Technology Supplier Pays the Price for Provision of a 'Useless' Accounts System

Author:Mr Mark Lewis
Profession:Field Fisher Waterhouse
 
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When a computerised accounts system failed to meet a client's requirements, the company which installed it was forced to pay £2.6 million in damages.

In this article, IT litigation partner Mark Lewis of City law firm Field Fisher Waterhouse considers the recent decision in Horace Holman Group Limited v Sherwood International Group Limited.

The claim was brought by a group of insurance companies collectively known as Horace Holman Group Limited after a computerised accounts system, supplied by the defendant Sherwood, failed to work as required by the customer.

The claimant Horace Holman sought to recover various heads of losses, including:

the cost of upgrading its PCs to work with the alternative system it was forced to buy;

savings it had expected to make on implementation of the Sherwood system;

the cost of retaining staff who would otherwise have been made redundant;

lost revenue opportunities; and

management and staff time wasted.

The judge awarded damages as follows:

Third Party Costs

Third party costs accounted for the cost of computer maintenance, disaster recovery, replacement of the SYMBAL system with the GPM system, time spent by a consultant on the project and temporary staff who had been employed in connection with it. It also included savings which would have been achieved if policy preparation had been bought in-house and audit savings not made as a result of the system's installation.

Had the various different accounting systems within the Horace Holman Group been replaced by a single integrated accounting system as intended, it would have simplified the auditors' tasks. However, the damages awarded in relation to audit savings not made amounted to just £10,000 on the basis that market forces would have reduced the level of audit fees anyway and, even without the computerised system, a rationalisation of the Group's affairs, including the sale of one of its members, would have brought savings.

The claimant also argued that more powerful PCs were needed to access the replacement GPM system. The judge rejected this claim. He was not satisfied that the cost of the upgrade could be blamed on the defendant as there was no documentary evidence of when the PCs were upgraded and, in any case, all PCs have to be replaced from time to time anyway.

Staff not made redundant earlier

Had SYMBAL worked, the claimant would have made staff savings through redundancies years earlier than it in fact did. The defendant argued that staff...

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