March 2012

Contractual disputes in information & communication technology

Few ICT disputes get before the Courts.  In December 2011 a case involving Cuscal v First Data reached a full hearing. The outcome of this case is not especially remarkable.  It does, however, serve as a useful reminder that the Courts will deal with ICT contracts no differently than any other contract and that care needs to be taken with the management of contracts once signed.

Often, long-term and large scale ICT contracts involve lengthy negotiations.  Much time is spent anticipating likely problems and agreeing methods of resolution.  This can sometimes hinder business activities and strain commercial relationships, particularly when deadlines are not met. 

As a result, contracts are often entered into with some issues being left to be resolved after the contract is signed.  Parties are usually willing to do this assuming that the goodwill existing at the time the contract is signed will continue to enable the parties to resolve outstanding matters.  

There is a risk in doing this, as “agreements to agree” are unenforceable. However, this is often the only pragmatic solution to getting a contract signed in a timely way to allow the project to commence.   

Facts 

Cuscal and First Data entered into an agreement for a term of five years.

The agreement contained provisions that are typically seen in an agreement for the provision of ICT services. 

Under this agreement First Data agreed to supply data transfer services to Cuscal for the term of the agreement.  These services were described by the Judge as being Normal Services.   

The agreement also provided that Cuscal could require First Data to supply services to Cuscal for a period before and after termination in order to transition the provision of services to a new service provider following termination.  These services were described by the Judge as being Termination Assistance.

The agreement contained a procedure for the preparation of a “Termination Assistance plan” and for the parties to agree on that plan within the first 12 months.  This did not occur.  In fact, Cuscal only provided a draft to First Data almost three years after the agreement was signed and the parties were then unable to agree on a Termination Assistance plan.  First Data had notified Cuscal by this stage that it would not provide services after the expiry of the agreement and Cuscal had determined to provide the services itself.

The definition of Termination Assistance provided that the Termination Assistance plan was required to ensure “continuity of supply” and “smooth transition” of Cuscal’s customers after the agreement was terminated. 

The inability to agree on the Termination Assistance plan and the approaching end of the term of the agreement led Cuscal commencing proceedings in which the following questions needed to be resolved:

  • Was First Data required to continue to provide Normal Services in respect of customers after the end of the term to the extent that services were not being provided directly by Cuscal?

  • Was First Data contractually bound to ensure continuity of supply and a smooth transition of Cuscal’s customers?

  • Could the Court force the parties to agree the terms of a Termination Assistance plan? 

Outcome

  • The agreement did not require Normal Services to be provided by First Data beyond the end of the term.  First Data could choose to supply Normal Services beyond the term, but it was not contractually bound to.

    The Court said this result was not ‘capricious, unreasonable, inconvenient, or unjust nor does it flout business commonsense’. 

    If First Data was bound to supply Normal Services after termination, Cuscal could purposely delay the transfer of its customers and force First Data to continue to supply Normal Services, which would be uncommercial and unreasonable. 

  • The words “smooth transition” and “continuity of supply” were unlikely to have been intended to impose contractual obligation.   

    It was the Termination Assistance plan which should have ensured continuity of supply and a smooth transition, but the parties did not agree on one.

    In the absence of a Termination Assistance plan, Cuscal was to specify which of its customers were to be transferred and when and First Data was to specify the information it required in order to achieve transition.  If Cuscal did not communicate its requirements to First Data, then First Data would not be in breach of the agreement if any of Cuscal’s customers were lost in the transition process.    

    Therefore, First Data was not contractually bound to ensure a continuity of supply and a smooth transition of Cuscal’s customers.

  • The absence of a Termination Assistance plan was not critical and did not bring the contract to an end.  This was because the subject matter dealt with termination, it imposed an obligation on both parties, and there was an express recognition that a plan may not be made.

    The Court was of the view that the Termination Assistance plan should have been determined in the early stages of the contract.  It was too late to rely on the Termination Assistance plan provisions now. 

    As the lack of a Termination Assistance plan was not critical to the agreement, the Court was unwilling to interfere and force the parties to comply with the Termination Assistance plan provisions.

    It appears there was no express obligation on the parties to use ‘best efforts’ (or any efforts) to complete the Termination Assistance plan.  If a ‘best efforts’ clause had been included in the agreement the outcome of this decision may have been different.  

      

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