In the recent case, Peregrine Systems Limited v Steria Limited [2005] , a customer wrongly terminated an IT contract with its software supplier and as a result had to spend the supplier £700,000 plus interests - the outstanding balance due to the supplier under the contract.
The defendant, Steria, terminated the agreement with Peregrine Systems alleging that it was entitled to terminate the contract in between the parties as a result of delays and commercial misstatements. Steria also claimed damages from Peregrine.
In return, Peregrine brought proceedings against Steria for dollars owed under the contract. Initially, the Court held that Peregrine had not committed any breach of contract and that there had been no misstatements. The Court also held that Steria had in any occasion lost the ideal to terminate the contract due to the fact Steria had, by its conduct, affirmed the contract by continuing to use the software program. Steria appealed these decisions.
The Court of Appeal decided against Steria on both as follows:
Due to the wording of the contract Peregrine was only obliged to supply £200,000 worth of services and was not required to completely implement the software. As soon as Peregrine had provided £200,000 worth of services, there was no obligation to do anything way more to total the project inside a reasonable time
A supplier having to perform "within a reasonable time" does not necessarily mean that the client can finish the contract if this is not accomplished
Steria had not appropriately communicated its dissatisfaction to Peregrine and
Steria continued to use the software program and so acted in a manner implying Steria's wish to affirm the contract.
Comment: This case highlights the importance of contractual parties clearly setting out their rights and responsibilities when entering into an IT contract. Moreover, parties will need to act properly when dissatisfied with goods or services and analyse contractual documentation cautiously ahead of deciding to terminate an IT contract.
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© RT COOPERS, 2005. This Briefing Note does not produce a comprehensive or total statement of the law relating to the concerns discussed nor does it constitute legal tips. It is intended only to highlight common issues. Specialist legal tips ought to constantly be sought in relation to particular circumstances
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