IBM WORLD TRADE CORPORATION v. ANDREW JEAN

HCA000312A/1973

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

 

ACTION NO.312 OF 1973

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BETWEEN
	IBM WORLD TRADE CORPORATION	Plaintiff
	and
	ANDREW JEAN	Defendant

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Coram: LI, J. in Chambers

Date of Judgment: 30 June 1973

 

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JUDGMENT

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1. This is an appeal under 0.58 r.l against the Registrar's decision to stay proceedings on the application by the defendant in an action for a sum of money for goods sold and services supplied by the plaintiff. It is to be dealt with by way of an actual rehearing. As such I am in no way bound by the Registrar's decision.

2. On the 18th December 1970 the plaintiff and defendant entered into an agreement (exhibited, marked A and attached to the affidavit of Andrew Jean filed on the 12th April 1973) whereby the plaintiff agreed, inter alia, to supply and service a certain machine in consideration of the rental set out therein (hereinafter referred to as "the agreement"). One of the provisions in the agreement is that:

"All disputes arising in connection with the present agreement shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the Rules".

The machine was then installed in the defendant's premises and was put in use by the defendant.

3. On the 25th May 1971 the defendant wrote to the plaintiff complaining of the malfunction of the machine and claimed compensation in the form of reduced rental as from the 1st March 1971 (see Exh. JAT 7 attached to the affidavit of J.A. Teele filed 2nd May 1973). To this the plaintiff replied by letter dated 2nd June 1973 (Exh. MGM 1 attached to the affidavit of M.G. Morris filed the 16th May 1973). In this letter the plaintiff explained the cause for the malfunction but did not deal with the claim for a reduction in rental. The matter was never raised again by the parties until the hearing before the Registrar.

4. On the 24th September 1971 the defendant by letter requested the plaintiff to supply certain program in accordance with the agreement. However none appeared to have been supplied up to 15th December, 1971. This is evident in the letter dated the 20th January 1972 by the defendant (attached in a bundle marked JAT 7). By that letter (Exh. AJ 2 attached to the affidavit of A. Jean filed the 30th May 1973) the defendant gave notice to terminate the agreement with immediate effect. As a result of this a dispute arose between the parties as to whether the defendant was entitled to terminate the agreement with immediate effect on the 9th December 1971. Letters were exchanged between solicitors for the parties. The plaintiff's solicitor ...(illegible)wrote on the 7th April 1972 claimed for the machine rental in the sum of US$8,918 for the period between November 1971 and March 1972 (Exh. JAT 3). The defendant's solicitor by a letter of even date (Exh. JAT 4) raised a counterclaim. On the 30th January 1973 the plaintiff issued a writ of summons claiming for this sum of US$8,918. The defendant took no further step than entering an appearance and then proceeded to apply on the 12th April 1973 for a stay of the proceedings with the object that the dispute be referred to arbitration in accordance with the agreement. It is against the Registrar's order to grant a stay of the proceedings that the plaintiff appeals.

5. In support of the appeal Mr. Ching for the plaintiff contends that there is no identification of the dispute for arbitration. He further contends that there has never been any question of malfunction of the machine. Apart from the letter dated the 25th May 1971 in Exh. JAT 7 the defendant never raised this question. In any event the defendant paid the rental up to the end of October 1971 without repeating his original demand for a discount as from the 1st March 1971. The plaintiff's present claim is for rental for the period from 1st November 1971 to March 1972. Nor has the defendant filed any affidavit repeating this complaint of malfunction which is purely vexatious and frivolous. As to the defendant's counterclaim, Mr. Ching contends that it is not made in good faith. He refers to Exh. JAT 8 (attached to J.A. Teele's affidavit of the 2nd May 1973) which shows that despite the non delivery of the program the defendant's usage of the machine had not been substantially reduced in the number of hours. The object in raising a counterclaim is merely to delay the proceedings. It is further contended that the defendant's counterclaim depends on interpretation of the rider of the agreement which reads:-

"	IBM, at its discretion, provides to its customer without charge its education, systems engineering activities and programs. At present, IBM is reviewing its customer assistance policy and may revise this policy. Such revision could result in charges to customers for certain types of education, systems engineering activities and programs.
	In the event of such revision, IBM will give the Customer reasonable notice prior to the date such revision is effective as to the Customer. Upon receipt of such notice, the Customer will have the right to cancel this Agreement at any time prior to the effective date of the revision."

This is a point of law and will have to be referred to the Court.

6. Mr. Mills-Owens for the defendant contends that the dispute can easily be identified. It is a dispute as to the state and extent of indebtedness by the defendant to the plaintiff. Unless the counterclaim is adjudicated upon there is no way to decide whether the defendant is indebted, if at all, to the plaintiff. The counterclaim is based on the plaintiff's failure to supply the Disk and the malfunction of the machine. The fact that the defendant's failure to revive claim on the malfunction of the machine during 1971 does not bar the defendant from renewing his claim now. It is not for the judge to as sume the lack of good faith.

7. In proceedings of this nature where the parties have agreed by contract to refer their disputes to arbitration the normal practice is to grant a stay. The burden is on the plaintiff opposing the application to show cause why a stay of proceedings should not be granted. The Registrar or Judge, adjudicating this issue obviously has a discretion which must be judicially exercised. Looking at the evidence disclosed by the affidavits I am of the opinion that there is a dispute arising from the agreement viz. the extent of the defendant's debt to the plaintiff having regard to the defendant's counterclaim. Referring to the defendant's claim on the malfunction of the machine it is true that the defendant did not pursue the matter and that the defendant has filed no affidavit in support of this contention. However, there is material in Exh. JAT 7 to indicate the defendant's claim. There is no proposition of law to suggest that payment of rental in accordance with the agreement with knowledge of the malfunction of the subject matter of hire operates as a bar or waiver. There is nothing to prevent the defendant in relying on his right (if any) when cordial relationship with the plaintiff has broken down. Whether the malfunction in fact caused damage to the defendant is a matter of fact referrable to the arbitrator. In the circumstances I am of the opinion that a delay in pursuing the defendant's claim does not necessarily show lack of good faith. This is the reason for which the Registrar granted an order to stay the proceedings. I do not find any good reason to interfere with his ruling.

8. This is sufficient to dispose of the appeal. But that is not all. The defendant maintains a counterclaim on another ground viz. the non delivery of the Disk or Program. It is true the agreement provides that the plaintiff provides the Disk at its discretion. However, from the evidence it appears that the defendant's order for Disks in September 1971 was completely ignored. There is not even evidence of an acknowledgment until after the defendant gave notice to terminate the agreement in December 1971. This is not a question of delay or even delay for a reasonable time. It is a matter of complete failure to respond to the defendant's order. The defendant maintains that the non delivery deprived him of the opportunity to make full use of the machine. The plaintiff denies this allegation. Whether there is any substance in this complaint is a matter of fact. Whether the defendant could have made more and better use of the machine had the Disk been delivered is another question of fact. Whether the plaintiff, under the circumstances, is entitled to ignore completely the defendant's order is a question of mixed law and facts. There is no insurmountable difficulty in referring such questions to arbitration. These are not questions of pure law so as to render it impractical to refer them to arbitration.

9. Mr. Ching refers me to a passage in the White Book (Vol.1 para. 14/3-4/12A). That is related to application for summary judgment under 0.14. There, a distinction may be made between a set off and a counterclaim when consideration is given to granting leave to defend. This is an application for a stay of proceedings. The counterclaim here is a dispute arising in connection with the agreement.

"If the parties choose to determine for themselves that they will have a domestic forum instead of resorting to the ordinary courts then.......... a prima facie duty is cast upon the courts to act upon such agreement"

- Willesford v. Watson L.R. 8 Ch. 473 at 480.

10. In the present case the defendant has shown that a dispute is within a valid and subsisting arbitration clause. On the balance of probability the plaintiff has not been able to satisfy me why effect should not be given to the agreement to submit the dispute to arbitration. Accordingly the appeal is dismissed with costs.

 

 

	(Simon F.S. Li)
	Puisne Judge.

 

Representation:

Charles Ching (Wilkinson & Grist) for Plaintiff.

R. Mills-Owens (Deacons) for Defendant.

HCA000312/1973

1973 No. 312

 

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

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BETWEEN:	IBM WORLD TRADE CORPORATION	Plaintiff
	and
	ANDREW JEAN	Defendant

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Coram: Mr. Registrar Mayo in Chambers.

Date of Judgment: 10th May 1973.

          Mr. A.D. Yap of Deacons, Solicitor for the Defendant.

          Mr. Charles Ching, instructed by Messrs. Wilkinson & Grist, Solicitors, for the Plaintiff.

 

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DECISION

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1. This is an application by the Defendant under the provisions contained in Section 6 of the Arbitration Ordinance Cap. 341 for a stay of proceedings. The application is supported by an affidavit which has been sworn by the Defendant in which he deposes that the subject matter of the claim contained in the Statement of Claim forms part of a dispute arising out of a contract between himself and the Plaintiff dated the 18th December, 1970 (hereinafter referred to as "the said contract") which contains an Arbitration Clause which reads as follows:-

"All disputes arising in connection with the present Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the Rules."

In a further affidavit sworn on the 30th April 1973, the Defendant gives further particulars of the dispute. In his affidavit the Defendant deposed that the Plaintiff had failed ...(illegible) him with a "SORT/MERGE SUBROUTINE FOR IBM 1130 DISK" (hereinafter referred to as "the DISK").

2. I understood from both parties that the DISK is a programme which assists in processing information and forms part of a system which enables calculations to be computed for the benefit of customers of the Plaintiff but that the DISK is independent of the computer which is leased to customers. Also it could be said that the DISK is an ancillary piece of equipment the effect of which would be to supplement the performance of the computer. In effect its value is as an intellectual commodity. In any event the DISK in question is not referred to in the description of the equipment in the said contract which was leased to the Defendant. Mr. Yap who is representing the Defendant also submitted to me that he was entitled to refer to the affidavits including the exhibits which had been filed by the Plaintiff. In particular he referred to Exhibit JAT 7 which is exhibited to the affidavit or Mr. Teele dated 2nd May 1973 who is the General Manager of the Plaintiff's Hong Kong office. This Exhibit is a letter dated 25th May, 1971 from the Defendant to the Plaintiff which makes reference to the malfunction of the central processing unit of the computer equipment which was leased to the Defendant. Mr. Yap suggested that one reason for the Defendant's delay in effecting payments of rental under the said contract was the fact that the equipment was not functioning efficiently.

3. Counsel for the Plaintiff, Mr. Ching contended that a discretion was vested in me to decide whether or not I should order that there be a stay of proceedings. He also contended that the Defendant's bona fides must be established before I should exercise such a discretion. No authority was cited for either of these propositions. Mr. Ching also contended that before there should be any reference to arbitration it was essential that a dispute should be formulated. He claimed that the Defendant had failed to do this. He also argued that it was necessary for a distinction to be made between questions of Law and questions of fact. The reason he gave for this was that an arbitrator would almost certainly be unable to determine all questions of Law as in all probability he would not have a legal training and his adjudication would be restricted to questions of fact. He suggested that unless the reference was confined to questions of fact, it would be necessary for the Arbitrator to refer the dispute back to the Court for trial which would only result in a waste of time and effort. While I can readily appreciate the logic of this submission I do not think that it is correct in Law. No such distinction is made in the terms of the Arbitration Clause in the said contract, and Section 6 of the Arbitration Ordinance Cap. 341 also does not contain any such provision. However, Mr. Ching's main contention was that in reality the Plaintiff's claim was for arrears of rental which was payable under the said contract and that the Defendant was merely trying to delay matters by applying for a stay of proceedings. He suggested that the Defendant was acting mala fides. He also referred to the fact that it was inconceivable that the Defendant could establish a claim. He referred to the said contract and to the fact that the DISK was not comprised in the equipment described in the said contract and suggested that it was covered by the condition which was endorsed on the said contract. The relevant part of the condition reads as follows:-

"IBM, at its discretion, provides to its customer without charge its education, systems engineering activities and programs. ......"

Mr. Ching emphasized the words "at its discretion". He claimed that it was clear that the Plaintiff was not under any obligation to provide the DISK ...(illegible) accordingly even if there has been a delay in supplying it, this could not be a proper ground for a claim by the Defendant. This argument however does not dispose of the question of the alleged malfunctioning of the equipment. This of itself would be sufficient to justify the dispute being referred to arbitration. Mr. Ching also drew my attention to the evidence which had been filed which showed that the equipment had been extensively used over a considerable period of time. This indicated that the Defendant could not claim that the equipment was useless without the DISK.

4. While I find myself sympathetically disposed towards the arguments which have been most ably advanced by Mr. Ching, I do not think that the ...(illegible) application can be successfully resisted. I do not think that any discretion is vested in me in this matter. I consider that it is necessary for me to have regard to the Law on this subject. The terms of Section 6 of the Arbitration Ordinance do not leave any scope for such a discretion. Also it is necessary for me to have regard to the terms of the Arbitration Clause in the said agreement. It is clear from this Clause that "All disputes arising in connection with the present Agreement" shall be referred to Arbitration. Although the dispute might have been couched in more felicitous terms it is no doubt clear that a dispute has arisen under the said agreement. I realise that inconvenience and delay are likely to be occasioned if this matter is referred to arbitration. It would appear however that this must be an inevitable consequence if Arbitration Clauses are included in agreements and are drafted in wide terms. For the reasons I have given this application must succeed. I will therefore make an order in the terms of the application. Costs shall be to the Defendant in any event.

5. Dated the 10^th day of May 1973.

 

	(S.H. Mayo)
	Assistant Registrar.

 

Representation:

Mr. A.D. Yap of Deacons, Solicitor for the Defendant.

Mr. Charles Ching, instructed by Messrs. Wilkinson & Grist, Solicitors, for the Plaintiff.