Legal system gears up for bug invasion

By YOKE HAR LEE

Preparations for the millennium rollover have gone far beyond upgrading computer systems.

Even the lawyers have gone back to school, with training on how to handle bug fallout claims from potential disgruntled customers.

In turn, the legal firms have also coached clients on what they should say and how to prepare themselves to deal with post-Y2K litigation.

Earl Gray, a partner at Simpson Grierson who has worked on the Y2K issue in the last few years, said: "Some of them [big companies], especially those with more potential exposure, are doing a significant amount of work in the background to prepare themselves for possible litigation.

"We have clients who are doing that, going as far as running dummy runs of certain factual situations with us to see whether they'd be liable or, more importantly, what tactically to do in response."

The Year 2000 Information Disclosure Act (1999) which provides protection for companies making statements on Y2K issues, has been deemed "too little, too late" by the legal community.

It was designed to be what is known as a good samaritan act to encourage companies to come forward with information on Y2K.

But Mr Gray said: "[The companies] can be protected from some issues but not from every issue. They can't protect themselves from liabilities under the Consumers' Guarantees Act, for instance.

"I think New Zealand companies tend to be understated [in their Y2K statements]. I suppose they are neither blindly trumpeting, nor are they publicising it if they are not ready.

"Companies have tended to be very cautious about what they say.

"What we have encouraged people to do is to say only what they feel comfortable saying."

Alan Ringwood, a litigation partner (information technology and intellectual property law) at Bell Gully, said companies may be exposed to Fair Trading Act issues as well as issues of breaches of contracts arising from Y2K statements.

"If people enter into those sorts of statement, there is possible exposure for directors of the company if they haven't taken proper steps to ensure the companies are, in fact, compliant.

"Quite a lot of thought has been given to all sorts of issues in relation to the Y2K problems. A lot of advice has to be given to companies, particularly related to what sort of statements they should or shouldn't make, what sort of records they should keep and how they should prepare themselves for possible claims," Mr Ringwood said.

For that reason, many of the 140 stock exchange-listed companies have provided only minimal information on their state of Y2K-readiness.

"The firms who have not responded are in the category where there would be no serious or material concerns of risks for investors.

The only area of major exposure is the major utilities. And they have pretty thoroughly tested themselves, they have all sorts of programmes and contingencies in place," said stock exchange general manager Bill Foster.

Litigation experts say most companies would rather play it safe by not diclosing more than they can later chew should their Y2K readiness fall short of promise.

Mr Foster said while the stock exchange would be closed between December 31 and January 5, in line with other financial markets, he expected business as usual when the stock exchange kicked off trading in the new year.

It had been preparing its computer systems for Y2K since 1995. One of its members, broking house Merrill Lynch, has been preparing its systems over the past three years.

The managing director of Merrill Lynch New Zealand, Peter Brook, said: "We have got a regional command centre, set up in Sydney and Melbourne in terms of contingency plans. We are connected to it from here. We completed all our testing way back in June.

"On New Year's eve, from midnight, our IT people in the office will make sure all our systems are functioning. Over the weekend, we will be linking to the rest of the Merrill Lynch operations on a global basis just to ensure all the systems are functioning as they should be.

"We do have in place, should there be failures anywhere, in terms of either stock exchange or settlement, procedures to handle that manually if computers for whatever reason, won't work."

Mr Brook said any problems experienced by listed companies related to Y2K would be isolated.

"These will be isolated problems, which I don't anticipate will flow through into any major problem on a national basis.

Whiteware manufacturer Fisher & Paykel has built up inventories for its overseas sale companies in the event of any shipping or related problems occurring.

For supplies of its material, the company said it had plans for alternative sourcing if verification of Y2K readiness could not be obtained from its suppliers.