England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		27 February 2003

Mr Justice Langley :

1. These proceedings have, I think, progressed in a manner which has plainly changed the perspective of both parties about them, albeit more so in the case of Cable & Wireless ("C&W") than IBM. In a sense the question for me is whether the perspective of the court, as exemplified by the management of the case so far, should also change. That question emerges in the context of an application by C&W for the trial of a preliminary issue.
2. In simple terms there are two main issues arising from C&W's claim. There is also a counterclaim by IBM which raises a discrete further issue. The first issue on the claim relates to the construction of certain provisions of what the parties call the "GFA" and the "LSAs" which is shorthand for a Global Framework Agreement and a number of Local Service Agreements made between them and various related companies for the supply by IBM to C&W of IT services over a period of 12 years. The second issue on the claim relates to the appropriateness or otherwise of the work of a third party shortly described as "Compass" which was engaged by the parties to conduct what is called the Benchmarking Process under Schedule 10 to the GFA. That process can be described as a third party review designed to verify, or not, that IBM's technology, service levels and charges meet what can loosely be described as stated market parameters.
3. The Benchmarking process is one which C&W is entitled to set in motion at any time after the commencement of the agreements and no more frequently than annually during the 12 year term. Compass carried out what was intended to be a Benchmarking Process and reported on it in August and September 2002 in terms which C&W say demonstrated considerable overcharging by IBM.
4. The construction issue turns on the meaning in particular of paragraph 5.3 of Schedule 10 to the GFA. C&W says it is entitled to a retrospective price adjustment over the duration of the GFA as a result of the Compass reports. IBM says compensation is not payable retrospectively but only from a date some time after delivery of the reports.
5. The second issue (the "Compass issue") arises from IBM's contention that the Compass reports were not prepared in accordance with the requirements of Schedule 10 and other agreements and are fundamentally flawed with the consequence that they do not take effect as valid benchmark determinations at all. Logically, of course, the Compass issue comes first because if IBM is right then neither retrospectively nor prospectively is there any adjustment to be made to prices.
6. The Counterclaim by IBM alleges that C&W breached the terms of the GFA by declining to permit IBM to provide certain services. IBM claims for the net amount which it says would have been payable to it had it provided those services.
7. The relevant procedural history is as follows. In July 2002 C&W issued a Part 8 claim form seeking a Declaration as to the meaning of paragraph 5.3 of Schedule 10 to the GFA, and followed that with an application for summary judgment. In early September IBM issued a Part 7 Claim form raising the Compass Issue. C&W's Part 24 application was heard by Colman J on 24 September 2002. IBM made two cross-applications. First, that C&W's claim should proceed as a Part 7 claim, and second for a stay pending reference of the dispute to ADR in accordance with an express clause of the GFA. It was IBM's case on the construction issue that there was certain "matrix evidence" which supported its construction of paragraph 5.3 and that, in the alternative, the paragraph should be rectified or C&W was estopped from relying on C&W's construction as a result of what was said and done during the course of the negotiation of the GFA.
8. Colman J, in a judgment delivered on 11 October 2002, with Neutral Citation No [2002] EWHC 2059, stayed C&W's claim for ADR to take place. It did take place in early December but it failed to resolve the disputes.
9. On 13 December the matter came back before Colman J. C&W was then seeking (as it seeks before me) an Order that the construction issue be heard as a preliminary issue. Colman J rejected that application and ordered the transfer of the claim to the Part 7 procedure and gave directions for the future conduct of the dispute. C&W was to serve an amended Claim Form and Particulars of Claim by 20 December (which was done). IBM was to serve a Defence and Counterclaim by 5 February (which was also done) and a further case management conference was to be held on 14 February, which in the event was adjourned by agreement to today. It was also ordered that a Reply and Defence to Counterclaim be served by 28 February, Disclosure by lists be made on 10 March, Witness Statements be exchanged by 17 April, and the Trial be listed not before 23 June.
10. It is also apparent from Colman J's remarks on the court's Management Record that the estimated length of the trial was then envisaged to be about 10 days and that Colman J, whilst not ordering a preliminary issue, was ordering an expedited trial because there was a long-term contract "and the parties need to know how to operate it".
11. The Defence and Counterclaim served by IBM does not put forward any case of rectification or estoppel in respect of the construction issue. Nor does it rely on any custom or practice. What may be termed "matrix" matters appear briefly in paragraph 13 and, possibly, paragraphs 24 and 25, but they are neither extensive nor I would expect likely to be open to any great evidential dispute. That, however, is most certainly not the case with the pleading of the Compass issue which addresses a host of matters which it is said make the Compass reports non-compliant with the parties' agreements. C&W complain that the pleading is also far too general and say they will make and are entitled to make a substantial request for further information about the allegations so that they can properly address them. At one stage C&W raised the possibility that it would join Compass as a party to the proceedings. Now it has decided not to do so. IBM, for its part, says it will need to consider whether it should join Compass and Mr Crane QC accepted that the reality was that Compass would be a party to the Compass Issue.
12. Both parties accept that there is now no sensible prospect of all the issues being tried in the timescale envisaged by Colman J either as regards the start date for a trial or the length of a trial once started. C&W's own suggested timetable would extend to 31 October for production of expert's reports. IBM's suggested timetable envisaged final production of reports by mid-October and suggested that should Compass be joined that would be sufficient time for Compass to catch up as well. Estimates of trial length are understandably harder to pin down but Mr Crystal QC estimated the construction issue would require 3 to 4 days. Mr Crane's figure was 4 to 6 days. The estimate for a full trial was 8 to 10 weeks. Mr Crane said if the counterclaim and certain other issues arising in what was referred to as the Japan claim were not tried the estimate would be 4 to 6 weeks.
13. These timetables and estimates are a useful introduction to the main issue which arises on this resumed Case Management Conference. C&W submits that the court should now re-visit the question of the construction issue being tried as a preliminary issue and on an expedited basis and should conclude that it is a sensible course to adopt. IBM submits that a single trial remains the right course with only the counterclaim and the Japan claim left to a subsequent trial.
14. The state of the court's list is that whilst an expedited 4 to 5 day hearing could probably be accommodated in September of this year, a trial of 4 weeks or more could not begin before January 2004 at the very earliest. There remains also the uncertainty arising from the fact that Compass is probably to be involved as a party to the Compass issue and will need to be heard upon and to catch up with any timetable which may be set for a trial of that issue.
15. In my judgment there has been a real change of circumstances in these proceedings which has made the order made by Colman J on 13 December no longer appropriate or feasible and the court should look at the matter afresh with a view to seeking the best way forward for the management of the case with an eye on the commercial needs of parties locked into a long-term contract and such prospect of assisting them to an early and efficient resolution of the dispute as may exist.
16. At the end of the submissions I said I had reached the conclusion that it was now right that the construction issue should indeed be determined as a preliminary issue and I would put my reasons for that conclusion in writing. Directions to take forward both the trial of the preliminary issue and the trial of the other issues were given at the end of the hearing.
17. My reasons are:

i) It can now be seen that the construction issue is a relatively short issue untrammelled by pleas of rectification or estoppel. That is because IBM have not pursued those issues and in the course of submissions, granted a preliminary issue was ordered, Mr Crystal on instructions said C&W would abandon an estoppel plea it had advanced in paragraph 25 of the Particulars of Claim.

ii) There remains unavoidable uncertainty about the length and scope of any full trial. Compass is entitled to have its say. Compass is not concerned in the construction issue. I suspect there may well be less to be said in terms of overlap for hiving off the counterclaim and Japan claim than for addressing the construction issue discretely. The reality is that any full trial will be a substantial and lengthy matter. Although the construction issue will involve some "matrix" evidence it may well be capable of some agreement and will not be extensive. Moreover the substance of that evidence has already been prepared and exchanged for the previous application. It was not submitted that there was any real overlap apart from the likelihood that some witnesses would be required for both trials.

iii) Although it cannot be said that resolution of the construction issue would make a further trial unnecessary it can be said that it would affect the issues to be tried at that trial and, albeit not sanguine about the prospects of it doing so, it might serve to concentrate the minds on a non-litigious disposal of the dispute. If IBM was successful on the issue there would be no need for C&W to establish any retrospective loss. If C&W was successful then whilst the size of the stakes on the Compass issue will be the more apparent, the parties will also have the real benefit that they will know that any future benchmarking will also operate retrospectively. That, in my judgment, is particularly important as the court has been told that C&W has set in motion just such a procedure as it is entitled to do under the GFA. It is due to commence from the end of this month. In a long-term agreement of the present sort I, like Colman J, and indeed the parties, think it plainly is important that a matter of this significance should be resolved as early as possible if that can be done consistently with sensible case management as in this case I think it can.

18. If there are any further applications arising from this judgment I will hear them when it is handed down.