A failed IT project: which costs can you recover?

Money spent, no working system

CIS General Insurance, later renamed Soteria, engaged IBM to deliver a new IT system. Their 2015 agreement covered implementation followed by ten years of managed services. The work fell behind and the system was never delivered. In July 2017, IBM purported to terminate for non-payment of a £2.9m invoice. The courts held that termination to be wrongful. Paragraphs 11–17 of the judgment.

The customer sought wasted expenditure: money spent in anticipation of performance and lost because of the breach. At trial, it established costs of £122.6m, but the judge held that the contract excluded this claim. The Court of Appeal reversed that conclusion, raising the net sum due to the customer from £12,998,390 to £80,574,168. Paragraph 17; paragraph 180.

The invoice dispute from the same case appears in the Pinewood note; this analysis focuses on recoverable losses and liability caps.

Court and date

Court of Appeal, England and Wales. Judgment of 4 April 2022.

Focus of this note

Excluded losses and liability caps in an agreement for IT implementation and managed services.

Outcome

The parties agreed two figures: if only the implementation cap applied, the net sum after other claims and set-off could not exceed £80,574,168; with both caps, £96,274,168. On this point the court sided with IBM and found the first sum due. Paragraph 92; paragraph 105; paragraph 180.

Appeal permission

On 13 December 2022 the UK Supreme Court refused IBM permission to appeal, finding no arguable point of law of general public importance.

Excluding profit does not necessarily exclude expenditure

Clause 23.3 removed liability for indirect or consequential losses and several named categories, including profit, revenue and anticipated savings. IBM argued that project expenditure also fell within the clause: the customer expected to recoup its investment through future benefits. The court disagreed. Money spent in anticipation of the promised performance did not become lost profit merely because the customer expected to recover it. Paragraph 24; paragraphs 57–62; paragraphs 83–85.

The £34.1m already paid to IBM made the point concrete. The customer received no new system or anything like it. The court found no clear exclusion of that loss. For a development studio, a familiar exclusion of lost profits may therefore leave substantial exposure to money the customer has already spent. Paragraph 61.

To exclude wasted expenditure, name it expressly. The court stressed the absence of those words from a detailed list of losses. Customers should check whether their own contract includes them. Paragraphs 57–59. The clause’s scope matters too. In Kudos, discussed by the court, the words were present, but the provision was confined to defective performance rather than refusal or disabling inability to perform. Paragraph 36.

Why this is not a guarantee of recovering every investment

When a supplier repudiates, the customer must choose between lost profits and wasted expenditure; it cannot recover both. Where future sales are hard to prove, the second measure may be more practical. Paragraph 40; paragraph 71.

Both measures serve the same purpose: covering loss caused by the breach without putting the customer in a better position than performance would have done. There is a rebuttable presumption that the expenditure would have been recouped, but the supplier can prove otherwise. If the project would have lost money anyway, recovery may be reduced or defeated. Retained benefits and mitigation also matter. Paragraphs 38–45.

IBM argued that the expenditure would have been wasted even without its breach because the customer’s parent company changed strategy. The court rejected the late argument: it had not been pleaded, and there was no evidence addressing what would have happened had the contract been successfully performed. Pointing to changed plans was not enough. Paragraphs 162–165; paragraphs 176–178.

A claim may also include pre-contract expenditure if it was reasonably within the parties’ contemplation as likely to be wasted by a breach. Preparatory costs should therefore not be discarded solely because of their date. Paragraph 40.

Separately, the agreement expressly preserved additional costs if proved, including workarounds and replacement services. A claim should distinguish these from wasted expenditure and account for any overlap. Paragraph 26.

Why the two caps did not add up

Implementation was priced at £50.2m and ten years of managed services at £125.6m. Liability for implementation was capped at 150% of that price, counting both sums paid and those payable had the services been performed in full without claims or deductions. Paragraph 12; paragraph 91.

Other claims, including those relating to managed services, had a separate cap: the greater of £15.7m and 125% of managed-services charges paid or payable in the 12 months before the first cause of action arose. The fixed £15.7m equalled the average annual charge plus a quarter. Paragraph 91; paragraph 95.

The agreement allowed separate caps to apply to the corresponding losses. However, the expenditure proved related to implementation: payments to IBM and third-party suppliers, and financing for that stage. The project had never reached managed services. Having a second statement of work was not enough to add another £15.7m. Paragraphs 95–105.

The court illustrated when the second cap could apply with a hypothetical employee hired to manage IBM’s services after implementation. The costs of hiring and then making that person redundant could have formed a separate claim. No such expenditure had been pleaded or assessed in this case. Paragraph 103.

For development followed by support, ask which costs belong to each stage and whether separate breaches can engage multiple caps. Also check the calculation base, relevant period and treatment of claims already made. The guide to limiting liability under English law provides a broader framework.

What to agree before development starts

Start with the money each side stands to lose.

As the customer, compare these amounts with the available recovery. Even a high percentage of the development fee may leave dependent business expenditure uncovered. As a studio or supplier, identify which customer costs survive the exclusions and whether they fall within the agreed cap.

What to gather for a project review

• The agreement and statements of work: applicable terms, schedules and agreed changes.
• A cost schedule: amount, purpose, supporting document and anything that can still be used or recovered.
• A delivery timeline: promised and actual results, acceptance, breach notices and steps taken to reduce loss.

Soteria concerns English law and the wording of a particular agreement. It is a useful negotiating reference, but another dispute will turn on its terms, why the project ended and the evidence supporting each amount.

Sources

• Soteria Insurance Ltd v IBM United Kingdom Ltd [2022] EWCA Civ 440: background at paragraphs 11–17; loss clauses at 24–27; discussion of Kudos at 36; damages principles at 38–45; interpretation of the exclusion at 55–90; caps at 91–105; IBM’s late argument at 162–178; outcome at 180.
• UK Supreme Court: Permission to Appeal, December 2022 and early January 2023: permission refused in UKSC 2022/0085 on 13 December 2022.

Sources checked on 29 October 2026.