Out-Law Guide 8 min. read
02 Nov 2007, 8:31 am
BCT Software Solutions Limited v Arnold Laver & Co Ltd
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.
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:
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 ( 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:
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.
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.