Red Sky supplied booking and billing software to a busy hotel, Kingsway Hall. ‘Entirety’ was a standard system, but Kingsway soon had trouble with it. The system failed to show room availability, group bookings did not work properly and the screens froze. Kingsway gave Red Sky opportunities to fix, but after a few months Kingsway had had enough and terminated because the software still did not work properly. Red Sky sought to rely on clauses in its contract which sought to exclude all terms other than the contract, have a warranty that the software would provided the facilities and functions under the operating documents, limit the sole remedy for breach of that warranty to providing support and maintenance cover, exclude loss of profits, and to limit liability to four times the price paid for the software. The High Court agreed with Kingsway that the clauses were unreasonable and therefore unenforceable under the Unfair Contract Terms Act 1977. Kingsway could therefore claim £50,000 for lost profit and goodwill, £24,000 for wasted expenditure on Entirety, and £38,000 on wasted additional staff cost and time.
The High Court said that the warranty did not apply because no operating documents had been provided by the time of the contract. There was therefore a disconnect between what Red Sky provided in its contracts and its actual processes. Instead of the contractual warranty, implied warranties applied based on the Sale of Goods Act and Supply of Goods and Services Act (notwithstanding that the contract terms had purported to exclude those terms) as no other reasonable warranty applied. The software was not of satisfactory quality or fit for its purpose. In addition, the exclusions and proposed cap on liability did not apply because, in deciding upon reasonableness, the judge took account of the fact that the parties were not of equal bargaining power, the standard terms had sought to exclude the statutory implied terms without providing reasonable replacements, and Kingsway did not know of the existence of the exclusions and limitations on liability. The judge sided with the customer to a large part based on its inability to satisfy itself with the system unless there were clear demonstrations or operating documents.