Software liability ruling: 'Supplier beware', says IT brief

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Analysis A software developer's assertion that it wasn't liable for the shortcomings of its software has been rejected by the UK High Court in a case that has implications for other vendors and channel partners.

As previously reported, London's Kingsway Hall Hotel had all sorts of problems when it installed hotel management software from Red Sky. Instead of helping to increase revenue and occupancy rates the hotel was obliged to hire extra staff to cope with the shortcomings of the application.

Kingsway eventually decided to ditch the application and find an alternative supplier. It also sued Red Sky for damages over alleged violations of the Sale of Goods Act, which states that purchased goods need to be fit for the purpose for which they are sold. Red Sky relied on its terms and conditions in contesting this suit, arguing its was only responsible for maintenance and support. It resisted attempts to supply a refund and pay Kingsway's extra costs.

However, in a ruling handed down by His Honour Judge Toulmin last week, the High Court sided with Kingsway and against Red Sky. The court ruled that the supplier had mis-sold its product which, regardless of its merits elsewhere, failed to match Kingsway requirements.

Experienced IT lawyer Dai Davis, of solicitors Brooke North, said that the case has implications for software developers and channel sales partners more generally.

"Courts continue to dislike limitations of liability included in contracts or licences," Davis told El Reg.

Contracts for software also invariably include limitations of liability but this does not necessarily means that they will withstand a legal challenge when something goes wrong.

"The wider the limitation (e.g. an exclusion) the more likely the court will strike it down," Davis explained. "Here, the court disliked a clause saying that if the software did not work, the customer (licensee) must look only to support/maintenance for a remedy.  This clause is common in IT contracts, so suppliers should beware!," he added.

Red Sky's sales practices counted against it in the case, Davis concluded. "The case illustrates:that if the supplier fails to inform the customer of the terms & conditions before the contract is entered into, the supplier cannot later rely on those terms & conditions, and in particular on the exclusions in those terms & conditions," he explained. ®