In the Netherlands, almost all IT-businesses operate under the so-called FENIT conditions, formally known as the Cosso conditions. These general terms and conditions, drafted by the Dutch IT branch association, used to contain a standard clause that seeks to limit all liability of the IT-provider to € 45,378 (i.e. NLG 100,000). (Under the current FENIT conditions the amount is € 453,780 (i.e. NLG 1,000,000).) Multinational CAP Gemini thought they were safe under those terms. They were not.
KIN, a Swiss non-profit organisation with 13 offices throughout Europe, claimed full damages from CAP Gemini for their poor performance on an IT-project. The facts are revealing, yet not uncommon in the world of IT and therefore the case is likely to be illustrative for other IT companies.
In 1985, CAP Gemini had committed themselves to provide KIN with a fully operational multi-site software system by 1 August 1985. Parties agreed on a fixed price of NLG 500,000 (€ 226,890). CAP Gemini soon reported ‘unforeseen complications’ and KIN agreed not to insist on the fixed price. The Swiss started to pay additional costs for further promises and work, but no system was delivered, let alone an operational one.
In April 1987, CAP Gemini promised that the system would be operational from 1 June 1987. A little wiser and a lot poorer, KIN cautiously sent a notice of default this time. In June 1987, CAP Gemini delivered something they called ‘the system’. However, it had only been installed in the Munich office of KIN and not even there did it operate properly. KIN demanded damages, starting with the quite respectable amount of almost € 1,000,000, CAP Gemini had already charged KIN by then. CAP Gemini denied liability that surpassed € 45,378, pointing at their general terms and conditions. A law suit was inevitable.
In the first instance, CAP Gemini won the suit, but then, on appeal, things went wrong for CAP Gemini, terribly wrong. The Amsterdam Court of Appeal appointed expert witnesses to assess what CAP Gemini had actually delivered to KIN. The experts’ conclusion was devastating: ‘the system’ was at best a Beta-release and then merely stand-alone. Moreover, the experts found that CAP Gemini had sinned against almost all basic rules of project management.
Eventually, the Court of Appeal, applying fixed case-law in Holland, ruled that, under the circumstances, reasonableness and equity bar CAP Gemini from bringing up the standard limitation of their liability. The Court awarded to KIN, as damages, the full amount they had paid to CAP Gemini, i.e. € 1,000,000, and gave KIN the opportunity to proof their further damage and losses.
CAP Gemini will not be amused. Especially because this is the sort of claim the usual business liability insurances do not cover.
Note. The wording of the standard liability clauses in the FENIT Conditions, used by CAP Gemini in this matter, dates from 1978 and has since then replaced several times. Now, with respect to the present wording the courts may very well decide otherwise.
Important - The information in this article is provided subject to the disclaimer
. The law may have changed since first publication and the reader is cautioned accordingly.