Cable & Wireless Plc v IBM UK Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr Justice Langley,Mr Justice Langley |
| Judgment Date | 27 February 2003 |
| Neutral Citation | [2003] EWHC 316 (Comm),[2002] EWHC 2059 (Comm) |
| Docket Number | Case No: 2002 Folio 668 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 27 February 2003 |
[2002] EWHC 2059 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
The Honourable Mr Justice Colman
Case No: 2002 Folio 668
Mr Timothy Dutton QC (instructed by Mayer Brown Rowe and Maw) for the Claimaint
Mr Michael Crane QC (instructed by Freshfields Bruckhaus Deringer) for the Defendants
Hearing dates: 24 September 2002
APPROVED JUDGMENT
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Colman
There are two applications before the court. The claimants' application is under CPR Rule 8 for a declaration as to the meaning of one provision (paragraph 5.3 of schedule 10) of a Global Framework Agreement ("the GFA") made between the claimants ("C&W") and the defendants ("IBM") on 20 December 2000. The defendant's application is for orders that pursuant to CPR, Rule 8.1(3) the claim continue as if the Part 8 procedure had not been used, that the claim should be stayed pending the dispute being referred to ADR or alternatively that directions be made for the future conduct of the claim under Part 7 of the CPR.
If the Defendants IBM succeeded in their application for a stay it would not be appropriate to make any further orders at this stage of the proceedings, much less to give judgment on the substantive issue of construction raised by the claimants, C&W. The application for a stay must therefore be considered first. It raises an issue of great importance, in particular as to the effect, if any, which should be given by the courts to agreements to refer disputes to ADR.
THE UNDERLYING DISPUTES
The GFA is an agreement under which were agreed the terms under which the IBM and IBM Local Party suppliers would supply to C&W and C&W Local Parties information technology services throughout the world. As provided for in the GFA, Local Services Agreements were entered into between IBM Local Parties and C&W Local Parties. One such Local Services Agreement was entered into for the supply of information technology in the UK. An important feature of the GFA was a series of provisions designed to maximise and monitor the quality and price competitiveness of the services provided by IBM. These are contained in Schedule 10 of the GFA under which the parties agree to a method of comparing the quality of the services being provided by IBM and the charges made for them with the services and charges then being provided and raised by others in the market. This process was known as "the benchmarking process". It was to be conducted by a qualified, independent third party selected from an agreed list of suitable benchmarkers. The GFA was to remain in force for 12 years and the procedure would be required by C&W no more frequently than annually, following an initial benchmarking to be required at any time after 20 December 2000.
The selected benchmarker was required to apply certain general principles in the course of conducting the Benchmarking Process. In particular the benchmarker was to gather data from the information technology industry and there was to be a representative, statistical sampling of a sufficient member of receivers of comparable services who had service environments similar to the Local C&W Parties' environment. The data was to be no more than 6 months old unless the Parties agreed to a longer period. In the present case, 12 months was agreed for the initial benchmarking
By paragraph 4 of schedule 10 of the GFA it was provided that
"If the Benchmark Results demonstrate that the objective is not being achieved then IBM shall develop a plan acceptable to C&W, such acceptance not to be unreasonably withheld, to address these deviations (the "Benchmark Plan") at IBM's cost. The Benchmark Plan shall be prepared promptly, but in all cases no more than thirty (30) days from the date on which the Benchmark Results are received by the Parties. The Benchmark Plan shall specify the changes to the Charges or Service Levels, the Services solution and related policies and procedures, as appropriate, required to bring the Charges and Service Levels in-line with the Benchmark Results together with the criteria required to enable C&W or the Benchmarker to determine that the Benchmark Plan has been successfully implemented."
The objective was defined by paragraph 1 of Schedule 10 thus:
"'Objective' means the local IBM Parties providing the Local C&W Parties (as a whole) with technology, service levels and charges which are equal to or better than that received by the top 10% (or 20% in the case of Legacy AM, Legacy AD, Legacy Systems and Global Help Desk prior to transformation (all as defined in Schedule 1)) of other organisations similarly reliant on and receiving similar services."
Paragaph 5 of Schedule 10 gives rise to the issue which C&W's claim is designed to resolve. It provides:
"Where IBM or a Local IBM Party has developed a Benchmark Plan in accordance with paragraph 4 above, IBM shall specify in such Benchmark Plan the time period in which the Benchmark Plan will allow the provision of the relevant Constituent Service to meet the Objective. After the expiration of thirty (30) Business Days from such date as specified in the Benchmark Plan the Benchmarker shall inform the Parties (or where relevant, the Local Parties) whether or not the Benchmark Plan has met its criteria for success.
Where IBM or the relevant Local IBM Party fails to develop a Benchmark Plan within thirty (30) days or such other period as may be agreed between the Parties days from the date on which the Benchmark Results are received by the parties or where the Benchmark Plan fails to meet its criteria for success, then all relevant Local C&W Parties shall have the right either:
(a) to terminate the relevant Local Services Agreement in respect of that Constituent Service in accordance with the provisions of Clause 28 as if for breach of the relevant Local Services Agreement by the relevant Local IBM party and the same consequences will apply; or
(b) to require the relevant Local IBM Party to continue to deliver the Services and to compensate the relevant Local C&W Parties for the actual loss which the Local C&W Parties suffer or have suffered as a result of the relevant Local IBM Party's failure to meet such criteria and (subject always to the relevant Local Parties' rights under Clause 40 (Problem Escalation and Resolution)) where applicable shall with immediate effect reduce the relevant Charges to a level of charges consistent with the Benchmark Results or as otherwise agreed in the Benchmark Plan for the period until the next Benchmark of the relevant Services. The amount of any payment due in accordance with this paragraph in respect of actual losses incurred by Local C&W Parties prior to the implementation of any reduction in the relevant Charges shall be agreed by the relevant Local Parties and, where such agreement is not reached within 10 Business Days then the matter shall be escalated in accordance with Clause 40. Such payment shall be subject to IBM's limit of liability as set out in clause 25.
Notwithstanding the other provisions of this Schedule 10, where a Local IBM Party fails to achieve the Objective, the relevant Local IBM Party shall compensate the relevant Local C&W Party for the actual loss which the Local C&W Party suffer or have suffered as a result of the relevant Local IBM Party's failure to meet the Objective. Such payment shall be subject to IBM's limit of liability as set out in Clause 25. The amount of any payment due in accordance with this paragraph shall be agreed by the relevant Local Parties and, where such agreement is not reached within 10 Business Days then the matter shall be escalated in accordance with Clause 40."
By an agreement dated 28 February 2002 IBM and C&W engaged Compass Management Consulting ("Compass") to carry out a benchmarking process. A report was produced by Compass which in substance indicated that IBM's charges were above those of the comparators. IBM challenges the validity of the Compass Reports and asserts that they are so fundamentally flawed as not to amount to "Benchmark Results" as defined by the GFA. IBM has therefore declined to produce a Benchmark Plan until that dispute has been determined.
C&W, however, have claimed compensation in the range £31.5 million to £45 million. They assert that such compensation is to be calculated under paragraph 5.3 of Schedule 10 as the difference between the Compass Benchmark Report comparable figure and the amounts actually charged by IBM—going back to the start of the GFA, that being the "actual loss" which C&W have suffered as a result of IBM's "failure to meet the Objective".
IBM, in addition to asserting the invalidity of the benchmarking report, disputes the method of calculating compensation relied on by C&W. In particular it submits that paragraph 5.3 of schedule 10 does not entitle C&W to compensation for loss sustained during any part of the period before the issue of a valid benchmarking report. It is argued that, given that the GFA imposes no general obligation on IBM to achieve the Objective, the effect of paragraph 5.3 is confined to compensating C&W for the actual loss sustained by them during the period after the issue of the benchmark results by the benchmarker due to IBM's failure to meet the Objective which is not compensated by paragraph 5.1(b).
In order to support their argument as to the effect of paragraph 5.3 IBM wish to rely on two areas of matrix evidence in order to demonstrate that both parties must have negotiated on the mutual assumption that paragraph 5.3 had that limited scope...
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