Ibm World Trade Corporation v. Andrew Jean
Read the full judgment text of CACV 25/1973 on BabelCite. This Court of Appeal judgment.
1. The plaintiff corporation installed a Data Processing Machine in the office of the defendant pursuant to a written rental agreement entered into between the parties on the 18th of December 1970. The machine appears to be a computer of sorts and was used by the defendant in connection with his business as an architect and structural engineer. It was installed upon a rental basis, the customer being charged at a fixed rate per hour for every hour during which the machine was used in the course
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IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 25 OF 1973 (ON APPEAL FROM O.J. 312/73) -----------------
----------------- Coram: Full Court (McMullin & Pickering, JJ.) Date of Judgment: 4th December, 1973. ----------------- JUDGMENT ----------------- McMullin, J.: 1. The plaintiff corporation installed a Data Processing Machine in the office of the defendant pursuant to a written rental agreement entered into between the parties on the 18th of December 1970. The machine appears to be a computer of sorts and was used by the defendant in connection with his business as an architect and structural engineer. It was installed upon a rental basis, the customer being charged at a fixed rate per hour for every hour during which the machine was used in the course of each calendar month. It was stated in the contract that the agreement would be effective from the date it was accepted and should remain in force for one year from the date the machine was installed and ready for use and further that the agreement might be terminated by either party thereafter on giving three months' notice in writing. Underneath the printed terms of the contract, which was the plaintiff's standard form of contract, two type-written clauses were subjoined prior to the signing of the agreement which are in the following terms:
The penultimate clause in the printed Conditions of Contract contains the provision which is at the root of the present dispute. It is there provided that:
2. The defendant used the machine from the date of its installation in December 1970 throughout 1971 until 9th December 1971 upon which date the defendant sent to the plaintiff corporation a letter in the following terms:
Notwithstanding Mr. Ching's criticism of the wording of this letter we are satisfied that the defendant intended to notify the plaintiff corporation that the contract between them was thereupon at an end. The reason for this purported termination of the agreement was that, although throughout that period the plaintiff corporation had, upon request by the defendant, supplied certain programme material for use with the machine, one such programme entitled "Sort/Merge Sub-routine for IBM 1130 Disk" although ordered upon 24th September 1971 had not been delivered by the date of the letter of termination. This programme was, in fact, delivered upon a subsequent date in December of that year. By then, however, the plaintiff corporation, by a letter dated December 14 had accepted the termination of the agreement but said that it would be effective from the end of March 1972 in accordance with the terms of agreement providing for three months notice. The letter concluded with a notification that the plaintiff corporation would arrange for the removal of the machine at a later date. 3. It would appear that the matter thereafter hung fire to some extent for although there was a claim by letter by the plaintiff on 10th December demanding payment of one month's arrears of rental together with a smaller sum for goods supplied and although these sums (all but a disputed HK$120) were paid upon 16th December no further rentals were paid nor further goods supplied nor was the machine removed for several months thereafter. When the machine was actually removed does not appear upon the evidence but this stalemate ended in a sudden burst of activity upon the part of both parties on 7th April 1972 on which date, by what would appear to be pure coincidence, letters crossed in the post one, from the plaintiff corporation, demanding the arrears amounting to US$8,918 together with a sum of HK$115 apparently in connection with goods delivered; and one, from the solicitors for the defendant, reciting the cancellation of the agreement and demanding a sum of HK$125,000 by way of reimbursement for loss allegedly sustained as a result of being compelled to instal a new data processing system. This total figure was itemised into four sub-headings relating to: (a) cost of retraining personnel; (b) cost of re-programming and computer charge; (c) cost of option to purchase IBM 1130; and (d) cost of loss of business. It is in this letter apparently that the defendant for the first time explicitly attributes the cancellation of the agreement to an alleged failure on the part of the plaintiff corporation to fulfil its obligations under the contract. That failure was described in the following terms:
The programme referred to in that passage is, of course, the "Sort/Merge Sub-routine for IBM 1130 Disk". 4. Nothing further of moment appears to have happened until the filing of the plaintiff's writ upon 26th February 1973 the endorsement to which repeats the claim made in the letter of 7th April 1972 together with an additional sum of HK$450 in relation to an alleged delivery of goods. To this the defendant entered appearance on 27th February but took no further action until 12th April upon which date Messrs. Deacons, his solicitors, on his behalf took out a summons under 0.73 r.7 applying to the court for an order that all further proceedings in the action be stayed, pursuant to s.6 of the Arbitration Ordinance, Cap. 341 of the Laws of Hong Kong and invoking the arbitration clause in the contract in support thereof. The application was taken before Mr. Registrar Mayo on 25th April 1973 and in a reserved ruling on 10th May he made an order staying the action and from this order the plaintiff corporation appealed to LI, J. in chambers and the appeal was dismissed on 30th June with costs to the defendant. From this decision the plaintiff appealed to this court and at the hearing on 9th November substantially the same arguments which had been advanced before the Registrar and the judge in chambers were pressed upon us by Mr. Ching on behalf of the plaintiff corporation. 5. Broadly speaking Mr. Ching's complaint is that there is no genuine dispute between the parties on the subject matter of the plaintiff corporation's claim and that the attempt to have a stay in order to proceed to arbitration is a mere delaying tactic on the part of the defendant. This, in effect, is the subject matter of his first two grounds of appeal, which are to the effect that the judge in chambers failed to consider, or adequately to consider, that the respondent had not sufficiently identified the alleged dispute and that he had failed to consider, or adequately consider, the question of the bona fides of the respondent. For a start, it does not seem to be right to say that the dispute has not been identified. The substance of the projacted counterclaim of the defendant as set forth in the letter of Messrs. Deacons dated 7th April 1972 was already before the Registrar at the original hearing in the form of an exhibit to the affidavit of Mr. Teele, the General Manager of the plaintiff corporation in Hong Kong. In the affidavit of the defendant dated 30th April, which was before the Registrar, with an earlier affidavit by the defendant, at the hearing in May the defendant's intention to counter-claim upon the basis of the breach of sontract alleged in that letter is specifically stated. At the outset, upon the hearing of this appeal, Mr. Ching conceded that if it could be said that the counterclaim were inextricably bound up with the subject matter of the plaintiff's claim the application for a stay might in any event have been justified. One might have thought that that disposed of the matter in limine since the whole substance of the counterclaim derives from an alleged breach by the plaintiff corporation of the terms of its contract and the consequential loss deriving therefrom. If there be any substance in this allegation it is difficult to see how the claim and the cross-claim can be said not to be inextricably bound up with each other. 6. The true basis of the objection to the defendant's application for a stay, as it seems to me, resides in this question of the bona fides of the defendant's contentions whether they be regarded as an allegation of breach of contract giving rise to a defence to the plaintiff's claim or as the foundation of his counter-claim deriving from consequential loss flowing from the alleged breach. Mr. Ching does not dispute that the judge in chambers had a discretion, which he purported to exercise, whether to grant a stay or not; he concedes that the onus is on him to show that the judge exercised his discretion wrongly; he does not allege that the arbitration clause is not binding upon his client or that it is inoperative as attempting to oust the jurisdiction of the court. He simply says that it cannot be operative in the present case because there is no legitimate matter of dispute to put before the arbitrator. 7. There is no doubt that there are dubious features in the defendant's claim to have the proceedings stayed. Thus in para. 5 of his affidavit of 30th April, sworn in support of his application before the Registrar, the whole reason for demanding a stay is ascribed to the fact that:
That was a reference to the "Disk" which had been ordered in September and not delivered until late December. It would certainly appear to have been the defendant's original contention that the failure to supply the "Disk" was (a), a breach of the contractual relations between him and the plaintiff corporation; and (b), so serious a breach that effective use of the machine was either totally prevented or else so seriously interfered with that he had no alternative but to terminate the contract. Secondly, it is true that the malfunctioning of the machine, which was the second principal reason advanced before the Registrar and before the judge in chambers for terminating the contract, is not raised in any affidavit prior to the commencement of the hearings and was raised only at the very conclusion of the hearing before the Registrar by way of submission on the part of the solicitor for the defendant. 8. Mr. Ching makes two subsidiary points as to the first of these complaints. Firstly, he says that since it was wholly a matter of discretion for the plaintiff to supply such programmes under the terms of the contract the defendant can have no valid claim against the plaintiff even if it were true that the plaintiff had failed to deliver any such programme. Secondly, he says that in any event it is clear that the non-delivery of this particular programme, while it may have diminished the use which the defendant could make of the machine, clearly did not prevent him from using it altogether, a fact which is shown by the record of system usage between February 1971 and January 1972, which was put in evidence as an exhibit to the affidavit of Mr. Teele before the Registrar and later before the judge in chambers. Then, as to the malfunctioning, Mr. Ching asks us to regard this issue as a dishonest afterthought tacked on by way of flimsy makeweight to the defendant's primary contention and he asks us to say that this is shown (a), from the manner in which the argument was put before the Registrar; and (b), because the letter of complaint dated 7th April 1972 clearly raises only the question of the failure to deliver the "Disk". 9. While there is undoubtedly substance to these observations it cannot be said that there is anything in them of so compelling a nature that this court ought to intervene on the basis that the judge in chambers wrongfully exercised the discretion which was in him to stay the action. 10. As to the principal line of objection to the defendant's position, it is true that the obligation upon which the defendant seeks to rely is contained in a clause which makes the supply of the programmes discretionary and that the matter to be adjudicated is primarily a question of the construction of that clause. But there is nothing in the decided cases to which we have been referred by counsel to compel this court to the view that an agreement to arbitrate differences between parties to a contract is rendered inoperative simply because the matter to be decided is partly or even principally a question of law. As Lord Evershed, M.R., said in Phoenix Timber Co., Ltd.'s application, in re 1958 2 W.L.R. 574 at 578:
He was there dealing with section 4 of the English Arbitration Act 1950 which is in identical terms with section 6 of the Arbitration Ordinance. In that case Lord Evershed expressly relied upon the decision in Heyman v. Darwins Ltd.(1) a decision upon which Mr. Mills-Owens relies in the present case. The principal question considered by the court in that case was whether or not an arbitration clause in a contract can remain operative even where there has been a repudiation of the contract by one party and an acceptance of that repudiation by the other. No such point has been taken in the present case and it is enough to say that the judges in Heyman's case were unanimously of the opinion that even in such circumstances the arbitration clause will survive for determining the mode of measuring the claims arising from the breach. The decision is directly in point on what was the subsidiary issue there and what is the central issue in the present case. At page 389 Lord Wright, having referred to a dictum of Lord Parker in Bristol Corporation v. John Aird & Co.(2) to the effect that:
goes on to say:
None of the other cases to which Mr. Ching referred us can be regarded as diminishing the force of that general observation and although in several of them courts of first instance have refused applications to stay proceedings the circumstances have been very special. Thus in Halifax Overseas Freighters Ltd. v. Rasno Export etc.(3) the dispute involved claims by the plaintiff against 3 separate parties one of whom was the charterer of the plaintiff's ship the two others being separate bills of lading holders. There was an arbitration clause in the contract between the plaintiff and the charterer but no such clause in their contracts with the holders of the bills. The Court refused the charterer's application to stay the proceedings pending arbitration on the ground that time and expense would be saved by the whole of the disputes being disposed of in one set of proceedings which must be in court since the bill holders were not bound by any agreement to arbitrate. In Lury v. Pearson(4) the court appears to have refused its rule to stay on the grounds that it was admitted that there was no defence to the plaintiff's claim. The force of the decision is also weakened by the employment by Creswell, J. of a triple negative in the course of a judgment of eight lines the effect of which appears directly to contradict the conclusion arrived at in his penultimate sentence which, if taken on its own and notwithstanding that the court did not oblige the parties to arbitrate, can only be read as meaning that the matters in dispute should be referred to arbitration. In Hyams v. Docker(5) although there was an issue concerning the construction of a contract a stay was granted on that as well as on the more purely factual issues although the judge did indicate that he might have left the construction point for determination by the court had the Statement of Claim in that regard been satisfactorily formulated. 11. Finally, as to the question of bona fides, although the question of the malfunctioning of the machine was to some extent an afterthought, at least, as the matter is displayed upon the affidavits and as it developed in argument before the Registrar, it is nevertheless quite clear that the complaint as to the performance of the machine had been made in the defendant's letter of 25th May 1971 and this letter was exhibited to the affidavit of Mr. Teele which was before the Registrar and later before the judge in chambers. It matters not that Mr. Teele on 2nd June wrote a letter to Mr. Jean giving his opinion on this complaint ascribing the alleged malfunctioning to operator error and that nothing further seems to have been said by the defendant at that time. However the matter was advanced before the Registrar by the defendant's legal advisers, that aspect of the defendant's complaint was available in the material then adduced. It was referred to both before the Registrar and before the judge in chambers and it remains an issue of fact to be resolved. There is certainly no reason to suppose that the bona fides of the defendant in presenting this complaint cannot be satisfactorily dealt with by an arbitrator who will, no doubt, have it brought to his attention that nothing further was said by the defendant following upon his complaint in May 1971 as to mechanical misbehaviour on the part of the machine until the matter was brought before the Registrar. Clearly there is an issue involving matters both of fact and law between the parties. The dispute is as to the present state of indebtedness between them, the plaintiff's case being that he has not been paid rental for the period after the alleged termination of the contract together with some subsidiary claim for delivery of goods; and the defendant's being that he rightfully terminated the contract for breach on the part of the plaintiff and that he should not be charged rental thereafter. He claims further to have a right to damages consequent upon the plaintiff's alleged breach, a claim which if it be substantiated, considerably overtops the plaintiff corporation's claim against him. For these reasons the appeal must be dismissed with costs. Representation: Charles Ching (Wilkinson & Grist) for appellant R. Mills-Owens (Deacons) for respondent (1) 1942 A.C. 356. (2) [1913] A.C. 241. (3) [1958] 2 Lloyds List Reports 146. (4) [1857] 1 Common Bench Reports 639. (5) [1969] I Lloyds List Reports 341. |