BMS Computer Solutions Ltd v AB Agri Ltd [2010] EWHC 464 (Ch)

Case No HC09C04125[2010] EWHC 464 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 10/03/2010
Before
THE HONOURABLE MR JUSTICE SALES
Between
BMS Computer Solutions LimitedClaimantAB Agri LimitedDefendant
Mr Vernon Flynn QC, Mr Jonathan Hill (instructed by Greene & Greene) for ClaimantMr Neil Kitchener QC, Mr Philip Roberts (instructed by Addleshaw Goddard) for DefendantHearing Hearing dates: 24/2/10
JudgmentMr Justice Sales :
[1]This is an application by the Claimant (“BMS”) for summary judgment under CPR Part 24 in relation to two points involving construction of contracts.[2]BMS carries on business developing and supplying computer software. These proceedings relate to a BMS software package called “MillMaster”. MillMaster is designed for use in relation to management of production and supply of animal feed by animal feed companies using feed mills. Animal feed is produced and supplied in three basic types:(a) compound feed (generally in the form of pellets manufactured from a number of ingredients),(b) so-called “straights” (unmixed supplies of crops such as wheat, barley and sugar beet) and(c) blended feed (which comprises a simple mix of straights). Categories (b) and (c) are referred to below as “non-manufactured feeds”.[3]The Defendant is a company which carries on animal feed production at feed mills which currently use BMS’s MillMaster software package. The two issues which arise on this application are:(i) whether, on the true construction of three linked agreements between the parties, a licence from BMS for the Defendant to use MillMaster has been terminated, and(ii) whether the Defendant is obliged to secure a further licence agreement from BMS for use of MillMaster at an additional mill acquired by the Defendant at Flixborough in about May 2009.[4]On 4 November 1994 BMS entered into a licence agreement with J. Bibby Agriculture Limited (“Bibby”), a predecessor company of the Defendant, to license Bibby to use MillMaster software at its feed mills (“the Licence Agreement”). The following were terms of the Licence Agreement:
“1. Interpretation 1.1 In this agreement and the Schedule hereto the following words and expressions shall have the following meanings unless the context otherwise requires - … “the Business of the Licensee” the business of the Licensee carried out at the date hereof in respect of which the Licensed Programs are to be used as is more particularly described in the Schedule… “Licence Fee” the fee payable by the Licensee to the Company upon the signing of this agreement as set out in the Schedule together with any further licence fee payable in accordance with Clause 3.4… “Place of Use” that part of the Licensee’s premises at the Site and other locations where the Designated Equipment is installed and operated at the date hereof or in such part of the Licensee’s premises where the Designated Equipment is to be installed if not installed at the date hereof as specified in the Schedule and such other places as shall be agreed between the parties from time to time (such agreement not to be unreasonably withheld by the Company)… 2. Grant of licence 5. The Company in consideration of the payment by the Licensee of the Licence Fee in accordance with Clause 5 below hereby grants to the Licensee a non-exclusive licence to Use the Licensed Programs upon the Designated Equipment and the Designated System for the purposes of the Business of the Licensee at the Place of Use… 3. Licence Fee 3.1 The Licensee shall pay to the Company the Licence Fee (together with any value added tax thereon) at the times and in the amounts stated in the Schedule … 3.4.1 Within thirty days of the expiry of each Financial Year the Licensee shall notify the Company of the aggregate number of tonnes of compound animal feed manufactured sold and/or distributed by it to the best of its knowledge and belief during such Financial year. If the aggregate number of tonnes of compound animal feed manufactured sold and/or distributed by the Licensee during such Financial Year according to the Licensee’s notice (“the Aggregate Annual Production”) exceeds (subject to the provisions of Clause 3.4.3) the Licensed Relevant Amount then additional Licence Fees shall be payable on such date as is thirty days after the expiry of the relevant Financial year in respect of the number of tonnes by which the Aggregate Annual Production exceeds the Licensed Relevant Amount. Such fee shall be payable at the Agreed Rate Per Tonne (applicable at the end of the relevant Financial Year) --- 3.4.2 For the purposes of this Clause 3: 3.4.2.1 the “Licensed Relevant Amount” shall mean in respect of any Financial Year One million (1,000,000) tonnes except [in certain defined circumstances] … 3.4.3 In the event that: 3.4.3.1 the Licensee acquires an existing licensee of the Company (“the Customer”) the aggregate number of tonnes of compound animal feed manufactured sold and/or distributed by the Customer in the completed financial year (as defined in Section 223 of the Companies Act 1985) immediately preceding acquisition (“the Acquisition Tonnage”) shall be disregarded when calculating the amount by which the Aggregate Annual Production exceeds the Licensed Relevant Amount in each Financial year following the acquisition PROVIDED THAT: (a) the Licensee continues the manufacture sale and/or distribution of compound animal feed previously carried on by the Customer (b) the Licensee continues the Customer’s business using only the Designated Equipment and the Designated System; and (c) the Customer was licensed to use all the Licensed Programs. If the Customer was not licensed to use all the Licensed Programs the provisions of this Clause 3.4.3.1 shall only apply if the Licensee acquires a licence to allow the Customer to use such of the Licensed Programs on the Designated Equipment and Designated System as it is not licensed to use at the time of acquisition of the Customer at the then prevailing list price of the Licensed Programs of the Company calculated by reference to the following formula – [formula set out]… 5.2 The Licensee hereby undertakes to enter into a software technical support agreement in the form of the agreement annexed hereto on or before the Actual Delivery Date and to maintain such agreement as amended from time to time in effect throughout the duration of this agreement. In the event that the software technical support agreement is terminated for any reason whatsoever this agreement shall terminate forthwith and the provisions of Clause 16.3 shall apply … 7. Property and confidentiality in the Licensed Programs … 7.3 The Licensee shall: … 7.3.3 maintain an up-to-date written record of the number of copies of the Licensed Programs and Program Specifications and their location and upon request forthwith produce such record to the Company;… 15. Duration of agreement This agreement shall continue until terminated in accordance with the provisions of Clause 16 below. 16. Termination 16.1 This agreement shall (subject to the provisions of Clause 16.4) expire on the tenth anniversary of the date hereof unless terminated prior to such date in accordance with the provisions set out below: 16.1.1 by the Licensee upon giving not less than twelve months’ written notice to the Company; 16.1.2 forthwith by the Company if the Licensee fails to pay any sum due hereunder within fourteen days of the due date therefor; 16.1.3 forthwith by either party if the other commits any material breach of any term of this agreement (other than one falling within 16.1.2 above) and which (in the case of a breach capable of being remedied) shall not have been remedied (subject to the provisions of Clause 12.7) within ten days of a written request to remedy the same which for the avoidance of doubt and without prejudice to the foregoing includes the use by the Licensee of the Licensed Programs other than in respect of the Business of the Licensee or other than at the Place of Use; 16.1.4 forthwith by either party if the other shall convene a meeting of its creditors or if a proposal shall be made for a voluntary arrangement within Part 1 of the Insolvency Act 1986 or a proposal for any other composition scheme or arrangement with (or assignment for the benefit of) its creditors or if the other shall be unable to pay its debts within the meaning of Section 123 of the Insolvency Act 1986 or if a trustee receiver administrative receiver or similar officer is appointed in respect of all or any part of the business or assets of the other or if a petition is presented or a meeting is convened for the purpose of considering a resolution or other steps are taken for the winding up of the other or for the making of an administration order (otherwise than for the purpose of an amalgamation or reconstruction). … 16.3 Within seven days of the termination of this agreement (howsoever and by whomsoever occasioned) the Licensee shall return all copies of the Licensed Programs Program Specifications and New Releases in its possession to the registered office of the Company. 16.4 Upon expiry of the initial ten year term (subject to the provisions of Clause 5.2) the Licensee shall have the option to extend the licence granted pursuant to and subject to this agreement for a further period of two years… 17. Restrictions 17.1 Each of the parties hereto hereby agrees that it shall not during the continuance of this agreement or for a period of twelve months after the termination of this agreement for any reason whatsoever either on its own account or in conjunction with or on behalf of any other person directly or indirectly whether as principal partner employee agent shareholder or otherwise howsoever solicit the employment of or interfere with or endeavour to entice away from the other or endeavour to enter into a relationship of principal and agent with any person who is an employee of the other and who has been involved with the operation or the acquisition of the licence of the Licensed Programs. 17.2 Each of the parties hereto agrees that it shall not for a period of twelve months after the termination of this agreement for any reason whatsoever either on its own account or in conjunction with or on behalf of any other person directly or indirectly whether as principal partner employee agent shareholder or otherwise howsoever solicit the employment of or enter into the relationship or principal and agent with any person who was an employee of the other at any time during the twelve month period immediately preceding the date of termination of this agreement and who has been involved with the operation or the acquisition of the licence of the Licensed Programs. 17.3 Each of the parties hereto agrees that it shall not during the continuance of this agreement either on its own account or in conjunction with or on behalf of any other person directly or indirectly whether as principal partner employee agent shareholder or otherwise howsoever solicit the employment of or enter into the relationship of principal and agent with any person who was an employee of the other and who has been involved with the operation or the acquisition of the licence of the Licensed Programs during the twelve month period immediately following the date upon which such person ceased to be employed by the other … 19. Access The Licensee shall permit the duly authorised representatives of the Company access to the Site and Place of Use at all reasonable times to verify the use of the Licensed Programs Program Specifications and New Releases within the terms of this agreement and to install the Licensed Programs and any New Releases which are to be installed pursuant to Clause 6…”
[5]On the same date (4 November 1994) BMS and Bibby entered into a software technical support agreement (“the Support Agreement”) as required by Clause 5.2 of the Licence Agreement. The Support Agreement provided for payment of a set annual fee by Bibby, which was to be increased in accordance with a formula set out in Clause 3.3 of the agreement if the aggregate number of tonnes of compound animal feed manufactured, sold or distributed by Bibby during any financial year exceeded a defined relevant amount (beginning at 1 million tonnes in a year).[6]The Support Agreement included the following provisions:
“9. Duration of agreement This agreement shall continue until terminated in accordance with the provisions of Clause 11 below… 11. Termination 11.1 This agreement may be terminated: 11.1.1 by the Licensee upon giving not less than twelve months’ written notice to the Company; 11.1.2 forthwith by the Company if the Licensee fails to pay any sum due hereunder within fourteen days of the due date therefor; 11.1.3 forthwith by either party if the other commits any material breach of any term of this agreement (other than one falling within 11.1.2 above) and which (in the case of a breach capable of being remedied) shall not have been remedied within ten days of a written request to remedy the same; 11.1.4 forthwith by either party if the other shall convene a meeting of its creditors or if a proposal shall be made for a voluntary arrangement within Part 1 of the Insolvency Act 1986 or a proposal for any other composition scheme or arrangement with (or assignment for the benefit of) its creditors or if the other shall be unable to pay its debts within the meaning of Section 123 of the Insolvency Act 1986 or if a trustee receiver administrative receiver or similar officer is appointed in respect of all or any part of the business or assets of the other or if a petition is presented or a meeting is convened for the purpose of considering a resolution or other steps are taken for the winding up of the other or for the making of an administration order (otherwise than for the purpose of an amalgamation or reconstruction)… 11.3 Within seven days of the termination of this agreement (howsoever and by whomsoever occasioned) the Licensee shall return all copies of the Licensed Programs Program Specifications and New Releases or fixes in respect of the same in its possession and supplied under the terms of this agreement to the registered office of the Company…”

This agreement shall continue until terminated in accordance with the provisions of Clause 11 below…

[7]The termination provisions of the Support Agreement thus closely matched those of the Licence Agreement, albeit there was no provision for automatic termination of the Support Agreement if the Licence Agreement was terminated to correspond with Clause 5.2 of the Licence Agreement. It was common ground at the hearing that return of all copies of the Licensed Programs etc. under Clause 11.3 of the Support Agreement would not be compatible with any continued operation of a licence to use the MillMaster software.[8]By a variation agreement dated 20 December 2000 between BMS, Bibby and ABN Limited (now called AB Agri Limited, the Defendant) (“the Variation Agreement”), the Licence Agreement and the Support Agreement were novated to take effect as a Licence Agreement and Support Agreement between BMS and the Defendant, subject to certain modifications set out in the Variation Agreement.[9]The two issues of construction which arise on this application concern the interpretation of the Variation Agreement read together with the Licence Agreement and the Support Agreement. The Variation Agreement included the following provisions:
“4. SOFTWARE LICENCE (a) The Program Licence will be extended to be a UK-wide perpetual licence usable on any processor or PC at all ABN UK operations including the compound animal feed operations of Cereal Industries as per the existing Agreement of 21 March 2000 up to a maximum aggregate annual tonnage of 2.45 million compound feed tonnes as defined in the Agreements. (b) For the avoidance of doubt, the 2.45 million annual tonnage excludes the finished product brought in by ABN for re-sale nor does it include the production and sales of Trident Feeds. (c) The Program Licence will also cover the organic growth of the UK trading activities of Trident Feeds, KW Agriculture and the organic growth of any other ABN UK non-manufactured feed activities licensed to use the Programs as at the date of this Agreement with no limit on volume. For the avoidance of doubt, the purchase of additional tonnage, or transfer of business assets is not classified as organic growth. Software Licence and Technical Support Agreements will be negotiated on a case-by-case basis for all non organic tonnage growth. … 5. ADDITIONAL TONNAGE Any annual ABN tonnage in excess of the maximum figure of 2.45 million (excluding the products referred to in Clause 4(b)) shall be charged in accordance with the current Agreement (Clause 3 of the Software Licence Agreement) but with a flat rate charge of 75 pence per tonne (Year 2000 figure); this figure to be uplifted by an annual incremental increase of RPI plus 2% calculated from January 2000 to the date of the first and each subsequent declaration. 6. CONSIDERATION The consideration for the assignment and variation will be satisfied by the payment of nine hundred and fifty three thousand six hundred and thirty pounds (£953,630) to BMS by ABN. Payment shall be made as to 25% on or before 31 January 2000, with the balance paid on 1 April 2000. 7. SUPPORT AGREEMENT The base level one support fee for the calendar year 2000 (ending 31 December 2000) shall be £275,000. The base level one support fee for the calendar year 2001 (ending 31 December 2001) shall be £385,000 plus the increase in the RPI over the previous twelve months plus 2% unless both parties agree differently. The base level one support fee for subsequent years will be that of the previous year plus RPI plus 2% unless both parties agreed differently. Any annual ABN tonnage in excess of the maximum figure of 2.45 million (excluding the products referred to in Clause 4(b)) shall be charged in accordance with the current Agreement (Clause 3 of the Software Technical Support Agreement); this figure to be uplifted by an annual incremental increase of RPI plus 2% calculated from the date of the Agreement to the date of the first and each subsequent declaration. The annual base level one support fee can be reduced by ABN by the following mechanism: … If ABN reduce the support tonnage, a compensation payment equivalent to the lost support revenue over the remainder of the ten year minimum ABN commitment will be payable to BMS. … Subject to the payment of the compensation fee, ABN would pay support on 2,000,000 tonnes for the balance of the ten years, but would continue to be licensed for 2,450,000 tonnes annually. No incremental support charges would be due until annual tonnage exceeded 2,450,000… 8. SUPPORT COMMITMENT ABN commit to purchase support on the terms of paragraph 7 above for a minimum of ten years commencing 1 January 2000. … 11. AGREEMENTS The parties agree that the current Agreements continue in full force and effect subject to these variations until such time as they are amended by any further variation Agreements.”
[10]So far as concerns the first issue before me, the focus of debate has been upon the significance of the word “perpetual” in Clause 4(a) of the Variation Agreement, which modifies the extent of the licence for use of the software contained in the Licence Agreement, and the question whether Clause 5.2 of the Licence Agreement requiring the Support Agreement to be kept in place continues to have effect. As regards the second issue before me, the focus is on whether the activities of the Defendant at its newly-acquired mill at Flixborough fall within the terms of the licence as amended by Clause 4(a) of the Variation Agreement.

Issue 1- The effect of grant of a “perpetual licence”

[11]The Defendant is in the process of developing software to replace BMS’s MillMaster software at its feed mills. By letter dated 19 December 2008 from the Defendant to BMS, the Defendant gave notice under Clause 11.1.1 of the Support Agreement to terminate the Support Agreement on 31 December 2009. However, in its letter the Defendant asserted that its licence to use the MillMaster software would continue in effect, contrary to the contention of BMS that the continuation of the licence was conditional upon the Defendant continuing with the Support Agreement, as set out in Clause 5.2 of the Licence Agreement. The parties have maintained these positions before me.[12]The Defendant submits that the grant to it of “a UK-wide perpetual licence” for MillMaster software under Clause 4(a) of the Variation Agreement is incompatible with Clause 5.2 of the Licence Agreement. Therefore, it says, according to Clause 11 of the Variation Agreement Clause 4(a) of the Variation Agreement supersedes and removes Clause 5.2 of the Licence Agreement and it is open to the Defendant to decouple the operation of the Licence Agreement and the Support Agreement, as it has purported to do. If that interpretation of Clause 4(a) of the Variation Agreement is correct, it is common ground that Clause 11.3 of the Support Agreement (requiring the licensee to return all copies of the Licensed Programs when the Support Agreement is terminated) would also be inconsistent with the Variation Agreement and hence would be superseded and of no application in the present circumstances, since return of all copies of the Licensed Programs would be incompatible with continuation of the licence to use those programs.[13]The submission for BMS is that Clause 4(a) of the Variation Agreement is not incompatible with the continuation in effect of Clause 5.2 of the Licence Agreement; that, therefore, by virtue of Clause 11 of the Variation Agreement, Clause 5.2 of the Licence Agreement continues to have effect; the Licence and the Support Agreements cannot be decoupled, as the Defendant contends; and so when the Defendant terminated the Support Agreement it also, by operation of Clause 5.2 of the Licence Agreement, automatically terminated the Licence Agreement and the licence for the Defendant to use the MillMaster software.[14]Mr Flynn QC, for BMS, submits that this is a straightforward point of contractual construction and that it is appropriate for the court to resolve it on an application for summary judgment, in accordance with the guidance given by the Court of Appeal in ICI Chemicals and Polymers Limited v TTE Training Limited [2007] EWCA Civ 725 at paragraphs [11] to [14]. He submits that although both parties have put in a body of evidence relating to the circumstances in which the agreements (particularly the Variation Agreement) were negotiated, on proper analysis that evidence is inadmissible or irrelevant to the question of contractual construction before the court. I accept these submissions.[15]In my view, the first issue before me raises a short point of construction which can be dealt with on an application for summary judgment. The witness evidence adduced in the case does not create any triable issue affecting the true construction of the Variation Agreement, read with the Licence Agreement and the Support Agreement, on this point.[16]In my judgment, the submission of BMS as to the proper construction of the three agreements is correct and BMS is entitled to judgment to reflect that.[17]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” (so as, in the context of Clause 4(a) of the Variation Agreement, to grant a licence of indefinite duration, but subject to any contractual provisions governing termination of the licence). I consider that this latter interpretation of the word “perpetual” in the context of Clause 4(a) of the Variation Agreement is the correct one. On that interpretation of Clause 4(a) there is no incompatibility between Clause 4(a) and Clause 5.2 of the Licence Agreement and, by virtue of Clause 11 of the Variation Agreement, Clause 5.2 of the Licence Agreement continues to have effect. Therefore, when the Defendant terminated the Support Agreement it also terminated the licence for it to use the MillMaster software.[18]There are four principal reasons why I take this view of the operation of the three agreements: i) the Variation Agreement was plainly not intended wholly to displace the Licence Agreement, as Clause 11 of the Variation Agreement makes clear. Moreover, the language of Clause 4(a) indicates that in an important sense it is the licence in the Licence Agreement which continues to have effect: see the phrase, “The Program Licence will be extended to be…”. In my view, on an objective approach to construction of the Variation Agreement, the choice of the words “will be extended” rather than a phrase such as “will be replaced by” indicates that it is the same licence as in the Licence Agreement, albeit modified in certain respects, which continues to have effect under the Variation Agreement. Giving weight to those words of Clause 4(a) indicates that the parties intended the licence referred to in Clause 4(a) of the Variation Agreement to be subject to the same termination provisions as in the Licence Agreement, since that is the principal (if not the only) aspect of the original Program Licence which would remain on foot after the provisions limiting it as to duration of time (Clauses 15, 16.1 and 16.4 of the Licence Agreement) are removed - as they clearly are by use of the word “perpetual” - and after the limits on the place of use of the software (Clauses 1.1 and 2 of the Licence Agreement) are removed - as they clearly are by the redefinition of the licence as “UK-wide” for use of the software “at all ABN UK operations”. In light of these modifications to the licence terms, the best sense that can be given to Clause 4(a) and Clause 11 of the Variation Agreement is that the termination provisions governing the licence as set out in the Licence Agreement continue to operate. There is no basis to be derived from the terms of the Variation Agreement for distinguishing between the termination provisions in Clause 16.1.1 to 16.1.4 and that in Clause 5.2 of the Licence Agreement. ii) Since a possible meaning of “perpetual” is “of indefinite duration” and the choice of that word with that shade of meaning makes sense in the context of a move from a licence of limited duration (as defined in the Licence Agreement) to a licence of indefinite duration (in the Variation Agreement), I think that there is considerable force in the submission of Mr Flynn that - in choosing which shade of meaning of the word “perpetual” the parties intended should apply - the omission of the Variation Agreement to refer at all to the termination provisions in the Licence Agreement and the Support Agreement indicates that those terms were intended to continue in force. The termination provisions in both those agreements were very important terms of those agreements. 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. Again, there is no textual basis in the Variation Agreement for distinguishing the operation of the termination provisions in Clause 16.1.1 to 16.1.4 and Clause 5.2 in the Licence Agreement, so if the termination provisions in Clause 16.1.1 to 16.1.4 continue to have effect under the Variation Agreement the reasonable inference must be that Clause 5.2 also continues to have effect under that agreement. iii) Further, the Variation Agreement clearly contemplated that the termination provisions of the Support Agreement would continue in effect, since Clause 7 referred to that agreement and Clause 8 provided that the Defendant should purchase support “for a minimum of ten years”, which presupposed that the termination provisions contained in the Support Agreement should continue to operate so that the Support Agreement could be brought to an end at some point after that minimum period had elapsed. If the Support Agreement was terminated, Clause 11.3 of the Support Agreement would mean that all copies of the software would have to be returned to BMS, which would not be consistent with continuation of the licence to use them. Two points arise from this feature of the Variation Agreement:(a) since the Variation Agreement clearly did contemplate that the termination provisions in the Support Agreement would continue to operate, and since there is no clear textual indicator that the parties intended any different approach to apply in relation to the Licence Agreement, this again supports the view that, on proper construction of the three agreements, those termination provisions of the Licence Agreement which had not clearly been excluded by use of the word “perpetual” (as Clause 16.1 and 16.4 were excluded) were likewise intended to continue to operate;(b) Clause 11.3 of the Support Agreement created a link between the continuation of the Support Agreement and the practical continued effect of the licence, since if all copies of the software had to be returned, in practical terms the licence could not continue; the Variation Agreement contemplated that the termination provisions of the Support Agreement would continue to operate and did not give any clear textual indication that part of those termination provisions (Clause 11.3) should not operate; so, again, the most natural and reasonable interpretation is that the full termination provisions of the Support Agreement would continue to operate, implying that the relevant termination provisions in the Licence Agreement (including, in particular, Clause 5.2 which, like Clause 11.3 of the Support Agreement, linked the duration of the Licence Agreement and the Support Agreement) would also continue to operate. iv) I also accept Mr Flynn’s submission that there was a clear continued commercial need for the termination provisions contained in the Licence Agreement to operate since, otherwise, there would be no mechanism to bring ongoing, potentially onerous obligations under that agreement to an end, including in particular the obligation to notify BMS of annual tonnage levels (Clause 3.4.1), to keep records of the whereabouts of all copies of MillMaster software (Clause 7.3.3), for the Defendant to permit BMS to have access to its premises (Clause 19) and restrictions on the hiring of staff (Clause 17). This feature of the Licence Agreement, read with the Variation Agreement, supports the view that the parties intended the termination provisions in Clause 16.1.1 to 16.1.4 of the Licence Agreement to continue to operate after the Variation Agreement came into effect. In the context of modification of an agreement containing such terms, it would have required clear and explicit language to indicate any contrary intention and there is none in the Variation Agreement. Since, therefore, the word “perpetual” in Clause 4(a) of the Variation Agreement does not exclude the operation of those termination provisions in the Licence Agreement and there is no indication in the Variation Agreement of any intention to adopt a different approach to the operation of Clause 5.2 of the Licence Agreement, Clause 5.2 likewise is not overridden by the use of the word “perpetual” in Clause 4(a) of the Variation Agreement.[19]For completeness I should mention two additional submissions of Mr Flynn which I would not accept, at any rate on a summary judgment application. First, he submitted that on the Defendant’s proposed interpretation of the Variation Agreement the Defendant would remain liable to pay fees to BMS in respect of tonnage generated without use of MillMaster software. However, it seemed to me that it might not be straining the interpretation of the Variation Agreement to read it - in the context of the factual matrix in which it was entered into - as referring only to tonnage produced using MillMaster software, and not that produced using other software. Secondly, Mr Flynn submitted that there would be no realistic practical purpose in the Defendant being granted a licence to use MillMaster software without support arrangements also being maintained in place. On that issue, however, evidence adduced by the Defendant indicated that there might be a practical commercial purpose in proceeding in that way if use of the software was required only for archive purposes (such as the Defendant proposed in this case) and the licensee was willing to take the risk of malfunction without having support back-up in place. If construction of the contract depended on resolution of these points, a trial would have been required for the court to examine more closely the circumstances in which the Variation Agreement was entered into. However, in my judgment, the principal indicators in relation to the agreements to which I have referred are clear and I am in a position to resolve this question of construction in favour of BMS upon this application for summary judgment.

Issue 2 - The addition of the Flixborough mill

[20]The point of construction in relation to this issue concerns other aspects of Clause 4 of the Variation Agreement.[21]The Flixborough mill produces compound animal feed. The addition of that mill represented non-organic growth of the Defendant’s compound feed activities. Even with the addition of the Flixborough mill, the Defendant’s aggregate production of compound feed per annum remains less than 2.45 million tonnes.[22]The Defendant submits that its operation at the Flixborough mill using MillMaster software is covered by the licence granted by Clause 4(a) of the Variation Agreement, on the footing that the mill produces compound feed and the aggregate annual tonnage of compound feed of all ABN UK (the Defendant’s) operations, including that mill, remains less than the 2.45 million tonnes “maximum” referred to in that provision.[23]BMS, on the other hand, submits that the licence in Clause 4(a) only covers organic growth (in relation to both compound feed and non-manufactured feed) and in that regard emphasises that the last sentence of Clause 4(c) says that new licence and support agreements should be negotiated “for all non-organic tonnage growth”. BMS submits that since the addition of the Flixborough mill was non-organic growth of the Defendant’s activities, a new licence agreement has to be negotiated to cover the Defendant’s operations there. It submits that the reference to “a maximum aggregate annual tonnage of 2.45 million compound feed tonnes” in Clause 4(a) is merely a reference to the threshold figure relevant to the operation of the additional payment provision in Clause 5 and does not define the extent of the licence granted in Clause 4(a).[24]In support of his submissions for BMS, Mr Flynn also pointed out that under the Licence Agreement in its original form the use of the software at the Flixborough mill would not have been licensed, since that mill was not one of the places of use listed in the Schedule to that agreement. The question of licensing of the MillMaster software for use at that mill would have depended on any distinct licence agreement in existence in relation to that mill and the terms of Clause 3.4.3 of the Licence Agreement. In the absence of a full licence covering all uses of the software at that mill, a new licence agreement would have had to be negotiated. Mr Flynn suggested that this background supported the interpretation of Clause 4 of the Variation Agreement which BMS put forward.[25]I do not think there is any significant force in this last point of Mr Flynn, because the Variation Agreement introduced a new definition of the licence using a very different structure and concepts from those originally used in the Licence Agreement. Unlike Clause 4 of the Variation Agreement, the original Licence Agreement terms did not create a regime structured by reference to distinctions between organic or non-organic growth or between compound feed and non-manufactured feed. Therefore, consideration of the previous regime does not lend support to BMS’s case on Clause 4, contrary to Mr Flynn’s submission. In my view, the licence created by Clause 4 of the Variation Agreement is very different and indicates that the parties intended an entirely different approach should apply.[26]There are two main indicators in the Variation Agreement which tend to support the submission of the Defendant that Clause 4(a) grants a licence which covers all production of compound feed by all ABN UK operations up to an aggregate annual tonnage of 2.45 million tonnes, and hence covers the production of compound feed by the Defendant’s operation at the Flixborough mill: i) The language of Clause 4(a) which refers to the software licence being “extended to be a UK-wide perpetual licence usable on any processor or PC at all ABN UK operations… up to a maximum aggregate annual tonnage of 2.45 million compound feed tonnes…” seems on its face more naturally to be defining the extent of the licence being granted by reference to place of use (“all ABN UK operations”) and quantity of compound feed produced (“maximum aggregate tonnage of 2.45 million tonnes of compound feed”) than simply referring to the 2.45 million tonnes as the threshold for the additional payment terms to arise. As one way of meeting this difficulty, Mr Flynn submitted that the reference to “all ABN UK operations” was restricted to all such operations at the time the Variation Agreement was entered into (which would not include the Flixborough mill) and that this interpretation was supported by the reference to the operations of Cereal Industries in that provision, which had only relatively recently become an ABN UK operation when the Variation Agreement was entered into. I do not think these submissions would be sufficient to meet the textual argument for the Defendant arising from Clause 4(a) on an application for summary judgment. The reference to “all ABN UK operations” in Clause 4(a) does not appear to be obviously limited in point of time and the reference to Cereal Industries seems a weak indicator (absent fuller examination of the factual matrix in which the Variation Agreement was entered into) since, on any view, at the time the Variation Agreement was entered into Cereal Industries was already an ABN UK operation to which explicit reference would not strictly have been required even on the construction of the provision advanced by Mr Flynn. If the resolution of the second issue before me turned purely on these points, I think a trial would be required to enable the court to assess the arguments in the light of evidence about the factual matrix. ii) It also seems to me that it might be said there is some support for the Defendant’s case on the interpretation of the licence in Clause 4(a) to be derived from Clause 7 of the Variation Agreement which, when explaining how the Defendant can reduce “the annual base level one support fee”, says “ABN would pay support on 2,000,000 tonnes for the balance of the ten years but would continue to be licensed for 2,450,000 tonnes annually” (emphasis added). This language could be taken to suggest that the licence granted in Clause 4(a) is indeed defined by reference (in part) to annual tonnage.[27]However, the possible inference to be drawn from that use of language in Clause 7 is in my view undermined by the following sentence of that provision, which says, “No incremental support charges would be due until annual tonnage exceeded 2,450,000”. This brings me to the reason why I conclude that BMS’s submission on the second issue regarding the construction of Clause 4 is in fact correct.[28]At the most fundamental level, Clause 4 is the relevant provision in the Variation Agreement which grants a licence for use of the MillMaster software. That licence has to be interpreted in the context of the whole of the Variation Agreement so as to cover the uses of the software by the Defendant which the Variation Agreement contemplates should be authorised. It is clear that use of the software to produce compound feed above the figure of 2.45 million tonnes per annum is contemplated as being authorised under the terms of the Variation Agreement, since Clause 5 of that agreement makes provision for additional payments in respect of that (this feature of the Variation Agreement is also referred to in the sentence from Clause 7 quoted in para. [27] above).[29]Therefore, in my judgment, the reference to the “maximum aggregate annual tonnage of 2.45 million compound feed tonnes” in Clause 4(a) cannot sensibly be read as defining (and so limiting) the licence which is granted by the Variation Agreement, as Mr Kitchener QC submitted for the Defendant. If it were so read, there would be no licence granted for the production of the tonnage above that amount which is contemplated by Clause 5 and Clause 7. Neither Clause 5 nor Clause 7 purport to grant a licence for the use of the MillMaster software to produce tonnage above the 2.45 million figure so – in order to make sense of the Variation Agreement as a whole – Clause 4(a) has to be read as creating such a licence. This can be achieved by reading the reference in Clause 4(a) to the maximum of 2.45 million compound feed tonnes merely as a reference to the threshold figure before additional payments are triggered under Clause 5, as Mr Flynn submits, rather than as part of the definition of the licence which is granted in that provision.[30]If the 2.45 million tonnes figure in Clause 4(a) is not (as I conclude it is not) part of the definition of the licence which is granted, it does not (contrary to the submission of Mr Kitchener) provide any limit on the extent of the licence granted by BMS where the Defendant’s business grows or is added to. It would not be commercially realistic to suppose, on an objective approach to the interpretation of Clause 4, that the parties intended that there should be no protection for BMS if the Defendant expanded its activities, taking over other companies and so reducing the size of the market apart from the Defendant’s operations to which BMS could sell its software products. Although the drafting is far from being perfect, in my view it is possible and necessary to produce a sensible and coherent interpretation of Clause 4 with this factor in mind by giving the last sentence of Clause 4(c) of the Variation Agreement its ordinary and natural meaning, so as to require new licence and support agreements to be negotiated “for all non-organic tonnage growth” (emphasis added) (i.e. including non-organic tonnage growth in respect of compound feed as well as in respect of non-manufactured feed).[31]It is also relevant as further indications that that is the correct construction of Clause 4 that: i) the last sentence of Clause 4(c) would not have been necessary if all that was being referred to in it was non-organic growth of non-manufactured feed activities, since the limitation of the licence only to cover organic growth in respect of such activities was clear from the first sentence of Clause 4(c); and ii) the reference in the last sentence of Clause 4(c) to “all non-organic tonnage growth” (emphasis added) seems particularly apt to cover the position in relation to compound feed, since organic growth of non-manufactured feed activities was covered by the first sentence of Clause 4(c) with no limit on volume, whereas it was in relation to production of compound feed that tonnages were significant (according to Clause 4(a) and Clause 5 of the Variation Agreement), so that the implication from reading Clauses 4(a), 4(c) and 5 of the Variation Agreement together is that all organic tonnage growth in respect of compound feed would be covered by the licence in Clause 4 and would also potentially attract the operation of the additional payment provision in Clause 5.[32]In relation to this second issue of construction which is before me on the present application, I again consider that the indications from the Variation Agreement itself are sufficiently clear that the court can be confident it is right to give summary judgment for BMS.[33]For these reasons I propose to give judgment for BMS in relation to both the issues which arise on its application. It was agreed at the hearing that the parties would make further submissions regarding the appropriate form of order once they had seen the terms of this judgment.

Cited in 1 later judgment