Peregrine Systems Ltd v Steria Ltd

A contractual right to terminate for breach must be construed in its commercial context. A clause permitting termination for breach of any term may, depending on its purpose, apply only to a repudiatory breach. Where a breach is capable of being remedied, the contractual notice procedure must be followed. A positive obligation does not become irremediable merely because its performance date has passed. An effective notice must clearly identify the breach and make clear that failure to remedy it may lead to termination. Continued performance and acceptance of contractual benefits may waive an earlier breach.

Peregrine supplied software licences and implementation services to Steria under a managed services agreement. Steria withheld the balance of the licence fees and purported to terminate the agreement, alleging failures concerning return on investment milestones, training, implementation, software versions, ITIL compliance, Linux support, documentation, business-process review and pricing information. It also alleged misrepresentations and counterclaimed for wasted expenditure and staff time.

The court considered the proper construction of the agreement, whether the alleged obligations and breaches existed, and whether Steria’s termination was effective under the agreement or at common law.

1. Liability. Judgment was given for Peregrine for £700,000, together with contractual interest. Steria’s defences and counterclaims failed because the alleged breaches and misrepresentations were not established.
2. Construction of the agreement. Peregrine had not undertaken a positive obligation to carry out a further return-on-investment analysis or provide information enabling Steria to assess its benefit. The implementation provisions required the provision of £200,000 worth of services on a time-and-materials basis, not completion of the whole implementation for £200,000 by a fixed date. Clause 13 imposed a training obligation on Peregrine upon request, but Steria had not shown that suitable identified employees were ready and available for the relevant training.
3. The agreement warranted ITIL compliance through the description of ServiceCenter as “(ITIL)”. Steria nevertheless failed to prove that version 4 was non-compliant. The agreement contained no term requiring the software to run on, or be supported on, a Linux partition on an OS/390 platform. Nor did the services provisions imply obligations to review Steria’s business processes or fix future licence pricing.
4. Termination. Applying Antaios Compania Naviera SA v Salen Rederierna AB [1985] 1 AC 191, clause 7(b)(i) permitted termination only for a breach repudiatory at common law. A positive obligation remains capable of remedy after its due date if late performance can substantially put the innocent party in the position it would have occupied without the breach. An effective notice had to be clear and unambiguous, identify the breach and indicate that non-compliance could result in termination. The letter of 16 December 2002 did not satisfy that requirement.
5. The alleged breaches had also been waived by the parties’ subsequent conduct. In any event, no repudiatory breach was established. The counterclaim evidence concerning the value of benefits received and wasted staff time was additionally inadequate to support a worthwhile assessment of damages.