HP-EDS loses court ruling in £700m dispute with BSkyB

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My colleague Tony Collins has been following the EDS (now HP) BSkyB court battle since the begining.

This case has been going on for five years and is related to a failed CRM system. It has cost both firms millions of pounds.

As Tony wrote earlier today the judge ruled in favour of BSkyB.

It is the first time a judge has ruled in favour of the claimant in a case of this scale. BSkyB is claiming £700m in damages.

What message does this judgement end out to suppliers?

Will there be more claims from corporates unhappy with systems or services?

For more about the case see another Tony Collins piece,




8 Comments

Unfortunately, this is not the first time an IT/outsourcer has been found guilty of fraudulent misrepresentation or deceit in persuading customers to enter into IT contracts. Legal history isn't exactly littered with cases, but there are UK and US precedents. The cases that have been reported over the years suggest that there may be a residual problem in the way IT systems and services are sold. The full judgment of BSkyB v EDS will be published later today and we need to analyse it. But what seems inevitable is that the size of the amount likely to be awarded (how much less than £700m claimed?) will set this case apart from the others, certainly in the UK. What may also be interesting is the way the judge has dealt with the limitations of liability clauses. In other words, how far they have been "busted" by the fraudulent or other kinds of misrepresentation. Will this case change the IT world? Maybe, maybe not. The size of the judgment amount to be awarded in February will not necessarily mean that we are seeing a new precedent set. But you can be sure about this: HPES will be almightly relieved that this case didn't arise in the USA, where there is power to award punitive damages for really bad behaviour, like fraudulent misrepresentation!

Overall the ramifications of this case should be broadly positive. Those engaging in outsourcing need to be completely sure exactly what they are signing up for and what happens if things don’t work out. Institutional investors in major outsourcing suppliers might want to understand how targeting and compensation schemes are run and the consequences on management for deals that are shown to be falsely represented?

End-users should look at this case and follow best practice to give them the best chance of success in the future. Above all, it should teach them that the devil, really is in the detail.

This is a major decision that’s going to have a huge impact across a broad range of businesses. Any service company that bids for customers will have to be much more careful about avoiding loose sales talk and exaggerating its past experience and capabilities, otherwise it could find itself on the receiving end of a similar claim.

In the past it’s always been the case that the customer has had to make a judgment call on the sales pitch of a bidding company to assess whether they are competent and capable, but this decision means the burden will now be shifted to the bidding company to rein in any exaggerated claims. IT and other service providers will now have to be more careful that they can back up any sales claims with hard evidence.

- Jeremy Drew, Reynolds Porter Chamberlain

The case has considerable importance for IT system suppliers who attempt to sell systems which are untested or in the course of development. Suppliers will have to be extremely careful about the pre-contract representations that they make regarding the state of the system which is to be provided. Further, in view of the judge's comment on the credibility of witnesses, IT suppliers will need to pay particular attention to the qualifications of their sales personnel.

The case is also of interest to those customers who have recently taken delivery of systems which have failed to perform. It is anticipated that the damages awarded to BSkyB will be more than £200 million as the limitation cap on liability in the contract, which was £30 million, was ineffective as it did not cover liability for deceit. The decision regarding the limitation of liability cap not being applicable to deceit is unsurprising and reflects practitioners' view of the law. Nonetheless, this possible consequence is well worth noting by suppliers.

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This page contains a single entry by Karl Flinders published on January 26, 2010 7:21 PM.

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