Weak wording in EDS’ agreements with broadcaster BSkyB left the IT supplier entirely unprotected from statements it made in a sales pitch, according to legal experts.
A misleading sales pitch ten years ago, followed by legally problematic clauses in the contract, combined to create a successful fraudulent misrepresentation case against EDS, experts said.
The first draft of the contract was created by BSkyB lawyers on 19 September 2000. But weeks of negotiations followed and a final agreement was signed on 30 November, containing shortened exclusion clauses, and a changed limitation of liability clause, among other significant changes.
HP, which acquired EDS two years ago, declined to comment on the changes. Allen & Overy, the lawyers who drafted the contract on EDS’ behalf, also did not comment, citing client confidentiality.
At the end of a lengthy court case, EDS was found liable of fraudulent misrepresentation, after the former head of its customer relationship management division lied about realistic timescales for delivering the £48 million system, as he made a sales pitch for the deal.
The aim of the “deceit”, the judge said, was for EDS to win the contract in the place of rival bidder PricewaterhouseCoopers. BSkyB expects to receive more than £200 million damages from HP.
HP strongly rejects the notion that EDS deceived BSkyB. It has announced it will appeal, and argues that BSkyB did not know what it wanted from the system, and was continually introducing new requirements as the project went along.
While individuals and companies cannot under law create clauses covering deliberately fraudulent statements, they can protect themselves from negligent comments, which will form a part of the award in this case. The judge noted in his judgment of the case that the Entire Agreement Clause failed to explicitly cover EDS from claims of negligent misrepresentation.
The lack of clarity in the clause left it open to interpretation, laying out a path in which stronger claims of fraud could be made, experts told Computerworld UK. Alistair Maughan, partner at Morrison Foerster, said: “Sky saw a weakness in the Entire Agreement Clause, and that encouraged them to seek out a more eye catching claim.”
The clause needed to be “watertight”, but failed to achieve this, he said. This, combined with what the judge termed “lies” by EDS’ customer software division head, made for a “perfect storm”, he said.
Paul O’Hare, commercial technology partner at specialist law firm Kemp Little, said the fraud claims themselves then enabled BSkyB to circumvent a liability cap of £30 million in the contract, and launch its £709 million claim.
“This is another example of the English courts being quite prepared to sidestep liability caps,” he said. “It’s been done before in different ways: in the early 2000s South West Water proved that liability terms in its failed contract with ICL, now known as Fujitsu, were unfair, and it won far larger damages than the cap would have allowed. In the BSkyB-EDS case, fraud claims were used to the same effect.”