In this Part 8 Claim the Claimant (“NGM”) seeks declarations as to the entitlement of the Defendant (“BAE”) to terminate an “Agreement for Deployment Licences and associated Software Support” dated December 2010 (“the Licence Agreement”).

BAE contends that by Clause 5.1 of the Licence Agreement the terms of an “Enabling Agreement For Design Services and Task Work” dated 3 March 2010 (“the Enabling Agreement”) governed the Licence Agreement so that Clause 10.4 of the Enabling Agreement which provided for termination for convenience entitled BAE to terminate the Licence Agreement on that basis with effect from 19 December 2011.

NGM contends that Clause 10.4 of the Enabling Agreement was not a term which applied to the Licence Agreement so as to allow BAE to terminate the Licence Agreement for convenience. As a result, NGM says that BAE’s purported termination was ineffective and that BAE is obliged to pay NGM further sums under the Licence Agreement.

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.

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.

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.

In order to deploy the software on computers as part of BAE’s obligations to provide the system to the Ministry of Defence in Saudi Arabia, it was necessary for BAE to obtain licences for that software from NGM. This led to Insyte issuing a Request for Proposal (RFP) for software support and deployment licences to NGM on 13 October 2010. At the bottom of the first page reference was made to the fact that physical purchase of the deployment licences within Saudi Arabia would be “administrated by BAE Systems (Saudi Arabia)”. Terms and conditions were said to been “subject to further discussion.”

On 18 November 2010 NGM provided a quotation to “BAE Systems”. It, in turn, contained terms and conditions. The parties then entered into negotiations which culminated in the Licence Agreement which was signed on behalf of BAE on 17 December 2010 and on behalf of NGM on 20 December 2010.

The Licence Agreement contained the following term at Clause 5.1:

The initial issue in this case relates to the effect of that clause and, in particular, the scope and extent to which terms of the Enabling Agreement became terms of the Licence Agreement. The main question is whether Clause 10.4 of the Enabling Agreement applies under the Licence Agreement so as to entitle BAE to terminate the Licensing Agreement for convenience. It provides as follows:

On 29 November 2011 Insyte and BAE sent a Notice of Termination to NGM in the following terms:

On the same date Insyte sent NGM a Notice of Termination terminating the Enabling Agreement under Clause 10.4.

In response, on 1 December 2011, NGM wrote to BAE, with a copy to Insyte, saying that it did not agree that Clause 5.1 of the Licence Agreement had the effect of incorporating the terms of the Enabling Agreement including Clause 10.4 into the Licence Agreement. NGM continued:

Subsequently NGM commenced the Part 8 Proceedings against BAE and in Particulars of Claim sought the following relief:

Consequential relief and costs.”

Directions were given leading to a two-day hearing of that Part 8 Claim.

In support of the Part 8 Proceedings NGM served witness statements from Colin Richard Fieldgate and from Kevin Michael Squibb both dated 21 October 2013. In response BAE served witness statements from Danielle Larter and Sean Cross both dated 22 November 2013.

By an Application dated 23 January 2014 BAE sought permission to cross examine Mr. Squibb and Mr. Fieldgate and on 27 January 2014 NGM also issued an application seeking permission to cross-examine Mrs. Larter and Mr. Cross. Those Applications followed correspondence between the parties in which BAE challenged the admissibility and/or relevance of evidence contained in the witness statements of Mr. Squibb and Mr. Fieldgate. BAE sought permission to cross- examine because it challenged various matters contained in those witness statements. NGM’s application was for permission to cross examine if BAE’s Applications succeeded. The parties exchanged submissions on this issue.

At the start of the hearing in the light of the submissions exchanged between the parties on the substantive issues it became clear that the extent to which there were disputes as to the evidence rather than what was admissible as relevant factual background was much reduced. As a result, on the basis that NGM’s reliance on factual evidence was limited to what was set out under the heading “relevant factual matrix-commercial background” in paragraphs 23 to 64 of NGM’s opening and submissions for trial, BAE did not pursue its application to cross-examine Mr. Squibb and Mr. Fieldgate and NGM’s application to cross-examine Mrs. Larter and Mr. Cross therefore was not pursued either.

As set out below there were certain issues on what was admissible factual evidence in relation to issue of construction of the Licence Agreement and/or the Enabling Agreement. I therefore proceeded on the basis that any admissible evidence was in the witness statements of the four witnesses upon which the parties made comments and submissions.

In relation to the admissibility of evidence Mr. Alex Charlton QC, who appeared on behalf of NGM, relied on the following four propositions derived from the authorities which I gratefully adopt:

I was also referred to passages in the speech of Lord Hoffmann in Chartbrook Limited v Persimmon Homes Limited [2009] UKHL 38 at [38] where he distinguished between objective facts and statements made in the course of negotiations:

In addition at [31] in Chartbrook Lord Hoffmann cited what Lord Wilberforce said in Prenn v Simmonds [1971] 1 WLR 1381 at 1384 to 1385, as follows:

In his oral submissions Mr Charlton summarized the extent to which he relied on matters of factual background. He referred to the matters:

The Al Diriyah project started in 2007. It was a highly sensitive project for the development and implementation of Command, Control, Communications, Computer and Intelligence systems for the Ministry of Defence of the Kingdom of Saudi Arabia with whom BAE had contracted. These systems are used to conduct war and counter-terrorism.

The software which NGM had already supplied under a development subcontract with LM (who was a supplier to the Al Diriyah project) and in respect of which deployment licences and support was required, was NGM’s proprietary Command and Control for Personal Computers software called “C2PC”. NGM had developed and granted licences for its Arabic version of its C2PC software, along with two other of its products.

NGM’s proprietary software represented significant and valuable intellectual property. As part of the agreement to purchase the licences, the Licence Agreement contained the mechanisms by which NGM’s intellectual property rights were protected and enforced and set out how the software could be used.

There had been discussions about the granting of deployment licences in 2008. Prices and licence quantities had been discussed but no deal resulted. BAE was keen to secure those 2008 prices two years later when prices had increased. Quantities of licences had also been discussed in 2008 but were revised in 2010.

The commercial basis for the agreement between NGM and BAE was as follows:

That the RFP required prices for a fixed quantity of licences;

That the quotation prices were referenced to the specific quantities of licences that Insyte had put in their RFP and that they were given both 2008 and 2010 prices on the terms set out in the quotation;

That both NGM and BAE knew and understood at the point they entered into the Licence Agreement that whether or not the 2008 prices or the 2010 prices applied was dependent upon the following factors:

The purchase of the quantity of licences which the defendant had said it required;

The completion of the purchase of those quantities by 20 December 2010;

Payment for 25 per cent by value of those licences by 20 December 2010;

Payment for the balance by 20 December 2011;

Taking one year of support for a minimum commitment of £300,000; and

Bringing existing rig licences back under support.

Mr. Marcus Taverner QC, who appeared on behalf of BAE, identified admissible and relevant evidence in his opening submissions. He referred essentially to similar matters to those relied on by Mr Charlton, with some exceptions. Having reviewed the matters relied on, I consider that the fact of the RFP and whether 2008 or 2010 prices applied can form part of the factual matrix. However I consider that other matters, in particular the final sentence of paragraph 23(3) and parts of paragraph 23(5)(c), are not so much factual matrix but refer to the terms which formed part of the Licence Agreement. It is therefore those terms of the Licence Agreement which have to be construed against the admissible background. If the Licence Agreement contained terms which differed from the terms set out in the last sentence of paragraph 23(3) or the matters set out in paragraphs 23(5)(c)(i) to (vi), then it is the terms of the Licence Agreement which fall to be construed against the admissible background, rather than the wording of the terms as expressed in those paragraphs. Otherwise those matters can and do form part of the admissible background.

Mr Taverner also relied on the evidence of Mr Cross that, although BAE entered into the Licence Agreement determined that the Project would reach the deployment stage, neither the timing of deployment nor the success of the project was guaranteed. He also said that the members of NGM’s commercial team who negotiated the Licence Agreement knew about the uncertainty surrounding the Project and the number of licences that would ultimately be required. I have not found it easy to understand what uncertainty Mr Cross was referring to. I do not consider that his evidence is sufficient to establish any clear matters which were known to both parties at the time of entering into the Licence Agreement so as to assist in the construction of the agreement.

With those matters of factual matrix in mind, I now turn to summarise the relevant applicable principles of construction.

In relation to the approach to construing contracts I was referred to the well- known passage in the speech of Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 and the decision of the Supreme Court in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 per Lord Clarke at [14] and [21].

I was also referred to the following summary derived from Lord Clarke’s judgment by Gross LJ in Al Sanea v. Saad Investments Co Ltd [2012] EWCA Civ 313 at [31]:

In addition I was referred to the decision in Re Sigma Finance Corporation (In Administrative Receivership) [2010] BCC 40 where the Supreme Court emphasised the importance of the overall scheme in which the relevant provision is to be found, Lord Mance saying as follows at [12]:

I was also referred to what Lord Hoffmann said in Attorney General of Belize v Belize Telecoms Limited [2009] UKPC 10 at [16] as follows:

In considering the extent to which terms are incorporated by reference I was referred to the decision of Moore-Bick J, as he then was, in AIG Europe SA v QBE International Insurance Limited [2001] 2 Lloyd’s Rep 268 where he considered whether a jurisdiction clause had been incorporated by a reference to a related contract between different parties. At [26] he said this:

I was also referred to the judgment of Christopher Clarke J, as he then was, in Habas Sinai v Sometal [2010] EWHC 29 where he had to consider an agreement which contained terms and then included the words “all the rest will be same as our previous contracts”. The question was whether that was sufficient to incorporate an Arbitration Clause. At [13] he identified the following categories of incorporation.

He then identified particular issues arising in Bill of Lading and other cases before setting out the following at [49] and [52]:

In considering those cases on incorporation I bear in mind the particular context of those decisions and that the incorporation of arbitration or jurisdiction clauses into certain types of contract have historically raised difficulties separate from those raised in incorporating other terms into commercial contracts.

In relation to perpetual licences I was referred to the decision of Sales J in BMS Computer Solutions Limited v AB Agri Limited [2010] EWHC 464 (Ch) at [17] to [18] where he said:

There are essentially three issues of construction that I have to consider:

The effect of Clause 5.1 of the Licence Agreement and, in particular, what was meant by the reference to the Licence Agreement being “governed by the terms contained within the [Enabling Agreement]”?

The effect of Clause A2.7 of the Enabling Agreement on what would otherwise be the effect of Clause 5.1 of the Licence Agreement.

Given the effect of Clause 5.1 of the Licence Agreement and any effect of Clause A2.7 of the Enabling Agreement, what terms of the Enabling Agreement applied to the Licence Agreement and did they give BAE an entitlement to terminate the Licence Agreement for convenience?

Mr. Charlton submits that the phrase “governed by” in Clause 5.1 does not mean “incorporated”. He submits that, as a matter of plain and ordinary English, the word “governed” has a variety of meanings but none of them equate to “incorporated”. He refers to the definition of the word “governed” in dictionaries. He submits that the word “governed” should be interpreted so that the terms of the Enabling Agreement have “a governing influence” over the Licence Agreement.

Mr. Taverner submits that the meaning of “governed” construed in the context of Clause 5.1 is plain and obvious. It means “governed” in the sense that the terms of the Enabling Agreement “rule” and/or “regulate” the Licence Agreement and he also refers to those meanings in dictionary definitions. Further he submits that the word “governed” in the context of Clause 5.1 is more powerful that the phrase “incorporated into” since it suggests that, if there were any conflict between the terms, the terms of the ruling and regulating Enabling Agreement would prevail over the terms of the Licence Agreement.

He says that, on the interpretation put forward by Mr. Charlton, the meaning and effect of a term having “influence” is not clear and the term “influence” cannot, he submits be equated to the term “governed”.

I consider that the submissions of Mr. Taverner are correct. Where terms of one agreement are said to govern another agreement, those terms rule or regulate that other agreement. Not only would those terms be incorporated but they would generally, depending on the particular context, prevail over the other terms of the other agreement. It is common for contracts to incorporate governing law clauses which evidently have that effect. In the present case the Enabling Agreement itself contains the following provision at Clause 1.1:

That, in my judgment well illustrates the meaning and effect of the word “governed” as having the effect of incorporating the terms and conditions in the Enabling Agreement into those Purchase Orders and, as Mr. Charlton accepts in terms of Clause 1.1 of the Enabling Agreement, the whole scheme of the Enabling Agreement would apply to those Purchase Orders.

Clause A2.7 provides as follows:

Mr. Charlton submits that this clause operates and is effective to exclude the application of anything in the Enabling Agreement that affects or amends the licensing arrangements in the Licence Agreement and that this would include Clause 10.4. He submits that, in context, Clause A2.7 is a sensible and necessary provision which prevents the terms of the Enabling Agreement having any application to licensing arrangements in relation to software and products outside the Enabling Agreement.

He says that Clause A2.7 is effective to prevent any of the terms of the Enabling Agreement applying to the Licence Agreement. If it does not have that total effect, he submits that it applies at least to the licensing element of the Licence Agreement, if not to the support and training elements.

He submits that Clause A2.7 is broadly worded so that “nothing” in the Enabling Agreement shall “affect or amend” the licensing arrangements. This, he says, is apt to cover a clause in the Enabling Agreement which has the effect of cancelling or suspending the Licence Agreement, as it is contended that Clause 10.4 would do. That would, he submits, cover all the licensing arrangements under that agreement in relation to quantity and use of the licences and in terms of associated support and training. He also submits that when the Licence Agreement is entered into there are then “licensing arrangements that exist” and which would therefore be covered by that Clause. He accepts that the products and software have to be “delivered” but says that, as is part of the factual matrix, the project started in 2007 and NGM provided the software to LM under the sub-contract. He therefore submits that the products and/or software were delivered to the Aldiriyah Project. Further he says that they were delivered outside of the Enabling Agreement as they were delivered under the agreement between LM and NGM.

Finally Mr Charlton submits that nothing should be read into the fact that Clause A2.7 is to be found in Section A2 of the Enabling Agreement which refers to Intellectual Property Rights. He says that the Enabling Agreement is not a document where clauses are to be found where they would be expected.

Mr Taverner says that Mr Charlton’s submissions are based on an acceptance that the Licence Agreement incorporates all the terms of the Enabling Agreement, including Clause A2.7. On that basis, he submits that Mr Charlton’s submissions would be commercially absurd as it would mean that the effect of Clause 5.1 of the Licence Agreement is only to incorporate Clause A2.7 in order to give Clause 5.1 no effect at all.

He submits that Clause A2.7 does not have that effect. He says that the Licence Agreement did not exist prior to the Enabling Agreement so that it could not be “licensing arrangements that exist” so far as the Enabling Agreement is concerned. Further he says that the Enabling Agreement does not “affect or amend” the Licence Agreement as it governs it.

He also points out that, as part of Annex A to the Enabling Agreement, Clause A2.7 only applies by reason of Clause 1.4 of that agreement which provides:

In this case he submits that the Licence Agreement is not the equivalent of a Purchase Order for Tasks. He refers to Clause 1.2 of the Enabling Agreement which deals with tasks, as follows:

On this basis he submits that the Enabling Agreement envisaged that it would apply to purchase orders for a Task or Tasks or for additional design support so that Annex A would only apply to those which were for Tasks and not additional design support. It therefore applied to a limited category of purchase orders. In this case the Licence Agreement has not gone through the process envisaged in Clause 1.2, 1.3 and 1.4 and therefore he says that the second part of Clause 1.4 cannot apply but, in any event, the Licence Agreement cannot be categorized as a purchase order for Tasks as defined in Clause 1.4 which would be something such as producing software.

Finally, he submits that, even if the terms in Annex A applied, the provision in Clause A2.7 has to be read in the context of the other provisions in Clause A2. He says that the issue would be what other terms of the Enabling Agreement would be capable of affecting any existing licensing arrangements. He says that it is the provisions internal to section A2 of Annex A which deal with Intellectual Property Rights. He refers to the clauses in that section which deal with licensing arrangements arising from Technical Information generated in the performance of the Purchase Order or which is proprietary to the Contractor. He therefore submits that Clause A2.7 is internal to Section A2 and does not affect the other terms of the Enabling Agreement.

I have come to the conclusion that Clause A2.7 does not have the effect of depriving the Enabling Agreement of the governing effect over the Licence Agreement which Clause 5.1 of the Licence Agreement clearly states that it is to have. I consider that such a construction would be commercially absurd and would, as Mr Taverner submits, mean that the effect of Clause 5.1 would only be to incorporate the Enabling Agreement and Clause A2.7, in particular, in order to give Clause 5.1 no effect at all. I come to that conclusion for a number of reasons.

First, I do not consider that the terms of the Licence Agreement can be brought within the category of purchase orders to which Annex A applies under Clause 1.4 of the Enabling Agreement. The Licence Agreement is an agreement for the supply of software licences with an element of training and support related to those licences. It is not a “task” of the type which is clearly envisaged under Clause 1.4 of the Enabling Agreement and to which the particular obligations in Annex A, in particular A1, A6, A8 and A12 would be expected to apply. There is some support for that construction in terms of Clause 4.3 of the Licence Agreement which says that payments for software support shall be made in accordance with Clause A5 of the Enabling Agreement. If all the terms of Annex A already governed the Licence Agreement then it would be unnecessary to add that provision.

Even if Annex A did apply, then the context of Clause A2.7 within Clause A2 which deals with licensing arrangements makes it much more likely that Clause A2.7 was intended to apply to prevent the licensing arrangements in Clause A2 from applying to all products or software delivered to the project. The reference to “licensing arrangements that exist” strongly suggests that this is a reference to licensing arrangements which are already in existence outside the terms of the Enabling Agreement. Nothing then in Clause A2 affects or amends those licensing arrangements.

Therefore, on that basis, I do not consider that Clause A2.7 of Annex A to the Enabling Agreement has the effect of preventing the clauses of the Enabling Agreement from governing the Licence Agreement.

Mr Charlton submits that, if contrary to his other submissions, Clause 5.1 of the Licence Agreement is effective to apply the terms of the Enabling Agreement to the Licence Agreement then difficulties apply in determining what terms are to apply. He submits, first, that the obligations of NGM as the CONTRACTOR under the Enabling Agreement and of Insyte as the PURCHASER under the Enabling Agreement cannot easily be applied to the relationship between NGM and BAE, a third party to the Enabling Agreement. He submits that difficulties arise in interpreting obligations expressed as arising between NGM and Insyte under the Enabling Agreement and under Purchase Orders between those parties to which the Enabling Agreement applies.

Secondly, he submits that if any of the terms of the Enabling Agreement could apply to the obligations under the Licence Agreement then those terms would be limited. He identifies certain general or boilerplate clauses relating to confidentiality (Clause 5.1 to 5.14), Security Measures (Clause 6), Publicity (Clause 12), Remedies (Clause 15), Waiver (Clause 16), Relationship between the Parties (Clause 17), Assignment (Clause 18), Severability (Clause 22), Law and Jurisdiction (Clause 23), Dispute Resolution (Clause 24), Entire Agreement (Clause 25) and Agreement- Rights of Third Parties Act 1999 (Clause 26). He submits that all those clauses could, in principle, apply.

He also identifies some clauses which might be relevant to the obligations in respect of support or training but not the licensing arrangements under the Licence Agreement. These are Control of Labour (Clause 8), Safety (Clause 9.1), Quality (Clause 13) and Insurance (Clause 14).

He also identifies some provisions which are specific to the Enabling Agreement and are incapable of having any governing influence over the Licence Agreement. These are Clause 1.1 which sets out the object of the agreement, Clauses 1.2 to 1.4 which set out the mechanics of issuing Requests for Quotations, Clause 2.1 and 2.2 which deal with Consideration and Amendment, Clause 3.1 Terms and Conditions, Clause 4.1 Precedence, Clause 7 Notices. Clause 9.2 Safety, Clause 11 Purchaser Property and Clause 19 Duration Period.

Thirdly, he submits that the right to terminate the Licence Agreement, in particular for convenience under Clause 10.4, could not apply to the obligations under the Licence Agreement. He says that the granting of licences and associated intellectual property rights over software on a perpetual and transferable basis are not amenable to a right to terminate for convenience. He says that, if the Licence Agreement could be terminated on 20 days’ notice immediately after NGM had delivered the first tranche of perpetual and transferable licences, this would deprive NGM of the protection of the clauses of the Licence Agreement which governed how the software was to be used and the rights which were to be conferred upon it by the further agreements and licences which the Licence Agreement required BAE to put in place.

He submits that, on the basis that the entire licence agreement was terminated, all of the licence terms set out in Clause 1.1.3 of the Licence Agreement which limit or control the use to which the software can be put, including signing of developer licences, and the requirement at Clause 5.6 of the Licence Agreement which requires BAE’s end user in Saudi Arabia to sign NGM’s Standard Licence Agreement, would fall away.

Fourthly, he submits that the right to terminate for convenience is wholly inconsistent with the commercial basis of the Licensing Agreement where the cost of the licences and support payable under that agreement were based on NGM’s 2008 prices. Those prices, he says, were conditional on the total quantity of licences purchased, the commitment to purchase being made by 20 December 2010, a minimum commitment of £300,000 for support and support services being renewed for licences already granted. He submits that the arrangement was an indivisible package of 2,126 licences and intellectual property rights at 2008 agreed with one year’s support with a minimum value of £300,000 and that, by terminating for convenience after the first delivery, it could not have been intended that BAE was able to obtain a discount on the first tranche of licences which was never intended.

Mr Taverner submits that Clause 10 is a term of the Enabling Agreement and therefore it governs the Licence Agreement and there is no reason why that Clause and, in particular, Clause 10.4 providing for termination for convenience should not apply. He submits that there is no reason in principle why there should not be a termination clause allowing a party to terminate the Licence Agreement. That could happen by a common law repudiation and there is nothing to prevent the parties agreeing to terminate for material breach (Clause 10.4), insolvency (Clause 10.2) or for convenience (Clause 10.4). He relies on what was said by Sales J in BMS Computer Solutions Limited v AB Agri Limited [2010] EWHC 464 (Ch) at [18(ii)] in the context of termination provisions in licensing agreements:

Mr Taverner submits that there is no difficulty in construing the terms of the Enabling Agreement so that they are applicable to the relationship between NGM and BAE under the Licence Agreement. He says that, as commonly happens in construction sub-contracts which are made subject to the terms and conditions of the main contract, there has to be some substitution in relation to the references to the parties and the relevant contract. That substitution by reading the names and references to the contracts mutatis mutandis causes, he submits, no problems: BAE as the Purchaser under the Licence Agreement becomes the Purchaser under the Enabling Agreement and NGM as the Contractor under the Licence Agreement remains the Contractor under the Enabling Agreement. In relation to references to “this Agreement” or “Purchase Orders” Mr Taverner’s primary submission is that both of these phrases should, where appropriate, be construed as being the Licence Agreement. On that basis he submits that Clause 10.4 plainly can and does apply to the relationship between BAE and NGM under the Licence Agreement.

Given my interpretation of Clause 5.1 of the Licence Agreement and Clauses 10.4 and A2.7 of the Enabling Agreement, the question is whether, taking account of the admissible background, the terms of Clause 10.4 of the Enabling Agreement as to termination for convenience, when objectively construed with the terms of the Licence Agreement, were applicable to the Licence Agreement.

Termination clauses are commonplace in commercial contracts and software licensing agreements are not an exception, as the BMS Computer Solutions case indicates. They are inserted to permit one or other or both parties to bring to an end the whole or part of the agreement in particular circumstances. In the absence of such clauses the parties’ rights to terminate depend on rights existing at law, such as the common law right to terminate for repudiatory breach. Parties entering into an agreement include those terms to allow for termination in the agreed circumstances. If those circumstances happen then necessarily the parties will not complete the commercial transaction which they entered into on the basis of terms which otherwise assumed that there would be a completed commercial transaction.

The issue in the present case is whether the nature of the commercial transaction, taking account of the admissible factual background, was capable of being terminated. For instance, if the Licence Agreement had expressly stated that it was not terminable or was only terminable after a certain date, then importing a clause which allowed for termination for convenience from another agreement would be inconsistent with that clause and the issue would be which terms, objectively construed, were to prevail. When construing the terms of the Licence Agreement against the admissible factual background, however, care has to be taken because that factual background deals with what has traditionally been described as the aims and genesis of the agreement which generally will assume that the commercial transaction will be completed.

In the present case I do not consider that there is anything in the admissible factual background which shows that, in construing the terms of the Licence Agreement and Enabling Agreement, the Licence Agreement was an agreement which could not be terminated. Mr Charlton in the course of argument accepted that a software licensing agreement could be terminated but drew a distinction between termination for default of insolvency and termination for convenience. I do not consider that there is a distinction to be drawn, given that parties are free to agree the circumstances in which termination may occur. Nor do I consider that there is anything in the admissible factual background which affects the position if, otherwise, there is a term of the Licence Agreement which allows the parties to terminate for convenience. The fact that the parties negotiated the price, quantity and delivery dates of licences on the basis of 2008 prices and entered into an agreement at a particular date to avoid 2010 prices applying does not mean that the aims and genesis of the agreement show that the agreement could not be terminated for convenience. As set out above objectives of one party, even if communicated to the other party, are not matters which can affect the construction of the contract. Inevitably termination will mean that one party’s objectives will not be met.

The question then is whether construing the Licence Agreement and Enabling Agreement against the admissible factual background, Clause 10.4 can be construed to apply to allow the Licence Agreement to be terminated for convenience.

I consider that to give effect to Clause 5.1 of the Licence Agreement there have to be some appropriate changes to the terms of the Enabling Agreement to make them applicable. That is no more than is necessary to give effect to the clear intention in Clause 5.1. Whether that is a matter of interpretation or manipulation, it is both necessary and appropriate. There is little difficulty in applying BAE as purchaser under the Licence Agreement to BAE as the Purchaser under the Enabling Agreement. Obviously NGM is the Contractor under both the Licence Agreement and the Enabling Agreement. Indeed to some extent, for instance in relation to Clause A5 of the Enabling Agreement which is expressly referred to in the Licence Agreement, Mr Charlton accepted this.

The one difficulty which might arise in terms of substituting references to the Purchaser is Clause 7 of the Enabling Agreement which refers to Notices and says that the Contractor shall address all its correspondence to the Purchaser Insyte. The connection between Insyte and BAE can be seen from Recital A of the Enabling Agreement and I consider that notice required under the terms of the Licence Agreement could be given to the Purchaser, BAE, either at Insyte’s address in accordance with Clause 7.3 of the Enabling Agreement or at the address in the Licence Agreement, in the absence of any provision showing to the contrary.

The more difficult question is whether references both to “this Agreement” and to “Purchase Orders” under the Enabling Agreement are intended to be references to the Licence Agreement. On balance I consider that generally, unless the context suggest otherwise, only references to “Purchase Orders” should be construed as being references to the Licence Agreement. This was Mr Taverner’s alternative submission. The fact that BAE and NGM have agreed that the Licence Agreement should be governed by the terms of the Enabling Agreement does not mean that BAE and NGM have thereby agreed to treat the Licence Agreement as the Enabling Agreement or enter into a separate Enabling Agreement. The Enabling Agreement is a framework agreement made between Insyte and BAE under which tasks and design support was to be carried out by a process which would lead to a Purchase Order between Insyte and BAE. The Purchase Order would then be governed by the terms and conditions of the Enabling Agreement: see Clause 1.1 of the Enabling Agreement. In particular in the light of the admissible background evidence as to how the Licence Agreement came about, I consider that the Licence Agreement was in the same position under Clause 5.1 of the Licence Agreement as a Purchase Order under Clause 1.1 of the Enabling Agreement. There is nothing to show that it was intended to make the Licence Agreement a framework agreement like the Enabling Agreement.

This means that terms of the Enabling Agreement which deal with the way in which Purchase Orders are created (Clause 1.2 to 1.4) or consideration for the Enabling Agreement or amendment of the Enabling Agreement are not applicable to the Licence Agreement. Of course, quite separately, those terms of the Enabling Agreement applied to the relationship between Insyte and BAE.

As Mr Taverner submits, for the purpose of the issues which I have to determine, I need only consider Clause 10 and, in particular Clause 10.4. It may at some stage be necessary to construe other terms of the Enabling Agreement which govern the Licence Agreement and the extent to which those terms are applicable to any or all of the obligations under the Licence Agreement which include licensing arrangements, training and support. Individual terms would have then to be reviewed but there is nothing in the analysis of either Mr Charlton or Mr Taverner of those terms to indicate that this would raise any particular difficulties other than those that always apply when construing any terms of agreements.

Turning then to Clause 10.4, I consider that, treating the Licence Agreement as being the same as a Purchase Order, there is no difficulty in construing that clause governing the Licence Agreement and applying so as to give the Purchaser, BAE, the right to terminate the Licence Agreement for convenience. Clause 10.4, as construed to apply to the Licence Agreement, would be in the following terms in relation to termination for convenience:

As stated at the hearing, I do not deal with Mr Charlton’s submissions to the effect that on the termination of the Licence Agreement all obligations would cease. That depends on accrued rights and which, if any terms of the Licence Agreement survive termination. Having determined the applicability of Clause 10.4 it may now be necessary to consider those other issues as well as the other consequences of termination under Clause 10.4.

For the reasons set out above, I propose to make a declaration that, on a true construction of the Licence Agreement, BAE was entitled to terminate the Licence Agreement for convenience on 20 calendar days’ notice under the provisions of Clause 10.4 of the Enabling Agreement which governed the Licence Agreement.