Fujitsu Services Ltd v IBM United Kingdom Ltd

Commercial exclusion and limitation clauses are construed by the ordinary principles applicable to contracts. Clear language is applied, even where the result is commercially unattractive. A clause excluding liability for loss of profits, revenue or business may exclude damages for breach of important contractual obligations, while leaving claims for debts and accounts of profits outside its scope. Fiduciary duties are not readily implied into an arm’s-length commercial contract. They must fit the contractual framework and cannot distort the parties’ bargain. A contractual obligation to have regard to aspirational partnering principles does not, without clear language, create a general duty of good faith.

Fujitsu Services Ltd supplied IT services to IBM under a sub-contract connected with IBM’s services agreement with the Driver and Vehicle Licensing Agency. Fujitsu alleged failures to allocate work, comply with change-control procedures and provide value-for-money services. It claimed damages, equitable compensation and accounts of profits, and alleged fiduciary duties and an express duty of good faith.

The court tried four preliminary issues concerning the scope of contractual exclusion and liability-cap provisions, the existence of fiduciary duties, and the alleged duty of good faith.

1. Construction principles. The court construed the provisions as part of the contract as a whole, applying the meaning a reasonable person with the relevant background would have understood. Commercial common sense could assist where language was genuinely ambiguous, but could not override clear words. Exclusion and limitation clauses were to be construed in the same way as other contractual terms.
2. Clause 20.7. The workshare, change-control and money-value claims sought loss of profits, revenue or business. They therefore fell within the basic exclusion in clause 20.7. The clause was clear, mutual and negotiated between sophisticated commercial parties. The workshare arrangements were not rendered meaningless because claims for debts, declaratory relief, specific performance and injunctive relief remained available.
3. A debt for sums due for work actually provided was distinct from damages for failure to allocate work and was not excluded. Nor did the exceptions for actual agreed revenue share or loss of profits under Schedule 13 extend to the pleaded workshare damages. An account of profits was a claim for wrongful gain rather than loss and was outside clause 20.7.
4. Clause 20.4. Any liability on the claims, including account claims, was subject to the £5 million annual and £10 million aggregate limits.
5. Fiduciary duties. The relationship was an arm’s-length contractor and sub-contractor relationship, outside the settled categories of fiduciary relationship. Clauses 44.1 and 44.5 expressly disavowed partnership, association and agency. Reliance, work allocation and partnering principles did not establish an obligation of loyalty or an undertaking to act for Fujitsu. Imposing fiduciary duties would distort the contractual bargain.
6. Good faith. Clause 19.4(f) concerned performance by appropriately skilled personnel in accordance with Good Industry Practice. Its reference to personnel seeking in good faith to comply with contractual obligations did not create a general express duty of good faith owed by IBM. The partnering principles were aspirational, and the obligation to have regard to them did not create such a duty.
7. The preliminary issues were answered in IBM’s favour as set out in paragraph 165. The parties were invited to draw up the consequential order and agree costs so far as possible.