Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C41) Ltd
Citation:  EWHC 2955 (TCC)
In this part 8 Claim, the Claimant (“NGM”) sought a declaration that the defendant (“BAE”) was not entitled to terminate a software license agreement.
The Saudi Arabian Ministry of Defence had engaged BAE to provide an intelligence system and BAE had in turn engaged its sister company (“the Sister Company”) to perform certain work under the contract, including the management of some of its subcontractors. The Sister Company had then, acting via a subcontractor, employed NGM to supply software and licenses. The Sister Company and NGM had also entered into an ‘Enabling Agreement’ which contained the terms and conditions governing purchase orders placed by the Sister Company with NGM.
NGM licensed BAE to use its software under a license agreement, Clause 5.1 of which provided “this agreement shall be governed by the terms contained within the [enabling agreement]”.
Under the enabling agreement, Clause 10.4 permitted termination for convenience and Clause A2.7 provided “Nothing in this agreement shall affect or amend any licensing arrangements that exist in respect of any contractor products and/or software delivered…outside of this agreement.”
The central issue in this case was whether the Enabling Agreement did in fact govern the software license agreement so that a termination clause which formed part of the Enabling Agreement could be relied on by BAE to terminate its licenses. NGM claimed that these clauses could not be relied upon, rendering BAE’s purported termination ineffective.
Ramsey J disagreed, holding that on the true construction of the License Agreement, BAE was entitled to terminate the License Agreement for convenience on 20 calendar days’ notice under the provisions of Clause 10.4 of the Enabling Agreement which governed it.
The judge considered that:
(1) Where the terms of one agreement were said to govern another, those terms regulated that other agreement, and further, they would generally prevail over the terms of the second agreement in the event of conflict. In this case, the terms of the enabling agreement regulated the terms of the licence agreement;
(2) Clause A2.7 of the enabling agreement did not prevent that agreement governing the licence agreement, as it would be commercially absurd if it did;
(3) There was no reason to suggest that cl.10.4 of the enabling agreement should be inapplicable to the licence agreement. There was nothing in the admissible factual background which showed that the licence agreement was not a commercial transaction which was capable of being terminated and the parties were otherwise free to agree the circumstances in which termination should occur.