England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LONDON MERCANTILE COURT

		The Rolls Building Fetter Lane London EC4A 1NL
		1 March 2013

JUDGE MACKIE:

1. This has been the very short trial of a Part 8 claim concerning only the interpretation of one clause in two agreements. The court has before it a bundle of the relevant documents and it has written statements from Mr F(?) on behalf of the claimant and Mr Reynolds on behalf of the defendant.
2. The issue concerns the meaning of a clause in the Statpro Quantkid End User Software Licences and Support Agreement. The claimant is an IT company, the defendant is a bank. On 30 July 2007 the parties entered into two agreements for the provision of software.
3. On 31 March 2010 the defendant sent the claimant a notice of termination of one agreement and on 25 February 2011 did so in respect of the other agreement.
4. The issues concerning the agreement need of course to be considered in the light of the wording of the agreement. This has to be considered as a whole and in context and I bear that in mind when referring specifically to the particular provisions relied upon by the parties. The licence introduces itself at clause 1 and by the terms of this the client (which is the defendant) accepts a non-exclusive non-transferrable licence for renewable periods as specified in Schedule 2.
5. By paragraph 3 there is a grant of a library licence to the client during the initial period and the subsequent period, which are defined. And there is a restriction requiring the client to use the library only during the initial period and any subsequent period and only in accordance with the provisions of the agreement.
6. At clause 4 comes the controversial term, headed "Term of this Agreement", it says:

"This agreement shall come into effect on the contract start date and remain in force for the initial period specified at Schedule 2. On the renewal date and each anniversary of the renewal date thereafter it will renew automatically for the term of the subsequent period specified in Schedule 2 and subsequent addendums to Schedule 2 signed by the client and Statpro unless either party gives at least 90 days notice in writing of its intention to terminate this agreement, expiring on any anniversary of the renewal date."

7. Then there is a provision in paragraph 7 for the payment of fees. The annual licence fee for the initial period is payable on signature of the agreement. And renewal licence fees for subsequent periods are payable in full prior to the renewal date.
8. None of the other terms are relevant to this dispute, but there is a schedule, Schedule 2, which is headed "Library Modules, Terms and Fees". Down the left-hand column are a number of periods and detailed matters to be provided for from initial A to initial K and on the right-hand side these details are filled in. Opposite "Initial Period" it says two years and opposite "Subsequent Period" it says three years.
9. What brings the parties to court is the competing positions taken about the meaning of clause 4. The claimant maintains that once a subsequent period is defined as commenced, notice of termination can only take effect at the end of that period; that is of that subsequent period.
10. Mr Edwards for the claimant submits that the agreements are each renewed "for the subsequent period of three years on 30 July 2009" because that is what the agreements, say "will renew automatically for the term of the subsequent period". The only way for the bank to stop that happening would be to have served notice prior to 30 July 2009, which it did not do. He submits that there is nothing in the agreements that entitles either party once the agreement in question is renewed for the term of the subsequent period to terminate it except at the end of that period.
11. He submits that the bank's construction, which I will come to, converts an agreement which renews for three year periods into one, which renews for periods of one year. He says that the bank approach wholly deprives the stipulation for a subsequent period if any effect.
12. He also contends that the bank's case focuses on the reference to anniversary of the renewal date, but in context it cannot mean annual anniversary but, as he would put it "anniversary defined by reference to the length of the subsequent period".
13. He also politely disparages some evidence put forward by the bank about commercial practice, which he suggests is irrelevant to this task of construction.
14. In oral submissions, Mr Edwards also focuses on the fact that the payment provision for the renewal period is calculated on the assumption that it will be a three year period; why else should it all be paid up front? He also suggests that the matter becomes quite clear once one transposes defined terms like initial period and renewal period and puts in instead the actual periods and the actual dates which those definitions produce.
15. Mr Bond, for the bank, submits that the construction of clause 4 should be as follows. He says that the agreements ran for the initial period of two years. On the renewal date for a three year period, the subsequent period of three years began. During the subsequent period on each anniversary the agreements automatically renew for a period of a further year, subject to notice of termination. To stop the agreements renewing automatically, either party must give notice in writing of its intention to terminate the agreement. To be effective this notice must be given 90 days in advance of an anniversary of the renewal date; that is to say before the next occasion on which the agreements will roll over. As a result, he submits that the defendant's two notices in March 2010 validly took effect. He relies, first, on what he contends to be the natural meaning of the words, and, secondly, on what he says is the most commercially sensible result.
16. He submits that his opponent's interpretation should not be accepted and that a subsequent period accompanied by one year renewals is the only way to make sense of the mentions of anniversary and each anniversary. He submits that in contrast the claimant's approach is strained. He relies on what he says is the inconsistency between that approach and the use of the word anniversary.
17. He also submits that if the court is in any doubt about the matter, consistently with the approach in Rainy Sky, the court should, if there are two possible constructions, give the one which is most consistent with business common sense. He submits that this common sense leans in favour of a one year term because it would not make sense, particularly in the IT industry, to have a short initial period followed by a longer subsequent period of three years during which time the initial software might become outmoded. Mr Edwards disputes that given the possibility and potential for upgrade provided for in the agreement.
18. Given some of the points made in the defendant's witness statement and some of the passages in the solicitors' correspondence I should emphasise the obvious. The meaning of a "contract" is arrived at by looking at the written document set in its context to decide what the parties are taken to have intended by using the words that they did. Questions of what is reasonable or not reasonable or what would be commercially sensible do not initially arise except as background.
19. The construction of the claimant has only one potential obstacle (which does not arise on the facts of this case), which is the meaning of "anniversary"; but that seems to me a relatively limited obstacle to the task of making sense of what the parties intended. That is particularly the case when one does the exercise of transposing words in the way suggested by Mr Edwards.
20. It seems to me that the approach of the defendant is a more convoluted one for the reasons Mr Edwards gives. In a context where the periods that we are concerned about are in each case agreed and inserted into a schedule which is part of a standard set of terms, it seems to me that if the subsequent period was not to be three years but to be something else then this would have been clearer in the contract between the clients. As I see it, one does not reach the point of turning to making a choice about which of the two possible constructions is most consistent with common sense. Further, this is not one of those cases where if one reached that point there would be an obvious answer. The evidence contains interesting and I am sure accurate statements of what is often the practice. But I can think of other reasons why in a particular case the practice would be different. There are, as I see it, no commercial imperatives here.
21. Short points of construction like this are a matter of impression, albeit considered impression, and are not capable of useful elaboration. I conclude that the claimant's interpretation is to be preferred to that of the defendant and will make an order accordingly