Pegler Ltd v Wang (UK) Ltd is a 2000 judgment of the Technology and Construction Court in London on the damages payable by a supplier after a large integrated business system for a manufacturer failed. Pegler, a brassware manufacturer, bought hardware, software, bespoke programming and services from Wang (UK) in 1991. Wang later admitted breach of contract, and the hearing was about what it owed. Pegler claimed more than GBP 22.8 million, and the judge awarded GBP 9,047,113. He also held that Wang’s clauses excluding and limiting its liability were unreasonable and unenforceable.[1]
Background
Pegler was part of the building products division of the Tomkins group. By 1990 it had poor delivery performance and old plant, and it planned a programme of change that included replacing its aged computers with a new integrated computer system. It issued an invitation to tender on 29 April 1991, and Wang responded on 20 May 1991. The contract was signed on 20 and 31 December 1991 for the supply of hardware, software, bespoke programming and services, at a total of GBP 1,198,130 plus GBP 235,000 a year for three years for maintenance and business process management. The tender and the response were part of the contract. The software was FACT, a system developed by Geac of New Zealand and distributed by Wang in Europe.[1]
The dispute
Wang’s performance, in the judge’s words, was disastrous. It closed the London office that was to provide business management services in February 1994 and by the end of December 1995 had stopped offering relevant performance. It had implemented the first phase, part of the second and some other elements. Pegler gave notice of breach on 27 February 1997 and accepted Wang’s repudiation on 1 April 1997. It then brought in other consultants and software, including a replacement sales order processing package.[1]
Wang admitted breach in its defence, and a declaration of liability was made by consent on 13 August 1998. The admitted breaches included late or missing functionality, software that was not fit for purpose or of merchantable quality, and a failure to provide enough software licences for all users of the word processing and spreadsheet packages supplied. They also covered gaps in training, staffing and the support that Wang had promised.[1]
Decision or outcome
At the damages trial in late 1999, the judge dealt with twelve heads of claim. He awarded damages under all of them, totalling GBP 9,047,113, including GBP 2,354,800 under one head and GBP 1,770,316 under another, and ordered rectification of the contract as referred to in his judgment.[1]
On the Unfair Contract Terms Act 1977, the burden of proving reasonableness lay on Wang. Applying the statutory guidelines, the judge accepted that Pegler was a substantial company with legal advice, and that computer suppliers commonly contracted on similar exclusion terms. But he found that Pegler had committed to Wang in principle and allowed work to start before standard terms were discussed, and that Wang had misrepresented how well its standard package fitted Pegler’s requirements. The response to the tender claimed a perfect fit for many requirements where bespoke programming was in fact needed, and more than 100 admitted breaches concerned such items. He held that it was unreasonable to impose the exclusion clauses on Pegler, and that they were unenforceable.[1]
Significance for software licensing and SAM practice
The case concerns an ERP-style implementation rather than an audit, but it shows how the written tender and the supplier’s statements about fit can decide whether a cap on liability survives.
- Tender documents as contract. The invitation to tender and the supplier’s response were incorporated, so the claims of fit in the response became the standard against which performance was measured.[1]
- Licence quantities. Insufficient user licences for the supplied packages were among the admitted breaches.[1]
- Contrast with Watford. A year later the Court of Appeal enforced a similar clause in Watford Electronics v Sanderson, where the customer had negotiated the term; reasonableness turns on the facts of each sale.
Lessons learned
- Challenge claims of fit before signing. Pegler succeeded because the response to the tender claimed a perfect fit that did not exist, and those claims were part of the contract.[1]
- Settle liability terms before work starts. The judge noted that Pegler had accepted a deal in principle and let work begin before the standard terms were discussed.[1]
- List users, modules and phases in the schedules. The breaches were framed phase by phase against the outline schedule, and licence shortfalls were one of them.[1]
- Do not assume an exclusion clause is safe or fatal. Whether it is enforceable depends on the facts of the sale, as the contrasting outcomes in this case and in Watford show.