RACV Insurance Pty Ltd v Unisys Australia Pty Ltd 2001 - lessons for software developers

Publications >RACV Insurance Pty Ltd v Unisys Australia Pty Ltd 2004 - lessons for software developers

 

Software developers need to be mindful to ensure that statements made in precontractual negotiations (and during iterative development processes) regarding the likely performance and functionality of systems are not misleading and deceptive. Particular care should be taken to ensure that representations made whilst collaborating using development methodologies such as rapid application development (RAD) or AGILE are not taken to be misleading and deceptive.

 

RACV Insurance Pty Ltd v Unisys Australia Pty Ltd [2004] VSCA 81 (Unisys)

The landmark Unisys case dealt with a claim made by RACV Insurance Pty Ltd against Unisys Australia over the development of an application that went wrong. RACV contracted with Unisys to develop an automated claims handling system that incorporated the imaging and electronic storage and retrieval of documents relating to claims.

 

In acceptance testing RACV was dissatisfied with the response times for retrieving images that were to form part of their paperless office system. Instead of attempting to rectify the system, RACV issued a writ in December 1996 claiming damages for misleading and deceptive conduct, breach of contract and negligent misstatement.

 

Section 52 of the Trade Practices Act 1974 (Cth) (TPA)

Section 52 (1) of TPA provides that 'A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive'.

 

The outcome at first instance

At first instance damages were awarded against Unisys in the amount of $4Million for misleading and deceptive conduct pursuant to section 51A, 52 and 82 of the Act. The three representations made by Unisys that were found to be misleading were at 7:

 

	the Unisys proposal would if implemented provide adequate storage capacity to provide, on a ‘date forward’ basis, for all open claims on-line, all claims near-line for three months following closure, and closed claims older than three months off-line;
	high speed image access would be available in a WMS system implemented in accordance with the Unisys proposal for on-line claims with an expected response time in the vicinity of 2–4 seconds;
	Image access would be available in a WMS system implemented in accordance with the Unisys proposal for near-line claims with an expected response time in the vicinity of 20 seconds maximu

 

Managing risk in software development projects - lessons from Unisys

Software development projects (both large and small) can involve a wide range of legal issues and risks for both software developers and their clients. The Unisys case shows that risk can be minimised by making sure that:

 

	any demonstrations and alpha versions accurately represent a systems functionality and capabilities and include statements about the limitations of the test or alpha version;
	contracts reflect the exact nature of the system to be installed and include specific disclaimers;
	sales staff understand what can be at times the fine line between 'puffery' and misleading and deceptive conduct under the TPA;
	that project management and rigour in contractual documents are equally applied;
	that applications developed using RAS, and AGILE development methodologies do not misrepresent system performance capabilities;
	that the terms of a contract can include tender requirements and other representations and communications made between the parties;
	that any representations made should be qualified.

 

The outcome of the appeal

On appeal, Ormiston JA, Phillips JA and Batt JA unamiously dismissed the appeal by Unisys and allowed the cross appeal by RACV for wasted labour costs be allowed and awarded damages accordingly.

 

 

 

Malcolm Burrows

Associate

 

"The information contained in this article is general in nature and cannot be regarded as anything more than general comment. Readers of this article should not act on the basis of this comment without consulting one of Rostron Carlyle's legal practitioners who will consider their particular circumstances".

 

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