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	England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Harbinger UK Ltd v GE Information Services Ltd [1999] EWHC Technology 222 (05 August 1999) URL: http://www.bailii.org/ew/cases/EWHC/TCC/1999/222.html Cite as: [1999] EWHC Technology 222

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In the High Court of Justice
Technology and Construction Court

		Case number: 1999 TCC No. 113
		5 August 1999

These preliminary issues are concerned with the construction of an Agreement to supply and support software programs. Two questions were considered. The first was whether the termination clause may be operated so as to bring the Agreement to an end at the end of the Initial Period. The answer was that it can be so operated. The second was whether support and maintenance obligations survive a termination. The answer was that they do. Such on-going obligations were stated, in the Agreement, to survive "in perpetuity". By reliance on the principles of construction of commercial agreements provided for in Investors Compensation Scheme Limited v West Bromwich Building Society, the conclusion was reached that such services should be provided for as long as the defendant was contractually required to provide them to its end users.




See Also: [1999] EWCA Civ 3057




1. Introduction

1. This judgment is concerned with two issues of construction of a commercial agreement and its addendum that are concerned with the supply of the Atlas range of computer software to GE Information Services Limited ("GEIS"), a UK-based subsidiary of General Electric Company of America, and the subsequent support and maintenance of that software once it is in the hands of GEIS's customers, the end users of the software. Atlas software was, in the early 1990s, marketed by Atlas Products International Limited ("Atlas"). That company, and the Atlas range, were both acquired by the American-based Harbinger Corporation in 1997 and by that company's UK-based subsidiary, Harbinger UK Limited, ("Harbinger"), in 1998.
2. The relevant agreements have gone through four successive stages. The principal agreement was initially entered into between Atlas and GEIS on 1 August 1995. This agreement was superseded by a software licensing agreement called the Value Added Reseller, or VAR, Agreement. This was entered into in August 1996 with an effective date of 1 July 1996. It was varied and modified by an agreement called the Addendum Agreement dated 29 December 1997 which was entered into by Atlas and the American-based Harbinger Corporation on the one hand and GEIS on the other hand. Following Harbinger's acquisition from Harbinger Corporation of the business and assets of Atlas on 31 December 1998, the benefit of both the VAR and the Addendum Agreements were acquired by Harbinger. The parties accept that, although there was no formal novation agreement, the effect of that acquisition was to novate the two Agreements so that Harbinger and GEIS are to be regarded as the only contracting parties to both of them.
3. By a letter dated 30 December 1998, Harbinger Corporation informed GEIS that it was terminating the VAR and Addendum Agreements as of 31 December 1999 which was stated to be the end of the Initial Term. The intention of this notice was to terminate not only the supply and licensing of atlas products but also the provision of support and maintenance services for GEIS and GEIS's end user customers. In view of the novation of both agreements, this letter is to be regarded as having been sent by Harbinger.
4. Harbinger maintains that this termination was in conformity with, and permitted by, the terms of these two Agreements. GEIS, on the other hand, maintains that the purported termination did not comply with the terms of the Agreements. It also maintains that Harbinger's support and maintenance obligations cannot be terminated by Harbinger at all, even if or when it succeeds in terminating the Agreements themselves. This is because GEIS contends that Harbinger has agreed to supply these support services in perpetuity. Harbinger and GEIS's conflicting contentions give rise to the two issues that I must decide. They essentially require me to construe the two Agreements and to determine the true meaning and effect of the termination and support maintenance provisions they contain.

2. The Atlas Products Range

5. The Atlas Products range is a range of multi-platform software packages which are designed for use with various well-known operating systems such as Windows, DOS, VMS or Unix. Each software package is designed to manage the flow of business documents between a company and the various companies it does business with. The package is therefore capable of use in connection with orders, invoices, supplies and internal electronic mail messages. The object is to eliminate or significantly reduce a company's reliance on both internal and external document exchanges. The package is particularly useful for such businesses as supermarkets whose business chain is wheel-shaped with the company acting as the hub with a large number of supplier spokes who can also install the package with little or not tailoring being required.
6. A software package is ordinarily sold to software suppliers with a licence to sell on to sublicensees. It is also customary for the supplier and subsupplier to provide the end users with support and maintenance services, at least for a period of time after the package goes on-line in the customer's location. This aftersales service consists, in the case of the Atlas range, a manned helpdesk and programming facilities. The type of help available comes at three successive levels. The lowest level, level 1, provides telephone advice for basic problems and queries which can be answered by relatively non-technical staff with a working knowledge of the package. The middle level, level 2, also consists of telephone advice and involves the provision of technical answers to problems and solutions to correct bugs. The highest level, level 3, involves the development, enhancement or remedying of the software to engineer out deficiencies, malfunctions, defects or errors affecting a specific use by a particular enduser of the package in question.
7. Level 3 services will, and level 2 advice may, involve recourse to the source code. This is only readily accessible by the supplier who is, in this case, Harbinger. It was suggested in argument that only Harbinger can provide level 3 services but since I am concerned with the construction of these agreements and since there was no evidence about the detailed nature of the available support services, I do not, nor need not, make a specific finding to that effect.
8. The way in which the Atlas range is marketed is that Harbinger grants GEIS a licence to use, market and grant sublicences in the Atlas products for a defined period. This licence is used to acquire the software and the relevant user and installation guides and supply these to distributors or customers. The customer will acquire a one-time or perpetual licence to use the package by paying a one-off licence fee. At the same time, the enduser is granted one year's free service and maintenance which includes use of all three levels of service and any improvements or enhancements of the package released during the relevant period of service. This service can be renewed by successive annual periods on payment of an annual lump sum fee which is typically about one-fifth of the size of the licence fee.
9. The service provision is split between GEIS and Harbinger. Level 1 and at least some of level 2 services are supplied by telephone-based staff manning a help-line during normal office hours. The balance of the level 2 and all level 3 services are provided by Harbinger once these have been referred to Harbinger by the GEIS staff. It is intended that all queries, fixes and workarounds will be dealt with, if at all possible, within 8 hours of their being received. Most level 1 and 2 queries are, of course, dealt with immediately. By far the more significant of the two issues I must resolve is whether Harbinger's role in the provision of this support must continue after it has discontinued the Atlas range and legitimately and successfully terminated its obligations towards GEIS as to the supply and licensing of the Atlas range.

3. Issue 1 - Termination

10. This issue is as follows:

Is Harbinger entitled to give, prior to the expiry of the Initial Term, a period of not less than 180 days written notice under Clause 3 and/or Schedule 1 of the Value Added Reseller Agreement as amended by the Addendum thereto (collectively "the Agreement") such that the Agreement is terminated on 31st December 1999. Alternatively, is the earliest date when such a notice can take effect:

(1) 28 June 2000; or

(2) 31 December 2000.

11. The relevant terms of the Agreement are as follows:

Clause 1 - Definitions

Effective Date means the date so specified in Schedule One.

Schedule One

Effective Date: 1st July 1996

Term: Initial Term of three years and continuing thereafter for automatic renewal terms of one year each, unless and until terminated by either party upon one hundred and eighty days prior written notice.

Clause 3 - Term

Save as otherwise provided herein the Term of this Agreement shall be for the Initial Term from the Effective Date and will continue thereafter for successive one-year renewal terms unless and until either party gives to the other not less than one hundred and eighty days prior written notice of termination.

Addendum Agreement - Clause 2

The Initial Term of the VAR Agreement shall be extended by 6 months, to 31st December 1999. Non-licensed Territories as set out in Schedule Two of the VAR Agreement shall be amended to include the United States of America and Canada.

Clause 18 - Notices

All notices required or permitted by this Agreement shall be in writing and sent by registered letter, telex, fax or be delivered by hand to the receiving party at the address stated above, or such other address as the said party may from time to time designate.

12. The relevant notice seeking to terminate the Agreement reads as follows:

Harbinger Corporation

Atlanta

Georgia

USA

December 30 1998

Via Facsimile and Courier

Mr John Thorpe

Managing Director

GEIS

Sunbury-on-Thames

Middlesex

England

Re: Value Added Reseller Software License Agreement ("VAR" Agreement) effective July 1, 1996 and Addendum to VAR Agreement ("Addendum") dated December 29, 1997

Dear John:

On August 3rd, our Board of Directors appointed a Strategy Review Committee to do an extensive review of our strategy, resources allocation as well as the short and long term market prospects for our products and services. During this review, we came to the conclusion that there were certain products and services that did not support our long-term strategic direction.

As a result and as I believe you are aware, Harbinger Corporation is discontinuing its Atlas product line. Accordingly, we are terminating the VAR Agreement, as amended by the Addendum, as of December 31, 1999, which is the end of the Initial Term (as defined in the VAR Agreement). This is the notice required by Clause 18 of the VAR Agreement and Section 2 of the Support Agreement.

...

Sincerely,

David T. Leach

Vice Chairman, International

13. Harbinger's argument is as follows. The effect of the clause is that Clause 2 requires a termination notice to be given which must take effect on the last date of the Initial Term or on any successive anniversary of that date. The notice must be served at least 180 days before the last day of the existing term, whether that be the Initial Term or a subsequent one year renewal term. GEIS's argument is as follows. Clause 3 provides that, once the Initial Term has concluded, it is to continue "thereafter". Thus, the Initial Term is not the only contract period provided for, there must be at least one renewal term. This interpretation of the clause is reinforced by the requirement that the agreement continues in force "unless and until" a termination notice has been served and has taken effect.
14. It can first be noticed that the effect of the Addendum Agreement is merely to extend the length of the Initial Term from three years (1 July 1996 until 30 June 1999) to three and a half years (from 1 July 1996 until 31 December 1999). Clause 2 of that Agreement has no other effect.
15. The issue I must decide raises a short point of construction. It boils down to whether the phrase "unless and until" is disjunctive or conjunctive. This phrase governs the time when, following the conclusion of the Initial Term, a termination notice of the Agreements may take effect. The effect of this phrase is that either such a notice may take effect at the conclusion of the Initial Term or, conversely, it may only take effect after the first automatic one year renewal following the conclusion of the Initial Term. This can be seen by contrasting two distinct situations provided for by clause 2: "this Agreement shall be for the Initial Term and will continue thereafter unless either party gives a prior written notice of termination" and "the Agreement shall be for the Initial Term and will continue thereafter until either party gives a prior written notice of termination". In the first case, the Agreements can be brought to an end at the end of the Initial Term since the Agreements only continue "thereafter unless" terminated. In the second case, the Agreements cannot be brought to an end until the end of the first one year renewal since, otherwise, the Agreements could not, after the Initial Term, continue "thereafter until" terminated. If the "and" linking "unless" with "until" is conjunctive, the Agreements can only first be brought to an end after the end of the first one year renewal since both the "unless" and the "until" requirements would have to be satisfied. If, on the other hand, the "and" is disjunctive, the Agreements can be terminated if either requirement is satisfied, which enables a valid notice to be served and take effect at the end of the Initial Term.
16. When, in an agreement or statute, the word "and" links two potentially distinct events or situations, the resulting phrase is one of the commonest examples of ambiguity in the English language. This is because the word can, in the resulting phrase, mean either "both" or "one or the other". In other words, "and" in such situations can frequently mean "or". Which of these two meanings has to be ascribed to the word depends on the context in which the word is used. Thus, it is necessary to look at the agreement as a whole and see whether the objective intention of the parties was to allow one of them, if it so chose, to terminate the Agreements immediately following the conclusion of the initial term or only to be able first to do so after at least one automatic annual renewal.
17. The first and most obvious indication of the parties' intentions is to be found in the expression "Initial Term" itself. The VAR Agreement provides that the Term of the Agreement shall be for the Initial Term save as otherwise appearing within the Agreement. The expression "Initial Term" is defined, following the Amended Agreement, as being until 31 December 1999. If, however, a termination notice cannot take effect until after the end of that term, the Initial Term is, for all purposes, a period ending on 31 December 2000, a period not of three and a half years but one of four and a half years. It follows that the period described in the Agreements as the "Initial Term" would not be a contractual term at all and would certainly not be the initial term of the Agreements. The expression "Initial Term", on this view, would have no practical purpose and it is commercially unlikely that the parties intended the termination clause to have the effect it would have if "and" did in fact mean "and" in the termination clause.
18. Further support for this conclusion is gained from another feature of the termination clause that would arise if GEIS' suggested meaning was given effect to. This aspect of the clause involves contrasting the situation that would arise if a party decided to terminate the Agreements as soon as it could compared with that party deciding that it would allow the Agreements to be subject to the first automatic one year renewal and then to be terminated. It is clearly possible to give a valid notice whose purpose is to terminate the Agreements after the first one year renewal by giving that notice in the first six months of the year 2000. In such circumstances, the Agreements would be terminated, if they had run for the Initial Term plus the first one year renewal period, on the same day as they would be terminated if the Initial Term was brought to an end as soon as it could be. In other words, there would and could be no difference between the situation where a party decided to terminate the Agreement at the end of the Initial Term and that following a decision to terminate them after the first renewal.
19. The conclusion is that, if "and" in the termination clause has a disjunctive meaning, the parties have provided for an Initial Term which has been defined as being of three and a half years in length but which is, in fact, both four and a half years in length and is also only capable of being terminated by a notice which could, at the same time, terminate the Agreements after they had run for their first yearly renewal.
20. Both these considerations point to the conclusion that the parties intended that the Initial Term should terminate on 31 December 1999. Thus, given the context in which the termination provision is found, the Agreements are ones in which the relevant "and" in fact means "or" and the effect of that conclusion is that the Agreements can be terminated by a valid notice of termination on 31 December 1999. However, this conclusion is put beyond doubt when the Addendum Agreement is considered.
21. The Addendum Agreement, as already noted, extends the Initial Term to 31 December 1999. Such language suggests that the parties envisaged that, without that extension, the VAR might be capable of terminating before that date, which it could not have done if GEIS's construction of the Agreements is correct. Furthermore, the Addendum Agreement provides that GEIS will place an order with Harbinger for software licenses to the value of £900,000. The clear intention of that provision was that that order would relate to the period up to 31 December 1999 since the Addendum Agreement also provided that Harbinger guaranteed that it would supply software licenses until 31 December 1999 (clause 6(v)); and that GEIS would make up any shortfall that Harbinger had experienced by 31 December 1999 in recovering £900,000 in license fee revenue by taking up licenses in 2 other non-Atlas packages (clause 3(iii)). The Addendum Agreement also provided for an accounting provision whereby GEIS's liability to pay £900,000 would be set-off against license fee revenue due to GEIS from end users up to 31 December 1999. All these provisions show that the parties envisaged that the Initial Term was intended to end on 31 December 1999 and that, if necessary, the Agreements could be terminated with effect from that date as well.
22. The conclusion is that the parties envisaged that the VAR, in its unamended form, would be capable of being terminated on 30 June 1999 and that the Addendum Agreement envisaged that that date would be extended to 31 December 1999. Thus, the expression "unless and until" should be read as meaning that these two operative words are disjunctive since that meaning of the phrase is the only meaning which gives effect to that contractual intention. The answer to the first issue is, therefore, that the Agreements have the effect that they can be terminated on 31 December 1999. Moreover, the effect of the notice dated 30 December 1998 is that the Agreements have already been made subject to a notice to terminate which will terminate them with effect from 31 December 1999.

4. Issue 2 - Support and Maintenance

4.1. The Issue

23. This issue is as follows:

Is Harbinger obliged by the terms of the Agreement to provide support and maintenance, in accordance with and as defined by the Agreement, to GEIS after 31st December 1999? If so, are there any limits - and, if so, what limits - to the time for which Harbinger is obliged to do so?

24. The relevant clause of the VAR Agreement provides:

Clause 10 - Support and Maintenance

[Harbinger] will provide support and maintenance in perpetuity in return for an annual payment, as specified in Schedule One, . . .

25. GEIS contends that this provision means what it says and that Harbinger is contractually committed to provide indefinitely support and maintenance to Atlas software supplied before the Agreements are terminated. As it was put in argument by Mr Barnes Q.C. on behalf of Harbinger, GEIS claims an entitlement to software support services until the "crack of doom". Harbinger, in contrast, contends that that meaning of the clause would create a nonsense and that the Agreements were intended to provide that all support and maintenance obligations would come to an end at the same time as the Agreements themselves are terminated. Alternatively, Harbinger contends that the only sensible meaning that can be given to the Agreements is that even if the supply and maintenance provisions survive and continue in force following the termination of the Agreements, those obligations can only survive for a reasonable time which, in the context of the Agreements, means for a period of one year following the giving of a notice for the termination of the Agreements. Harbinger's two alternative constructions lead to the same result, namely that its obligation to supply support and maintenance services will come to an end on 31 December 1999.

4.2. The Agreements Summarised

26. These rival contentions require a close examination of the Agreements since, at least on Harbinger's contentions, they cannot have been intended to allow a situation in which the Agreements have been terminated and yet the support and maintenance provisions continue.
27. The Agreements clearly envisage a two-tier arrangement by which Harbinger is to supply Atlas software under licence to GEIS who in turn is to sublicense or sell that software to end users. The software is to be guaranteed for a limited period and is to be supported and maintained. GEIS is required to provide such services to end users and these services, as between Harbinger and GEIS are concerned, are to be split between them in the ways summarised in the Agreements. The precise allocation of functions is currently disputed but, in broad terms, level 1 services are to be provided by GEIS, level 3 services by Harbinger and level 2 services by both parties with the demarcation of responsibility between them not being clearly spelt out in the Agreements.
28. The software is to be upgraded by Harbinger from time to time during the currency of the Agreements and will also be improved by Harbinger when necessary. The necessary licence fee for obtaining the software is to be a lump sum fee. The support and maintenance obligations to be provided to end users are not open-ended in either extent or time. The first year's support is provided automatically without a further fee. Thereafter, the support is dependant on the support agreement being renewed for successive annual periods on payment, at the beginning of the support year, of a lump sum fee. This fee is then split between GEIS and Harbinger in ways defined in the VAR Agreement depending on the extent of the service provided by Harbinger.
29. This string of obligations is reinforced by GEIS being required to sublicense or resell the software using an end user agreement which is in similar terms to a model of such an agreement that is scheduled to the VAR Agreement. Moreover, GEIS is required to obtain an end user agreement from each end user which does not conflict with the Agreements between Harbinger and GEIS. Thus, each Atlas end user agreement is clearly intended to mirror the obligations of both parties to the VAR Agreement.
30. The VAR Agreement differentiates between Harbinger's responsibilities and its support and maintenance obligations. The former clearly relate to Harbinger's responsibilities with regard to the supply of the Atlas software and the latter to its obligations with regard to supporting and maintaining it after delivery to the end user. Some of these obligations overlap.
31. Thus, Harbinger's supply obligations include an obligation to:

correct promptly any error found in Atlas by GEIS, by GEIS's customers or by Harbinger.

Harbinger's support obligations require Harbinger to:

provide GEIS with information regarding the impact of known Atlas defects at the earliest opportunity.

32. Furthermore, Harbinger's supply obligations require it to:

Disclose any developments acquired or made by or on behalf of Harbinger in relation to Atlas.

The Addendum Agreement enhanced this obligations by requiring Harbinger to:

provide such level of development resource to be allocated to the onward development of the software as would be customary in the provision of 3rd level support. In so doing, Harbinger agree to incorporate enhancements to the software, together with development timescales relating thereto, as reasonably requested by GEIS.

By way of contrast, Harbinger's support obligations require it to:

provide advance written notification of the availability of new releases, upgrades and updates of Atlas.

33. There is clearly an overlap between these contrasting supply and support obligations. There is a difference in that the former are provided without extra charge whilst the latter, at least after the first year of end user use, follow the payment of an annual fee by the end user which is then shared with, or passed on in full to, Harbinger. However, an overlap is inevitable given that any end user support of software will inevitably include the provision of software development and enhancement services and such development and enhancement will inevitably mirror the overall development being undertaken by a supplier of the same software packages. This overall development occurs because software is constantly being updated and upgraded to accommodate existing problems as they come to light, to make changes to it and to incorporate improvements to it. The software is, after all, an electronic system which is in a constant state of flux.

4.3. Supply and Support are Independent Obligations

34. The summary of the Agreements that I have just given shows that the Agreements are structured such that the supply of the software and its subsequent support and maintenance are intended to be separate commercial activities which, although linked and related, are none the less distinct. Thus, there would not appear to be any necessary intention or inherent need for the two to survive in tandem such that, if the supply obligations cease, existing support obligations also have to cease at the same time. This consideration shows that there is nothing inherently unworkable in the provision that Harbinger will provide support and maintenance services once the Agreements have been terminated, even if it is unlikely that such on-going service will last "in perpetuity". This initial view is supported by a number of other provisions of the Agreements which suggest that support obligations are to, or at least may, survive the termination of supply obligations.

1. The Initial Term of the Agreement

Clause 3 of the VAR, which defines the Initial Term of the Agreement as being three years in length, also provides that this is:

"save as otherwise provided herein".

Thus, any obligation created by the VAR which is subject to an express provision relating to its continuation beyond the termination of the Agreement after the Initial Term survives that termination. The existence of this proviso suggests that there are such obligations contained in the Agreement.

2. Termination of the Agreement

Clause 15 of the VAR provides that, following the termination of the agreement for breach by either party, insolvency of either party or the change in the control of GEIS or for any other reason:

Termination will have no effect on sublicences granted by the Licensee to Customers prior to termination. GEIS also may fulfil its obligations to all customers under the terms of maintenance and support agreements until the expiry of each such agreement. At GEIS's option, Customers may elect to receive support and maintenance directly with Harbinger.

The relevant effect of this provision, in connection with the possible continuation of Harbinger's supply and maintenance obligations after the VAR Agreement has been terminated, is three-fold:

(1) sublicence agreements with end users survive and are to remain in full effect despite the termination of the VAR and Addendum Agreements;

(2) GEIS remains free to carry on providing support and maintenance service to its end users despite such a termination; and

(3) GEIS may, if it chooses, give its end users the right to elect to have such continuing services provided by Harbinger.

3. Severability

Clause 19 of the VAR Agreement provides:

If any part term or provision of this Agreement be held illegal or unenforceable, the validity or enforceability of the remainder hereof shall not be affected, unless the business purpose of this Agreement is substantially frustrated thereby.

This provision, although not strictly applicable to a termination, shows that the Agreement is not to be regarded as a seamless whole. If the supply parts of the Agreement were to be held unenforceable, the support and maintenance parts of the Agreement could survive intact, so long as its business purpose would not be substantially frustrated.

4. Sublicensee's Agreements

The relevant provisions of these agreements, as found in the model agreement scheduled to the VAR Agreement, are as follows:

(1) The model sublicensee agreement provides that GEIS warrants to attempt to correct any failure of the software to meet its performance description that occurs within 90 days of its delivery.

(2) The model agreement also provides detailed support and maintenance provisions. For the first 12 months after the date of delivery of software, GEIS will attempt to correct any verified defects or deficiencies in the software and will maintain a telephone inquiry answering service. Furthermore, any improvements or enhancements of the software that are released for distribution by Atlas will be provided to the end user. Following that initial 12-month period, the support and maintenance service will be continued for successive one year periods on payment of the relevant invoice from GEIS.

(3) GEIS may terminate support and maintenance being provided to any enduser of a particular software program by giving at least one year's notice to the relevant end user to take effect at the end of the current period of support and maintenance service.

The effect of these provisions is that GEIS is contractually obliged to provide support and maintenance services to each end user for at least 2 years after it has licensed and delivered Atlas software to that end user. Since GEIS can license the use of such software up to the last operative date of the supply part of the VAR Agreement, it follows that GEIS will remain contractually obliged to provide end users with all three levels of service for a period which could be at least 2 years after the termination of the VAR Agreement.

4.4 Other contractual provisions which Harbinger contends show that supply and support obligations must terminate together

35. Despite these indications that supply and maintenance obligations are to survive the termination of the VAR Agreement, Harbinger points to three aspects of that Agreement which is argues shows that that intention was not intended.

1. Clause 9 contrasted with clause 10

36. The first suggested reason why both sets of obligations should terminate together is the apparent coincidence of the provisions concerning the remedying of defects that occur in clause 9, concerned with the supply of software, and clause 10 concerned with its support and maintenance. I have already dealt with this coincidence in paragraph 33 above. It makes commercial sense that Harbinger has a parallel, and possibly overlapping, obligations concerned with the programming of the software to deal with errors, defects and deficiencies, given the fact that it has produced the source code and the relevant Atlas programs in the first place and also given the fact that level 3 services inevitably involve the adaptation of the relevant software. Indeed, the detailed spelling out of Harbinger's obligations with regard to remedial work as part of the supply of the software and a separate and equally detailed spelling out of its support and maintenance obligations point to the possibility of the latter surviving the termination of the former.

2. The impossibility of support and maintenance without the VAR Agreement

37. Harbinger points to the difficulty of operating the VAR support and maintenance provisions if the Agreements have themselves been terminated. It is true that it would be less easy to maintain level 3 services when the Agreements have been terminated, particularly if, as is now the case, this termination of the supply obligations is to occur because the atlas range of software is itself being discontinued. However, the current Atlas software can clearly still be serviced following the termination of the Agreements and the stopping of any continuing development of the Atlas range. Had this on-going support not been possible, the VAR Agreement would not have provided for continued support of an end user's software for up to two years following the termination of that Agreement.
38. A further indication that Harbinger's argument is incorrect that support services are not intended to survive the termination of supply services is that the Addendum Agreement requires Harbinger to allocate, in connection with its supply obligations during the currency of the Agreements, the same level of development resources to the Atlas software as would customarily be allocated for the provision of 3rd level support. By wording this requirement in this way, the parties appear to be suggesting that development resources are involved in the provision of level 3 support services even if Harbinger is not, at the same time, supplying Atlas software to GEIS.
39. Further, the Addendum Agreement requires Harbinger to make available to GEIS all current versions of the source materials for all current versions of the software. This provision would make it possible for the software to be fully supported and maintained if the Agreements have been terminated.

3. Clause 15.5(d)

40. Clause 15.5(d) is said to be incompatible with the possible survival of supply and maintenance obligations following the termination of the Agreements. This reads as follows:

Clause 12 above [concerned with both parties' entitlement to confidentiality] shall continue in force notwithstanding termination of this Agreement, except that in the event that GEIS terminates this Agreement due to breach of this Agreement by Harbinger, or failure of Harbinger to comply with the terms herein, especially but not limited to clause 9 above, GEIS shall be entitled to continue to use Atlas and any and all documentation and manuals as may be necessary for the continued support of GEIS's Customers existing at the time of termination of the contract.

Harbinger argues that this clause only allows, and provides for, the continuation of clause 12 in the event that the Agreements are terminated. Thus, it is argued, all other clauses, including clause 10 concerned with support and maintenance services, are not intended to survive. This point is reinforced, Harbinger also argues, by the second part of clause 15.5(d) which allows for further support of the software by GEIS, without reference to any input from Harbinger, following the termination of the Agreements. Thus, Harbinger argues, it is not envisaged that Harbinger will continue to support the software following termination of the Agreements.

41. The answer to these points is two-fold:

(1) There is no need for clause 15.5(d) to add clause 10 to the reference to the clause which is to survive the termination of the Agreements since that clause already provides that it is to survive such a termination.

(2) Clause 15.5(d) is concerned with GEIS's use of Atlas and its associated documentation for post-termination support of Customers' software. The clause is not concerned with Harbinger's corresponding obligations. These are dealt with in the immediately following clause, 15.5(e). That clause provides that such support is to be provided, in certain circumstances, by Harbinger. Thus, clause 15.5(d) is not incompatible with a suggestion that the Agreements provide that Harbinger's support and maintenance obligations are to survive termination of the Agreements since it does not stand alone.

4.5 Conclusion - Interdependence of Supply and Support Obligations

42. All these provisions show that the Agreements provide for the possible continuation of Harbinger's supply and maintenance obligations that must be performed by that company following the termination of the Agreements. Thus, the critical clause 10, providing for the continued provision of support and maintenance by Harbinger "in perpetuity" is not inherently incompatible with the Agreements, albeit that it is surprising to find a provision that apparently provides not only for a continuation of these obligations beyond the termination of the Agreements but does not for an indefinite period. Thus, although Harbinger's first argument that the "in perpetuity" provision in clause 10 cannot be given any effect to and that the supply and maintenance provisions must terminate when the Agreement terminates is not sustainable, it does not follow that "in perpetuity" means in context, literally "for ever".

4.6. Does "In Perpetuity" Mean "Forever"?

4.6.1. Indications Provided by the Agreements

43. The following pointers suggest that Harbinger's support and maintenance obligations are not intended to survive for ever:

1. Clause 10.4 (a) provides that Atlas programs, updates and new releases will be supplied to end users and shall be backdated, if possible, with all earlier issues which are at least 2 years old. Moreover, Harbinger shall not discontinue support for a particular issue level without GEIS's prior written consent unless a later version contains a solution to a problem that is currently being experienced.

2. The model end user agreement provides that GEIS is not obliged to provide support services for any version of a licensed program for more than one year after the release by GEIS of a later version of the same licensed program.

3. The model end user agreement allows GEIS to terminate the support service unilaterally on giving one year's notice to the end user in question.

44. These provisions taken with the other provisions of the Agreements that I have already summarised in this judgment, suggest that, whilst Atlas is still being marketed, it will continue to be developed and that no version of an Atlas programme will be capable of being supported for more than a few years since a new version will be issued from time to time and, on such a release, the continued support of existing versions will soon cease. Furthermore, if it no longer becomes commercially viable to support a programme, when that programme is withdrawn from use and is no longer being developed for commercial use for example, GEIS has the option to terminate continued support of any surviving version of that program. Thus, the parties cannot have envisaged continued support "until the crack of doom".
45. GEIS sought to counter this obvious reading of the Agreements by evidence from Mr Morgan, who is its Year 2000 and Euro Manager, to the effect that it would be potentially commercially damaging for GEIS to exercise the option of termination since many of its customers expect to be able to use, and have supported, Atlas programs for many years. Indeed, there is one such program which is still being used and supported 15 years after it was first marketed. However, there is no evidence that the parties' common intention, at the time when either Agreement was entered into, was that support and maintenance would necessarily be continued long after the introduction of a particular program or after it had been withdrawn or that GEIS would not, in fact, use its power to unilaterally withdraw support services on giving the requisite contractual notice. Indeed, such an unexpressed common understanding, even if it had been proved, could not be given effect to since clause 21 of the VAR Agreement provides that:

There are no understandings or representations concerning this Agreement which are not fully expressed herein and nothing in this Agreement, expressed or implied, shall confer upon . . . the Parties hereto . . . any rights, remedies, obligations or liabilities, except as expressly provided herein.

4.6.2. The Relevant Approach to Construction

46. Both parties sought to rely on what has become, in its short period since it was handed down, the seminal opinion of Lord Hofmann in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896, H.L. His opinion contains the following passage at pages 912-913:

. . . I should preface my explanation with some general remarks about the principles by which contractual documents are nowadays construed. . . . Almost all the old intellectual baggage of "legal" interpretation has been discarded. The principles may be summarised as follows:

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background . . . includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man. . . .

(4) The meaning which a document . . . would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood it to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax. . .

(5) The "rule" that words should be given to their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] A.C. 191, 201:

"if detailed semantic and syntactical analysis of words in commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."

4.6.3. The Relevant Meaning of "In Perpetuity"

47. The suggestion that the parties intended the support and maintenance obligations to bind Harbinger for ever both flouts business commonsense and, in the light of all the indications in the Agreements that I have summarised, is a meaning of "in perpetuity" which the parties cannot have intended. That conclusion does not entitle the court to ignore the words or to substitute for them a phrase such as "for a reasonable time". That would be to rectify the Agreements not to interpret the obvious malapropism provided in them by the parties.
48. An obvious meaning comes to light when the provisions of the Agreements are considered carefully. The parties clearly intended that support and maintenance services would be provided for the Atlas range of software for as long as GEIS had a contractual obligation with its end users to provide that service. Harbinger was contractually committed to provide at least level 3 services and GEIS was contractually committed to Harbinger to provide a contractual commitment to its end users for at least 2 years support services. Thus, the obvious meaning of "in perpetuity" is, in context, for such time as GEIS must provide such services to its end users, whatever that time might be.
49. GEIS argues that it might be for many years that it has to provide such services. However, that would be a voluntary commercial decision it would take since GEIS can terminate such services by giving one year's notice to terminate at the second or subsequent anniversary of the start of the provision of such services. Furthermore, it would be strange if Harbinger need not provide support services for any version of a licensed program for more than one year after the release of its successor yet would have to provide such support for ever for the last version of such a program released before the program was withdrawn altogether.

4.7. Overall Conclusion - Issue 2

50. I conclude that "in perpetuity" means for such time as GEIS is contractually obliged to provide support and maintenance services to its end users whilst taking all measures provided by the enduser agreements to terminate or bring to an end the obligation to provide such services. That period cannot be defined with precision but would appear to be no longer than 2 years following the 31 December 1999.

H.H. Judge Thornton Q.C.

Technology and Construction Court

5 August 1999