In previous articles we looked at the common reasons why IT projects go wrong and the steps parties can take to manage a project which is slipping off track. In this two part article we consider the resolution of a dispute through legal proceedings. In this part, we review the fundamental issues of preparation, issuing proceedings and evidence. Part II will look at settlement negotiations and the trial.
Preparation for legal proceedings
No commercial party will welcome legal proceedings and preparation may seem disheartening, destined to make proceedings more rather than less likely. However, as noted in our previous article, a party which finds itself involved in a spiralling dispute should take steps to ensure its position is best protected. These include preservation of evidence, continued compliance with contractual obligations and refraining from making any admissions.
It is also important for both parties to be aware of the dispute resolution provisions in the contract and to ensure they follow the stipulated processes. In some contracts, the dispute resolution clause will be straightforward, simply stating whether a dispute should be resolved by court proceedings or arbitration. Other contracts contain a more detailed dispute resolution procedure requiring the parties to escalate the dispute through various levels of management and possibly mediation, with court or arbitration proceedings as the last resort.1
These processes will require co-operation between the parties. Sometimes compliance by one (or both) of the parties takes the form of going through the motions in the knowledge that legal proceedings are inevitable. However, we would encourage parties to make proper attempts to resolve the dispute through co-operative engagement. Non-compliance with contractual provisions is generally viewed negatively by a judge or arbitrator. More significantly, resolution of a dispute at an early stage can avoid very significant legal costs and commitment of management time better directed towards more constructive endeavours on behalf of the business.2
If pre-action engagement does not lead to a resolution of the dispute, legal proceedings may follow. In the remainder of this article, we focus on the various stages of a dispute in the Courts of England & Wales. Broadly similar procedures apply in the Courts of Scotland, Northern Ireland, Republic of Ireland and other common law jurisdictions. Where a dispute is to be referred to arbitration, the processes to be followed will depend on the arbitral rules stipulated in the contact. Generally speaking, the stages are similar to the stages of court proceedings, but the processes followed at each stage (such as the approach to disclosure) will differ depending on the applicable rules.
In most large-scale IT disputes, the matters in contention will be well known to the parties prior to commencement of proceedings as the factors contributing to project failure will have been discussed by project managers, in governance meetings and probably at management level. However, there remains the requirement for a party advancing a claim to write to the other party setting out in detail the basis of the claim and the recovery sought (usually payment of damages in some shape or form).3 If it fails to do so, it may face criticism from the judge and possibly sanctions in costs following trial.4 The defendant party should be given a reasonable period to respond to the letter of claim before proceedings are commenced. There will often be a counterclaim, which will be articulated in the letter of response.
All disputes are dependent on their facts, but many disputes arising from IT projects involve a variant of:
1. the customer claiming damages for the supplier’s failure to deliver the system as contracted (or expected), and the supplier counterclaiming for unpaid costs of delivery; or
2. the supplier claiming payment of unpaid costs of delivery and the customer counterclaiming for return of monies already paid or payment of the additional costs required to implement a system equivalent to the one which the customer considers the supplier should have delivered.
There may be broader claims including loss of profits. Contractual limitation and exclusion of liability clauses may come under close scrutiny. Most claims are based on breach of contract and often there are also tortious allegations, the customer alleging that the supplier was negligent in the performance of its obligations and failed to exercise the care and skill expected of a competent service provider. Some claims involve allegations of misrepresentation and sometimes dishonesty, such as the customer claiming that the supplier made misleading comments to secure the customer’s business.
Often the letter of claim prompts an exchange of correspondence and there may be a final attempt to resolve the dispute before issue of proceedings. Direct involvement of external lawyers (and possibly engagement of experts) at this stage may bring another dimension to negotiations. However forcefully lawyers advocate their client’s case in correspondence, they should give balanced and impartial advice behind the scenes, making their client aware of the weaknesses in its arguments and the risks (and costs) of pursuing or defending a claim.
If the dispute is still not resolved, the claimant party can commence proceedings by issuing and serving a Claim Form together with Particulars of Claim which will contain details of the nature of the dispute, the legal basis of the claims and the damages or other relief sought. When commencing proceedings, the Claimant will need to consider which division of the court should determine the dispute. The Technology and Construction Court is an obvious forum for most IT disputes, with specialist judges and facilities suited to the conduct of trials which involve technical project-related documents.
Over the following months, further statements of case will be served by the parties. The defendant will set out its position in a Defence and may advance a Counterclaim. Further documents of a similar nature may follow. If one party considers that the other should provide further details at this stage it may formally request Further Information. It is incumbent on the parties to provide the information necessary for their positions to be understood. That said, whilst the parties’ statements of case should contain appropriate levels of detail, there are limitations. For example, statements of case will contain only limited information concerning evidence, outline legal arguments and often estimates of damages sought. Further details will emerge as the dispute progresses.
Some disputes can be resolved entirely by legal argument, such as disputes concerning the interpretation of ambiguous wording in a contract. Most are determined by reference to a combination of legal argument and evidence. There are typically three forms of evidence at the trial of an IT dispute: documentary evidence, witnesses of fact and expert evidence.
Timetable for exchange of evidence
The timetable for the exchange of evidence will be agreed by the parties or, if they cannot agree, determined by the court. This usually takes place at a procedural hearing known as a Case Management Conference and other matters relevant to the conduct of the proceedings will also be addressed at that hearing, such as outstanding issues relating to the parties’ statements of case, permission for the parties to rely on expert evidence and the parties’ estimates for the length of trial.5
A date will be fixed for exchange of documentary evidence. Exchange of witness statements will be scheduled several weeks thereafter, and exchange of experts’ reports several weeks after witness statements. There may also be provision for supplemental witness statements and supplemental experts’ reports at appropriate points in the timetable.
The sequencing of the different types of evidence facilitates efficient conduct of the proceedings. Witness statements often comment on matters raised in documentary evidence, and the fact that witness statements follow disclosure enables all relevant documents to be taken into account. Experts’ reports draw from information presented both in documents and witness statements and it is helpful for an expert to have access to the other side’s witness statements before reports are exchanged.
However, the approach of the parties to collating evidence should not follow the same fixed linear sequence. A party should consider at an early stage all the evidence it will need to make out its case. Relevant matters should be discussed with witnesses early, in a privileged context, and appropriate experts should be identified and may be engaged at an early stage (often prior to the commencement of proceedings). This front-loaded approach will help to limit the time pressure which is often experienced when deadlines for exchange of evidence are looming. It will also assist a party’s legal team to understand the issues. For example, if ambiguous documents are discussed with potential witnesses at an early stage, misunderstandings which could otherwise take hold may be averted.
Documents generated during or prior to the project are often crucial for determination of the issues in dispute and where fault may lie. Exchanges of email between customer and supplier prior to commencement of the project may help to establish the parties’ understanding of what was to be delivered.6 Project plans and artefacts are relevant to the delivery of the project and the reasons for delay. Notes of governance meetings can help to tell the story of why the project drifted off track and the relationship between the parties turned sour. In circumstances where one party “holds the pen” in preparing the notes of governance meetings, informal notes taken by both parties at those meetings can also be of assistance.
Documents are put in evidence by way of disclosure, a formal process which requires each party to identify and if required provide copies of documents in its control which are relevant to the issues in dispute. As soon as a party is aware of a potential dispute, it must ensure that all documents which may be relevant to the dispute are preserved. This can involve suspending all routine document destruction procedures (potentially including overwriting of back-up tapes) and sending to all employees and contractors involved in the project a notice that they should preserve all relevant documents, known as a litigation-hold notice.
The commonly adopted standard approach to disclosure requires each party to disclose all documents which assist or harm its case or assist the other party’s case. This has the benefit that all relevant documents are available to all parties - a party is not able to conceal deficiencies in its case by supressing harmful documents. The downside is that a significant volume of documents can be generated during a large project, sometimes many millions. The efficient resolution of a dispute can be hindered by the disproportionate cost of reviewing documents and the risk that relevant documents may escape attention due to the sheer volume of material. Fortunately, the courts have shown an increasing willingness to agree to the parties using technologies with machine learning algorithms to assist in the review process .
A number of variations to the standard disclosure model have been introduced to encourage the parties to adopt a more focused approach to disclosure. These can include a requirement for parties to provide copies of the key documents with their statements of case or the parties agreeing a limited issue-based approach to disclosure. However, whichever approach is followed, a party remains obliged to disclose documents which harm its case and if it fails to disclosure such documents a judge will take a dim view of its conduct.
Disclosure is rarely a straightforward process and the adequacy of the parties’ disclosure is often a matter of heated contention. Many disputes involve several applications to the court for orders that a party should carry out further searches if there appear to be gaps in its disclosure. This, unfortunately, is a frequent feature of an adversarial legal system. Parties should expect that their disclosure will be challenged. The best protection is to ensure the preservation, collection and review processes are carried out as diligently as possible and a clear audit trail is maintained.
A complete, unambiguous and accurate documentary record of a project would facilitate a quick and decisive resolution of any dispute; indeed, it would minimise the scope for disputes at all. However, the documentary record is rarely anything approaching complete, unambiguous and accurate. Whilst a project is running well and there is no sense of crisis, those engaged on the project do not expect their comments and actions to be called into question. In those circumstances, many important conversations are not evidenced in writing. If the project is in distress, documents such as emails and minutes of governance meetings may be biased or self-serving. Those producing such records are likely to draw attention to the shortcomings of others and away from their own. Even everyday project documents may be subject to ambiguities. Project plans and other artefacts may be easy to interpret by those who produced them but lack context when reviewed by people not involved in the project.
The gaps and ambiguities in the documentary record can often be addressed by evidence at trial from individuals who have direct knowledge of the issues in dispute. If a party wishes to rely on witness evidence, it must (in most cases) provide a written account of that person’s involvement in the project and recollection of the issues to which his or her evidence relates.
The preparation of a witness statement should be approached with care. A witness must be able to speak truthfully and authoritatively about the issues which are to be covered by his or her evidence. Most importantly, the contents of the witness statement should be the witness’s own evidence based on the witness’s recollection of events and in the witness’s own words. Documents can be useful prompts of memory and witness statements often reference key documents. However, witness evidence which simply recites documentary evidence will be of little benefit to the judge unless it clearly explains ambiguities or inaccuracies in the documentary record.
The selection of witnesses is also important. A complex IT project can involve engagement of large teams by both the customer and the supplier. It will not be practical to call as witnesses all the individuals involved in the project and nor will it be desirable. The court will only benefit from evidence of witnesses with direct knowledge of the issues in dispute. Often the parties will call one or two witnesses who are able to cover broad aspects of the project as well as specific issues. They can set the scene from that party’s perspective. For example, the customer may rely on evidence from its CIO or other key sponsor to explain the importance of the project for the customer and why the supplier was appointed. The supplier may rely on evidence from its project manager to explain its overall approach to the project and why that approach was hindered by the customer. Other witnesses may address specific issues which represent narrow aspects of the project but significant matters of dispute.
Although there may be few witnesses relative to the number of people involved in the project, absence of a witnesses whose evidence would assist in relation to key issues can leave serious gaps in the evidence, leading to assumptions that an individual is not being called to give evidence because his or her evidence will be unhelpful.
For example, if a key issue is the management and stability of the customer’s project team and its provision of resources to advance the project, absence of the customer’s project manager may suggest that its legal team were concerned about what that witness would say under cross-examination. If the dispute involves an allegation that the supplier misrepresented the capabilities of the system or its ability to deliver, absence of a key individual from the supplier’s bid team may give rise to similar assumptions.
Such assumptions can often be misplaced. Few people would relish appearing as a witness in a legal dispute, subjecting themselves to cross-examination in the unfamiliar environment of a courtroom. It should not always be concluded that the absence of a key individual has negative connotations. Other factors may come into play such as an individual’s other commitments (if no longer an employee of one of the parties) or personal circumstances. However, it remains the case that a party may face difficulties in making out its case if key evidence is missing.8
There may be issues in dispute which cannot be determined by reference to documents and witnesses of fact, and on which the Judge may benefit from opinion evidence from an industry expert. For example, there may be contention concerning the suitability of the IT system to meet the customer’s requirements – did the supplier recommend the appropriate software or should it have suggested an alternative? There may be issues concerning the diligence applied by the parties’ delivery teams – did they follow a suitable methodology, were resources adequate and properly deployed. Did the supplier perform its obligations in the manner expected of a reasonably competent service provider?
If there are issues of this nature, the parties may wish to appoint an IT expert to provide opinion evidence, with the permission of the court. Sometimes a single expert will be instructed jointly by both parties. Usually the parties will each appoint their own expert. There are strict rules concerning the appointment of and conduct of experts. Whilst experts will be appointed and paid by one of the parties, their role is to assist the Judge in understanding the issues, and their over-riding duty is to the court.
An expert must be selected with care to ensure that he or she has the appropriate level of expertise to reach and explain opinions on the expert issues which need to be determined. In many cases those issues are common to IT project delivery and an expert with broad experience will be preferable. In other cases, the issues may require expertise in a very narrow field, or the type of IT project may be very industry specific and an expert with more focused experience or industry knowledge will be better suited. Another factor will be the expert’s experience of providing evidence in IT disputes, in particular courtroom experience.
Where matters of opinion come into play, there can be disparities of views even amongst industry experts who are equally experienced and well regarded. The Judge may therefore be presented with conflicting opinions, each of which may appear compelling at least in some respects. The Judge will have to decide which opinion is to be preferred, taking account of the circumstances of the case, the other evidence and legal issues.
In practice, the parties will take steps to bring focus to the expert evidence and narrow the points of contention before trial. Often, they agree a list of issues for the experts to consider, thus narrowing the areas of contention and establishing common ground. The experts will devise approaches for addressing the issues. They will exchange opinions on definitions and method, to be agreed if at all possible. This assists the court later in comparing findings and opinion. The experts will prepare and exchange written reports setting out their opinions on those issues, by reference to documents and witness evidence. There may then follow further exchanges of reports in which each expert responds to the opinions expressed by the other.
In formulating views and drafting their reports, the experts will consider relevant evidence and may carry out broader investigations and analyses depending on the nature of the dispute and points in issue. For example, their investigations may call upon test and defect systems and reports, systems used by the delivery teams to undertake the project and manage computer code. Sometimes they will conduct tests themselves directly on the systems in question. Their central task is to assess all the evidence which may be relevant, pull together the evidence on which they rely and form opinions based on that evidence, always with reference to the issues they have been instructed to consider. Cause, effect, entitlement and substantiation are coherently drawn together. This is an ordered and reasoned process. Assertion unsubstantiated by evidence is likely to be seized upon in cross-examination.
The experts may meet on a without prejudice basis and if possible, they will identify points on which they agree and points on which they disagree. Those points will be recorded in a Joint Statement which will form part of the court record and the focus at trial will on the points of disagreement.
The client’s project team will be emotionally invested in the work that they carried out to implement the IT system and will wish for their perceptions of the reasons for failure to be heard and given suitable weight by the client’s expert. The legal team will be keen to ensure that privilege is maintained and that there can be no suggestion that the expert’s views are anything other than impartial and that he or she has been provided with all relevant materials. Should an expert be shown to have reported something that is not their own independently formed opinion, their evidence will be discounted. For these reasons, direct contact between the expert and the project team is minimised, heavily mediated by the legal team and any important evidence relevant to the expert issues is appropriately reflected in witness statements. A good expert is sensitive to the client’s emotions and desires, engaging diplomatically and supportively whilst retaining independence and integrity of the process.
In some cases, the legal team may benefit from input from an IT consultant independent of the client to help them understand some of the more complex aspects of the system and assist with collation of evidence. In those cases, it is prudent to appoint a second IT expert who will operate independently of the expert engaged to provide opinion evidence. This enables the legal team to obtain the benefit of IT expertise in the development of the client’s case without risk to the impartiality of the expert who will provide opinion evidence.
In many disputes opinion evidence will be required in other fields of expertise as well as IT. For example, there may be forensic accounting experts to assist the Judge with the assessment of damages. If the claim involves an allegation that the customer lost market share due to the failure of the project, economists may be appointed to provide opinion evidence to substantiate or refute that allegation. Whatever the discipline, the same principles will apply as set out above.
Lee Gluyas is a partner at CMS who specialises in managing disputes in the technology and telecoms sector. He is a member of the Society of Computers and Law and can be contacted on +44 20 7524 6283 and firstname.lastname@example.org
Stephanie Woods is a Senior Associate at CMS who specialises in disputes in the technology and media sector. She can be contacted on +44 020 7067 3239 and email@example.com
William Hooper acts as an expert witness in IT and Outsourcing disputes and a consultant in service delivery. He is a member of the Society of Computers and Law and a director of Oareborough Consulting. He may be reached on +44 7909 958274 or William@Oareborough.com
Notes & references
1. We consider dispute resolution clauses in more detail in the final article in this series.
2. The parties may wish to consider referral of the dispute to the SCL Adjudication Scheme even if not mandated in the contract - SCL: Society for Computers and Law Adjudication Scheme (SCLA)
3. Paragraph 3 of the Practice Direction on Pre-Action Conduct and Protocols makes clear that before commencing proceedings the court will expect the parties to have exchanged sufficient information to (a) understand each other’s position; (b) make decisions about how to proceed; (c) try to settle the issues without proceedings; (d) consider Alternative Dispute Resolution to assist with settlement; (e) support the efficient management of any proceedings; and (f) reduce the costs of resolving the dispute.
4. Paragraph 13 of the Practice Direction on Pre-Action Conduct and Protocols.
5. There may be several case management conferences during the conduct of a lengthy dispute, and a pre-trial review a few weeks before the trial.
6. This will be particularly relevant if the customer claims that the supplier misrepresented the functionality of the system or its capability to deliver it in order to secure the contract.
7. It is possible for a party to compel a witness to attend trial by service of a witness summons. Parties often follow this procedure as a matter of course for all witnesses and it has a number of benefits. For example, a witness who is not engaged by either party may find it easier to justify absence from work if compelled to attend court. However, compelling attendance by an uncooperative witness can present a number of challenges and will require careful consideration.