The recent case of Fujitsu Services Ltd v IBM United Kingdom Ltd 1 has emphasised the need for contracting parties to take time and care over the wording used in the contract, ensuring the practical impacts have been thought through and the intention expressed clearly. In ordinary circumstances, the courts will accept that the parties have “meant what they said”.
This is the second in a series of two articles considering this case, looking at whether a fiduciary duty can arise in a services relationship and how a duty of good faith may be expressed in the contract. The first article was published on 9 May.
IBM United Kingdom Ltd (“IBM”) has a contract with the DVLA to provide certain information technology (“IT”) and business process changes services. IBM took over the contract from PricewaterhouseCoopers (“PwC”) shortly after the contract commenced in 2002 (as IBM had purchased PwC’s consultancy business). Some of the IT services under the contract were sub-contracted to Fujitsu Services Ltd (“Fujitsu”) under a sub-contract of the same date. The contract is due to run until September 2015.
Fujitsu claims that IBM has breached both the sub-contract and an alleged fiduciary duty, such that services which it was entitled to perform have not been available or sub-contracted to it. It has estimated losses to its revenue in the region of £36.8m.
The court had been asked to determine four issues in a preliminary ruling, prior to a full trial due to commence in February 2015. In the first article I looked at the court’s decision on the application of the exclusion and limitation of liability clauses (covering the first two of the four issues). The court determined that the parties could be taken to have meant what they said in the provisions excluding certain types of losses, including loss of profits.
The other two questions put to the court were:
Where a party owes a fiduciary duty to another party, its obligations go beyond what is written in any contract between the parties. The duty indicates a relationship of trust and confidence, and generally requires the party owing the duty to act in the interests of the other party.
Certain types of relationship are well-established as giving rise to fiduciary duties. This includes the relationship between a solicitor and a client, between a principal and an agent, between partners in a partnership.
In this case, Fujitsu argued that IBM owed it a fiduciary duty (or business duties akin to fiduciary duties), which IBM had breached by not sub-contracting or making available sufficient work to it, resulting in loss of income.
However, the court disagreed, and found that the fundamental characteristics of a fiduciary duty were missing in the nature of the overall relationship and the terms of the contract. Previous case law made it clear that a court should be careful not to inappropriately introduce duties of this kind into agreed contractual arrangements. In a commercial context “wider duties will not lightly be implied”. The court considered that introducing a fiduciary duty would distort the agreed terms between the contractor (IBM) and sub-contractor (Fujitsu) for the supply of services.
The court gave three reasons for its conclusion:
Certain ‘partnering principles’ contained in the contract did not change this. The parties need only “have regard to” these principles which set out how the parties were to work together and co-operate. They were “aspirational and motivational” in nature, and did not create fiduciary duties.
The court noted that its conclusion was the same whether or not IBM owed Fujitsu a duty of good faith (see next paragraph). In other words the presence of a duty of good faith does not imply that there is also a fiduciary duty.
Fujitsu also argued that the express2 terms of the contract included a duty on IBM to act in good faith towards it (which might also have been breached).
With an analysis of the precise wording used, the court held that there was no such express term. In particular:
As noted in the first article in this series, this case emphasises the importance of carefully considering and clearly expressing contract terms to reflect the intention.
The commercial relationship between two independent parties for the supply of services is not the sort of relationship under which a fiduciary duty would normally arise. Therefore, if the parties wish to introduce a duty of ‘good faith’, or an obligation to act in best interests of the other party, or another duty of trust or confidence, this should be clearly stated in the express contractual terms. The contract should also be clear on the specific obligations or activities to which such duties apply.
A couple of additional tips:
Olivia Whitcroft, principal of OBEP, 24 June 2014
1  EWHC 752 (Judgment 21 March 2014)
2 Please note that the court had been asked to consider whether there was an express rather than an implied contractual duty of good faith.
This article provides general information on the subject matter and is not intended to be relied upon as legal advice. If you would like to discuss this topic, please contact Olivia Whitcroft using the contact details set out here: Contact Details