Mark Pestronk
Mark Pestronk
Q: I am really angry with our agency's telephone system vendor. Calls are dropped, and the system goes down without explanation, but we get no satisfaction from the vendor except for vague promises that they'll look into the problems. We have lost clients that couldn't get through to us. Could we successfully sue the vendor for our losses?

A: It depends on the wording of your telephone system contract, but you probably could not prevail in such a lawsuit. Your best bet may be to switch vendors and then negotiate a big reduction in the outstanding monthly bills.

Almost every technology contract, including every telephone system contract that I have seen, contains various disclaimers of liability. Here's a typical set of clauses:

"Services are provided on an 'as is' and 'as available' basis without warranties of any kind, express or implied ... and all such warranties are hereby disclaimed. No oral or written advice or information by company's employees, agents or contractors shall create a warranty, and customer may not rely on any such information."

A "warranty" is a legally binding assurance. So, "without warranties" means that the vendor's descriptions of what the system is good for, or what it will do, are not binding on the vendor.

The second ever-present kind of disclaimer is the "limitation of liability." A typical such clause states, "Under no circumstances will company be liable for any lost profits, lost business opportunities, business interruption, loss of business data, the cost of alternative service, or attorney's fees, or for any delay or failure to perform."

So the vendor makes no legally binding assurances about the system, and the vendor is not liable for your loss of business. Obviously, these clauses make it very difficult to sue for anything at all if the system does not work.

Since the 1950s, and more recently with the rise of technology, these no-warranty and no-damages clauses have gained in popularity. In the business-to-business context, courts have no trouble upholding them, as unfair as they may seem to you and me.

The only exception to the validity of such terms is this: If the contract excludes all possible remedies and all possible damages, some courts will not uphold the limitations because an aggrieved buyer has to have some remedy. That's why most technology contracts also promise some sort of rebate of the monthly fees if the system is down.

So, how could you fashion a lawsuit that gets around these clauses? The only way that I know of is to find a remedy outside the contract by suing for torts such as negligence, fraud in the inducement of contract or intentional interference with your business relationships. However, each one of these kinds of suits has its own challenges. For example, when it comes to fraud, courts generally hold that you have to prove your case by "clear and convincing evidence."

Sometimes, even tort cases may be stymied. One GDS vendor's contract states that the agency agrees not to sue "in contract, tort or otherwise, including, without limitation, negligence, strict liability, indemnity or otherwise..."

For future contracts, you can try to negotiate some limits to these disclaimers. For example, you might get the vendor to agree that the system will consistently perform all the functions described in the marketing material that you received, in which case you would have to attach that material to the contract or refer to a particular webpage as of a fixed date.

Similarly, you could try to get the vendor to agree to increase the cap on damages to something more reasonable, such as your annual fees for the system.

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