Facts
The Claimant (“BCT”) brought an action against the Defendant
(“Arnold Laver”) for delivery up of software and damages. BCT
was a supplier of computer hardware, third party proprietary
software, bespoke software and support and maintenance
services.
In the late 1990’s BCT agreed to supply a third party software
financial package, known as Great Plains, to Arnold Laver (“the
Agreement”). BCT was authorised to “sell” Great Plains licences to
end users pursuant to a partnership agreement with Great
Plains. A dispute arose as to whether Arnold Laver was
obliged to buy ongoing support and maintenance services as a
condition of maintaining the licence. BCT contended that it
was. Arnold Laver contended that the initial payment entitled
it to an indefinite licence to use the software. The central
issue was the extent to which BCT’s standard terms and conditions
were incorporated into the Agreement.
The parties met in April 1998. BCT provided a proposal
which identified the budgeted costs for installing Great
Plains.
These costs included the “software licences” and also “ongoing
support” which was to be charged at 20% of the price for the whole
system. Historically, BCT had employed different sets of
standard terms, depending on whether the contract was one for the
supply of software or the supply of software and support and
maintenance. However, in 1997 a decision had been made to
rationalise BCT’s contracts into one standard form, creating an
entirely different regime from that which had existed
previously. New terms and conditions were prepared, known as
the Software Licence and Technical Support Agreement (“SLTSA”).
These provided that in consideration for the licence fee BCT
would provide the customer with a licence to use the software and
technical support and training services. The licence fee was
payable on a monthly basis and was expressly stated to include the
costs of delivery and the provision of services. Other terms
included that the SLTSA was to continue until terminated, for
example on 90 days’ notice from the customer, and on termination
the customer was obliged to return or destroy the software since
the licence was terminated. Unfortunately, the significant
changes in BCT’s standard terms and conditions were not effectively
communicated internally throughout BCT, and the sales person on the
Arnold Laver account was unaware of the new position.
In October 1998 BCT agreed to supply to Arnold Laver a user
licence on terms under which the software cost a particular
amount. The quotation made no reference to support and
maintenance but it was understood that this would be supplied at an
annual price based on a percentage of the software price (in
accordance with earlier discussions). This quotation was
signed on behalf of Arnold Laver. At the foot of the
quotation were the words, “This quotation is subject to the
standard terms and conditions of [BCT].” It was accepted by
Arnold Laver that this could only be a reference to BCT’s “new”
standard terms and conditions, i.e. the SLTSA. Despite Arnold
Laver knowing these standard terms and conditions were incorporated
by reference it never asked to see them. Likewise BCT never sent
Arnold Laver details of the new terms.
In June 2000 discussions took place between BCT and Electronic
Data Processing plc (“EDP”) with a view to the possible purchase by
EDP of BCT. The due diligence exploration, however,
identified an accounting irregularity which resulted in BCT going
into receivership. In September 2000, New BCT, a subsidiary
company of EDP, took an assignment of the benefit of BCT’s
contracts with Arnold Laver. Nevertheless, as a result of the
receivership of BCT, Great Plains began to offer support to end
users directly, as it was entitled to do under the partnership
agreement. Such support was offered to, and accepted by,
Arnold Laver.
In January 2001, New BCT received a letter from Arnold Laver
terminating its services as a “Solution Provider”, effective from
September 2000. It appeared to New BCT that Arnold Laver was
trying to terminate the Agreement retrospectively. Arnold
Laver argued that since BCT had ceased trading, all contracts were
now null and void, and this was the reason for the date
given. In response to this New BCT wrote a letter stating
that it would attend Arnold Laver’s premises to take back the
software in accordance with the terms of the SLTSA. Arnold
Laver was alarmed since it merely wanted to terminate the provision
of support services and not the software licence.
Soon thereafter New BCT commenced proceedings, seeking delivery
of all software supplied by BCT and damages based on New BCT’s
current charges for Arnold Laver’s use in the meantime.
Judgment
The deputy judge found that the central dispute in this case was
the extent to which the terms of the SLTSA were incorporated into
the contract between the parties. He made three points in
relation to the law on the matter, namely:
- Where a party puts his signature to a document intending
thereby to accept an offer which is made in the document, he must
generally be taken to accept the written terms which are referred
to in the offer, whether or not he reads them.
- This principle extends not only to written terms contained in
the offer document, but also to those incorporated by reference,
such as standard terms and conditions.
- There are certain exceptions to this rule, for example, where
parties by an agreement import the terms of some other document as
part of their agreement, those terms must be imported in their
entirety, unless any of the imported terms in any way conflicts
with the expressly agreed terms, in which case the express terms
must prevail over what would otherwise be imported. See
Modern Building Wales Ltd. v Limmer & Trinidad Co. Ltd.
([1975] 1 WLR 1281), per Buckley LJ.
Thus, if BCT’s standard terms and conditions were inconsistent
with the terms on which the parties had previously come to an
express agreement, then the standard terms must give way. Both
parties accepted the proposition that:
“The Court is entitled to look at and
should look at all the evidence form start to finish in order to
see what the bargain was that was struck between the
parties.” See J Evans Ltd. v Andre Merzario Ltd ([1976] 1
WLR 467), per Roskill LJ.
The deputy judge summarised what had been agreed between the
parties before the contracts were formally concluded, which
included:
- Specific, single payments were to be made for each of the
various items of software.
- Software support was to be provided by BCT at an annual price
calculated as a percentage of the software price.
- BCT did not suggest further sums would be payable for the
software. Arnold Laver had no reason to think that they might
be.
- BCT did not suggest that Arnold Laver’s right to use the
software was conditional upon continuing to take and pay for
software support. Arnold Laver had no reason to think it might
be.
- The quotations on their face provided for a single sum to be
payable for items of software.
From this summary the deputy judge concluded that the parties
had expressly agreed and were “ad idem” about the terms on which
they would contract, namely that the right to use the software was
not dependent on the continued taking of and payment for support
services. In return for a single payment, Arnold Laver would
have a licence to use the software for the purposes of its
business. Nothing was agreed orally about termination of the
software support services.
The SLTSA standard terms were therefore inconsistent with what
was agreed in that they made the licence to use the software
dependent on the continuing payment for support services, and
provided for a right to call for delivery up of the software and
different terms of payment when support ceased. To this extent the
SLTSA terms were rejected by the deputy judge.
The deputy judge dismissed BCT’s attempt to argue that it was
only necessary to edit the SLTSA by altering the definition
of “licence fee”, such that there would be no provision for
further payments for use of the software. Following BCT’s
argument, this would have meant that if Arnold Laver no longer
wished to have software support services supplied, it would have to
serve a 90 day notice under the SLTSA. The alternative would
be for Arnold Laver to continue making the annual payments without
taking the support services. The deputy judge concluded that
either result was inconsistent with what had been agreed between
the parties, namely (a) no further payment would be required for
use of the software and (b) the taking of and payment for continued
software support was not a condition of the right to use the
software. He therefore rejected BCT’s submission.
Consequently, Arnold Laver’s letter of termination was effective
in the circumstances to terminate BCT’s supply of support
services. It did not terminate the licence which Arnold Laver
had to use the software or bring the termination provisions of the
SLTSA into play.
The claim was dismissed.
Commentary
This case provides a warning to suppliers to ensure that their
sales teams are aware of and understand the standard terms and
conditions of contract, particularly those terms and conditions
which are commercially so fundamental that they affect the pricing
structure. This requirement is all the more important when
the terms and conditions are incorporated by way of reference since
any term or condition which conflicts with other express agreements
made will fall away.
This warning is of particular relevance to the IT industry where
a substantial amount of business is performed on the basis of
customers completing Purchase Orders or similar documents which
refer to the supplier’s standard terms and conditions. It is
advisable, as a minimum precaution, for a copy of the terms and
conditions to be provided to the customer well in advance of
sign-off and for time to be set aside for the discussion (and
acceptance) of these terms.
The case also shows that when amending or updating standard
terms and conditions, it is vital that the supplier takes the time
and effort to explain the effect of the changes to its employees,
particularly the sales team. It is unfortunate in this matter
that BCT, having gone to the expense of using external solicitors
to redraft its terms and conditions (which greatly enhanced BCT’s
commercial position), did not convey these fundamental changes to
its sales department. It is simply not enough to provide
employees with a copy of the new terms and conditions, as happened
in this case, since the impact of these changes may not be readily
appreciated or understood by the recipients.
Also of interest is the fact that despite the deputy judge’s
finding it a common practice within the IT industry for software
houses to charge for the software licence on an on-going basis,
that was not the case in these circumstances. Discussions at
the time of contract had simply identified a single payment for the
licence to use the software. There was no presumption that
the continuation of the software licence was dependent on the
customer receiving on-going support and maintenance or making some
payment to the supplier on a continuing basis. Short of some
agreement otherwise, there was no reason why Arnold Laver should
have appreciated that the continuation of the licence was dependent
on these other matters.
If a supplier does require the customer to take support and
maintenance services during the life of the licence, the agreement
must set this out using clear terminology as to the pricing
structure and the parties’ obligations. In addition, where
the terms and conditions are incorporated by reference, the
supplier must ensure nothing contrary to this position is agreed or
the conflicting terms and conditions will fall away, irrespective
of how clearly they are drafted.
