UK Court Decides Landmark Information Technologies Case

 London's Technology and Construction Court last week ruled in British Sky Broadcasting v. Electronic Data Systems, as reported here. Electronic Data Systems (EDS) and Sky Broadcasting (Sky) agreed in 2000 that EDS would provide Sky a customer management system.  The contract included a standard clause precluding any cap on damages in a case of fraudulent misrepresentation.  By 2002, Sky was so dissatisfied with EDS that it terminated the contract and proceeded with its own staff. Sky sued EDS in 2004 claiming that it was fraudulently induced into the contract because EDS underestimated both costs and the time required to complete the work.  

The Court found for Sky on some aspects of its claims, but the real issue of importance was the enforceability of the parties' agreement not to limit damages.  Although the value of the contract was less than £50 million, and included a £30 million liability cap, Sky initially sought £700 million in damages based on its fraud claim and the no-liability-cap clause.  After this ruling, Sky stated that it expected an award in the £200 million range.  

The report cited to above speculates that this ruling will result in far more caution in the IT contracting realm.  One can only hope.  The case might also create an incentive to claim fraud, although the £70 million in court costs reportedly incurred in the trial will provide a useful counterbalance.  The full 460-page opinion, over a year in the making, is available here.  Hewlett-Packard, which now owns EDS, is contemplating an appeal.

[Jeremy Telman]