Following a 32 day hearing in the Technology and Construction Court in England, the court recently handed down its 754 page judgment in the case of CIS General Insurance Limited v IBM United Kingdom Limited. This case and the resulting decision addressed, amongst other things, the purported termination and a repudiatory breach of a high-value digital transformation project. The length of the hearing and the judgment are both indicative of how complex and contentious arguments around failures in IT contracts can be.

The Facts

IBM were employed under a contract to develop a new IT infrastructure for CIS General Insurance Limited (CIS). On 27 July 2017, IBM purported to terminate the contract in response to CIS's non-payment of a licence fee invoice of £2,889,60. In response, CIS argued that IBM's termination notice was invalid and, therefore, IBM had repudiated the contract. By this stage, as is often the case in IT contracts, there had been various disputes around deliverables and milestones and both parties had engaged their own solicitors.

CIS brought a claim for damages of £128 million in wasted expenditure as a result of IBM's repudiation. IBM argued it was entitled to terminate the contract as CIS had failed to pay an invoice.


While the court ultimately found that CIS's challenge to the invoice was invalid and IBM was entitled to payment, it also held, crucially, that IBM was not entitled to terminate the contract for non-payment because CIS had followed the proper contractual procedure to dispute the invoice and it was still disputed. Accordingly, the court found IBM in repudiatory breach of contract.

However, CIS's claim for wasted expenditure failed and the court awarded it only £15.9 million as damages for the additional costs caused by IBM's breach of contract.

Lessons to be learned

As one might imagine from such a lengthy dispute in a clearly highly contentious situation, there a number of lessons that companies might take from the decision (particularly IT companies involved in digital transformation projects). However, a few are as follows:

Carefully follow the contractual provisions on disputing invoices

IBM sought to terminate the contract on the basis of an unpaid invoice. However, as CIS had properly followed the contractual requirements to dispute the invoice, IBM was not able to terminate the contract while the invoice was in dispute. Therefore, IBM purporting to terminate the contract was in fact a repudiatory breach of contract itself.

If a party finds itself in repudiatory breach of contract, the situation can quickly spiral. As happened here, the other party is entitled to accept the breach, end the contract and claim damages.

The result would have been very different if the court had found that CIS had failed to properly dispute the invoice. That is why it is crucial to carefully follow the contractual provisions if you intend to dispute an invoice, so that you do not inadvertently entitle the other party to bring the contract to an end and claim damages against you.

Have regard to the contract terms at negotiation and delivery

The court did not expand on the law of contractual interpretation in this case but was clear, based on the case law that came before, that a provision will be interpreted on the clear words of the contract with consideration given to the understanding of the parties at the time of agreement.

CIS had sought to argue that it would not pay the disputed invoice as other milestones has not been achieved. The court was clear that the contract made no provision that payment for one milestone was dependent on reaching other milestones and, had the parties intended to agree that at the time of the contract, there would have been provision for this. As there was not, CIS could not now seek to impose this requirement and was required to pay the invoice.

In IT projects it is common for milestones to not be achieved on time. This decision highlights that a failure by one party to achieve a milestone does not automatically entitle the other party to withhold payment of unrelated invoices if the contract is silent on this point. This demonstrates the importance of carefully considering the contract terms and ensuring all eventualities are considered, at both the contract negotiation stage and during delivery.

Consider caps on liability

CIS raised the action seeking £128 million in wasted expenditure. The court's ultimate decision was that it was only due £15.9 million in damages, to be set off against the licence fee invoice which was found to be due to IBM.

The sum of £15.9 million was the contractual cap on liability, which was significantly less than the cost of the terminated project. CIS did attempt to argue that the contractual cap did not apply as IBM had intentionally defaulted on the contract, but the court did not agree.

This shows that a properly framed cap on liability in a contract can significantly protect parties in future disputes and should be carefully considered at the outset of a contract – particularly in high-value IT projects.