Fujitsu Services Ltd v IBM United Kingdom Ltd [QBD (TCC)]
| Jurisdiction | England & Wales |
| Judge | Carr J |
| Judgment Date | 21 March 2014 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 21 March 2014 |
Queen's Bench Division (Technology and Construction Court).
Carr J.
Michael Douglas QC and Michael Taylor (instructed by Pinsent Masons LLP) for the claimant.
Jeffery Onions QC and Matthew Lavy (instructed by Herbert Smith Freehills LLP) for the defendant.
The following cases were referred to in the judgment:
Alghussein Establishment v Eton CollegeWLR [1988] 1 WLR 587.
AstraZeneca UK Ltd v Albemarle International Corp [2011] 2 CLC 252.
Attorney-General v BlakeELR [2001] 1 AC 268.
Bath and North East Somerset District Council v Mowlem plcUNK [2004] BLR 153.
Berkeley Community Villages Ltd v PullenUNK [2007] EWHC 1330 (Ch).
Bikam OOD, Central Investment Group SA v Adria Cable SarlUNK [2012] EWHC 621 (Comm).
BHP Petroleum Ltd v British Steel plcUNK [1999] 2 Ll Rep 583.
Bristol and West Building Society v MothewELR [1998] Ch 1.
CEL Group Ltd v Nedlloyd Lines UK LtdUNK [2004] 1 Ll Rep 381.
City Index Ltd v Gawler [2007] 2 CLC 968; [2008] Ch 313.
Cobbe v Yeoman's Row Management LtdUNK [2008] UKHL 55.
Co-operative Insurance Society Ltd v Argyll Stores (Holdings) LtdELR [1998] AC 1.
Co-operative Wholesale Society Ltd v National Westminster Bank plcUNK [1995] 1 EGLR 97.
Deepak Fertilisers and Petrochemicals Corp v ICI Chemicals & Polymers LtdUNK [1999] 1 Ll Rep 387.
Ease Faith Ltd v Leonis Marine Management Ltd [2006] 1 CLC 345.
Ericsson AB v EADS Defence and Security Systems LtdUNK [2009] EWHC 2598 (TCC).
F&C Alternative Investment (Holdings) Ltd v BarthelemyUNK [2011] EWHC 1731 (Ch).
Friends Provident Life Office v Hillier Parker May & Rowden [1995] CLC 592; [1997] QB 85.
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) LtdELR [1974] AC 689.
Global Container Lines Ltd v Bonyad Shipping CoUNK [1998] 1 Ll Rep 528.
Goldcorp Exchange Ltd (in receivership), Re [1994] CLC 591; [1995] 1 AC 74.
Hadley v BaxendaleENR (1854) 9 Ex 341.
Henderson v Merrett Syndicates Ltd [1994] CLC 918; [1995] 2 AC 145.
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 CLC 358.
Hospital Products Ltd v United States Surgical CorpUNK (1984) 156 CLR 41.
Jervis v HarrisELR [1996] Ch 195.
Johnson v AgnewELR [1980] AC 367.
John Youngs Insurance Services Ltd v Aviva Insurance Service UK LtdUNK [2011] EWHC 1515 (TCC).
Kelly v CooperELR [1993] AC 205.
Kudos Catering (UK) Ltd v Manchester Central Convention Complex LtdUNK [2013] EWCA Civ 38.
L Schuler AG v Wickman Machine Tool Sales LtdELR [1974] AC 235.
Photo Production Ltd v Securicor Transport LtdELR [1980] AC 827.
Proton Energy Group SA v Orlen LietuvaUNK [2013] EWHC 2872 (Comm).
Prudential Staff Pension Scheme, ReUNK [2011] EWHC 960 (Ch).
Rainy Sky SA v Kookmin Bank [2011] 2 CLC 923; [2011] 1 WLR 2900.
Ross River Ltd v Cambridge City Football Club LtdUNK [2008] 1 All ER 1004.
Ross River Ltd v Waverley Commercial LtdUNK [2012] EWHC 81 (Ch).
Royal Brompton Hospital NHS Trust v Hammond [2003] 1 CLC 11; [2002] 1 WLR 1397.
Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2007] CILL 2449.
Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen CentraleELR [1967] 1 AC 361.
Tor Line A/B v Alltrans Group of Canada LtdWLR [1984] 1 WLR 48.
Tradigrain SA v Intertek Testing Services (ITS) Canada LtdUNK [2007] EWCA Civ 154; [2007] 1 CLC 188.
Tsavliris v OSA Marine Ltd (19 January 1996).
Vertex Data Science Ltd v Powergen Retail LtdUNK [2006] 2 Ll Rep 591.
Contract — Sub-contract — Breach of contract — Provision of IT services — Alleged failure by main contractor to implement “workshare” provisions — Claims for damages, equitable compensation for breach of fiduciary duty, and account of profits — Damages claims excluded by terms of sub-contract — Claim for account not excluded but subject to contractual cap — Main contractor not owing fiduciary duties or subject to duty of good faith.
This was a trial of preliminary issues arising out of a claim brought by Fujitsu Services Ltd (“FSL”) against IBM United Kingdom Ltd (“IBM”).
IBM provided IT and business process change services to the Driver and Vehicle Licensing Agency (DVLA) under a main contract (“the PACT Agreement”). FSL provided aspects of those services under a sub-contract with IBM. Both contracts were entered into in September 2002 and were due to expire in September 2015.
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. IBM agreed to sub-contract to FSL specified shares of certain types of those services. FSL contended that it had no direct means by which to ascertain what services were being requested or provided under the PACT Agreement and was 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 was entitled. It contended that IBM owed it a duty to act in good faith and fiduciary duties.
FSL alleged that in breach of contract IBM had failed to sub-contract services which it should have done under the “workshare” provisions of the sub-contract, and had failed to implement the procedures in the sub-contract requiring IBM to notify and seek FSL's consent to material changes in the PACT Agreement.
FSL claimed damages relating to the workshare arrangements, to change control procedures and the failure to provide value for money services. On each head of claim, for breach of contract or duty, the damages claimed were for loss of profit. On each head of claim FSL also sought equitable compensation for breach of fiduciary duty, again in the form of compensation for loss of profit. Alternatively FSL sought an account of profits wrongfully made by IBM.
IBM denied any breach of contract or fiduciary duty.
The preliminary issues were whether IBM's liability was excluded by cl. 20.7 of the sub-contract; whether its liability to FSL in respect of any of its claims was limited to £5 million in each contract year by reason of cl. 20.4(c) and to £10 million in the aggregate by cl. 20.4(d); and whether it owed fiduciary duties to FSL or a duty of good faith.
Clause 20.7 provided that neither party would be liable to the other under the sub-contract for loss of profits, revenue, business, goodwill, indirect or consequential loss or damage, except in certain specified circumstances.
Held, determining the preliminary issues accordingly:
1. FSL's claims were for loss of profits and as such they were excluded by cl. 20.7. The language was on its face clear and unambiguous. There was nothing in the context or surrounding clauses of the sub-contract pointing to a different construction. The contract was lengthy and detailed and had been negotiated by two highly sophisticated commercial parties of equal bargaining power at arm's length with the benefit of advice from experienced commercial solicitors. The sub-contract as a whole contained detailed provisions governing the parties' rights to remedies as between each other. By clause 20.7 the parties had chosen to limit their right to claim damages from each other. They had applied their minds to the scope of the clause, providing for detailed and specific exceptions. The clause affected the rights of IBM and FSL equally.
2. FSL contended that if the effect of cl. 20.7 was to exclude liability for breach by IBM of its obligations to allocate work, then a central element of the parties' bargain was deprived of all contractual force, or turned into a mere statement of intent. However, the contract did not exclude liability for all types of breach, merely for specified types of loss. A claim in debt for non-payment of an invoice would not fall within the exclusion in cl. 20.7, and substantive rights and remedies remained available to the parties, including the obligation on each party to perform its obligations. In addition to contractual mechanisms, 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.
3. There was no justification for construing cl. 20.7 in a manner which limited the basic exclusion to indirect and consequential loss.
4. FSL's claims for damages did not fall within any of the exceptions provided for in cl. 20.7.
5. A claim by FSL for an account of profits wrongfully made by IBM was not a claim by FSL for “loss of profits, revenue” within the meaning of cl. 20.7.
6. Any liability on the part of IBM for damages or equitable compensation or for an account would be subject to the limitations of liability set out in cl. 20.4(c) and (d).
7. 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. The relationship between IBM and FSL did not fall within any settled category of fiduciary relationship and the terms of the sub-contract expressly excluded any form of partnership, joint venture, other association, employer-employee relationship or agency relationship. FSL was at all times an independent contractor. The parties were to comply with and have regard to “partnering principles”, but they were aspirational and could not give rise to fiduciary duties, even ignoring the exclusion of a partnership relationship. To import fiduciary obligations would be to distort the true bargain between the parties. Fiduciary obligations could not reasonably be expected to apply to the sub-contract which was an arm's length commercial contract between a main contractor and a sub-contractor for the supply of services.
8. IBM did not owe FSL any duty of good faith. There was no express duty of good faith in the sub-contract.
Carr J: Introduction
1. This is a trial of preliminary issues arising out of a claim brought by Fujitsu Services Limited (“FSL”) against IBM United Kingdom Limited...
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