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Challenging IT implementations - a UK reminder about the fundamentals for success

Challenging IT implementations - a UK reminder about the fundamentals for success

  • United Kingdom
  • Commercial and IT
  • IT dispute resolution
  • Outsourcing and offshoring
  • Diversified industrials - Automotive
  • Technology, Media and Telecoms - Technology

21-03-2019

Sanderson Limited v Simtom Food Products Limited [2019] EWHC 442 (TCC)

Summary

Whatever the sector, IT transformation can deliver superior services, development of dynamic business models, increased customer satisfaction, returns and cost savings. For success, co-operation and collaboration between customer and provider are essential, as is the customer committing appropriate executive and employee support and resources from the outset. This recent case underlines and provides a reminder of the Court’s view of their continuing importance.

Sanderson entered into a contract with Simtom, pursuant to which Sanderson agreed to supply software, equipment and associated services. The project was delayed. A dispute arose between the parties when the project did not re-start after an agreed 12 month suspension. Both sides sought to allege the other had committed a repudiatory breach, allowing termination and a right to claim damages.

The Court found that Simtom had renounced the contract by declining to co-operate with Sanderson to re-start the project. Simtom’s breach of the implied term to co-operate amounted to a repudiatory breach and the contract was terminated when Sanderson accepted the breach.

What happened?

• The contract was entered into in November 2014. At Simtom’s request, the project start was postponed until January 2015. Subsequently, Simtom’s employees failed to attend workshops run by Sanderson and Simtom’s new finance director (appointed in June 2015) immediately voiced concerns about the project. The project was then postponed until September 2015. Little progress was made until February 2016, when a meeting was held between the parties to discuss next steps. At the meeting, the Court found that it was agreed that the project would be suspended for a further 12 months and that it would re-start by 1 February 2017.

• Sanderson contacted Simtom in January 2017 to ask whether Simtom still intended to restart the project by 1 February 2017. Simtom responded in late January referring to the landscape having changed quite dramatically following “the fallout from Brexit” and asking a number of questions in respect of changes to the original software package and the size of Sanderson’s implementation team.

• Sanderson sent a further email on 13 February stating that (i) there had been no software changes; (ii) if work did not restart by the end of March 2017, then it would be forced to consider the project as terminated; and (iii) requesting a date for a project kick off meeting.

• Simtom did not respond until 21 February 2017. Simtom blamed Sanderson for the previous failings of the project, stated that it needed to have “confidence fully in place before we can proceed” and alleged that the parties had not agreed a date to restart the project. In the same email, Simtom demanded immediate written answers to various questions, without any indication that the project would restart.

• Sanderson instructed solicitors in April 2017. By letter, Sanderson alleged that Simtom was in repudiatory breach of the implied term to co-operate because Simtom had failed to co-operate with Sanderson in its efforts to restart the project. Sanderson also gave notice that it had accepted that breach and that the contract had been terminated. The Claimant issued proceedings in October 2017 and, by its Defence and Counterclaim, Simtom alleged that Sanderson’s termination was wrong and itself a repudiation which Simtom had then accepted.

Outcome

• Unsurprisingly, the Court held that this contractual relationship required “close collaboration” and so, in the absence of a specific contractual duty to co-operate with each-other, it agreed with Sanderson that the duty should be implied.

• In the context of Simtom’s email of 21 February 2017, the Court concluded that Sanderson was entitled to “infer that Simtom had no intention of performing in strict compliance with its contractual commitments”. The Court reached this conclusion in the context of the consistent and repeated delays and found that Simtom had responsibility for the lack of progress due to its unwillingness or inability to commit the resources required to the project, including in relation to workshops and at a senior level. It was also in breach of an agreement, reached at the meeting in February 2016, that the project would re-start by 1 February 2017.

• The Court therefore found that Simtom’s failure to restart the project on the agreed date was a breach of the implied term to cooperate. Such breach was repudiatory and the contract terminated upon the acceptance of the breach by Sanderson in April 2017.

Key points arising

1. The case is both a helpful reminder of the law of repudiatory breach and the implied duty to co-operate, but also highlights a class of repudiation which parties should focus on as a key risk that can often arise when IT implementations encounter challenges: the breach which amounted to repudiation in these circumstances was one where a party demonstrates an intention to perform, but only in a way which is significantly inconsistent with its contractual obligations – e.g. in this case it was essentially that Simtom would not re-start by the agreed date and sought to impose conditions/questions before any re-start would be contemplated. Care needs to be taken by all parties when dealing with delays/suspensions/re-starts (and especially project re-sets) that they are not inadvertently giving rise to arguments of repudiatory breach.

2. Many of the disputes we see in this space begin at the workshop and requirements setting stage. Sometimes the cause of that is the customer – it does not commit sufficient (or qualified) resources and buy-in (from attending employees or executive sponsors) at the outset and this fundamentally and fatally undermines the success of the project from the start. Equally, the supplier may not dedicate sufficient resources to understanding and documenting the customer’s requirements. Often projects cannot recover. Sufficient investment in the success of the project from all parties is therefore essential (and throughout its duration).

3. A number of disputes we see arise from what is, or is not, agreed in meetings during the implementation phase when the parties are seeking to resolve challenges. Often, those agreements are not properly recorded or not recorded at all, and do not follow change procedures set out in the contract. This gives rise to uncertainty, risk, and disputes, as this case illustrates. Agreed notes of meetings, and following contractual change procedures and governance structures are vital.

4. Linked to the point above, progress/status reports, agreed meeting minutes, software development / project management tools, and other project documentation and correspondence all form part of the ‘project narrative’, as to what has happened and who is at fault. It has great evidential value should a dispute occur. However, that narrative can receive disproportionately less attention day to day, creating issues and risk when disputes occur. Witness evidence, as to individuals’ recollection of events, has value, but understandably recollections can diminish the more time that elapses between the events and trial. This makes the contemporaneous documentary record all the more important.

5. Having to rely on a repudiatory breach at common law (as here) rather than a contractual right, introduces risk for the terminating party – a risk of wrongful termination and a claim for damages from the innocent party. Considering the exits and worst case scenarios at the time the contract is being negotiated can remove some of the risk later should the project run into difficulties.

 Visit our TMT Disputes page to discover more >

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