Summary of the appeal case between Tietoevry and Sparebank 1

The Schjødt core team consisted of Anna Eide, Inge Brodersen, Andreas A. Johansen and Halvor Manshaus. 

Below is a brief summary of the background of the case and the key takeaways from the judgment.

The parties entered into a long-term IT services Agreement (the " Agreement") on November 1, 2007, for payment processing services and other IT services between the parties currently named SB1 as customer and Tietoevry as supplier. The Agreement was originally set to expire on December 31, 2014, but contained extension options. 

The Agreement was extended several times, most recently by an amendment agreement of 2016 ("EA 2016"), which extended the contract until December 31, 2022. EA 2016 also regulated consequences if delivery of core banking solutions was delayed beyond December 31, 2022.

Delays occurred in developing the core banking solutions. On November 30, 2021, the parties entered into a settlement agreement providing compensation for additional costs due to delays and stipulating that EA 2016 should be replaced by a new agreement within 5 months.

The parties failed to reach a new agreement for the core banking solutions, leading to disputes about whether the Agreement still applied or expired on December 31, 2022, and what compensation should be paid for services delivered after that date. TE held that due to extraordinary and unforeseen changes in usage and resulting cost increases (see details in 4.2 below), TE had a right to adjustment of the fixed 

The case presented two central legal questions:

• Option Extension Rights: Whether SB1 has the right to extend contractual options corresponding to the delay of the Core Banking project beyond December 31, 2022, under EA 2016 point 8 third paragraph.
   
• Price Revision: Whether TE has the right to adjustment of the fixed price element in EA 2016, either based on the contract directly under a renegotiation regulation in the Agreement section 3.7(g)) or based on the Contract Act (Nw. "Avtaleloven") § 36 or the doctrine of failing assumptions.

Option Extension Rights Analysis

The court conducted a comprehensive analysis of EA 2016 section 8 third paragraph, which states: "If final approval of the delivery is delayed beyond 31.12.2022, the options are extended correspondingly to the delay, so that the Customer in any case gets at least 5 years of the fixed price period with reduction in the fixed price after final approval of the delivery".

The court rejected TE's argument that the settlement agreement eliminated SB1's option rights, finding no textual support for this interpretation. The court noted that pre-contractual negotiations and subsequent conduct supported SB1's position that option rights remained intact.

The court found no evidence that changes in the core banking project eliminated EA 2016 section 8 third paragraph, noting that the settlement agreement confirmed the project remained anchored in the EA 2016 descriptions.

Price Revision Analysis

The court concluded the Agreement section 3.7 (g) constituted only a "renegotiation clause" or "hardship clause" that mandated renegotiation but did not give courts authority to set specific compensation amounts. The court found it lacked material competence to revise prices under this provision.

However, the court applied a lowered threshold for unreasonableness due to the contract's long-term nature, cooperative objectives, and the presence of the renegotiation clause. The court found the unreasonableness threshold was exceeded due to extraordinary changes in usage and resulting cost increases.

The court also extensively analysed various cost increases:

• Mainframe Costs: API calls increased 341 % from 2016-2024, with MIPS consumption increasing 135 %. The court found these increases extraordinary and beyond TE's contractual risk.
   
• Midrange Costs: While generally TE's risk, the irregular nature combined with mainframe increases exceeded the reasonableness threshold.
   
• Macroeconomic Factors: Extraordinary inflation and currency changes due to COVID-19 and Ukraine war were deemed relevant for 2023-2024.
   
• Personnel and Regulatory Costs: The court rejected these as grounds for revision, finding them within TE's contractual risk.
   

The court's conclusion

The Court of Appeal concluded that:

• Option Extension Rights: SB1 has the right to extend contractual options corresponding to TE's delay beyond December 31, 2022, under EA 2016 section 8 third paragraph.
   
• Price Revision: The unreasonableness threshold under Contract Act § 36 was exceeded due to extraordinary changes in usage and resulting cost increases, justifying price adjustment.
   

The court's conclusion resulted in the following:

• TE's appeal regarding option extension rights was rejected
   
• SB1 must pay TE 260 million NOK for the period January 1, 2023 to the date of the judgment 
   
• The annual fixed compensation is increased by 50 million NOK for the remaining parts of 2025
   
• The annual fixed compensation is increased by 100 million NOK for 2026
   
• Each party bears their own legal costs

Contract Interpretation Principles: The court emphasised that contract interpretation begins with wording but should also take into consideration negotiations, subsequent conduct, and purpose. 

Renegotiation Clauses: The court held that the renegotiation clause in the Agreement provided only procedural rights to renegotiation, not material rights to court-imposed price adjustments.

Contract Act § 36 in Commercial Relationships: While the threshold for unreasonableness and application of the Contract Act § 36 is generally high between professional parties, it can be lowered in long-term cooperative contracts with renegotiation clauses. 

Risk Allocation in IT Contracts: Parties bear contractual risks for foreseeable cost increases, but extraordinary usage changes beyond contractual volume mechanisms can justify price adjustment. Technology cost increases and personnel costs generally remain the supplier's risk.

Long-term Contract Dynamics: In extended contractual relationships, courts will consider the totality of circumstances, including cooperative obligations and the practical effects of delays on contractual rights.

^{[1] LB-2024-49213}