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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> The Royal Devon and Exeter NHS Foundation Trust v ATOS IT Services UK Ltd [2017] EWHC 2197 (TCC) (31 August 2017) URL: https://www.bailii.org/ew/cases/EWHC/TCC/2017/2197.html Cite as: [2017] EWHC 2197 (TCC), [2017] BLR 533, 174 Con LR 24 |
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QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
THE ROYAL DEVON AND EXETER NHS FOUNDATION TRUST |
Claimant |
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- and - |
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ATOS IT SERVICES UK LIMITED |
Defendant |
____________________
Zoe O'Sullivan QC (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the Defendant
Hearing dates: 4th May 2017
____________________
Crown Copyright ©
Mrs Justice O'Farrell:
The Issues
Issue 1 – wasted expenditure claims
i) Whether as the defendant contends, the defendant is under no liability in respect of each of the claimant's claims to recover wasted expenditure made in paragraphs 102 to 110 of the Particulars of Claim because:
a) liability for each such claim is expressly or by necessary implication excluded by the terms of clause 8.1.3(a) of the Contract; and/or
b) the claims represent an illegitimate attempt to evade the effect of that clause by seeking recovery of heads of loss which are expressly excluded by the clause
OR
ii) whether, as the claimant contends, clause 8.1.3(a) of the Contract does not exclude and is no bar to the claims it makes for wasted expenditure on a reliance loss basis.
Issue 2 – Limitation of liability
iii) What is the meaning and effect of the limitation of liability at clause 8.1.2(b) of the contract and paragraph 9.2.2 of Schedule G?
iv) Whether, as the claimant contends, the limitation of liability at clause 8.1.2(b) of the Contract and paragraph 9.2.2 of Schedule G is ineffective and it is entitled to a declaration to that effect
OR
v) whether, as the defendant contends, the limitation of liability at clause 8.1.2(b) of the contract and paragraph 9.2.2 of Schedule G is effective, and if so, what is its meaning and effect.
The contract – relevant provisions
Contractor's Obligations
) design the System and Services;ii) develop and install electronic document management ("EDM") software, and provide associated software maintenance and support services; and
iii) provide document scanning services.
"the combination of Hardware and Software working together to deliver the function and performance specified in the Contractor Undertakings. Any part of the System may be separately identified as a Sub-system."
"the services to be provided under this Contract, including but not limited to the Implementation and Scanning Services and the Support Service."
"The Contractor shall meet the Contractor Undertakings contained in schedule A, and shall fulfil all its obligations under the Contract in accordance with the timetable in schedule E in consideration of payment by the Authority of the Contract Charges."
"The Contractor shall perform its delivery and installation obligations under the Contract according to the timetable contained in schedule E …"
i) Milestone IM1 - "Contract Signature" – the planned date was 4 November 2011;ii) Milestone IM7 – "Early Adopter Go Live (Speciality 2)" – by 5 October 2012 – the key deliverables included satisfactory completion of the clinical user trial and completion of the early adopter specialities roll out; the Trust dependencies included availability of resources to support the roll out;
iii) Milestone CD8 – "Post Go Live Verification & Integration III" – 45 days after go live from successful acceptance – by 7 December 2012.
Trust's obligations
"The Authority shall pay the Contractor the Contract Charges, and shall perform its responsibilities under the Contract including, but not limited to, those specified in schedule D (Authority's responsibilities), in compliance with the Contractual Dates set out in schedule E."
"the charges as set out in schedule G."
"The Authority shall pay the Contractor the Contract Charges, as applicable, and any other valid charges that may become due, according to the payment schedule contained in schedule G."
Breach and Termination
"Any actual or anticipated material delay or failure by either party shall be notified to the Project Board and managed in accordance with the recommendations of the Project Board. Both parties shall use all reasonable endeavours to mitigate the impact of such delay regardless of cause."
"Subject to clause 3.1.3, delay or failure solely caused by the Contractor to meet any Contractual Dates contained in the timetable in schedule E, shall be subject to the provisions of clause 8.3 (delays)."
"If the Contractor fails to meet any Contractual Date specified in the timetable contained in schedule E, both parties shall use all reasonable endeavours to mitigate the impact of such delay, and as required under the provisions of clause 3.1, it shall be liable to:
(a) reimburse the Authority for all proven losses, costs, damages and expenses incurred by the Authority by reason of such delay."
"Clarification
"(a) The provisions of sub-clause 8.3.1(a) above shall apply to delay by the Contractor in meeting any Contractual Dates, notwithstanding the previous application of such provisions to delay or failure by the Contractor to meet any other Contractual Dates.
(b) The Authority acknowledges that the Contractor's ability to meet its obligations under the Contract according to the timetable in schedule E may depend on the Authority likewise meeting its obligations, including those specified in schedule D. Consequently, insofar as the Contractor is prevented from fulfilling any of its obligations as a direct result of a delay solely caused by the Authority it shall not be liable to the Authority for such failure and sub-clauses 3.1.3 and 3.2.1 shall apply."
"Except as otherwise expressly provided by the Contract, all remedies available to the Contractor or the Authority for breach of the Contract are cumulative and may be exercised concurrently or separately. The exercise of any one remedy shall not be deemed an election of such remedy to the exclusion of other remedies."
"Either the Authority or the Contractor may at any time by notice in writing to the other party terminate the Contract as from the date of service of such notice whenever any of the following events occurs:
10.2.1 there is a breach by the other party of any provision hereof which expressly entitles the non-breaching party to terminate the Contract; or
10.2.2 the other party commits a material breach of any of its obligations hereunder which is not capable of remedy or, if capable of remedy, is not remedied within thirty (30) days or such reasonable time (agreed between the parties at the time), after receipt of written notice from the non-breaching party of its intention to terminate."
"If the System, any part of it, any Deliverable, Service or Task has failed to meet its required acceptance criteria specified in schedule F in all material respects by the Acceptance Completion Date specified in relation to it, if any, the Contractor shall, unless the provisions of clause 3.2 apply, be deemed to be in Default, thereon, without prejudice to any other remedies available to the Authority, it shall be entitled, in respect of and as appropriate to such failure, to:
…
(d) terminate the Contract under the provisions of clause 10.2.1 provided only that:
(i) such failure is in respect of acceptance of the System or Service;
…
In the event of termination in accordance with this sub-clause 23.4.1(d), the provisions of 11.3 shall apply."
"If so specified in the Contractor Undertakings, the Authority shall be entitled to performance remedies specified in schedule A, if any are specified therein, in place of, in addition to or in combination with the provisions of clause 25.3 in which case, such remedies shall be applied without prejudice to any other rights and remedies available to the Authority and, where applicable, shall be in addition to the financial limitations set out in clause 8."
"If, notwithstanding any corrective actions taken in accordance with sub-clause 25.3 or performance remedies applied in accordance with clause 25.4, the Contractor persistently fails, in any material respect, to meet any Service Level, such failure shall be considered to be a material breach of the Contractor's obligations and shall entitle the Authority to terminate the Contract in accordance with the provisions of clause 10.2. Neither party shall be prevented from determining that any other breach of the Contract constitutes a material breach."
"Rights and obligations of the parties which have accrued or which shall accrue shall survive termination of the Contract insofar as survival shall be construed from the relevant clauses in the context of such termination ..."
"The termination of the Contract as provided for in this clause 11 shall not prejudice or affect any right of action or remedy which shall have accrued or shall thereafter accrue to the Contractor or the Authority."
Limitation of Liability
"… the liability of either party for Defaults shall be limited as stated below:
(a) the liability of either party under the Contract for any one Default resulting in direct loss of or damage to tangible property of the other party or any series of connected Defaults resulting in or contributing to the loss of or damage to the tangible property of the other party shall not exceed the figure set out in schedule G;
(b) the aggregate liability of either party under the Contract for all Defaults, other than those governed by sub-clause 8.1.2 (a) above, shall not exceed the amount stated in schedule G to be the limit of such liability."
"any breach of the obligations of either party (including but not limited to fundamental breach or breach of a fundamental term) …"
"Paragraph 9.1
The aggregate liability of the Contractor in accordance with sub-clause 8.1.2 paragraph (a) shall not exceed the sum of two million pounds.
"Paragraph 9.2
The aggregate liability of the Contractor in accordance with sub-clause 8.1.2 paragraph (b) shall not exceed:
9.2.1 for any claim arising in the first 12 months of the term of the Contract, the Total Contract Price as set out in section 1.1; or
9.2.2 for claims arising after the first 12 months of the Contract, the total Contract Charges paid in the 12 months prior to the date of that claim."
"(a) Without prejudice to the generality of sub-clause 8.1.1 neither party shall be liable to the other for:
(i) loss of profits, or of business, or of revenue, or of goodwill, or of anticipated savings; and/or
(ii) indirect or consequential loss or damage; and/or
(iii) specific performance of the Contract unless expressly agreed by the parties to be applicable in schedule G.
"(b) The provisions of sub-clause 8.1.3(a) shall not be taken as excluding or limiting the Authority's right under the Contract to claim for any of the following which results from a Default by the Contractor provided the Authority has made all reasonable efforts to mitigate such results:
(i) costs and expenses which would not otherwise have been incurred by the Authority including, without limiting the generality of the foregoing, costs relating to the time spent by the Authority's executives and employees in dealing with the consequences of the Default;
(ii) expenditure or charges paid by the Authority which would not otherwise have been incurred or would have ceased or would not have recurred;
(iii) costs, expenses and charges resulting from the loss or corruption of the date or Software owned by or under the control of the Authority, in accordance with sub-clause 13.4.2 provided that the Contractor's liability shall be limited to costs, expenses and charges associated with re-constituting such data or Software and returning it to a fully operational state insofar as it is inherently capable of being re-constituted.
"(c) Any liability of the Contractor resulting from a claim under sub-clause 8.1.3(b) shall be subject to limitation in accordance with sub-clause 8.1.2."
The claims
i) there were delays in the delivery and testing of the specified software;ii) the software delivered by ATOS did not provide the specified functionality;
iii) software intended to fix defects failed performance and acceptance testing;
iv) ATOS failed to provide the specified level of Support Services; and
v) ATOS failed to meet the contractual completion dates and/or milestones.
(1) | Sums paid to ATOS under the Contract | £3,421,136.07 |
(2) | Cost of Laserfiche licences in the event that the Trust is required to purchase them to view archived patient records that should be available in the System | TBA |
(3) | Costs incurred by the Trust, such as the purchase of hardware and software, for the purposes of the project | £571,411.13 |
(4) | Procurement and tendering costs incurred by the Trust | £143,576.35 |
(5) | Costs incurred by the Trust in retaining IT contractors to implement the System | £390,819.28 |
(6) | Costs of internal IT, projects and health records staff at the Trust who would otherwise have been employed in work of benefit to the Trust | £1,920,947.06 |
(7) | Costs of specialist contractors engaged by the Trust to develop interfaces between the existing systems and the System | £125,232.97 |
(8) | Costs incurred by the Trust for the on-site scanning bureau required for the project | £446,866.58 |
(9) | Scanning payments made to ATOS | £919,904.09 |
TOTAL | £7,939,893.53 |
Issue 1 – wasted expenditure
Submissions
i) The Trust's claim is for expenditure which would have been incurred in any event if the Contract had been fully performed in accordance with its terms.
ii) The basis of such claim is a rebuttable presumption that if the Contract had been performed, the Trust would have received revenue, savings or other benefits from the EMR system that would have enabled the Trust to recoup its expenditure.
iii) In cases concerning employee costs, the basis of the recovery of wasted expenditure is that the damages represent the loss of revenue which would have been generated by the employees if they had not been diverted from their normal duties by the defendant's breach: Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3 per Wilson LJ at para. [86]; Azzurri Communications Ltd v International Telecommunications Ltd [2013] EWPCC 17 per Birss at para. [92]; Admiral Management Services v Para-Protect Europe Ltd [2002] EWHC 233 per Stanley Burnton J at para. [87]. Those cases show that the claim for wasted expenditure is not in fact a claim to recover the costs spent but a claim in damages for loss of the revenue, profit or other benefit which would have enabled the claimant to defray those costs if the contract had been performed.
iv) That characterisation applies to all the heads of damage claimed by the Trust (save for the mitigation costs). An award of reliance damages does not represent the direct recovery of the wasted net expenditure. The net benefits which would have been derived but for the breach are quantified in monetary terms by reference to the presumption that their value would have at least equalled that wasted expenditure. The wasted expenditure represents "an alternative measure of gains prevented" as explained by Deane J in Commonwealth of Australia v Amann Aviation [1991] 174 CLR 64 at pp.127-128.
v) It would be open to the Trust to claim costs and expenses that were incurred as a result of a breach by ATOS as such claims are expressly preserved by clause 8.1.3(b) of the Contract. However, the Trust has chosen not to pursue its claims on this basis.
Legal principles
Characterisation of the Trust's claims
Conclusion
Issue 2 – liability cap
i) for any claim arising in the first 12 months of the term of the Contract, the Total Contract Price as set out in section 1.1 (paragraph 9.2.1); orii) for claims arising after the first 12 months of the Contract, the total Contract Charges paid in the 12 months prior to the date of that claim (paragraph 9.2.2).
Submissions
i) Paragraph 9.2.2 purports to limit the "aggregate liability" of ATOS "for claims [plural] arising after the first 12 months of the Contract" by reference to "the total Contract Charges paid in the 12 months prior to the date of that claim" [singular]. The clause does not work because the reference to "that claim" which defines the relevant 12 month period is not itself defined; it does not obviously refer to "claims" at the beginning of the paragraph and cannot be interpreted as if it read "each such claim".ii) "Claims arising" means the date or dates on which a breach or Default occurred in respect of which ATOS is liable under the Contract. This sets the liability cap by reference to contract charges paid in the 12 month period prior to the date of the breach.
iii) The difficulty arises where there is more than one claim arising. The Trust submits that it is not clear whether there is a single cap calculated by reference to a claim or whether there is a separate cap for each claim that arises. Multiple caps for each claim arising is inconsistent with the concept of a cap and could result in potential liability for ATOS of many millions of pounds. If the reference to "claims arising" should be read as "claims notified", ATOS's liability would expand with each notification of a material breach.
iv) It is not clear that a reasonable person would have understood the words to have such meaning and therefore the liability cap provision should be declared unenforceable.
i) The drafting of paragraph 9.2.2 is unfortunate in that the opening words refer to "claims" in the plural whereas the concluding words refer to "claim" in the singular. However, the defect can be cured by reading the opening words of paragraph 9.2.2 as if they were the same as the opening words of paragraph 9.2.1 i.e. "any claim arising".ii) Clause 8.1.2 of the Contract governs "the aggregate liability of either party under the contract for all Defaults". This indicates that the liability referred to in paragraph 9.2 is a liability for "Defaults". The natural meaning of "claim arising" is a reference to the date on which a breach or Default occurred in respect of which ATOS is liable under the Contract.
iii) The use of the words "the aggregate liability of the Contractor … shall not exceed" in paragraph 9.2 indicates that the parties must have intended the liability cap in paragraph 9.2.1 to apply to all Defaults arising in that period. The use of the disjunctive "or" between paragraphs 9.2.1 and 9.2.2 indicates that they are alternatives and not cumulative. There is only one cap, determined by the timing of the first Default.
iv) Alternatively, there are two caps, the first applying to any Defaults occurring in the first 12 months of the Contract (the amount of the Total Contract Price) and the second applying to any Defaults occurring after the first 12 months, being the total Contract Charges paid in the 12 months prior to the date on which the claim is made in respect of those Defaults.
Legal principles
Meaning of the clause
Conclusion
i) Clause 8.1.3(a) of the Contract does not exclude and is no bar to the claims made by the Trust for wasted expenditure on a reliance loss basis.ii) The limitation of liability provision at clause 8.1.2(b) of the Contract and Paragraph 9.2 of schedule G is valid and enforceable. The meaning and effect of the provision is that there is one aggregate cap on the liability of ATOS for all Defaults encompassed by clause 8.1.2(b). If a Default occurs in the first twelve months of the Contract, the level of the cap is the Total Contract Price. If no Default occurs during the first twelve months of the Contract, the level of the cap is the total Contract Charges paid in a twelve month period prior to the first Default.