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Flight Centre v Datalex – alleged contract breach – software developers

Flight Centre Limited (Flighties) and its South African subsidiary have brought an action in the Supreme Court of Queensland alleging misleading and deceptive conduct and breach of contract in relation to a software development contract. In its 53 page Claim Flighties outlined their argument for more than $USD14 Million in damages associated with the contract and conduct of Datalex PLC (Datalex). These allegations are just that, allegations, they are unproven.

Background
Datalex is a developer and supplier of travel distribution solutions software including internet fare databases and internet booking engines. On or around 28 November 2005, Flighties called for proposals for developers to supply its business with an Integrated Travel Solution (ITS).

The system which is at the core of the Claim is the Validating Fares Database (VDF) which it is claimed was intended to:

  • identify which flights were available for which fares from a variety of sources
  • confirm flights and fares
  • make bookings and change booking details

The system was to have 2 main components:

  • the selling interface which was to be used by Travel Agents (Agent UI)
  • an Internet Booking Engine for direct consumers (IBE)

Allegations of misleading and deceptive conduct

The first Request for Proposal (RFP)
In response to Flighties "Fares Database Request for Proposal" it is alleged that Datalex represented to Flighties that it had a proven "private fares solution".  It is alleged that the executive summary in response to the RFP contained (amongst other statements) the following Claims (Datalex Solution Representations):

  • Datalex has a proven private fares solution
  • Datalex fares solution will meet the core business objectives of Flight Centre (automate the process, improve efficiency and remove errors when distributing and selling private fares)
  • Datalex has a proven, scalable, flexible travel transactional product (multi GDS)
  • Datalex has many years of proven experience in air content interfacing & distribution
  • Datalex is a company with a solid foundation and a solid record of service
  • the Datalex Solution met the Flight Centres current and future business requirements
  • the Datalex Solution could meet Flight Centres broader requirements for an ITS"

Various other statements are alleged to have been made relating to the quality and effectiveness of the VDF.  It is alleged that Flighties relied on the statements when entering into a Contract with Datalex to develop the solution.

The second RFP
It is alleged that on or around 20 January 2006 that Flighties issued to the defendants (and others) an RFP for an Internet Booking Engine (the IBE Request).It is alleged that in response to the IBE Request that Datalex provided a proposal entitled "Commercial Proposal for the Internet Book Engine" which contained Datalex's proposal to supply the IBE. It is alleged that the proposal contained various representations about the quality and suitability of the IBE proposal for Flighties.

These representations are alleged to have been similar in nature to those of the Datalex Solution Representations and it is alleged that Flighties relied on those representations.

Alleged reliance on the representations
It is claimed in the Statement of Claim that Flighties:

  • spent time and incurred expense in evaluating the proposals
  • spent time engaging in a period of discovery in relation to the production of the software being developed by Datalex
  • entered into the Discovery Contract and paid $USD300k for Datalex to document the requirements for the VFD, the Agent UI and the IBE by mapping the functionality gap between the existing Datalex Software and Flighties requirements
  • entered into the Datalex Master License and Services Agreement which contemplated the delivery of the VFD, an Agent UI and an IBE and paid money to Datalex under the contract

The damages claimed by Flighties
It is claimed that because of the misleading and deceptive conduct of Datalex and the subsequent breach of the contract that Flighties suffered the following losses associated with the contract:

  • $USD160k paid for the Discovery contract
  • $USD5,170,770.14 being the amount paid to Datalex under the contract
  • $A9,348,826.19 being for the expenditure incurred in preparation and performance of the Discovery Contract
  • $ZAR6,266,311 being the amount incurred by Flight Centre (South Africa) in preparing for the implementation and rollout of the systems

Timing of alleged representations
It is alleged that Datalex's officers made various representations regarding the delivery time for various elements of the ITS that were not met.

Alleged breach of contract

It is alleged that pursuant to the contract (as varied) that Datalex failed to develop, supply and license to Flighties:

  • the VFD
  • the Agent UI
  • Call Centre User Interface
  • IBE

It is further alleged that:

  • Datalex failed to meet the deliverable timetable and in addition failed to deliver the functionality as described
  • the software that was delivered included 263 defects ranging in severity that were not remedied

Alleged contract termination
It is claimed that Flighties validly exercised their right to terminate the contract with Datalex pursuant to the terms of the Master License and Services Agreement. In the alternative it is argued that Datalex's ongoing failure to perform the contract and alleged unwillingness to render substantial performance amounted to a repudiation of the contact. In this instance, Flighties is seeking damages and a declaration that the contract has been validly terminated.

Lessons for developers regardless of whether the allegations are true or not
For software developers Flighties Claim, regardless of the outcome, highlights the need for exact precision when making representations to potential clients about the capability and functionality of software and the need to deliver exactly to specification. Additionally, software developers may (or may not as the case may be) liable for the costs associated with staff time in working with them on project management, functional specification preparation and user acceptance testing – which in the case of large systems can be significant.

At the heart of the claim for misleading and deceptive conduct appears to be the representation that the system was a "proven private fares solution". It is alleged that it was not. RACV Insurance Pty Ltd v Unisys Australia Pty Ltd 2004 may provide guidance on the way the court may apply the law in relation to misleading and deceptive statements made in software development contracts and pre-contractual statements.

In developing large complex systems Claims of this nature may also raise questions from a commercial perspective about the rigidity and appropriateness of the software development process and the actions of clients in following (or otherwise) formal development processes.

We note that the allegations are unproven.  We will watch with interest as the case unfolds.

Gavin McInnes
Partner

supervising partners

Gavin McInnes

Partner
Office (07) 3009 8444
Email g.mcinnes@rostroncarlyle.com

lawyers

Elicia Lin

Associate
Office (07) 3009 8444
Email e.lin@rostroncarlyle.com