On 30 June 1997, Data Direct Technologies Ltd, formerly Neon Systems UK Ltd, entered into a software licence agreement (“the Main Agreement”) with Marks & Spencer plc (“M&S”). Under the Main Agreement, software called Shadow Direct was licensed to M&S for use in its business. Data Direct claimed to be entitled to the sum of £135,844 plus VAT for the annual maintenance of the software for the period from 26 October 2007 to 25 October 2008. M&S denied that it was required to pay this amount under the terms of the Main Agreement and Data Direct commenced proceedings against M&S.
The court focused on the construction of the Main Agreement, specifically the schedules. The Main Agreement explained, after the recitals, that certain Schedules were part of the agreement. This included the Maintenance Schedule, concerned with software maintenance and the Product Schedule, a summary of the orders for the licensed software.
The disagreement arose because of the wording in Clause 7 of the most recent Product Schedule, which provided that:
“Maintenance shall be provided in accordance with the Agreement and the Maintenance Schedule appended to the Agreement. At the Customer’s option, annual maintenance for the licence extension (including upgrade) contained herein for the period 26 October 2007 to 25 October 2008 shall be 17.5% of £750,000 i.e. of the licence fee paid and will be subject to an annual RPI increase.” (Emphasis added)
The question was whether because of the wording ‘At the Customers option’ M&S had to positively choose to have maintenance and so pay the maintenance fee or, if M&S did not choose to have maintenance, whether it had to pay at all. Data Direct held the view that because maintenance was payable under the Maintenance Schedule, M&S was obliged to pay unless it gave 30 days written notice of its intention to cancel the maintenance. M&S disagreed, believing that it only had to pay the maintenance fee if it exercised the option to do so which was granted to it by the use of the words ‘At the customer's option’.
Floyd J held that the combined effect of the relevant clauses in the Maintenance Schedule was that, if M&S had given notice 30 days before the fee was due, it would not have been payable. In addition, he held that the Clause 7 related only to the licence extension to which the Product Schedule referred. However, the nature of the software was such that the obligation to maintain it had to apply to all the licensed software or none of it. Finally, the all-or-nothing nature of the maintenance obligation strongly supported Data Direct's interpretation. A reasonable reader of the wording in the relevant clause would understand that it could not sensibly be read as creating a special option to elect for maintenance in respect of the licence extension. This being so, the maintenance fee was payable.
Whilst the interpretation of the contract is interesting, the extent to which this decision may have a knock on effect is not clear. The decision relates to the specific language of the Data Direct and M&S agreement. However, the lesson for all suppliers of software and new customers is clear; contract wording should be consistent and should reflect the intentions of the parties. If there is any doubt, then expensive and unnecessary litigation can result.
