The Tale of the Doomed IT Contract: A Report on the IT Contract Update seminar

February 25, 2010

Nearly 80 people accepted the SCL’s offer to listen to a review of the year’s key contract cases presented by former SCL Chair, Richard Stephens. If there were any implied warranties about quality and usefulness, they were surely satisfied as he provided a masterful, condensed overview of the current state of judicial thinking, using examples from all branches of commerce and identifying how the decisions should inform the practice of IT lawyers.

The talk was structured so that it followed what a cursed IT project contract might look like (if everything went wrong) from pre-contract to dispute. First up was the matter of interpretation and  the decision of the House of Lords in Chartbrook v Persimmon Homes. In the light of that case, Richard pondered whether there should be a recital in agreements concerning interpretation, though that could lead to the general meaning of terms triumphing over a specific technical meaning when it is buried deep within the agreement. Also, is it advisable to put in numeric formulas (checked by someone more comfortable with numbers than the speaker!)? After all the dispute arose over a payment clause: on a plain English reading Persimmon owed millions but, after the appeal, they ended up owing just thousands. Definitions should also be thoroughly checked as it never ceased to amaze Richard to find that defined terms are not actually deployed in the body of the contract itself.

Richard then tackled pre-contract obligations, misrepresentation and whether contracts even exist at all. He cited the case of Fitzroy Robinson v Mentmore Towers, where a firm of architects knew that a key member of the team specified in a contract was leaving but neglected to tell the client. The architects first sued for their fees but the client counterclaimed on the grounds of fraudulent misrepresentation and the High Court judge agreed.  Other cases tackled included RTS v Muller, where the Court of Appeal found that there was no contract between the parties as the respondent’s T&Cs specified that such a contract only came into existence on exchange of counterparts, and Grant v Bragg [2009] EWHC 74 (Ch) where the Court of Appeal found that email correspondence did not constitute a contract as the parties were clearly not “ad idem”. Summing up before tea, Richard noted the common theme of High Court decisions being overturned on appeal. He speculated that this might be happening because the High Court judges, having heard all the evidence and seen the witnesses, are striving to arrive, erroneously, at a just result.

After a quick slurp of tea, we moved on to when contracts are actually in place and when they go wrong, again giving rise to disputes over interpretation. Although not a binding precedent, Richard mentioned the Privy Council decision in Attorney General of Belize v Belize Telecom , where there was confusion over the meaning articles of association. These set out that a specified shareholder could appoint two directors provided the shareholder held a certain number of shares. However there was no mechanism in place to remove the directors if those shares were divested, as subsequently happened. Lord Hoffman implied a term that the directors should be removed as the contract otherwise made no sense, though implying a term was not the starting point. This reasoning was applied just three months later in the Court of Appeal in the case of Mediterranean Salvage v Seamar Trading, though here Lord Justice Clarke also emphasised that the implied term must be necessary to make the contract work.

On the final stretch, cases on the meaning of all / best / reasonable endeavours, IPR clauses – which as Richard pointed out are becoming ubiquitous – UCTA and the operation of dispute resolution clauses were all expertly dissected. He finished with the salutary, directly relevant, lesson of GB Gas Holdings (aka Centrica) v Accenture, where the respondents had sought to hide behind limitation of liability clauses for alleged losses arising from the implementation of a new computer billing system. The new software had sent out inflated bills to customers totalling £18m. In the High Court, the judge agreed that Centrica could claim for damages for their losses and that additional borrowing costs (£2m), compensation they had to pay to customers (£8m) and additional debt chasing costs, among other items, were not excluded by the clause.

The seminar has been recorded and so will be available shortly to all members on this website. I would urge you all to listen to this at your leisure (for which you can also claim CPD) as this short report can provide nothing more than a quick taster of the range of issues covered on the night.

David Chaplin is an SCL member and director of Bath Publishing, online law publishers.