Fighting Back

Within weeks of the Victorian Supreme Court finding in favour of the RACV, Unisys Australia appealed the Court's August 24 decision. On September 21 Unisys lodged its appeal on the grounds that Justice Hansen was incorrect in deciding Unisys had engaged in misleading and deceptive conduct, and misinterpreted Unisys' contractual obligations during the implementation.

Unisys also claims Justice Hansen made numerous findings based on evidence not presented in the courtroom. At the time of filing, Scott Mortimer, subsidiary general counsel for Unisys Australia, said the company was unable to discuss the exact content of this evidence until it has been heard in the Court of Appeal. But he did say Unisys alleges this evidence was submitted before the trial, but was not read or relied upon by either of the parties during the trial.

Additionally, Unisys claims that the system it delivered could have worked with a further $40,000 investment in disk storage.

"The nub of the decision was not about response times, but rather that Unisys would create an online system where all documents would be stored online,"Mortimer said. "The expert witnesses from both parties agreed that 12 gigabyte [cache] would have been sufficient."

Mortimer said it was unclear from the contract as to whether RACV or Unisys would have been responsible for the $40,000 cost of the disk storage, but Unisys was not given the opportunity to offer the solution. "This kind of thing is normally added towards the end of the implementation,"he said. "The contract was terminated while we were still adding functionality and running small-scale tests."

At the time, RACV public affairs spokeswoman Bronwyn Thwaites said RACV plans to respond vigorously to the appeal. "We are very disappointed Unisys has decided to appeal,"she said. "We believe the appropriate judgement was handed down."

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A little IT knowledge would go a long way. When boards of directors lack the technical ability to recognise which parties are giving them an honest appraisal, they tend to believe those who want to tell them good news over those who would give them bad. So more than anything else the Unisys Australia-RACV case highlights the responsibility of the board of directors for avoiding IT disasters, says Karandan CEO Kate Behan, who authors distance education subjects for the Australian Computer Society (ACS). It also highlights the extreme difficulty of getting board directors with any kind of IT competence or knowledge, Behan says. "It's really the board's job to avoid this sort of stuff-up. But how the hell can they even know, because they don't have any knowledge?

"I think it really is a serious professional dilemma, that the preference is to pass good news upwards, but in fact in IT issues the board lacks the ability to tell who's really giving them an honest appraisal. So if they have several messages coming, which one do they go for? They go for the one that makes them happiest. Technically it's the board's fault,"Behan says.

Behan points out that a government investigation into business undergraduate education has shown there is less IT in undergrad-uate business courses in 2001 than there was when she was an academic 12 years ago. "I just find that overwhelmingly awful. I find it depressing. What it means is that the young grads come in, and they're no better than the people you've got [in place already] in terms of their conceptual grasp of IT. They're just going to pick it up as they lurch from bad project to bad project.

"Nobody tells them about processes. They learn about the function of an organisation, but most IT today is based on processes. The other day I had a little focus group; not one of them had heard the word Â'process' through their entire three years of undergraduate studies. It just didn't enter into anybody's vocabulary. One guy did an honours year and he did a business strategy subject, and in that business strategy subject throughout the entire semester, there was no mention of IT - in 2001!"

Behan says there is no mandatory IT component in something like 22 out of 33 of the business faculties in Australia. If students elect to do IT then they get taught by IT specialists with no business experience, or contextual understanding.

"So they come into your organisation, and you think they know it, because hell, they're a young graduate - and they've got no idea,"Behan says.

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How to go from partner to plaintiff in one not so easy lesson.

Conventional wisdom has it that whether you're suing or subject to a lawsuit, IT-related litigation spells the ultimate failure of the CIO. In particular, lawsuits against IT companies have always been seen as exhausting, costly, difficult to win and highly distracting to senior executives. And the dangers for the CIO have been seen as equally clear. Whether you believe a competitor, partner, consultant or vendor is at fault, your fellow executives will harbour their own suspicions. As the company spends hundreds of thousands of dollars litigating the case, your derriere will be on the mat for putting the company in the situation in the first place.

If you lose, it can cost you hard-earned influence in the boardroom and even your job. Should you win against the odds, it will cost you time away from far more beneficial projects. These are the sorts of costs you might think twice about wearing even if you were guaranteed a win. Until now, few in Australia have had much reason to believe such wins are even feasible, let alone likely. But conventional wisdom may have to stand on its head in the latter part of the year 2001, after The Royal Automobile Club of Victoria's (RACV's) stunning victory against Unisys Australia this August.

RACV chief legal counsel Pearl Dreier says the company has been inundated with congratulatory phone calls for "being so gutsy"after the Supreme Court of Victoria ruled in favour of its claim against Unisys for misleading and deceptive conduct on August 24 this year. Many callers admitted to having previously been cynical about any user's ability - however large their company - to take on multinational IT companies. "The result clearly demonstrates that companies should not be scared to face up to the computer industry and say it's not good enough,"Dreier says.

And Phillips Fox partner Robin Shute, who was partner in charge of the case for RACV, says the win shows that a determined and aggrieved plaintiff, who in this case has spent many millions of dollars and got nothing for it, can take on these companies. "In that subliminal or tangential way, you may find that more people will stand up to IT suppliers,"Shute says. "Certainly I think, from my own perspective, it ought to be done, because the IT industry is very long on selling and slow on delivering promises."

Some legal experts and analysts are starting to believe the victory has created a useful precedent for users unhappy with the services of software developers and IT services firms, which now run further risk of litigation if they fail to deliver on promises to clients. RACV sued Unisys Australia for alleged negligence, breaches of contract and breaches of provisions in the Commonwealth Trade Practices Act against misleading and deceptive conduct.

The company's woes began in 1993, when it decided to replace its paper-based claims system with a computerised version involving the imaging of documents for quick retrieval and display. During court hearings starting in February this year RACV claimed it wanted a system with an online response time of two to four seconds, and robust enough to handle up to 100 users simultaneously. Instead, according to its statement of claim, RACV began experiencing problems immediately after Unisys delivered its WMS system - for which RACV paid Unisys $3.7 million - in March 1995.

"Predominant areas of poor performance were the return of electronic folders and the time taken to file a note,"the RACV said. "In particular, folders took up to one hour, 45 minutes, to be retrieved to a user's queue via file note."It said Unisys representatives claimed that the system would work once "teething problems"were fixed. Despite its assurances that it was just a matter of eliminating a few bugs though, the system continued to fail even after it was re-engineered.

Then, again according to the statement of claim, Unisys started claiming from about September 1995 that the problem was in the RACV software. However, Unisys did not disclose a "private and confidential"project memorandum sent by one of its representatives. It also failed to inform the RACV that the system was sold at a time when it was being decommissioned and that poor program and product quality was one of the big reasons for its continuing non-performance. As well, Unisys allegedly failed to tell the RACV that the system's limited future meant that Unisys would need to "plan and implement a speedy migration to a significantly different product architecture, which would involve a further redesign of between 95 to 100 per cent of the WMS system".

"The idea was simple enough,"Justice Hansen said in his decision. "Yet from a contract in December 1993, to the complete failure of a system handed over as complete in March 1995, to the termination of work on a second attempt in June 1996, there is nothing to see, apart from the bitter experience, but years of wasted money and effort."

Counsel for the RACV, Dr Gavin Griffith QC, told the court Unisys misled the company about what its system could do because it needed a "prestigious"client like the RACV. An expert report claimed that containing the required three months of active and current cases needed to meet specified retrieval response times required a 12-gigabyte cache. Unisys had instead provided a cache of about two gigabytes that only stored the previous 10 days of received documents. Retrieving files that had fallen off the cache meant retrieving them from the "juke box", leading to a highly congested system that frequently crashed.

Dr Griffith said the RACV junked the software system after about six months and returned to its paper-based system when it became clear the system could not be fixed.

On its side, Unisys told the court the RACV's problems had come about because its client was incapable of managing technological change, and blamed RACV for delays and additional costs incurred in producing the new system. Counsel for Unisys, Noel Magee, QC, said part of the problem was that the RACV had not understood its contract with the solutions company. He said companies that responded to tenders were entitled to do it in the way they saw fit. "When our response comes in, we are entitled to believe it will be read and understood by the corporation we are dealing with,"Magee said. Magee alleged the RACV "didn't trouble themselves to read the contract, our response, and so they have gone off half-cocked about what our obligations were".

But the Supreme Court of Victoria ruled in favour of RACV's claim against Unisys for misleading and deceptive conduct under the Trade Practices Act, despite the judge describing the case as "an unedifying and possibly pointless fight over past events"to see who was at fault. The judge said the eight weeks of court proceedings involved in the case, not to mention the 18,000 pages of documents, made it difficult to examine material not discussed in court when other cases were waiting to be heard. "There must be a limit to the extent of time I can take to discuss and analyse the documents and the evidence in this judgement,"Justice Hansen said.

RACV initially asked for $9 million in damages, but the claim was cut back during proceedings to $4 million. Professional services firm Deloitte Touche Tohmatsu, which was advising the RACV at the time, was also party to the proceedings. However, the RACV settled with Deloitte late last year. Deloitte had been hired to help design the system and handle assessment of bids.

At the time of writing Unisys had yet to decide whether to appeal the decision, according to marketing communications manager Alan Smith. [Unisys Australia lodged an appeal with the Victorian Supreme Court on September 21, see "Unisys Appeals Decision". - Ed] He also says the final amounts awarded were a good deal less than RACV had originally sought, making it less of a big deal than it might otherwise have been. But he's remaining uncommitted as to whether the case has significance for the rest of the industry. "I guess if another one or two pop up then you guys would be saying a trend has established itself,"Smith told CIO. "Then again if one or two pop up and the defence wins, it might all dumb down."

Smith put the onus on RACV for taking the case to court in the first place. "I think a general comment I would make is these are complex solutions and complex contracts, and you would always expect to assume to resolve this sort of difference out of the court,"Smith says. "So if this were to be the start of a trend, I think that we would think that was unfortunate. I suppose you'd expect us to say that as a vendor. But as to why a customer of the time decided to take it through the courts, you'd clearly have to go and ask them because that certainly wasn't our preferred approach."

RACV sees things quite differently. Dreier agrees RACV's case against Unisys need never have gone to court, but claims the company ultimately had little choice. She claims Unisys made "very unreasonable offers"to RACV that the company just could not accept. Mediation in August 2000 had failed, and RACV was forced, despite its own reluctance, to go to trial. She says for this reason one outcome of the judgement should be that Unisys chief legal counsel and senior executives should seriously question their risk management processes.

And as far as implications for the rest of the industry go, Dreier says while no one really knows the long-term ramifications of the case, the result has undoubtedly "bucked people up". The numerous congratulatory phone calls suggest the win has given a lot of companies the opportunity to think again whether they have a good case against IT vendors and suppliers. "Obviously companies must be sensible in mounting litigation because it's very exhausting; it's very expensive; and it's very distracting for its senior executives. So from that point of view I think the fact that a case has been won, especially on Trade Practices, I think most companies will now be giving it a second look in,"Dreier says.

Nonetheless, Dreier stresses that when companies take on a service industry using the Trade Practices Act, which means effectively alleging misrepresentation, or misleading and deceptive conduct, they need to be pretty confident they can win. "RACV never lost faith. We just felt absolutely focused on getting what we believed to be justice in this case,"she says.

Equally, she says the case proves that it is absolutely essential when any service is being provided by a third party that everybody involved understands the job and the specifications, that everything is well documented and that there is buy-in on all levels. "I think the process - if I may make an observation - is a lot more sophisticated today because project management has become quite a tool well used in most sophisticated companies. But human beings are human beings. No matter how well you plan you're always going to have somebody who's not going to be on the ball.

"I think it's just a case of having both a clear understanding of what needs to be delivered and having good relations and managing processes well, and yes, along the way, lots of horrible things can happen,"Dreier says. vNowhere to HideExclusion clauses don't cut itAccording to Phillips Fox partner Robin Shute, Unisys sold a system to RACV that never worked, and then tried to claim it had no liability to RACV for that failure under the terms of its contract. Certain representations were made pre-contract that the system could be delivered. RACV was delighted with the promises, but the contract was an abject failure in so far as the computer as originally delivered just didn't work, and after a period of 18 months Unisys couldn't fix it. They were then held liable in court after about five years of litigation and obliged to pay damages.

The court used the vehicle of the Trade Practices Act to provide a remedy. "The Trade Practices Act, under Section 52, prohibits companies from engaging in what's called misleading and deceptive conduct . . . ,"Shute says. "Therefore, if as plaintiff you prove misleading and deceptive conduct you are home and hosed. So if [the case] has got a message for the industry, it's that they can't hide behind their contractual exclusion clauses any more. They've got to come out of the closet and tell the truth when they're selling these systems."

Shute says IT vendors should take on board the message that they must stand by the promises they make, and deliver on them. Nor, he suspects, can they any longer afford to do what it has often been said that they do, which is to sell very hard and then hope to develop the project on the job.

"I think we can all speak from experience, or have heard tales about IT companies promising the world, but ultimately the job is not done to the satisfaction of the client, either because it never works fully or properly, or takes many years longer to get up and running as required. That's the sort of lesson that comes out of this case, and I think there was enormous stamina shown by the RACV in sticking to its case and its guns despite the most ferocious litigation and very lengthy trial. It was clear to me that the computer industry was prepared to throw vast resources into defending this case,"Shute says.

But he also warns other companies looking to it as a precedent that this was a hugely expensive case. It was not only highly complex technically, but made more so by Unisys Australia, because it was in their interest to fight the battle on ground on which they thought they could win the day. To counter that, RACV called in a very good expert from Melbourne University who was able to guide the team through the essential issues. "He came to the essence of why the computer system never worked back in 1996, and [he] just stuck to his guns. He was absolutely right of course, but we had to get a computer expert in, and there was a lot of hard fight on the way through,"he says.

Shute says he is unable to talk much about Deloitte's role because the settlement was private and confidential, and made without any admissions by anybody. But he says RACV felt that part of the responsibility lay with Deloitte, because as the [legal] team pleaded, Deloitte advised that Unisys could deliver the system and that was determinative in why Unisys was chosen.

"I choose my words carefully because that role by Deloitte was thoroughly contested, and [the firm] didn't accept responsibility or liability for a minute. In a sense RACV did the right thing, because it went to a consultant and said: Â'Please assist us or please guide us through the procurement, and help us sort the wheat from the chaff'. As you know, with any presentation it's hard for the customer to make qualitative judgement without expert guidance,"Shute says. "Certainly many hundreds of thousands of dollars were paid to Deloitte by way of fees, and ultimately it had to become a party to the court action too, because the belief was that it too had a responsibility."