St Albans City and District Council v ICL

A supplier remains contractually bound to provide software capable of performing the function required by the contract, even where the system is still under development. A local authority may recover losses in a trustee-like capacity for the benefit of its inhabitants. Loss later recouped from chargepayers is not recoverable where the later charge represents the same liability, although interest for the period of shortfall may be recovered. Under the Unfair Contract Terms Act 1977, prior negotiations do not prevent a party from dealing on written standard terms. An appellate court should respect a first-instance assessment of contractual reasonableness unless it proceeded on an erroneous principle or was plainly wrong.

St Albans City and District Council contracted with International Computers Limited for a computer system supporting community charge administration. Faulty software overstated the relevant population, causing under-collection and additional payments to the county council. Mr Justice Scott Baker awarded £1,314,846, as reported at [1995] FSR 686.

ICL appealed on contractual construction, breach, mitigation, recoverability of the losses, and the validity of a contractual limitation clause under the Unfair Contract Terms Act 1977. The central issues were whether the software had to produce accurate figures by the relevant statutory deadline and which losses remained recoverable after later charges were collected from chargepayers.

Disposition. The appeal was allowed in part. The award was reduced by the £484,000 shortfall and the interest attributable to that sum for 1991/92. Interest on the shortfall for 1990/91 remained recoverable. The disposition was unanimous, although Glidewell LJ gave additional reasoning on implied terms.

1. Contract and breach. Nourse LJ held that the invitation to tender required a firm commitment to provide a system capable of coping with all statutory requirements. That obligation was not narrowed because the software was still being developed. Once ICL knew of the requirement for a Form CCR1 return by 8 December 1989, it was expressly bound to provide software enabling an accurate return by that date. The installation of the defective release constituted breach. The alternative negligent misrepresentation finding was not shown to be wrong.
2. Implied term and software. Glidewell LJ considered that a disc is goods, while an intangible program is not. If a disc carrying a defective program were sold or hired, the statutory terms as to quality and fitness could apply. A mere transfer of the program into a computer would not attract those statutory implications. Applying Trollope & Colls Ltd v N.W. Metropolitan Regional Hospital Board (1973) 1WLR 601, he nevertheless held that the common law would imply a term that a program transferred for specified functions was reasonably fit for that purpose. Nourse LJ expressly accepted this alternative reasoning, although the express term made it unnecessary to decide the issue.
3. Damages. A local authority has capacity comparable to that of a trustee to recover damages for the benefit of its inhabitants. The £685,000 of additional expenditure was recoverable because it could not be recovered from a third party and had to be obtained from chargepayers. The £484,000 under-collection was not recoverable because it was later collected through an equivalent charge. Applying the intrinsic-nature approach in Parry v Cleaver [1970] AC 1 and Palatine Graphic Arts Co. Ltd. v Liverpool City Council [1986] 1 QB 335, the later receipt was intrinsically the same sum as the earlier shortfall.
4. Limitation clause. The Council did not deal as consumer because a public authority conducts business for the purposes of the Act. It nevertheless dealt on ICL’s written standard terms. Negotiations about the contract did not prevent that conclusion. The limitation clause therefore had to satisfy the statutory requirement of reasonableness. Applying George Mitchell (Chesterhall) Ltd. v Finney Lock Seeds Ltd. [1983] 2 AC 803, the first-instance decision that the clause was unreasonable was not plainly wrong and was upheld.

1. Court of Appeal (Civil Division) allowed the appeal in part and varied the damages award.
2. High Court of Justice, Queen’s Bench Division (Mr Justice Scott Baker) awarded the Council £1,314,846 for breach of contract and related loss, in the decision reported at [1995] FSR 686.