In the Court of Appeal, Longmore LJ has given a resounding endorsement to the trial judge’s findings in the case generally referred to as Centrica v Accenture and now more properly cited as GB Gas Holdings Limited v (1) Accenture (UK) Limited, (2) Accenture SCA, (3) Accenture International SARL, (4) Accenture Inc [2010] EWCA Civ 912. In a complex series of preliminary judgments Mr Justice Field found against Accenture, the IT consultancy group, on all of the preliminary issues in a judgment handed down on 6 November 2009 (see [2009] EWHC 2734 (Comm)).
Centrica is claiming nearly £200m in relation to the alleged failure of the IT customer billing system which was to be created and installed by Accenture.
Longmore LJ differed from the trial judge on only one of the nine issues that were under consideration by the Court of Appeal:
‘The contrast between “causes” and “has or is likely to have an adverse effect” is marked and, in an agreement drafted with sophisticated legal assistance, must be intended to have a different effect. Nor is it surprising that the parties would have wanted to draw a line in relation to any question of Fundamental Defect at the end of the Warranty Period. If it had not become clear by the end of that period that a defect was fundamental, the parties agreed that it was to be given no higher status than that of being a Material Defect.‘
But Longmore LJ indicated that ‘nothing much was likely to turn on the difference’.
There was one stand-out point in the original preliminary judgment. The contract stated that once Centrica had provided notice to Accenture of any ‘fundamental’ defect in the system, Accenture was obliged to take reasonable steps to fix the problem. Centrica claimed that it had notified Accenture of a fundamental defect but Accenture had refused to take any steps in response. Accenture argued that no single ‘fundamental’ breach had occurred and they were therefore not liable. Centrica claimed that a series of lesser breaches could be aggregated to form a ‘fundamental’ breach. Mr Justice Field agreed with Centrica. That view was supported by Longmore LJ, but the context of the Court of Appeal’s ruling is important, given its emphasis on the (yet to be established) factual context:
- There was some debate about the consequences of the judge’s answer to this preliminary issue. Mr Smouha submitted that the consequence was that the judge had held that the defects alleged by Centrica could be aggregated to create a Fundamental Defect. Mr Sumption QC on behalf of Centrica submitted that the judge had merely held that there was no obstacle in law to accumulating or aggregating individual Material Defects to constitute a severe adverse effect but left to the trial judge the question whether any such aggregation did in fact produce a severe adverse effect. To my mind the use of the word “can” in both limbs of the issue indicates that Mr Sumption was right about that and that the judge did not purport to decide what the factual position was. That would have required factual evidence not deployed before the judge. But whatever the judge decided I would make clear that the decision of this court is confined to the legal questions whether it is contractually possible for individual breaches of warranty to be aggregated to produce a “fundamental” breach of warranty and whether the consequences of individual fundamental breaches of warranty can be aggregated to produce a severe adverse effect.
- For my part I agree with the judge’s conclusion. Although it is no doubt true that there was a substantial shift in the relationship of the parties when Accenture left the site and were no longer responsible themselves for fixing Material Defects but only for funding the fixing of them by Centrica, I doubt if the word “seismic” is appropriate. The heavy reliance placed by Accenture on the impossibility (or at least difficulty) of fixing defects, to different levels of effort under the original contract shows that there is a continuing contractual relationship. It would be very surprising if the answer to the first issue were to be different under the Amended JPA from that which it would have been under the original JPA and (to be fair) Mr Smouha did not suggest that it was.
- As for the actual argument about different levels of effort for the fixing of Material and Fundamental Defects, I do not consider that that difference was anything like as significant as Mr Smouha submitted. The obligation to “take all steps reasonably necessary” to correct a Material Defect is not obviously different in kind from the obligation to “do what a commercial, reasonable and prudent organisation using the System to carry on its business would do when acting in its own best interests” in relation to a Fundamental Defect. On being pressed as to this, Mr Smouha was reduced to submitting that the latter obligation was intended to relieve Accenture from fixing a Fundamental Defect when the cost was so prohibitive that an organisation acting in its own interests would abandon the whole idea of correcting the defect. He might be right about that but (a) it is a little odd that the more serious the consequence of a Fundamental Defect is, the less there is any obligation to do anything about it and (b) to use this difference to argue that Material Defects cannot combine to create a severe adverse effect is, to my mind, altogether too far-fetched. The whole business of fixing defects has, on any view, to be a co-operative effort and the extreme case of the fixing of a defect having to be abandoned because it is too expensive can hardly govern the question whether a combination of defects can give rise to a serious adverse effect.
- Moreover on Accenture’s case, if I have understood it correctly, no Material Defect can, in the contractual scheme, be combined with any other material defect to produce a severe adverse effect for the purpose of constituting a Fundamental Defect. Yet if the submission in para 45 (iv) above is correct, this would have the effect that even fundamental breaches of warranty (individually causing an adverse effect) could not be combined, nor could breaches of warranty (of a non-fundamental kind) be combined although they each had a severe adverse effect. It is not likely that the parties could have contemplated such a (to my mind) bizarre result. This consideration might mean that Centrica’s general submission as set out in para 41 (iii) above is correct but I would prefer not to express a final view on that since one can never know in advance what facts will be proved at trial and deciding such a point without any factual background is too dangerous.
The judgment can be read in full here
