Mrs Justice Gloster, DBE:
- This is an expedited trial, on issues of liability only, ordered by Mr. Justice Morgan on 19 March 2009 in relation to a dispute concerning various computer/video games ("the Games" or "the Products").
- The Claimant ("CDV") is a company incorporated in Germany and listed on the Frankfurt Stock Exchange, carrying on business as a distributor of video games. The First Defendant ("Gamecock") is a company incorporated in England and Wales carrying on business as a publisher of video games. Gamecock is and was at all relevant times a wholly-owned subsidiary of the Fourth Defendant, Gone Off Deep LLC ("Deep"), a company incorporated in Delaware and based in Texas, doing business under the name "Gamecock Media Group".
- The Second Defendant ("SouthPeak UK") is a company incorporated in England and Wales. It is a subsidiary of the Third Defendant ("SouthPeak US"), which is a company incorporated under the laws of Delaware. On or about 10 October 2008, SouthPeak US acquired the share capital of the ultimate holding company of Deep, and thus became the ultimate parent company of Gamecock.
- The case arises out of a publishing and distribution agreement made in March 2008, with an effective date as of 27 January 2008 (the "Agreement") between CDV and Gamecock, under which Gamecock granted CDV exclusive distribution and other rights in respect of seven video games ("Products") in the UK and some 77 other countries, including Europe, Africa and the Middle East ("the Territory"). The term of the agreement was for an initial period of five years commencing on the release of the last Product ("the Initial Term"). After the expiry of the Initial Term, the Agreement could be terminated by either party on 180 days' notice. The parties also agreed that the Agreement would be subject to English law and exclusive English jurisdiction.
- Between January and October 2008, CDV paid very substantial advances to Gamecock in respect of the Products, totalling over US $7 million, and had, in addition, incurred very substantial marketing and other costs in preparation for their launch and distribution. CDV contends that Gamecock was late in delivering a number of the Products and that, accordingly, it was entitled to exercise a contractual right under clause 3.1(b) of the Agreement to terminate in respect of four of the games. On 21 November 2008 CDV purported to exercise that right by terminating the Agreement in respect of four of the video games, "Dementium", "Insecticide", "Mushroom Men" and "Velvet Assassin" (collectively "the Terminated Games"), and leaving the Agreement in place in relation to the remaining three games, "Hail to the Chimp", "Pirates vs Ninjas" and "Stronghold Crusader Extreme".
- The Agreement also expressly provided that, in the event that CDV exercised its partial termination right: (a) it would be entitled to be repaid the advances which it had already paid in respect of the terminated games, together with certain wasted costs; and (b) it would retain the rights to those Products unless and until these sums were repaid.
- Gamecock contends that on the true construction of the relevant delivery obligations under the Agreement, Gamecock was not late in delivering the Products (apart from one, called "Insecticide"); but, if it was, that CDV waived its rights and/or affirmed the Agreement. Accordingly, Gamecock contends that CDV was not entitled to terminate the Agreement in respect of three of the games, and that, by doing so, CDV repudiated the Agreement, entitling Gamecock to bring the Agreement to an end by accepting CDV's repudiatory breach. Gamecock purported to do so on 4 December 2008. Gamecock contends that, in the result, the Defendants are free to exploit and distribute the Products at will and that it is entitled to keep the advances paid by CDV.
- Since Gamecock's purported termination of the Agreement in December 2008, Gamecock and SouthPeak US, and SouthPeak UK (collectively the "SouthPeak Defendants") have set about exploiting the Products in the Territory themselves. CDV contends that, in the case of Gamecock, this is a breach of the Agreement; and that the SouthPeak Defendants are inducing such breaches by Gamecock and/or infringing intellectual property rights of which CDV is the exclusive licensee under the Agreement.
- In the action CDV claims repayment of the sums which it has paid out under the Agreement in respect of the four terminated games (in total US$4,590,000) together with an injunction against the Defendants to restrain their exploitation of the Products. Gamecock seeks a declaration that it brought the Agreement to an end at common law, and seeks to recover certain sums which it contends were outstanding under the Agreement as at the date of its termination.
- The main issues which arose for the court's determination may be stated as follows:
i) What were Gamecock's delivery obligations under the terms of the Agreement? (This was a question of construction, in particular of the definition of "Delivery Dates" in the Agreement.)
ii) In what circumstances was CDV entitled to exercise a right of partial termination of the Agreement? (This gave rise to several questions of construction, in particular of clause 3.1(b) of the Agreement.)
iii) Was CDV entitled to exercise a right of partial termination in respect of each of Dementium, Velvet Assassin and Mushroom Men?
iv) Did CDV lose its right of partial termination through affirmation or waiver, either in relation to individual Products or more generally?
v) Did CDV, by purporting partially to terminate the Agreement, renounce or repudiate it?
- During the course of 2006 and 2007 Gamecock's parent company, Deep, entered into a number of development agreements ("the Development Agreements") with various developers to develop video games. The dates of the Development Agreements and the names of the developers were set out in Schedule 1 to the Agreement. Prior to 25 January 2008, Deep had already paid out US$8.7 million and €600,000 pursuant to the Development Agreements.
- On 25 January 2008 Gamecock and CDV entered into a binding "Letter of Intent" ("the LOI") in relation to six of the games. In its construction arguments, Gamecock placed considerable reliance on its terms. The parties intended that the LOI would be replaced in due course by a longer form of agreement. The Letter of Intent anticipated that a long-form agreement would in due course be drawn up, stating in its second paragraph:
"We intend to conclude a long-form agreement confirming the terms of this LOI as soon as possible but this LOI shall be binding on the parties until replaced by such long form agreement ('Agreement') which will be in substantial conformity with the terms hereof."
- By clause 1.1(a)(i) CDV agreed to pay Gamecock a total advance in respect of the relevant computer games of US$9,450,000 in instalments which were set out in clause 1.2.
- Clause 1.1(a)(ii) was in part the precursor of clause 3.1(b) of the Agreement itself (i.e. the term pursuant to which CDV purported to exercise partial rights of termination). It provided a right of partial termination in respect of individual games in the event of a delay to the Delivery Date in excess of 45 days.
- The LOI defined "Delivery Dates" as meaning "the dates for delivery of the Products set out in Schedule 1, time to be of the essence". Schedule 1 was a table which was for present purposes identical to the table in Schedule 1 to the Agreement itself, save that one of the games (Pirates vs. Ninjas) did not feature. There was no equivalent in the Letter of Intent of the table which appears at Schedule 7 to the Agreement itself.
- Thus, the contractual regime under which parties were operating between 25 January 2008 and 27 March 2008 was one under which the final delivery dates for games with which the Court is currently concerned were the following, being the last day of the relevant quarter of the particular year specified:
i) Dementium – 30 June 2008.
ii) Velvet Assassin – 31 December 2008.
iii) Mushroom Men – 31 December 2008.
- The parties subsequently executed the Agreement on 25 March 2008, which replaced the LOI, and took effect retrospectively as from 27 January 2008. The recital to the Agreement provided:
"This agreement is being entered into in order to supersede and replace the LOI entirely."
Clause 11.4 likewise provided that:
"any and all written or oral agreements previously existing between the parties and including for the avoidance of doubt, but not limited to, the LOI are expressly cancelled and superseded".
- The Products had not been fully developed when the Agreement was made. The structure of the Agreement was that Gamecock would have direct relationships with the developers of the Products, and that CDV would provide funding towards the development by payments of large advances to Gamecock, totalling $9.85 million.
- Between January and October 2008, CDV paid over $7 million in advances to Gamecock under first the LOI, then the Agreement. Because of cash flow difficulties, CDV was sometimes late in making payments; and, on one occasion Gamecock served a breach notice in respect of this. CDV rectified its default within the cure period.
- Gamecock also had its own financial difficulties. Unknown to CDV at the time, when Gamecock entered into the LOI, and then the Agreement, it was in a pressing financial condition. Thus on 28 January 2008, Mike Wilson, former Chief Executive Officer of Gamecock, told Mr. Allbritton (the main Gamecock ultimate investor) that the failure to make payments to the developers and agencies was causing a lot of stress with those relationships; and that Gamecock had been delaying payment of as many bills as possible. On 12 February 2008, it was reported internally within Gamecock that they were in breach of every contract with their developers with the exception of Insecticide; that they were expecting written breach notices from the remaining studios by the end of the week; that their cashflow in the near term depended on the CDV deal completing; and that, unless they could come up with a satisfactory strategic plan, they would "go over the cliff". On 14 March 2008, Graeme Struthers (European Managing Director of Gamecock until 4 December 2008) ("Mr. Struthers") reported that Gamecock was "effectively out of funds", and accordingly "at a standstill". These difficulties at Gamecock caused a number of problems with the development of the Products. The development of Insecticide ran into serious problems, so that the Product was repeatedly delayed and, in the event, Gamecock never delivered the finished version of this Product in either format. CDV also began to hear reports that Gamecock was not paying developers promptly or at all, with the result that many of the other Products were also delayed. This was of concern to CDV because its release schedule was designed to ensure that all of the Products subject to the agreement, (except one, Pirates vs. Ninjas) were available in good time before the Christmas 2008 selling period. It became apparent that this was unlikely to be achieved in relation to many of the Products, because of repeated delays. These included the Products which CDV regarded as the two most promising Products, on which the largest total advances were payable, namely Mushroom Men and Velvet Assassin.
- CDV raised its concerns in correspondence, but took the view that these had not been properly addressed. Accordingly, on 22 October 2008, CDV sent a notice indicating that it intended to terminate the Agreement on 27 October, unless CDV and Gamecock agreed to the contrary prior to that time. That deadline was extended several times by CDV in an effort to find a solution to the problems which had arisen.
- On 21 November 2008, CDV retracted its threat to terminate the whole agreement, and instead gave notice under clause 3.1(b) purporting to terminate in respect of specific Products only, namely Insecticide, Dementium, Velvet Assassin, and Mushroom Men. It also claimed repayment of the advances already paid in relation to those products ($4,590,000) and its wasted costs, as it contended that it was entitled to do under clause 3.1(b) of the Agreement.
- Gamecock at first disputed the validity of this notice, and then, on 4 December 2008, claimed that CDV's refusal to pay Gamecock additional advances and other monies (which, on CDV's case, were not due) itself constituted a repudiatory breach of the Agreement, entitling Gamecock to terminate it. Gamecock also claimed that CDV was in repudiatory "breach of an innominate term", on the grounds that a recent announcement by CDV to the Frankfurt Stock Exchange showed that CDV was not "fiscally capable" of performing its obligations, which it alleged was a fundamental breach of clause 8.1(b)(iv).
- Only one of the seven titles, Stronghold, was ever released by CDV in the Territory. In early 2009, CDV learned that Gamecock's new owner, SouthPeak US, which had acquired Gamecock in October 2008, was planning shortly to release five of the seven products in the Territory (including in the UK), either itself or through its UK based European subsidiary, SouthPeak UK. CDV also heard that Gamecock was defaulting on a number of its debts, and that SouthPeak US was intending to exercise what CDV regarded as its alleged rights in relation to the Products.
- Those events led to the issue of the present proceedings, and the application by CDV for an interim injunction. The application came on before Morgan J on 19 March 2009. After discussions between the parties, the application was resolved by a consent order (both parties reserving their respective rights), under which the Defendants were able to continue to exploit the Products, but on terms that a portion of the sales revenues would be paid into an escrow account, pending resolution of the dispute. Since that date, Mushroom Men (27/3/09), Dementium (17/4/09), Velvet Assassin (8/5/09) and Pirates vs. Ninjas (12/6/09) have been released by SouthPeak in the UK (and elsewhere in the Territory).
The relevant terms of the Agreement
- In so far as material to the present dispute, the Agreement provided as follows:
"'Advance' means the total advance against Net Revenues payable to Gamecock in accordance with Clause 3.1 and Schedule 1 of this Agreement in respect of the Products in the total amount of US$9,850,000 (nine million, eight hundred and fifty thousand United States dollars) which amount represents all of the Individual Advances taken together and includes the LOI Payment;
'Approval' shall means (i) Console Manufacturers giving release to manufacture approval for Console versions of Products; and (ii) where PC versions of Products are to be delivered, CDV giving its approval of a PC Gold Master in accordance with Clause 2.5;
'Console Manufacturers' shall mean Nintendo, Microsoft, and/or Sony;
'Delivery Dates' means the dates for delivery by Gamecock to CDV of the Gold Masters of the Products set out in Schedule 1, time to be of the essence, in order to enable CDV to undertake a commercial release of the relevant Product in accordance with its release schedule;
'Developer' means a third party developer engaged to develop and produce a Product and contracted by or on behalf of Gamecock or one of its Affiliates pursuant to a Development Agreement;
'Development Agreement' means an agreement in relation to the development and/or licensing of rights for a Product entered into by a Developer in favour of Gamecock and/or its Affiliates;
'Formats' means each of the following formats: PC, Nintendo DS, Nintendo Wii, Microsoft Xbox 260 [sic], Sony Playstation 3 and such other formats (if any) which the Parties agree in writing, though it is understood that the licensed Formats for the Products licensed under this Agreement are set forth in Schedule 1 hereto;
'Individual Advance' means the individual advance forming part of the Advance to be paid in respect of each as set out in Schedule 1;
'Gold Master' shall mean: (i) for each Console version of a Product, that version of the Product which has been formally Approved for manufacture on the relevant Console Format; and (ii) for the PC version of a Product that version of the Product which has been formally Approved by CDV in accordance with this Agreement;
'Products' means the Products for the Formats listed in Schedule 1."
- Clause 1.2 provided:
"In this Agreement, unless the context otherwise requires:
(b) All Schedules are deemed incorporated herein."
- Clause 2.1 (b) (iv) provided as follows:
"(b) Except as permitted for Download Rights, Gamecock undertakes on behalf of itself and its Affiliates not to undertake any exploitation of the Products in the Territory other than through CDV pursuant to this Agreement during the Term and further undertakes on behalf of itself and its Affiliates:
(iv) The intended release schedule for the [sic] all versions of the Products is attached hereto as Schedule 7."
- Clause 2.4 provided:
"Gamecock undertakes to deliver the Products to CDV in the Localised Languages on the Delivery Dates in accordance with and subject to the terms and conditions set out in this Agreement, however Gamecock shall not be found in breach by any delays caused by CDV's non-compliance with Localisation Kit instructions or delivery of localisation assets. Gamecock undertakes in favour of CDV as follows:
(b) Gamecock shall keep CDV reasonably appraised of the status of development of all Products and CDV will be advised in advance of any circumstances arising which could reasonably be expected to lead to a failure to meet the Delivery Dates or any delays or other problems being experienced in respect of the development of the Products. In the event that delays are anticipated in development then Gamecock shall be required to seek CDV's prior written approval (not to be unreasonably delayed, conditioned or withheld) prior to agreeing revised Delivery Dates for Products with Developers; and
(c) Gamecock shall comply with the provisions of the Development Agreements and (i) ensure that the Developers are paid their development costs pursuant to those Development Agreements in a timely fashion and in accordance with the terms of the Development Agreements so as not to compromise the ability of the Developers to meet the Delivery Dates and (ii) Gamecock shall not exercise any rights of termination or cancellation afforded to Gamecock (or its Affiliates) under the Development Agreements without CDV's prior written consent (not to be unreasonably delayed, withheld or conditioned)."
- Clause 3.1 provided:
"(a) The Advance has been calculated assuming that: (i) concept and manufacturing Approvals by all appropriate Console Manufacturers for all of the Products on all Formats are obtained in accordance with the expected delivery schedule for Products to enable Gamecock to deliver the Approved Products in accordance with the agreed Delivery Dates for the Products; and (ii) CDV has Approved the PC versions of the Products where applicable hereunder in such timelines.
(b) Notwithstanding Gamecock's obligation to keep CDV reasonably appraised regarding development status of the Products, CDV acknowledges that from time to time unforced and reasonable delays to the Delivery Dates may occur and in the event that: (i) revised Delivery Dates are agreed by Gamecock (after approval from CDV) and such revised Delivery Dates cause CDV to incur additional third party costs (including but not limited to wasted Marketing Costs) ('Wasted Costs') CDV shall be reimbursed forthwith by Gamecock for such actual and verifiable Wasted Costs; and (ii) in the event of revised Delivery Dates being agreed which will cause a delay in delivery of the relevant Product in excess of forty five (45) days of the original agreed Delivery Date (with the exception of delays caused by Console Manufacturer or governmental requested changes or Approvals, which shall not cause Gamecock to be in breach unless such changes had been previously advised to Gamecock and Gamecock had not resolved such issues, CDV shall have the option (but not the obligation) to declare Gamecock in breach of this Agreement with respect to such late Product only and require Gamecock to repay to CDV forthwith the Individual Advance for such Product paid up to such point by CDV together with Wasted Costs. In such circumstances and upon all such amounts required hereunder being repaid to CDV, this Agreement shall terminate with respect to that Product only and CDV's rights with respect to that Product shall cease and revert to Gamecock absolutely."
- The "Products" were set out in Schedule 1 to the Agreement which provides as follows (so far as material for present purposes):
|Stronghold Crusader Extreme
||PC, Xbox 360
||Q4 2008 for a timely 'holiday' release'
|Dementium: The Ward
|Hail to the Chimp
||Xbox 360, PS3
|Pirates vs. Ninjas
Eastern Europe Territories
||PC, Xbox 360
- Schedule 7 was in the following form:
Intended Release Schedule"
Gamecock – CDV release schedule
|Release UK & GSA
- By way of explanation, the evidence showed, and it was common ground, that there was a distinction between "delivery" to CDV of an approved Gold Master of a game and a "release" by CDV of that game. Delivery of an approved Gold Master meant that Gamecock had delivered to CDV a version of the game, in respect of which it had obtained approval from the relevant Console Manufacturer (i.e. Sony, Microsoft or Nintendo), or, in the case of games in PC format, approved by CDV, so that the game could subsequently be manufactured and sold. On the other hand, a game is released when it is actually sent out to retailers to be sold to consumers. Between Gold Master approval and release it was necessary to manufacture the game.
Issue i) -What were Gamecock's delivery obligations under the terms of the Agreement?
The parties' contentions
- Mr. Howe, on behalf of CDV, contended that Gamecock was obliged to deliver Gold Masters of the Games by, at the latest, the dates specified in the "Euro GM" column in Schedule 7 of the Agreement and that, accordingly, "Delivery Dates" were to be so defined. He contended that, for present purposes, it was sufficient for CDV to proceed on the basis that the contractual delivery date was the last day of the month shown in that column, although in fact that was over-generous to the Defendants because, in all but one case, the product was supposed to be released in certain territories in the same month shown for delivery of the Gold Master, and therefore delivery of the Gold Master "in order to enable CDV to undertake a commercial release of the relevant Product in accordance with its release schedule" would have had to have taken place much earlier in the month. The right of partial termination arose on the 46th day following the Delivery Date.
- He summarised CDV's position as regards the required delivery dates as follows (the terminated products being shown in bold):
||Sch 7 Euro GM date
||46th day after
||Advance paid USD
|Hail to the Chimp
||PS3 and X360
||PC and X360
|Pirates vs. Ninjas
||Q1 2009 (i.e. March)
||16 May 2009
- He submitted that the "Delivery Dates" as referred to in the definition clause were therefore the dates for delivery of Gold Masters:
i) for the Products set out in Schedule 1;
ii) in order to enable CDV to undertake a commercial release of the relevant Product in accordance with its "release schedule".
He contended that, under this definition, Schedule 1 therefore identified the Products which were to be delivered, and the "release schedule" identified the dates by which those Products were to be delivered.
- On the other hand, Mr. McCall, on behalf of Gamecock, contended that its delivery obligation was merely to deliver the Gold Masters by no later than the last day of the quarter specified in the fourth column headed "Delivery Date" in Schedule 1, and that the dates set out in Schedule 7 were no more than a statement of the parties' (then) current intentions regarding release, rather than imposing any binding contractual obligation. In support of this submission, he put forward inter alia the following arguments:
i) Factual matrix considerations supported Gamecock's arguments. Thus:
a) As CDV was aware, each one of the Development Agreements relating to the seven games were complex commercial contracts which involved interaction between the publisher and developer and had an inbuilt scope for slippage.
b) Games rarely obtained Gold Master approval at the first attempt. Once the game had been submitted to the Console Manufacturer the developer and publisher had limited or no control over the process of obtaining approval. Thus there was no such thing as a "normal" period of time for obtaining approval from the Console Manufacturer. Nor did the Agreement suggest what a "normal" time scale for the approvals process would be. The time taken by the manufacturing process was uncertain and varied as between manufacturers and according to the time of year.
c) Further, there were various other activities (distribution, marketing, PR) which needed to take place in the window between Gold Master approval and release which of their nature do not lend themselves to being carried out within a predictable timescale.
d) In the industry, slippage occurs and release schedules move.
e) The table contained in Schedule 7 emanated from Gamecock, not CDV.
f) The Agreement was concluded against the background of an existing concluded agreement, namely the LOI. The Delivery Dates under the LOI were indisputably those contained in Schedule 1. The provisions of the LOI were helpful and material background when it came to the question of the delivery obligations under the Agreement, because the effect of CDV's case was that, when the parties executed the Agreement itself they agreed significantly earlier delivery dates for these products, pursuant to provisions which were far from clear. Had the parties indeed intended to make such a significant alteration in their contractual arrangements, by making such a substantial departure from the previously agreed delivery obligations, they would have used far clearer language.
ii) If the Delivery Dates were held to be those in Schedule 7, no effect whatsoever would be given to the "Delivery Date" column in Schedule 1, or to the reference to Schedule 1 within the definition of "Delivery Dates". Gamecock's construction, on the other hand, attributes meaning to all words in the definition of Delivery Dates, notwithstanding that its effect was to construe the subordinate clause "in order to enable CDV to undertake a commercial release of the relevant Product in accordance with its release schedule" as no more than a statement of intention.
iii) The inclusion, and location of the words "time to be of the essence" were supportive of Gamecock's case. The location of those words within the definition of "Delivery Dates" was such that they naturally appear to relate to the "dates for delivery ... set out in Schedule 1". In order to relate to some other delivery obligation, to be derived from CDV's release schedule, they would need to be located later in the definition. Two points flowed from this:
a) First, if CDV's construction of the contract were correct, the words "time to be of the essence" would be given no effect, because the reference to the Delivery Dates in Schedule 1 itself would be given no effect. This would be unattractive given the legally significant nature of making time of the essence in relation to an obligation.
b) Secondly, the fact that time is of the essence in relation to the delivery dates in Schedule 1 serves to emphasise that it is those dates which form Gamecock's binding contractual obligation, and supports Gamecock's contention that the dates in CDV's release schedule are something less than contractually binding.
iv) The Agreement itself recognised the likelihood that delay would occur in the development of the Games: see clauses 2.4(b) and 3.1(b). That was an important context in which to consider the contractual significance of Schedule 7.
v) Clause 2.1(b)(iv) of the Agreement refers to Schedule 7 as "[t]he intended release schedule for the [sic] all versions of the Products". This language was echoed in Schedule 7 itself which has the title "Intended Product Release Schedule". There was no language in the Agreement which suggested that the dates in the intended release schedule were "fixed". The word "intended" was significant. It suggested that the release schedule was not fixed, but rather represented the parties' current expectations as to when releases will take place, and allows for the possibility (or perhaps the probability) that the release schedule will alter as the Agreement runs its course.
vi) This approach to Schedule 7 reflected the realities of software development – which must have been known to both parties. The release dates did in fact move very early in the contract.
vii) Commercial considerations also supported Gamecock's arguments. On a practical level, treating Schedule 7 as the contractual source of Delivery Dates, would introduce serious uncertainty about Gamecock's delivery obligations. Gamecock's construction of the delivery obligations provided the parties with the commercial certainty which they needed. The Delivery Dates are the dates at the end of the periods set out in the Delivery Dates column in Schedule 1. For the purposes of clause 3.1(b), the 45 day period began with those dates.
viii) By contrast, CDV's case involved uncertainty. The words in the definition of "Delivery Dates" which were relied on by CDV were "in order to enable CDV to undertake a commercial release of the relevant Product in accordance with its release schedule". If these words were to be given binding effect, they required the parties (and the Court) to identify the release dates in CDV's release schedule (whether that be understood as a reference to Schedule 7 or to CDV's own release schedule), and to work backwards to a delivery date which is sufficiently early to facilitate those release dates. This in turn required a judgment to be made as to the period of time which needed to be allowed between Gold Master approval and release (for manufacturing and marketing and PR activities to take place).
ix) CDV's attempt to avoid these difficulties by relying on the "Euro GM" dates in Schedule 7 as being the "Delivery Dates" was wrong. But, even on the assumption that Schedule 7 was the release schedule referred to in the definition of Delivery Dates, the language used did not direct the reader to the Euro GM column in Schedule 7, but rather to the release dates. Further, the majority of the evidence before the Court demonstrated that such release dates were not practicable. The Euro GM column and the UK and GSA release columns in Schedule 7 have the same months for each Game/Format. CDV's case was that Gamecock was obliged to deliver Gold Master approval by the last day of the month specified in the Euro GM column. But even if the Gold Master approval of a Game were achieved on the first day of the relevant month, in the light of the evidence it would have been unrealistic to expect to release the Games by the last day of the month. There would simply have been insufficient time to manufacture the Games, physically distribute them to retailers and carry out marketing, advertising and PR activities.
The court's determination in relation to issue i)
- In approaching the task of interpretation, both parties referred the court to the well-established principles of construction as set out in, for example, Reardon Smith Line Ltd v Yngvar Hansen-Tangen  1 WLR 989, 995-996; Investors Compensation Scheme Ltd v West Bromwich Building Society  1 WLR 896, 912-913; and Bank of Credit and Commerce International SA v Ali  1 AC 251. I was also referred by Mr. Howe to the recent House of Lords' decision in Chartbrook v Persimmon Homes  UKHL 38, which largely restates those principles, without materially altering the previous approach. The following passages from the speech of Lord Hoffmann are pertinent for the purposes of construing the Agreement (although, again, they are not new in principle):
Lord Hoffmann says, at paragraph 17:
"But the contract does not use algebraic symbols. It uses labels. The words used as labels are seldom arbitrary. They are usually chosen as a distillation of the meaning or purpose of a concept intended to be more precisely stated in the definition. In such cases the language of the defined expression may help to elucidate ambiguities in the definition or other parts of the agreement: compare Birmingham City Council v Walker  2 AC 262, 268.";
and at paragraph 21, he says:
"When the language used in an instrument gives rise to difficulties of construction, the process of interpretation does not require one to formulate some alternative form of words which approximates as closely as possible to that of the parties. It is to decide what a reasonable person would have understood the parties to have meant by using the language which they did. The fact that the court might have to express that meaning in language quite different from that used by the parties ('12th January' instead of '13th January' in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd  AC 749; 'any claim sounding in rescission (whether for undue influence or otherwise)' instead of 'any claim (whether sounding in rescission for undue influence or otherwise) in Investors Compensation Scheme Ltd v West Bromwich Building Society'  1 WLR 896) is no reason for not giving effect to what they appear to have meant.";
and at paragraphs 23 to 25 where, after having referred to East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61 (Brightman J,) and to KPMG LLP v Network Rail Infrastructure Ltd  Bus LR 1336, (Carnwath LJ), Lord Hoffmann concludes with the following summary at paragraph 25:
"What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant."
- As was accepted by counsel, the parties to the Agreement have not expressed themselves clearly and there are a number of untidy ambiguities in the drafting of its text. However, in my judgment, the submissions of Mr. Howe are to be preferred. Although the drafting is somewhat clumsy, I conclude that what a reasonable person would have understood the parties to have meant, when using the language which they did, was that Gamecock was required to have obtained Approval from the Console Manufacturer or CDV (as the case might be), and to have delivered the Gold Masters to CDV by, at the latest, the last day of the month specified in column "Euro GM" of Schedule 7. My reasons for this conclusion may be shortly stated as follows.
- Contrary to certain submissions made by Mr. McCall, there can be no doubt, in my judgment, that "its [CDV's] release schedule" referred to in the definition of "Delivery Dates" is clearly intended to be a reference to the document set out at Schedule 7. This is not least because the document set out at Schedule 7 describes itself as "Gamecock-CDV release schedule" and is the release schedule attached to the Agreement. By virtue of clause 1.2(b), it is incorporated into the Agreement, and therefore plainly intended to have contractual effect. Moreover, it is also expressly referred to at clause 2.1(b), in which Gamecock expressly undertook that "[t]he intended release schedule for all versions of the Products is attached hereto as Schedule 7".
- In my judgment there is no other "release schedule" to which the parties could reasonably have intended to refer. Mr. McCall submitted that the parties were intending to refer to some other, unidentified and possibly non-existent schedule, namely CDV's "rolling release schedule". Mr. McCall, in support of this argument, sought to refer to the pre-contractual negotiations, and to the fact that the document which ultimately became schedule 7 had emanated originally from Gamecock. This, he contended, led to the conclusion that "its [i.e. CDV's] release schedule" was not a reference to Schedule 7, because Schedule 7 was in fact Gamecock's schedule. In other words the argument ran, that, when the parties referred to a "release schedule" in the definition of Delivery Dates in the Agreement, they were not referring to the only document that was attached to, and expressly incorporated into the Agreement itself, which constituted and was entitled a "Release Schedule", but instead to some other unidentified document, in the hands of CDV, the contents of which were unknown at the time of the agreement, and which could be changed unilaterally by CDV at any time without reference to Gamecock. I find this to be a wholly improbable suggestion. For example, Mr. McCall suggested that the document in question was a document such as the "CDV Release Schedule 2008". However this was plainly not a contractual document; rather, the evidence showed, it was a working document, which had been produced for planning and external purposes by CDV, to uAgreementte anyone interested in the current planned dates of release of the games from time to time, and, in any event, there was no evidence that any such document existed at the time of the Agreement.
- In this context, Mr. McCall accepted that pre-contractual negotiations should be excluded from the background material that the Court may consider in construing the contract. However, he sought to rely on paragraph 42 of Lord Hoffmann's speech in Chartbrook (supra), where the latter said:
"The rule excludes evidence of what was said or done during the course of negotiating the agreement for the purpose of drawing inferences about what the contract meant. It does not exclude the use of such evidence for other purposes: for example, to establish that a fact which may be relevant as background was known to the parties, or to support a claim for rectification or estoppel. These are not exceptions to the rule. They operate outside it."
- Accordingly, he submitted that evidence of the provenance of Schedule 7 was admissible to establish the fact that that schedule was a Gamecock document, not a CDV document, and that this was known to both parties. He submitted that such fact was relevant to the interpretation of what the parties meant in the definition of Delivery Dates when they referred to "its" (i.e. CDV's) release schedule. I myself doubt whether, in this case, what occurred in pre-contractual negotiations (in the sense of who produced the first draft of a document, and the origins of the drafting of what became Schedule 7), in order to support the Defendants' interpretation, is admissible evidence for this purpose. But in any event, even if admissible, that evidence simply does not help Gamecock. It does not matter who originally drafted the document, which ultimately became the release schedule in Schedule 7. It is plain that, when they came to enter into the Agreement, Schedule 7 was the only sensible candidate for the document to which the parties must have been referring when they made reference to CDV's "release schedule" in the delivery dates definition.
- Schedule 1 is referred to in various clauses of the Agreement and does much more than simply identify a "Delivery Date", by reference to a particular quarter in a year, in relation to individual products. As the various definition sub-clauses show, Schedule 1 identifies not only the Products, but also Format, Individual Advance, Developer and Development Agreement in relation to each individual Product. For this reason, in my view, the more sensible interpretation of the phrase "set out in schedule 1" in the definition of "Delivery Dates" , is that it refers to, or qualifies, the preceding word "Products" (i.e. identifying where the products are listed), rather than referring to, or qualifying, "the dates for delivery ...". This view is supported by the fact that no reference is made in Schedule 1 to Gold Masters at all, nor to their delivery, and that the column heading is simply entitled "Delivery Date". followed not by a specific date, but (in all but one case) by reference to the first, second, third or fourth quarter of a particular year (e.g. "Q2 2008").
- However, even if I am wrong in this view, and the reference to "dates for delivery" in the definition clause of "Delivery Dates", is indeed, in the first instance, a reference to the quarter years set out in Schedule 1, nonetheless the additional wording in the definition clause, namely "of the Gold Masters" and
"time to be of the essence, in order to enable CDV to undertake a commercial release of the relevant Product in accordance with its release schedule"
in my view clearly superimposed an additional obligation on Gamecock, in relation to which time was of the essence, to deliver the Gold Masters to CDV in the month identified under the column "Euro GM", so as to enable it to undertake a commercial release of the particular Product in accordance with the terms of the Release Schedule, notwithstanding that the quarter identified in Schedule 1 might have extended beyond the month specified under the "Euro GM" column in Schedule 7 (as was the case, for example, with Dementium) or that such month might have fallen in the previous quarter (as was the case, for example with the NDS format of Mushroom Men). In other words, the month specified in Schedule 7 under the column "Euro GM" operated as an internal variation to the provisional wide timeframe identified by reference to the relevant quarter in Schedule 1.
- Accordingly I accept Mr. Howe's submission that, if the parties had indeed intended the release dates for the products to be "aspirational", or merely statements of current intention that they could ignore without contractual consequences, then the language of the definition clause would not have been expressed in such mandatory terms. Effect has to be given to the words quoted above and Schedule 7. Gamecock's construction denies them any practical operational effect. There was little, if any, point in referring, in the definition clause, to the Release Schedule, if the dates set out therein could simply be disregarded.
- I further accept Mr. Howe's submission that the contention that the release dates were merely statements of the parties' intentions is inconsistent with the clear commercial purpose of the Agreement. It was obviously important to CDV that, in return for putting up very substantial sums by way of advance, it should receive the Products during 2008 (with the exception only of Pirates vs Ninjas), and, in particular, in good time to enable release to take place in the key Christmas selling season. This was clear not merely from the provisions of the Agreement itself, but also from the nature of the Products, the characteristics of the relevant market, and the evidence that the parties were aware, at the time that they entered into the Agreement, that (in summary) it was essential to CDV that the release schedule should be adhered to so that CDV could hit the pre-Christmas market and begin recouping its outlays as soon as possible.
- I reject Mr. McCall's submission that the fact that there are (or may frequently be) delays in the development of video games suggests that the parties were merely stating their intentions. On the contrary, the fact that the parties were clearly aware that delays might occur, and were clearly aware of the potentially serious commercial consequences for CDV, to my mind is a pointer that the agreed intended Release Schedule in Schedule 7 should have full contractual effect.
- Nor am I persuaded by Mr. McCall's submission that Schedule 7 should be ignored because the Euro GM dates and release dates did not tie up, on the grounds that there was either no gap, or insufficient gap, between the two, so that delivery of a Gold Master would take place too late to enable commercial release by the specified date. Two of CDV witnesses, Mr. Peters and Mr. Struthers denied this, but even if it were factually correct, I do not consider that the point assists Gamecock. It could be said that, in circumstances where the month specified for delivery of the Gold Master, was the same as the commercial release date, nonetheless Gamecock's obligation was in fact to deliver, at latest, at the start of the specified month for "Euro GM", in order to allow time for release by the end of the same month. But I agree with Mr. Howe's submission that the fact that Schedule 7 could reasonably be interpreted in a manner which is more adverse to Gamecock than that for which CDV is currently contending, does not lead to the conclusion that that Schedule can be ignored.
- Nor do I accept Gamecock's submissions that CDV's approach gives rise to uncertainty in relation to the calculation of the 45 day period. It was open to CDV to "play safe" by performing the calculation by reference to the last day of the month specified in the "Euro GM" column in Schedule 7, notwithstanding that in certain circumstances an earlier date in the month might have been the actual date for delivery of the Gold Master in order to have enabled CDV team have undertaken a commercial release in accordance with the release schedule.
- Finally, in my judgment one cannot, in the circumstances of this case, draw any assistance from the delivery provisions of the LOI or the manner in which, or the extent to which, such provisions changed under the terms of the Agreement. Thus the fact that there was no release schedule annexed to the LOI, that the definition of Delivery Dates was amended in the transition from the LOI to the Agreement to insert the words "in order to enable CDV to undertake a commercial release of the relevant Product in accordance with its release schedule", and the reasons for the alteration in such terms when the Agreement came to be signed, were not matters which were admissible in evidence to assist with the interpretation of the Agreement. First of all, the Agreement expressly recited and provided (see clause 11.3) that it was entered into in order to supersede and replace the LOI in its entirety and constituted the entire agreement between the parties. Secondly, any evidence relating to the reasons for the alteration in the provisions between the two agreements for the purpose of drawing inferences about what the Agreement meant would be inadmissible as evidence of pre-contractual negotiations in accordance with the principles recognised in Chartbrook, (supra). Third, any such evidence would not be adduced for any of the purposes recognised by Lord Hoffmann (at paragraph 42) as operating outside the principle, such as rectification or estoppel. Even if this were too stringent an approach, the only relevant fact that could objectively be considered as part of the contractual matrix, was the mere fact that the definition had been changed to include reference to the Release Schedule.
- Accordingly, for these reasons I hold that Gamecock was obliged to deliver Gold Masters of the games by, at the latest, the dates specified in the "Euro GM" column in Schedule 7 of the Agreement.
Issue ii) - In what circumstances was CDV entitled to exercise a right of partial termination of the Agreement?
- As set out above, clause 2.4(b) of the Agreement imposed an obligation on Gamecock to keep CDV appraised of the development of the Products. It provided as follows:
"Gamecock shall keep CDV reasonably appraised of the status of development of all Products and CDV will be advised in advance of any circumstances arising which could reasonably be expected to lead to a failure to meet the Delivery Dates or any delays or other problems being experienced in respect of the development of the Products. In the event that delays are anticipated in development then Gamecock shall be required to seek CDV's prior written approval (not to be unreasonably delayed, conditioned or withheld) prior to agreeing revised Delivery Dates for Products with Developers" (emphasis added).
- Further, as set out above, clause 3.1(b) provided two separate remedies for CDV in the event that there were delays in the development of products.
- To a large extent there was common ground between the parties as to the general approach that a court should adopt to the construction of termination clauses. Thus, it was agreed that:
i) Clause 3.1(b) should be construed in the same way as a termination provision.
ii) In interpreting a clause which lays down a procedure for terminating the contract, the Court should have regard to the commercial purpose of the clause and interpret it in the light of that purpose.
iii) No special rule of construction applies to a clause making provision for the termination of a contract: it is to be construed in the same manner as any other provision. But like any other provision, any condition precedent must be strictly fulfilled and the clause must be exercised strictly in accordance with its terms.
iv) The burden was on CDV to prove, on the balance of probabilities, the existence of the facts which would justify its purported partial termination of the Agreement.
- Mr. McCall additionally submitted that, in the event that the Court were to form the view that clause 3.1(b) was ambiguous, it should be construed contra proferentem – i.e. adversely to the contentions of CDV. I do not accept that submission. Whilst the rule may be of assistance in certain particular contexts, such as, for example, where one party contracts on the other's standard terms, on a "take it or leave it" basis, it is of uncertain application and little utility in the context of commercially negotiated agreements, such as the Agreement in the present case; see Lewison (supra) at pages 260 to 262. The evidence showed that the clause in question had been proposed as an idea by the Legal and Business Affairs Adviser to CDV, but then actually drafted by the US lawyer then acting for Deep/Gamecock. In such circumstances, the rule can have no application.
- During the course of the trial, I pointed out that the phrase "Delivery Dates" was a defined term under the Agreement, notwithstanding that both parties were submitting that the clauses contemplated revised "Delivery Dates" being agreed between Gamecock (or Deep as the counterparty to the development agreements) and the developer, and thus the term might not have any application in the context of the (separate) Development Agreement. It was common ground that the development agreements had been provided to CDV prior to the date of the Agreement and that none of those had defined "Delivery Dates". Rather such agreements had development/milestone schedules setting out dates by which various formats were to be delivered, including, in the case of Velvet Assassin and Stronghold only, dates for an approved Gold Master for Europe.
- In such circumstances both parties effectively submitted that, applying the accepted principles of interpretation, as set out above, the court should look through the literal (and not entirely accurate) words used in order to ascertain what the parties must have meant. Both Mr. Howe and Mr. McCall agreed that the defined term "Delivery Dates" was used as shorthand and that the language effectively described an agreement for revised delivery arrangements as between Deep and a developer, which would cause, or could reasonably be expected to cause, Gamecock to fail to meet the "Delivery Dates" under the Agreement. Thus both sides effectively submitted:
i) that clause 2.4(b) should be read as follows:
"... In the event that delays are anticipated in development then Gamecock shall be required to seek CDV's prior written approval (not to be unreasonably delayed, conditioned or withheld) prior to [Deep] agreeing revised
Delivery Dates delivery dates under a Development Agreement for Products with Developers which would cause [alternatively, be reasonably expected to cause] a revision to a Delivery Date."
ii) that clause 3.1(b) ought to be read as follows:
"... in the event of revised
Delivery Dates delivery dates under Development Agreements being agreed which will cause [alternatively, be reasonably expected to cause] a delay in delivery of the relevant Product in excess of forty five (45) days of the original agreed Delivery Date ...."
- I agree with this approach. It did not appear to me to make any material difference on the facts which formulation is adopted. But I consider that CDV's approach was, on a sensible commercial approach, the correct one.
Requirement of an "agreement" as to revised delivery dates
- A number of questions of construction arose in relation to sub-clause 3.1 (b). The first related to what was meant by the words "in the event of revised delivery dates being agreed". Whilst it was common ground that the right of partial termination under clause 3.1(b) arose only if there was some sort of an "agreement" between Gamecock/Deep and the developer to revise delivery dates which would/might reasonably expected to cause a delay in delivery of a Product of more than 45 days after the original Delivery Date, the principal dispute centred on precisely what was meant by "agreed" in this context, and, in particular, how easily it could be inferred that such revised date had been "agreed".
- CDV submitted that, in order to give effect to the commercial purpose of the clause, namely to give CDV an effective remedy of termination of the Product and recovery of its Individual Advance (together with Wasted Costs), in the event of delay in delivery of the Products beyond the specified 45 days, the requirement for revised delivery date being "agreed", had to be generously and informally interpreted, and should readily be inferred from conduct or even lack of it. Thus, for example, Mr. Howe submitted that if Gamecock acquiesced in delays by a Developer, and allowed the delivery to be delayed beyond the 45 days without effectively enforcing its rights under the relevant development agreement, then it could readily be inferred that Gamecock has in fact agreed to the delay in delivery. Otherwise, submitted CDV, Gamecock would be placed in a better position if it failed to ensure the delivery took place on time, whether deliberately, or through indolence or incompetence, than if it actively set about trying to put in place a new delivery schedule with the Developer; and that would be a perverse result. Further, it was submitted that the "agreement" in question did not need to be a formal or express agreement, or a complete agreement - in the sense of a fully binding contract in which all aspects of the variation had been fully agreed.
- On the other hand, Gamecock contended that what was required was an express binding agreement between Gamecock/Deep and the developer revising the delivery dates under the relevant development agreement which would cause a revision to a Delivery Date under the Agreement, and that Gamecock/Deep's acquiescence in "mere slippage" did not amount to any such "agreement". Gamecock did not contend that there were any particular formal requirements in relation to such an agreement (e.g. that it be in writing or in the form of a formal variation to the development agreement). It was submitted that Gamecock's position was supported by the language of clause 2.4(b), which contemplated Gamecock formally obtaining CDV's written approval before agreeing revised delivery dates with a developer.
- In my judgment, the key to the resolution of this issue lies in the fact that Gamecock was obliged under the provisions of clauses 2.4 and 3.1 to ensure that developers delivered the relevant products in time to enable Gamecock to meet the Delivery Dates. Moreover Gamecock (through its affiliates such as Deep) was required to monitor performance by developers and responsible for all liaison with them. Effectively it had an obligation to CDV to ensure that developers complied with their respective obligations under Development Agreements to meet milestones and other time requirements set out in the various development schedules to such agreements, and to keep CDV appraised of the development status of the Products. In such circumstances, in my judgment, and notwithstanding the clumsy language used, a reasonable person reading the Agreement would have understood that any failure on Gamecock's part to require developers to adhere to their contractual obligations under development schedules, or to enforce its rights in this respect, which caused, or might be reasonably expected to cause, a delay in delivery of the relevant Product in excess of 45 days of the original agreed Delivery Date in the Agreement, would, in reality, amount to Gamecock "agreeing" to revised delivery dates with developers. Otherwise, there would be no practical utility in CDV's right of partial termination since, effectively, Gamecock could ensure that the circumstances in which such right was exercisable never arose, through the simple expedient of never agreeing revised delivery dates with developers.
- In my judgment, the practical way in which the Agreement was expected to operate was that either Gamecock (through its affiliate, Deep) complied with its obligations to CDV to keep developers up to the mark so far as development schedules were concerned, or, if "unforced and reasonable delays" in development occurred, such that Gamecock had no practical alternative but to "allow" a developer further time to develop the Product, then Gamecock had to face up to that fact and agree a revised delivery date with a developer, which might, or might not, trigger CDV's partial termination rights. But Gamecock could not prevent such partial termination rights from arising, merely by not formally agreeing a revised delivery date with a developer. The only practical way in which the Agreement could operate in such circumstances is that, where Gamecock allowed delivery dates with a developer to pass, without contractual compliance on those dates, it should be regarded as effectively "agreeing" to revised delivery dates, on a rolling basis, with the developer,
- Nor am I persuaded by Mr. McCall's submission, that, if Gamecock's construction in relation to the right of partial termination were the correct one, CDV would not be left without a remedy in the case of significant delay occurring, without there being any agreement in place between Gamecock and a developer. He pointed to a number of remedies which would be available to CDV in such circumstances; these included: the right to bring the contract to an end at common law, given that time was expressed to be of the essence in respect of the Schedule 1 Delivery Dates; the right to claim damages from Gamecock (subject to the exclusions provided for in clause 8.3 of the Agreement); in an appropriate case, the right to exercise termination rights under clause 9.2.; and, in an appropriate case (where the game was not finally Approved), the right to recoup money under clause 3.1(c). However, be that as it may, the fact is that none of these additional rights afforded CDV a right of partial termination in relation to a particular Product. Thus, the reality is that, if Gamecock's construction were correct, then the right of partial termination would be virtually nugatory.
- Although clause 2.4 (b) required CDV's prior written approval to Gamecock agreeing revised delivery dates with developers, and although clause 3.1 (b) (i) (dealing with reimbursement of wasted costs) specifically referred to revised delivery dates with developers being agreed by Gamecock "after approval from CDV", I do not accept Mr. McCall's submissions that such provisions demonstrate that only an express agreement between Gamecock and a developer gives rise to the right of partial termination.
Was prior refusal to agree revised delivery dates necessary?
- Nor do I accept Mr. McCall's submission, in relation to a further point of construction, that prior refusal by CDV under clause 2.4 (b) to consent to revised delivery dates for developers, was required for the right of partial termination to be exercisable. So far as this latter point was concerned, prior refusal by CDV under clause 2.4(b) was not required to activate the right conferred by clause 3.1(b)(ii), whether expressly or by necessary implication. Moreover, for present purposes it would not make any difference even if it did, because it is not suggested by the Defendants that, in relation to any of the terminated Products, CDV was asked to approve, or actually approved, revised Delivery Dates in excess of the 45 day period. Moreover, the Defendants also accepted that, if they had made such an agreement without consulting CDV (in breach of clause 2.1(c)), then they could not rely on that failure to deprive CDV on its entitlement to terminate under clause 3.1(b).
Is the time spent in obtaining Approval from Console Manufacturers to be taken into account?
- Nor do I accept Gamecock's submission that the time between submission of the Gold Master candidate to the Console Manufacturer and the giving of Gold Master Approval is not to be taken into account for the purpose of computing delay under clause 3.1 (b). In other words Gamecock contends that the effect of the provision is that the whole period from the time of first submission until final Approval is ignored for the purposes of calculating the 45 day period.
- In my judgment, the only period of time excluded by the words in parenthesis
"(with the exception of delays caused by Console Manufacturer or governmental requested changes or Approvals, unless such changes had been previously advised to Gamecock and Gamecock had not resolved such issues)"
are periods of time which can be said to be delays in the normal time period expected for completing the process of obtaining approval. The words used clearly suggest that there has to be "delay caused by" a Console Manufacturer, either because it was requesting changes to a product or because, for example, it was raising queries prior to granting Approval. It does not, in my judgment, include the period during which a Product was going through the normal process of Approval with a Console Manufacturer, without any delay being caused, for example, by request by the latter for changes to be made to the Product.
- Gamecock's submissions on this point lead to an artificial result. The practical effect of its construction would be that CDV would not have the right of partial termination unless the Product had not even been submitted to the Console Manufacturer for approval 45 days after the date on which an approved Gold Master was supposed to have been delivered. It seems highly unlikely that this is what the parties had agreed. Furthermore, as Mr. Howe submitted, on the Defendants' construction:
i) Gamecock would be entitled to wait until the very last day possible to submit the game for approval, and then, whatever period it took thereafter for the Approval to come through, could be ignored.
ii) Gamecock could also knowingly submit a wholly defective Product, which it knew, or ought to have known, was full of defects and would never obtain Approval without substantial further revision, as, once it had done so, the clock would stop running under clause 3.1(b)(ii). Thus, Gamecock could always prevent CDV from ever being able to exercise its rights under the clause – at any rate in relation to games which required approval from the Console Manufacturer – simply by submitting the game to the Console Manufacturer at any time before the end of the 45 days, whatever state the game might then be in, and regardless of whether it had any realistic prospect of obtaining Approval in that state.
- In my judgment, such a construction would defeat the purpose of the clause. The parties must have intended, if clause 3.1(b) was to have sensible commercial effect, that Gamecock would be obliged to take into account the usual time needed to obtain Approvals when planning to meet its obligations in respect of the Delivery Dates. Nor, in my view, contrary to Mr. McCall's submission, is there any particular difficulty or uncertainty in such a construction. The evidence established that the parties considered that the normal period of time taken by a Console Manufacturer to give (or refuse) approval was approximately 4 to 6 weeks, albeit sometimes longer. If an issue were to arise as to whether there had been a "delay" in the normal period for the Approval process, for example as a result of a Console Manufacturer requiring changes to the Product, or by raising queries which were unexpected or unusual, it would not be difficult to determine whether the period in question was part of what could have been expected in the ordinary course of events during a normal approval process (in which case Gamecock could equally have been expected to submit the product in good time to allow for this), or something unanticipated or otherwise out of the ordinary. Both parties were experienced in the industry and would have had no greater difficulty determining this issue, than they would have had in relation to numerous other contractual provisions which required a measure of judgment. Moreover, the termination right only arose in circumstances where Gamecock was more than 45 days late in delivery, rather than immediately, upon the delivery date being missed. Thus a generous period of grace for Gamecock had already been built into the contract.
Can the right only be exercised prospectively?
- It was also contended by Gamecock that the right of partial termination could only be exercised prospectively, prior to the expiry of the 45 day period. This submission was based on the wording in clause 3.1 (b)(ii) "in the event of revised Delivery Dates being agreed which will cause a delay in delivery …". It was submitted that the wording in the future tense meant the right could only be exercised prospectively. Mr. McCall submitted that clause 3.1(b)(ii) envisaged a right of partial termination arising at the stage when the relevant agreement had been reached; the commercial purpose of the clause was to provide CDV (in the event of a relevant agreement between Gamecock and a developer) with the option (if it wished to pursue it) of terminating the Agreement in respect of the relevant game as soon as it was clear that a significant delay (i.e. over 45 days) was going to occur in delivery; however CDV was not required, and, indeed, was not permitted to wait until such a delay had actually occurred; thus it was implicit in clause 3.1(b)(ii) that CDV needed to make a decision; either it had to exercise the right of partial termination, or it had to proceed with the Agreement.
- In my judgment there is nothing in the wording of the clause which requires the right only to be exercised prospectively. The use of the word "will", in context, is merely descriptive. It does not impose the restriction on the exercise of the right, which Gamecock asserts. It might well be the case that it would not be "clear that a significant delay (i.e. over 45 days)" was going to occur in delivery until after the actual 45 day period had expired. Indeed CDV might not discover that there had been an agreed revision to delivery dates as between Gamecock (or its affiliate) and the developer, until after the delay had occurred. I do not consider that the natural reading of the clause leads to the conclusion that CDV has only a small window after the date upon which revised delivery dates were agreed in which to exercise its rights of partial termination.
Was CDV required to exercise its partial termination rights within a reasonable time?
- The Defendants also contended that CDV was required to exercise its partial termination rights under clause 3.1(b) within a "reasonable time". Mr. McCall submitted:
i) This requirement was implicit in the construction of clause 3.1(b)(ii).
ii) Alternatively, if necessary, a term should be implied in the Agreement to such effect. In that context, the question the Court had to address was whether the term contended for would spell out in express words what the contract, read against the relevant background, would reasonably be understood to mean: see Attorney General of Belize and ors. v Belize Telecom Ltd and anor.  UKPC 11;  BCC 433, per Lord Hoffmann at paragraph 21.
- In support of this submission, Mr. McCall pointed to cases where unreasonable delay in exercising a right to terminate, had been held to deprive the injured party of that right, where it is reasonable, as a matter of business, to expect the injured party to act promptly. For example, he referred to cases where a contract contained an express provision for termination on the occurrence of a specified event, and it had been held that the power to terminate must be exercised within a reasonable time of that event. He submitted that, although there may be a debate in any given case about whether, on analysis, the injured party is deprived of the right to terminate through waiver or by operation of an implied term; the result, in either case, was likely to be the same.
- Mr. McCall also pointed out that the question as to whether a contractual right of termination had to be exercised within a reasonable time had been considered in the context of building contracts, which often provide for a right of termination in respect of specified breaches. He referred to Hudson on Building and Engineering Contracts (11th Edition, 1995) which states at paragraph 12.050:
"Subject to the express wording of the clause, a contractual power of forfeiture must be exercised within a reasonable time after the occurrence of the breach on which the power is conditioned to arise".
Accordingly, he submitted that termination rights of this kind must be exercised within a reasonable time, or the right to terminate will be lost.
- I reject both the Defendants' submissions in relation to this issue. There is no indication in the language of clause 3.1(b)(ii) of any requirement imposed on CDV to exercise its partial termination rights within a "reasonable time", let alone any indication of what such a reasonable time might be. Nor is there, in my judgment, any room for the implication of such a term in accordance with the principles recently restated and explained in Attorney General of Belize and ors. v Belize Telecom Ltd and anor.  UKPC 11;  2 All ER 1127;  BCC 433; Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc (The Reborn)  EWCA Civ 531. The question of implying a term only arises where the parties have not expressly considered and addressed some matter, and therefore a term needs to be implied to fill the vacuum. In the present case there is no need for the implication of any such term to give efficacy to the mechanism of the partial termination machinery. Moreover clause 11.6 of the Agreement expressly provided that:
"no delay or omission by a party in exercising any right or remedy under the PDA shall impair that right or remedy or operate as or be taken to be a waiver of it".
The suggested implied term would therefore be inconsistent with an express term of the Agreement, which, as the authorities confirm, is a clear indicator against any such implication.
- However, the fact that clause 11.6 has the effect that mere delay in exercise of the right of partial termination does not operate as a waiver of it, of course, does not mean that, in the particular circumstances of this case, CDV may not have waived its rights of partial termination in relation to a particular Product, where the delay in exercise of the right was accompanied by other conduct. Taken together, the delay and other conduct may fall to be construed as a waiver of the particular breach, and an affirmation of the Agreement in relation to the particular Product concerned. It is to the particular circumstances relating to CDV's purported termination of each of the four relevant Products to which I now turn.
Was CDV entitled to exercise a right of partial termination in respect of each of Dementium, Velvet Assassin and Mushroom Men?
- On 21 November 2008, CDV's Chief Executive Officer, Christian Gloe, sent an e-mail to Terry Phillips (Chairman of SouthPeak US and director of the other defendants), and to Jonathan Hales (Managing Director of SouthPeak UK and, following its acquisition in October 2008, also of Gamecock), purporting to exercise CDV's right under clause 3.1(b) of the Agreement to hold Gamecock in breach in respect of the late delivery of four games: Insecticide, Dementium, Velvet Assassin and Mushroom Men.
- In respect of Insecticide, Gamecock accepted that the Agreement was terminated. Accordingly, it was common ground that, by operation of clause 3.1 (b), Gamecock was liable (subject to any set-off) to repay the advances paid in relation to Insecticide, amounting to $330,000.
- In respect of the other three games there was a dispute as to whether CDV was entitled to exercise any right under clause 3.1(b).
- Dementium was a product for Nintendo DS only. According to Schedule 1 to the Agreement, the "Delivery Date" was Q2 2008. According to Schedule 7, the "Euro GM" date was May 2008 and, likewise the "Release UK & GSA" date was May 2008. Dementium was first submitted to Nintendo for Approval on 15 July 2008. On 31 July 2008, Nintendo notified Gamecock that it had failed for various reasons, including the player character not taking any damage from enemies. The game was resubmitted on 6 August 2008. On 28 August 2008 Mr. Struthers informed Arne Peters (Chief Operating Officer of CDV) that "Expected GM … on the 29th of August". The game was approved by Nintendo on 4 September 2008 and the actual delivery date of the approved Gold Master was accordingly 4 September 2008.
- The date of the first submission, 15 July, was the 45th day after the Schedule 7 Euro GM date. Since the right to terminate only arose in respect of a delay in excess of 45 days, the Defendants argued that the right to terminate never arose, because time stopped running for good on 15 July, even though delivery did not take place for another 7 weeks. However, even if, on the basis of my construction of the relevant provisions relating to time spent in obtaining Approval, Gamecock were to be allowed some credit for time in respect "of delays caused by Consul Manufacturer or governmental requested changes Approvals, which shall not cause Gamecock to be in breach ...", that argument cannot avail the Defendants on the facts. First, it makes no allowance for the time that the Approval process would have taken anyway. By 15 July, the game was one day short of being 46 days late for delivery, but it had not even been submitted. It thus cannot be said on any sensible basis that all the following 7 weeks were "delays caused by… Approvals". Second, even if, contrary to my conclusions on construction of the relevant provisions, it were necessary to disregard the entirety of the time spent awaiting Approval, there is no justification for disregarding the period between 31 July (when the game failed) and 6 August (when it was resubmitted). The game failed for various reasons including the player character not taking any damage from enemies. The game was described by Nintendo as "unfinished or still have testing functions enabled". I accept Mr. Howe's submission that it should not have been submitted in this state, and correcting such problems cannot, in my view, be regarded as "delays caused by Console Manufacturer … requested changes or Approvals".
- Accordingly, I conclude that, in accordance with my conclusion as to the meaning of the term "Delivery Dates", the date of 4 September 2008 was indeed more than 45 days after the due Delivery Date of 30 May 2008.
- Gamecock submitted that there was no agreement between Gamecock/Deep and the developer of Dementium (Renegade Kid LLC) as to a revised Delivery Date, as required by clause 3.1(b)(ii). Mr. McCall referred to the fact that, in the Particulars of Claim, no agreement was alleged, and that all that CDV alleged in the Reply and Defence to Counterclaim was that an agreement could be inferred from the fact of late delivery. He submitted that the mere fact that delivery was made late did not mean that there was an agreement that it should be made late, still less that there was an agreement that delivery could be made more than 45 days after the original Delivery Date. He further referred to the fact that neither Mr. Struthers nor Harry Miller (Co-founder of Gamecock Media Group/Deep in the USA and President of the Group until the sale to SouthPeak in October 2008) alleged in their witness statements that there was any agreement between Gamecock/Deep and Renegade Kid as to a revised Delivery Date. He further submitted that the documentary evidence relating to Dementium was consistent merely with de facto slippage, and did not give rise to any suggestion of an agreement to revise the Delivery Dates.
- He also pointed to the fact that CDV's own documents acknowledged the gradual slippage that was taking place: in its updated release schedule of 27 August 2008, CDV was anticipating release of Dementium in October 2008, and that, following Gold Master Approval having been granted on 4 September 2008, CDV updated its release schedule on 5 September 2008 to the more precise date of 24 October 2008.
- In the light of my conclusions as to the meaning of the phrase in clause 3.1 (b)(ii) "in the event of revised delivery dates being agreed which will cause a delay ...", and on the basis of the limited evidence in the trial bundles relating to the dealings between Gamecock/Deep and Renegade Kid, I conclude that one can infer that, on the balance of probabilities, the delay in delivery by the developer must have been agreed, approved or acquiesced in by Gamecock/Deep and that such conduct was sufficient to constitute an "event, of revised delivery dates being agreed which will cause a delay ..." for the purposes of clause 3.1 (b).
- However, in my judgment, the evidence relating to CDV's conduct following the first submission of Dementium for Gold Master Approval on 15 July 2008 demonstrates that CDV waived any right under clause 3.1 (b) (ii) to terminate in relation to Dementium on the grounds of delay. I find that the salient facts, which were summarised in a chronology set out in Appendix 1 to the Defendants' closing submissions, and were the subject of oral evidence were as follows:
i) On 16 July 2008 CDV placed a Purchase Order for 39,000 units of Dementium; the order was provisional because it was prior to Approval being obtained.
ii) On 27 August 2008 CDV's Release Schedule was internally updated to show a UK Release Date for Dementium of October 2008. On 5 September 2008 it was updated to show 24 October 2008 as the UK release date for Dementium.
iii) Between that date and 10 September 2008 there were communications between the parties which showed that CDV was making its plans in full knowledge of the delays and on the basis of a proposed release date of 24 October 2008.
iv) On 10 September 2008 CDV placed a firm order for 68,000 units of Dementium. Mr. Peters accepted in cross-examination that the order for 68,000 units was a real order, intended to be acted on. Although Mr. Struthers sought to suggest that the order for 68,000 units could not have been processed, or would not have been "actionable" because there was no wholesale pricing on the order, and CDV argued that other evidence showed that Gamecock did not regard itself as contractually obliged to honour the order, and therefore there could be no election, the contemporaneous documentation in my judgment clearly showed that Gamecock's acceptance of the order on 10 September 2008 was unequivocal. All subsequent correspondence on the subject implicitly assumed that the order had been made and was valid per se; the only outstanding question being the ability of CDV to pay its share of the cost of goods (referred to as "COGS" in the emails).
v) The correspondence between 3 September 2008 and 6 October 2008 was all written on the basis that CDV's order for 68,000 units of Dementium was a binding order intended to be acted on, and that Gamecock was entitled to press CDV to pay its share of the COGS for Dementium.
vi) On 18 September 2008 Mr. Peters, of CDV, apologised for the non-payment of the COGS, and stated "I am chasing the guys to make sure we pay asap ...". Throughout this period, Gamecock continued to press CDV to pay for the COGS, and no exception to this was taken by CDV.
vii) On 29 September 2008 CDV paid the final instalment of the Individual Advance in respect of Dementium, which had fallen due within seven days of delivery of Gold Master approval; see clause 3.1 (e) (iv).
viii) On 16 October 2008 Mr. Hales sent another email to CDV chasing for payment from CDV for the COGS over and above the "MG" figure (i.e. the number of units that would be manufactured at Gamecock's cost) for Dementium. Again, no exception was taken to this by CDV.
- In my judgment, on any commonsense analysis of the facts, CDV's order of 68,000 units of Dementium on 10 September 2008 was plainly inconsistent with CDV preserving any right to terminate the Agreement in respect of late delivery of that game. As such, it constituted an affirmation by election of the Agreement in respect of Dementium and, or alternatively, a waiver by CDV of any right to terminate in respect of late delivery of that game. The fact that, Gamecock may have never acted upon the order, because, as alleged by CDV, it refused to manufacture the stock without the manufacturing costs being paid in advance by CDV, and that, as alleged by CDV, such refusal may have been wrongful (because under clause 6.2(b)(a)(ii), payment of CDV's portion of the costs was due only "prior to pick up from Gamecock's warehouse", not prior to manufacture), an issue which I do not need to decide, appears to me to be nothing to the point.
- CDV argued that, since the final instalment of the Individual Advance fell due within 7 days of delivery of the Gold Master (clause 3.1(e)(iv)), the payment of a debt which was already due and payable could not have constituted an act of affirmation. In this context, Mr. Howe relied upon State Securities plc v Initial Industry Ltd  All ER (D) 317, at paragraph , where it was held that the acceptance of a payment which had already fallen due before the right to terminate arose was not an election to continue with the contract. However, on CDV's own case, its right to terminate in respect of Dementium must have arisen well in advance of the date by which payment of the final instalment of the Individual Advance became due. The Gold Master for Dementium was delivered on 4 September 2008, and payment was due 7 days after that. On any basis, on CDV's case, the right to cancel arose well before that date, at the latest on 6 August 2008 when the game was resubmitted to Nintendo for Approval. In those circumstances, I agree with Gamecock's submission that waiting until September for Gold Master approval to be granted, and subsequently paying the sum which then became due, constituted a waiver on CDV's part of its right of partial termination in relation to Dementium, in particular when taken together with the delay and the other conduct on CDV's part.
- Accordingly I conclude that CDV was not entitled to exercise its right of partial termination in relation to Dementium on 21 November 2008. I conclude that its conduct was incompatible with the preservation of any right to terminate the Agreement in respect of Dementium. By its conduct, CDV made it clear that it accepted such delays as had occurred in relation to the development of Dementium. I refer to the analysis of the doctrine of affirmation by election at paragraph 53 of the judgment of Aikens LJ in Tele2 International Card Company SA v Post Office Limited  EWCA Civ 9. Reference can also be made to Re Garrud, ex p. Newitt (1881) 16 Ch D 522 , at 532, where the Court of Appeal, per Brett LJ, suggested obiter that, where an owner went on making advances after the failure of a building contractor to complete on a particular day, that amounted to a waiver of a contractual right of forfeiture.
- Velvet Assassin was to be produced in PC and Microsoft Xbox 360 formats. According to Schedule 1 to the Agreement, the "Delivery Date" was Q4 2008 for a "timely holiday release". According to Schedule 7, the "Euro GM" date for both formats was October 2008 and, likewise, the "Release UK & GSA" date was October 2008. It is not clear precisely when Velvet Assassin was submitted for Gold Master approval, either to Microsoft (Xbox 360) or to CDV (PC), although it is known that Gold Master approval was obtained on 16 April 2009, well after CDV had given notice to terminate the Product, and Gamecock had given notice to terminate the whole contract. Gamecock's case was that the Delivery Date for Velvet Assassin was 31 December 2008, namely the last day of the quarter specified in Schedule 1; and CDV's case was that the Delivery Date for Velvet Assassin was 31 October 2008, namely the last day of the month specified in Schedule 7.
- On Gamecock's case, as at the date of purported partial termination (21 November 2008), there had been no agreement between Gamecock/Deep and Replay Studios GmbH, the developer of Velvet Assassin, such as would prospectively cause a delay in delivery of that Product in excess of 45 days beyond 31 October 2008, i.e. until at least 16 December 2008, even on the hypothesis that CDV's case in relation to Gamecock's delivery obligations were held to be correct. It was Gamecock's contention that no agreement with Replay was reached until 10 December 2008, when a revised milestone schedule was formally agreed.
- In my judgment, after a review of the relevant evidence, namely the communications between Replay and Gamecock/Deep, and the evidence of the relevant witnesses, I conclude that, by 30 October 2008, Gamecock/Deep had, albeit informally, and albeit that the details of the schedule subsequently changed in certain respects, agreed to a revision of delivery dates with Replay and to pay €102,000 to persuade it to restart work on the Product. This is evidenced by the fact that the sum was wired to Replay on that date. The commercial reality was that, before CDV's termination of Velvet Assassin on 21 November, Gamecock had, for all practical purposes, agreed a revised timetable with Replay, which included Xbox 360 Final Submission Candidate (i.e. submission rather than approval) on 9 February 2009 and PC Gold Master on 23 February 2009.Those dates involved a delay of well over 45 days after the Delivery Date.
- Gamecock submitted that the chronology relating to Velvet Assassin, as set out in Appendix 2 to the Defendants' closing submissions, showed that CDV was aware, from July 2008, that Velvet Assassin would not be released until 2009. It pointed to the fact that, in an e-mail from Mr. Peters dated 5 September 2008, he stated that he understood the "actual release date" would be "moving to Jan/Feb 09" , and that, by 5 September 2008, CDV had updated its release schedule to show the UK release date for Velvet Assassin as being revised to February 2009. Accordingly, Mr. McCall submitted that, even if, contrary to Gamecock's contention, CDV ever had the right to terminate the Agreement in respect of Velvet Assassin, CDV must have long since lost that right by 21 November 2008. He submitted that it could not have been open to CDV to have remained silent for three or four months and then to seek to exercise rights under clause 3.1(b); and that the right to terminate (if it existed) had been lost. The fact that CDV had continued with marketing and promotional activities for Velvet Assassin, in conjunction with Gamecock, long after it knew that the release date would be delayed until 2009, was inconsistent with the Agreement being terminated in respect of late delivery of Velvet Assassin. As such, he submitted, they constituted an affirmation by election of the Agreement in respect of Velvet Assassin and/or a waiver by CDV of any right to terminate in respect of that game.
- Having reviewed the relevant contemporaneous documentation and evidence relating to Velvet Assassin, I am not satisfied, on the balance of probabilities, that CDV waived its right to terminate the Agreement in relation to this Product. Although CDV reluctantly accepted, because, in practical terms, it had no choice other than to accept, that the release of Velvet Assassin would have to be delayed to 2009, it nonetheless always insisted that it would need to receive delivery of the physical product in 2008. The contemporaneous documentation shows that this point was acknowledged and accepted by Gamecock on numerous occasions. Indeed, the correspondence shows that CDV was insisting that the Product would have to be ready for manufacture, i.e. Approved and delivered, no later than 12 December 2008, which was described by Mr. Struthers as the "drop dead" date.
- Furthermore, there is no evidence to suggest that Gamecock (as it was obliged to do) kept CDV informed of its discussions with Replay when agreeing the revised delivery dates. On the contrary, the contemporaneous documentation suggests that Gamecock/SouthPeak deliberately kept its negotiations with Replay hidden from CDV because it was suspicious as to CDV's relationship with Replay. Although CDV was told by Marc Moehring (the Managing Director of Replay) on 21 October 2008 that the delivery date had slipped to late January 2009, it was never informed by Gamecock (as it should have been), as to its negotiations with Replay, nor that Gamecock, on 30 October, had reached an agreement with Replay whereby the delivery date would be put back to February. I agree with Mr. Howe's submission that CDV was therefore never placed in a position to make an informed choice so as to give rise to any election.
- Accordingly, I conclude that CDV was entitled to terminate Velvet Assassin, and is entitled to repayment of the Individual Advance ($1,560,000), together with its Wasted Costs.
- An issue arose in relation to this Product as to whether, if one format of the product was delivered within the 45 day period after the Delivery Date, but the other was not, CDV's right of termination extended to the entire Product, and not merely to the individual format, which was delivered outside the period. In my judgment, on the construction of clause 3.1 (b), the right of termination applies to a particular Product, not individual Formats. It thus follows that a particular Product can be terminated if any of the Formats in which it is required, are not delivered within the designated 45 days. This makes commercial sense, since any marketing campaign by CDV would necessarily have to be addressed to the Product and not to the particular Format.
- The above approach is also, in my judgment, supported by the provisions of the Agreement relating to payment of the balance of the final instalment of an Individual Advance as defined, which require that both formats of a Product need to be delivered in order to entitle Gamecock to payment of the final instalment of an Individual Advance.
- I agree with Mr. Howe' s analysis of the relevant provisions, which is as follows:
i) The "Individual Advance" is defined to be "the advance forming part of the Advance to be paid in respect of each Product as set out in Schedule 1" (emphasis added).
ii) "Products" are defined to be "the Products for the Formats listed in Schedule 1"; thus "Format" is clearly a subset of "Product".
iii) Schedule 1 splits out the Advance as between Products. It does not allocate the Individual Advance as between the Formats for each Product. Although the Defendants assumed that the Individual Advance can be split equally between Formats, the terms of the contract show that no such assumption can be made, because different Formats may not have equal economic value: see clause 3.1(c) which, in the event of non-Approval of a Format provides only for the parties to "agree in good faith" for the relevant Individual Advance to be reduced "by a fair and reasonable portion", having regard to "CDV's reasonable forecast for the relevant Product or version". This demonstrates that the portion of any Individual Advance which could be attributed to a particular Format was not fixed either at the time that the Agreement was entered into or subsequently, could vary over time depending on CDV's current forecasts, and might even be indeterminable in the event that the parties were unable to agree it (as the clause in question could amount to an "agreement to agree").
iv) Clause 3.1(e)(iv) provides that the balance of the Individual Advance would be payable within 7 business days of approval of the final Gold Master of a Product on the relevant Console Format(s) (that is to say, where there were two or more Formats of a Product, the Approval of the Product on the last of those formats to be approved).
v) This is also made clear by the part of clause 3.1(e)(iv) which applies where there is a PC version; in that case the balance is payable within five business days of "the later of CDV's approval of the PC version and the relevant Console Manufacturer approvals of any such individual Product".
- The DS format of Mushroom Men was delivered late, on 15 October 2008. It had first been submitted for Approval on 9 September, when it had failed, and then been resubmitted on 7 October 2008. On CDV's case, it was due for delivery by 30 September 2008. Accordingly, although the delivery was late, since it was nonetheless within the 45 day period, it was not so late as to entitle CDV to terminate the Product on this ground alone.
- For the Wii format, the Schedule 7 "Euro GM" date was October 2008. The 46th day after 31 October was 16 December 2008. The submission history of the Wii format, up to the date that CDV terminated the product, was as follows:
i) Mushroom Men in Wii format had first been submitted to Nintendo for approval on 13 October 2008.
ii) On 17 October 2008 Nintendo notified Gamecock that the Product had failed to receive Approval.
iii) On the same day, Mr. Struthers wrote to Nintendo stating that four of the issues identified had been fixed and inviting them to waive the other two, on the basis that they "are incredibly hard to replicate and also that a consumer is highly unlikely to encounter these issues". Later that day, a Mr. Barron of Redfly, the developer, confirmed that one of the outstanding issues had been fixed and requesting waiver for the remaining one.
iv) On 20 October 2008, Nintendo confirmed that it agreed that that the remaining issue was "not a serious problem … so if this would be the only problem this would not fail the next submission". The game was therefore re-submitted on 20 October.
v) On 28 October 2008, the game failed for the second time. Mr. Struthers pointed out that "on our previous submission these issues were not flagged … I will go back to NOE [Nintendo of Europe] on that fact, but I know they will simply point out that we have not respected the NOE conventions". It was reported that Redfly "has already fixed one of the issues and is speaking with Nintendo's lotcheck group tomorrow first thing to pin down the other issue (they cannot reproduce it)".
vi) On 30 October, Mr. Hales (on behalf of Gamecock) and Mr. Taylor (on behalf of Redfly) agreed a press statement stating that Mushroom Men would be released in February 2009.
vii) On or about 31 October, in a series of telephone conversations between Mr. Struthers (for Gamecock), and Mr. Peters and Mr. Gloe (for CDV), Mr. Struthers expressly told CDV that delivery of the Gold Master for the Wii would not happen until mid-December at the earliest. This was not challenged in Mr. Struthers' cross-examination.
viii) Gamecock then instructed a quality assurance company, called VMC, to test the game. On 31 October 2008, VMC gave feedback identifying certain problems.
ix) Shortly thereafter, and at the latest by 4 November 2008, Mushroom Men in Wii Format was resubmitted for the third time to Nintendo.
x) On 10 November there was discussion by email between Redfly and Gamecock about how to address certain outstanding faults. A report was presented to Nintendo asking for waiver. Nintendo replied that it would waive one defect but not the other.
xi) On 19 November the Product failed for the third time to obtain Approval from Nintendo.
xii) The game was finally approved on 9 February 2009.
- Mr. Howe submitted that there was ample evidence from which the Court could infer that there was an "agreement" between Redfly and Gamecock to delay delivery to, or beyond, 16 December. He submitted that the necessary implication from the evidence was that that Redfly and Gamecock understood and agreed that delivery of the Product would now only be required in time for a February release, which meant after mid December 2008 at the earliest. He contended that this was also entirely consistent with Mr. Struthers' understanding of the position, and his statements to CDV to that effect at the time.
- Mr. McCall, on the other hand, submitted that, given that the DS game had already been approved, and the Wii version had been submitted to Nintendo on 13 October 2008, there was simply no scope for any "agreement" between Gamecock/Deep and the developer as to a new Delivery Date after that date. Such an agreement would have served no purpose. The developer had delivered its work to the Console Manufacturer. Thus he submitted that, subject to dealing with any issues raised during the approval process, the developer's work had been completed; it would have been impossible to predict: i) how long the Console Manufacturer would have taken to review the game; ii) what issues the Console Manufacturer would raise (if any); and iii) how long it would take to deal with any such issues. Accordingly, he submitted that it could not sensibly be suggested that Gamecock/Deep and the developer would have sought to agree a schedule for the completion of such work (or be inferred that they did so), even if any such agreement were relevant. In fact, on Gamecock's case as to the construction of its delivery obligations, the relevant date was the date of submission to the Console Manufacturer, and that submission had already taken place.
- He further submitted that, even if CDV's contention as to the normal time for Approval not being taken into account in the calculation of the 45 day period were accepted, for the purposes of calculating delay under clause 3.1(b)(ii), there was no suggestion by CDV that, in relation to Mushroom Men, the delay in relation to obtaining Console Manufacturer approval had occurred because Gamecock was implementing changes to the game which had already been "advised to Gamecock and Gamecock had not resolved such issues".
- In my judgment, a practical and commercial approach has to be taken to the somewhat Delphic provisions of clause 3.1 (b). The clause clearly envisaged that, in certain circumstances (namely where "such changes had been previously advised to Gamecock and Gamecock has not resolved such issues"), delays in relation to the obtaining of Approvals from a Console Manufacturer would give rise to an entitlement on the part of CDV to exercise its right of partial termination. Thus the clause itself necessarily envisaged the possibility of revised Delivery Dates being agreed after the original submission of a Product for Approval.
- On the evidence before me, it was clear that the developer, Redfly, was involved in attempting to make the changes to secure approval to the Product, and also that it had agreed with Gamecock that the Product would be released in February 2009; see the press statement dated 30 October 2008. In my view, that was sufficient evidence to demonstrate that, effectively, Gamecock and Redfly had indeed agreed revised delivery dates of the Product, which would cause a delay in delivery of the Product to CDV in excess of 45 days from 31 October 2008. Moreover, in my view, given the repeated failure of the Product to obtain Nintendo's Approval, despite the specific issues which it had raised, the evidential burden lay on Gamecock to establish that, notwithstanding the long period of delay, such delay could not be laid at Gamecock's door, because the changes required by Nintendo had not previously "been advised to Gamecock and Gamecock had not resolved such issues". There was no attempt to do that on the evidence before me.
- Accordingly, I conclude that that CDV was entitled to terminate Mushroom Men, and is entitled to repayment of the Individual Advance in respect of that Product ($2,100,000), together with its Wasted Costs.
- It was not submitted that CDV had waived its rights to terminate Mushroom Men. The only contention by Gamecock was that CDV had failed to exercise its rights within a reasonable time, so that, by the time it purported to do so, the right had been lost. I reject that contention both as a matter of law and, as a matter of fact, on the evidence. On any basis, the time elapsed before exercise of the right was not unreasonable.
Did CDV lose its right of partial termination through affirmation or waiver as a result of its notice to the Frankfurt Stock Exchange?
- In its defence and counterclaim, Gamecock asserted that CDV generally affirmed the Agreement by a notice issued to the Frankfurt Stock Exchange on 20 November 2008 (the day before CDV served with notice of partial termination). The point was only faintly pursued in argument. The statement was not addressed to Gamecock and, at the time, CDV was engaged in formal correspondence with Gamecock in which it had expressly reserved its rights. Accordingly, I reject any submission that CDV could be said to have waived its rights of partial termination or affirmed the Agreement, by virtue of this notice.
Did CDV, by purporting partially to terminate the Agreement, renounce or repudiate it?
- This issue arises in the light of my conclusion that CDV was not entitled to exercise its right of partial termination in relation to Dementium.
- In my judgment, although CDV was wrong about its entitlement to terminate the Agreement in relation to Dementium, it did not, by purporting to do so, renounce or repudiate the Agreement. This was a case where, far from repudiating the contract, CDV was relying upon it and invoking one of its contractual provisions, in order to exercise its right of partial termination. The fact that CDV was wrong in relation to Dementium, did not mean that CDV had either renounced or repudiated the Agreement. The position which it adopted was that the Agreement remained fully in force, except to the extent that it had been terminated in respect of particular Products.
- I heard extensive submissions based on the decision of the House of Lords in Woodar Investment Development Ltd v Wimpey Construction UK Ltd  1 WLR 277, and subsequent authorities addressing the same principle. Looked at in context, the situation was one where, on my analysis, CDV's notice of 21 November 2008 formed part of a chain of correspondence and negotiations, in which the parties has disagreed about their respective contractual obligations, and explained their reasons for holding their views. It was abundantly plain that, by its notice, CDV was not announcing an absolute intention to abandon the Agreement: rather, it was exercising certain contractual rights under the Agreement, based on its then appreciation of its obligations. This was one of those situations, as described in Chilean Nitrate Sales Corp v Marine Transportation Co Ltd, The Hermoza,  1 Lloyd's Rep 570, at pages 572-573, where Donaldson LJ, giving the judgment of the Court, and summarising the principles to be derived from Woodar, stated as follows:
"The learned Judge formulated the test to be applied as being 'whether M.T.C. and the owners acted in such a way as to lead a reasonable person to conclude that they did not intend to fulfil their part of the contract', and referred to the judgment of Mr. Justice Devlin in Universal Cargo Carriers Corporation v. Citati,  1 Lloyd's Rep. 174;  2 Q.B. 401 at pp 193 and 436, and Maple Flock Co. v. Universal Furniture Products (Wembley) Ltd.,  1 K.B. 148 at p. 157. Since Mr. Justice Mustill gave judgment, the House of Lords has given judgment in Woodar Investment Ltd. v. Wimpey Construction U.K. Ltd.,  1 WLR 277. While that decision is not directly in point it is useful for its review of the authorities. For present purposes we take from it the following propositions:
(a) Dissolution of a contract upon the basis of renunciation is a drastic conclusion which should only be held to arise in clear cases of a refusal to perform contractual obligations in a respect or respects going to the root of the contract.
(b) The refusal must not only be clear, but must be absolute. Where a party declares his intention to act or refrain from acting in a particular way on the basis of a particular appreciation of his obligations, either as a matter of fact or of law, the declaration gives rise to a right of dissolution only if in all the circumstances it is clear that it is not conditional upon his present appreciation of his obligations proving correct when the time for performance arrives. (Emphasis supplied).
(c) What does or does not amount to a sufficient refusal is to be judged in the light of whether a reasonable person in the position of the party claiming to be freed from the contract would regard the refusal as being clear and absolute?
One further proposition must be added, although it is not gleaned from or confirmed by the decision in Woodar's case, namely, that
(d) the conduct relied upon is to be considered as at the time when it is treated as terminating the contract, in the light of the then existing circumstances. These circumstances will include the history of the transaction or relationship. Later events are irrelevant, save to the extent that they may point to matters which the parties should have considered as hypothetical possibilities at the relevant time."
In my judgment, subparagraph (b) above is apposite in the present case.
Other grounds relied upon by the Defendants, in support of their repudiation argument
- The Defendants also relied upon on the following alleged breaches of contract on the part of CDV as constituting a repudiation of the Agreement:
i) CDV's failure to pay Gamecock the sum of $700,000 in respect of the Gold Master approval of Mushroom Men in DS format. and
ii) CDV's failure to pay Gamecock €177,078.28 in respect of the sales of Stronghold.
iii) CDV's alleged failure, in breach of clause 8.1(b)(iv) to notify Gamecock that it had become fiscally incapable of performing its obligations under the Agreement.
The alleged failure to comply with "payment obligations"
- In the light of:
i) my findings in relation to CDV's entitlement to terminate in respect of Velvet Assassin and Mushroom Men, and its consequent entitlement to be refunded the Individual Advances in respect of those products, together with Wasted Costs (to be assessed);
ii) the fact that CDV was entitled to $ 330,000 repayment in respect of the advances paid in connection with Insecticide;
CDV had more than sufficient monies owed to it by Gamecock, against which to set off the sum of €177,000 which it owed to Gamecock in respect of Stronghold (which amounted to approximately $225,000 at that time). Accordingly, it was not in breach, let alone repudiatory breach, of its payment obligations.
- Moreover, in any event, this was not a case in which CDV was displaying an absolute refusal to pay any monies under the Agreement, regardless of whether they were due or not. CDV's refusal to pay any money (as set out in Ms Dalton's email of 2 December 2008) was clearly predicated on CDV's understanding that it did not in fact owe any money to Gamecock, but, rather, that it was owed substantial sums. A refusal to pay sums based on a misunderstanding of one's contractual obligations is not, without more, a repudiatory or renunciatory breach: J R French v Redbus  EWHC 1436 (Ch),  FSR 13; Lidl UK Gmbh v Hertford Foods Ltd  EWCA Civ 938 (CA); The Hermoza (supra). Nor can Gamecock have reasonably believed that CDV was refusing to pay any sums, regardless of whether they were properly due.
Alleged failure to notify "Fiscal incapability"
- Clause 8.1(b)(iv) of the Agreement provided as follows:
"CDV represents, warrants and undertakes [that] CDV and its Affiliates are fiscally capable of performing their obligations under this Agreement and any material adverse change in such status shall be disclosed forthwith to Gamecock in writing as soon as permissible by applicable law or regulations applicable to publicly traded companies."
- Both parties agreed that "fiscally" in this context was a reference to CDV's financial position, rather than its tax position. Gamecock submitted that this was an important obligation, since CDV's capacity to perform its obligations was critical to Gamecock's prospects of obtaining revenue from sales of the games. Its case was that, by October 2008, CDV was in such a challenging financial position that it was no longer "fiscally" capable of performing its obligations under the Agreement, but that it failed to inform Gamecock of the change in its position, thus breaching the obligation contained in clause 8.1(b)(iv).
- It is not necessary for me for the purposes of this judgment to analyse in any detail the evidence relating to the source of funding provided by Intermezzo Establishment (a Liechtenstein entity representing certain investors in CDV), through CDV Finance Schweiz AG (a subsidiary of CDV), to enable CDV to meet its obligations under the Agreement. The evidence clearly showed that there were sufficient funds available under the relevant facilities to finance CDV's obligations as they fell due from time to time under the Agreement.
- Accordingly, in my judgment, there was no breach on CDV's part in failing to notify "fiscal incapability", since, notwithstanding the difficult credit conditions prevailing in 2008, it was capable of performing its obligations under the Agreement.
Conclusion in relation to Gamecock's alleged repudiation of the Agreement
- Accordingly I conclude that CDV did not repudiate the Agreement and Gamecock was accordingly not entitled to treat itself as discharged from the Agreement on the alleged grounds of CDV's repudiatory breach.
- Nor, in my judgment was Gamecock entitled to terminate the Agreement pursuant to the contractual termination provisions on the grounds of CDV's alleged failure to pay the $700,000 allegedly due in respect of Mushroom Men DS.
CDV's claim against Deep under its guarantee
- By the close of argument, it was accepted by the Defendants that the guarantee was binding on Deep.
- It follows that I find for CDV on that part of its claim which relates to Velvet Assassin and Mushroom Men, and I dismiss the Defendants' counterclaim.
- Both parties agreed that the question of consequential remedies, quantum and further directions, should be considered after I had determined the principal issues of liability as set out in this judgment.
- Finally, I express my gratitude to the counsel and solicitor teams on both sides for their comprehensive and detailed oral, and written, submissions, and for the assistance provided by the presentation of their arguments and of many of the trial documents, in electronic format.