The outcome of a landmark
legal dispute between EDS and BSkyB could prove the most
important yet for the IT services sector.
The courts are expected to issue a judgement in early November
after the costliest legal dispute in the history of the IT
industry.
The costs of the nine month case have risen from an estimated
£45m at the outset of the High Court hearing in October last year
to about £70m now, and could be much more if there is an
appeal.
Already the costs are much higher than than the original
£48m cost of the Customer Relationship Management [CRM] system
at the centre of the dispute.
BSkyB is claiming about £700m in damages from EDS. It has
alleged that EDS's bid team made fraudulent misrepresentations to
win the business to supply and install CRM software to run BSkyB's
new contact centre.
The contract contained limits on how much EDS could be liable to
pay in damages. But if BSkyB proves fraudulent misrepresentation,
these limits could be set aside. This would leave EDS facing
potentially unrestricted damages, including loss of profit or
expected benefits and indirect losses.
EDS denies the allegations and attributes the project cost and
time overruns to the undefined scope of BSkyB's requirements. Its
QC Mark Barnes said, "The main problem with this project was that
it was wholly unspecified. Sky knew that it wanted a super-dooper
CRM system but had little more idea of what it wanted or
needed."
On BSkyB's claim of misrepresentation, Barnes said, "We suggest
it is an artificial claim designed to overcome the difficulties
that Sky face under their contracts and to allow them to claim
absurd and extravagant amounts of damages."
The BSkyB case against EDS is the first fraudulent
misrepresentation case on an IT project to go all the way to the
end of trial.
Lawyers say that if the judge finds for BSkyB it could encourage
a spate of claims from businesses against IT suppliers. It could
send a signal to IT buyers and their lawyers that they may be able
to defeat contractual limits on claims, and exclusion clauses, and
sue for unlimited amounts if a project fails. For suppliers it
raises the possibility that statements made by contract bid teams
in IT projects could expose their companies to unlimited liability
if the project does not turn out as expected.
Another possibility is that the judge will consider the
allegations of fraudulent misrepresentation to be unproven.
Lawyers say that in the past claims of fraudulent
misrepresentation were rare. There was a perception that judges
disliked them and that litigants would find it difficult to prove a
case. But lawyers say that perception has changed and that a number
of cases where businesses have alleged fraudulent misrepresentation
against an IT supplier have been settled recently, before any court
hearing.
The judge in the case is Sir Vivian Ramsey who among judges is
exceptionally well qualified to preside over a technology dispute.
He has a degree in Engineering Science from Oxford, has worked with
Ove Arup in London and Libya and has handled arbitrations as far
afield as Papua New Guinea.
The case could go to appeal - but only on specific legal
grounds. The appeal court would not see itself as qualified to
examine all the expert witnesses, for example. So some of the main
findings of the judge could set precedents even if the case goes to
appeal. Lawyers at one legal firm consider the case so important
that they are planning a seminar based on the judgement.
Legal costs
Costs for both sides were estimated at £45m at the outset of
the High Court hearing in October last year. The case lasted nine
months - longer than both sides had expected - pushing the total
costs up to about £70m. The costs include an estimate of at least
£15m for expert witnesses.
The costs for BSkyB alone are at least £37m. EDS's costs are
expected to be lower but still massive - at about £30m to £33m. The
costs for both sides could rise substantially if the case goes to
appeal.