On 19 October 1998, President Clinton signed into law a new statute, the Year2000 Information and Readiness Disclosure Act. Although primarily of concern toAmerican businesses, this statute also has implications for UK companies sellingproducts or services into the US. It relates primarily to extra-contractualrepresentations. Experience in the US shows that businesses there are far morelitigious in relation to these types of representations than in the UK.
Introduction and Background
Many businesses are under commercial pressure to make statements about thestate of their ability to cope with the arrival of Year 2000; frequently at therequest of their customers who put out Year 2000 questionnaires. However,businesses are often reluctant to provide candid information in their responsesto these questionnaires, or in their Year 2000 ‘conformance’ or‘assurance’ statements, because they perceive their readiness perhaps not tobe as good as might be expected, and because they believe that candour may bringlegal exposure. In some quarters this is perceived as causing difficulties forall as it hampers information exchange and the ability of other businesses toplan properly.
In order to promote information exchange the US has now passed the Act. It isdesigned to encourage the disclosure and exchange of information relating toYear 2000 computer problems. It provides limited protection in the Americancourts from liability for false information contained in statements made aboutYear 2000 compliance. Whilst the Act does offer its protection to suchstatements made at the pre-contract stage, this does not apply to statementsexpressly incorporated into a contract.
The protection is offered to two categories of statements: Year 2000Statements and Year 2000 Readiness Disclosures.
Year 2000 Statements
‘Year 2000 Statements’ has a wide definition in the Act and can besummarised as any communication, made between 14 July 1998 and 14 July 2001,relating to Year 2000 processing capabilities. The definition covers many of theYear 2000 compatibility or assurance statements that are currently circulating.
The maker of a Year 2000 Statement will not be liable in a private civilaction in an American court based on allegedly false, inaccurate, or misleadinginformation set out in such a statement unless the claimant can show, inaddition to the other elements required by the applicable action, by ‘clearand convincing evidence’, that the statement was:
- material; and
- made with actual knowledge that it was false, inaccurate, or misleading, or with intent to deceive or mislead, or with reckless disregard as to its accuracy.
This provision in common with other parts of the Act is subject to anexclusion: it does not generally affect or alter any right established bycontract.
This provision applies only to claims brought as a result of information on aYear 2000 Statement. This increases the difficulty of bringing non-contractualclaims. Not only must actual knowledge of falsity, intent to deceive, orreckless disregard for accuracy be proved but the burden of proof in relation toany of those elements, and to materiality, is increased above the usual civilstandard of ‘preponderance of probabilities’. These facts must now be provedby ‘clear and convincing evidence’. Republications of Year 2000 Statementsreceive similar (though not identical) protections, provided they are identifiedas ‘republications’.
There are exclusions from this protection. If the product or service beingoffered by a business is the detection or correction of Year 2000 problems thenthe Act will protect statements in solicitations relating to those activitiesonly if they include a specified notice that they are subject to the Act.Lastly, certain statements made in relation to banking or dealings of securitiesare excluded for purposes of securities actions.
Defamation
Year 2000 Statements can be made about other companies and their services andproducts (‘Buy our widgets, X Co’s widgets will fail on 1 January 2000′). TheAct makes it more difficult to bring a defamation or trade disparagement claimwhere such a statement is false. To the extent that such an action is based onan allegedly false or misleading Year 2000 Statement, the maker of such astatement will not be liable unless the claimant establishes, again, by ‘clearand convincing evidence’, that the statement was made with knowledge that it wasfalse or with reckless disregard as to its truth. Of course, the usualconstituent elements of the action would need to be made out.
Year 2000 Readiness Disclosures
A ‘Year 2000 Readiness Disclosure’ is a written or electronically storedstatement clearly identified on its face as a Year 2000 ReadinessDisclosure with respect to the Year 2000 processing of the issuing company orproducts or services offered by that company. Any such disclosure is excludedfrom evidence altogether, with certain limited exceptions, to prove the accuracyof any Year 2000 Statement made in such a disclosure.
This provision applied only to statements made after the date of enactment.However, the Act contained a mechanism, now no longer available, by whichearlier statements could, subject to certain exceptions, be brought within theprotection.1
Website Notice
The Act provides that in actions ‘in which the adequacy of a noticeabout year 2000 processing is at issue2‘, the posting of noticeon an entity’s ‘Year 2000 internet website’, in a commercially reasonablemanner for a commercially reasonable duration, will be adequate. It is not clearwhat this is intended to achieve or how it is intended to apply. The Act makesit clear that this provision does not apply where it is contrary to expressprior representations regarding notice, is materially inconsistent with theregular course of dealing between the parties, or, where there are no priorrepresentations or course of dealing, where actual notice is clearly the mostcommercially reasonable means of giving notice.
Temporary Antitrust Exemption
There is a temporary and limited exemption from US competition laws offeredto conduct engaged in for the purpose of fixing Year 2000 problems andcommunications made to help correct or avoid the effects of Year 2000 processingfailures. Price-fixing, boycotts, and market allocations are excluded from theexemption.
How does this affect UK businesses?
Any UK organisation selling into the US that makes a Year 2000 Statementshould now be considering and discussing with their lawyers labelling suchstatements as ‘Year 2000 Readiness Disclosures’ within the meaning of Year2000 Information and Readiness Disclosure Act. This would materially reduce therisk of that statement being used in evidence against it. Even if not directlyselling into the US, a business might consider taking similar steps in relationfor example to Year 2000 statements on its Web site. Any protection offered willof course apply only if the action is brought under US law. In a dispute betweena UK supplier and a US customer the customer may well in any case sue inEngland.
Endnotes
- The procedure, requiring notice in a specified form to all recipients of the earlier statement, had to be completed within 45 days of enactment (ie by 3 December 1998).
- It is not the case that any Web site will do. It needs to be clearly designated on the Web site as an area for posting Year 2000 statements. As the designation can be on the Web site, it would appear that it need not actually have an address indicating this use.
