EDS found liable to pay Sky damages for fraud

January 28, 2010

Mr. Justice Ramsey’s long-awaited judgment in the Technology and Construction Court in Sky’s highly-publicised claim against EDS was finally handed down on 26 January 2010.  Sky claimed that EDS had fraudulently and negligently induced Sky into entering into a £54 million contract for the development of call centre services. They also alleged that EDS were in breach of the contract. The judge found that Sky’s case was made out in relation to one of the claims of fraudulent misrepresentation, one of the claims of negligent misrepresentation and the claim for breach of contract. Although various quantum issues are still to be determined, the total award is likely to be over £200 million according to Sky.

It would be an understatement to say that this project was a failure. Instead of the system going live on 31 July 2001 and being completed by 1 March 2002 at a baseline budget of £47.6 million, Sky contended that the functionality of the system was only completed in March 2006 at a cost of about £265 million. In the Particulars of Claim as they stood at the commencement of the hearing Sky claimed damages of some £709 million.

The judgment will be of great interest to IT professionals and lawyers. It will be particularly relevant to those involved in sales, as the judgment analyses the components of EDS’s bid and sets out the judge’s findings as to whether various communications amounted to fraudulent or negligent misrepresentations. Sky alleged that there had been 5 relevant misrepresentations. The first 3 were in relation to resources, time and cost. The latter 2 related to the use of proven technology and to EDS’s development and use of suitable methodologies. Although Sky succeeded only in relation to representations concerning the anticipated timescale of the project, the fact that those representations were made fraudulently meant that the judge was entitled to make a significant award to Sky over and above the contractual damages cap.

Although the judge’s findings of fraud related to only one EDS former employee, Joe Galloway, the fact that he was Managing Director of the relevant part of EDS’ business, and was held by the judge to be “the mastermind for EDS’ Response to the ITT”, meant that his role in the project was crucial. The Judge held that he “demonstrated an astounding ability to be dishonest” and that his “credibility was completely destroyed by his perjured evidence over a prolonged period”.

One of the interesting features of the judgment arose in the context of assessing Sky’s losses resulting from entering the contract with EDS as opposed to an alternative solution which had been offered by PwC.  Detailed argument and analysis was presented with regard to how long PwC would have taken to implement its Siebel solution in place of EDS’ Chordiant solution. The amount and detail of that evidence, which included cones of uncertainty, retrospective function point counts, and analysis of the “fit”, contrasts very sharply with what EDS did at the time of the bid. The degree to which suppliers bidding for work will be required to estimate and plan project durations in light of the judge’s findings on fraud is obviously of importance to the IT industry as a whole.

This note provides an introduction to this extensive judgment and will be followed by further articles which will examine the details of the findings on the representations, EDS’ defences in relation to mitigation and the breach of contract claim. It will be interesting, for example, to analyse why the judge accepted Sky’s case on “timescale” allegations but not on the others. In particular, the representations on cost appear to have been tied closely to those of time but the judge found that there had been no misrepresentation in relation to the likely cost of the project.

EDS have indicated that they will seek permission to appeal, so it appears likely that Mr. Justice Ramsey’s judgment will not be the final judicial pronouncement on the matter.

Duncan McCall QC
George Woods

4 Pump Court IT Group