A recent ruling by the Commercial Court in another dispute over a failed IT systems implementation project has demonstrated the English courts’ willingness to take a broad view of direct losses.

Background

The global technology services and outsourcing company, Accenture, was engaged by GB Gas Holdings Limited (Centrica) to design, supply, install and maintain a new IT system that included an automated billing function. GB Gas Holdings is a subsidiary of Centrica plc, which was originally part of the British Gas Corporation. Centrica supplies gas and electricity to residential customers in England and Wales. In 2002, at the time of entering into the agreement with Accenture, Centrica plc supplied energy to 18.8 million customers and issued approximately 5 million bills each month.

The new IT system to be provided by Accenture - known as the “Jupiter System” - was to be delivered in five software releases. The third of these releases was the billing system and there were considerable delays in its roll out as well as various disputes between the parties over functionality and performance of the earlier releases. After attempting to reach an understanding over the various issues, Centrica issued proceedings against Accenture alleging breach of warranties and claiming significant damages.

A number of issues were considered by the Court, in particular whether certain of Centrica’s claims for damages were excluded by the limitation of liability clause.

Decision

The relevant part of the limitation of liability clause stated:

"… in no event shall either Party be liable whether in contract, tort (including negligence) or otherwise in respect of any of the following losses or damages:

16.2.1 loss of profits or of contracts arising directly or indirectly;

16.2.2 loss of business or of revenues arising directly or indirectly;

16.2.3 any losses, damages, costs or expenses whatsoever to the extent that these are indirect or consequential or punitive; …”

The court found that this drafting was not sufficient to exclude the following damages claims:

  1. Charges totalling approximately £18.7 million that were applied to Centrica by gas distributors based on incorrect gas consumption data provided to them via the Jupiter system. The judge ruled that this loss had “arisen as a direct result of the automation error" and was not a claim for lost revenue as alleged by Accenture.
  2. Compensation paid to customers totalling £8 million. Although this was made up of ex gratia payments made by Centrica to its customers to reflect billing difficulties and poor customer service they had received, the Court ruled that one of the purposes of the new billing system was to improve customer relations. Accordingly this item of loss was neither indirect nor consequential.
  3. Additional borrowing charges of £2 million. On the basis that Accenture's warranty breaches had delayed or prevented the issuing of bills, the judge determined that this was "bound to have an adverse impact on Centrica's revenue with the very likely consequence that there would have to be borrowing to make up for the loss of revenue". Again, this was ruled to be recoverable as a direct loss.
  4. Costs of chasing debt not due amounting to £387,287. As a result of errors in the system, Centrica spent time and cost trying to claim amounts from customers that were not actually due. Accenture's arguments that these losses were indirect and/or consequential were again rejected. The judge found that this loss would have flowed naturally and in the ordinary course of events from the alleged breaches of warranty by Accenture.
  5. Additional stationery and correspondence costs through the establishment of an incident management team and writing to customers to update them on the progress of issues. These losses amounting to £107,120 were recoverable on the same basis as the compensation paid to customers.

Implications

While these rulings on recovery of losses do not create new law, they do illustrate the broad interpretation of direct losses that English courts are willing to take. The concise judgment offers little help to IT vendors seeking to rely on exclusions of indirect and consequential losses, while purchasers will be comforted by the scope of damages that Centrica were able to recover.

[1] GB Gas Holdings Limited v Accenture (UK) Limited and others [2009] EWHC 2734 (Comm)