Key Legal Issues with Cloud Computing: A UK Law Perspective

Background

Liability provisions are, without doubt, the most contentious and fiercely negotiated provisions in almost any technology contract (and cloud computing contracts are no exception). The most obvious reason for this approach is the immediate financial impact that contractual failures have on the businesses that they support and, crucially, the extent to which the resulting financial damage is out of proportion to the level of fees being paid under the cloud computing contract itself. Both customers and service providers seem to vary enormously in the extent to which they expect the other party to accept liability or seek to exclude liability, respectively. Customers are keen for the service provider to be “on the hook” for the potential damage which can be caused by the failure of a business critical IT service or system. Service providers, on the other hand, argue with some justification that it would only be a matter of time before they were out of business if they accepted unlimited liability on every transaction.

Liability under Contract

Under contract law, a contracting party is entitled to damages for reasonably foreseeable losses that were caused by the other party’s breach of the contract. Damages are the money that a court decides is to be paid by one person to another person as compensation for loss or damage sustained by that other person in consequence of the actions or omissions of the first person (Chitty and Beale 2011). The object of an award of damages is to place the wronged party in the position they would have been in had the contract been performed (Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1).

Generally, there are two types of losses arising from a breach of contract: direct losses and indirect losses.