Simon Stokes reviews the major case law involving all things IT

Simon Stokes is a solicitor in the media & technology group at Manches & Co.

To the non-specialist the subject of computer law may appear unrewarding: a world of source codes, functionality, fourth generation languages and other impenetrable jargon.

In fact it is a field where various legal disciplines merge: data protection, intellectual property law, competition law, criminal law (computer misuse) and contract law.

It is also generating a case law of its own.

A few high-profile computer cases have now gone to trial. A number of these have centred on the scope of intellectual property protection afforded to computer software.

However, other cases have involved general points of contract law. Recent cases have shed light on the way courts will apply the 'reasonableness test' under the Unfair Contract Terms Act 1977 (UCTA) and have also involved the application and development of other principles of contract law.



UCTA

Computer contracts involve the supply of goods and/or services. Given the potential losses that may be sustained by a buyer of a defective computer system, suppliers frequently seek to exclude the statutory implied warranties as to satisfactory quality, reasonable care and skill etc. They will also seek to exclude consequential loss and cap their liability for direct losses. Standard terms are also frequently relied upon. All these will attract the UCTA 'reasonableness' test.

There are few reported cases on UCTA and since 1992 two computer cases involving UCTA have gone to appeal. The first, Salvage Association v CAP (1995), settled at the start of the Court of Appeal hearing this summer, to the disappointment of those seeking clarification of the points raised in the first instance judgment of October 1992. The second, St Albans v ICL (1995), is to be heard next year.

Initially both these cases highlighted the problems in drafting a 'reasonable' exclusion clause. In Salvage Association the plaintiff's inability to obtain insurance and the low (and arbitrary) cap on liability (£25,000) were factors in persuading the court that the defendant's attempt to limit its liability should fail, despite the parties being of equal bargaining power.

In St Albans, ICL sought to limit its direct losses to £100,000 with consequential losses excluded altogether. The judge held that this exclusion was not reasonable as:

(i) the parties were of unequal bargaining power;

(ii) ICL had substantial (£50 million) liability insurance;

(iii) ICL could not justify the £100,000 limit;

(iv) the practical consequences were against ICL; the loss was borne by community charge payers in St Albans.

The Court of Appeal's judgment in St Albans is awaited by commercial lawyers generally. So is the decision in Exel v Dun & Bradstreet Software Services, expected at the end of this month.

This case concerns the 'reasonableness' of an exclusion clause in a software contract which limited liability to the contract price. It is common in standard form commercial contracts to limit liability in this way so the outcome of this case will be closely scrutinised.

Both Salvage Association and St Albans contain useful discussions of remoteness of damage and recoverable losses in breach of contract actions. In Salvage Association, wasted management time was recoverable under the head of damages for wasted expenditure.

In St Albans it was a central plank of ICL's defence that the losses sustained by St Albans (a shortfall in community charge revenue) were not recoverable as either the council itself did not suffer the damage caused by ICL's breach or any damage it did suffer was later recouped from next year's community charge bills.

This defence was rejected at first instance and is likely to be a significant part of the Court of Appeal judgment.

If there is any doubt computer cases often involve important points of contract law, consider the recent case of DSL v Unisys (unreported). The defendant had supplied a defective computer system to DSL who in turn had supplied it to a third party. The third party sued DSL for breach of contract and the action was settled. After this DSL sued Unisys to recover its loss. The judgment in DSL centres on the nature and effect of misrepresentations by the defendant's employees and to what extent DSL's losses under the settlement were recoverable from Unisys.

Practitioners are thus increasingly looking to computer cases to develop contract law principles and it is surely only a matter of time before computer cases take their place in student contract texts alongside their forebears from the first industrial revolution.