A never ending story

The Neverending Story by Michael Ende

There are some words or phrases that have been in use for so long within certain types of contracts that you would think everyone knew what they meant.  Sadly, this is not case.   BMS Computer Solutions Limited and AB Agri Limited ended up taking their dispute over the meaning of one key word to the High Court, each being advised by specialist solicitors, leading counsel (i.e. QCs – the really expensive ones) and junior counsel (itself a misleading term as junior in this context means “not a QC”, and should not be read to imply someone straight out of bar school). This must have been expensive.

So what was the word at issue: PERPETUAL.  You or I would naturally expect something that was perpetual to last forever or be never ending.   Surely that is what the word means?  In the hands of lawyers, though, perpetual can mean “operating without limit of time”.  It’s a subtle distinction, but “operating without limit of time” implies that other types of limit can apply.

So to our High Court case’s facts (see the full judgement here). The licensor of certain software granted a licence in a variation agreement with the following term:

The Program Licence will be extended to be a UK-wide perpetual licence usable on any processor or PC at all ABN UK operations including the compound animal feed operations of Cereal Industries as per the existing Agreement of 21 March 2000 up to a maximum aggregate annual tonnage of 2.45 million compound feed tonnes as defined in the Agreements.”

Nothing remarkable about that, except that it was in a variation agreement.  This was varying a licence agreement where the licence to use the Program Licence was not stated to be perpetual.  The licence agreement had an associated software technical support agreement.  The agreements were arranged so that if the support agreement was terminated, the licence agreement also terminated.  All perfectly standard.

However, by sticking the word “perpetual” into the licence term in the variation agreement, there was raised the inevitable question, does the software licence terminate when/if the support agreement is terminated? Sales J ruled that perpetual meant, as stated above, operating without limit of time, so as, in the context of the variation clause set out above, to grant a licence for an indefinite duration, but subject to any other contractual provisions in the licence agreement, including the terms governing termination upon termination of the support agreement.

It would appear from the judgement that there was never any clear intention that the variation agreement was to grant a never ending licence, but having a never ending software licence with only limited support is not uncommon.  Perhaps this is an example of contracting (or strictly, varying a contract) at speed and repenting at leisure?

Key personnel?

For some reason that has never been explained to us simple commercial lawyers, commercial law is rarely recognised as one area of law.  This means that cases in one field of contractual law can easily be missed by another.  For example,  take a recent judgement of the Technology and Construction Court (TCC): Fitzroy Robinson Ltd -v- Mentmore Towers Ltd.

The case involved the appointment of architects.  It has been widely reported in construction law updates but we have not seen any reference to it,  for example, in IT law updates.  This is a mistake, as the case has much more universal application.

In essence, the leader of the architects’ team, who had been named as project leader on the bid documents to the client and had been involved in all the pre-contract meetings, resigned from the architects just before the appointment agreements were signed.  However, his notice period was long (one year), so he did start working on the relevant projects.  At a critical later point in the project, the client was informed that the project leader had given his notice.  Naturally, the client became upset that the project was losing a key person.  At the TCC, the failure by the architects to tell the client that the key person had resigned was held to be fraudulent misrepresentation.

So what are the lessons?

• Firstly, all professional consultants and service providers should inform their clients or customers of changes in key personnel. 
• Secondly, particularly from clients’  point of view, if there are key personnnel,  then appropriate provisions must be included in the relevant consultancy or services agreement.  A finding of fraudulent misrepresentation alone may not be entirely helpful, given that a claimant must demonstrate that it suffered loss as a result of the misrepresentation.  The TCC suggested on the facts of Fitzroy Robinson that this would be limited to the cost of any disruption and duplication of work arising out of the key person’s resignation.

IT: Core (In)Competence?

This morning we heard the news that the Dunfermline Building Society will not be supported by HM Treasury. Is this just another financial services disaster?

Maybe, but as commercial lawyers we were drawn to the reports that the reported loss of £26m for 2008 at DBS was less than the claimed £31m invested in a failed IT venture. On closer inspection, thanks to an informative article in The Herald, it is clear that the IT venture did not sink DBS, but it cannot have helped.

Why did the building society not consider outsourcing? One of the reasons often quoted for choosing to outsource, is that it leaves the outsourcing customer able to focus on its core competence. In addition, engaging an outsourcing service provider expert in the relevant back office or other IT support services often enables the customer to obtain a more efficient and effective service than was possible when the services were provided in-house.

This is familiar territory for our IT lawyers – our outsourcing agreements for customers are designed to facilitate these outcomes.

Data security – the law is closing in!

The relatively relaxed regime under the Data Protection Act is being augmented by more and more legislation setting out prescribed protections for data security. As well as the new ss. 77 and 144 of the Criminal Justice and Immigration Act 2008, which means that sanctions for criminal offences under the DPA will now include potentially significant fines and jail sentences, there have been other interesting developments recently showing that the law-makers in the UK and EU are seeing this as an increasingly important issue.

Did you know that the new Companies Act 2006 places a direct obligation on company directors to ensure the confidentiality of data (not just personal data, but all forms of commercially sensitive information)? This is on top of the obligations to protect audit-related data under corporate governance legislation.

Also, calls are increasing for the EU’s amendments to the E-Privacy Directive to be expanded to include a data security breach notification for all organisations – we’ll have to wait until the summer to see if this is the case.

You have been warned!

M&S Data Protection Pants?

A very interesting enforcement notice has been published by the Information Commissioner against Marks & Spencer plc – see here.

 The case itself is a classic – a theft of an unsecured laptop from a data processor (in this case, containing 26,000 employees’ personal data).  What is noteworthy is that the case got as far as needing the Information Commissioner to issue an enforcement notice.  One of the reasons appears to be Marks & Spencer’s unwillingness to enter into public voluntary undertakings.

Another point to note is that the data processor at fault has not been named.  Data controllers carry the can if data processors mess up.