Some words are worth £80 million

Oh Lawdy! mostly concerns meta-legal issues. But it’s worth remembering that with legal stuff, it’s important to get it right at the micro level too.

Here’s an example.

In 2015, Soteria Insurance contracted IBM UK to provide it with a new IT system. The budget was £50mn, and the project went disastrously wrong in the way that only a digital transformation can. Two years in, the project was 18 months behind schedule and Soteria had paid IBM £34.1mn with nothing to show in return.

They went to court. The key issue was whether the contract excluded liability for wasted costs. If it did, the maximum amount Soteria could recover for other breaches was £15.8mn, which was the contract’s cap. If it didn’t, Soteria could recover an additional £80,574,168 of wasted costs.

IBM relied on this clause:

“neither party shall be liable to the other or any third party for any Losses arising under and/or in connection with this Agreement (whether in contract, tort (including negligence), breach of statutory or otherwise) which are indirect or consequential Losses, or for loss of profit, revenue, savings (including anticipated savings)…”

IBM’s argument was that wasted costs are indirect or consequential losses, and equivalent to loss of profit, revenue or savings (which were excluded).

The Court of Appeal disagreed. It found that wasted expenditure is a different animal to loss of profits, revenue or savings.

Loss of profits, revenue and savings are “consequential” losses, where counterfactuals have to be considered as to what the benefits of the contract would have been had it been properly performed.

Calculating wasted expenditure requires no counterfactuals. It’s an accounting exercise which simply adds up the sums incurred.

As a result, IBM lost the case.  The difference between including and not including “wasted expenditure” in IBM’s limitation of liability?

£80,574,168

The Court of Appeal disagreed. It found that wasted expenditure is a different animal to loss of profits, revenue or savings.