The Global IT Outage: How Lawyers Can Help

Many of you may have already read the headlines shooting across our screens this morning... assuming they work (sorry Microsoft users). A global IT outage on Microsoft devices has struck users across the world. The cause? A faulty update from one of Microsoft's partners: Crowdstrike. Airports, financial services companies, GP's and even central banks have complained of limited manoeuvrability as a result of their unresponsive systems. Not only does this serve as a stark warning to humanity about our reliance on technology, but it is sure to test the contractual matrix underlying the complex global business relationships that have been impacted by what some are terming the largest IT outage in world history.

In this article, we take a closer look at some of the legal implications of this outage and give a brief account of how lawyers are likely to be assisting their clients at this time. We will be looking specifically at: (1) how banking & finance contracts are often designed for these technological failures; (2) what forms of redress affected companies may have against tech and other service providers; and (3) how affected companies may be able to rely on force majeure clauses to find temporary relief as they work to get their systems back online.

I hope that from this article aspiring solicitors can gain some insight into the lives of commercial lawyers operating in an ever more globalised and technology-driven business environment.

Banking & Finance Contracts

The core event of default in any finance agreement is non-payment. Due to this, non-payment can trigger not only an acceleration of the facility (making outstanding sums due and payable immediately or on demand), but also cross-default. This means that this singular default may also count as a default on several other finance agreements that the borrower in question may be party to. Should all of the other lenders or counterparties choose to accelerate, the situation can quickly worsen for a client and in some cases result in outright cashflow insolvency. Non-payment is taken extremely seriously and the courts have been reluctant to grant relief to parties that have missed a payment window even by a few hours when outstanding sums are demanded (RA Cripps (Pharmaceutical) and Son Ltd v Wickenden [1973] 1 WLR 944).

However, luckily for most borrowers or counterparties under a range of finance documents, there are provisions that exclude as an event of default non-payment caused by technological disruptions. Take for example the "Disruption Event" definition in the Loan Market Association's standard term and revolving credit facilities agreement. Generally, it protects parties that have been unable to make payments as a result of disruptions to payments or communication systems outside of their control and which are required for the borrower to fulfil their obligations under the agreement. Banking lawyers are likely to be advising their clients on the applicability of this definition if they have been caught in a similar situation. Optional wording that is likely to be incorporated by lenders may also give clients in this position a grace period in which to make the required payments before any non-payment is officially considered an event of default.

Reasonable Care & Skill

In the UK specifically, businesses can take comfort in the terms implied into standard written B2B services contracts by the Supply of Goods and Services Act 1982. One of these implied terms is that the party rendering the services under the agreement will do so with reasonable care and skill. Considering that the outages are said to be caused by faults in an IT update provided by one of Microsoft's partners, this implied term is likely to take centre stage in any potential litigation involving Microsoft, Crowdstrike, their clients and any businesses offering services that rely on the pair's systems. Although in several large B2B contracts this implied term is often excluded, such exclusions are subject to the 'reasonableness' test laid out in the Unfair Contract Terms Act 1977. It is possible, therefore, that in some of these contracts the exclusions will not be effective and that aggrieved parties may be entitled to damages or the right to rescind the contract depending on the facts.

The economic loss of this outage has not yet been quantified, but it is likely to be shockingly large. And as with death and taxes, another all too common inevitability in life is likely to ensue: litigation.

Force Majeure

We have briefly mentioned how some affected businesses might look to make good their losses by suing service providers under their technology services agreements. What we didn't mention is that in addition to exclusion clauses, service agreements also tend to incorporate force majeure clauses. Reluctant to rely on the doctrine of frustration (something beyond the scope of this article), most parties to commercial agreements use force majeure clauses to excuse themselves from performing their contractual obligations when unexpected circumstances outside of their control arise.

More recently, this type of clause captured the attention of several practitioners during the COVID-19 pandemic as several litigants sought to rely on them to escape liability. However, some parties were denied reprieve because the clause did not specify 'pandemic' as a force majeure event (see Football Association Premier League Limited v PPLive Sports International Limited [2022] EWHC 38 (Comm)). Others, due to the wider drafting by their lawyers, were more fortunate (see European Professional Club Rugby v. RDA Television LLP [2022] EWHC 50 (Comm)). Today, lawyers representing parties that have been unable to fulfil their contractual obligations under service agreements as a result of the outage are likely to be looking closely at any force majeure clauses that their client may be able to rely on.

These are just some of the ways in which lawyers are set to get involved in helping contain the damage caused by this global outage. I hope that you found this article useful and that you were able to get an idea of how commercial lawyers approach the world of business. If you would like to hear more from me feel free to give my podcast, The Firm Analyst, a listen: https://linktr.ee/thefirmanalyst