Exclusion and "loss of anticipated savings"
Welcome to 'Insights from TCS v DBS' – a four-part series providing an in-depth look at the judgment handed down in Tata Consultancy Services Ltd v Disclosure and Barring Service [2024] EWHC 1185 (TCC) (17 May 2024).
In the final article of this series, we focus on TCS's claim for £77 million of lost revenue and the distinction between wasted expenditure and lost profits in exclusion clauses.
See part three for our discussion on the liability cap.
For ease, we include the introduction and case summary in each part of the series.
Introduction
The judgment handed down in Tata Consultancy Services Ltd v Disclosure and Barring Service [2024] EWHC 1185 (TCC) (17 May 2024) determined a significant and long-standing tech modernisation and business process outsourcing dispute. The ruling addresses a number of contractual themes common to IT disputes arising from delay. Reviewing the decision offers valuable insight into the meticulous analysis undertaken by the court to examine relevant sequences of events during the project, and to properly construe the agreement between the parties, particularly in relation to proving causation and loss.
Much of the judgment comprises analysis and determination specific to the agreement between the parties. There are however key parts offering valuable learning points for those working close to contracts for tech transformation projects, particularly where problems have arisen, or where litigation is threatened, imminent or underway. We explore here four key areas for learning from the judgment.
Case summary
DBS engaged TCS to supply the IT modernisation project in 2012. The project did not go well, beset by delays from an early stage.
TCS contended that the main causes of critical delay were the lack of availability of technical infrastructure and mismanagement of DBS' IT hosting provider. DBS argued that the cause of delay was TCS' delayed development and testing of the software.
TCS claimed just over £110 million in delay damages. DBS counterclaimed for delay as well as bringing claims for defects in the quality of the software in the sum of just under £109 million. TCS also claimed for underpayment of Volume Based Service Charges to the value of around £14 million.
Constable J. rejected almost all of TCS's claims for delay damages, but TCS was awarded £2.4 million for a particular period where the court found delays were caused by DBS's actions (see Part 2). DBS was awarded £4.6 million due to delays attributed to TCS. Most of DBS's other counterclaims were dismissed. For TCS, the overall outcome and award of £2.4 million represents a partial victory in their claims as it brought acknowledgement from court of some responsibility on the part of DBS for the delays.
Part four summary
As part of its pleading, TCS claimed £77,314,727 for "Loss of Revenue" for lost "anticipated costs savings". It asserted it had been deprived of benefitting from the operational efficiencies of the new software. In characterising its claim as "wasted expenditure", TCS sought to avoid contractual exclusions in relation to loss of profits. It submitted that its costs in providing the operational services would have reduced significantly over time, owing to the new processes enabled by the software.
DBS argued that TCS's claim for wasted expenditure was in fact a claim for loss of profits, and as such was excluded by clause 52.4.2:
"52.4 Subject to clauses 52.1 and 52.5, neither party will be liable to the other party for:
52.4.2 any loss of profits, turnover, business opportunities or damage to goodwill (whether direct or indirect)."
TCS accepted that its loss could be characterised as either wasted expenditure or loss of profit, but having characterised it as wasted expenditure, it argued it was a valid claim for wasted expenditure that fell outside the exclusionary scope of clause 52.4.2.
TCS was not successful in this line of argument. The judge determined this claim was a loss of profits claim excluded by the agreement.
Judgment
This claim was not pleaded as one for wasted expenditure – it did not set out specific costs, actually incurred, as costs which were "wasted". Instead, TCS contended that, but for the delays to the software rollout, the predicted or anticipated efficiencies were not actually realised, creating a loss.
The judge referred to the Court of Appeal case of Soteria Insurance Ltd v IBM United Kingdom Ltd [2022] EWCA Civ 440. In that case, the court had emphasised the difference between loss of profit and wasted expenditure; the latter being a "type of loss [that] is the opposite of speculative: it is precisely ascertainable. It is a pure accounting exercise."
Comment
A party's claim for loss of anticipated costs savings may be characterised as a claim for lost profits, thus falling under the exclusion in a liability clause. The distinction to be drawn is between actual costs expended (a "wasted expenditure" claim) and speculative losses (which may be considered a "loss of profits" claim).
See our podcast by David Lowe and Sean Adams on 'Drafting exclusion and limitation of liability'.
Read the original article on GowlingWLG.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
