Softlanding Systems, Inc v KDP Software Ltd & Anor

Where a distribution agreement requires regular, complete and accurate reports, the obligation may extend to the pricing and payment information needed to verify royalties, including end-user prices and deductions paid to agents or distributors. Failure to provide that information can be a breach of a material obligation where the reporting duty is essential to the substance of the agreement and the parties’ commercial confidence. A prior request is not required where the obligation is periodic and pre-existing. After notice of breach and an opportunity to cure have expired, termination under the contractual provision is effective. An appellate court will not reverse credibility-based factual findings unless satisfied that the trial judge was plainly wrong; allegations of dishonesty require especially clear grounds for intervention.

Softlanding Systems, Inc appealed, and Unicom Systems, Inc joined as a third-party appellant, against the dismissal of SoftLanding’s claim and the allowance of KDP Software Ltd’s Part 20 claims. The dispute arose from two 1995 software distribution agreements. KDP terminated them after SoftLanding and Unicom declined to provide information about end-user licence and maintenance fees, agent deductions and royalty calculations.

The Technology and Construction Court, before His Honour Judge David Wilcox, held that the reporting failures breached a material obligation and that termination was valid. It also rejected SoftLanding’s case that the parties had later agreed fixed royalties. The central questions on appeal were whether the information obligation had been breached materially and whether the factual finding rejecting a fixed-fee agreement should be disturbed.

The appeal was dismissed on both issues argued.

1. Reporting obligation and material breach. The continuing assumption for the appeal was that the parties remained bound by the 1995 agreements after their stated three-year term. Clause 3.2 required SoftLanding every six months to provide a complete and accurate written report of its activities. Properly construed with clauses 8.1, 8.3 and 18, that obligation included information about pricing policy, licence and maintenance fees actually paid by end users, deductions paid to agents or distributors, and the prices on which KDP’s royalties were calculated. The “gross price” in clause 8.1 meant the price actually paid by end users, before deductions for SoftLanding’s own costs and expenses.
2. The information was necessary for KDP to verify compliance with the royalty obligations. The duty was periodic and pre-existing, so it was immaterial whether KDP had previously identified or requested each category of information. The obligation to provide full information was essential to the substance of the agreements and fundamental to the parties’ confidence. It was therefore a material obligation within clause 10.2. KDP gave written notice identifying the breach and demanding a cure; SoftLanding failed to cure within 14 days, and termination under clause 10.2 was valid.
3. Fixed-fee agreement. The trial judge had rejected the alleged agreement that fixed sums replaced percentage royalties. That conclusion depended substantially on witness credibility and was supported by the documentary evidence. The appellate court could intervene only if the judge was plainly wrong. Allegations that witnesses had given dishonest evidence required the clearest grounds for intervention. None existed.

• Court of Appeal (Civil Division) — The appeal by Softlanding Systems, Inc and Unicom Systems, Inc was dismissed on the two issues argued.
• High Court, Technology and Construction Court — His Honour Judge David Wilcox dismissed Softlanding’s claim for damages and consequential relief and allowed KDP’s Part 20 claims: [2010] EWHC 326 (TCC).