Outsourcing and Exit Plans: Ericcson Ltd v Hutchison 3G UK Ltd

October 27, 2010

In Ericcson Ltd v Hutchison 3G UK Ltd [2010] EWHC 2525 (TCC)  Mr Justice Akenhead has ruled on the terms of a carefully drafted outsourcing agreement, the Master Services Agreement (MSA). Though carefully drafted and amended, the MSA nevertheless left enough room for uncertainty as to the effect of its provisions.

The MSA ran for a seven-year period ending at midnight on 11 December 2012 but was capable of continuing beyond that date. It included provision for termination without cause on a notice which would have terminatory effect no earlier than 11 December 2012. The essence of the dispute was whether a notice to terminate sent in May 2010 brought the complex exit provisions (in Schedule 12 of the MSA) into immediate effect or whether those exit provisions only began to apply in the 12-month period prior to actual termination.  Mr Justice Akenhead summarised it thus (at [50]-[51]):
‘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.
…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. ‘
After a careful analysis of the MSA’s terms, and consideration of the negotiations surrounding it and the amendments to it, the judge took the view that the ‘reality is that the Exit Period … for all types of termination or repudiation is no more than 12 months leading up to the Exit or Transfer’. The existence of the terms ‘expiry’ and ‘termination’ within the agreement suggested strongly that they had separate meanings and this was crucial to his conclusion. As he observed at [69], ‘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‘.