IT Contracts Seminar Report: Cases and Stories

February 9, 2011

Every IT contract case tells a story. So Richard Stephens had a lot of stories to tell in his masterly annual review of what happened in the courts in 2010. 159 slides to get through in two hours tells a story of its own but, with over half the audience attending for the second year in the row, it was obvious that they were eager for these new chapters. Inevitably a new volume will be needed next year.   

Richard kicked off by analysing the The Big One for the year, which in terms of award and pagination was of course BSkyB v EDS. In his view, the case is instructive but not notable for any major points of law. However, it does raise questions about the need for whistle-blowing in the tender process and about any expectation on the part of the purchaser to verify what has been claimed by the supplier. It also reinforces the need to try and nullify earlier representations made in the tender process. Richard returned to misrepresentation later in the talk with FoodCo v Henry Boot. In that case, claims of misrepresentation arose over the defendant’s projected customer numbers for a service station. The claim was rejected as the defendant had every reason to believe in the truth of their statements when they were made.  

The other Big One, was De Beers v Atos Origin. In this case, Atos had tendered for a project that mushroomed from what they thought was the original specification, even to the point where they walked off the project, claiming delays and obstruction by De Beers. Both sides then played the acceptance of repudiatory breach game. In the High Court the judge said that Atos had not made any attempts to complain about the delays and did not provide any concrete documentary evidence to support their claims. He also made clear that the commercial risk was with the supplier, who entered the contract with eyes ‘at least half-open’. Interestingly, the project had fallen between the two stools of agile and waterfall development. Atos felt that De Beers were taking liberties with the agile approach so they tried to put the project on a more traditional route. By then it was too late and no-one reviewed the underlying contracts to reflect this change.  

Before tea Richard looked at the perennial question of whether there is indeed a contract. The Supreme Court decision in RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh & Company KG (UK Production), a case rumbling on from last year’s talk, was particularly noteworthy on this issue. In that case, the two parties had started to work on a project but had not finalised the contract before things went pear-shaped. The tender had been under the terms of a standard MF/1 form that would not be effective until both parties exchanged. So what contract, if any, did the courts think was in existence? At first instance, it was held that there was a contract but one that did not incorporate the terms of MF/1. The Court of Appeal found there was no contract at all. The Supreme Court finally decided that it was commercially unrealistic to suppose that there was no intention to create legal relations and specifically decided that the parties had waived the requirement to implement the MF/1 in writing.  This conclusion, Richard noted wryly, jars with a line of recent decisions in the Court of Appeal that resisted attempts to strain to find a contract. Are those cases still right, he pondered? 

Refreshed after our break for tea, we were taken through the latest thinking on interpretation. The case of Westminster v Urban Wimax was noted for the judge’s comments on the poor drafting, resulting in arguments about what ‘on completion’ of the agreement meant. Urban Wimax had thought that it meant on ‘execution’ of the agreement which was thankfully rejected. Richard also updated us on the appeal in William Hare v Shepherd Construction, where a contract referred to termination by insolvency but was not updated to reflect changes in insolvency law.  At first instance the judge had refused to rewrite the contract and the Court of Appeal agreed as linguistic mistakes in commercial contracts will rarely be accepted. A note of warning was sounded though as the Supreme Court is waiting to hear an appeal in Enviroco v Farstad Supply, a case where the Court of Appeal had reached an opposite conclusion. 

Of course, the devil is in the T&Cs, particularly when deciding what is reasonable. For example, would you be in breach if you are obliged to use ‘all reasonable but commercially prudent endeavours’ to secure a planning permission but you withdrew the application just because the future King of England, the current Mayor of London and the Emir of Qatar opposed it? Well in CPC Group Limited v Qatari Diar Real Estate Investment Company the judge found that reasonable endeavours does not mean that the party subject to that obligation should always sacrifice its own commercial interests. Richard noted that several case have tackled this topic recently, the important lesson being that an obligation to use reasonable endeavours to agree is not the same as an obligation to come to a reasonable agreement. 

The final chapter of this volume was inevitably termination. At this point an earlier character re-emerged in the form of the De Beers v Atos case. Who was in repudiatory breach in that case? Well, as Atos had made it clear that they were suspending work until a new agreement was in place, they had no intention of being bound by the existing contract and so were in repudiatory breach. 

This abridged version does not do any sort of justice to breadth and subtlety of Richard’s talk, so by way of an ending, I can do no better than implore you to listen to the podcast of the original – coming very soon to the SCL web site. 

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