SCI (Sales Curve Interactive) Ltd v Titus Sarl

Contractual reconciliation provisions designed to measure sales and royalties during an ongoing distributorship do not ordinarily survive termination before the reconciliation date. A prospective possibility of adjustment is not an accrued contractual right. Where termination follows a repudiatory breach, the loss of a future contractual benefit is not necessarily a penalty or forfeiture, particularly where the contract does not stipulate payment or transfer of property upon breach. The court must construe the agreement as a whole, including provisions describing advances as non-returnable and provisions expressly addressing post-termination rights.

The claimant licensor appointed the defendant licensee as exclusive distributor of a computer game under a five-year licence. The agreement required staged advances, described as non-returnable, subject to limited reconciliation and repayment provisions based on royalties, target sales and bans in particular territories.

The licensee failed to pay the third advance. The licensor validly terminated the licence before the six-month reconciliation date and sought payment. The Master and, on appeal, Judge Jack QC rejected the licensee’s arguments that the reconciliation provisions survived termination, that a repayment right had accrued, or that its loss constituted a penalty. The central questions before the Court of Appeal were whether the reconciliation provisions remained operative, whether the licensee had an accrued right before the reconciliation date, and whether their loss was an unenforceable penalty.

1. Appeal dismissed. The licensor was entitled to judgment on liability and to payment of at least £422,000, with the precise entitlement in debt or damages to be assessed. Costs were ordered in the sum of £17,630.
2. The agreement’s structure made the advances non-returnable except for the express and limited mechanisms in the commercial terms. Those mechanisms required calculations at the reconciliation date after a six-month period of sales. They formed part of the working process of an ongoing distributorship, in which the licensee had exclusivity and obligations to maximise sales.
3. The reference in standard term 11.1 to provisions expressly intended to continue after termination did not preserve the reconciliation provisions. The reference to standard term 5 did not incorporate every commercial provision concerning advances and royalties. Post-termination accounting and the six-month sell-off provisions could continue, but the reconciliation exercise could not sensibly operate after termination before the relevant period had ended.
4. No right to reconciliation had accrued when termination occurred. The third advance had become due, but the conditions for any repayment or reduction had not been satisfied. The position differed from a case where the reconciliation date had already passed and only the preparation of the reconciliation statement remained.
5. The loss of the prospective reconciliation benefit was not a penalty. The contract did not stipulate a sum or transfer of property upon breach. The termination followed an unremedied repudiatory breach concerning payment of a material sum, and the licensor sought the advance already due. The ordinary consequence that termination leaves accrued rights intact but ends unperformed primary obligations was not stipulated in terrorem.

• Court of Appeal (Civil Division): appeal from the decision of Judge Jack QC, sitting as a deputy High Court judge, dismissed. The judge had rejected the arguments that the reconciliation provisions survived termination, that a repayment right had accrued, and that their loss was a penalty.
• Queen’s Bench Division: Master Prebble gave summary judgment on liability and ordered an interim payment of £422,000; permission to appeal was granted.