Commercial Briefing - Lessons from the recent BSkyB v EDS Judgment

What are the facts?

In July 2000 the IT services company EDS (now part of Hewlett Packard) won a competitive tender to design, build and implement a customer relationship management system for the satellite television broadcaster BSkyB (Sky).

The project ran into difficulties and delays which, following renegotiations, ultimately led to Sky issuing court proceedings in August 2004 against EDS and claiming damages of £709m for breach of contract as well as fraudulent and negligent misrepresentation. The contract included a £30m cap on EDS' liability.

On 26 January 2010, 18 months after the end of the trial, the court handed down its judgment which, although it contains no new law, is significant for both suppliers and customers.

What did the judgment say?

EDS was found to have fraudulently misrepresented that it was able to deliver the system by the deadlines set out in its tender response and the contract. The representation was held to be false and to have been made by EDS without belief in its truth, because EDS had not carried out any proper analysis or planning to determine whether it could actually meet the specified deadlines.

The finding of fraud is significant not only because any damages awarded for EDS' deceit will not be subject to the contract's £30m liability cap, but also because the damages award will be based on a tortious measure so that, in contrast to normal contractual damages, the losses recoverable by Sky did not need to be foreseeable. EDS has already made a £200 interim payment but the full amount of damages payable has yet to be decided.

EDS was also found to have negligently misrepresented its ability to meet the amended milestone dates during the contract renegotiation and the Court held that the contract's entire agreement clause was not effective in excluding EDS' liability for this.

Why did the entire agreement clause fail?

Although it is not possible under English law to exclude liability for fraudulent misrepresentation, a properly constructed entire agreement clause can exclude a party's liability for negligent misrepresentation and misstatement.

The contract's entire agreement clause did not include a statement that the parties had not relied on any pre-contractual representations not set out in the contract. Accordingly, following established case law, it was held that the entire agreement clause did not exclude EDS' liability for negligent misrepresentation.

Lessons for suppliers

Actionable...