Eighteen months after the case concluded in the English High Court, a judgment has finally been handed down in favour of British Sky Broadcasting (BSkyB) in its £709 million claim against IT supplier EDS.
BSkyB was seeking significant damages after claiming EDS allegedly acted “dishonestly” and misrepresented its capabilities when pitching for a £48 million contract to build a customer relationship management system in 2000. The claim included benefits that BSkyB claimed to have lost as a result of failures and delays by EDS (now owned by Hewlett-Packard). The counter arguments put forward by the supplier were familiar to many IT disputes: EDS claimed that BSkyB did not have a clear idea what it wanted from the system and that the constantly changing requirements of the customer were the cause of the delayed roll-out.
The judgment ruled that representations made by EDS that it had carried out a proper analysis of the amount of elapsed time needed to launch the project and that it had reasonable grounds for holding the opinion that it could and would deliver the project within the required timescales were made dishonestly by EDS who knew those representations to be false. This ruling means that the contractual limitations on EDS’s liability do not apply in relation to these misrepresentations and EDS faces potentially unlimited liability that includes loss of business benefits and other types of losses that are customarily excluded.
On the breach of contract claims, the judge ruled that EDS “failed to exercise reasonable skill and care or conform to good industry practice”, but the sum recoverable by BSkyB for losses arising from these breaches was subject to the contractual cap.
EDS failed in various claims that BSkyB had failed to mitigate its losses. The judgment considered that BSkyB had not acted unreasonably in taking over systems integration activities or in “de-scoping” some of its requirements and not proceeding with later stages of the system implementation. It was held that BSkyB “reasonably took the decision to concentrate as a priority on achieving a replacement of [its existing CRM system] by the core functionality of the [EDS system]”.
This is potentially a very significant decision for customers seeking to hold IT suppliers to account for claims made in pre-contract sales pitches. It illustrates that, no matter how complex the issues are (the trial in this case took up a whole year of court time, and the judgment runs to some 468 pages), companies will be held to such statements and be held accountable if they are considered to be dishonestly made. Given the competitiveness of IT procurement and tendering processes, IT suppliers need to be very sure of the representations made pre-contract. Judge Ramsey J has yet to determine the final amount of damages but BSkyB’s lawyers anticipate a minimum award of £200 million.
HP has sought leave to appeal the decision but this ruling could result in IT suppliers toning down the claims they make in future sales pitches. Customers suffering from failing IT projects will also be examining the extent to which contractual liability caps may be overturned if they can prove sales claims have been made fraudulently.