Author: Eddie Powell
The judgment in BSkyB v EDS attracts interest not only because of the story of counsel’s dog, which obtained an MBA during the trial, but also because of its findings on the fraudulent representations EDS made to Sky.
The interpretation of the “entire agreement” clause and the cap on liability, both commonly found in construction contracts and appointments, were crucial parts of the case.
Sky claimed damages of £709m against EDS, though the contract they entered into contained a cap on EDS’s liability of £30m. Since liability for fraud cannot be limited by contract, and therefore falls outside any contractual liability cap, Sky sought to prove that EDS had made fraudulent misrepresentations in its initial bid response and during pre-contract negotiations.Following a tender process in 2000, Sky selected EDS to develop the technology for a new customer relationship management system. The project was not completed in early 2002 at a baseline budget of £47.6m, as intended. In fact, the functionality of the system was not completed until 2006 and, Sky asserted, at a cost of £265m.
Sky claimed that EDS made fraudulent representations as to the timing for delivery of the project. EDS’s bid response contained a timetable showing the completion of a prototype system within nine months. It also contained a statement that they would provide the system “on time and on budget”. The judge found these representations were false and had been made without proper belief in their truth, and held they had been made fraudulently. This enabled Sky to claim for higher damages than the contractual cap of £30m.EDS contended that the wording of the contract’s “entire agreement” clause meant that any representation was withdrawn or overridden or of no legal effect. It read “…this Agreement and the Schedules shall together represent the entire understanding and constitute the whole agreement between the parties in relation to its subject matter and supersede any previous discussions, correspondence, representations or agreement between the parties with respect thereto…”. However, the judge found that the clause did not prevent Sky from advancing a negligent misrepresentation claim. The language would have had to go further if the clause had been intended to withdraw representations for all purposes, he said.
Judge Ramsey focused on the dishonest representations made by EDS’ bid team leader, Joe Galloway. Mr Galloway stated that he held an MBA from Concordia College which is, in fact, a website that sells online degrees. Sky’s counsel demonstrated how easy it was to obtain a degree certificate by successfully applying for an MBA for his dog, Lulu. Mr Galloway had given perjured evidence to cover up his fake degree, and this discredited him as a witness.It has been reported that the parties have settled the claim with EDS agreeing that Sky is to be paid £318m, which includes the interim payment of £270m that EDS was ordered to pay in February 2010. Sky’s success at breaking through the cap on liability is particularly interesting since only very few of Sky’s deceit claims were upheld. This could lead to an increase in the number of fraud and deceit claims being brought, in an attempt to break contractual liability caps.
What lessons can be learnt?
Suppliers must take great care with sales pitches and ensure that they do not make unrealistic, pre-contractual claims, even in informal correspondence such as e-mails and telephone calls. Suppliers should ensure that an entire agreement clause is included in their contracts and that it expressly addresses liability for (non fraudulent) pre-contractual statements. Had the entire agreement clause in Sky’s contract expressly excluded pre-contractual misrepresentations, its right to claim damages for EDS’ negligent representations on the timing of the project may have been restricted. Customers, on the other hand, should seek to incorporate expressly into the contract any pre-contract representations on which they intend to rely.