Software Licence Not Subject to Sale of Goods Act, Says UK Court

The High Court of England and Wales recently decided, in Southwark London Borough Council v IBM, [2011] EWHC 549 (TCC), that the provision of a licence of software was not a sale of goods, so the implied warranty of fitness for purposes contained in the Sale of Goods Act did not apply to the contract. (See paragraphs 94 – 98.)

The court went on, in obiter, to find that software could be a ‘good’ within the meaning of the Act, but in this case it was not sold (paragraphs 96 & 97). Providing the software on a CD gave enough tangibility to constitute a good, and the court was not prepared to separate the medium from the message. A 1996 case was cited in which another court had done just that.

Does either of those holdings surprise you: that a licence was not a sale of goods, or that software might be a ‘good’? Would Canadian law — common or civil — produce a different result? Would software cease being a good if it were transferred by electronic means, e.g. downloaded? Does that distinction make any sense?

I am aware of American attempts at law reform about technology licensing, notably the Uniform Computer Information Transactions Act (UCITA) in the 1990s. UCITA cannot be considered a complete success. I am also aware of some US cases that have applied sales legislation (based on Article 2 of the Uniform Commercial Code) to licences.

Are there problems resolving this sort of problem in Canada, or for that matter in the US or elsewhere? The result in the Southwark case seems right based on the facts described by the judge.

Note that the court in the Southwark case was the “High Court (Technology and Construction Court)”. Would it help if Canadian jurisdictions had such a specialty court? If so, does that combination (technology and construction) appeal to you?


  1. David Cheifetz

    in principle (nice dodge there – remarkable how often people use that phrase when they know there’s a governing principle, they’re probably right, but they just can’t put it into proper words, and don’t want to take the time to do so), if a lease isn’t a sale of goods as defined in the relevant definition, then a licence (which is a lease by another name: cue Shakespeare, Stein) can’t be a sale, as defined, either. Right?

    The issue would be a bit starker if the licence was called a lease, no?

    OTOH, all lawyers and jurists are supposed to know that law isn’t a necessarily a logical code, and there are times that the law is not logical at all.

    Whether reality is is a question I leave to mathematicians and physicists learned in quantum physics and the like. (We certainly couldn’t prove it by recent events in the Canadian political sphere, though some reasonable people may have different views on that issue (g).)

  2. On first blush a “Technology and Construction Court” sounds a little counter-intuitive. After all, construction is old-school, tired “bricks and mortar” while technology is part of the shiny, supercharged “new economy”. These stereotypes are (of course) at least partially unfounded, with the most sucessful “new economy” tech businesses being surprising old school, while much of contemporary construction is extremely cutting edge and high tech.

    Looking at the kind of cases that the TCCC deals with it is striking to see the similarities between construction and technology disputes when it comes to delay, deficiency and defect claims. This makes sense when you consider that the tendering, design and implementation of large technology projects follows a very similar path to the tendering, design and construction of most significant building projects. In this sense, the TCCC is a more of a specialist “Projects” court, and I think there is some sense in concentrating specialist jurists in this sense.

    As to whether a TCCC-equivalent is a good idea in Canada, I think the answer is, “No.” Quite simply our jurisdictions are too small to justify such a specialist court. The TCCC operates, with a moderate caseload at best, in a jurisdiction several times larger than the largest Canadian one. Moreover, the trend on many large projects (especially construction projects) is to avoid dispute-resolution in the courts in favour of arbitration and other mechanisms such as Dispute Resolution Boards. I suspect that the TCCC will see a declining caseload in the future in its jurisdiction, which means that a similar court here in Canada is even less likely.

  3. David:

    OK let’s follow that reasoning a bit further. You lease an apartment. After you take possession, you find out it isn’t fit for habitation – the hot water runs cold, there is no heat and the place is infested with bed bugs. Does that mean you are without any legal remedies simply because it is a lease? The apartment still has to be fit for the purpose for which it was rented.

    Similarly so for a software ‘licence’. It should not matter how that code gets onto your computer. There should be no distinction regarding the media used to transfer the code to your computer. That distinction is arbitrary and has no bearing in reality – people acquire code by going to a bricks-and-mortar store as well as an online store. Either way their is a financial transaction that transfers wealth to the developer and code to the ‘purchaser’ – the code ends up on their computer.

    Now – what if the code does not do what it was represented to do?

    Should the ‘purchaser’ be left without any remedies against the developer of that code – simply because the ‘contract of adhesion’ that came with the code seeks to contractually remove all rights against the developer? Should the ‘purchaser’ be left without any rights under The Sale of Goods Act as the developer has applied the term ‘licence’ to this particular transaction?

    This is clearly an absurd situation. Our society is based on the principle that people are held responsible for their actions. If you ‘sell’ something and it doesn’t work as it was represented to do, you don’t get to go laughing off to the bank leaving a trail of unhappy purchasers behind you.

    If the Sale of Goods Act doesn’t apply, then clearly we are in need of a judicially created remedy (the bug in the bottle of ginger beer) or a legislated one. But the consumer should not be left without any rights in these situations.

  4. David Cheifetz


    I wasn’t suggesting that the user shouldn’t have remedies for code that doesn’t do what supplier represented it would do. I was just pointing out that some of law’s square holes won’t apply. The Sale of Goods Acts are old legislation.

    Judges’ hands, are tied, in some jurisdictions, by what the common law allows them to do about the situation you describe.

    In some they’re not.

    In common law Canada, now? There’s Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4. Make of that what you will.

    People still get what they pay for. (Or in some cases, don’t pay for.)

    The Legislatures? You might brush up on your anaerobic breathing techniques.


  5. One of the challenges of building a parallel to the Sale of Goods Act for licences (or just extending the SGA to licences, either by legislation or by judicial interpretation – both have been done in the US) is that commercial parties are allowed to exclude the implied warranties. If IBM or the actual licensor of the software in the Southwark case had thought that the SGA had applied, they would no doubt have excluded the warranties.

    So commercial parties get the warranties they negotiate and pay for, and that will be true whether or not there are legislated warranties, unless even businesses are not allowed to opt out. That would be very unusual when there is no weaker party to protect.

    OTOH that’s a bit of the reason why the courts invented the concept of ‘fundamental breach’ – to say that the defect was so bad that it went to the heart of the contract itself, so the remedy was not the enforcement of a warranty but a failure of the contract/of consideration.

    I believe that the SCC has now disinvented fundamental breach, but it had its uses especially in disclaimers of liability – which a waiver of a warranty is.

    Ontario’s Consumer Protection Act, 2002, extends the SGA warranties to consumers of services, so supplying software would be subject to those warranties.