Peter Clough, head of disputes, and Lara Burch, commercial law partner, at European law firm Osborne Clarke discuss 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.
|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.