing of the Order Confirmation, to enter into a full-scale contract for the acquisition of the Dispatch-1 system and related Progress modules.

Sufficiently certain and complete contract?

53.But then Mr. Jat argued that regardless of the parties' intention to create a legally binding relationship, given the subject matter of the alleged contract, namely, the supply and installation of the computer software system and modules in question, the Order Confirmation as a supposed contract simply did not contain sufficient terms necessary to govern the subject matter of the alleged contract. In other words, the "contract" lacked essential terms as the parties never negotiated or completed their negotiations on many important terms, and therefore the so-called contract was too uncertain or incomplete to be enforceable at law. Mr. Jat argued that in order that there be a binding agreement of the nature contended for by the Plaintiff, there had to be a signed MSA setting out the terms of the licence governing the use of the software, without which the Defendant would not have any entitlement to use the software, the precise details of the "Service" to be provided in relation to the implementation of the software, and what exactly would be covered by "Maintenance" mentioned in the Order Confirmation.

54.In his submission, Mr. Jat placed much emphasis on the subject matter of the supposed contract in question. He argued, quite correctly in my judgment as a matter of general principle, that if the central (as opposed to peripheral) subject matter of the supposed contract was uncertain in that it was still subject to substantive negotiation, there could not be any concluded or binding contract. In relation to the present case, Mr. Jat drew my attention to the fact that although in everyday language, one talks about, rather loosely, the buying or selling of software, one is really dealing with the buying of the right to use the software under a licence from the developer or proprietary owner of the software. And there lies the importance of the licence and the terms thereof. Put shortly, the Order Confirmation did not contain any details at all relating to the licence granted or to be granted by Astea to the Defendant for the use of the Dispatch-1 software, other than setting out the licence fees for the use of the software payable by the Defendant. And, so Mr. Jat argued, since the licence or the terms thereof, comprising the crucial subject matter of the alleged contract, had not been agreed at all between the parties, the alleged contract was so uncertain and incomplete that it could not be enforced at law.

55.In this regard, Mr. Jat referred me to very interesting passages in Reed & Angel, Computer Law (4th ed.) 15-16, 39-47 as well as the most illuminating judgment of Lord Penrose in Beta Computers (Europe) Ltd. v Adobe Systems (Europe) Ltd. [1996] SLT 604, a first instance decision of the Scottish Outer House. In short, they highlight the fact that in a typical contract for the "sale" and "purchase" of software, quite apart from the transfer of title, property and possession of the tangible or physical medium, if any, in which the software is stored, like a CD-ROM, what would be involved is the grant of a licence by the developer or proprietary owner of the software to the "purchaser" of the software the right to use the software on terms, which terms are typically set out in a software licence agreement either in a documentary form accompanying the delivery of the tangible or physical medium containing the software or in a soft form contained in the software and to be read on-screen at the initial stage of installation of the software onto a computer system by the "purchaser".

56.The Beta case, decided primarily in accordance with a Scottish legal concept without any equivalent in English or Hong Kong common law, highlights the potential difficulty faced by the Court that very often in such a contract between a "seller" and "buyer" of the software, three instead of two, parties are involved, namely, the "seller" like a computer software retailer, the "buyer" and the developer or proprietary owner of the software, and that it may be difficult to define the moment or time when a binding contract for the supply of the software between the "seller" and "buyer" is concluded and the moment or time when a licence contract between the developer or proprietary owner of the software and the buyer/licensee relating to the use of the licence is concluded, and whether the same must coincide with each other. So one possibility is that the supply contract and the licence contract are and must be concluded at the same time, like when money and the software package change hands over the sales counter of the retailer, particularly if the terms of the licence are printed on the outside of the packaging containing the software in a consumer type of situation; yet another possibility is that the supply contract is concluded first over the sales counter of the retailer whereas the licence contract is concluded later when the buyer decides to accept the terms of the licence and makes use of the software so purchased on his computer say at home or in office, particularly in a case where the terms of the software licence are not apparent from the outside of the box containing the software. There could be other possibilities, entailing different considerations and potential difficulties, as discussed in Lord Penrose's judgment.

57.All this is really interesting, and is as new to me as the expert evidence on highly technical computer science that I have heard in the course of this trial. But for the purpose of my decision, subject to what I have to say below, it is quite unnecessary for me to express any definite view on the topic. In my judgment, the short answer to Mr. Jat's argument is this. On the assumption that he is right, i.e. on the assumption that a detailed software licence agreement has to be agreed between the parties in order that there can be a legally binding, certain and complete contract for the sale/supply and implementation of software, in the present case, prior to the signing of the Order Confirmation, a draft MSA had been supplied by Astea to the Defendant during the negotiations. According to the evidence, in September 1996, whilst the Australian Astea people together with Alfred Ng and Steven Ho were trying to conclude an early deal with the Defendant, a draft MSA dated 24th September 1996 was indeed supplied by the Australian Astea people to the Defendant. Although Pamela Chen said in evidence that she could not recall being given a copy of the draft MSA during the private meeting between the Australian Astea people and the Defendant's team including herself held on 24th September 1996, I have no doubt and find as a fact on the evidence before me that the draft MSA was indeed so supplied by the Australian Astea people to the Defendant. Whether the draft then went to the in-house lawyers of the Defendant or the filing cabinet of Pamela Chen who therefore did not read it is neither here nor there. Viewed objectively, in those circumstances, particularly taking into account the course of negotiations between the parties, by not coming back to Astea Australia or RSC on the terms or the proposed terms under the draft MSA so supplied, and by signing the Order Confirmation without any reference to any further negotiations relating to a MSA, the Defendant must be taken to have accepted the terms in the draft MSA previously supplied as the terms of the MSA to be signed between the parties governing the use of the Dispatch-1 software.

58.In my judgment, in reality (based on the evidence I have heard as well as the contemporaneous documents available) the MSA or the terms thereof was never a real or live issue between the parties. There was very little if any negotiation between the parties relating to the terms of the MSA prior to the signing of the Order Confirmation on 31st December 1996, and thereafter although drafts of the MSA went to and fro between the parties several times, on any fair reading of the correspondence relevant to the issue in question, all changes to the drafts were uncontroversial and in fact accepted by Astea (acting through Alfred Ng). In fact, as clearly evidenced by the letter dated 13th February 1997 written by Herbert Hui on behalf of the Defendant to the Plaintiff at the request of Steven Ho, and as admitted by Allan Ho in evidence, at least up to that stage on the side of the Defendant it was expecting to sign the MSA within days, regardless of whether the letter (drafted by Steven Ho on behalf of the Defendant at the request of Allan Ho) was written as "a Chinese New Year favour" by the Defendant to the Plaintiff as insisted by Allan Ho in evidence. And in fact in one of the last letters written by Louis Bilella on behalf of the Defendant to the Plaintiff prior to the cancellation of the Order Confirmation, his reference to the then current draft of the MSA did not suggest any serious disagreement or controversy relating to the MSA. On the evidence before me, I have no doubt that had there been any genuine dispute between the parties relating to the draft MSA at the time, this would certainly have been seized upon by Louis Bilella and the Defendant as an additional reason for cancelling the Order Confirmation, which was never the case.

59.In this regard, I have not overlooked the fact that the September 96 draft MSA was in a form used by Astea Australia in the case of a direct sale of software to a client, whereas the January 97 draft MSA given by RSC to the Defendant after the signing of the Order Confirmation was in a form used by Astea in the case of a sale through a distributor. This is only understandable because back in September 1996, Astea Australia had not yet appointed any local distributor and RSC had not yet come into the picture, whereas by January 1997 RSC had become the sole distributor of Astea in Hong Kong and the Order Confirmation was, to use a neutral term at this stage, brought about by RSC as distributor.

60.But what is more important in the present context is that although there were some differences in the provisions of the two drafts, the September 96 draft did not, in my judgment, contain anything which was repugnant to, or otherwise inconsistent or incompatible with the sale or supply of the Dispatch-1 system to the Defendant via (again using a neutral term at this stage) a distributor, so that it could not be regarded as the detailed software agreement required to have been agreed between Astea and the Defendant governing the use of the Dispatch-1 software in order that there could be a concluded supply contract between Astea/RSA and the Defendant, which is the starting point of the present discussion. And of course after the Order Confirmation was signed, or in accordance with my judgment, after the contract for the supply and implementation of the software was concluded, it was always open to one side to propose amendments to the MSA, and if the proposal was accepted by the other side the MSA would be amended accordingly, but if not then the parties would be bound to sign a MSA in the same terms as that agreed or taken to have been agreed between them prior to the conclusion of the contract. So in the present case, I see nothing wrong with Astea/RSA supplying a new draft MSA to the Defendant in January 1997 after the Order Confirmation was signed; it was really up to the Defendant whether to accept the terms or the different terms contained in the new draft.

61.So for this reason alone, I reject Mr. Jat's argument of uncertainty based on the lack of an agreed MSA. It therefore becomes unnecessary for me to examine further whether Mr. Jat's basic premise of his argument, namely, that the parties must have come to an agreement on the terms of the MSA before there can be a binding, certain and complete contract between the parties for the supply and implementation of the software, is a sound one. For the sake of completeness, I would briefly mention my views as follows.

62.It was accepted by both sides, and indeed this accords with everyday experience in this computer age, that generally speaking when a person buys a mass-marketed computer software from a retailer these days, he must know or be taken to know that he can only make use of the software he so "buys" in accordance with the terms of a licence imposed by the developer or the proprietary owner of the software which comes together with the physical software package. Sometimes the terms of the licence are apparent from the outside of the box containing the software, sometimes they are not and can only be read after the box is opened or the CD-ROM is inserted into and run in the computer. This is so in the case of a consumer, and should also be so in the case of the Defendant, it being itself an international developer and supplier of computer equipment. In my judgment, if the buyer chooses to "buy blind", i.e. without finding out the terms of the licence first before he purchases it from the retailer, he does so at his own risk in that if subsequently he does not find the terms of the licence agreeable to himself, which in most consumer cases are non-negotiable, he will risk not being able to use the software, at least legitimately.

63.Viewed from another angle, what the retailer offers to sell is the physical/tangible CD-ROM in which the software is stored and an irrevocable offer by the software developer or proprietary owner for the grant of a licence to the "buyer" of the software to use it on terms set out in the licence agreement. The price paid by the buyer for the software package represents the consideration for both the physical/tangible CD-ROM and the irrevocable offer. The contract of sale of both is concluded when the price is paid and software package handed over to the buyer in a typical software retail situation. The licence contract relating to the use of the software between the software developer or proprietary owner and the buyer may be concluded either simultaneously if the terms of the licence are apparent from the outside of the box containing the software, or, if that is not the case, later, after he opens the box, and when he tries to install the software programme in his computer and decides to accept the terms of the licence by using the software or clicking the "YES" box appearing on the computer screen. In the unlikely event that he does not accept the terms of use in the latter case, there will be no licence contract made but that would also mean that he will be stuck with the computer software he has bought but has no licence to use (legitimately).

64.Consideration for the licence agreement should not present any problem even if the licence contract is made after the sale/supply contract, because the consideration for the right to use the software may be supplied by the buyer's agreement to only use the software on terms stipulated by the software developer or proprietary owner or (put another way) his acceptance of the software developer's or proprietary owner's irrevocable offer to grant a licence on terms. In my judgment, no question of past consideration should arise here. Communication of acceptance of the owner/licensor's offer by the buyer/licensee to the owner/licensor should not present any problem either, as this may be waived or taken as waived by the latter: Chitty on Contracts (28th ed.) Vol. 1 para. 2-042A. I am not sure if I share the doubt expressed by Reed & Angel (at page 42) about the enforceability of the licence contract concluded in that manner by the owner/licensor against the buyer/licensee, arising from the waiver of communication of acceptance. In any event, nowadays many such mass-produced software products require (as part of the installation device) a user to e-mail or otherwise communicate his acceptance of the terms of licence to the developer/copyright owner before he can continue using the software.

65.I do not find the suggestion that in the case of a buyer "buying- blind", he can return the software to the supplier/retailer arguing that no contract has been concluded for the sale or supply of the software between the supplier/retailer and him because he has since found the terms of the licence unacceptable an attractive one at all. After all, subject to any pertinent consumer protection legislation in this regard, freedom of contract is still the paramount consideration in the present context. The consumer buying-blind should be held to his bargain with the supplier/retailer of the software. And if a consumer buying-blind should be held to his bargain with his supplier/retailer, I do not see why the Defendant should stand in a better position in the present case. It should be noted that one is not talking about the supply of a "bespoke" software (i.e. a tailor-made software for the buyer) in the present case in which event the consideration might be different.

66.In the present case, had it been necessary, I would have been prepared to hold that the alleged uncertainty problem relating to the absence of a specifically agreed MSA can be resolved by reference to the general or standard MSA terms used by Astea at the material time for this type of sale via a distributor. There should not be any problem with communication of the Defendant's acceptance of the standard MSA terms in such a case, because the Defendant's acceptance of those terms by conduct (in using the Dispatch-1 system) would have been fully known to Astea and RSC through the latter's involvement in implementation and maintenance of the system.

67.I note that what I said above in relation to a person buying-blind may not fully accord with the actual decision in the Scottish case Beta, supra, where the Court held that there was no concluded contract of supply of a "shrink-wrapped" software between a retailer and a consumer who made his order over the telephone without sight of the terms of the licence printed on the outside of the software visible through the clean plastic film wrapping, because, so it was held, the contract of supply between the retailer and the consumer and the licence contract between the developer or proprietary owner of the software and the consumer could not be separate from one another and had to be concluded at the same time, and the latter contract could not be concluded without the consumer first having sight of the terms of the licence printed on the outside of the packaging, as a matter of Scottish law. As pointed out in Reed & Angel (at page 43), the decision was heavily dependent upon a Scottish law doctrine for which there is no English, or for that matter, Hong Kong, equivalent, and "so is of dubious value as an authority in England [and I would add, Hong Kong]". I hope I have sufficiently set out my reasons for the view that I take in the above discussion. But as I say, I need not come to any definite view on this aspect of the law for the purpose of this case.

68.Again for the sake of completeness, I should record my agreement with Mr. Jat relating to the general principles of law or construction of documents he relied on, as illustrated by the cases he cited to me during submission, that the use of words like "offer", "acceptance", "contract", and so forth, by the parties particularly if they were unassisted by lawyers, in the alleged contractual documents or relevant correspondence or negotiations between the parties, may not necessarily mean that there is a concluded, certain and binding contract between the parties or that there are no essential matters yet to be negotiated and agreed; that the reaching of an agreement by the parties over the price which no doubt in most if not all contracts is one of the most important terms, if not the most important one, does not necessarily signify the conclusion of a complete contract between the parties as there may yet be other important terms (although not necessarily as important as the price) to be negotiated and agreed; and that the payment of a substantial portion of the "price" by one party to another following a long negotiation process does not necessarily mean that the process is at an end and no further negotiation need be done in order to bring about the conclusion of a compete, legally certain and binding contract. See Clifton v Palumbo [1944] 2 All ER 497; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd. (1988) 18 NSWLR 540; May and Butcher Ltd. v The King [1934] 2 KB 17; May v Thomson (1882) 20 Ch D 705; and Chamberlain v Boodle & King [1982] 1 WLR 1443.

69.These general principles are very fine by themselves, but in my judgment they do not assist the Defendant in the present case. The parties went through serious negotiations, following several years of extensive evaluation of the Astea product by EDS on behalf of the Defendant. There were good reasons on both sides to conclude a deal, a binding one, by the end of the year. And indeed in the afternoon of the last day of the year, they signed an Order Confirmation that was in my judgment sufficiently detailed to constitute a complete contract, particularly if one takes into account the draft MSA previously supplied during the course of negotiations. A very substantial amount of money in excess of HK$1 million was paid by the Defendant following the signing of the Order Confirmation. The Dispatch-1 product and the Progress modules were ordered by RSC from Astea and Progress' local distributor and deposits were paid by RSC in respect of the same immediately following the signing of the Order Confirmation. The letter of 13th February 1997 was then signed, whether as a favour or not, confirming the sale of the Dispatch-1 product. A CD-ROM containing the then current version of the Dispatch-1 modules and Progress modules ordered under the Order Confirmation was delivered to the Defendant. (In this regard, I have no reason to doubt the evidence given by Steven Ho in relation to his delivery by hand of the CD-ROM to the office of the Defendant in the afternoon of 13th February 1997.) The formal MSA was expected to be signed within days. A project manager, or I should say two project managers, the Bilellas, were specifically hired from UK and flown into Hong Kong. And the parties went into serious discussions relating to the implementation of the Dispatch-1 system and the difficulties or supposed difficulties faced in the process. The parties, in my judgment, have gone too far down the contractual road for anyone to suggest realistically now that no contract has been concluded.

70.More importantly, if, which was indeed the case, the parties themselves did not at the time (as opposed to subsequently at the litigation stage) find that there were uncertainties or material and essential uncertainties relating to their relationship under the project in question, they having been in the best position to judge the matter from their respective expert computer and business user points of view, the Court should be most slow in concluding that nonetheless the contract was too uncertain in relation to its subject matter or other essential aspects to constitute a legally binding and complete contract.

71.As regards the suggestion that there could be no concluded and binding contract without a detailed implementation plan, this was not seriously pursued by Mr. Jat during final submission. In any event, whilst on the evidence everybody knew that a project manager would first have to be appointed by the Defendant before a detailed implementation plan could be worked out by both sides, this is a very different thing from saying that without the detailed implementation plan, there could be no concluded or binding contract between the parties. Indeed in my judgment, the appointment of a project manager and the consequential formation of a project implementation team under him were a milestone step marking a serious and substantial commitment of resources towards the project on the part of the Defendant as well as that of RSC, and it was a step which would not have been taken by the parties unless and until a binding and concluded contract had been made between them.

72.In the present case, although the parties did argue about who should take the lead in preparing the implementation plan, I do not see it as anything more than a question relating to the proper interpretation or construction of RSC's scope of service or responsibility under the contract as embodied in the Order Confirmation between the parties. And apart from this and other minor differences, I really do not see the parties themselves as having had any contemporaneous difficulty or uncertainty relating to the subject matter or scope of the contract between them. I see no reason why I should differ from what the parties perceived to be the position at the time.

73.It would unnecessarily lengthen and burden this judgment if I were to deal with each and every argument raised by Mr. Jat on behalf of his client in seeking to persuade me that the contract in question was too uncertain, or all his other arguments relating to the various alleged aspects of uncertainty regarding the payment terms, the service, the implementation and maintenance, apart from the MSA point. Suffice it to say, I really see nothing in the alleged uncertainties, which, if there is anything in any of them at all, would be matters concerning the proper construction of the contract and the terms used by the parties rather than the question of uncertainty relating to formation of contract. Moreover, many of the so-called uncertainties would be covered once one accepts that in the absence of any further or other agreement between the parties, the draft MSA supplied to the Defendant prior to the signing of the Order Confirmation would govern the intended use of the Dispatch-1 system by the Defendant.

74.As regards maintenance, in my judgment the Order Confirmation contained brief but sufficient details relating to what was to be covered, and after all as I said, one is talking about on the one hand a specialist computer developer/distributor and on the other Xerox, itself a large computer and office equipment supplier. I have no doubt that they knew what they were talking about in relation to maintenance (and for that matter I could add service as well) in the Order Confirmation, and if necessary at all the general standard maintenance terms of Astea could be referred to as a general guide for resolving any perceived uncertainty.

75.As Mr. Kerr argued, brevity does not equate with uncertainty. See Hillas & Co. v Arcos Ltd. (1932) 147 LT 503; Chitty para. 2-129. As Lord Wright said in the well-known case of Hillas at page 514:

"Businessmen often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the court should seek to apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam pereat. That maxim, however, does not mean that the court is to make a contract for the parties, or to go outside the words they have used, except insofar as they are appropriate implications of law."

76.In Trentham Ltd. v Archital Luxfer [1993] 1 Lloyd's Rep. 25, 27, Steyn LJ (as he then was) observed thus:

"The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometimes be relevant in partly executed transactions."

77.In conclusion, I find that by signing the Order Confirmation on 31st December 1996, there was a binding, legally certain and complete contract concluded between the parties for the sale/supply and implementation of the Dispatch-1 system as well as the related Progress modules. I shall at a later stage deal with whether maintenance was included as part of the contract and if yes to what extent.

Contract with who?

78.Again the Plaintiff's case is simple. The Order Confirmation said the subject matter covered by the document was "offered by" RSC, and "accepted by" the Defendant; and therefore quite plainly this represented a contract between the two.

79.On the other hand, the Defendant argued through counsel that RSC only contracted as agent for and on behalf of Astea with which the Defendant had dealt with during the tender and evaluation stage through Price Waterhouse and EDS and had been in discussions and negotiations for several years going back to the early 1990s; and RSC, a virtual unknown (from the angle of the Defendant), only arrived at the scene slightly more than one month before the Order Confirmation comprising the contract in question (as held by me above) was entered into. The Defendant could not possibly have intended to contract with RSC as principal, so it was pressed before me by Mr. Jat, and in those circumstances, RSC could only be taken to have entered into the relevant contract with the Defendant as agent for and on behalf of Astea.

80.Mr. Jat said the Order Confirmation, particularly the signing columns on the last page, was capable of sustaining such an understanding of the true position or relationships between the three parties, and in fact the fact that Astea signed to acknowledge the Order Confirmation was itself some indication that Astea was actually acknowledging that the contract comprised in the Order Confirmation was entered into by RSC as agent on its behalf.

81.Mr. Jat also argued that if Astea was not a party to the contract, the Defendant would be left in a most disadvantageous position because this would mean that all the previous representations made by Astea in relation to the Dispatch-1 system during the tender and evaluation stage as well as during the negotiations would not be of any legal effect, presumably as material pre-contractual representations made by a contracting party - this latter point was however never made very clear on behalf of the Defendant during submission. Mr. Jat also argued that the pre-contractual and post-contractual correspondence between the parties was mostly if not always between the Defendant and Astea (as represented by Alfred Ng in many and particularly the subsequent occasions) rather than RSC. Moreover, it was pointed out to me that the draft MSA sent by Alfred Ng/Steven Ho to the Defendant in January 1997, i.e. after the signing of the Order Confirmation, was one between Astea and the Defendant, to which RSC was not a party, and under which the licence fees were to be paid by the Defendant to RSC, described as a "distributor" under the draft, "as agent" for Astea.

82.In my judgment, the matter must be decided in accordance with the respective intentions of the parties. In this regard, intention is neither wholly subjective nor objective. A person entering into a contract either intends to contract as an agent for someone else or intends to do so as a principal and not as an agent. In this context, one is not talking about the apparent or ostensible extent of authority of an agent. The issue is a much more fundamental and different one, namely, whether that person intends to contract on his own behalf or on behalf of someone else. To that extent it must be a subjective question, a question of fact depending on the evidence. However, there is indeed an objective element here. In my judgment, one is not concerned with the unexpressed intention of the person, but rather his intention as expressed by his words, documents and conduct at the material times, to be viewed, evaluated and inferred by the Court objectively. Particularly, in relation to a corporate person, its intention must be discovered by examining the words, documents and conduct of its responsible officer(s) at the material times. There is no question of any unexpressed intention of a corporate person.

83.Furthermore and quite importantly in some cases, it is possible to have the situation where one party intends (in the above sense) to contract as principal, whereas the other party to the supposed contract intends to contract with that first party acting only as agent for and on behalf of a third person. This is the reverse situation of that of an undisclosed principal where the opposite party thinks that he is dealing with a person as principal when in fact the supposed "principal" is actually acting as agent for an undisclosed principal. In the situation postulated by me, in my judgment, if the identity of the contracting party is material or important, then one could end up with a case of unilateral or mutual mistake, in which event the legal result could be that there is no contract concluded between the parties as their minds do not meet. And in such a case, it would not be right to adopt a simplistic approach by saying that there is, "objectively speaking", a contract between the first two parties, or for that matter, a contract between the first party as agent for and on behalf of the third person on the one part and the second party on the other. C.f. Chitty paras. 5-045 to 5-048; Hardman v Booth (1863) 1 H & C 803, which, however, do not really deal directly with the situation of an agent or supposed agent. (That said, it is of course possible to have a situation of apparent agency based on estoppel and holding out, so that a person cannot deny or is estopped from denying that he is the principal under a contract and another person who has entered into the contract was merely acting as his agent in so doing, as a result of representation he (and/or his "agent" on his behalf) has made to the opposite party about the apparent agency. In that situation, the apparent agent would also be estopped from asserting against the opposite party that he was not acting as an agent but a principal in entering into the contract. See generally Bowstead & Reynolds on Agency (16th ed.) paras. 2-097 to 2-099. But in the present case, the Defendant did not plead such a case and no argument along those lines was run at trial; nor do I think, I should add, any such argument could succeed on the facts of the present case.)

84.Bearing all this in mind, I shall now examine the intention of the parties. The first document one must look at is the Order Confirmation. Quite plainly to me, according to the Order Confirmation, RSC contracted as principal and not as agent. It did not say that RSC contracted as agent, rather it said that the subject matter of the Order Confirmation was "offered" by RSC. Given the commercial people involved in negotiating and signing the document one is talking about in the present case, I am quite sure that if they intended or either party intended that RSC only acted as agent for and on behalf of Astea, simple words to that effect could (and would) be added into the Order Confirmation with no difficulty whatsoever.

85.No doubt the Order Confirmation was signed and acknowledged by Astea, but an acknowledgement is very different from a claim that one is the real principal. In fact, if Astea was intended to be the principal, and given that Astea was signing the Order Confirmation, there would have been no need for RSC to sign the Order Confirmation as agent for Astea at all. In my judgment, given that RSC was the distributor of Astea, it made good sense for RSC to require Astea to countersign the Order Confirmation, particularly when the distributorship was only slightly more than one-month old, so as to assure the customer that the order covered by the Order Confirmation was fully endorsed by, the prices set out thereunder were perfectly acceptable to, and the service contracted for under the Order Confirmation would be fully backed up by, the ultimate developer and supplier of the software in question.

86.Although the distributorship agreement between RSC and Astea was not put in evidence, I do have the evidence of Alfred Ng relating to RSC's intention and arrangement with Astea to enter into the Order Confirmation as principal, and I also have some subsequent letters from Astea suggesting the same (although I note that they were written after the present litigation and this argument had arisen). More importantly, I do have by way of contemporaneous documentary evidence the purchase order placed by RSC with Astea immediately following the signing of the Order Confirmation for the purchase, obviously for resale purpose to the Defendant, of the relevant Dispatch-1 software. The fact that RSC took out the present action in its own name (before any issue as to identity of the contracting party was raised) is another piece of evidence of the relevant intention on the part of RSC.

87.As regards the correspondence written both before and after the signing of the Order Confirmation by Alfred Ng as country manager for Astea, I think the correspondence can only be fairly read in conjunction with the much more crucial documents in question. It must be noted that when it came to the crucial or important documents, like the Order Confirmation itself, the invoice for the 50% payment sent to the Defendant immediately after the signing of the Order Confirmation, the letter of 13th February 1997 drafted by Steven Ho for the Defendant's signature, the correspondence from RSC and its lawyers following the purported cancellation of the Order Confirmation by the Defendant, and as mentioned above the Writ in the present case, the name of RSC was always used as the contracting or relevant party in question. The correspondence written by Alfred Ng as country manager of Astea only demonstrated that the Dispatch-1 project was one requiring the full involvement of not only RSC but Astea as well, and it was not surprising at all from a commercial and practical point of view for Alfred Ng to use RSC and Astea interchangeably in the correspondence relating to the implementation of the project. Taking a collective view of the evidence available to me, I have come to the firm conclusion that the intention of RSC as expressed in words, documents and conduct, was to contract as principal rather than as agent for Astea.

88.It is plain from Alfred Ng's fax dated 13th November 1996 to Pamela Chen that Astea told the Defendant in no uncertain terms that a distributor would be shortly appointed. I have no doubt that when the parties met subsequently that month the topic of the appointment of a distributor was raised, discussed and explained to Pamela Chen. This would only have been natural, as the subject had already been mentioned in the fax of 13th November. There was no reason for Astea or Alfred Ng to hide this fact from the Defendant, and quite clearly they did not. Allan Ho accepted in evidence that he was aware of the appointment of distributor in late November 1996. In this regard, I accept the account given by Alfred Ng of the November meeting. For that matter, I also accept his account that in the 31st December meeting the fact that the offer was made by RSC to the Defendant was mentioned to Pamela Chen, although perhaps it may not have been emphasized as heavily as Alfred Ng suggested in Court that it was. That all this may not have registered in the mind of Pamela Chen is not, in my judgment, surprising, as I shall try to explain in the following paragraphs. But what is important is not whether Pamela Chen paid any attention to this information at the time subjectively, what is of importance is that this fact of the appointment of a local distributor was, in my judgment, sufficiently communicated by Astea and RSC to the Defendant.

89.Further and in any event, even Pamela Chen accepted that by mid or late December prior to the signing of the Order Confirmation, she was already aware of the fact that Astea had appointed RSC to be its local distributor. She said she thought that a distributor was simply an agent. I find this rather surprising, bearing in mind the very experienced commercial and business background of Pamela Chen. Whilst a distributor may act as an agent only of a foreign seller/manufacturer in some cases, it may certainly act as a principal in the supply of goods originating from the foreign seller in many other cases. Indeed as pointed out by the learned editors of Bowstead & Reynolds para. 1-029,

"Although it is possible that [a distributor] is an agent in the common law sense, it is nowadays much more likely that he actually buys from the manufacturer and resells to his own customer ... such a person or concern may have limited agency functions such as those of guarantee referred to, or as to transmission of complaints and rectification of faults. But in general the relationship is an adverse commercial relationship quite different from agency ..."

90.In my judgment, this does not only represent the modern trend of the law, but also the general commercial understanding of distributorships nowadays, whilst everything must at the end of the day depend on the actual distributorship arrangement between the foreign manufacturer and the distributor, as well as the contractual arrangement between the distributor and the customer.

91.Turning to the signing of the Order Confirmation by Pamela Chen, I do not accept her evidence in this regard that she paid no attention to the signing columns in the Order Confirmation or, for that matter, the signing columns in the immediately preceding draft Order Confirmation in which RSC was also named as the offeror. Her evidence that RSC was a virtual unknown and she really relied on the expertise of Astea to provide the service for the implementation of the software system, and the related argument that unless Astea was a contracting party the Defendant could not make use of the pre-contractual representations made by Astea during the tender, evaluation and negotiation stages, must be viewed, in my judgment, not in a vacuum, but against the reality of the situation. The reality was that this was a big project. Xerox was (and of course still is) a big company. Inasmuch as the new computer system was important to Xerox and its business development for many years to come, the order in question was important to RSC as a newly appointed and yet-to-be established sole distributor of Astea in Hong Kong, as well as to Astea which must have had an eye to an even wider market opportunity not only in Hong Kong but in the Mainland (as the system was going to be used by the Defendant in the Mainland as well) and other overseas Xerox companies looking for a new computer system to take them into the 21st century, and the Defendant knew this.

92.Indeed, during the negotiation stage, Pamela Chen made full use of this fact in seeking to reduce the price for the system as much as possible, pointing out in one of her faxes to her counterpart that the project would be a "showpiece" for Astea in Hong Kong and elsewhere. In my judgment, it was against such background that neither Pamela Chen nor anyone else in the Defendant really cared whether the Order Confirmation or the contract embodied in it was with RSC or Astea; they knew full well that regardless of the skill, experience, competence or resources of RSC itself, both Astea and RSC would for their own benefit and interest do their utmost to ensure the success of the project.

93.That, in my judgment, really explained why Pamela Chen allowed herself to sign the Order Confirmation in the form that it was in, and why after the Order Confirmation was signed and circulated amongst other senior people within the Defendant nobody raised any query relating to the contracting party notwithstanding that the name of RSC was there in the Order Confirmation for everyone to see. That also explained why this contracting party identity issue was never raised by anybody within the Defendant as a possible ground or excuse for cancelling the Order Confirmation even during the subsequent stage when quite obviously the Defendant as (rightly or wrongly) advised by the Bilellas considered that the project was no good and it should be cancelled even with substantial exposure in terms of liability towards the other side. Rather, in his letter dated 9th April 1997 written to RSC proposing a rather radical change to what had been agreed under the Order Confirmation on the ground that what had been agreed was unworkable, Louis Bilella who was then empowered by the Defendant to be solely in charge of dealing with Astea/RSC (and therefore must be taken to have been fully briefed by the Defendant relating to the background of the project prior to his arrival), referred to RSC as the " prime contractor" of the project under what had been previously agreed which he then regarded as unworkable. And as mentioned above, it is important to note that the cancellation letter written by Louis Bilella on behalf of the Defendant was addressed to, and only to, RSC, but not Astea or RSC and Astea. In fact, throughout Louis Bilella dealt with RSC, not Astea, and neither he nor anyone else in the Defendant wrote or contacted Astea in relation to the perceived difficulties facing the implementation of the project or unilateral cancellation of the same by the Defendant. As also mentioned above, the allegation that Astea, instead of RSC, was the contracting party did not surface until August 1997 after the commencement of proceedings in the present action by RSC.

94.In my judgment, taken as a whole, the corporate intention of the Defendant, as expressed by the words, documents and conduct of its responsible officers contemporaneously, was that the Defendant intended to contract with RSC as principal, or alternatively, that the identity of its contracting counterpart was not material so long as it was either Astea or Astea's sole distributor in Hong Kong. In either case, in my judgment, there would be a binding contract between RSC and the Defendant as embodied in the Order Confirmation.

95.As regards the (draft) MSA being one between Astea and the Defendant, I hope that by now, after the discussion above relating to the peculiar nature of a software supply contract, the reader of this judgment would forgive me if I do not explain in any detail why I regard this as a non-starter. There is really nothing strange or objectionable for there to have been on the one hand a supply contract of the software between RSC and the Defendant, and on the other a licence contract represented by the MSA between Astea and the Defendant. As for the payment of licence fees by the Defendant to Astea through the agency of RSC, first I find no substance in the fanciful possibility of the Defendant having to make double payment to both RSC and Astea as suggested by Mr. Jat in submission, for quite obviously commonsense if nothing else would dictate that a payment to either would be good enough for the Defendant; and second, how RSC and Astea were to divide up the spoils, as it were, amongst themselves, after the money had been paid to RSC "as agent" for Astea, would really be an internal matter between Astea and its sole distributor. In no way could this suggest, in the context of the present case, that the Defendant had not entered into a contract with RSC for the supply of the software system and the related service.

96.In conclusion, I find that the Defendant has entered into the relevant contract with RSC, the Plaintiff, as principal. For the sake of completeness, I note that the Defendant has not pleaded by way of an alternative case that this was a case of mistaken identity or unilateral mistake rendering the supposed contract a void one, there was no application to amend the pleading, and therefore the point was not open to the Defendant in any event even if my conclusion on the intentions of the parties were different.

Defendant entitled to withdraw?

97.As indicated in the beginning of this judgment, ever since the arrival of the Bilellas in March 1997, the Defendant had been complaining about the technical difficulties faced in implementing the Dispatch-1 system with the Oracle system. So the Defendant complained about the 16-29 character account code problem, the Y2K issue, the lack of a manual, and the performance degradation resulting from the use of a gateway to solve the interfacing problem between the Progress Dispatch-1 software and the Oracle database. Thus when Louis Bilella wrote to cancel the Order Confirmation, he cited the Dispatch-1 software's (alleged) inability to integrate satisfactorily with the Oracle system as the reason for the cancellation. After litigation arose, this remained the Defendant's pleaded defence. In the witness statements, I found numerous paragraphs and pages dealing with all these technical matters and perceived difficulties in integration. I had one expert report after another telling me what the problems were all about and so forth. And in the course of this 15-day trial, two and a half days of hearing were devoted exclusively to hearing expert evidence on these perceived problems and difficulties (which was heard on a back-to-back basis after the factual evidence), not to mention the opening by counsel as well as evidence by the factual witnesses which also touched on quite extensively the technical matters. However, by the end of the expert evidence given by both sides, it was patently obvious to all that the perceived technical difficulties were not only insurmountable, but were quite ordinary and common and not difficult to solve.

98.The Y2K issue and the absence of a hardcopy manual were quite obviously non-points, and I heard nothing about them anymore in final submission. The 16-29 character account code problem as a purported difficulty justifying cancellation did not fare better. On the evidence this was a common enough problem arising whenever two different computer modules using different account codes (whether of the same number of characters or not) were used together; and it could have been easily and satisfactorily solved by the use of a conversion table which could be written by an ordinary programmer possessing reasonable skills within two to three weeks.

99.As for the apparently dreadful "1000%" performance degradation resulting from the use of a gateway to allow the Dispatch-1 software to access the Oracle database, it was by the end plain that it was nothing more than exaggeration. The most ironical thing of all was the reliance of Louis Bilella and the Defendant on a certain benchmark report prepared by EDS in New Zealand in support of their case here. The report related to the interfacing of Progress modules and Oracle database by the use of a gateway also ordered to be used in the present case under the Order Confirmation. Louis Bilella first used it as proof of the alleged substantial performance degradation, and thus as part of the justification for the Defendant's unilateral termination of the Order Confirmation. This line of argument was then faithfully followed by the Defendant including its factual and expert witnesses in the defence of this action. But nobody from EDS New Zealand was called to give evidence and explain the report and its implications in the present case. Instead the Defendant relied on an expert Mr. Gordon Bennett whose current experience would appear to lie more with general computer consultancy and project management rather than the highly technical subject matter dealt with in the EDS New Zealand report.

100.And more fatally, it soon emerged from the most impressive expert evidence given by Mr. Paul Knopf retained as expert by the Plaintiff that even based on the benchmark results of EDS New Zealand, the performance degradation that would be involved in the present case by the use of the gateway, in terms of minutes and seconds, instead of the more abstract percentages emphasised by the Defendant, would be within the specifications laid down by EDS (Hong Kong) in its request for proposal given to Astea in the present case by more than ten times. So at the end of the day, the EDS New Zealand report not only failed to support the Defendant's case, but on its own figures actually supported the Dispatch-1 system and the use of the intended gateway.

101.Paul Knopf who plainly knew the subject of his evidence inside out also gave a number of other convincing reasons explaining why the benchmark results obtained by EDS New Zealand could not be relied on in the present case to justify the alleged degree/percentage of performance degradation. He further gave unchallenged evidence that from his own experience and the results of benchmark exercises conducted by him and his team personally, performance degradation was generally in the region of 5 to 8%, which was well within the specifications laid down by EDS in the present case, and was indeed the range given by Steven Ho to Louis Bilella back in March 1997.

102.Indeed so impressive and convincing was Paul Knopf's expert evidence in Court relating to all the technical matters involved in the present case that the Defendant's expert, Gordon Bennett, did not find it possible to dispute at all any part of the expert technical evidence given by Paul Knopf when it was his turn to give oral evidence in Court, despite what he had said in his written expert reports in this case suggesting contrary views to the technical matters involved.

103.The upshot of all this is several-folded. First, it is plain that Louis Bilella and the Defendant were not entitled to rely on the perceived technical difficulties as justification for refusing to implement the Dispatch-1 software pursuant to the Order Confirmation. I do not propose to speculate unnecessarily why Louis Bilella thought that he was facing almost insurmountable technical difficulties at the material time, particularly when neither he nor his wife, for whatever reason that was not fully revealed to me, did not give evidence at trial, and had no chance to explain further his mental process at the time or defend his decision to cancel.

104.All I wish to note is the following chronology of events involving the Bilellas leading to this litigation. In November 1996 before the Order Confirmation was signed, Louis Bilella was involved in "selling" his European XES solution to the Defendant in Hong Kong which turned out to be unsuccessful; the Defendant then decided to follow the advice of EDS based on several years of evaluation, chose Dispatch-1 and signed the Order Confirmation; Louis Bilella and his wife were then entrusted by the Defendant with the task of implementing the Dispatch-1 software so ordered; within two months of their arrival they managed to identify so many perceived problems with the implementation of the software that they came to the firm conclusion that the whole deal had to be cancelled notwithstanding substantial exposure in terms of legal liability towards RSC; and they successfully persuaded the Defendant's management to agree with their view. That was done notwithstanding that even up to mid April 1997, EDS was firmly standing behind its previous decision in recommending the Dispatch-1 solution to the Defendant. That was also done notwithstanding the absence of any direct contact or direct and serious request for help to overcome the perceived difficulties with or to either EDS which had done years of evaluation of the Dispatch-1 software or Astea Australia which of course was the developer of the software, something which experts on both sides agreed ought very naturally to have been done by a project manager tasked with the implementation, and not the frustration, of a software project. And to complete the story, after the abrupt abandonment of the Dispatch-1 project, the Bilellas implemented for the Defendant's use their European XES solution (as modified to suit local circumstances). Even Gordon Bennett, the Defendant's own expert, when he was giving oral evidence in Court, was unable to agree with Louis Bilella's decision to abruptly cancel the project, as opposed to temporarily suspending it and doing more to find out whether the project would work or not. And finally, the Bilellas did not give evidence at trial to help the Defendant defend its case or defend their own decision to cancel.

105.To say that I am totally at ease with this rather extraordinary chronology of events would be less than frank on my part, particularly after hearing Paul Knopf's evidence that the perceived difficulties relating to the 16-29 character problem and the gateway-related performance degradation were nothing but exaggeration, and also bearing in mind the Bilellas' obvious experience in the computer field. But as I say, I do not wish to say anything against the Bilellas unless it is strictly necessary for me to do so.

106.Second, Mr. Jat, faced with this state of evidence, again very wisely but perhaps also inevitably, duly abandoned any defence based on technical impossibility or difficulties in implementing the Dispatch-1 system. In final submission, almost nothing further was said about the 16-29 character problem or the performance degradation problem. Instead Mr. Jat shifted his focus and sought to say that while technically the project could be implemented without difficulty (thus accepting what RSC had been saying throughout), Steven Ho and his local team simply lacked the expertise necessary to carry out the implementation.

107.Mr. Kerr was totally right when he objected during the course of Mr. Jat's final submission that this was a total departure from the Defendant's pleaded case. The Defendant's pleaded case was simply that technically the Dispatch-1 system could not be implemented satisfactorily with the existing Oracle system used by the Defendant, and that justified the Defendant's withdrawal from the project notwithstanding the signing of the Order Confirmation. No doubt after careful consideration of his client's position, Mr. Jat decided not to apply for any amendment to the Defendant's pleading. The immediate result of this is that it is not open to the Defendant to run this argument based on an attack on the individual skill, competence and experience of RSC's local team headed by Steven Ho. And the overall result of this is that the Defendant is left with no defence to its unilateral withdrawal from the project after the signing of the Order Confirmation, it having been conceded, contrary to its pleading, that it was technically feasible to implement satisfactorily the Dispatch-1 system with the Oracle system used by the Defendant.

108.It thus becomes quite unnecessary for me to go any further into this attack relating to the competence of Steven Ho and his team. All I wish to say, in all fairness to these individuals, is this: Having heard days of evidence in Court and having had the opportunity of perusing 10 box files of trial documents placed before me, and particularly having had the benefit of hearing the expert evidence of Paul Knopf (which I accept totally) as well as the expert evidence of Gordon Bennett, I can see no real justification on the evidence for the criticism levelled at these individuals. I agree with Mr. Kerr that those who criticised their competence were either themselves not technically qualified to do so or did not appear in Court, and the one who was most qualified to comment on the matter, i.e. Paul Knopf, said these individuals were competent and responsible. As for Gordon Bennett, I do not understand his evidence, particularly his oral evidence which differed in many aspects from what he had said in his written reports, as going so far as to suggest that Steven Ho and his team were totally incompetent and unqualified to undertake the implementation process, particularly when quite obviously if they really faced any genuine problems, they would have the full backup of the expertise available in Astea Australia.

109.And in any event, I do not accept any such suggestion or criticism from Gordon Bennett or anyone else from the Defendant, based on the evidence before me.

110.In the circumstances, the Defendant fails to justify its unilateral withdrawal from the Order Confirmation comprising a binding contract between the Defendant and RSC. In other words, I find that the Defendant was in wrongful repudiation of the contract with RSC in relation to the supply and implementation of the Dispatch-1 software and the related modules. The Plaintiff therefore succeeds on liability.

Quantum

(a) Licence fees

111.The Plaintiff claims the balance of the licence fees of the Dispatch-1 software and related Progress modules ordered under the Order Confirmation by way of damages. Its case is simply that it should be restored to the same position as if there was no breach of contract. Had there been no breach of contract, RSC would have acquired the Dispatch-1 software and Progress modules from Astea and Progress at licence fees charged by them and supplied the same to the Defendant at licence fees stipulated in the Order Confirmation. A profit would have been thus earned. RSC did as a matter of fact ordered the Dispatch-1 software and Progress modules from Astea and Progress at licence fees charged by them immediately after the signing of the Order Confirmation on the same day. The Plaintiff has therefore incurred a liability towards Astea and Progress respectively in respect of the software and modules so ordered, and although only partial payments have been made, there still remains a liability enforceable by law against RSC, which is represented by the unpaid purchase prices of the software and modules. Had the contract not been breached, the Plaintiff would have received the total licence fees from the Defendant out of which the licence fees due to Astea and Progress would have been fully paid and a profit made. The Plaintiff thus claims damages representing the total licence fees payable under the Order Confirmation (less that which has already been paid), out of which the outstanding liability for the unpaid licence fees due to Astea and Progress will be discharged.

112.The Defendant sought to argue that from the lack of action by Astea and Progress to recover the unpaid licence fees from RSC, one could infer that they must have abandoned their claim to the licence fees, and therefore damages payable by the Defendant should be reduced accordingly. I do not agree with this argument. Although nothing much was done by either Astea or Progress in the past four years to recover the unpaid balances from RSC, the unchallenged evidence from Alfred Ng was that these people were awaiting the outcome of the present litigation. Mr. Kerr had an unanswerable point when he asked rhetorically during final submission what would happen to RSC if either Astea or Progress were to sue RSC tomorrow for payment of the outstanding balance. There really was nothing in evidence before me to suggest, let alone to enable me to conclude as a fact, that Progress and/or Astea had abandoned their claim to the outstanding purchase prices (or damages for breach of contract which would really be equivalent to the outstanding licence fees in their case as owner/developer/distributor of the respective software products.) In those circumstances, RSC still has an accrued and outstanding liability to pay the unpaid balances, and the matter is not yet time-barred.

113.There is not much point in my making a declaration that the Plaintiff be indemnified by the Defendant against any claim by Astea or Progress for the balance of the licence fees. I see no advantage in doing so.

114.Rather, in my judgment, damages to the Plaintiff in relation to the licence fees should be measured by the amount of licence fees (or damages) outstanding and payable for the Dispatch-1 software and the related Progress modules covered by the Order Confirmation, on the basis that the Plaintiff will in turn have to pay the outstanding balance licence fees in respect of the same to Astea and Progress. In this regard, whilst it is strictly speaking not necessary for the Plaintiff to do so, Mr. Kerr has on behalf of the Plaintiff offered an undertaking to this Court to pay the outstanding balance licence fees to Astea and Progress within 14 days of receipt of the relevant part of damages from the Defendant, failing which the same amount(s) equivalent to the outstanding balance licence fees will be immediately repaid to the Defendant. This is a rather atypical undertaking, but I think it does offer some comfort or assurance to this Court, if not the Defendant, regarding the future whereabouts of the relevant part of damages.

115.In short, upon the undertaking given by the Plaintiff through counsel as aforesaid, I give judgment to the Plaintiff against the Defendant for damages measured by the outstanding licence fees under the Order Confirmation in the sum of US$380,156.03 (i.e. US$543,080 - HK$1,270,807 (converted to US$162,923.97 @ US$1 = HK$7.80)).

(b) Service charges relating to implementation

116.The Plaintiff also claims damages for the lost service charges at the rate of US$800 per man-day that it would have earned from the provision of services to the Defendant in the implementation of the Dispatch-1 project. It should be remembered that according to the Order Confirmation, the service charges were capped to a maximum of 364 man-days for the phase 1 implementation and a maximum of 164 man-days for the phase 2 implementation, totalling US$422,400.

117.Mr. Kerr sought to argue that not only was this a ceiling, it also represented a minimum service charge agreed by the parties. This was because discounts had been given in the calculation of licence fees for several modules under phase 1 and phase 2 implementation in the Order Confirmation on the basis that minimum service charges represented by the capped figures set out in the Order Confirmation would be attained in the implementation process, and by accepting the discounts, the Defendant had agreed to pay these minimum service charges. Mr. Jat disagreed and argued that the discounts were provisionally given to the Defendant in the Order Confirmation on the assumption that the minimum service charges would be attained eventually, but if not the discounts would be repaid by the Defendant to the Plaintiff in the final account.

118.It is unnecessary for me to decide this dispute, although I am inclined to accept Mr. Jat's argument. This is because in my judgment on the evidence before me, more likely than not, and in fact I should say far more likely than not, had the project gone ahead, the estimated man-days would have been exceeded in any event. Gordon Bennett, who obviously had quite some experience in implementation of projects and project management, said rather vividly that in project implementation, on a good day, you would end up with an over-budget and overtime situation. Paul Knopf said in evidence that he would automatically add 50% to the time and man-day estimates set out in the Order Confirmation as a matter of caution and good practice.

119.This really brings me to a more fundamental question to the Plaintiff's claim for loss of the service charges. It should be remembered that the Plaintiff is claiming damages for the lost service charges here. One must take into account the cost to the Plaintiff in order to earn those service charges (that could be saved as a result of the Defendant's breach of contract), and that would include the Plaintiff's cost in providing those services whether by its local team or experts flown in from Australia over the whole period of implementation which could well exceed fifteen months, and the cost of writing the conversion table (about HK$100,000) which according to Paul Knopf was covered by "implementation" included as part of the service under the Order Confirmation.

120.Moreover, the Plaintiff must give credit for the profit that it earned during the estimated fifteen months after the unilateral cancellation of the Dispatch-1 project, during which some staff members earmarked for the failed Dispatch-1 project left. According to Alfred Ng's own evidence, had the Dispatch-1 project not been cancelled, his team would have been totally absorbed into the project and the Plaintiff would not have entered into these other projects bringing in alternative income and profit during those fifteen months, and there would not have been any need to undertake these other projects during those months. He estimated that RSC earned, on a fair reading of Alfred Ng's evidence in this regard, revenue or income (as opposed to profit as Mr. Jat sought to argue) in the region of $1.2 to 1.3 million in total during those fifteen months from the alternative projects. I do not know how much in terms of net profit was derived by the Plaintiff from these other projects, but it would only be the net profit (and not gross intake) that should be deducted from the Plaintiff's claim for damages representing loss of profit from the provision of implementation service in the present context.

121.There is virtually no evidence, documentary or otherwise, like financial statements, management accounts and so forth, from the Plaintiff to indicate what its level of profit from the implementation services to be provided under the Order Confirmation would likely be, or for that matter, what its level of profit in relation to the alternative projects during the 15-month period was. In those circumstances, Mr. Jat must have a point when he submitted that a 10 to 15% profit margin would be a normal one in the absence of evidence to the contrary, based on common experience. And of course I must bear in mind the risk of the project over-running and exceeding budget.

122.On the other hand, there was a great disparity in the rates charged by the overseas computer consultants and RSC's own in-house consultants respectively. Moreover, there was the cost of bringing in the overseas consultants to render the implementation service to consider. If Steven Ho's plan of using primarily local people to undertake the implementation work with necessary input from Australia Astea only on an as-needed basis should have turned out to be successful as hoped, the profit margin of RSC in the implementation process would be very substantial. On the evidence, I am not prepared to say that this hope did not have a real chance of success. Paul Knopf gave the RSC's local team a good mark, and after all they were Astea-trained people. If they faced any problem, the Australian consultants would only be a telephone away. The need to actually fly them in might not have been great. There was also some suggestion that Astea Australia would have been prepared to send these experts to Hong Kong for free.

123.No doubt, the Plaintiff bears the burden of proof. On balance, I am satisfied by the evidence as a whole that more likely than not, had the Defendant not breached the contract, the Plaintiff would have been able to earn substantial profits from the implementation process.

124.Given the amount and quality of evidence before me, and the very speculative nature of the assessment of this item of damages, it would be naive to pretend that the assessment can be done in any exact or scientific manner. Doing the best I can, and looking at the matter in the round, I award the Plaintiff damages representing its net loss of profit to be derived from the provision of service for the implementation of the Dispatch-1 project under the Order Confirmation in the sum of US$50,000, credit having been given to the alternative income of HK$1.2 to 1.3 million (or more precisely the estimated net profit derived therefrom) earned by the Plaintiff during the 15-month period.

(c) Annual maintenance

125.The Plaintiff claims damages representing the lost maintenance fees in the provision of annual maintenance service to the Dispatch-1 system after its successful implementation. I agree that on the evidence before me, most likely the Defendant would have engaged the Plaintiff to provide maintenance service for the whole of the effective working life of the Dispatch-1 system or at least a substantial portion thereof as a responsible computer system user. Mr. Kerr went further and argued that in fact under the Order Confirmation, the Defendant had contracted with the Plaintiff for the provision of the maintenance service. Therefore it was not a question of choice but obligation.

126.The significance of this submission is that if Mr. Kerr was right, then the only task of this Court in assessment would be to find out the estimated loss of profit to be derived from the provision of such maintenance service contracted for. On the other hand, if Mr. Jat who took the opposite position was right, i.e. that the Defendant never contracted for maintenance service under the Order Confirmation, then it was not obliged to obtain the maintenance service from the Plaintiff or indeed from anyone else, and no damages would be payable because damages are not assessed on the basis of what a defendant may have likely or reasonably done had he not breached the contract, but what the defendant has actually bound himself to do under the contract: See Chitty para. 27-001.

127.In my judgment, on a proper construction of the Order Confirmation, the Defendant had contracted for annual maintenance of the Dispatch-1 system after implementation and the related Progress modules after installation. This can be easily seen in relation to the Progress modules, the first year maintenance charge for which was specifically said to be payable together with the balance 50% licence fees for the Progress modules at the end of the phase 1 installation. As for the Dispatch-1 modules, quite obviously the annual maintenance fees would only be payable after implementation and expiry of the 90-day free warranty period. Therefore it is not surprising that the payment of the annual maintenance of the Dispatch-1 software was not specifically mentioned in the payment terms set out in Note 7 of the Order Confirmation, unlike the case of the Progress modules. On balance, I am of the view that on the true construction of the Order Confirmation, the annual maintenance for both the Dispatch-1 system and the Progress modules was contracted for by the Defendant. (I have already indicated above in relation to liability that the scope of annual maintenance was sufficiently set out in the Order Confirmation although the description of the service covered was very brief. Most likely, the parties contemplated the signing of detailed maintenance agreements later, at least in relation to the Dispatch-1 system, but in my judgment this would not prevent the conclusion of a binding contract for annual maintenance in the meantime pending the signing of the detailed maintenance agreements.)

128.But in my judgment, there also lies the limitation to the Plaintiff's claim for damages in this regard. What had been contracted for under the Order Confirmation was annual maintenance; in other words, in my judgment and on the proper construction of the Order Confirmation, an agreement for maintenance service that was renewable annually, and the maintenance fees agreed in the Order Confirmation, totalling US$85,457 per annum subject to adjustment, were also expressed on a per annum basis. In other words, the Defendant had only bound itself to obtaining maintenance service from the Plaintiff for one year, and there was no obligation to renew it for any further period of time no matter how reasonable or desirable it might be to do so. Damages can only be measured on that basis. Put another way, the Plaintiff may only claim damages representing loss of estimated profit to be derived from the provision of maintenance service to the Defendant in respect of the software and modules for one year.

129.If I were wrong with my above construction of the Order Confirmation, and the Defendant had actually contracted for maintenance service for an indefinite period of time, I would still be of the view that in such a situation this would not be a contract for maintenance on a perpetual basis, but a contract determinable by the giving of a reasonable period of notice by either side, in accordance with general principles of contract law. Mr. Kerr submitted that in such a case the reasonable period of notice would be one year. I agree.

130.Therefore one way or another, in my judgment, the Plaintiff's claim for damages under the present heading would be limited to one year. Again one is talking about the net profit lost by the Plaintiff as a result of the Defendant's wrongful repudiation of the Order Confirmation. Similar though not identical considerations apply here as they applied in relation to the claim for the lost service charges for implementation discussed in the preceding section.

131.Again the evidence here relating to the cost to the Plaintiff in providing the maintenance service and the business opportunity open to the Plaintiff because the provision was no longer required by reason of the Defendant's breach of contract, and so forth, is equally scanty. Unlike the service for implementation, the risk of unexpected expenditure in the case of maintenance should be lower and the profit margin of the Plaintiff in the normal course of events higher. Further the presence or absence of maintenance work should not substantially affect the Plaintiff's ability to undertake other business and projects, unlike the case of service for full implementation of the Dispatch-1 system.

132.Doing the best I can, I would award damages in the sum of US$40,000.

Outcome

133.I therefore give judgment to the Plaintiff against the Defendant for damages in the total sum of US$470,156.03, upon the undertaking given by the Plaintiff through counsel mentioned above relating to the licence fees claim.

134.I also award interest at the rate of 2% per annum over the prime rate prevailing from time to time on the sum of US$380,156.03 (representing the licence fees claim) and the sum of US$50,000 (representing the implementation service charge claim) both from, taking a sort of median date, 1st January 1998, and on the sum of US$40,000 (representing the annual maintenance claim) from, again choosing an average or median starting date, 1st July 1998, to the date this judgment is handed down, and thereafter at the judgment rate until full payment.

135.It follows from the above that the Defendant's counterclaim, which was again very sensibly restricted by Mr. Jat during final submission to the return of the 30% payment made only, must fail. I dismiss the counterclaim in its entirety.

136.I also make an order nisi that the Defendant pay to the Plaintiff the costs of the action as well as the counterclaim, to be taxed if not agreed. This order nisi as to costs will become an absolute order upon the expiry of 14 days from the date this judgment is handed down unless either party applies to vary it within that period of time.

137.Lastly, I would like to thank counsel for their very helpful and sensible assistance in this case. Much of what was said in this judgment owed its origin to Mr. Kerr's submission which was full of common sense; and as for Mr. Jat, he has in his usual ability said everything that could be said on behalf of his client in this case with clarity and skill.

Representation:

Mr. John Kerr instructed by Messrs. Lee & Chow, for the Plaintiff.

Mr. Jat Sew Tong instructed by Messrs. Lovells, for the Defendant.

Defendant's application to vary the order as to costs granted. Please refer to HCA6454/1997 dated 19 April 2002