I plan on spending some time in my contract-drafting class talking about this case:
- British Sky Broadcasting contracted with EDS to develop a customer relationship management (CRM) software system, and eventually filed suit when things didn’t go as planned.
- The judge concluded that EDS made fraudulent misrepresentations when one of its senior UK executives lied to Sky about EDS’s analysis of the amount of elapsed time needed to complete the initial delivery and go-live of the system (see ¶ 2331 and ¶¶ 194-196.)
- The judge also concluded that during subsequent talks to modify the contract, EDS made misstatements that didn’t rise to the level of fraud, but still qualified as negligent misrepresentations (see ¶ 2336).
- One clause in the contract capped the potential damage award at £30 million — but by its terms, that limitation did not apply to fraudulent misrepresentations, and the judge held that the limitation didn’t apply to negligent misrepresentations either (see ¶¶ 372-389).
After the decision was handed down, Sky announced that it expected the damage award to be at least £200 million. Had it not been for the misrepresentation claims, the pure-contract damages presumably would have been capped at £30 million. The difference works out to about US$270 million.
One of the most interesting aspect of the judge’s opinion, it seems to me, is its detailed exposition of the facts, which illustrate the ‘sausage factory’ by which technology deals sometimes get made — and how even just one vendor representative can make a deal go terribly wrong for his employer.
UPDATE 2010-07-14: In early June 2010, EDS agreed to pay Sky some $460 million — more than four times the value of the original contract — to settle the case. See this ComputerWorld article for details and links.
Hat tip: ContractsProf blog.