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Court of Appeal Agrees with High Court that Software Licence Could be Terminated due to Terms of Enabling Agreement Between Other Parties

on Friday, 15 April 2016.

Northrop v Bae Systems, Court of Appeal

N agreed to provide software licences and support to B. That licence agreement was silent about termination. Clause 5.1 did, however, refer to the terms of an “enabling agreement” governing it. That enabling agreement was between N and a company that was connected with B, but not B itself. The enabling agreement gave a right to terminate for convenience under “this Agreement” and of any “purchase orders” made. A dispute arose over whether B was entitled to terminate the software licence agreement for convenience. The High Court said B could, and the Court of Appeal has upheld that decision now.

The Court of Appeal said “governed by” had a clear meaning, although it would have given way to a phrase in the licence agreement that would have been inconsistent with it; however, that was not the case here. The Court had to manipulate the meaning and give effect to what would have been intended. The reference to “purchaser orders” in the enabling agreement had to be construed as references to the licence agreement. In addition, a manipulation of what was meant by “purchaser” to cover B and so clause 5.1 could have effect.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP, comments: “The parties’ silence over a key term of the duration of the agreement has led to complicated litigation where the result could have gone either way but was decided based on a judge’s interpretation of the unclear position. Far better to have drafted a clear agreement in the first place rather than face this uncertainty.”

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