Ericsson Ltd v Hutchison 3G UK Ltd

Where a long-term outsourcing agreement provides for termination and an orderly handover, its exit provisions must be construed as a coherent whole, giving effect to retained contractual language and the commercial structure of the agreement.

On the proper construction of the agreement, a termination for convenience under a clause requiring at least 12 months’ notice triggered the exit regime 12 months before the termination date, not when notice was given substantially earlier. The exit period was therefore limited to 12 months, subject to extension only until the agreed exit plan had been satisfactorily completed.

Hutchison 3G UK Ltd outsourced its network and information technology services to Ericsson Ltd under a master services agreement. Following amendments, either party could terminate for convenience on at least 12 months’ notice, provided termination was not before the end of the seventh contract year.

Hutchison gave notice in May 2010, specifying termination in December 2012. The parties disputed whether the exit provisions in Schedule 12 took effect immediately on notice or only 12 months before termination. The principal issue was the meaning of the amended definitions of “Initiation Date”, “Exit Period” and “Expiry Date”.

1. Declarations granted. The court construed the amended master services agreement and held that Hutchison’s notice was a termination under clause 27.1B.
2. Applying the ordinary principles of contractual construction identified in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 and Antaios Comania Naviera SA v Salen Rederierna AB [1985] 1 AC 191, the agreement had to be read as a coherent commercial instrument.
3. The amendments abandoned expiry by effluxion of time and redefined “Expiry Date” as the date on which the agreement was terminated. However, the parties retained references to expiry and the existing Schedule 12 definitions. Those words were not to be treated as meaningless.
4. The commercial and contractual structure showed that the exit period was normally intended to be no more than 12 months before transfer or termination. The definition of “Exit Period” included a long-stop extension where satisfactory implementation and completion of the Exit Plan required more time.
5. For termination under clause 27.1B, the Initiation Date was 12 months before the termination date, namely 11/12 December 2011. The Exit Period was exactly 12 months, subject only to extension for satisfactory completion of the Exit Plan. Schedule 12 Part A paragraphs 3 and 4 and Parts B and C applied. Paragraph 2 of Part B applied only during that 12-month Exit Period.
6. Schedule 12 Part A paragraph 2 did not apply, as the parties accepted.