YEAR 2000 - Contract killers

The legal issues dominating disputes related to problems caused by computer equipment or systems not being year 2000 compliant will mostly be determined under the law of contract. This area of law can be very complex, but I hope some explanation will help readers to follow subsequent columns and to raise issues that occur in ordinary business transactions.

A contract is an agreement between two or more people, often, but not necessarily, in writing, by which they regulate the dealings between themselves.

Each party has to give what the law calls 'consideration' - value to the other.

For example, a price is paid by one party in exchange for goods or services provided by the other. A gift without consideration does not create a contract. Subject to certain legal constraints, the parties can agree to be bound by whatever terms they like.

Most businesses trade on standard terms and conditions. However, where the contract is between two businesses, each with standard terms that contrast with the other, it can be difficult to decide what constitutes the agreed terms.

For a contract to be formed, therefore, the terms of the offer must be accepted by both parties. In a simple example, suppose I offer to buy a software package for #100 and you say you'll sell it for #110, there will be no contract unless I agree your price or you agree to reduce it. However, I can accept the offer without specifically saying so by paying the money and taking the package. In other words, there can be an acceptance by conduct as well as in words.

This may occur where the transaction is between two businesses, each of which has its own set of standard terms, and they exchange offers on those conditions. If the differences between the standard terms is not expressly resolved, it can only be decided if a dispute arises by looking at the behaviour of the parties when the agreement was finally made.

This could be very important in the context of the sale of non-compliant equipment or systems, because one set of terms may exclude liability for losses incurred as a result of non-compliance, while the other does not.

In many situations when contracts are being entered into, the parties may not have included terms listed on the back of an order form or other documents they are in the habit of using. The moral of this is to ensure there is no discrepancy between the documents used and to ensure you use the terms you want.

To make matters more complicated, on many occasions the dealer will sell software that is in a sealed package. The software manufacturer normally makes it a condition that if you break the seal and install the software, you do so on the basis of the licence agreement included in the package and often on the screen as well.

In other words, if the user opens the package, it is an acknowledgement by him that he accepts the terms of the licence and is bound by it. The licence may contain clauses at odds with an express representation by the seller about the software and its appropriateness for whatever the buyer wants to do.

For example, a licence document may include a warranty that the software will 'perform substantially in accordance with the documentation', but only for a 90-day period and disputes will be determined by the law of California. Thus, where a transaction involves the sale of sealed package software, there are at least two contracts with very different provisions.

Although conditions of the contract are those that have been agreed between the parties, in many situations the law in the form - for example of the Sale and Supply of Goods Act 1994 and several other statutes - may imply terms into the contract. But conditions for the sale of goods and those for services will differ. And to make matters worse, there is some doubt over which category computer contracts should be classified - as sales of goods or services - and this can cause legal difficulties.

John Melville-Williams is a QC at Old Square Chambers.