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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Hanger Holdings v Perlake Corporation SA & Anor  EWHC 81 (Ch) (19 January 2021)
Cite as:  EWHC 81 (Ch),  Bus LR 544,  WLR(D) 70
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Fetter Lane, London, EC4A 1NL
B e f o r e :
(Sitting as a Deputy High Court Judge)
| HANGER HOLDINGS
|- and -
|PERLAKE CORPORATION SA
Steven Thompson QC and Erin Hitchens (instructed by Fladgate LLP) for the Defendants
Hearing dates: 14-19 July 2020
Crown Copyright ©
Judge Hacon :
The arguments in summary
Mr Croft's defence
HH's case on the Loan Agreement
The principal issues
The 2003 Agreement
"Definitions and Interpretation
1.1 In this Agreement and the Schedules attached hereto, the following expressions shall have the meanings set out below:
'Assets': the Blackjack Site, Customer Data, Domain Name and Trade Mark.
'Blackjack Site': the website currently located at the Domain Name, including all software and designs incorporated in such website to make the website function for the HH Business (other than the rights to the Domain Name and the Trade Mark, and software owned by OddsOn Inc or third party suppliers to be licensed direct to Company under section 3.5 (either by assignment or novation agreements) in place and stead of existing licences with HH).
'Business': the online business conducted on the Blackjack Site after the Completion Date.
'Commission': the Commission payable in accordance with Schedule 2.
'Completion Date': 23:59 UK time 29 April 2003
'Consideration Date': the date which the total Commission paid by Company under this Agreement to HH together with the total Fees paid under the Service Agreement (as defined in that Agreement) is equal to the Transfer Consideration.
'Domain Name': the domain name blackjack.com
'Encumbrance': any right or interest of any third party, including any mortgage, charge, lien, option, encumbrance, right of pre-emption or first refusal, or any assignment to create any such right or interest.
'Existing Players': customers who registered on the Blackjack Site prior to the Completion Date.
'New Players': customers who register and/or play on the Blackjack Site after the Completion date (excluding Existing Players)
'Players': collectively, the Existing Players and the New Players
'Service Agreement': the agreement between HH and 6047343 Canada Inc. effective from the Completion Date for services related to the Blackjack Website
'Trade Mark': the brand name and trade mark Blackjack.com (including any registration or application of such trade mark, any goodwill that HH may have in such trade mark, all statutory and common law rights attaching to such trade mark and the right to take action in respect of past infringements of the trade mark and to retain any damages obtained as a result of such action).
'Transfer Consideration: US $250,000.
2 Transfer of Assets
2.1 In consideration for Company agreeing the payments to be made under section 4, HH agrees to sell to Company, free from any Encumbrances.
2.1.1 with effect from the Completion Date, the Blackjack Site and the Customer Data, including by way of assignment all related intellectual property rights; and
2.1.2 with effect from the Consideration Date, the Domain Name and the Trade Mark, including by way of assignment all related intellectual property rights.
3.5 The parties acknowledge that this Agreement Is completed in anticipation of Company putting in place its own licence in respect of the Software and any other arrangements with third parties reasonably required to operate the Blackjack Site, In place and stead of any existing licences or other arrangements between HH end such third parties, which licences and arrangements will be cancelled concurrently. If Company fails to notify HH within 28 days of signing this Agreement that such arrangements are in place, this Agreement may be terminated on notice by HH or Company and neither party will be liable to the other in respect of such termination.
4 Financial Arrangements
4.1 In consideration of the rights granted to Company under this Agreement, Company shall pay HH the Commission. Such Commission shall be payable by Company in accordance with Schedule 2. Payment of the Transfer Consideration may be accelerated at Company's discretion at any time by the payment of non-refundable Commission in advance (any such accelerated payment to be set off against future Commission).
9.2 HH may terminate this Agreement immediately by notice in writing if Company commits a material breach of any of the terms of this Agreement and, if such breach is capable of remedy, fails to remedy the breach within 30 days of receiving notice from HH specifying the breach and requiring the breach to be remedied. In the event of such termination, notwithstanding any other remedies HH may have, HH shall be entitled to all Company rights in the Trade Mark and Domain Name which shall cease, and Company shall promptly notify the relevant naming authority to ensure that Company is no longer nominated as the administration contact in relation to the Domain Name. Furthermore, the Company at its expense shall cause the Domain Name to be transferred back to HH or its nominee within 7 working days of such termination.
15.1 The Company shall not transfer, convey, assign, mortgage or grant an option in respect of or grant a right to purchase or in any manner transfer or alienate (a "Transfer") all or any portion of its interest or rights in the Business or in this Agreement (an "Interest") otherwise than in accordance with sections 15.2 and 15.3 or section 15.5.
15.2 Except in the case of a proposed Transfer of all of its Interest to a subsidiary or holding company of the Company or to a subsidiary of a holding company of the Company, provided that such subsidiary or holding company first complies with section 15.3 herein, the Company shall not transfer an Interest without the prior written consent of HH.
15.3 In the event that the company wishes to transfer an Interest to a third party (the Purchaser"), the Company and the Purchaser shall deliver to HH, prior to the completion of such disposition, an acknowledgement:
15.3.1 by the Purchaser that it agrees to be bound by all of the provisions of this Agreement as if it were an original signatory to this Agreement and
15.3.2 by the Company that it shall not be released from any duties or obligations under this Agreement accrued to the time of such transfer.
15.4 The Company agrees that its failure to comply with the restrictions set out in sections 15.1 to 15.3 would constitute an injury and result in damage to HH impossible to measure monetarily and, in the event of any such failure, HH shall, in addition and without prejudice to any other rights and remedies at law or in equity, be entitled to injunctive relief restraining or enjoining any sale of any Interest save in accordance with the provisions of sections 15.1 to 15.3, and if the Company intends to make a sale or is making a sale contrary to the provisions of sections 15.1 to 15.3, it hereby waives any defence it might have in law to such injunctive relief.
15.5 The Company may at any time sell an Interest to any third party without the prior consent of HH if, and only if, on the closing of such sale the Company pays HH a sum equivalent to:
15.5.1 the greater of (i) 6.25% of the gross proceeds of such sale and (ii) US$600,000; minus
15.5.2 total Commission received by HH under this Agreement together with total Fees paid under the Service Agreement (as defined in that Agreement);
including for the avoidance of doubt payment of the Transfer Consideration to HH on or before the closing of such sale. Upon the payments referenced above being made to HH, this Agreement shall be deemed to have terminated.
15.6 After the Consideration Date, HH has the right to assign its interest in this Agreement, provided HH notifies the Company to that effect.
1 In this Schedule, the following expressions shall have the following meanings:
'Applicable Percentage': 20% of Net Revenue received from Existing Players and 6.25% of Net Revenue received from New Players calculated calendar monthly in US dollars;
'Net Revenue': means the total wagers placed on the Blackjack Site, less: [provisions for deductions].
2. Commission Share
2.1 Company shall keep true and accurate books and records of all its operations and activities in respect of the Business, including in respect of the Service Agreement. Such books and records shall be kept in accordance with generally accepted accounting principles consistently applied.
2.2 The Company shall not less than three months after the fiscal year end of the Business deliver to HH financial statements for the Business audited in accordance with generally accepted accounting principles consistently applied.
2.3 Company will pay to HH as a commission in respect of the Business the Applicable Percentage of Net Revenue monthly in arrears within 30 days of the end of the relevant month, and with such payment it shall provide HH with a full set of financial statements for such month in respect of the Business. On receipt of payment, HH will issue and provide to Company a receipted invoice.
2.5 Company will in good faith with appropriate due care and attention provide HH with a financial summary monthly of Players' activity (reflecting on each Players activity throughout the relevant month) at the same time as it makes payment of the Applicable Percentage of Net Revenue showing details of all transactions on the Blackjack Site so that HH may verify the amounts received."
HH's witnesses of fact
Mr Croft's evidence of fact
"80. HH alleges that I have used the name 'Simon Black' when providing administrative details in relation to the Domain Name. That is not correct. I have never been known by that name and I have never referred to myself as Simon Black. I have no idea where this rather bizarre notion has come from."
The expert evidence on Uruguayan law
Experts in forensic investigation
Whether Perlake was in material breach of the 2003 Agreement
The law on material breach
"For these reasons I am unable to accept NP's submissions on construction and I conclude that a material breach under clause 17.1.1 is one which in all the circumstances is wholly or partly remediable and is or, if not remedied, is likely to become, serious in the wide sense of having a serious effect on the benefit which the innocent party would otherwise derive from performance of the contract in accordance with its terms."
Whether there was a material breach
(1) Perlake did not at any time deliver to HH financial statements for the Business in accordance with generally accepted accounting principles, in breach of clause 2.2 of Schedule 2.
(2) Perlake did not at any time pay to HH commission in accordance with clause 4.1, in breach of clause 2.3 of Schedule 2.
(3) Perlake did not provide at any time a full or any set of financial statements, in breach of clause 2.3 of Schedule 2.
(4) Perlake did not at any time provide HH with a monthly or any financial summary of Players' activity, showing details of all transactions on the Blackjack Site so that HH could verify the amounts received, in breach of clause 2.5 of Schedule 2.
(1) Instead of financial statements HH was provided with access to an online "back office" support service. This provided real time data and financial statistics regarding the Website on demand. HH never raised any issue with this alternative. To the extent that it constituted a breach of clause 2.2 of Schedule 2, the breach was waived by HH by reason of the fact that HH was content to use the superior information provided by the back office.
(2) Commission was paid to HH in respect of the first two years of operation of the Website. Thereafter the Website generated no revenue. Very shortly after the Website was acquired, the United States implemented legislation design to forbid or limit online gambling. This had a major impact on income because the United States had been the primary market.
(3) Access to the Back Office fulfilled the obligation to provide financial statements.
(4) Mr Croft pleaded that he was unable to comment about the alleged breach of clause 2.5 of Schedule 2 to the 2003 Agreement.
"Simon, I have run out to excuses for my lack of info re BJ.com. My investors can not believe that we do not have the info we are supposed to have for our royalty payment. They think I am being negligent in my duty as there representative. Therefore I am coming to London to get ANSWERS. I am arriving on Dec 8th and am available the 9th, 10th & 11th to meet with you to straiten this out. We are not going away so you might as well deal with this now. Please confirm the earliest time we can meet. Please have all records and the monies owed for my review. Thanks. Joseph."
"We ask you that you please provide us with the appropriate accounting of these customers that you are being diverting to other gaming sites – as well as the accounting for the site overall.
Your back-end reporting system, as far as we can see, has never worked. Under the terms of our agreement you are to provide us with ongoing accounting of the revenues, which we still have not received.
Five months ago you told me that we would be getting paid in three months. That never happened.
It seems a little odd that we receive virtually no contact from you, no payments, yet according to Gambling Online, Blackjack.com is the 2008 gaming site of the year?
It's been over 5 years now and you have not been able to make a success out of this project. I continue to leave messages for you and get no response. As well, no response to emails.
We would appreciate a formal update from you with appropriate accounting and a concise plan moving forward."
"Can I get an audited financial statement from you in regards to Blackjack.com. It has been years since we got one. Many more years since we received a payment."
"I was very frustrated with Simon, and unfortunately a lot of my emails prior to 2009 disappeared when Hotmail changed the rules, but no, there was phone calls, 100 per cent, I probably talked to him on Skype chat, so we had – I would communicate with Simon, but there was a great deal of frustration. I do want to say, that was an error, that 3 June 2015, 'Can I get an audited financial statement? It has been years since we got one.' We never got an audited financial statement not once – not once, from him. So, there was frustration absolutely there was frustration."
Whether the breaches were irremediable
The effect of termination
" Mr Randall relied upon authorities in Canada and the United States. I can find no discussion in the Canadian cases of whether a claim for conversion can be made in respect of a chose in action. These cases are analysed by Peter Gibson LJ in his judgment in the Court of Appeal  QB 762, 777-778 and I do not think that I should lengthen this judgment by adding to his comments. For the reasons which he gives, I derive no assistance from them. There are certainly cases in the United States which support Mr Randall's submission and which form part of the profligate extension of tort law which has occurred in that country. Perhaps the most remarkable is the decision of the Federal Court of Appeals (9th Circuit) in Kremen v Online Classifieds Inc (2003) 337 F 3d 1024, in which it was held that a publicly-funded company which provided gratuitous registration of internet domain names could be liable in conversion, on a footing of strict liability, for transferring a registered name to a third party, having acted in good faith on the authority of a forged letter. The court held that the domain name was intangible property which could be converted in the same way as a chattel and that the registration company could be liable for its value. I have no difficulty with the proposition that a domain name may be intangible property, like a copyright or trade mark, but the notion that a registrar of such property can be strictly liable for the common law tort of conversion is, I think, foreign to English law."
The effect of the Loan Agreement
"A) The Borrower intends to borrow $250,000 (United States Dollars) ("loan") from the Lender in order to accelerate payments of the "Transfer Consideration" relating to the acquisition of the Assets defined by the Website Transfer Agreement between the Borrower and Hanger Holdings Ltd dated 25th April 2003.
B) The Lender intends to loan $250,000 (United States Dollars) ("loan") to the Borrower on the terms set out herein, and the Borrower intends to repay the Loan to the Lender.
C) Both parties agree to keep, perform and fulfil the undertakings and conditions set out in this Agreement."
"2) Loan Amount
3) The Lender undertakes to loan $250,000 (United States dollars) to the Borrower and the Borrower undertakes to repay this principle amount to the Lender, without interest payable on the unpaid principal.
5) This Loan is repayable within 30 days of the Lender providing the Borrower with written notice of demand.
a) Notwithstanding anything to the contrary in this Agreement, if the Borrower defaults in the performance of any obligation under this Agreement, then the Lender may declare the principal amount owing at that time to be immediately due and payable.
b) If the principal amount has not been repaid, the principal amount owing will be automatically converted without notice into consideration for the sale of any of the Assets still owned by the Borrower to the Lender and ownership of those Assets will pass to the Lender if any of the following events occur: -
i) the Borrower defaults in payment as required under this Agreement or after demand for 10 days
ii) Upon the institution by or against the Borrower of insolvency, receivership, liquidation or bankruptcy proceedings or any other proceedings for the settlement of the Borrower's debts
iii) Upon the Borrower making an assignment for the benefit of creditors
iv) Upon the Borrower's dissolution
7) Governing Law
a) The Agreement shall be governed by and construed in accordance with the laws of England and the parties submit to the exclusive jurisdiction of the English Courts."
HH's case on the Loan Agreement
Mr Croft's evidence
The expert evidence
"19. There is no evidence in the metadata of the documents examined to refute that the file 'LOAN AGREEMENT.dom' was created on 26th February 2005 at 0905."
Anomalies in Mr Croft's evidence