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England and Wales High Court (Technology and Construction Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Ericsson Ltd v Hutchison 3G UK Ltd [2010] EWHC 2525 (TCC) (18 October 2010) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2010/2525.html Cite as: [2010] EWHC 2525 (TCC) |
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QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
ERICSSON LIMITED |
Claimant |
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- and - |
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HUTCHISON 3G UK LIMITED |
Defendant |
____________________
David Blunt QC and Terence Bergin (instructed by Cooke Young & Keidan LLP) for the Defendant
Hearing date: 27 September 2010
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Crown Copyright ©
Mr Justice Akenhead:
Background Facts to the Original MSA
The MSA
"(A) H3G has built, and continues to develop, a network which delivers third-generation mobile multimedia and communications services in the UK, offering a convergence of media, information and telephony to enable live video calls, multimedia content and entertainment while on the move.
(B) Within the organisation, H3G operates a successful Chief Technical Officer's function ("CTO") and intends to reduce the Network and the Information and Communication Technology ("ICT") cost base over the next seven years through outsourcing significant elements of the services it currently provides through use of internal resource whilst maintaining and increasing the existing performance levels of the CTO function.
(C) Following a competitive tender process, the parties signed heads of terms dated 2 August 2005 for a proposed outsourcing of ICT and Network services and subsequently amended by a letter dated 10 August 2005 from H3G to the Supplier relating to the subject matter of this Agreement and pursuant to which the parties have entered into this agreement.
(D) The Supplier has agreed to provide the In-Scope Services on the terms of this Agreement.
(E) The Supplier wishes to subcontract the provision of the In-Scope Services to Ericsson Services Limited effective on and from the Service Commencement Date. H3G has approved such subcontracting on the terms of this Agreement.
(F) Ericsson Limited has requested that H3G enter into the Resource Transfer Agreement directly with Ericsson Services Limited. Under the Resource Transfer Agreement, of even date with this Agreement H3G shall transfer certain assets, contracts and employees to Ericsson Services Limited in connection with the provision of In-Scope Services…"
" "Exit Plan" has the meaning given to it in Schedule 12;
"Expiry Date" has the meaning given to it in Clause 2.2;
"ICT and Network Infrastructure" means the computer, network and electronic hardware and ancillary equipment of every description comprised in the Network from time to time (including but not limited to the RAN and Core Network and test beds) and any firmware or software (including any embedded programs) which is used as an integral part of such equipment that H3G owns and/or utilises and which the Supplier must manage in order to deliver a In-Scope Services to H3G;
"In-Scope Services" has the meaning set out in Clause 7.1;
"Key Employees" means the H3G Employees listed in Schedule 23;
"Key Persons" means those persons (i) identified by name or (ii) holding the positions from time to time, set out in Schedule 3, as may be amended by agreement between H3G and Supplier from time to time (any dispute being dealt with through the Governance Process);
"New Service Provider" means any entity (including H3G where relevant) which provides the Replacement Services;
"Replacement Services" means all or part of the In-Scope Services or services substantially similar to or part of the In-Scope Services which are provided by an entity other than the Supplier following the termination of all or part of the In-Scope Services;
"Return Date" means the date and time on which the New Service Provider begins to provide the Replacement Services on the termination of this Agreement or the relevant part of the In-Scope Services;
"Service Commencement Date" means [12 December 2005]
"Supplier Assigned Personnel" means those of Supplier's Personnel who are assigned from time to time to perform the In-Scope Services to Supplier or its Sub-Contractors from time to time;
"Term" means the term of this Agreement commencing on the Service Commencement Date continuing until the Expiry Date unless terminated earlier in accordance with Clause 27;
"Total Contract Value" means the aggregate of Service Fees and Capitalised OPEX Fees and other charges paid or payable during the full seven year Term of this Agreement or which would have been payable to the Supplier for performance of the In-Scope Services during the Term but earlier termination of this Agreement for whatever reason;
"Transfer Date" means the Service Commencement Date or such later date on which the employment of any 3G Employee transfers to the Transferee or the Transferee engages the services of any Supplier Personnel pursuant to this Agreement or the Resource Transferred Agreement;
"Transition" means the successful completion of all the Transition Projects listed in Annex 1 of Schedule 1…
"Transition Period" means the period commencing on the Service Commencement Date and ending when all Transition Projects are complete, which shall be no later than 6 months after the Service Commencement Date unless otherwise agreed to a specified Transition Project deliverable".
"To the extent of any inconsistency within this Agreement the inconsistency shall be resolved by using the following order of precedence where those items higher in the list shall take precedence over those items lower down:
1.9.1 Clauses 1 to 46 of this Agreement;
1.9.2 Schedule 10 of his Agreement; and
1.9.3 other Schedules of this Agreement."
"2.1 This Agreement shall take effect on the date hereof and the In-Scope Services shall be provided on and from the Service Commencement Date.
2.2 This Agreement will expire at midnight on the day before the seventh anniversary of the Service Commencement date ("Expiry Date") unless terminated pursuant to the terms of this Agreement."
"it is critical that each aspect of the In-Scope Services is effectively integrated with other aspects of the In-Scope Services (and the parties acknowledge that this is a continuous process) to achieve an effective CTO which meets the business requirements of H3G and the requirements of this Agreement. Accordingly, it is of the highest importance that there is frequent information exchange and good cooperation between the Supplier and all of H3G's third-party services providers who provide services in connection with the In-Scope Services. H3G will take all reasonable steps required to ensure that such service providers also provide such co-operation."
"…all those services and carry out all those activities which were provided and carried out by the CTO being transferred to the Supplier immediately prior to the Service Commencement Date (including those set out in Schedule 3), Projects, Capital Activities and all other services identified in this Agreement as being part of the In-Scope Services (together the "In-Scope Services")."
"The Supplier shall, at no additional cost to H3G, cause the manner in which it provides In-Scope Services to evolve and to be modified, enhanced, supplemented and replaced as necessary for the manner in which it provides In-Scope Services to keep pace with Best Industry Standards or technological advances and advances in the methods of delivering services, where such advances are at the time pertinent in general use by companies similar in size and stature to H3G in the top quartile across industries, or in the top decile of H3G's industry. As an example, In-Scope Services evolution shall include the addition of methodologies and processes by Supplier as this is made possible with new equipment and software utilised or developed by Supplier during the Term. Adjustments in manner in which Supplier provides In-Scope Services in accordance with this Clause shall be deemed to be included within the scope of the In-Scope Services to the same extent and in the same manner as if expressly described in this Agreement."
Clauses 7.10 and 7.11 build on this and require Ericsson to "undertake a programme of continuous improvement…in relation to new technology, operational improvements and trends which support H3G's strategy and its commitment to customer service". In that context Ericsson had to monitor, analyse and report every six months at least "on new technology and advances in the methods of delivering services" and to be "proactive in drawing to H3G's attention any advances which…could…improve the efficiency/effectiveness of the In-Scope Services".
"Every six months during the Term, H3G and the Supplier shall, in accordance with the procedures identified in SCHEDULE 5, review the Service Levels and using the Change Control Procedure will make adjustments to them as appropriate to reflect improved performance capabilities associated with advances in technology and the methods used to perform the In-Scope Services…The parties expect and understand that the Service Levels will be improved over time. The Supplier shall implement an agreed upon on-going programme of continuous quality improvement with respect to Service Levels and shall regularly report to H3G on its progress and new initiatives."
"The Supplier shall at its own cost promptly replace any Supplier Personnel assigned to the In-Scope Services if at any time during the performance of the In-Scope Services:
12.7.1 in H3G's opinion such Supplier Personnel is not appropriate or otherwise not acceptable to H3G;
12.7.2 H3G considers in its reasonable opinion that the performance of such Supplier Personnel is unsatisfactory; or
12.7.3 H3G has reasonable grounds to believe that the Supplier Personnel has committed a material breach of H3G's confidentiality, security provisions, or health and safety rules, or is guilty of other material misconduct,
provided that in each case H3G provides written reasons justifying the removal and replacement of any Supplier Personnel pursuant to this Clause 12.7 and further provided that H3G provides the Supplier with a reasonable time to follow a fair process. The Supplier undertakes to complete such process as quickly as reasonably practicable."
Clause 12.8 imposed restrictions on Ericsson "without the prior written consent of H3G (such consent not be unreasonably withheld or delayed)" in effect to seek to terminate the employment of any Key Person or even withdraw him or her from the performance of In-Scope Services.
"The Supplier will provide H3G at six monthly intervals during the Term and upon written request of H3G a list of the names of the then current Supplier Assigned Personnel who are employed or engaged in the UK or the Republic of Ireland (including any people who would be Supplier Assigned Personnel if they were not on leave of absence to any reason) and the following information provided anonymously in respect of those individuals (which shall be true and accurate in all material respects)"
12.9.1 the number of individuals broken down by role, grade, location and department;
12.9.2 the time (and proportion of normal working time) spent by each individual providing the In-Scope Services;
12.9.3 details of any movement to or from the In-Scope Services (full or partial) of any individual during the 12 months following the Service Commencement Date (or at any time in respect of the Key Employees);
12.9.4 attrition rates; and
12.9.5 their material terms and conditions of employment or engagement."
"H3G may terminate this Agreement for convenience, in whole and without cause at any time, by giving the Supplier at least 12 months' notice. H3G's total liability to the Supplier arising from H3G terminating this Agreement for convenience is limited to payment of the Termination Fee pursuant to Clause 27.8."
Clause 27.8 identified that Fee as £40 million.
"28.1 If this Agreement expires or is terminated in whole or in part or all or part of the In-Scope Services are terminated or if either party provides notice of termination of this Agreement: (a) the Supplier will assist with the orderly transfer of the In-Scope Services to H3G or (at H3G's request) to a New Service Provider or to any H3G Affiliate, in accordance with the provisions of SCHEDULE 12; (b) the provisions of SCHEDULE 12 shall apply; and (c) the provisions of SCHEDULE 17 (Property Provisions) shall apply.
28.2 To the extent that obligations under SCHEDULE 12 or SCHEDULE 17 or otherwise under this Agreement are to be exercised after termination of this Agreement, those obligations shall survive termination. All terms and conditions of this Agreement which apply to the provision of In-Scope Services or which by their nature apply in respect of those obligations shall continue to apply after termination.
28.3 Any other provision of this Agreement which expressly or by implication is intended to come into or remain in force or after termination shall continue in full force and effect notwithstanding any such termination."
"…the parties intend to manage and resolve day-to-day issues within the Governance Boards identified in this Schedule 10"
There were to be three Governance Boards at Executive, CTO and Operational Levels which were to meet generally at quarterly, monthly and weekly periods respectively. Effectively all boards would be chaired by H3G people, with the chairmen having a casting vote. The Executive Level Board would carry out executive reviews and review strategic level initiatives whilst the CTO Level Board provided the "management level of governance" and, apart from carrying out strategic planning and review, was to be responsible for the "commercial management of this Agreement". The Operational Level Board was said to be the "working level of governance between H3G and the Supplier" and was clearly to be involved in the detail and the day-to-day management of issues, programmes, delivery and the like. The Operational Governance Manager from each side was to "act as the main point of contact for the other party in respect of all day-to-day matters relating to the supply of the In-Scope Services" and they were to meet regularly.
"1.1 The purpose of this Schedule is to set out the parties' respective obligations relating to expiry or termination of this Agreement.
1.2 The Supplier shall enable and ensure the orderly hand-over of the In-Scope Services to H3G or a New Service Provider, in accordance with Clause 28, this Schedule 12 and Schedule 17."
" "Initiation Date" means:
- the date falling 12 months prior to the Expiry Date; or
- the date on which either party served notice of termination pursuant to this Agreement or, in the event of repudiation of this Agreement, the date on which the non-defaulting party accepts such repudiation…"
"Exit Period" means the period from the Initiation Date until the last of:
- in the case of expiry pursuant to Clause 2.2, the Expiry Date;
- the date (not been more than 12 months after the Initiation Date) specified by H3G following the expiry of any relevant notice period;
- in the case of repudiation of the Agreement, the date (not being more than twelve months after the Initiation Date) specified by H3G; and
- the satisfactory implementation and completion of the Exit Plan;
"Exit Plan" means an exit plan agreed and documented in accordance with Part C of this Schedule 12."
"…this Agreement is terminated in whole or in part by H3G other than pursuant to Clause 27.1, or if H3G accepts the repudiation of this Agreement by the Supplier, the provisions of Paragraph 2 of this Part A of this Schedule 12 shall apply."
From the Initiation Date to the expiry of the Exit Period, Ericsson was generally to continue to provide the In-Scope Services and indeed to be paid for it. Paragraph 2.4 gave H3G rights "during the Exit Period" to require Ericsson to assist H3G in discussions with potential New Service Providers and to provide a "complete inventory register of potential Affected Contracts, Data and hardware and software used by the Supplier"
"if this Agreement expires pursuant to Clause 2.2 or is terminated for any reason other than those referred to in Paragraph 2.1 above…"
Again, in these circumstances, Ericsson was required to provide the In-Scope Services and was to be paid for them "from the Initiation Date to the expiry of the Exit Period". Paragraph 3.4 gave H3G rights to require Ericsson to assist in discussions with potential New Service Providers, and to provide "within 14 days of the Initiation Date and at updated monthly intervals throughout the Period, a complete inventory register" as before, to assist in the migration of data and provide other information.
"4.1 Subject to the Supplier's obligations to continue to provide the In-Scope Services pursuant to the provisions of this Schedule, immediately upon expiry or termination of this Agreement in whole or in part for any reason whatsoever, the Supplier shall, at the sole option of H3G either return to H3G…or destroy all:
(a) data as current at the date of termination together with such other operational procedures, practices and instructions as may be necessary to enable H3G or a New Service Provider to provide the Replacement …
(b) copies of software and documentation the subject matter of the Affected Contracts relating to the relevant In-Scope Services then in the possession of the Supplier or its Sub-Contractors as such software and documentation may have been updated or amended; and
(c) existing backup copies of each of the above…
4.2 The Supplier shall provide, within 14 days of the Initiation Date and update at monthly intervals throughout the Exit Period, a complete inventory of all documents, hardware and other equipment which (i) as agreed between the parties, are owned by the Supplier…and (ii) Supplier is not obliged to provide to H3G pursuant to this Agreement…or which H3G has notified to the Supplier in writing that it does not require; and (iii) are located in any of H3G's or H3G's Affiliate's facilities or premises…or the facilities or premises of their agents or contractors. Subject to the remainder of this Paragraph 4.2 and without prejudice to the Supplier's obligation to continue to provide the In-Scope Services pursuant to the provisions of this Schedule, the Supplier shall ensure that all such documents, hardware and equipment are removed from H3G's… facilities and premises… prior to the expiry of the Exit Period…"
"1.1 No later than the Initiation Date, the Supplier shall provide to H3G a complete and accurate list of all of the then current Supplier Assigned Personnel together with the following information: (i) age; (ii) employment commencing date…(iii) date on which they became materially involved in the provision of the In-Scope Services; (iv) job title and/or grade; (v) salary and other material remuneration and benefits; (vi) material terms and conditions of employment, including notice period; (vii) existing, threatened or likely or outstanding employment related claims or complaint; (viii) existing collective or recognition agreements with trade unions or other representative bodies; (ix) requests which had been received for such recognition; and (x) any changes to the foregoing. This information may be passed to a potential New Service Provider.
1.2 Not later than 28 days following any transfer of Returning Employees pursuant to the Transfer Regulations the Supplier shall provide to the New Service Provider updated payroll information and relevant tax and statutory details following the final payroll run in relation to those Returning Employees.
2.1 Within the period of 12 months immediately prior to the Expiry Date or at any time after either party has served notice of termination of all or part of the In-Scope Services, or at any time in bad faith in contemplation of terminating all or part of the In-Scope Services the Supplier shall not and shall procure or that any Sub-Contractor shall not:
(a) materially vary the salary, remuneration, benefits or other terms and conditions of any of the then current Supplier Assigned Personnel's contract;
(b) recruit or assign any additional personnel to the provision of the In-Scope Services or vary the duties undertaken by any of the then current Supplier Personnel or the time spent by any of the then current Supplier Personnel in the provision of the In-Scope Services to the extent that the individual becomes a Returning Employee;
(c) remove any Supplier Personnel from the provision of the In-Scope Services, or vary the duties undertaken by any Supplier Assigned Personnel or the time spent by any Supplier Assigned Personnel in the provision of the In-Scope Services to the extent that the individual ceases to be a Returning Employee; or
(d) dismiss any other then current Supplier Assigned Personnel save on grounds of gross misconduct,
without the written consent of H3G, such consent not be unreasonably withheld. Notwithstanding this Paragraph 2.1 of this Part B, the Supplier or a Sub-Contractor will not be prevented from allowing any Supplier Personnel from taking up genuine career opportunities with that entity providing it informs H3G of the proposed move in advance and such a move has not been arranged in bad faith.
4.3 The Supplier is committed to working together in cooperation and good faith with the New Service Provider to ensure the transfer of the Resource Capability to the New Service Provider. The Supplier will put together a resource team to work with the New Service Provider to develop a mechanism to transfer the Resource Capability. In the absence of agreement between the parties, the parties agree to adopt the following model:
(a) Subject to the New Service Provider giving prior notice to the Supplier, the Supplier will at such times as may be agreed between the parties but in any event no later than 2 months prior to the Return Date give, or procure that any Sub-Contractor gives, the New Service Provider reasonable access to the First Resource Group in order to inform them and discuss with them the roles available within the New Service Provider…
5.1 At H3G's request the Supplier shall and shall procure that any Sub-Contractor shall continue to make certain of its personnel available to H3G for a period of up to 6 months following termination or expiry of the relevant In-Scope Services in order to provide transitional support to H3G and to facilitate the transfer of knowledge and skills as necessary to ensure to H3G's commercial satisfaction un-interrupted continuity in the provision of the In-Scope Services to the standard required by H3G…"
"1.1 The Supplier shall within nine months of Service Commencement Date propose for H3G's approval a draft Exit Plan which shall set out:
(a) in detail a timetable of activities to ensure compliance with Parts A and B of this Schedule on expiry or termination;
(b) clear milestones for the transition of operational responsibility from the Supplier to the incoming New Service Provider, or H3G;
(c) the roles and responsibilities of the parties, which shall reflect the following high-level provisions:
(i) each party shall form a dedicated Exit Management Team…
(ii) the Supplier shall commit to the appropriate level of resource…
(d) specifications for transport methods and media;
(e) such measures as are necessary to ensure, so far as is possible, that no disruption in the supply of services to H3G is occasioned by the expiry or termination;…
(i) such other details as H3G and the Supplier consider appropriate.
1.2 Any failure to agree an Exit Plan shall not prejudice the rights of H3G pursuant to this Schedule 12.
1.3 Each party shall act and negotiate reasonably in agreeing the contents of the Exit Plan and shall not unreasonably require the exclusion of matters which the other party reasonably requests should be included or the inclusion of matters which the other party reasonably requests should be excluded.
1.4 The Supplier and H3G should each have the rights and obligations assigned to them in the Exit Plan once agreed.
1.5 The Exit Plan shall be reviewed no less frequently than once every 12 months and whenever there is any change to the In-Scope Services.
1.6 At the start of the Exit Period, both parties shall begin a review of the Exit Plan to ensure that it reflects the circumstances at the time and it shall be the responsibility of the Supplier to ensure that it does."
The Factual Background to the Variation Agreements and the Agreements themselves
"It is intended that this document be used as a guide for more detailed planning, depending on the nature of the termination of the contract-i.e. through expiry, full termination or part termination."
"Subject to Clause 27.1A, H3G may terminate this Agreement for convenience, in whole and without cause at any time by giving the Supplier at least 24 months' notice. H3G's total liability to the Supplier arising from H3G terminating this Agreement for convenience is limited to payment of the Termination Fee pursuant to Clause 27.8"
Clause 27.1A simply limited rights to termination under this new Clause 27.1 if H3G's holding company became controlled by a competitor of Ericsson or its holding company.
"The Agreement will continue in full force and effect unless and until terminated by either party pursuant to the terms of the Agreement. The date on which this Agreement is terminated in accordance with this clause 2.2 shall be defined in this Agreement as the "Expiry Date"."
"Subject to Clause 27.1A and 27.1B, H3G may terminate this Agreement for convenience, in whole and without cause at any time by giving the Supplier at least 24 months' notice. H3G's total liability to the Supplier arising from H3G terminating this Agreement for convenience with a termination date prior to the end of the 7th Contract Year, is limited to payment of the Termination Fee pursuant to Clause 27.8.
A new Clause 27.1B was added:
"Either party may terminate this Agreement for convenience, in whole and without cause by giving the other party at least 12 months' prior written notice provided that any such termination date shall not be prior to the last day of the 7th Contract Year. The Service Fees payable up to the date of termination shall be paid on a pro-rata basis. Neither party shall be liable to the other (including that no Termination Fee shall be payable) in accordance with this clause 27.1B."
"The parties may agree to amend this Schedule 12 so as to provide for the Supplier's obligations to provide the In-Scope Services to be assumed by H3G or another New Service Provider on a gradual phased basis during the Exit Period such that the New Service Provider takes on the responsibility for employing Supplier Personnel prior to the Expiry Date and/or other costs of the Supplier are reduced in the period prior to the Expiry Date. In that event the parties shall agree, inter alia, that the Managed Service Fee shall be reduced on a phased basis to reflect the reduction in the Employment Cost borne by the Supplier in respect of each Supplier Personnel and any other actual cost reductions enjoyed by the Supplier, in each case as a result of such assumption of responsibilities prior to the Expiry Date."
Clause 12.2 also imposed restrictions "during the term of the MSA" on Ericsson in its appointment or replacement of any "Key Person". A list of named Key Persons was attached in Schedule 1, 24 by name but with four identified by work description.
The Law
The Evidence
The Issues
Discussion
(i) for termination pursuant to Clause 27.1B, which the parties accept is what is predicated by H3G's notice of 26th of May 2010, the Initiation Date is 12 months prior to 11/12 December 2012 namely, 11/12 December 2011. The Exit Period is exactly 12 months unless and to the extent that the satisfactory implementation and completion of the Exit Plan takes longer.
(ii) of the provisions of Schedule 12 Part A Paragraphs 3 and 4 and Part B and Part C apply and are binding on the parties. For a termination pursuant to Clause 27.1B, Paragraph 2 of Part B of Schedule 12 only applies during the 12 month Exit Period up to 11/12 December 2012.
Decision