Professional Negligence and Liability

Edited by Mark Simpson KC

Document

Chapter 18 COMPUTER CONSULTANTS

Authored by MATTHEW LAVY AND GIDEON SHIRAZI

I. GENERAL

1. Introductory

18.1 This chapter is about “computer consultants”, a term intended to encompass those who supply, maintain and advise in relation to the procurement, implementation and operation of IT systems. As technology changes, computer consulting has turned into a constantly evolving (and increasingly balkanised) IT services industry: IT professionals are becoming increasingly specialised and are carrying out an increasingly diverse range of tasks, requiring an increasingly diverse range of skills. Whilst there are no doubt still individuals who might refer to themselves as “computer consultants” (or, more likely, “IT consultants”) the reality is that a vast amount of work undertaken in the IT sector—and even advisory work—is done by individuals who would probably not so characterise themselves. For the purposes of this chapter, the term “computer consultants” will be used in a broad sense to refer to all IT professionals whose work includes provision of advisory services to clients. [The next paragraph is 18.3] 18.3 As this is a book about professional liability, it should be noted that the broad category of “computer consultants” includes individuals who may not be “professionals” in the strict sense. However, given that even a non-professional who provides a service involving the use of some special skill is required to exercise the degree of care and skill reasonably to be expected of a person of ordinary competence and experience in supplying the service in question, the issue of professional status is unlikely to be of practical consequence. 18.4 Whatever their specific niche or specialisms, the common factor that links computer consultants is that they invariably undertake their work pursuant to a contract. Thus, the nature and extent of their professional liability turns principally upon the specific contractual arrangements that they have entered into, and on the legal principles that govern them. A full consideration of the law of contract is neither appropriate nor possible within the confines of this chapter. Instead, in the paragraphs that follow, a consideration is attempted of the contractual duties and liabilities that commonly arise in the context of the sorts of consultancy services typically provided by IT professionals. Unlike professionals in many other spheres, IT professionals often not only provide consultancy services but also supply goods, potentially giving rise to absolute obligations (such as warranties in relation to compliance with specification) as well as the “usual” obligation to exercise reasonable care and skill in the performance of the services. This issue is also addressed below. [The next paragraph is 18.41]

II. CONTRACTUAL DUTIES AND LIABILITIES

1. Express terms

(a) Introduction

18.41 The consultant’s duties to his client will be defined by what he and the client agree that he is to do. Questions such as what representations or promises take effect as terms of the contract (or of any “collateral” contract),1 in what correspondence or other documents the contract is contained, and what documents or standard terms have been incorporated into it, etc., are determined by the general principles which govern all contracts. 18.42 The agreement between the parties, whatever its form, is likely to address such matters as the time for performance by the consultant and for payment by the client and at least a general description of the work to be done. Time may be agreed to be of the essence, and this may have important consequences for both parties, especially as regards termination for non-completion within the time specified.2 Written terms of engagement will also often provide for such matters as confidentiality, data protection, the ownership of intellectual property and source code, assignment, the giving of notices, and termination, as well as clauses purporting to limit or exclude liability.3 [The next paragraph is 18.43]

(b) Writing

18.43 As a matter of prudence and common sense, if not as a matter of professional conduct, a consultant should always confirm his instructions in writing. In Griffiths v. Evans,4 a solicitor’s negligence case, Denning LJ observed: “If the solicitor does not take the precaution of getting a written retainer, he has only himself to thank for being at variance with his client over it and must take the consequences. This observation is just as pertinent to IT consultants as it is to soli 18.44 The point made by Denning LJ is illustrated by the facts of Jonas and Erickson Software v. Fitz-Wright and Co 5 where the claimant’s contention that it had retained the defendants as consultants as well as suppliers was upheld against the defendants who had contended that they were only acting as suppliers. As a consequence the defendants were held to owe the duties of consultants. 18.45 Even where there is a written contract, the problem of determining the extent of the duties undertaken will not necessarily be resolved by reducing them to writing unless this is done with sufficient precision. It is not unusual to find that the work to be undertaken is defined in general terms whilst the extent of that work and the degree of detail required is left open. For example, a consultant may be retained to produce a functional specification of the client’s requirements. However, such work can be done in varying degrees of detail and may result in the production of a high level document akin to an overview or a low level document in which every business process is set out step by step. If the level of detail required is not specified in, or otherwise apparent from, the contract and the project goes wrong because the functional specification is not detailed enough or omits requirements which would have been apparent if more work had been carried out, there may well be scope for argument as to the extent of the consultant’s obligations, including any implied obligations. 18.46 When entering into an agreement for the provision of consultancy services there is great merit before any work is carried out in agreeing precisely what it is that the parties want to achieve. The production at an early stage of a scoping document produced by the consultant and signed off by the client can be a sensible way of reducing the risk of misunderstandings as to who is to do what. Such a document would then form part of the contract. Where the work is simple and capable of being adequately defined in the form of a letter, a scoping document may be unnecessary. However, where the ambit of the work is more complex, such documents may be invaluable.

(c) Illustrations

18.47 As will be apparent, terms of engagement may be extremely detailed, or quite general. They may include what is in effect a performance specification for a complete system as in St Albans City and District Council v. ICL 6 where the supplier tendered upon a specification which provided inter alia that: “prospective suppliers will be expected to give a firm commitment to provide a system to cope with all the statutory requirements for registration, billing, collection and recovery and financial management of the community charge and non-domestic rates; including community charge rebates.”7 The terms may incorporate standards, or else be completely silent in that respect. In The Salvage Association v. CAP Financial Services Ltd 8 the software supplier gave an express warranty that its duties would “be performed by competent persons exercising skills appropriate to their function”. The court accepted the submission that the use of the word “exercising” made it clear that the warranty given was twofold in nature, i.e.:

(i) a warranty that the persons who performed the duties would be competent and
(ii) a warranty that the persons who performed the duties would exercise appropriate skills whilst doing so.9

18.48 It is not unusual for a consultant to be retained to oversee and manage a customer’s IT project from conception to completion. The consultants’ retainer in Stephenson Blake (Holdings) Ltd v. Streets Heaver Ltd 10 is perhaps not atypical both because of its general scope and because of the fact that it was not exclusively advisory or supervisory. That retainer was expressed by the consultants in a letter to their clients which included the following terms:

“Phase 1: Selection

1. Review existing systems and documents requirements.
2. Prepare a detailed specification of requirements as part of an Invitation to Tender document in conjunction with yourself following a detailed analysis of your specific systems requirements.
3. Select prospective suppliers.
4. Review Tenders and evaluate to what extent they meet the specified requirements. Review the stability of the suppliers, the back-up services provided, quality of audit trails, documentation and contracts.
5. Short list Tenders and visit existing sites.
6. Provide recommendation on preferred system and suppliers.

Phase 2: Implementation

1. Draw up an overall implementation plan in conjunction with yourself, assess training and environmental requirements, organise training, where necessary.
2. Review changes required to clerical procedures and documentation and advise on suitable levels of control and housekeeping. Advise on coding.
3. Prepare detailed plans for the implementation of each system, make arrangements for testing and implementation of computer systems. This could include using temporary staff from our bureau operation to build up the Master files or design the report generator for the Management Accounts.
4. Liaise with the supplier over any problems and (…) yourselves on all technical matters related to the systems.”

18.49 Where the express terms of a contract require a system to provide certain specified functions and that contract is with a system supplier, as in St Albans,11 the supplier, in the absence of any other qualifying or exculpatory provisions, will be bound to ensure that the system does provide those functions.12 Thus, since in that case the supplier had contracted in terms to provide a system to cope with all the statutory requirements of community tax, and since it was necessary for the system to be able to produce a statement of population figures in time to enable the council to lodge a return with the Secretary of State by a date specified by statute, it was held that it was a term of the contract that the system would accurately produce the required information in time for the council to lodge the return by the specified date. Similarly, in South West Water Services Ltd v. ICL,13 where the defendants entered into an agreement to deliver by a certain date tailored package software conforming with the claimant’s requirements specification for a customer care, workflow and billing system, it was held that it was not open to the defendants to deliver a system which could deliver what the defendants believed the claimants required but which departed from the business practices set out in the specification. Equally, a consultant who undertakes to provide a complete system or a part of a system14 to provide a specified functionality will be bound to ensure that that functionality is provided. However, where a consultant is retained not to supply anything but merely to advise and assist, e.g. in relation to the selection of a system which will comply with a particular description, and no warranty is given as to compliance with the description, the consultant’s obligation is to use due care and skill in endeavouring to ensure that the recommended system conforms with the description.15 If there is uncertainty as to what is being specified it may be impossible to deduce any precise obligation. In Micron Computer Systems Ltd v. Wang (UK) Ltd 16 alleged requirements that a software system should provide “simultaneous background back-up” or transaction logging were held to have no clear and precise meaning and were incapable of being given effect to either as representations inducing, or as terms of, a contract. Similarly in Jonathan Wren and Co Ltd v. Microdec plc 17 statements that software to be provided by the defendants would increase the claimants’ productivity and maximise their turnover and profitability were held to be too vague and imprecise to be the subject of contractual terms.

(d) Standard terms and conditions

18.50 As in many other types of contract standard terms of business are often incorporated into computer consultancy contracts. These will often include provisions relating to such matters as are mentioned in paragraph 18.42, above, and they may also include terms purporting to modify, limit, or even to exclude liability altogether.18 Clients in particular need to be aware of express terms which purport to warrant specific functionality and performance, frequently for only a limited period of time, whilst excluding any liability for damages. There are established principles to be applied for the purposes of establishing the meaning and effect of such exemption or exclusion clauses. Whilst none of them is peculiar to IT contracts, they are nonetheless addressed in outline in this chapter as they have received judicial treatment in the context of IT contracts.19 Such exemption clauses may in some circumstances be rendered ineffective by the provisions of the Unfair Contract Terms Act 1977 or the Misrepresentation Act 1967. These provisions are discussed in more detail below.20

2. Implied terms

(a) General

18.51 Terms may be implied into a contract either in accordance with common law principles or by statute. The principles upon which a term will be implied into a contract at common law were addressed most recently by the Supreme Court in Marks & Spencer plc v. BNP Paribas Securities Trust Co (Jersey) Ltd.21 In that case, the Supreme Court endorsed the “clear, consistent and principled approach” represented by a series of cases decided before the Privy Council case of Attorney-General of Belize v. Belize Telecom Ltd,22 reducing Lord Hoffman’s observations in Belize to a historical footnote with the words: “those observations should henceforth be treated as a characteristically inspired discussion rather than authoritative guidance on the law of implied terms.”23 18.51.1 In BP Refinery (Westernport) Pty Ltd v. Shire of Hastings,24 Lord Simon of Glaisdale summarised the relevant principles as follows: “In their [Lordships] view, for a term to be implied, the following conditions (which may overlap) must be satisfied:

(1) it must be reasonable and equitable;
(2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3) it must be so obvious that ‘it goes without saying ’;
(4) it must be capable of clear expression;
(5) it must not contradict any express term of the contract.“

18.51.2 In Marks & Spencer,25 Lord Neuberger added six comments on Lord Simon’s summary. Firstly, whether or not a term is to be implied is not determined by proof of the parties’ actual intention. If the question is approached on the basis of what the parties would have agreed, one is concerned with the answer given by notionally reasonable people in the position of the parties at the time the contract was made. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it had it been suggested. Thirdly, if the second to fifth principles identified by Lord Simon are satisfied it is questionable whether Lord Simon’s first requirement (that the term must be reasonable and equitable) adds anything. Fourthly, whilst Lord Simon’s requirements are otherwise cumulative, his second and third requirements (business efficacy and obviousness) can be alternatives in the sense that only one of them needs to be satisfied (although in practice it would be rare for only one of them to be satisfied). Fifthly, if one approaches the issue by reference to the officious bystander, it is vital to formulate the question to be posed by him with the utmost care. Sixthly, necessity for business efficacy is not absolute but involves a value judgment; it may be more helpful in putting Lord Simon’s second requirement in the following terms: “a term can only be implied if, without the term, the contract would lack commercial or practical coherence.” 18.51.3 Terms may be implied into a contract for IT consultancy by statute such as the Supply of Goods and Services Act 1982 or, conceivable, the Sale of Goods Act 1979. However, in modern times, it is usual for IT contracts to include express obligations as to the use of reasonable skill and care in the performance of services and in respect of the character, quality and performance of any software which is to be delivered and for implied terms as to quality and fitness for purpose, whether statutory or at common law, to be excluded. Although there has been keen debate as to whether software is or is not “goods” for the purpose of implying statutory terms as to quality and fitness for purpose, the question appears to turn on the arbitrary feature of whether the software was delivered on a disc or other tangible device (in which case it is “goods”) or whether it was downloaded or transferred electronically (in which case, it is not).26 In The Software Incubator Ltd v. Computer Associates UK Ltd,27 a case about the Commercial Agents (Council Directive) Regulations 1993, the Court of Appeal reviewed the authorities and held that there was a distinction between software provided on a tangible medium (in which case it was “goods”) and software provided on an intangible medium (which meant it was not goods). The Court of Appeal criticised the distinction, noting that it was out of date in modern society but considered that the authorities were now clear and that any change of approach would have to come from legislative intervention. Where a contract for the supply of software expressly excludes statutorily implied terms but is silent in relation to terms implied at common law, it may be possible to imply terms as to quality and fitness for purpose in accordance with the principles set out at paragraph 18.51 above, although much will depend on the individual circumstances of the case.28 18.51.1 A characteristic of many projects in which computer consultants are involved is a need for a degree of client involvement that is seldom encountered in other industries. In particular, the successful development of a bespoke or customised software system or IT infrastructure typically requires the close collaboration of the user and the analysts, developers and architects in an iterative process. The length and complexity of the process will vary from project to project and will depend upon the size and complexity of the project, the approach adopted, the particular hardware and software used, the level of “performance” of both the user and the developer and the state of advancement of the relevant technology when the development is carried out. The collaborative nature of such a project was highlighted in evidence which was given in Saphena Computing Ltd v. Allied Collection Agencies Ltd 29 and which was recited in the judgment of Staughton LJ:

“Just as no software developer can reasonably expect a buyer to tell him what is required without a process of feedback and reassessment, so no buyer should expect a supplier to get his programs right first time. He, too, needs feedback on whether he has been successful. This is why the buyer needs to run acceptance tests using typical business transactions to ensure that each works correctly. Inevitably, though, some will not. This may be the supplier’s fault but it is equally possible that the buyer may have got his requirements wrong, have expressed them badly or unwittingly have used terms which were open to different interpretations. Whatever the cause, the programs have to be modified and then retested until a correct result is achieved.”30

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