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The Scottish Courts have given an interesting decision in relation to IT contracts, relating to the allocation of delivery risk between supplier and customer and the importance of doing what it says in the contract.

In David MacBrayne Limited v Atos IT Services (UK) Limited (2018), Atos, a supplier, had entered into an agreement with David MacBrayne Limited to supply a digital platform. The engagement was not successful and the parties claimed and counter-claimed against each other for material breach of the contract (amongst other things).

Customer Dependencies – Whose Responsibility is Delivery?

IT contracts will often include dependencies on customers to provide the supplier with information/documentation, some negotiated more than others.

In this case, the dependency was on the customer to use all reasonable endeavours to provide such documentation, data and/or information that the supplier reasonably requested and which was necessary to perform its obligations under the contract.

The question was whether this obliged the customer to provide the supplier with detailed specifications of their requirements in sufficient time to allow the supplier to comply with their obligations under the contract. In other words, to what extent should the customer be pro-active in telling the supplier what to do and thereby share delivery risk.

The Court said such general obligations are indicative of a responsive obligation (i.e. respond to queries from the supplier) as opposed to an obligation on the customer to be proactive in setting out their requirements. The Court said such obligations did not displace the obligation of the supplier to be primarily responsible for ascertaining the requirements for the service.

When negotiating IT transactions, it is very important to carefully consider (and negotiate) the scope of dependencies. While this decision points to a pragmatic approach by the courts which favours the customer, the very existence of general (or worse, unclear) dependencies can lead to disputes becoming more protracted and costly than they need to be.

Delay – Managing The Fall Out

The contract required the supplier to provide notice and follow a particular procedure in order to deal with delays. Here that process wasn’t followed. The supplier said it instead opted for a ‘co-operative and facilitative approach’ rather than ‘reaching for the contract’.

The Court said that the supplier was in breach for not following the procedure and this did not assist the supplier in its defence of the claim for material breach for delay. Ultimately, damages were awarded against it.

The judgment of the Court in this case highlights the inherent danger of choosing to ignore the procedural requirements in a contract; it will make claims all the more difficult to successfully prove or defend. The more removed from the letter of the contract the parties conduct is, the more uncertain their legal positions. It is essential to properly manage contracts.

 

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The Government have published a draft Consumer Rights Bill (the "Bill") which aims to reform Irish consumer law and streamline current statutory provisions in this area. The Bill is focused on transactions between traders and consumers. Though the Bill covers wide remit of consumer rights in relation to the supply of goods and services, it is interesting to note that it specifically addresses consumer rights in respect of digital content, extending the existing provisions as introduced pursuant to the European Consumer Rights Directive of 2011.

 

 

Continue Reading Government consults on new Consumer Rights Law covering Digital Content

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Those involved in technology deals express differing views on source code escrow. These views range from resignation that the supplier won’t agree to it to the view that even if we do get it, it will only be available on the provided non-negotiable terms or a fear that even if we could get our hands on the code, we wouldn’t know what to do with it. In our experience, the position is not quite as black and white on any of these points. There is an extra aspect to think about in relation to technology offerings which include software as a service and traditional source code escrow may not always be appropriate here. Public disputes on escrow arrangements are few and far between and that’s why a recent English High Court case is worth a read. The decision in the case, Filmflex Movies Limited and Piksel Limited can be accessed here.

Continue Reading Source Code Escrow – Case Law Developments

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Audit provisions are a common feature of a wide range of IP and technology agreements. They can be seen by those seeking the audit right as a practical way to monitor key aspects of a commercial deal. Security standards being applied to data, accuracy of billing, compliance with licence restrictions or, in some cases, general compliance with the agreed contract are often the subject of audit rights.

The general compliance audit right seems useful on the face of it. But a recent English High Court decision illustrates that a broad audit clause can raise more questions than it answers.

The case, 118 Data Resource Ltd v IDS Data Services (2014 EWCH 3629 (Ch), involved 118 seeking an order from the court for specific performance of an audit clause. 118 had licensed a database to IDC for limited commercial use. The limitations included both restrictions on type of use and on the profile and number of sub-licensees.

IDS had agreed to permit any duly authorised representative of 118, on reasonable prior notice, to enter any of its premises where any copies of the licensed database were in use, for the purposes of ensuring the provisions of the contract between them were being complied with.

The decision was given by the court on application for summary judgement so it wasn’t a full hearing on alleged breaches, which are subject to ongoing litigation. It should be considered in that context.

The court refused to give 118 the broad access it was seeking and interestingly made a few notable observations on the audit clause which can be applied to all audit clauses:

• Be explicit about who is entitled to access – there was a valid question here about whether "authorised representative" included employees. IDS argued it should be third party representatives only and there was sensitivity about employees getting access and seeing more commercially sensitive information than they should be. It was found there was nothing to limit the number of type of representative;

• Be clear about location of access – here there was inconsistency between the licence clause (which limited number of permitted copies of the database to one single copy) and the audit clause (which referred to access to any premises where "copies" are used). The court found that reference to "premises" was actually limiting what was to be inspected as much as the location of where the inspection could take place;

• Be clear about exclusions from audit scope – to help ensure an audit clause is effective, it is preferable to list the type of key information which isn’t to be accessed, to avoid resistance to the whole audit later due to that one issue. Here the court suggested that unrelated commercially sensitive information and legally privileged information (in the context of the ongoing litigation) ought to be excluded and suggested that a better clause would have included such carve-outs;

• Be specific about the consequence of the audit – if a breach is found, it would be logical that obligations flow from that finding e.g. if materials are used outside scope of licence, they should be returned, if a breach is detected it should be rectified on time and at no cost. Here the court noted that the clause was silent on the consequences but couldn’t imply terms as that would involve "substantially re-writing the parties bargain".

Of course, another key point to address (which didn’t appear to be at issue in this case) is the cost of audit. Although in our experience, frequency, cost and business impact are less likely to get overlooked in audit negotiations.
 

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The Department of Jobs, Enterprise and Innovation have published a Consultation Paper on the implementation of the Consumer Rights Directive (2011/83/EU) (the Directive). The Directive must be transposed into national law by EU Member States by 13 December 2013 and must be applied in Member States from 13 June 2014.

The Directive repeals and replaces the current Directive on Contracts Negotiated Away from Business Premises (85/577/EEC) and the Distance Selling Directive (97/7/EC). The Directive on Certain Aspects of the Sale of Consumer Goods and Associated Guarantees (1999/44/EC), and the Unfair Terms in Consumer Contracts Directive (93/13/EEC), are amended but will remain in force.

Continue Reading Consultation on Consumer Rights Directive