ACI Worldwide (EMEA) Ltd. v National Organisation Systems Technical & Trading Co Ltd.

On 2 May I heard an application for summary judgment made by Mr Shepherd Q.C. on behalf of the Claimant, ACI Worldwide (EMEA) Limited ("ACI"). The hearing lasted most of the day and was confined, in the event, to some only of the heads of relief sought in the application. Priority was accorded to these in order to resolve an impasse between the parties as to the subsistence of a distributorship agreement. ACI is a subsidiary of an American corporation and distributes computer software products; in particular, for use in the banking and financial services industry. One of the most significant uses is its application to cash dispensers.

The application was perceived as being urgent since the Claimant, and to some extent also the Defendant, National Organisation Systems Technical and Trading Co Limited ("NOS"), were being frustrated in their business activities in the relevant territory by the uncertainty. The Defendant had been acting as the distributor of the Claimant’s products in Greece since 1993. There is not time to deal with the other matters before the court which had to be adjourned. These included, for example, applications by the Claimant to make final orders in respect of relief granted last November by Mr Anthony Temple Q.C. and Ouseley J. There was also an application by the Claimant described as "an application for contempt", which was based on the Defendant’s continuing failure to comply with those earlier orders. This was less pressing, and indeed the application was criticised as defective for non-compliance with the current Practice Direction covering applications for committal in the High Court - not least because of a failure to specify with precision the breaches relied upon.

There were also applications by the Defendant for permission to amend the defence and to vary or set aside the existing orders. One of Mr Shepherd’s arguments in that connection was that the court should decline, in the exercise of its discretion, to entertain any such applications by the Defendant until it purged its alleged contempt and complied with the outstanding orders. There was not time to deal with all these matters and, in any event, Mr Shepherd may wish to consider the allegations of procedural defects and re-serve his application based on contempt.

I turn, therefore, to address the limited applications to which the hearing was devoted. Mr Shepherd narrowed his sights to seek, by way of summary relief, declarations to the following effect:

that ACI has terminated a distribution agreement made in writing between it and the Defendant on 1 September 1993 (including any subsequent agreements entered into by way of amendment or extension) by giving notice of termination by letter dated 26 August 2002 with immediate effect.

that the distribution agreement has at all material times been subject to a term (contained in clause 16.1 thereof) to the effect that the agreement was to be construed in accordance with and governed by the laws of England and that the parties had agreed to submit to the exclusive jurisdiction of the courts in England.

that NOS has ceased to be entitled to act as a distributor and to have any further right to distribute the "licensed products" and/or perform any of the services pursuant to, and as defined in, the distribution agreement of 1 September 1993 or otherwise howsoever.

that NOS is obliged by reason of the termination of the distribution agreement to implement and perform the obligations arising under clause 11 thereof.

It is obvious that the terms of the distributorship agreement are central. Clause 16.1 provides that "This Agreement shall be construed in accordance with and governed by the laws of England and both parties agree to submit to the exclusive jurisdiction of the English Courts". It was on the basis of this exclusive jurisdiction clause that Ouseley J, on 24 November 2002, granted an order restraining NOS from pursuing litigation before the Greek Courts. It is Mr Shepherd’s case that the purpose of NOS has been quite simply to frustrate ACI by refusing to acknowledge the validity of the termination in August last year, and to refuse to participate in the orderly transfer of the subject-matter of the agreement to ACI – as the contract would appear on its face to require. Part of its strategy, he argues, is to embroil ACI in long drawn out litigation in the Greek courts in defiance of clause 16.1. Meanwhile, it has failed to comply with orders made in this jurisdiction.

A procedure is prescribed in Clause 10 of the agreement with which ACI claims to have complied so as to achieve effective termination. Mr Shepherd submits that in the light of the evidence, as to which there is no room for dispute, the court should recognise that this is so and that there is no real prospect of NOS demonstrating the contrary. Thus a declaration to that effect should be granted under Part 24.

I shall turn to the contractual termination procedure and the evidence shortly. Meanwhile, one of the curious features of the case is that the fact of termination appears to have been acknowledged on some occasions by NOS. For example, it was said by the Managing Director, Mr Zouzoulas, in his witness statement of 13 March 2003 that "Following the termination of the agreement we still maintain our services to our customers the Banks ….". It is this scope for confusion among customers which gives rise to one of ACI’s primary concerns. Not unreasonably, they wish to have that uncertainty removed as soon as possible by means of a court order and to demonstrate unequivocally to the Greek banking customers, whose needs they wish to service effectively, that the NOS distributorship has come to an end.

Moreover, it had been asserted to the First Instance Court in Athens that the contract had been unexpectedly terminated by ACI in August 2002 with immediate effect - albeit without "serious grounds".

Needless to say, should it transpire in due course that the termination was wrongful, NOS may be able to establish a claim for damages. That is an issue that may not lend itself so readily to summary disposal, but that is no reason, says Mr Shepherd, to maintain the stalemate and the resultant clog on the parties’ commercial activities. At least the issue of termination should be resolved now.

Reliance is placed by ACI especially on Clause 10.3.1 which provides that either party may terminate the agreement at any time should the other commit a remediable breach of any of its terms and fail to remedy it to the other’s satisfaction within 30 days of written notice to that effect. It is ACI’s case that any breach of the terms will suffice. There is no need to establish any particular level of gravity; nor yet a series of breaches. What triggers the termination process is the service of a formal notice requiring the other party to remedy the relevant breach or breaches. Termination can thus occur if there has been failure so to remedy within the 30 day period.

In practice, of course, one would expect negotiations to take place at least after the service of formal notice, so as to reach a practical accommodation, but in this case no discussion took place either as to whether there had been a breach or, if so, what could be done about it. The notice was apparently ignored.

On the evidence, there had been a history of complaints on ACI’s part. There is no dispute that on 25 July 2002 it called upon NOS to remedy a number of alleged breaches. It does not, however, seem to have been a bolt from the blue. The evidence discloses a history of complaints, for example at a meeting in November 2000 and by email dated 7 July 2001, but they have not been addressed by NOS in these proceedings. The detail does not matter for present purpose, although it is conceivable that at some stage a full investigation may have to be carried out if NOS were to seek financial compensation and were permitted to do so.

In general terms, ACI was making allegations of lack of resources being invested by NOS in technical support, lack of sales activity, conflicts of interest, and of failure to expand sales and marketing activities. There was no satisfactory response to these concerns, so far as ACI was concerned, and eventually the notice of 25 July 2002 was served in accordance with the contractual scheme under Clause 10. Even then, NOS failed to respond. In particular, there was no challenge to the allegations of breach. They simply let the 30 day period go by. The effect of this under the contract was to trigger the right of termination. Accordingly, ACI sent notice of termination on 26 August 2002.

I turn to consider the case advanced before me on NOS’s behalf by Mr Nicholas Yell. I should make it clear that Mr Shepherd’s primary response is that, by reason of NOS’ continuing breaches of court orders, it has no right to be heard and that I should exercise my discretion not to entertain any application or submissions on its behalf: see e.g. X Limited v. Morgan-Grampian (Publishers) Limited [1991] 1AC 1. As it happens, we did not have time to deal with Mr Yell’s applications, but I did hear his submissions on the narrow issue that I am now to determine. Naturally, there is considerable overlap between those and the applications he wishes to make to amend the defence and to vary or set aside the subsisting orders.

The case he sought to argue had about it a somewhat creative quality, since it had never been previously articulated at any time between the parties. Mr Yell argues that a fundamental change came about in the parties’ contractual relations in or about September 2000, despite never have been recorded or even mentioned at that time or subsequently. His bold suggestion was that the existing contractual relations then came to an end, and a new contract governed by Greek law is to be inferred from the parties’ conduct. Thus, by stealth, the choice of law and exclusive jurisdiction clause had been superseded. Not only, as I have said, was this never formulated at the time by NOS, but even when ACI sought to activate the termination provisions in 2002 no suggestion was forthcoming to the effect that they were "barking up the wrong tree" (because the contract had terminated by effluxion of time some two years earlier). Nor was the subject broached before Mr Temple or Ouseley J in November last year. The prospect of succeeding on this argument seems to me to fall well within the notion of "fanciful" for Part 24 purposes: see e.g. Swain v. Hillman [2001] 1 All ER 90.

An associated point put forward was that since the termination regime of clause 10 had been swept away, with the rest of the contractual provisions, in September 2000, the new agreement could only be terminated on reasonable notice (presumably in accordance with Greek Law).

Another argument raised was to the effect that the provisions of the 1993 agreement, and of any subsequent contract which came into existence by way of renewal on the same terms, would be in certain respects repugnant to Greek law. Since, however, by choice of the parties, the contractual arrangements were governed by English law, this would seem to be beside the point. Mr Yell suggests, as I understand him, that the point has significance because no Greek court would recognise an English judgment for enforcement purposes. For the moment, however, that seems to me irrelevant even if it were true. Mr Shepherd is not seeking to enforce, for example, a money judgment, he seeks an order from an English court that a contract (governed by English law and which confers exclusive jurisdiction on the English courts) has been duly terminated. He does not need the assistance of the Greek courts for that purpose.

One reason why the enforcement of the contractual terms would be found repugnant by a Greek court, submits Mr Yell, is that NOS has not been accorded the rights of a commercial agent under the Council Directive relating to Self-Employed Agents (EC 86/653) and the corresponding Commercial Agents (Council Directive) Regulations 1993. The significance of this argument would appear to be the entitlement of "commercial agents" to reasonable notice under Regulation 15. In this context, my attention was drawn to Bowstead & Reynolds on Agency (17th Edn), chapter 11, and in particular to paragraph 11-013. As the learned editors make clear, the directive and regulations were not intended to cover distributors. While the label "agent" may sometimes be attached to a distributor, there is an important distinguishing characteristic in that distributors purchase for resale and take a financial risk. (It is true that there is room for debate about how computer software fits into the traditional legal concept of "goods", but that does not matter for present purposes.)

From this contract, it is clear that NOS had those relevant characteristics. Financial risk is expressly provided for in Clauses 2.1 and 4.3.6 as well as in the introductory recital. There is no support for the proposition that NOS was given continuing authority to negotiate the sale or purchase of goods on behalf of ACI, or to conclude the sale or purchase of goods on behalf of and in the name of ACI. Nor is it even alleged in the evidence.

In any event, even if there were an entitlement to "reasonable notice", and it were the case that ACI failed to comply with such an obligation, the remedy would lie in damages (see e.g. Regulations 12 and 17).

Once it is clear, as I believe it to be, that this contract has terminated, the provisions of Clause 11 come into effect. These include the kind of steps that need to be carried out as a matter of practical necessity following the termination of a distributorship agreement. Hence the orders made by Mr Temple for delivery up of inter alia brochures, catalogues and licensed products, and by Ouseley J for the orderly transfer of the distribution and service activities.

I am satisfied that on the evidence before me it is right to grant the limited relief now sought, since there is no real (as opposed to fanciful) prospect of showing any legal basis for resisting such declarations.