Active Media Services Inc. v Burmester, Duncker & Joly GmbH & Company KG
| Jurisdiction | England & Wales |
| Judge | Mr Justice Calver |
| Judgment Date | 09 February 2021 |
| Neutral Citation | [2021] EWHC 232 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2019-000189 |
| Date | 09 February 2021 |
[2021] EWHC 232 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice,
Rolls Building, Fetter Lane,
London, EC4A 1NL
THE HONOURABLE Mr Justice Calver
Case No: CL-2019-000189
Emily Wood and Mark Belshaw (instructed by Mischon de Reya) for the Claimants
Edmund Cullen QC and Ted Loveday (instructed by Clintons) for the First and Second Defendants
The Fourth Defendant as a Litigant in Person
Hearing dates: 7 – 10 December 2020
Approved Judgment
| INTRODUCTION | 3 |
| Contractual background | 4 |
| Sales Agent Agreement | 4 |
| Distribution Agreement | 6 |
| Financing Agreement | 6 |
| Active's relationship with M3 and Jason Moring | 7 |
| M3 Deal Memo and Letter of Intent | 7 |
| Norsemen Consulting Agreement | 8 |
| The Producer's Completion Agreement | 9 |
| Completion Guarantee | 11 |
| Production Services Agreement | 17 |
| Summary of opposing parties' contentions | 17 |
| Proper construction of the Completion Guarantee | 18 |
| The contemporaneous documents concerning the delays in production of the Film | 23 |
| Events in the Run Up to the Delivery Date | 31 |
| Factual position as at 30/31 August 2017: Completion Guarantee triggered | 36 |
| Events in September 2017: the drawing up of the false Delivery Notice, Delivery Acceptance Letter and EFB confirmation email | 36 |
| Events from October 2017: Active's auditors question why the Bond was not called upon; Active must choose whether to enforce clause 2.1 or not | 39 |
| Events from June 2018 leading to the claim under the Completion Guarantee | 49 |
| Is Active entitled to reimbursement under clause 2.1(b) of the Completion Guarantee? | 57 |
| Mr. Quinn's knowledge | 58 |
| M3 acted as Active's agent; should its knowledge be imputed to Active? | 59 |
| The destruction of documentary evidence by Mr. Quinn | 61 |
| Events of 2–3 December 2020 | 61 |
| The earlier events of 15 October 2020 | 63 |
| What are the consequences of Mr. Quinn's deliberate destruction of the documents and Active's failure to call relevant witnesses? | 68 |
| Legal principles | 69 |
| Active's failure to call relevant witnesses | 69 |
| Deliberate destruction of documents | 70 |
| Analysis | 73 |
| Estoppel and waiver arguments of the Guarantor Defendants | 74 |
| Waiver by election | 74 |
| Estoppel | 76 |
| Acquiescence | 82 |
| Active's claim against DDI | 83 |
INTRODUCTION
Appropriately for the time of year, this dispute concerns the financing, completion and delivery of an animated Christmas film entitled ‘ Elliot: the Littlest Reindeer’ ( the ‘Film’). Unfortunately, any Christmas Spirit between the parties is, however, in short supply.
This Film was intended to have a November 2017 release date, in time for the 2017 holiday season. Because of delays in its production, it was not released until Christmas 2018, which had serious financial consequences for all concerned. The issue is, essentially, who should bear those financial consequences. As will be seen, in my judgment none of the relevant players in the underlying dispute in this case have been entirely candid in their dealings with each other or, in some cases, the Court. I am satisfied that Ms Nina Crone formerly of European Film Bonds A/S (“ EFB”), the Film Guarantors' agent, did not give an entirely candid account of events in correspondence at the relevant time and in her evidence to the Court, concerning the completion and delivery of the Film. I am satisfied that she saw her role as being to ensure that the Completion Guarantee given by the Guarantors was not called upon, despite the Film being significantly delayed and over-budget, such that the Delivery Date under the Completion Guarantee had passed without delivery of the essential elements of the Film.
Instead she preferred, with the assistance of Mr. Krech of Littlest Reindeer Productions (“ LRP”) (the Film's producer) and Mr. Jason and Mr. Ron Moring of Double Dutch International ( DDI) (the Sales Agent for the Film), to devise a scheme whereby they pretended that delivery and completion of the film had taken place by back-dating a Delivery Notice by 3 weeks to 31 August 2017 so as to get the Guarantors “off the hook” (in fact, because of their oversight, even that date was beyond the contractually allowed long-stop date for completion and delivery of 28 August 2017). It was then subsequently pretended that all the work that was undertaken in respect of the incomplete Film thereafter, until the Film was (eventually) actually completed in around June 2018 (almost a year late) was in fact undertaken in order to produce an “enhanced film”. In this way Ms Crone assisted LRP in obtaining the much needed additional finance to complete the unfinished Film not from the Guarantors (as should have happened) but from third parties instead.
In light of this behaviour, one might have had a good deal of sympathy for Active Media Services Inc (“ Active”) who invested in the Film and had the benefit of the Completion Guarantee, and in particular for Mr. Quinn, who was the main protagonist on its behalf throughout this dispute. Moreover, it might be supposed that this is a straightforward case of a breach of the Completion Guarantee, leading to the return of Active's investment made under it. However, I found Mr. Quinn, in giving evidence before me on behalf of Active to be evasive and defensive, frequently procrastinating and not answering the questions put to him. But more than that, just two days before this trial commenced, Mr. Quinn chose to “double delete” relevant emails about this dispute on his personal Gmail account, which he had previously told his solicitors, Mishcon de Reya (“ Mishcon”), did not contain documents relevant to this dispute. This was a very serious misdeed and a very serious breach of Active's disclosure obligations. Mr. Quinn claims that this was a “ moment of madness” on his part. I shall address that suggestion in determining what the consequence of his actions should be: the real issue in this case being whether the court should infer that Active, through Mr. Quinn and/or its agents, knew that the Film had not been completed and delivered by 28 August 2017 and whether by its conduct Active is estopped from now bringing its claim under the Completion Guarantee, or waived its right to do so.
Contractual background
The case concerns the production of a feature film. The production of a feature film, such as the Film, typically follows a well-established process, as follows.
At the outset, the Producer — which in this case was LRP, a company which was incorporated by Awesometown Entertainment (“ Awesometown”) and run by Mr. Dan Krech — needs to obtain the necessary finance from lenders and investors, which in this case was provided by Ingenious Media Finance Limited (“ Ingenious”) and Active. The Producer will agree to produce the film in accordance with certain specifications and requirements as to content (running time, language, director etc.) and technical quality (it should be a commercially acceptable technical quality for theatrical release), and to complete and deliver it to a Sales Agent (in this case DDI) within a certain timescale (to allow for its timely release) and at an agreed cost or budget. This will be recorded in a sales agency agreement between the Producer and the Sales Agent.
The sales agent will then in turn deliver the completed film to distributors around the world under the terms of separate distribution agreements (which will have their own delivery timescales). The distributors will then exploit the film commercially as appropriate, which may take place through theatres/cinemas, television, online streaming (such as Netflix), airlines and DVD sales or rentals. The profits made by the exploitation of the film will then be collected and distributed down the “waterfall” of investors through a Collection Account Management Agreement (or “CAMA”).
Sales Agent Agreement
In this case, LRP entered into a “ Sales Agent Agreement” with DDI on 31 May 2016. This granted DDI the right to act as the exclusive sales agent in connection with the Film, with exclusive distribution rights throughout the world (save for Canada). The Film was to run for not less than 85 minutes and would be directed by Jennifer Westcott. All material changes to the script, director and/or lead casting had to be approved by DDI. Clause 5 provided as follows:
“ DELIVERY DATE / DELIVERY MATERIALS
5.1 Producer shall deliver to DDI the Picture and all other delivery materials set out in Schedule A to this Agreement in the format and according to the specifications set out in Schedule A (the “Delivery Materials”), all of which shall be delivered at Producer's sole expense no later than the delivery date set out in Schedule A (“the Delivery Date”). In the event that Producer requires an extension or change to the Delivery Date, producer must secure DDI's prior written consent no later than 45 business days prior to the Delivery date.
5.2 In the event that Producer has additional materials available that are not listed in Schedule A but that would assist DDI in its exploitation of the Picture, Producer shall provide DDI with a copy of the same.
5.3 Producer represents, warrants and covenants that the Delivery Materials shall be of first-class technical quality and...
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