Without a good lawyer, dealing with a commercial dispute can be a minefield

International fleet telematics company, Masternaut, was developing a technological solution for insurers which included claim management and fraud detection services. Their plan was to integrate standard telematics equipment with a hosted Software-as-a-Service application and an end-user app for drivers. They worked with a specialist developer/supplier which was to receive ‘milestone payments’ as certain technological milestones were reached.

Navigating a tech dispute: A Case study by Freeths Solicitors

The relationship began well enough but problems arose at milestone 3. The supplier claimed to have met the milestone and demanded payment of £1.5million. Masternaut refused, on the basis that the supplier had failed to deliver a contractually compliant system which met the required milestone acceptance criteria. A dispute ensued and court action was threatened. At that point, Masternaut turned to the highly regarded specialist disputes team at Freeths Solicitors.

Written by: Duncan Crine – Partner, Head of Dispute Resolution (Thames Valley) and Civil and Commercial Mediator at Freeths LLP

The starting point for us was to carry out an “Early Case Assessment”: scoping the relevant terms of the underlying agreement; ascertaining what was delivered and when; looking at the arguments on both sides and considering the evidence which might be required to support – or defeat – those arguments; understanding Masternaut’s commercial and legal objectives; identifying the potential avenues for a resolution, and considering the likely cost-benefit of the available options.

At first blush, the dispute was straightforward: did the supplier tick the contractual boxes, or not? If they did, they were entitled to payment; if not, they weren’t. But the devil was in the detail – the milestone acceptance criteria included a long, highly technical list of deliverables and functionalities, to ensure that there was a ‘productised service’ which could be used commercially by insurers. To be commercially usable, the system needed full testing and regulatory compliance. There were issues of fact, technical analysis and contractual interpretation. Deciding whether the supplier had contractually complied was going to be far from a simple box-ticking exercise…

Fortunately, Masternaut’s GC, Djamel Souici, had a good grasp of the issues and a thorough understanding of the realities of commercial litigation. He was confident that Masternaut was right to refuse to pay but he appreciated that, as a prospective defendant, Masternaut could not simply stand back or try to ignore the claim. He recognised the importance of “getting our ducks in a row” at an early stage and of maintaining a robust stance with the supplier from the outset.

“At every step, I was confident in Freeths’ surefooted navigation of this tricky technology dispute – I was delighted with the outcome.”
Djamel Souici, General Counsel and Director – Masternaut Group

In terms of evidence, a good starting point was the underlying documentation – not just the contract itself but also the associated emails around delivery according to the milestone 3 criteria, and the subsequent dispute. We also needed to reach out to the individuals involved at Masternaut. Our objective was to resolve this dispute quickly but, if that was not possible, we would need an independent technical expert to prepare a formal report on what was delivered.

The supplier attempted to demonstrate a contractually compliant system. The parties set out their positions in correspondence. The ball was in the supplier’s court: would they begin formal litigation, or accept that they were not entitled to the milestone payment? Any weakness from Masternaut at that stage would only increase the supplier’s determination to pursue the claim. With our support, Masternaut was able to respond swiftly and firmly, and stand its ground. Our strategy worked and the claim petered out.

After a lengthy interval, however, the supplier returned to its claim with fresh vigour – they had now appointed a new legal team and moved swiftly to litigation. It didn’t change our view of the merits but we needed to revise our strategy to adapt to the change in direction taken by the supplier. As before, proactivity was key: we quickly instructed a high calibre QC specialising in technology claims and we identified a suitably experienced expert to provide a detailed report underpinning Masternaut’s case. A very thorough defence was prepared, setting out the numerous hurdles which the supplier would need to overcome if they were to succeed, and expert reports were exchanged.

Even at that stage, a trial was not inevitable. The key issues and evidence were now clear, so the legal teams were able to reassess merits and the cost-benefit of a trial. This created a window of opportunity for alternative dispute resolution. An experienced and qualified mediator was appointed, a mediation was convened, and the parties reached a private resolution soon afterwards.

The lessons for you to take away from this case study? Early Case Assessment and careful preparation was vital to the successful commercial outcome of this dispute. It ensured that we had identified a clear strategy from the beginning but we were also able to adapt the strategy as circumstances changed. Masternaut benefited from a unified and focussed client and legal team, with the right expertise to handle their technology dispute, which reduced their exposure to a costly and time-consuming trial. We approached both litigation and negotiation as two sides of the same coin, with the philosophy that “if you want peace, prepare for war”. Masternaut also understood that, however strong its case, alternative dispute resolution might be preferable to a costly and draining trial. This enabled us to advise on the right course of action to take, via mediation, to a mutually acceptable commercial solution for both businesses.

The Client

Masternaut is a wholly-owned subsidiary of the Michelin Group. As one of Europe’s largest fleet telematics service providers, with leading positions in the UK and France, Masternaut provides connected solutions to businesses for fleet tracking and optimisation, jobs workflow management, driver safety and behaviour improvement, and emissions reduction.

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