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BSkyB and EDS settle IT dispute for £318 million

Broadcaster BSkyB will be paid a total of £318 million to settle a dispute over a contract that it entered into 10 years ago with IT supplier EDS. The amount includes interim payments made to BSkyB of £270m that were ordered by the High Court in February.08 Jun 2010

The settlement marks the end of one of the IT industry's longest-running and most expensive court cases.

BSkyB hired EDS to build it a £48m customer relationship management (CRM) system in 2000. Relations between the companies broke down in 2002 and BSkyB ended up building the system itself at a cost of £265m.

BSkyB and Sky sued EDS, claiming that the company had lied about the development and timescale of the project during the sales process.
The contract signed by the two companies contained a £30m limitation of liability which would apply if the project faced difficulties. That cap would not apply, though, in the event that fraud was established.

BSkyB alleged that EDS had made fraudulent misrepresentations in relation to the availability of resources, time, cost, 'proven technology' and methodologies. It also sought damages for negligent misrepresentation and for breach of contract. In total, it originally sought more than £700 million from EDS.

In January the High Court upheld one of BSkyB's five fraud claims. EDS's claim that the project would deliver "on time and budget" was fraudulent, ruled Sir Vivian Ramsey in a judgment that ran to almost 500 pages.

A key witness for EDS was Joe Galloway, who was managing director of its CRM business at the time of the contract. Sir Vivian found that Galloway had masterminded the bid for the contract and said he displayed an "astonishing ability to lie."

One month after issuing its judgment on the facts, the High Court ordered that EDS should make an interim payment of £270m to BSkyB pending a final ruling on damages.

In a statement issued yesterday, Sky said: "On 7 June 2010, EDS and Sky fully and finally settled the litigation between them and all related claims (including for damages, costs and interest) for a total amount of £318 million. This amount includes the interim payments of £270 million that EDS has already made to Sky in February 2010."

EDS was acquired by Hewlett-Packard in 2008. A spokesman for HP told OUT-LAW.COM today: "This matter is now closed, having been settled fully and finally on mutually agreed terms. We will not be commenting further publicly on this legacy issue."

David McIlwaine, an IT law expert at Pinsent Masons, the law firm behind OUT-LAW.COM, said that HP had already indicated that it would not appeal against the ruling.

"It is clear that HP has taken the view that it is unlikely to be successful in appealing the judgment," he said. "Consequently it has made a value call as to what additional payments it should make over and above the £270 million interim payment already made so that the matter is resolved now, without further quantum evidence and legal finding."

"Payment of £318 million in the context of an IT development contract worth £50 million and which contained a limitation of liability cap set at £30 million is a very painful reminder to HP and other businesses that the law of misrepresentation is alive and that senior management need to have processes in place in order that they can take immediate action if there is any suggestion of fraudulent practices during the sales process or otherwise."

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