BSkyB vs EDS - The Verdict
Miles Alexander, Partner at law firm Simmons & Simmons discusses the dispute between BSkyB and EDS
Ramsey J has finally handed down his verdict in the long running case of BSkyB v EDS (26 January 2010, Technology and Construction Court), ruling at least in part, in favour of the claimants, BSkyB.
The handing down of the verdict marks the end of a process of deliberation that began in July 2008 when the last court hearing on the case took place and decides a claim worth over £700m. The case itself took years of preliminary argument and amendment of each side’s submissions to come to Court. It concerns allegations of fraudulent misrepresentations and breaches of contract that go back as far as 2000.
It is reported that Ramsey J found the defendants liable in fraudulent misrepresentation on one of the five claims made by the claimants, rejecting the other four. The judgment is likely to be of interest to anyone involved in the marketing, tendering and delivery not only of major IT projects but also other large service contracts.
The Dispute
The case concerned a dispute that had arisen after BSkyB appointed EDS to build a £48m Customer Relationship Management system and provide training in its use following a successful tender. BSkyB alleged in their Particulars of Claim that the contract had broken down by February 2001. At this point the project was effectively put on hold and replanned and the contract varied accordingly by what was referred to as a “Letter of Agreement”. After this, deadlines for implementation continued to slip and the two companies parted ways in early 2002, with SSSL taking over the running of the contract, acting on what BSkyB have described as EDS’s “repudiatory breach”.
The court battle between BSkyB and EDS is a tale of a contract process that appears to have gone wrong from the start. The claimants alleged misrepresentation from the pitch process onwards which continued through to the signing of the Letter of Agreement. EDS fought back and argued that they had been hampered by vague and shifting requirements from the BSkyB.
While the full figure of damages to be awarded to BSkyB is to be determined at a hearing in February, the BSkyB believe that they are likely to be awarded at least £200m. This is more than the limitation clauses would have restricted them to although somewhat less than the total £700m claimed by BSkyB.
Risks for suppliers and customers
Many business people will agree that a salesman’s pitch will often write cheques that those who do the actual work cannot cash but where such puffery becomes misrepresentation, especially where contracts attempt to exclude all extrinsic representations has been a matter for debate. Ramsey J’s full judgment, runs to several hundred pages and no doubt discusses this issue in great detail. It is likely that it will have repercussions for suppliers giving estimates and accounts of their abilities and the functionality of their products to customers.
That contracts go wrong is also a fact of life and any supplier will carry out a risk assessment of these potential problems. According to BSkyB, the potential problems with EDS’s capacity to deliver were so severe as to make any representations made in the tender process fraudulent misrepresentation. However, EDS took a different view. In their amended defence they argued:
“The points to which the Claimants refer are “risks,” which are commonly understood within the IT industry as anticipated potential challenges, to be avoided or managed. The Claimants have treated risks as if they were “issues”, i.e. currently manifest problems.”
A supplier doing the work is more familiar with the potential risks and pitfalls, which occasionally result in increased costs and overruns while the customer will want and expect everything to run smoothly and so be risk adverse. Contracts drawn up by the supplier will often exclude liability for delays and costs overruns will generally appear to fall on the side of the supplier. The firmest due dates that the customer will receive will generally be during the tender process but the contract will generally offer little practical comfort to customers unless time is of the essence which is almost unheard of. Where these worlds collide, the result is often dissatisfaction, disputes and ultimately, litigation.
Watch this space
HP (which now own EDS), continues to deny any accusations of deceit and are reported to have said that they intend to appeal the ruling. They are likely to hope that the process does not take up as much time and money as the original trial did. Despite the length of the judgment, the long term impact of the decision may well be in doubt pending the outcome of any appeal which may result in a redefinition of the law on misrepresentation. The recent case of CBS v Dunlop Hayward, shows quite how far the courts are willing to go in terms of awarding losses suffered against those they have found to be dishonest (for further details on that case, go to www.elexica.com/briefdoc.aspx?id=7383.
A more detailed note on the repercussions of this ruling and the effect the judgment is likely to have on the law surrounding misrepresentation will be published on www.elexica.com on Friday.
