Rebellion Interactive Ltd v Square Enix (2009) Ltd

THE DEPUTY JUDGE: I have before me an application for summary judgment under CPR Part 24.2. The application is made by the defendant, Square Enix (2009) Ltd, against the claimant, Rebellion Interactive Ltd in relation to part of the claimant's claim. The defendant says that this application raises a short question of law which turns on the meaning and effect of a letter dated 4 February 2010, which the defendant says is capable of being determined summarily. The defendant says that, if it is correct, the application will dispose of 75 per cent of the sums claimed and nearly all the disputed issues of fact. These disputes, the defendant says, will simply fall away.

The claimant's claim is for £1,630,000, plus interest and costs. The defendant says that if its application is successful (which it maintains it should be) the maximum sum at stake will be £460,000 plus interest and costs. It also says that that reduction of 75 per cent in the value of the claim would have a significant effect on the economics of the case and the prospects of settlement. The parties have filed costs budgets which show that total costs through to trial are £392,000 for the claimant and £578,000 for the defendant.

Before I turn to the facts of the case, I will just briefly say something about the law in relation to the procedure under CPR Part 24. So far as material in the present circumstances, CPR Part 24.2 provides that the court may give summary judgment against a claimant on a particular issue if it considers that the claimant has no real prospect of succeeding on that issue and there is no other compelling reason why the issue should be disposed of at a trial.

It is well established that the respondent has to have a case which is better than merely arguable, that the hearing of an application for summary judgment is not a summary trial and it is for the applicant, which in this case is the defendant, to establish that the claimant had no real prospect of success on the issue identified in the application notice. It is common ground between the parties that the principles in relation to exercise of the court's jurisdiction under CPR Part 24 are set out in a case called Easy Air Ltd v Opal Telecom [2009] EWHC 339 (Ch) at paragraph 15, a decision of Lewison J. In relation to those principles, I have in particular had my attention drawn to (vi) and (vii), which say this:

“(vi)

Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63; ..."

The second of the principles identified by Lewison J I have also had my attention directed to is set out at (vii) of his judgment of the Easy Air case, which says this:

The claimant, as I shall explain, relies on principle (vi), whereas the defendant has emphasised and directed my attention to the need to “grasp the nettle” and decide the point of law it has identified in this case.

I turn now to the facts. The claimant is part of the Rebellion group of companies, a leading independent video game developer. The defendant is a member of the Square Enix group of companies, one of the largest video game publishers. On 16 June 2009, the claimant and the defendant entered into a detailed written agreement pursuant to which the claimant agreed to develop for the defendant an interactive entertainment software product provisionally known as “Rift”. The agreement itself runs to some 27 pages and contain a number of schedules. I shall refer to it in this judgment as "the agreement".

The product was to be completed by early 2011 and the claimant was required to develop it in accordance with an agreed specification and what was described in the agreement as a “milestone schedule”. The milestone schedule means the delivery and payment schedule for completion of the product attached at schedule 2 to the agreement. The milestone schedule was, by agreement, revised on 30 October 2009 and the relevant document for the purpose of this hearing is at tab 8, pages 132 to 135 of the bundle.

The milestone schedule is in fact a table with four columns. The heading of the first column is entitled "Milestone", and under that heading there are 21 rows identifying the particulars of milestones 1 to 21, the milestone being a stage of development of the product described or detailed in the milestone schedule. The heading of the second column is entitled "Date", and each milestone has a date by which it is to be achieved. The heading of the third column is "Milestone Description", which identifies the deliverables to be delivered by the claimant, as the developer, to the defendant in respect of each milestone. The last column is headed "Payment", and identified the payment to which the claimant is entitled subject to the terms of the agreement in respect of each milestone. In the event that all milestones were successfully completed by the claimant in accordance with the terms of the agreement, the total payment the claimant was entitled to was £6,206,900.

Returning to the agreement itself, clause 2.1 provided that the claimant shall develop the product as a professional quality interactive software program in compliance with the specification and milestone schedule, and the claimant was required to complete each milestone and deliver to the defendant at a specified UK address each of the deliverables by the date specified in the milestone schedule. In the agreement, the deliverables are defined as:

Clause 2.3 provided that the claimant was to give the defendant written notice of each delivery identifying the deliverables delivered, and a delivery was not to be considered complete unless and until the defendant had received such a notice. Clause 2.4 of the agreement set out, amongst other things, the time period for the defendant to test the deliverables received from the claimant and to inform the claimant the results of such tests and the last sentence of clause 2.4 provides:

Further, clause 2.4 provided that milestone 6, "GREENLIGHT 2", had to be approved by the defendant's headquarters in Japan prior to being accepted. Clause 2.5 provides that, if a deliverable is rejected, then the date for completion of milestones can be rescheduled with the defendant's written consent. Clause 2.6 provides, amongst other things, that upon or before the acceptance of any deliverable, the claimant shall provide the defendant with an invoice for the relevant milestone payment, and there is then provision relating to the time for payment of this invoice.

Clause 3 of the agreement relates to what are described as change procedures. These allow the defendant to require the claimant to modify the specification or performance under the agreement. But to take effect under clause 3, any such change request needed to be in writing.

The termination provisions are contained in clause 12 and, under clause 12.1, the defendant was entitled to terminate the agreement at any time on written notice to the claimant. If it did so, then clause 13.1 took effect. Clause 13.1 is set out at tab 8, page 84 of the bundle and provides (so far as material):

There is no dispute in this case that on 5 March 2010, the agreement was validly terminated by the defendant under clause 12.1, and the game or product was never finished. The issue between the parties is what, in the light of the events which happened, the claimant is entitled to be paid or receive in terms of damages or monetary compensation as a result of that termination of the agreement.

Clause 13.2 of the agreement provides that any termination of the agreement, however occasioned, shall not affect any accrued rights or liabilities by the party. Clause 15.6 provides that:

There is no dispute that the milestones 1 to 5 were delivered, approved and paid for in accordance with the agreement. The milestone schedule identifies that milestone 6 had to be achieved by 15 November 2009, the milestone description for milestone 6 is entitled "GREENLIGHT 2" and there are 16 different bullet points making up this particular milestone description, including such items as "Pre-production 5: First playable preliminary build", "First pass force gauntlet" and so on.

Underneath the bullet point, there was also this provision:

The acronym GDD means "game design document", and the acronym TDD means "technical design document". Under the milestone schedule, the achievement of milestone 6 is worth £460,000, whereas the achievement of milestones 7, 8 and 9, are worth over £390,000 each.

On 16 November 2009 -- so one day late, but no particular point is to be taken on this -- the claimant provided the defendant with what is described as the deliverables

It is the claimant's case that what was delivered on 16 November 2009 was the deliverables required for milestone 6, and this is set out at paragraph 9 of the Particulars of Claim. The claimant then says that the defendant thereafter failed to notify the claimant of any test results in respect of the deliverables under milestone 6 as it was required to do so under clause 2.4 of the agreement. Thereafter, the claimant continued to develop the game or product in accordance with milestone 7.

There are a number of emails in the papers before me which shed light on what happened after 16 November 2009. On 11 December 2009, Mr O'Driscoll of the defendant sent an email to Mr Hart of the claimant entitled "Green light demo, et cetera". The email refers a number of times to the acronym "GL", which means "Greenlight". The email said this: "A decision was taken at the last min to pull the game from the full European GL and have the game GL in Japan with the SQEX board. Our studio GM and both COO’s have been reviewing the materials and are happy to send them to Japan.

In the last sentence of that email, it appears that the claimant is referring to the materials which appear to be all the items sent by the claimant as deliverables to the defendant on 16 November 2009, which are “just as needed” for a greenlight in Japan. There is no suggestion in that email that anything is missing or that the deliverables provided by the claimant were in any way inadequate.

On 17 December 2009, Mr Hart of the claimant emailed Mr O'Driscoll of the defendant, copied to Mr Cheung, also of the defendant in relation to a subject entitled "Rift - Milestone 7 deliverable". The email from Mr Hart to Mr O'Driscoll informed Mr O'Driscoll that:

Also on 17 December, Mr Kingsley of the claimant sent an email to Mr Cheung of the defendant entitled "Rift resourcing", which in the last sentence attaches invoices for the November and December milestones. Looking at the milestone schedule, those must be invoices for milestones 6 and 7. In the same email, Mr Kingsley also says to Mr Cheung:

Mr Cheung responds about an hour and a half later to Mr Kingsley and says this: "I know materials have been delivered for MS7, but this seems a bit premature given that we not had the meeting and feedback from Japan yet. In anticipation of this, Matt did ask Steve to hold fire on [that settlement] until after Japanese review of MS6 to ensure that everyone was happy with the direction before moving forward and to avoid wasted work (and Steve was told that the schedule postMS6 would be re-worked to accommodate).

On 18 December 20009 Mr O’Driscoll of the defendant emailed Mr Hart of the claimant stating that :

“With regard to the MS deliverables I’s hard for us to accept them as a MS as we will need to approve the full project plan before we can move on. It is of course still much valid for us as an update.”

The next document is dated 8 January 2010 and is entitled "RIFT Project Refocus - & Questions". It appears to have been prepared by Mr O'Driscoll of the defendant and has various comment boxes in the right-hand margin. The summary of this document on page 1 says this:

While I cannot be sure about this from the documents I have referred to so far, the GL meeting appears to be a reference to the meeting which took place on 18 December in Japan, which was the greenlight meeting. I say that because under clause 2.4 of the agreement, the requirement relating to milestone 6 was that it had to go to the board in Japan for approval.

The summary continues:

There is then a heading which is called "Project refocus". The next heading is "Areas we would like to push the current design on and explore further". On page 3 after that, there is a subheading "Design Refocus Issues", which refers to “the extra focus on creature summoning and the greater number of creatures”, and so on and so forth, and makes other points it appears the defendant wanted to focus on.

Then on the last page is the heading "Other points". The third bullet point says this: "Ask them outright what is required of us to get the greenlight signed off and paid."

I mention this because, as far as I can tell, that appear to be the first reference to MS6.1 in the papers, and therefore to milestone 6.1.

The narrative is then picked up in the Particulars of Claim at paragraph 19, under the heading "The Game to be delivered is amended at the defendant's request", and the Particulars of Claim says this at paragraphs 19 and 20:

On 15 January 2010, Mr Hart sent an email to Mr O'Driscoll and copied to Mr Cheung entitled "Rift Greenlight Deliverables - MS6.1", with an attachment "Green light to do.doc". The email from Mr Hart said this:

I do not know on the evidence before me whether there is overlap between them or not, but on my comparing what is set out, a document on page 206 with the document at page 133, the items listed on page 206, which is MS6.1, there (i) look to be a different list of matters which the claimant agreed to provide, and (ii) there are items which the claimant agreed to provide by dint of the requirement for refocus which are now identified by the defendant.

In any event, on 5 February 2010, the claimant delivered to the defendant more material, which is set out in the one-page document at tab 10 at page 169 of the bundle. In the top left-hand corner in the small font is entitled "Rift_MS6.2_Deliverables" and headed "Rift: Milestone #06.2: Delivery 5th February 2010". It has a heading entitled "Overview" which says:

On 8 February, Mr Cheung emailed Mr Hart, and the email is headed "Re MS6 uploaded" and informed Mr Hart that he had downloaded MS6.2 and had a quick look

On 19 February, Mr Kingsley emailed Mr Cheung under the heading "Rift MS", informed him that he was going to be out of the office, and then said this:

On 25 February 2010, Mr O'Driscoll from the defendant emailed Mr Hart, copied to Mr Cheung. The subject matter of the email is "RIFT milestone 6th/6.2 [NonApproved]". The email says this:

It is interesting and perhaps important to note that this email simply refers to milestone 6.2 delivery received on 5 February 2010 as not being approved. It does not make any reference to the milestone 6 delivery.

I am clear and I do not know why the term "6.2" is used, but on documents before me, it does not appear to be the same as milestone 6. However, what 6.2 and 6.1 do appear to be referring to, and it appears in the Particulars of Claim, are the requirements on the part of the defendant for the claimant to refocus on milestone 6.

On 4 March 2010, Mr Hart sent the following email to Mr O'Driscoll, also copied to Mr Cheung, and is entitled "Rift MS6.2 - response to feedback". The email says this: "Thank you for your email of the 25th February. We have discussed this internally and it does appear that there is a very important difference of opinion as to where we are in this project.

It was the day after the receipt of this email that the defendant terminated the agreement on 5 March 2010. In the meantime, in February 2010, the parties had signed a letter which is said to comprise the terms which they had agreed. The letter was written by Chantal Reid of the defendant to Chris Kingsley of the claimant. The heading in the letter refers to the agreement as varied by a side letter dated

The letter itself is dated 4 February 2010, and on 9 February 2010, it was signed and returned by Chris Kingsley on behalf of the claimant to Ms Reid on behalf of the defendant. In response to this application, the claimant by its solicitor, Mr Jeffrey Smele has filed a witness statement dated 11 March 2016. At paragraph 13 of that witness statement, he says this about the letter:

The other point made by the claimant in relation to the letter is set out at paragraph 22 of its Particulars of Claim. The claimant has noted this:

So Mr Kingsley cannot remember anything about the letter. As for Mr Cheung, I am told he is no longer employed by the claimant. Mr Cleaver, counsel for the defendant, tells me that this is the reason he is unable to give any relevant evidence because he is no longer an employee. I have no idea where Mr Cheung is and whether he is in this country or in Japan, but the fact that he is no longer employed by the defendant does not impress me as a very good reason why he cannot give evidence. Having said that, one of the important questions is of course whether he can actually give any relevant evidence.

In relation to these proceedings, the claim was issued on 5 March 2015. The defence was served on 11 September 2015 and a reply was served on 23 October 2015. Directions questionnaires were submitted on 26 November 2015.

The claimant maintains that the defendant is in breach of the agreement and has failed to pay it the sums to which it is entitled in respect of milestones 6, 7, 8 and 9. Its claim is for the sums due under the agreement, alternatively quantum meruit and also has a claim for damages. The defendant accepts that there is a dispute of fact as to what sums if any the claimant is entitled to for milestone 6. However, it says the remainder of the claim is suitable for summary determination and this is based on the content of the letter dated 4 February 2010.

The application notice for summary judgment dated 29 January 2016 says this: "The Defendant applies under CPR r.24.2 for summary judgment in relation to the Claimant's claims in respect of Milestones 7, 8 and 9 (as defined in the Particulars of Claim).

The application was supported by the witness statement of Mr Tregear, a partner of Russells, which is dated 29 January 2016. The application notice itself was obviously defective as it failed to comply with paragraph 2(3) of the Practice Direction CPR part 24 and did not state that the application was made because the applicant believed that on the evidence the respondent has no real prospect of succeeding on the issue (see page

I should also mention that in relation to the directions questionnaire, the questionnaire filed by the defendant flagged up the possibility of a summary judgment application, and that is quite plain in terms of it. But interestingly at paragraph F the questionnaire asked:

The answers provided were that the defendant intended to first of all call Matt O'Driscoll, Roger Cheung and Chantal Reid. And as to the facts which they are said to be giving evidence, Mr O'Driscoll is said to be giving evidence about revisions to the milestone schedule, he accepts there are a lot of changes to the material served by the claimant to the defendant on 14 January 2010 meeting. Roger Cheung is going to be giving evidence about amendments to milestone 6, exchanges with the Kingsleys, the 14 January 2010 meeting, and Chantal Reid is giving evidence about the 4 February 2010 letter.

So those are basically all identified as witnesses of fact giving evidence on the issues I have just mentioned, although to be fair to the defendant it does say also in that box the witnesses are subject to the outcome of the summary judgment application.

Mr Tom Cleaver, who is counsel for the defendant, in his skeleton argument says that milestone 6 was accorded particular significance in the agreement as it was a point at which the defendant had enhanced rights of termination. He then says that the claimant submitted deliverables in purported compliance with the milestone 6 requirements on 16 November 2009, but those deliverables were never approved by the defendant.

He says the claimant submitted deliverables in purported compliance with the milestone 7 requirements on 17 December 2009 but those deliverables were never approved by the defendant either. He then refers to the letter of 4 February 2010, which he says clearly changed the delivery dates for milestone 6 from 15 November 2009 to 5 February 2010. He says that 5 February 2010 was the delivery date for the milestone 6 deliverables and the enhanced termination provisions were clearly invoked within the 30-day period. The result is that the claimant had no entitlement in respect of that termination except a possible claim in respect of the milestone 6 payment itself, a claim which depends on disputed issues of fact.

However, he says the claimant's claims go further. This is because the claimant seeks (i) payment in respect of milestones 6 to 9, on the grounds that the termination in March 2010 was not within 30 days of the submission of the original milestone 6 deliverables in November 2009 and therefore not within the enhanced termination provisions, or alternatively (ii) payment in respect of three milestones 6, 7 and a notional further milestone outside the agreement) on the grounds that claims in respect of milestones 6 and 7 had accrued prior to the rescheduling in February 2010 and were therefore unaffected by it.

At paragraph 8 of Mr Cleaver's skeleton argument, he sets out the defendant's submissions, which are in short that the claim in respect of payment for anything other than milestone 6 is wholly untenable and should be dismissed summarily. The reasons for this are as follows, and I will read here from paragraph 8 of his skeleton argument:

As I have mentioned before, the upshot of that is that the defendant maintains that the application gives rise to a short question of law as to the meaning and effect of the letter dated 4 February 2010 and the case can and should be determined summarily. In addition to that, Mr Cleaver says the court does not need any more information about the factual background to decide this case. Indeed, he says the claimant has been requested to identify what if any further fact or background factual matrix it wishes to rely on in answer to the defendant's construction of the letter dated 4 February 2010 and has failed to do so.

The defendant says that by a letter dated 11 November 2015, its solicitors Russells requested further information from the claimant's solicitors and the claimant has failed to provide this, and it regards to the claimant's solicitor's response dated 24 November 2015 as inadequate.

What the claimant’s solicitors said at the end of their letter dated 24 November 2015 was as follows:

Mr Jonathan Hill, counsel for the claimant, summarises his client’s position at paragraphs 2 to 5 of his skeleton argument, where he says this, and I am going to read from his skeleton argument:

The defendant's position is that the point on this summary judgment application is a short question of law. Mr Tom Cleaver, counsel on behalf of the defendant, says that on a true construction of the letter dated 4 February 2010 is that (1), the delivery date for milestone 6 was 5 February 2010, (2) the agreement was terminated on 5 March 2010, which was within the 30-day period, (3) the consequence of this that only the second limb of clause 13.1 of the agreement was engaged, (4) that means that as milestones 7, 8 and 9 were not approved at the date of termination, the claimant is not entitled to any payment in respect of them, (5) the first limb of clause 13.1 had no application in the present circumstances, and (6) he accepts there is a dispute about what sums if any the claimant is entitled to as a result of milestone 6, and that is a matter which has to go off to trial.

There is no dispute between the parties as to the relevant principles of contractual construction. Most recently, those principles have been considered by the Supreme Court in a case called Arnold v Britton [2015] AC 1609, and I was referred in particular to paragraphs 14 to 23 of the judgment of Lord Neuberger of Abbotsbury.

There is no dispute between the parties that, as set out in paragraph 15 of Lord Neuberger's speech, when interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language of the contract to mean”. It does so by focusing on the meaning of the relevant words in their documentary, factual and commercial context. That meaning has to be assessed in the light of a number of different factors which are identified by six different Roman numerals and, in particular, commercial common sense is one of them (see Arnold v Britton at para 15, per Lord Neuberger).

It is also important to remember what is said at the end of paragraph 25 of Arnold v Britton, namely “when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party”.

Earlier in this judgment, I went through with some care the factual material before me in the bundle as clearly it was important to do so in order to identify the facts available and understand the factual background of this case.

So what is the factual background to this case in relation to construing the letter dated 4 February 2010? The first item which is relevant in relation to the factual background is of course the agreement dated 16 June 2009, which includes the milestone schedule.

Secondly there is the fact that the claimant had delivered items to the defendant on 16 November 2009 in the context of a document entitled "Milestone 6", which is the document referred to at tab 10, page 165 in the bundle before me.

Third, the defendant having received all the materials in November 2009, on 11 December 2009 the defendant wrote to the claimant saying:

Fourth, there is fact that on 17 December 2009, the claimant had issued an invoice in respect of milestone 6 which was referred to in the email of 17 December 2009. And although that invoice is not before the court, the amount as recorded in the agreement itself in respect of milestone 6 is for some £460,000. But in any event, that invoice had been issued and provided to the defendant.

Fifth, there is the fact that on 18 December 2010, a presentation took place in Japan in relation the documents which had been provided by the claimant to the defendant in November 2009.

Sixth, there is the fact that by the end of December and the start of January, the claimant had not received any notification from the defendant identifying that milestone 6 had not been approved. Rather, the claimant had not heard anything by from the defendant either way.

Seventh, in January 2010, the claimant was asked to “refocus” the product by the defendant.

Eighth, the fact that there had been a request made for refocusing the product led to discussions about the production of items in relation to what are described as MS6.1 and MS6.2. Those do not appear to be the same as milestone 6, rather the documents before me appear to be part of the refocus of the product requested and appear to supplement milestone 6.

So it seems to me that those are the key factual matters which are part of the background against which the letter of 4 February 2010 should be construed. The defendant says the effect of the letter dated 4 February 2010 is that it wiped the slate clean in relation to MS6 and the time the contract started running from 5 February 2010, and that is the date the parties agreed would be the date the deliverables for MS6 were to be delivered, rather than 16 November 2009.

This means, says the defendant, that first of all that the deliverables delivered by the defendant on 16 November 2009 had no effect under MS6, and secondly, the invoice for example sent by the claimant to the defendant on 17 December 2009 was completely ineffective. This is because the defendant says everything in relation to milestone 6 now flows from 5 February 2010 under clauses 2.4 and 13.1 of the agreement.

I am not at all persuaded that that is the correct approach, particularly in the factual context of this case, and even more so in the context of a summary judgment application.

In that context and the facts which I have explained, I find the letter of 4 February 2010 far from clear certainly for the purposes of a summary judgment application, and I certainly cannot be satisfied that that it had the draconian effect contended for by the defendant.

Accordingly, I do not accept the defendant's construction as to the meaning and effect of the document dated 4 February 2010. In these circumstances, I have formed the clear view that the defendant's construction, at this stage of the proceedings, is not one I can accept and for those reasons all the Claimant’s claims in respect of 6, 7, 8 and 9 have a real prospect of success. I therefore dismiss the defendant's application.