Software Incubator Ltd v Computer Associates UK Ltd
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Waksman,HH Judge Waksman |
| Judgment Date | 01 July 2016 |
| Neutral Citation | [2016] EWHC 1587 (QB) |
| Court | Queen's Bench Division |
| Docket Number | Claim No: LM-2014-000241 |
| Date | 01 July 2016 |
[2016] EWHC 1587 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LONDON MERCANTILE COURT
His Honour Judge Waksman QC
(sitting as a Judge of the High Court)
Claim No: LM-2014-000241
Oliver Segal QC (instructed by Fox Williams LLP, Solicitors) for the Claimant
Jasbir Dhillon QC (instructed by Olswang LLP, Solicitors) for the Defendant
Hearing dates: 11–15 and 19–20 April 2016
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
The Claimant in this action, The Software Incubator Ltd ("TSI") is the corporate vehicle for the consulting activities of its owner and director Mr Scott Dainty. These included acting as agent for the promotion of what is known as application release automation software ("RAS"). By a written agreement made on 25 March 2013 between TSI and the Defendant, Computer Associates UK Ltd ("CA") ("the Agreement"), TSI, through Mr Dainty, agreed to act as a non-exclusive agent for the promotion of CA's RAS in the UK for an initial, but renewable term of 12 months. Under the Agreement, TSI was paid a consulting fee of £10,000 per month plus commission at the rate of 3.8% for sales up to £3,000,000 per annum and at the rate of 10% above that.
On 13 September 2013, CA gave 90 days written notice to TSI of termination of the Agreement ("the Notice Letter") but on 9 October 2013 it altered its stance and purported to accept alleged repudiatory breaches on the part of TSI thereby entitling it to terminate the Agreement forthwith ("the Termination Letter"). TSI denies any repudiatory breach.
As a result, TSI has claimed the following against CA:
(1) damages at common law for repudiatory breach, limited to the monthly fee which would have been paid for the remainder of the notice period;
(2) compensation payable pursuant to Regulation 17 of the Commercial Agents (Council Directive) Regulations 1993 ("the Regulations");
(3) commission payable pursuant to Regulation 8 of the Regulations on certain post-termination sales; alternatively, if Regulation 8 is inapplicable, a similar claim at common-law under the Agreement.
In response, CA denies any liability to TSI for one or more of the following reasons:
(1) there is no claim under the Regulations at all because they do not apply. This is because the supply or sale of software being promoted by TSI for CA is not "the sale of goods" for the purpose of the definition of "commercial agent" in Regulation 2 of the Regulations; alternatively, TSI's activities as a commercial agent were "secondary" for the purpose of Regulation 2 (3) and so again, the Regulations do not apply;
(2) even if they did apply, TSI was itself in repudiatory breach of the Agreement and as a result: (a) there could be no contractual damages claim and (b) there can be no compensation claim under Regulation 17, by reason of the operation of Regulation 18 (a);
(3) there is no separate Regulation 8 claim for commission in respect of post-termination transactions because on the facts, they were not "mainly attributable" to TSI; alternatively, the Regulation 8 claim was excluded by the Agreement.
THE EVIDENCE
At the trial of this action, I heard from the following witnesses on behalf of TSI: Mr Dainty himself, and Philip Cherry, formerly a consultant at CA who worked with TSI and who became a business associate of Mr Dainty. For CA, I heard from Ritu Mahandru, CA's Vice-President for sales of application development software for Europe, the Middle East and Africa, Jack Kudale, who was at the material time the world-wide senior Vice-President for application delivery solutions at CA Inc., CA's parent company, Noelle Doherty, Stephen Bartlett and Daniel Humphreys, all account directors at CA, Eric Grotefeld, the current Senior Vice-President for the application delivery business unit worldwide but at the time running that unit in Europe, and Benny Van de Sompele, a consultant for CA Belgium BVBA/SPRL, an associated company of CA.
In addition, each side called an expert forensic accountant to deal with quantum. For TSI, I heard from Charles Lazarevic of Moore Stephens LLP and for CA I heard from Daniel Ryan of Berkeley Research Group.
There is a very substantial volume of contemporaneous emails which is of considerable assistance when considering the events of 2013 and the allegations made against TSI.
I deal with the particular witnesses in context below, but make some observations about Mr Dainty's evidence here. Generally, I thought he was a reliable witness although on some occasions he sought to understate his plans for or involvement with Intigua and was occasionally evasive when pressed on certain points or began simply to make arguments in support of his case. But on other occasions he made concessions. He was obviously somewhat embarrassed at having to deal with his discussions with Intigua (as might any party who was thinking of leaving his current engagement and then being given notice) because he would naturally not want to mention it openly. But the question is whether what he actually did in relation to Intigua amounted to a repudiatory breach.
THE BACKGROUND
RAS is "software about software" in the sense that its purpose is to coordinate and implement automatically the deployment of and upgrades for other software applications across the different operational environments in large organisations like banks and insurance companies, so that the underlying applications are fully integrated with the software operating environment. To do this manually, which involves many layers of testing, can be extremely time-consuming for a large organisation and the purpose of RAS is to perform these tasks automatically. Sophisticated RAS is complex and expensive and the time taken to close a deal with a large organisation can be considerable.
The RAS with which I am concerned was originally developed by an Israeli company called Nolio Limited ("Nolio"). I shall refer to the version of the software originally marketed by Nolio and then by CA as "the Product" which is how it is referred to in the Agreement.
Mr Dainty has been involved in software sales since 1998. By early 2009 he was ready to begin acting as an independent consultant and on 14 January 2009 he incorporated TSI. Through that vehicle he made a contract with Nolio dated 19 July 2009 pursuant to which TSI agreed to promote, market and sell the Product. He received an advance monthly payment of £4,000 and commission of 40% on any sales. On 1 September 2010 that agreement was replaced by a consultancy agreement made between Nolio and Mr Dainty personally, though he still traded through TSI which invoiced for and received the monies due, from Nolio ("the Nolio Agreement").
Under the Nolio Agreement, Mr Dainty received a monthly fee of £8,000 plus commission. The commission was expressed partly in money and also in percentages. His focus was on banks, insurance companies, telecoms companies and other FTSE 250 companies.
It is common ground that the process of selling the Product to a potential customer is or may be drawn out, involving parties at different levels of seniority or skill sets at the customer. In 2010 Mr Dainty closed a deal with City Index for Nolio with a value of $110,000 yielding a commission for Mr Dainty of $14,357. In January 2011 he procured the sale of the Product to Tesco for in excess of $500,000 producing a commission of $60,609 and there was a further smaller sale in December 2012. In March 2011 he negotiated a sale to ICAP, a financial services company, worth $250,000 with a commission of $25,649. In November 2011 he procured a sale to BUPA worth more than $500,000 and commission of $23,975. In September 2012 he negotiated a deal with Thompson Reuters worth about $1.95m with commission of $74,796. There was a further deal in March 2013 worth another $1.125m securing a similar commission. On 12 March 2013 he secured an agreement worth $4m from Barclays which was the product of 2 years of work by Mr Dainty and Nolio. So it cannot be said (nor is it suggested) that Mr Dainty did not know how to sell the Product.
In early 2013 Mr Gerstel, Nolio's CEO, told Mr Dainty that Nolio was being sold to CA. The CA Group, to which it belongs, is a multinational software development company with a global presence. But it had no RAS presence here at all. Its acquisition of Nolio meant that Mr Dainty would have to terminate his agreement with Nolio and procure a new one with CA. After some negotiations, he made, through TSI, the Agreement. It provided that CA would pay the commission due to TSI for the deals which had in fact been closed just prior to its acquisition of Nolio, in particular in relation to Tesco, Barclays and Thomson Reuters. It was also agreed that the value of those deals would count for later commission purposes, which meant in effect that future commission claims would be at the higher rate of 10%.
The Agreement contained the following material terms:
(1) the Recitals refer to the development by CA of the Product and that TSI had represented that it has the experience, know-how, willingness, pre-requisite ability and connections to market and promote it to customers in the UK and Ireland and that CA decided to retain the services of TSI and granted certain rights of marketing and/or promotion;
(2) by clause 2.1, CA engaged TSI on a non-exclusive basis to approach potential customers for the purpose of promoting, marketing and selling the Product;
(3) by clause 3.1, TSI would provide CA with the services listed in Exhibit A. The latter said that TSI would act as Director, Solution Sales and provide CA with...
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