New UCTA and IT Contract Case – Red Sky

This is an entry for the law geeks out there. 

I just read Kingsway Hall Hotel Ltd v. Red Sky IT.  What a terrible decision!  For those who want to read it the key paragraphs are from paragraph 230 onwards. 

The Judge decided that an exclusion of implied warranties in an IT contract was “unreasonable” and therefore could be struck out under the Unfair Contract Terms Act 1977 (commonly known as “UCTA”).  The rationale was that the express warranty given in place of the implied warranties was a “compliance with spec” warranty, but the purchaser had not seen the spec pre-contract and therefore had no warranty protection!

Here is some context.  Under UCTA the Court has the power to delete certain contract terms if they are “unreasonable”.   For a supplier this is a worry because the Court might delete your limit of liability clause leaving you with unlimited liability!  However, since 2001 (the Watford Case) the Courts have been reluctant to interfere with agreed contract terms unless there was a massive imbalance in bargaining position. This new case seems to go against that thinking.

In Red Sky case the Judge found the parties did not have equal bargaining position (a decision I find unsupported by the evidence).  In fact I don’t know what Red Sky did to annoy the Judge quite so much as the decision seems to me to be without any real basis in fact or law.

Also, the Judge spent a lot of time discussing whether an exclusion of implied warranties was reasonable, but did not  discuss the cap on liability or the exclusions of liability.  Bizarre!

The only practical lesson I can draw from the judgement is that if you (as a supplier) warrant that your software complies with its specification / manuals then you have to deliver those materials pre-contract. (Even that strikes me as wrong.)

I really hope Red Sky appeals this one.

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May 2010
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