Y2K weaves tangled web for legal eagles

The technical difficulties of Y2K are often daunting but they pale in comparison to the web of red tape surrounding its legal complications. Wayne Hudson, who specialises in IT law for corporate law firm Bell Gully Buddle Weir, believes many companies need to look more closely at their contracts.

The technical difficulties of Y2K are often daunting but they pale in comparison to the web of red tape surrounding its legal complications.

Wayne Hudson, who specialises in IT law for corporate law firm Bell Gully Buddle Weir, believes many companies need to look more closely at their contracts, especially in regard to issues like warranties, support and maintenance, and the question of just who is going to fix any year 2000 errors that crop up.

Hudson suggests customers work through a checklist as they review their contracts.

First, check for a warranty that covers Y2K. Problems arise if Y2K is not specifically mentioned. "Check for date compliance."

Hudson says it is important to look for mention of more than simply January 1, 2000. Other dates, including September 9, 1999 and February 29, 2000, are just as crucial. If your contract makes no mention of date compliance, the next step is to see if it refers to "material defects". From there you can build a case for an implied warranty.

Products generally carry a warranty, but whether the warranty covers Y2K issues or not is another matter. If they don't explicitly point to Y2K, customers should look for an implied warranty.

"Your software might have a support contract that runs until 2003. In that case, you would say you have an implied contract that covers the product working through January 1, 2000."

The final point on Hudson's list is to check for any exclusions to statutory warranties. Companies may contract out of obligations, and that's something customers should be aware of.

But the minefield doesn't end with warranty issues.

"You may have a service contract that runs for a fixed term — say, until 2003. That's fine, and you should be covered for any work that is needed. But what happens if your contract is a yearly one?" In those cases, you may need to negotiate to include Y2K in next year's contract, and that may cost you more money. Conversely, you may find a Y2K problem in your system, but your service supplier may claim you have suffered no problem yet, and therefore it doesn't need fixing. Legal work in anticipation of Y2K is a growth area, says Hudson, as companies struggle to have problems fixed before they arise.

The other side of the problem is just as complex. Developers will need to consider limiting their liability when contracting for Y2K work. Some Y2K consultants have already closed their books, claiming there isn't enough time left to fix problems and some companies are simply looking for scapegoats. Then there's the issue of third parties.

"Companies are asking for assurances of compliance from each other. If your work is being used as a basis for one company's compliance, and something goes wrong, you may be held liable for its impact on another company as well."

If that isn't enough to make you give up and become an organic gardener, you might find fixing your own problems to be just as litigious as paying someone else to do it.

"If you have a non-compliant product, and the original developer is unable to fix it before January 1, you may decide to fix it yourself or outsource it to a third party." However, you have to check who has intellectual property rights and what rights you, as a user of it, have. Any fixes you, or a third party, develop may become the property of the original developer. Any additional development may void your warranty or support contract. You may need to pay an indemnity fee to ensure the third- party developer doesn't steal the source code and use it for other developments.

Then there's the issue of compliance with overseas' regulations.

"You may have a foreign parent company that has to comply with SEC regulations in the US. Any assurances a developer gives would have to meet SEC standards as well as New Zealand's."

And if all that makes you want to sit back and ignore the problem, don't.

"As customers you can't ignore the problem. If you wait for the date to roll over, then try to sue someone for damages, you will have to prove that you did all you could to make sure you were compliant. Ignorance won't be a defence after all the publicity Y2K has received."

Between paying the accountants to check your systems, paying the developers to fix your problems and paying the lawyers to check your contracts, there can't be much money left for actual IT development.

Join the newsletter!

Error: Please check your email address.
Show Comments
[]