Sky V. EDS – Misrepresentation Claims Side-Step Classic Breach Of Contract Defences

A mere 18 months after the case finished the judgement in Sky.v EDS has been published.  To be fair to the judge it is a massive 450 page judgement.

The case arose out of a failed IT implementation by EDS (now part of HP) for BSkyB (it was a Siebel CRM implementation for you techies out there).  Sky was claiming losses in the region of £700m, EDS was hiding behind a £30m limit of liability clause.

The case was mostly about misrepresentations (untrue statements) made by the EDS’ sales team in sales meetings prior to contract.  I am not saying this is typical behaviour but I was going to call this article “Salesman tells Fibs to Get Sale Shocker!”.

Here are the key points from my perspective

1.  The limit of liability did not protect EDS against liability for fraudulent misreps (what most people would call a “lie”, and what the judge called deceit). This is not new law.

2.  EDS were also liable (up to the £30m cap) for negligent misrepresentations.

What’s the difference between a fraudulent misrep and a negligent misrep? If you know the statement is wrong its fraudulent, if you don’t actually know the statement is wrong, but your should have known it was wrong, then its negligent.

Normally there is an “entire agreement” clause that would prevent liability for pre contract negligent misreps. However, in this case the clause was not well enough drafted.  (Expect lots of lawyers to be worriedly reviewing “their” entire agreement clauses to make sure they work. I say that with a degree of smugness because my standard clause does work). 

3. EDS claimed that the reason the project failed was because of Sky not doing its part in the project (a standard defence, and often true).  However, while the “it’s the client fault” defence can work against breach of contract claims, it doesn’t work against misrep claims (whether based on fraudulent misrep or negligent misrep).

All in all not a good day for EDS. Unsurprisingly I read that EDS is planning to appeal.

What is the outcome? Some commentators are saying that IT suppliers will not tender for big projects. I can’t see that happening. However, they may exercise more control over sales teams. Perhaps lawyers will now be compulsory at all sales meetings. Good news for lawyers!

4 Responses to “Sky V. EDS – Misrepresentation Claims Side-Step Classic Breach Of Contract Defences”

  1. 1 David February 1, 2010 at 4:35 pm

    perhaps more likely to mean more work for in-house lawyers and a further blurring of the lines between the lawyer and the commercial person…

  1. 1 Entire Agreement clause ineffective to exclude implied terms or misrepresentations « Brodies TechBlog Trackback on April 19, 2012 at 4:32 pm
  2. 2 Final settlement of Sky v EDS – £318m to Sky « TechBlog Trackback on June 8, 2010 at 3:06 pm
  3. 3 Sky v. EDS – Follow Up – Interim Damages Award « TechBlog Trackback on February 5, 2010 at 1:13 pm

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