Out-Law News | 22 Mar 2010 | 11:12 am | 3 min. read
The term 'perpetual' referred not to the fact that it was incapable of being brought to an end, but to the fact that it had an unlimited term so long as neither party chose to terminate it, the Court said.
Mr Justice Sales was presiding over a dispute between an animal feed maker and the publisher of a piece of software that it used to operate the milling of its feed.
BMS made MillMaster software and J Bibby, which later became AB Agri, was a customer. They agreed a contract for the use of the software in 1994, which gave AB Agri use of the software and tied it to a support agreement.
In 2000 they revised the software licence and support contract with a variation agreement. It contained this clause: "the Program Licence will be extended to be a UK-wide perpetual licence".
AB Agri gave the 12 months notice required in the contract to exit the agreement because it was developing its own milling software. It wanted to be able to use the MillMaster software for archive purposes without continuing to pay for the ongoing technical support of the product.
AB Agri argued that this variation agreement replaced the clause in the previous contract which forced it to take BMS's support services for as long as it used its software. It said that this was not possible with a 'perpetual' licence, i.e. one that could not be broken.
Therefore, it said, the new agreement supplanted that part of the old contract and it would have a continuing licence to use the software.
BMS disagreed and asked the High Court for a summary judgment on the meaning of the contract terms. Mr Justice Sales allowed a summary judgment, ruling that the factual background and context to the contract, which would need a full hearing, were irrelevant.
"That evidence is inadmissible or irrelevant to the question of contractual construction before the court," he said. He had to decide, he said, which meaning of 'perpetual' applied in this case.
"The word 'perpetual' can carry different shades of meaning. It can, for example, mean 'never ending' (in the sense of incapable of being brought to an end) or it can mean 'operating without limit of time'," he said.
He said that the latter interpretation in this context would mean that the software licence went on without time limit until either party exercised its rights set out in the previous contract to terminate the agreement.
"I consider that this latter interpretation of the word 'perpetual' in the context of … the Variation Agreement is the correct one. On that interpretation … there is no incompatibility between … [it and the] Licence Agreement," he said. "Therefore, when the Defendant terminated the Support Agreement it also terminated the licence for it to use the MillMaster software."
The judge said that the term 'perpetual' in the new agreement was meant to refer to the licence from the old agreement, not to create a new one. This meant, he said, that "the parties intended the licence referred to in ... the Variation Agreement to be subject to the same termination provisions as in the Licence Agreement".
"In light of these modifications to the licence terms, the best sense that can be given to ... the Variation Agreement is that the termination provisions governing the licence as set out in the Licence Agreement continue to operate," he said.
He also said that if the variation agreement was meant to create a new licence, then it would have to have had its own termination clauses otherwise the new contract would not have made commercial sense.
"The termination provisions in both those agreements were very important terms of those agreements," said Mr Justice Sales. "They dealt with important commercial matters such as termination for breach of the agreement or in circumstances of insolvency of the other party."
"It is reasonable to think that any parties to licence and support agreements of this kind would wish such important commercial matters to be dealt with by such terms. Accordingly, if the parties in this case had indeed intended that those provisions should be deleted, it is natural to suppose that they would have referred to them in terms to make that intention clear rather than leaving it to be inferred from the use of a term ('perpetual') of uncertain meaning in the particular context in which it was used and a vague, unspecific provision like Clause 11 of the Variation Agreement," he said.