St Albans City and District Council v ICL
[1996] EWCA Civ 1296
Sir Iain Glidewell:… I wish to express my own opinion. This is the second issue to which I have already referred, namely, was the contract between the parties subject to any implied term as to quality or fitness for purpose, and if so, what was the nature of that term? Consideration of this question during argument led to discussion of a more general question, namely, "Is software goods?" To seek to answer this question, it is necessary first to be clear about the meaning of some of the words used in argument.
In his judgment, Scott Baker J adopted a description of a computer system which contains the following passage which I have found helpful:
"By itself hardware can do nothing. The really important part of the system is the software. Programs are the instructions or commands that tell the hardware what to do. The program itself is an algorithm or formula. It is of necessity contained in a physical medium.
A program in machine readable form must be contained on a machine readable medium, such as paper cards, magnetic tapes, discs, drums or magnetic bubbles."
In relation to COMCIS the property in the program i.e. the intangible "instructions or commands", remained with I.C.L. Under the contract, St. Albans were licensed to use the program. This is a common feature of contracts of this kind. However, in order that the program should be encoded into the computer itself, it was necessarily first recorded on a disc, from which it could be transferred to the computer. During the course of the hearing, the word "software" was used to include both the (tangible) disc onto which the COMCIS program had been encoded and the (intangible) program itself. In order to answer the question, however, it is necessary to distinguish between the program and the disc carrying the program.
In both the Sale of Goods Act 1979 s.61 and the Supply of Goods and Services Act 1982 s.18 the definition of "goods" is "includes all personal chattels other than things in action and money ...." Clearly a disc is within this definition. Equally clearly, a program, of itself, is not.
If a disc carrying a program is transferred, by way of sale or hire, and the program is in some way defective, so that it will not instruct or enable the computer to achieve the intended purpose, is this a defect in the disc? Put more precisely, would the seller or hirer of the disc be in breach of the terms as to quality and fitness for purpose implied by s.14 of the Sale of Goods Act and s.9 of the Act of 1982? Mr Dehn, for I.C.L., argues that they would not. He submits that the defective program in my example would be distinct from the tangible disc, and thus that the "goods" - the disc - would not be defective.
There is no English authority on this question, and indeed we have been referred to none from any Common Law jurisdiction. The only reference I have found is an article published in 1994 by Dr. Jane Stapleton. This is to a decision in Advent Systems Ltd. v. Unisys Corporation 925 F 2d 670 that software is a "good"; Dr Stapleton notes the decision as being reached "on the basis of policy arguments." We were referred, as was Scott Baker J, to a decision of Rogers J in the Supreme Court of New South Wales, Toby Construction Ltd. v. Computa Bar (Sales) Pty. Ltd. (1983) 2 NSWJR 48. The decision in that case was that the sale of a whole computer system, including both hardware and software, was a sale of "goods" within the New South Wales legislation, which defines goods in similar terms to those in the English statute. That decision was in my respectful view clearly correct, but it does not answer the present question. Indeed Rogers J specifically did not answer it. In expressing an opinion I am therefore venturing where others have, no doubt wisely, not trodden.
Suppose I buy an instruction manual on the maintenance and repair of a particular make of car. The instructions are wrong in an important respect. Anybody who follows them is likely to cause serious damage to the engine of his car. In my view the instructions are an integral part of the manual. The manual including the instructions, whether in a book or a video cassette, would in my opinion be "goods" within the meaning of the Sale of Goods Act, and the defective instructions would result in a breach of the implied terms in s.14.
If this is correct, I can see no logical reason why it should not also be correct in relation to a computer disc onto which a program designed and intended to instruct or enable a computer to achieve particular functions has been encoded. If the disc is sold or hired by the computer manufacturer, but the program is defective, in my opinion there would prima facie be a breach of the terms as to quality and fitness for purpose implied by the Sale of Goods Act or the Act of 1982.
However, in the present case, it is clear that the defective program 2020 was not sold, and it seems probable that it was not hired. The evidence is that in relation to many of the program releases an employee of I.C.L. went to St. Albans' premises where the computer was installed taking with him a disc on which the new program was encoded, and himself performed the exercise of transferring the program into the computer.
As I have already said, the program itself is not "goods" within the statutory definition. Thus a transfer of the program in the way I have described does not, in my view, constitute a transfer of goods. It follows that in such circumstances there is no statutory implication of terms as to quality or fitness for purpose.
Would the contract then contain no such implied term? The answer must be sought in the Common Law. The terms implied by the Sale of Goods Act and the Act of 1982 were originally evolved by the Courts of Common Law and have since by analogy been implied by the courts into other types of contract. Should such a term be implied in a contract of the kind I am now considering, for the transfer of a computer program into the computer without any transfer of a disc or any other tangible thing on which the program is encoded?
The basis upon which a court is justified in implying a term into a contract in which it has not been expressed is strict. Lord Pearson summarised it in his speech in Trollope & Colls Ltd. v. N.W. Metropolitan Regional Hospital Board (1973) 1WLR 601 at 609 when he said:
"An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract; it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them; it must have been a term that went without saying, a term which, though tacit, formed part of the contract which the parties made for themselves."
In my judgment a contract for the transfer into a computer of a program intended by both parties to instruct or enable the computer to achieve specified functions is one to which Lord Pearson's words apply. In the absence of any express term as to quality or fitness for purpose, or of any term to the contrary, such a contract is subject to an implied term that the program will be reasonably fit for i.e. reasonably capable of achieving the intended purpose.
In the present case if, contrary to my view, the matter were not covered by express terms of the contract, I would hold that the contract was subject to an implied term that COMCIS was reasonably fit for, that is, reasonably capable of achieving the purpose specified in the "Statement of User Requirements" in Chapter 5 of St. Alban's Invitation to Tender, and that as a result of the defect in release 2020 I.C.L. were in breach of that implied term…