England and Wales High Court (Technology and Construction Court) Decisions

First, a chip associated with the mother board was allegedly defective.

Second, there was alleged to be a fault in the hard disk.

“Frontline (Computer 2000) undertakes and warrants that it will not at any time commence, advance, maintain or pursue any claim or assist or encourage a third party in any claim against the IBM companies in relation to the agreement or any similar agreements between IBM Companies and third parties.

Frontline shall keep the terms and existence of this deed confidential and shall not disclose any details to a third party unless under a legal or regulatory duty to do so.”

“I considered bringing proceedings against IBM Corporation in early February 2000. At that stage I retained my current New York counsel – Mendes & Mount – and asked them to consider the form of any claim against IBM Corporation.

During early 2000, I realised that I had been tricked into buying what I had been told were leading edge PCs. I then conducted further enquiries which led me to believe that IBM US directed IBM UK to sell the chips with known defects. Thereafter I intended to pursue IBM Corporation for pecuniary damages as a result of their fraud. Only when I was sure that I could settle the UK action and still retain the right to pursue IBM Corporation in New York did I agree to allow my lawyers to sign the UK Settlement agreement.”

“All of these matters are relevant to the circumstances of the present case against Frontline. They amount to clear evidence in support of Time's case that the PCs were defective and there was a known risk of problems when used in conjunction with software that utilised the DMA chip in a particular way. These circumstances once known to Time in about February 2000 made and make it difficult for Frontline to gainsay the problems with the PCs in the way that IBM had consistently denied them prior to and during the original proceedings.

By the stage that Time had discovered this relevant evidence, the trial of the preliminary issues was listed for hearing in May 2000. Even though the trial was subsequently re-listed for hearing on 10^th July 2000, it was far too late to bring in Frontline in time for the trial. The trial date would have been lost, taking pressure off IBM, and there was potential for removing the focus and direction of the litigation.

Moreover, Time considered that there was greater chance of settlement with Frontline in later proceedings, if either it had proved its case against IBM first, or if the case against IBM was out of the way. Although Time would probably not have been able to tell Frontline what its terms of settlement were, the very fact that Frontline would know that the case had been resolved to avoid the matter going to trial would be a strong indication that Frontline might have difficulty in avoiding liability because IBM had felt the need to settle the case.”

“IBM will pay, within 15 days after the execution of this Agreement. and Time will accept £6,000,000 in full and final settlement of all claims by Time and its affiliated companies against IBM of whatever nature, whether or not yet asserted, wherever they could be brought relating to the facts and matters in the Proceedings including, in particular, the three contracts for the sale of personal computer systems dated 27 May 1994, 15 August 1994 and December 1994.

Subject to any obligations of law, the existence and terms of this settlement agreement shall remain confidential between the Parties and their legal advisers.”

The initials IBM were defined in the agreement as referring to IBM UK. In the affidavit in the US proceedings to which I have referred, Mr. Mohsan said that if IBM had requested a release in favour of IBM US he would not have settled for such a term.

“Whilst we are not able to provide you with copies of documents disclosed by IBM in connection with other proceedings (to which both IBM and Time Group Limited were parties), we are able to supply you with a copy of the papers provided to us by FTDI, the designers of defective DMA chip. As you can see from these papers, it is clear that the defect in the word count register was identified in 1993 - over a year before the contract between you and Time and, moreover, the IBM commissioned FTDI to develop a fix to the defect in the word count register. The fixed chip had the reference number 82C3480XMVL (the XMVL chip). Remarkably, however the XMVL chip did not find its way into the Blue Lightning PCs, notwithstanding the fact that the XMVL chip went into production from August 1993.

Whilst we appreciate that you operated at all times in complete ignorance of the deception practised by IBM, the fact of the matter is that our claim in respect of the 4,030 PCs must be directed in the first instance to you, the party from whom we acquired the PCs. We must leave it to you to pursue any claim over against IBM should you wish to go down that route.”

Those passages about deception were in no way relevant to Time’s then proposed action against Computer 2000 since that action lay simply in contract. But the passages were a clear hint as to how to join IBM in the proceedings and pass the claim on to them despite Computer 2000’s settlement agreement with IBM.

“It is my recollection of events following receipt of a letter from Time Group advising us of their intention to take legal action against us and prior to the issue of the writ, I had a telephone conversation with Tahir Mohsan in which he advised me that this was a business issue and he hoped it would not affect our existing trading relationship. Time Group were still a customer and utilising their account and credit line. He explained to me that it was not Computer 2000 that he wished to seek redress from but IBM. He felt IBM were at fault but for legal reasons he had to take action against us. This he said would force IBM to take responsibility. It was an amicable conversation and Tahir Mohsan was at pains to make it clear he did not have an issue with Computer 2000”.

In response to that evidence, Mr, Mohsan said:

“Mr Tiltman correctly says in his witness statement that Time's action against Frontline was a business issue and that for legal reasons, Time had to take action against Frontline to seek redress in respect of the Blue Lightning PCs sourced from Frontline. I emphasised that although Time had contracted with Frontline, it did not blame Frontline, but that it was IBM's fault and IBM should take responsibility for it.”

“I have no doubt whatsoever that Time has brought these second proceedings in order to make an additional recovery from IBM, and that it has used C2000 as a “Pawn” in its attempt to pursue IBM. Time's managing Director, Tahir Mohsan has made this absolutely clear to me both in telephone conversations and in correspondence. Details of this are as follows.

My first telephone phone call with Mr. Mohsan was very shortly after the letter before action. In this phone call, Mr. Mohsan told me that Time was going to issue proceedings against C2000, but that it had no interest in making any recovery from C2000. The call was amicable and Tahir was almost apologetic for having imposed the litigation on C.2000. He told me that C2000 should bring Third party proceedings against IBM as IBM would then agree to pay to get rid of the litigation.”

“I have had several conversations with Tony Taylor. At no time in any of those conversations have I said that Time is not interested in making a recovery of damages from Frontline. Indeed Time's only recourse in these proceedings is to make a recovery from Frontline: it cannot recover from IBM, only Frontline can make a recovery from IBM. I did say to Mr Taylor that I hoped Frontline should not suffer financially as a result of the proceedings and that Frontline should look to IBM for reimbursement.”

“Following this phone call, I instructed Computer 2000’s solicitors to seek to mediate with Time. However, Time refused to mediate without IBM being made a party to the mediation”.

That statement is misleading if it is read as meaning that the first suggestion of the involvement of IBM in mediation came from Time. In a witness statement dated 10 January, 2002, Mr. Taylor clarified the matter. Correspondence shows that Mr. Taylor was considering Time’s suggestion that Computer 2000 should join IBM in the proceedings and it was he, Mr. Taylor, who suggested a mediation involving IBM and it was after he made that suggestion that Time agreed to a mediation but insisted that if there was to be a mediation all parties including IBM should be involved. IBM refused to get involved and Time let the matter drop. There were letters dated 9, 10, 21, 22 August and 14 September, 2000 passing between Computer 2000, Time and IBM on this topic.

“Tahir from Time called with the following message:

He is concerned that our solicitor is not senior enough within Morgan Cole to handle the case. He feels she does not understand the dynamics of the case or appreciate the time constraints the case is under.

We must issue a writ against IBM as the case is now just over 6 years old and we are running out of time.

IBM have also sent a letter to Morgan Cole telling us to “go away”. Tahir needs to see this but our solicitor has not had instructions from us to let him see it.

Tony – Tahir would like you to escalate the case within Morgan Cole and arrange for the Writ to be issued.”

Mr.Mohsan challenged that summary of his telephone message only by saying that by the words, “escalate the case within Morgan Cole” he meant, put the case in the hands of someone more senior within Morgan Cole. Even with that meaning, which I accept, the message is clear that he wanted IBM to be brought into the action as a matter of urgency. If this had been a straightforward action against Computer 2000, Mr. Mohsan would have had no interest in seeing the letter from IBM nor would he have had any interest in IBM being joined as a party. Indeed, joining IBM as a party would inevitably increase the costs and would probably slow the action down.

“Following this e-mail I spoke to Mr Mohsan by telephone. I cannot recall the exact date of the call but I remember Tahir once more made it very clear to me that he didn't want Computer 2000 to suffer financially due to this action, and that he had no choice but to include us in his attempt to recover monies from IBM. On several subsequent telephone conversations the exact dates of which I cannot recall Mr Mohsan made similar remarks and left me in no doubt that he did not want Computer 2000 to suffer any loss but his intention was to recover damages from IBM.”

“he wanted me to speak to Computer 2000 to advise them that Time had no real interest in pursuing a legal case against Computer 2000, but rather were using it in order to win moneys from IBM. He also stated that he was aware of the existence of an agreement between Computer 2000 and IBM …. that potentially limited the actions that Computer 2000 could take against IBM, but that he felt that Time and Computer 2000 acting together could circumvent this.”

Mr.Menzies responded to that evidence with a statement that broadly agreed with Mr.Gass. He said:

“I asked him if he was prepared to speak to Frontline to facilitate a meeting between Time and Frontline for a discussion of how to progress the case. I said that Time considered IBM rather than Frontline was to blame and Time had no real complaint about Frontline's conduct but would like an opportunity to explain its case to Frontline, in particular to explain the complex evidential basis on which Frontline might be able to join IBM as a third party. I explained to Mr Gass that, in my view, rather than attack Time, Frontline would be better advised if it directed its energies against IBM. I suggested that if Frontline involved IBM there was an opportunity to find a solution whereby Frontline might not be ultimately left out of pocket. This seemed to me to be a perfectly legitimate and proper proposal to make.”

In his second witness statement, made after the opening submissions, Mr. Menzies said:

“I make this 2nd witness statement in order to clarify my 1^st witness statement. It has been said in submissions made by IBM's Counsel that because my 1^st witness statement did not specifically deny the words attributed to me in Mr Gass's statement that I must be taken to have agreed that I used those words. This is incorrect. For the avoidance of doubt I did not say that Time had "no real interest in pursuing a legal case against Computer 2000" but were "using it in order to win monies from IBM' nor did I say that "Time and Computer 2000 acting together could circumvent" the agreement between IBM and Computer 2000. Those words are not mine and I did not use them. What 1 actually said in my conversation with Mr Gass is set out in my 1^st witness statement”.

I accept what Mr.Menzies says in his second witness statement, but I also accept that Mr.Gass was accurate in his statement of the impression that that the conversation made on him, though he may not be word perfect in his account. It is clear from the first statement of Mr. Menzies that:

(a) Time did not want Computer 2000 to suffer financially.

(b) Time wanted Computer 2000 to join IBM as a third party.

(c) Time wanted an opportunity to explain to Computer 2000 how to get round the Computer 2000 settlement agreement with IBM, which must have been the misrepresentation point.

“An application to strike out the third party claim was upheld by the judge and Mr. Seddon appealed. In the course of a judgment with which Nourse and Ward LJJ agreed, Auld LJ said, at pp 1490-1491:

"In my judgment, it is important to distinguish clearly between res judicata and abuse of process not qualifying as res judicata, a distinction delayed by the blurring of the two in the courts' subsequent application of the above dictum [of Sir James Wigram V-C in Henderson v Henderson Hare 100]. The former, in its cause of action estoppel form, is an absolute bar to relitigation, and in its issue estoppel form also, save in 'special cases' or 'special circumstances': see Thoday v Thoday [19641 P 181, 197-198, per Diplock LJ, and Arnold v National Westminster Bank plc [19911 2 AC 93. The latter, which may arise where there is no cause of action or issue estoppel, is not subject to the same test, the task of the court being to draw the balance between the competing claims of one party to put his case before the court and of the other not to be unjustly hounded given the earlier history of the matter. Thus, abuse of process may arise where there has been no earlier decision capable of amounting to res judicata (either or both because the parties or the issues are different) for example, where liability between new parties and/or determination of new issues should have been resolved in the earlier proceedings. It may also arise where there is such an inconsistency between the two that it would be unjust to permit the later one to continue."

It is plain from that citation and in particular from the words in brackets in the last paragraph that Lord Bingham was approving the decision of the Court of Appeal in Bradford & Bingley Building Society v. Seddon that abuse of process may arise when the parties or the issues in the two actions are different. At page 1491, Auld L.J. spelt out his decision on this point in greater detail:

(a) The decision “should be a broad merits based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focussing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.” See per Lord Bingham in Johnson v. Gore Wood.

“It is accepted that Time could have included Frontline in the original proceedings in 1998 but it is submitted that it was entitled to take the view that there were legitimate reasons for not pursuing Frontline at that time. These were:

1) Frontline and IBM were separate suppliers and did not need to be sued together. Time was not keen on having to fight two suppliers together.

2) Time took the view that the case against IBM on the motherboard or DMA defect was one where IBM knew about its product in a way that Frontline could not. Time believed that there was a motherboard defect but knew relatively little about its nature, but IBM asserted that it was a software incompatibility problem. There was a risk that Time could be proved wrong when disclosure against IBM took place. It was unattractive to sue Frontline at that time until the motherboard defect became clearer with the risk of having to pay Frontline's costs as well as IBM'S;

3) The case on the DMA defect developed and only properly emerged by the end of January/February 2000. Until then it was not known that IBM had discovered the defect which was acknowledged by manufacturer of the DMA chip, had ordered a revised chip to be made, but then took a risk in selling the defective chip in PCs sold to OEM customers such as Frontline and Time. Nor did Time know until then that IBM put out an official statement that misleadingly asserted that the problem was to do with recent games rather than accept that one of the PC components was defective. When this evidence emerged it became clear that Time had a strong enough case to warrant proceedings against Frontline;

4) By that time, it was too late to join Frontline in time for the preliminary issue to be held in May, and subsequently re-listed for July. It would mean losing the date for the trial of that preliminary issue, potentially removing the focus of the litigation on a point of substance which was likely to result in a finding of liability against IBM and taking the legitimate pressure off IBM to settle the case earlier rather than later.

5) It was considered that a separate claim against Frontline might be easier to settle once the IBM claim was out of the way and if IBM had settled that might be a warning signal to Frontline that IBM’s case had been weak.”

“[The defendant’s] failure to strike out over a long period of time is potent evidence not only that the action was not seen as abusive at the time but also that, on the facts, it was not abusive. The indicia or true abuse are not so obscure that an experienced professional party, advised by leading counsel …, will fail to recognize them”.

In the case before me, Computer 2000 is not a professional party and I do not know when leading counsel was first instructed on their behalf, but they have throughout been advised by very competent solicitors and junior counsel and the point is the same.

90. Finally, I should say something about the unresolved application by Time for further disclosure of documents for which IBM and C2000 claim privilege and they also say that the documents are irrelevant to this application. Mr. Hochhauser Q.C. for Time said in relation to the application for further disclosure that he “reserved his position”. Time and those representing them suspect that the documents may show some collusion of a discreditable nature between IBM and C2000. Quite apart from the unsatisfactory form of that application and the lack of evidence in support of it, it has to be said that even if those documents did disclose some form of collusion, that would not affect the public interest that this action should be dismissed.

ORDER: