Hotel chain recovers damages from IT supplier

Judgment has been given in the High Court in the case of Kingsway Hall Hotel Ltd v Red Sky IT (Hounslow) Ltd. The case relates to the purchase by a hotel chain of a software package intended to deal with reservations, checking in and out and billing, and highlights some key issues which suppliers should take note of. It is also another example, along with the recent decision of BSkyB v EDS, where the Court has decided in favour of the business consumer in relation to the provision of IT services.

Facts

Kingsway bought the "Entirety" software from Red Sky on Red Sky's standard terms and conditions. The software proved to be unsuitable and Kingsway suffered numerous problems, resulting in additional staff costs for implementing time consuming workaround plans due to the unreliability and continual failure of the system. When Red Sky failed to solve the problems, Kingsway sought damages from Red Sky claiming that the software was neither fit for purpose nor of satisfactory quality.

The High Court found in Kingsway's favour and highlighted the following points:

• Fitness for purpose
  It was held that Red Sky's standard terms which excluded all terms relating to quality, fitness for purpose and performance were not enforceable and that the statutory implied terms regarding satisfactory quality and fitness for purpose applied to the agreement. The exclusions in the contract only applied where Red Sky provided Kingsway with certain operating documents before the contract was signed which, in practice, did not happen. Also, the court highlighted that whilst it might be reasonable to exclude implied terms where a customer can satisfy itself as to the fitness for purpose and quality of a product, this was not the case in this instance as Kingsway had relied on Red Sky's advice in buying the software. In any event, the court held that Red Sky's exclusion of the statutory implied terms would have been unreasonable under UCTA and therefore unenforceable.
• Useless warranty
  Red Sky's standard terms included a warranty that the software would provide the facilities and functions set out in certain operating documents. This warranty was of no use as the operating documents were never provided by Red Sky. Because of this, Kingsway had not been able to satisfy itself as to the fitness for purpose of the software.
• Rejection
  It was held that Kingsway were entitled to reject the software. It was further noted that they had done this after giving Red Sky several opportunities to improve the reliability of the system to an acceptable standard.

Kingsway were entitled to a total of £110,997.50 in compensation.

Lessons to learn - what should suppliers do?

The case highlights the importance for suppliers of ensuring that standard terms and conditions accurately reflect how products are sold in practice and, specifically, that if they refer to other documentation (e.g. operating manuals) then these should always be provided to the customer. Similarly, suppliers should be aware that the manner in which their products are sold may affect how their standard terms and conditions are later interpreted.

The lessons for suppliers therefore are as follows:

• Ensure that standard terms and sales practices are aligned – terms and conditions are irrelevant if not incorporated into the contract.
• Conduct regular reviews of standard terms to ensure they are still consistent with sales practices.
• Conduct regular training for sale personnel to minimise the risk of any disconnect between standard terms and sales practices.

Lawyers Richard Bursby