Judgment in delay case: Tata Consultancy Services Limited v Disclosure and Barring Service

The Technology and Construction Court delivered judgment today in the long-standing dispute between Tata Consultancy Services Limited (TCS) and the Disclosure and Barring Service (DBS). This was one of The Lawyer’s Top 20 cases of 2023 and involved an 8 week trial revolving around issues relating to delay. Bristows acted for the DBS, together with Simon Croall KC, Andrew Carruth and Will Mitchell of Quadrant Chambers.

The dispute arose out of a 2012 contract for the modernisation of DBS’ services (the “Agreement”) in which TCS had agreed to take over and run DBS’ legacy systems whilst developing new digital services. From the outset, the project was affected by delays which led to the revision of the contract milestones. TCS’ position was that DBS had caused the delays and, specifically that DBS’ IT hosting provider, Hewlett Packard Enterprises (HPE) had caused critical delay. DBS argued that the real reason for delay was that TCS’ software was not ready to be deployed on the infrastructure because of delays in the development and testing of the software. DBS also argued that it was not responsible for the activities of HPE.

TCS claimed damages for delay in the sum of £110 million. DBS had a counterclaim for delay and also claims arising from the poor quality of the software. There was also a stand-alone dispute between the parties about the correct interpretation of the volume-based service charges regime, worth £14 million.

The Agreement contained many points of interpretation which are specific to the case. However, the judgment contains some interesting points for practitioners:

1. TCS asserted that certain activities were outside the scope of its responsibilities “such as managing dependencies between the Defendant’s various suppliers, ensuring compatibility between the Solution and technical architecture, or ensuring that suppliers and stakeholders all performed their responsibilities in accordance with a plan that permitted the project to proceed on schedule”. The crux of this argument was that TCS claimed it was not obliged to provide systems integration services, that DBS was the “systems integrator” and that DBS was responsible for delays by its subcontractor, HPE. The judge considered the duties of cooperation and also what could amount to an “AUTHORITY Cause”:

a. The judge rejected TCS’ argument that the obligations for DBS to cooperate could amount to a warranty of HPE’s performance for TCS’ benefit;

b. he held there was no implied term that DBS would perform the functions of a systems integrator;

c. the judge also accepted DBS’ position that “AUTHORITY Cause” meant a contractual breach by DBS and therefore DBS would only be liable for HPE, if it was in breach of its own contractual obligations.

In summary, the judge accepted DBS’ case that in the absence of a breach of its contractual obligations, DBS was not responsible for any delays by HPE. 

Drafting tip: The responsibilities of a systems integrator will not be added to those of a service integrator, prime contractor or employer as a matter of implication. Clear wording is needed to incorporate these responsibilities.

2. The judge considered the delay and notice provisions and specifically the relief available to TCS if it was prevented from achieving a contractual milestone by an event that was an “AUTHORITY Cause”. The judge concluded that, on the wording of the Agreement, the causative element (i.e. an analysis of what was on the critical path) was an important and necessary feature of interpretation because, even if TCS had established it had been critically delayed by an “Authority Cause”, TCS also needed to show that, absent any delay caused by DBS, it would have met the milestone(s) by their due date. Therefore, much of the judgment is concerned therefore with the critical path analysis. The judge rejected all the evidence of TCS’ experts and, save for a period of 3 months for which DBS was responsible, TCS’ delay claim was rejected in its entirety.

3. In addition to the factual findings about delay, the judge addressed some frequently-arising contractual points:

• It was common ground that, in order to claim compensation for delay (including general damages), TCS needed to satisfy a condition precedent, which included serving a notification of delay followed by an Exception Report within 5 working days. TCS had not served an Exception Report within 5 working of its delay notification. Therefore DBS’ principled position was that TCS’ claim for delay damages was barred.
   
• However, TCS persuaded the judge that there was a shared and communicated common assumption that TCS did not have to serve the Exception Report within 5 working days and that this gave rise to an estoppel by convention or acquiescence or conduct. To meet this test, TCS had to show that there had been a communication (that an Exception Report was not required within 5 working days) which had “crossed the line” and been communicated to DBS. On the facts of this case, there was no direct communication, but the judge was persuaded to consider the wider communications of the parties and the general commercial context. This led the judge to a generous approach to “crossing the line” and the conclusion both parties were working on the basis that the 5 day condition precedent had fallen away. Therefore the judge concluded that DBS was estopped from arguing that TCS had no entitlement to compensation for delay. 
   
• The judge also accepted TCS’s argument that DBS’ entitlement to recover damages for delay was also subject to a condition precedent, to “promptly issue a Non-conformance Report”. Although DBS argued that there was no condition precedent, the judge held that the use of the words “if” and “then” created conditionality. As a result, because DBS had not served a non-conformance report, DBS was unable to claim liquidated damages or general damages for the first six months of delay.

Contract management tip: Be aware of conditional language in any contract. Where there is a condition precedent, the Court will enforce it.

Be aware of the risk of estoppel because, in a fast moving or complex situation, rights can easily be lost unless they are explicitly preserved.

4. The limitation of liability provisions were unique to the Agreement. However, TCS sought a sum quantified at £77,314,727 for “Loss of Revenue”, arguing that it had anticipated a costs reduction over the course of the contract. DBS claimed that this was, in fact, a claim for lost profit and that the losses were excluded by the Agreement. The judge considered and applied the decision in Soteria Insurance Limited v IBM United Kingdom Limited [2022] EWCA Civ 440, and rejected TCS’ argument that it was entitled to advance a loss of profits claim in a way that was not caught by the words of the limitation clause. He concluded that this claim was a loss of profits claim that was excluded by the Agreement.

5. DBS invoked a contractual right of partial termination, to remove a significant part of the deliverables (known as “R1 Disclosure”) from TCS’ scope of work. It did so on the basis that the breach was irremediable, because TCS would be unable to complete the delivery of R1 Disclosure within the remaining contractual term. Although the judge accepted that, as at the date of the partial termination, TCS would not have been able to complete that work within the contractual term, he considered that “it was inevitable that the Agreement was to be extended by at least 6 months” and he rejected DBS’ position that the parties’ legal rights and obligations must be assessed based on the contractual position as it existed at the time. Because of the findings that DBS had wrongly removed R1 Disclosure from scope and caused a delay of 3 months, TCS was awarded damages of £2.4 million. [Note, on 1 August 2024, the judge corrected his initial judgment and reduced TCS’ damages award from £2.4 million to £1.3 million]

6. DBS succeeded in its counterclaim of £4.6 million for an unpaid but agreed contract change notice. Although DBS persuaded the judge there were a number of quality breaches, the judge was not satisfied that DBS had sufficiently proved causation in respect of its losses. 

7. On the stand-alone claim relating to volume based service charges, TCS had claimed £14 million and was awarded £6.9 million.

8. On a final, procedural point, the judge required both parties to produce a Spielgelman Schedule linking the issues in the pleadings to the witness statements, expert reports, transcripts and quantum claimed. In his judgment, the judge recommended the use of such schedules for other complex cases.

The Bristows team who worked on this matter was led by Anna Cook and included Robert Graham, Sarah Hill, Freya Ollerearnshaw, Max Palmer, David Durgan, Henry Bentham and Yen Hoe.