IT law
Ascertaining the terms of a software licence
BCT Software Solutions Ltd v Arnold Laver & Co Ltd (2002) LTL, 28 May
This case has highlighted the potential hazards of incorporating a document into a contract by reference.
The dispute followed Arnold Laver's termination of its contract for BCT to provide maintenance and support services for software which BCT had supplied.
BCT claimed that in taking that step, Arnold Laver had also terminated its licence to use that software.
Arnold Laver countered that its licence to use the software lasted indefinitely.
The licence term did not depend on BCT's continuing provision of support and maintenance services.
The case turned on the extent to which the parties had incorporated BCT's standard terms and conditions into its agreements.
In reaching his decision, Kevin Garnett QC, sitting as a Deputy High Court Judge, had to analyse a complex set of facts.
The licence
BCT supplied hardware, software, and maintenance and support services.
Arnold Laver is a major supplier of timber and had decided to replace its accounting software package.
It entered into discussions with BCT in November 1997 for a licence of a software package called Great Plains.
BCT supplied licences to its customers from Great Plains Software UK Ltd to use the Great Plains software.
According to Arnold Laver's witnesses, the parties had agreed in negotiations that the licence fee would comprise just one single payment.
In addition there would be an annual charge for BCT's maintenance and support services.
That charge would comprise 20% of the licence fee.
BCT's witness disagreed.
He had understood that Arnold Laver would pay an annual licence fee for the continuing use of the software, together with the annual fee for BCT's maintenance and support services.
The judge accepted the evidence of Arnold Laver's witnesses.
He found that their recollections accorded with the terms of a discussion document provided by BCT in April 1998 for the negotiations with Arnold Laver.
That document had set out a price for each Great Plains software package.
Those prices increased according to the number of licensed users.
A further clause provided that the annual cost of support services was 20% of the total sum payable for the software.
The document did not contain any reference to an annual licence fee.
The judge found that BCT had never proposed one in negotiations.
Moreover, the parties had not agreed on any right for BCT to revoke the software licence.
After further discussions, BCT had sent Arnold Laver a quotation for a six-user licence at a total price of 19,000 on 9 October 1998.
Although the quotation was silent on BCT's provision of maintenance and support services, the judge found that the parties had agreed that those services would be charged annually as a percentage of the price of the software.
The BCT quotation further provided that it was subject to BCT's standard terms and conditions.
Incorporation of BCT's standard terms and conditions
BCT had introduced a revised set of standard terms and conditions at the end of 1997.
Those revised conditions provided for one licence fee covering both the licence to use the software, and the support and maintenance services.
The schedule contemplated monthly payments of the licence fee, although no figures had been inserted.
The new conditions also provided for termination of the agreement on 90 days' notice by the customer.
On service of such notice, the software licence would expire and the customer had to return or destroy each copy of the software held.
Failure to pay any sum due was also an event of termination with the same consequence.
Arnold Laver signed the BCT quotation to agree the contract between the parties.
For the purposes of the trial, Arnold Laver accepted that the document which it had signed did refer to BCT's revised terms and conditions.
This was despite the fact that no Arnold Laver representative had ever seen them.
Indeed, the judge found that BCT's own salesman had not even been aware of the revised conditions while he was negotiating with Arnold Laver.
As a result of the incorporation of the revised terms and conditions, the contract contained conflicting provisions on the term of the licence.
They had agreed, after negotiations, that once Arnold Laver paid one sum for the licence fee it could use the Great Plains software indefinitely.
However, under the standard terms and conditions which they had incorporated by reference into the same contract, Arnold Laver's licence would expire if it terminated BCT's maintenance and support services.
The parties then entered into further agreements on essentially the same terms.
Maintenance and support services
The conflict between the two licence provisions came to a head in January 2001.
Arnold Laver served notice terminating the support and maintenance services.
It considered that it had sufficient capacity from its in-house IT department.
BCT's receivership in September 2000 was also a factor in Arnold Laver's decision.
The Arnold Laver contracts were finally assigned to another company, New BCT.
Arnold Laver did not expect the reply it received to its notice terminating the support and maintenance services.
In its reply, New BCT cited BCT's standard terms and conditions.
They provided that the licence to use all BCT supplied software expired on the customer's termination of BCT's maintenance and support services.
Accordingly, New BCT asked for return of the software within two days.
Eventually, it issued proceedings for delivery up of the software.
It later amended its statement of case to claim payment for Arnold Laver's continuing use of Great Plains according to New BCT's current charges.
The decision
The critical issue for the judge was the effect of the incorporation of BCT's standard terms and conditions.
Did they displace the terms which the parties had specifically agreed? If they did, then it would follow from Arnold Laver's termination of BCT's maintenance and support services that Arnold Laver had also terminated the Great Plains software licence.
Fortunately for Arnold Laver, the judge found that they did not.
The basic legal premise was that a party signing a document is usually bound by its terms, including any terms incorporated by reference.
The signing party's failure to read the terms is irrelevant.
However, if the incorporated terms contain provisions which conflict in any way with the terms which have been expressly agreed, then the expressly agreed terms prevail.
The judge followed the dictum of Lord Justice Buckley in Modern Building Wales Ltd v Limmer & Trinidad Co.
Ltd [1975] 1 WLR 1281.
The judge held that the parties had expressly agreed that only one payment was due from Arnold Laver for the software.
Moreover, Arnold Laver's use of the software was not conditional on its continuing payment for BCT's support and maintenance services.
New BCT's claim failed.
This decision underscores the importance of contract negotiators being certain of the terms of any documents which they are incorporating into their agreements by reference.
That policy should reduce the possibility of later disputes.
In the particular case of software licences, it should also reduce the threat to a business's ongoing operations posed by the loss of its software.
By Jonathan Cohen, Duane Morris, London
No comments yet