Interpretation of Supply Contract Ensures Pragmatic Outcome for Outgoing Service Provider

25 January 2012

In Cuscal Ltd v First Data Resources Australia [2011] NSWSC 1625, the New South Wales Supreme Court considered the obligations of a party to an IT services contract in circumstances where the contract was about to come to an end.

First Data Resources Australia (First Data) entered into a contract to provide IT services to Cuscal for a period of 5 years. The contract required that, upon termination, First Data was to provide certain extra services (Termination Assistance) to Cuscal with a view to ensuring that the transition of service providers from First Data to another supplier was “smooth”. The contract required the parties, within the first year of the contract, to prepare a plan detailing each party’s obligations in the event of termination. The parties did not do so. The contract ran its course and, in preparing for the transition to a new service provider, Cuscal applied for a determination of each party’s obligations. The following issues arose:

• What services First Data was required to continue to provide after the five-year term?
• What standard of service First Data was required to provide in its Termination Assistance?
• What price was Cuscal required to pay First Data for Termination Assistance?
• Could Cuscal, almost three years after the contractually specified time limit, rely on a clause that required a Termination Assistance Plan to be prepared within one year of commencement of the contract?

Rein J gave a literal interpretation to the specific wording of the contract and held that First Data was not contractually obliged to continue to provide normal services after the end of the term. If the parties had intended this then it should have been set out clearly, but it had not been. First Data was also not required to ensure a “smooth transition” to the new service provider. Instead, his Honour held that it was necessary for Cuscal to specify the customers it wished to transition and by what date. It was then for First Data to set out what information it required to achieve transition, the date by which such information needed to be provided to achieve transition by the target date and the steps needed to be taken by Cuscal to achieve that end. Rein J also held that First Data should indicate the hours of work that it estimated would be involved and the total cost. Finally, although this information should have been included in a Termination Assistance Plan, Rein J held that it was too late for either party to insist on the creation of one.

This case serves as a reminder that transitional or handover arrangements need to be considered carefully at the outset, when drafting and negotiating a services contract. Otherwise, neither party will have a clear understanding of what is to happen when the final day of the contract arrives. Not only does this lead to the potential for disputes, it also creates difficulties for the continuing provision of services.

The case can be read in full here.