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.
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