Giving of notice in IT contract did not trigger exit period restrictions, rules High Court

Hutchison 3G's (H3G) contract with Ericsson to operate its telecoms network and services had a seven year duration from December 2005. Though notice was given in May 2010 by H3G, which owns the 3 mobile phone network, that it wanted to terminate the working relationship at the end of that seven year period, the High Court said that special provisions relating to its winding down would not take effect until December 2011.

The contract contained special measures for the period leading up to its termination. These controlled what Ericsson could and could not do in relation to the staff on the project, most of whom had been transferred to it from H3G in the first place.

Ericsson could not vary salaries, terms of employment or engage in recruiting or remove employees in this time without the permission of H3G.

Ericsson argued that this was damaging to its interests and said that the contract meant that those provisions should only apply in its last 12 months.

H3G argued that it needed the special measures to be in place for as long as possible in order to enable it to either take the functions performed by Ericsson back in house or to put them out to tender to another supplier.

The contract itself had been amended several times and in its final form contained terms which appeared to contradict each other or at least contained terms which appeared to have been left in the document by oversight, said Mr Justice Akenhead in the High Court.

The judge said, in fact, that he was not convinced that either company's interests would be much damaged by the dispute being resolved in favour of the other.

I have not been, intellectually, impressed by each side's arguments that the provisions in Schedule 12 [of the contract] will be more or less onerous depending upon how long they are to apply," he said. "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," he said.

Mr Justice Akenhead also thought that there was not a lot at stake for H3G.

"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," he said.

"It would be speculation on the Court's part to suggest that there may be other commercial reasons giving rise to this dispute," said Mr Justice Akenhead.

Mr Justice Akenhead said that the contract's meaning is that the restrictions on Ericsson do not apply earlier than 12 months ahead of the end of the contract in December 2012.