Redefining technology contracts
John Warchus looks at two cases that show why IT supply contracts need to be clearer
Technology suppliers have a legitimate interest in protecting their commercial position by limiting legal liability for breaches of contract. Two decisions by the Technology and Construction Court have confirmed earlier decisions, which show that it is hard for technology suppliers to limit legal liability by contractual provision, even though the relevant contracts were far from being a ‘standard contract’: all terms were imposed on the user on a take-it-or-leave-it basis. The court’s approach in South West Water v ICL  and Pegler v Wang , has been criticised as leaning too far in favour of protecting users at the expense of suppliers. The decisions have sparked a debate as to whether the relevant law (contained in the Unfair Contract Terms Act (UCTA) 1977) should be amended.Under UCTA, where a party deals on the other’s ‘written standard terms of business’, a clause seeking to limit or exclude legal liability will only be valid to the extent that it is reasonable, with the Act providing a number of guidelines to help determine ‘reasonableness’. In both cases, the defendants had contracted to supply substantial IT systems but their implementation went disastrously wrong, and significant delays and losses were suffered by the claimants. Both claimants successfully argued that UCTA applied to the supply contracts because they were based on the claimants’ standard terms. The result was that the limitation of liability clause, which would have protected the defendants from most of the losses claimed, had to be shown to be reasonable to be valid. Following earlier cases on failed IT projects, the court held that the clauses were unreasonable and awarded hefty damages in favour of the claimants.
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