Sawyer v Atari Interactive Inc.
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lawrence Collins |
| Judgment Date | 01 November 2005 |
| Neutral Citation | [2006] EWHC 2709 (Ch),[2005] EWHC 2351 (Ch) |
| Docket Number | Case No: HC 05 C 01176 (IHC 326/05) |
| Court | Chancery Division |
| Date | 01 November 2005 |
[2005] EWHC 2351 (Ch)
Before
Mr Justice Lawrence Collins
Case No: HC 05 C 01176 (IHC 326/05)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
Mr Andrew Hunter (instructed by Eversheds LLP) for the Claimant
Mr Paul Lowenstein (instructed by Harbottle & Lewis) for the Defendant
APPROVED JUDGMENT
Hearing: October 20, 2005
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.
I Introduction
Mr Sawyer, the Claimant, is a very successful designer and developer of computer games, in which he owns the copyright, among them Transport Tycoon, RollerCoaster Tycoon (and its add-ons), and RollerCoaster Tycoon II. His business is based in Scotland. He operates through an agent in England (Marjacq Micro Ltd).
The Defendant, Atari Interactive Inc, is a computer games distributor, and has licences to market the games. It is incorporated in Delaware and until earlier this year operated a studio in Beverly, Massachusetts, where new games were developed. It is a subsidiary of Atari Inc, which is based in New York. Both the Defendant and Atari Inc are subsidiaries of a French company, Infogrames Entertainment SA. In about 2001 Infogrames Entertainment SA acquired the Defendant (then called Hasbro Interactive Inc) from the well known games manufacturers, the Hasbro Group, and re-named it Infogrames Interactive Inc, and later, in about 2003, Atari Interactive Inc.
Atari Inc provides, in New York, administrative services to the Defendant, including the retention of accounting data and its royalty accounting function. The Defendant has associated companies around the world, but the evidence is that they remit accounting paperwork to Atari Inc in New York, where the worldwide royalty accounting takes place. While the business was in the Hasbro Group, accounting was done from Hasbro offices in Rhode Island.
There are five relevant licence agreements, to which I shall refer collectively as "the Agreements." Mr Sawyer originally licensed Transport Tycoon to an English company, MicroProse Ltd, by an Agreement dated June 15, 1994 ("the 1994 Agreement"). It seems that Hasbro acquired MicroProse Ltd in 1998 or 1999, and it is common ground that the Defendant has become the licensee under the 1994 Agreement by novation.
RollerCoaster Tycoon and two add-ons (Corkscrew Follies, and Loopy Landscapes) were licensed to the Defendant, then known as Hasbro Interactive Inc, by Agreements dated December 14, 1998 ("the 1998 Agreement"), October 25, 1999 ("the 1999 Agreement") and June 1, 2000 ("the 2000 Agreement") and RollerCoaster Tycoon II was licensed to the Defendant when it was known as Infogrames Interactive Inc by an Agreement dated May 17, 2002 ("the 2002 Agreement").
The 1994 Agreement provides for English law and English arbitration. The other four Agreements provide for English law, but do not contain a choice of court or arbitration.
The Defendant is the accounting party under all the Agreements. Gross turnover for the Atari Group for these games has been about $180 million and the gross royalties received by Mr Sawyer have been in the region of $30 million.
Disputes have arisen in relation to the royalties which Mr Sawyer claims to be due. In May 2003 Mr Sawyer exercised his audit rights under the Agreements and appointed Aberyc Ltd (forensic accountants) to conduct a review of the accounting books and records. Aberyc Ltd visited the New York office of Atari Inc, and a preliminary report was provided to Atari Inc on October 9, 2003. After subsequent visits to Atari's European offices a further report was produced on June 16, 2004.
Following a letter from Mr Sawyer's solicitors to Atari Inc, and subsequent correspondence between Mr Sawyer's solicitors and Atari's solicitors, Mr Sawyer has commenced proceedings in England, and obtained from Master Price permission to serve out of the jurisdiction. The Defendant applies to stay the action or to have the Master's order set aside: insofar as it relates to the 1994 Agreement because of the arbitration agreement; and insofar as it relates to the other Agreements (or alternatively all of the Agreements) because England is not the forum conveniens.
On the application, the Defendant says, in particular, that most of the issues involve accounting matters, and that the relevant witnesses and documents (or most of them) are in the United States. Mr Sawyer accepts that the action insofar as it relates to the 1994 Agreement must be stayed in view of the Defendant's reliance on the arbitration agreement, but says that the issues in the action relate essentially to questions of construction governed by English law, and that accordingly England is the appropriate forum.
II The Agreements
By the 1994 Agreement Mr Sawyer (defined as "the Author") granted MicroProse Ltd as the Publisher a licence to publish and sell Transport Tycoon. Clause 12.2 provided:
"The Publisher shall render accounts of the sales of the said Work as at March 31st, June 30th, September 30th and December 31st in each year, within 30 days of said dates, and all monies due to the Author shall be paid within two calendar months of the said date, provided however, that no account need be submitted unless specifically demanded nor payment made in respect of any period in which the sum is less than or equal to ten pounds, in which case the amount will be carried forward to the next accountancy date."
Clause 18 gave Mr Sawyer the right, upon 30 days written request, to examine the accounts of MicroProse Ltd insofar as they related to the sales of the Work.
Clause 20 contained an arbitration agreement:
"If any difference shall arise between the Author and the Publisher touching the meaning of this Agreement, or the rights and liabilities of the parties thereto, the same shall be referred to arbitration in accordance with the provisions of the Laws of England."
Clause 41 contained an express choice of English law:
"This Agreement shall be governed and interpreted according to the laws of England."
The 1998, 1999, 2000 and 2002 Agreements contained provisions in substantially similar form:
(1) Clause 1(1) defined "Net Sales Revenues" as:
"means the aggregate actual invoice price of sales of copies of the Format 1 by [the Defendant], its parent company, subsidiaries or affiliates to unrelated third parties less returns, co-op advertising (limited to 4% of Net Sales Revenue), bad debts (limited to 3% of Net Sales Revenue, currency exchange fees and other customary trade and volume discounts actually given to Customers."
(2) Schedule 3 of the Agreements provided that no later than 90 days 2 after the end of each calendar quarter, payment of royalties would be made in sterling. But the Defendant was entitled to withhold from the royalties up to 10% of such royalties as an allowance against returns of defective products and: "Such sums as are withheld shall be held by [the Defendant] in an interest bearing account (any interest earned to be re-invested in the account)."
(3) Each of the Agreements contained under the heading "Audit" in clause 15 (in which the Claimant was defined as "the Developer"):
"The Developer (or its authorised representative) shall have the right (upon giving reasonable notice in writing) not more than once per calendar year during [the Defendant's] normal business hours to examine and make copies 3 [of] [the Defendant's] records in respect of sales of the Format 4 and Derivative Products upon which the Developer receives a royalty under this Agreement. Any such examination shall be conducted in such manner as to not unduly interfere with the business of [the Defendant]. The Developer shall not (without the prior consent of [the Defendant] in writing) use the same auditor or audit firm simultaneously at [the Defendant] with any other developer. [The Defendant] shall keep and maintain proper and complete records and books of account relating to sales of copies of the Format for a period of 2 years from the end of the calendar quarter to which they relate. If the examination reveals an error of greater than 5% in the calculation of royalties for any quarter, then provided the amount owing due to the error is greater tha[n] £1000, [the Defendant] will reimburse the Developer for the reasonable costs of carrying out the examination."
(4) Each of the Agreements contained under the heading "Governing Law" (in clause 27 of the 1998 and 2002 Agreements and clause 26 of the 1999 and 2000 Agreements):
"This Agreement shall be governed by and construed in accordance with English law."
(5) Each of the Agreements also contained in Clause 6(3) (in the 2000 and 2002 Agreements) or clause 6(5) (in the 1998 and 1999 Agreements) the following provision:
"Notwithstanding anything herein to the contrary, if any customs duties, sales, use or withholding or similar taxes are imposed on any Royalties or [the Development Fees] 5 payable to the Developer, then the amount of such taxes will be deducted and withheld by [the Defendant] from such Royalties or Development Fees and the Developer shall only be entitled to receive the net amount of the Royalties [or Development Fees] 6 after such deduction or withholding. [The Defendant] will give reasonable assistance to the Developer in obtaining certification of such deductions at the Developer's cost."
III The proceedings
Eversheds, the Claimant's solicitors, sent a letter before action on November 1, 2004 addressed for the attention of Atari Inc's General Counsel. Having received no response, in February 2005 they threatened to...
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