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England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] EWHC 752 (TCC) (21 March 2014)
URL: http://www.bailii.org/ew/cases/EWHC/TCC/2014/752.html
Cite as: [2014] EWHC 752 (TCC), 153 Con LR 203
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QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
| FUJITSU SERVICES LIMITED |
Claimant |
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| - and - |
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| IBM UNITED KINGDOM LIMITED |
Defendant |
____________________
Mr Jeffery Onions QC and Mr Matthew Lavy (instructed by Herbert Smith Freehills LLP) for the Defendant
Hearing dates: 25, 26, 27 February 2014
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Crown Copyright ©
- This is a trial of preliminary issues arising out of a claim brought by Fujitsu Services Limited ("FSL") against IBM United Kingdom Limited ("IBM"). The dispute between the parties relates to the provision of information technology ("IT") services to the Driver and Vehicle Licensing Agency ("the DVLA"). IBM provides IT and business process change services to the DVLA under a main contract ("the PACT Agreement"). FSL provides aspects of those services under a sub-contract with IBM ("the Sub-Contract"). Both contracts were entered into on 12th September 2002 for a period of ten years. Pursuant to extensions, they remain ongoing contracts, now due to expire on 12th September 2015.
- The Sub-Contract has been the subject of material amendment since 2002. References below to "the Original Sub-Contract" are references to the Sub-Contract as entered into in 2002 and references to "the Amended Sub-Contract" are references to the Sub-Contract as amended on 26th June 2008. Where is it not necessary to distinguish between the two, I refer simply to "the Sub-Contract".
- Under the PACT Agreement the DVLA can request various IT and business process change services from IBM. In broad terms IBM sub-contracted the day-to-day management, support and maintenance of IT infrastructure to FSL, whilst itself retaining responsibility for IT transformation and strategy.
- Under provisions the precise scope and effect of which are in dispute, IBM agreed to sub-contract to FSL specified shares of certain types of those services. FSL contends that it has no direct means by which to ascertain what services are being requested or provided under the PACT Agreement and is thus reliant on IBM to obtain work under the PACT Agreement, to notify it of such work and to sub-contract to FSL the share of work to which FSL is entitled. It contends that IBM owes FSL a duty to act in good faith and fiduciary duties.
- FSL alleges that in breach of contract IBM has failed extensively to sub-contract to FSL services in accordance with the Sub-Contract, and in breach of contract has failed to implement the change of control procedures in the Sub-Contract requiring IBM to notify and seek FSL's consent to material changes in the PACT Agreement. FSL contends that these alleged breaches also amount to breaches of alleged fiduciary duty. Additional breaches of contract or alleged fiduciary duties are said to have arisen upon an alleged breach of duty on the part of IBM not to take steps the effect of which would be to limit the amount of work available under the PACT Agreement or sub-contracted to FSL.
- On the basis of limited disclosure to date, FSL estimates, by reference to an illustrative period of two six month periods only, that it has suffered a revenue loss of some £7.6 million over those periods as a result of having been deprived wrongfully of work under the Sub-Contract. On an extrapolated basis and by reference to an illustrative period from 1st July 2008 to the date of commencement of proceedings on 3rd May 2013, FSL estimates that it has then suffered a revenue loss of some £36.8 million over that period as a result of having been deprived wrongfully of work under the Sub-Contract. These are of course revenue (and not loss of profit) figures only and in any event are by no means agreed.
- IBM denies any breach of contract or fiduciary duty substantively (either because the terms or duties alleged did not exist and/or because if they did, there has been no breach). It also denies any liability to FSL by reference to contractual exclusion and limitation of liability clauses and by reference to the Limitation Act 1980 (as amended).
- The matter is fixed currently for full trial commencing 23rd February 2015 with a six-week time estimate.
- The issues for my determination, as ordered by consent on 19th July 2013, are framed as follows :
- The selection of the issues for preliminary ruling no doubt arises out of paragraph 2 of the Defence which reads as follows :
- The general background is largely undisputed. In 2001 the DVLA wished to contract with an appropriate supplier so as to transform its business processes and consolidate and improve its information systems and its information, communications and technology systems. Together with PricewaterhouseCoopers ("PwC"), FSL (then named International Computers Limited) submitted a proposal to provide the services required. Following competitive tendering processes, PwC, assisted by FSL, submitted a final offer in March 2002.
- On 12th September 2002 the Secretary of State for the Department of Transport, acting through the DVLA, entered into the PACT Agreement with PwC, which contract was referred to as the "Partners Achieving Change Together Partnering Agreement". PwC was to identify and implement business process change, consolidate and improve its information, communication and technology systems, and to provide maintenance, operation, support and maintenance services in relation to such systems.
- On the same day PwC entered into the Sub-Contract, referred to as the "Sub-Contract for the PACT Services". On 2nd October 2002 IBM purchased the consultancy business of PwC. IBM replaced PwC as party to the PACT Agreement and the Sub-Contract. As already indicated, the original term of the Sub-Contract was ten years. The Sub-Contract was amended from time to time including in 2008, and has been extended to expire in 2015.
- The services to be provided by FSL under the Sub-Contract related to the day- to-day running of DVLA's IT systems and also to specific projects commissioned by the DVLA. As to the day-to-day running services, FSL relies on certain workshare provisions in the Sub-Contract, in particular clause 2.8 and latterly also Schedule 23 ("the workshare arrangements"). As for project work, the DVLA usually initiates requirements by service of a "Request for Change" document (or similar).
- For the purpose of this trial only, the parties are agreed that the following (contentious) facts (pleaded at paragraph 3 of the Particulars of Claim) should be assumed as true :
- It is necessary to set out parts of the preamble and the more relevant terms of the Original Sub-Contract at some length :
- funding and financial contributions;
- intellectual property;
- contractual terms including risk sharing; and
- any other contribution to be taken into account as agreed by the Parties.
- The main material amendment introduced in 2008 related to the workshare arrangements. Amended clause 2.8 read as follows :
- Schedule 23 contains detailed workshare provisions and definitions, including intended allocation percentages by reference to different types of work, and provision for the management of workshare referred to in more detail below.
- It is convenient to break FSL's claims down under three heads as follows :
- On each head of claim, whether for breach of contract or other duty, the damages claimed are for loss of profit. Thus by way of example, on the workshare claim FSL pleads its claim for damages as follows :
- On each head of claim FSL also seeks :
- It is important to note that there is no claim for breach of warranty or representation under clause 19 of the Sub-Contract. There is no claim for breach of clause 6 of the Sub-Contract. There is no claim for rectification of either clause 20.4 or 20.7 of the Sub-Contract.
- Finally, FSL seeks declaratory relief in relation to disclosure from IBM in relation to change control procedures. The parties are agreed that that claim does not fall within the ambit of this preliminary issue ruling.
- The relevant principles of construction are well known. The general legal principles can be summarised as follows :
- As for exclusion and limitation of liability clauses specifically, it is generally for the party seeking to rely on the exemption or limitation of liability clause, here IBM, to show that the clause, on its true construction, covers the obligation or liability which it purports to restrict or exclude. If there is an exception to the exemption, then the burden rests upon the claimant to establish that his case falls within the exception. But the form is not conclusive and the matter is in every case a question of construction of the instrument as a whole (see generally paragraphs 14-018 and 14-019 of Chitty on Contracts (31st edition)).
- There is no reason to approach the exercise of construing an exemption or limitation of liability clause in any way different to any other term in a contract. In Tradigrain SA v Intertek Testing Services (ITS) Canada Ltd [2007] EWCA Civ 154 Moore-Bick LJ stated at paragraph 46 :
- In Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 850-851 Lord Diplock stated:
- In Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd [1974] AC 689 at 717 Lord Diplock stated:
- FSL relies heavily on what it describes as a "statement of intent" rule of interpretation. In Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 Lord Wilberforce stated at 432:
- In Tor Line AB v Alltrans Group of Canada Ltd [1984] 1WLR 48 Lord Roskill adopted a similar approach (in particular at 58H to 59A), as did the Court of Appeal in Kudos Catering Ltd v Manchester Central Convention Complex Ltd (supra) at paragraph 19 :
- Finally, in AstraZeneca UK Limited v Albemarle International Corporation [2011] 2 CLC 252 Flaux J stated, albeit in the context of a very different type of contract and exclusion clause, at paragraph 313:
- I turn first to consider the exclusion in the opening lines of clause 20.7 which, as set out above, provide :
- I see no reason for approaching the basic exclusion (or any other part of clause 20.7) in any way different to any other term in the Sub-Contract, in line with Tradigrain SA v Intertek Testing Services (supra).
- Applying the principles referred to above, I have reached the clear conclusion that on a proper construction of clause 20.7 any liability on the part of IBM for damages (or equitable compensation) on the workshare, change control and money value claims falls within the basic exclusion. I consider the account claims separately below.
- First, the language of clause 20.7 is on its face clear and unambiguous. Liability for loss of profits is excluded. The workshare, change control and money value claims are claims for loss of profits.
- The fact that the language is clear and unambiguous is of course not, without more, the end of the question. The words of the basic exclusion must be read in the context of the whole exclusion clause, the contract as a whole, the material background and circumstances as at the time the Sub-Contract was entered into. There is a necessary process of construction, as highlighted in Kudos Catering Ltd v Manchester Central Convention Complex Ltd (supra) (at paragraph 22) and a starting presumption that neither party intends to abandon any remedies arising by operation of law. Clear express words must be used in order to rebut this presumption, as highlighted in Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd (supra).
- But there is nothing in the context or surrounding clauses of the Sub-Contract that point to any different construction than a simple application of the words to the facts of the case.
- On the contrary, a consideration of all the relevant circumstances provides support for a straightforward application :
- The weakness in FSL's position to the contrary is demonstrated readily by FSL's inability to identify any commercially sensible formulation of what the parties must, on FSL's case, have meant.
- The parties' arrangements in relation to indemnities and liabilities in clause 20 are notable for their symmetry : each of the parties provided indemnities to the other; the liability of each to the other was restricted on terms as to financial limits; and of course by clause 20.7 the liability of each was excluded on specific terms.
- Yet all that FSL could offer by way of intended meaning was (at paragraph 19 of its written skeleton argument) that the parties intended to carve out from the basic exclusion sums that "would be payable but for IBM's breach of the express terms of the contract". When pressed by the Court in oral submission, FSL narrowed the scope of its proposed carve-out as follows :
- I put to one side for present purposes the fact that, as will be apparent below, the workshare claim is not one that falls to be paid under clause 6.2 of the Sub-Contract (and no claim is brought for non-payment under clause 6.2 of the Sub-Contract), and the fact that Schedule 23 did not come into existence until 2008.
- Against a background of mutual release of liability for loss of profit, revenue, goodwill and indirect or consequential loss or damage, it is in my judgment impossible to say that such an entirely one-sided result was the one intended by the parties at the material time. IBM too was giving up potentially very significant claims. Thus, any claim for loss of profits by IBM resulting from a failure by FSL to deliver a project on time would be excluded by clause 20.7. Putting it another way, FSL's suggested construction cannot be said to be one that a reasonable person as envisaged in Rainy Sky SA v Kookmin Bank (supra) would have understood the parties to have meant.
- In reaching my primary conclusion on construction of the basic exclusion, I have taken careful account of the arguments advanced by FSL.
- As a general point, FSL contends that because the risk in question was not a risk "at large", but rather one internal to and under the control of IBM, it does not fall readily for exclusion. There is nothing in this point. Clause 20.7 remains an exercise of risk allocation between the parties.
- Beyond that, FSL's contentions can be divided conveniently under the following headings :
- FSL points to the fact that the Sub-Contract represented a long and substantial commitment for the parties. The workshare arrangements constituted a fundamental part of how the Sub-Contract was to operate. FSL contends that if the effect of clause 20.7 is to exclude liability for breach by IBM of its obligations to allocate work to IBM, then a central element of the parties' bargain is deprived of all contractual force, or turned into a mere statement of intent. The contract should be construed so as to avoid such an absurd result, in line with Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale (supra) and the other authorities following as cited above.
- The proper construction of a contract or clause will turn in each case on its own words and relevant context. The authorities relied on by FSL, in particular AstraZeneca UK Ltd v Albemarle International Corp (supra), are each very different on their facts. So, for example, the exclusion clause (clause M) in AstraZeneca was ambiguous and rudimentary. (In fact it was only a single sentence at the end of a wider clause headed "Claims".) The contract as a whole was far less sophisticated and much shorter than the Sub-Contract. Flaux J described it (at paragraph 277) as "abound[ing]" with "somewhat loose language". That comment was made in the specific context of clause M. Additionally, the construction of the exclusion clause which Flaux J rejected would have deprived Albemarle of all of its "real loss" (see paragraph 310). As set out below, IBM's construction of clause 20.7 does not do this. Flaux J also made it clear that the approach that he adopted could only apply if another construction was available.
- I do not consider it helpful to refer to a "statement of intent" rule as such. The considerations raised in the authorities referred to immediately above are but part of the normal process of commercial contractual construction. But in any event, in my judgment, the "statement of intent" rule, if such it be, is of little assistance in circumstances where, as here, the wording is plain, the exclusion clause of mutual benefit and detailed in its form. As quoted above, Lord Diplock in Photo Production Ltd v Securicor Transport Ltd (supra) made it clear that in commercial contracts it is wrong to place a strained construction on words in an exclusion clause which are clear.
- Even if there were scope in principle for the court to strain its construction in favour of FSL on the wording on the Sub-Contract, a consideration of the "statement of intent" approach does not assist FSL. The effect of clause 20.7 on the construction advanced by IBM is not to empty the contract of content.
- FSL's claim was launched on the premise that the effect of clause 20.7 on IBM's construction was to exclude liability on the part of IBM from all of its workshare related obligations, including the obligation to pay sums due as charges in respect of work allocated under the workshare arrangements (see paragraphs 5.2 and 5.3 of the Reply).
- This premise was false. A claim for debt for non- payment of an invoice under clause 6 would not fall within the exclusion in clause 20.7, and IBM has not contended otherwise. Clause 20.7 expressly refers to "loss" (of profits, revenue, business, goodwill). A debt is not such a loss. The distinction between a claim for damages and a claim for debt is explained clearly in Jervis v Harris [1996] Ch 195 at 202 F-H :
- Thus liability on a claim for sums actually due and payable to FSL under clause 6 and Schedule 13 of the Sub-Contract in respect of work actually allocated under the workshare arrangements and performed is not excluded by clause 20.7. A reasonable person as identified in Rainy Sky SA v Kookmin Bank (supra) would not have understood the basic exclusion to have covered a claim in debt. FSL has confused the primary obligations (to allocate the work, carry out the work and pay for the work) with the secondary obligation to pay damages if the work is not allocated.
- Once this is understood, the contention that the effect of clause 20.7 as contended for by IBM denudes the contract of any force falls away. Its effect is not to deprive the workshare related arrangements, let alone the contract as a whole, of effect or to render the contract merely a statement of intent. The Sub-Contract is an ongoing contract that does not exclude liability for all types of breach, merely specific types of loss.
- Moreover, on IBM's construction of clause 20.7, substantive rights and remedies remain available to the parties, including the obligation on either party to perform its obligations under the Sub-Contract.
- So, for example, there are detailed governance provisions in Schedule 2 of the Sub-Contract. By Part 4 of that schedule there is provision for review meetings to take place (at least monthly) for the purpose of reviewing the overall management of the Services and Service Delivery by FSL, and to review any other commercial issues or other issues arising with the Sub-Contract, with an obligation on IBM to inform FSL at those meetings of any material issues or series of issues which together are or may become material and which might affect FSL's rights under the workshare arrangements in the Sub-Contract. There is also agreement that IBM and FSL will work together in the "identification, qualification, prioritisation and proposition of proposals for Future Services".
- In Schedule 23 (and so only as from 2008) the following was also provided :
- Schedule 20 in both the Original and the Amended Sub-Contract contained agreed dispute resolution procedures.
- Beyond these contractual mechanisms, in the event of the need to resort to the courts, FSL could also bring a claim for declaratory relief in respect of its entitlement under the workshare arrangements and/or a claim for specific performance and/or injunctive relief.
- Much was made by FSL of the limitations of the above rights and potential remedies. It submitted that :
- Putting to one side the fact that FSL's approach ignores FSL's rights under clause 6 as identified above, the question is not whether FSL would have adequate remedies but whether or not IBM's construction of clause 20.7 would deprive the contract (or, if one assumes in FSL's favour that a narrower approach is permissible, the workshare arrangements) of all contractual force. It does not.
- I refer again to the provisions of Schedules 2 and latterly 23 of the Sub-Contract. It is also fanciful in my judgment to suggest that declaratory relief against IBM would not amount to an effective remedy. The obtaining of declaratory relief is an important remedy. The suggestion that an organisation such as IBM would simply ignore the ruling of a court as to how the workshare arrangements were to be operated is not realistic. Indeed, FSL by this very claim makes a claim for declaratory relief (for the provision by IBM of documentation and information). As for the granting of specific performance orders or negative injunctions, whatever difficulties and uncertainties there might be in an application for such relief, it cannot be said that such relief could not be sought and would be doomed to failure. This much is apparent from cases such as Bath and North East Somerset District Council v Mowlem plc (supra). Everything would turn on the facts and circumstances pertaining at the time.
- FSL also contends in this context that the construction contended for by IBM leads to consequences which cannot be permitted. If it is right that FSL is only entitled to payment for work actually carried out under clause 6, then if IBM fails wrongfully to allocate work, by its own breach of contract it prevents that which would have become a debt payable (and so recoverable) from ever becoming more than inchoate. The result of a failure by IBM properly to allocate work is that FSL's loss becomes IBM's corresponding gain. It is said that it cannot have been the parties' intention that IBM should be able to profit from its breach of contract. Thus clause 20.7 should not cover primary losses (or corresponding gains) which are the immediate financial consequence, as between the parties, of a breach of the workshare provisions.
- Reliance is placed on Alghussein Establishment v Eton College [1988] 1 WLR 587 and CEL Group Ltd v Nedlloyd Lines UK Ltd and another [2004]1 Lloyd's Law Reports 381 for the proposition that a construction ought to be placed on clause 20.7 that prevents IBM from profiting from its own wrong.
- The former involved very extreme and different facts. A tenant was not allowed to rely on his own wilful default to obtain the contractual benefit of a new lease under the agreement between the parties. Lord Jauncey stated (at 594D) :
- The latter concerned the implication of a term, to make business sense in the context of that case, to the effect that the defendant would do nothing of its own motion to bring to an end its own requirements for road haulage services.
- These matters do not advance materially FSL's position. IBM is not seeking to obtain a benefit under a continuing contract on account of its own breach. Clause 20.7 is predicated on the assumption of liability on the part of IBM (or FSL). Nor is this a case of seeking to imply a term preventing IBM from acting in a particular way. CEL does not extend or take further the "statement of intent" approach relied on by FSL already addressed above.
- In its written opening FSL contended that the workshare claim fell within clause 6 of the Sub-Contract in the same way as a claim for debt for non-payment of an invoice under clause 6. There could be no logical basis for different treatment of a claim to pay for work done under clause 6 and a claim for a failure to allocate work. I would reject this argument. It confuses a claim to recover for a failure to pay for work done and a failure to provide work. Thus, the fact that liability on the part of IBM is not excluded under clause 20.7 for a debt arising out of non-payment for services that have been provided by FSL in no way undermines an unqualified application of the wording of the basic exclusion.
- In oral submission, FSL moved the focus of its submission in relation to clause 6 to a contention that there was an entitlement to a claim for damages for failure to allocate work in accordance with the workshare provisions under clause 6. Thus IBM's construction of clause 20.7 is in direct conflict with an express obligation on IBM in the Sub-Contract.
- FSL contended that the obligation in clause 6.2 to pay FSL for the "Services" extended to an obligation for services not yet provided but which FSL was entitled to be allocated. Reliance was placed on the definition of "Services" which was "all and any of the services which are to be performed…and any other services to be provided by [FSL]." A breach of the workshare arrangements in Schedule 23 was described as being "a concomitant breach of clause 6".
- Clause 6.2 does not give FSL an entitlement to payment in respect of services that have not yet been provided (which would be a most surprising position in any event). The obligation to pay is expressly an obligation to pay for "the provision" of the Services, not for an agreement to provide the Services. FSL's position is misconceived. It is also one that ignores the provisions of Schedule 13 of the Sub-Contract under which FSL is only entitled to payment in a sum which is the result of the parties' agreement in relation to each individual new service. I note finally and again that FSL does not bring any claim under clause 6. Indeed, clause 6 is not quoted or referred to in any of the statements of case.
- FSL also contends that, on a proper construction, clause 20.7 excludes or limits liability for "loss of profits, revenue, business, goodwill" only in so far as the same constitute indirect or consequential loss or damage within what is conventionally described as the second limb of the rule in Hadley v Baxendale [1854] 9 Ex 341. FSL contends that loss of revenue, business and goodwill are losses aiming at indirect or consequential, not direct, losses, and the reference to loss of profits is equivocal. Thus the basic exclusion as a whole should be read as limited to indirect losses. FSL accepts that it is only by reference to this contention that the change control and money value claims can escape the clutches of clause 20.7.
- FSL relies on two authorities in particular :
- Reference was also made by both parties to BHP Petroleum Ltd & ors v British Steel Plc [1999] 2 Lloyd's Rep. 583. There the exclusion clause was again materially different to clause 20.7. It provided that there would be no liability for "loss of production, loss of profits, loss of business or any other indirect losses or consequential damages… . " Rix J said (at 600) :
- Thus, despite the presence of the word "other", liability for loss of production and loss of business was not construed as being limited to liability for indirect or consequential loss. Andrew Smith J in Ease Faith, albeit obiter, cast doubt on the correctness of Rix J's approach, preferring the approach of Clarke J in Tsavliris v OSA Marine Ltd (19th January 1996) where the impact of the use of the word "other" was to confine the clause to the exclusion of liability to indirect loss of profit. In any event, given the material difference in the wording of the clause and in particular the presence of the word "other" I do not gain any real assistance from this authority.
- In my judgment there is no justification for construing (or re-writing) clause 20.7 in a manner which limits the basic exclusion to indirect and consequential loss.
- First, given the obviousness of the point, one would expect it to be made clear if the intention was only to exclude indirect loss of profit. The fact that losses of profit can be direct or indirect is well-known : see for example Deepak Fertilisers and Petrochemicals Corporation v ICI Chemicals & Polymers Ltd and ors [1991] 1 Lloyd's Law Reports 387. I do not agree that loss of revenue, business or goodwill is necessarily indicative of indirect loss.
- Secondly and significantly, FSL's construction would be inconsistent with and render unnecessary the express exception provided for in clause 20.7(a) (which excludes what would be a claim for direct loss and damage, as probably does clause 20.7(b)).
- Thirdly, FSL's construction would render otiose the words "loss of profits, revenue, business, goodwill".
- FSL's position is not advanced by reference to Ease Faith Ltd v Leonis Marine Management Ltd (supra) or Proton Energy Group SA v Orlen Lietuva (supra).
- Ease Faith confirms that "loss of profit" exclusions have to be construed in context. In appropriate cases, they can be construed so as to mean indirect or consequential loss. In Ease Faith, the decision to construe the reference to loss of profit as meaning loss of profit from the future use of the tug or tow was justified on the basis of the contract as a whole. That construction is not suggested as a relevant one here. As a result the court in Ease Faith did not have to go on to decide the alternative argument based on indirect loss and profit which in any event was being advanced by reference to a materially differently worded exclusion clause. The basic exclusion here conspicuously does not include the word "other".
- Proton Energy Group SA v Orlen Lietuva (supra) cannot assist. Not only were the remarks relied on obiter, but the full wording of the exclusion clause is not apparent. From paragraph 72 of the judgment it appears that the clause recognised that damages may be payable for breach of contract, with a limitation in the amount to the price of the product. If damages for breach of contract would or might be deemed a claim for loss of profit, the ensuing exclusion might well be read as referring to only indirect loss. But this is speculation. The point is that the authority cannot be relied on safely in this context without more.
- FSL submits that a liability for breach of fiduciary duty is not a liability "under" the Sub-Contract for the purpose of clause 20.7 and so not excluded. The source of a claim for such liability is equity, not the Sub-Contract. Reliance is also placed on the fact that clause 20.4 limits liability "under or in relation to" the Sub-Contract, indicating that a narrower approach in clause 20.7 is appropriate.
- FSL's position is not sustainable :
- If I am wrong in my primary conclusion on construction, and the language of the basic exclusion was on a proper construction capable of more than one meaning, I am not persuaded that the exclusion of liability for loss of profits is in any way commercially unreasonable or inconsistent with business sense. This is a case where a court should be very slow to intervene with its own view of commerciality, given the factors identified in paragraph 38 above – see in particular Skanska Rashleigh (supra).
- The workshare arrangements under the Sub-Contract may have been a very important part of the agreement and the Sub-Contract may have been a significant one in terms of prospect and length. But there may have been very good commercial reasons for deciding to exclude liability on both sides from a loss of profits claim for breach of the workshare arrangements as well as for breach of the other significant arrangements in the Sub-Contract.
- There was self-evidently (looking at the express terms of the Sub-Contract) goodwill and co-operation between these two large commercial entities at the time that the Sub-Contract was entered into (and amended in 2008). Commercial parties are entitled to and do rely on commercial "mores"; they can choose to rely on trust and to prefer not to expose themselves or each other to litigation in due course - for sound commercial and professional reasons.
- Here, each party chose consciously to release the other from potentially very significant liabilities in the event of a breach of contract (or any other breach), subject to certain agreed exceptions.
- Given these findings on the basic exclusion, it is necessary to consider whether the claims for damages on the workshare claim fall within any of the exceptions provided for in clause 20.7. During the course of oral submission, FSL accepted that the change control and money value claims could not fall within any of the exceptions.
- There is no suggestion that either of the exceptions provided for in clause 20.7(a) and 20.7(d) applies.
- The first exception relied upon by FSL is that set out in clause 20.7(b) which, as set out above, provides :
- The phrase "actual agreed revenue share" is not a contractually defined term. FSL contends that the correct analysis is that the workshare provisions in the Sub-Contract should be construed as an "expressly (actually) agreed method of allocating work" under the Sub-Contract. Under clause 2.8 of the Sub-Contract the workshare agreements are described as "Committed Workshare" and in Schedule 23 they are described as "agreed workshare provisions". Workshare dictates revenue share. Thus the agreed workshare provisions (combined with the agreed charging provisions) lead to an actual agreed sharing of revenue and the workshare claim falls with clause 20.7(b). Liability for actual agreed revenue share would also be liability for a debt and so outwith the basic exception.
- In my judgment FSL's construction is not sustainable. As an instinctive response, the reasonable person as envisaged in Rainy Sky SA v Kookmin Bank (supra) would not equate the workshare arrangements with an express agreement as to revenue share.
- Analysis proves that instinct to be correct. FSL's approach conflates agreement as to how to share work with an express agreement as to revenue share. It requires "actual agreed revenue share" to mean "actual agreed workshare". The clause does not say that. Actual agreed revenue share and actual agreed workshare are two quite different things.
- The far more natural construction of the phrase "actual agreed revenue share" is to place it in the context of the "revenue sharing scheme" in clause 2.5.1(d) of Schedule 13. Clause 20.7(b) may well have been aimed at ensuring that there could be no question but that liability on a claim based on an express agreement reached under clause 2.5.1(d) would not be excluded under the basic exclusion. There is no suggestion that, for the purpose of the workshare claim, there was ever any actual agreement as to revenue share, let alone any express agreement between the parties as to what extent they should recover.
- FSL's necessary submission that the financial consequences of the agreed workshare provisions is a mathematical one is also not correct, as an examination of clause 2.8, Schedules 3 and 13 reveals, in particular Schedule 13. Recognising the difficulties in its path in this regard, FSL submitted in reply that, even if the quantum attributable to the workshare needed to be worked out, there was still an actual agreed revenue share. This too is incorrect. As set out below, there would still be no agreement as to revenue or share. Even if the workshare arrangements dictate revenue, they do not amount to an actual agreed revenue share.
- Even on FSL's case, the workshare arrangements arise under clause 2.8.3 by references to percentages of work to be measured by reference to the cost of time, not by reference to any sharing of revenue. By clause 2.5.1 of Schedule 13 the parties are to agree to the most appropriate payment mechanisms for each future service. By clause 2.5.1(d) they may agree the proportion that each shall receive from the revenue generated for the future service on a case by case basis according to the parties' respective contributions include resource sharing, funding, risk sharing and any other contribution to be taken into account as agreed by the parties. (The process became more sophisticated in 2008 but the options for payment remained.) Thus the process is entirely consensual and done on a case by case basis. Clause 8 includes provision for monitoring target profit margins and provides that any excess profit shall be shared in accordance with Part 11. Part 11 provides for profit sharing by reference to target profit margins set out in Annex 8 to the Schedule. And clause 11.7 provides that, at the expiry or termination of the Sub-Contract a negative balance on the account means that FSL must pay IBM its share of the profit excess within a month; a positive balance means that FSL is not due anything.
- In summary, it is a running account based on target profit margins to be dealt with at the end of the contract. Operation of the workshare provisions does not lead to identification, without more, of how revenue would be shared, if at all, between the parties. The payment mechanism must be agreed in each case. The change control procedure referred to in clause 2.8.2(d) must be invoked. It is not a situation where performance of a piece of work gives rise to an entitlement to a specific sum of money. Put simply, agreement as to workshare is not agreement as to revenue or revenue share.
- If the workshare arrangements are implemented, together with the change control procedure, revenue may be generated but not an agreed revenue share. The share only falls to be determined on a case by case basis to be determined by the commercial agreement of the parties.
- FSL also relies on the exception in clause 20.7(c) which, as set out above, provides :
- In my judgment, clause 20.7(c) cannot be read as widely as or in the manner that FSL contends. Similarly to clause 20.7(b), clause 20.7(c) was concerned to ensure that in so far as any entitlement to loss of profits under Schedule 13 arose (whether or not by reference to target profit margins), it was not excluded by the basic exemption.
- On the workshare claim, FSL has to contend that Schedule 13 gives rise to an entitlement to recover as damages loss of profit on services that it has not provided. On any view, clause 20.7(c) cannot be read so as to exempt from the basic exception all payments which IBM might have been liable to pay pursuant to Schedule 13 but where (even if through IBM's breach) no liability arises. Schedule 13 does not give rise to an entitlement to claim damages for loss of profit for a failure on the part of IBM properly to allocate work under the workshare arrangements.
- In submissions in reply FSL submitted that clause 20.7(c) should be construed as meaning that "lost profits on lost payments" under Schedule 13 are recoverable (see transcript day 3 p. 57). A "lost payment" is a payment to which FSL should have been entitled and which has not been paid. But this is not the way that FSL has pleaded the workshare claim – it might be said unsurprisingly, given the issues arising under clause 6 as set out above. The workshare claim is a claim for loss of profits for breach of the workshare provisions, not a claim for loss of profits for breach of an obligation to pay (whether under clause 6.2 or otherwise). Thus FSL does not bring a claim for "lost profits on lost payments".
- I have adopted above an approach which is faithful to the express language of the basic exclusion. As already indicated, clause 20.7 of the Sub-Contract excludes liability not by reference to any particular cause of action, but rather by reference to particular types of loss. IBM contends, and I have accepted, that clause 20.7 concerns the exclusion of liability for "loss".
- In my judgment, a claim by FSL for an account of profits wrongfully made by IBM is not a claim by FSL for "loss of profits, revenue" within the meaning of clause 20.7, and would not be understood as such by the reasonable man contemplated in Rainy Sky SA v Kookmin Bank (supra). The account claims are not for loss on the part of FSL but for allegedly wrongful gain by IBM.
- IBM submits that the accounts claims are the "mirror image" of a claim for loss. I do not agree. They are claims for a different remedy than a claim for loss, and would result in a financial award, if any, for a different amount. Additionally, it might be possible, subject to liability, for FSL to recover not only an award of damages for loss of profit but also an account of profit wrongfully made by IBM. Although I was not referred to these authorities, in a different context a restitution claim based on unjust enrichment (or a claim for knowing receipt) can be treated as a claim for "damage" – see for example Friends Provident Life Office v Hiller Parker May & Rowden [1997] QB 85 and Charter plc and another v City Index Ltd [2008] Ch 313. But the context here, namely the construction of an exemption clause, is quite different to the context in those cases, namely the construction of the phrase "same damage" in s.1(1) of the Civil Liability (Contribution) Act 1978. The House of Lords in Royal Brompton Hospital NHS Trust v Hammond [2002] 1 WLR 1397 made it clear that that Act should generally be given a broad interpretation. There is no basis here for a broad interpretation. If there is to be any particular bias to be adopted in interpretation of an exemption clause, it is towards a strict approach.
- Nor am I attracted by IBM's submission that, because a contractual claim for account only arises in exceptional circumstances (see Attorney-General v Blake [2001] 1AC 268 at 285F-G), the parties would not have intended that such a claim would not be excluded. To my mind, it simply makes it more likely that the parties did not address their minds at all to a need to exclude liability for an account.
- I am not therefore persuaded that the account claims fall within the scope of the exclusion in clause 20.7.
- For these reasons, I conclude that :
- This construction is what a reasonable person, being someone with all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time in 2002 (and for the avoidance of doubt in 2008) would have understood the parties to have meant.
- The effect of these findings is that FSL cannot claim damages from IBM on the workshare claim, amongst others. Significant though the result may be for FSL as matters have unfolded, it is one which accords with the clear wording of clause 20.7 in a contract freely negotiated between two large commercial parties.
- As set out above, clauses 20.4(c) and (d) provide :
- Given my findings on issue 1, issue 2 does not strictly arise (save in relation to the account claims). In relation to the account claims, FSL concedes that such claims fall within clause 20.4 and I would in any event so have found. Such liability would arise "under or in relation to" the Sub-Contract and the definition of "Claim" (being "any claim, demand, proceedings or liability") is obviously wide enough to cover a claim for an account.
- I address the remaining claims in any event for the sake of completeness. For the same or similar reasons as set out under issue 1 above, I would have found that any liability on the part of IBM to FSL on the workshare, change control and money claims would fall within clauses 20.4(c) and (d):
- For these reasons, I conclude that :
- This construction is what a reasonable person, being someone with all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time in 2002 (and for the avoidance of doubt in 2008) would have understood the parties to have meant.
- Paragraphs 29 and 30 of the Particulars of Claim read as follows :
- In oral submission, FSL did not press its case in relation to "business duties akin to fiduciary duties" but limited its case to the question of fiduciary duties alone. It also made it clear that FSL could not in fact contend that IBM had a duty to procure (as alleged), let alone a fiduciary duty to act honestly and faithfully in any procurement obligation.
- Indeed, the alleged fiduciary duties became framed in a much narrower and un-pleaded (though still rather general) way by FSL.
- FSL accepted :
- FSL contended that the cardinal issue was that IBM was not entitled "when dealing with arrangements which affect[ed] the Sub-Contract or under it ... to put [its] interests ahead of [FSL's] or to act in such a manner as to disadvantage [FSL] at [FSL's] expense". IBM had "a duty to act in good faith for the benefit of both parties in dealings which relate[d] to under the [PACT Agreement] which can affect or do affect [the] Sub-Contract or are capable of affecting the Sub-Contract or capable of affecting [FSL's] expectations under the Sub-Contract." (see the transcript for day 2 p. 32 lines16 to 24).
- It was common ground that the starting point for consideration of the existence of alleged fiduciary duties is Bristol and West Building Society v Mothew [1998] Ch 1. There (at 16C-D and 18A-C) Millett LJ stated:
- There is no doubt that the existence of a contract does not bar the co-existence of fiduciary duties. The fiduciary duties, if they exist, must then be moulded to fit the contractual framework. Thus in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 it was stated by Mason J (at paragraph 70):
- This approach is consistent with the later English cases of Kelly v Cooper [1993] AC 205 (at 213 to 215) and Henderson v Merrett Syndicates Limited [1995] 2 AC 145 (at 206 A-D).
- A further example of this type of approach can be seen in Global Container Lines Ltd v Bonyad Shipping Co [1998] 1 Lloyds Rep 528. There Rix J stated (at 545):
- However, the law reports are replete with authorities which make it clear that the courts must be careful not to distort the parties' contractual bargain by the inappropriate introduction of equitable principles. In a commercial context wider duties will not lightly be implied. Fiduciary duties do not commonly arise outside the settled categories of fiduciary relationships, not least because independently contracting parties do not undertake normally to subordinate their own commercial interests to another.
- In In re Goldcorp Exchange Ltd (in receivership) [1995] 1 AC 74 Lord Mustill stated (at 98C-F) :
- In Yeoman's Row Management Limited & anr v Cobbe [2008] UKHL 5 Lord Walker stated (at paragraph 81):
- In F & C Alternative Investment (Holdings) Ltd v Barthelemy [2011] EWHC 1731 Sales J stated (at paragraph 223):
- In Ross River Limited v Waverley Commercial Limited [2012] EWHC 81 (Ch) Morgan J stated (at paragraphs 235 and 236):
- In Ross River Limited v Cambridge City Council [2008] 1 All ER 1004 Briggs J stated (at paragraph 197):
- A useful short summary of the authorities is to be found in John Youngs Insurance Services Ltd v Aviva Insurance Service UK Ltd [2011] EWHC 1515 (TCC) (albeit in a quite different fiduciary context) where Ramsey J identified the following principles (at paragraph 94) :
- In support of its contention that IBM owed FSL fiduciary duties, FSL relies on the existence of an express duty of good faith. Whether or not such a duty exists is the subject of issue 4 below. But it is important to note that the existence of a duty of good faith does not mean that a fiduciary relationship exists. This is well explained in Conaglen on Fiduciary Loyalty (2010) at paragraph 40-43:
- Having considered the authorities and the respective submissions, I have reached the clear conclusion that, whether or not an express duty of good faith existed, no fiduciary duties arose on the part of IBM in favour of FSL under the Sub-Contract.
- First, the relationship between IBM and FSL does not fall within any settled category of fiduciary relationship (for example, solicitor-client, principal-agent, partner-partner).
- Secondly, by clause 44 of the Sub-Contract the parties expressly eschewed :
- FSL was at all times to be an independent contractor. Neither party had the authority or power to bind the other in any way.
- Thus not only was the Sub-Contract silent as to the existence of fiduciary duties, the parties appear to have gone out of their ways to take steps to exclude the possibility of any such duties arising.
- The express exclusion of any partnership relationship – or indeed any other association – undermines FSL's attempt in some way to rely on the partnering principles in Schedule 2 to the Sub-Contract as giving rise to fiduciary duties.
- But those principles would not advance FSL's case in any event. By clause 2.1 of the Sub-Contract the parties agreed to comply with the partnering principles in Schedule 2. Clause 2.1 makes it clear that the focus is on ensuring the delivery of a satisfactory service to the DVLA and that FSL, along with IBM, would play its part in the delivery of that service. This is reinforced by the provision for the delivery of assistance by FSL to IBM in clause 2.2.
- Having agreed to comply with the principles in Schedule 2, by clause 2.2 of that Schedule the parties then agreed only "to have regard to" the principles set out in Annex A. This is consistent with the sense of the relevant parts of Schedule 2, which is not to set out concrete contractual terms but rather, in the words of Annex A, to "describe" how the DVLA, IBM and FSL would "seek to work together to develop their relationship". FSL was to "co-operate with and support development of the principles…" The principles themselves are aspirational and motivational – part of a "vision". They cannot be said to give rise to fiduciary duties, even ignoring the exclusion of a partnership relationship. I refer also to my findings on issue 4 in relation to the partnering principles (at paragraphs 162 to 164 below).
- Thirdly, this was an arms' length commercial contractual relationship between contractor and sub-contractor. The rights and obligations were consistent with that relationship : fundamentally an obligation on FSL to provide services and on IBM to pay for such services. The parties' disclosure obligations were expressly provided for (for example in clause 12). The defining characteristic of a fiduciary, namely the overriding obligation of loyalty, did not exist. Nor did IBM undertake to act for or on behalf of FSL in any particular matter, including in relation to the workshare arrangements. Nor did IBM have control of any property or the affairs of FSL.
- The fact that FSL was reliant on IBM for work allocation and on IBM to notify it of requests and events under the PACT Agreement does not alter or extend the nature of the relationship. As highlighted in In re Goldcorp Exchange Ltd (in receivership) (supra), there are many commercial contracts under which one party has to rely on and trust the other on central matters. The reposing of faith is not enough by itself to give rise to a fiduciary relationship.
- Put simply, to import fiduciary obligations would be to distort the true bargain between the parties. It cannot be said that obligations of a fiduciary nature could reasonably be expected to apply to the Sub-Contract which was a contract between main contractor and sub-contractor for the supply of services.
- The authorities relied on by FSL do not assist FSL on the facts. So, for example, John Youngs Insurance Services Ltd v Aviva Insurance Service UK Ltd (supra) was a case where a fiduciary relationship on any view existed. The issue was the extent of the fiduciary duties arising. Similarly, in Kelly v Cooper (supra) it was common ground that the estate agent stood in a fiduciary relationship to his principal, the question was the scope of the fiduciary duties. Global Container Lines Ltd v Bonyad Shipping Co (supra) was a case where a joint venture relationship existed. There was no such relationship here. The fact that the original proposal to the DVLA was a joint one between PwC and FSL goes nowhere near creating a relationship such as to give rise to fiduciary duties (particularly where the parties disavowed not only a joint venture but also any other association).
- The allegations of breach of fiduciary duty are without foundation in principle. I am confident that they would not have been made had it not been for the difficulties facing FSL under clause 20.7 of the Sub-Contract in particular. Moreover and in any event, the pleaded duties are unsustainable in their scope by reference to FSL's own submissions and the narrowed versions advanced in oral submission lacking in the necessary precision.
- For these reasons, I conclude that IBM does not owe FSL fiduciary duties as alleged in paragraph 30 of the Particulars of Claim. For the avoidance of doubt, my conclusion on this issue would be the same whether or not IBM owed FSL a duty of good faith (express or, for that matter, implied).
- It will be noted at the outset that the allegation under consideration is of an express, not an implied, term of good faith.
- As set out above, clause 19.4(f) provides as follows :
- In my judgment, clause 19.4(f) does not give rise to an express duty of good faith on the part of IBM in the performance of its duties under the Sub-Contract.
- First, there is no direct provision to this effect – contrast for example the express term in the contract in Berkeley Community Villages Ltd and another v Pullen and anr [2007] EWHC 1330 (Ch) :
- In a detailed contract like the Sub-Contract, one would expect clear words if there was to be an express duty of good faith. There are no such clear words.
- Secondly, it is difficult to see why in the context of the warranty in clause 19.4(f) an obligation of good faith on the part of IBM would arise. The warranty to perform makes such an obligation otiose.
- Thirdly, consideration of the language itself does not support the existence of the express term alleged. I put to one side the (important) fact that on any view the warranty does not extend to all of IBM's obligations under the Sub-Contract, only those "regarding the Services".
- The first warranty given by IBM is that it will discharge any obligations it has "regarding the Services (to the extent applicable)". The wording is clear and the warranty is separated from what follows by the word "and". I do not accept FSL's submission that, without more, those words must be otiose since IBM was already under an obligation to discharge its services. Amongst other things, a claim for breach of this warranty would give rise to a different and potentially more favourable measure of damage to FSL. The warranty also goes on to indicate how IBM will discharge its obligations. And in any event the wording is unambiguous. As already indicated, there is no claim for breach of this warranty or representation. No obligation of good faith is referred to in this warranty. It cannot assist FSL on issue 4.
- The second warranty given by IBM is that it will supply and render appropriately experienced, qualified and trained personnel to discharge any obligations that IBM has regarding the Services and that such personnel will discharge such obligations with all due skill, care and diligence in accordance with "Good Industry Practice and any applicable Quality Management Systems".
- This is the focus of clause 19.4(f). In order to discharge its obligations in relation to the Services under the Sub-Contract, IBM would provide appropriate personnel. The warranty by IBM here is limited to the provision of proper personnel and that such personnel would discharge IBM's obligations with all due skill and care in accordance with "Good Industry Practice".
- Acting in accordance with the "Good Industry Practice" required the personnel provided by IBM to seek in good faith to comply with IBM's contractual obligations. I do not accept IBM's submission that "seeking in good faith" to comply with IBM's contractual obligations was merely a qualification to the obligation to exercise appropriate skill, diligence, prudence and foresight. Its position in the definition of "Good Industry Practice", following a semi-colon, gives it an independent status.
- I do not accept FSL's submission that the definition of "Good Industry Practice" gives rise to an express duty on the part of IBM to act in good faith because the references to "provider" are more naturally read as references to an organisation. They are more naturally read as references to individual personnel. Thus, for example, only an individual would be "skilled" or "experienced". And the "Good Industry Practice" is only introduced into clause 19(f)(c) by reference to the obligations of personnel, not IBM.
- Thus the warranty in clause 19.4(f)(c) does not give rise to an express obligation of good faith on the part of IBM in the performance of its duties under the Sub-Contract. Again, there is no claim for breach of IBM's warranty that the personnel supplied by IBM would discharge IBM's obligations with all due skill, care and diligence in accordance with "Good Industry Practice".
- As for the partnering principles, I repeat my findings under issue 3 above. The principles in Annex A lack contractual certainty. Objectively construed, they are not intended to be the subject of direct contractual effect. I refer for example to the following principles : "leaders will champion the partnering relationship", "at all times take a reasonable and balanced view of each other's obligations and commitments", "establish mutual ambitions and shared objectives from the outset of the PACT Agreement", "do our best to ensure that work is mutually enjoyable and fulfilling for everyone", "work together to grasp opportunities effectively", "work together to establish a shared commitment to customer focused service delivery".
- IBM was obliged to "have regard to" these "principles", including the principle of working together on an "open, honest, clear and reliable" basis, but no more. The parties appear to have chosen deliberately to step back from an express agreement that they would owe each other a duty of good faith. Rather they chose to agree simply to "have regard to" the principles in Annex A. That choice should be respected.
- Put shortly, the fact that IBM agreed to have regard to the principles set out in Annex A of Schedule 2 of the Sub-Contract does not give rise to an express duty of good faith.
- For these reasons, I conclude that IBM does not owe FSL the duty of good faith alleged in paragraph 24 of the Particulars of Claim.
- For the reasons set out above my conclusions on the preliminary issues are as follows:
- In reaching these conclusions, I have assumed the facts in paragraph 3 of the Particulars of Claim to be true, but those facts have not been determinative of any issue.
- I invite the parties to draw up an order reflecting the above and to agree the questions of consequential orders and costs so far as possible.
- Finally, I record my gratitude to all counsel for their helpful submissions and assistance.
Mrs Justice Carr :
Introduction
The preliminary issues
a) Issue 1 : whether IBM's liability to FSL in respect of any of its claims is excluded by clause 20.7 of the Sub-Contract and, if so, which claims are so excluded;
b) Issue 2 : whether IBM's liability to FSL in respect of any of its claims is limited to £5 million in each Contract Year and/or to £10 million in the aggregate by reason of clauses 20.4(c) and/or (d) of the Sub-Contract and, if so, which claims are so limited;
c) Issue 3 : whether IBM owes FSL the fiduciary duty or duties (or any business duties akin to fiduciary duties) alleged in paragraph 30 of the Particulars of Claim;
d) Issue 4 : whether IBM owes FSL the duty of good faith alleged in paragraph 24 of the Particulars of Claim.
"[FSL's] claim has no real prospects of success. It ignores a contractual exclusion clause that specifically excludes liability for losses of the type that [FSL] seeks to recover. It also relies on fiduciary duties that IBM does not owe."
Relevant factual background
"[FSL] has no direct means by which to ascertain what services are being requested or carried out under the PACT Agreement. [FSL] is therefore reliant on IBM to obtain work under the PACT Agreement, to notify it of such work and to sub-contract to [FSL] the shares of work to which it is entitled."
Relevant contractual terms
"…. INTRODUCTION
(A) DVLA is an executive agency within the Department and holds delegated powers to perform statutory functions on behalf of the SoS, including administering driver and vehicle licensing for Great Britain.
(B) DVLA wishes to enter into an innovative strategic partnering relationship with a service partner for the ongoing operation and management of its existing and future requirements for IS/ICT services and a range of selected business services and the provision of any further services required by DVLA, other DVO Agencies, the Department, other associated bodies and agencies of the Department and any other government departments and their associated bodies………
(J) On the basis of the Proposal as further amplified by negotiations and on the basis of the Best and Final Offer, DVLA has selected PwC to provide certain services and PwC has undertaken to provide those services pursuant to the terms of an agreement of even date between DVLA and PwC (the "PACT Agreement").
(K) PwC wishes to sub-contract the Services, which comprise certain of the PACT Services, to Fujitsu and Fujitsu has agreed to provide those services to PwC on the terms of this sub-contract (the "Sub-Contract")…..
PART 1 OVERVIEW OF AGREEMENT
….
2. PARTNERING AGREEMENT AND SCOPE OF THIS SUB-CONTRACT
2.1 PwC has agreed to work with the DVLA in a partnering relationship under the PACT Agreement. Fujitsu acknowledges that Fujitsu's relationship with PwC pursuant to this Sub-Contract will directly impact upon PwC and DVLA's vision and objectives set out in the PACT Agreement, as well as upon PwC's partnering relationship with the DVLA under the PACT Agreement. Accordingly, Fujitsu and PwC shall comply with the partnering principles set out in Schedule 2 in the operation of their own partnering relationship and Fujitsu agrees to work together with PwC to support PwC to give effect to its partnering relationship with the DVLA as intended under the PACT Agreement, including but not limited to achieving the objectives set out in Annex 1 of Schedule 2 of this Sub-Contract...
…
2.2 For the avoidance of doubt, Fujitsu shall provide all reasonably necessary assistance to PwC to ensure that PwC can give effect to the following:
(a) provision of the Services identified in the PACT Agreement for the on-going support and operation of current DVLA processes.
(b) the completion of existing work in progress, development and implementation of new processes and systems identified in the PACT Agreement to enable DVLA and other DVO Agencies to deliver improved customer service cost effectively and efficiently.
(c) identifying and implementing through this Agreement business process change to support the achievement of DVLA's and other DVO Agencies' objectives and to support DVLA, other DVO Agencies and other Participants in the Government's "Modernising Government" programme; and
(d) identifying and implementing through the PACT Agreement business opportunities for the application of the assets and skills of DVLA, other DVO Agencies and other Participants for shared commercial and/or public service benefit in line with the Government's "Wider Markets" programme.
2.3 The Parties acknowledge that the Services are provided by Fujitsu to enable PwC to meet certain of its obligations under the PACT Agreement…..
2.5 The Parties agree to comply with the governance provisions set out or referred to in Schedule 2 in relation to this Sub-Contract.
…
2.7 Without limiting any other obligation imposed by this Sub-Contract, each Party shall co-operate with the other Party's reasonable requests for assistance under this Sub-Contract by providing reasonable information, resources and facilities, so as to enable the other Party to comply with its respective obligations under this Sub-Contract, and to enable PwC to comply with its obligations under the PACT Agreement (provided that neither Party shall be obliged to incur any material cost or expense in providing any such assistance).
2.8 Committed Workshare
2.8.1 PwC and Fujitsu agree that it is their intention that Fujitsu shall be responsible for all infrastructure management, operation, support and maintenance services relating to the Technical Infrastructure (including the business applications) as such Technical Infrastructure changes from time to time which as at the Effective Date such Technical Infrastructure relates to the IS/ICT Services set out in Schedule 3 ("Infrastructure Services").
2.8.2 Accordingly, to give effect to the intention set out in Clause 2.8.1 above, PwC agrees that, during the Contract Period, in relation to any additional Infrastructure Services or new services the nature of which are the same or substantially the same as the Infrastructure Services added, or proposed to be added, to the scope of services provided pursuant to the Prime Contract ("New Infrastructure Services") subject to (i) Fujitsu's compliance with the conditions set out in Clause 2.8.4 below, and (ii) the exceptions set out in Clause 2.8.5 below:
(a) it will consult with Fujitsu in relation to any RFC, New Proposition or other request or proposal from or to DVLA in relation to proposed New Infrastructure Services; and
(b) it will sub-contract to Fujitsu any New Infrastructure Services;
(c) if the New Infrastructure Services relate to the on-going management or support of a new application developed by PwC under the PACT Agreement, PwC will ensure that Fujitsu will as a minimum be entitled to sufficient involvement in the development process to allow an effective transition to such New Infrastructure Services and to allow Fujitsu to effectively provide such New Infrastructure Services; and
(d) without prejudice to Clause 2.8.2(b) above, the New Infrastructure Services shall be agreed in accordance with the Change Control Procedures, and the Parties acknowledge that any New Infrastructure Services subcontracted to Fujitsu agreeing the scope and description of such New Infrastructure Services and such agreed scope and description shall be added to Schedule 3 when agreed by the Parties.
2.8.3 In addition to the New Infrastructure Services set out above above [sic], PwC may commission other agreed services from Fujitsu. Such services may include (a) the application design, development (other than application design or development services provided under the Fund) and/or systems implementation (including coding and programming) and PwC acknowledges that Fujitsu will be entitled to sufficient involvement in the design or development process, as applicable, relating to such services to allow Fujitsu to effectively provide such services; (b) consultancy services provided in connection with the Technical Infrastructure; (c) any Technical Infrastructure that is not the same or substantially the same as the New Infrastructure Services that PwC may require Fujitsu to manage, operate, support, maintain and/or otherwise utilise to provide any new services for the DVLA; and (d) the procurement of any assets (hardware and software) either to replace or supplement the existing Technical Infrastructure or the New Infrastructure Services. Such services will naturally need to be mutually agreed and therefore (a) PwC is not obligated to commission such services from Fujitsu; and (b) Fujitsu is not obligated to provide such services to PwC; unless and until the parties have agreed to such services in accordance with the Change Control Procedure. The Parties acknowledge that any work commissioned by PwC under this Clause 2.8.3 may be added to Schedule 3 at PwC's sole discretion. If PwC decides that such any work commissioned under this Clause 2.8.3 is to be added to Schedule 3, PwC will define the scope and description of such work and such scope and description will be added to Schedule 3 [Finance]…
6. CHARGES AND PAYMENT
6.1 The provisions of Schedule 13 [Finance] shall apply to this Sub-Contract.
6.2 PwC shall pay to Fujitsu the Fujitsu Payments for the provision of the Services…
PART 3 REMEDIES AND EXIT
19. WARRANTIES…..
19.4 PwC warrants and represents that : …
(f) it will discharge any obligations it has regarding the Services (to the extent applicable) and that PwC will supply and render appropriately experienced, qualified and trained personnel to discharge any obligations PwC has to the Services under this Sub-Contract, and that such personnel will discharge such obligations with all due skill, care and diligence in accordance with Good Industry Practice and any applicable Quality Management Systems"
20. INDEMNITIES AND LIABILITY…
Limit of Liability
...
20.4 Subject to Clauses 20.6 and 20.8, PwC's liability to Fujitsu arising under any indemnity or otherwise under or in relation to this Sub-Contract, whether in contract, tort, by statute or otherwise and whether or not arising from any negligence on the part of PwC or any of their agents or employees shall be subject to the following limits:
….
c) subject to Clauses 20.4(d) and 20.8, in respect of any Claims or losses arising PwC's aggregate liability to Fujitsu arising under this Sub-Contract in each Contract Year shall be limited to £5 million for all events or failures giving rise to such Claims or losses;
d) notwithstanding the cap set out in Clause 20.4(c), PwC's overall aggregate liability for all Claims or losses arising under this Sub-Contract shall be limited, subject to Clause 20.8, to £10 million for all events or failures giving rise to such Claims or losses.
…
20.7 Neither Party shall be liable to the other under this Sub-Contract for loss of profits, revenue, business, goodwill, indirect or consequential loss or damage, although it is agreed that:
(a) this Clause 20.7 shall not apply to exclude costs to PwC and other Participants of remedying failures and re-running activities, the cost of re-tendering, costs of engaging other providers in the case of Fujitsu failure, and cost of termination which would otherwise be recoverable from Fujitsu because they arose as a result of an event of default by Fujitsu (including its Sub-Contractors and Affiliates and their respective employees, servants and agents);
(b) actual agreed revenue share may be recoverable to the extent expressly agreed between the parties;
(c) loss of profits shall be recoverable only as specified in Schedule 13 (Finance) or as a basis which may be used for calculating damages payable for infringement of Intellectual Property Rights or breach of confidentiality claims; and
(d) third party claims, including where a party has agreed to indemnify the other, shall be recoverable to the extent that the underlying third party claim results directly from a failure of the indemnifying Party, provided that this Clause 20.7(d) shall not be interpreted to make loss of profits recoverable in circumstances where under Clause 20.7(c), loss of profit would not be recoverable…
44. LEGAL RELATIONSHIP BETWEEN THE PARTIES
44.1 The Parties do not intend the Sub-Contract to create any partnership between them as a matter of law. Accordingly, nothing in this Sub-Contract or otherwise shall be held, implied or deemed to constitute a partnership, joint venture or other association between the Parties.
44.2 [FSL] shall at all times be an independent contractor and nothing in this Sub-Contract shall be construed as creating the relationship of employer and employee between the PwC and [FSL] or any of [FSL's] employees…
44.5 Save as otherwise provided in this Sub-Contract, neither Party shall be or be deemed to be an agent of the other Party and neither Party shall hold itself out as having authority or power to bind the other Party in any way……."
SCHEDULE 1 DEFINITIONS AND INTERPRETATIONS
…
"Claim : any claim, demand, proceedings or liability"…
"Fujitsu Payments : the payments for the Services payable by PwC to [FSL] pursuant to Clause 6, as calculated in Schedule 13 Finance]"….
"Good Industry Practice : at any time, the exercise of that degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected at such time from a skilled and experienced (a) provider of information, communication and technology services and information systems and/or (b) provider of expertise in change management and business processes; seeking in good faith to comply with its contractual obligations and complying with relevant Legislation and being engaged in the same type of industry and under the same in [sic] similar circumstances and conditions as that in which the relevant matter arises."…
"Services : all and any of the Services which are to be performed by [FSL] to meet the Service Requirements as identified or referred to in the Service Schedules and any other services to be provided by [FSL] under the Sub-Contract"….
"SCHEDULE 2
GOVERNANCE
…
PART 2 VISION AND PARTNERING PRINCIPLES
2.1 The vision of PwC and DVLA pursuant to the PACT Agreement is that the PACT Agreement will lead to the development and sustaining of a positive, enduring and mutually beneficial strategic partnering relationship that transforms DVLA's service delivery capability and culture in line with the Agency II Vision by providing customer-focused high quality, value for money public and business services in a manner recognised within government and the private sector as a path finding exemplar of strategic partnering in practice. [FSL acknowledges that its role under this Sub-Contract will be directly relevant to that vision and those partnering principles, and Fujitsu accordingly agrees to ensure that it will co-operate and provide all reasonable support, information and assistance to PwC to enable PwC to meet its obligations for the vision and the partnering principles under the PACT Agreement.
2.2 … but without prejudice to their other responsibilities under this Sub-Contract and their rights and liabilities under this Sub-Contract, the Parties agree:
(a) to work together to seek to realise the vision for the PACT Agreement, and the objectives of this Sub-Contract described in paragraph 1 of this Part 2; and
(b) in carrying out their obligations under this Sub-Contract, to have regard to the partnering principles set out in Annex A.
ANNEX A – Partnering Principles
The following partnering principles describe how DVLA and PwC and [FSL] will seek to work together to develop their relationship. In the context of this Sub-Contract Fujitsu will co-operate with and support development of the principles in accordance with the terms of this Sub-Contract.
| Working Together |
| Leaders will champion the partnering relationship |
| All dealings between DVLA and PwC and Fujitsu will be open, honest, clear and reliable |
| Work together to achieve a relationship of mutual respect and trust |
| At all times take a reasonable and balanced view of each other's obligations and commitments |
| Work should be carried out by the people best placed to deliver it |
| Work together to foster and sustain positive working relationships over the full Contract Period |
| Establish mutual ambitions and shared objectives from the outset of the PACT Agreement |
| Transformation |
| Continuously seek to develop the partnering relationship through shared learning and knowledge |
| Do our best to ensure that work is mutually enjoyable and fulfilling for everyone |
| Work together to generate a sense of inclusiveness |
| Work together to solve problems effectively |
| Work together to grasp opportunities effectively |
| Service Delivery Work together to achieve successful business outcomes through identifying and seeking to mitigate issues and risks |
| Undertake joint business planning |
| Strive continuously to maintain and improve the quality of everything we do in providing services to the public and ministers |
| Work together to stimulate innovation and creativity |
| Work together to establish a shared commitment to customer focused service delivery |
…….
SCHEDULE 13
……
2.5 Payment Mechanisms
2.5.1 PWC and Fujitsu shall agree the most appropriate payment mechanisms for each Future Service in accordance with Schedule 10 (Change Control Procedures). Such mechanisms shall include, but not be limited to the following:
a) Fixed Charge – For Future Services where the requirement is clearly understood and able to be expressed in writing, PWC may request a fixed charge Quotation from Fujitsu where Fujitsu accepts, subject to any agreed assumptions, PWC risks and other dependencies, the risk of delivering to time, quality and resources.
b) Time and Material Work – PWC may request a time and material Quotation from Fujitsu for Future Services.
c) Unit Cost Payment Scheme – Fujitsu may develop and/or operate the Future Service and charge PWC a unit cost price for the outputs.
Fujitsu and PWC may agree a unit cost for a Future Service for the Contract Period. PWC and Fujitsu shall agree a payment mechanism based on the unit cost and volumes for the Future Service.
d) Revenue Sharing Scheme – PWC and Fujitsu may agree the proportion that they each shall receive from the revenue generated by the Future Service.
As agreed on a case by case basis, Fujitsu and PWC shall share the revenue generated by the Future Service according to the respective contributions by each Party to the Future Service. Such contribution shall include: Resource sharing:
Alternatively, the Parties may agree to each take a share of profits from the Future Service revenues and reinvest the revenues.
e) Cost Savings Sharing Scheme – PWC may agree to share a percentage of the delivered or agreed cost savings with Fujitsu.
Fujitsu and PWC shall agree a fixed charge at a reduced rate for the development of the Future Service at the commencement of the development. PWC shall share the cost savings from the scheme with Fujitsu provided that the recommendations for savings are agreed by the Change Programme Board.
2.5.2 Prior to the commencement of the work, PWC and Fujitsu shall agree the payment mechanism and the Authorisation Criteria for those payments for a Future Service and whether the Future Service will be included in the Profit Sharing Mechanism in accordance with Schedule 10 (Change Control Procedures).
….
11. PART 11 PROFIT SHARING SCHEME
11.1 Introduction
11.1.1 The applicable Target Profit Margins for each Service are set out in Annex 8 of this Schedule and the Parties have agreed a profit sharing scheme (the "Profit Sharing Scheme") based on those Target Profit Margins. The monitoring of actual profits against Target Profit Margins and the Profit Sharing Scheme will provide PWC with an effective value for money mechanism over the Contract Period of this Sub-Contract…
11.7 Profit Sharing Calculation
11.7.1 At the expiry or termination of this Sub-Contract, if there is a negative Balance on the profit sharing memorandum account referred to in paragraph 11.7 above, Fujitsu shall pay PWC its share of the Profit Excess in accordance with Section C of Annex 8 of this Schedule within 1 month of such expiry or termination.
11.7.2 If the Balance is positive, Fujitsu shall not be due any payment."
"Committed Workshare
2.8.1 The Parties have agreed that they will share work between them in accordance with the agreed workshare as set out in Schedule 23 to this Sub-contract which shall, in the event of any conflict between Clause 2.8 and Schedule 23, take precedence over any terms in this Clause 2.8.
2.8.2 IBM agrees that during the Contract Period, in relation to any additional Infrastructure Services or new Infrastructure Services added, or proposed to be added, to the scope of services provided in Schedule 3 ("New Infrastructure Services") or such other services as may be agreed in accordance the provisions of Schedule 23 subject to (i) Fujitsu's compliance with the conditions set out in Clause 2.8.4 and 2.8.6 below, and (ii) the exceptions set out in Clause 2.8.5 below:
(a) it will consult with Fujitsu in relation to any RFC, New Proposition or other request or proposal from or to DVLA in relation to proposed New Infrastructure Services; and
(b) it will sub-contract to Fujitsu any New Infrastructure Services;
(c) if the New Infrastructure Services relate to the on-going management or support of a new application developed by IBM under the PACT Agreement, IBM shall ensure that Fujitsu shall as a minimum be entitled to sufficient involvement at each stage of the development lifecycle process to allow an effective transition to such New Infrastructure Services and to allow Fujitsu to effectively provide such New Infrastructure Services. To this extent, IBM shall wherever possible engage Fujitsu at the initiation stage of all such projects so as to agree the allocation of responsibilities, the review process and the deliverables of that project;
(d) as part of Fujitsu's involvement as described in 2.8.2(c) above, IBM shall provide and Fujitsu shall review and agree, such agreement not to be unreasonably withheld, those deliverables that have been agreed as needing Fujitsu's review. Where Fujitsu is unable to agree the deliverable, the relevant project and service delivery representatives from each Party will meet, within 10 days of Fujitsu advising IBM of their concerns, to discuss and resolve the issue. Where the representatives cannot resolve the problem, IBM shall include details of Fujitsu's issues in the deliverable under dispute in any deliverables presented to DVLA;
(e) to ensure that the current and New Infrastructure Services are capable of being supported and managed by Fujitsu, IBM shall consult with Fujitsu on proposed modifications to existing and on new architectural strategies. Where Fujitsu cannot agree to a proposed modification or new architectural strategy, Fujitsu's comments will be included by IBM in any deliverable presented to DVLA; and
(f) without prejudice to Clause 2.8.2(b) above, the New Infrastructure Services shall be agreed in accordance with the Change Control Procedures, and the Parties acknowledge that any New Infrastructure Services subcontracted to Fujitsu under Clause 2.8.2 shall be added to Schedule 3 subject to IBM and Fujitsu agreeing the scope and description of such New Infrastructure Services and such agreed scope and description shall be added to Schedule 3 when agreed by the Parties.
2.8.3 In addition to the New Infrastructure Services set out above [sic]above, IBM may commission other agreed services from Fujitsu. Such services may include (a) the application design, development (other than application design or development services provided under the Fund) and/or systems implementation (including coding and programming) and IBM acknowledges that Fujitsu will be entitled to sufficient involvement in the design or development process, as applicable, relating to such services to allow Fujitsu to effectively provide such services; (b) consultancy services provided in connection with the Technical Infrastructure; (c) any Technical Infrastructure that is not the same or substantially the same as the New Infrastructure Services that IBM may require Fujitsu to manage, operate, support, maintain and/or otherwise utilise to provide any new services for the DVLA; (d) the procurement of any assets (hardware and software) either to replace or supplement the existing Technical Infrastructure or the New Infrastructure Services; and (e) the design, build, test and implementation of infrastructure and where possible such work will be commissioned on an end to end basis. Such services will naturally need to be mutually agreed and therefore (a) IBM is not obligated to commission such services from Fujitsu; and (b) Fujitsu is not obligated to provide such services to IBM; unless and until the parties have agreed to such services in accordance with the Change Control Procedure. The Parties acknowledge that any work commissioned by IBM under this Clause 2.8.3 may be added to Schedule 3 at IBM's sole discretion. If IBM decides that such any work commissioned under this Clause 2.8.3 is to be added to Schedule 3, IBM will define the scope and description of such work and such scope and description will be added to Schedule 3 [Finance]…"
FSL's claims
a) the claim for damages relating to the workshare arrangements as set out in paragraphs 70.1 to 70.3 of the Particulars of Claim ("the workshare claim");
b) the claim for damages relating to change control procedures as set out in paragraphs 70.4 to 70.7 of the Particulars of Claim ("the change control claim");
c) the claim for damages relating to the failure to provide value for money services as set out in paragraphs 71 to 74 of the Particulars of Claim ("the money value claim").
The alleged breaches on the part of IBM cover periods both before and after 26th June 2008. They do not therefore all arise under the Amended Sub-Contract.
"70.1 By reason of IBM's breaches of the workshare provisions referred to at paragraph 51 above (and/or by reason of IBM's related breaches of its fiduciary or contractual duties referred to at paragraph 53 above) [FSL] has been deprived of services which it would otherwise have performed at a profit. [FSL] claims the sums it would otherwise have been paid for undertaking that work, and will give credit as necessary for any costs and expenses it would have incurred in doing so."
a) in the further or alternative, equitable compensation for breach of fiduciary duty, again in the form of compensation for loss of profit ;
b) in the further or alternative, as damages for breach of contract and/or fiduciary duty, an account of profits wrongfully made by IBM (though it reserves its position in this regard on the change control claim) ("the account claims").
Preliminary issues 1 and 2 : general principles of construction
a) the ultimate aim in interpreting a commercial contract "is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant". The "reasonable person" is one who "has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract" – see Lord Clarke in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at paragraph 14;
b) it follows that any particular clause falls to be construed in the context of the contract as a whole – see HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 2 Lloyds Rep 61 at 75 and Kudos Catering (UK) Limited v Manchester Central Convention Complex Limited [2013] EWCA Civ 38 at paragraph 22;
c) where a clause permits of two possible constructions, the court is entitled to prefer the construction that is consistent with business common sense and to reject the other – see Lord Clarke in Rainy Sky SA v Kookmin Bank (supra) at paragraphs 20 and 21 :
"20…It is not in my judgment necessary to conclude that, unless the most natural meaning of the words produces a result so extreme as to suggest that it was unintended, the court must give effect to that meaning.
21. The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of constructions is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other."
Lord Clarke referred in this context expressly to the approach of Lord Reid in Wickman Machine Tool Sales Ltd v L Schuler AG [1974] AC 235 where he stated at 251 that :
"The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result, the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear."
d) however, "where the parties have used unambiguous language, the court must apply it" – see Rainy Sky SA v Kookmin Bank (supra) at paragraph 23. There Lord Clarke placed reliance on Co-operative Wholesale Society Ltd v National Westminster Bank plc [1995] 1 EGLR 97 where a result, though most improbable, flowed from the unambiguous language of the clause, and so was applied;
d) the apparent commercial purpose of a contract, as perceived by the court, cannot override the words of a contract where they are clear :
"The surrounding circumstances and commercial common sense do not represent a licence to the court to re-write a contract merely because its terms seem somewhat unexpected, a little unreasonable, or not commercially very wise. The contract will contain the words the parties have chosen to use in order to identify their contractual rights and obligations. … Particularly in these circumstances, ... the court must be careful before departing from the natural meaning of the provision in the contract merely because it may conflict with [the court's] notions of commercial common sense of what the parties may, must or should have thought or intended. Judges are not always the most commercially-minded, let alone the most commercially experienced of people and should … avoid arrogating to themselves overconfidently the role of arbiter of commercial reasonableness or likelihood…" – see Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2007] CILL 2449 at paragraphs 21 and 22."
"It is certainly true that English law has traditionally taken a restrictive approach to the construction of exemption clauses and clauses limiting liability for breaches of contract and other wrongful acts. However, in recent years it has been increasingly willing to recognise that parties to commercial contracts are entitled to apportion the risk of loss as they see fit and that provisions which limit or exclude liability must be construed in the same way as other terms : see for example Photo Production Ltd v Securicor Ltd…."
Simon J. endorsed this approach recently in Bikam OOD Central Investment Group SA v Adria Cable Sarl [2012] EWHC 621 (Comm) at paragraphs 34 to 36.
"… An exclusion clause is one which excludes or modifies an obligation, whether primary, general secondary or anticipatory secondary, that would otherwise arise under the contract by implication of law. Parties are free to agree to whatever exclusion or modification of all types of obligations as they please within the limits that the agreement must retain the legal characteristics of a contract; and must not offend against the equitable rule against penalties; that is to say, it must not impose upon the breaker of a primary obligation a general secondary obligation to pay to the other party a sum of money that is manifestly intended to be in excess of the amount which would fully compensate the other party for the loss sustained by him in consequence of the breach of the primary obligation. Since the presumption is that the parties by entering into the contract intended to accept the implied obligations exclusion clauses are to be construed strictly and the degree of strictness appropriate to be applied to their construction may properly depend upon the extent to which they involve departure from the implied obligations. Since the obligations implied by law in a commercial contract are those which, by judicial consensus over the years or by Parliament in passing a statute, have been regarded as obligations which a reasonable businessman would realise that he was accepting when he entered into a contract of a particular kind, the court's view of the reasonableness of any departure from the implied obligations which would be involved in construing the express words of an exclusion clause in one sense that they are capable of bearing rather than another, is a relevant consideration in deciding what meaning the words were intended by the parties to bear. But this does not entitle the court to reject the exclusion clause, however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of one meaning only.
My Lords, the reports are full of cases in which what would appear to be very strained constructions have been placed upon exclusion clauses, mainly in what today would be called consumer contracts and contracts of adhesion. As Lord Wilberforce has pointed out, any need for this kind of judicial distortion of the English language has been banished by Parliament's having made these kinds of contracts subject to the Unfair Contract Terms Act 1977. In commercial contracts negotiated between businessmen capable of looking after their own interests and of deciding how risks inherent in the performance of various kinds of contract can be most economically borne (generally by insurance), it is, in my view, wrong to place a strained construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning only even after due allowance has been made for the presumption in favour of the implied primary and secondary obligations."
"It is, of course, open to parties to a contract for sale of goods or for work and labour or for both to exclude by express agreement a remedy for its breach which would otherwise arise by operation of law or such remedy may be excluded by usage binding upon the parties…. But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption."
"One may safely say that the parties cannot, in a contract, have contemplated that the clause should have so wide an ambit as in effect to deprive one party's stipulations of all contractual force: to do so would be to reduce the contract to a mere declaration of intent. To this extent it may be correct to say that there is a rule of law against the application of an exceptions clause to a particular type of breach."
"In my view therefore the Agreement is, if the judge's construction of Clause 18.6 is adopted, effectively devoid of contractual content since there is no sanction for non-performance by the Respondent. It is inherently unlikely that the parties intended the clause to have this effect. The parties thought that they were concluding a mutually enforceable agreement… ."
"In construing an exception clause against the party which relies upon it …the court will strain against a construction which renders that party's obligation under the contract no more than a statement of intent and will not reach that conclusion unless no other conclusion is possible. Where another construction is available which does not have the effect of rendering the party's obligation no more than a statement of intent, the court should lean towards that alternative construction."
Issue 1 : whether IBM's liability to FSL in respect of any of its claims is excluded by clause 20.7 of the Sub-Contract and, if so, which claims are so excluded
The basic exclusion
"Neither Party shall be liable to the other under this Sub-Contract for loss of profits, revenue, business, goodwill, indirect or consequential loss or damage…." ("the basic exclusion")
a) the Sub-Contract is a modern, lengthy and detailed contract negotiated by two highly sophisticated commercial parties of equal bargaining power at arms' length with the benefit of legal advice, including advice from experienced commercial solicitors. Ignoring additional amendment pages, the Sub-Contract runs to sixty-five pages in its main body (which itself is divided into four parts) and incorporates multiple schedules (namely twenty-two in the Original Sub-Contract and twenty-four in the Amended Sub-Contract);
b) Part 3 of the Sub-Contract as a whole contains detailed provisions governing the parties' rights to remedies as between each other. Thus, for example, FSL had rights to reimbursement in the event of delay and service failure under clause 16 and to compensation in the event of a compensation event (as defined) occurring under clause 17;
c) by clause 20.7 the parties chose to limit their right to claim damages from each other. On the face of the contract they applied their minds to the scope of the clause, providing for detailed and specific exceptions. In other words, it was a tailor-made clause;
d) clause 20.7 uses clear express words rebutting any presumption that the parties did not intend to abandon their remedies for loss of profit for breach by the other;
e) clause 20.7 applies equally to certain categories of loss suffered by both parties, rather than existing for the benefit of one party alone. It is a clause that affected the rights of IBM and FSL alike.
In short, the parties can be taken on the facts and in the context of this contract to have meant what they said.
"Neither Party shall be liable to the other under this Sub-Contract for loss of profits, revenue other than as payable pursuant to clause 6.2 [and Schedule 23]. …"
a) statement of intent and related points;
b) clause 6;
c) indirect or consequential loss;
d) breach of fiduciary duty.
I consider them in that order below.
Statement of intent
"The law of contract draws a clear distinction between a claim for payment of a debt and a claim for damages for breach of contract. The distinction and its consequences are set out in Chitty on Contracts, 27th ed. (1994), vol. 1, p. 1046, paragraph 21-031. As there stated, a debt is a definite sum of money fixed by the agreement of the parties as payable by one party to the other in return for the performance of a specified obligation by the other party or on the occurrence of some specified event or condition; whereas damages may be claimed from a party who has broken his primary contractual obligation in some way other than by failure to pay such a debt.
The plaintiff who claims payment of a debt need not prove anything beyond the occurrence of the event or condition on the occurrence of which the debt became due. He need prove no loss; the rules as to remoteness of damage and mitigation of loss are irrelevant; …"
"…2.3 the workshare will be actively managed to achieve the intended allocations. If deviations cannot be resolved, the parties agree that there will be an escalation procedure to the IBM Lead Executive and the [FSL] Account Director. In case no resolution can be achieved the Dispute Resolution process defined in Schedule 20 shall be followed…
2.5 Management of Workshare
The parties shall agree a Management Group to direct and manage the workshare within the PACT Sub-contract and the governance of projects undertaken. The Management Group will be agreed between the Parties and will have defined operational and reporting responsibilities…"
a) the dispute resolution mechanisms in Schedule 20 do not create rights or opportunities that would not exist in any event;
b) declaratory relief would be of no assistance without a right to claim for loss. A declaratory judgment is merely a formal statement by a court pronouncing on the existence or non-existence of a legal state of affairs. It is to be contrasted with an executory, or coercive judgment which can be enforced in the courts – see generally paragraphs 1-01 to 1-04 of The Declaratory Judgment by Zamir & Woolf;
c) on a specific performance claim there could be no remedy for past failures and that, as allegedly here, failures in proper workshare allocation might not come to FSL's knowledge until late in the day;
d) further, specific performance is not a sufficiently predictable remedy to amount to an effective remedy. It is discretionary only. The authorities reveal the difficulties in obtaining specific performance orders (and negative injunctions), particularly where there is a need for constant supervision. Such orders will only be granted in exceptional circumstances : see Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd (supra) at paragraphs 15 to 18; Co-Operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] 1 AC 1 at pages 11 to 12; Bath and North East Somerset District Council v Mowlem plc [2004] BLR 153; Vertex Data Science Ltd v Powergen Retail Ltd [2006] 2 Lloyd's LR 591 at paragraphs 46 and 47; Ericsson AB v EADS Defence and Security Systems Ltd [2009] EWHC 2598 (TCC) at paragraphs 39 and 40;
e) damages in lieu of specific performance would be caught bY clause 20.7 – see Albemarle AstraZeneca UK Ltd v Albemarle International Corp (supra) (at paragraph 307) and Johnson v Agnew [1980] AC 367.
"A party who seeks to obtain a benefit under a continuing contract on account of his breach is just as much taking advantage of his own wrong as is a party who relies on his own breach to avoid a contract and thereby escape his obligations."
Clause 6
Indirect or consequential loss and damage
a) Ease Faith Ltd v Leonis Marine Management Ltd [2006] 1 Lloyd's Law Reports 673. There the exclusion clause provided that neither the tug owner nor hirer should be liable to the other party "for loss of profit, loss of use, loss of production or any other indirect or consequential damage for any reason whatsoever." The court (at paragraphs 143 and 144) construed the term "loss of profit" as referring to loss of profits generated by future use of the tug by the tug owner or hirer as the case might be;
b) Proton Energy Group SA v Orlen Lietuva [2013] EWHC 2872 (Comm). There clause 23 of the standard terms to which the contract was to be subject provided that "in no event shall the seller have any liability for any…loss of profit…or any type of special indirect or consequential loss". The court, obiter, preferred a construction whereby loss of profit was excluded where it was a "special indirect or consequential loss."
"In my judgment the best solution is to construe the clause as though it read "for loss of production, loss of profits, loss of business or indirect losses or consequential damages of any other kind" and accept that the parties may have been in error to permit the inference that the former phrases are examples of indirect or consequential loss. At least in that way, each of the phrases is given its authoritative meaning, which is what the parties must be supposed to have given their closest attention to. If, however, only production, profit, or business which is within the second limb of Hadley v. Baxendale is intended to be referred to, then everything in the clause other than "indirect losses or consequential damages" becomes redundant and the previous phrases become dangerously misleading and potentially valueless."
Liability for breach of fiduciary duty
a) liability under clause 20.7 is excluded not by reference to any specific cause of action. It is remedy based, not liability based;
b) consistent with a), in particular, liability is not excluded by reference to liability for breach of contract under the Sub-Contract. It follows that something wider is intended;
c) the claim for breach of fiduciary duty cannot be formulated without reference to the Sub-Contract. The fact that the Sub-Contract may give rise to equitable (fiduciary) duties does not mean that liability in respect of such duties arises above or outside the Sub-Contract;
d) without the Sub-Contract the fiduciary duties could not be said to arise. Paragraph 30 of the Particulars of Claim, which alleges the fiduciary duties in question, expressly refers to duties to act in a certain way "under" the Sub-Contract;
e) it is not necessary for the word "under" to be construed any more widely than its natural meaning, or to be read as meaning "in relation to", as appears in clause 20.4, in order for liability for fiduciary duty to be excluded.
Possible alternative constructions
The specified exceptions to the basic exclusion
Clause 20.7(b)
"b) actual agreed revenue share may be recoverable to the extent expressly agreed between the parties;".
Clause 20.7(c)
"c) loss of profits shall be recoverable only as specified in Schedule 13 (Finance) or as a basis which may be used for calculating damages payable for infringement of Intellectual Property Rights or breach of confidentiality claims;…"
FSL originally contended that, because under Schedule 13 FSL is contractually entitled to claim profit, this exception allows for the recovery by FSL of loss of profits for any breach of contract by IBM, including a breach of the workshare arrangements.
The claim for account
Conclusion on issue 1
a) any liability on the part of IBM for damages (or equitable compensation) on the workshare, change control and money value claims is excluded by virtue of clause 20.7. Those claims are claims for loss of profits and/or loss of revenue and/or loss of business within the meaning of clause 20.7 and do not fall within any of the specific exceptions provided for;
b) any liability on the part of IBM on the account claims is not excluded by virtue of clause 20.7.
Issue 2 : whether IBM's liability to FSL in respect of any of its claims is limited to £5 million in each contract year and/or to £10 million in the aggregate by reason of clauses 20.4 c) and/or d) of the Sub-Contract and, if so, which claims are so limited
"20.4 Subject to Clauses 20.6 and 20.8, PwC's liability to Fujitsu arising under any indemnity or otherwise under or in relation to this Sub-Contract, whether in contract, tort, by statute or otherwise and whether or not arising from any negligence on the part of PwC or any of their agents or employees shall be subject to the following limits:
…
…
c) subject to Clauses 20 4(d) and 20.8, in respect of any Claims or losses arising PwC's aggregate liability to Fujitsu arising under this Sub-Contract in each Contract Year shall be limited to £5 million for all events or failures giving rise to such Claims or losses;
d) notwithstanding the cap set out in Clause 20.4(c), PwC's overall aggregate liability for all Claims or losses arising under this Sub-Contract shall be limited, subject to Clause 20.8, to £10 million for all events or failures giving rise to such Claims or losses."
a) such claims are "Claims" within the meaning of clauses 20.4 (c) and (d);
b) it is difficult to see how any "statement of intent" rule could possibly come to FSL's aid. Clause 20.4 limits the amount of any recovery; it does not denude the contract (or any part of it) of effect;
c) the claims for breach of fiduciary duty arise "under or in relation to" the Sub-Contract;
d) there are no specific exceptions to consider, save for clause 20.8(a). Clause 20.8(a) does not apply for the same reasons that clause 20.7(b) does not apply.
Conclusion on issue 2
a) any liability on the part of IBM for damages (or equitable compensation) on the workshop, control change and money value claims would be subject to the limitations of liability set out in clause 20.4 (c) and (d);
b) any liability on the part of IBM on the account claims is subject to the limitations of liability set out in clause 20.4(c) and (d).
Issue 3 : whether IBM owes FSL the fiduciary duty or duties (or any business duties akin to fiduciary duties) alleged in paragraph 30 of the Particulars of Claim
"Fiduciary Duties
29. The partnering principles, and/or IBM's duty of good faith set out above, and/or the circumstances in which IBM was performing its duties (including, in particular, those referred to at paragraphs 3 and 4 above) and/or the workshare provisions (referred to at paragraphs 31 to 40 below), gave rise to a situation in which IBM was (or ought to have been) acting for itself and for Fujitsu in procuring work under the PACT Agreement and in allocating such work between the parties.
30. In the circumstances, IBM owed to Fujitsu fiduciary duties (or business duties akin to fiduciary duties). In particular, IBM owed to Fujitsu the following fiduciary duties (or business duties akin to fiduciary duties):
30.1 A duty to act faithfully and honestly in the procuring of work under the PACT Agreement and subsequent allocation of such work to Fujitsu under the Sub-Contract;
30.2 A duty to act in all respects under the Sub-Contract in accordance with the respect and trust placed in IBM by Fujitsu;
30.3 A duty to be open, honest, clear and reliable in the provision of information to Fujitsu relating to the services which Fujitsu was entitled to carry out pursuant to the Sub-Contract; and
30.4 A duty to account to Fujitsu in respect of the services requested or performed under the PACT Agreement which Fujitsu was entitled to carry out pursuant to the Sub-Contract."
a) that IBM was entitled to make a profit under the PACT Agreement;
b) that IBM was entitled to act for its own benefit in seeking to perform the Sub-Contract;
c) that IBM was entitled to be in a position where its interest could conflict with that of FSL.
"The expression "fiduciary duty" is properly confined to those duties which are peculiar to fiduciaries and the breach of which attracts legal consequences differing from those consequent upon the breach of other duties. Unless the expression is so limited it is lacking in practical utility….
A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977), p. 2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary."
"That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."
"If the parties' relationship has been premised, as I have found, on the possibility of competition within such areas, then I do not see how, in those respects at any rate, the parties can owe to one another the full range of fiduciary duties. It seems to me that Mr Vos was right to place reliance on modern authorities which have stressed that duties, even of agents and such like who are natural candidates for the status of fiduciaries, have to be tailored to the facts and circumstances of the case and do not come wholesale under the label of "fiduciary relationship"."
Rix J concluded as follows (at 547):
"… within the scope of the joint venture and outside the scope of Global's existing business, I would agree…that Global did owe the duties of a fiduciary or at any rate business duties akin to fiduciary duties and premised on an obligation of non-competition. In this area, Bonyad were trusting Global, and Global were likewise trusting Bonyad, to avoid competition, to act fairly, and be loyal to one another…
Within the area of Global's existing business it is much harder to say what, if any, implied obligations existed…the only obligation that can be implied is the standard contractual obligation which is used when it is necessary to fill a lacuna that the parties act reasonably."
"But what kind of fiduciary duties did the company owe to the customer? None have been suggested beyond those which the company assumed under the contracts of sale read with the collateral promises; namely to deliver the goods and meanwhile to keep a separate stock of bullion (or, more accurately, separate stocks of each variety of bullion) to which the customers could look as a safeguard for performance when delivery was called for. No doubt the fact that one person is placed in a particular position vis-à-vis another through the medium of a contract does not necessarily mean that he does not also owe fiduciary duties to that other by virtue of being in that position. But the essence of a fiduciary relationship is that it creates obligations of a different character from those deriving from the contract itself. Their Lordships have not heard in argument any submission which went beyond suggesting that by virtue of being a fiduciary the company was obliged honestly and conscientiously to do what it had by contract promised to do. Many commercial relationships involve just such a reliance by one party on the other, and to introduce the whole new dimension into such relationships which would flow from giving them a fiduciary character would (as it seems to their Lordships) have adverse consequences far exceeding those foreseen by Atkin L.J. in In Re Wait [1927] 1 Ch. 606. It is possible without misuse of language to say that the customers put faith in the company, and that their trust has not been repaid. But the vocabulary is misleading; high expectations do not necessarily lead to equitable remedies."
"… the court should be very slow to introduce uncertainty into commercial transactions by over-ready use of equitable concepts such as fiduciary obligations and equitable estoppel."
"Fiduciary obligations may arise in a wide range of business relationships, where a substantial degree of control over the property or affairs of one person is given to another person. Very often, of course, a contract may lie at the heart of such a business relationship, and then a question arises about the way in which fiduciary obligations may be imposed alongside the obligations spelled out in the contract. In making their contract, the parties will have bargained for a distribution of risk and for the main standards of conduct to be applied between them. In commercial contexts, care has to be taken in identifying any fiduciary obligations which may arise that the court does not distort the bargain made by the parties: see the observation by Lord Neuberger of Abbotsbury writing extra-judicially in "The Stuffing of Minerva's Owl? Taxonomy and Taxidermy in Equity" [2009] CLJ 537, 543 and Vercoe v Rutland Fund Management Ltd [2010] EWHC 424 (Ch), [351]-[352]. The touchstone is to ask what obligations of a fiduciary character may reasonably be expected to apply in the particular context, where the contract between the parties will usually provide the major part of the contextual framework in which that question arises…."
and at paragraph 225:
"It may also be the case that the overall contextual framework created by the contract simply means that it is not appropriate for the law to impose the whole range of possible fiduciary duties or fiduciary duties of particular types in that specific context — in other words, it may be found that the parties could not reasonably expect that some particular duty of a fiduciary character should apply in the context of their particular relationship or in the context of their relationship with a person accepting appointment as a manager or board member."
"There are certain settled categories of fiduciary relationship. These include trustee and beneficiary, agent and principal, solicitor and client, promoter and company, partners, director and company… The categories of fiduciary relationship are not closed. There may be such a relationship where all the circumstances justify a finding that fiduciary obligations are owed. …
It is possible for fiduciary obligations to arise in a commercial relationship. An obvious example is a commercial agency. Fiduciary relationships do not commonly arise in a commercial setting outside the settled categories of fiduciary relationship. This is because it is normally inappropriate to expect a commercial party to subordinate its own interests to those of another commercial party."
"In relationships falling short of partnership, but having in them elements of joint enterprise or joint venture, there is no hard and fast rule as to the existence or otherwise either of a duty of good faith, a fiduciary duty or a duty of disclosure. Each case will turn on its own facts, but if the relationship is regulated by a contract, then the terms of that contract will be of primary importance, and wider duties will not lightly be implied, in particular in commercial contracts negotiated at arms' length between parties with comparable bargaining power, and all the more so where the contract in question sets out in detail the extent, for example, of a party's disclosure obligations."
"(1)That in the case of an agent employed under a contract, the scope of any fiduciary duties of the agent will be determined by the terms of the underlying contract : see Henderson v Merrett at 206C;
(2) Not every breach of duty by a fiduciary is a breach of fiduciary duty : see Bristol and West Building Society v Mothew at 16D;
(3) A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal : see Bristol and West Building Society v Mothew at 18B;
(4) The facts and circumstances must be carefully examined to see whether in fact a purported agent and even a confidential agent is in a fiduciary relationship to his principal: see Boardman v Phipps at 127B;
(5) The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction: see Hospital Products v United States Surgical Corp at 97;
(6) A person may be in a fiduciary position in respect of some part of their activities and not in respect of other parts; each transaction or group of transactions must be looked at: see New Zealand Netherlands Society v Kuys at 1130 D;
(7) The essence of a fiduciary relationship is that it creates obligations of a different character from those deriving from the contract itself. Many commercial relationships involve an obligation by a party to do honestly and conscientiously what that party had by the contract promised to do. To introduce into such relationships the whole new dimension which flows from giving them a fiduciary character would have adverse consequences. Merely because a party puts faith in another party and contends that their trust has not been repaid does not give rise to a fiduciary duty; high expectations do not necessarily lead to equitable remedies: see in re Goldcorp Exchange at 98F."
"Undoubtedly, fiduciaries must act in good faith [but] it is suggested that the duty of faith is not peculiar to fiduciaries. In particular, a duty of good faith has frequently been recognised in circumstances that are not traditionally considered to be fiduciary relationships and when fiduciary analysis played no part in reaching the court's conclusion. In numerous cases, for example, courts have held that discretionary powers in contracts had to be exercised in good faith … The important point is that in these various cases the courts have been careful to make clear that a duty of good faith, when it is recognised, is not a fiduciary duty."
and well demonstrated in Re Prudential Staff Pension Scheme v Prudential Assurance Scheme Ltd & ors [2011] EWHC 960 (Ch) where, when considering the exercise of a power to which an implied duty of good faith applied, Newey J stated (at paragraph 146) that :
"it is important to remember that powers such as that at issue in the present case are not fiduciary. As a result, the donee of the power is…entitled to have regard to his own interests when making decisions…".
a) any form of partnership;
b) any form of joint venture;
c) any other association;
d) any employer-employee relationship;
e) any agency relationship.
Conclusion on issue 3
Issue 4 : whether IBM owes FSL the duty of good faith alleged in paragraph 24 of the Particulars of Claim
Paragraph 24 of the Particulars of Claim reads as follows :
"Duty of Good Faith
24. In addition, IBM owed to Fujitsu a duty of good faith in the performance of its duties under the Sub-Contract. In that regard, Fujitsu will rely on the content of the partnering principles set out above and on the following express terms of the Sub-Contract (as amended in 2008 and on similar or equivalent wording prior to those amendments):
IBM warrants and represents that …
(f) it will discharge any obligations it has regarding the Services (to the extent applicable) and that IBM will supply and render appropriately experienced, qualified and trained personnel to discharge any obligations IBM has to the Services under this Sub-Contract, and that such personnel will discharge such obligations with all due skill, care and diligence in accordance with Good Industry Practice and any applicable Quality management Systems" (clause 19.4(f))
'Good Industry Practice' means 'at any time, the exercise of that degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected at such time from a skilled and experienced (a) provider of information, communication and technology services and information systems and/or (b) provider of expertise in change management and business processes; seeking in good faith to comply with its contractual obligations and complying with relevant Legislation and being engaged in the same type of industry and under the same in [sic] similar circumstances and conditions as that in which the relevant matter arises.' (Schedule 1)"
"19.4 PwC warrants and represents that :
…
(f) it will discharge any obligations it has regarding the Services (to the extent applicable) and that IBM will supply and render appropriately experienced, qualified and trained personnel to discharge any obligations IBM has to the Services under this Sub-Contract, and that such personnel will discharge such obligations with all due skill, care and diligence in accordance with Good Industry Practice and any applicable Quality Management Systems."
"In all matters relating to this Agreement the parties will act with the utmost good faith towards one another and will act reasonably and prudently at all times."
Conclusion on issue 4
Overall conclusions
Issue 1 : Whether IBM's liability to FSL in respect of any of its claims is excluded by clause 20.7 of the Sub-Contract and, if so, which claims are so excluded : IBM's liability in respect of all of FSL's claims is excluded by clause 20.7 of the Sub-Contract, save for any liability on the account claims.
Issue 2 : Whether IBM's liability to FSL in respect of any of its claims is limited to £5 million in each contract year and/or to £10 million in the aggregate by reason of clauses 20.4(c) and/or (d) of the Sub-Contract and, if so, which claims are so limited : IBM's liability to FSL in respect of all of FSL's claims would be or is limited to £5million in each Contract Year and/or to £10million in the aggregate by reason of clauses 20.4(c) and/or (d), including any liability on the account claims.
Issue 3 : Whether IBM owes FSL the fiduciary duty or duties (or any business duties akin to fiduciary duties) alleged in paragraph 30 of the Particulars of Claim : IBM does not owe FSL the fiduciary duties (or any business duties akin to fiduciary duties) alleged in paragraph 30 of the Particulars of Claim.
Issue 4 : Whether IBM owes FSL the duty of good faith alleged in paragraph 24 of the Particulars of Claim : IBM does not owe FSL the duty of good faith alleged in paragraph 24 of the Particulars of Claim.