Ericsson Ltd v Hutchison 3G UK Ltd

Hutchison 3G UK Ltd (“H3G”) is a telecoms operator which has since at least about March 2003 been involved in linking the Internet to telephone and mobile communications. In March 2003 it launched its “3G” network. “Three” is the brand name under which its mobile phone networks are operated by H3G in a number of countries around the world including the United Kingdom. Up to 2005, H3G provided its own network, information and communication technology services for its 3G mobile multimedia and communication network. Ericsson Ltd ("Ericsson") was and is a provider of telecommunications equipment and related services to mobile and fixed network operators globally.

In about 2005, H3G decided to "outsource" those services to Ericsson. It did so by way of a Master Services Agreement ("MSA") dated 6 December 2005 which was amended by a number of variation agreements and was intended originally to last seven years. There are various provisions whereby the MSA can be terminated, either for cause or for convenience. By letter dated 26 May 2010, H3G gave notice of its intention to terminate the MSA pursuant to Clause 27.1B of the MSA as amended, which in broad terms allowed H3G to terminate the MSA without cause and by giving at least 12 months’ prior written notice provided that such termination was not to be prior to the last day of the seventh year of the contract. Schedule 12 of the MSA is supposed to legislate what is to happen in the period leading up to termination. The parties are disagreed as to the meaning and effect of Schedule 12, in particular as to whether its terms come into effect upon the giving of notice even if the notice is more than 12 months before the termination date, which is midnight on 11/12 December 2012.

It was always intended that a substantial number of H3G staff would be transferred to Ericsson as part of the MSA; thus it was that some 900 European-based and 500 Indian-based staff were transferred to Ericsson to enable it to provide the services which were being outsourced to it. Certain properties were also transferred to Ericsson by H3G. The parties are agreed, at least during argument, that, in one sense, the MSA involved taking H3G’s sign from over the door and replacing it with Ericsson's. Substantial payments were intended to be paid to Ericsson, which I was told currently are at least in the region of £100 million each year. Ericsson pay a substantial wage bill every year

There appears to have been some discussion prior to signing of the MSA as to whether Ericsson would be able to provide services satisfactorily for the duration of the "Exit Period" lasting 12 months in the context of termination for convenience. An edited briefing paper prepared on October 2005 by Ericsson's then solicitors recorded that "HG3 is concerned that the 12 month period on Termination for Convenience is too long for Ericsson to continue providing services satisfactorily…”. The paper goes on to talk about how income payable during the termination period might be released, for instance possibly through some escrow account. I am not satisfied however that this evidence adds anything because it is not clear how or in what circumstances or context this point was raised. On its face, the argument, if such it was, was more about what was to happen to Ericsson’s payments during the Exit Period.

There is undisputed evidence that the negotiations between the parties took some 11 to 12 months leading up to the signing of the MSA, although there is no evidence as to the level of resources applied in that period.

The MSA itself provides much of the background information of what the parties expected to occur. An example of this is the expectation that there would be continuing improvement and development of the In-Scope Services and the hardware and software involved in delivering those services.

I will first consider the MSA in its un-amended form. The Preamble to the MSA provides some insight into the factual background (Ericsson being the “Supplier”):

“(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…”

Clause 1.1 contains certain relevant definitions:

“ "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".

Clause 1.5 made it clear that headings in the MSA did not affect interpretation and Clause 1.6 stated that the Schedules form part of this Agreement. Clause 1.9 stated:

Clause 2, which was materially later to be amended, provided as follows:

“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.”

By Clause 4.1.2, Ericsson acknowledged that:

“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.”

Clause 5 contained certain warranties in relation to the services which Ericsson was to provide. By Clause 5.1, Ericsson warranted for instance that it would provide the In-Scope Services with reasonable skill and care, to "Best Industry Standards", to meet the "Benchmark Objective" and to meet certain specified Standards. By Clause 5.2 Ericsson warranted that it would provide the In-Scope Services "in accordance with the Service Levels" and by Clause 5.2.4 that it would "assign, during the Term, an adequate number of Supplier Personnel to provide the In-Scope Services who possess the requisite degree of skill, qualifications and experience required to fulfil the task assigned to them and use an adequate number of Supplier Personnel to provide the In-Scope Services". By Clause 5.2.6, Ericsson undertook that all information provided by it was to be accurate and that reports would also be complete and not misleading.

By Clause 7.1, Ericsson undertook to provide:

“…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")."

Clause 7.9 recognised that there would be evolution and improvement of 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”.

Clause 8 addressed the Transition Period which was expected to last for the first six months of the Term. Clause 9 reflected the need for Changes to be instituted by a Change Control Procedure.

Clause 10 dealt with service levels and service reporting, Clause 10.3 providing as follows:

“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.”

Clause 12 dealt with employment matters and imposed significant restrictions on Ericsson as to dismissal of employees during the first two years and changing terms and conditions of employment during the Transition Period. This reflected the fact that a very substantial number of H3G employees were being transferred to Ericsson. During the first 12 months, Ericsson was required to assign the Key Employees to the In-Scope Services although for instance Ericsson was not entitled by Clause 12.6.2 in bad faith to arrange an employment move by any Key Employee. Clause 12.7 stated:

“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.

Clause 12.19 provided as follows:

“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."

Clause 12.25 imposed significant restrictions on Ericsson or its Sub-Contractors soliciting employees or contractors of H3G both during the Term and for six months thereafter.

Clause 13 dealt with Governance and Dispute Resolution. Schedule 10, referred to below, set out the Governance Process obligations whilst, unsurprisingly, provision was made for at least two attempts to settle amicably all disputes. Subject to certain disputes which were to be dealt with by expert determination, following mediation, disputes were ultimately referable to the Courts.

Clause 26.1 provided that the parties were liable for common law damages but Clause 26.2 imposed a total cap on Ericsson’s liability of 35% of the Total Contract Value.

Clause 27, with which the current case is primarily concerned, albeit in its eventually amended state, originally provided by Clause 27.1 as follows:

“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.

The structure of the remaining termination provisions was that by Clause 27.2 H3G was given a right to terminate the MSA “in whole or in part immediately by written notice” if particularly serious problems arose, such as "material or persistent breach" of contract by Ericsson, the insolvency of Ericsson or its Guarantor, Force Majeure or the like. Clause 27.3 enabled H3G to require the termination of part of the In-Scope Services. Clause 27.6 and 27.7 enabled Ericsson to terminate by giving "at least 60 days’ written notice to H3G if more than £50 million was due and payable to Ericsson and remained unpaid for at least 45 days and following a written demand by Ericsson, as well as a right to terminate "in whole or in part immediately by written notice" if certain serious events happened, such as the insolvency of H3G.

Clause 28.1 states as follows:

“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."

I now turn to the Schedules. Schedule 1 was concerned with the Transition Period and what was to be done. It is quite clear that there was a lot to be done, mostly by Ericsson but with substantial input from H3G. In practice, the Transition Period went on for some seven or eight months. This presumably at least reflected in part a "bedding down" period.

Schedule 3 is a substantial schedule which sets out a large number of functions to be carried out by Ericsson which covered "Design and Implementation”, “Roll-out”, "Operations", "Planning and Delivery", "IT Development" and “Support Functions". A detailed Responsibility Matrix is set out. Schedule 5 dealt with Service Levels which were expected to be achieved. These together with Key Performance Indicators were set out in detail.

Schedule 10 is prefaced with Paragraph 1.1:

“…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.

One then turns to Schedule 12 which, save in one respect, was not materially amended. Its interpretation is informed by the first two sub paragraphs in Part A:

“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.”

It is in Paragraph 1.3 of Part A which contains the definitions that much of the confusion between the parties has arisen. It defines the Initiation Date which effectively initiates the Exit arrangements, the Exit Period which defines how long the period leading up to termination is to be and the Exit Plan which is to be drawn up to facilitate the Exit arrangements. In logical order, these definitions were, for the purposes of Schedule 12:

“ "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."

Paragraph 2 of Part A stated that where:

“…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”

Paragraph 3 of Part A was to apply:

“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.

Paragraph 4 of Part A applies on expiry or termination of the Agreement:

“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…”

Part B of Schedule 12 contains extensive provisions in relation to employees, many of whom under the TUPE Regulations would be returned following the ending of the MSA either to H3G or the New Service Provider selected by H3G. Relevant provisions are as follows:

“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…”

The Exit Plan was dealt with in Part C of Schedule 12, the bulk of which is relevant:

“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.”

Taking stock at the stage before the MSA was amended by later variations, the parties made provision for the MSA to expire at midnight on 11/12 December 2012, which was at that stage the "Expiry Date", in effect by effluxion of time but also for the MSA to be terminated earlier for convenience or for cause as the case may be by the giving of notice. Schedule 12 laid down general and specific provisions for what was to happen following expiry or termination (or repudiation). The Exit Plan was to be agreed or at least approved in the early stages of the contract and be kept under review at least every 12 months so that, if and whenever the termination came, there would be an up-to-date Exit Plan, which could be adjusted to reflect the specific circumstances prevailing at the start of the Exit Period. It was mutually understood that there would or at least could be significant improvements and changes in the In-Scope Services between the inception of the MSA and its expiry.

There were (at least) seven Variation Agreements between the parties of which only Nos. 1, 3, 5 and 7 and the so-called "Fusion Agreement” have been put before the Court as having any conceivable relevance. No.1, so far as is relevant, simply contains the agreement (Clause 19) that the Service Commencement Date was to be 12 December 2005.

In August and early September 2006, Ericsson produced its first draft Exit Plan for consideration and approval. The final draft of this first Exit Plan was produced and released to H3G on 13 September 2006. It's "Purpose” was to fulfil the Schedule 12 requirements but it was expressly said in Paragraph 1 that:

“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."

Paragraph 4 said that the Exit Plan would be "constructed in full detail, if and when necessary, by the formation of the Exit Management Teams”. The proposed timetable for the "transfer of the In-Scope Services is 12 months (as defined in Schedule 12 as the "Exit Period" from the Initiation Date)” (Paragraph 5). An indicative plan showed a 12 month period with different activities happening at different times throughout the period but with all transfers being effected by the end of the 12 months. The Exit Plan was reviewed in an annual review on 3 August 2007.

Variation Agreement No. 3 was dated 10 November 2006 and varied the MSA (by Clause 2.1) with effect from 12 December 2006. It is of only transient interest because the clause which was amended was rewritten by the Fusion Agreement in the following year. In any event, it deleted Clause 27.1 and replaced it with the following:

“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.

It is in the Fusion Agreement dated 18 September 2007 that the confusion which has arisen between the parties primarily arises. Clause 2.2 of the original MSA (see above) was deleted and replaced with the following:

“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".”

Clause 27.1 was again deleted and replaced, finally, with the following:

“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 7^th 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 7^th 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.”

Clause 17.1 made it clear that except "as expressly varied in these Heads of Terms, the provisions of the MSA shall remain in full force and effect." Whilst there were some changes to other schedules, there was no change to Schedule 12.

The final Variation Agreement, No.7, was entered into on 18 February 2010 and the preamble confirmed that the parties had entered into it “to make certain changes to the MSA and the Supplier’s provision of the In-Scope Services". Clause 4.1 is amended by the addition of Paragraph 3.2 to Schedule12:

“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 now well-known and non-controversial requirements for the interpretation of contractual documents are set out in the reported cases of the Investors Compensation Scheme Limited 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. It is unnecessary to set out the usually quoted parts of the relevant opinions of the highest authority.

I have not been greatly assisted by much of the evidence in this case which was all by way of statements and attachments in writing. There was no application to cross examine any of the witnesses. Ericsson’s evidence was contained in three witness statements of Mr Hawthorne, whilst H3G’s was in statements from three witnesses, Mr Young of its solicitors, Mr Baxter (the H3G Chief Technology Officer and Mr Wakeling (the Interim Head of CTO Governance for H3G). A fair part of the evidence is concerned with what the potential impact of the decision in this case one way or the other will be and the large bulk of that is immaterial since there is little or no evidence that the parties specifically applied their mind prior to the MSA or the Variations to the types of problem which the parties now say that they face on one hypothesis or the other. Similarly there is some evidence of other issues between the parties relating to the way in which the In-Scope Services have been provided. There is some evidence that the extent and manner of providing the In-Scope Services has changed. The evidence of actual changes is of interest but of little relevance in interpreting the MSA as amended. It is of little relevance because the MSA actually envisage that there would be changes and improvements in the Services to be provided and it is a reasonable assumption that the parties intended that these would or could include significant and substantial improvements and greater efficiencies. There was a substantial amount of evidence, particularly from H3G’s witnesses, which sought to contest the earlier procedural issue as to whether it really was urgent that this matter be brought on as relatively speedily as it has been; this is no longer relevant because the matter has been brought on for hearing.

There is some dispute, factually, between the parties as to whether or not more than 12 months will be required to enable the transition or transfer from Ericsson to H3G or a New Service Provider. Mr Baxter for instance, at Paragraph 22 of his Statement, suggests that, if Eriksson do not start providing information and assistance before December 2011, it will not be possible to complete any planned tender process (assuming that H3G decides to bring in another independent provider of services). This is disputed. It seems however to me to be irrelevant unless the parties at least discussed these matters prior to the original MSA or the relevant Variation Agreements. There is no evidence other than the Exit Plans that there were any such discussions, let alone agreements or common assumptions on this topic.

It is said that the fact that the negotiations and discussions that led to the MSA took about 11 or 12 months in some way materially informs the contractual construction exercise. There is no evidence as to the resources put in by both parties into the negotiation exercise and whether, with some more or less focus or resource, that could or might have been reduced or increased. It is also asserted that the period of 7 to 8 months post-MSA transition period provides some assistance to the interpretation. Again, without some evidence as to whether the transition exercises were proceeded with promptly and as to whether a transition exercise could not be undertaken by H3G or a New Service Provider following termination of the MSA, this does not materially assist.

The fact that the parties contracted on the basis that there would be development and improvement in the H3G Network and the In-Scope Services does not assist much in determining whether the parties intended that a 12 months period would apply to a Clause 27.1B determination for convenience or that a longer period would be needed. The developments and improvements might conceivably have so increased the efficiency that 12 months would be more than sufficient. It is what was mutually expected which is important and there is simply no evidence about that except the Exit Plans (see below).

It is however material that, prior to the important variations by which effluxion by expiry of time was replaced by various types of termination for convenience, there were in place Exit Plans which had been submitted by Ericsson to H3G for approval and review, which clearly proceed upon the basis that the Schedule 12 activities, all things being equal, could be programmed over the 12 month period immediately prior to the Return Date (and the end of the Exit Period). There is no suggestion or evidence that these Exit Plans were in any way challenged or rejected at least so far as the period for the Schedule 12 activities. The very fact that Part C of Schedule 12 allowed for review of the Exit Plans throughout the life of the MSA suggests that the parties could not predict precisely what would be required but they did agree that there was provision to agree a longer period if essential. Paragraph 1.3 of Schedule provides in the definition of “Exit Period” a longstop date of whatever it takes to achieve satisfactory and implementation of the Exit Plan.

The issues between the parties arise because, on the one hand, Ericsson believes that it will be hamstrung and put to significant extra expense if it is subjected to the Schedule 12 restrictions and requirements as from the date when notice was given by H3G, some 2½ years before the contract will terminate; on the other hand, H3G believes that it will need up to 2½ years before the contract will terminate to prepare for an orderly handover either back to itself or to a New Service Provider. It would be speculation on the Court’s part to suggest that there may be other commercial reasons giving rise to this dispute.

Essentially, the issues arise in relation to the date on or period during which the Exit and Termination provisions set out in Schedule 12 to the MSA and, in particular, the provisions at Paragraph 2.1 Part B Schedule 12 begin and continue to apply. H3G says that the Initiation Date and the date from which the Schedule 12 provisions apply is the date upon which it gave notice of termination on 26 May 2010. Ericsson say in effect that the date is 12 December 2011, that is, the period of 12 months prior to the date when the MSA, as amended, is to come to an end. An arguably different issue, termed by H3G’s Counsel as the "Maintaining Status Quo Issue", also arises which is, irrespective of any other matter, whether the existing status quo, in terms of personnel and In-Scope Services, is to be maintained as from the date of the notice.

There is no particular or helpful evidence that the parties specifically applied their minds during negotiation to the impact of the Variations to the MSA on the Exit Period provisions in Schedule 12. Apart from the agreement to agree in Variation No. 7, there were no material amendments to Schedule 12. On the other hand, the very fact that they amended Clause 2.2 of the MSA by the Fusion Agreement suggests that they were conscious that the term “Expiry Date” was being materially altered from what it had been under the un-amended MSA. Whether both or either actually applied their minds to this point involves some speculation which is not of assistance or relevance in determining what the parties meant by agreeing what they did by way of amendment.

The un-amended MSA could be considered to work reasonably well for the different methods of ending the agreement between the parties. Clause 2.2 originally envisaged expiry by effluxion of time seven full years after the Service Commencement Date (of 12 December 2005). The idea of "expiry" had a readily ascertainable meaning, which was expiry by effluxion of time; it happened, whether one party wanted it or not, at midnight on 11/12 December 2012. It did not need either party to serve any notice, albeit that in those circumstances the Exit Period was triggered mechanically by operation of Schedule 12 on the Initiation Date applicable in those circumstances being "the date falling 12 months prior to the Expiry Date". At that stage, Clause 27 provided for various different types of termination for cause or for convenience, albeit that by Clause 27.1 (before it was deleted) termination for convenience would lead simply to payment by H3G of a termination fee of £40 million, which was perhaps a commercial disincentive to terminate.

The original MSA talked of termination for convenience by the giving of "at least" 12 months’ notice; partial termination by H3G under Clause 27.3 was to be preceded by "not less than three months’ notice" whilst Ericsson’s right to terminate under Clause 27.6 involved giving “at least 60 days’ written notice"; other terminations did not talk about minimum notice periods. These provisions clearly envisaged that greater notice than the minimum could be given, albeit that there might come a stage, at least arguably, that a party might have abandoned or waived its right to terminate if too much additional time had elapsed since the event which entitled the party to terminate had occurred. Whilst the “Expiry Date” meant 11/12 December 2012 and there were separate provisions for termination, for convenience or for cause as the case might be, Schedule 12 worked in terms of what the Initiation Date and the Exit Period were.

The Initiation Date was 11/12 December 2011 when the MSA was to expire by effluxion of time and the Exit Period was the next 12 months; if the termination procedures were adopted, the Initiation Date was the date on which the relevant party served its notice of termination and the Exit Period "the date (not being more than 12 months after the Initiation Date) specified by H3G following the expiry of any relevant notice period.” This latter phrase is superficially confusing and I will return to it later but it is as confusing in the original and the amended MSA. There was a different regime for repudiation, with the Initiation Date being the date of the acceptance of the repudiatory breach and the Exit Period then not exceeding 12 months (or less if specified by H3G).

Paragraph 1.3 of Part A of Schedule 12 defines the Exit Period as the period "from the Initiation Date until the last of" four defined events, the first being concerned with expiry by effluxion of time, the second being termination, the third being repudiation and the fourth being "the satisfactory implementation and completion of the Exit Plan”. It would seem to be the case that the first three are alternatives in that they can not all apply at the same time. So I conclude that the fourth requirement is a long stop date which applies in addition to which ever of the three previous alternatives is applicable. Also, if there was expiry by effluxion of time but Ericsson had not done all it should to perform the Exit Plan, the 12 month period in that case would be correspondingly extended until it was properly performed.

One then comes to consider what the impact of the amendments is on the Initiation Date and Exit Plan regime. The first and most obvious observation is that, by the time of the Fusion Agreement, the parties had mutually abandoned expiry by effluxion of time. Put another way, in the absence of termination, the MSA as amended could continue indefinitely. The second observation, in relation to the Fusion Agreement, is that Clause 2.2, as amended, recognises that fact but re-defines the term "Expiry Date”, which originally meant 11/12 December 2012, to mean "the date on which this Agreement is terminated in accordance with this clause”. The parties chose not to amend Schedule 12, at least so far as the definitions of Exit Period and Initiation Date were concerned. There is some force in the observation that the parties must have intended to give effect to this re-definition because, by Clause 4.1 of Variation Agreement No. 7, they were intending to legislate for what was to happen prior to the “Expiry Date”, which they must be taken to have thought had some real or genuine contractual significance.

Therefore, “Expiry Date”, in its amended definition, must be the date on which the MSA as amended is terminated, on whatever basis it is terminated. It is possible that the reference in Clause 2.2 does not as such apply to repudiation which in itself is not as such termination although it produces a similar result. It is not however necessary for the purposes of this case to decide that point.

It remains the case in the amended MSA that termination can be brought about for convenience or cause on certain grounds on the basis of giving "at least" a certain amount of notice. Indeed, the only way in which the amended MSA does not go on indefinitely is by termination (other than by way of an accepted repudiation). One therefore has to ask oneself whether the parties intended that there should be any continuing effect in Paragraph 1.3 of the definition of "Initiation Date" as meaning "the date falling 12 months prior to the Expiry Date” and the definition of Exit Period as meaning the period from the Initiation Date "in the case of expiry pursuant to Clause 2.2, the Expiry Date". The retention of these words hypothetically could infer that the parties simply forgot to remove those words at least by the date of the Fusion Agreement. I consider that is much more likely that the parties must have and must be taken to have intended that it should have some meaning. The fact that there are a significant number of references left in the amended contract which talk about the agreement expiring or being terminated (for instance Clause 28.1 or Paragraph 3.1 of Part A of Schedule 12) suggests that the concept of "expiry" remained contractually.

There is conceptually and indeed commercially a difference between termination for convenience and termination for cause. Termination for convenience arises simply because H3G wants to bring the relationship to an end for commercial convenience. Termination for cause arises only where there is a serious breach of contract or where there is a substantial change in the corporate or financial status of one or other party (such as insolvency). Because all types of termination have to be by way of notice under the amended MSA, one needs to determine what types of termination were intended to be retained in relation to the "Expiry Date" entries in the definitions of Initiation Date and Exit Period.

There is an important pointer in the definition of “Exit Period”, although the drafting is not the clearest. Exit Period can mean "the date (not being more than twelve months after the Initiation Date) specified by H3G following the expiry of any relevant notice period”. This could be meaningless in that if, say, H3G was to give 18 months’ notice under Clause 27.1B, the notice period would expire after 18 months but the Exit Period would then run for no more than 12 months (as specified by H3G) thereafter, that is after the end of the Exit Period; it cannot really mean that because that would not dovetail in with the termination provision. So, it must mean that the Exit Period is the date no more than 12 months (and it could be less if specified by H3G) after the expiry of the notice period in so far as at it exceeds 12 months. This is borne out by the pragmatic and commercial need for the Exit Period to end at the time of Transfer back to H3G or to the New Service Provider.

The reality is that the Exit Period therefore for all types of termination or repudiation is no more than 12 months leading up to the Exit or Transfer. Thus, it is 12 months if the first, second or third bullet point applies with the 12 months maximum period only being extended to the extent that the Exit Plan has not satisfactorily been implemented and completed within that period. There is no obvious practical or commercial need for a period of longer than 12 months given the final bullet point in the definition which extends the Exit Period until the Exit Plan has been satisfactorily implemented and completed.

I have not been, intellectually, impressed by each side’s arguments that the provisions in Schedule 12 will be more or less onerous depending upon how long they are to apply. For instance, Paragraph 2.1 of Part B of Schedule 12, contrary to Ericsson’s assertion does not appear to impose peculiarly onerous provisions on Ericsson: although there are some prima facie restrictions on changing the conditions of employment or deploying or dismissing employees without H3G’s consent, that consent must not be unreasonably withheld; it will be a breach of contract if it is unreasonably withheld which would lead to a damages entitlement. Commercially, it is in H3G’s interest that the staff, many of whom will be transferred, will be contented in their employment as it is in its interest that only competent staff are retained by Ericsson to be transferred back. There is therefore no great or obvious commercial incentive on H3G to be obstructive.

Similarly, there is little in H3G’s argument that it is in some way essential for a substantially longer period than 12 months to be available during which the provision of information is an essential prerequisite to enable H3G to secure effective tenders from potential New Service Providers. It must be remembered that the Governance procedures laid down in the MSA, as amended, give to H3G a detailed as well as a supervisory involvement in the running of the In-Scope Services; it matters not from a construction standpoint whether and to what extent H3G actually availed itself of its right to get involved on a "day to day" basis. It has had the opportunity, contractually, to keep abreast of everything, almost, which has been going on. It has furthermore the right to have relatively detailed information provided at six monthly intervals of and about Ericsson’s staff assigned to this contract. I would seriously doubt whether it is absolutely essential for H3G to have the more detailed Schedule 12 information, called for in Paragraph 1.1 of Part B of Schedule 12 to prepare tender documentation for a New Service Provider before the 12 month Exit Period commences. Through the Governance procedures, H3G have the opportunity to have a very detailed knowledge of the hardware, software or working practices and the like being used by Ericsson.

I remain wholly unconvinced that these currently actual or perceived difficulties from either side materially assist in determining what the MSA as amended really means.

Again, there are two further pointers which suggested that the parties were contractually proceeding upon the basis that the Exit Period would not exceed 12 months. It would be an odd state of affairs if notice of termination for convenience could be given on the second day after the MSA at least as amended by the Fusion Agreement of September 2007 had come into effect, albeit that the termination was still not to take place until December 2012. Counsel for H3G suggests that in commercial terms this is such a remote contingency that it can be ignored and in any event an implied term requiring the parties to act in good faith would prevent any bad faith notice being given. Whilst of course realistically it would be unlikely that notice would be given within a few days or a few weeks, it is not at all beyond comprehension that a notice might be given at an early stage even in good faith if, for instance, H3G had actually decided say in 2008 that for good commercial reasons it did not want to proceed beyond December 2012 and felt that it was honest to give Ericsson as much advance notice as possible. I doubt very much whether the parties commercially would have intended that the Exit provisions would come into play as much as three or four years ahead save if there was a termination for cause. Secondly, it is more than just coincidental that the Exit Plans, in place before the Fusion Agreement was signed, talk about 12 months as being at least a not unrealistic Exit Period. If that was hopelessly unrealistic in practical terms, one would have expected H3G to have picked it up on its review of the Exit Plans. I say that not by way of criticism of H3G but there was at least a mutual recognition that, all things being equal, 12 months was an achievable period for doing what had to be done in the Exit Period.

The very fact that the parties retained, without amendment, the references in Schedule 12 to “expiry” or “expires”, usually coupled with “termination” or “terminated”, suggests the parties wished to attribute some meaning to "expiry" in contradistinction to “termination”. Whilst one has to acknowledge that it is at least possible that the parties forgot to amend out references to expiry or did not apply their minds to the possible impact of leaving the references in, one should be slow to make that assumption particularly when the parties expressly agree to redefine an important term in the MSA, namely "Expiry Date".

Given the view to which the Court has come as to the Exit Periods not exceeding 12 months, subject to the satisfactory implementation and completion of the Exit Plan, one needs to consider whether there is any relevance in the maintenance of the distinctions between the two definitions of Initiation Date and the first three definitions of Exit Period. In practical terms, by reference to Clause 27.1B, there is only one relevant Initiation factor which automatically gives rise to an exact 12 month period, and that is termination for convenience by H3G or Ericsson (pursuant to Clause 27.1B) at least 12 months prior to 11/12 December 2012. There is a commercial logic in H3G or Ericsson giving greater than 12 months’ notice under Clause 27.1B, if either so wishes, which is that, if either feels that they may need more time to prepare for the Exit Period activities, the greater the notice the greater is the chance that the parties will be geared up for the 12 month period. Other types of termination, other than Clause 27.1 (as amended by Clause 3.5 of the Fusion Agreement) clearly envisaged a greater immediacy to the termination process. Thus, H3G’s termination for cause under Clause 27.2 involved the right immediately to terminate for breach or for serious commercial reasons such as insolvency on the part of Ericsson or its Guarantor. It is a matter of common sense that, in those commercially serious circumstances, H3G would want to keep the Exit Period to as short a time as possible and indeed the definition of “Exit Period” expressly permits H3G to specify a lesser period than 12 months. The same applies in the case of repudiation.

Although the wording is not syntactically perfect, I have formed the view that, in the context of the changed circumstances arising following the mutual abandonment of expiry by effluxion of time and the new terms for termination agreed pursuant to the Fusion Agreement, the parties wished to maintain the concept of expiry which most logically applies to the Clause 27.1B termination for convenience by either party and to distinguish that from termination for cause. If H3G was right in its interpretation, the retention of the words “expire” and “expiry” on most of the shades of interpretation put by H3G on the MSA as amended involves the assumption that the parties must be taken to have believed that they were superfluous; that is not an easy assumption to make between two sophisticated parties advised by sophisticated solicitors. The Clause 27.1B type of termination for convenience most closely reflects the abandoned expiry by effluxion by time requirement. If that is right, then Schedule 12 in its largely un-amended form broadly works. Paragraph 2 of Part A specifically applies to termination for cause by H3G or acceptance by H3G of Ericsson’s repudiation whilst Paragraph 3 of Part A applies to expiry or termination other than that type of termination. Paragraph 2 works because, although Paragraph 2.2 requires Ericsson from the date of termination or acceptance of repudiation to continue to provide the In-Scope Services, the remaining obligations apply during the 12 months or lesser Exit Period. Paragraph 3 works in the same way. Paragraph 4 applies on the date of expiry or termination as the case may be.

Part B works although the language is not perfect. Paragraph 1.1 requires Ericsson "no later than the Initiation Date" to provide detailed employment information. Technically, this would mean that Ericsson would have to provide this information in effect on or before 11/12 December 2011, in the case of expiry (in the case of termination under Clause 27.1B for convenience), or no later than the end of the day on which notice was given in all other cases. In the latter case, it may prove practicably impossible for Ericsson in the few hours left on that day to transmit the requisite employment information to H3G; it is possible however that the parties always anticipated that this information would be readily available, for instance on computerised files.

Paragraph 2 of Part B works because the maintenance of the "status quo” applies in the case of expiry or termination for convenience under Clause 27.1B for the 12 month period prior to the Expiry Date and for other terminations it runs from the date of notice because in practice most other terminations will be for cause and the Exit Period will be no more than 12 months and possibly significantly less. It is argued by H3G that in Paragraph 2.1 the first 12 or 13 words are simply superfluous and should be ignored; alternatively, one could add the words “whichever period is the longer”. The words used are: “Within the period of 12 months immediately prior to the Expiry Date or at any time after either party has served notice of termination.” I would suggest however that one applies whichever alternative is applicable. In the case of termination for convenience for a termination which is to occur on 11/12 December 2012, it is the first alternative which applies. The remainder of Part B works satisfactorily. Part C applies both before and after the Initiation Date and simply requires the parties to review the existing Exit Plan at the start of the Exit Period.

The only type of termination which does not readily fit in with this analysis is the Clause 27.1(as amended by clause 3.5 of the Fusion Agreement) termination which involves a minimum 24 months notice given by H3G. I did not hear specific argument about the anomalies created by Clause 27.1 (as amended). Clause 27.1(as amended) partially equates with the original Clause 27.1. Assuming that I am right about the Exit Period, this would still be no more than 12 months. However, commercially, the "price" payable by H3G for the privilege of terminating under Clause 27.1(as amended) is the Termination Fee, which was to be £40m. Thus, if there was termination under Clause 27.1(as amended), it might well be the case, although I do not have to decide this, that Ericsson’s obligations under Paragraph 4.2 of Part A and Paragraphs 1.1 and 2.1 of Part B would run from the date of the giving of the Clause 27.1 (as amended) notice; it could be said that in those limited circumstances H3G are paying for the privilege of getting some of the information earlier than in the case of other types of termination.

One can sensibly observe that the Clause 27.1B type of termination most readily equates to the expiry by effluxion of time under the un-amended MSA. Although Clause 27.1B requires a notice to be given, it terminates the MSA, all things being equal on the seventh anniversary of the MSA, without penalty to either side. Because the parties retained the concept of expiry and an Expiry Date, it is most likely that the Initiation Date for that sort of termination was intended to be 12 months before the Expiry Date, with the Exit Period being 12 months (subject to implementation of the Exit Plan), whilst all other types of termination would be subject to an Initiation Date being the giving of notice of termination (or acceptance of repudiation) but with an Exit Period not exceeding 12 months.

It follows from the above that this Court’s determination of what the MSA as amended means in the context of the issues between the parties is:

There will be declarations to reflect the construction which the Court has put on the MSA. There was a further issue raised between the parties initially, relating to whether Paragraph 2 of Part A of Schedule 12 applies. The parties are rightly agreed now that it does not apply.