BSkyb Ltd & Anor v HP Enterprise Services UK Ltd & Anor (Rev 1)

The Claimants in these proceedings, British Sky Broadcasting Limited (“BSkyB”) and Sky Subscribers Services Limited (“SSSL”) provide satellite broadcasting and related services. The Defendants, Electronic Data Systems Limited (now HP Enterprise Services UK Limited)(“EDSL”) and Electronic Data Systems Corporation (now Electronic Data Systems LLC) (“EDSC”) provide Information Technology services.

There are issues as to the extent to which BSkyB can pursue claims and the extent to which EDSC has liabilities arising from the matters alleged in these proceedings. It is therefore generally convenient to refer to the Claimants in the neutral term “Sky” and the Defendants as “EDS” in this judgment as a general description of one or both of the Claimants or Defendants without entering into that particular debate when rehearsing and dealing with the facts and allegations.

This case is concerned with the procurement of a new customer relationship management (“CRM”) system so that Sky could provide improved service to its customers focussed, at least initially, on telephone contact between customers and the Customer Advisors (“CAs” also known as Customer Service Representatives “CSRs”) at Sky call centres.

Following a tender process in 2000, Sky selected EDS to design, build, manage, implement and integrate the process and technology for the CRM System. After an initial Letter of Intent, SSSL entered into a contract with EDSL (“the Prime Contract”) to provide the CRM System at Sky’s existing contact centres located at Dunfermline and Livingston.

The relationship was not a success. There was a renegotiation in 2001 which led to a Letter of Agreement. Then in 2002 Sky took over the performance of EDS’ role of Systems Integrator and a Memorandum of Understanding was signed. Sky alleges that EDS made fraudulent misrepresentations which led to EDS being selected, to a Letter of Intent and to the Prime Contract. They also allege that EDS made negligent representations prior to the Letter of Agreement.

Sky went on to provide a CRM System. Instead of the intended CRM Project going live on 31 July 2001 and being completed by 1 March 2002 at a baseline budget of £47.6m, Sky contend that the functionality for the CRM System was only completed in March 2006 at a cost of about £265m. In the Particulars of Claim as they stood at the commencement of the hearing Sky claimed damages of some £709m.

The main method of contact between Sky and its customers is a telephone call to one of Sky’s call centres, which are also referred to as contact centres. In addition to the telephone there are other channels of communication including fax, email, WAP, the internet and, in particular, Sky’s digital set-top box.

The CRM System is therefore important to Sky’s business and forms an essential part of all contact centre dealings with customers, as well as other “self-service” dealings by customers. It facilitates, governs and records all customer related transactions, such as setting up a new account, closing an account, reporting a fault, calling out an engineer or changing a package. It also allows Sky to bill and process payments from their customers.

In 2000, Sky perceived an urgent need to replace the existing Digital Customer Management System (“DCMS”). It was an old system built up over the years and there were concerns in its ability to allow Sky to deal with the increasing number of customers and services. It was also recognised that a new CRM system with enhanced functionality would bring business benefits to Sky, including a reduction in the number of customers who “churn” or leave Sky each year, known as the “churn rate”. Sky therefore decided to undertake a project, referred to as the Sky CRM Project which included the provision of a new CRM system.

At the time, Sky operated a number of legacy systems in addition to DCMS. In summary, the systems consisted of:

The SCMS did not form part of the new CRM system but it was a system then integrated with DCMS and the ITT included a detailed interface specification for the interface with the CRM System.

The new CRM System included the replacement of the DCMS and FMS systems and the implementation of a new telephony solution. It also needed to include functionality to replace billing and operational finance functionality in DCMS.

I shall have to deal with the facts in some detail but at this stage it is convenient to set out some of the major dates relating to the Sky CRM Project and this litigation.

The Sky CRM Project effectively commenced with Sky's announcement to the City on 9 February 2000 that it was to spend up to £50m in upgrading its customer contact centres with state of the art technology and processes, to be operational within 12 months.

To do this, Sky issued an Invitation to Tender (ITT) dated 17 March 2000. It was initially sent to Pricewaterhouse Coopers (PwC), Arthur Andersen (AA) and Andersen Consulting. Ernst & Young were subsequently sent it and then it was also sent to EDS on22 March 2000. There followed meetings or workshops between Sky and the tenderers. Those between EDS and Sky took place on 10 and 27 April 2000.

Tenders or responses to the ITT were received from PwC, AA and EDS. No response was received from Andersen Consulting or Ernst & Young. Each tenderer who prepared a response also made a presentation to Sky.

EDS made their presentation to Sky on 1 June 2000 and also delivered their Response to ITT on that day (“the EDS Response”).

There then followed discussions between EDS and AA. This led to AA withdrawing its tender and to AA and EDS producing a Joint Delivery Teaming document on 29 June 2000 which made a joint bid to Sky. This meant that there were only two tenderers: PwC and EDS/AA. In terms of the main CRM software system, PwC proposed a Siebel package and EDS/AA proposed a Chordiant Framework solution.

Sky evaluated the tenders. On 7 July 2000 there was a further round of final presentations from PwC and EDS/AA. The decision to proceed with EDS/AA was made on about 20 July 2000 and communicated to EDS.

In the EDS Response and in meetings and documents sent by EDS to Sky, Sky alleges that EDS made fraudulent misrepresentations in relation to resources, cost, time, technology and methodology which led to EDS being selected and being awarded the Letter of Intent.

A Letter of Intent was subsequently signed on 9 August 2000 between BSkyB and EDSL, pending the finalisation of the main agreement so that work could start straight away with a view to achieving ‘New contact centre live’ by April 2001. This was a reference to a new contact centre which was to be built in Irlam, Manchester and be equipped with the CRM system, in addition to the refitting of the two existing contact centres at Dunfermline and Livingston.

EDS and AA started work on about 24 July 2000. AA was in charge of the Process Workstream and EDS was in charge of the Technology Workstream. There was a Project Kick-Off meeting on 27 July 2000.

As a result of further discussions between EDS and Sky in September and October 2000, it was evident that the costs of the CRM Project had increased. Further discussions on options led to Sky deciding not to proceed with the new contact centre in Manchester.

Concerns were expressed in September and October 2000 as to the time within which EDS could implement the CRM Project and various other matters. EDS provided a revised programme showing that they could achieve go-live in July/August 2001. Sky allege that EDS made further fraudulent misrepresentations in this period which Sky relied on in making the decision to enter into an agreement with EDS.

On 30 November 2000, a Systems Integration Contract (“the Prime Contract”) was signed by Tony Ball, the CEO of BSkyB for and on behalf of SSSL and by Steve Leonard of EDSC, President of e.Solutions EMEA, for and on behalf of EDSL. It had a “baseline budget” of £47,637,000 and included an important milestone of 31 July 2001 for “eCRM Live in One Hall”.

The performance of the Prime Contract did not go as anticipated. There was poor performance by EDS and on 16 July 2001 Sky and EDS signed a further agreement which amended the terms of the Prime Contract by that Letter of Agreement. Sky say that EDS made various negligent misrepresentations which led to Sky entering into the Letter of Agreement.

The performance of the project then again ran into difficulties, with the first major stage of the project, Phase 1, being completed late. After further negotiations, Sky took over from EDS as Systems Integrator from about 6 March 2002 and on 26 March 2002 a Memorandum of Understanding expressed to be “without prejudice and subject to contract” was signed by Sky and EDS. There is an issue as to whether that document was a binding agreement.

Under these new arrangements, Sky proceeded with the project on an incremental basis. Instead of Phase 2 going live at the same time, referred to as the “big bang” approach, the project was split into 5 stages, referred to as Increments 2.1 to 2.5.

Proceeding on this basis, Increment 2.1 went live on 14 November 2002 and on 21 March 2003 Increment 2.2 went live. Sky decided not to proceed, at least at that stage, with part of Increment 2.3 and also Increments 2.4 and 2.5. Increment 2.3 in its “de-scoped” form went live on 1 September 2005 for new customers and on 31 March 2006it went live for existing customers. The new system up to and including the de-scoped Increment 2.3 is referred to as the “Actual CRM System”.

The disputes which had arisen between Sky and EDS then led to Sky providing EDS with draft Particulars of Claim on 19 December 2003. On 17 August 2004 Sky issued proceedings against EDS in the Commercial Court.

Those proceedings were transferred to the Technology and Construction Court and directions were given on 8 November 2006 leading to a trial commencing in October 2007, initially for 20 weeks but later extended to end in July 2008.

There were regular case management conferences dealing with applications and other matters which required to be resolved in advance of the hearing. The pleadings have been through a large number of amendments but for convenience I shall refer to them as the Particulars of Claim, Defence, Counterclaim, Reply and Defence to Counterclaim, rather than the title of the multiple re-amended versions.

There was a very substantial amount of documentation both in hard and soft copy and the trial bundle consisted of some 400 bundles. Documents which could only conveniently be viewed electronically were also displayed on a screen.

The parties provided extensive written opening submissions. The hearing commenced on 15 October 2007 with oral opening submissions. Sky’s factual evidence on liability commenced on 31 October 2007 and concluded on 18 December 2007. EDS’ factual evidence commenced on 14 January 2008 and concluded on 19 March 2008.

The parties provided written openings on the IT issues. Expert evidence from the IT experts was then heard commencing on 7 April 2008. The evidence was dealt with in a number of sessions dealing with particular topics with Sky’s experts and EDS’ expert giving evidence in each session. The main IT expert evidence was concluded on 24 April 2008.

Opening written submissions dealing with Sky’s quantum claim for business benefits were then served. Starting on 6 May 2008 Sky called further factual witness evidence relevant to quantum. That concluded on 12 May 2008. On 13 May 2008 the parties commenced evidence from their expert witnesses who dealt with Sky’s claims for lost benefits in the form of reduction in the churn rate. On 19 May 2008 evidence commenced from the experts dealing with Sky’s claim for lost benefits in the form of call rate reduction. That evidence concluded on 22 May 2008.

On 19 and 20 June 2008 after short further quantum evidence, the parties called expert evidence from the IT experts to deal with EDS’ case that Sky had failed to mitigate its damages. Sky then called further factual witness evidence dealing with quantum, from 20 June 2008. Expert evidence on the details of quantum was

The parties served written closing submissions dealing first with liability issues, then business benefits and finally quantum. There were also reply submissions on liability and business benefits and Sky served a response on quantum during oral closing submissions which commenced on 23 July 2008 and concluded on 30 July 2008 which was Day 109 of the trial.

The parties then provided electronic copies of all documents, including invaluable hyperlinked versions of their closing submissions. By September 2008 the final substantive documentation had been provided although the final agreed transcript corrections were received in December 2008.

BSkyB is well-known as a provider of pay-television broadcasting services in the United Kingdom and Ireland. It is a wholly owned subsidiary of British Sky Broadcasting Group Plc.

SSSL was until 2005 a wholly-owned subsidiary of BSkyB. Since 2005 it has been owned by another subsidiary of the group. SSSL provides ancillary services and other functions supporting the satellite television operations of BSkyB, including the management and operation of customer contact centres.

EDSL is an English company which carries out design, development, integration and implementation of information technology solutions to businesses and governments together with the provision of related services.

EDSC is a United States corporation and was at all material times the ultimate parent company of EDSL. It is based in Plano, Texas and carries on similar business to EDSL.

In the 1990s, EDSC had been structured into Strategic Support Units or business units focused upon particular market sectors. It carried out business in four regions. Two of these were in the United States, the other regions being Asia Pacific and EMEA (Europe, Middle East and Africa). EDSL operated within the EMEA region.

In about 2000, following the appointment of a new Chairman and CEO of EDSC, the business was restructured into four new global Lines of Business (LOBs): i.Solutions, e.Solutions, Business Process Management and A. T. Kearney.

e.Solutions provided consulting services in the field of process and technology solutions. It was engaged to provide implementation, integration and project management services. e.Solutions was divided into four practice areas, including one known as Digital Value Chain. Within that practice area there were a number

Prior to the reorganisation and the formation of the CRM Practice, the business unit dealing with CRM work had been known as Centrobe. In early 1999 EDSC acquired the delivery and technology team from MCI Systemhouse Ltd (“SHL”), a consultancy group with offices in Canada and the UK. That team had a number of people with experience of CRM systems.

In preparing its bid EDS involved other participants who were specialists in particular fields. These participants were known as Consortium Partners and were mentioned in the EDS Response. There were four Consortium Partners: Chordiant Software International Inc and Chordiant Software UK Ltd (“Chordiant”), Interdec Working Spaces (“Interdec”), Lucent (“Lucent”) and Sun Microsystems/ Forte Software (“Sun”).

Chordiant owned and licensed Chordiant CRM software which was a major element of EDS’ proposal. Interdec was a fitting-out contractor for the alterations to the call centres. Lucent owned and licensed the billing package software, Arbor or Arbor BP. The division of Lucent which dealt with Arbor was called Kenan. Lucent also supplied the Computer Telephony Integration (CTI) components and services.

In 2000 Sun purchased Forte and became the owners of a development framework called Forte 4GL (referring to Forte 4th Generation Language) and a middleware product, Forte Fusion. However, during the course of the bid and the course of the project, the owners of Forte Fusion and the Forte 4GL framework were referred to as ‘Forte’. Sun also supplied the servers and the Solaris operating system.

The main participants for each of the Consortium Partners were as follows:

From the 1990s AA had been involved in giving advice to Sky on various aspects of their business.

In late 1999 Sky retained AA to conduct a review of its customer management system and to map out best practice for the building of a new call centre and call centre technology. In January 2000 AA produced three documents: a presentation entitled "Creating the Contact Centre of the Future" and two studies called "Building a Contact Centre for the New Economy” and "Setting the Direction for the Contact Centre of the Future".

In the last of those documents AA set out what they envisaged for the "Sky Contact Centre of the Future". As to the costs, they set out figures based on broad assumptions and said that “it may be more reasonable to assume that the cost could be anything between £60m and £90m.” As to timescales they saidthat a

“best practice new facility could be operational in 9 months, assuming that the building is ready to move into” and that conversion of the Scottish facilities would be “complicated by the need to transition people and technology in a real time environment, thus would also probably take 6-9 months and would again need to be developed after the initial new facility is operational.”

AA carried out a further exercise between the end of January and early March 2000 and produced a document "BSkyB Contact Centre of the Future – Initial Study". Scott Mackay and Andy Waddell formed part of the team which produced this document. Subsequently parts of this document were included in the ITT.

In May 2000 AA put in their own response to the ITT. AA and EDS then produced the Joint Delivery Teaming document on 29 June 2000 which made a joint bid to Sky.

Under the Prime Contract with Sky, EDS was to carry out the Process, Technology and Implementation components of the CRM project. EDS then subcontracted with AA for the 'Business Process' workstream, which was managed by Rob Hornby on behalf of AA. In addition, AA contracted directly with Sky in relation to the 'Location' and 'People & Change' workstreams, which were managed by Tim Gardner of AA.

The Invitation to Tender (“ITT”) was dated 17 March 2000. In the title, it described the project as being “The Build and Implementation of a World Class Contact Centre for BSkyB and the further retrospective fitting of environment, culture, process and technology to existing sites.” The intention was to build the new contact centre and then carry out work fitting out the existing call centres in Scotland at Carnegie Campus, Dunfermline and Kirkton Campus, Livingston.

At paragraph 2 of the introduction, Sky made it clear that the tender document included work carried out by Sky which set out “envisioned functions, processes, mechanisms and technology”. It said that the documents formed the high level definition of the end product and would require further analysis as the project progressed.

At that stage paragraph 3 identified four key areas: “Location” being the internal design and “kit” out of the new contact centre; “Business Process Model” being the detailed definition and introduction of new business processes; “Technology” which had to be sourced, integrated and implemented and “Transition plan” which was the work to “backfill” the existing Livingston and Dunfermline sites with the processes, technology, culture and environment delivered at the new contact centre.

At paragraph 2.4 it included a “high level view of the business functions which the new contact centre will need to support”. It stated that it did not represent the future functional design of the new contact centre and was included purely to ensure that all potential suppliers “understand the customer contact overview”.

Paragraph 2.5 dealt with the launch of the new contact centre. At paragraph 3.1 under the heading “World Class Customer Experience” it was stated that “at the heart of every aspect of this project is the absolute requirement to provide world class customer management and for BSkyB to be in a recognised leading position in this regard”.

At paragraph 3.3 it was stated that the Sky design team had created a high level business process model which was included as Appendix A to the ITT. That had been prepared by Scott Mackay of Sky using a Hyperknowledge tool. The purpose of the model was stated as being to set out the “core business processes” that the new contact centre would need in order to support “key strategic business objectives” of BSkyB. It stated that the model did not preclude any technical or functional solution.

Paragraph 3.5.1 set out specific requirements for the technology response.

Project Timing was dealt with at Section 4. That stated that for the new contact centre “BSkyB have an organisational desire to conclude the initial delivery of the contact centre within 9 months of project commencement.” In relation to the existing contact centres (four halls at Livingston and two halls at Dunfermline), these were envisaged to be fitted out with the same package as the new contact centre, on a hall by hall basis, once that contact centre had been established. For both the new call centre and the existing centres, Sky requested that the responses should include milestone plans showing “key commitment and decision dates” and also show “detail within each key project phase (i.e. design, build, test, integrate, accept and implement)”.

Section 5 referred to Supplier Resources and BSkyB Key Roles and

Section 5 also included at paragraph 5.4 various requirements for a project plan. At paragraph 5.4.1 it stated that “Before commencement of the project, a detailed project plan must be agreed with BSkyB and both parties will be responsible for delivering the tasks and milestones agreed.”

Section 6 dealt with the detail of the Tender Response. It provided for a two week “discursive period” from 17 March 2000 during which tenderers could ask questions by way of clarification; a two week “incubation period” for the supplier to begin response preparation; a workshop with BSkyB to “test early ideas and ratify approach” and a final two weeks to complete the response. There was then to be a two hour presentation to Sky ending with the delivery of the tender response to Sky.

Sky said at paragraph 6.3 that they would evaluate the tender submissions on, amongst other things, cost and ability to provide access to appropriate skilled resource by workstream.

The response to the ITT submitted by EDS (“the EDS Response”) was stated at the front to be “proprietary to [EDSL], its parent company EDSC and any of that corporation’s subsidiaries.” The copyright was stated to be that of EDSC. Gerard Whelan was the point of contact.

At paragraph 1.2 EDS set out the principles of their approach under the following headings: Rapidly identify specific BSkyB customer service failures; use proven leading edge technology; implement best practices as appropriate and deliver a comprehensive programme and change management capability.

In paragraph 1.3 under “Why EDS” the participants in EDS and the consortium were identified and it was stated that this meant such things as “Proven delivery experience”, “Global resources” and “Powerful methodologies”. It also stated:

“Selection of EDS by BSkyB will provide a unique World Class Customer Contact centre on time and on budget.”

At section 4 EDS set out “Our Approach”. They said that they had divided their approach into four workstreams to cover:

For the Business Process Workstream the objectives were to identify opportunities to improve current services; to confirm the vision for World Class Customer Service and to align the business processes with the vision and confirm the functional requirements for the New Contact Centre. This was to be done by two parallel “strands”: one “SWAT” was to identify “quick wins”, that is changes to Sky’s business processes which could be identified quickly; the other was “Design”, which was divided into two phases.

The purpose of the first phase of the design “strand” was to ensure that EDS and Sky had a “mutual understanding and definition of World Class Customer Service for BSkyB”. To do this it was stated:

“We will lead a focused four-week workstream to define and agree the Vision for BSkyB for World Class Customer Service. The resources for this work will require 2 BSkyB and 2 EDS staff. The work needs to start on day one…”

The second phase of design was to validate the “To-Be” design of the customer service processes. This was described as being “the validation of the business processes in order to define and agree the bulk of the functional requirements”. It was stated that the objectives for this sub-team were to:

“agree the functional requirements of the key processes and [underlying] sub-processes

develop an indicative view of resourcing levels develop the technical functional specification which will include the business class model – including all data items, instances and definitions.”

The deliverables were stated to include:

“Agreed Use Cases (in the form of a Use Case Catalogue) and auto generated functional and technical requirement specification for the runner processes to input to the technical design for the new Contact Centre and [be] passed to the Technology workstream for coding and development.”

There was then a diagram which indicated that, for the Business Process workstream, the first phase of design would start in Month 1 and lead to the conclusion of the second phase of design at about the end of Month 4.

Section 4.3 of the Response dealt with the Technology Workstream. It was stated that :

“To meet the high demands and ambition of BSkyB’s existing and future business, the technical architecture has been designed with the following requirements in mind:

-

100% availability

-

Massive scalability

-

Open, modular and flexible architecture

-

Proven technology”

The approach was stated to be as follows: “that activities will be performed in an iterative and incremental development framework. The workstream phases described below are designed to mark significant deliverables that will provide measurable evidence of progress toward the success of the project. Furthermore, the phases provide a mechanism to limit the commitment required to progress the project and to keep options open to flex the programme to support changes in the business objectives.”

There were three phases to this work which were stated to have the following objectives:

There was then a diagram which indicated that, for the Technology workstream, Phase 1 – Design would take until about Month 8; Phase 2-Build and Prototype would take until about Month 12 and Phase 3-Implement & Verify would take until about Month 18, all starting from Month 1.

Section 5 was headed “Programme Management, Change Management &

By way of explanation of the plan, it was stated that :

“The transition plan below is based on the information provided in the ITT and our understanding of the current operations and technology. The high level plan below will be refined after further analysis of the current situation and business requirements.”

The plan showed three dates: Contract at the middle to end of the second quarter of 2000; “New contact centre live” in the middle of the first quarter of 2001 and Transition complete at the end of the fourth quarter of 2001. This indicated about 9 months from the contract to the new contact centre being live and about 19 months to transition to the existing sites.

In relation to Estimating, EDS stated the following at paragraph 5.4.2:

“For the purposes of this ITT response EDS have concentrated on estimating the size of the software development. Whilst further analysis of the requirement is needed, with BSkyB and EDS working closely together, we have used an approach which provides a high level of comfort.

Our approach has been adopted on many previous developments undertaken by EDS, including major travel reservations systems. Based on these projects it is reasonable to expect an estimating accuracy of between plus and minus 5% following detailed evaluation of the requirements.

Resource estimation is conducted from a “top down” and “bottom up” approach. Top down estimation involves function point counting together with a high level view of the project development methodology, and application of historical size and productivity data from similar projects, suitably tailored to the new environment and toolset, to generate an estimate of resource.

Bottom up resource estimation involves assessment of low level activities to be undertaken during the development lifecycle. Using in-depth knowledge of team capabilities and team sizes help validate the top down approach.

Essential to both of these approaches is a formal size measure of the system to be developed. Our estimating process makes use of Function Points and has been independently assessed by the Guild of Function Point Analysts, who approved of our approach. A Function Point is a unit of measure used as an indication of relative size of a software development in terms of the amount of business functionality delivered to the end user. For each discrete logical functional component of the required system the inputs, outputs and entities are counted and weightings applied to establish a function point count. Totalling the function points across all the identified functions then derives the function point count for the system. Schedule estimation then makes use of the function point count and productivity rate estimates to derive manday estimates.”

At Section 6 under “Choosing the right partner” EDS said this at paragraph 6.1:

“EDS is a leader in the design, development and implementation of Information Technology solutions and services to business and government, offering customers a complete range of Systems Integration and Implementation services and guaranteed levels of delivery in a wide variety of industries including media and communications.

With more than 120,000 staff operating in 47 different countries, EDS offers an unparalleled global IT infrastructure supporting more than 9,000 customers including many of the world’s leading global organisations. In the UK our operation leads the software and services market.”

At paragraph 6.4.1 EDS set out specific consortium examples and qualifications and included this:

“EDS worked with a large international telecommunications company (who also provided digital and cable television) to design and implement a single Contact Centre framework within which Contact Centre Agents carried out their work providing a consistent level of service regardless of the channel used by the customer. The EDS Consortium (including Chordiant for the CRM Package and Forté for Enterprise Applications Interface Layer) delivered efficiencies while implementing scalable architecture and a flexible configuration for future business growth.”

Section 7 set out the proposed team structure at paragraph 7.1 with Dr John Chan as the Programme Director, Mahmoud Khasawneh dealing with Technology and Stephen Vine dealing with Transition. Paragraph 7.2.1 dealt with Programme

At paragraph 7.2.2 it set out the overall budget in these terms:

“The overall budget combines the consultancy and expenditures for each workstream, and shows a volume based discount offer which is dependent on EDS being awarded all 4 workstreams as part of our contract with BSkyB.

Location-Activities	£8,490,803
Location consultancy	£1,444,389
Technology Activities	£31,035,896
Business Process consultancy	£775,980
Design Team consultancy	£2,464,000
Program & change consultancy	£2,210,577
Transition consultancy	£1,763,750
Technology consultancy	£6,009,638
Total estimated project costs	£54,195,013”

Sky decided to select EDS on about 20 July 2000. A letter of intent was then prepared and the final version was dated 24 July 2000 (“the Letter of Intent”). The Letter of Intent was addressed to Joe Galloway as Managing Director of EDSL. It was written on SSSL company notepaper. The parties who signed the Letter of Intent did so on behalf of BSkyB and EDSL.

The Letter of Intent stated that it confirmed BSkyB’s intention, subject to contract, to appoint EDS as the Prime Contractor for the implementation of the new contact centre and the fitting of the existing contact centres. It provided for EDS to perform services to be agreed between BSkyB and EDS and for EDS to be paid at rates which were subject to a substantial deduction which would be repaid when the contract was concluded.

The Prime Contract between SSSL and EDSL, who was referred to as “the Contractor”, was entered into on and dated 30 November 2000. It was signed by Tony Ball on behalf of SSSL and Steve Leonard on behalf of EDSL.

The recitals set out the position as follows:

“(A)

On 17 March 2000, SSSL issued an Invitation to Tender (“Tender”) for the building and implementation of a new world class contact centre for SSSL and the retrospective fitting of environment, culture, process and technology to SSSL’s existing contact centres located at Dunfermline and Livingstone (the “Contact Centres”).

(B)

The Contractor issued a document dated 31st May, 2000 to SSSL in response to the Tender.

(C)

Subsequent to the Tender, SSSL decided not currently to proceed with a new contact centre and to proceed only with the re-fitting of the Contact Centres.

(D)

SSSL wishes to appoint the Contractor and the Contractor wishes to be appointed by SSSL on the terms set out in this Agreement to design, build, manage, implement and integrate the process and technology for the refitting of the Contact Centres.”

Clause 1.3.1 contained an entire agreement clause to which I refer below.

Under Clause 2.1 SSSL agreed to engage EDSL upon the provisions of the Prime Contract to perform the “Services” and EDSL accepted that engagement.

In relation to the Services, the following relevant provisions applied:

In respect of cost, there were the following provisions:

Clause 7 dealt with warranties and obligations, including at Clause 7.2 the following provision:

“The Contractor warrants to SSSL that it has the knowledge, ability and expertise to carry out and perform all the obligations, duties and responsibilities of the Contractor set out in this Agreement and acknowledges that SSSL relies on the Contractor’s knowledge, ability and expertise in the performance of its obligations under this Agreement.”

The Preliminary Specification included the following relevant parts:

Section 4 of the specification dealt with deliverables, including a table and it stated:

“The table below lists the deliverables known at the date of this preliminary specification, which fall within the scope of EDS’s responsibility to deliver. It is understood that there are many other deliverables required of the programme, however, these will be identified, documented, and managed as part of the IPO mechanism.

1.

Due dates agree to the consolidated Overall Project Programme, dated 24^th October 2000.

Deliverables shall be deemed delivered only once the relevant element has been “Accepted” by SSSL in accordance with the provisions of the contract delivery.”

Section 5 contained assumptions and Sections 6 and 7 dealt with Process Scope and Technology Scope. At paragraph 6.1 it was stated:

“This document is intended to define the objectives and high level requirements underpinning the redesign of SSSL’s business processes as part of Sky CRM programme (the “Programme”). As such it will form the definition of scope for the process redesign activity. The redesign activity will refine the definition of processes. The overall scope may require modification or enhancement as a result of this redesign activity to ensure an optimum solution. This will be managed through the Programme Office Change Control Process.

This document represents current thinking based on our understanding of available information and views.”

Section 8 dealt with Service Levels and Preformance Characteristics and at paragraph 8.3 stated the following in relation to Performance Characteristics, with Key Performance Indicators (KPIs) being included in Appendix A:

“At this point in time, the technical architecture and functional specifications are not fully defined so that it is not possible to define specific service levels. When the functional specifications and technical architecture are completely designed and approved by the project, EDS and Sky will approve a Service Level Agreement Document that details specific measurable performance characteristics of Sky CRM. EDS understands that there do exist KPI limits, which the current CMS must support. The following target performance characteristics which are currently experienced on existing systems, will be required from the SKYCRM solution, in order to match business expectations:…”

Schedule 2 contained a Rate Card of Costs at Part 1, setting out the rates to be applied for the personnel provided by EDSL. Part 2 dealt with Profit in the sum of £7,440,000.

Schedule 5 contained the Baseline Budget being £19,751,000 for Consultancy Cost and £20,442,000 for Technology Cost making a total of £40,194,000. When profit is added the total came to £47,637,000.

In addition to the Prime Contract, Sky also obtained from EDSC a guarantee of EDSL’s contractual obligations and liabilities in the terms set out in a Deed of Guarantee dated 7 December 2000 made by EDSC in favour of SSSL (“the Deed of Guarantee”). It was signed on behalf of EDSC by John McCain, President of EDSC.

The Deed of Guarantee provided as follows:

Sky contend that EDSC are therefore obliged to pay and be responsible for, and have their own liability in relation to, the damages that EDSL are liable to pay SSSL in respect of its breaches of the Prime Contract.

The Letter of Agreement was signed by Richard Freudenstein and Steve Leonard on 16 July 2001. It varied the Prime Contract and effected a settlement of existing contractual liabilities.

In summary, the Letter of Agreement provided that:

There is an issue between the parties as to the scope of the settlement under paragraph 17 of the Letter of Agreement.

There were discussions between Sky and EDS in early 2002 which led to a document being produced which was marked “without prejudice and subject to contract.” It set out proposed heads of agreement. On 6 March 2002 there was a telephone conversation between Richard Freudenstein and Steve Leonard which led to Sky taking over the role of Systems Integrator from EDS. Richard Freudenstein and Steve Leonard signed a document referred to as a Memorandum of Understanding on 26 March 2002.

That document was headed “without prejudice and subject to contract”. It was signed under a statement: “We are both happy to have reached this agreement and are looking forward to agreeing further revised terms for our contract.”

The document contains five un-numbered paragraphs above that statement, some with bullet points. The relevant paragraphs are:

“This note is the offer to EDS with regard to the changing of the CRM program and the relationship between SSSL and EDS on that program.

After three meetings with representatives at EDS, both parties agree on the need to renegotiate and redraft the contract between them for SSSL’s call centres. Both parties will strive to renegotiate and agree a new form of contract within the next three months. We both accept that that new agreement will be consistent with the following principles:

● EDS will transfer the role of system integrator to SSSL. SSSL will assume that role effective from the time that an agreed memorandum of understanding is created and signed or verbally agreed between SSSL and EDS.

●EDS has agreed to give up all future claims to profit sharing under the previous contract. This amounts to the sum of £6.7 m profit share plus £0.75m churn bonus. EDS shall also provide a credit of £300k as detailed below.

…

It is clear that some changes would have to be made to the current commercial contract following this agreement.

What follows is the agreed way forward for services provided from the date of this memo, and this is based on the discussions that have been on going with EDS and the conditions SSSL is willing to accept:

●EDS will continue to work with SSSL on the project leaving a minimum of 190 resources on the project at the current rate card for the remainder of 2002. If the resources are not performing or SSSL wishes to remove them for any reason-then if requested EDS will find a replacement for that resource at the same rate card and will be committed to putting acceptable resources in place.

…

●The warranties in the existing contract between EDS and SSSL shall only apply to work that has been done until the date of this memo. These warranties will only apply to Phase 1 and work product accepted and in acceptance with SSSL. This means all deliverables accepted so far, including the August, October/November and December milestones that have been accepted and deliverables in these milestones that have been delivered and are currently undergoing acceptance. EDS warrants that appropriately qualified personnel have conducted the services that have been supplied and rendered, prior to the date of this memo, with all due skill and care. The warranty period for these deliverables will be in accordance with the current contract. EDS’ only warranties in respect of its performance of work from now on are that it will be performed with all due skill and care and any other warranty normal and usual in a contract for the provision of services on a time and materials basis where the services are provided under the management and control of the customer and where the service provider is not the system integrator. EDS will not be required to give a system warranty in respect of work performed after the date of this memo.

The principles for further arrangements in the revised contract will be:

●SSSL will pay EDS an incentive amount of £500,000.00 when increment 2.3 is delivered provided it is delivered on or before March 31^st, 2003. In this instance, ‘delivered’ is taken to mean a fully tested application and associated infrastructure ready to go live.

●Any cost reductions which bring the total EDS labour (to include Lucent and Chordiant labour) cost below the agreed amount of the excess costs estimated to date (currently that amount stands at £15m-to be confirmed after detailed planning has taken place) will be split 70:30 SSSL:EDS up to a maximum payment of £1.5 million to EDS.

●Expenses will remain fixed at a maximum of 12% as per the previous contract.

●If requested by SSSL, where existing EDS subcontracts with Lucent and Chordiant allow, or if EDS receives consent from Lucent and/or Chordiant, then EDS will assign these subcontracts to SSSL.”

Sky’s first witness was Tony Ball who was the CEO of BSkyB and a director of both BSkyB and SSSL between June 1999 and November 2003. He was the senior person at Sky involved in the project between June 1999 and about November 2003. He made all the relevant decisions in relation to the Sky CRM Project and EDS’ involvement, albeit that he relied on advice from others within Sky.

Sky then called Geoff Walters who joined Sky in February 1992 as Director of Engineering and became Chief Technology Officer for BSkyB. He was involved in the CRM Project from the initial stages, including assessment of the bids until after the Letter of Agreement when his involvement ceased with the appointment of Simon Post. At the time of consideration of the EDS bid he had not been in favour of awarding the project to EDS.

Sky’s third witness was Richard Freudenstein who submitted two witness statements. He was a director of SSSL from September 2000 and a director of BSkyB from March 2001. He had overall responsibility for the CRM project and acted as the project’s sponsor. He joined BSkyB as General Manager in August 1999 and became Chief Operating Officer of BSkyB in October 2000. He gave evidence of his involvement in the Sky CRM Project from the ITT to the Memorandum of Understanding. He then kept in contact with the project but was not principally involved in it. He left Sky shortly after go-live in March 2006. Sky then called Martin Stewart who joined BSkyB in 1996 as Head of Commercial Finance and became Chief Financial Officer at BSkyB until 2004 when he left. He was also a director of BSkyB and SSSL. He gave evidence about the initial stages of the project from ITT until the signing of the Prime Contract but then had less involvement in the Letter of Agreement and Memorandum of Understanding.

Sky then called Mike Hughes who submitted two witness statements. From April 2000 until June 2002 he was employed by SSSL as Managing Director of Sky Services, an internal division covering SSSL and Sky In-Home Services Limited. At Sky he was responsible for the customer services and related support functions of Sky’s business and this included the Sky CRM Project. He joined the Thomas Cook Group in 1977 and was Director of Systems and Operations from 1998 until 2000 and had been involved in a project for a Chordiant based CRM System which had been carried out by a Canada-based consultancy, Systems House Limited (“SHL”) which was subsequently acquired by EDS. He met Joe Galloway and Dan Barton when they worked for SHL prior to its acquisition by EDS. They had worked in 1999 on an upgrade to the Chordiant CRM system for Thomas Cook, to upgrade the system from version 1.4 to 1.6.

Sky’s next witness was Ian Proctor who provided two witness statements. He joined Sky in 1993 and became Finance Director of SSSL in 1999. He gave evidence of the relationship between SSSL and BSkyB and his involvement throughout the project. He also deals with missing invoices for costs claimed by Sky in response to the evidence of EDS’ quantum expert, Timothy Hart.

Sky’s next witness was Ian Haddon who submitted two witness statements. He joined BSkyB in August 1998 and was employed as Customer Operations Projects - Head of Projects. He was the Billing Workstream Stream leader from July 2000 to about September 2001 and gave evidence of Billing and Operational Finance aspects of the CRM Project.

Sky then called Rob Hornby who submitted three witness statements. He was employed by AA and became involved in the CRM Project in June 2000 when EDS invited AA to bid together. From July 2000 until about December 2001 he was leader of the Process Workstream for the CRM Project. He joined the project again in March 2002 when Sky took over as Systems Integrator and remained there throughout the implementation of Increments 2.1, 2.2 and 2.3. He became an employee of SSSL from 1 August 2002, taking up roles as Transition Manager, Delivery Manager and then in January 2005 became Programme Director until the project was completed in April 2006. Finally he was appointed as BSkyB’s Head of Software Delivery and Support until late June 2007 when he left Sky. He dealt with matters from bid stage to completion, including the preparation of the Functional Specifications.

Sky’s next witness was Andy Waddell who submitted three witness statements. He joined SSSL in 1992 and held various roles within the IT department. Early in 1999 he became Technical Services Manager for IT Scotland and in mid 2000 became involved in the CRM Project as CRM Infrastructure Architect. He was involved in the project until late 2004 and in particular, when Sky took over as Systems Integrator in March 2002, he became responsible for the delivery of the technical and physical architecture and the resultant infrastructure platform. He gave evidence of his involvement from the ITT until late 2004. Since then he, like Scott Mackay, has been assisting Sky’s solicitors with this litigation.

Jeff Hughes was the next witness. He submitted two witness statements. He joined Sky in February 2002 on secondment from PwC as Programme Manager for the CRM Project and was then employed by BSkyB as Group Director of IT and Strategy from May 2005. In November 2006 he became Executive Vice President of BSkyB. He dealt with taking over the role of Systems Integrator from EDS and the subsequent performance of the CRM Project.

Rob Craig then gave evidence. He had joined EDS as a managing consultant from October 2001 and worked for them on the Sky CRM Project from November 2001 until February 2003 when he left to work for Sky as a Systems Architect, leaving the project in May 2003. He was not involved with the implementation by

Simon Post submitted three witness statements. He joined BSkyB as a special technology adviser to Tony Ball in December 2001 and sat on the CRM Steering Committee. He became Group IT Director in about April 2002. He left Sky in January/February 2005. He gave evidence of his involvement until 2005, including his role in relation to the Memorandum of Understanding.

Sky then called Scott Mackay who had submitted six witness statements dealing with a variety of matters. He joined SSSL as a Senior Business Analyst in January 1997. In January 2000 he began work on the CRM Project and was asked by Richard Freudenstein to produce the ITT with assistance from AA and was involved in the subsequent evaluation of the responses. He then took up a role as the Sky workstream leader for the process workstream, working with the AA process team and reporting to Mike Hughes. He worked as the Phase 2 Programme/Project Manager from July 2001. He was involved in all stages of the project, being the main contact point within Sky for the CRM Project. He continued to work on the CRM Project until September 2004 and was then engaged full-time in providing Sky’s solicitors with assistance with this litigation.

Richard Stobart was the next Sky witness. He submitted two witness statements. He was employed by an IT consultancy organisation and from about June 2001 worked as Chordiant Development Manager for EDS. He then worked in various roles in the Sky CRM Project until September 2005, after the go-live of Plan B of Increment 2.3 of the project. He dealt with the progress of Sky’s work as systems integrator and EDS’ criticisms of Sky’s approach.

Sky’s next witness was Simon Montador who submitted three witness statements. He joined SSSL as Head of Finance Projects in October 1999 and in December 2000 became SSSL’s Deputy Finance Director. After posts as Commercial Director and Customer Services Director, he became Director of Customer and Technical Services in December 2007. He gave evidence of his involvement in the CRM Project and, in particular, the development and effect of Self Service, Merlin and Case Management functionality.

Norman Macleod was the next witness. He provided four witness statements. He was the SSSL Development Manager responsible for the CRM Project from about March 2002 until about June 2003. He gave evidence relevant to mitigation and causation. He also dealt with information on the source lines of code (SLOC) of the delivered CRM System and on the time reporting system (TRS).

Karen Flanagan was originally employed from June 2001 to March 2002 by PwC and carried out a Quality Assurance role. Then from March 2002 until May 2005 she was seconded to BSkyB by PwC and was appointed Deputy Programme Manager in July 2002. She dealt with various aspects of the CRM Project during her involvement.

Robert Hughes submitted three witness statements. He joined EDS as a Test Lead in August 2001 and was part of the team responsible for testing the CRM System. He transferred to BSkyB in January 2003 and was CRM Programme Test Manager from April 2003 until go-live in March 2006. He dealt with various issues concerned with testing of the CRM System.

As part of the quantum evidence in this case, I also heard evidence at a later stage of the hearing from a number of Sky witnesses.

First, I heard evidence from Jo Ashcroft who produced two witness statements. She was employed by Sky and had been involved with the CRM Project since July 2000 working in the Process, Solution Architecture and Acceptance Teams. She provided evidence in relation to matters relevant to the churn and call rate experts.

I then heard from John Ramdenee who submitted three witness statements. He joined Sky in September 2004 as Head of CRM. He became Head of Churn and then in April 2006 Director of Customer Solutions. He gave evidence in relation to Merlin, the customer churn “wash out” and Case Management.

Edwina McDowall was the next witness. She had produced two witness statements and was Head of Service and Repair within Supply Chain. In January 2005 she became Technical Services Director. She explained what the CRM System now enabled Sky to do in relation to Technical Enquiry functionality.

I then heard from Mark Anderson who submitted two witness statements. He joined BSkyB in February 2006 and became Sky’s Customer Marketing Director. He gave evidence relating to Sky’s contribution forecasts and the claim for churn benefit. I then heard further evidence from Simon Montador.

After a break and before I heard expert evidence concerning issues of mitigation, Sky called Simon Robson who joined Sky in 1997 and became Head of Business Planning in 2002. He is now Director of Group Reporting and Finance. In his witness statement he dealt with a five year plan produced by Sky in June 2006 and covering the financial years 2007/08 to 2010/11 and also with Sky’s figure for contribution per subscriber.

At the beginning of evidence on quantum, I heard further factual evidence. The first witness was Claire Macintosh (née Banbury) who provided three witness statements. She was employed by SSSL and joined Sky in June 2001 as a

I heard next from Patrick Wynne who served four witness statements. He joined Sky in May 2001 as Commercial Manager within the Technology Department and then became BSkyB’s Head of IT Procurement until March 2008. He dealt with maintenance and support costs. Interposed during Patrick Wynne’s evidence, I heard short further evidence from Norman McLeod. The final factual witness was Richard Bartley. He produced two witness statements. He was BSkyB’s Financial Controller of Technology Finance from September 2005, having joined Sky in July 2004. He provided cost information and dealt with the Time Recording System (“TRS”).

In addition to witnesses who were called I also had witness statements from a number of witnesses who were not called. First, Sky submitted a number of witness statements to deal with evidence which Joe Galloway gave about studying at Concordia College in St John in the US Virgin Islands. Those witnesses were not called. Their evidence proved to be unnecessary in the light of the position taken by EDS. Those witnesses were the Hon Liston Davies, a Senator of the Virgin Islands Legislature and Chairman of the Legislative Committee of Education, Culture and Youth and David Phillips, a solicitor at Herbert Smith who visited the US Virgin Islands and produced two witness statements.

Secondly, Sky submitted twelve witness statements in relation to issues concerning their lost benefit claims which were not challenged by EDS. Those witness statements were from:

Thirdly, Sky submitted a witness statement from Gary Innes who joined Sky in August 1992 as a Customer Adviser and after several roles in that department became Customer Service Development Manager in 2006. He dealt with what the functionality of the CRM System enabled Sky to do. The churn rate experts relied on his evidence but by letter dated 18 April 2008 Sky informed EDS that they did not intend to call him. EDS wish to rely on his evidence and, in the absence of any evidence to the contrary, it should be treated as being true.

Fourthly, Sky served statements from Derek Stalley, Ian Williams and Gerrit Van Wyk but, as confirmed in EDS’ written closing submissions on business benefits these were withdrawn and not relied on by Sky or EDS.

Fifthly, there was evidence from the following Sky witnesses who were not called. First, in relation to the statement of Ruby Vega-Lozano, EDS agreed that this could be put in without cross-examination. She joined SSSL and worked in relation to Sky’s IT systems. She was seconded to work at Canary Wharf with EDS’ configuration management team for the Sky CRM Project in 2001. She gave evidence about her involvement in relation to configuration management. Secondly, the statement of Caroline Waterer, a solicitor who worked for Sky between 1999 and 2003, was not relied on. Thirdly, Penny Hicks was not called. She joined SSSL as a Senior Management Accountant in October 1996 becoming head of CRM Finance in June 2000 until April 2001 and left Sky in August 2005.

There were, in particular, two people who were involved in the CRM Project but did not provide witness statements. First there was Nicola Simpson who was employed by SSSL as Data Architect/Head of Business Solutions and reported to Andy Waddell. She was primarily concerned with the application architecture and was also involved in the bid process. Secondly, there was Deb Chakravarty who was appointed by Sky as Programme Director in or about October 2000 and left in June 2001. He was replaced on 2 July 2001 by Chris Davies, who was himself replaced after less than one month.

The first EDS witness was Gerard Whelan. He produced four witness statements. He was employed by EDS from September 1999 until January 2001 and initially was EDS’ bid manager for the Sky CRM Project. In July 2000 he was promoted to director of consulting within the CRM practice. He left to work with Joe Galloway when the new CRM consultancy, ITIVITI, was set up. He gave evidence about the bid process through to the signing of the Prime Contract. From around April 2000 he moved to a role managing the business analysis team.

Joe Galloway was the second EDS witness and provided four witness statements. He had been working in the Contact Centre practice of SHL from October 1998 until EDS bought SHL in 1999. As a result he moved to an EDS subsidiary, Centrobe, responsible for Customer Relation Management and other related areas. In late 1999 there was a reorganisation within EDS and Centrobe ceased to exist. Instead EDS set up a CRM Practice within the e.solutions line of business for the Europe, Middle East and Africa (EMEA) region. Joe Galloway became Managing Director of that CRM Practice, reporting to Barry Yard, the UK head of e.solutions who, in turn reported to Steve Leonard, the head of e.solutions in the EMEA region. He had been involved in an upgrade for the Thomas Cook CRM Project in 1999 whilst at SHL and had come into contact with Mike Hughes. In early 2000 he was contacted by Mike Hughes and this led to EDS being sent the ITT for the Sky CRM Project. Joe Galloway was the mastermind for EDS’ Response to the ITT which was presented to Sky on 1 June 2000 and was closely involved in all subsequent developments. He left EDS in December 2000 to form a CRM consultancy, ITIVITI. A number of staff from the EDS CRM Practice also joined ITIVITI. He later was employed by EDSC in the US from 2006 as an IT consultant but was dismissed from that role during the course of this trial in circumstances which are set out below.

The next EDS witness was Andrew Sollis who joined EDS in 1988 and became involved in EDS’ bid for the Sky CRM Project in March 2000. He transferred to another EDS project in May 2000 but gave evidence about his involvement in the bid process up to that time.

EDS then called Chris Moyer who joined EDSC in March 1985. By 2000 he was the Chief Technical Officer for EDS’ e.solutions line of business in the EMEA region. Together with Chris Rogers he carried out a Technical Design Review for the bid on 12 May 2000 and they produced a document setting out points which they thought the bid team should consider.

The next witness was Peter Rudd who had worked for SHL and joined EDS on the acquisition of SHL by EDS in 1999. He became Director of Development Services within the CRM Practice and was responsible for building up the group in 2000 and had responsibility for developers within the practice. He gave evidence about staff resources for the Sky CRM Project.

Joe Galloway then returned to give further evidence before EDS called Gary Hill who had worked for EDS since 1984. In the summer of 2000 he was a CRM Centre of Excellence Manager within EDS and in August 2000 was approached to carry out the “Sky Red Team Review”. That review was held on 21 August 2000 and a report was produced by Steve Dowle as the lead reviewer.

I then heard from Amanda Cordingley who was employed by EDS from 1993 to 2007 in the Human Resources Department and gave evidence of the EDS Terms and Conditions of Employment. She was not involved in the Sky CRM Project.

Gerard Whelan was then recalled to give further evidence and was followed by Steve Fleming who produced two witness statements. He joined EDS in May 1998 and transferred to the CRM Practice and to the Sky CRM Project in about July 2000. He was project manager for the Chordiant development team as part of the Technology workstream on the project. He worked on the project until June 2001 and gave evidence of that involvement.

I next heard from Barrie Mockett who joined EDS in 1999. Between March 2000 and January 2001 he performed a human resources role as director of management services within the CRM Practice. He gave evidence of the resourcing of the Sky CRM Project.

The next witness was Richard Durling who produced three witness statements. He was recruited by EDS to join the CRM Practice at an open day in July 2000, having previously worked in insurance. He worked on the Sky CRM Project from August 2000 until his role reduced in March 2001 and he left the project in May 2001. He was appointed as the data team leader in September 2000 and was then involved in producing a scope document.

EDS then called Dan Barton who provided three witness statements. He joined SHL in April 1995, working on the Thomas Cook Chordiant based project and he then transferred to EDS when it acquired SHL. He became part of the new EDS CRM Practice led by Joe Galloway. He started his involvement in the Sky CRM Project as lead technical architect in about June 2000 and was based in Dunfermline designing the technical architecture. His role as technical architect ended in May 2001 when others from EDS’ Telford team took over. He dealt with his involvement in 2000 and 2001.

Steve Fleming was then recalled to give further evidence. He was followed by Karl Davies who provided two witness statements. He was working for EDS and joined the CRM Practice led by Joe Galloway. He was asked to join the Sky CRM Project to work as data architect, in charge of producing a data model and did so from 11 September 2000. He gave evidence of his involvement in preparing the Logical Data Model and on other data issues.

The next witness was Tony Dean who produced three witness statements. He was employed by EDS between 1993 and 2006 and was appointed to be the Client Executive for the Sky CRM Project in September 2000, managing the relationship between EDS and Sky. He reported to Elwyn Jones. He was replaced by Greg Hyttenrauch in around April 2001 but retained certain responsibilities on the project. He gave evidence of his involvement on the project from September 2000 until he left the project in about August 2002.

The next witness was John Chan who provided four witness statements. He was a project manager and he joined EDS in 1991 when his former company was taken over by them. He was designated as the project manager for the Sky CRM Project and took up that role in June 2000. In late October 2000 his role was taken over by Peter Jeffs but he continued to work on the project as Procurement Manager dealing with commercial support matters. He gave evidence of his involvement from 1 June 2000 and his role as project manager until October 2000. He left EDS’ employment in 2006.

EDS’ next witness was Greg Hyttenrauch who was EDS’ Vice President of Applications Delivery for EMEA. He joined SHL after serving in the Canadian Army and then joined EDS when SHL was acquired by them. In February 2001 he came to the UK and in March 2001 was asked by Barry Yard to look at issues which had arisen on the Sky CRM Project. This led to the “Red Team” review of April 2001. He was then involved in the negotiations leading up to both the Letter of Agreement and the Memorandum of Understanding. He left EDS' employment in 2006.

Steve Fleming then returned for a third time to give further evidence. He was followed by Steve Leonard who submitted three witness statements. He joined EDS in 1984 and in May 2000 became President of e.solutions in the EMEA region. He was therefore the superior to Barry Yard and Joe Galloway. He left EDS in July 2002. He was involved at the ITT and Response stage and in negotiations for the Letter of Agreement and the Memorandum of Understanding.

Tony Dean was then recalled to give further evidence. The next witness was Sean Smith who joined EDS in February 1999 and worked in the Corporate Audit Group for the EMEA region in 2001. He carried out a Corporate Audit review of the Sky CRM Project which led to a final report being circulated in February 2002.

EDS’ next witness was Elwyn Jones who was a Client Delivery Executive ("CDE") for projects carried out by EDS’ E.solutions line of business and for the Sky CRM project from December 2000. He was involved in the Discover VRB in April 2000 and was involved again at the time of the Letter of Agreement, the Memorandum of Understanding and subsequently. He reported to Barry Yard. He left EDS' employment in 2006.

EDS then called Melanie Haydon who provided three witness statements. She joined EDS when her former employer was acquired by EDS in the 1990s. She worked in 2000 in EDS’ E-strategy and Consulting Group and is still employed by EDS in a similar role. In April 2000 she was asked for a recommendation for a project manager for the Sky CRM Project and put forward John Chan for that role. In mid-August 2000 John Chan sought her assistance for a short period in a programme management role setting up project documentation and templates and assisting in planning and resourcing the project. She was involved in the reprogramming exercise in mid-October 2000 and worked on the project until July 2001 but did not work at Dunfermline after May 2001.

The next witness was Ed Lewis who provided two witness statements. He was employed by EDS from 1999 and worked on the Sky CRM Project, first as Project Manager from October 2000 and then as Software Delivery Manager from June 2001.

EDS then called Martin Jones who submitted two witness statements. He joined

I next heard from Nigel Lines who provided two witness statements. He had worked for EDS since 1996 and joined the Sky CRM Project in January 2001. He became the middleware team leader until April 2002 when Sky decided to replace Forte Fusion with MQ Series.

The next witness was Keshava Dhatariya who had provided two witness statements. He joined EDS in September 2000 and became involved in the Sky CRM Project in early January 2001. He was the Project Manager of the Chordiant and Arbor Integration Team ("CAIT") and the Project Manager of the Billing and Operational Finance workstream on the project.

Finally, I heard evidence by videoconference from Dan Zadorozny. He was employed by EDSC and became involved in the Sky CRM Project between June and December 2002 after a request from Tony Ball to Dick Brown, Chairman and Chief Executive officer of EDSC. He was involved in commercial discussions with Sky in the latter half of 2002.

In addition to the EDS witnesses who were called, witness statements were submitted from Patrick Dolan and Julian Stait who were not called. That evidence

In addition, David Page's witness statements were admitted under the Civil Evidence Act. He produced two witness statements. He commenced work for EDS in January 1999 at Telford. He was an application architect on the Sky CRM Project which he joined in December 2000 when EDS wanted to deploy experienced Forte staff on the project. He left the project in early December 2002.

There were also witness statements from three witnesses who were not called: Thomas Levine, a solicitor in Allen & Overy who was involved in drafting the Prime Contract in late 2000 and gave evidence about the negotiation of the limitation of liability clause in the Prime Contract; Karen Lightfoot who worked for EDS at Telford and gave evidence in relation to meetings on 28 March and 18 April 2001 and Jerry Chapman who worked for EDSC in the Global Risk Management group in Plano, Texas and gave evidence about the global risk management questionnaire prepared on 9 May 2000 by EDS for the Sky CRM Project but was not involved in the Sky CRM Project.

In addition there were three particular people who were involved on the CRM Project who were not called as witnesses. First, there was Steve Vine who was involved in producing two plans at the bid stage and was then subsequently involved in the project. Secondly, there was Peter Jeffs who was the EDS Project Manager from November 2000 until April 2001. He left EDS' employment in 2004. Thirdly, there was Barry Yard who was the UK Head of e.solutions for EDS. He was the person to whom Joe Galloway reported and he, in turn, reported to Steve Leonard.

In his first witness statement at paragraph 8, Joe Galloway stated that “I hold an

It is necessary for me to set out in more detail the way in which the evidence relating to the Concordia MBA developed.

When he first gave evidence, he was asked a series of questions on Day 37. He was shown a website for Concordia College and University which he said he did not recognise. He said that he was in St John in the US Virgin Islands and attended Concordia College for approximately a year which involved attendance at classes. He said that he had a diploma or degree certificate and transcripts of his marks which were, in the end, produced to the Court. He was taken to the website for Concordia College which stated as follows:

“You may have done past courses and other learning which equals an Associate, Bachelor or Master degree but you accumulated that learning in a variety of contexts with no resulting degree outcome. Meeting your needs, Concordia College's online prior learning assessment process may conclude with an accredited degree in 24 hours, in the subject of your prior studies. Your transcripts then credibly document all of your learning.”

One of the pages of the website referred to some of the successful Concordia College graduates and by clicking on a tab it showed Joe Galloway as one of those graduates. He maintained that he had not seen the website before.

In fact, Concordia College is a website which provides on-line degrees for anyone who makes an application and pays the required fee. This was effectively and amusingly demonstrated by an application which was made on the website for an MBA degree for a dog “Lulu” belonging to Mark Howard QC. Without any difficulty the dog was able to obtain a degree certificate and transcripts which were in identical form to those later produced by Joe Galloway but with marks which, in fact, were better than those given to him. In addition, a recommendation letter was provided to Mr Galloway and the dog by a person who purported to be President and Vice-Chancellor of Concordia College and University in the following terms:

“As Head of Department at Concordia College & University, I am writing this academic letter of recommendation to you in respect of our alumnus Joseph Michael Galloway.

Mr. Galloway is conferred the degree, rank and academic status Master of Business Administration with a major in International Business effective 19 May 1996 upon as a consequence of our widely reputed degree programme, and of our guided academic research into then subjects.

During his connection with Concordia College & University, we experienced Mr. Galloway as a conscientious and orderly element who proved the habit of timely and correct study and research to be intrinsic to his person. He successfully completed all requirements of our Board of Examiners within the mutually agreed time limitations. Mr. Galloway demonstrated that he is prepared and fully equipped to add valuable apprenticeship to our institution’s activities by means of talented and profoundly investigated subject treatment.

Hence it is our privilege to recommend the academic experience, methodical working and educational assiduity of Joseph Michael Galloway to you since we bear the true conviction that Mr. Galloway shall not cease to expose his capacities as a meaningful acquisition to fitting your purpose.”

Whilst the underlying lie was that Joe Galloway had quite evidently obtained a fake degree from the Concordia Collage website, he then gave evidence both on Day 37 and when he returned on Days 45 to 46 which was palpably dishonest both in answer to questions in cross-examination and also in answer to questions from the Court.

In that evidence he maintained that he had not purchased his MBA degree online. Rather he said that he had in fact attended classes at a building used by Concordia College at St John over the period 1994 or 1995 to 1996, studying to obtain the degree. He said that he attended Concordia College whilst he was employed by BSG/Alliance IT working on a project on St John for Coca Cola, which required him to be based for the majority of his time on St John. He said that he travelled to and from St John by plane, flying into and out of the island. He explained that when he attended Concordia College “there were a number of buildings that I went to. I can remember three distinct buildings that we went to. Block, office block buildings in and around the locations of the commercial area that I was working in for Coca Cola.”

He said he attended between 5 and 10 classes, which were “across multiple days.

He explained that he was working on St John on a project for Coca Cola and said“it was a long project. We were there a total of 15 months, but I would be there for a time and then go away and then come back. Sometimes the gap would be a week, and sometimes the gap would be up to about three weeks, especially in the holiday period.” He said that he was living in “a hotel environment.”He said that he“was working with a number of independent Coca Cola Distributors that were in the area” and that whilst there was no Coca Cola bottling plant or anything of the nature there but there was a Coca Cola office which was clearly described as a Coca Cola facility with“Coca Cola marketing, advertising materials around.”

In relation to travelling to St John he said:“As I recall, there was a small commuter flight that went back and forth to St Johns.” and which went“From St Thomas which is the largest island to St John.” He said that it was a“Four - six seater kind of airplane”. After he had been told there was no airport on St John and that St Thomas was two kilometres away he was later asked whether he maintained that he flew on to St John and he replied“As I said before, I don't recall specifically.”

He said that he could provide“the graduate materials that I worked on, the work books, the books, that sort of thing. I am happy to pass those along to you.” He said that would be “somewhere between five and ten textbooks”, which were “books that are associated with the class”. When he did provide a book EDS’ solicitors said that Joe Galloway “recalls having this for some time but cannot recallwhether he used this as part of any of his studies”. That book was “The Customer Connection” by John Guaspari and bore a barcode, stickers and pencil markings which linked it with the library of the St Charles, Missouri campus of Sanford-Brown College near his current home in St Louis, Missouri and evidently was a recent acquisition.

In fact, as I have said, Sky produced two witness statements from David Phillips, a solicitor from Herbert Smith LLP who visited the US Virgin Islands during the trial and a witness statement from Senator Liston Davis, a US Virgin Islands senator, a former Superintendent of Schools, Commissioner of Education and member of the Board of Education in the US Virgin Islands and the current Chairman of the US Virgin Islands Legislative Committee on Education, Culture and Youth.

This evidence, which was not challenged, showedthat there was not and never had been a Concordia College & University on St John; there was not, nor ever had been a Coca Cola office or facility on St John; there was not, nor ever had been an airport on St John and it was not possible to fly onto the island. The closest island, St Thomas, is about two kilometres away.

Sky submit that, as a result, Joe Galloway revealed himself in his evidence to be a person with a wholesale disregard for the truth, entirely willing to lie and to make things up in order to suit his needs. They say that he revealed himself as a man who could lie without any palpable change in his disposition or any outward signs of unease and that he repeatedly perjured himself, deliberately and knowingly seeking to mislead the Court. Sky submit that, overall, the Court cannot but come to the conclusion that Joe Galloway’s evidence as a whole is a complete lie.

EDS accept that Joe Galloway lied to the court in relation to his MBA and he has been dismissed from his employment by EDSC as a result.

EDS submit that it does not follow that all his evidence was false. They referred to the decision of Flaux J in Grosvenor Casinos v National Bank of Abu Dhabi[2008] EWHC 511 (Comm) where the claimant relied on other incidents of wrongdoing on the part of the bank's officer as evidence suggesting that he was prepared to tell lies. Flaux J said at [113] and [126] that there was force in a submission that the evidence demonstrated a propensity to act dishonestly “but I consider the court must guard against merely concluding on the basis of this material that he was also dishonest on 8 February 2000 unless there is other cogent evidence to support that conclusion.” He said that whilst the other acts of dishonesty are obviously of some relevance in assessing whether he was a rogue banker, “I do not regard the subsequent dishonesty in relation to the letter and the guarantees as cogent evidence that he made a knowingly false statement on 8 February 2000. There is no material before the Court to suggest that any such false statements were made to assist, let alone at the behest of, the Ruler.”

They also referred me to the decision of Peter Smith J in Masood and others vMohammad Zahoor and others[2008] EWHC 1034 (Ch) at [130] where he said: “Where cases turn on the credibility of witnesses it is important to consider the evidence as a whole. As I said in EPI whilst a witness' veracity is challenged successfully by demonstrating that the witness has lied it is important to differentiate between establishing that a witness has lied in respect of a particular point as opposed to whether or not his evidence as a whole is a complete lie ….”

I was also referred to the familiar Lucas direction in criminal cases and what Lord Taylor said inR v Goodway[1993] 4 All ER 894 that a jury “must be satisfied that there is no innocent motive for the lie and [they] should be reminded that people sometimes lie, for example, in an attempt to bolster up a just cause, or out of shame, or out of a wish to conceal disgraceful behaviour.”

EDS submit that, Joe Galloway’s evidence on the relevant issues was credible and he did not try to gloss the facts in favour of EDS.

EDS accept, though, that in the light of his evidence concerning his MBA degree, Joe Galloway's evidence on other matters had to be treated with caution. They accept that the court will not be as reluctant as it normally would be to accept that he is wrong or even knowingly wrong in his evidence on other matters. However they submit that his evidence should, nevertheless, be accepted where it is supported by other evidence or appears inherently likely and indeed it should be accepted unless there is an objective reason to reject it. They say that, as in Grosvenor, the Court should guard against merely concluding on the basis of the evidence that Joe Galloway was dishonest in relation to his degree that he was also dishonest in relation to the making of representations to Sky in relation to the bid unless there is other cogent evidence to support that conclusion.

This is not a case where there was merely a lie as to the MBA degree. Such a lie might have had a limited effect on credibility and might be explicable on the basis that Joe Galloway wished to bolster his academic qualifications and was embarrassed about the way he did it. However his dishonesty did not stop at that. He then gave perjured evidence about the MBA, including repeatedly giving dishonest answers about the circumstances in which he gained his MBA and worked in St John on a project for Coca Cola. In doing so, he gave his evidence with the same confident manner which he adopted in relation to his other evidence about his involvement in the Sky CRM Project. He therefore demonstrated an astounding ability to be dishonest, making up a whole story about being in St John, working there and studying at Concordia College. EDS properly distance themselves from his evidence and realistically accept that his evidence should be treated with caution.

In my judgment, Joe Galloway’s credibility was completely destroyed by his perjured evidence over a prolonged period. It is simply not possible to distinguish between evidence which he gave on this aspect and on other aspects of the case. My general approach to his evidence has therefore to be that I cannot rely on the truth of his evidence unless it is supported by other evidence or there is some other reason to accept it, such as it being inherently liable to be true.

Having observed him over the period he gave his evidence and heard his answers to questions put in cross-examination and by me, which have been shown to be dishonest, I also consider that this reflects upon his propensity to be dishonest whenever he sees it in his interest, in his business dealings. Whilst, of course, this does not prove that Joe Galloway made dishonest representations, it is a significant factor which I have to take into account in assessing whether he was dishonest in his dealings with Sky.

Sky submit that Joe Galloway created a false email which purported to be an email which he sent at 17:06 on 12 July 2000 (“the 12 July email”) to Keith Russell, Gary Gordon and John Chan saying:

“I apologise for this but the email that I sent this morning verified the wrong spreadsheet. The following sheet gives the correct figures. Sorry for the confusion.”

Sky say that this email was never actually sent on 12 July 2000 but was created by Joe Galloway subsequently so as to cover up an error that he made in relation to the EDS “rate card” which was to apply on the project.

EDS submit that Sky's submission that Joe Galloway forged the email was not made good on the evidence.

It is necessary to consider the background to the 12 July email.

In a letter of 10 July 2000 Joe Galloway wrote to Richard Freudenstein, setting out certain points in relation to the commercial deal which EDS were prepared to offer. That letter explained EDS’ pricing structure as follows:

“Our pricing structure is based on a cost plus mark-up model. EDS’ average day rate plus a mark-up of 37.5% is the model that has [been] offered and has not changed since our initial response. In addition, because of our confidence in our ability to deliver this project on time and on budget, we are also committed to place 32.5% of margin at risk against agreed milestones.”

Joe Galloway then sent an email at 12:40 on 11 July 2000 which improved that offer by agreeing to reduce the mark-up by 5% from 37.5% to 32.5% with 27.5% being paid against the achievement of milestones.

In response at 14:50 on 11 July 2000 Keith Russell of Sky sought “for the avoidance of doubt” confirmation that the 5% discount being offered was effective on the rate card attached. That rate card took the form of an Excel spreadsheet entitled “EDS Revised Rate Card 11-7-00.xls”. That rate card took the original rate and made alterations to arrive at what that rate would be if a 32.5% mark-up as opposed to a 37.5% mark-up was used.

Joe Galloway was, however, in error when he thought that he had a 37.5% markup. Whilst his spreadsheet told him that he had a margin of 38.36% (with profit of £4,515,600 against a total price of £11,771,000), there were errors in it which meant that the actual mark-up was much less.

Joe Galloway replied to Keith Russell by email at 10:11 on 12 July 2000, with a copy to, among others, Richard Freudenstein and John Chan. In his email he confirmed that the application of the discount in Sky’s rate card spreadsheet was correct and stated:

“I should point out that because of our flexible commercial structure, we are taking this 5% off of the mark-up money. This will allow us to keep the same high level of resource on the project. In other management consultancies I have worked for, dropping the rate usually means substituting lower level resources to reduce the average daily rate.” 206.The 12 July email was timed at 17:06 on 12 July 2000.

On 20 July 2000, after Joe Galloway had been informed that EDS had been selected, John Chan sent an email to Barry Yard, copied to Joe Galloway. It attached seven documents and John Chan stated that ‘Joe has requested that I send you the commercial documents relating to Sky’. One of the attachments was the “EDS Revised Rate Card 11-7-00.xls” which had been confirmed as the applicable rate card by Joe Galloway at 10:11 on 12 July 2000. The spreadsheet attached to the 12 July email was not included.

On 24 July 2000, EDS received from Sky the draft Letter of Intent which referred at paragraph 3 to the fact that ‘EDS shall be entitled to charge BSkyB for services properly performed hereunder at the rates set out in the schedule to this letter’. The schedule set out the rates in “EDS Revised Rate Card 11-7-00.xls” which had been confirmed as correct by Joe Galloway at 10.11 am on 12 July. At this stage, it became plain to all within EDS what rates Joe Galloway had in fact agreed.

On 26 July 2000, John Chan emailed Keith Russell and Gary Gordon of Sky referring to telephone conversations regarding the letter of intent and ending by saying: ‘Schedule – please refer to the attachedrate table upon which the costing was arrived at and note Joe’s apology’. The attached document had the title “MP Chord Third Pass Revised 12 July”. The reference to “Joe’s apology” was a reference to an email from Joe Galloway to John Chan which said “John, here was the email I sent to Keith and Gary at 5:06pm onthe 12th of July. Try to have a discussion with Keith and/or Gary about this” and enclosed the relevant email timed at 17:06 on 12 July 2000 which Sky submit is a forgery.

“MP Chord Third Pass Revised 12 July” is a spreadsheet which was a variation on “MP Chord Third Pass” which was the spreadsheet originally produced by Joe Galloway. The metadata shows that the last author was John Chan and that it was last saved at 4.03 pm on 12 July. It properly applied a mark-up of 32.5% to EDS’ actual internal costs, arriving at a series of rates for resources significantly higher than those which were reflected in the Letter of Intent. This document also corrected errors in the spreadsheet, with the result that it accurately recorded the overall price to be £12,296,448.00, the profit as £3,257,808.00 and the margin to be 26.49%. The rates contained in this document, and indeed the overall price derived from it, represented a significant increase from the prices originally quoted by Joe Galloway and which he offered to reduce on 11 July, as opposed to a reduction of them.

Keith Russell responded to John Chan’s email at 17:37 on 26 July 2000, stating that he and Gary Gordon had never received the 12 July email. He said: “Our decision to select EDS as ourpartner is in part based on this information as confirmed! Please advise me ofyour intention as any changes to these rates is absolutely unacceptable to usat this stage”.

On 27 July 2000 at 07:58, Joe Galloway sent an email in which he stated that he would accept the rates he had confirmed on the morning of 12 July 2000. He did not say that Sky had been sent the 12 July email merely that he had asked EDS’ IT team to search for the delivery notification for that email.

Also on 28 July 2000, a financial review meeting took place at Canary Wharf. Steve Tudor-Price produced a New Business Analysis document of the same date which recorded that EDS in fact only had a 12.6% margin.

On 2 August 2000, Barry Yard sent an email to Steve Leonard, copied to Joe Galloway, Gerard Whelan, Jonathan Malin, Terry Daniels and Alex Kreymer about the Sky deal. This expressly recorded: ‘The LOI has been returned by Joe, and by implication we have accepted rates lower than our standard rates. Need to consider how we can improve this’.

When Joe Galloway returned the Letter of Intent to Sky, he noted in his covering email that “The only change that we have made is to section 3 where we have added some verbiage around the schedule listed in the letter being valid until the 31st of August or until the contract is signed.” The “verbiage” was a provision designed to ensure that the agreed rates would only last for a short period of time and to provide EDS with an agreed mechanism to revise them upwards.

Gary Gordon of Sky responded to this and said: “The way the clause is now written means the Rate Card we have agreed would be valid until either 31st August 2000 or to the point we agree a full form contract. It would them seem that the Rate Card could be re-negotiated. The Rate Card we have agreed is for the duration of the project, the LOI must reflect this point in such a way that there can be no room for misunderstanding. We will therefore keep the wording of the clause as previously written”.

The Letter of Intent was then concluded in the terms of the original draft.

Sky submit that the 12 July email was not a genuine email; that it was not ever sent to Sky and that it was fabricated after the event by Joe Galloway in a dishonest attempt to seek to avoid the consequences of his having agreed rates much lower than he should have done.

Sky say that the title of the 12 July email: “Spreadsheet” is wrong. All the emails that precede and follow it in the chain have titles that flow from the title of the original email: “EDSRevised Rate Card 11-7-00.xls” with the addition of the usual automatic “RE” or “FW” depending on whether the email has been replied to or forwarded. Sky submit that if it had genuinely formed part of the email chain, it would either have had a title that was a variation on “EDS Revised Rate Card 11-7-00.xls” or the emails subsequent to it in the chain would have taken their titles from the title “Spreadsheet”.

Sky say that whilst it is possible that the 12 July email was copied and pasted into the email chain from elsewhere, that is highly unlikely and can be discounted based on all the other evidence.

Sky point out that the email does not have any attachment and that genuine attachments can be seen in the chain attached to Gary Gordon’s very first email

Sky say that ifJoe Galloway had genuinely sent the 12 July email, it is unlikely that he would have been so casual in his language. They say that he was correcting an error in relation to a vital potential contract and was revising the overall price upwards, having the day before purported to give a 5% discount and that such a significant change would not have been dealt with so informally.

Sky also point out that if the 12 July email had been sent, John Chan would already have had it, and so it would not have been necessary for Joe Galloway to send it to him again at 15:57 on 26 July. Furthermore, Sky say that the language in the email of 15:57 is peculiar: it is unnaturally precise in its identification of the email: “here was the email I sent to Keithand Gary at 5:06pm on the 12th of July” if Joe Galloway were really reminding John Chan of a previous email. They also say that, given that Sky had selected EDS on an incorrect basis as to the rates, the request by Joe Galloway for John Chan to “try to have a discussion with Keith and/or Gary about this” would be a strange and informal approach rather than contacting Sky directly and instantly to raise the point. Sky say that if the “MP Chord Third Pass Revised 12 July” was the operative rate card, then John Chan would have provided it to Barry Yard on 20 July 2000 rather than the email at 10.11am on 12 July 2000 which referred to “EDS Revised Rate Card 11-7-00”.

If Joe Galloway had genuinely sent the email, Sky say that he would have responded strongly when Sky responded to say that they had not received the email and that whilst he said in his email on 27 July 2000 that he had “asked our IT team to search forthe delivery notification of the email that I sent at 5:06 pm on the 12 of July”, nothing further was ever heard on the subject. Sky say that if the email had been sent, it would have existed on Sky's computer systems and would have been present in Sky's disclosure but was not.

Sky refer to the fact that Joe Galloway said he did not remember any of the problems arising from the rates and they say that this cannot be true as the rates that he agreed had caused significant worry within EDS. Sky also say that Joe Galloway provided no proper reason for needing to re-send the email to John Chan when he is said to have received it already. Sky submit that the explanation that the email may have been accidentally erased or not read by John Chan does not explain why John Chan would have been unaware of “MP Chord Third Pass Revised 12 July” which was a document that John Chan had himself prepared.

Sky say that Joe Galloway’s evidence that the 5% discount he had given was not a significant matter cannot be true because, as Steve Tudor-Price’s analysis showed, it resulted in a margin for EDS of 12.6%, before overheads, corporate contributions and similar matters were taken into account. Sky refer to John Chan’s evidence that the question of the mark-up became very significant and attracted the attention of ‘other people much higher than me were involved in that process, Steve Leonard, Barry Yard but not me’. Sky also refer to John Chan’s evidence that the documents he sent to Barry Yard on 20 July 2000 were the commercial documents as they then stood and that the rate card was the rate card of the 11 July.

EDS say that Sky’s submission that the 12 July email was forged is not made out on the evidence. They say that the accusation is based, first, on the absence of other copies of Joe Galloway's email in the disclosure of the parties. EDS say that Joe Galloway commented that there had been a number of other documents that he recalled and had asked for when writing his witness statement, but he had been told they could not be found. EDS point out that the email chain containing the 12 July email reproduced a total of eight emails and that whilst the authenticity of seven is not disputed, three of these other undisputed emails do not appear elsewhere in the disclosure.

EDS refer to the second point relied on by Sky, namely that the subject heading “Spreadsheet” was not the same as the subject heading on other emails in the chain. EDS say that Joe Galloway could very well have named his email “Spreadsheet”.

EDS also say that other points on the format of the 12 July email were equally insubstantial. Gary Gordon's name appears as "Gordon, Gary" as opposed to "Gary Gordon" in the first email of the chain as well as the 12 July email and this therefore provides no indication of impropriety on the part of Joe Galloway. The fact that the 12 July email contained no reference to an attachment is irrelevant as it is not always the case that the name of an attachment is recorded in the text of an email. The fact that John Chan sent Barry Yard a copy of the rate card from 11 July 2000 rather than the updated rate card is consistent with the fact that John Chan and the other intended recipients of the 12 July email had not received that email.

EDS also point out that the metadata showed that the document “MP Chord Third Pass Revised 12 July” attached to the 12 July email was created on 10 May 2000 and was last modified on 12 July 2000 which is consistent with it having been sent by Joe Galloway on that date.

The background to the 12 July email is that Joe Galloway made an error in agreeing to the rates set out in the spreadsheet “EDS Revised Rate Card 11-7-00” attached to the email sent to him by Keith Russell on 11 July 2000. In such circumstances, it would be expected that he would put the error right as soon as he became aware of it. The metadata for the spreadsheet “MP Chord Third Pass Revised 12 July” shows that it was saved by John Chan at 16:03 on 12 July 2000. It is not evident when it was sent to Joe Galloway or when he became aware of the fact that he had made an error.

The 12 July email has a number of features which make it unusual. First, it was not received by Keith Russell or Gary Gordon, according to the email of 26 July 2000 and does not appear to have been received by John Chan. Secondly, it lacks any sign that there was an attachment either in the form of an Icon or text “<<MP Chord Third Pass Revised 12 July.xls>>”. Whilst Joe Galloway was correct to state that the way in which attachments are shown varies, there is usually an indication on the face of the email that there was an attachment. Equally on 26 July 2000 John Chan had to add in the attachment because it had obviously not come from the email chain from Joe Galloway. Thirdly, whilst the title to the 12 July email of “Spreadsheet” would be explicable on the basis that Joe Galloway was copying and pasting an email into the chain the context is strange. It would be expected that Joe Galloway would forward the email sent by him on 12 July at 10:11 and include his apology rather than creating a completely new email with a subject matter “Spreadsheet”. That is obviously what he did on 26 July because of the use of “FW: EDS Revised Rate Card 11-7-00.xls” as the subject heading. Equally on 26 July when he “forwarded” the 12 July email he adopted the unusual method of copying and pasting the email rather than forwarding the email with a subject heading “FW: Spreadsheet”. Fifthly, if the “MP Chord Third Pass Revised 12 July.xls” was seen on 20 July 2000 as the relevant commercial rate card then it would have been expected that John Chan, who created it, would have been aware of it and sent it to Barry Yard or that Joe Galloway would have identified that to John Chan as the relevant document or immediately have picked up that John Chan was sending the wrong rate card to Barry Yard when copied into that email.

Whilst each one of those unusual features might alone not cast sufficient doubt on the genuineness of the 12 July email, taken together they make it implausible that Joe Galloway created and sent the 12 July 2000 email contemporaneously. Having come to the conclusion that I have about his conduct in relation to the Concordia MBA and the evidence that he gave in court, I have no hesitation in finding that Joe Galloway simply created the 12 July email to cover his error in the hope that he could convince everyone that he had spotted the error at the time and dealt with it.

When Joe Galloway left EDS in December 2000 he joined ITIVITI to set up a CRM group in another organisation. He was asked a number of questions in cross-examination concerning ITIVITI and Sky submit that his answers to those questions also revealed Joe Galloway’s propensity to act dishonestly and his willingness to lie under oath.

EDS submit that the matters concerning ITIVITI raised with Joe Galloway are irrelevant to the issues and that, to the extent that Joe Galloway gave evidence, Sky cannot, in any event, go behind the answers that he gave. They referred me to extracts from Cross and Tapper on Evidence and to Hobbs v Tinling[1929] 2 KB 1 at 18 to19 where Scrutton LJ stated that, in relation to answers given in crossexamination to credit, the party cross-examining is not allowed to call evidence in chief to contradict the answers. He pointed out that “To permit this would involve the Court in an interminable series of controversies not directly material to the case on alleged facts of which the witness had no notice when he came into Court, and which he or the party calling him might not be prepared without notice to meet.”

In the light of my findings arising from the evidence given by Joe Galloway in relation to Concordia College, I do not consider that there is any benefit in dealing with the wide and diverse matters which are referred to by Sky in their closing submissions and which go to similar matters of credit. Indeed Sky state that they merely rely on these matters as confirming the picture of Joe Galloway that emerged from the Concordia evidence. The matters relied on by Sky concerned the timing and circumstances in which Joe Galloway became involved with ITIVITI; the extent to which he attempted to poach EDS staff to join ITIVITI; whether Joe Galloway arranged for ITIVITI to be awarded a contract with the Halifax for which EDS was also bidding at the same time and a number of matters relating to ITIVITI’s activities and Joe Galloway’s conduct when he was with ITIVITI.

Whilst the credibility of Joe Galloway is evidently an important matter and there were potential issues in relation to ITIVITI which could have reflected on credibility, I agree with EDS that the question of whether the evidence of Joe Galloway was accurate could not properly be resolved without advance notice and a subsequent proper investigation of these matters. In the absence of such a process, I decline to make findings on these issues which, in the circumstances, are not necessary for me to determine the central issues.

The only aspect which might be relevant is the fact that, on any view, in the third quarter of 2000 Joe Galloway was involved in discussions about ITIVITI and he and other EDS staff then left to join ITIVITI. This is obviously relevant and had some impact on the Sky project, although the evidence of both Joe Galloway and Gerard Whelan indicates that the effect on the technical team of the Sky project was small.

Sky rely on the fact that Joe Galloway used his Yahoo account to send his letter of 5 July 2000 to Richard Freudenstein as having significance. They say that he used that account to conceal the letter and its covering email from EDS, both at the time he wrote it and once the litigation was under way. However, Sky also say that it is not true that, as Joe Galloway claimed, he had not had access to his Yahoo account since late 2000.

The email under which the letter of 5 July 2000 was sent was only disclosed late by Sky on 26 October 2007. In his fourth witness statement served on 11 January 2008, shortly before he gave evidence he said that the late disclosure revealed to him that the email had come from his Yahoo account. He said that it was his common practice at the time, when either working from home or travelling, to use his personal Yahoo email account because gaining access to the remote EDS servers was, at that point, laborious and slow, particularly when sending emails with attachments. He then said: “I have not used my personal Yahoo account

Sky say that the question of whether he had used his Yahoo account was relevant to the issue of whether Joe Galloway had deliberately concealed the email. Sky say this, in turn, raised the question whether it was possible for him to have accessed his Yahoo account if it had not been used at all since late 2000. He confirmed in his evidence on Day 40 that the account was an ordinary free Yahoo account as opposed to some other account. Sky obtained and put to him the statement as to policy in relation to dormant accounts, from the current Yahoo.com website and from an archived version of the website from October 2000. The 2000 document stated: “dormant accounts are deactivatedat the end of four months. A dormant account is one which has notbeen logged in to over a four-month period, regardless of whether ornot email has been received in the account during that time. Once anaccount has been deactivated, we cannot retrieve any of theinformation that was formerly stored in it”. Sky submit that on this basis, given that Joe Galloway did successfully access the account in November 2007 it is impossible for that account to have been accessed last some seven years before because the account would have been long dormant and its contents irrecoverably deleted. Sky say that the email address must have remained in sufficiently regular use by him throughout the period from 2000 to November 2007 for it not to become dormant.

When the Yahoo terms were put to him on Day 44 Joe Galloway put forward an explanation which, as I understood it, meant that, as he had other Yahoo profiles and email addresses which were or would have been associated with these profiles, this would cause his email address to remain active. Following his evidence EDS’ solicitors were provided with access to his Yahoo account and wrote on 28 February 2008 and 10 March 2008. They said that “Mr Galloway explained to us that he had a number of publicprofiles set up with Yahoo…. He explained that he believed that each of these public profiles had an associated email address…Our own investigations do not support the suggestion that each public profile has an associated email address, at least currently.” They said: “We are aware of one personal email account that Mr Galloway has with Yahoo… Mr Galloway explained to us that he had a number of public profiles set up with Yahoo …. Mr Gallowayexplained that he believed that each of these public profiles had an associated email address but that any mail to/from any of the addresses would be stored in the set of folders to which he gave us access. Our own investigations do not support the suggestion that each public profile has an associated email address, at least currently. We are not therefore currently aware of Mr Galloway having more than one personal Yahoo email account.”

Sky say that this shows that his explanation was not supported by the investigations carried out by EDS’ solicitors and that he must have been lying

EDS say that there is no evidence before the Court as to how efficiently Yahoo implemented the policy of making accounts dormant nor as to how the policy would apply in respect of accounts with multiple profiles. EDS therefore submit that Sky’s conclusion that Joe Galloway had used the email account is a matter of speculation.

EDS say that there is no evidence from Joe Galloway's Yahoo account to suggest that his email account had been used at all since late 2000. If his evidence that he had not used the email account since late 2000 were correct, then his error in suggesting to the Court that he had several email accounts rather than profiles is, perhaps, easy to understand. EDS submit that the Court should be very cautious about jumping to a conclusion on this weak basis.

I have to say that I did not find his explanation when faced with the material from Yahoo on dormant accounts at all convincing. Further the letters from EDS’ solicitors show that their investigations have provided no support for what he was saying. I regret that I simply do not believe his evidence that he had not had access to the email account since 2000. This was another case where he made up what on the face of it was a potential explanation to cover his statement that he had not had access when that explanation on further investigation could not be supported. However, I can deal shortly with Sky’s submission that his use of the Yahoo account was somehow intended to conceal from EDS what he was saying to Sky and was done in the knowledge that what he was saying was a lie. I do not accept that submission and agree with EDS that the submission does not stand scrutiny. Joe Galloway had also sent his letter to Richard Freudenstein of 18 June 2000 via his personal Yahoo email account, with a copy to Steve Leonard. The context for the letter of 5 July 2000 was Mike Hughes’ request to send a letter to Richard Freudenstein as part of “a final push” and the content of that email did not, on Sky’s case, go as far as the statement in Joe Galloway's email of 11 July 2000 which was copied to people at Sky and EDS. Rather I consider it inherently likely that, as many people did in 2000 and still do today, Joe Galloway used his personal email address when either working from home or travelling, because of difficulties in gaining access to his EDS email account on the EDS servers.

There was an issue in the evidence as to what was said at a meeting on 12 October 2000 when Joe Galloway visited Dunfermline and the programme for the project was shortened, giving rise to allegations concerning representations prior to the Prime Contract. The way in which things were said and done on 12 October 2000 is also relevant to the approach of Joe Galloway to revising the programme on 12 October 2000.

In his fourth witness statement, Scott Mackay said at paragraph 41 that when Joe Galloway presented him with the revised plan he said words to the effect of "This is the plan. You can either agree with it or we will take you out into the car park and kick the f*** out of you". Scott Mackay then says: “Leaving aside the language, I was absolutely taken aback by this comment. Whilst I appreciated that Joe Galloway had attempted to be funny, I had no doubt about what he was telling me, which was simply that this was EDS' plan, EDS knew how it was going to work and unless I was in agreement, my views were not wanted. I replied to the effect that I would happily fight him in the car park if that was what he wanted. Joe Galloway replied along the lines of being happy to do so, as long as he could bring his girlfriend, or wife - I cannot remember which – who was apparently some sort of martial arts expert.”

This led to a denial from Joe Galloway: “No, I never said that, nor have I ever said anything like that to a customer.” In his fourth witness statement at paragraphs 10 to 12 and in his oral evidence on Day 46 he accepted that he did have a girlfriend who was trained in martial arts but he said that he did not meet her until a Halloween party on or about the 31 October 2000. He said that his relationship with her did not become public knowledge until about a week or so later so that nobody knew about her until sometime in early November 2000. He also said that he did not recall ever meeting Scott Mackay after the 12 October meeting. In his oral evidence he referred to the fact that there were other people in the room such as Dan Barton and John Chan.

EDS submit that on the question of this conversation, the evidence of Joe Galloway should be preferred.

EDS say that this evidence only appeared in Scott Mackay's fourth witness statement and is quite inconsistent with the account of the same conversation given in his first witness statement where he did not mention this incident but said that Joe Galloway showed him a Microsoft Project Plan which had been drawn up on a single piece of A4 paper and asked him what he thought of the plan to which he replied that he thought that the time period for system testing was too compressed. He then said that Joe Galloway replied that system testing would be done in parallel with development. He commented that “I certainly didn’t consider Joe's behaviour in presenting me with the plan without any explanation of how it had been put together to be brilliant.” EDS say that, by contrast, in his fourth witness statement Scott Mackay, however, gave a materially different version of his conversation with Joe Galloway.

EDS say that there is a clear inconsistency and that Scott Mackay’s denial in cross-examination on Day 30 was untenable and that if the “car park” conversation had really taken place, it is inconceivable that he would not have mentioned the conversation to Sky’s solicitors and it would have been included in his first witness statement. EDS also say that there is no mention of the conversation in the contemporaneous correspondence, such as Scott Mackay's email to Mike Hughes of 12 October 2000.

EDS also say that Scott Mackay said that the conversation took place in front of others and would have been overheard by John Chan, Richard Durling and Dan Barton, all of whom have denied hearing any such conversation in their subsequent witness statements. EDS say that the oral evidence of John Chan and Richard Durling confirmed this.

EDS also refer to the fact that Scott Mackay's account of the “car park” conversation included reference to Joe Galloway’s girlfriend being a martial arts expert and that, on Joe Galloway’s evidence of when he met her, this could not have taken place until after 12 October 2000.

EDS say that, despite Scott Mackay’s adamant confirmation of his evidence: “I absolutely, to the day I die, maintain that happened”, his evidence should not be accepted.

Sky evidently maintain that Scott Mackay’s evidence should be preferred. They refer to evidence from Melanie Haydon and Penny Hicks of Joe Galloway’s threatening behaviour towards members of his own team and his use of foul and inappropriate language towards clients and say that this evidence was consistent with Scott Mackay’s evidence of the 12 October meeting.

Whilst the evidence from Scott Mackay of the “car park” conversation does, I accept, not lie completely consistently with his first witness statement and should have been mentioned earlier, it is not so conflicting as to make the later account not credible. In addition, given the breadth of evidence dealt with by Scott Mackay the absence of the evidence from the first witness statement is explicable.

I do not find support, one way or another, in the evidence of Melanie Haydon that Penny Hicks had, on one occasion, complained that Joe Galloway had used inappropriate language in front of her or of Joe Galloway’s treatment of Richard Durling on 12 October 2000. Her evidence was not supported by the witness statement of Penny Hicks or by the evidence of Richard Durling. Equally, though, this would not establish that Joe Galloway made the “car park” comment on 12 October 2000.

However for the following reasons I have come to the conclusion that Scott Mackay’s evidence is to be preferred. Whilst, as I say, his evidence has to some extent been coloured or influenced by his involvement in the litigation, that is entirely different to making up an elaborate story which, on any view, whilst relevant is not of central importance. Furthermore, in relation to the reference to Joe Galloway’s girlfriend and martial arts, that reference is entirely accurate and could have been said. The only issue would be that of timing. Based on Joe Galloway’s evidence of timing, he only met the girlfriend later in October 2000.

Gerard Whelan was Bid Project Manager for EDS. He was therefore responsible for producing the Response to the ITT although in doing so he clearly obtained most of the material from others in the bid team. He had worked for EDS from September 1999 until January 2001 when he left to join ITIVITI with Joe Galloway. His recollection of the detail of what happened during the bid process was not good. He referred very often to there being, or possibly being, other documents but I was not persuaded that he had any clear recollection that there were significant documents which were no longer in existence.

He was not a forceful character and tended to agree with suggestions put forcefully to him in cross-examination without giving careful consideration to his answer. He therefore gave evidence which was not always reliable. I consider that he was an honest witness in relation to what he recalled. He was evidently someone who could organise a bid submission but on the important aspects relevant to the matters which give rise to the alleged misrepresentations he relied on others and, in particular, Joe Galloway for the accuracy of the information which was being provided to him. He was, as Sky submit, very much the junior partner to Joe Galloway.

He gave evidence on two occasions. On the first occasion he clearly was concerned to distance himself from the detail and some of his answers were evasive. He was much more open when he returned to give evidence.

John Chan was the EDS Project Manager for the Sky CRM Project named in the Response and he held this position until October 2000. He was obviously an experienced project manager but his oral evidence was unsatisfactory and at times incomprehensible. He did not react well to intense questioning and his answers often differed over time. Even making allowances for the fact that English was not his first language, his explanation of entries on the risk register was particularly difficult to understand and was evasive. Having said that he did not strike me as being dishonest but rather as reacting badly to the pressures of giving evidence.

Tony Dean became involved as Client Executive on the project in September 2000 and was the senior person with responsibility for EDS’ relationship with Sky. His evidence was often defensive and at times his answers were evasive.

Sky withdrew its claim of dishonesty against Steve Leonard. I found him an honest and straightforward witness.

Scott Mackay was involved in the project throughout. He was then involved in giving instructions to Sky’s solicitors for the purpose of this litigation. His evidence, at times, was coloured by this involvement and reflected Sky’s case. This affected his perspective and the emphasis which he gave to the facts rather than the honesty of his evidence.

Andy Waddell had similarly been involved in giving instructions to Sky’s solicitors in relation to this litigation over a prolonged period of time. He, too, showed a tendency to emphasise matters which benefited Sky’s case but, like Scott Mackay, I do not consider that this affected the honesty of his answers.

In this case the issues raised matters which required expert evidence relating to four disciplines: IT, customer churn, call avoidance and quantum.

Directions were given at an early stage for the experts to agree on the expert issues which arose from the pleaded case. This led to the production of a document which set out 21 expert issues attached to an order made on 12 June 2006 which provided focus for the expert evidence.

Sky instructed PA Consulting Services Limited (“PA”) to provide expert evidence and three experts from that organisation gave expert evidence, each dealing with particular aspects. Ian Murray was responsible for PA’s opinion evidence in respect of estimating and planning, resources and quantum, except for Function Point Analysis which was the responsibility of Neil Douglas. Mark Britton was responsible for all opinion evidence relating to methodologies and performance. EDS instructed Robert Worden of IT consultancy, Charteris plc. He covered all aspects of IT expert evidence.

Ian Murray joined PA in 1985 and became head of PA’s Global Systems Integration and Solutions Group which specialises in the implementation of software solutions and covers software development, systems integration and package software implementation. His background was in software engineering and he has managed a number of successful system implementation projects and has advised clients extensively on software and systems architectures, delivery strategies and lifecycle methodologies. He has also carried out a number of audit roles for major system development projects in the public and private sectors. Between 1998 and 2004 he was responsible for the development of PA’s initiative on Customer Relationship Management (CRM) which involved leading a team dealing with all aspects of CRM, from strategic objectives such as customer value, churn and retention, customer lifecycle to technology options for building CRM solutions. He has also led a number of CRM projects which included the delivery of IT systems to support call centre operations, specifically in the telecommunications and utilities industries.

Mark Britton is a Chartered Engineer, Member of the Institution of Engineering and Technology (formerly IEE) and has been employed by PA since October 1992. His background is in systems implementation and he has worked on a number of successful implementation projects. He has experience of working to both Rapid Application Development (RAD) and waterfall development lifecycles, and his roles have ranged from that of developer to being the system architect. He has also conducted project reviews of a number of systems implementation projects of varying complexity, gaining experience of development methodologies, and the causes of project and programme failure.

Neil Douglasis a Fellow of the British Computer Science Society, a Chartered IT Professional, Certified Management Consultant and a member of the PA Management Group. He has been employed by PA since November 1993. He specialises in the planning and management of complex IT delivery projects and has led development, testing and implementation teams on a number of major system delivery projects. He is an experienced project manager and a system architect. He has particular expertise and experience in the field of formal estimating techniques and systems integration. In particular he has been involved in the development of Function Point Analysis as a technique and is a member of the Counting Practices Committee of the UK Function Point User Group. He has produced a book, “Sizing and estimating software in practice: Making Mk II Function Points work” which was published by McGraw-Hill in 1995.

Robert Worden joined the IT company, Logica, after research in theoretical high energy physics. He designed a relational database management system, RAPPORT. He moved to Logica’s research centre at Cambridge and ran a project to build a medical expert system. He managed the research centre from 1986 for four years and during that time built expert systems, neural nets, advanced user interfaces and speech/language interfaces. This involved object orientation and mathematical specification and VLSI. He then left Logica to join Charteris.

Sky challenge the reliability of Robert Worden as an expert witness. They submit as follows: “He showed himself to be willing to advance an opinion on anything

EDS reject those criticisms. Having read Robert Worden’s reports and heard his evidence and having also read the reports and heard the evidence of Ian Murray, Mark Britton and Neil Douglas over a number of days during the trial, I do not consider that Sky’s wide ranging criticism of Robert Worden’s evidence is justified. Having said that, there were various reasons why, on analysis, the opinions expressed by Robert Worden or by Ian Murray, Mark Britton or Neil Douglas could not be accepted on certain issues. That depends, however, on the particular expert issue, the experience of the expert on that issue and the reasoning used by that expert. Whilst in some cases, particularly ones with limited issues, it might be possible to reject the whole of the evidence of one expert, I do not consider that such an approach is either appropriate or justified in this case.

Robert Worden was more in the way of a generalist in the field of IT with some experience of dealing with CRM systems but with good general knowledge of the estimating, systems integration and the types of problem which can arise on projects such as the Sky CRM Project. Each of the experts from PA Consulting had particular fields of expertise and whilst they might have had more experience on some aspects of the project, there was, for instance, a need for Mark Britton to learn about Siebel for the purpose of this litigation.

With court decisions and other documents now being available in searchable electronic form it is common for those advising parties in litigation to carry out a search for, amongst other things, the names of witnesses and experts to see whether this opens lines of cross-examination. In this case Richard Durling had previously been involved in Sphere Drake v EIU [2003] EWHC 1636 (Comm)and Robert Worden was an expert in Pegler v Wang [2000] 70 Con LR 68. Whilst that approach is understandable, it frequently raises more issues than it resolves and creates satellite investigations which are of little benefit in assessing matters in the context of the present case. It is clear that Judge Bowsher rejected Robert Worden's views and approach in a number of respects and in robust terms. That was in the context of a case some nine years ago, with different issues. Doubtless any expert would learn from and take heed of what was said or otherwise would find it difficult to continue to act as an expert. Whilst such criticisms are noted the focus must be on the evidence given in this case.

I shall deal with the particular expert evidence in the context of each of the issues. Before I do that I can make some general comments. I accept that Robert Worden,

Sky called Professor Merlin Stone and EDS called Dr Helen Jenkins.

Professor Merlin Stone is a Director of Nowell Stone Ltd, an organisational development and consulting company specialising in improving businesses' capabilities in key account management, sales management, sales performance, interactive marketing, CRM, e-business, customer service and information technology ("IT"). He works as a consultant, lecturer and trainer for businesses in many sectors, including financial services, utilities, pharmaceutical, telecommunications, travel and transport, retailing, automotive, energy, IT, information services and the public sector.

He holds posts as a part-time Professor at Bristol Business School, a Professor Associate at Brunel Business School, and a Visiting Professor at a number of Business Schools. He has expertise in CRM and has worked on CRM projects for 25 years. He specialises in advising companies on how to deploy customer information, CRM systems and customer management processes in order to improve how they acquire, retain and develop customers cost-effectively so as to meet their marketing, sales and service objectives.

Dr Helen Jenkins is Managing Director of Oxera Consulting and an experienced professional economist. Her expertise is in the analysis of consumer behaviour and markets from an economic perspective, predominantly in the field of competition policy. She has worked across a wide range of sectors and industries, including the electronic communications sector.

She has wide experience of analysing customer choice and has designed, supervised and analysed surveys of consumer choice and in particular switching decisions in broadcasting, credit cards, energy supply, mobile and fixed telephony sectors.

Within the communications practice, she has advised TV broadcasters and dealt with a wide range of regulatory, strategic and competition issues that required an understanding of the UK pay-TV services sector and customer choice within this sector. She has supervised and analysed consumer surveys on switching behaviour in pay-TV to understand the choices made by customers. She has also analysed pricing practices such as margin squeeze prediction, targeted discounting and excessive prices in wholesale and retail broadcasting and telecoms markets.

She has advised the BBC, the European Commission, Comreg (the Irish communications regulator) and OFTA (the Hong Kong telecommunications regulator) on matters relating to broadcasting markets, pricing and customer choice. She has appeared as an expert witnessin court and before competition authorities in the UK, Republic of Ireland and other EU Member States, and Hong Kong.

Sky submit that Merlin Stone has much more relevant expertise to express a view on the ability of the Sky CRM System to reduce customer churn. EDS submit that Helen Jenkins’ has relevant expertise and that her approach to the issue is to be preferred because Merlin Stone, whilst having CRM expertise which Helen Jenkins lacks, did not provide reliable evidence.

It is clear that Merlin Stone is a person who has a great deal of relevant experience in this field and could provide a valuable opinion on the effect of the CRM System on Sky’s customers. However, I found that his evidence failed to live up to expectations. It seemed that he had little grasp of the detailed facts and had not properly understood some features which were necessary to make churn predictions for Sky. For example, his initial evidence on the relevance of Syscan was, at the very least unclear, and his explanation of the position was not convincing. Equally, he did not seek to do any detailed analysis of the effect of the CRM functionality until very late. He did, though, have some useful insights into effectiveness of that functionality in preventing churn. As he accepted, making churn predictions in the case of Sky raised a number of difficulties and this meant that the court needed to have more justification for his figures than he was able to give.

Helen Jenkins had no expertise in considering or analysing the churn reduction effect of a CRM system. She was therefore at a disadvantage in assessing the effect of CRM functionality. Despite that disadvantage, she was able to draw from experience of customer reaction from her competition work. This allowed her to provide reasons for her predictions and carry out more analysis from the available documentation. She gave her evidence impressively and was able to give answers which were based on evidence and reliable.

In approaching the expert evidence I have therefore had to balance these factors which distinguish the evidence of Merlin Stone and Helen Jenkins.

Sky called Mr Simon Roncoroni and EDS called Mr Neil Spencer-Jones.

Mr Simon Roncoroni is a Director of Simon Roncoroni Consulting, which he set up in 2000 as a call centre consulting business. He has expertise in the area of call centres, having worked in this sector since 1979. From his experience he has developed an understanding of how the application of technology impacts upon a call centre business. He has observed in detail the operation of CRM systems in call centres, including the use of both Chordiant and Siebel. He is familiar with the user functionality of each of these systems.

With others he was responsible for starting the first commercial outsourcing call centre in the United Kingdom in 1979 and later ran the outsourcing call centres for British Telecom. In 1989 he formed his own consulting business called the L&R Group which was involved in the strategy and planning of many direct contact operations such as Norwich Union Direct and First Direct. He was also responsible for running all the consumer care call centres for Unilever. When L&R was sold to Sitel Corporation in 1997, he worked as Head of Consulting in Europe at Sitel. He completed international call centre and customer service studies for organisations such as General Motors and Philips. He has been a nonexecutive Director of Merchants, the South African call centre business which publishes the Global Call centre Benchmarking Report.

Neil Spencer-Jones is an Associate Consultant for NCC Group PLC and works for a number of consultancies. He has specialised in voice and data communication with specific interest in the development of Internet solutions.

He started his career in medical laboratories and developed an interest in IT and worked for GEC Plessey Telecommunications as an Analyst Programmer, IT Projects Manager and Business Systems Manager. He then took up the post of IT Manager in hospitals. He has worked for BT Global Industry as an Internet Protocol Sales Manager involving integrated ‘multi-channel’ solutions including traditional telephony, call centres and web-based solutions. As a consultant he has gained experience of CRM solutions and integrated voice and data solutions and an understanding of communications, call centre and CRM technology. He has been appointed as an Expert Witness in a number of cases.

Simon Roncoroni is very experienced in the Call Centre industry, having worked in that area for many years. He also had experience in traffic and resource forecasting in call centres. His evidence developed over time and it was only in the third Joint Memorandum that he set out his reliance on the 22 Elements of functionality as delivering benefits in terms of FTR and Call Avoidance and this differed from his first report. Also in oral evidence he provided new and important changes to the evidence which he had set out in his report. Whilst I accept that he was not accustomed to giving evidence, these aspects detracted

Neil Spencer-Jones has less experience in the Call Centre industry but is experienced in technology and its functionality. His evidence was helpful but tended to concentrate on ways in which solutions might have been found to creating similar functionality with the DCMS or by interim solutions in advance of the Actual CRM System. This reflected his background which was in finding such technical solutions. His evidence on certain aspects therefore lacked the practical insights on the use of functionality in the context of a CA in a call centre. Despite that, I found much of his analysis useful.

Sky called Mr Richard Boulton and EDS called Mr Timothy Hart.

Richard Boulton is a part time Director of LECG Limited. He has 25 years’ business experience as an accountant and management consultant and is a Fellow of the Institute of Chartered Accountants in England and Wales and a Fellow of the Academy of Experts. Before joining LECG he was at Arthur Andersen until 2001, becoming a global managing partner and member of the firm’s global leadership team. He had acted as Head of Litigation Services for Arthur Andersen for Europe, the Middle East, India and Africa.

He has experience of large IT projects from a management point of view and an understanding of the business issues associated with implementing large scale change using technology, focusing principally on strategy, finance and economic consulting. His particular expertise is in complex damages calculations and he has been instructed as an expert in over 100 cases and given expert evidence in Court and before Tribunals. He has also performed fraud and other investigations.

Timothy Hart was a Managing Director and leader of Navigant Consulting Inc.’s global Disputes and Investigations practice, and is now of Huron Consulting Group. He is a Certified Public Accountant in the United States and a Certified Fraud Examiner. He has specialised over the past twenty years in forensic accounting. He was previously a partner with Arthur Andersen and worked with them until 2002.

He has served as a consultant and acted as an expert witness in a wide range of commercial and investment disputes in courts and arbitrations around the world, dealing with quantum or accounting and finance issues. His practice has included accounting investigations, insolvency work and a variety of transactional advisory assignments. He has led several major investigations on behalf of public company

The quantum experts have managed to make very good progress in agreeing figures. This meant that the issues between them were more limited. Both Richard Boulton and Timothy Hart were impressive witnesses and although their approaches on particular issues differed, this was the result of opinion on such matters as validation of costs. I have therefore been able to see clearly what their views are and decide which view I prefer on particular issues.

The following basic principles of law are relied upon:

In order to establish a cause of action in deceit Sky must show (a) that EDS made a representation; (b) that the representation was false; (c) that EDS knew it to be untrue or was reckless as to whether it was true; (d) that EDS intended that the claimant should act in reliance on the representation; and (e) that Sky relied on the representation to its detriment: See Clerk & Lindsell on Torts, (19th Edition) at 18-101.

When determining the meaning of an express representation or whether a statement is implicit from it, the Court generally applies an objective test. When, however, the court turns to consider (a) whether EDS knew or was reckless as to the truth of the representation or (b) whether Sky relied upon the representation, the Court takes a subjective approach as to the meaning of the representation, namely what EDS believed it was representing or what Sky understood to be the meaning of the representation.

Sky must prove the claim in deceit to the civil standard of preponderance of probability and not to the higher criminal standard. However, the court will require more convincing evidence to establish fraud. As Lord Nicholls said in Inre H (Minors)[1996] A.C. 563 at page 586:

“...... the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability”.

Dealing with each of those matters in turn:

The representation must be a representation of a past or existing fact not of opinion. However, a representation as to opinion can amount to a statement of fact to the extent that it is an assertion that the maker does in fact hold the opinion: see Brown v. Raphael[1958] Ch 636 at 641.

The statement of opinion may also involve a further implied representation of fact that the person stating the opinion has reasonable grounds for his belief or knows of facts justifying his opinion. In each case whether there is such an implied representation depends on the particular facts. As summarised by the Court of Appeal in Jaffray & Ors vSociety of Lloyd's [2002] EWCA Civ 1101:

Where a statement relates to the representor's own intended future action, the statement will often amount to a promise. Such promises are usually actionable by way of breach of contract. But again, a statement of fact might be implied from the promise to the effect that the representor held the particular intention or that the statement of intent was based on reasonable grounds. However, allegations based on such implied statements must be distinguished from allegations that the intention was not carried out. As Elias J said in Hagen & Ors v ICI Chemicals &Polymers Ltd & Ors(2002) IRLR 31 at paragraph 131 dealing with representations relating to future intentions:

“By definition, the claimant is always complaining in circumstances where the intention has not been carried into effect. It is only because of that fact that the claimant can allege that the representation made was false. The difficulty facing many, if not most, claimants, is that their real complaint is that the intention was not carried out. But absent some contractual undertaking to do so, there never was a representation that it would be. The point is succinctly made in Spencer Bower on Actionable

Misrepresentation, 4th. edn para 17:

‘What the representee is generally found to complain of is the failure to carry out the intention, which shows that what really induced him to alter his position was his belief that the intention would be carried out. In other words, he relied upon the statement as if it were a promise, not as a representation. His belief that the representor had a present intention to act according to his statement would not have influenced him unless he had also believed that the intention would be carried out.’”

A representation of fact may be made by conduct. As Lord Maugham said in

As Rix J. said in Avon Insurance Plc & Ors v Swire Fraser ltd & Anr [2000] Lloyd's Rep IR 535:

“a representation may be true without being entirely correct, provided it is substantially correct and the difference between what is represented and what is actually correct would not have been likely to induce a reasonable person in the position of the claimants to enter into the contracts.”

To establish an action of deceit, there must be proof of fraud: Derry v Peek(1889) 14 App Cas 337 (HL) at 374 where Lord Herschell defined what must be proved, as follows:

“Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement from being fraudulent, there must, I think, always be an honest belief in its truth.”

Mere negligence, even gross negligence, will not suffice: Derry v Peekat page 373.

In assessing whether a party knew that the statement was untrue there often is an issue as to what the statement meant. Where a statement is capable of being understood in more senses than one, it must be established that the party making the statement should have intended it to be understood in a sense which is untrue or should have deliberately used the ambiguity for the purpose of deceiving the claimant: see Clerk & Lindsell at 18-023, cited with approval by Tugendhat J in Crystal Palace FC v IainDowie[2007] EWHC 1392 (QB) at paragraph 20.

In Akerhielm v De Mare[1959] AC 789, 805 the principle was stated as follows:

“The question is not whether the defendant in any given case honestly believed the representation to be true in the sense assigned to it by the court on an objective consideration of its truth or falsity, but whether he honestly believed the representation to be true in the sense in which he understood it albeit erroneously when it was made.”

To establish deceit, Sky must therefore prove (i) that EDS knew the representation was untrue, or at least had an absence of belief as to the truth of the representation, and (ii) that EDS understood the representation to have the express or implied meaning advanced by Sky.

In the case of companies, it is “directing mind and will” of the corporation which must be considered to determine whether the corporation had knowledge. As stated by Viscount Haldane LC in Lennards Carrying Co Ltd v Asiatic PetroleumCo. Ltd[1915] AC 705 at 713:

“… a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.”

In El Ajou v Dollar Holdings Plc(No.1) [1994] 2 All ER 685 at 696a the approach of the Court of Appeal was reflected in the judgment of Nourse LJ who stated:

“It is important to emphasise that management and control is not something to be considered generally or in the round. It is necessary to identify the natural person or persons having management and control in relation to the act or omission in point."

Rose LJ at 699h and Hoffman LJ at 706e took similar approaches. Hoffman LJ explained at 702a that knowledge can be imputed to a corporation through its agent in certain circumstances.

In Man Nutzfahrzeuge AG & Ors v Freightliner Ltd[2005] EWHC 2347 (Comm) at paragraph 156 Moore-Bick LJ applied these principles as follows:

“It is obvious that, because it is a fictitious person, a company can only act through one or more natural persons and therefore, as the decisions in El Ajou v Dollar Land Holdings Plc and the Meridian case show, in order to determine whether the company is liable in respect of any particular act or omission it is necessary to identify the natural person who represented the company for that particular purpose and who [can] therefore can be regarded as embodying for that purpose what is sometimes called its controlling mind and will. When seeking to identify the person who is to count as the company for the purposes of a substantive rule of law it is necessary to consider the nature and policy of that rule. The essence of fraudulent misrepresentation, so far as is relevant for this case, is making a statement that is known to be untrue intending that the person to whom it is made will rely on it. Liability therefore depends on the conjunction of a false statement and a dishonest state of mind. In a case where it is said that a company has made a fraudulent misrepresentation the first step must be to see whether a false statement has been made by someone who is authorised to speak on the company's behalf. Once that has been established the starting point in deciding whether the company acted dishonestly must be to enquire into the state of mind of the person who made the statement. However, if that person was unaware that the statement was false, it may be necessary to enquire into the state of mind of other persons who directed him to make it or who allowed it to be made.”

The court therefore has to determine who made each representation; whether that person was authorised to speak on behalf of the corporation; whether that person had the required state of mind and, if not, whether some other person who directed the representation to be made had the required state of mind. If the person who made the statement or directed it to be made did not have a dishonest state of mind, then the claim for deceit fails: see Armstrong v Strain[1952] 1 KB 232.

The representor must have made the statement with intent to deceive, that is with intent that it shall be acted upon by the representee: see Bradford Building Societyv Borders[1941] 2 All ER 205 at 211.

The representee, Sky, must show that the representation induced it to act to its detriment: see Downs v Chappell[1997] 1 WLR 426 at 433 per Hobhouse LJ. The representation need not be the sole cause of the claimant acting as he did, provided that it substantially contributed to deceive him: see JEB Fasteners Ltd vMarks Bloom & Co[1983] 1 All ER 583 per Stephenson LJ at 589b and Donaldson LJ at 588c/d.

In Avon Insurance Plc Rix J said this at paragraph 18:

“I derive from that case the distinction between a factor which is observed or considered by a plaintiff, or even supports or encourages his decision, and a factor which is sufficiently important to be called a real and substantial part of what induced him to enter into a transaction.”

Where a claimant alleges that a representation has a particular meaning, the claimant has to establish that his understanding as to the meaning of the representation at the time was the same as now alleged: see Smith v Chadwick(1884) 9 App. Cas. 187.

The modern foundation for claims for economic loss caused by negligent misstatement is the decision of the House of Lords in Hedley Byrne v Heller[1964] 2 AC 465.

In Henderson v Merrett Syndicates Limited[1995] 2 AC 145, Lord Goff identified the principle in Hedley Byrneas being assumption of responsibility by the defendant along with reliance by the claimant. In determining whether there was an assumption of responsibility an objective test is applied; see Lord Goff at 181.

In Smith v Eric S Bush[1990] 1 AC 831 at 862 Lord Griffiths said:

“The phrase 'assumption of responsibility' can only have any real meaning if it is understood as referring to the circumstances in which the law will deem the maker of the statement to have assumed responsibility to the person who acts upon the advice.”

As Lord Oliver said in Caparo Industries Plc v Dickman[1990] 2 AC 605 at 637F:

“[Voluntary assumption of responsibility] is a convenient phrase but it is clear that it was not intended to be a test for the existence of the duty for, on analysis, it means no more than that [sic] the act of the defendant in making the statement or tendering the advice was voluntary and that the law attributes to it an assumption of responsibility if the statement or advice is inaccurate and is acted upon. It tells us nothing about the circumstances from which such attribution arises.”

The passages in Smith v Eric Bush and Caparo were also cited in HM Customs &Excise v Barclays Bank[2006] UKHL 28 by Lord Bingham at para 5 and Lord Mance at para 88.

In Caparo Lord Bridge identified a threefold testat 617:

Lord Bridge observed at 618 that the concepts of proximity and fairness are “not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope".

He continued by referring to the incremental approach and said:

“Whilst recognising, of course, the importance of the underlying general principles common to the whole field of negligence, I think the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes. We must now, I think, recognise the wisdom of the words of Brennan J. in the High Court of Australia in Sutherland Shire Councilv. Heyman (1985) 60 A.L.R. 1 , 43-44, where he said:

“It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable 'considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed.””

In HM Customs & Excise v Barclays Bank [2006] UKHL 28 at para 71 Lord Walker said.

“The increasingly clear recognition that the three-fold test (first stated by Lord Bridge of Harwich in Caparo Industries plc v Dickman [1990] 2 AC 605 , 617–618) does not provide an easy answer to all our problems, but only a set of fairly blunt tools, is to my mind progress of a sort. I respectfully agree with the observation of Kirby J. in Perre v Apand Pty Ltd (1999) 198 CLR 180 , 284:

“As against the approach which I favour, it has been said that the three identified elements are mere ‘labels’. So indeed they are… Labels are commonly used by lawyers. They help steer the mind through the task in hand.””.

In addition, Lord Hoffman said at para 36 of the Barclays Bankcase:

“It is equally true to say that a sufficient relationship will be held to exist when it is fair, just and reasonable to do so. Because the question of whether a defendant has assumed responsibility is a legal inference to be drawn from his conduct against the background of all the circumstances of the case, it is by no means a simple question of fact. Questions of fairness and policy will enter into the decision and it may be more useful to try to identify these questions than simply to bandy terms like "assumption of responsibility" and "fair, just and reasonable"”

Lord Bingham said this at para 8:

“..it seems to me that the outcomes (or majority outcomes) of the leading cases cited above are in every or almost every instance sensible and just, irrespective of the test applied to achieve that outcome. This is not to disparage the value of and need for a test of liability in tortious negligence, which any law of tort must propound if it is not to become a morass of single instances. But it does in my opinion concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole.”

Lord Bridge observed in Caparo at 627D:

“…It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless. 'The question is always whether the defendant was under a duty to avoid or prevent that damage, but the actual nature of the damage suffered is relevant to the existence and extent of any duty to avoid or prevent it': see

Sutherland Shire Council v Heyman.”

This observation was applied by Chadwick LJ in Man Nutzfahrzeuge AG vFreightliner Ltd[2007] EWCA Civ 910 at para 48.

EDS submit that, given the high level of abstraction at which the tests for the existence of a duty of care operate, the court must consider the detailed circumstances of the case and the relationship between the parties to determine whether it is sensible and just for a duty of care to be found to exist. That, I consider, is a sufficient summary of the position which the law has reached so far as the general test for the existence of a duty of care. I now turn to consider the impact of the contractual regime on the existence of a duty of care.

The starting point for a consideration of the effect of the contract is Henderson vMerrett [1995] 2 AC 145. At 191B to D Lord Goff referred to Central Trust Co. v.Rafuse (1986) 31 D.L.R. (4 th) 481. He said:

“Le Dain J., delivering the judgment of the Supreme Court of Canada, conducted a comprehensive and most impressive survey of the relevant English and Canadian authorities on the liability of solicitors to their clients for negligence, in contract and in tort, in the course of which he paid a generous tribute to the analysis of Oliver J. in the Midland BankTrust Co.case. His conclusions are set out in a series of propositions at pp. 521-522; but his general conclusion was to the same effect as that reached by Oliver J. He said, at p. 522:

“A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be the most advantageous to him in respect of any particular legal consequence.”

I respectfully agree.”

In the course of considering liability Lord Goff said this at 193H to 194 B:

“My own belief is that, in the present context, the common law is not antipathetic to concurrent liability, and that there is no sound basis for a rule which automatically restricts the claimant to either a tortious or a contractual remedy. The result may be untidy; but, given that the tortious duty is imposed by the general law, and the contractual duty is attributable to the will of the parties, I do not find it objectionable that the claimant may be entitled to take advantage of the remedy which is most advantageous to him, subject only to ascertaining whether the tortious duty is so inconsistent with the applicable contract that, in accordance with ordinary principle, the parties must be taken to have agreed that the tortious remedy is to be limited or excluded.”

At 194D he concluded:

“But, for present purposes more important, in the instant case liability can, and in my opinion should, be founded squarely on the principle established in Hedley Byrne itself, from which it follows that an assumption of responsibility coupled with the concomitant reliance may give rise to a tortious duty of care irrespective of whether there is a contractual relationship between the parties, and in consequence, unless his contract precludes him from doing so, the plaintiff, who has available to him concurrent remedies in contract and tort, may choose that remedy which appears to him to be the most advantageous.”

At 195G to 196C he said this:

“I wish however to add that I strongly suspect that the situation which arises in the present case is most unusual; and that in many cases in which a contractual chain comparable to that in the present case is constructed it may well prove to be inconsistent with an assumption of responsibility which has the effect of, so to speak, short circuiting the contractual structure so put in place by the parties. It cannot therefore be inferred from the present case that other sub-agents will be held directly liable to the agent's principal in tort. Let me take the analogy of the common case of an ordinary building contract, under which main contractors contract with the building owner for the construction of the relevant building, and the main contractor sub-contracts with sub-contractors or suppliers (often nominated by the building owner) for the performance of work or the supply of materials in accordance with standards and subject to terms established in the sub-contract. I put on one side cases in which the subcontractor causes physical damage to property of the building owner, where the claim does not depend on an assumption of responsibility by the sub-contractor to the building owner; though the sub-contractor may be protected from liability by a contractual exemption clause authorised by the building owner. But if the sub-contracted work or materials do not in the result conform to the required standard, it will not ordinarily be open to the building owner to sue the sub-contractor or supplier direct under the Hedley Byrneprinciple, claiming damages from him on the basis that he has been negligent in relation to the performance of his functions. For there is generally no assumption of responsibility by the sub-contractor or supplier direct to the building owner, the parties having so structured their relationship that it is inconsistent with any such assumption of responsibility. This was the conclusion of the Court of Appeal in SimaanGeneral Contracting Co. v. Pilkington Glass Ltd. (No. 2) [1988] Q.B. 758. As Bingham L.J. put it, at p. 781:

"I do not, however, see any basis on which [the nominated suppliers] could be said to have assumed a direct responsibility for the quality of the goods to [the building owners]: such a responsibility is, I think, inconsistent with the structure of the contract the parties have chosen to make."”

…

Here however I can see no inconsistency between the assumption of responsibility by the managing agents to the indirect Names, and that which arises under the sub-agency agreement between the managing agents and the members' agents, whether viewed in isolation or as part of the contractual chain stretching back to and so including the indirect Names. For these reasons, I can see no reason why the indirect Names should not be free to pursue their remedy against the managing agents in tort under the Hedley Byrneprinciple.”

The earlier decision of the Court of Appeal in Pacific Associates v Baxter[1990] 1 QB 993 illustrates the way in which a contract between two parties may affect the existence of a duty of care between one of those parties and a third party. In that case the contractor sought to bring a claim in tort against a firm of engineers who acted as the Engineer under the contract between the contractor and the employer. That contract contained a clause disclaiming any liability of the engineer.

At 1010 F to H Purchas LJ said this:

“…where the parties have come together against a contractual structure which provides for compensation in the event of a failure of one of the parties involved the court will be slow to superimpose an added duty of care beyond that which was in the contemplation of the parties at the time that they came together. I acknowledge at once the distinction, namely, where obligations are founded in contract they depend on the agreement made and the objective intention demonstrated by that agreement whereas the existence of a duty in tort may not have such a definitive datum point. However, I believe that in order to determine whether a duty arises in tort it is necessary to consider the circumstances in which the parties came together in the initial stages at which time it should be considered what obligations, if any, were assumed by the one in favour of the other and what reliance was placed by the other on the first. The obligations do not, however, remain fixed subject only to specific variations as in the case of contract. I would not exclude a change in the relationship affecting the existence or nature of a duty of care in tort.”

At 1011 F to G he said:

“The central question which arises here is: against the contractual structure of the contract into which the contractor was prepared to enter with the employer, can it be said that it looked to the engineer by way of reliance for the proper execution of the latter's duties under the contract in extension of the rights which would accrue to it under the contract against the employer? In other words, although the parties were brought into close proximity in relation to the contract, was it envisaged that a failure to carry out his duties under the contract by the engineer would foreseeably cause any loss to the contractor which was not properly recoverable by the contractor under its rights against the employer under the contract?”

Ralph Gibson LJ said at 1032 D to E:

“Nevertheless, in agreement with Purchas L.J., it seems to me to be neither just nor reasonable in the circumstances of the contractual terms existing between the contractor and the employer (absent the disclaimer clause) to impose a duty of care on the engineer to the contractor in respect of the matters alleged in the statement of claim, namely, the alleged failure to certify and final rejection of the contractor's claims. So to do would be to impose, in my judgment, a duty which would cut across and be inconsistent with the structure of relationships created by the contracts, into which the parties had entered, including in particular the machinery for settling disputes.”

Russell LJ expressed the question in these terms at 1037 G:

“In my opinion the following question is worthy of being posed. Given the contractual structure between the contractor and the employer, can it be fairly said that it was ever within the contemplation of the contractor that, outside the contract, it could pursue a remedy against the engineer?”

In addition at 1022C to 1023A Purchas LJ considered what had been said about the existence of an exclusion clause in a relevant contract:

“Before leaving the question of disclaimer I should refer to the speech of Lord Brandon of Oakbrook in Leigh and Sillavan Ltd. v. AliakmonShipping Co. Ltd. [1986] A.C. 785 , 817. Lord Brandon was commenting on the speech of Lord Roskill in Junior Books Ltd. v. Veitchi Ltd. [1983] 1 A.C. 520 in which Lord Roskill was considering whether an exclusion clause in the main contract might affect the position as between one party to that contract and a third party. Lord Roskill said, at p. 546:

"My Lords, that question does not arise for decision in the instant appeal, but in principle I would venture the view that such a claim according to the manner in which it was worded might in some circumstances limit the duty of care just as in the Hedley Byrnecase the plaintiffs were ultimately defeated by the defendants' disclaimer of responsibility."

With reference to this passage Lord Brandon in the Leigh and SillavanLtd.case said, at p. 817:

"As is apparent this observation was no more than an obiter dictum. Moreover, with great respect to Lord Roskill there is no analogy between the disclaimer in Hedley Byrne & Co. Ltd. v.Heller & Partners Ltd. [1964] A.C. 465 , which operated directly between the plaintiffs and the defendants, and an exclusion of liability clause in a contract to which the plaintiff is a party but the defendant is not. I do not therefore find in the observation of Lord Roskill relied on any convincing legal basis for qualifying a duty of care owed by A to B by reference to a contract to which A is, but B is not, a party."

There can be no doubt of the force of Lord Brandon's comment as it stands. However, with great respect to Lord Brandon the absence of a direct contractual nexus between A and B does not necessarily exclude the recognition of a clause limiting liability to be imposed on A in a contract between B and C, when the existence of that contract is the basis of the creation of a duty of care asserted to be owed by A to B. The presence of such an exclusion clause whilst not being directly binding between the parties, cannot be excluded from a general consideration of the contractual structure against which the contractor demonstrates reliance on, and the engineer accepts responsibility for, a duty in tort, if any, arising out of the proximity established between them by the existence of that very contract.”

As an illustration of a recent consideration of the effect of the contractual structure I was referred to the decision of Gloster J in JP Morgan Chase Bank andothers v Springwell Navigation Corp[2008] EWHC 1186 (Comm) in which the existence of a duty of care between various entities in Chase and Springwell, an investment vehicle, was in issue. At [475] and [498], after referring to Hendersonv Merrett she dealt with the relevance of the contract upon the existence of a duty of care between Springwell and other Chase entities. She said:

EDS referred me to McCullagh v Lane Fox & Partners Ltd [1996] 1 EGLR 35 where there was a disclaimer of responsibility in an estate agent's particulars that repeated a (mis)representation that had previously been made orally by the estate agent. Hobhouse LJ held that the disclaimer was effective in that it made it wholly unreasonable for the purchaser to rely on the earlier oral representation. Hobhouse LJ referred to Hedley Byrne and the speeches of Lord Reid at 492, Lord Morris at 504 and Lord Devlin at 533 on the relevance of the disclaimer and summarised the position as:

“Thus the relevance of the disclaimer is to negative one of the essential elements for the existence of the duty of care. It negatives the assumption of responsibility for the statement. It implicitly tells the recipient of the representation that if he chooses to rely upon it he must realise that the maker is not accepting responsibility for the accuracy of the representation. The disclaimer is part of the factual situation which the court has to take into account in deciding whether or not the defendants owed a duty of care to the plaintiff. Put another way, the question is whether the plaintiff was entitled to treat the representation as one for which the defendants were accepting responsibility.”

He also drew a distinction between a disclaimer and an exclusion clause when he said:

“The judge avoided this conclusion by approaching the disclaimer as if it were a contractual exclusion. On such an approach it would need to be strictly construed and the argument was available that it did not as such cover an oral statement. But that is not, in my judgment, the right approach. It is not an exclusion to be construed. The right approach, as is made clear in Hedley Byrne, is to treat the existence of the disclaimer as one of the facts relevant to answering the question whether there had been an assumption of responsibility by the defendants for the relevant statement.”

I was referred by Sky to the Court of Appeal decision in Coupland vArabian Gulf[1983] 1 WLR 1136 in which Robert Goff LJ said at 1153: “what impact does the existence of the contract have on the claim in tort? In my judgment, on ordinary principles the contract is only relevant to the claim in tort in so far as it does, on its true construction in accordance with the proper law of the contract, have the effect of excluding or restricting the tortious claim.” I do not consider that case of relevance as it was considering the impact of a contract on a claim by an employee for personal injury based on Donoghue v Stevenson principles and not whether a duty of care existed on Hedley Byrne v Heller principles.

From what I have said it follows that I accept Sky’s submission that the correct approach is first to consider whether, absent the Prime Contract, a duty of care would arise as between the relevant parties, and, if the answer to this question is positive, then to consider whether the existence of and the terms of the Prime Contract have the effect of excluding or restricting the duty of care.

In my judgment, in considering whether a contractual provision affects the existence or the scope or extent of a duty of care, the test is whether the parties having so structured their relationship that it is inconsistent with any such assumption of responsibility or with it being fair, just and reasonable to impose liability. In particular, a duty of care should not be permitted to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort.

I shall consider the question of whether there is a duty of care when I have dealt with a number of points of construction of documents.

It is convenient at this stage to deal with a number of issues of construction which arise. First, there are issues concerning the terms of the Prime Contract and, in particular, the Entire Agreement clause at Clause 1.3, the Warranty provision at Clause 7.2 and the Limitation and Exclusion provisions in Clause 20. Secondly there is a question of the scope of the settlement of claims within the Letter of Understanding. Thirdly there is an issue as to the enforceability and effect of the Memorandum of Understanding.

Clause 1.3.1 of the Prime Contract under the heading "Entire Agreement" provides as follows:

EDS contend that the Entire Agreement clause has the following effect upon the claims by SSSL against EDSL:

EDS submit that Clause 1.3.1 goes further than fulfilling the purpose of a basic entire agreement clause and contend that:

EDS say that the Entire Agreement clause has the effect of being an agreement that any representation is withdrawn or overridden or of no legal effect. They refer to the principle that a representor can modify or withdraw a prior representation at any time before the agreement is concluded and refer to the speech of Lord Tucker in Briess v Woolley[1954] AC 333, at p.354. They say that there is no reason why he could not do so by suitable wording in the agreement itself and rely on the decision of Moore-Bick LJ in Man NutzfahrzeugeAG & Ors v Freightliner Ltd & Ors[2005] EWHC 2347 at [125] to [128] as illustrating this. They also rely on the decision of Moore-Bick LJ in PeekayIntermark and Harish Pawani v Australia and New Zealand Banking Group[2006] EWCA Civ 386, CA at paragraph 56 which was cited by Gloster J in JPMorgan Chase v. Springwellat paragraphs 547 to 556.

EDS also submit that, in any event, the effect of the Entire Agreement clause is to exclude EDSL from liability for non-fraudulent misrepresentation in respect of prior representations and rely on the decision of Rix J and the Court of Appeal in Deepak Fertilisers and Petrochemicals Corporation v. ICI Chemicals & PolymersLtd. & Ors[1998] 2 Lloyd's Rep 139 and at [1999] 1 Lloyd's Rep 387 at paragraph 34.

For these reasons, EDS submit that the Entire Agreement clause does more than simply provide certainty as to the terms of the contract between the parties but has the further effect set out above.

Sky's case is that the effect of the clause is simply to provide that pre-contractual representations do not form part of the Prime Contract. They contend that EDS’ submission is in error both on the language of the clause itself and on the basis of the authorities.

Sky submit that there is consistent case law which demonstrates that entire agreement clauses operate to defeat any suggestion of a collateral warranty or contract or other such side agreement, but they are not effective, without more, to exclude liability for misrepresentation. Sky refer to the decision of the Court of Appeal in Deepak Fertilisers and Petrochemicals Corporation v ICI Chemicals &Polymers Ltd and Ors[1998] 1 Lloyds Rep 387, in particular at [39] and also to Inntrepeneur Pub Co v East Crown Ltd[2000] 2 Lloyds Rep 611 at [7] to [8].

Whilst Sky accept that every clause is be construed on its own terms, they submit, in light of the authorities and the terms of Clause 1.3.1, that the first sentence is not effective to exclude liability for misrepresentation, fraudulent, negligent or innocent. Rather Sky submit that the clause does not deal with exclusion of liability for misrepresentation.

In relation to EDS’ submission that the exclusion of liability for non-negligent misrepresentation arises by inference from the wording of the last sentence of Clause 1.3.1, Sky submit that, whilst that inference is, in theory possible, the natural and logical inference is that the final sentence has been included out of a mistaken abundance of caution because the first sentence does not exclude liability for misrepresentation.

Whilst Sky accept that since Photo Production Ltd v Securicor Ltd[1980] AC 827, the law has moved away from adopting unnecessarily strained constructions of exemption clauses, they say that exemption clauses are construed strictly giving “due allowance [to] the presumption in favour of the implied primary and secondary obligation”, per Lord Diplock at 851.

Sky also rely on the fact that any ambiguity in an exemption clause is to be resolved contra proferentem and refers to Lewison, The Interpretation ofContracts (2nd. edn) at para 12.05. They also draw support from Lord Morton’s speech in Canada Steamship Lines Ltd v R[1952] AC 192 that an exemption clause will not relieve a party from liability for negligence unless it does so expressly or by necessary implication.

Sky submit therefore that the Entire Agreement clause is not effective to exclude EDSL’s liability to SSSL for misrepresentation of any sort. Even if it were effective to exclude EDSL’s liability for pre-contractual misrepresentations, Sky submit that it cannot, on any view, extend to the representation made in Clause 7.2 of the Prime Contract itself.

The issue in this case is whether Clause 1.3.1 of the Prime Contract excludes liability for misrepresentation. Whilst the effect of that clause depends on the particular wording, it is of assistance to review the principles that the courts have applied in construing similar provisions.

In Inntrepreneur Pub Co v East Crown Ltd[2000] 2 Lloyd’s Rep 611 Lightman J held that an entire agreement prevented a claim based upon a collateral warranty. The clause in question differs greatly from the one in this case. In coming to his conclusion Lightman J said at [7]:

“The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often longforgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need that may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save in so far as they are reflected and given effect in that document.”

He also observed at [8] that “An entire agreement provision does not preclude a claim in misrepresentation, for the denial of contractual force to a statement cannot affect the status of the statement as a misrepresentation.” He referred to the leading case of Deepak v. Imperial Chemical Industries plc [1998] 2 Lloyd’s Rep. 139, affirmed [1999] 1 Lloyd’s Rep. 387 in which the relevant clause, clause 10.16, read as follows:

“This CONTRACT comprises the entire agreement between the PARTIES, as detailed in the various Articles and Annexures and there are not any agreements, understandings, promises or conditions, oral or written, expressed or implied, concerning the subject matter which are not merged into this CONTRACT and superseded hereby. This CONTRACT may be amended in the future only in writing executed by the PARTIES.”

The Court of Appeal held that this provision was not sufficient to exclude representations. Stuart-Smith LJ giving the judgment of the court said “But we do not think the opening words themselves exclude misrepresentations and they cannot be brought within the specific words. In our judgment the Judge was right on his construction of art. 10.16.”

At first instance Rix J had said this about clause 10.16 at 167:

“Deepak submit that this article excludes liability for neither misrepresentation nor collateral warranties, and that in any event any such exclusion would be limited by the phrase “concerning the subject matter”. Davy submit that it excludes liability for all pleaded misrepresentations and collateral warranties. It is common ground that it does not cover tortious liability in negligence.

I agree with Deepak's submission so far as concerns misrepresentation. Thus the clause's language – “agreements, understandings, promises or conditions” - is not apt, expressly or impliedly, to include representations.

This was the view of Mr. Justice Browne-Wilkinson in Alman and Bensonv. Associated Newspapers Group Ltd. , June 20, 1980, (unreported, Lexis transcript at p. 30):

“Clause 11(1) provides that the written contract constitutes “the entire agreement and understanding between the parties with respect to all matters therein referred to”. It is to be noted that it does not in terms refer to representations. The defendants, however, submit that the word “understanding” covers the representation alleged in this case. I cannot accept this submission. Although it is true that, in one sense, the common assumption by all parties that the plaintiffs were to be in charge of the day-to-day running could be called “an understanding” between them, the plaintiffs are not suing on that bilateral “understanding”, but on the representation of intention implicit in it. Clause 11(1) plainly excludes any contractual claim based on a bilateral understanding, but it does not go further. In my judgment the word “understanding” is directed to excluding any claims arising from warranties collateral to the main agreement. If it were designed to exclude liability for misrepresentation it would, I think, have to [be] couched in different terms, for example, a clause acknowledging that the parties had not relied on any representations in entering into the contract. I therefore hold that the word “understanding” in this contract is not apt to cover representations, and accordingly does not exclude the plaintiffs' claim.”

The addition of the words “promises or conditions” in this case seems to me to take the matter no further: neither of those expressions refers to a representation as distinct from some undertaking. In Thomas Witter Ltd. v.TBP Industries Ltd., (1994) 12 Tr. L. 145 at pp. 167-170 Mr. Justice Jacob held that even a clause which goes on to provide for an acknowledgement that a party has not been induced to enter into a contract by any other than scheduled representations does not exclude liability in misrepresentation arising out of some other representation, if that party can succeed evidentially in proving, despite that acknowledgment, that he was induced by it. He said (at p. 168C):

“Unless it is manifestly made clear that a purchaser has agreed only to have a remedy for breach of warranty I am not disposed to think that a contractual term said to have this effect by a roundabout route does indeed do so. In other words, if a clause is to have the effect of excluding or reducing remedies for damaging untrue statements then the party seeking that protection cannot be mealy-mouthed in his clause. He must bring it home that he is limiting liability for falsehoods he may have told.”

In Man Nutzfahrzeuge AG & Ors v Freightliner Ltd & Ors [2005] EWHC 2347 Moore-Bick LJ considered a provision at Section 14.10 of a contract which provided as follows:

“This Agreement together with the Ancillary Agreements constitutes the entire agreement between the Parties and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties. There are no representations, warranties, covenants, conditions or other agreements, express or implied, collateral, statutory or otherwise, between the Parties in connection with the subject matter of this Agreement except as specifically set forth herein and none of the Parties has relied or is relying on any other information, discussion or understanding in entering into and completing the transactions contemplated in this Agreement and the Ancillary Agreements … Nothing in this Section 14.10 shall affect any Party's liability for fraud or fraudulent misrepresentation.”

He then said at [127] to [128]:

“ While recognising that this clause specifically excludes fraud from the scope of its operation, Mr. Vos submitted that it clearly was intended to prevent the purchaser from seeking relief of any kind based on innocent or negligent misrepresentations. He argued that either MN relied on representations or it did not. It made no sense to say that MN did not rely on representations if they were made innocently or negligently, but did rely on representations if they were made fraudulently.

I can see the logic of that submission, but in my view it fails to have sufficient regard to the parties' intentions in including this provision in the agreement. The first two sentences are in my view intended to make it clear that the agreement contains the definitive statement of the parties' rights and liabilities arising out of the negotiations. Although the second sentence is worded in terms of an absence of any representations etc. outside the agreement itself, it does in fact operate as a contractual renunciation of the right to rely on anything said or done in the course of the negotiations as giving rise to a ground of complaint, or indeed for any other purpose. To that extent the clause does alter the parties' positions, but it is subject to the exception in the final sentence which makes it clear that they did not intend to give up the right to hold each other liable for fraud or fraudulent misrepresentations made before entering into the agreement. For these reasons I am satisfied that Section 14.10 does not prevent MN from holding Freightliner liable for the fraud of Mr. Ellis.”

I now turn to consider whether the Entire Agreement clause in this case has the effect of modifying or withdrawing the representations which were alleged to have been made pre-Prime Contract.

I accept the principle that, as stated by Lord Tucker in Briess v Woolley[1954] AC 333, at p.354 that a representor can modify or withdraw a prior representation at any time before it is relied on. It is obviously right that if a representor wrongly represents something then he must be able to modify or withdraw it before it is relied upon. Does the Entire Agreement clause have that effect?

The relevant words of Clause 1.3.1 are “…this Agreement and the Schedules shall together represent the entire understanding and constitute the whole agreement between the parties in relation to its subject matter and supersede any previous discussions, correspondence, representations or agreement between the parties with respect thereto…”.

Those words do not, in my judgment, amount to an agreement that representations are withdrawn, overridden or of no legal effect so far as any liability for misrepresentation may be concerned. The provision is concerned with the terms of the Agreement. It provides that the Agreement represents the entire understanding and constitutes the whole agreement. It is in that context that the Agreement supersedes any previous representations. That is, representations are superseded and do not become terms of the Agreement unless they are included in the Agreement. If it had intended to withdraw representations for all purposes then the language would, in my judgment, have had to go further.

In Man Nutzfahrzeuge v Freightliner Ltd the clause went wider and stated that:“There are no representations, warranties, covenants, conditions or other agreements, express or implied, collateral, statutory or otherwise, between the Parties in connection with the subject matter of this Agreement except as specifically set forth herein and none of the Parties has relied or is relying on any other information, discussion or understanding in entering into and completing the transactions contemplated in this Agreement and the Ancillary Agreements …”. That expressly referred to the fact that the parties were not relying on any other information or discussion in entering into and completing the transactions. In his judgment Moore-Bick LJ said in relation to this second sentence: “Although the second sentence is worded in terms of an absence of any representations etc. outside the agreement itself, it does in fact operate as a contractual renunciation of the right to rely on anything said or done in the course of the negotiations as giving rise to a ground of complaint, or indeed for any other purpose.” It is therefore the “contractual renunciation of the right to rely” which makes the difference in that case. That is absent here.

Whilst I accept that there can be a contractual estoppel, I do not consider that EDS’ reliance on Peekay Intermark and Harish Pawani v Australia and NewZealand Banking Group Ltd [2006] EWCA Civ 386, CA takes the matters further. The principle was summarised by Moore-Bick LJ at paragraph 56 in these terms:

“There is no reason in principle why parties to a contract should not agree that a certain state of affairs should form the basis for the transaction, whether it be the case or not.”

In this case the statement that the Agreement superseded any previous discussions, correspondence, representations or agreement between the parties with respect to the subject matter of the agreement prevented other terms of the agreement or collateral contracts from having contractual effect. It did not supersede those matters so far as there might be any liability for misrepresentation based on them.

Does the clause have the effect of excluding a duty of care between EDSL and SSSL in relation to representations? There is no doubt that the clause does refer expressly to representations unlike Deepak v. Imperial Chemical Industies and Alman and Benson v. Associated Newspapers Group Ltd but like Thomas WitterLtd. v. TBP Industries Ltd and Man Nutzfahrzeuge v Freightliner. Also, like ManNutzfahrzeuge v Freightliner it concludes with a statement that it does not exclude liability for fraudulent misrepresentation. It therefore falls somewhere in between the decided cases. However I have come to the conclusion that it does not have the effect of excluding liability for non-fraudulent misrepresentation. First, I do not consider for the reasons set out above that it covers liability for misrepresentation rather than contractual liability for representations.

Secondly, while there is reference to representations, there is nothing in the clause that indicates that it is intended to take away a right to rely on misrepresentations. As Browne-Wilkinson J said in Alman and Benson v. Associated Newspapers

Thirdly, the reference in the final sentence to “This clause does not exclude liability of either party for fraudulent mis-representation” is obviously an indication that the previous words of the clause would otherwise have that effect. However, in the absence of words which do have that effect, I do not consider that such a statement can create an exclusion which it then negatives. Put another way,

As a result, for the reasons set out above, I do not consider that the Entire Agreement clause precludes SSSL from advancing a claim for negligent misrepresentation or misstatement against EDSL.

Clause 7.2 provides:

“The Contractor warrants to SSSL that it has the knowledge, ability and expertise to carry out and perform all obligations, duties and responsibilities of the Contractor set out in this Agreement and acknowledges that SSSL relies on the Contractor’s knowledge, ability and expertise in the performance of its obligations under this Agreement.”

EDS rely on this clause to show that the parties incorporated into the Prime Contract as warranties any representations which they considered to be of importance. For the reasons given above I consider that this provision is an example of a matter which is incorporated as a term of the Prime Contract and therefore supersedes any prior representations for the purpose of forming a term of the contract or a collateral contract but not in relation to any claim for misrepresentation.

Sky rely on Clause 7.2 for a different purpose. Sky submit that, as between EDSL and SSSL, Clause 7.2 of the Prime Contract gives rise to an estoppel. This estoppel argument formed one of the amendments to paragraph 51 of the Particulars of Claim for which permission was given on 7 September 2007, but that EDS’ responsive Defence at paragraph 154 does not contain any response to this amendment.

Sky say that by the terms of Clause 7.2, EDSL made a clear and unequivocal statement that it “has the knowledge, ability and expertise to carry out and perform all obligations, duties and responsibilities of the Contractor set out in this Agreement”. In addition EDSL“acknowledges that SSSL relies on the

Sky say that the first part of the statement amounts to a representation of fact that EDS possessed certain knowledge, ability and expertise. In my judgment that provides for a contractual remedy by way of breach of warranty but cannot, in itself, give rise to any independent claim by way of misrepresentation.

In relation to the second part EDS contend that it does not contain an acknowledgment of reliance at the point of entering into the Prime Contract, but rather contains merely an acknowledgment that SSSL would rely in the future on EDS’ knowledge, ability and expertise. Sky submit that this is equivalent to saying that SSSL“will rely” rather than that SSSL “relies” on EDSL’s knowledge, ability and expertise which is not what the clause says.

Sky contend that the statement was a representation of fact that SSSL were there and then in fact relying on that knowledge, ability and expertise. Sky also say that it is clear from the words that the representation was of a nature to induce SSSL, was made with an intention to induce SSSL and did in fact induce SSSL to alter its position to its detriment, by entering into the Prime Contract with EDSL.

I consider that the reference to an acknowledgement by EDSL that SSSL “relies” is, as Sky submit, an acknowledgment that Sky was relying on EDSL’s knowledge, ability and expertise at the time of the Prime Contract. I also consider that, to the extent that EDSL deny that SSSL so relied at the time of the Prime Contract, that would contradict this statement and EDSL would be estopped from asserting that SSSL did not rely on EDSL’s knowledge, ability and expertise.

Clause 20 contains two provisions which are relied on by EDS. First, Clause 20.2 which provides that:

“Save as provided in Clause 20.1, neither party shall have any liability to the other party in respect of (i) any consequential or indirect loss or (ii) loss of profits, revenue, business, goodwill and/or anticipated savings.”

Secondly, Clause 20.5.1 which provides as follows:

“Subject to Clauses 20.1, 20.2, 20.3, 20.4 and 20.6, the total aggregate liability of each party at the time of the relevant claim (other than SSSL's obligations under Clause 10) and its officers, employees and agents to the other party arising out of any act, omission, event or circumstances relating to this Agreement or with respect to the matters contemplated herein shall in no circumstances exceed:

(a)

in respect of the Contractor, the sum of all amounts paid to the Contractor under Clause 10 at the time of the relevant claim (the "Liability Cap"); and…”

Clause 20.5.2 provides in following terms the practical effect of which is that the Liability Cap shall be not greater than £30 million:

“Subject to Clauses 20.5.3, 20.6 and 20.7, the Liability Cap for the Term shall not at any time be less than £6 million (six million pounds), nor greater than £30 million (thirty million pounds).”

Clause 20.8 defines “liability” to mean “any liability, whether under statute or in tort (including negligence), contract or otherwise…”

EDS submit that Clause 20.2 affects the claims which are brought by SSSL against EDSL in this case.

EDS say that the losses claimed by Sky, for example at paragraph 108.1 of the Particulars of Claim, fall into three categories: development costs of implementing the CRM system, operating costs and loss of profits and other business benefits.

EDS contend that, absent deceit, SSSL's claims against EDSL for lost profits and business benefits in respect of reduced Call Handling Costs are excluded by Clause 20.2.

Sky contend that all losses are “direct losses” and are therefore outside Clause

EDS submit that Sky's argument, which depends on a distinction between direct and indirect losses, should be rejected. They say that Clause 20.2 does not limit the exclusion to indirect losses. It specifically excludes “loss of profits, revenue, business, goodwill and/or anticipated savings”, which does not depend on whether such losses are categorised as direct or indirect.

EDS say that SSSL's claim in respect of Call Rate Reduction benefit is one for the loss of savings in the form of reduced staff costs which Sky say would have been made had the CRM System been in place earlier. EDS submit that this is a claim for loss of “anticipated savings” which falls within Clause 20.2(ii).

Sky submit that the losses arise within the first limb of Hadley v Baxendale (1854) 9 Exch 341 and are therefore direct losses. They say that they are therefore not “consequential” or “indirect” which phrases refer to losses within the second limb of Hadley v Baxendale. They refer to the decision in Croudace ConstructionLtd v Cawoods Concrete Products Ltd (1978) 8 BLR 20 and to subsequent Court of Appeal authorities which, they submit, have consistently upheld this view.

I accept that the reference to “consequential” losses in Clause 20.2(i) is a reference to “indirect” losses within the second limb of Hadley v Baxendale, as consistently held in the Court of Appeal starting from Millar’s Machinery Co vDavid Way (1935) 40 Com. Cas 204 and Croudace v Cawoods and the recent cases cited in McGregor on Damages (Seventeenth Edition) at para 1-037.

However, Clause 20.2(ii) excludes liability for “loss of profits, revenue, business, goodwill and/or anticipated savings” and, as EDS submit, that part of Clause 20.2 is a separate exclusion and does not depend on such losses also being “consequential” or “indirect” under Clause 20.2(i).

EDS submit that SSSL's claim in respect of Call Rate Reduction benefit falls within the exclusion in Clause 20.2(ii). That claim is based on the premise that the Sky CRM System reduces inbound subscriber calls to the call centres, thereby enabling Sky to reduce the number of CAs required to answer calls. Sky also claim that the reduction in calls will enable it to reduce the number of “CTI Support” and “Sales Support” staff who manage the CAs. I accept EDS’ submission that Clause 20.2(ii) would exclude liability for this loss on the basis that it is loss of “anticipated savings”. Thus, except for claims in deceit, Clause 20.2(ii) has the effect of excluding EDSL’s liability to SSSL for Call Rate

Sky plead as follows in relation to the Cap:

“On a true construction of the Contract, clause 20 is effective to limit to £30 million EDSL's liability to SSSL in respect of breach of contract and negligent misrepresentation, but is not effective to limit: (i) EDSL's liability to SSSL for deceit; (ii) any liability of EDSC; or (iii) any liability to BSkyB Ltd.”

In opening oral submissions Sky said that a claim based on negligent misrepresentation, under the Misrepresentation Act 1967 or at common law, or a claim for breach of contract would be subject to the cap of £30 million.

It is evident that Sky accept that the Cap applies to the following claims against EDSL:

It is common ground that the Cap does not apply to any claim by SSSL or BSkyB against EDSL or EDSC for fraudulent misrepresentation pre-Prime Contract.

On their pleaded case Sky also contend that the Cap does not apply to a claim by BSkyB against EDSL or EDSC for negligent misrepresentation pre-Prime Contract or negligent misrepresentation pre-Letter of Agreement. They also contend that the Cap does not apply to claims for breach of the warranties in the Memorandum of Understanding.

As a matter of privity of contract, Sky are evidently correct that a term in the Prime Contract cannot affect liability in relation to a claim for negligent misrepresentation against EDSC or by BSkyB who are not parties to the Prime Contract. Whether there is such liability is an issue I deal with below.

In relation to the warranties under the Memorandum of Understanding, as I have found that there are no such claims, the point does not arise. In fact, it reinforces the view that the application of the Cap to any claim under the Memorandum of Understanding is precisely the type of matter which would have been dealt with in the agreement which the parties were seeking to negotiate.

There is an issue between the parties concerning the terms of the settlement provisions in paragraph 17 of the Letter of Agreement.

Sky submit that paragraph 17 means that all known and unknown claims which SSSL had or may have had against EDSL for any breach of the Prime Contract were compromised.

EDS submit that paragraph 17 settled (1) All known claims by SSSL against EDSL for breach of contract; (2) All unknown claims by SSSL against EDSL up to 17 June 2001 for breach of contract; and (3) All known claims and all unknown claims (in the latter case up to 17 June 2001) which SSSL could advance against EDSL on the basis of breach of contract.

EDS say that as a matter of construction or by way of an implied term the reference to “claims … for any breach of the Prime Contract” in paragraph 17 is a reference to all complaints which could be advanced on the basis of breach of contract. EDS therefore contend that not only have breach of contract claims brought by SSSL been compromised but so have the claims for deceit and/or negligent misrepresentation, since the matters relied upon as founding such claims would, if proved, constitute a breach of the warranties and obligations contained in Clauses 7.2, 7.3.8, 7.9 and 15.1 of the Prime Contract.

EDS say that the phrasing "all claims….for any breach of the Prime Contract" is consistent with the settlement covering not only claims in contract, but also claims in tort where the matters complained of constitute a breach of the Prime Contract.

Sky say that the Clause is clear and unambiguous and there is no basis on which to write words into the Clause, as EDS seek to do. Sky also say that if the intention had been to compromise all claims arising under contract and tort, it would be unusual to do so by saying that the claims being compromised were all claims for breach of contract and claims ‘which could be advanced on the basis of breach of contract’. Sky refer to the decision of the House of Lords in BCCI SA vAli[2001] 2 WLR 735 which, they say, supports their submission.

Paragraph 17 of the Letter of Agreement provides:

“The terms set out in this letter have been agreed between us, subject to the approval of our respective managements, in full and final settlement of:

(a)

all known claims which SSSL may have against EDS or which EDS may have against SSSL and/or British Sky Broadcasting Group Plc for any breach of the Prime Contract as of the date of both parties signing this letter; and

(b)

all unknown claims which SSSL may have against EDS or which EDS may have against SSSL and/or British Sky Broadcasting Group Plc for any breach of the Prime Contract during the period up to and including 17 June 2001.”

On its face therefore the settlement under this paragraph was expressed to be settlement of claims for any breach of the Prime Contract.

In construing the document, I bear in mind the principles of construction which have been set out by Lord Hoffman in Investors Compensation Scheme v WestBromwich Building Society[1998] 1 WLR 896 at 912H and BCCI v Ali at [39]. EDS submit that, given that the terms of the Letter of Agreement made provision for substantial sums by way of credit or payment by EDSL to SSSL then the intention of the agreement was to wipe the “slate clean”.

However, Sky say that this is not what the parties agreed. They refer to the decision in BCCI v Ali where the House of Lords had to consider the words of a release which was:“in full and final settlement of all or any claims whether under statute, common law or in equity of whatsoever nature that exist or may exist” and decide whether this included damages for claims for misrepresentation and stigma damages.

The House of Lords was faced with a situation which Lord Nicholls expressed in this way at [23]:

“The circumstances in which this general release was given are typical. General releases are often entered into when parties are settling a dispute which has arisen between them, or when a relationship between them, such as employment or partnership, has come to an end. They want to wipe the slate clean. Likewise, the problem which has arisen in this case is typical. The problem concerns a claim which subsequently came to light but whose existence was not known or suspected by either party at the time the release was given.”

The House of Lords held, Lord Hoffmann dissenting, that the question to be determined was what the objective intention of the parties was in the context of the circumstances in which the agreement had been entered into and that neither party could realistically have supposed that the claim for damages for disadvantage on the labour market was a possibility and could not have intended the provision to apply to such claims.

Lord Bingham said at [19]:

“on a fair construction of this document I cannot conclude that the parties intended to provide for the release of rights and the surrender of claims which they could never have had in contemplation at all. If the parties had sought to achieve so extravagant a result they should in my opinion have used language which left no room for doubt and which might at least have alerted [the Applicant] to the true effect of what (on that hypothesis) he was agreeing.”

EDS rely on the decision of the Court of Appeal in Bottin (International)Investments Ltd v Venson Group Plc[2004] EWCA Civ 1368 in which there was a claim forbreach of warranties in a share sale agreement including one at clause 3(a) under which warranties were given and it was acknowledged that the other party was entering into the agreement in reliance on the warranties and they may be treated as representations inducing the party to enter into the agreement. The agreement contained provisions requiring, as a pre-condition for the bringing of a claim for breach of warranty, notice of the claim to be given within a particular time period.

One of the issues in that case was whether the claimant could avoid the application of the notice provision by bringing the claim in tort for misrepresentation rather than in contract for breach of warranty. In giving a judgment with which the other members of the court agreed, holding that the claimant could not do so, Peter Gibson LJ said at [65]:

“To my mind it makes no commercial sense for the Agreement to impose conditions as to the giving of notice of a breach of warranty and as to the commencement of proceedings for such breach and limiting the maximum liability if Bottin was intended to be left free of those conditions and those time limits and the limits on liability by treating the same warranties as representations. Mr. Glick was, in my judgment, plainly right to submit that the obvious commercial purpose in the conditions and limits was to enable the Warrantors to know that they would not be sued on the warranties if no notice was served in time and proceedings were not brought in time and that, if they were sued, there was a quantified limit to their liability. That purpose would be frustrated if the claim for breach of warranty could be regarded as a claim in misrepresentation. The final words of cl. 3(a) would permit a claim for rescission of the Agreement. That gives sufficient effect to those words, without having to give them the meaning contended for by Mr. Wardell which flouts commercial good sense.”

Considering the terms of the Letter of Agreement objectively, the parties were intending to amend the terms of the Prime Contract in terms of the Milestones and payment provisions. The parties were therefore looking at the terms of the Prime Contract and making a compromise of claims for breach of the Prime Contract. There was no mention of any other claims and no wording that came close to the wording of the clause in BCCI v Ali. The words on their ordinary meaning and construed against the matters known to both parties at the date of the agreement would not be apt to cover a claim for misrepresentation. For parties to intend to exclude claims in negligence requires clear words showing that intention: see Canada Steamships v R [1952] AC 192 at 28 (PC). In addition, there is no wording which could justify exclusion of a claim in deceit. Indeed a clause which purports to exclude claims for deceit is generally ineffective at common law: see HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 2 Lloyd’s Rep 61 at [16] per Lord Bingham, [76] per Lord Hoffmann and [122] per

On a true construction of the terms of paragraph 17 that provision is not sufficient to exclude claims for negligent or fraudulent misrepresentation. Nor do I consider that an exclusion clause to that effect can be implied into paragraph 17. The test for an implied term may now be summarised as follows, from the principles as to the circumstances in which a court will imply a term which were set out by Lord Simon in BP Refinery (Westernport) Pty Ltd v President, Councillors andRatepayers of Shire of Hastings(1978) 52 ALJR 20:

“…for a term to be implied, the following conditions (which may overlap) must be satisfied:

(1)

it must be reasonable and equitable;

(2)

it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(3)

it must be so obvious that "it goes without saying";

(4)

it must be capable of clear expression;

(5)

it must not contradict any express term of the contract.”

I do not accept that requirements (2) or (3), which are alternatives (see: Bradmount Investments Ltd v Williams De Broe plc[2005] EWHC 2449), are satisfied. The purpose of the settlement was to wipe the slate clean in respect of claims for breach of the Prime Contract. If the parties wished to, they could have incorporated words to include wider claims such as claims which could be advanced by way of breach of contract. They did not do so. It is not for the court to rewrite their bargain. Whether Sky can bring a claim to circumvent paragraph 17 depends on the wording of paragraph 17 and the nature of the claim. If the court re-wrote an exclusion of contractual claims to exclude all claims which could be framed in that way, that would be to change the bargain which the parties had made. There is nothing necessary or obvious in such a term.

I therefore find that paragraph 17 of the Letter of Agreement is an exclusion clause for claims for breach of the Prime Contract between EDSL and SSSL as expressly set out in that clause but is not an exclusion of “All known claim and all unknown claims (in the latter case up to 17 June 2001) which SSSL could advance against EDSL on the basis of breach of contract”, as EDS contend.

Following a CRM Executive Steering Group Meeting on 20 December 2001 Sky decided to undertake a review of the project involving EDS, Chordiant, Lucent and Arthur Andersen, to consider how best to take the project forward. That process culminated in a “CRM Programme Review” on 18 February 2002. There was a series of meetings between Sky and EDS on 15, 22 and 26 February 2002. The process ended with Sky taking over as Systems Integrator on 6 March 2002 and to Richard Freudenstein and Steve Leonard signing a Memorandum of Understanding on 26 March 2002.

EDS contends that in relation to the Memorandum of Understanding:

Sky’s position is set out in the Reply and is:

In summary the issues in relation to the Memorandum of Understanding are as follows:

It is common ground that the Memorandum of Understanding does not affect Sky’s deceit claims or Sky’s claims for negligent misrepresentation. It is only relevant to the claim advanced by SSSL for breach of contract following the Letter of Agreement.

The Memorandum of Understanding was signed on 26 March 2002 by Richard Freudenstein and Steve Leonard and stated at the head of the front page that it was “without prejudice and subject to contract”.

Sky submit that it is a long established principle of English law, as summarised in Lewison, The Interpretation of Contracts (3^rd Edn) at para 15.03 that “save in exceptional circumstances, an arrangement made subject to contract means that the exchange of a formal written contract is a condition precedent to any legal liability”. Sky say that there are no exceptional circumstances in this case to cause a departure from the ordinary rule but rather, it is plain that the parties understood and intended that a formal written contract would be exchanged and that the Memorandum of Understanding would be an “agreement in principle” only.

Sky also refer to the second paragraph of the Memorandum of Understanding which records:

“After three meetings with representatives at EDS, both parties agree on the need to renegotiate and redraft the contract between them for SSSL's call centres. Both parties will strive to renegotiate and agree a new form of contract within the next three months. We both accept that that new agreement will be consistent with the following principles:”

Sky submit that the Memorandum of Understanding could not have become binding on signature, as EDS suggest, since such a conclusion is inconsistent with it being “without prejudice and subject to contract”.

Sky also submit that EDS are estopped from contending to the contrary, since the Memorandum of Understanding was signed on the basis of the representation made by David Walter, the in-house lawyer for EDS in his email of 25 March 2002 to Caroline Waterer, the in-house lawyer for Sky. Sky say that it signed the Memorandum of Understanding in reliance on that representation and that in all the circumstances, it would be inequitable for EDS to resile from that representation.

EDS submit that a binding agreement on the terms of the Memorandum of Understanding, as it then stood, was reached on 6 March 2002 when Steve Leonard and Richard Freudenstein had their telephone conversation, as a result of which Sky immediately took over the Systems Integrator role from EDS.

Alternatively, they submit that the Memorandum of Understanding became binding on the terms signed on 26 March 2002 and that, if there was a binding agreement on 6 March 2002, then the signed version represented a minor variation to that agreement. EDS refer to a change to the first section of the Memorandum of Understanding which, following that change, provided:

“After three meetings with representatives at EDS, both parties agree on the need to renegotiate and redraft the contract between them for SSSL's call centres. Both parties will strive to renegotiate and agree a new form of contract within the next three months. We both accept that that new

agreement will be consistent with the following principles:….”

EDS say that this change reflected the proposal by Sky, accepted by EDS, that there needed to be a new long form contract incorporating the relevant provisions of the Prime Contract and the Letter of Agreement with the amendments agreed in the Memorandum of Understanding.

EDS submit that the presence of the words "subject to contract" at the head of the Memorandum of Understanding reflected the parties' intention as expressed in the first section of the Memorandum of Understanding that there would need to be an agreement making changes to the Prime Contract as varied in line with the principles which were set out in five bullet points.

However, EDS submit that the second section of the Memorandum of Understanding became binding, notwithstanding that the new long form contract had not been signed. EDS say that this section did not contemplate the need for any further agreement but stated: “What follows is the agreed way forward for services provided from the date of this memo, and this is based on the discussions that have been on going with EDS and the conditions SSSL is willing to accept…”

EDS say that the terms of the second section were intended to have immediate effect and the parties acted upon those terms. EDS refer to the third section of the Memorandum of Understanding and say that it returned to the principles for further arrangements in the proposed revised contract.

EDS refer to the concluding words of the signed Memorandum of Understanding which stated that: “We are both happy to have reached this agreement and are looking forward to agreeing further revised terms for our contract.” EDS say that this final sentence reflected the fact that the Memorandum of Understanding contained terms that the parties agreed should have immediate effect as set out in the second section and terms, set out in the first and third sections, which would form the basis for further negotiations culminating in a redraft of the Prime Contract.

On this basis EDS say that the parties reached a binding agreement for the provision of services from the date of the signed Memorandum of Understanding in the terms set out.

In February 2002 there was a series of 3 meetings between EDS and Sky which ultimately led to the Memorandum of Understanding. These meetings took place on 15, 22 and 26 February 2002 (DCC/203). The background to those meetings was as follows.

At the CRM Executive Steering Group meeting on 20 December 2001, EDS had reported an 8 week slippage in the implementation of Phase 2 and was proposing a change in the approach to one of Joint Application Development (JAD). Sky in response questioned the appropriateness of the “Big Bang” approach in which all the Phase 2 CRM functionality was delivered at the same time. There followed a review which culminated in presentation of a CRM Programme Review dated 18 February 2002 by Simon Post and Jeff Hughes to Tony Ball and Richard Freudenstein. The Review made recommendations which included a change in implementation approach from a “big bang” to an incremental approach and also that Sky should take a more active role in the project which it was said meant that “commercial and legal changes maybe required”. The review set out the two possibilities as being the Big Bang approach with EDS as the Systems Integrator and an incremental approach with EDS not being the Systems Integrator.

Meetings took place between Sky and EDS commencing on 15 February 2002 at which these changes were discussed. Greg Hyttenrauch summarised the conclusion of that first meeting as an agreement in principle that Sky would assume the role of Systems Integrator and the risk of overruns or warranty claims and that EDS would give up its claim to a profit share. On 18 February 2002, Jeff Hughes sent Greg Hyttenrauch a note setting out in more detail Sky's understanding of the discussions at the meeting which was broadly as set out above. The note stated that EDS would not be the Systems Integrator but would continue to work closely with Sky as a supplier of resources and close partner in the success of the program and that EDS’ profit sharing would be “on the table” to compensate for the warranties and the System Integrator risk sharing which Sky was giving up.

Further meetings which took place on 22 and 26 February 2002 were essentially concerned with the level of payment which EDS was to make to Sky in return for EDS giving up their role as Systems Integrator but continuing as a supplier of resources to the project. On 27 February 2002 Greg Hyttenrauch sent Mike Hughes an email attaching two options, including an option of transferring the Systems Integrator role to Sky on terms. Greg Hyttenrauch said that he wanted to know whether there was agreement in principle to one of the options so that he could discuss the position with Steve Leonard and start work on a Memorandum of Understanding.

On 28 February 2002, Simon Post sent Greg Hyttenrauch a draft term sheet setting out an offer to EDS which was headed "without prejudice and subject to contract". It was the genesis of the Memorandum of Understanding and followed Greg Hyttenrauch’s first option. Versions of the term sheet then passed back and forth between the parties.

On 6 March 2002, there was a telephone conversation between Richard Freudenstein and Steve Leonard.

Richard Freudenstein says in his witness statement at paragraph 142 that he understood that the Memorandum of Understanding which was being put in place would record the basis upon which Sky would take over the role of Systems Integrator whilst a legally-binding agreement was finalised. Richard Freudenstein made a note of what was said at the meeting in a notebook at 11:35am on 6 March 2002. He recorded Steve Leonard as saying “fully working new approach as of now”. He said he thought that on this basis EDS were accepting that Sky would take over as Systems Integrator from that time. In an internal Sky email on 6 March Richard Freudenstein said: “we agreed that EDS would behave from today as though the new deal was signed and he would communicate that to Greg H”. He said in evidence on Day 11 that EDS were agreeing that they would stop being Systems Integrator and that the commercial terms would then be sorted out.

Steve Leonard says in his witness statement that the telephone conversation lasted two minutes or so and was to give his and Richard Freudenstein’s blessing to what had been agreed by their people. He recalled that Richard Freudenstein had the latest draft of the Memorandum of Understanding document in front of him. Steve Leonard says that he asked whether Richard Freudenstein was happy to go ahead and after saying that he felt that he had been let down by EDS he confirmed that he was going ahead and would sign the Memorandum of Understanding within 30 days. In oral evidence on Day 64 he said that the purpose of the telephone call on 6 March 2002 was to reach the agreement which triggered the cascade of changes in responsibility of what EDS and Sky were doing. He said that the conversation was to the effect that he confirmed that Richard Freudenstein had the document and was ready to sign it.

After 6 March 2002 EDS took steps to transfer the System Integrator role to Sky and the services provided by EDS to Sky were now under the terms identified in the draft Memorandum of Understanding, operating retrospectively with effect from January 2002.

Simon Post sent an email to Caroline Waterer dated 6 March 2002 stating that the Memorandum of Understanding needed to be converted by the lawyers into a "fully functioning MOU". On the same day, Caroline Waterer responded by email to Richard Freudenstein and advised that, having gone through the agreements, she did not think either side could safely sign a short Memorandum of Understanding. She proposed that the cleanest solution would be to terminate the existing contract and replace it with a new contract which repeated all the relevant provisions of the Prime Contract and the Letter of Agreement and appointed EDS as a service provider under Sky's control as Systems Integrator. She then proceeded to draft a new long form contract which she emailed to David Walter of EDS on 18 March 2002 who, in his response on 25 March 2002, said that an attempt was being made to reach agreement in principle by the end of the month and that this would give "a little more time to settle the terms of the full form agreement." On 26 March 2002, Caroline Waterer responded saying that Sky was

Following some minor amendments, the draft Memorandum of Understanding was signed by Steve Leonard and Richard Freudenstein on 26 March 2002.

Richard Freudenstein says that his understanding of the position was that Sky and EDS would enter into the Memorandum of Understanding whilst the new contract was being drafted and that the Memorandum of Understanding would be subject to contract, recording the agreement “in principle” but not constituting a legally binding document. He says that he never considered that the Memorandum of Understanding was to be in full and final settlement. In his oral evidence he said that he thought that Sky would continue to pay EDS and he accepted that EDS had been paid on the basis of the rates in the Memorandum of Understanding, including a 33% increase referred to in that document. He said that he thought he had agreed commercial terms with EDS as of 6^th March under which they stopped being Systems Integrator and under which Sky would continue paying EDS going forward. He said though that the document which he signed subject to contract was not a legally binding document.

Steve Leonard says in his witness statement that his understanding was that anything in the existing contract, the Prime Contract as amended by the Letter of Agreement, which clashed with the Memorandum of Understanding was no longer effective. He says that he thought that the terms of the Memorandum of Understanding were binding and although it did not replace the existing contract in its entirety, it “set the stage” for the modified contract to be put together. The new contract, not the Memorandum of Understanding, would then govern the relationship between Sky and EDS. He says that, like the Letter of Agreement, the Memorandum of Understanding involved a waiver of claims by Sky and that was the intention of the parties, although it has no express clause to that effect. In his oral evidence he said that the purpose of the Memorandum of Understanding was to “freeze that agreement until such time as the lawyers could memorialise it” which he thought could take some months. In essence, he saw the signature on 26 March as being to give effect to what he had said on 6 March 2002.

The telephone conversation between Steve Leonard and Richard Freudenstein on 6 March 2002 was evidently the culmination of the process which had started at the end of 2001 and led to the review and the subsequent meetings between the parties. The result was a decision that Sky would take over the role of Systems Integrator from EDS and would do so on the basis that EDS would continue to supply staff. The detailed commercial terms on which that change was made had first to be agreed in principle and the parties evidently agreed that there then had to be a new contract which reflected the terms of the existing Prime Contract, as amended by the Letter of Agreement, as then modified by the terms agreed in the Memorandum of Understanding.

The phone conversation was necessary so that the senior personnel in Sky and EDS could confirm that the commercial terms which their teams had negotiated at the meetings were terms which were acceptable to both parties so that the parties could go forward. During the telephone conversation both Richard Freudenstein and Steve Leonard either had a copy of the latest draft Memorandum of Agreement in front of them or were well aware of the terms of that document, including the reference to it being “without prejudice and subject to contract”.

The agreement that the terms were acceptable to both parties then opened the door to the process by which, first, the formal Memorandum of Understanding was to be signed, within it was thought 30 days, and subsequently a new contract drawn up and signed. In those circumstances, the parties deliberately used the phrase “subject to contract” because they did not then intend to be bound by the terms of the current draft Memorandum of Understanding.

The draft Memorandum of Understanding stated at the beginning that “This note is the offer to EDS with regard to the changing of the CRM program and the relationship between BSkyB and EDS on that program.” The document continued by saying that “After three meetings with representatives at EDS, both parties agree in principal with the following statements:” There then followed five bullet points and then it stated: “It is clear that some changes would have to be made to the current commercial contract following this agreement.What follows is the proposed way forward based on the discussions that have been on going with EDS and the conditions BSkyB is willing to accept:…”. This then had a number of bullet points listed. That reflected the “subject to contract” nature of the agreement.

However, because they had reached an agreement on that basis, they also decided that EDS should cease to be Systems Integrator and Sky should take over with immediate effect and that payment would be made on those terms. That was all done in contemplation that a legally binding agreement would be entered into which would reflect those changed obligations.

In my judgment, there was no separate binding agreement made by Richard Freudenstein and Steve Leonard on 6 March 2002 other than the agreement in principle to proceed on the terms of the draft Memorandum of Understanding pending the finalisation or “memorialisation” of the overall agreement.

The first stage of the process was to have a document which recorded the terms on which Sky would take over as Systems Integrator from EDS. The document which was signed by Richard Freudenstein and Steve Leonard on 26 March 2002 again bore the notation at the top of “without prejudice and subject to contract”. The signing of the agreement was evidently the formalisation of the agreement in principle which had been made in the telephone call on 6 March 2002. There were

The opening paragraph of the document was changed to say: “After three meetings with representatives of EDS, both parties agree on the need to renegotiate and redraft the contract between them for SSSL’s call centres. Both parties will strive to renegotiate and agree a new form of contract within the next three months. We both accept that that new agreement will be consistent with the following principles: …” The second part of the agreement stated “What follows is the agreed way forward for services provided from the date of this memo, and this is based on the discussions that have been on going with EDS and the conditions SSSL is willing to accept:” There was then a further introduction to the final bullet paragraphs which stated: “The principles for further arrangements in the revised contract will be:…”.

EDS accept that the first and third sections of the signed Memorandum of Agreement contemplated that a new long form of contract was needed but submit that the second section became binding notwithstanding the fact that the new long form contract had not been signed. EDS submit that the second section is in different terms to the first section and does not contemplate the need for further agreement for it to take effect. They refer to the following words at the end of the signed Memorandum of Agreement just above the signatures of Richard Freudenstein and Steve Leonard: “We are both happy to have reached this agreement and are looking forward to agreeing further revised terms for our contract.”. They say that this final sentence reflected the fact that the Memorandum of Understanding contained terms that the parties agreed should have immediate effect (set out in the second section) and terms (set out in the first and third sections) which would form the basis for further negotiations culminating in a redraft of the Prime Contract.

Given the blanket “subject to contract” statement at the head of the Memorandum of Understanding, I do not consider that EDS are correct to divide the document up and try to distinguish between the terms of one section and the others. The fact that EDS accept that the first and third sections are consistent with the “subject to contract” rubric is, in my judgment, strong support for the general applicability of that principle to the whole document. Indeed the terms of the second section clearly depend on the main points in the first paragraph being agreed and follow on from that position. I do not consider that there is or could be a distinction between the sections.

On this basis, I consider that the whole of the signed Memorandum of Understanding was not a legally binding agreement when it was signed. It clearly was and was intended to be “subject to contract” and it is clear that both parties envisaged a later contact which would govern the changed relationship between

By 26 March 2002 the parties were implementing the necessary changes to the role of EDS. This seems to have taken the pressure off the need for the new overall agreement and none was ever entered into.

EDS submit that, if the Memorandum of Understanding did not become binding on the parties upon signature, then the parties accepted its terms by their conduct both prior to and in anticipation of agreeing the terms of the Memorandum of Understanding and subsequent to execution of the document. EDS say that the parties did not wait for a new long form contract to be entered into, as contemplated by the first section of the Memorandum of Understanding, and no new contract was ever agreed.

EDS rely upon conduct by the parties as giving rise to acceptance. In particular they say that the transfer of the Systems Integrator role and the announcement of the transfer to the teams by Jeff Hughes on 11 March 2002 in which he said: “The

EDS also rely on an internal Sky email dated 17 April 2002 sent to Andrew Carney and Richard Freudenstein by Simon Post in which he referred to the right under the Memorandum of Understanding for Sky to request the removal of all or part of EDS’ personnel. EDS also rely on an email dated 23 April 2002 from Jeff Hughes in which he referred to replacement of personnel under the Memorandum of Understanding terms. EDS refer to another email from Ian Proctor dated 8 June 2002 to Simon Post and others in which he referred to the Memorandum of Understanding allowing “for a 33% increase in EDS rates from 01/01/03…”. EDS also refer to later references to the procedure in relation to EDS personnel.

EDS submit that the conduct of the parties pursuant to the terms of the Memorandum of Understanding gave rise to an implied binding contract on the terms of the Memorandum of Understanding and they rely on the first instance decision of Field J in Rugby Group Ltd v ProForce Recruit Ltd[2005] EWHC 70 at [16] which was not reversed on this point in the Court of Appeal. EDS therefore submit that the terms set out in the section of the Memorandum of Understanding signed on 26 March 2002 were accepted by the parties by their conduct as being binding upon them.

Sky submit that EDS is incorrect in its submission that the parties, by their conduct both before and after the Memorandum of Understanding, accepted its terms so that the terms of the Memorandum of Understanding became binding upon them. Sky submit that conduct prior to 26 March 2002 cannot be said to evidence the conclusion of an agreement on that date and that so far as conduct after 26 March 2002 is concerned, that conduct was simply consistent with what the parties had expressly contemplated would take place in the non-binding agreement in principle which they had signed. Sky say that the performance of what was contemplated in an agreement cannot change the basis of the agreement.

Instead Sky submit that there are two possible conclusions. First, that there was no contractual relationship in place between the parties at all, and accordingly that the parties simply operated ‘at risk’, in the expectation that contractual terms would be agreed between them. Secondly, that the parties operated under some form of ad hoc contractual relationship, containing only such terms as were necessary for that ad hoc relationship to operate.

It is undoubtedly true that after the telephone conversation on 6 March 2002 and the signing of the Memorandum of Understanding on 26 March 2002, Sky and EDS conducted themselves on the basis of the terms of the Memorandum of Understanding in terms of performing the CRM Project and dealing with payment. However, does that conduct show that the parties were accepting the terms as being agreed as binding or were the parties performing on the basis that they contemplated the signing of a contract which would set out their obligations in relation to such performance?

In Fraser Williams v Prudential Holborn(1993) 64 BLR 5 CA similar questions arose. There was a ‘subject to contract’ proposal dated 3 March 1989 which was sent by one party to the other and a response of 10 March 1989 and a reply of 5 April 1989. Work had begun on 13 March 1989. No formal contract was ever entered into. There was an assertion that there was a binding agreement. The Court of Appeal (Dillon LJ dissenting) rejected that argument. Kennedy LJ said at page 10:

“In my judgment, when experienced business men use the words “subject to contract” in a proposal, they mean more - and must be taken to mean more – than that the acceptance must be in writing. At the lowest, they are guarding themselves against being contractually bound without further action on their part.”

At page 13 he held that the:

“activity on both sides is easily explained on the basis that they both expected that in due course a formal contract would be agreed which would be ... in general terms in accordance with Fraser Williams’ proposals. Accordingly, although I, like the judge, recognise the risks to both sides of starting a substantial undertaking without a formal contract being in place, I do not reject as commercially improbable the notion that these parties did so.”

Kennedy LJ said that in relation to the letter sent by Fraser Williams on 5 April 1989 that it“came into existence and was treated as it was because both sides considered that the time had come to put in place the contract to which the proposal of 3 March was expressly stated to have been subject.” He also referred to this being consistent with an invoice being submitted by Fraser Williams and paid by Prudential. He said at page 14:

“In the end I am unable to share the judge’s conclusion that neither party could contend that, as he put it, the “subject to contract” provision in the proposal was still operative at the time of termination on 5 May 1989.”

Sir Roger Parker said at pages 16 to 17 that there was no draft agreement to which subsequent conduct could be referable and that one party was “about to have a first cut at an agreement” He concludes at page 17: “there were important matters left to be discussed and, therefore, there was no basis upon which the subsequent conduct of the parties could be considered as being referable unequivocally.”

Dillon LJ held that no agreement had been concluded before Fraser Williams commenced work on 13 March 1989. He concluded at page 18 that the finding of the judge that the “subject to contract” provision in the proposal was not still operative because of the conduct of the parties up to the time of termination in May 1989 was not a perverse conclusion and was a finding of fact by an official referee on which leave to appeal had been refused.

In the present case I consider that the “subject to contract” rubric clearly applied to the Memorandum of Understanding. It was contemplated by both parties that a new contract would be entered into which would replace the Prime Contract, as amended by the Letter of Agreement, and would contain terms including those which had been agreed in principle in the Memorandum of Agreement. That was the position initially from 6 March 2002 and also subsequently from 26 March 2002.

The general rule is that a party may accept an offer by conduct and thereby give rise to a contract. However, conduct will only amount to an acceptance if it is clear that the party did the act in question with the intention of accepting the offer. In my judgment it is evident that both parties conducted themselves on the basis of the terms of the Memorandum of Understanding but did so in the contemplation that those terms would subsequently form the basis of the new contract. Once the conduct of the parties started out on that basis then there would need to be some change in position to show that conduct which initially was on that basis was transformed into conduct by which one party intended there to be a new offer made and the other party intended to accept that offer. What happened in this case is that the parties proceeded on the basis that there would be a new contract but that process failed to come to fruition, partly because the immediate need for a new contract faded because Sky took over EDS’ role as Systems

It is clear that the negotiation of a new contract would take some time and not be an easy task. David Walter at EDS decided to instruct Allen & Overy and Caroline Waterer clearly thought that the process would take some time. Although Caroline Waterer produced a first draft on 18 March 2002 there were clearly questions about how far the terms of the original Prime Contract would continue and what would be the rights and liabilities of the parties. Indeed, as can be seen from the current dispute, the question of whether there was a full and final settlement or how past liabilities were to be dealt with would have to have been dealt with, indicating the need for the “subject to contract” rubric. Indeed the process of reaching agreement on the new contract seems to have foundered when EDS sought, through their lawyers, to introduce the concept of settlement.

On that basis I do not consider that it is possible to spell any contractual relationship founded on conduct from the position after 6 or 26 March 2002. I consider that the parties proceeded on the basis that a new contract would be entered into but they failed to do so. It follows that the Memorandum of Understanding does not give rise to any full and final settlement nor does it give rise to new warranty provisions.

Both SSSL and BSkyB make claims for damages at common law for negligent misrepresentation/misstatement. Such claims are made, first, against both EDSL and EDSC in the alternative to the claims for deceit for representations pre-Prime Contract. The matters said to give rise to that duty are those pleaded in relation to the claim in deceit. Secondly, SSSL and BSkyB make claims for representations pre-Letter of Agreement against only EDSL.

In relation to the pre-Prime Contract representations, EDS submit that where the parties have structured their obligations so as to provide for contractual liability for certain non-fraudulent representations made by one of the contracting parties and so as to treat as of no effect other pre-contract representations, then these are relevant factors in determining whether a duty of care exists. They refer to the decisions in Pacific Associates and JP Morgan Chase, referred to above.

EDS submit that there were extensive negotiations of both the limitation and exclusion of liability clauses in the Prime Contract assisted by in-house and external lawyers. They say that Sky and EDS had worked out which company within their respective groups should be the contracting party and intended that, whichever it was, should be subject to the cap, the exclusion of liability and the Entire Agreement clause in the Prime Contract.

On that basis EDS submit that no duty of care should be found to be owed by EDSL to SSSL as the existence of such a duty would be inconsistent with or circumvent the structure put in place by the parties and would not be sensible or fair, just and reasonable. They say that under clause 7, EDSL gave a series of warranties, breach of which would give SSSL a right to claim damages and that the warranty at clause 7.2 as to EDSL’s knowledge, ability and expertise is also pleaded as being a pre-contractual representation. EDS submit that the parties have given contractual effect to certain pre-contract representations and provided a remedy for breach of such representations by way of damages for breach of contract.

In relation to representations other than those forming warranties, EDS say that any duty of care as between EDSL and SSSL is excluded by operation of the Entire Agreement clause or that this clause excludes liability for non-fraudulent misrepresentation.

In relation to each of the pre-Letter of Agreement representations EDS admit that EDSL owed a duty of care to SSSL but deny that they owed any duty of care to BSkyB because any pre-Letter of Agreement representations were made to SSSL and not BSkyB and that such representations related to services being provided under the Prime Contract, to which BSkyB was not a party.

EDS contend that any duty of care owed by EDSL to SSSL was excluded by the terms of the Prime Contract and that EDSL owed no duty of care to BSkyB. EDS say that the parties arranged the contractual scheme so that EDSL owed no contractual obligations to BSkyB.

In relation to EDSC, EDS say that the parties so arranged the contractual scheme that, save as guarantor, EDSC owed no contractual obligations to SSSL or to BSkyB. On this basis EDS submit that EDSC owed no duty of care to either SSSL or BSkyB.

EDS submit that if the Court were to find that a duty of care was owed by EDSL to BSkyB or by EDSC to BSkyB or SSSL, this would, on Sky's pleaded case, avoid the intended effect of such arrangement. EDS say that not only would, for example, EDSL have a liability to BSkyB, but the liability would be unlimited. Further, they say that the whole of the losses that BSkyB claim are losses that, if suffered by SSSL, would be excluded by clause 20.2 of the Prime Contract. But if EDSL owed a duty of care to BSkyB, that would leave EDSL owing a greater liability to a non-contracting party than to a contracting party, despite BSkyB being involved in the negotiations and the decision that the contracting party should be SSSL and not BSkyB or BSkyB and SSSL jointly. Equally, EDS submit that it would also leave EDSC having a greater liability to SSSL than the prime contractor, EDSL.

EDS submit that if a duty of care in tort is not established where the duty is concurrent with a limited liability duty in contract, then where the parties have structured their relationship to ensure that there is no contractual duty owed, for instance between EDSL and BSkyB, then the justification for refusing to recognise a duty of care in tort is even stronger.

EDS submit that such a result would not be sensible or just or "fair, just and reasonable" and that, in the circumstances set out above, no duty of care should be found to be owed by EDSL or EDSC to BSkyB or by EDSC to SSSL.

Sky submit that EDS’ contention that EDSL owed no duty of care to SSSL is unsupportable and is founded on a misinterpretation of the Entire Agreement clause in the Prime Contract and overlooks EDSL’s liability under section 2 of the Misrepresentation Act 1967 in relation to which the question of a duty of care does not arise.

Sky say that SSSL has a claim under section 2(1) of the Misrepresentation Act 1967 against EDSL and that to defeat this claim EDSL must prove that they “hadreasonable ground to believe and did believe up to the time the contract wasmade the facts represented were true”. However, Sky accept that, as between

Sky also submit that EDS’ contention that EDSL owed no duty of care to BSkyB and that EDSC owed no duty of care to either SSSL or BSkyB Ltd also rests on a misinterpretation of the Entire Agreement clause and is not supported, as EDS contend, by the existence of the Prime Contract between EDSL and SSSL and the inclusion of a limitation of liability in the Prime Contract.

Sky say that EDS have not and could not contend that, in the absence of the Prime Contract, duties of care would not arise. Sky say that the representations were made on behalf of both EDSC and EDSL with the intention that those representations were to be relied on by both BSkyB and SSSL in the course of the bid process and subsequent negotiations. Furthermore, the representations were all statements of fact that related to matters peculiarly within the knowledge and expertise of EDS. As such, Sky contend that the only question is whether the existence or terms of the Prime Contract are effective to exclude or restrict these tortious duties of care.

Sky submit that to the extent that representations were made to BSkyB and were relied on in selecting EDS and awarding them the Letter of Intent, the terms of any contract excluding or limiting a duty of care do not arise at that stage. The same, Sky submit applies so far as EDSC’s liability to both BSkyB and SSSL is concerned.

In relation to representations made prior to the selection of EDS and the award of the Letter of Intent, Sky submit that the representations were made to BSkyB and were relied on in selecting EDS and awarding them the Letter of Intent. At this stage, Sky say that their cause of action was complete and there can be no question of the existence of terms of any contract excluding or limiting a duty of care that otherwise would arise. The same, Sky submit applies so far as EDSC’s liability to both BSkyB and SSSL is concerned.

In relation to representations relied on in the conclusion of the Prime Contract, Sky accept that the situation is less straightforward. Sky submit that as far as liability to BSkyB is concerned, nothing changed after the Letter of Intent so as to oust that duty when discussions and negotiations continued after the Letter of Intent and up to the conclusion of the Prime Contract. Sky submit that, in considering the question posed by Lord Goff in Henderson v Merrett SyndicatesLimited[1995] 2 AC 145 at 194 of whether the ‘tortious duty is so inconsistent with the applicable contract that, in accordance with ordinary principle, the parties must be taken to have agreed that the tortious remedy is to be limited or excluded’, there is no inconsistency from the Prime Contract itself, which is silent as to any liabilities owed to BSkyB.

So far as the question of the liability of EDSC is concerned, Sky submit that the relevant question again is whether the terms or existence of the Prime Contract are sufficiently inconsistent with the duties which would arise so as to exclude or limit them. Sky say that the Prime Contract does not, on its own terms, purport to oust the liability of EDSC; it has nothing to say on the subject. Sky say that there is nothing unusual or abhorrent in EDSC being liable for the consequences of any negligent misrepresentations on which BSkyB and SSSL relied, notwithstanding the limitation of liability in the Prime Contract between EDSL and SSSL. Sky say that no attempts were made to limit EDSC’s liability and that EDSC should be liable for its negligent misstatements in the usual way.

In relation to pre-Letter of Agreement misrepresentations, Sky contend that representations were made to and duties of care were owed by EDSL to both SSSL and BSkyB in the course of the negotiations leading to the Letter of Agreement. Sky say that these duties are not ousted or limited by the Prime Contract and it is not alleged that the duties were ousted by the terms of existence of the Letter of Agreement.

I first deal with the question of whether EDSL owed SSSL a duty of care or whether such a duty was excluded or limited by the terms of the Prime Contract. As Lord Goff said in Henderson v Merrett at 191 where the parties are in contract, a concurrent or alternative liability in tort will not permit a party to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. However, subject to that qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be the most advantageous to him in respect of any particular legal consequence.

In principle, subject to the limitation set out above, I can see no reason why a common law duty of care should not be owed by EDSL to SSSL in relation to any pre-contract representations. There is evidently a sufficient relationship between the parties in the period leading up to the Prime Contract and, in circumstances where SSSL might suffer damage as a result of such representations, I consider that it is sensible and just for a duty of care to be found to exist.

What then is the effect of the terms of the Prime Contract on that duty of care. Sky submit that the terms of the Prime Contract only came into effect at a later stage and therefore cannot affect the existence of a duty of care at the time when EDS was selected and entered into the Letter of Intent. That submission has some attraction but I consider that it ignores the fact that the question for consideration is whether it is sensible or just for a duty of care to exist in the light of all the circumstances. Those circumstances include the fact that the representations were made in the context of the ITT and the Response which were part of the process by which EDS was seeking to be awarded a contract to carry out the Sky CRM Project. The contract which was entered into therefore cannot be ignored. If that

There are three terms of the Prime Contract which are relevant: the Entire Agreement Clause in Clause 1.3, the warranties given in Clause 7.2 and the limitation of liability clause in Clause 20. Those clauses have to be considered to see whether they affect the duty of care which I have held would otherwise exist. In particular, the duty of care will have to take account of any exclusion or limitation clauses in the Prime Contract so as not to permit SSSL to circumvent or escape the consequences of those terms. In the light of my findings as to the scope and effect of Clauses 1.3.1, 7.2 and 20 of the Prime Contract, it is necessary to consider whether there are duties of care owed by EDSC or owed to BSkyB so as to give rise to claims for negligent misrepresentation at common law by BSkyB and SSSL against EDSC and by BSkyB against EDSL and EDSC which would avoid the effect of the limitations in the Prime Contract.

First, though, it is necessary to consider something of the background to the way in which the parties arranged their relationship.

The first stage of the process was the preparation of the ITT which was sent to the potential bidders. It was sent to other bidders on 17 March 2000 and then later it was sent to Joe Galloway at the request of Mike Hughes.

The ITT was produced by Scott Mackay. That document had the Sky logo and was an Invitation to Tender for the build and implementation of a World class contact centre for “BSkyB”. The ITT refers to “BSkyB” and to “Sky Services”. Although the references are not entirely consistent, “BSkyB” is evidently a reference to the first claimant, BSkyB and “Sky Services” is a reference to the division within which the second claimant, SSSL, sat. The ITT refers to BSkyB objectives and is generally phrased in terms of BSkyB’s requirements. There is also reference to the involvement of BSkyB and BSkyB staff.

At para 3.5.2 of the ITT there is particular reference to SSSL being licenced to provide conditional access services to broadcasters of which BSkyB is one. There is also reference to “Sky Services” having the two call centres at Dunfermline and Livingston.

In the Response, the EDS logo is used and it is generally written as being the Response of “EDS” and refers to “BSkyB”. Under the Statement of Confidentiality on page 2 of the Response it is stated that “This document is proprietary to Electronic Data Systems Limited, its parent company Electronic Data Systems Corporation and any of the corporation’s subsidiaries.” It is also stated that “EDS and the EDS logo are registered marks of Electronic Data Systems Corporation” and it is stated “Copyright © 2004 Electronic Data Systems Corporation”. It is said to be a “written response from EDS,to BSkyB’s ‘Invitation to Tender’”.

The Letter of Intent was written on SSSL notepaper but was signed for and on behalf of “British Sky Broadcasting Limited”, that is BSkyB. It was addressed to Joe Galloway as Managing Director of Electronic Data Systems Limited, that is EDSL, and was countersigned for and on behalf of EDSL. It referred to BSkyB and “BSkyB’s existing contact centres”. The letter referred to the parties as “EDS” and “BSkyB”.

The first draft of the Prime Contract dated 19 September 2000 from Herbert Smith provided for the contracting parties to be SSSL and EDSC and recorded that the ITT had been issued by SSSL and that “Contractor”, in that draft EDSC, had issued the Response. That draft contained a limit of liability of the higher of £10m or the total amount paid to EDSC and also excluded indirect or consequential loss.

When, on 2 October 2000, Laurence Anderson of EDSL supplied to Keith Russell of Sky comments on the draft contract he noted, under the heading “Parties”, that “the contract will be entered into by Electronic Data Systems Limited, the EDS

The drafts which were produced from 2 November 2000 and the Prime Contract itself recorded the parties as being SSSL and EDSL.

Allen & Overy produced a draft on 6 November 2000 which proposed a cap limited to amounts paid less various sums. That and earlier drafts also contained an extended form of exclusion clause. There was then negotiation of the terms of the limitation of liability and exclusion clause culminating in the versions in the Prime Contract.

The Prime Contract was dated 30 November 2000 and stated that SSSL issued the Invitation to Tender and that it was for, among other things, “the retrospective fitting of environment, culture, process and technology to SSSL’s existing contact centres located at Dunfermline and Livingston”. The Response was said to have been issued by the “Contractor”, EDSL. There is a reference to notices for SSSL being sent to BSkyB with a copy to the Managing Director of Sky Services.

By Clause 1.3.2 of the Prime Contract there was a term which effectively provided that the Letter of Intent would cease to have effect on or shortly after the execution of the Prime Contract.

On 7 December 2000, EDSC entered into a deed of guarantee with SSSL which was expressed to be supplemental to the Prime Contract. By Clause 1, EDSC guaranteed the performance by EDSL of its obligations under the Prime Contract.

The question which has to be answered is whether duties were owed by the EDS parties to the Sky parties in relation to statements or representations which were made negligently by an EDS party to a Sky party.

I have found that the Entire Agreement provision in Clause 1.3.1 of the Prime Contract does not, on its terms, prevent EDSL being liable in negligence for misrepresentations made to SSSL in advance of the Prime Contract. However, the

The background to the Prime Contract shows that the EDS and Sky parties decided that the contracting parties would be EDSL and SSSL. On the basis of the ITT and the Response I consider the position was open and could have led to the contract being between EDSL and/or EDSC on the one part and BSkyB and/or SSSL on the other part. The Letter of Intent was between EDSL and BSkyB but on SSSL notepaper indicating that some but not a great deal of thought, had been given to the position for the interim arrangement. When the matter came to be considered in more detail the parties were chosen as EDSL and SSSL and not EDSC and BSkyB. The parties chose to use EDSC as a guarantor of EDSL’s liability and to choose not BSkyB as in the Letter of Intent but SSSL as the contracting party. The parties also chose to limit liability and exclude heads of loss.

If as alleged by Sky, representations were made negligently by EDSC to BSkyB or SSSL or by EDSL to BSkyB which caused loss arising out of the arrangements under which the Sky CRM System was provided under contractual arrangements between EDSL and SSSL and this loss was suffered by SSSL or BSkyB then for there to be a duty imposed between those other parties which enabled them to recover unlimited damages would circumvent the detailed provisions that the EDS parties and the Sky parties had put in place.

As Sky point out the parties did not include any provision within the Prime Contract which expressly referred to liability of EDSC or to BSkyB when they could have done so. Evidently if they had done so that would have avoided the situation. However, as is made clear in the authorities, the tests imposed to determine whether there is a duty of care and the scope and extent of any duty do not depend on whether there is an exclusion clause. They are based on questions of fairness, justice and reasonableness taking account of all the relevant circumstances.

I bear in mind that the position here is somewhat different from those situations which more often arise. This is not a case where the duty being considered is a parallel duty of care to a duty in contract. Nor is it a case of a contractual chain where the duty is said to arise between two parties separated by one or more parties in the chain. Rather it is a case where parties in a group have chosen the parties between whom to have a contract and it is sought to rely on a duty of care so that another member of the group can pursue a claim which circumvents the contractual arrangements. This is more a case which has similarities to PacificAssociates and JP Morgan Chase v Springwell.

To paraphrase the test approved by Lord Goff in Henderson v Merrett at 191: An alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort.

As Ralph Gibson LJ said in Pacific Associates even absent the express disclaimer in favour of the engineer, to impose a duty would cut across and be inconsistent

Applying the test used by Gloster J in JP Morgan Chase v Springwellthe contractual documentation, whether taken at a straightforward contractual level, or looked at more widely, as an indication as to whether any common law duties of care arose, showed that the parties specifically contracted upon the basis of a relationship which negated any possibility of a duty by or to other parties coming into existence.

Applying those tests, I have come to the conclusion that a duty of care should not be imposed upon EDSC in favour of BSkyB or SSSL or upon EDSL in favour of BSkyB which would circumvent or escape the contractual exclusion or limitation of liability which the parties put in place. That contractual structure, in my judgment, negatives any possibility that such a duty of care should arise in these circumstances.

Sky make claims under this Act in respect of representations which they contend induced the Letter of Intent, the Prime Contract and the Letter of Agreement.

Section 2(1) of the Act provides as follows:

“Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made the facts represented were true.”

On the pleadings the claims made by Sky may be summarised as follows:

EDS refer to the fact that a claim for damages under s.2(1) of the Misrepresentation Act 1967 is only available as between the contracting parties. EDS therefore submit, and I accept, that no claim can be made under the 1967 Act against EDSC and that:

EDS submit that while the burden is on EDSL to establish the necessary reasonable grounds of belief and belief in the representation, the defence relates closely to the allegations of negligence made by the Claimants against EDSL at common law and if the Claimants fail to establish that the representations were made without due care, then the claim under section 2(1) of the Act should also fail.

EDS also accept that on the basis of Royscot Trust Ltd v Rogerson[1991] 2 QB 297, a decision binding on this court, the measure of damages under s.2(1) of the 1967 Act is the measure of damages for fraud. EDS reserve the right to argue in a higher court that the correct measure of damages is that ordinarily applicable to claims in negligence. The difference is that under the measure for fraud both foreseeable and unforeseeable damages are recoverable, whilst under the measure for negligence only reasonably foreseeable damage within the scope of the duty of care is recoverable.

Sky allege that EDS made a number of representations at different times. There are a number of representations which are alleged to have been made prior to EDS being selected, receiving the Letter of Intent or entering into the Prime Contract, which I shall refer to as the “Initial Representations”. There are then further representations which are alleged to have been made prior to the Letter of Agreement which I shall refer to as the “Further Representations”.

In the case of the Initial Representations, it is convenient to deal with the three representations as to resources, time and cost together because much of the evidence is common to all three. I shall then deal with the representations as to technology and methodology separately.

In cross-examination of the EDS witnesses and in their closing submissions Sky developed a theme which went to the underlying basis for the alleged representations on resources, time and cost.

In a section of their closing submissions in which Sky dealt with “What EDS needed to do in order to bid”, Sky referred to the evidence of Gerard Whelan, Barrie Mockett, Peter Rudd, John Chan, Tony Dean, Steve Leonard and Joe Galloway in cross-examination as to the steps necessary to be able to submit a bid. At paragraph 86 of their closing submissions Sky summarised the position as follows:

“It is obviously correct, as a matter of common sense, that in order to honestly and properly respond to an ITT, and in particular one which indicates certain desired timescales, it is necessary to: ascertain what work is required to arrive at the client's intended destination; prepare a plan so as to be able to assess whether it is feasible to perform that amount of work in the timescales desired by the client; prepare a resource plan identifying what resources will be required (both in terms of numbers and skill sets) and when, in order to achieve that amount of work in the desired timescale; assess in the light of that resource plan the extent to which one possesses such resources and, if one does, whether suitable resources will be available when required in order to complete the planned work in the planned timescale; and, to the extent that one does not possess the requisite resources, secure commitments from third parties to provide resources, by informing them of your requirement for resources in what type (in terms of skill sets, experience and so on) and when.”

This submission formed the basis for Sky’s contention that, on the basis of what they had in fact done, EDS had not carried out those necessary steps in relation to work/cost, time or resources.

It is therefore convenient at this stage to consider this submission about the underlying basis of the bid because it is central to Sky’s case on misrepresentation as to cost, time and resources.

The documents before the court which demonstrated the basis for the work and cost considered by EDS in their bid were the Costings Spreadsheets. In addition there were two plans, referred to as the Vine Plans, prepared by Steve Vine who was involved in the bid.

Joe Galloway gave detailed evidence of the way in which the work element in the Costings Spreadsheet was prepared and this was also dealt with by Gerard Whelan and Andy Sollis who were involved at the time. In summary, the evidence is that representatives of EDS and the consortium partners assessed the workscope and this led to estimates of effort in terms of days for particular teams. This information on effort, together with daily rates for the team members, was gathered by Joe Galloway and his spreadsheet was then handed over to Tim Webb who carried out the necessary calculations. Sky make a number of criticisms about the evidence and this process which led, in the end, to a spreadsheet which contained the figure which EDS set out in the EDS Response of £54,195,013.

In relation to time, the position is less clear. The Vine Plans were produced in April 2000 at an early stage of the preparation of the Response and pre-date all the costing spreadsheets. Those plans did not form part of the EDS Response and were based on a waterfall method of working where each stage is carried out before the next, rather than a RAD project where steps are carried out together and in parallel. If anything it seems that a waterfall programme would show a longer duration than a RAD programme. It seems that questions of time were left to Steve Vine and Mahmoud Khasawneh, neither of whom were witnesses. Joe Galloway said that he gave “no credence” to the Vine Plans. Gerard Whelan referred to the Vine Plans as being the output of the estimating process. He also referred to discussions with Steve Vine but was not aware of any more detailed plan being produced by Steve Vine. Andy Sollis was involved for a short time in April 2000 in relation to data warehousing. His evidence was that he spoke to Steve Vine to understand when other activities would be carried out on which data warehousing depended and to consider the duration for his work. He left at about the end of April 2000 and therefore could not say anything further on this aspect.

In his evidence Joe Galloway referred to discussions with members of the consortium, in particular Chordiant, on the question “do we believe that we can deliver something in nine months… that would give Sky sufficient activity to represent a new contact centre environment live in one hall”. Gerard Whelan also referred to the fact that the “result of our estimating was a belief that we could complete the work requested in Sky’s ITT and its Appendices within the nine months specified.” He appears to have gained confidence from the fact that other Chordiant projects had been completed in nine months.

In relation to resources, Joe Galloway made it clear that there had been no detailed resource planning. He said that detailed resource planning, in terms of precise numbers or specific individuals, is not carried out at the stage of a bid. He said that he had discussions about resourcing at a very general or “macro level” and did not descend to specific numbers or skills or broad timeframes. The one exception was that five people had been agreed and secured from Chordiant as set out in Joe Galloway’s email of 15 June 2000. That there were discussions within EDS based on broad requirements was confirmed by Barrie Mockett and Peter Rudd. Gerard Whelan’s evidence was broadly consistent with that of Joe Galloway. He said that there was a degree of comfort that the CRM Practice either had sufficient resources or would be able to obtain sufficient resources to deliver the project.

On that basis I now turn to consider the particular alleged representations.

Sky have made a number of amendments to their case on the resources misrepresentation. The original pleading in paragraph 29 of the Particulars of Claim set out the following overall representation:

“EDS Ltd and EDS Corp represented that the personnel required for the project with the necessary skills and experience in the technology and methodologies to be used, were available and had been reserved for the project. The representation implied and was to the effect that such resources would be available when required in order to conclude the project in the timescale that had been promised”.

Sky say that these representations arise out of individual statements and representations made at EDS’ bid presentation on 1 June 2000, in passages from the Response, in the 29 June 2000 joint delivery teaming document, in Joe Galloway’s letter of 5 July 2000 to Richard Freudenstein, at EDS’ presentation to Sky on 7 July 2000 and in Joe Galloway’s email to Mike Hughes and others on 11 July 2000. Sky also say that representations were made by Steve Leonard to Richard Freudenstein on 13 October 2000 and by clause 7.2 of the Prime Contract.

By an amendment, Sky added two further representations which, they alleged, arose out of the letter of 5 July and the email of 11 July 2000 which, as set out above, are also relied on for the overall representation. Those two representations are pleaded as follows at paragraphs 29A and 29B of the Particulars of Claim:

In relation to the overall representations pleaded in paragraph 29 of the Particulars of Claim, EDS admitted in paragraphs 20(1) and 20(2) of their Defence that EDSL had represented in the Response, “that personnel with experience gained from comparable projects identified in the Response could be made available to be used on the project, as and when they and their particular skills might be required” and “that it was ready to start work on the project as of July 2000, utilising such personnel as might be required for that initial stage.” EDS also admitted in paragraph 20(3) of the Defence that, as at the date of the Prime Contract, 30 November 2000, EDSL “warrantedthat it had the knowledge, ability and expertise to carry out and perform all the obligations, duties and responsibilities of the Contractor set out in the agreement.”

In relation to the two further representations alleged by Sky to arise out of the letter of 5 July 2000 and the email of 11 July 2000, EDS deny that the letter of 5 July 2000was or was intended or understood to be anything more than a repetition of the representation admitted in paragraph 20(1) of the Defence. They also deny that the email of11 July 2000 represented or was intended or understood to represent that all the resources required for the project had been reserved. EDS say that it meant, was intended and understood to mean that EDS was ready to start immediately and that it had reserved the resources required for such a start.

In closing Sky has accepted that, leaving aside the letter of 5 July 2000 and the email of 11 July 2000, the representations made by EDS would have amounted to the two representations which are admitted by EDS. They contend that the overall representation pleaded in paragraph 29 of the Particulars of Claim only arises from the letter of 5 July and the email of 11 July 2000 when those documents are read against and understood in the light of the Response and the other formal bid documents. Sky have referred to the overall representation as the “Greater Resources Representation” in their closing submissions. They have referred to the representations admitted by EDS as the “Lesser Resources Representation” and the “Ready to Start Representation”. I shall adopt those definitions.

Sky also submit in closing that the Greater Resources Representation was intended to be understood and was in fact understood in terms that EDS “had actually worked out what work needed to be done; had planned the performance of that work in the timescale indicated; had worked out what resources would be required in order to deliver that work in that timescale (with what skills, in what numbers, at what times and for what periods); and had in light of that resource plan reviewed the sources of resources which were open to them and satisfied themselves that they actually had the resources required, and that those resources were available and were reserved for when they were required in order to complete that work in that timescale.” EDS say that this is unpleaded and no attention should be paid to it.

In summary, therefore, the position is this:

Whilst Sky rely upon the Greater Resources Representation in closing they also contend that, in any event, both the Lesser Resources Representation and the Ready to Start Representation were false and known to be false. As a result Sky submit that EDS made a fraudulent misrepresentation as to resources in the terms of the Greater Resources Representation but, in any event, in the terms of the Lesser Resources Representation and Ready to Start Representation.

EDS say that Sky’s closing submissions and their reliance on the representations admitted by EDS is wholly inconsistent with the case pleaded by Sky based squarely on the Greater Resources Representation. EDS contend that it is not sufficient, least of all in a case of fraud, to conjure out of the air in closing submissions an alternative and lesser charge but that any alternative case should have been pleaded properly. However EDS say that they do not object to this yet further change of case but to the manner of the change.

EDS also deny that, as alleged by Sky, it is inherent in the Lesser Resources Representation that EDS had actually worked out what resources were required and when, in order to be able to express the belief that they could be made available as and when they were required.

With that introduction it is convenient to consider first whether EDS made the

In the light of the position adopted by Sky, it is evident that the letter of 5 July and the email of 11 July 2000 are central to this representation. It is necessary to concentrate on the terms of those documents but considering them against the background of the other documents.

By the beginning of July 2000, it had been about a month since EDS’ bid presentation and there had been commercial discussions following on from that. There was also the letter of 18 June 2000 which Joe Galloway wrote directly to Richard Freudenstein to “clarify the EDS position”.

Joe Galloway sent the letter of 5 July 2000 to Richard Freudenstein from his personal Yahoo email account. He said this:

“I know that you are drawing to the close of a very trying experience with the bid on the new and replacement systems for your organisations' customer care facilities. I wanted to write to you today to re-emphasise EDS's commitment to making your team extremely successful in this endeavor. EDS has worked with over 10,000 organisations in its nearly 45 years of service to insure that every business can achieve its goal and surpass their wildest expectations for success.

As you have probably noticed, EDS has not tried to dabble too much in the political games that have been played by the some of the other organisations that have been involved in this process. We stand by our professional reputation and by the consistency of our solution, both from a financial standpoint and the technical requirements. We have theresources and ability to deliver the systems and services you require andto meet the financial and budgetary targets that you have set. In addition, we recognised that our "non-IT" solution did not meet your specification; so we have teamed very successfully over the last couple of weeks to bring a new consortium member to our bid, that being Arthur Andersen. Together, our groups have proven that a joining of our forces makes sense and gives you the assurance of a highly motivated team that can solve any business problem and deliver the desired solution. If there are any concerns over our joint proposition, perhaps there might be an opportunity for our combined teams to come back together with you to present our consolidated proposal. Our team is excited and enthusiastic about the prospect of working with BSkyB to move your organisation into a new league of customer care. I do not understand why any consulting or software-providing organisation would attempt to alienate any member of your team to win the business. Surely they must realise that even if they win the business in this manner, working together begins to be a nearly impossible position for your team.

In closing, let me reiterate, that EDS and its consortium parties want to win the business at BSkyB. We committed to developing with your team a world-beating customer care environment, while, enabling your organisation to change and grow knowing that your IT systems and solutions will not be an inhibiting factor. Steve Leonard and I are both personally committed to making this project successful. If you find that there is anything further that I can do, please do not hesitate to contact me directly.

On 10 July 2000 Joe Galloway wrote again to Richard Freudenstein giving further pricing information to support the selection of EDS.

The email of 11 July 2000 said this:

“I wanted to forward some additional to you. We have reviewed the commercials and are prepared to reduce our mark-up percentage from 37.5% to 32.5%. Additionally, we are willing to put 77% of our overall mark-up at risk using the previously agreed milestone schedule. … This new model replaces that which is included in the documents enclosed.

Mike, EDS is ready to start this project as of Monday, July 17. We havethe resources reserved for this project;in fact, we have picked up some additional high level resources that you have worked with previously. These folks come with great experience of these types and size of projects.

Please let me know if you need anything further.”

The issue is what was meant and understood by the phrases which I have emphasised in those documents.

Joe Galloway was the author of both documents and, in relation to the letter of 5 July 2000 he alone at EDS saw that letter. The email of 11 July 2000 was copied to, amongst others, Steve Leonard and John Chan at EDS. Richard Freudenstein received the letter of 5 July 2000 and he, together with Martin Stewart, was copied with the email of 11 July 2000 addressed to Mike Hughes and Keith Russell.

It was only in his fourth witness statement that Joe Galloway referred to the letter of 5 July 2000. He says at para 15 that he did not specifically refer to this letter in

He did not in his witness statement say what he meant by that letter. He was asked questions about it on Days 40 and 44.

In cross-examination on Day 40 he said that the letter was intended to “portray EDS as an organisation that has the resources and the ability as an organisation to deliver what is required by Sky”. He also said that he intended to inform Sky “we had the resources to begin the project, we had the resources that were sitting waiting to be deployed on the Sky project, that all we were waiting for was the announcement that we had won and we put those people in place. That core team that would have started the project would have been the core team that would have gone in and understood the requirements over some period of time, and would have put out the more detailed plan which would allow us to go and capture those resources as appropriate in the numbers we needed at the time”. He accepted in cross-examination that the letter did not say anything about having the resources to start the project.

He said that he meant that “we”, that is EDS and the consortium partners, had the resources and the ability to deliver the systems that Sky needed. He elaborated by saying that EDS was a company of 110,000 to 120,000 people; that Lucent Technologies was at least, as far as he knew a company of 50,000-odd people; Chordiant had a few hundred and that Sun was a mammoth organisation. On this basis he said that “if one looks at it from the perspective of the overarching capability to deliver systems, one would have to conclude that those entities are capable of delivering the systems that were required for Sky”.

On Day 44 he accepted that the letter was intended to persuade Richard Freudenstein, to whom he addressed the letter at the request of Mike Hughes. He said that this was a continuation of the sales process, it was an important letter to a key decision-maker, who was second only to Tony Ball in the Sky decision process. He said that he wanted him to understand that EDS was prepared to start immediately and would put people on the ground to begin that process, although he again accepted that the letter did not say that. He said that the “we” referred to EDS, the Corporation, the company-wide EDS and its consortium partners and also included Salmon and Henley who were outside agencies or organisations who supply staff. He said that he wanted Richard Freudenstein to understand that

“we, the group, EDS and its partners, had the resources within our groups to deliver this particular endeavour”.

It was put to him that the obvious meaning of the letter and what he intended was “that you actually had available the staff required to deliver the project, and that you had actually worked out what staff you needed, and you had taken steps to ensure that they were available.” He said that was not his understanding but that the letter was communicating the fact that the organisation, “[t]he grouping that had undertaken and endeavoured to respond to the ITT believe they have the resources and capability to deliver the systems that they desire.” He accepted that the letter did not refer to resources to begin and that in referring to “the resources to deliver the systems and services that you require” it was referring to the “whole thing”.

Richard Freudenstein dealt with the letter at paragraph 52 of his first witness statement where he said:

“Joe Galloway referred to EDS' previous experience of working with over 10,000 organisations. He reiterated that they had the resources and the ability to deliver the system and services we required and to meet the financial and budgetary targets that we had set. I understood this to mean that EDS had confidence in their revised budget and that they had undertaken a proper exercise to identify the resources required and costs involved in carrying out the project (which were reflected in their Response).”

In cross-examination it was put to him that the letter of 5 July 2000 said nothing about identifying resources to which he responded that it said “we have the resources”. He accepted that he did not understand from that letter that EDS had put a name to a particular resource. He said that understanding came from the letter of 11 July 2000.

It was put to him that he had not understood Joe Galloway to have identified all the names that would be required on the project. He replied that he was “clearly given the impression… across this period when the tender was going on - that there was a process going on within EDS to identify resources.” He said he assumed they had some system there to say, “We need these resources, these are the resources, here are the projects they are on, as soon as they roll off it we grab them.” He said that he was led to believe this by EDS throughout this period and that he thought that it was from a combination of the information he was being given. He said he was “under the impression that they were - they had a plan for the ones that were going to start, and as the project - as they needed more people, they were identifying them and earmarking them as they rolled off other projects”. He thought this was derived from a combination of all the things EDS were saying to him in the letters of 18 June, 5 July, 11 July 2000.

Mike Hughes at paragraph 51 of his first witness statement says he cannot recall precisely but he believes that Richard Freudenstein would have shown the letter of 5 July 2000 to him when they discussed the bids. Otherwise, no other Sky witness refers to this letter.

Joe Galloway in his first witness statement only dealt with the email of 11 July 2000. His evidence at paragraph 402 was that, when he said “we have the resources reserved for this project”, he meant that EDS had staff standing by who would be required for an immediate start and could immediately deploy people who were appropriately qualified to begin the project. He added that Mike Hughes, with his understanding of projects of this nature, would not have understood him to have claimed that every resource for the whole project was reserved at that point.

He gave evidence about the email on Day 44. He confirmed that it was a continuation of the selling process. He said that the references to “EDS is ready to start this project” and “We have the resources reserved for this project” were one continuous thought and not separate and distinct matters. He said he intended this to mean the resources reserved were those to start the project. He did not accept that he intended Richard Freudenstein to understand that EDS had actually reserved the resources for the project. He said that this would be a ridiculous statement.

He said that his “mindset” was that EDS were prepared to put the people on the ground to start the project and that EDS had those individuals to start the project. He added that EDS’ expectation was that during the initial six to eight week period for detailed analysis which EDS had asked for prior to the ITT, EDS would have expected to put “programme managers, project managers, technical people, some technical people at the architecture level and administrators” on the project. He said that those people would have worked alongside the business analysis team to determine the scope of the project and then determine a more detailed plan of “who needed to be on the programme, when they needed to be there, how many people we needed”. He accepted that the phrase “we have the resources reserved for the project” was capable of meaning resources for the whole project but said that he did not realise this at the time.

Mike Hughes to whom the email was addressed dealt with it in his witness statements. At paragraph 55 of his first witness statement he deals with the presentation on 7 July and says:

“I recall that Joe Galloway stressed in that presentation the immediate availability of resources to start working on the project. I believe that this would have strengthened my view that EDS had the capability to

successfully implement the project.”

He then continues at para 56 by saying that Joe Galloway reinforced this message when he sent an email to him and Keith Russell on 11 July 2000, “in which he stated that EDS were ready to start the project immediately and that they had the resources reserved for that purpose.” He concludes: “My clear understanding from him was that EDS had the people ready to start immediately”.

At para 21 and 22 of his second witness statement Mike Hughes says something different. He says that when Joe Galloway said in the email that EDS were ready to start the project as of Monday, 17 July and had the resources reserved for the project, he took that at face value. He says that as EDS had said that they could deliver what was required within the timescales that Sky wanted he understood the email in that context: “that EDS had the resources reserved to deliver the project in the timescales that they had represented to us. I did not expect the whole team for the entire project to turn up on the first day. That would be absurd and I did not read the email in that way.” He says that he was aware that the project team would need to ramp up and that particular resources would be deployed over the life of the project at various times for the activities needed to deliver the new system. On the basis that EDS had informed Sky that they would be using a RAD approach, he says that the team needed to be in place quickly in order to develop the solution.

He says that he understood from what he was being told that EDS had worked out what resources they needed over the lifetime of the project and that they had reserved those resources for when they were needed. He adds that the development timescales were short and that this was why it was important that EDS had a team that was available immediately and could hit the ground running.

He was asked questions about this on Day 13. He said that as a result of the presentation of 7 July he would have understood that Joe Galloway had people ready to go who would be required for an immediate start but that, as this “was a

In relation to the email of 11 July he said that he understood it to mean more than having resources to start. He said that “This was the height of the dotcom technology boom. It was critical that he had resources available for a project that had a very sort of tight RAD based timeline to… to cover development, cover systems architecture, to cover testing various other elements program management, to cover various other elements of the piece, and some of those would be named resources and others would be reserved from EDS's resource pool and their partners in the consortium and various other sources.”

He said that his support of the EDS consortium's bid was based on his confidence that Joe Galloway,other key resources, the EDS organisation and the Consortium to whom they were subcontractingwould be able to deliver a working solution. In relation to the email he said that “I was being lobbied very, very hard by him and by others and I suggested he made those commitments to Richard as well which he did.”

Richard Freudenstein deals with the letter of 11 July 2000 at para. 61 of his first witness statement where he says that Joe Galloway “stated in terms that EDS were ready to start and had resources reserved for the project. He even stated that additional high level resources had become available. All of this contributed to my increasing confidence in EDS' ability to carry out the project.”

He was asked questions about it on Days 10 and 11. He said that his understanding on resources was that “there were some that were ready to start immediately, and they had a very, a comprehensive process internally to EDS to identify resources as they rolled off other projects, and he marked their card to say the ones that were coming to this project.” He also said that his impression “was that they were identifying resources as they rolled off other projects, to be put on this project” and that “they not only had resources ready to start, but they were identifying resources. I assumed they had some complicated process internally that - they knew how many, for example, Chordiant resources they had and they knew where they were working, and they were identifying them and reserving them as they rolled off the other projects.”

He said that he was “not saying that they had identified every single person that would be on this project. I am saying that I clearly had the impression that they had resources that were ready to go immediately and that they had identified a number of resources to be rolled on this project at the appropriate time.”

In re-examination he said that he understood it to communicate that “they worked out what resources they needed for the project as a whole, and they had reserved them.”

Martin Stewart refers to the fact that this email was copied to him at para 29 of his witness statement. He evidently has little recollection because he says that these statements “would have” given him additional confidence that EDS had sufficient resources available to undertake the project.

In terms of the representation, there are essentially two issues:

In approaching these issues, I must consider what was intended by Joe Galloway and what was understood by the relevant people at Sky by the letter of 5 July 2000 and the email of 11 July 2000. The test is objective as to the meaning of the representation:What would the reasonable person in the position of the representee understand by the words used. Subjective matters are relevant to knowledge and reliance.

It is clear that, as Sky submit, the letter and email have to be read in the context of what was happening at the time. The passages of the Response relied on by Sky show that EDS were saying that they had the ability to “leverage” or use global resources. At the presentation on 1 June 2000 EDS repeated its statements about global resources and proven experience and expertise and stated that it was ready to start the project. At the presentation on 7 July 2000 EDS stated that they were ready to start with the “right skills”.

When read in context, what would a person in Sky’s position understand by the phrase in the letter of 5 July 2000 “We have the resources and ability to deliver the systems and services you require and to meet the financial and budgetary targets that you have set” and the phrase in the email of 1 July 2000 “EDS is ready to start this project as of Monday, July 17. We have the resources reserved for this project”?

In my judgment, the phrase that EDS “have the resources” can only mean that EDS had the resources in the sense that it had global resources available from EDS, the consortium members and other organisations which it could use to deliver the Sky CRM Project. First, that is consistent with what had been said in the Response and at the presentations. It was a general statement similar to the phrase in Section 1.3 where they stated that that they had the "ability to leverage the global resources.” That availability of global resources was evidently referred to by EDS to give Sky the confidence that EDS could and would have the necessary resources available when they were required to carry out the project.

Secondly it is consistent with what is said in the letter of 5 July. The reference to “resources and ability” is clearly a general statement and the letter contains a number of references to the general capabilities of EDS and the consortium partners and others. The reference in that letter to EDS working with 10,000 organisations, clearly a reference to EDSC and to the consortium, now including AA, emphasises that EDS was making a general representation about the organisations having resources which could be made available for the project.

To suggest that it would mean, as Sky submit, that EDS had worked out what resources were required, with what skills, in what numbers and at what time and actually possessed those resources so that they were satisfied that they were or would be available at the relevant time, for the whole project is to give the phrase an unreasonable meaning and one which is not consistent with the context at the

In relation to the phrase that EDS “have the resources reserved for this project” when read literally and out of context that could be a reference to all the resources being reserved for the whole project. I do not consider that this would be a reasonable interpretation of what was being said in the Response to the ITT on a complex IT project where what EDS had set out in the Response showed that there was a need to add definition to the requirements by the SWAT, Design and Design Validate stages illustrated on page 38 of the EDS Response and dealt with in the previous pages. It is evident that Sky understood that all the resources could not be reserved at the stage of the Response.

I did not find the evidence of Richard Freudenstein or Mike Hughes consistent as to what they understood EDS to have done in terms of whether the resources were those to start, with a system to obtain further resources or whether EDS had worked out what resources they needed for the project as a whole, and they had reserved them.

The email of 11 July 2000 stated that “EDS is ready to start this project as of Monday, July 17. We have the resources reserved for this project”. The issue is whether Joe Galloway was saying that EDS had reserved the resources for the start or the initial stages of the project or whether he was saying that it had reserved the resources to perform and complete the project.

The nature of estimating for IT projects was dealt with in expert evidence. That evidence showed that the task is to convert a set of wishes expressed by the client into a software solution which will perform the client’s requirements. The definition of the work and therefore the effort is something that develops throughout the course of the project. This has been expressed by McConnell in his book Software Estimation in terms of a cone of uncertainty, with the effort or cost becoming more certain as the project progresses through Initial Concept, Approved Product Definition, Requirements Complete, User Interface Design Complete, Detailed Design Complete to the final stage of Software Complete. This necessarily means that on large and complex IT projects there is no ability to have resources available or reserved for the whole of that project.

When read in context, I do not consider that any reasonable person in Sky would understand that EDS had reserved all the resources to perform and complete the project. In my judgment, when read with the first sentence the phrase must mean that Sky had reserved “resources” for the project so that they could make a start on 17 July rather than “all the resources” for the project.

Obviously there had to be some process to reserve resources needed to start. However, for a project that was at tender stage and where EDS had not been selected, where further work was needed to define the scope of the work and where the project was to last some 18 months, it would not be reasonable to take EDS as stating that they had reserved all the resources for the whole project.

Accordingly I do not find that the letter of 5 July 2000 and the email of 11 July 2000 when read in context gave rise to a representation by EDS thatthe personnel required for the project with the necessary skills and experience in the technology and methodologies to be used, were available and had been reserved for the project.

I therefore find that the Greater Resources Representation was not made by EDS. I now turn to consider the Lesser Resources Representation.

Sky say in relation to the Lesser Resources Representation:

This admitted representation was in terms that personnel with experience gained from comparable projects identified in the Response, which have been referred to as “appropriate resources”, could be made available to be used on the project as and when they and their particular skills might be required.

As set out above, Sky say that it was inherent within this representation that EDS had actually worked out what resources were required and when, in order to be able to express the belief that they could be made available as and when they were required. EDS deny this.

However in paragraph 304 of their closing submissions EDS accepted that the Lesser Resources Representation would carry with it an implied representation that there were reasonable grounds for such an opinion. EDS contend that the representation was not false but that there were resources available from within EDS itself, consortium partners and outside agencies. They say that Sky’s reliance on expert evidence that compared EDS’ plans with the number of personnel supplied fails to take into account the fact that EDS’ plans were not achieved because of the delay in producing functional requirements. EDS submit that resources are always a risk on IT projects and that no serious problems were anticipated before the bid and there were no serious problems afterwards.

Sky submit that the Lesser Resources Representation was false as appropriate resources could not be made available as required as EDS did not know how many of what resources were needed and when and, in addition, knew that they did not have available resources. They say that Joe Galloway, Gerard Whelan and John Chan knew that they could not honestly make that representation because they knew that steps had not been taken to assess the resource requirement and resource availability. They also say that it was EDS’ intention to recruit to staff the project and they had very few personnel with experience gained from comparable projects.

Essentially, the question is what EDS needed to do to have reasonable grounds for representing that appropriate resources could be made available to be used on the project as and when they and their particular skills might be required. EDS submit that what was done by EDS amounted to what was necessary for EDS to have reasonable grounds. Sky submit that EDS did not carry out what was necessary because EDS did not undertake a proper exercise to establish what resources they required, at what times, for what periods, in what numbers and with what skills.

The experts considered the appropriate way of assessing resources so as to make the alleged representations. EDS refer to Ian Murray’s evidence of the appropriate approach in relation to resources. In relation to resource availability at the bid stage Ian Murray says at paragraph B116 of PA’s first report that a reasonable Systems Integrator would ensure that the envisaged resource requirements can be met prior to submitting a bid and that, in a large project, this would typically involve contacting the relevant resource managers to ensure that appropriate levels of skilled resources can be made available.

Ian Murray then deals with the position at the project execution stage and refers to “mission critical” resources. He says this at paragraph B118 of PA’s first report:

“Given the level of detail in the eCRM ITT a reasonable Systems Integrator would have:

i

Reserved (or had specific plans for making available at the time of the LoI) key leadership resources and technical and business subject matter experts before the Letter of Intent was signed - the "mission critical" resources to which I earlier refer. At this time EDS knew the technologies that would be involved, knew the business context of the programme (CRM), and should have anticipated the programme management demands of the programme and therefore should have been able to anticipate how many resources were required for the first few months of the project.

ii

At the LoI, had a detailed resource plan for at least the first month of the project and had identified and secured the resources required for that period, and for the following 3 months identified the resource types required (skills and experience) together with an understanding of where those resources would be found.”

In Section 11 of his first report, Robert Worden refers to the evidence given by Barrie Mockett and Peter Rudd as to EDS’ resourcing approach which was essentially that there had been informal discussions between them and members of the bid team. This had identified sources of systems integration skills within EDS, the consortium partners and elsewhere. It had identified the need for Chordiant skills which would be met both from those in the CRM Practice from the former SHL who had those skills and also from the particular resources that were to be obtained from Chordiant. In addition, seven key members of the team had been identified in Section 7 of the EDS Response. Robert Worden says that the approach described by Barrie Mockett and Peter Rudd was adequate in relation to general systems integration skills, that the most important specific skill of Chordiant experience was dealt with and the proposed delivery team in Section 7 of the EDS Response was appropriate.

That evidence shows that neither expert expected EDS at the stage of the EDS Response to have actually worked out what resources were required and when for the project in terms set out by Sky in closing, that is “prepare a resource plan identifying what resources will be required (both in terms of numbers and skill sets) and when, in order to achieve that amount of work in the desired timescale; assess in the light of that resource plan the extent to which one possesses such resources and, if one does, whether suitable resources will be available when required in order to complete the planned work in the planned timescale; and, to the extent that one does not possess the requisite resources, secure commitments from third parties to provide resources, by informing them of your requirement for resources in what type (in terms of skill sets, experience and so on) and when.”

It is evident that the process of resource planning at bid stage relied on by Sky is one which goes far beyond what is needed to satisfy the test of having reasonable grounds to support the representation thatappropriate resources could be made available to be used on the project as and when they and their particular skills might be required.

It is necessary to consider what steps EDS had in fact taken to resource the CRM project at the time of the EDS Response.

As EDS fairly accept, the evidence of what precisely Joe Galloway and others in the bid team did in relation to resources is not entirely clear. Joe Galloway said that he thought that it was not possible to produce a meaningful resource profile and that any attempt to produce one, even in August 2000, was futile because of the lack of sufficient requirements. He said that his confidence in the availability of sufficient resources was based on the combined experience of EDS and its consortium partners. He said that his assumption all along was that EDS “would be able to draw on EDS personnel and our consortium partner, i.e. Chordiant, for this particular element, and that we would be able to go to the contractor market. I did not believe at any time there would be a restraint on the resources that we would have to get.”

Joe Galloway stated in cross-examination on Day 40 that it was his belief that EDSwould use the majority of resources from EDS and that hecould call on other resources from consortium partners or contractors to fill any provision that was needed. He pointed out that “EDS was a company of 110,000 to 120,000

Joe Galloway confirmed that as far as he was concerned, other than the nine personnel on the Costing Spreadsheet who were to be obtained from subcontractors, he intended to provide everybody else from EDS. EDS made arrangements for the five Chordiant resources. Otherwise Joe Galloway referred to conversations about resources “absolutely at a macro-level” and that apart from EDS resources, he intended to “seek out those areas where I knew I would need particular assistance and to ascertain whether they had sufficient numbers to draw upon”.

Gerard Whelan’s evidence as to what had actually been done in relation to resourcing was broadly consistent with Joe Galloway’s evidence. He referred to the commitment of the consortium partners. He said that he and the team were confident that they could obtain the balance of the resources from either EDS or the consortium partners or the wider public. He said that “The buzz around at the time whilst I wasn't sitting in on technical workstream meetings or whatever, I was frequently hearing the outcome or people discussions particular points or people discussing resources with the like of Barrie Mockett and Peter Rudd”. The evidence of Barrie Mockett and Peter Rudd shows that they did not have any detailed involvement in resourcing the project or specific discussions about resourcing the project, during the bid stage. Rather there appear to have been only informal discussions.

Apart from the five Chordiant resources in respect of whom a specific agreement had been reached, there was no commitment but there was informal discussion

There were also the seven personnel listed in Section 7 of the EDS Response. Sky say that, in the event only two of them worked on the project, the relevant people being John Chan, named as Programme Director and Steve Vine, named as the Transition Workstream Manager. Mahmoud Khasawneh had been named as Technology Workstream Manager but shortly after the EDS Response was put in he left EDS to work in Jordan and was replaced by Dan Barton who became free from the GM Onstar project in June 2000. Because of changes after submission of the EDS Response, the other four named personnel were no longer relevant. Three were A T Kearney personnel but AA replaced AT Kearney and one related to the Location Workstream which was taken out of EDS’ workscope.

In considering whether EDS had reasonable grounds for making the representation, it is necessary to consider whether there were any particular problems envisaged. The period in 2000 was during the “dot-com boom” and therefore there was a risk of resource shortages.

Much was made by Sky of a memorandum from David Courtley of 14 January 2000 (“the Courtley Memo”) relating to a recruitment freeze; a recruitment campaign in EDS from July 2000 and views expressed as to the likely shortages if EDS were to be awarded the Sky project.

The Courtley Memo was, it appears, based principally on concerns that people outside EDS should not be recruited if there were appropriate resources within EDS. Not surprisingly when the Essential Hire Justification forms were submitted in March and April 2000 to obtain outside resources for the CRM Practice, they were couched in terms of there being a “dire need” for programmers and developers on particular projects. As Robert Worden observes, the premise for a recruitment freeze would be that there were already sufficient resources.

The recruitment campaign may have initially started out as a general recruitment campaign for the EDS CRM Practice in the UK but it was with a view to that practice being able to undertake more work and the Sky CRM Project was obviously seen from about March 2000 as a key project for EDS to be awarded. The recruitment campaign then was seen as being able to provide resources related to the Sky project, either by providing people to undertake that work or by “backfilling” positions within the CRM Practice where the previous holders of those positions had moved to the Sky CRM Project. I do not accept Joe Galloway’s evidence that the campaign was not related to or seen within EDS as being related to the Sky CRM Project.

There was also the view expressed by Barry Yard on 18 July 2000 that “Related to BSkyB, we have a serious resourcing shortage if the project is won,”. That comment was supported by Barrie Mockett who considered that if EDS were awarded the Sky CRM Project “You would need to open up all the taps to bring resources in.” The Sky project was a large endeavour and it is evident that EDS could not supply the personnel to resource it from the CRM Practice. There would be a serious shortage within the CRM Practice but the taps would have to be opened to bring in other EDS resources, together with resources from the consortium partners and outside agencies.

There will always be risks in resourcing IT projects but I do not consider that these matters would affect what EDS should have done to have reasonable grounds for making the representation about resources.

I broadly accept Joe Galloway’s evidence of what was done in relation to resourcing prior to the EDS Response. This is a case where Joe Galloway’s evidence is supported by Gerard Whelan and there is some support from Barrie Mockett and Peter Rudd. There is also the evidence of the five Chordiant resources and of the named personnel in Section 7 of the EDS Response.

As Ian Murray says, a reasonable Systems Integrator would ensure that the envisaged resource requirements can be met prior to submitting a bid and that, in a large project, this would typically involve contacting the relevant resource managers to ensure that appropriate levels of skilled resources can be made available. In relation to general integration resources, I consider that EDS had reasonable grounds for considering that these resources could be made available from the CRM Practice, from elsewhere in EDS, from consortium partners or outside contractors. For the key Chordiant resources, EDS did make arrangements with Chordiant and the evidence from Chordiant’s communications with Sky was that they were clearly willing to provide assistance. This supports EDS’ confidence that they could obtain the necessary Chordiant resources. There were also general discussions with the other consortium members such as the one which I accept took place with Scott Yarnell of Forte, as referred to by Gerard Whelan. EDS had also named seven individuals who were intended to perform key roles on the Sky CRM Project, as envisaged at the time.

In my judgment, what EDS did was sufficient for them to have reasonable grounds for the representation that personnel with experience gained from comparable projects could be made available to be used on the project as and when they and their particular skills might be required.

As a result, there was no misrepresentation in terms of the Lesser Resources Representation.

Sky also say, in relation to the Ready to Start Representation, that for EDS to make the representations that EDS “were ready to start work on the project as of July 2000, utilising such personnel as might be required for that initial stage” it is inherent that EDS in fact had such resources, they were in fact available and they were in fact reserved.

This admitted representation was in terms that EDS were ready to start work on the project as of July 2000, utilising such personnel as might be required for that initial stage.

Sky say that, as the actual resource situation in the first six to eight weeks of the project demonstrated, EDS did not in fact have suitable and appropriate resources in the numbers and with the skills required to start work on the project at the end of July 2000.

However, I consider that what happened after 20 July 2000 has to be viewed in the context of discussions which were happening at that time which affected what was going to happen and when. In the EDS Response, EDS proposed that a business process workstream led by A T Kearney was to proceed by two parallel paths: one a “SWAT” team was to identify current customer service failures and “quick wins” over a period of 8 weeks; the other team was to define the vision for Sky's world-class customer service in 4 weeks and then over 8 to 10 weeks to validate the design, defining the use cases for certain processes and producing a use case catalogue together with a functional and technical specification for those processes. However by the end of June AA had replaced A T Kearney with a revised approach to both the process workstream and change management, as set out in the Joint Delivery document of 20 June 2000. Part of that revised approach was a 6 to 8 week “Define” phase to set “the scope of the work and identify priorities within it”.

The evidence shows that EDS, supported by the consortium partners, did start work immediately. There was a kick-off meeting in Dunfermline on 27 July 2000 attended by representatives from EDS, AA and Sky. A presentation had been produced by EDS which referred to “month one deliverables”. It set out the detail of what work would be carried out in the initial start-up phase of each workstream. As Scott Mackay observed in his witness statement he believed that from this document EDS were ready to “hit the ground running” and that work began in earnest on Monday 31 July 2000.

EDS deployed a team of some 32 people who billed about 100 man-days in the first week after project kick-off, as shown on the resource list produced by Sky. When asked in cross-examination to give an approximate number of people Joe Galloway says that he intended to start with business analysts, some architects, project managers and administrators. The general approach of starting the project

During the initial period there are two particular documents where EDS dealt with resources. First there was the August Risk List which shows that on 1 August 2000 John Chan raised risks about inadequate resources. One risk he identified was an “inability to provide project managers required within technology & implementation workstream” which had an impact from 24 July 2000 and was to be dealt with by active recruitment by Tom Lamb. He raised a second risk that an inexperienced development team would have an impact on the project from 1 September 2000 and this was to be dealt with by using contracting staff and training EDS staff.

The second document, the Red Team Report of 21 August 2000 also identified the availability of staff both in terms of quantity and skills as the “no. 2 concern”. What was needed was to “Develop detailed resource profiles as soon as possible” and “commence internal/external recruitment.”

I consider that the reference to resources for the development team and the need for detailed resource profiles related to concerns not about the initial work which was to be carried out by EDS but about the resources necessary for the further stage of the work after the initial stage. The reference to managers for the technology and implementation workstream seems, though, to be a more immediate need. As part of EDS’ presentation for the kick-off meeting on 27 July 2000 there was a chart which showed Peter Chleboun as the leader of the technology workstream and Martin Wood as the leader of the implementation workstream. John Chan’s reference to managers for the technology and implementation workstreams may have related either to other people required for the teams or to the fact that, as it seems, neither Peter Chleboun nor Martin Wood remained on the project for long.

PA criticise the resources provided by EDS during the initial period. They identify a number of resources who they say were unsuitable. However, the documents show that EDS did provide a substantial number of resources in July and August 2000 and whilst some of them may have lacked experience or had weaknesses in particular areas, I cannot conclude that there was any material breach in a representation that EDS were ready to start work on the project as of July 2000, utilising such personnel as might be required for that initial stage.

On that basis, Sky has not established that EDS made a misrepresentation in relation to the Ready to Start Representation.

Sky allege at paragraph 41 of the Particulars of Claim that EDS represented “that they had carried out a proper analysis of the amount of elapsed time needed to complete the initial delivery and go live of the contact centre and that they held the opinion that, and had reasonable grounds for holding the opinion that, they could and would deliver the project within the timescales referred to in the Response, and, subsequently, the Contract.”

Sky contends, first, that the initial representation in relation to the EDS Response was made in writing in two documents prior to Sky’s selection of EDS: the EDS Response and Joe Galloway’s letter to Richard Freudenstein of 5 July 2000.

In addition to the statements in early 2000, Sky also rely on statements made later in 2000 in relation to the timescales in the Prime Contract. They rely on statements made in a high level project plan produced on 11 October 2000, made orally by Steve Leonard at the meeting with Richard Freudenstein on 13 October 2000, made in the 24 October 2000 project plan, made in the effort estimates produced by EDS in October 2000 and made in the Milestones set out in the Preliminary Specification dated 22 November 2000.

In dealing with the matters in late 2000, Sky state that their primary case is that the cause of action was complete once they relied on the representations made in the Response and in the letter of 5 July 2000 in selecting EDS and awarding EDS the Letter of Intent. Sky also say that the representations continued and that the further statements made in late 2000 became part of the representations as to time.

EDS deny that it made the alleged representation. At paragraph 113(1) of the Defence they say that the reliance by Sky on the Response fails to take into account the qualifications in the Response such as that the “high level plan will be refined after further analysis of the current situation and business requirements” and that “Milestone plans showing key commitment, decision dates and detail within each key project phase will be developed before work begins.”. EDS admit at paragraph 113(4) of the Defence that by the EDS Response EDSL did represent that it believed that, based on the information contained in the ITT, completion of phase 2 was achievable within 9 months of project commencement.

In relation to the representations alleged in later 2000, EDS deny that the project plan constituted a representation; they deny the representations alleged to have been made at the meeting on 13 October 2000; they deny that they made any representation in the project plan which they say was “one step in an on-going process of project planning”; they state that the baseline budget was EDS’ best estimate of effort based on information at the time and do not admit that EDS represented that “it had carried out a proper estimate of the amount of effort required”. They also deny that, in producing the Milestone Schedule which was to form part of the Prime Contract, they made any representation to Sky.

In closing Sky submit that the oral evidence established that EDS had made the representation in respect of deliveringthe project. EDS maintain that the representations were not made.

EDS say that all the plans in the EDS Response were only indicative and could not give rise to the alleged representations. In any event, EDS say that any representations as to time were overtaken by events before the Prime Contract. EDS say that the events of October 2000 rendered the previous estimates immaterial well before the Prime Contract. They rely on the joint planning as showing that all parties were well aware that the proper analysis carried out by the joint teams in October 2000, and again in November 2000, had led to a much later date than July 2001. Instead, EDS state that they had committed to the earlier July 2001 date in the expectation that it would be possible to produce a proper plan to fit it, but before any such plan had been produced. In doing so, EDS say that they took considerable commercial risk but made no representations.

It is convenient also to consider the similar representation which Sky allege was made in relation to cost.

Sky allege at paragraph 45 of the Particulars of Claim that EDS represented “that they had carried out a proper estimate of the cost of completing the project and that they held the opinion that, and had reasonable grounds for holding the opinion that, they could and would deliver the project within that budget”.

Sky say that the representation comprises or arises out of the following statements and responses:

Sky also say that the representation comprises or arises out of the further cost estimates that led up to and came to form the Baseline Budget at Schedule 5 to the Prime Contract. At paragraph 46 of the Particulars of Claim Sky allege that EDS represented that the £19,751,000 in the Baseline Budget for consultancy was a proper estimate.

EDS admit in paragraph 142 of the Defence that they made the representation at section 1.3 of the EDS Response. At paragraph 143 of the Defence they also admit the content of Joe Galloway’s letter of 5 July 2000 but deny that he thereby represented that EDS had reasonable grounds for believing that Sky’s financial and budgetary targets could be met.

At paragraph 144 of the Defence EDS admit that the costs included at section 7.2.1 of the EDS Response gave details of anticipated costs for the project and that Schedule 5 to the Prime Contract included a Baseline Budget for EDS’ costs. EDS say, though, that the Baseline Budget was a proper estimate on the basis of their knowledge at the time.

In closing submissions, Sky adopt a similar position on cost as they do on time:

EDS in their closing submissions state that, like time, any estimates of costs could only be indicative. In any event, again like time, EDS state that the position changed in the light of events before the Prime Contract. They say that Sky’s attempt to elide the costs estimate in the Response and the costs in the Baseline Budget at schedule 5 to the Prime Contract ignore the fact that the estimate had in the intervening period risen to some £94m and the programme had been wholly reorganised. EDS say that, by the time of the Prime Contract, the estimates in the Response were wholly irrelevant.

It can be seen that both the representation as to time and that as to cost are conveniently dealt with together and in two stages: first, the position in July 2000, then the later period in 2000.

Sky rely on the evidence of EDS witnesses. It is therefore necessary to see what they said about the pleaded representations.

First, there was the evidence from Joe Galloway. In cross-examination on Days 38, 39, 40 and 44 he was asked questions, on a number of occasions, about what he intended Sky to understand from the EDS Response. In summary he accepted that he had intended Sky to understand that EDS had made “a reasonable assessment” and undertaken a “professional approach” in estimating and planning the project as set out in the EDS Response, based on the information in the ITT. He also said that he wanted Sky to understand that on that basis EDS was reasonably confident and believed that they could achieve go-live in 9 months

Secondly there was the evidence of Gerard Whelan on Days 35 and 48 which was to similar effect referring to the pleaded parts of the EDS Response. There was also similar evidence from John Chan on Days 59 and 60 and from Tony Dean but those individuals were not involved in producing the EDS Response at the time.

This evidence confirms what Joe Galloway and Gerard Whelan intended to communicate. I consider that, as set out below, this is consistent with what was said in certain passages of the EDS Response.

In relation to time, Sky rely on the following passages of the EDS Response:

Those references in the EDS Response to EDS providing the contact centre “on time” and “within the required timescales”, confirm the 9 month timescale for golive. This is consistent with the diagrams at pages 43, 52 and 63 of the EDS Response and the evidence of Joe Galloway and Gerard Whelan who prepared the EDS Response.

Indeed, EDS accept that in the EDS Response they represented that they believed that, based on the information contained in the ITT, completion of phase 2 was achievable within 9 months of project commencement. That is a reference to the diagram at page 52 of the EDS Response. When read in the context of the ITT and the other parts of the EDS Response, I have no doubt that EDS represented thatthey held the opinion that they could and would deliver the project within the timescales referred to in the EDS Response, which included go-live in 9 months.

In relation to cost, Sky rely on the passage in the EDS Response at section 1.3 where EDS said they would provide Sky with a unique World Class Customer Contact Centre “on time and on budget” and Joe Galloway’s letter of 5 July 2000 where he said that EDS had the resources and ability to deliver the system and services required ‘to meet the financial and budgetary targets that you have set’, together with the estimate at paragraph 7.2.2 of the EDS Response which gave the sum of £54,195,013.

Again, I consider that on the basis of those statements, as confirmed by the evidence of Joe Galloway and Gerard Whelan who prepared the EDS Response, EDS represented that they held the opinion that they could and would deliver the project within that budget of £54,195,013.

Did EDS represent that they hadcarried out a proper estimate of the amount of elapsed time needed to complete the initial delivery and go-live of the contact centre and of the cost of completing the project and that they had reasonable grounds for holding the opinion on time and cost? Whether such representations were made depends on the particular statements in the particular context in which they were made. As was pointed out in Society of Lloyd's v Jaffray & Ors[2002] EWCA Civ 1101the test is what the reasonable person in the position of the representee would understand by the words used.

This is a case where Sky made it clear in the ITT at paragraph 4.1 that they had the 9 month requirement and at paragraph 6.3 that BSkyB would evaluate the tender submissions on the basis of cost. EDS were therefore providing an estimate of price or time so that Sky could consider whether or not to select EDS as the party to carry out the Sky CRM Project. In making that selection the time and cost of the project were evidently important matters and EDS were aware of that in providing those estimates. Looking at the position objectively, in those circumstances, I consider that it was implicit in the estimates of time and cost that EDS had carried out proper estimates and had reasonable grounds for their opinions on time and cost. This was also accepted to be the position by Joe Galloway and Gerard Whelan in their evidence.

In my judgment, for the reasons set out above, Sky is correct in their submission that prior to the Letter of Intent EDS represented:

I now turn to consider whether those representations were false.

Sky submit that the fact that the representations were false emerges from the summary of what EDS had and had not done.

In relation to the representation as to cost prior to the Letter of Intent, Sky say that it was false because:

Sky submit that the Costing Spreadsheets failed to provide any information about when and in what numbers resources would be required. Sky say that the Costing Spreadsheets do not assist in working out what work is required to arrive at golive after nine months with full transition and completion within eighteen; they do not assist with planning of the requisite work and they do not amount to a resource plan identifying what resources with what skills will be required at what time, for what periods and in what numbers.

In relation to cost, EDS say that prior to and in preparation for the EDS Response, EDS had carried out an analysis of the effort that might be required to deliver the CRM system. EDS say that they carried out a reasonable exercise of estimating costs for the EDS Response and that the criticisms by Sky are not valid.

In relation to the representation as to time prior to the Letter of Intent, Sky submit that:

Sky refer to the Vine Plans as being the only planning documents produced by EDS at the time of preparing the bid. They say that EDS did not undertake a proper exercise to assess what work was required in order to deliver go-live in nine months and the whole project in eighteen months; they did not undertake a proper exercise of planning and sequencing to establish that go-live could be delivered in nine months and the project as a whole in eighteen and if so how; and they did not undertake a proper exercise to establish what resources they required, at what times, for what periods, in what numbers and with what skills.

In relation to time, EDS accept in their closing submissions that, on the basis of Robert Worden’s evidence, any representation of “proper analysis” or “reasonable grounds” would be false.

The way in which EDS carried out its estimate for the purpose of the Response forms the underlying basis for the complaint by Sky. It is therefore necessary to review what was done by EDS to prepare their estimate of effort, cost and time for the purpose of the Response.

Sky emphasised in evidence the need for there to be a number of stages in the process of estimating cost and time for an IT project. I accept that there are essentially four stages. First, it is necessary to estimate what work has to be done. Secondly, there has to be a calculation of the resources which are needed to perform that work. Thirdly, it is necessary to work out what number of resources are required to carry out the work within the period. Fourthly, it is necessary to work out whether those resources are available.

In a case with much documentation, there is surprisingly little documentation relating to the process by which EDS prepared its Response. What documents there are, combined with the witness evidence of Joe Galloway, Gerard Whelan and Andrew Sollis, forms the basis on which I have to proceed. The main documents which survive and which form the basis for the cost and time analysis are essentially the costing spreadsheets and two programmes produced by Steve Vine.

I deal first with the estimate of cost.

In his first witness statement, Joe Galloway explains the process by which the cost estimate was produced. He says that estimating was carried out in meetings of the bid team and that he recalls at least two half-day sessions which he attended “in

Joe Galloway says that at the same time as the bid team were looking at this “bottom up” estimate from expected functionality, they were also looking at a “top down” estimate to provide a measure of verification. This “top down” estimate involved an analysis of broad areas of project activity and an estimate of how long would be required for that activity based upon past experience. He says that the bid team were constantly measuring their estimate against the top down predictions and that the estimates brought to the group discussions had been verified in this way.

He identifies the following people as being involved in the process and attending the sessions in which he was involved: Mahmoud Khasawneh (the bid architect), John Mitchell (the Chordiant Software consultant), Gerard Whelan, Simon Cayless and Zubair Ahmed. He says that Gerard Whelan, Simon Cayless and Zubair Ahmed were all on the business process side and that this bias was appropriate because the main imponderable was the scope and complexity of the business requirement.

The analysis process he explains as follows. The team considered the processes in the ITT “at the level at which we anticipated use cases would be produced in the exercise of requirements definition”. For example, he says that the team were looking at functionality in terms of “identify customer” or “capture customer profile” and considered the effort that would be involved both in analysing the business requirements in each area and then implementing the requirements which they expected to be produced.

In terms of business analysis, he says that the team considered how far each process was likely to be new and how far they would be relying on an existing and familiar process. Based on the ITT and their contact with Sky, he says that the bid team tried to predict the amount of customisation which would be necessary in respect of existing processes. Where processes appeared to be wholly new it was a question of applying their experience.

In terms of development effort he says that the team tried to form a view as to how far the functionality required by the ITT corresponded with the “out of the box” functionality in Chordiant and the functionality they had to implement on other projects. From this and from their general development experience, the bid team then made a judgement as to potential reuse and also the effort required for the development of novel functionality. He says that “consistent metrics” were applied across all the notional use cases attributing to each a low, medium or high complexity and a corresponding estimate of effort adjusted where considered necessary. These estimates, he says, were not directly based on any standard

He says that this analysis of development effort was carried out for all of the functionality at use case level and this level of detail was applied to many small components. He adds that the team had also to include broad provision for functionality which could not be thought of in terms of use cases, including architectural design, interfaces (that is, the system requirements of the middleware component) and project management. He says that the amount of effort required for an architectural design connecting a given number of legacy systems had to be estimated on the basis of past experience. He refers to the outcome of this exercise being an estimate of effort in terms of numbers of people, divided by broad skillsets and the time periods for which these numbers would be required.

Joe Galloway says that these conclusions were then recorded by him at meetings using a spreadsheet on his laptop. He says that the spreadsheet was based on an SHL standard estimating template consisting of a number of tabs used in estimating and producing a cost. He says that during the estimating meetings he recorded conclusions in a separate tab which he created as a “scratch-pad”. He says he transferred the conclusions into the formal tabs of the spreadsheet and then deleted the “scratch-pad” tab. Initially, he says, only he had access to the estimating sheet and he updated it with the numbers of people in the different skill areas and the number of days’ effort that had been estimated. He says that he kept the spreadsheet entirely to himself as he did not want members of the team to see the rates at which they would be charged to the client. Only when the estimating spreadsheet was complete did he then pass it on to Tim Webb for the purpose of costing.

He refers to an example of the estimating spreadsheet dated 24 May 2000. This was created on 4 May 2000 but the version is one produced after it had been handed to Tim Webb. In the “EDS” tab are the various categories of resources expected to be required from EDS, showing the overall numbers and the mandays of work expected of them. He says that it can be seen that a team of about 100 people (deployed at various times over the lifespan of the project) was predicted. He says that the spreadsheet contained a classification of rates in the “Staff Model” sheet, with contract staff being in a separate column. He says that the practice during the estimating exercise was to identify a role as being filled by a contractor only where it was particularly desirable to do so, or it was inevitable that a contractor (which included a resource from another consortium member) would have to be used. He says that it was expected that some of the roles in the EDS column would eventually be filled by a contractor, notwithstanding the contrary indication in the spreadsheet.

Joe Galloway says that the role descriptions in the spreadsheet were appropriate and captured all of the roles that would be expected at some point during any project, although the roles might vary in terms of number and duration depending on the nature of the particular project. The roles provided a generic description. For example, under the heading “GUI”, the spreadsheet referred to one technical lead, two system engineers and nine programmers. This would cover both Chordiant Forte and Chordiant Java development on the Sky project, as well as Forte middleware.

In terms of the “cost to complete”, he says that this is a function of time to complete individual tasks, multiplied by the number of people associated with the task, multiplied by appropriate hourly rates. He says that the professional judgement lies in the identification of the tasks themselves, the amount of time required for each task and the number of people required to complete it within a notional timescale. These, he says, were all outputs of the estimating exercise; the cost is then an arithmetical process.

He says that Tim Webb managed the costing exercise. He says that the “EDS” tab in the spreadsheet was derived from the estimating exercise and spreadsheet. The other tabs contained things like hardware costs and software licences. There is also a specific tab contributed by Interdec in respect of the location component and one from A. T. Kearney which set out their consultancy charges for the business process activity. He says that apart from the copy of the spreadsheet distributed to Tim Webb, the estimating spreadsheet existed only on the “C:drive” of his laptop. And he left this on his desk at Canary Wharf on the day of his departure.

He says that Tim Webb was responsible for collating, organising and presenting the information, but he drew upon the other members of the bid team, including the consortium partners in order to do so. He says that Gerard Whelan supervised the process, as with all aspects of the bid team’s work, and he reviewed the information, although not in much detail.

Gerard Whelan also provided a description of the process in his first witness statement. He says that the starting point in preparing the estimates for the Response was an estimate of development effort, in terms of numbers of people working particular numbers of man-days in particular skill areas. From this estimate of effort, he says that EDS’ professional consultancy costs were calculated by multiplying numbers of man-days by the appropriate day-rates and there was also a “planning process of satisfying ourselves that the estimated effort could be organised so as to fit within the overall timescale”.

In broad terms, Gerard Whelan confirms Joe Galloway’s description of the type of process used to estimate effort, being a group exercise, spread across a number of meetings. He says that for some parts, for example A. T. Kearney’s analysis of ‘quick wins’ in business process redesign it was only possible to provide a “top-

He says that the leaders in particular areas took primary responsibility for developing those areas and that the work was done through discussions around a whiteboard and brought into larger meetings. He identifies the following people being involved, to the best of his recollection: Business Process Re-Engineering (A.T. Kearney): P.J. DiGiammarino; Telephony and infrastructure: Pat Coster and Parashuram Kaneri; Chordiant: Mahmoud Khasawneh and John Mitchell; Middleware and interfacing: Mahmoud Khasawneh; Data warehouse: Andy Sollis; Data migration and data architecture: Mahmoud Khasawneh and John Mitchell; Transition: Steve Vine. He says that he was involved in Business Analysis and, together with Interdec, in Location.

He confirms that Joe Galloway attended a number of the group meetings when the team aimed to reach conclusions in terms of man-days in particular skill areas, which Joe Galloway would record on a pro-forma spreadsheet from his time at SHL. He says that he had a look at this spreadsheet a few times during the bid process of estimating, before and after it went off for costing. He says that the spreadsheet was not the only document used, but it was the only one which was retained as people tended to bring handwritten notes and calculations to meetings which were discarded once a decision had been reached and the conclusion incorporated into the spreadsheet.

He also confirms that the spreadsheet was handed over to Tim Webb to provide an overall cost model, incorporating the EDS consultancy effort with other costs such as the cost of hardware and software licences. He says that Tim Webb worked full-time on costings during April and May 2000.

Gerard Whelan says that he, himself, was responsible for coordinating the estimates received from these various sources and that he checked that the costs included were reasonably comprehensive and accurate by canvassing the views of others with relevant experience. He says that the fit-out of the Sky locations was in the event one of the largest constituent parts of the estimate and these costings were provided to EDS by Interdec.

The only other witness called by EDS who was able to describe the bid process was Andy Sollis. Although he left the Sky Project around April 2000, he was able to confirm that the bid team met informally to discuss any issues or questions in relation to the Response. He said that there were no agendas for these meetings and any discussions were recorded on whiteboards rather than on paper or on computer. He says that estimating information was fed to Joe Galloway in the

From the evidence set out above, it is evident that a substantial number of people were involved in the process of preparing the cost estimate. Apart from the description of the process by Joe Galloway, Gerard Whelan and Andy Sollis there is nothing that survives to show the detail of the process except for the Costing Spreadsheets.

There is however supporting documentation for the general process which EDS followed. There is the agenda for the Kick-off Meeting on 7 April 2000, the 5 Week Plan involving EDS, Chordiant, Forte and Lucent and a number of documents produced before and after the visit to Sky on 10 April 2000, the notes of the Internal Workshop of 12 April 2000, the Discover VRB on 13 April 2000, Gerard Whelan’s email to Scott Mackay of 21 April 2000 concerning further information, the EDS/Sky workshop on 27 April 2000, the de-briefing meeting on 28 April 2000, the draft Response dated 12 May 2000, the meeting or red team review with Youd Andrews on 12 May 2000 and the schedule produced as output, comments on the draft Response by Chris Rogers and Chris Moyer on 12 May 2000, the Technical Review on 18 May 2000 and the final Define VRB completed on 25 May 2000. These documents also demonstrate that some degree of the process was carried out but I accept Robert Worden’s comments on the limited scope and extent of those reviews.

Generally Joe Galloway’s evidence on the process by which the costing spreadsheets were produced is supported both by the evidence of Gerard Whelan and Andy Sollis and by the costing spreadsheets and other documentation. I am satisfied that there were meetings within EDS and between EDS, Chordiant, Forte and Lucent at which the scope of the necessary work was defined in the light of the information contained in the ITT and the further information obtained from Sky. I accept the evidence of Andy Sollis and Gerard Whelan that these were informal sessions and that they resulted in matters being recorded on whiteboards and by other temporary means which evidently would not survive or did not survive.

I am also satisfied that the Costing Spreadsheets had resource numbers which were originally produced by Joe Galloway on the basis of information obtained at those informal meetings and that they recorded the views of people at these meetings on the scope of the work and the necessary resources.

In his witness statement Joe Galloway referred to the use of a “scratch-pad”. Sky accept that some form of estimation of development effort must have been used to arrive at the contents of the Costing Spreadsheets, but say that the way in which Joe Galloway explained that an analysis had been carried out for all of the functionality at use case level was embellishment. In particular, Joe Galloway in his evidence said that a spreadsheet similar to that later produced by Steve Fleming, setting out use cases and functionality had been used. No such document exists and neither Gerard Whelan nor Andy Sollis refer to one. Whilst I accept that a form of “scratch-pad” was most likely used, I consider that Sky are justified in their criticism of Joe Galloway. He changed and gave inconsistent evidence on the relationship between the analysis spreadsheet which he said he had used and the one produced later by Steve Fleming. In the informal meetings I consider that a much broader brush approach was taken to estimating development effort by using a “scratch-pad” or rough working tab on the spreadsheet which was later deleted. Doubtless some information was produced by considering certain use cases but other information on development effort was likely to have been derived from the experience of EDS and the consortium members. All of these estimates were evidently entered onto a scratchpad and transferred to the costing spreadsheet.

The Costing Spreadsheets were produced by Tim Webb, starting on about 4 May 2000. The first version was produced on 16 May 2000 in US dollars. It indicated an EDS price, before adding any margin or profit, of some $54.6 million, including about $11.8 million of EDS consultancy. The EDS “Sell Price” was some $82.5 million

The next version of the Costing Spreadsheet was dated 24 May 2000. It had a total EDS Price of £48.25 million, including £8.3 million of Consultancy cost. The EDS Sell Price was £66.7 million. There then followed a version dated 25 May 2000 in which the total EDS Price was £51.0 million with £9.2 million of consultancy and the EDS Sell Price was £70 million. On a 26 May 2000 version the EDS Price was £42.9 million with £8.9 million of consultancy, giving an EDS Sell Price of £59.2 million. That remained the figure on the version produced on 29 May 2000 and the two versions, “ITT Costings IV” and “BSkyB ITT Costings v6”, both produced on 30 May 2000.

On 30 May 2000 a further version of the EDS consultancy costs was produced as “MP Chord Third Pass”. In that document, the 19,422 DTW for EDS consultancy was reduced to 15,212.3 DTW. The Staff costs which were previously £7.4 million came down to £7.25 million.

On 31 May 2000 “ITT Costings V” was produced which had an EDS Price of £39.4 million including consultancy of £8.7 million (which incorporated the EDS consultancy of £7.25 million). The total EDS “Sell Price” was £54,195,013 which represented an overall margin of 27% over the EDS Price of £39.4 million. The figure of £54,195,013 was the same as that incorporated into the Response.

I now turn to consider the contentions in relation to cost and time.

Sky say that what happened was not a proper process and they make two further criticisms of the way in which EDS put together that cost. First, there was criticism of the way in which there was a last minute change in the EDS consultancy Days to Work (“DTW”) and the rates applied in arriving at the cost. Secondly there was a criticism of the change in the sum included for Interdec between the 24 May 2000 Costing Spreadsheet “ITT Costings v2” and the 31 May 2000 version, “ITT Costings V”. The figure changed from an EDS Price of £18,843,335 to £5,491,316.

It has to be remembered that the ITT contained a “high level” or broad specification of Sky’s requirements. That was expanded by the information provided by Sky during the bid process, particularly at the workshops or meetings held for that purpose. EDS’ role was to produce an estimate of the work, effort and time to convert those requirements to an integrated software package which would provide the functionality to satisfy those requirements. Like any estimating process it had to be a combination of experience and calculation. There had to be a proper process so that EDS would have reasonable grounds for the estimate which they provided to Sky.

So far as the general method of estimating effort and cost which was followed by EDS, and which I have found was carried out as described above, I do not consider that Sky have established that it was not a proper process.

Robert Worden identifies one aspect in which he says the process was inadequate in terms of cost. He says that the profile of staff numbers over time, with a buildup to 96 staff for a nine month duration was not realistic and this causes him to have reservations about the realism of the staff costs. Otherwise, he considers that the approach used by EDS was adequate. I consider that Robert Worden’s criticism does not detract from there being a proper process but is a criticism of the approach taken within that process on a particular element.

Ian Murray concludes that the estimates of costs and resources were not conducted using any recognised process or industry standard method. However, he explains that Top-Down and Bottom-Up estimating processes are accepted methods of estimating and that without a list of functions or use cases from functional specifications, it would be impossible to carry out a proper function point count method of estimating. Robert Worden does not consider that function

Given the overall status of the requirements at the stage of the ITT and the EDS Response, I do not consider that the type of information necessary for a function point counting technique could reasonably have been used. Absent the use of that technique the Top-Down and Bottom-Up estimating processes described in the evidence were, in my judgment, proper processes to be used. I now turn to consider the two particular criticisms that are made by Sky.

EDS chose Interdec as subcontractors for the location work. Interdec provided a quotation for the work in two parts: £5,349,723.60 in respect of the proposed new site and £13,493,611.25 in respect of the work to be done upgrading the existing sites in Livingstone and Dunfermline.

Joe Galloway confirmed that this part of the work was dealt with by Gerard Whelan. Both he and Gerard Whelan essentially said that Interdec provided the quotation on the basis of what they, Interdec, thought was required and EDS adopted that price.

The Interdec price changed as follows:

Sky submit that there was no objective or rational justification for these two changes. Joe Galloway said in evidence that Mike Hughes was fully informed about the situation and instructed EDS to remove the elements that were removed from the Interdec quotation. In cross-examination on Day 40 Joe Galloway said:

“Through our conversations with Mr Hughes, we had indicated that the build-out and construction components that Interdec was composing was a high proportion of the bid that we had in place, some £22m, and Mr Hughes said, 'We should remove those from our area because he would be taking those forward himself.' Now, the reason that they are left complete in the Interdec tab is because we believe this is the appropriate work that needed to be done, and Mr Hughes was going to find, according to Mr Hughes, quote unquote, 'another bucket of money,' that this was going to come from and that we should only consider items we felt absolutely vital to keep in the systems that were appropriate to getting the existing contact centre up and running. Now, this is phase 1 of that discussion with Mr Hughes. Through another phase of discussion with Mr Hughes, this number comes down again, and I don't remember the exact figure, but it is somewhere around £6.7m or £6.8m, as the point that we believe absolutely necessary for us, EDS, to manage through our process.”

Gerard Whelan said that he could not explain the reductions. He suggested that there might have been documents which would explain the situation which have not survived or that there might have been a revised bid of some sort from Interdec and that EDS were simply reflecting that. He did not mention instructions from Mike Hughes. He recalled that in the last few weeks prior to submission of the EDS Response, the bid prices changed on a frequent basis, with costs being added and taken away.

Sky say that the explanations of both Joe Galloway and Gerard Whelan are false. First, they say that the EDS Response contains no suggestion that EDS were going to do anything other than "design, build and implement a new contact centre for Sky and … refit the existing contact centres" which was consistent with the "fly-thru" shown as part of the EDS multi-media presentation on 1 June 2000. Secondly, as to Joe Galloway's suggestion that Mike Hughes had specifically instructed EDS to act as they did, Sky say that this was not mentioned in any of his witness statements. It would have represented a significant change to the price and been significant. In addition Sky say that it would be expected that the same instruction would have been given to the other bidders but none of the others proceeded on this basis. Any such instruction was not recalled by Gerard Whelan.

Thirdly, Sky say that the "Youd Andrews checklist" as circulated on 24 May 2000 contained an entry 'Interdec price to be ratified' which was allotted to Gerard Whelan and was due to be completed by 17 May 2000. On 24 May 2000 that item was ticked to show that it had been completed. As such, it seems likely that the

EDS say that the suggestion made to Gerard Whelan and Joe Galloway that the Interdec element of the costs had been cut on no other basis than to reach the £54m figure was not a pleaded element of falsity and was not something that anyone had dealt with before those witnesses were asked questions. EDS refer to Sky's written opening where paragraph 4.2 stated that “Interdec do not play a significant role in this litigation and can be ignored”. EDS say that on the basis that no document had apparently been found to explain the reduction, Sky launched an unannounced accusation of fraud on this issue.

EDS say that Gerard Whelan had no real recollection of how and in what circumstances the Interdec costs were reduced. He said on Day 35 that, so far as he was aware it was not the result of a decision on the 31 May 2000 "to slash costs in some way".

EDS refer to the evidence of Joe Galloway that the reduction in Interdec costs was at Mike Hughes' request and to the suggestion that this was not in his witness statement and was made up. EDS rely on documents showing Sky's understanding of the position, including a costing comparison prepared by Sky on 8 June 2000. This showed that under the EDS bid there were location costs of £5.016m but “possible upgrade of building” and “additional location considerations” of £4m and £14.984m. The total potential location costs of £24m as understood by Sky were, therefore, as Joe Galloway noted in re-examination, closer to the original £22m figure.

EDS also refer to the location costs sheet referred to in the cost comparison of 8 June 2000 under “see location costs sheet”. This is a reference to a spreadsheet which indicates that the £5.016m cost element in EDS’ bid was understood to relate to basic fit out of the contact centres, with a number of other items, such as dismantling and removal, attributable to the additional costs. Joe Galloway considered that this was consistent with Mike Hughes' instruction that the bid should include only the basics.

EDS also refer to a further cost comparison prepared on 18 July 2000 in which Sky had included £20m for location costs in each bid and at Note 3 stated that “Location Costs: A fixed charge of £20m has been included for this as an estimate to fit out and kit out all three sites”.

EDS submit that Joe Galloway’s response in cross-examination, without the benefit of documents, to the unpleaded and unannounced criticism of EDS in relation to the reduction of the Interdec costs is supported by Sky's own documents.

The criticism of the change to Interdec’s price as a foundation for the representation being false was, on any view, a matter which Sky only relied on in cross-examination of EDS’ witnesses when all of Sky’s factual witness evidence was complete. Sky’s opening submissions clearly indicated that the hearing would not be concerned with Interdec.

In those circumstances, where witnesses had been concentrating for a considerable period of time on the pleaded allegations, it is not surprising that the recollection of witnesses such as Gerard Whelan was not good. There was no documentary evidence for the change. The only explanation came from Joe Galloway whose evidence, as I have said, I can only accept if there is credible supporting factual or documentary evidence or if a strong inference as to the correctness of his evidence can be drawn.

His explanation was that he had had conversations with Mike Hughes in which he had said that location costs were a high proportion of the bid and Mike Hughes had said that EDS should remove those costs because he would be taking those forward himself. He said that there were two phases to his discussion and that in the second phase of discussion with Mike Hughes the number comes down again. There was no evidence from Mike Hughes on this aspect and no opportunity for this to be put to him because this aspect of the case only developed long after Sky’s witnesses had concluded their evidence.

The EDS Response made it clear that they had only allowed for about £5 million for location costs for the existing and new spaces (para 7.2.1) and about £1.5 million for consultancy (para 7.2.2) giving a figure close to the £6,460,372 in the Costing Spreadsheet. The comments from Sky in the cost comparison sheets showed that Sky was aware that costs for such items as “possible upgrade of building” and “additional location considerations” of £4m and £14.984m would have to be added to EDS’ total. The cost comparison sheets strongly suggest that Sky was treating location costs relating to possible upgrade of the building and other costs over the base case such as “dismantling, removal and clearance” as additional costs. This led to the £20 million figure being placed in the figures for both PwC and AA/EDS in the cost comparison of 18 July 2000. This is consistent with Sky not being concerned with having the full costs of the location within the bid. Given that Mike Hughes was evidently in contact with Joe Galloway and wanted him to succeed in the bid, I believe it likely that Mike Hughes would have communicated Sky’s approach to Joe Galloway.

In the circumstances in which the Interdec allegation arose and in the absence of any evidence from Mike Hughes to rebut what was said, I accept Joe Galloway’s evidence on this aspect as it is consistent with other evidence and with Mike Hughes’ general approach towards EDS. Also EDS made it quite clear what sum they had included for the location work and Sky were evidently aware of the situation.

I therefore do not consider that there is anything in the Interdec quotation to negative the representation on cost. There was originally a proper analysis of the sum for this work and I am satisfied that it was reduced in line with conversations with Mike Hughes and therefore was still a proper estimate on that basis.

Sky say that, as is apparent and was dealt with in cross-examination, there were errors in the figures in the EDS tab of the Costings Spreadsheets, at least until ITT Costings V on 31 May 2000. Sky refer, in particular, to an error in failing to account properly for multiple staff. By way of an example, the Testing Team in the EDS tab of ITT Costings IV calls for 3 EDS staff for that team, each working for 180 days. The internal day rate for such a staff member is £399 but when working out the total cost of the EDS staff on the testing team, EDS multiplied 3 x £399 instead of 3 x 180 x £399.

In ITT Costings V, somebody made corrections to remove these errors manually rather than using the formula facility on the spreadsheet. The correction, in itself, had the effect of significantly increasing EDS' consultancy costs. However, the total EDS consultancy cost only rose, between ITT Costings IV and ITT Costings V by £533,209 as opposed to the increase of £5,966,205 that would have flowed from the correcting the errors.

This, Sky submit, was in part because EDS had changed the external charging rates by reducing the EDS margin from 50% to 25%, whilst the internal rates remained much the same. Sky say that a significant element of this reduction was achieved by a reduction in the DTW for many of the categories and by the reduction in numbers of staff required. The changes included reducing DTW from 320 to 280 for such resources as the programme manager, project office admin, project management, mainframe technician and programme technical architects. Other similar changes were made. As a result of these changes, the total effort was reduced.

Sky say that there was no objective or rational explanation for these reductions and they were made because Joe Galloway was determined to put in a bid in the region of £50 million.

Sky refer to Joe Galloway's evidence. He provided the general explanation on Day 40 that:

“as one puts together a Response to ITT, over time one refines that effort, one takes words out, puts words in, takes - makes an assessment of where one has gotten to from an estimate standpoint, refines that estimate, based on information one expects to have, based on information one gets in … continuing in effort … all the way up to, I would say, 5 or 6 pm on the day …the ITT was due, to further refine our Responses as they went out to the client.”

He suggested that he had received advice from Mike Hughes to the effect: “don't worry about the as-is processes, we will get you those as soon as you are awarded the business”, which allowed him and the team to “hone down … the amount of effort required … to cut down the man-days of effort required by the use case to prepare overall a figure for delivery, and in doing so, it would cut down the gross number, as I mentioned before, and the man-days of effort required for each one of these.”

Sky submit that this evidence was false. First, this evidence was not included in Joe Galloway's witness statement and would have been an important explanation of how EDS prepared its estimate of cost. Secondly, his specific explanation would not explain the cuts that were in fact made at the eleventh hour to numbers and DTW. They say that any provision of as-is processes would result in a reduction of effort in the process workstream not in the other workstreams where changes were made.