Basic IT Contract Concepts – Surprisingly Obscure

January 30, 2013

It’s interesting how discussions at SCL events often move on beyond the advertised topics and on to issues that are of immediate interest to the attendees at the events. Clive Davies told me recently about how the discussions at the Question Time event before Christmas moved on to spend quite some around practice management and law firm developments – well outside the topics that had been advertised.

One of the key issues that cropped up in discussions a couple of times at the recent event on Financial Services IT issues was the ‘old chestnut’ (but still very valid issue) of the meaning of direct, indirect and consequential losses under English law. One of the issues under debate was whether financial services organisations have taken advantage of {i}British Gas v Accenture{/i} {[2009] EWHC 2734:} to expand the scope of the losses that are recoverable from their IT suppliers.

The position for the financial services organisations in the room seemed to be that they have not deliberately expanded the scope of the losses that they are seeking to be able to recover in their IT contracts but that the increased bargaining position of many financial services customers in the harsher economic climate means that they are more likely to succeed in obtaining the starting point liability positions, or at least something quite close to that position.

This debate led on to a discussion of what ‘direct, indirect and consequential’ actually means under English law. Learned opinion round the room was reluctant to commit to a specific view. The general conclusion seemed to be that it would be fruitful to spend some time on this topic at another event, potentially inviting a US lawyer to give a view on this topic and to review how these concepts fall within the general {Hadley v Baxendale:} principles. It seems quite a narrow topic for an event but it is a key issue for virtually all IT lawyers dealing with IT contract matters and so we ought to consider the topic for a future event, and not necessarily at a financial services IT contracting event.

Another issue that cropped up in discussion over drinks was the meaning of ‘material breach’ in an IT contracting context. I think this concept is a little clearer from the English cases than the concept of ‘indirect and consequential losses’ but it is probably worth looking at in more detail, particularly comparing the concepts of material breach and repudiatory breach and the linkages of these concepts with agreed limits of liability.

Richard Stephens will be presenting his {Contract Law Update in London on 5 February:} and this event could be an opportunity for the SCL to take stock of the position on some of these basic IT law concepts. We also need to map out the programme for the Back to Basic series of seminars later in the year and these concepts could be dealt with in that series.

Let me know through leaving comments to this blog if there are other basic IT contract concepts that we should focus on in future SCL events.