CASE LAW FILE

EURODYNAMICS SYSTEMS PLC-V-GENERAL AUTOMATION LTD. (As yet unreported- September 1988)

Eurodynamics were specialists in bespoke application software for small to medium-sized mainframe computers. In 1980, they wished to expand so as to be able to offer both their own software and the computers on which that software was designed to operate. They therefore began discussions with General Automation as to the purchase by Eurodynamics for development purposes of a Boss 2 system from General Automation, and to the signing in July 1981 of General Automation's standard form franchise agreement. During the preliminary discussions, it had become clear that General Automation's existing franchisees used the Fortran programming language whereas Eurodynamics used Cobol. Eurodynamics however received assurances from General Automation that Boss 2 supported that version of Cobol which they used. General Automation also gave certain assurances that Boss 2 VDU would be able to handle screen formatting. (These and other assurances were subsequently found to constitute collateral agreements). Eurodynamics purchased the Boss 2 computer for £:11,440 and signed the July 1981 agreement. This agreement was replaced at General Automation's initiative in November 1981 by another agreement containing a dollar exchange rate adjustment clause and a revised discount structure. The November agreement (and the July agreement) contained the following words: " The Manufacturer shall maintain and update such Operating System and Utility software at its current price. Such support for Operating System and Utility software for the first year of this agreement is provided at no charge." This was the part of the contract which Eurodynamics claimed that General Automation had breached thus giving rise to the present claim. Between April and July 1982, a number of errors and bugs in the Boss 2 programs became apparent to Eurodynamics and these were reported to General Automation's Coventry Office. The frequency of these calls placed a heavy load on General Automation's support capability and indeed it was

contended that the matters reported by Eurodynamics amounted to requests for enhancements (as opposed to error correction) which they were not obliged to provide free of charge. It was clear that the relationship began to deteriorate at this point as General Automation felt that the subject of Eurodynamics's constant calls fell outside the scope of the Franchise Agreement. In August, Eurodynamics were asked to put their complaints in writing and this they did in a very detailed letter which alleged that General Automation had neither the resources nor the will to support Cobol-based applications, and that screen formatting was not available. As a result of this letter, a meeting was set up in October, but it was noteworthy that in the intervening two months, General Automation made no attempt to address the problems raised in Eurodynamics's letter, nor to refute points raised. The statements made at the meeting were disputed, but nevertheless, on the following day, Eurodynamics wrote to General Automation claiming that they had been informed that General Automation were unwilling to address the technical matters raised and were "unlikely to provide current or future support for Cobol based operational software". Eurodynamics also claimed a refund of the purchase fee and compensation for wasted time and effort. General Automation rejected this claim, but it was not until December 1983 that proceedings were issued. The first matter for consideration by the judge was the question of the two franchise agreements, it will be recalled that the contract provided for a year's free software maintenance, which General Automation allegedly withdrew in August 1982. The question of whether the July or November agreement was effective therefore assumed some importance. The November document provided for a commencement date of 26 November 1981. General Automation sought rectification of this agreement on the basis that it did not reflect the parties' common intention, namely to continue and amend the July agreement. Moreover it was not intended to extend their support

obligations by five months. However the court considered the delay in delivery (so that support could not in any case have been provided from July 1981); the reasons for the new agreement (certain advantages to General Automation) and the express language of the document, and rejected the claim for rectification. The judge then considered whether the implied terms of merchantability and fitness for purpose were incorporated under the franchise agreement and in particular, that part of it providing for supply of the operating system software. General Automation contended that software was not "goods", but information directing the performance of computer hardware, and that section 14 of the Sale of Goods Act did not therefore apply. The judge referred to an Australian decision, Toby Construction v Computer Bar Sales (1983) 2 NSWR 48, in which it was held that a sale of a computer system, comprising both hardware and software, did constitute a sale of goods within the meaning of the Act. He was also referred to certain US decisions where software supplied by itself was held to be subject to the equivalent provisions in the Uniform Commercial Code. Having considered these authorities, though, the judge was not prepared to decide the point, and concluded that he was able to decide the case without pronouncing on this issue. Finally therefore, he went on to consider whether or not in refusing to meet the technical complaints raised, and in expressing itself unwilling to provide further support, General Automation had repudiated the Franchise Agreement. After a consideration of all the surrounding evidence, the judge concluded that General Automation had been trying to wash its hands of Eurodynamics's problems and that by its statements made at the October 1982 meeting had repudiated the contract. Accordingly, it was held that General Automation were in breach of contract and Eurodynamics were awarded £94,500 in respect of loss of profit on potential sales of turnkey systems in the period of from the breach to the expiry of the minimum duration of the contract.

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~ N ,-, f ~ l ~t'1t~i C O N P U f ~ I~ l?(;k AND S~:(URITY R H ~ O R I ' ~ 9 8 8 ~ 8 9 5 ( t SR

THE REPORT COMMENTS One of the first things to note about this case is the time taken to come to trial: seven years from the initial agreement and almost five years from the commencement of proceedings. It would be interesting to compare the amount awarded with the legal costs. Whilst it was the withdrawal of support that was critical to General Automation's case, it is highly probable that the origin of the problem lay in the assurance that Boss 2 (and General Automation) could support Cobol applications. Most of the technical matters raised were related to this point, and this serves again to underline the care

that needs to be taken when making pre-contractual representations. A salutary lesson is provided by the issue of the two agreements and the failure to relate the second to the first one. Care needs to be taken when offering revised terms, particularly where the revised terms contain clauses related to time (e.g. commencement, warranty period, duration of support). Finally and most regrettably, an opportunity was once again missed to deliver judicial pronouncement on the crucial question of whether software constituted "goods" for the purposes of the Sale of Goods Act. It is often assumed that the implied

terms of merchantability and fitness for purpose apply to software, but there is a good deal of weighty opinion which would put forward the opposite view. And again, there are many different types of software from games packages and the business software package, to complicated bespoke software and process systems. Accordingly, uncertainty, the enemy of the commercial man or woman, is allowed to persist, and in the meantime litigants are likely to settle rather than to provide the long awaited test case.

David Greaves Editorial Panelist

BOOK REVIEW ~;!!ii ~ PERSONAL COMPUTER SECURITY

ili!i The PC Security Guide 1988/89, K M Jackson and J Security for Small Computer Systems - a Practical iii Hruska 1988 (Elsevier Advanced Technology Guide for Users edited by Tricia Saddington, 1988 i~iii Publications, £95.00 ISBN 094 639 5365). (Elsevier Advanced Technology Publications, 85pp. iiiii plus Annex 34pp., £35.00 ISBN 094 639 5357.

~i The PC Security Guide is a comprehensive international In May 1986 a project aimed at producing practical security iiiii reference source on security products for the IBM and ~ii compatible marketplace. It has been written by two PC ~iiii security software designers and includes product i descriptions, technical specifications, price bands and

manufacturers' and local country suppliers' addresses. Chapter 1 contains information on the contents of the guide

~ and gives hints on how to find products by varying criteria. ~4! It also contains a glossary of terms used in data security. ~;i The second chapter contains information about various data

security topics and can be studied separately. Chapter 3 is an alphabetical list of data security products by product

iiliJ name; Chapter 4 contains twelve technical evaluations of Ii~i data security products supported by an appendix containing ~i: a list of manufacturers and distributors world wide who are

actively engaged in data security. The products listed are available on the IBM PC/XT/AT/PS2 and clones. Compatibility with PCs from other manufacturers such as DEC and Wang and with mainframe operating systems including MVS, VMS and UNIX is also mentioned. Topics covered include access control, encryption, authentication and anti-virus software. The authors provide additional material explaining PC security techiques and current and emerging threats such as data viruses and logic bombs.

iN

advice for non-technical users of small systems began. The project was co-funded by the Commission of the European Communities and a consortium of four European companies in the UK, Netherlands, Belgium and France. The project was divided into two phases - fact-finding and reporting. The fact-finding phase involved questioning by interview or questionnaire several hundred users, hardware manufacturers, software suppliers and consultancies across Europe. The aim of the exercise was to discover: • The level of user awareness of security problems and

solutions • What manufacturers and software suppliers were

offering • What security threats were being encountered, and how

effective safeguards against those threats were The report's production phase first produced eight working papers - each dealing with a separate aspect of security. Those working papers were then amalgamated and edited to form the content of this book. Sections deal with the need for security, physical security, protection of data and software, protection against fraud, survival planning, assessing the risk and security management. The book must be seen as no more than a basic introduction to these questions: at that level it is useful in providing information about the security issues involved in small systems but the reader must bear in mind that the solutions offered relate to the general problems identified and not his specific requirements.

Both books are available from: Elsevier Advanced Technology Publications, Mayfield House, 256 Banbury Road, Oxford OX2 7DH

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