Don’t Oversell: The Misrepresentation Problem

March 28, 2010

The resounding message that comes out of the BSkyB case (BSkyB Limited & ors v HP Enterprise Service UK Limited & ors [2010] EWHC 86 (TCC)) for IT suppliers is ‘don’t oversell’. The fear is that, as a result of this high profile case, in all troubled projects in future the spotlight will now fall on statements and representations made with a view to bringing claims in misrepresentation. But how big a problem is this really for IT suppliers? 

The facts of BSkyB are by now well known. In short, EDS was selected to design, build and implement a new CRM system. The parties entered into a letter of intent, followed by a formal contract. Problems arose almost immediately, leading to a renegotiation of the contract and resulting in a letter agreement. Problems persisted; BSkyB eventually took over EDS’s role on the project and sued for damages of £709 million arising from delays and cost overruns. As well as claiming for breach of contract, BSkyB alleged fraudulent and negligent misrepresentation based on a number of representations which it alleged EDS had made at various stages in the tender and contract process.  

Although the scale of the case is larger than usual, the underlying problems of delay and cost overruns are not. Of the five allegations of fraudulent misrepresentation made, one was upheld. EDS had represented that it had carried out a proper analysis of the elapsed time needed to complete the initial delivery and go-live of the contact centre and that it had reasonable grounds for holding the  opinion that it could deliver within agreed timescales. The judge found that the CRM practice managing director at EDS (the controlling mind) had approached the whole question of timescales in a cavalier fashion, knowingly proffering timescales which he thought were those that BSkyB desired, rather than offering timescales for which there was a reasonable basis. His conduct went beyond gross carelessness and was dishonest and had induced BSkyB to sign the contract.  

The negligent misrepresentation that was upheld arose out of statements prior to the letter agreement that amounted to a statement that EDS had developed an achievable plan, the product of a proper analysis and re-planning. It was not and was made negligently. 

A judgment in another TCC case a few months before the BSkyB case, this time a construction case is also potentially relevant to IT projects. In Fitzroy Robinson Limited-v-Mentmore Towers Limited & ors [2009] EWHC 1552 (TCC), a firm of architects were found liable for damages to their client for fraudulent misrepresentation. The representation was that a particular named architect would be involved throughout a three-year project. The court found that the firm knew at the outset that he would not be involved but did not tell the client for fear of losing the job because of the significance to the client of that individual architect.

Proving misrepresentation is rarely easy. It requires proof not only of the representation made, but also of its meaning and its falsity and reliance on its truth by the representee. This means that the clearest evidence will be required. In addition, knowledge of falsity or recklessness by the representor will need to be proven to establish a case in fraudulent misrepresentation. In the BSkyB case, the credibility of EDS’s main witness seems to have been destroyed in cross examination on the issue of his MBA from Concordia College in St John in the US Virgin Islands. In the face of evidence that the College was not there, and that BSkyB’s counsel’s pet dog had obtained a similar qualification over the Internet for a fee from Concordia College, albeit with a higher mark, the witness continued to assert his claim. Despite this, BSkyB only succeeded on two misrepresentation claims. This perhaps indicates how difficult misrepresentation claims can be to prove. 

So how should an IT supplier avoid such claims? Simple: don’t mislead customers. When making any claims or assertions about delivery it is essential that the supplier gives proper consideration to the claims that are made (eg in relation to resources or delivery times) and that, if challenged later, the supplier can demonstrate reasonable grounds for holding any view expressed.  Care is needed not only at the outset of the project but also during it – the negligent misrepresentation in the BSkyB case was made during the  renegotiation and induced BSkyB to enter into the letter agreement.  

There will be no contractual protection available to a supplier if fraudulent misrepresentation is proved.  No exclusion of liability clause will provide protection, nor will a cap in those circumstances.  However, it is possible to exclude and limit liability for negligent misrepresentation providing the wording is clear.  

Undoubtedly there are significant risks for suppliers that overstep the mark but by ensuring that claims and promises made in the course of any negotiation can be reasonably justified, problems should be avoided.  

Michael Frisby is a Dispute Resolution Partner and Member of the IT group at Stevens & Bolton LLP: