St Albans City and DC v International Computers Ltd
Court of Appeal
Citations:  4 All ER 481;  FSR 251; (1996) 15 Tr LR 444; (1997) 20(2) IPD 20020;  CLY 1218.
The claimant was a local authority. They collected a community charge from the populace of St Albans. The claimant invited tenders for the supply of a computer system to administer this work.
The invitation stipulated certain clauses which would form part of the ultimate contract. This included clauses requiring compliance with both known and unknown future legislative measures. Clause 15 explained the precept payments which the claimant had to pay to higher authorities, and how this was calculated based on what they charged the populace.
The claimant accepted the defendant’s tender, which was based on the defendant’s standard conditions. This included a clause limiting the defendant’s liability under the contract to £100,000. The defendant’s software was faulty, causing the claimant to set the charge too low. They were able to recoup the losses the next year, but still had to pay an increased precept and lost interest and money from a revenue grant. The claimant sued the defendant for breach of contract.
The defendant argued that:
- The defendant was not in breach of contract. They claimed that had only agreed to supply a system which would be operative by the next year. The claimant had chosen to use the system early ‘bugs and all’;
- The claimant had not suffered any loss as a result of any breach of contract. The loss actually accrued to the people of St Albans;
- The defendant could rely on the limitation clause in the contract. The claimant contended that this was void for unreasonableness under s.3 of the Unfair Contract Terms Act 1977. The defendant responded that s.3 was inapplicable because they did not deal on the defendant’s ‘written standard terms of business’.
The Court of Appeal held that:
- The was still in development when the claimant used it. However, this did not imply that the parties intended to allow the defendant to supply software which could not perform properly at the time it was supplied. The defendant was in breach of contract.
- All of the losses claimed were within the parties’ contemplation at the time of contracting. This was indicated by clause 15. Even though the losses accrued to the people of St Albans, the claimant was required to act in their interests in collecting and administering the money. Therefore, it was entitled to recover damages on the populace’s behalf.
- The claimant could not recover the shortfall which it recouped the following year. By contrast, the consequential losses were recoverable.
- The claimant did deal with the defendant on the defendant’s ‘written standard terms of business. While there were technically negotiations between the parties, the defendant’s standard conditions remained the same throughout.
- The exclusion clause was void for unreasonableness. The reasoning of the judge below on this point was affirmed.
This Case is Authority For…
The fact that the parties negotiated does not necessarily mean that the contract is not on one party’s written standard terms of business for the purposes of s.3 of UCTA 1977. They key is whether the contract contains the defendant’s standard terms. If those remained untouched throughout negotiations, then s.3 applies.
Sir Glidewell commented obiter that computer disks and other hardware constituted ‘goods’ within the meaning of s.18 of the Sale of Goods Act 1979 and associated legislation. However, he did not think that intangible computer software constituted ‘goods’ by itself.
This would lead to odd distinctions. For example, a defendant who supplied defective software on a physical disk could be liable for a breach of statutory implied terms. By contrast, a defendant who supplied defective software purely as a digital download would not. This is not something that the judge likely considered, since software downloads and streaming was not the norm in 1997.
Factors which influenced the trial judge on the issue of whether the limitation clause was unreasonable included:
- The defendant’s considerable resources, which included product liability insurance;
- The fact that the defendant was one of the few companies in the world which could fulfil the tender requirements, meaning that the claimant had few other options;
- The lack of any clear objective justification for the selection of £100,000 as the limitation figure.