Ontario Court Finds Software Service Provider Liable for Negligent Misrepresentation and Breach of Contract

On June 8, 2012, the Ontario Superior Court of Justice (Court) ruled that Daniel O’Toole, carrying on business as Phoenix Systems (Phoenix) was liable for negligent misrepresentation and breach of contract for misrepresenting the capabilities of the computer software program that it recommended and sold to PCM Technologies Inc (PCM). PCM provides customized background music to businesses in Canada and the United States. In 2007, PCM decided to purchase a computer software program that would integrate the software that it used to manage customer accounts with the software that it used for accounting. It hired Phoenix to integrate the two systems, after Phoenix represented that software developed by SYSPRO would satisfy PCM’s needs. However, SYSPRO’s software for managing customer accounts had a different character limit than SYSPRO’s software for accounting. This created several problems for PCM related to identifying and communicating with clients. The Court ruled that Phoenix had represented that the software it recommended was capable of fully integrating PCM’s system for managing customer accounts and accounting and, therefore, it had made untrue, inaccurate and misleading statements. Further, the Court found that although O’Toole was unaware of the character limitation that prevented integration, a reasonable person in his position ought to have known that this limitation existed. According to the Court, Phoenix breached its contract with PCM as it did not provide a properly functioning software system that achieved integration and that Phoenix breached section 15 of Ontario’s Sales of Goods Act, which creates an implied condition as to the quality or fitness of a product when the buyer makes known to the seller the particular purpose for which the product is being requested. For the full text of the decision, see: PCM Technologies Inc v O’Toole, 2012 ONSC 2534 Summary by: Adam Lis