Gb Gas Holdings Ltd v Accenture
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,Lord Justice Wilson,Lord Justice Mummery |
| Judgment Date | 30 July 2010 |
| Neutral Citation | [2010] EWCA Civ 912 |
| Docket Number | Case No: A3/2009/2679 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 July 2010 |
[2010] EWCA Civ 912
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: The Right Honourable Lord Justice Mummery
The Right Honourable Lord Justice Longmore
and
The Right Honourable Lord Justice Wilson
The Honourable Mr Justice Field
Case No: A3/2009/2679
Mr Joe Smouha QC, Mr David Foxton QC & Miss Philippa Hopkins (instructed by Freshfields Bruckhaus Deringer LLP) for the Appellants
Mr Jonathan Sumption QC, Mr Jeffery Onions QC and Ms Sonia Tolaney (instructed by Linklaters LLP) for the Respondent
Hearing dates: 9 th, 10 th & 11 th June 2010
Lord Justice Longmore:
Introduction
This is an appeal in relation to a number of preliminary issues arising out of proceedings brought by the Claimant (whom I will call “Centrica”) for breach of an agreement dated 28 January 2002 (“the JPA”), as amended, under which the counterparty, Accenture plc, contracted to design, supply, install and maintain a new IT system (“the Jupiter System”), including an automated billing system based on pre-packaged SAP IS-U software. I can take the essential facts directly from Field J's admirably clear judgment.
Under the JPA, the Jupiter System was to be delivered in 5 software releases, the third of which (“Release 3”) was to be the billing system.
Centrica is a subsidiary of Centrica plc which was originally part of the British Gas Corporation. Through another subsidiary, British Gas Trading Limited, Centrica supplies gas and electricity to residential customers in England and Wales. In 2002, at the time of the execution of the JPA, Centrica plc supplied energy to 18.8 million customers (13.4 million gas accounts and 5.4 million electricity accounts) and each month was issuing approximately 5 million bills.
Accenture (UK) Ltd (“Accenture”) became a party to the JPA by a novation dated 24 November 2003. It carries on business as a global management consulting, technology services and outsourcing company. The other defendants are guarantors of Accenture.
The roll out of Release 3 was considerably delayed. There were disputes between the parties over the functional and system performance of Releases 1 and 2 and there were concerns about: (i) the adequacy of the testing regime in respect of Release 3; (ii) the future development of Releases 4 and 5; and (iii) Accenture's cashflow problems. A settlement of these disputes was agreed on 29 June 2004, the formal terms of which were set out in Contract Change Note 165 (“CCN 165”) dated 19 July 2004.
Under CCN 165:
i) Centrica agreed to pay an additional £10 million to the overall amount payable to Accenture under the JPA (Clause 1.1).
ii) Accenture agreed to provide an additional 18,000 man days towards completion of Release 3 (Clause 1.5).
iii) Accenture agreed to a three to four month pilot of Release 3B with live users for which the parties were to agree a set of objective pilot acceptance criteria to identify any faults in relation to Release 3B during the pilot. It was also agreed that the relevant warranties under Clause 15 of the JPA would not start to run until after completion of the pilot and the start of the migration of accounts from the old billing systems to the new one, rather than at the start of the pilot.
iv) Releases 4 and 5 were suspended.
On 21 December 2005, the parties agreed that the planned migration of 2 million customer accounts from existing billing systems to the new system should be conducted in two phases, comprising 1.25 million customer accounts at the end of December 2005 and 0.75 million customer accounts during February 2006. Between December 2005 and March 2006 4.5 million customer accounts were migrated to Release 3B.
Relevant Provisions in the JPA
On 31 March 2006, the JPA was amended by the Jupiter Programme Contract Amendment No. 1. and I shall refer to it as “the Amended JPA”. The amendments that are especially relevant are those to the warranty provisions contained in Clause 15 of the JPA. But it is unfortunately necessary first to set out the relevant terms of the original JPA. The drafting technique in the original Clause 15 was to set out what was warranted and then to provide what was to happen in the case of a breach of a warranty depending on whether the breach involved a “Fundamental Defect” (as defined) or a “Material Defect” (as defined). To that end, Clauses 15.2, 15.3 and 15.4.1 – 15.4.6 of the original JPA provided:
15.2 Release Warranties
15.2.1 Subject as provided below Accenture warrants to Centrica that
i) for the duration of the Initial Warranty Period:
(a) each Release will comply in all material respects with its Statement of Release Requirements separately and when combined with the previously delivered Releases; and
(b) completion of each Release will not materially adversely affect functionality achieved in any previously delivered Releases;
ii) in respect of the Release(s) which implement the Billing System (currently planned to be Release 3), for the duration of the Full Warranty Period:
a) each Release will comply in all material respects with its Statement of Release Requirements separately and when combined with the previously delivered Releases; and
b) completion of each Release will not materially adversely affect the functionality achieved in any previously delivered Releases.
and in respect of this Clause 15.2.1(ii) only with regard to any functionality, processes, End User or data volumes which do not occur or are not used, operated or introduced during the Initial Warranty Period.
15.2.2 Without limiting Clause 15.2.1, for the relevant Warranty Period:
i) a Release will be free from material design and material programming and material implementation errors; and
ii) a Release will meet in all material respects the Statement of Release Requirements to give Centrica the capability to achieve competitive advantage and the System will be capable of providing the Benefits.
15.3 Warranty Process
The Parties shall agree, prior to 31 July 2002 or (if earlier) the Acceptance Date for Release 1, a process for the notification and rectification of claims under Clauses 15.1.1, 15.2.1 and 15.2.2 including processes for (i) the categorisation of such warranty claims as being within the scope of Clauses 15.1.1, 15.2. 1 or 15.2.2 (ii) the prioritisation of and tracking of such claims, and (iii) acceptance by Centrica of rectifications and/or work arounds delivered by Accenture and if the Parties fail to agree such a process within a reasonable time, the matter shall be referred to the Dispute Resolution Procedure.
15.4 Level of Effort
15.4.1 Accenture will fix Material Defects and Fundamental Defects to the level of effort set out in this Clause 15.4 during the relevant Warranty Period.
15.4.2 Material Defects
Upon being notified by Centrica of a Material Defect Accenture shall promptly take all steps reasonably necessary to correct the Material Defect breach provided always that for the avoidance of doubt in no event shall the cost spent on fixing (being calculated on either the Time and Materials Basis or the Maintenance Daily Rate, whichever is relevant to the appropriate personnel being used) exceed the cap on liability set out in Clause 16. This shall constitute Accenture's entire liability and Centrica's sole and exclusive remedy for a Material Defect. For the avoidance of doubt, the only situation in which Centrica shall have a claim for damages for a Material Defect shall be if Accenture does not promptly take all steps reasonably necessary to correct the breach, and nothing in this Clause 15.4.2 shall remove Centrica's right to terminate this Agreement in accordance with its terms.
15.4.3 Fundamental Defects
Upon being notified by Centrica of a Fundamental Defect Accenture shall do what a commercial, reasonable and prudent organisation using the System to carry on its business would do when acting in its own best interests (having due regard to the costs necessary and benefits likely from correcting the Fundamental Defect) provided always that in no event shall the cost spent on fixing (being calculated on either the Time and Materials Basis or the Maintenance Daily Rate, whichever is relevant to the appropriate personnel being used) exceed the cap on liability set out in Clause 16. This shall constitute Accenture's entire liability and Centrica's sole and exclusive remedy for a Fundamental Defect. For the avoidance of doubt, the only situation in which Centrica shall have a claim for damages for a Fundamental Defect shall be if Accenture does not promptly use the endeavours set out in this Clause 15.4.3 to correct the breach and nothing in this Clause 15.4.3 shall remove Centrica's right to terminate this Agreement in accordance with its terms.
15.4.4 Reduction in Cap
The effort expended by Accenture in meeting its obligations under this Clause 15 will be calculated on either the Time and Materials Basis or the Maintenance Daily rate, whichever is relevant to the appropriate personnel being used, and will be treated as liability of Accenture and will count towards and reduce the aggregate liability cap set out in Clause 16. Accenture shall agree an action plan for fixing particular breaches of warranties with Centrica, implement such plan and keep Centrica informed as to the amount of money spent.
15.4.5 Data and...
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