Computer Associates UK Ltd v The Software Incubator Ltd

For commercial-agent legislation confined to agents negotiating the sale or purchase of goods, goods means tangible property. Software supplied electronically without a tangible medium is outside that concept, even though the distinction may be technologically artificial and commercially undesirable. Courts must respect the established legal meaning and leave reform to the legislature. A non-exclusive agency agreement requiring substantial time and effort does not, without more, require the majority of the agent’s time or prevent work for another principal. Common-law conflict duties remain, but minor or unproved conflicts do not justify termination for repudiatory breach.

Computer Associates UK Ltd engaged The Software Incubator Ltd to promote release automation software in the United Kingdom and Ireland. After TSI entered a further agency arrangement with Intigua, CA terminated the Agreement. The High Court, in [2016] EWHC 1587 (QB), held that electronically supplied software was goods, that perpetual software licences involved a sale of goods, and that TSI had not committed a repudiatory breach. It awarded compensation, commission and damages. The appeal concerned the scope of the Regulations, the construction of the Agreement, conflict-of-interest duties, and the consequences of termination.

Disposition. The Court of Appeal allowed the appeal on issue 1 and, consequentially, on issues 2 and 5–7. It dismissed the appeal on issues 3, 4 and 8. All three judges agreed with the judgment of Gloster LJ.

1. Meaning of goods. Regulation 2(1) of the Commercial Agents (Council Directive) Regulations 1993 applies only where the agent is authorised to negotiate or conclude the sale or purchase of goods. Although the Regulations contain no definition, the established distinction between tangible and intangible property governed its meaning. Software supplied electronically and never placed on a tangible medium was intangible property and was not goods.
2. The conclusion was supported by Accentuate Ltd v Asigra Inc [2010] 2 All E.R. (Comm) 738, St Albans City and District Council v International Computers Ltd [1996] 4 All E.R. 481, Your Response Ltd v Datateam Business Media Ltd [2014] EWCA Civ 281, and Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd [1996] S.L.T. 604, together with relevant European authority. The court could not expand the established meaning on policy grounds. The Consumer Rights Act 2015 and the Consumer Rights Directive demonstrated that protection for electronically supplied software required a distinct digital-content category and legislative action.
3. Because the software was not goods, the Regulations did not apply to the Agreement. Issues concerning the licence as a sale, Regulation 18, compensation and deductions therefore no longer required determination.
4. Contractual duties. The Agreement was non-exclusive. Requiring TSI to devote a substantial amount of time and effort did not mean the majority of its time, and the Agreement did not expressly prevent TSI from acting for another principal, provided no conflict arose. The judge’s findings disclosed no breach.
5. Conflict and termination. At common law an agent must not place himself in a position where his duty to another principal may conflict with his duty to his principal unless there is fully informed consent. The products did not realistically compete, and the evidence did not establish a breach sufficient to be repudiatory. CA therefore had no lawful basis for termination; its termination was itself repudiatory, leaving TSI entitled to damages limited to the consultancy fee for the balance of the notice period.

• Court of Appeal (Civil Division) allowed the appeal concerning the classification of electronically supplied software and the consequential issues, but dismissed the appeal concerning the contractual and common-law breach issues: [2018] EWCA Civ 518.
• High Court of Justice, Queen’s Bench Division, London Mercantile Court held that electronically supplied software was goods, that perpetual licences amounted to a sale of goods, and that TSI had not committed a repudiatory breach. Judgment was entered for compensation, commission and damages: [2016] EWHC 1587 (QB).