Chief Executive of the Department of Corrections v Fujitsu New Zealand Ltd

• Jurisdiction: New Zealand
• Judge: Cooke J
• Judgment Date: 08 December 2023
• Neutral Citation: [2023] NZHC 3598
• Court: High Court
• Docket Number: CIV-2021-485-423

[2023] NZHC 3598

IN THE HIGH COURT OF NEW ZEALAND

WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE WHANGANUI-A-TARA ROHE

CIV-2021-485-423

Between

His Majesty the King in Right of New Zealand Acting by and through the Chief Executive of the Department of Corrections

Plaintiff

and

Fujitsu New Zealand Limited

Defendant

and

Dassault Systèmes Australia Pty Limited

Third Party

Appearances:

M G Colson KC, K J Dobbs and M R M Gale for Plaintiff

C L Elliott KC, M B Wigley and J Kohu-Morris for Defendant

C F Finlayson KC, A J Horne, H M Jaques and C Hoeft for Third Party

Contract — damages claim for breach of contractual warranty and misrepresentation — assumption of responsibility — effect of exclusion clause — Consumer Guarantees Act 1993 — Fair Trading Act 1986 — Contract and Commercial Law Act 2017

The issues were: whether Fujitsu's warranties and representations about Quintiq were untrue; whether Dassault's representations were misleading under the Fair Trading Act (“FTA”) and the equivalent Australian legislation, the Competition and Consumer Act 2010 (“CCA”) and the Contract and Commercial Law Act 2017 (“CCLA”).

The Court held Fujitsu had warranted and represented that the Department's rostering requirements could be met “out of the box” by Quintiq without customisation. The warranties were not materially qualified and turned out to be untrue as the standard functionality of Quintiq required extensive work to meet the Department's requirements. The Department had only described its rostering needs at a very high level when those representations were made, however Fujitsu had not qualified those representations by suggesting that their accuracy depended on it having more information about the Department's systems. Fujitsu's Request For Proposal (“RFP”) response was subject to a very clear qualification, however, that it could not be relied on in any legally binding sense, and that all matters would need to be confirmed before contractual commitments were made. But in the period following the RFP response and the entry of the contracts in December 2018 the representations that Fujitsu and its sub-contractor Dassault had made were reiterated. Dassault realised that what had been said in the RFP response was inaccurate but it decided not to correct the misrepresentation as it had not wanted to put the contract at risk. What was stated by Fujitsu and Dassault about Quintiq was untrue. Quintiq's standard functionality could not meet the Department's needs, and extensive work in the nature of customisation was required for it to do so.

Dassault was also potentially liable under the CCLA and FTA to Fujitsu because it engaged in misrepresentations and misleading and deceptive conduct. The misrepresentations originated at Dassault, and it was Dassault that adopted the strategy of knowingly misleading the Department and Fujitsu. But the contractual terms between Fujitsu and Dassault protected Dassault from liability. Parties were entitled to contract out of liability under the CCLA and FTA which was what Fujitsu and Dassault had done. Fujitsu's consequential claims against Dassault for misrepresentation and breach of the FTA were protected by exclusion clauses. It was generally fair and reasonable to so exclude liability for arms-length commercial parties under s5D FTA (no contracting out: exception for parties in trade). But that was not so for part of Fujitsu's claim relating to payment for the licence fee charged for Quintiq. Dassault knowingly misled the Department and Fujitsu, and it would be unfair and unreasonable to allow them to avoid liability to repay the fee for a licence that was not going to be used.

JUDGMENT OF Cooke J

Table of Contents

Factual background	[5]
The Registrations of Interest phase	[7]
Provision of information	[17]
Fujitsu's RFP response	[23]
Demonstrations of Quintiq	[38]
Further information	[46]
Dassault's concerns	[53]
SOW23	[66]
Revised pricing	[71]
Gap between out of the box and required functionality	[83]
Problems develop	[97]
What went wrong?	[105]
Breach of contractual warranties	[113]
The warranties	[114]
The nature of warranties	[120]
What was warranted?	[124]
Customisation v configuration	[132]
Out of the box	[136]
Seamless integration	[139]
The price	[143]
Other matters	[146]
Representations during negotiations	[149]
Warranties qualified	[151]
Were the representations untrue?	[155]
Out of the box with no customisation	[156]
SAP integration	[158]
Price	[162]
Mr Driessen's analysis	[165]
Conclusion	[173]
Department's other claims against Fujitsu	[174]
Additional contractual obligations	[175]
Misrepresentation	[182]
Fair Trading Act	[191]
Criticisms of the Department	[197]
Loss	[198]
Assumption of responsibility	[201]
Exclusion clause	[205]
SOW23 costs	[208]
Third party costs	[209]
Admissibility of new spreadsheet	[214]
Has the Department proved the claimed loss?	[219]
Work reusable	[232]
Conclusion	[240]
Fujitsu's claims against Dassault	[242]
Does the CCA apply?	[244]
Claims under the FTA	[254]
Liability under the CCLA	[265]
Exclusion of FTA liability	[276]
Interpretation issues	[277]
Application of s 5D	[282]
Destruction of documents	[290]
Conclusion	[297]

1 The Department of Corrections (the Department) manages a significant workforce in order to operate the prison system over approximately 18 prisons throughout New Zealand. In December 2018 it entered a contract with Fujitsu New Zealand Ltd (Fujitsu) under which Fujitsu was to provide new software for the Department to manage the rostering of its staff in a more efficient way. Fujitsu's proposal involved software provided by its sub-contractor, Dassault Systémes Australia Pty Ltd (Dassault) and a Dassault product called “Quintiq”. The Department purchased the licence for the Quintiq software in December at a cost of $1.8 million. The contract with Fujitsu involved the analysis and design phase for the implementation of Quintiq as the rostering solution. The contracts were entered following an earlier Request For Proposal (RFP) issued by the Department in March 2018. In its RFP response Fujitsu had stated that the Department's requirements could be met “out of the box” by Quintiq without the need for customisation, that it could be implemented seamlessly with the Department's existing payroll systems in accordance with the Department's timeframes, and for the approximate total cost of $716,000 over and above the licence costs.

2 In June 2019, following a period of substantial work by all parties under the analysis and design phase, the Department brought this contractual arrangement with Fujitsu to an end. This followed Fujitsu supplying a revised pricing proposal that put the cost of the total project at closer to $7 million in addition to the licence cost. The Department subsequently contracted with another company to provide a rostering solution.

3 The Department now sues Fujitsu for breach of contractual warranty and other contractual terms, for misrepresentation under the Contract and Commercial Law Act 2017, and for misleading and/or deceptive conduct under the Fair Trading Act 1986. It says that Fujitsu's warranties and representations about Quintiq were untrue. Fujitsu in turn sues Dassault under the Fair Trading Act and the equivalent Australian legislation (the Competition and Consumer Act 2010), and for misrepresentation under the Contract and Commercial Law Act, for any liability arising by virtue of the Department's claims on the basis that any untrue or misleading statements about the Quintiq product originated from Dassault.

4 The Department sues Fujitsu for a total of approximately $4.3 million for the wasted expenditure it says it incurred on the project. This involves approximately $640,000 that it paid Fujitsu for work before the contract was ended, $1.8 million which it paid for the Quintiq licence, and approximately $1.9 million for other costs that the Department says it incurred as part of the project.

Factual background

5 I begin by outlining the facts. This will include making factual findings, although it will also be necessary to make additional findings when addressing the particular claims.

6 I observe from the outset that the primary source for making findings is the contemporaneous documentary record. Whilst some of the oral evidence has been of assistance I found the contemporaneous records to be the most reliable source of evidence. The events occurred some years ago, before the COVID-19 pandemic, and I generally considered that much of the oral evidence involved an attempted reconstruction of events, albeit based on the contemporaneous documents, rather than true recollection.

The Registrations of Interest phase

7 The new rostering system was intended to be implemented by the Department as part of a wider project for reforming the Department's approach to the rostering of prison staff which it initiated in 2016. This was called the “Making Shifts Work” project. An important aspect of this project was a desire to allocate staff more efficiently, and in a way that it was hoped would improve the rehabilitation of prisoners. Steps were taken in late 2017 to identify firms who might be able to provide a new software for rostering as part of that project.

8 Fujitsu was already a contractual partner with the Department. Pursuant to a Master Services Agreement dated 22 December 2015 (the MSA) a contractual relationship had been established. The MSA had been entered so that Fujitsu could provide development and maintenance...