It sends an alarming message to software suppliers that representations or promises that it makes in relation to its software accurately reflect what they can actually deliver.
This includes, of course, those elaborate sales pitches made by over zealous salespeople.
Background to the case
RACV, a motor vehicle and general insurer, wished to replace its paper based claims management system with an electronic storage and retrieval system.
Unisys were engaged to install software designed to store and retrieve information to a screen at the RACV employee's desk. It was anticipated that the new system would lead to more efficient handling of claims, reduce costs and improve customer satisfaction.
Unisys was confident of meeting RACV's business requirements. In its presentations to RACV, Unisys stated that the response times, (which were instant at the demonstrations) were indicative of the performance that could be expected.
Unisys' configured a system that was fraught with functionality and technical problems. Information sought by a RACV claims officer could often be contained on several discs and frequently response times would be at least 20 seconds.
The system was, at one stage, no more than 30 percent functional and crashed on several occasions. Eventually the project was abandoned and RACV terminated the contract.
Findings
RACV successfully proved that Unisys' breached the software contract, engaged in misleading and deceptive conduct and engaged in negligent misrepresentation.
Unisys' statements and conduct regarding the functionality of the product were found to be false representations and without any reasonable foundation. Unisys' conduct, which RACV relied on was deemed to be misleading and deceptive.
A crucial issue was the relevance of RACV's request for proposal document ('RFP') and Unisys' responses to it. The RFP stipulated that a two to four second retrieval period was required.
As the RFP was not attached to the contract, Unisys claimed that the "entire agreement" clause in the contract excluded this documentation. However, Justice Hansen held that these documents were incorporated by necessary implication.
RACV was therefore entitled to damages in the amount necessary to place RACV in the position it would have been had the contravening conduct not taken place.
What does this means for software suppliers?
Software suppliers should be careful when making representations or warranties (whether in writing, verbally or by conduct).
Extreme care should be taken to ensure that representations are not misleading nor deceptive and that technical specifications can be realistically achieved.
In addition to the written terms of a software supplier contract, certain laws may imply terms and warranties into the contract.
Suppliers have duties to exercise due care and skill in fulfilling their services. Terms and warranties may also be implied at common law in which case duties will not necessarily be limited to the contracting parties.
Software suppliers may be responsible for losses suffered by third parties if such loss is reasonably foreseeable.
Duties to customers clarified
The RACV case is a landmark ruling in the IT industry.
It clarifies the duties that a software supplier owes to its customers when providing professional services.
It is imperative that software suppliers ensure their software supply agreements and other contractual terms make adequate provision to address these issues.
During development and implementation phases, due care must be taken when problems arise and reliable disclosures must be made to mitigate any damage suffered by the customer.
IT professionals, such as software suppliers, are specialists by virtue of their technological skill and therefore, they owe a higher standard of care to their customers.
Professional associations such as the Australian Computer Society have existing standards of conducts for their members. These standards should be used as guidelines and any representations should be both reliable and accurate.
Jeremy Szwider is an IT lawyer at Phillips Fox. He can be contacted on 03 9274 5233 or jeremy.szwider@phillipsfox.com.
