22 March 2019
The recent case Sanderson Ltd v Simtom Food Products Ltd (February 2019) is of interest, particularly for suppliers of software solutions and support, and their clients. It is particularly important in environments such as that in the Isle of Man where there are sometimes insufficient resources to fully record the parties’ understandings both initially and during the course of projects as they unfold.
In the Sanderson case, the parties entered into an agreement as long ago as November 2014 for a project involving the supply of software and support. The supplier’s proposal was outlined in some detail but, as is quite common in such arrangements, there was to be a review of the client’s business and its requirements with a view to the preparation of an implementation plan.
The performance of the project, therefore, required the co-operation of both parties, and the court had no difficulty in implying a contractual term to that effect which was not displaced by the inclusion of a term in the supplier’s conditions of business that the contractual documents (including the outline technical specifications) constituted “the entire agreement” between the parties. Nevertheless, one of the lessons of the present case is that it can be desirable for suppliers of software and support for particular projects to include an express term requiring the client’s co-operation where this is necessary for the aims of the project to be satisfactorily fulfilled, coupled with the incorporation into the contract of appropriate conditions of business.
Again, as is not uncommon in such projects, there were delays and excuses, mainly on the part of the client, together with changes in timescales, finally leading to an understanding reached between the clients in 2016 that the project would be suspended for a further year but, crucially, the client’s request to agree to variations of the contract was not agreed by the supplier. This is an interesting feature of the case, since it is often tempting for a supplier, particularly where payments are outstanding, to go along with requests by the client for contract variations and, indeed, circumstances can arise in which it is in the supplier’s interests for variations to be made. However, another lesson in the present case is that where variations are suggested by the client, with the risk that they may lead to further “creeping” variations being requested, it can sometimes be difficult to determine at what point the project becomes so different from that originally proposed that the duty to co-operate has been broken.
And “Brexit” also became an issue. The client referred to “the fall-out from Brexit” alleging that as a result “the landscape appears to have changed quite dramatically”.
However, both parties then appeared to misunderstand their respective positions. Undoubtedly pressures on the client’s business had increased to a point where they had difficulty in resourcing their commitment to the project; as one of the client’s directors put it “if we didn’t do our day jobs, we wouldn’t have a business”. And the supplier appeared to have some sympathy with the client’s predicament, in one email suggesting that the contract might be “frustrated”.
These are not uncommon commercial assumptions in such projects, but it is at this point that the legal analysis may take a different course. In the present case, the client’s excuses were undermined by an admission that it had an insufficient grasp of the original proposal and by its attempts to question the continued applicability of the supplier’s technical solution. And, wisely, the supplier did not proceed with its reference to “frustration” – which, since in legal terms “frustration” releases both parties from their respective obligations, might have entitled the client to recover the payments it had made. Instead, the supplier made good its claim that the client’s failure to co-operate in the performance of the contract entitled it terminate the contract and to claim damages for the client’s non-co-operation
The moral is that in such projects, there is no substitute for a clear understanding of their technical aspects, good documentation and a willingness to co-operate constructively in their delivery: and “Brexit” will rarely provide much of an excuse.
Author: Adam Kelly