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?

Circular law (and constitutional crises)?

In our role as quasi-parliamentary draftsmen for some of our overseas clients, we are all too aware of how the “law of unintended consequences” can alter the effect of a legal provision.

Human Rights Act 1998 Chapter 42

Human Rights Act 1998 Chapter 42

As a topical example in this week of their party conference, we note that the Conservative Party is considering introducing a Bill of Rights to replace the Human Rights Act 1998 (“HRA”).  However, within the HRA is a mechanism to permit a court to declare that any provision of a primary statute is incompatible with the HRA (under s.4).  However, a provision subject to a declaration continues to have full force and effect.

Did the draftsmen of the mechanism foresee the possibility that an attempt to repeal the HRA would itself be a provision incompatibile with the HRA, particularly if the provision was within a Bill of Rights that arguably restricted or limited the rights a citizen enjoys under the European Convention of Human Rights incorporated into UK law by the HRA?

It is a difficult question, which may end up having to be answered by the new Supreme Court, in what would almost certainly be their first confrontation with Parliament since its creation and the true separation of powers in the UK between the fused executive and legislature on one hand and an independent judiciary on the other.

"Mathematophobia"?

We were going to comment here on the recent House of Lords case of Chartbrook Limited -v- Persimmon Homes Limited, but instead we note that John Halton of Cripps Harris Hall LLP has given an excellent summary in his blog.

However, we wish to emphasise his point about legal drafting.  We do not understand the phobia that many lawyers appear to have about using mathematical expressions in commercial contracts.  After all, massive legal expenses were incurred in Chartbrook to take the case all the way to the House of Lords as a result of the ambiguity in the definition:

Additional Residential Payment (“ARP”) means “23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value less the Costs and Incentives.”

The whole case hinged on the question of what the percentage applied to. What did the words mean?  If we represent:

R = price achieved for each Residential Unit (£23.849m)
M = Minimum Guaranteed Residential Unit Value (£4.684m)
C = Costs and Incentives (approx £2,500 – exact figure not given in the judgement)

then the value of ARP could have been:

1.  ARP = 23.4% *(R – M – C) = £4,484,025

2.  ARP = (23.4%*(R – M)) – C = £4,482,110

3.  ARP = (23.4%*R) – M – C = £  894,166

The maximum difference in interpretation of the definition was therefore £3,589,859.  How much simpler would it have been to have defined ARP by the correct mathematical expression intended by the parties, as set out above, instead of by unpunctuated and unbracketed words?