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High Court is reluctant to grant injunctions in service contracts

DATE: 24.06.2011

 

It is not often that IT disputes come before the Irish courts. This article will examine a recent High Court case which received a good deal of media attention and which highlights the difficulty of obtaining court orders to require suppliers to perform their contractual obligations. This case also makes it clear that where parties choose to adopt a form of binding alternate dispute resolution, the courts will not interfere with this choice.

Health Service Executive v Eamon Keogh (t/a Keogh Software)

 

Eamon Keogh, a sole trader trading as Keogh Software, supplied software and systems (the “Licensed Programs”) to the HSE which were used by the HSE in approximately 180 of its sites around Ireland in connection with radiology, accident and emergency, hospital billing and environmental health. In addition Keogh Software supplied support and maintenance services in relation to the Licensed Programs (the “Services”).

Difficulties arose between the HSE and Keogh Software in April 2009. Keogh Software claimed that the HSE had failed to implement a new fee structure, which Keogh Software claimed had been agreed to orally on 3 April 2009. Keogh Software also complained that the HSE had failed to pay certain outstanding invoices and failed to install updates to the Licensed Programs. Keogh Software threatened to suspend provision of the Services unless the HSE implemented the new fee structure and paid all invoices which Keogh Software claimed were outstanding. On 29 May 2009, Keogh Software made all of its fourteen staff, who had previously serviced the HSE’s account, redundant.

On 12 June 2009 the HSE filed an ex-parte (one-side only) application with the High Court for an injunction to be granted to compel Keogh Software to continue to carry-out the Services pending full trial of the HSE’s claim of breach of contract against Keogh Software. The HSE asserted that it was reliant on the Licensed Programs which were supplied by Keogh Software and that non-supply of the Services would cause a potential serious risk to the safety and health of patients which were in the care of the HSE. The court granted an interim injunction for a period of one week. The High Court would then hold a further hearing where both parties would be present to determine whether the interim injunction would be replaced by an interlocutory injunction which would require Keogh Software to continue to provide the Services until full trial of the HSE’s claim. The date for this hearing was initially adjourned twice, while the parties attempted to resolve the matter.

Eamon Keogh did not personally have the expertise to provide the Services but was able to comply with the interim injunction by having his son, Conall Keogh, who was made redundant along with the other members of staff, provide the Services on an interim basis.

By the time of the adjourned hearing in respect of the interlocutory injunction it appeared that the matter would not be resolved amicably and the HSE submitted an additional application, for the source code to the Licensed Programs to be disclosed to the HSE. Keogh Software and the HSE had entered into three separate software escrow agreements in respect of the Licensed Programs, which appointed the NCC Group as escrow agent. The HSE had separately applied to the NCC for release of the Licensed Programs, however as Keogh Software denied that a release event had occurred, the NCC referred the dispute to be resolved by an independent expert, as was provided under the NCC escrow agreements. As of the date of the hearing on the interlocutory injunction the independent expert had yet to issue a decision.

Miss Justice Laffoy refused to grant both elements of the interlocutory injunction sought by the HSE. It is a well established legal principle that courts will generally not grant injunctions which would require a court’s ongoing supervision. Courts are therefore reluctant to grant injunctions in either service contracts or trading contracts because it is very difficult to assess, at any given time thereafter, whether such injunctions are being obeyed or not. Miss Justice Laffoy therefore determined that it was not practical in this case to grant an interlocutory injunction compelling Keogh Software to provide maintenance and support services pending a full trial of the action.

By entering into the escrow agreements the HSE, Keogh Software and the NCC had expressly agreed to an alternate form of dispute resolution in respect of any disputes over the occurrence of a release event. The court would not intervene and ignore the parties’ express choice of an alternate mechanism for resolving their disputes.

This case reasserts two important principles: (i) a court will generally not grant an injunction where it would be required to actively supervise the relevant party’s compliance with the injunction and (ii) where commercial parties have expressly agreed to submit their disputes to and be bound by the decisions of an alternate-dispute-resolution forum a court will generally not intervene with the parties choice in this regard.

This decision serves as a reminder for customers and suppliers of IT services to bear in mind the importance of clearly defining the release events in any escrow agreements which they enter into, as this reduce the scope for debate over the whether such events have occurred.

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