CIPS Central London Branch: Lifting the Lid on IT Negotiations Lessons Learned - Key Legal & Commercial Issues from IT Contracts 25 May 2011 Dr Sam De Silva MCIPS Technology & Outsourcing Partner, Taylor Walton LLP North Thames CIPS Council Member Elect
Outline • Importance of recent cases (both IT and non-IT cases) • Limitations and exclusions of liability • Intellectual property • Technical and operational schedules • Service credits • Benchmarking • Force majeure • Q & A
Importance of Recent Cases (1) • Cases drive contract drafting, structuring and interpretation • Contracts need to be continually "refreshed" and evaluated • A significant number of recent cases on IT Contracts need to be considered • Non-IT cases should also be considered as they also provide valuable guidance on contract law principles and interpretation
Importance of Recent Cases (2) IT Case Law • McCain Foods GB v Eco-Tec (Europe) [2011] [exclusions of liability] • London Borough of Southwark v IBM [2011] [warranties] • De Beers UK v Atos Origin UK [2010] [change control, termination] • BSkyB v EDS [2010] [limitation and exclusions of liability] • Kingsway v Red Sky [2010] [limitations and exclusions of liability] • GB Gas Holdings (Centrica) v Accenture [2010] [indirect/consequential losses] • Ericsson v Hutchison 3G UK [2010] [exit provisions and termination notice] • Softlanding Systems v KDP Software [2010] [IP and pricing provisions] • GHSP v AB Electronic [2010] ["battle of the forms" and commencement of work without an signed agreement] • BMS Computer Solutions Ltd v AB Agri Ltd [2010] [term of the s/w licence]
Importance of Recent Cases (3) Non-IT Case Law • Axa v Campbell Martin [2011] [entire agreement clause] • Acre (In Liquidation) v De Montfort Fine Art [2011] [repudiatory breach and recovery of loss] • Immingham Storage Company v Clear [2011] [intention to enter into contract] • Hawksford Trustees Jersey v Stella Global [2011] [mistake and rectification] • Rust Consulting v PB [2010] [enforcement of indemnities and estoppel] • RTS Flexible Systems v Müller [2010] ["subject to contract"] • Oceanbulk Shipping v TMT Asia [2010] [interpretation of background] • Eminence Property Developments v Heaney [2010] [repudiatory breach] • Springwell Navigation v JP Morgan Chase [2010] [non-reliance statements and UCTA] • Trafigura Private v Emirates General Petroleum [2010] [contract formation] • CPC Group v Qatari Diar Real Estate [2010] ["all reasonable endeavours"] • Traditional Structures v HW Construction [2010] [tenders and the law of mistake]
Limitations and Exclusions of Liability (1) • 2 key questions • What categories of loss can be recovered? • How much can be recovered? • Framework for a "best practice" liability clause • Losses which can't be excluded by law • General financial cap • Different financial caps for different categories of loss e.g. damage to property, breaches of confidentiality, intellectual property rights (IPR) indemnities, etc • Customer's liability to service provider • Indirect or consequential losses – GB Gas Holdings Ltd v Accenture [2010]
Limitations and Exclusions of Liability (2) • Exclusions of liability – the devil is in the detail Example 1 "The Software Licensor excludes indirect losses, consequential losses, loss of profit, loss of revenue, loss of business …" Example 2 "The Software Licensor excludes indirect losses, consequential losses including loss of profit, loss of revenue, loss of business …" • Unfair Contract Terms Act 1977 (UCTA)
Intellectual Property • Ownership of IP under general law • Spectrum of approaches • No one approach for all scenarios • Categories of IP • Background IP / know-how • New IP • Third Party IP • Modifications and developments to above categories • Open source • Joint ownership • IPR indemnity drafting • Interplay with liability cap
Technical and Operational Schedules • Just as important as "front-end" legal provisions • Precedence / priority clause • To serve purpose – sufficiently wide in scope but avoid uncertainty – enforceable obligations • What makes enforcement difficult? – ambiguous – agreements to agree
How to Avoid: Ambiguous Drafting with Technical and Operational Schedules • Use active language "The System will be tested before it is used in the production environment to ensure that it is working in accordance with the Specifications." "The Service Provider must test the System before it is used in the production environment to ensure that it is working in accordance with the Specifications." • Only use capitalised terms for proper nouns or defined terms "[Party X] must ensure that all Software supplied by it is free of any viruses." • Review by asking questions – Who performs obligation? – When must they perform? – How often must they perform? – To what standard? – And so on …
How to Avoid: Problems caused by Agreements to Agree • 2 stage process – identify – remedial drafting • Steps for identification – look for the use of the word "agree" – look for any reference to obligation in a document which is not yet agreed – look for an obligation for the parties to engage in "good faith negotiations" (or similar wording) • Remedial drafting: agreements to agree usually a problem unless – some objective way of resolving failure to agree – both parties have sufficient incentive to agree – obligation which requires agreement to agree is of relatively low importance
Service Credits • Calculation of service credits • Categorisation of service credits • Liquidated damages • Reduction of fees to reflect lower level of services • Consequences if service credits are liquidated damages • general rule – genuine pre-estimate of losses • Sole and exclusive remedy? • Relationship with liability cap
Benchmarking • Principle = compare "like with like" to ensure deal continues to match what the market can offer • Key contractual issues • How often? • By whom? • What is being compared? • What happens if there is an adverse result? • Degrees of permitted variance? • Cost?
Force Majeure • Standard • acts of god, war, riot, civil commotion • accident, fire, flood or storm • strikes • "catch all" of events beyond control • Other circumstances need further consideration • disruption of power supply • communications problem • third party suppliers • Interplay with business continuity and disaster recovery provisions
Any Questions? Buyers Guide to IT Contracts – available on request Email: sam.desilva@taylorwalton.co.uk Direct Dial: 01582 390544
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