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TMT News aims to provide our clients with a comprehensive overview and comment on interesting developments from across the telecommunications, media and technology fields.
To email any of our lawyers please use firstname.lastname@minterellison.com
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> No copyright in white and yellow pages
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A recent case handed down by the Federal Court of Australia shows that copyright will subsist in compilations (including databases) only if the structure and function of the compilation is sufficiently 'original' that is, the product of independent intellectual effort and not simply dictated by the content of the compilation or its intended use. The case also highlights that to establish that copyright subsists in compilations, the individual contributors and the nature of their contributions must be captured.
In the decision of Telstra Corporation Limited v Phone Directories Company Pty Ltd ([2010] FCA 44, Justice Gordon found that White Pages and Yellow Pages directories are not protected by copyright.
In summary the judge found that:
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applicants had not and could not identify who provided the necessary authorial contribution to each work.
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even if the human (or humans) who contributed to each work were capable of being identified (which they were not) much of the contribution to each work:
(a) was not ‘independent intellectual effort’ and was not ‘sufficient effort of a literary nature’ for those who made a contribution to be considered an author of the work for the purposes of the Copyright Act 1968 (Cth)
(b) was not the result of human authorship but computer generated.
Consequently the works could not be considered as ‘original works’ in which copyright subsisted because the creation of each work did not involve ‘independent intellectual effort’ and/or the exercise of ‘sufficient effort of a literary nature’.
Her Honour relied heavily on the High Court’s recent decision in Ice TV Pty Limited v Nine Network Australia Pty Limited, which found that there had not been infringement of copyright in a compilation of television programming information. The High Court indicated that, in considering whether copyright subsists in compilations such as databases, it is necessary to consider whether there has been sufficient skill and labour directed to the originality of the particular form of expression of the database or compilation, not simply skill and labour directed to the gathering and assembly of the information.
Justice Gordon stated that a claim of authorship in a database may arise where a person determines how a database will function and be expressed. The independent intellectual effort expended in making those determinations may go to the originality of the particular form of expression of the database.
Key implications
Copyright will only subsist in compilations including databases if the particular form of expression of the database (including its structure and function) is the product of independent intellectual effort, and not merely dictated by the nature of its content or the purposes for which its designed.
To establish copyright in compilations it is necessary to be able to identify the individual authors and their contribution.
Where contractors contribute to the creation of a database, written assignments of copyright are required to ensure that copyright is vested in the database owner.
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Justice Gordon focussed strongly on the issue of authorship, and found that the applicants were unable to identify the authors of the works. She also found that a variety of independent contractors were engaged and that a significant number of those contributors were unidentified. Further, although a number of agreements were tendered, demonstrating assignments of copyright from contractors to Sensis, these did not cover all contractors and this represented a significant gap in the evidence.
The applicants had relied, in part, on the intellectual effort of Sensis employees in customising the Genesis Computer System that was used in the creation of each of the White Pages and Yellow Pages directories. Justice Gordon found that an undefined but not insignificant proportion of the Genesis computer system was not the intellectual property of the applicants. Based on the evidence before the court, it was not possible to determine who created or had the benefit of the whole or any part of the various computer systems at any given time.
This case is of importance for creators of compilations of factual material such as databases. It indicates that database owners will only be able to establish that copyright subsists in databases if:
(a) they can identify the skill and labour of individual human authors directed to the originality of the particular form of expression of the database, including its structure and function, and
(b) the particular form of expression of the database (including its structure and function) is the product of those authors' independent intellectual effort, and not merely dictated by the nature of its content or the purposes for which its designed.
Going forward
The decision should encourage database owners to have appropriate systems in place that identify and record the persons involved in the creation of the structure and function of the database. Information should include their status (for example, whether they are employees or contractors) and the details of their contribution. Where part of the structure and function of the database is embodied in software, it will be critical to be able to identify the relevant components and to ensure that ownership of copyright in those components vests in the database owner. Where contractors are involved, this will require written assignments of copyright from those contractors.
For further information please contact:
Peter Kearney, Special Counsel
T:+61 7 3119 6329
peter.kearney@minterellison.com
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> Defective products – who is liable to whom?
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Recent technological advances have created an array of gadgets designed to make our lives more enjoyable, connected and productive. Handheld digital media devices – which enable us to play music and games, watch movies, view photos, make telephone calls, read and send emails, interact with social networking sites, surf the internet along, and a host of other things – are increasingly ubiquitous. However, technological products are in no way immune from having defects. So who is liable (and to whom) when a product causes injury?
In Australia, the answer lies, for the most part, within the Trade Practices Act 1974 (Cth) (TPA) and other State and Territory consumer protection laws.
An example scenario: Peter, the purchaser, goes to Sound Suppliers, a department store, to purchase a handheld digital media device. There is a wide selection and so he speaks to Sally, the sales person, and tells her what he needs and discusses with her which product best suits his needs. Sally advises that, for a number of reasons, product X is the most suitable option for Peter. During their discussion, Sally also mentions that this device is one of only a few devices of this type which are manufactured in Australia by Music Manufacturers, the Australian subsidiary of a well known global technology company. On the basis of Sally’s advice, Peter purchases the Music Manufacturers' device from Sound Suppliers and takes it home.
Being rather fastidious in nature, Peter reads and follows all of the instructions for use, and takes particular care using the product. However, while listening to the device on the train the next day, it suddenly explodes. Peter and an innocent bystander are injured. It is subsequently discovered that the explosion was caused by a fault within the device which could cause it to overheat and explode while under sustained workload.
Who can sue whom, and what can they recover?
Peter's perspective
There is no doubt that Peter is a consumer for the purposes of the TPA, since the handheld digital media device is a good of a kind ordinarily acquired for personal, domestic or household use or consumption (PDH Good) (section 4B). Accordingly, under the TPA Peter can sue either:
- Sound Suppliers, the corporation who supplied the device, or
- Music Manufacturers, the corporation who is the manufacturer of the device for the purposes of the TPA.
Peter could sue Sound Suppliers for breach of the terms implied by the TPA in the contract of sale between him and Sound Suppliers. On the facts above, Sound Suppliers would be liable for loss Peter has suffered as a result of:
- a breach of the implied condition that the device is of merchantable quality (section 71(1)); and/or
- a breach of the implied condition that the device is fit for the purposes expressed by Peter to the sales person at the time that the contract was made (section 71(2)).
Accordingly, Peter could recover damages.
The TPA also provides a right to rescind a consumer contract (section 75A) when the above implied terms are breached. In the example scenario, provided Peter follows the process set out in section 75A, he may exercise his statutory right to rescission and receive a full refund of all amounts paid for the device.
Given that the device is a PDH Good, Sound Supplier's liability for a breach of these implied terms cannot be limited or excluded.
Peter could also rely on a statutory right of action against Music Manufacturers (Division 2A of Part V of the TPA). For the purposes of the TPA, a manufacturer is usually, but not always, the actual manufacturer of the goods in question (section 74A(3)). By relying on this right, Peter could sue Music Manufacturers and recover the loss he suffered as a result of the device:
- not being of merchantable quality (section 74D); and
- not being fit for purpose (section 74B).
Section 75AD of the TPA would also enable Peter to sue Music Manufacturers for the loss he suffered as a result of his injuries.
Sound Suppliers' perspective
If Sound Suppliers suffers loss as a result of a claim by Peter in connection with the device not being of merchantable quality or fit for purpose, Sound Suppliers is able to recover an amount equal to its liability to Peter from Music Manufacturers under a statutory indemnity provided by section 74H of the TPA.
However, this remedy is limited, and may not address all of the losses that Sound Suppliers may suffer. This is because the indemnity only relates to liability as between the supplier and the consumer, and does not take into account other loss that may be suffered by the supplier, for example, damage to business reputation and lost revenue or profits. Whether or not these other types of loss are recoverable will depend, instead, on the terms of the supply contract between the manufacturer and the supplier.
The injured bystander's perspective
The innocent bystander who was injured would also be able to sue Music Manufacturers to recover any loss suffered as result of the injury under section 75AD of the TPA.
As a consumer, or another person suffering loss in connection with a defective good, the TPA provides a number of avenues to seek recourse from either the seller or the manufacturer of the good.
In the case of the seller, however, recourse against the manufacturer is more limited. Accordingly, it is important that the seller addresses these risks in its supply contract with the manufacturer. In particular, the seller should ensure, to the greatest extent possible, that if the items purchased are defective, the seller is able to recover from the manufacturer the full amount of any loss suffered by the seller.
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> Technology predictions: our review of 2009, and some predictions for 2010
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2009 Prediction: Further penetration of Software as a Service (SaaS)
Australia will see a proliferation of businesses adopting SaaS in 2009. With no hardware, maintenance or upfront capital costs, SaaS will be seen as ideal for companies looking to control their costs in an uncertain economic environment. Some analysts predict that the global SaaS industry may be worth as much as A$10.7 billion during 2009.
Outcome: While SaaS didn't reach the levels estimated by some analysts, the worldwide uptake increased dramatically in 2009 and should continue to surge for a number of years to come. Gartner has estimated that in 2009, SaaS generated US$7.5 billion in revenue, up 17.7% compared with 2008. These impressive figures have been helped by the more recent financial climate, as SaaS provides an economical alternative for many businesses.
2009 Prediction: Greater consumer spending through mobile phones
Mobile commerce (m-commerce) stands to benefit from the challenging economic environment, as consumers look for bargains, and as companies search for innovative ways to differentiate themselves, promote their goods and services to a targeted demographic, and make shopping faster and easier. Despite the forecasted economic malaise, 2009 will see the start of an explosion in m-commerce as companies introduce a raft of new m-commerce applications, spanning mobile television, video and news delivery, mobile coupons and ticketing, and new location-aware services.
Outcome: 2009 saw a surge of interest in mobile application, music and video marketplaces, driven in particular by the popularity of the iPhone’s 'App Store', with more than 2 billion downloads as of November 2009. Many large retailers have begun to introduce a multi-channel approach in order to connect a shopper's online and in-store presence, by adopting a range of mobile features to add value to the shopping experience (including mobile catalogues, barcode scanning and automated product comparisons).
A number of companies reported strong growth in m-commerce in 2009. In particular, eBay reported a significant surge in m-commerce usage; around 6 million people around the world have now installed an eBay application to their mobile phones and 1.5 million purchases were made via eBay's m-commerce application during the Christmas period. Similarly, Motorola reported that 64% of gen-Y shoppers used their mobile phone for shopping-related activities during the 2009 Christmas period. With a number of companies already announcing innovations for 2010, the outlook for m-commerce is looking very positive.
2009 Prediction: Proliferation of cyber safety software
Partly due to the global economic situation, but mainly due to the increasing exposure given to these types of nefarious activities, consumers and businesses will continue to arm themselves with electronic security layers. The cyber security industry may well be one of the few parts of the technology industry that grows during 2009.
Outcome: Cyber security spending has increased significantly in recent years. The 2010 Cybersecurity Watch Survey estimated that IT security spending in 2009 was 42% more than in 2007. This surge has primarily been led by Government as rising attacks have led to increased demand for more advanced cyber security measures. Companies such as McAfee and Symantec have benefited significantly, with Symantec growing from $4.3 billion in 2005 to $5.5 billion in 2009. Importantly, the recent cyber attacks against Google have increased concerns about cyber security and many analysts expect the cyber security market to continue growing in the coming years.
2009 Prediction: Green IT
Expect the ICT industry to devote considerable focus this year to emissions, partly in a bid by companies to differentiate themselves from their competitors, but also in response to an increasingly stringent green regulatory regime.
Outcome: 2009 saw renewed efforts by hardware manufacturers to reduce the environmental impacts of their products through continued focus on driving down power consumption, through more efficient processors, OLED display panels, solid-state drives and other components. Tender documentation has also seen an increasing proliferation of green IT clauses, requiring suppliers to demonstrate their green credentials. Notwithstanding this, the green regulatory environment remains uncertain, with the Federal government's carbon pollution reduction scheme failing to pass the Senate twice in 2009.
2009 Prediction: OLED and 3D TV
It's been a long time in coming, but OLED TVs are finally creeping on to the market. 2009 will see the usual early adopters part with large amounts of cash in order to own OLED TVs as thin as 3mm.
The market for 3D TVs, however, is still some way off, and will only gain critical mass once viewers can dispense with the need to wear 3D glasses. However, expect a niche uptake of 3D displays in the gaming market during 2009.
Outcome: In 2009, Sony released the first OLED TV on to the Australian market. Retailing for a pricy $6999, its XEL-1 OLED TV features an 11-inch screen and is only 3mm thick. At present, other manufacturers have not yet released OLED TVs, although both Samsung and LG plan to release models during 2010. As the technology becomes more widely available, prices will fall and screens will increase in size, increasing consumer uptake.
As for 3D TVs, 2009 did not see a significant uptake by the public. However, that may change in 2010 with the release of a number of 3D movies such as Avatar (now the highest-grossing film in history) and plans by the major Australian free-to-air television networks to air some 3D programs in 2010.
And some more predictions for 2010 …
The year of the tablet PC
Tablet PCs have been available for over a decade now but have experienced limited consumer acceptance for a variety of reasons, including clunky operation and limited functionality. In 2007, only 1.5 million tablet PCs were sold, representing less than 1% of the personal computing market. Despite this, recent advancements in technology have changed the outlook with new tablet PCs – led by Apple’s impending iPad – offering a much more attractive package to consumers.
Prediction: Expect a large increase in sales as consumers become attracted to the combination of screen size, light weight and strong web-browsing capabilities offered by the new generation of tablet PCs. Apple's announcement of the iPad will significantly influence consumers, and a number of other manufacturers are following Apple's lead and introducing tablet PCs in 2010. We predict that tablet PCs will generate around US$1 billion in global sales this year.
SaaS will continue to grow
2009 was a big year for cloud computing, as SaaS uptake increased dramatically over previous years. Consumers, small and medium businesses and even larger organisations have adopted SaaS because it represents a low-cost method to obtain services on-demand. A number of companies have invested heavily in developing the technology further and this has led to significant improvements in the level of customisation available to consumers.
Prediction: We expect to see continued strong growth in the uptake of SaaS for a number of years to come as the architecture underpinning the technology continues to improve. Gartner forecasts that SaaS usage will continue to grow consistently for years to come, and will generate up to US$14 billion in revenue in 2013.
The National Broadband Network will begin to shape the future
The National Broadband Network, announced in 2009, is set to be pivotal in Australia's digital future. It is not just consumer internet that will benefit from the NBN – numerous industries, including media, healthcare, energy, transportation and agriculture all stand to gain from ubiquitous high-speed broadband.
Prediction: While it is still a few years away from becoming operational, greater clarity in the functional and operational design of the NBN will emerge in 2010. As a result, expect to see companies begin positioning themselves with innovative approaches and new business models to ensure they are able to best benefit from the NBN.
VoIP usage will grow significantly
VoIP (Voice over Internet Protocol) has grown in popularity in recent years primarily due to the low cost of making calls. The growth of WiFi and the increased availability of wireless networks has meant that VoIP services can now be utilised by WiFi capable mobile phones, representing a significant area of potential growth for the VoIP industry.
Prediction: 2010 will see strong growth in the use of mobile VoIP, as consumers begin to utilise its benefits through mobile networks, rather than just as a fixed line service. Some analysts predict mobile VoIP could be worth US$30 billion globally within three years.
Flash memory will make it big
Flash memory is a non-volatile semiconductor memory device that has been around for a number of years now. It offers many benefits over traditional rotating disk hard-drives because it loads faster and is more robust against shocks. Unfortunately, flash memory has been relatively expensive to produce, so its use far has been limited to smaller devices such as memory cards. However, this is beginning to change as the technology improves and the cost differential between flash and rotating disk memory decreases, allowing larger capacity flash devices to be produced.
Prediction: Expect to see a doubling in the overall use of flash memory as a storage solution in 2010 and for the next 2-3 years after, as users start to rely more heavily on flash memory.
For further information please contact:
Paul kallenbach,Partner (with the assistance of David Stewart, Vacation Clerk)
T: +61 3 8608 2622
paul.kallenbach@minterellison.com |
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> Riding the Web 2.0 wave – limiting liability for user generated content
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Web 2.0 has revolutionised the way we create, disseminate and consume large volumes of information and new content and created opportunities to monetise that content. Equally, it has created a number of legal challenges for users and businesses involved in the publication of user-generated content. As more claims are being brought over web content, lets look at the risks and how they can be mitigated and managed.
The targets
While individual creators of user generated content (UGC) may certainly be liable for the content they create and upload, internet content hosts (who host, cache or carry but do not create the content), operators or owners of the website from where the content is stored and accessed, and internet service providers (ISPs), may also be liable. Indeed, many of these internet intermediaries are potentially easier targets, because they can be identified and located, have deeper pockets, as well as a reputation and brand to protect. They may also be subject to regulatory regimes and have duty of care obligations.
Heightened risks
The unique business opportunities arising from UGC therefore carry with them additional legal risks and exposure for Web 2.0 businesses and internet intermediaries, because:
the creation of UGC is not ‘engineered’ or controlled by them
online users are active producers, distributors and consumers of internet content;
potentially anyone can upload content at any time
the combination and packaging of UGC – text, visual, audio, pictures, video and live streaming – may change the nature of content
the potential unlimited access to UGC by users across different age groups, and
UGC may be communicated to an international audience in different legal jurisdictions
UGC may expose them to the same kinds of legal claims and regulatory issues as traditional or real space media face. Web 2.0 content and activity is generally subject to the same conventional laws as traditional forms of media. The High Court has held that publication on the web occurs when material is posted on to a web server by a user, and again when that material is downloaded by a third party from the web server. Publication is bilateral, complete at the time of downloading: Dow Jones & Company Inc v Gutnick [2002] 210 CR 575. This means that every time someone opens a website anywhere in the world, the content they access is published.
Defences
There are defences available to internet intermediaries (eg a defence of innocent dissemination in the uniform defamation laws such as section 32 of the Victorian Defamation Act 2005 and an untested provision in section 91 of schedule 5 of the Broadcasting Services Act 1992 (Cth)). However, they do not provide an incentive to actively police and remove content, because of the provisions requiring their lack of knowledge and/or control in order to avoid liability.
Few local precedents
There are few decided cases in Australia to guide potential internet defendants on the standards the courts expect of the extent to which they should control UGC. It appears that most are resolved in their early stages or are not pursued (e.g. Kaplan v Go Daddy Group Inc [2005] NSWSC 636 and 2Clix Australia Pty Ltd v Simon Wright (foprums.whirlpool.net.au).
The Federal Court in Silberberg v The Builders Collective of Australia Inc [2007] FCA 1512 considered the issue of a website owner's obligations in relation to UGC in the context of a claim under the Racial Discrimination Act 1975. The plaintiff claimed that two messages posted on a members' discussion forum on the website of Builders Collective of Australia (BCA) were racist. The messages were removed after the plaintiff's solicitor complained to BCA. Whilst BCA was not found to have breached the Act because of its particular provisions, the court nevertheless found that BCA has published the offensive messages because it actively conducted the website and forum and was not a passive ISP.
Copyright authorisation cases such as the recent decision in RoadShow Films Pty Ltd v iiNet (No 3) [2010] FCA 24, may also assist in shedding light on the courts' expectations of how ISps and others should respond to complaints. Underlying the Federal Court's decision that iiNet did not authorise its users to infringe copyright, was the finding that an ISP provides access to the internet; it does not control what people elect to do with that access. The broader implications of this decision on potential liability for UGC are unclear at this stage, although it may indicate a trend away from attaching liability to 'passive' providers of internet services. That is, the less control, actual or exercised, an ISP (or other intermediary) has, the less likely it will be liable for the ultimate use to which their internet services are put.
Looking overseas for guidance, the issue of a search engine's liability for UGC was recently considered by Justice Eady in the English High Court case of Metropolitan International Schools Ltd v DesignTechnica Corporation [2009] EWHC 1765 (QB). The plaintiff sued the website operator and Google claiming website postings that his distance learning courses were 'scams' were defamatory. Google was alleged to have published the defamatory content by making the postings available via its search engine. The judge found that because search engine results are generated automatically, Google did not have the requisite knowledge or involvement in the postings being displayed by its search engine. As a result, Google was not a publisher of that content and was not liable in defamation. However, it was noted that if Google had knowledge of the complaint and had failed to take 'sufficient steps' to prevent its display, it could have been liable. In this case the court consider that Google's 'take down' policy would probably have been sufficient.
Steps to managing the risks
Regulating UGC will always involve balancing risk against cost. The first consideration is the nature of the website and its content. For example, does the website 'invite' potentially illegal content? Is there really a need for ‘live’ postings? Does the website charge for access to content? How quickly does content need to be available?
Identity verification may also be useful, eg requiring new users to provide credit card details, which will assist in verifying a user’s age, as well as preventing them from remaining anonymous. This helps to give users a sense of responsibility and ownership in the process.
There should always be appropriate website terms and conditions (including disclaimers) that are legally enforceable, as well as a privacy policy. Adequate notice of both should be given to users who must actively accept them at the start.
A decision needs to be made concerning the level of control that will be exercised and whether to implement a system of checking or moderating content. This involves a balancing act. Clearly, it may be commercially undesirable to place no restrictions on content being posted or have no means of finding out about, removing or controlling content. However, as previously discussed, the trend in the case law suggests that the greater level of involvement and control exercised by online service providers, the greater their potential liability to the way in which they exercise that control. This is also reflected in the defences available.
Ultimately, the most appropriate measures will depend on the intended purpose and target audience of the service and the extent of the service provider's involvement and control over the UCG. For example, owners of blogs or website forums which invite comment will need to consider how they will respond to claims by third parties. These need carefully drafted website guidelines on what content is appropriate and when content will be removed, as well as practical and manageable procedures for finding out about potentially illegal content, dealing with complaints and monitoring new content. Further, exposure to claims in certain jurisdictions where an entity does, or wishes to do, business, should be considered. This includes any applicable local regulations.
Finally, the nature of the internet also helps mitigate these risks, by enabling:
- the timely removal of illegal or offensive material – the longer it remains the more likely damage will be suffered and complaints will be pursued
- complainants to raise their concerns quickly and respond to content they consider damaging, and
- a speedy, easy and cheap making of amends process to be set up.
These avenues should be used as a first resort.
For further information please contact:
Veronica Scott, Senior Associate (with assistance from Ben Dodgshun)
+61 3 8608 2126
veronica.scott@minterellison.com |
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> BSkyB v EDS (UK): Tender with care
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The UK High Court handed down its decision in the long running case of BSkyB v EDS. The decision, although subject to potential appeal, could well become a landmark case affecting tenders, pitches and contracts for the provision of services.
In finding against EDS on the grounds of (among other things) fraudulent misrepresentation committed during a tender process, the UK High Court has highlighted the need for service providers to be able to substantiate, or at least show they have made the effort to substantiate, representations made to customers in the course of pitching for jobs or pre-contractual discussions. As this decision shows, the result of a failure to do so could be disastrous.
The dispute
The dispute concerned the failed implementation by EDS of a new customer relationship management (CRM) system for use in BSkyB’s Scottish call centres.
In 2000, BSkyB ran a tender process to design, implement and manage its CRM. Following representations regarding its ability to deliver the project in terms of timeframe, cost and skills, EDS emerged as the successful tenderer, and was awarded the contract.
The project did not go well. After numerous key deadlines had been missed and various attempts to rectify the situation had failed (including re-planning delivery of the project by signing a 'Letter of Agreement' to supersede the primary contract), BSkyB severed its relationship with EDS in 2002 and completed the project in house (at a reported cost of £265m).
Litigation ensued, in which BSkyB made claims of, among other things, deceit (fraudulent misrepresentation), negligent misstatement and breach of contract by EDS. BSkyB claimed damages in the vicinity of £700m.
The judgment
Despite EDS arguing that the project was derailed by the inherent risks in an IT project of this nature and BSkyB’s ‘vague and shifting requirements’, EDS was held liable for fraudulent misrepresentation, negligent misstatement, and breach of contract.
The negligent misstatement related to EDS’ failure to carry out a proper analysis and re-planning exercise during the 'Letter of Agreement' phase, while breach of contract was found on a number of grounds, including for EDS not acting with reasonable care and skill.
The most significant finding, however, was of fraudulent misrepresentation, which arose as a result of statements made by an EDS employee during the tender process.
To make out a claim of fraudulent misrepresentation, BSkyB had to establish that: (i) EDS knew the representation was untrue, or was reckless as to whether it was true; and (ii) EDS intended that BSkyB rely on the representation, and that BSkyB did so to its detriment.
In this case, the EDS employee fraudulently misrepresented that he had conducted an appropriate assessment of ‘the time needed to complete the initial delivery and ‘go-live’’, when in fact these were made without any ‘proper analysis’. These ‘serious’ misrepresentations resulted in EDS being awarded the tender to the exclusion of other tenderers.
For BSkyB, the finding of fraudulent misrepresentation was significant in that it circumvented a number of exclusions and limitations of liability set out in the Letter of Agreement. Specifically, the court held that a specified £30m limitation of liability was a contractual limitation and as such did not apply to fraud (a tortious claim), while a provision stating that the Letter of Agreement was agreed "in full and final settlement of all known claims…and all unknown claims…" was interpreted to exclude claims for breach of the original contract, but not for fraudulent or negligent misrepresentations outside the contract.
EDS was similarly unable to rely on an entire agreement provision to exclude liability for pre-contractual representations, as the court interpreted such a clause to mean that pre-contractual representations did not form part of the contact, rather than that they never existed.
Whilst further hearings in relation to damages are yet to occur (and EDS, now owned by HP, has indicated its likelihood to appeal), estimates believe damages could reach £200m.
Australian position
In Australia, it is likely that a similar finding would be arrived at, albeit through different means.
Under section 52 of the Trade Practices Act, a corporation is prohibited from ‘in trade or commerce engaging in conduct that is misleading or deceptive or likely to mislead or deceive'. It is well established in Australia that pre-contractual representations can amount to misleading or deceptive conduct provided, of course, that the necessary elements of section 52 are met.
Notably, a claim under section 52 is unable to be restricted, excluded or limited by agreement between the parties.
Even if an action under section 52 could not be made out, common law claims for fraudulent or negligent misrepresentation could still be pursued, as they were in the UK.
Implications
While this decision does not materially change or update existing law, it nevertheless contains some important reminders for service providers and lawyers alike. It also highlights the dim view courts take of fraudulent or deceitful behaviour.
For service providers, this decision highlights the fine line that must be trodden in promoting one’s wares while pitching for jobs. Above all else, service providers should ensure that during tender processes they do not exaggerate their capabilities and should conduct thorough, documented assessments of prospective delivery timing before making any representations. Reliance on inherent risks in IT projects is unlikely, in itself, to be sufficient to substantiate any failure to meet representations. Further, statements previously dismissed as "things said by the sales guys" (in this case, one individual) may take on new significance, and care must be taken in selecting an organisation's mouthpiece.
Lawyers are once again reminded of the care which needs to be taken in drafting limitation and exclusion clauses, although liability for deceit in this case could not have been avoided, no matter how accurate the drafting.
For further information please contact:
Anthony Lloyd, Partner
T: +61 2 9921 8648
anthony.lloyd@minterellison.com |
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Adelaide:
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Brisbane:
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Canberra:
Paul McGinness
Canberra Managing Partner
| T: | +61 2 6225 3257 |
| F: | +61 2 6225 1257 |
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Darwin:
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Gold Coast:
Ken Petty
Partner
| T: | +61 7 5553 9524 |
| F: | +61 7 5575 9911 |
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Hong Kong:
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London:
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Melbourne:
Ron Pila
Partner
| T: | +61 3 8608 2700 |
| F: | +61 3 8608 1154 |
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Perth:
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Shanghai:
Yi Yi Wu
Partner and Chief Representative
| T: | +86 21 6288 2171 |
| F: | +86 21 6288 2172 |
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Sydney:
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