BSkyB v EDS - a crucial judgement for IT industry?

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Is a promise or a prediction made by a supplier's sales team ever a representation? When is a representation, if that is what it is, ever a misrepresentation? If ever there is a misrepresentation, can it be held to be fraudulent if it is made thoughtlessly rather than deceitfully? What if the customer relies more on promises than representations?

Some of these were matters raised at the nine-month hearing between BSkyB and EDS - the most expensive High Court hearing the history of the IT industry.

One argument made during the hearing was that promises, predictions and opinions are not representations. So can they be held to be misrepresentations?

The judgement, which is due in late October or early November, may shed some light. Part of BSkyB's case is that EDS made fraudulent misrepresentations. If these allegations are proved, EDS could face damages that are not restricted by contractual exclusions and limitations. But EDS alleges that BSB's claim is "artificial" and designed to overcome the difficulties Sky face under their contracts, and to "allow them to claim absurd and extravagant amounts of damages".

Some lawyers say that, depending on what the judge decides, it could be the most important case yet for the IT services sector.

BSkyB is claiming approximately £700m from EDS in damages over a project to implement customer relationship management software to run BSkyB's new contact centre.

BSkyB claims that EDS's bid team made fraudulent misrepresentations to win the contract, notably that EDS had the capability to deliver BSkyB's project. BSkyB's alleges (a) that EDS mismanaged its part in the project and (b) from this it must be inferred that the representation that EDS was capable of doing the job was untrue. BSkyB claims that because of the alleged fraud, the contractual limitations and exclusions of EDS's liability do not apply.

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 it wanted a super-dooper CRM system but had little more idea of what it wanted or needed."

One lawyer says that when IT projects run into serious problems, a customer seeking to prove fraudulent misrepresentation may have to establish three things in particular:

(a) the customer entered into a contract in reliance on a statement made by the supplier's bid team
(b) the statement was not true
(c) the bid team knew the statement was untrue or was "reckless" - very careless - as to whether the statement was true or not.

QC Mark Howard for BSkyB alleged deceit. He said: "Sky allege that, during the course of a competitive tender, EDS represented they had the resources, proven technology, and methodology to enable them to deliver the solution within a certain timescale and cost."

 EDS's Barnes said to the judge, Sir Vivian Ramsey: "There are, as you know, also claims for breach of contract, negligent misrepresentation or misstatement but the case is indeed about deceit because deceit is one sure way in which the Claimants can claim to ignore the contract they have entered into and the limitation of liability to which they have agreed."

On the costs of the case so far, BSkB has allowed £37m in its accounts for 2007 and 2008. The case has continued beyond the close of the company's 2008 accounts, so BSkyB's final costs are likely to be higher, particularly if the judgement goes to appeal.

EDS's costs are expected to be a similar figure. So both sides will have spent about £70m between them on the costs of lawyers and expert witnesses by the time of the judgement. This compares with the original £48m cost of the CRM system.

Links: 

British Sky Broadcasting Group Selects EDS to Develop Customer Service System for the Digital Economy - Encyclopaedia website - February 2001

BSkyB legal costs could reach £45m - IT Projects Blog, October 2007

BSkyB v EDS judgement could shake IT suppliers - Computer Weekly, September 2008

BSkyB sues EDS - The Register, 2004

BSkyB V EDS - a horror show? - Forbes.com, October 2007

EDS to counter-sue BSkyB - The Independent, 2004

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