BSkyB v. EDS judgement could shake IT suppliers

The outcome of a landmark legal dispute between EDS and BSkyB could prove the most important yet for the IT services sector.

The outcome of a landmark legal dispute between EDS and BSkyB could prove the most important yet for the IT services sector.

The courts are expected to issue a judgement in early November after the costliest legal dispute in the history of the IT industry.

The costs of the nine month case have risen from an estimated £45m at the outset of the High Court hearing in October last year to about £70m now, and could be much more if there is an appeal.

Already the costs are much higher than than the original £48m cost of the Customer Relationship Management [CRM] system at the centre of the dispute.

BSkyB is claiming about £700m in damages from EDS. It has alleged that EDS's bid team made fraudulent misrepresentations to win the business to supply and install CRM software to run BSkyB's new contact centre.

The contract contained limits on how much EDS could be liable to pay in damages. But if BSkyB proves fraudulent misrepresentation, these limits could be set aside. This would leave EDS facing potentially unrestricted damages, including loss of profit or expected benefits and indirect losses.

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

On BSkyB's claim of misrepresentation, Barnes said, "We suggest it is an artificial claim designed to overcome the difficulties that Sky face under their contracts and to allow them to claim absurd and extravagant amounts of damages."

The BSkyB case against EDS is the first fraudulent misrepresentation case on an IT project to go all the way to the end of trial.

Lawyers say that if the judge finds for BSkyB it could encourage a spate of claims from businesses against IT suppliers. It could send a signal to IT buyers and their lawyers that they may be able to defeat contractual limits on claims, and exclusion clauses, and sue for unlimited amounts if a project fails. For suppliers it raises the possibility that statements made by contract bid teams in IT projects could expose their companies to unlimited liability if the project does not turn out as expected.

Another possibility is that the judge will consider the allegations of fraudulent misrepresentation to be unproven.

Lawyers say that in the past claims of fraudulent misrepresentation were rare. There was a perception that judges disliked them and that litigants would find it difficult to prove a case. But lawyers say that perception has changed and that a number of cases where businesses have alleged fraudulent misrepresentation against an IT supplier have been settled recently, before any court hearing.

The judge in the case is Sir Vivian Ramsey who among judges is exceptionally well qualified to preside over a technology dispute. He has a degree in Engineering Science from Oxford, has worked with Ove Arup in London and Libya and has handled arbitrations as far afield as Papua New Guinea.

The case could go to appeal - but only on specific legal grounds. The appeal court would not see itself as qualified to examine all the expert witnesses, for example. So some of the main findings of the judge could set precedents even if the case goes to appeal. Lawyers at one legal firm consider the case so important that they are planning a seminar based on the judgement.

Legal costs

Costs for both sides were estimated at £45m at the outset of the High Court hearing in October last year. The case lasted nine months - longer than both sides had expected - pushing the total costs up to about £70m. The costs include an estimate of at least £15m for expert witnesses.

The costs for BSkyB alone are at least £37m. EDS's costs are expected to be lower but still massive - at about £30m to £33m. The costs for both sides could rise substantially if the case goes to appeal.

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