Bristows' SnippITs - TCS v DBS: Lessons from Major IT Dispute (Part 3)

This post is part of the Bristows’ SnippITs series, which pulls together the key practical takeaways from recent court decisions for the tech sector and beyond.

Rebaselining, Renegotiations and the Dangers of Estoppel

On 17 May 2024, the Technology and Construction Court handed down its judgment on one of the largest IT disputes in recent years: Tata Consultancy Services Limited v Disclosure and Barring Service. The 243-page judgment (summarised here) provides a relatively rare and detailed insight into the court’s determination on a broad range of issues that often arise when a complex IT project goes wrong. 

In this third post of our series considering key issues from the case for suppliers and customers of large-scale IT projects, we look at how TCS managed to successfully rely on estoppel and what this means for parties engaging in contract renegotiations on a troubled IT project.

If you haven’t read our previous posts, you can find them here:

• Part 1: Delays, critical path and “unconscious pacing”
• Part 2: Systems integrator - who is responsible for managing third party dependencies?

Key takeaways

1. Beware of giving up rights during commercial negotiations: Troubled projects often prompt the need for parties to discuss a renegotiation or rebaselining. At this stage, it can be a delicate balancing exercise to promote a collaborative approach whilst maintaining your position under the contract. However, customers facing this scenario should ensure that they are not giving up any of their rights under the original contract and should not overlook the importance of reservation of rights language, when used appropriately.
2. Insist on full compliance: Customers facing non-compliance by a supplier (including in relation to notice provisions) are advised to make it clear at every opportunity that they expect full compliance, rather than stay silent on the matter. The judge in this case took a generous approach to the “crossing the line” requirement for estoppel, finding that DBS had communicated a common assumption that a notice deadline had fallen away even after that deadline had expired.
3. Comply to the extent possible: TCS’s failure to provide notice on time in this case left it in the unenviable position of having to rely on highly uncertain estoppel arguments to save a high value delay claim. The court commented that a better approach would have been for TCS to serve an incomplete notice and then raise arguments about the difficulty in complying. For a supplier in this situation, it will nearly always be better to keep control of the process and deliver what it can rather than introducing the uncertainty of asking its customer for permission for an extension of time.

Background 

The dispute related to the modernisation of an IT system by TCS for DBS. Following significant issues and delays of over a year on the project, TCS brought a claim of over £110 million in damages. Most of this claim related to the cost of the delays to the project.

Under the contract, TCS was only entitled to compensation for delays that were caused by DBS if it had followed set notice requirements. This included serving a notice of delay, followed by an Exception Report within 5 days. The contract specified what information needed to be included in the Exception Report, such as the consequences of the delay.

The following events occurred on the project which are relevant to this:

• Ahead of its failure to achieve the main delivery milestone, TCS had written to DBS with a notice of delay.
• In this notice, TCS said it needed more information from DBS to complete the Exception Report. At this time, the parties were in the midst of a detailed replanning exercise and TCS said that because this was still ongoing it was unable to determine the detailed consequences of the delay. TCS therefore requested an extension to the 5-day period.
• DBS’s response to this notice (sent after the 5-day period had expired) included further detail about the replanning exercise but was silent on the need for an Exception Report or TCS’s extension request.
• The replanning exercise continued for several months. The discussions around this also involved commercial negotiations to settle disputes about the delay. These settlement negotiations eventually broke down without agreement. 
• Eight months after its notice of delay, TCS provided DBS with an Exception Report, although it still maintained it did not have enough information to complete this document fully. 

Both parties agreed that the starting point was that the clause in the contract requiring the Exception Report was a “condition precedent” that prevented TCS from claiming for delay if it failed to comply.

TCS claimed however, that despite this clause, the parties had been proceeding on a shared common assumption that there was no requirement to serve an Exception Report within 5 days, giving rise to an estoppel by convention.  

Decision

The Court considered the requirements for estoppel by convention. In particular, that the assumption must have been communicated between the parties (it must have “crossed the line”).

The Court made the following findings:

• When taken alone, DBS’s initial response to the TCS notice requesting an extension was not sufficient to show a communication by DBS of a common assumption.
• However, the broader context had to be considered including the numerous exchanges between the parties during the months of rebaselining and commercial discussions (when TCS’s Exception Report was already outstanding).
• In the context of these exchanges, the parties’ focus was on re-planning the programme and the importance of this superseded the importance of serving the draft Exception Report. The court concluded that the 5-day requirement was “simply not a live point” at this time. 
• Once a new plan was in place, the parties were intending to finalise the commercials regarding delay. Given these commercial discussions, DBS was not asserting that TCS’s right to compensation had fallen away (which would have been the case had the 5-day period still been in force).
• The court was also persuaded by the fact that DBS did not: (i) state explicitly that it was continuing to rely on the 5-day requirement; (ii) raise any issue against TCS for failing to serve the Exception Report on time; or (iii) reserve its position.
• Even though no formal extension was ever granted by DBS and there was no agreement replacing the 5-day period by some other defined date, this did not prevent an estoppel arising. 

DBS was therefore estopped from arguing that TCS had no entitlement to compensation for delay on account of its failure to comply with the Exception Report clause.

However, much of TCS’s delay claim failed in any event as it could not show the delays were due to DBS’s responsibilities (this is discussed further in Part 2 of the series).