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this software's faulty - what can I get from the seller?

11 March 2010

It’s a query often raised by clients. A recent case has highlighted that it might well be more than previously thought.

Traditionally a party suing for breach of contract can expect to recover losses that result directly from a breach, but not losses that are “indirect” – as these are considered too remote or unforseeable. Typically a supplier will exclude indirect losses and will also exclude losses such as loss of profits, loss of revenue and similar losses. In a recent case however there was an interesting decision as to what a supplier could claim, even where indirect losses and loss of revenue is excluded. This included:

  • Increased payments to suppliers, as a result of using the faulty software
  • Additional costs of borrowing, made necessary by the increased payments to suppliers;
  • The cost of chasing debts that were not due (but which the faulty software suggested were due);
  • The cost of ex-gratia payments made to customers to compensate for poor service – (i.e. payments that the customer was not obliged to, but chose to pay to protect its reputation); and
  • Even the cost of stationery used to write to its customers to explain the problems caused by the faulty software

None were excluded by the typical “loss of profits” exclusion, nor by excluding indirect losses. For software suppliers it’s a potential wake up call that errors and delays in projects can lead to eye-watering amounts of damages – something that it is worth taking the time to protect against when working through the small print of their agreements.

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