Summary and implications
BSkyB alleged that an EDS sales team made fraudulent misrepresentations during the bid process for the provision of services to BSkyB’s customer relationship management implementation programme and that EDS failed to carry out its work using good industry practice. BSKyB claimed approximately £700 million for alleged fraudulent misrepresentation.
Some of BSkyB’s fraudulent misrepresentation, negligent misrepresentation and breach of contract claims have succeeded. Others have failed. The contractual limitation on EDS’s liability of approximately £35 million does not apply to the fraudulent misrepresentation claims.
BSKyB claimed £700 million in damages and has announced that it expects to be awarded £200 million at the further hearing (expected next month) on damages.
Key points to note:
Hewlett Packard has announced its intention to appeal. Any appeal process may however take some time to complete. The case sets out the law as it is now.
The case appears to be part of a trend. There have been several cases involving substantial legal and arbitration proceedings in which similar allegations were made.
It is vital that technology companies understand BSkyB v EDS and ensure their risk management processes are in line with the judgment and robust.
The judge found:
• An (unfortunately worded) Entire Agreement clause failed to exclude any liability for negligent pre-contract misrepresentations.
• A variation letter failed, as EDS had contended, to exclude “All known claims and all unknown claims” BSkyB might have had against EDSL on the basis of breach of contract.
• A further “Memorandum of Understanding” failed, as EDS had contended, to give rise to any full and final settlement of earlier disputes.
• No duty of care should be imposed upon EDS in favour of BSkyB or SSSL (BSkYB’s subsidiary) which circumvented or escaped the contractual exclusion or limitation of liability which the parties put in place. That contractual structure negated such duties of care and no such duties arise in this case. Any liability of EDS to BSkyB arising under a duty of care would not permit BSkyB to circumvent or escape the contractual exclusion or limitation of liability.
• EDS represented that they had carried out a proper analysis of the amount of elapsed time needed to complete the initial delivery and go-live of the system and that they held the opinion that, and had reasonable grounds for holding the opinion that they could and would deliver the project within the timescales referred to in their Response to invitation to tender. The judge found “that representation was false as there was no “proper analysis” nor were there “reasonable grounds”. It was made dishonestly by EDS’ relevant employee, who knew it to be false. In making the misrepresentation, EDS intended Sky to rely on it and to select EDS for the Sky CRM Project and Sky did so. Accordingly, EDS were liable to Sky in deceit for that misrepresentation.
• EDS had represented that they had carried out a proper analysis of the amount of elapsed time needed to complete the initial delivery and go-live of the contact centre and that they held the opinion that, and had reasonable grounds for holding the opinion that they could and would deliver the project within the timescales referred to in the Response. That representation was false as there was no “proper analysis” nor were there “reasonable grounds”. It was made dishonestly by the relevant employee, who knew it to be false. In making the misrepresentation EDS intended Sky to rely on it and to select EDS for the Sky CRM Project and Sky did so. Accordingly, EDS are liable to Sky in deceit for that misrepresentation.
• In relation to the allegations of misrepresentations prior to the Letter of Agreement, the statements made by EDS did amount to a representation that they had developed an achievable plan, which had been the product of proper analysis and re-planning. EDS did not carry out a proper analysis and re-planning exercise to produce a programme which would have been achievable and the representation was false and was made negligently. The misrepresentation was a material misrepresentation which EDS intended Sky to rely upon and which Sky did rely upon in entering into the Letter of Agreement. EDSL are therefore liable to SSSL for negligent misstatement and under section 2(1) of the Misrepresentation Act 1967. Otherwise, EDS was not liable for any other misrepresentation prior to the Letter of Agreement.
• EDS was in breach of contract in that EDS failed properly to resource the project after the Letter of Agreement; EDS were seriously in delay in carrying out the work and achieving the Milestones and delivering the Deliverables and EDS had carried out little work in the period mainly because they had failed to capture the requirements or manage that process or merely because of the general lack of progress. On that basis EDS failed to exercise reasonable skill and care or conform to good industry practice because there was no effective programme management, the design and development of the solution was not properly documented and EDS did not provide sufficient technical or managerial resources.
• However, neither the breaches alone nor the combination of breaches amounted to a repudiatory breach of the Prime Contract, as varied. Further, the evidence does not establish that there was an acceptance of any repudiation.
• Alleged misrepresentations as to resources were not made by EDS and Sky had not established that EDS made a misrepresentation in relation to them.
• EDS carried out a proper estimate of the cost of completing the project and had reasonable grounds for holding the opinion that they could and would deliver the project within that budget in the Response to the invitation to tender.
• EDS had no liability in misrepresentation concerning the proven nature of the technology, significant risks or methodologies.
• EDS had no liability to BSkyB for negligent misrepresentations made prior to the Letter of Intent, the Prime Contract or the Letter of Agreement
The judgment is now available on BAILII:
http://www.bailii.org/ew/cases/EWHC/TCC/2010/86.html
Rosemary Mulley is a Managing Associate at Nabarro and a member of the SCL Media Board.
