Introduction
The Recent English case of Data Direct Technologies v Marks and Spencer plc provides valuable lessons for companies in relation to a common type of technology contract. The type of contract in question was one where the parties sign up a Main Agreement that sets out a framework for engagement between the parties and then the supply of various goods, services or other things are agreed and added as schedules either at the time of the signing of the Main Agreement or subsequently. The general intent being that once the Main Agreement is signed then the parties can simply sign up a schedule and rely on the Main Agreement filling in the gaps. While these types of agreement are very useful and therefore very common the risk is that the parties aren’t as familiar with how the terms of the Main Agreement and the details of the schedule work together. The result being that when put together the two didn’t have the effect that was intended.
Facts
- Under an agreement, Data Direct licensed software called Shadow Direct to Marks and Spencer for use in its business. This Main Agreement contemplated that Product Schedules would be entered into each time some variation or extension of the license was agreed.
- Clause 1(c) of the Main Agreement said that maintenance of the software is payable annually unless Marks and Spencer gave notice of its intention to cancel maintenance. This potentially conflicted with clause 7 of a Product Schedule which stated that maintenance was payable “at the customer’s option”.
- The Product Schedule also provided that “Maintenance for the first year is included in the above price. For the second and subsequent years maintenance will be charged at 17.5% of the prevailing list price of the product.”
The issue came down to the true construction of the clause in the Product Schedule – namely the words “at the customer’s option”:
- Marks and Spencer asserted that these words directly conflicted with the duty to pay annually under the Main Agreement and that it was only obliged to pay for maintenance if it exercised the option to take up maintenance. Since Marks and Spencers elected not to take up the maintenance, no fee was payable.
- Data Direct argued that ‘at the customers option’ referred merely to the ability to cancel maintenance in accordance with clause 1(c) of the Main Agreement if 30 days written notice is given.
The decision
Luckily for the software company, the Judge in this case found the Master Agreement and the Schedule were not in conflict. He interpreted ‘at the customers option’ as being the option to cancel maintenance if 30 days written notice was given. This meant that Marks and Spencer was obligated under the Main Agreement to pay maintenance because it had not given notice that it did not want the maintenance.
The underlying issue considered
At its core the case was about the parties having not reconciled how the standard main terms worked alongside the fact specific schedule. As a general approach the courts will endeavour to make sense of the contract on its face where they can. In this case the Court was able to satisfy itself that there was not a conflict between the Main Agreement and the schedule. If there is a likelihood that two clauses will be seen as in conflict it is safest to resolve the conflict as part of the clause in the later agreement (in this case the schedule). For example:
- if the clause in the schedule is to override you could consider wording along the lines of “notwithstanding clause… ”
- alternatively, if the Main Agreement overrides then wording along the lines of “subject to clause…” might be appropriate.
Any Main Agreement should also set out (as it did in this case) whether in the event of conflict the Main Agreement or the Schedule will override.
It is important to remember that while useful, a priority clause, or priority wording in a clause may not cause a clause to take priority if the court finds that there is no conflict.