Ruling backs supplier's limited liability

A Court of Appeal ruling on Monday should set alarm bells ringing among IT users considering suing their suppliers.

A Court of Appeal ruling on Monday should set alarm bells ringing among IT users considering suing their suppliers.

Mike Simons

The ruling goes against a trend in IT litigation where judges have ruled that limited liability clauses in software suppliers' contracts were not valid.

The case centred on a £100,000 financials system bought by Watford Electronics from Sanderson CFL. Watford said the system never worked satisfactorily and claimed £5.5m damages.

The Technology and Construction Court initially backed the claim, despite clauses in the contract limiting liability to the price paid for the system.

This followed three similar cases - South West Water versus ICL, Pegler versus Wang, and Horace Holman versus Sherwood International - where the court also used the provisions of the Unfair Contract Terms Act (UCTA) 1977, to overturn limited liability contract clauses.

However, appeal court judge Lord Justice Chadwick, this week said that where "experienced businessmen representing substantial companies of equal bargaining power negotiate an agreement", they should be taken to be the best judges of its commercial fairness.

"A practice had started to emerge before this judgement of users not challenging suppliers' standard terms and hoping to rely on UCTA in any subsequent dispute," explained George Wheeler-Carmichael, legal IT expert at law firm Masons.

"Users who may have been advised to keep silent when faced with these clauses should now reconsider their strategy," he said.

mike.simons@rbi.co.uk

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