[2024] EWHC 2329 (TCC)

Fecha: 18-Sep-2024

The Legacy Environment Claim

The Legacy Environment Claim

By 2013, JLR’s IT infrastructure—including software, servers, network devices, storage and backup devices—had become outdated and increasingly expensive for IBM to host, manage and maintain. In February 2013, IBM presented to JLR two possible ways forward for their commercial relationship. First, JLR could continue using its existing systems, but costs would increase substantially over time. Alternatively, those systems, or parts of them, could be migrated to a virtual multi-customer environment hosted by IBM known as “Flex”. That would result in a substantial cost saving, for both IBM and JLR, by reducing the personnel and work required for maintenance of the systems.

JLR agreed to move forward in accordance with the second proposal. On 30 September 2013, IBM and JLR executed a Change Control Notice (CCN025) under the change control procedure in the DCHA, which I describe further below. CCN025 attached an amended and restated version of the DCHA, including, at schedule A, a statement of the services to be provided by IBM and, at schedule C, a statement of the charges to be paid by JLR. Kyndryl says that those charges were calculated on the assumption that the systems would be migrated to Flex as JLR had agreed.

JLR engaged Tata Consulting Services, a technology services business within the Tata group, to provide the software services necessary for the migration. However, in about mid-2015, JLR informed IBM that it did not have funding available for Tata Consulting Services to undertake or complete the work. In the event, the migration to Flex did not proceed and IBM continued to maintain the existing, outdated, systems. Anticipated savings from Flex were not achieved; on the contrary, supporting JLR’s legacy infrastructure became more burdensome to IBM as time went on.

JLR’s systems included mid-range and mainframe servers. The position in relation to the maintenance of mainframe servers was eventually resolved by a further change to the DCHA, recorded in CCN034 dated 30 September 2016. However, a separate resolution was required for midrange servers. Kyndryl says that there was a common understanding that the DCHA would require a further change to reflect the additional cost and lack of savings in relation to midrange servers. However, the parties failed to reach an agreement as to the form this change should take.

In late 2019, IBM and JLR entered into discussions aimed at finding a “re-solutioning” for the midrange servers. Those discussions, which were referred to as “Project Defender”, proceeded on the common understanding that, if such a solution could not be found, then JLR would pay additional charges reflecting the difference between the services specified in schedule A (i.e. as agreed under CCN025) and those actually being provided by IBM. The difference is referred to by Kyndryl as the “Services Delta”.

By December 2019, IBM and JLR had agreed the commercial principles for Project Defender. There was to be a variation to the DCHA, which would extend its period, replace the existing services schedule, and update the schedule of charges so that the contractual services and charges reflected what was actually being provided by IBM. Following negotiations in early 2020, on 21 April 2020, IBM and JLR agreed a revised schedule A, referred to as the “Red Schedule”, as a record of the services that IBM was in fact providing.

On 14 September 2020, IBM issued to JLR a draft Change Control Notice, CCN050. Under the heading “brief description of change”, the draft stated:

The terms of the Agreement as set out under CCN025 provide that the JLR Legacy Midrange estate will predominantly be replaced by a shared environment Flex Hosting Services which includes network and storage infrastructure. The terms and Charges for the provision of Operational Services to JLR by IBM were premised on this shared environment Flex Hosting Services. As a result of the Flex Hosting Services not being deployed as intended this Contract Change Note sets out the adjustments required to the Agreement to reflect the Services as provided and corresponding operational Charges.

The draft set out the changes, and attached replacement schedules A and C specifying services and charges.

JLR declined to approve or execute CCN050. On 6 November 2020, JLR gave notice to terminate the DCHA for convenience, and the DCHA therefore came to an end in accordance with its terms on 29 October 2021. There is no issue about the validity of that termination.

On those facts, as elaborated in the Particulars of Claim, Kyndryl advances three principal claims.

First, it argues that, as a result of their conduct between 2013 and 2020, IBM and JLR agreed (expressly or impliedly by their conduct in agreeing the Red Schedule as part of Project Defender) that IBM was entitled to a variation of the DCHA to reflect the difference between the services set out in DCHA schedule A and the services in fact being provided as set out in the Red Schedule, and that IBM would be entitled to the difference in price reflecting that difference in services. Kyndryl refers to that agreement as the “Variation Agreement”. In breach of the Variation Agreement, JLR failed to execute or pay the sums due under CCN050 or to pay compensation for the additional work that IBM carried out at JLR’s request in order to provide the Services Delta.

Second, it argues that there were express or implied terms of the DCHA that: (i) JLR would undertake and cooperate in the transformation and migration project; and (ii) in the event that it did not carry out that project and instead requested that IBM provide additional services to host and maintain the legacy estate, IBM would be entitled to a variation of the contract requiring JLR to pay IBM for that additional work. In breach of the second of those terms, JLR failed to execute CCN050 or to pay the sums due in respect of the Services Delta.

Kyndryl argues in the alternative that JLR is estopped (by convention, by representation or by promise) from denying that IBM was entitled to a variation of the DCHA.

Third, it claims in restitution. It argues that: (i) JLR was enriched by receiving the benefit of the additional work provided by IBM; (ii) that enrichment was at IBM’s expense because IBM provided those services at JLR’s request and/or because JLR freely accepted the services; and (iii) the enrichment was unjust because there was a failure of basis for, and/or free acceptance of, that additional work, which fell outside the contractual provisions.

The value of the Legacy Environment Claim is approximately £19.5 million, reflecting the cost or value of the Services Delta.