Huge IT contract is litigated: IBM and AZ dispute meaning of terms

Last week brought the publication of an English High Court judgment in the case of AstraZeneca UK Limited v International Business Machines Corporation [2011] EWHC 3066 (TCC).  IP Draughts assumes that this is part of the fall-out from AZ’s decision to drop IBM as a supplier of worldwide IT services under a $1.4 billion deal, reported here.

The case concerns the obligations of the parties on termination of their contract, including obligations on IBM to provide “termination assistance” during an “exit period”.  The judgment of Ramsey J focuses on the interpretation of  certain words used in the contract.

The general approach of Ramsey J appears to be in line with that taken in other recent cases, including the much-cited judgment of Lord Hoffmann in the West Bromwich case.  For IP Draughts, the main points of interest in this case are:

  1. The judge’s apparent acceptance that in a contract of several thousand pages, running to 90 clauses and 32 schedules, some of the text may be redundant and not relevant to interpreting the obligations of the parties.  The judge quotes Lord Mance in an earlier case as saying “even the most skilled drafters sometimes fail to see the wood for the trees”, and this is not surprising when the contract is so long and complex.
  2. That a provision that AZ “may” prepare one or more IT Transfer Plans should be interpreted in context as an obligation on AZ to prepare an IT Transfer Plan.  See paragraphs 175 to 193 for the judge’s detailed reasoning.  This is a good illustration that one does not just look at the dictionary meaning of the word “may” in isolation from the rest of the contract.

As this case demonstrates, disputes over IT contracts can raise large numbers of points of detailed interpretation, both as to the meaning of obligations and whether those obligations have been met.  The Technology and Construction Court, where this case was heard, is experienced at dealing with such disputes.  It requires a lot of painstaking work to analyse each obligation and compare it with the facts as to what work has been done, before deciding whether a breach has occurred.

This painstaking work may be justified when the sums at stake run into hundreds of millions of pounds per annum.  Unfortunately, in IP Draughts’ experience, IT contracts can raise complex questions of interpretation and fact when the amount at stake is only a few tens of thousands of pounds.  In this situation, it is too easy to waste legal fees for the sake of a principle.  The parties’ lawyers can help their clients to avoid wasting money and reach a pragmatic but imperfect solution, but only if the clients are willing to compromise.

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Filed under Contract drafting, Legal Updates

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