AB v CD
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Stuart-Smith |
| Judgment Date | 03 January 2014 |
| Neutral Citation | [2014] EWHC 1 (QB) |
| Docket Number | Case No: HQ13X06107 |
| Court | Queen's Bench Division |
| Date | 03 January 2014 |
[2014] EWHC 1 (QB)
The Honourable Mr Justice Stuart-Smith
Case No: HQ13X06107
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Michael Taylor (instructed by Lewis Silkin LLP) for the Claimant
Terence Bergin (instructed by Kemp Little LLP) for the Defendant
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
1. The Claimant applies under s. 44 of the Arbitration Act 1996 (“the Act”) for an injunction to restrain the Defendant from terminating a Licensing Agreement between the parties, pending the resolution of an arbitration commenced on 20 December 2013 under LCIA rules. The present application was issued on 20 December and heard on 31 December 2013. The Claimant's case is that the Defendant intends, without justification, to terminate the Licensing Agreement at midnight on 31 December 2013 and that this would permanently destroy the Claimant's business.
2. At the end of the hearing I indicated that I was not prepared to order an injunction, for reasons that would be handed down later. These are my reasons. They are written as if delivered at the end of the hearing.
The Factual Background
The Quadrem eMarketplace
3. The Licensing Agreement concerns the Quadrem eMarketplace (the “eMarketplace”), which is an internet-based electronic platform used internationally to buy and sell goods and services by entities involved in the mining, metals and other natural resources businesses. It provides a “cloud-based” platform for buyers and their suppliers to complete electronic purchases and sales of goods and services in a secure and private environment and is an intermediary (or portal) for supply chain transactions. Buy-side customers are charged annual membership fees and then transaction fees. The technology platform is based on a server environment which is situated in the Netherlands. All buy-side customers access the same server environment, and each is integrated. Customers' suppliers access and use the eMarketplace as a hosted solution (i.e. they connect via email and web browser).
4. On the other side are the various suppliers who enter into transactions with the registered buyer customers. New suppliers pay a fee on registration. Whenever certain transactions are entered into on the eMarketplace, a transaction fee is payable by both the supplier and buyer.
The Licensing Agreement
5. The Defendant is based in the Netherlands and owns the intellectual property in the eMarketplace. There is no software sold or supplied by the Defendant for use with the eMarketplace but the Defendant maintains its functionality for those who access it.
6. The Licensing Agreement was made as of 1 October 2005. It was to continue to 31 December 2010 and then automatically to renew annually subject to the Defendant's entitlement to terminate pursuant to Clause 7, with each annual extension being described as an Extended Term. Under the Licensing Agreement the Claimant is licensed to market the eMarketplace, to sell eMarketplace Solutions to potential participants in the Middle East, and to supply them with training and support.
7. Clauses 7.2 and 7.3 provide different contractual routes to the termination of the Licensing Agreement. The difference between the two contractual routes is immaterial for present purposes. In essence, Clause 7.2.2 entitles the Defendant to give at least 180 days notice after the commencement of one Extended Term that it does not seek a further Extended Term. Under Clause 7.3 the Defendant may terminate the Licensing Agreement at any time in an Extended Term on 180 days notice. However, the Defendant is only entitled to give notice under Clause 7.2.2 or Clause 7.3 “on the following conditions: (i) [Claimant] failing to meet in material respects the Agreed Sales and Marketing Plan, or (ii) [Claimant's] business has developed in a different direction to [the Defendant's].”
8. The Agreed Sales and Marketing Plan, to which Clause 7 refers, is the subject of Clause 5. Clause 5.1 provides
“Within ninety (90) days of the Effective Date of this Agreement and by 1 September during each calendar year of the Term…, [The Claimant] will, for the purposes of Marketing Services and Sales Services, develop a marketing and sales plan for the ensuing calendar year identifying potential participants in the Primary Countries … together with its projections as to revenue and expenditure to complete the Marketing Services and Sales Services for that year.”
9. Clauses 5.4 and 5.5 provide for the Claimant and the Defendant to consult, collaborate and finally to agree the marketing and sales plan developed by the Claimant, which would then become the Agreed Marketing and Sales Plan referred to in Clause 7. It is clear on the evidence of Mr Ranu for the Claimant and Mr Spear for the Defendant that, at least since about 2010, the provisions of Clause 5 have not been complied with by the parties: the Claimant has not developed plans in accordance with Clause 5.1 and the Defendant has neither complained nor called for such plans to be produced for consultation and agreement.
10. The Licensing Agreement is subject to English law (Clause 12.3) and contains an arbitration clause (Clause 12.4).
The Claimant's Business
11. The Claimant's sole registered buy-side customer is XCo [“X”], which is directly connected to the eMarketplace via a secure integrated technology connection. X pays sums in respect of maintenance and support provided by the Claimant. The Claimant says that it continues to work to increase the number of buy-side customers but that it has met a degree of obstruction from the Defendant in its attempts to do so.
12. Since 2009 the number of the Claimant's transacting suppliers has increased from 68 to 350, with the numbers in 2011, 2012 and 2013 being 323, 350 and 350 respectively.
13. The evidence of Mr Ranu in support of the Claimant's application is that the revenue from the three sources identified above 1 during the calendar year 2013 is approximately £56,000, of which approximately £22,000 is attributable to the maintenance and support under the X Contract. This is amplified by Mr Rahmann in a witness statement made yesterday, 30 December 2013. According to Mr Rahmann, the Claimant's net income after expenses for the year from 1 January 2013 to date is about US$11,000. The Claimant had made net losses in the previous two years of US$183,000 (y/e 31 December 2011) and US$119,000 (y/e 31 December 2012). The Claimant's balance sheet shows that its liabilities exceed its assets by about US$250,000, largely attributable to shareholder loans which total over US$4.8 million. The evidence does not show any marked growth in the recent past, which reflects the fact that X is and remains the Claimant's only buy-side registered customer. What is clear beyond argument is that the X contract, which is presently extended to April 2017, is the entirety of the Claimant's current business. As a result, termination of the Licensing Agreement by the Defendant will mean that the Claimant has no continuing business.
The Termination
14. By a letter dated 6 June 2013 the Defendant gave notice that it would terminate the Licensing Agreement at midnight on 31 December 2013. It claimed to be entitled to do so on the basis that the requirements under clause 7 were met, but provided no details supporting that assertion. The period from 6 June to 31 December 2013 amounted to over 200 days' notice.
15. The Claimant replied on 25 June 2013 by its then lawyers and wholly rejected the Defendant's entitlement to terminate, expressly reserving the right to seek injunctive relief. On 8 July 2013 the Defendant repeated its intention to terminate.
16. No further correspondence about the termination took place between 8 July and December of this year. Mr Ranu for the Claimant says that the Claimant hoped that the Defendant would not persist in its threat or carry it out, but no basis for that hope has been identified. Mr Spear for the Defendant says that he “reached out” to try to broker a discussion on two occasions, once in September and once in November, but that this was unsuccessful. That is largely confirmed by Mr Rahmann, who asserts that there were in fact substantive negotiations but provides no further information. The next open and effective step after 8 July was on 2 December 2013 when the Defendant reminded Claimant that the Licensing Agreement was due to come to an end on 31 December 2013.
17. In response, the Claimant instructed new solicitors on 5 December 2013. They wrote to the Defendant on 18 December 2013 protesting that the termination was unjustified and repeating the intention to seek injunctive relief. On 20 December 2013 the Defendant's solicitors offered undertakings that would have provided some protection for the position of X until 28 February 2014, which was the date that the Defendant then had in mind as being the termination date for the X contract with the Claimant. This application was issued the same day, providing 4 clear days until today's return date. On the same day the Claimant made a request for arbitration under the LCIA
Rules, to be heard in London. If it proceeds with the arbitration (of which, more later) the Claimant has expressed its intention to prosecute the arbitration vigorously to completion within 6 months: The Defendant expresses scepticism about the genuineness or feasibility of this intention18. Unless restrained by an injunction, the Defendant will from midnight tonight cease to comply with...
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