Out-Law Analysis | 30 May 2018 | 3:28 pm | 5 min. read
The ruling illustrates the challenges of adopting a commercial approach rather than 'reaching for the contract'. In the case, the customer operated the contact according to its terms and relied upon it in successfully terminating the contract.
The case before the Outer House of the Court of Session concerned a dispute between David MacBrayne, the parent company behind ferry operator Caledonian MacBrayne, and IT service provider Atos.
MacBrayne tendered for a new "ferry management ticketing and reservation back office managed service with integration capability" as part of a broader digital transformation programme.
The new service was to operate in conjunction with a digital platform from which customers could use a new ticketing and reservation system.
Atos won the new contract and the businesses entered into an agreement on 5 August 2014. The agreement set out milestones that Atos was obliged to meet by set dates. However, there were "significant delays" to the project and this prompted the companies to agree to vary the milestone dates in early 2015.
As a result of further delays, in July 2015 MacBrayne and Atos agreed to suspend the performance of their contractual obligations before attempting to resolve their differences via a mediation procedure outlined in the agreement. On 20 July 2016, however, following mediation, MacBrayne terminated the contract with Atos on the basis that it deemed the IT service provider to be in material, irremediable breach of the agreement.
MacBrayne sued Atos seeking damages for the breach, arguing that Atos had failed to achieve a number of the milestones set out in the contract. However, Atos challenged MacBrayne's right to terminate the agreement, claiming that both parties shared the blame for the failure to meet the milestones and argued that MacBrayne's termination was itself a material breach of the contract between the companies.
The judge, Lord Doherty, upheld the way in which MacBrayne interpreted and operated the contract between it and Atos – in this case version 2.3 of the UK government's Managed ICT Services Model Agreement.
He determined that Atos failed to comply with its contractual obligations because it did not achieve four specified delivery milestones – including one 'critical implementation' milestone – and that this represented a material breach of contract which was irremediable. He held that MacBrayne was entitled to terminate the agreement as a result. Arguments that Atos made in support of its case were dismissed.
Obligations under the contract
In reaching his verdict, Lord Doherty assessed the obligations that both customers and suppliers can be said to be under when contracting under the Managed ICT Services Model Agreement.
The judge said MacBrayne had an implied obligation not to hinder or prevent Atos from performing its contractual obligations, except when engaged in "the proper exercise of its rights and powers under the agreement". He held that MacBrayne observed its obligation in this respect and said Atos' claims otherwise "smacked very much of being a retrospective attempt to deflect blame for its failures".
Lord Doherty also said that while MacBrayne was required by the contract to be responsive and collaborative in helping Atos meet its contractual requirements, the contract did not require the company to take the lead in setting the detail of the requirements to be met. He said it was Atos' responsibility to meet its contractual obligations and it was Atos' role to determine how precisely to achieve that.
The judge further confirmed there was no implied term in the agreement which required MacBrayne to provide "specification of the granularity of the requirements in sufficient time for Atos to be able to comply timeously with its obligations". He said Atos "did not manage the process of fleshing out the detail of the requirements in an efficient and effective way".
Failure to provide notice
Atos was also criticised for failing to provide notice to MacBrayne that it would not and was unlikely to meet the milestones on time, as was required under the terms of the agreement.
Lord Doherty said a customer such as MacBrayne has "an obvious interest in obtaining the relevant notifications and information [from the supplier] so it may properly consider an appropriate response".
Witnesses for Atos said Atos had been "intent on adopting a co-operative and facilitative approach, rather than 'reaching for the contract'", but one acknowledged under cross-examination before the court that the failure to provide notice was "an oversight" and that the company should have notified MacBrayne of the delay.
Changes to the approach to delivery
The methodology of delivery adopted by Atos also fell subject to scrutiny by the court. Atos had originally adopted the 'Waterfall' approach to developing the software. This method sees high level requirements set out in contracts to enable detailed technical specifications to be subsequently produced. However, Atos switched to an 'Agile' approach – which involves software being developed in very short 'sprints' with both parties co-locating and working collaboratively – in an attempt to "catch up" after falling behind on the project.
Atos unilaterally switched to an Agile methodology. MacBrayne did not agree to the change, which entailed departing from a revised implementation plan for the project. Atos also proposed the delivery of a 'minimum viable product' (MVP); which involved the incremental delivery of scope.
Atos argued that MacBrayne had consented to the change in approach and that the move was the only way for it to make progress towards the delivery of its services under the contract in a timely fashion. Atos also claimed MacBrayne had waived its rights to object to the use of Agile. The judge dismissed Atos' arguments upon the basis of the evidence that MacBrayne rejected the change in development methodology and the delivery of a MVP.
Further, the fact that Atos did not preserve or could not reconstitute the MVP meant "the best evidence" for making a determination on the issue was deemed by the judge to not be available. Lord Doherty instead considered the evidence available and held that what Atos had produced was "an article for the purposes of the best evidence rule". He said that while "the functionality delivered had identifiable digital characteristics", there was "little by the way of description or verification of what had been delivered". He held that the MVP "fell well short of the contractual requirements".
An important factor in the case was the weight which the judge was willing to attribute to evidence provided by independent IT experts instructed by MacBrayne's and Atos' experts respectively. The judge was critical of the expert instructed by Atos. Lord Doherty said Atos' IT expert misunderstood the "respective obligations" of the parties under the contract and that this "undermined" his conclusions that material fault for the delay in the project lay with MacBrayne.
The judge said: "Points unfavourable to the defender were downplayed or not mentioned… [Atos' expert] seemed more like an advocate or proponent of [Atos'] case than an expert fairly and independently endeavouring to assist the court".
Clive Seddon is an expert in resolving disputes over technology contracts at Pinsent Masons, the law firm behind Out-Law.com. Pinsent Masons acted for MacBrayne in this case.