UK: Sow The Wind, Reap The Whirlwind

BSkyB v EDS: The Technology and Construction Court in London yesterday handed down one of the most awaited judgments in one of the largest cases ever to come to trial in the outsourcing and IT services sector.

Mr Justice Ramsey found that Electronic Data Systems ("EDS") had deceitfully induced TV operator British Sky Broadcasting ("Sky") into a £54 million contract for a new customer relationship management ("CRM") system. As is usual following Thomas Witter v TBP Industries [1996] All ER 573, the contract provided that neither party excluded liability for fraudulent misrepresentation. That was effective to prevent damages being capped at £30 million since the deceit amounted to fraudulent misrepresentation.

The judgment highlights the need for those involved in negotiating similar contracts to be aware that a fraudulent misrepresentation can give rise to potentially uncapped damages. As a result of this judgment, it is anticipated that UK based suppliers may change the way they pitch their services, to take account of the risk of being held similarly liable.

To view the article in full, please see below:



Full Article

BSkyB v EDS: The Technology and Construction Court in London yesterday handed down one of the most awaited judgments in one of the largest cases ever to come to trial in the outsourcing and IT services sector.

Mr Justice Ramsey found that Electronic Data Systems ("EDS") had deceitfully induced TV operator British Sky Broadcasting ("Sky") into a £54 million contract for a new customer relationship management ("CRM") system. As is usual following Thomas Witter v TBP Industries [1996] All ER 573, the contract provided that neither party excluded liability for fraudulent misrepresentation. That was effective to prevent damages being capped at £30 million since the deceit amounted to fraudulent misrepresentation.

The judgment highlights the need for those involved in negotiating similar contracts to be aware that a fraudulent misrepresentation can give rise to potentially uncapped damages. As a result of this judgment, it is anticipated that UK based suppliers may change the way they pitch their services, to take account of the risk of being held similarly liable.

EDS (now owned by Hewlett Packard) contracted in 2000 to provide CRM technology for Sky's customer contact centres in Livingston and Dunfermline, Scotland. The project ran into difficulty, and in early 2002 Sky terminated and in-house staff went on to complete the work. In 2004, Sky initiated proceedings against EDS on the grounds that it was falsely induced to enter into the contract during the tender stage because EDS misled it in terms of the project's estimated budget and time frame, and EDS' general ability to deliver. Sky made various claims in deceit, negligent misrepresentation/misstatement, breach of contract and others. EDS denied these allegations, and attributed the problems with the project to its unspecified scope.

Mr Justice Ramsey found that EDS had been fraudulent in its bid to win the business to supply and install the CRM software. It was held that EDS had deliberately misrepresented the estimated length of time needed to complete the project. However EDS was not found liable to Sky for misrepresenting the estimated cost of the work. The judge further found that EDS had made an actionable misrepresentation in order to induce Sky to enter into a compromise agreement after the project had failed. Sky was also able to establish that, but for EDS' deceit, it would have contracted with PwC.

The initial contract value was in the region of £48 million, but included a liability cap of £30 million. However, as is typical, the liability cap did not apply to instances of fraud. Since, in this case, the court ruled that the misrepresentation was fraudulent, damages above the liability cap could be awarded (damages for fraudulent misrepresentation are for all losses directly flowing from such a breach, and not just those that are reasonably foreseeable). EDS therefore faces unrestricted damages, potentially including for loss of profit, loss of cost savings and loss of business benefits. Sky initially claimed more than £700 million in damages, an amount far in excess of the exposure that EDS might have contemplated on entering the contract. Sky has said in a statement that it now expects to receive in the region of £200 million and further hearings will take place shortly to decide the figure for damages.

The case is a reminder that, in certain circumstances, contractual limits can be defeated. Given that the case conjured up the spectre of unlimited liability, the decision may result in far more carefully restricted sales pitches for IT contracts. There will be greater scrutiny and accountability of sales processes and it will be important to be able to demonstrate how a supplier arrives at estimates of costs and time. Further, prices of similar contracts may rise on the basis that suppliers will be wary of the risks involved.

The case may also lead to more claims alleging deceit against suppliers, although allegations of deceit will always be difficult to prove. Whereas in the past successful fraudulent misrepresentation claims have been rare, this trend appears to have been changing more recently. However this is the first time that a claimant has been successful in making such a claim on this scale.

One disincentive to potential claimants will be the time and cost involved in this trial. Court hearings ran for 10 months and concluded in July 2008, and the judge spent about 15 months determining the issues before producing his judgment, which runs to some 460 pages. It is reported that the costs of the case are in the region of £70 million, significantly in excess of the £48 million cost of the original contract. Accordingly this may be the most expensive legal dispute in the history of the IT industry. Hewlett-Packard has stated that it plans to seek permission to appeal.

Please click on or copy and paste the link below to the judgment: http://www.bailii.org/ew/cases/EWHC/TCC/2010/86.html (http://www.bailii.org/ew/cases/EWHC/TCC/2010/86.html)

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 27/01/2010.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions