The English High Court is expected soon to issue a ruling on a complex and long-running dispute arising out of an IT services contract between BSkyB and EDS. It is rare for such disputes to reach the Courts and this decision could set an important precedent since, amongst other things, it will test the circumstances in which: (a) a service provider can be held to account for its pre-contract sales pitches; and (b) service providers can rely on, or customers overturn, contractual limitation of liability clauses. This article looks ahead to the possible outcomes of the case and anticipates some of the consequences it might have for the UK IT and outsourcing services industry.

Observers have been waiting for the Court’s ruling since the trial ended in October 2008. However, the dispute originated as far back as 2000 when EDS won a £48 million contract to provide BSkyB with a new customer relationship management system. Unfortunately, the project soon ran into trouble and, in 2002, BSkyB brought a claim against EDS alleging that, during the tender stage, EDS had misrepresented its ability to deliver the project. BSkyB said that, were it not for those misrepresentations, BSkyB would not have awarded the contract to EDS. EDS countered by arguing that BSkyB had no clear idea of what it wanted from the project and had continually altered its requirements, resulting in delays and other problems.

Up to this point, the argument between the parties was serious but not unusual, as parties in the IT industry will often clash when a project goes off the rails. However, the stakes were raised significantly when BSkyB set its damages claim at just over £700 million (around US$1 billion – an amount far in excess of the maximum exposure that EDS might have contemplated on entering the contract). While the contract capped EDS’s liability at a much lower level, BSkyB alleged that the misrepresentations made by EDS were deceitful (as EDS had made the representations knowing they were false or at least being reckless as to their truth) and, as a result, the contractual liability cap did not apply.

The type of pre-contract representations that BSkyB has alleged were deceitful may sound familiar to those who are accustomed to service providers using what some may view as “sales talk”. For example, BSkyB has pointed to:

• a representation that EDS had the “resources and ability to deliver the system and services you require”. BSkyB has alleged that this was deceitful as EDS knew that it did not have available personnel with the relevant skills, knowledge or experience for the proposed solution

• a representation that the three key products that EDS intended to use in its solution represented “proven leading edge technology”. BSkyB has alleged that this was deceitful as EDS had not previously used the products together and had not carried out a proof of concept or technical feasibility study; and

• a representation that EDS would “meet the financial and budgetary targets that you have set”. BSkyB has alleged that this was deceitful as EDS had not carried out a proper estimate of costs and in later internal correspondence EDS staff indicated that they would quote a low price to win business and then increase costs afterwards.

For balance, it should be made clear that EDS has vigorously denied BSkyB’s allegations. EDS has argued that BSkyB claims misstate the representations actually made by EDS, that the actual representations were not false and that there was no deceit by EDS. EDS also asserts has also asserted that BSkyB has exaggerated the cost savings and other benefits on which it has based its claim for damages.

The size of BSkyB’s claim relative to the initial value of the contract has made headlines, but the principles to be decided in the case will have the most far-reaching impact on the IT and outsourcing services industry. In particular, if the Court upholds BSkyB’s allegations of deceit, it may have the following effects on the industry:

• Service providers may need to become more circumspect in order to avoid the risk of misleading their customers. Sales teams will need to ensure that they do not make hasty or ill-considered promises that could sow the seeds of a future deceit claim.

• There may be an increase in claims alleging deceit against service providers (which to date have been difficult to prove and rarely successful), not least because such claims may allow customers to by-pass liability caps that would otherwise limit the amount of damages they can claim for.

• If BSkyB can recover anything close to the £700-plus million it has claimed, customers may be encouraged to push the boundaries in their claims by seeking to recover damages for financial losses (such as loss of cost savings and loss of profits) that are usually excluded by liability caps. In response, service providers may become more reluctant to take on difficult or complex projects, where the risk of failure (and, therefore, exposure to damages) is higher than normal.

On the other hand, if the Court finds that there was no deceit by EDS, then BSkyB’s case may be fundamentally undermined. In this event, customers not wanting to be caught in the same position may start to exercise more diligence when conducting tenders, including by asking their service providers to provide firm evidence to support statements made in tender responses. As such, service providers may need to work harder to justify their sales claims.

While the Court’s judgment is eagerly awaited, it is unlikely to be the last word on this case. Having already invested so much into the case (not least an estimated £70 million in legal fees), unless the first instance judgement puts the parties in a position where there is real scope for compromise in a settlement deal, it is almost inevitable that one, or even both, of the parties will appeal the decision when it is finally handed down.