Meaning of ‘during this agreement'
INTERACTIVE INVESTOR v CITY INDEX (CA) [2011]
The term of a contract needs to be one of the most straight-forward provisions in an agreement. However, this decision shows there can be major problems if the provisions and terminology used regarding the overall duration of an agreement, the termination notice period and any exit assistance period are not thought through properly and drafted clearly and consistently.
Facts:
- I, which hosted a website offering financial information and tools to investors, entered into two contracts under which clients were introduced to C. As part of this arrangement I had to maintain a link to C’s trading platform on its own website. C then provided online trading services under I’s branding. In return for the introductions, C paid I a share of the commission it received on trades.
- C terminated the agreements, both of which provided for a winding down period of six months after termination (‘Wind Down Period’).
- The contracts contained several potentially ambiguous provisions during which rights and obligations were stated to apply: “for the duration of this agreement”, “during this agreement”, “on termination of this agreement”, “on and following termination of this agreement”, “during the Wind Down Period” and “after expiration of the Wind Down Period”. It was not always clear what each phrase meant and particularly whether the ‘Wind Down Period’ was part of the term of the agreement or not.
- The parties disputed the scope of their respective rights and obligations during and at the end of the Wind Down Period in relation to:
- I’s entitlement to commission, which applied “during this agreement” (whilst the link to C’s online trading platform was to be maintained by I “during the Wind Down Period”); and
- the extent to which C was able to try to persuade clients to continue to use its trading services after the expiry of the Wind Down Period, as there was a restriction on solicitation “during the agreement” and “after expiration of the Wind Down Period”.
Decision:
- The Court rejected some of I’s arguments that the Wind Down Period was included in the “term of this agreement” since that expression was used in so many places where it clearly did not include the Wind Down Period. As the agreement had been carefully drafted, it should be presumed that the language was used consistently throughout the document. This led to the somewhat bizarre conclusions that:
- I did not have any right to commission on trades made during the Wind Down Period as that period was held not to be “during this agreement“ despite I being under an obligation to maintain the link to C’s trading platform during that timeframe; and
- while the non-solicitation provisions applied during the agreement and after the end of the Wind Down Period, they did not apply during the Wind Down Period itself.
Points to Note:
- This case emphasises once again the importance of careful drafting – here the ‘term’ of the agreement was not defined clearly or consistently and the contract did not specify whether it included the Wind Down Phase or not. This resulted in a disappointing loss of commission for I. It is important therefore that the term of the agreement, when a termination notice is to expire and any exit assistance period are all properly defined and reflect what the parties actually intend.
- If a period of exit or transitional assistance is provided for, ensure that rights and obligations intended to continue during this phase in relation to payments, non-solicitation, use of licences and confidential information, for example, are all expressly and clearly dealt with.
- One interesting feature of this case concerned ‘ownership’ of clients and who has the right to exploit their goodwill in the context of these so-called ‘white labelled’ outsourced services such as this. Relationships of this kind are now incredibly common. Well-known brands looking to exploit customer goodwill in other areas (think retailers moving into financial services) typically and increasingly do this through some form of joint venture with an established specialist in the area in question. So far as the consumers are concerned, they are dealing with a particular ‘brand’ even though their contract may actually be with a completely different company. In such circumstances, it is absolutely vital to determine who has ‘ownership’ of the client and all associated IP rights in client databases etc.