The Sky’s the limit – an IT case affecting any type of goods or services contract

After 7 years in the legal arena, including 110 days in the courtroom, Sky has finally proved fraud against EDS.

On 26 January 2010, the Technology and Construction Court in London ruled that EDS had “deceitfully induced” Sky into entering into a contract for new Customer Relationship Management technology for use in Sky’s call centres. The contract value was not a small matter either – £54 million is a lot of money by anyone’s standards. Damages payable by EDS are still to be assessed but, based on comments from Sky’s barristers, are likely to exceed £200 million.

Other postings on our website have already showcased, in other contexts, the nature of spiralling court fees due to court rules – and this case demonstrated again that, particularly in technology matters, this is ever more true.  The fees spent by each side far exceeded the value of the contract. The case itself was huge in every sense of the word, being one of the largest cases ever to come to trial in an English court. There were 70 witnesses called and over half a million documents were scrutinised.

In this case, Mr Justice Ramsey found from the evidence that:
(i) the head of the CRM practice at EDS had been dishonest (the key words) in the EDS bid to win Sky’s business;
(ii) EDS had made an actionable misrepresentation to Sky in order to induce Sky into a form of settlement agreement after the project failed;
(iii) EDS was in breach of contract for the whole time it was the systems integrator;
(iv) but for EDS’ deceit (the crucial ‘but for’ test), Sky would have contracted with PwC instead; and
(v) it was untrue that Sky had failed to mitigate its loss after EDS had been removed as systems integrator. (It is a requirement of English contract law that the innocent party to a breach of contract mitigate its loss, else it cannot recover that loss from the breaching party, to the extent of its failure to mitigate.)

So – if this is landmark IT case, why is it also of such great significance to anyone contracting for any type of goods and services? The reason is that any business that has sales-people who are “economical with the actualité ” (in the words of the late Alan Clark) when securing a deal – will be called to account if that deal goes wrong. And most crucially any caps on liability (or exclusions of liability) which were carefully placed into a contract will be ignored. Damages could (and frequently will) be huge – as in this case.