Sky wins IT case worth hundreds of millions of pounds as liability clause not upheld because of fraudulent misrepresentation by EDS in sales process – Sky v EDS, High Court

Sky has won a long-awaited landmark case against EDS that is bound to have massive implications – not just for all IT contracts, but also for any business that has sales-people that push the boundaries of what is true when securing a deal. In the case, Sky ordered a Customer Relationship Management system from EDS. The system did not do what Sky had wanted. The parties fell out. Sky claimed damages for £700m, even though the system only cost Sky £50m. EDS claimed that it was not the system which was at fault, but Sky’s unclear requirements. EDS argued that Sky had wanted an all-singing all-dancing system without any idea of what exactly it wanted. Sky took a different view and said EDS had promised something which was not delivered. According to Sky, EDS had claimed that its system was proven leading-edge technology and had overstated its capabilities in implementing the system.

The High Court has sided with Sky and the cap on liability in the contract does not apply. Consequently, the losses claimed by Sky could far exceed the contract price, although a separate hearing will take place to ascertain the amount of losses. In itself, this case is a massive result, even though full details of the judgment are yet to be published.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘This is the biggest IT case for many years. As an indication of how big this case has been, the combined legal fees of the parties so far has exceeded the contract price of £50m! Regardless of the hundreds of millions involved, though, this case has massive implications. Liability clauses need to be very carefully drafted to try to limit a party’s liability. For example, many clauses try to limit liability to x% of the contract price. However, no liability clause can exclude or limit liability for fraudulent misrepresentations.

‘Although we have not yet seen the finer points of the judgment and it may also yet be overturned on appeal, this case will send shock waves through the entire IT industry, and indeed any industry where salespeople operate and stretch the truth. If they promise something which is not true and the other party enters into a contract in reliance on those promises, that other party may be able to claim unlimited damages if the thing promised does not materialise. There will be a lot of businesses that should now be concerned about the legal implications created by their sales staff.’