Fujitsu Services Ltd v IBM United Kingdom Ltd

Hearing dates: 25, 26, 27 February 2014

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Introduction

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 12 ^th September 2002 for a period of ten years. Pursuant to extensions, they remain ongoing contracts, now due to expire on 12 ^th 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 26 ^th 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 1 ^st July 2008 to the date of commencement of proceedings on 3 ^rd 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 23 ^rd February 2015 with a six-week time estimate.

The preliminary issues

The issues for my determination, as ordered by consent on 19 ^th July 2013, are framed as follows :

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.

The selection of the issues for preliminary ruling no doubt arises out of paragraph 2 of the Defence which reads as follows :

" [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

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 12 ^th 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 2 ^nd 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 :

" [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

It is necessary to set out parts of the preamble and the more relevant terms of the Original Sub-Contract at some length :

"…. 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...