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As large sums are invested in information technology, litigation over computer contracts is on the increase. The first reported cases are now appearing, and there are lessons to be learned from them by both suppliers and purchasers.
The decisions in Salvage Association v CAP (1992) and St Albans v ICL (1996) are at present the two most influential UK authorities. This article examines the decisions and some of their implications for drafting and litigating computer contracts.
The facts
In the first case, the Salvage Association wanted to computerize its accounting system. It engaged CAP Financial Services Ltd first to ascertain what its requirements were, and subsequently to develop and implement the system CAP had recommended. After numerous delays, CAP was unable to produce a functioning system and the Salvage Association terminated the contract and sued. They claimed repayment of the sums they had paid to CAP and over 500,000 ($770,000) of wasted expenditure. The claim was upheld by the Official Referee, who held CAP's poor performance on the project to have been in breach of its express and implied contractual obligations.
In the second case, St Albans City and District Council engaged ICL to provide a computer system for use in the collection of its community charge. The system would amongst other things keep a register of charge payers and send out the necessary bills.
In contrast to the Salvage Association case, there was no suggestion that this system had widespread faults or that ICL had been unable to deliver it on time. However, there was a bug in the software which meant that the number of charge payers was over-counted by nearly 3,000 when the charge was calculated, with the result that it was set too low. St Albans suffered an income delay (the charge deficit was made up the next year) and incurred substantial additional expenditure to its county council under the community charge legislation. St Albans sued ICL to recover its losses and succeeded both before the trial judge and the Court of Appeal (although one element of its damages claim upheld by the judge was disallowed on appeal). ICL were held to have breached their contractual obligation to provide software which would provide accurate information for the calculation of the charge.