If you will indulge us veering slightly away from the usual digital media and IP topics, we would like to turn to matters contractual by drawing your attention to a very important recent case - BSkyB v EDS  EWHC 86 (TCC). You can find the full 468 page Judgment here. Or, if you don't have a spare week to plough through it, we've picked out the key points in our legal update below.
The significance of this case extends to all industries so the publishers and media companies amongst you should take note of the below as much as the IT suppliers and outsourcers - and everyone in between.
The key point to draw from this case is a reminder that anything said by a party before entering into a contract might expose that party to a claim for misrepresentation, depending on the nature of the statement made, the other party’s reliance on it, and the provisions of the contract itself.
The recent case of BSkyB v EDS has emphasised that suppliers need to be extremely careful about what they say in the course of pre-contractual negotiations. This is because they might find that they make statements which amount to negligent – or even fraudulent – misrepresentations. This is the position EDS (a supplier of IT services) found itself in, having made pre-contractual promises to BSkyB (its customer) and then failing to deliver against those promises.
Suppliers need to be aware that liability in respect of fraudulent misrepresentations cannot be limited by reference to any contractual term. This case demonstrates the way in which an employee who makes unsubstantiated statements during a pre-contractual pitch or tender can potentially incur huge penalties on behalf of his company. The interim award to BSkyB in this case was £200 million. This is despite the fact that the contract between EDS and BSkyB contained a cap on liability of £30 million. Such caps on liability cannot be made to apply to fraudulent misrepresentations.
However, liability in respect of negligent misrepresentations can be limited by contract with careful drafting.
It is important for suppliers to include a properly drafted ‘entire agreement’ clause in order to exclude any liability for negligent statements made in pre-contractual negotiations (although as noted above, no such clause can exclude liability for fraudulent misrepresentations). It is also important for suppliers to include a cap on liability (supported by adequate insurance) and carefully thought out exclusions and limitations of liability provisions in order to exclude or limit liability for negligent misrepresentations.
Customers, on the other hand, should ensure that key representations and promises made by suppliers pre-contract are included in the contract. In this way, customers can avoid the argument as to whether or not they relied on pre-contractual representations – instead, they will be able to sue for breach of contract in the event the supplier fails to deliver against those promises.
Where your company is acting as a supplier (whether of goods or services), the main point is to have the right procedures in place to ensure no pre-contractual promises are made which you cannot deliver against. In addition, well-drafted contractual provisions can offer protection.
Where your company is acting as a customer (particularly in the purchase of IT services), it should identify those key pre-contractual promises on which it will rely (e.g. timescales, milestones, technical specifications) and include them as terms of the contract. It should consider the potential losses it may suffer as a result of the supplier failing to deliver as promised and whether or not it is prepared to allow the supplier to limit or exclude liability for such losses.
Laurence Kaye Solicitors