SCI (Sales Curve Interactive) Ltd v Titus SARL
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE RIX,LORD JUSTICE MAY,LORD JUSTICE WARD |
| Judgment Date | 26 April 2001 |
| Neutral Citation | [2001] EWCA Civ 591 |
| Date | 26 April 2001 |
| Docket Number | Case No: A2/2000/3524 |
| Court | Court of Appeal (Civil Division) |
[2001] EWCA Civ 591
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
(HHJ Jack QC, sitting as a Deputy High Court Judge)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Ward
Lord Justice Maylord Justice Rix
Case No: A2/2000/3524
Mr R Englehart QC and Mr A Green (instructed by Messrs Harbottle & Lewis, London W1R 0BE for the Respondent)
Mr I Hunter QC and Mr V Flynn(instructed by Messrs Gordons, London, WC1N 3ES for the Appellant)
Carmaggedon is an interactive entertainment software product, or what my children would call a computer game. The cause of this litigation, however, is precisely the fact that sales have been affected by the perception that it is a game which is unsuitable for children. The essence of the game is that the player drives a car in such a way as to cause it to injure pedestrians or destroy property. In France public concern, spearheaded by a ginger group called Familles de France, has persuaded leading retailers to decline to stock it; while in Germany industry self-regulation has rendered it available in practice only to purchasers over 18 years of age. Sad to say, a similar 18 rating in the UK has, apparently, only served to fuel sales here.
The dispute before the courts is a claim by the licensor of Carmaggedon against its licensee. The claimant, SCI (Sales Curve Interactive) Limited (the "licensor"), appointed the defendant, Titus Sarl (the "licensee"), as the exclusive distributor of the game (in three versions or formats, known as Playstation, N64 and Colour Game Boy) throughout a long list of territories which seem to include much of the world outside the Americas and the Far East. The licence was dated 19 August 1999. It was for a five year term.
The licence provided for payment by the licensee of an advance of up to £2.2 million, in four instalments. These payments were described as non-returnable advances recoupable out of royalties otherwise payable to the licensor upon sales of the game. Although the licence described the advances as non-returnable, it also provided for two circumstances in which a partial return might become effective. Both depended upon a computation to be made as at a "Reconciliation Date" six months after the first release within the licensed territories of any of the three versions. If at that date royalties accrued were less than advances paid, the shortfall was to be repaid, unless the parties could negotiate a new licence for some other product by way of compensation to the licensee, up to a maximum of £356,000 held by way of escrow. Secondly, if there was a ban on sales of the game, in any version, in any territory, and as a result part of the shortfall between royalties accrued and advances paid was due to such a ban, then that part of the shortfall was to be measured by the difference between royalties earned and royalties projected on "target sales" within the applicable territory and was to be repaid to the licensee. I am here seeking to gloss, as concisely as possible, some quite complicated provisions of the licence which in due course I will have to set out verbatim. In glossing such provisions, I am not intending to determine any point of construction as to the interrelationship of these two sets of circumstances under which a shortfall of royalties accrued against advances paid as at the reconciliation date might lead to a return of some part of those advances.
What happened was that after the licensee had paid the first two advances, totalling £1.2 million, the third advance, of £0.6 million, became due on 26 October 1999, but went unpaid. The licensor gave the licensee due notice, under the contract, to pay within ten days. When the third advance remained unpaid, the licensor served a termination notice, as it was entitled to do "with immediate effect" under the contract's termination clause. Thus the licence terminated on 21 December 1999. That is not in dispute.
At that date the reconciliation date had not yet arrived. There is some dispute as to when the relevant six month period began and thus ended. The licensor's evidence is that the first release of any version occurred in October 1999 (no precise date was given) and that the six months therefore expired in April 2000. The licensee submitted that the six month period began on 17 September 1999 and thus expired on 16 March 2000, but that submission was based on nothing more than the fact that the licence contemplated that the parties would use their best endeavours to release all three versions of the game on 17 September "or as soon as is commercially possible". In the circumstances, the licensor's evidence is probably to be preferred to the licensee's submission, but, since there has been no trial as yet in proceedings which are currently concerned with the licensor's application for summary judgment, the point is formally open. Nevertheless, whichever date is chosen, the licence's termination on 21 December 1999 was long before the reconciliation date.
In the circumstances the licence terminated after the third advance was due but before any repayment obligation which might have been triggered by the licence's provisions relating to the reconciliation date had fallen due. The issues on this appeal are concerned with that basic combination of events.
There are three such issues. The first, is whether the terms of the licence relating to the reconciliation date and to the effect of a ban on projected sales, and thus the possible repayment of advances, apply even after termination. The second, is whether the right of repayment is an "accrued right" as of the date of termination, and thus cannot be lost by reason of the termination. The third issue is whether the failure of such terms to provide for repayment even after termination means that the contract exacts a penalty, namely the loss of the right of repayment, upon the licensee's breach.
The licence
The licence is in four parts: the principal agreement, the schedule of commercial terms, the schedule of standard terms, and appendices. It is unnecessary to quote from the principal agreement, save to mention that in the event of any inconsistency the commercial terms were to prevail over the standard terms, and that the "consideration for the appointment and grant of exclusive rights" to the licensee was the payment to the licensor of the advances and royalties provided for in the schedules.
The schedule of commercial terms provided inter alia as follows:
"4. Advances
The Licensee shall pay to the Licensor an advance equal to £2.2m sterling in return for the licence granted by clause 3 of the Principal Agreement, such sum to be payable as to:
(a) £600,000 on the date of delivery to the Licensee of the Gold Master of the Playstation version of the Product;
(b) £600,000 on the date of delivery of the Gold Masters of the N64 and CGB versions of the Product, having been approved for manufacture by the relevant Format Owner (Nintendo);
(c) £600,000 on the 60th day after the first release of the last format of the Product in any of the Territories, or the 90th day after Nintendo has given its approval of the N64 and CGB versions of the Product whichever is the earlier, provided that £178,000 of this amount shall be paid into an escrow account, to be released to the Licensor (or returned to the Licensee as the case may be) in accordance with the provisions of clause 6 below;
(d) £400,000 at any time after the release of the first format of the Product in any of the Territories, provided that the total Royalties accrued to the Licensor (whether or not already accounted for by the Licensee), as defined, calculated and accrued in accordance with clause 5 below over the three Licensed formats, have reached £1.8m.
The sums payable to the Licensor pursuant to clause 4.1 shall (subject to the terms of this Agreement) be non-returnable and shall be deemed to be advances ("Advances") recoupable out of Royalties payable upon Sales of the Products throughout the Territories (fully cross-collateralised as between the
Products) pursuant to the provisions of clause 5 below.
"6. Reconciliation
For the purposes of this Agreement the date 6 months after the date of the first release within the Territories of the first of the three Licensed Formats to be released by the Licensee shall be referred to as the "Reconciliation Date". At any time on or after that date, the Licensee shall procure that a reconciliation is carried out to determine if, and to what extent, the Advances paid to the Licensor as at the Reconciliation Date have not been recouped, and shalls procure the provision of a notice to the Licensor of such reconciliation in the form of a statement (the "Reconciliation Statement") at any time thereafter, setting out the calculation of such reconciliation (and, if applicable, the information referred to in clause 9 below). If the Reconciliation Statement shows a shortfall, the amount of such shortfall (up to a maximum of £356,000) shall be deemed credited to the Licensee, and the parties shall endeavour to negotiate the acquisition by the Licensee of distribution (or other) rights in one or more of the Licensor's other available products as at the relevant time, taking the amount of such credit into account, PROVIDED THAT if the parties are unable to reach agreement in relation to such other product within 60 days of receipt by the Licensor of the Reconciliation Statement ("the Reconciliation Payment Date"), the amount deemed credited to the Licensee...
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