Bristows’ SnippITs – Make sure your drafting is tip-“Topalsson”

This post is part of the Bristows’ SnippITs series, which pulls together the key practical takeaways from recent court decisions for the tech sector and beyond.

In the recent case of Topalsson GmbH v Rolls-Royce Motor Cars Ltd [2023] EWHC 1765, the Court considered: (a) the circumstances in which implementation plans/milestones were binding; (b) what amounted to “Technical Go-Live” in the absence of a definition; and (c) under what circumstances failure to meet agreed milestones entitled the customer to terminate the agreement.

Key takeaways:

Be crystal clear what you intend when drafting milestones and termination rights. Specifically:

• If milestones are fixed, say so. Avoid terms such as “anticipated” or “estimated” and vague activity bars/ranges. Be clear when and how these can (and cannot) be changed. 
• Spell-out specifically what is needed to achieve a milestone. Don’t rely on phrases such as  “Technical Go-Live” alone, explain what they mean and the activities they involve (e.g. UAT and SIT). 
• Whilst rare nowadays, be explicit if time should be “of the essence”. 
• Beware that rights to terminate (e.g. for “any” breach or failure to meet a milestone) may effectively be subject to a materiality test, even without express words to that effect. If a termination right is to apply for any breach (no matter how minor), say that to give yourself the best chance that the termination right will be interpreted in that way.  

And carefully (and properly) document any agreed changes to your contracts. The Court found here that various changes were agreed between the parties. However, this will not always be the case. Much of this dispute could have been avoided had the parties done so. 

Background:

Rolls-Royce and Topalsson, a specialist software supplier to the automotive industry, entered into an agreement for Topalsson to develop, implement and maintain digital visualisation software enabling customers to view digital models of customised Rolls-Royce cars. 

The agreement included a “High Level Project Roadmap/Anticipated Timeline” (the "Implementation Plan"). After signature, the Implementation Plan was revised by Topalsson and approved internally by Rolls-Royce (the “December Plan”). Then, when it became evident that it could not be met, the December Plan was revised at a joint meeting between the parties (the “March Plan”). Neither the December Plan nor the March Plan was formally agreed between the parties (e.g. in an email chain or change note). 

The dispute arose when Rolls-Royce terminated for Topalsson’s failure to meet agreed milestones and Topalsson claimed, among other things, that the milestones were not contractually binding (but, if they were, it had met them) and that Rolls-Royce did not have the right to terminate. 

The Court’s conclusions:

1. Did contractually binding milestones apply?

Not under the Implementation Plan. It was not “sufficiently defined” to impose contractual deadlines – it did not contain specific dates (whether days or months); only activity bars, which could not be linked to specific dates with any certainty. It was described as an “anticipated” (rather than fixed) timeline and dates were stated elsewhere in the agreement to be “estimated”. Finally, the first phase of work expressly involved refinement of the Implementation Plan.   

Yes, under both the December Plan and then the March Plan (despite the lack of formal agreement). 

The December Plan set out the various activities in sequence and applied clear milestone dates. Topalsson prepared it, presented it to Rolls-Royce as the refined Implementation Plan (including in a joint planning meeting at which it agreed the specific milestones) and confirmed it as its “project plan”. The December Plan was approved by Rolls-Royce’s Steering Committee, incorporated into its Business Proposal and used as the timeline against which progress and delays were discussed. Topalsson produced status reports against the December Plan, based its subsequent re-planning proposals on it and referred to it as the agreed plan in internal communications. 

The March Plan dates were agreed in a joint meeting, confirmed by Rolls-Royce in an email to Topalsson and reflected in documents uploaded to a team workspace by Topalsson. 

2. What did “Technical Go-Live” mean in the absence of an express definition?

The Court dismissed Topalsson’s claim that this was delivery of broadly functioning software. 

In this case, “Technical Go-Live” included successful completion of SIT (systems integration testing) and UAT (user acceptance testing). The agreement and agreed test plan envisaged that SIT and UAT would be completed. An applicable Rolls-Royce group test handbook required completion of SIT and UAT before go-live could be achieved. Further, “Technical Go-Live” was identified by a bar starting on the last day of UAT in the December Plan (and this sequencing was not changed in the March Plan). 

3. Was Rolls-Royce entitled to terminate for Topalsson’s failure to meet the milestones?

Yes, both at common law for repudiatory breach as time was of the essence in relation to the milestones and under its contractual right to terminate for failure to meet delivery/milestone dates. 

The agreement stated that “time shall be of the essence regarding any date for delivery by the Supplier of any good or service specified in this agreement”. The Court dismissed Topalsson’s claim that this required the delivery dates to be specified in the agreement. On a natural and ordinary meaning, it was the good or service that must be specified. Aside from this, it was clear that the delivery dates were to be fixed later on and that certain dates were commercially sensitive for Rolls-Royce (which were reflected in each of the plans). So there was a common understanding that “strict compliance” with the milestones was required. Rolls-Royce’s statement that achievement of the March Plan’s milestones was “a condition of [the parties’] ongoing contractual relationship” re-enforced this. 

The agreement also permitted Rolls-Royce to terminate “[if] in the reasonable opinion of [Rolls-Royce] [Topalsson] fails to perform the Services … or to deliver Deliverables by the applicable delivery dates or milestone dates”. The Court concluded that Rolls-Royce could rely on this right because Topalsson’s failures were significant and this wasn’t a “near miss” (e.g. Topalsson missed a milestone by 11 days for one element of software and did not achieve certain milestones at all for others). However, following previous cases, the Court concluded that this right to terminate would not extend to any failure no matter how trivial or inconsequential. It could only be exercised in respect of a “significant or substantial breach”, which would depend on the particular circumstances at the time of termination.