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____________________________________ In the Matter of the Arbitration Between DIGIGOLD.NET LTD., et al,
Claimants vs
IAN GRIGG and
SYSTEMICS, INC.
Respondents ____________________________________ |
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Case No. 50 T 117 00265 01 |
This is an arbitral proceeding to resolve disputes arising under or related to an agreement between Claimant DigiGold.net Ltd. and Respondent Systemics, Inc. dated August 2, 1999 (the "Agreement"). The undersigned Arbitrator, having been designated in accordance with the Agreement and the rules and procedures of the American Arbitration Association (the "Association"), and having been duly sworn, and having considered the allegations of the parties, their proofs, and the entire record herein, hereby awards as follows.
The Agreement contains the following provision:
"Disputes and Arbitration. Any controversy or claim arising under or related to this contract shall be settled by arbitration in accordance with the International Arbitration Rules of the ... Association, before a single arbitrator appointed by mutual consent of the parties to this contract."
Place of Arbitration and Governing Law. Neither the place of arbitration nor the governing law was designated in the Agreement or by subsequent agreement of the parties. After considering the written submissions of the parties, the Association determined that the place of arbitration would be Baltimore, Maryland, U.S.A., and the Arbitrator determined that the law of Anguilla governs the Agreement.
DigiGold.net Ltd. ("DigiGold") is a company incorporated on July 15, 1999 in the Island of Nevis, West Indies. DigiGold.net Ltd, is the legal name of this entity although the parties and documentary evidence sometimes referred to it as DigiGold, Ltd. or simply DigiGold.
The Jackson Family Trust and the Downey Family Trust (the "Trusts") were also named as Claimants in the Demand for Arbitration dated June 8, 2001. These entities are off-shore trusts whose address of record is in Hamilton, Bermuda. On February 20, 2002, the Arbitrator dismissed the Trusts as Claimants for lack of jurisdiction. (See Section III, C, 4 below.)
Systemics, Inc ("Systemics") is also a company incorporated in the Island of Nevis, West Indies.
Ian Grigg is the President and principal shareholder of Systemics. On February 20, 2002, the Arbitrator dismissed Mr. Grigg as a Respondent for lack of jurisdiction. (See Section III, C, 4 below.)
Claimants' Demand for Arbitration dated June 8, 2001 (the "Demand") cited two arbitration agreements: one in the Agreement and another in a Software License Agreement between DigiGold and Systemics effective June 1, 1999. The Demand also stated that the disputes arose out of various written agreements and other understandings between the parties, including, but not limited to, the Software License Agreemnent and/or the Agreement of August 2, 1999, and agreement memorializing the parties' ownership interests in Systemics, the Currency Contract for DigiGold, and other related agreements".
The Demand alleged, inter alia: (a) In or about August 1999 DigiGold entered into a Software License Agreement with Systemics under which Systemics agreed to develop the DigiGold product, i.e. a gold-backed digital currency which can be e-mailed between users and used to purchase items on the Internet; (b) Claimants provided $400,000 in funds and materials to initiate and continue the operation of Systemics for which Claimants were to receive 25% of the shares of Systemics; (c) Systemics used said funds to develop the DigiGold product and a settlement server and a market server for use in connection with DigiGold transactions, and (d) Systemics wrongfully sought to terminate its contractual and business relationship with Claimants, including its support for the DigiGold product.
The Demand requested declaratory and injunctive relief (i) declaring the joint ownership interests of the Trusts in Systemics, (ii) restraining Respondents from terminating support for the DigiGold project, (iii) requiring Respondents to maintain and continue the settlement server and the market server in operation, to complete work under the terms of the Software License Agreement, and perform their obligations as the Operator under the Currency Contract for DigiGold, (iv) requiring Respondents to enable trading between DigiGold instruments and other instruments, (v) prohibiting Respondents from transferring or assigning to any other person any ownership or licensing rights in or to the intellectual property owned by Systemics, (vi) requiring Systemics to account for any agreements that it entered into with others related to Systemics' intellectual property, and (vii) requiring Respondents to deliver to Claimants source code for the settlement server and the market server and to provide training and assistance with respect thereto.
Respondents' submitted a Defence and Objection to Jurisdiction dated July 17, 2001 (the "Defence"). The Defence inter alia admitted that DigiGold and Systemics had entered into a Licence Agreement on August 2, 1999, but denied that these parties had entered into any agreement with respect to Claimants' alleged ownership interests in Systemics or the use of a settlement server or a market server.
Respondents' Defence also raised specific objections to the jurisdiction of the Arbitrator over Claimants' claims with respect to the alleged ownership interests in Systemics, the use of a settlement server, and the use of a market server on the ground that none of these subjects were mentioned in or related to the Agreement. Finally, Respondents objected to the joinder of the Claimant Trusts and Respondent Grigg on the ground that they were not parties to the Agreement.
A Preliminary Hearing was held by telephone conference on November 16, 2001 during which the Arbitrator granted Respondents' request that the jurisdictional issued be addressed as a preliminary matter. After considering the parties' written submissions on these issues, the Arbitrator ruled on February 20, 2002 that:
The law of Anguilla governs (a) the Agreement, and (b) the determination of the jurisidictional issues.
Respondents' objection to arbitral jurisdiction of the claims based on an alleged agreement concerning the ownership of Systemics was sustained, and those claims were dismissed.
Respondent's objection to arbitral jurisdiction of the claims based on alleged agreements concerning a market server and a settlement server were denied without prejudice to Respondents' defenses on the merits, including the contention that the alleged agreements were not entered into.
The Downey Family Trust, the Jackson Family Trust, and Ian Grigg were not proper parties, and they were dismissed from further participation in this proceeding.
Following a second Preliminary Hearing by telephone converence on February 21, 2002, Claimants submitted a Supplemental Demand for Arbitration ("Supplemental Demand") dated March 11, 2002. The Supplemental Demand noted that the Agreement is entitled "DigiGold Purchase of Ricardo from Systemics" and that under the Agreement Systemics agreed to "sell one unit of the Ricardo Platform" to include "(1) software, (2) installation services on one platform, (3) initial support, (4) major bug rectification." It also alleged that the Ricardo product is alternatively referred to as a "settlement server" and was to include certain "general features" specified in the Agreement.
The Supplemental Demand also alleged that under a separate Currency Contract posted on DigiGold's website, Systemics agreed to function as the Operator responsible for "technical hosting/management of system hardware and software" for the DigiGold servers. It is also alleged that DigiGold and Systemics entered into certain oral agreements or understandings related to the Agreement in the course of the two years of ongoing communications between their principals.
The Supplemental Demand alleged that Systemics had breached the Agreement (a) by wrongfully seeking to terminate its contractual and business relationship with DigiGold in May of 2001, (b) by failing to deliver to DigiGold the Ricardo product and settlement server, (c) by failing to develop and deliver to DigiGold the market server, (d) by ceasing to function as Operator under the Currency Contract for DigiGold, and (e) by transferring Systemics' intellectual property to other parties during the Agreement's two-year period of exclusivity.
In addition to the relief requested in the initial Demand (see items (i) through (vii) in Section III, A above) the Supplemental Demand also requested (viii) an Order for rescission of the Agreement and requiring Systemics to pay DigiGold all of the money, materials, and other consideration paid to Systemics in an amount of at least $350,000, (ix) damages for any sums earned by Systemics from the sale or license of the Ricardo product to others, and (x) such other relief, including the costs and expenses of this proceeding, as the Arbitrator deems appropriate and just.
On March 22, 2002 Systemics submitted a Defence ("Supplemental Defence") to Claimant's Supplemental Demand. The Supplemental Defence generally denied the allegations of the Supplemental Demand (unless specifically admitted) and (a) continued to assert that the Agreement provided for a license (rather than a sale) of the Ricardo product, (b) denied that the Ricardo product was alternatively referred to as a settlement server, (c) denied that it had violated the Agreement's two-year period of exclusivity, (d) denied that Systemics was a party to or bound by the Currency Contract, and (e) denied that the parties had agreed under the Agreement or otherwise that Systemics would deliver a market server to DigiGold.
The Supplemental Defence also alleged that DigiGold breached the Agreement by failing to pay Systemics the full amount of consideration required by the Agreement and by attempting to obtain additional benefits not provided in the Agreement which constituted a repudiation of the Agreement by DigiGold. Thus, Systemics denied that it had wrongfully sought to terminate the Agreement. Finally, The Supplemental Defence denied that DigiGold was entitled to any of the relief it had requested.
In July of 1998 Dr. Douglas Jackson, a principal of DigiGold, attended a conference on financial cryptography in Boston where he met Ian Grigg and Ryan Lackey. After conversations in Boston and soon thereafter in Melbourne, Florida where Dr. Jackson lived and worked, the three decided to begin a business venture to develop and provide support for DigiGold's electronic currency. Dr. Jackson continued to operate primarily in Florida while Messrs. Grigg and Lackey established operations in Anguilla. The venture was conducted until December 1999 without a written agreement.
The Agreement was drafted during January 1999 by email exchanges between Mr. Grigg and Dr. Jackson who received input from a lawyer. The Agreement was signed in December 1999 after some further changes had been agreed upon in email exchanges between the parties. The Agreement was made effective as of August 2, 1999, which the parties agreed would be the start date of the Agreement's two-year period of exclusivity.
The Agreement is entitled "DigiGold Purchase of Ricardo from Systemics" and provides that "Systemics will sell DigiGold one unit of the Ricardo product in its current form, for use within the jurisdiction of Nevis". In the Agreement Systemics warranted that it had title to the Ricardo product, and DigiGold acknowledged that "the product contains trade secrets and proprietary know-how that belong to Systemics..." and that "title, intellectual property and ownership rights remain with Systemics".
The Agreement does not mention a settlement server or a market server.
The Agreement provides that DigiGold agreed to pay Systemics the price of $500,000 worth of e-gold and that DigiGold could make installment payments without being charged interest. Systemics acknowledged in the Agreement that significant advanced payments had been made.
Among Dr. Jackson's reasons for entering into the Agreement were (a) to provide a device or vehicle to account for DigiGold's payments to Systemics, and (b) to establish a high price for the license as a precedent for future licensees. However, the Agreement also provided for a future price adjustment as follows:
"Whereas at the current phase of development of this emerging marketit is difficult to estimate the future price of this license to third parties, it is agreed that if Systemics subsequently sells equivalent rights or products ... to another entity for less money, that the difference between the price which [DigiGold] paid and later, lower prices would be credited to [DigiGold] for purposes of additional technical support or hardware/software upgrades."
The Agreement contains no provisions on its term, expiration, or termination. Nor does the Agreement specify the date by which Systemics was to deliver the Ricardo product to DigiGold or the dates on which DigiGold was to make installment payments to Systemics.
Systemics has consistently referred to the Agreement as a license agreement.
On May 25, 2001, DigiGold sought and obtained a temporary injunction against Systemics and Mr. Grigg in the Eastern Caribbean Supreme Court of Justice, High Court of Justice, Anguilla Circuit. In support of DigiGold's request for an injunction, Barry Downey of Baltimore, Maryland, a lawyer and principal of the Downey Family Trust, submitted an affidavit in which he stated that "in or about August 1999 DigiGold entered into a software license agreement with Systemics".
In its initial Demand for Arbitration dated June 8, 2001 DigiGold again referred to the Agreement as a software license agreement.
Claimants also referred to the Agreement as providing for a license in their Memorandum on Jurisdictional Issues dated December 14, 2001 and in their Reply Memorandum on Jurisdictional Issues dated February 4, 2002.
In its Supplemental Demand dated March 11, 2002, DigiGold changed its position and asserted that the Agreement was essentially a sales agreement.
The Currency Contract was an electronic form agreement between DigiGold and its customers posted on DigiGold's website. Systemics was not a party to the Currency Contract, and DigiGold did not establish that the Currency Contract imposed any contractual obligations on Systemics.
DigiGold did not establish the existance of any other agreement that imposed contractual obligations on Systemics which related to the Agreement or otherwise.
The evidence established that DigiGold made periodic, installment payments and/or in-kind contributions to Systemics between August 1, 1998 and May 22, 2000. The interval between payments varied but was never more than three months. The total amount of these payments and contributions came to $398,952.
DigiGold made no payments to Systemics after May 22, 2000. Systemics contended that after May 2000, DigiGold made clear to Systemics that it would make no further payments. DigiGold contended that it was prepared to make additional payments but none were ever requested by Systemics. The evidence supports the contention of Systemics on this issue.
On May 21, 2001 Systemics advised DigiGold by letter that Systemics could no longer afford to provide services under the Agreement because of DigiGold's failure to make any payments under the Agreement after May of 2000 and that Systemics would cease such services on May 25, 2001.
DigiGold had the burden of proof with respect to each of the elements of each of its claims.
Notwithstanding the title of the Agreement and certain phrases contained therein, the substance of the Agreement and DigiGold's own characterization of the Agreement in May, June, and December of 2001 and in February of 2002 establish that the Agreement provided for a license, not a sale, of the Ricardo product.
Although both the Demand and the Supplemental Demand alleged various other written agreements between the parties, the evidence failed to establish the existance of any such written agreement, other than the Agreement.
DigiGold did not establish that Systemics breached by failing to provide DigiGold with the Ricardo product "in its current form", as provided in the Agreement.
DigiGold did not establish that under the Agreement Systemics was obligated to deliver to DigiGold a settlement server, a market server, or source code for either server. Thus, DigiGold did not establish that Systemics' breached the Agreement by not delivering these items.
DigiGold did not establish that Systemics breached the Agreement by ceasing to function as Operator under the Currency Contract.
DigiGold did not establish that Systemics breached the Agreement by transferring Systemics' intellectual property to third parties during the Agreement's two-year period of exclusivity.
DigiGold did not establish that Systemics wrongfully sought to terminate the agreement in May 2001.
DigiGold did not establish that it is entitled to any of the relief that it requested in this proceeding.
All of DigiGold's claims are denied.
The compensation and expenses of the Arbitrator totaling $25,559.64 (TWENTY FIVE THOUSAND FIVE HUNDRED FIFTY-NINE DOLLARS AND SIXTY-FOUR CENTS) shall be borne entirely by DigiGold. Therefore DigiGold shall pay to Systemics the sum of $12,779.82 (TWELVE THOUSAND SEVEN HUNDRED SEVENTY-NINE DOLLARS AND EIGHTY-TWO CENTS) for that portion of the Arbitrator's compensation and expenses previously advanced by Systemics to the Association.
The administration fees and expenses of the Association totaling $7,000 (SEVEN THOUSAND DOLLARS AND ZERO CENTS) shall be borne entirely by DigiGold. Therefore, DigiGold shall pay to Systemics the sum of $733.00 (SEVEN HUNDRED THIRTY THREE DOLLARS AND ZERO CENTS) for that portion of its share of administrative fees and expenses previously advanced by Systemics to the Association.
Each party shall bear its own costs and expenses related to this arbitration.
This Award is in full settlement of all claims submitted to this arbitration.
I hereby certify that, for the purposes of Article 1 of the New York Convention of 1958, on the Recognition and Enforcement of Foreign Arbitral Awards, this Final Award was made in Washington, D.C.
| August 27, 2002 |
Stephen M. Boyd Stephen M. Boyd |
I, Stephen M. Boyd, do hereby affirm upon my oath as Arbitrator that I am the individual described in and who executed this instrument, which is my Final Award.
| August 27, 2002 |
Stephen M. Boyd Stephen M. Boyd |