Northrop Grumman Missions Systems Europe Ltd v Bae Systems (Al Diriyah C4I) Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Briggs,Lord Justice Bean,The Master of the Rolls |
| Judgment Date | 30 July 2015 |
| Neutral Citation | [2015] EWCA Civ 844 |
| Docket Number | Case No: A1/2014/3143 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 July 2015 |
[2015] EWCA Civ 844
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT, QBD, TECHNOLOGY AND CONSTRUCTION COURT
MR. JUSTICE RAMSEY
HT13388
Royal Courts of Justice
Strand, London, WC2A 2LL
The Master of The Rolls
Lord Justice Briggs
and
Lord Justice Bean
Case No: A1/2014/3143
Alex Charlton QC (instructed by King & Spalding International LLP) for the Appellant
Marcus Taverner QC and Richard Coplin (instructed by Herbert Smith Freehills LLP) for the Respondent
Hearing dates : 22 July 2015
This appeal raises an issue as to the entitlement of the purchaser under a one-off commercial agreement for the supply of software licences during a defined period to terminate the agreement early "for convenience". Although the question has been argued in comprehensive detail both on this appeal and in the court below, and is the subject of an extensive judgment by Ramsey J, it turns on what is ultimately a short point of construction, raising no issues of principle. I mean therefore no disrespect to counsel, still less to the Judge, by setting out my conclusion, and my reasons for it, without dealing in full detail with every submission made.
The agreement in question ("the Licence Agreement") was dated 17 th December 2010 and was made between BAE Systems (Al Diriyah C4I) Limited ("BAE") as Purchaser and Northrop Grumman Mission Systems Europe Limited ("NGM") as Contractor. I shall have to refer to some of its terms in detail in due course but, in outline, it provided for the supply by NGM to BAE of 2126 specific software licences, described as Deployment Licences, together with associated training and software support, in two tranches. The first tranche of 532 licences was to be delivered (and invoiced for) on 20 th December 2010, and the balance of the licences on 20 th December 2011. Training was to be provided in conjunction with the delivery of the licences. NGM was to commence provision of software support on the earlier of the start of the installation of a System Support Facility, stated in Clause 1.2.2 of the Licence Agreement to be planned for 29 th August 2011, or 20th December 2011. It was to be provided for one year from commencement, at a standard and price to be agreed (for which a formula was provided in Annex A) but BAE was obliged to provide a "minimum commitment" of no less than £300,000 upon commencement of the software support. Training was to be paid for in accordance with a specified Consultancy Man-Day Rate, applicable throughout 2011. The prices for the licences themselves were specified as £937,361 for tranche 1 and £2,664,139 for tranche 2, and therefore £3,601,500 for the totality.
Clause 1.1.3 made detailed provision for common terms to be included in all the licences supplied. In particular, they were to be both perpetual and transferrable for use, and (by clause 5.6) end-users would be required to sign NGM's standard licence agreement.
The Licence Agreement is, by comparison with many commercial agreements, refreshingly short and, apart from an Entire Agreement clause, almost devoid of the typical boiler-plate provisions dealing for example with jurisdiction, dispute resolution, limitation of liability, force majeure and assignability. More particularly, it contains no express provisions as to termination. But clause 5, headed "Terms", contains the following:
"5.1 This Agreement shall be governed by the terms contained within the 'Enabling Agreement for Design Services and Task Work, Version 2, dated the 3 rd March 2010'."
I shall refer to that agreement as "the Enabling Agreement".
The Enabling Agreement was made between NGM as Contractor and BAE Systems Integrated System Technologies Limited ("BAESI") as Purchaser, which was, as its name implies, a company connected with BAE. Its background was described by the Judge, with admirable brevity, as follows:
"4. BAE was engaged by the Ministry of Defence in Saudi Arabia to provide it with a Command, Control Communications, Computer and Intelligence System ("the System"). BAE engaged another company, BAE Integrated Systems Limited ("Insyte"), a sister company in the BAE Systems PLC Group to perform work, including the management of subcontractors and associated tasks that could be done outside Saudi Arabia.
5. Under a subcontract Insyte engaged Lockheed Martin ("LM") to provide a computer-based command and control sub-system, including ancillary data, documentation and technical and engineering services. In turn LM engaged NGM to supply certain software products and to supply licences for use on development rigs outside Saudi Arabia.
6. Insyte also entered into the Enabling Agreement with NGM which contained terms and conditions which governed purchase orders placed by Insyte with NGM in connection with the Data Links Interface Processer ("DLIP") and the Command and Control Personal Computers ("C2PC"). The Enabling Agreement was originally dated 17 July 2009 but was amended on 3 March 2010."
As might be expected of a enabling or framework agreement, the Enabling Agreement did contain boilerplate provisions covering the matters to which I have just referred as being, apparently, conspicuously lacking in the Licence Agreement. Thus it dealt at clause 2.2 with a particular form of force majeure, in clause 5 with confidentiality, in clause 11 with limitation of liability, in clause 18 with assignment, in clause 23 with law and jurisdiction and in clause 24 with dispute resolution. More particularly, it dealt with early termination in clause 10, duration (i.e. expiry by efluxion of time) in clause 19, and the limited force majeure provision in clause 2.2 was an additional ground for early termination.
Clause 10.4 provided for early termination both of the Enabling Agreement itself and of all or any Purchase Orders made thereunder "for convenience at any time by the Purchaser serving on the Contractor notice of twenty (20) calendar days of termination…".
The issue both before the Judge and on this appeal is whether Clause 10.4 of the Enabling Agreement has effect by reason of clause 5.1 of the Licence Agreement so as to make that agreement also terminable upon twenty days' notice by BAE for convenience and at any time. The Judge held that clause 5.1 of the Licence Agreement did have this effect. For the reasons which follow, I agree with him.
It is necessary at this stage to set out some of the terms of the Enabling Agreement in full. Recital A provides that:
"The PURCHASER has been awarded a Contract in respect of a project designated the Aldiriyah Project by the Ministry of Defence Aviation (MODA) of the Kingdom of Saudi Arabia (the "End Customer") through BAE Systems (Al Diriyah C4I) Limited the "Purchaser's Customer" to develop a System which currently includes a requirement for the Data Links Interface Processor ('DLIP')"
Clause 1 provides as follows:
"1.1 Any Purchase Order placed by the PURCHASER, pursuant to and referencing this Agreement and in connection with DLIP and/or C2PC in support of the PURCHASER's contract with the Purchaser's Customer, to be performed by the CONTRACTOR shall be governed by the terms and conditions detailed in this Agreement.
1.2 Where the PURCHASER wishes to engage the CONTRACTOR in the provision of a defined Task or series of Tasks or additional design support, the PURCHASER shall issue a formal Request for Quotation (RFQ) and Statement of Work (SoW) to the CONTRACTOR detailing the requirements of the Task(s).
1.3 …
1.4 Subject to the acceptance of the CONTRACTOR proposal and agreement of the pricing arrangements the PURCHASER will place a Purchase Order with the CONTRACTOR. All Purchase Orders for Tasks shall be subject to the Terms and Conditions of this Agreement including those additional Terms detailed in ANNEX A to this Agreement."
Clause 1 therefore makes a distinction between Purchase Orders simpliciter and Purchase Orders for Tasks. In particular, the additional terms in Annex A apply only to the latter.
Clause 2.2 enables NGM to terminate the Enabling Agreement in the event that USA state authority to NGM to provide relevant services to BAESI is terminated. The right to terminate applies both to the agreement itself and to any Purchase Order issued thereunder.
Clause 10, headed Termination, makes provision for three types of termination, namely upon breach, upon insolvency and "for convenience" which counsel agreed was synonymous with early termination at will. Each of them provided for termination of the Enabling Agreement and of any Purchase Orders made thereunder.
Clause 10.4 provides, in full, as follows:
"This entire Agreement and/or any or all Purchase Orders may be terminated for convenience at any time by the PURCHASER serving on the CONTRACTOR notice of twenty (20) calendar days of termination and the CONTRACTOR shall forthwith arrange the economical cessation of all work under the Purchase Order at its own premises and at those of its subcontractors and shall await disposal instructions from the PURCHASER. The PURCHASER undertakes to reach a fair and reasonable settlement with the CONTRACTOR within a reasonable time for costs reasonably and properly incurred in connection with the termination of this Agreement including any irrevocably committed costs and/or any or all Purchase Orders, including reasonable profits thereon."
Clause 19.1 provides that:
"The duration period for this Agreement shall be from the date it is made until 31 st December 2011."
By contrast with the other...
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