The London Technology & Construction Court (a division of the English High Court) issued judgment on 16 December 2010 in a dispute between De Beers UK Limited (“De Beers”) and Atos Origin IT Services UK Limited (“Atos”). The dispute centred around issues of repudiation of contract, when one party to the contract, following a dispute, ceases work on the subject matter of the contract. While the decision does not change the laws of Ireland and is not binding on Irish courts it would be of persuasive effect before an Irish Court.
De Beers entered into an agreement with the Government of Botswana, to move certain operations to Botswana. This required the development of software support systems. De Beers did not have a common software system across various countries it operated in, nor a common system across various departments and De Beers decided to take the opportunity to develop a global software system for supply chain management.
An initial, short-term contract (the “IAP”) was entered into with Atos, to allow Atos to analyse the business requirements of De Beers, so that Atos would be better placed to enter into a fixed-price contract for the project. Once the IAP completed, the final contract was entered into in November 2007.
However, delays in completion of the project ensued. Delays were identified as early as November 2007 and Judge Edwards-Stuart found that the reasons for the delays were attributable to both parties. By April 2008 it was necessary to agree a revised timetable and this was done. However, in the meantime, Atos issued an invoice (the “Milestone Payment”), which De Beers refused to pay due to dissatisfaction with delays and the quality of the work being performed by Atos.
Atos, on the other hand, claimed that the progress of their work had been delayed by a lack of co-operation from De Beers staff and increases and changes in the scope of the work to be performed. Atos presented De Beers with an ultimatum – either De Beers renegotiate the contract by the end of May 2008 or Atos would suspend all work. De Beers would not agree to this and Atos suspended all work. Both parties claimed that the other had repudiated the contract and claimed damages.
The Central Issue
The central issue was determined by Judge Edwards-Stuart to be whether either party had repudiated the contract, which gave rise to issues of causation and quantum of damages.
Having examined the case-law on repudiation of contracts, the Judge examined whether any of Atos’ four grounds that De Beers had repudiated the contract could be sustained:
- A list of minor breaches by De Beers of terms of the contract (such as a delay in providing technical documentation, amounting to £23,000) but the Judge felt that none of these (nor all of them cumulatively) were of sufficient seriousness to constitute repudiation of the contract;
- De Beers refused to make the Milestone Payment – whilst this was a breach of contract, it was considered not to be a repudiatory breach as this was capable of being easily remedied through payment;
- De Beers made it clear that they would not entertain Atos’ contractual right to time extensions or increased payments and the Change Control Procedures contained in the contract – it was noted that a time extension was granted in the plan agreed in April 2008 and this implied an acceptance of the terms of the contract by De Beers, rather than a repudiation; and
- On the day on which Atos’ threat to cease work was to be carried out, a De Beers staff member reclaimed security passes from the Atos staff members – on the facts of the case this did not amount to repudiation as it was merely a security measure and reflected the inevitable outcome at that stage in the dispute.
On the other hand, the Judge sustained De Beers’ claim that Atos had repudiated the contract through their conduct in the termination and re-negotiation dispute. Atos had offered to complete the contract on different terms, rather than the terms originally agreed. In addition, the offer was subject to De Beers’ agreement to waive any claim that it might have against Atos in relation to Atos’ delivery to date. The Judge pointed out that this was something upon which Atos had no contractual right to insist upon. Significantly it was noted that “There is a very significant difference between being willing to complete a project and being willing to fulfil a contract. Atos may have been genuinely prepared to do the former, on its own terms but that was itself inconsistent with a willingness to do the latter”.
Damages were calculated by the Judge on the basis that, due to an issue which De Beers deemed confidential and refused to disclose, the Judge was not convinced that the software would ever have been used by De Beers. This substantially reduced the claim by De Beers. The Judge then calculated the sums which De Beers would have had to pay Atos, had the contract been performed in full, including the withheld payment, and Atos’ accrued and future claims on termination. The net claim by De Beers was then calculated at approximately £1.4 million, from an original claim of £8.68 million.
In conclusion, the decision in this case does not create any new legal precedents with respect to repudiation of contract. However, the decision is quite useful as practical guidance for parties engaged in a contractual relationship, for whom the contract is not progressing on a satisfactory basis.
Some Lessons to Learn
The lessons to be extracted include:
- It is not advisable for a supplier to suddenly ‘down tools’ regardless of any difficult relationship with their customer. This may be considered to be repudiation of the contract;
- Be aware of the reputational damage which might arise out of litigation. During the trial internal Atos memo prepared by David Cunningham, a senior Technical Architect in Atos, revealed that “In short, what is missing is systems analysis. This seems to be something of a lost art (within Atos Origin at any rate), and l am at a loss to understand why. To build a system of this size and complexity it is an essential activity”; and
- Activities and decisions, taken on a commercial basis, may have profound implications for assessing repudiation of contract, as well as damages.