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Fit for purpose implied term

Fit for purpose implied term

Postby SPQR49 » Thu Dec 07, 2017 11:20 pm

The contract is for the upgrade of: (a) standard COTS software (ERP); and (b) bespoke modifications to the same.

No written agreement (!) formally signed but Proposal document looks to have been followed. So implied terms are in the mix. This is a services contract - no goods are being provided so having looked at the Supply of Good and Services Act I want to rebut any presumption that there is an implied warranty that the services should be "fit for purpose" (there is Part 1 section 5 SGSA but that applies to goods not services (and goods excludes "things in action" - software is not a tangible thing).

The case law on this is old: St. Albans v ICL. And the technology has moved on (no software is provide on disks anymore!)

Views as always welcome but in essense does fit for purpose apply to services if not under SGSA then at common law I wonder?

thanks

PQ.
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Re: Fit for purpose implied term

Postby atticus » Fri Dec 08, 2017 7:03 am

Why do you say that this is a services contract? It does not seem to me to come within the definition in s12 Supply of Goods and Services Act 1982. I consider that s4 applies.

Why do you seek to evade responsibility for your product?
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Re: Fit for purpose implied term

Postby SPQR49 » Fri Dec 08, 2017 9:50 am

It is a contract for an upgrade. The system is 90% bespoke software development. The upgrade then is clearly a service. I quote from para 36 of The Software Incubator Ltd v Computer Associates UK Ltd [2016] EWHC 1587 (QB) (01 July 2016):

36.In common parlance, and without wishing to state the obvious, I believe that as a piece of sophisticated, commercial non-bespoke software, it would be regarded, at the very least as a "product". It would not be regarded, nor is it, a "service".

The Judge here is clearly distinguishing COTS (commercial-off-the-shelf ") from bespoke. In this case, in the context of the Commercial Agents (Council Directive) Regulations 1993, the difference was important as that led to a discussion of whether the software was goods or services (for the purposes of he Regulations) and that led on to financial consequences for the agent.

Bespoke software is not goods: this case and (St Albans before it) support that position. This clearly falls within section 12. This is a B2B contract not a B2C contract. You haven't given a reason for your position. Section 12 below:

In this Act a “[F53relevant contract for the supply of a service]” means, subject to subsection (2) below, a contract under which a person (“the supplier”) agrees to carry out a service[F54, other than a contract to which Chapter 4 of Part 1 of the Consumer Rights Act 2015 applies.]
(2)
For the purposes of this Act, a contract of service or apprenticeship is not a [F53relevant contract for the supply of a service].
(3)
Subject to subsection (2) above, a contract is a [F53relevant contract for the supply of a service] for the purposes of this Act whether or not goods are also—
(a)
transferred or to be transferred, or
(b)
bailed or to be bailed by way of hire,
under the contract, and whatever is the nature of the consideration for which the service is to be carried out.
(4)
The Secretary of State may by order provide that one or more of sections 13 to 15 below shall not apply to services of a description specified in the order, and such an order may make different provision for different circumstances.
(5)
The power to make an order under subsection (4) above shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament


"Seek to evade responsibility"? I`m not seeking to evade responsibility merely to actual define what the responsibility of the supplier actually is i.e. ascertain the obligation of the supplier under the contract. Implied terms come into play obviously. This customer has bled 000s of £s out of the supplier who is commercially very naive and have caved in at the first hint of pressure. I am pushing back now becuase enough is enough and looking into the complain the demands are wholly unreasoanble.

I think I have answered my own question.
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Re: Fit for purpose implied term

Postby atticus » Fri Dec 08, 2017 10:25 am

s13 Supply of Goods and Services Act 1982.

13 Implied term about care and skill.

In a relevant contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill.


NB footnote removed in copying and pasting!

It seems to me that your argument cannot be about whether implied terms apply - clearly they do. Rather it is about the performance of the contract and how the actions of the parties relate to what was agreed. The terms of the Proposal document could well be highly relevant. The question may arise whether the customer has demanded additional services or obstructed the supplier in its performance, and how the supplier has responded. There may have been variations or additions to the services outlined in the Proposal.

A lesson to sales staff on the need to get contracts tied up before they spend their bonuses.
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Re: Fit for purpose implied term

Postby SPQR49 » Fri Dec 08, 2017 1:21 pm

Yes, there is no doubt that s 13 applies - RCAS.

Software Incubator can be distinguished as it was in the context of the Regulations (and the Regulations only).

Upon a second reading of St. Albans however I am of the view that the supplier is on the hook here. Sir Iain Glidewell`s comments were obiter but still persuasive. He implied a fitness for purpose obligation not under the SGA 1979 (as no property was transferred, the transaction being a license) nevertheless, he implied such an obligation under common law (despite the fact that the SGA was an attempt to codify the common law in this area!)

This begs the question, what is the "purpose"? And does the purpose have to made known to the supplier in the absence of a purpose being speciifed?

Under para 128 Anglo Group v Winter Brown [2000] it is an implied term that:

The Customer must communicate any special needs to the Supplier and take reasonable steps to ensure that the Supplier understands those needs.


That sort of fits with a definition of "purpose" I suppose.
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Re: Fit for purpose implied term

Postby atticus » Fri Dec 08, 2017 1:51 pm

what is an RCAS?

can you provide a citation for the St Albans case?

Surely the purpose is set out in the Proposal. If not, whoever prepared it needs to be sent on a training course.
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Re: Fit for purpose implied term

Postby SPQR49 » Fri Dec 08, 2017 4:22 pm

Sorry, reasonable care and skill.

Yes, it`s St Albans City and District Council v ICL [1996] EWCA Civ 1296 (26 July 1996). Sir Iain`s Glidewell:

In both the Sale of Goods Act 1979 s.61 and the Supply of Goods and Services Act 1982 s.18 the definition of "goods" is "includes all personal chattels other than things in action and money ...." Clearly a disc is within this definition. Equally clearly, a program, of itself, is not.

If a disc carrying a program is transferred, by way of sale or hire, and the program is in some way defective, so that it will not instruct or enable the computer to achieve the intended purpose, is this a defect in the disc? Put more precisely, would the seller or hirer of the disc be in breach of the terms as to quality and fitness for purpose implied by s.14 of the Sale of Goods Act and s.9 of the Act of 1982? Mr Dehn, for I.C.L., argues that they would not. He submits that the defective program in my example would be distinct from the tangible disc, and thus that the "goods" - the disc - would not be defective.


He observes there is no English authority on the point.

Well, the purpose is not stated in those terms. It is an upgrade so the customer wants" like for like" which is fair enough but how to define? There is no print-out report available of what the functionality of an ERP system is! If there is no baseline how can it be said to be lacking. In other words to say I had X Y and Z and I only have X and Y now presupposes that X Y and Z can be ascertained. This is the difficulty as I see it.
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Re: Fit for purpose implied term

Postby atticus » Fri Dec 08, 2017 4:52 pm

Brief description of how to word a Proposal:
Customer has a package that does stuff. Customer requires package to be upgraded to add the functionality to do the following further stuff:

[list agreed added functionality in as much detail as possible]

The above gives a brief for the job. Otherwise, as I suspect may have happened here, there can be a mismatch between expectations on both sides.

You should see the specifications I write for the work I will do for clients, and the fees!
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Re: Fit for purpose implied term

Postby SPQR49 » Fri Dec 08, 2017 11:07 pm

It is not possible. Microsoft Dynamics, SAP, Oracle - all of these ERP systems have millions of lines of code. There is so single manual, operational document, list of functions or anything like that available. In addition, added functionality isnt known at point of inking. This would only be known after analysis/design phases has been completed and the gap/fit has been completed.

Interestingly, in Kingsway Hall Hotel v Red Sky IT (Hounslow) Ltd [2010] the judge held that a non-bespoke system was "goods" for the purposes of the SGA and SGSA in direct conflict with the obiter remarks of Sir Iain who refused to accept that such was possible on the basis that a software license does not transfer property in the software.

No mention was even made of those observations in St.Albans.

This is a mess frankly and the more I look into it the more worried I am!
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Re: Fit for purpose implied term

Postby atticus » Fri Dec 08, 2017 11:54 pm

Of course it is possible to define objectives and purpose, no matter how many trillions of lines of code there may be in whatever that TLA system is.

If I say I will draft a contract for the sale of a widget, I do not need to write down all the clauses do define that objective.

If the parties do not speciw what the buyer wants and what the seller is to deliver, they are asking for trouble. Of course it can be done.
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