Ruling gives IT suppliers limited liability defence

A landmark Court of Appeal ruling has turned legal precedent on its head by strengthening the validity of limited liability...

A landmark Court of Appeal ruling has turned legal precedent on its head by strengthening the validity of limited liability clauses for IT suppliers facing claims from disgruntled customers.

The ruling, on an action brought by Watford Electronics against Sanderson CSL Ltd, gives companies a measure of protection from customers seeking massive damages by enabling suppliers to enforce limited liability clauses.

Fran Davie, head of contentious technology litigation at DLA, who represents Sanderson CSL, claimed the ruling would have far-reaching implications.

“I can think of half a dozen similar cases [involving technology suppliers] immediately,” he told MicroScope. “There are many lawyers around the country who will be looking at it very closely.”

He said that suppliers had previously been prevented from limiting liability. “If they got sued, it’s always been the case that it’s been held unreasonable for a supplier to limit liability to the user.” Davie claimed the judgement “should save suppliers a significant amount of money”.

But the ruling makes the proviso that limited liability can only be held to apply if the agreement is signed between organisations which have equal bargaining strength, are aware of the terms and are generally skilled negotiators.

In recent years, IT suppliers have been on the wrong end of several cases where customers succeeded in excluding limited liability clauses, most notably when Pegler was awarded damages of over £9m against Wang UK in February 2000.

Watford Electronics had been seeking damages of £5.5m against Sanderson because of problems it had experienced with software provided by the supplier.

Sanderson argued liability should be limited to the cost of the system, which is somewhere in the region of £100,000.

The case has been going since 1998 and returns to court in June.

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