Japanese gaming supplier Sega Sammy Creation must complete its acquisition of casino supplier Stakelogic by the end of next week following a recent ruling by the Netherlands Commercial Court (NCC).

Sega Sammy entered into a share purchase agreement (SPA) to acquire Stakelogic last July for approximately €130 million and was expected to complete the transaction last month.

This failed to occur after a dispute between the two parties on how the SPA is construed, with Sega Sammy and Stakelogic (Triple Bells) disagreeing about whether the conditions precedent have been fulfilled, and whether Sega Sammy has a right to rescind the SPA.

Stakelogic told Sega Sammy on 17 February that the conditions precedent had been fulfilled and requested Sega Sammy’s cooperation in closing the transaction, which should have taken place on 1 March.

On 18 February, Sega Sammy declined the request and in March served a writ of summons on Stakelogic, seeking the NCC (which has jurisdiction on the basis of a choice-of court clause) to declare that Stakelogic breached its obligations under the SPA.

These breaches include the dismissal and replacement of Stakelogic’s chief commercial officer, as well as 209 other employees being made redundant, without Sega Sammy being informed or giving approval.

Sega Sammy also claims that Stakelogic should have sought formal approval for entering into a strategic partnership with GAN, which Sega Sammy is also in the process of acquiring, and for “effecting, facilitating, and/or allowing” Stakelogic’s real-money games to be offered illegally in both Japan and Turkey.

In its ruling late last week (11 April), the court explained that the purpose of including conditions precedent in an SPA is to ensure that the most fundamental conditions for the transaction have been satisfied before the transaction is completed; and to have certainty if and when these conditions have been satisfied.

“In light of this contractual framework, the conditions precedent in the SPA have been drafted in such a way that it is possible to objectively determine whether or not the conditions have been met, and if so, at what moment in time,” said the NCC. “This means that the Regulatory Condition is satisfied if and when (i) notifications and filings to the regulatory authorities have been made (which Triple Bells has done) and (ii) the regulatory authorities have decided to permit performance of the SPA (which is also the case).

“Ascertaining whether or not Stakelogic infringed any regulatory laws would require an in-depth research into Stakelogic’s actions and activities in all relevant jurisdictions. This is incompatible with the hard and fast rules given in the SPA’s provisions on conditions precedent and Completion.”

Sega Sammy also argued that it could rescind the SPA if Triple Bells breached certain pre-completion undertakings.

On this point, the court noted that Clause 19.9 of the SPA includes a provision that no rescission of the SPA is possible, either in-court or out-of-court, with any breaches to only be remedied by an action for damages.

The NCC said that extraordinary circumstances could make relying on the waiver in Clause 19.9 SPA unacceptable in light of the principles of reasonableness and fairness, which could persuade the court to decide differently as to Sega Sammy’s right of rescission.

“If the transaction (i.e making Stakelogic an intricate part of Sega Sammy’s operations) would have a serious impact on the licences Sega Sammy now holds and could even result in criminal charges brought against Stakelogic and/or Sega Sammy itself, this would qualify as an extraordinary circumstance as mentioned above,” said the court.

“No company can be forced to take such risks. However, the Court does not find that it is likely that these risks will materialise.”

The court came to this decision after Sega Sammy had performed a “trial run” in March to show that it was possible to play Stakelogic games from Japan, although a report from BDO submitted by Triple Bells raised concerns as to whether or not a VPN was used during the trial run.

In BDO’s presence, Stakelogic’s chief technology officer tried to access the games through a VPN with his location set (virtually) in Japan and the games did not load. BDO stated in its report that technically it could be possible that Stakelogic changed the IP addresses for both sessions to a VPN IP address outside Japan, but “the responsible staff declared that they did not make changes in the database before preparing the screenshots and given the restricted access no other staff could have made changes.”

“In the Court’s opinion, it would not make sense for Stakelogic staff to lie about not making any changes to the IP address. It is undisputed that Stakelogic is paying for geo-blocking services, so it is implausible that Stakelogic would not use these services for jurisdictions where online gambling is strictly prohibited, such as Japan and Turkey.

“This is especially so, as not activating geo-blocking for restricted territories could jeopardize the licenses Stakelogic now holds in various jurisdictions that allow online gambling and therefore would expose its worldwide activities.”

The court also pointed out even if Stakelogic games could be played for real money in Japan or Turkey, Stakelogic is not the entity directly responsible.

“Stakelogic is not the company running the website which provided access to its games, but only a content provider,” said the court. “Therefore, the risk that it will face criminal charges is negligible. This is confirmed by the legal opinions on Turkish and Japanese law.”

The court added that Triple Bells had provided a plausible explanation on the release of the CCO, made it sufficiently likely that the personnel changes only had minimal impact on Stakelogic’s business, and that the GAN project was initiated by Sega Sammy.

The court has ordered Sega Sammy to complete all of its obligations under the SPA to complete the transaction within two weeks of the judgement, which means by next Friday 25 April.

Stakelogic will also have to perform its obligations, as well as taking all steps necessary for Sega Sammy to complete its obligations.

Both Sega Sammy and Stakelogic face a penalty of €10 million if either of them do not fully comply with the orders.