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EDS v BSkyB: Businesses' salutary reminder as dust settles

27 July 2010

As the dust settles on one of the longest and most talked about IT cases in recent history, it is time to look to the future and to consider whether or not the EDS v BSkyB case will lead to fundamental changes in business practices.

Despite the profile, the case did not develop any new law.  Dishonest statements by a supplier about their services or goods which the buyer relies on to enter into a contract will be fraudulent misrepresentations, and no cap on contract liability will be applied to losses from fraudulent misrepresentations. It is for this reason that the £30m financial limit on EDS’s liability which was contained in the contract was not applied.
 
As well as demonstrating the need to test witnesses and evidence before proceeding to court, the case also highlighted how difficult this can be for an employer who must rely on an employee witness described by the judge as ‘palpably dishonest’. 

Embedding a culture within sales teams which motivates and rewards those who bring in new business without creating a ‘win at all costs’ environment is difficult, and will give HR teams pause for thought. 

Clauses in contracts which either try to limit or exclude liability, or which exclude sales talk and representations made by one party to the other, and clauses that agree to set aside any claims relating to misrepresentation, will inevitably come under closer scrutiny as companies consider whether or not they are putting their profits on the line in the event of a claim. But drafting and scrutiny will only go so far; in the end the contractual risk will be negotiated and protective clauses will usually be watered down as part of the day-to-day negotiations.

The £270m in interim damages which was awarded in April 2010 was a clear indication that the judge was likely to make a large final award.

For any business defending a claim of fraudulent misrepresentation, the need to account for a potentially unlimited amount of damages may have an unduly negative impact on its profits, and will certainly make any shareholders nervous.

In June, EDS and BSkyB quietly agreed to draw a line under the case with a settlement of £318m.

The case is a salutary reminder about what businesses already know – promise what you know you can deliver; develop good internal processes and training, especially for sales and implementation teams; and employ good staff.

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Tricia Pearson

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