Peter Clough, head of disputes, and Lara Burch, commercial
law partner, at European law firmOsborne Clarkediscuss the recent decision in British Gas' claim against
Accenture.
It is often what seem to be minor points in contracts that can
leave parties exposed to very significant claims, as Accenture, the
IT consultancy group, found out after it suffered a defeat on all
of the preliminary issues in the recent judgment in the ongoing
case it is defending against British Gas's parent company
("Centrica").
Centrica is claiming nearly £200m in relation to the alleged
failure of an IT customer billing system which was to be created
and installed by Accenture.
One of the important points to note about this case is that IT
suppliers can be liable for claims for fundamental breach arising
from the cumulative effect of a series of faults, each of which
could look relatively minor in isolation. The majority of systems
will of course be inter-linked so that a defect in part of the
process can affect another part, snowballing into a more serious
issue.
The contract provided that once Centrica had provided notice to
Accenture of any "fundamental" defect in the system, Accenture was
obliged to take reasonable steps to fix the problem. Centrica was
only entitled to bring a claim for damages if Accenture failed to
take the appropriate action.
| Contractual considerations |
|---|
| Accepting risk is a negotiation tool - where risk has to be
taken, don't waste it. |
| Ensure your lawyers understand the practicalities of how your
business is going to operate under any contract. |
| Minimise the risks attached by keeping contracts as clear as
possible. |
| Include non-exhaustive lists to expressly cover issues which
can be anticipated. |
Centrica claimed that it had notified Accenture of a fundamental
defect, but Accenture had refused to take any steps in response.
Accenture argued that no single "fundamental" breach had occurred
and they were therefore not liable. Centrica claimed that a series
of lesser breaches could be aggregated to form a "fundamental"
breach. The court agreed with Centrica.
The judgment reinforces the careful considerations that need to
be given when negotiating contracts for the supply of IT agreements
and how important it is to draft contracts with crystal clarity.
This is particularly so with IT procurements, where the complexity
of the transaction and the business critical nature of the systems
supplied make it an area ripe for disputes.
Accenture were partly caught out by the use of the words
"and/or" in the definition of fundamental breach. Concepts such as
"material breach" and "fundamental breach" are notoriously
difficult to pin down. The question of whether a series of breaches
can together constitute such a breach is often hotly contested in
negotiations, and the outcome needs to be clearly specified in the
drafting.
Another preliminary issue dealt with in the judgment was the
effect of certain exclusions of "consequential losses". One
approach adopted in drafting such exclusions is to include a
non-exhaustive list of the losses which are recoverable. This
serves to illustrate the generic terminology (such as "loss of
revenue") which is commonly used, and helps minimise the likelihood
of disputes as to the losses for which a claim can validly be
made.
One final point to note is how much can hinge on the precise
turn of phrase used. The judge had to give careful consideration,
for example, to the distinction in meaning between a defect which
"causes" an adverse effect and a defect which "has or is likely to
have" an adverse effect. Is there a difference in meaning here? The
judge thought not, but the use of this differing terminology in
other parts of the agreement again created room for debate. It will
be interesting to see what other issues arise on this matter at the
full trial.