The Year 2000 problem: 180 days till impact

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Since the last Cameron McKenna bulletin on this issue in February the turn into the next millennium has become closer, and a great deal more news coverage has examined the ‘doomsday scenario’ of computer programmes in all kinds of technology being unable to recognise the year 2000, but instead misinterpreting the ‘00’ as meaning the century 1900.

UK and international problems

The many possible impacts of the Y2K problem have been very well documented on television and in newspapers and journals. Some major airlines around the world have chosen to draw up plans to reduce schedules on domestic and international routes. This is on the basis that they have not been able to obtain the accurate and detailed information from some of their service providers (overseas airports and airspace authorities) that they feel they need.

At the end of 1998, Cameron McKenna surveyed large organisations in Warsaw, Prague, Budapest, Moscow, Tashkent and Almaty to assess their awareness of and preparedness for the Year 2000 problem. Given the seriousness of the problem, it was surprising to learn that 87% of respondents had received no guidance from their governments in dealing with Year 2000 issues. Less than half of respondents had documented their recognition of the problem and produced a plan of action. Despite the potential impact upon their organisations, 88% of respondents had no finalised contingency plans in place in case critical business systems fail.

Organisations that operate in Central and Eastern Europe, have representative offices, have invested in business or who have supplier or business partners in the region need to consider how the problem is being dealt with there. They also need to understand how a failure to appropriately deal with the problem in Central and Eastern Europe could threaten businesses in the West.

In the UK, attention has been focused of late on the likelihood of bank and building society cash machines failing to acknowledge bank cards, leaving customers without the ability to withdraw money from their accounts. In recent months these institutions have attempted to allay fears by publicising the amount of money they have spent on investigating the issue. They have, of course, done this with one eye on the probability that these fears could lead to many tens of thousands of customers withdrawing large amounts of cash, leading to a shortage of bank notes. More recently, senior officers in the National Crime Squad took the decision, following the lead of a number of regional Police authorities, to cancel all leave over the Christmas and New Year period in anticipation of criminals looking to take full advantage of any electronic security breakdowns.

However, the media is reporting with increasing frequency more positive stories, reporting progress made by the commercial world in tackling the Y2K issue.

Bug’s bark worse than its byte

Action 2000 - the organisation set up by the Government to deal with the Year 2000 problem - has said that its most recent report indicates key public services will be largely unaffected by the Y2K bug. 90% of large companies have also indicated they are prepared.

This message has been backed up by the regulators of some of the privatised public utilities. Oftel, for the telecommunications industry, has said that 90% of the industry would be compliant by June 1999, with 100% by the third quarter of this year. Ofwat, the water industry watchdog, commented that the industry was making ‘good progress’ towards their end-of-year deadline, and the Department of Trade and Industry, which has responsibility for the offshore gas and oil industry, said that satisfactory progress was being made towards compliance.

A story that attracted much attention in the broadsheets towards the end of last year was that of the Financial Services Authority (FSA), the UK’s principal regulator for the sector, releasing a policy statement that they would call for an auditor’s report if they believed there were grounds for concern about a particular institution’s state of preparedness for the Y2K. Beyond that, the FSA has said that it would also consider using powers of intervention, e.g. shutting a company down if the lack of Y2K preparations threatened significant consequences for consumers or financial markets.

Cameron McKenna’s recent survey of 100 financial services organisations showed that while most organisations are preparing hard to combat the Year 2000 problem, some may be taking insufficient steps to demonstrate their efforts to the FSA. For example, a significant number of the firms surveyed did not intend to submit their Year 2000 project plan to the FSA. Taking such a simple step might prove to be an effective way of giving comfort to the regulator that an organisation is taking adequate steps to deal with the problem.

As recently as March this year the press reported that the FSA had identified 12 companies where failure to be Y2K compliant could have a ‘high impact’ on consumers and the markets. However by mid-April, this figure of 12 high impact companies had been reduced to two, based on the reports provided by firms and the FSA’s supervisory judgements. The FSA have also emphasised that intensive and constructive dialogue with the institutions is continuing. It appears that the FSA is therefore adopting a “carrot and stick” approach - threatening to “name and shame” whilst providing support generally in achieving compliance. The example of the FSA is a good indication of the broader picture; much progress has clearly been made in addressing the Y2K issue. The benefits of working with other parties have been realised, and where disputes have arisen, settlements of some kind have been found.

However, the picture is not quite so rosy in the public sector. Action 2000 has invented a colour scheme to describe progress in making systems compliant. Blue indicates no risk of failure, amber some risk of disruption but containable, while red means there is serious risk of disruption to system. Nine per cent of police forces and NHS organisations are coded red, the rest are all amber. From the data that is available, there are also considered to be serious risks of non-compliance among fire brigades and local authorities. This is, perhaps, of particular concern, given the pressure that is likely to be put on these organisations at the time of the Millennium and its associated celebrations.

Some unexpected benefits

As companies have had to push through new IT systems to replace old ones in time for the Y2K, so they have had the opportunity to take the decision to make redundant some systems that simply duplicate others and put in place procedures with checks and balances to ensure that once systems are compliant and ‘bug-free’, they remain that way. IT departments within companies and professional firms have also gained further credibility by being able to aim resources at one project, and improve working relationships with other departments who begin to realise the need to focus, together with their IT department, on such an important issue. A survey by PA Consulting Group of 200 companies with a turnover of £150 million or more concluded that the benefits of new working relationships would go beyond the Y2K projects. Although, perhaps, there may be a backlog on other IT projects as a result of the investment in time and money in tackling the Y2K bug, for businesses of all different types, it has proved to be a useful facilitator in reassessing priorities in IT and business needs, and valuable learning tool for all levels of management.

Y2K: Dispute Resolution and Litigation

In February of this year, the Centre for Dispute Resolution (CEDR), of which Cameron McKenna is a founding member, announced that following the launch of its Millennium Accord - drawn up for parties in dispute to sign and so agree to a constructive approach towards settling disputes - two cases had been settled on a confidential basis, which had saved time and money for all parties. This CEDR model of agreement has since been adopted by Mediation Centres in the United States of America, Australia, Singapore and Hong Kong.

Whilst such an agreement has initially proved itself to be successful in negotiating binding agreements in the UK, there are disputes that have already been before the Courts in the United States. However in these cases software manufacturers as defendants have had some success in having claims reduced or struck out. In the absence of any reported litigation in the UK, one or two cases provided useful pointers on how some legal arguments could fare over here.

In particular, in the cases of Issokson v Intuit Inc (in California) and Faegenburg v Intuit Inc (in New York State), the Courts dismissed claims against a software developer where the plaintiff in each case had rejected the notion of having to pay an ‘upgrade’ fee to make the system Y2K compliant. The Courts dismissed the claims due to lack of actual harm being established; the claims related to anticipated losses which the plaintiffs expected would occur, probably beyond 31st December 1999, when the (alleged) non-compliant system failed. The Courts also noted that the plaintiffs had not requested a specific remedy from the defendants and, moreover, the defendants had not been able to make any attempt to deliver a remedy as a remedy had not been suggested by the plaintiffs.

It should be borne in mind that there are more cases in their early days in the United States, but the US Courts’ pro-active approach towards alternative dispute resolution, the new Civil Procedural Rules in England and Wales that encourage the use of alternative forms of dispute resolution, and the success of CEDR all point towards many future disputes being settled before any Court trial dates are set.

Cameron McKenna advises clients from a wide range of industry sectors on the full range of Year 2000 problems. Each of our practice areas has specialist lawyers who are up-to-date with the problems, how they could affect businesses and how they can be avoided or resolved. For further information or advice, contact one of the following:

Cameron McKenna Year 2000 Group Contacts:

General Enquiries
John Armstrong
DDI +44 171 367 2701
e-mail [email protected]

IT and Telecommunications
John Armstrong (details as above)
Jeremy Newton
DDI +44 171 367 2841
e-mail [email protected]

Mark Heighton
DDI +44 171 367 2177
e-mail [email protected]

Health and Safety
Mark Tyler
DDI +44 171 367 2568
e-mail [email protected]

Company/Corporate Transactions
Melissa Hardee
DDI +44 171 367 2769
e-mail [email protected]

Simon Morris
DDI +44 171 367 2702
e-mail [email protected]

Insurance and Reinsurance
Anthony Hobkinson
DDI +44 171 367 2892
e-mail [email protected]

Maxine Cupitt
DDI +44 171 367 2865
e-mail [email protected]

Commercial Litigation
Susan Barty
DDI +44 171 367 2542
e-mail [email protected]

Marek Rosinski
DDI +48 22 520 5555
e-mail [email protected]

Peter Valet
DDI +420 2 109 8888
e-mail [email protected]

Mariana Csabai
DDI +36 1 302 9302
e-mail [email protected]

John Hammond
DDI +7 501 258 5000
e-mail [email protected]