Peregrine Systems Ltd v Steria Ltd is an English case in which a software vendor sued its customer for unpaid licence fees after the customer terminated the licence agreement, complaining about slow implementation. Peregrine Systems supplied service desk and asset management software; Steria, a provider of managed IT services, used it to run customer service desks. The trial judge found for Peregrine on every issue, and the Court of Appeal dismissed Steria’s appeal in March 2005.[1][2]
Background
By a Managed Services Provider Licence Agreement dated 29 March 2002, Peregrine granted Steria perpetual, non-exclusive licences to use ServiceCenter, AssetCenter, InfraTools and GetIT. Schedule A put the total at GBP 1,100,000, of which GBP 300,000 was “ROI (Licence Fees)” payable only when return-on-investment milestones were met. The remaining GBP 800,000 was payable as GBP 100,000 by 1 July 2002 and GBP 700,000 by 28 February 2003, and the schedule stated that “The payments are irrevocable and non-cancellable.”[2]
A separate Technical Services Schedule, incorporated through the licence agreement’s clause on optional implementation and training services, covered “Time and Materials Implementation” at day rates, valid until the end of December 2002, with a total of GBP 200,000.[2] The licence agreement also capped liability for use of the products at the licence fee paid for them.[1]
The dispute
Steria terminated the agreement on 5 February 2003, before the GBP 700,000 instalment fell due, relying on alleged breaches about the ROI exercise, training and the first phase of implementation, and later on other complaints such as ITIL compliance, Linux support and access to version 5 of ServiceCenter. Peregrine sued on 17 June 2003 and was allowed at trial to claim the GBP 700,000 as a debt rather than as damages. Steria counterclaimed for all sums it had paid and for wasted staff time.[2]
Decision or outcome
The trial judge held that the termination was wrongful, gave judgment for Peregrine of GBP 732,602.74 including interest, and dismissed the counterclaim. He found no breach by Peregrine and held that, even if there had been breaches or misrepresentations, Steria had lost the right to terminate or rescind by affirmation or waiver.[2]
On appeal, the Court of Appeal heard two issues and dismissed the appeal:[2]
- What Peregrine had promised. Peregrine had agreed to provide GBP 200,000 of implementation services as Steria required them, not to complete the implementation. That budget was used up by 25 November 2002, so there was no continuing obligation to finish within a reasonable time, and no repudiatory breach on that basis.
- Affirmation. Steria had continued to use ServiceCenter on its Norwich City Council contract until February 2003, took delivery of version 5, sought support and training, and accepted further work. With knowledge of the facts, it had acted in a way consistent only with affirming the contract, and it could not rely on an implied reservation of rights.
Significance for software licensing and SAM practice
The case separates the licence, which was granted and paid for on fixed terms, from the services needed to make the software work. A customer dissatisfied with implementation still owed the licence instalments it had agreed were irrevocable, and its continued productive use of the software undermined its later attempt to terminate.[2]
Lessons learned
- Licence fees described as irrevocable and non-cancellable stay payable even when implementation goes badly. Peregrine recovered the GBP 700,000 instalment as a debt.[2]
- A time-and-materials services schedule buys a budget of effort, not a finished implementation. The court read the GBP 200,000 schedule as services to be drawn down, which were exhausted by November 2002.[2]
- Continuing to use licensed software while complaining can affirm the contract and remove the right to terminate. Steria’s use of ServiceCenter on a live customer contract until February 2003 was decisive.[2]
- If you intend to terminate for breach, act promptly and reserve your rights in clear terms. The matters relied on had occurred six months or more before the termination letter, and an implied reservation of rights did not help Steria.[2]