The Risk of Not ‘Reaching for the Contract’

Monica Connolly and Eilidh Smith offer a case review of David MacBrayne Limited v Atos IT Services (UK) Limited and point out the lessons that might be taken from the case

David MacBrayne Limited v Atos IT Services (UK) Limited [2018] ScotsCS CSOH 32 is a recent dispute between an IT service provider and a customer which demonstrates the importance of complying with the provisions of a contract, and that the use of ‘commercial common sense’ arguments in the interpretation of contractual obligations is not always successful.

The facts

The case, heard before Lord Doherty in the Outer House of the Court of Session in Scotland, concerned a dispute between David MacBrayne Limited, a ferry operator, and Atos IT Services (UK) Limited, an IT service provider with whom MacBrayne had entered into an agreement for the supply of a digital platform for a ticketing and reservation system (the Agreement).

The Agreement set out milestones which Atos were required to meet by specified dates. There were significant delays in the project and the milestone timetable was varied. After a later agreement between parties to suspend performance of obligations under the Agreement, MacBrayne terminated the Agreement on the grounds of a material breach. The material breach was, MacBrayne argued, first, that Atos had failed to achieve a certain milestone by the relevant date and, second, that Atos had failed to achieve three other milestones.

Atos, in defence and in their counter-claim, challenged MacBrayne’s right to terminate the Agreement on the basis that it had contributed to the failure to meet the milestones. Atos argued that the termination was therefore wrongful and as such was in itself a material breach of the Agreement.

The decision

Interpretation of the Agreement

Obligations on MacBrayne in terms of a subcontract

Part of the Agreement was subcontracted by Atos, with the consent of MacBrayne, to a third party. Atos sought to argue that, as MacBrayne had agreed to this subcontract, it was obliged to investigate the subcontracted services to ensure their satisfaction.

Lord Doherty concluded that this was not the case. MacBrayne’s requirements under the Agreement were output-based, and the subcontracting of some of the services did not ultimately affect Atos’s obligation to meet these requirements. Atos was still required to ensure that the overall package of services being delivered satisfied MacBrayne’s output-based requirements.

Obligation of MacBrayne to provide detailed specification of requirements

Paragraph 2.1.4 of Part 3 of the Schedule to the Agreement imposed an obligation on MacBrayne to use all reasonable endeavours to provide such documentation, data and/or information that Atos reasonably requested and which was necessary for Atos to perform its obligations under the Agreement.

Atos sought to argue that this paragraph, properly construed, obliged MacBrayne to provide Atos with a detailed specification of their requirements in sufficient time for Atos to comply with the obligations in the Agreement, and that, if this did not expressly impose such an obligation, it should be implied. Atos further argued that MacBrayne had breached this obligation.

This argument did not persuade Lord Doherty, who decided that the language of para 2.1.4 was indicative of a responsive obligation, rather than a requirement on the part of MacBrayne to articulate the granularity of the services required to Atos. MacBrayne was required to provide documentation or information which Atos reasonably requested as necessary, but Atos was still primarily responsible for analysing and capturing the requirements for the services. It was a matter for Atos how it decided to deliver the outputs of MacBrayne.

Obligation of Atos to give notice of delays

The parties had opposing arguments on the interpretation of clause 5 of the Agreement. Clause 5 provided:

‘5.1 If, at any time, [Atos] becomes aware that it will not (or is unlikely to) achieve any Milestone by the Milestone Date it shall, as soon as reasonably practicable, notify [MacBrayne] of the fact of the Delay and summarise the reasons for it

5.2 [Atos] shall, as soon as reasonably practicable and in any event not later than ten (10) Working Days after the initial notification under clause 5.1 give [MacBrayne] full details in writing of:

5.2.1 the reasons for the Delay;

5.2.2 the consequences of the Delay; and

5.2.3 if [Atos] claims that the Delay is due to [a MacBrayne] Cause, the reason for making that claim.’

MacBrayne submitted that this obliged Atos to (1) notify MacBrayne if it became aware that it would not achieve a milestone timeously, and (2) give MacBrayne full written details of this position within 10 days, and Atos failed to do either of these.

Atos argued that these were merely procedural requirements upon which a claim for compensation for a delay (as provided for at clause 7.4) was reliant and were not relevant beyond that. Its position was that it had not provided notice under this clause as it had attempted to adopt ‘a co-operative and facilitative approach’, rather than ‘reaching for the contract’. Therefore, at no stage prior to any of the milestone dates, had it given notice that the failure to achieve the milestone was likely due to fault on the part of MacBrayne. MacBrayne had never raised the issue of the need for such notices and both parties were working collaboratively to progress the project, so Atos reasonably believed that service of notices under clause 5 was not required.

However, Lord Doherty applied an ordinary reading of these provisions and held MacBrayne’s interpretation to be correct. He found that clause 5 applied in all cases where Atos became aware of a likelihood of a failure to meet a milestone date, regardless of the cause and whether it would give rise to a claim for compensation under clause 7.4. In all such cases MacBrayne would have ‘an obvious interest’ in obtaining the relevant notification and information so that it could respond appropriately. Accordingly, Atos should have served notices under this clause.

The result

Lord Doherty held that Atos’ failure to achieve the milestones was a material breach which was irremediable, and so MacBrayne was entitled to terminate the Agreement.

Lord Doherty ordered payment of damages by Atos to MacBrayne, in respect of milestone payments made by MacBrayne which were ultimately wasted expenditure once the Agreement was terminated.

Lessons to be learned

There are three lessons to be learned from this decision.

Firstly, if services are subcontracted by a supplier, as is often the case in IT and outsourcing contracts, it is important to note that this does not affect the supplier’s obligation to meet the requirements of the customer, even if the customer is aware of and agreed to the subcontract.

Secondly, a general obligation on the customer to use all reasonable endeavours to provide information or documentation to the supplier means that the customer is required to use such endeavours to respond to requests from the supplier, but does not affect the supplier’s primary obligation to meet the customer’s requirements and decide how the requirements should be met.

Thirdly, and most importantly, in his judgment, Lord Doherty summarised Atos’s approach to the supply of services to MacBrayne as being: ‘Generally…to seek to accommodate the pursuer’s requirements without “reaching for the contract”’. Essentially, Atos sought to build a facilitative commercial relationship with MacBrayne and so were weary of giving notice of delays which meant that milestones would not be achieved. This is an issue often encountered by suppliers. In an ongoing, professional relationship, it often seems more prudent to adopt a commercial approach instead of ‘reaching for the contract’. However, this case highlights the risks of such an approach, and the importance of complying with notice requirements. 

Monica Connolly is an Associate, and Eilidh Smith is a Trainee Solicitor, in the dispute resolution and litigation department of Brodies LLP.

Published: 2018-06-13T09:30:00


    • This is of broad relevance. Thank you.
      William Hooper, 17:35:13 20/06/2018
    • Excellent summary - thank you
      Chris James, 09:52:08 15/06/2018
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