The credit crunch came along and there were delays by BDW, culminating in Gold purporting to accept BDW’s repudiatory breach of the contract. The High Court agreed with Gold. However, BDW alleged that Gold’s refusal to agree to renegotiate the deal including the minimum prices (to allow the contract to continue after the credit crunch) amounted to a breach of the duty of good faith. The High Court said that was not what was intended by the good faith obligation. Good faith required parties to observe reasonable commercial standards of fair dealing and faithfulness to the agreed common purpose and consistent with the justified expectations of the other party. It did not require one party to renegotiate a contract because the other had made a bad bargain. The duty did not require Gold to give up a freely negotiated financial advantage. The contract also expressly stated that neither party would increase their profits or reduce their losses at the other’s expense.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘With the economic downturn, we have seen a lot of people want to get out of agreements that had been entered into in the good times but which did not seem quite so good when the economic climate deteriorated. This is the latest in the line of cases where the courts have shown an unwillingness to interfere to help someone get out of what had become a bad bargain. In another recent case, the Court refused to allow the economic downturn to be a justification to refuse to perform under force majeure. For more on that case, click here: http://www.mablaw.com/2010/01/economic-downturn-not-a-justification-reason-to-invoke-force-majeure-provisions-%e2%80%93-tandrin-aviation-v-aero-toy-store-high-court/.’

This is where a business should typically look to its force majeure clause in its contract. This is the clause that (if properly drafted) usually sets out the contractual rules and procedures for “events outside the control of the parties” or for “Acts of God” or some such.

A properly drafted force majeure clause should set out:
a) what constitues an event of force majeure;
b) how the parties agree to deal with it in terms of costs and liabilities;
c) how time works (e.g. are obligations frozen, cancelled or pushed off?);
d) a procedure for notifying each other; and
e) whether any consequences follow (e.g. termination) if the event continues for too long.

Do you have a properly drafted clause?

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.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘It is already well established law that economic hardship is not a cause of force majeure. This case reinforces that, and in a modern context. Parties should not get away with arguing that the economic downturn is a justification for getting out of their contracts. However, it would still be open to the parties to expressly agree to have some specific wording into their contract covering a right to get out in such a situation, even if economic hardship would not be covered by a traditional force majeure clause.’