The Computer Bulletin Year 2000

July 1999

The buck stops...where?

More than 50 year 2000 lawsuits have already been launched in the USA - giving some idea of the kind of litigation that might arise in the UK. Adam Taylor has some advice for IT professionals

Whether or not the 'millennium time bomb' explodes into a mass of litigation will depend largely on how drastic and pervasive year 2000 failures turn out to be.

Actions have already started in the USA, mostly against software package suppliers, although a recent case may foreshadow a wave of litigation also against suppliers of embedded systems: in January a class action was launched against AT&T in connection with 59 telecommunications products that are allegedly not ready for 2000.

But it is not just system suppliers who are exposed. For example, a retail company, J. Baker, claimed that Andersen Consulting was in breach of contract when it advised on the implementation of a merchandising system which turned out to be non-compliant. Rectification cost J. Baker more than $3m. Andersen Consulting took the rather unusual step of dragging its customer into court, asking for a declaration that it had not breached its contract.

So how exposed are consultants whose advice overlooks the year 2000? Under English Law, consultancy contracts are usually subject to an implied term that they will be carried out with reasonable skill and care. In essence, a dispute will come down to the issue of whether the consultant was negligent in not picking up and advising on the date change problems.

Whether the consultant was negligent will depend on various factors, in particular the nature of the consultancy agreement. What exactly were the services to be provided? How long ago was the agreement entered into? What was the purpose of the system?

The consultant may be off the hook if he can show that at the time the date problem was not common knowledge in the industry. Previous court decisions will provide guidance on this state of knowledge, but new evidence can always be brought forward. Clearly, the more recent the advice, the greater the danger for the consultant. Indeed, another possible exit route for the consultant would be to show that it was reasonable for him to assume that the system would no longer be around in the year 2000.

How can consultants reduce the risk of being sued successfully? This question has taken on greater urgency, since many insurers have excluded claims related to the year 2000 issue from professional indemnity policies.

Solicitors will look first at the contract when advising on cases against consultants, so IT professionals need to be careful when they are considering taking on new contracts.

While it may not be commercially feasible to expressly cut year 2000 liability, the normal exclusion clauses may in fact have this effect - although these can be struck down by the court if unreasonable. The trick is therefore to construct these clauses in such a way as to minimise the risk of this happening.

For example, if they are sufficiently self contained, some may survive, even if others fail.

Consultants should handle customer communications on the year 2000 with extreme care. There are competing considerations: for example, giving as much information as possible can put the onus on the customer to take preventive steps - but the information must be carefully presented, or it could lead to legal liability.

Who can be sued? The consultant company itself will be sued, as it will be a party to the contract with the client. It is unlikely that employees could be personally sued by a customer, unless they took on some personal responsibility, separate from that of the company. But consultants who are partners or sole practitioners can be sued personally.

If a dispute does arise, litigation should be the last resort. There has been much talk of the use of alternative dispute resolutions, a form of conciliation, to resolve year 2000 disputes. Indeed, it was mediation that led to Andersen Consulting dropping its lawsuit against J. Baker, after the client conceded that Andersen Consulting had not breached its contract.

But in that case Andersen's advice was given between 1989 and 1991. Had the advice been given more recently, the outcome would have been different.

Adam Taylor is a partner at Withers Solicitors, a founder of the Y2K Lawyers Association. He is on 0171 936 1016 and at azt@withers.co.uk

-- Old Git (anon@spamproblems.com), September 10, 1999