Classification of
software

The problem with disputes brought to the
courts related to the sale of and use of software prior to the St. Albans v ICL case was
the presence of some very important questions: are suppliers of software systems
supplying goods or services? Clearly computer hardware is "goods" but what about
intangible software, what is the legal status of software - goods or services? The
aforementioned questions are some of the most debated in computer law.

The St. Albans v ICL case answered these
questions in a roundabout way. The court said that a program by itself would not be
"goods" whereas software delivered on "hard media" was, i.e. a standard software system
incorporating software was protected by the UK Sales of Goods Act 1979.

The protection meant that in effect,
packaged software should not contain any bugs which would render it unfit for its
purpose. If the software was faulty, buyers could recover the cost of the system and any
losses suffered as a result of the software failing.

St. ALBANS CITY & DISTRICT COUNCIL v
INTERNATIONAL COMPUTERS LIMITED

The case itself arose after International
Computers Limited, a UK hardware and software manufacturer company agreed to supply St.
Albans City and District Council with a computer system of both hardware and software
which the council needed order to administer and collect the Community Charge ( poll tax
) which was then to be introduced. The computer system would maintain a reliable database
of the names entered on the community charge register, accurately count the names, and
accurately retrieve and display the figures resulting from the count. It had to be
reasonably fit for the purpose of maintaining and retrieving a reliable register. The
system was to calculate and dispatch bills for the Community Charge.

In early November 1989 the UK government
instructed all councils that they were required to make a return of the relevant
population by the 8th of December.

At an important meeting before the system
was first used, ICL's project manager who was providing consultancy services to St.
Albans assured representatives of the council that the figure to be returned to central
government could be extracted from the transaction processing screen. At no point between
then and the 8th of December was any indication given that the figures on the transaction
screen could not be relied upon. This in fact was the case and in late February 1990 the
council began to suspect the figure they had taken from the transaction screen and
subsequently submitted to the government before the 8th of December of the previous year
was incorrect.

The number submitted by the council to the
government was 97,385. In fact, the number should have been 94,419 and hence the number
used overstated the population by 2,966. This overstatement of the population resulted in
an undercharging of each chargeable resident; therefore the council suffered a total loss
of £1,314,846.

St. Albans council therefore sued
International Computers Limited for these losses along with costs on the grounds that the
software did not meet its intended purpose and was inherently flawed. In the end St.
Albans was awarded £1.3 million.

Liability

Another important element to emerge from the
St. Albans v ICL case was the fact that ICL’s limitation of liability clause which
set their liability to £100,000 at most was thrown out. The judge of the original
case (an appeal was launched by ICL) Scott Baker J said that the defendant had not
justified the figure of £100,000 which was small both in relation to the potential
risk and the actual loss, noting also that the defendant was insured for £50
million worldwide. If the loss were to fall on the council it would ultimately be borne
by the local population. He did not think it unreasonable that he who stood to make the
profit, who had been well able to insure and in this case was insured, should carry the
risk and therefore awarded damages to St. Albans well over £100,000. This decision
by Baker J caused a reaction in the industry which saw suppliers reviewing their
limitation clauses to make them as effective as possible.

Conclusion

In the last paragraph the issue of liability
relating to the St. Albans case is discussed this however is not the most important
aspect of the case. The real importance of the St. ALBANS CITY & DISTRICT COUNCIL v
INERNATIONAL COMPUTERS LIMITED is the fact that it demonstrates that software stored and
installed from a physical storage ‘good’ can be classified as a good and
hence protected under the UK Sales of Goods Act 1979 and other similar country specific
acts. This caused a major review of standard terms and conditions of companies within the
computer industry. Many cases have been interpreted on the precedent set in this case and
hence St. ALBANS CITY & DISTRICT COUNCIL v INERNATIONAL COMPUTERS LIMITED is firmly a
part of modern case law.