Computer Associates UK Ltd v The Software Incubator Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Gloster,Lord Justice Henderson,Lord Justice Irwin |
| Judgment Date | 19 March 2018 |
| Neutral Citation | [2018] EWCA Civ 518 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2016/3823 |
| Date | 19 March 2018 |
[2018] EWCA Civ 518
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LONDON MERCANTILE COURT
His Honour Judge Waksman QC
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Gloster
Vice President of the Court of Appeal, Civil Division
Lord Justice Irwin
and
Lord Justice Henderson
Case No: A3/2016/3823
Mr Jasbir Dhillon QC (instructed by CMS Cameron McKenna Nabarro Olwsang LLP) for the Appellant
Mr Oliver Segal QC (instructed by Fox Williams LLP) for the Respondent
Hearing dates: 21 November 2017 – 22 November 2017
Introduction
This is an appeal by Computer Associates UK Ltd (“the appellant” or “CA”), against the order of HHJ Waksman QC (“the judge”) dated 14 September 2016 and a judgment dated 1 July 2016. The judgment awarded The Software Incubator Limited (“the respondent” or “TSI”): (1) £475,000 pursuant to the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”); (2) £5,000 and US$3,724 as commission due under a written contract between CA and TSI dated 25 March 2013 (“the Agreement”); and (3) £15,631.06 as damages for breach of the Agreement. The judge's reasons are set out in his judgment at [2016] EWHC 1587 (QB).
The Regulations derive from Council Directive 86/653/EEC of December 1986 on the co-ordination of the laws of member States relating to self-employed commercial agents (“the Directive”).
The appeal concerns the important question as to whether a licence to use electronically supplied software amounts to the “sale of goods” under the Regulations.
CA sought permission to appeal on nine numbered grounds. The judge gave permission to appeal on grounds 1–2, 7 and 9 only. Henderson LJ subsequently granted permission on the other grounds.
Mr Jasbir Dhillon QC appeared on behalf of the appellant and Mr Oliver Segal QC appeared on behalf of the respondent.
Factual background
The software at the heart of this case is release automation software (“RAS”), which is packaged software aimed at large institutions, such as in the financial services industry (“the Software”). It is used to “deploy” other software – to facilitate and automate the introduction of new bespoke software across computer operating systems. It is to be contrasted with systems management software, which involves the monitoring of computer systems. The two are complementary. Both products are generally sold as downloads rather than disks, and by way of (usually perpetual) licence.
TSI is a company owned and controlled by Mr Scott Dainty (“Mr Dainty”). Mr Dainty worked as a “Re-Seller” (from 2009) and then a “Consultant” (from 2010) for an Israeli company, Nolio Ltd, which first produced the Software. In March 2013 Nolio was purchased by CA, which has a US parent company and which sells a large portfolio of products, mainly concerned with systems management software (it did not previously produce/sell RAS).
At that time, the consultancy agreement between Mr Dainty and Nolio was terminated and, in its place, CA entered into the Agreement with TSI on 25 March 2013.
Pursuant to the Agreement, TSI acted on behalf of CA to promote the Software in the UK and Ireland between 25 March 2013 and 9 October 2013. For the purpose of the Agreement, CA was the principal and TSI was the agent.
By 21 June 2013, Mr Dainty of TSI had begun discussions with another software company called Intigua. On 16 September 2013, TSI entered into an agreement with Intigua (“the Intigua Agreement”) which was in similar terms to the Agreement whereby TSI agreed to promote and market the Intigua software in UK/Ireland with an effective date of 1 October 2013.
On 9 October 2013 CA terminated the Agreement summarily on the purported basis that TSI, by reason of accepting an engagement with Intigua, was in breach of its duties: (a) to devote substantial time and effort to performing its obligations under the Agreement, and (b) not to engage in any activity competing directly with the Software.
The decision below
The judge's reasoning was set out in his judgment of 1 July 2016. In summary:
Software as goods
i) He rejected CA's submission and held that electronically supplied software amounted to “goods” within the Regulations for the reasons set out in the judgment at [33] – [61] and [68].
Software licence as a sale
ii) He rejected CA's submission and held the supply of the Software by way of a perpetual licence amounted to a “sale of goods” for the reasons set out in the judgment at [62] – [69].
Repudiatory breach
iii) The judge construed clauses 3.2 and 3.6 of the Agreement as permitting TSI to enter into contractual obligations owed to Intigua which were identical to those duties owed to CA at [74], [76] – [79] and [95]. As such, the judge held that TSI was not in contractual breach.
Conflict of interest
iv) The judge accepted that TSI owed a duty to CA to avoid any conflict of interest, but he distinguished the facts of the authorities relied upon by CA, and concluded there was no breach of the conflict of interest rule, or if there were breaches of that rule, they were minor breaches that were not repudiatory at [91] – [125] and [129] – [131].
Regulation 18
v) Regulation 18 excludes compensation under Regulation 17(2) if the principal has terminated the agency contract because of a default attributable to the commercial agent, which would justify immediate termination of the agency contract. The judge did not express any view on Regulation 18 because he found that no repudiatory breach had been committed by TSI at [134].
Quantum of Compensation
vi) Upon termination of the agency, Regulation 17(2) and (6) set out the right to compensation, which is what TSI claims in this case. It provides that the commercial agent “shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with his principal.” The determination of such compensation was the subject of Lord Hoffmann's judgment in Lonsdale v Howard [2007] 1 W.L.R. 2055. At [11], he stated the value of the agency relationship lay in the prospect of earning commission, the agent's expectation that proper performance of the agency contract would provide him with a future income stream and it is this which had to be valued. The judge assessed the quantum of TSI's compensation under Regulation 17 as £475,000 at [135] – [172].
Contractual damages
vii) This issue related to two types of contractual damages. The first type was damages for lack of adequate notice of termination and the second type was for post-termination commission. On the first type, the judge held there could be a separate claim for contractual damages even where there had been a successful claim for compensation under Regulation 17(2). He was persuaded by case law that supports the entitlement to claim damages under both heads. On the second type, the judge found this was a debt-claim; certain sales have been made and the agent was entitled to 100% commission on those sales.
viii) The judge awarded TSI £15,631.06 as damages for lack of adequate notice of termination because he found that there was no lawful basis for CA's termination of the Agreement on 9 October 2013.
The issues on the appeal
The issues on the appeal may be summarised as follows:
i) Whether software, in the form of the Software, which was supplied to CA's customers electronically and not on any tangible medium, constitutes “goods” within the meaning of Regulation 2(1)?
ii) Whether the grant of licences of the Software by CA to its customers constitutes the sale of “goods” within the meaning of Regulation 2(1)?
iii) Whether TSI was in repudiatory breach of clauses 3.2 and 3.6 of the Agreement by accepting an engagement for Intigua effective on 1 October 2013?
iv) Whether TSI was in repudiatory breach of its duty as an agent and under Regulation 3 by failing, prior to TSI's entry into the engagement with Intigua, to disclose that TSI intended to accept an engagement as Intigua's agent and the full nature of the proposed engagement and activities and to seek CA's agreement to such engagement and activities?
v) If TSI committed either of the repudiatory breaches of the Agreement referred to in issues 3 and 4 above, whether TSI's claim for compensation under Regulation 17 was excluded pursuant to Regulation 18(a)?
vi) Whether the judge's assessment of the quantum of compensation that TSI was entitled to under Regulation 17 was wrong?
vii) Whether the judge was wrong in failing to deduct TSI's damages for post-termination commission and lack of notice of termination from the award of compensation under Regulation 17?
viii) If TSI committed either of the repudiatory breaches of the Agreement referred to in issues 3 and 4 above, whether CA lawfully terminated the Agreement on 9 October 2013 such that TSI is not entitled to any damages for lack of notice of termination?
Issues 2 and 5 – 7 only arise if issue 1 is answered in the affirmative.
The appellant's submissions before this court
The arguments advanced in the written and oral submissions by counsel acting on behalf of the appellant, Mr Dhillon, may be summarised as follows:
i) As to issue (i): the judge's conclusion was wrong and the supply of the Software by electronic means does not amount to the “sale of goods” because:
a) electronically supplied software in general, and the grant by CA to its customers of a licence to use the electronically supplied Software in particular, did not involve any tangible property; and
b) on its true construction, the meaning of sale of “goods” in the Regulations is limited to tangible property and does not include software.
ii) As to issue (ii): the judge's construction of ...
To continue reading
Request your trial
-
Green Deal Marketing Southern Ltd v Economy Energy Trading Ltd
...to say that the purposes of legislative provisions may inform the sensible construction of those provisions. 5) In Computer Associates Ltd v The Software Incubator Ltd [2018] EWCA Civ 518, [2018] 1 Lloyd's Rep 613, the Court of Appeal proceeded on the basis that both gas and electricity w......
-
COT's Top Four Commercial Issues - March 2018
...is not goods and so is not subject to the Commercial Agency Regulations (Computer Associates UK Ltd v The Software Incubator Ltd [2018] EWCA Civ 518 (19 March 2018)). However, the court noted that software delivered by means of a backup disk or other tangible property may still be goods. Wh......