Cine Bes Filmcilik ve Yapimcilik v United International Pictures
| Jurisdiction | England & Wales |
| Judge | Peter Gibson,Mance,Thomas L JJ |
| Judgment Date | 21 November 2003 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 November 2003 |
Court of Appeal (Civil Division)
Peter Gibson, Mance and Thomas L JJ.
Andrew Hunter (instructed by Saunders & Co) for the appellants.
Jonathan Nash (instructed by Denton, Wilde & Sapte) for the respondents.
The following cases were referred to in the judgment of Mance LJ:
Campbell Discount Co Ltd v BridgeELR [1962] AC 600.
Dunlop Pneumatic Tyre Co v New Garage and Motor Co LtdELR [1915] AC 79.
Lordsvale Finance plc v Bank of Zambia [1996] CLC 1849; [1996] QB 752.
Oresundsvarvet AB v Lemos (The Angelic Star)UNK [1988] 1 Ll Rep 122.
Philips Hong Kong Ltd v A-G of Hong KongUNK (1993) 61 BLR 41.
Touche Ross & Co v BakerUNK [1992] 2 Ll Rep 207.
Workers Trust & Merchant Bank Ltd v Dojap Investments LtdELR [1993] AC 573.
Contract — Penalty clause — Termination — Options — Licence agreements Summary judgment — Whether clause providing for consequences on termination genuine pre-estimate of loss or penalty — Whether triable issue that consequences were penal — Whether consequences severable — Whether provision for payment of past litigation costs penal -Whether options to renew became available for exercise — Whether damages available for loss of options.
This was an appeal by a licensee from the decision of a deputy judge that the respondents were entitled to summary judgment on their claims arising on the termination of a licence agreement.
A joint venture company (“UIP”) established by film studios entered into a licence agreement with a Turkish cable television company (Cine 5) under which Cine 5 obtained an exclusive licence to show available UIP titles on its pay movie channel. The licence agreement was entered into as part of the settlement of disputes between the parties arising out of a previous licence agreement. The start date of the licence was 1 May 2000 and its expiration date was 31 March 2003. Clause 10.b gave the studios an option to require Cine 5 as licensee to enter into a five year licence agreement commencing on the expiration date. clause 16 provided for an “AB amount” of us$4,836,155 to be held in an ab account to be used by UIP and/or the studios in exchange for advertising the products of UIP and/or the studios or barter time. on any termination of the licence the ab amount became payable by the licensee to UIP. Clause 17 provided that on termination UIP would have the right to accelerate the payment of all licence fees which would fall due to UIP and all rights in respect of the licensed films would terminate and revert to UIP. In 2001 the turkish currency was devalued and cine 5 defaulted in the payment of licence fees due under the agreement. in 2002 UIP Terminated the agreement and UIP and the studios issued proceedings claiming the licence fees due up to the date of termination, licence fees which would have been payable up to the expiration date, the full ab amount (none of which had been utilised in advertising) and licence fees which would have fallen due to the studios during the five year option period. the defendants raised a number of defences: (1) that the whole agreement was frustrated, (2) that cl. 16 and 17 were unenforceable penalty clauses, in so far as they provided for payments on termination for breach by cine 5, (3) that there were triable issues of construction, going to the quantum recoverable under cl. 17, and (4) that there were triable issues relating to the studios” claims for loss of the options contained in clause 10.b; in that connection the defendants contended (i) that such options were separate contracts or severable, and survived any termination by UIP of the agreement, (ii) that the studios had caused their own loss, by failing to exercise the options prior to UIP's termination of the agreement, and (iii) that there should be a trial as to whether the studios would in fact have exercised their options. the judge rejected all those defences and granted summary judgment. permission to appeal was granted only in respect of issues (2) and (4). the appellants submitted that cl. 17 was penal because it purported to provide for a large number of different consequences, all favourable to UIP, in such as way as would in the ordinary course over-compensate UIP for any loss suffered from the termination. those consequences were (i) the accelerated payment of all future licence fees which would have fallen due for payment to UIP up to the expiration date, (ii) payment of the ab amount, (iii) the termination and reversion to UIP of all rights in connection with currently licensed films, (iv) payment of damages and (v) payment of all actual and reasonably incurred enforcement costs of UIP including those incurred in the litigation withdrawn in consideration of the making of the licence agreement. the respondents argued that if consequence (i) was penal it could be severed.
held, Allowing The Appeal In Part:
1. The judge was wrong to treat in isolation one component of the respondents” potential loss on termination, the payment of the AB amount. The actual loss which the respondents could be expected to suffer on termination could not be compartmentalised and the operation and validity of cl. 17 required to be viewed overall. That clause looked only at one side of the balance, and failed to address the countervailing benefits which would, on their face, appear likely to have been contemplated by the parties as flowing from any termination. Any genuine pre-estimate of actual loss would have to relate to the net overall balance, not to the amount of a single component. In the circumstances, consequence (ii) could not stand independently, when the contract made no allowance for the credit received from the recovery of the benefit of film licences. Even if consequence (i) was deleted, films under licences would have been expected to have had some value on termination during the balance of their licence periods. Clause 17 provided no mechanism for crediting, against the AB amount payable under consequence (ii), the value, during the balance of their licence periods, of films subject to licences at the date of termination. For those reasons the appellants had shown a triable issue to the effect that both consequences (i) and (ii) in cl. 17 were penal.
2. So far as consequence (v) was concerned, no problem arose in relation to costs of the present proceedings. In that respect cl. 17 was not stipulating for a sum which was penal. Clause 17 provided for payment of the prior costs “in theevent of” termination, but their payment was not to be regarded as a penalty attached to Cine 5's breach of the agreement. Rather, it was one of the terms on which the respondents were prepared to forgo further pursuit of the prior litigation against Cine 5. The agreement regarding past litigation costs was understandable in the overall context of the settlement of the prior litigation. It would be wrong to treat it as if it was there to deter Cine 5 from, or to penalise or punish Cine 5 for, any default. It was an understandable and reasonable commercial condition upon which UIP was prepared to dispose of the prior litigation, and to enter into the fresh licence.
3. As a matter of construction, the option(s) promised to the studios never became available for execution. It could not have been intended that, if UIP was entitled to and did terminate under cl. 17 by reason of Cine 5's default, the studios would have any such option at such a time. However the studios could claim damages for the loss of their options. It was a necessary implication of the options that Cine 5 would not, by repudiating the original licence in favour of UIP, prevent the option(s) granted in favour of the studios from ever arising. The studios did not cause their own loss by failing to exercise the options prior to UIP's termination. The appellants were not entitled to a trial of the issue whether the studios would in fact have exercised the options. The summary judgment in favour of the studios in respect of their loss of the options was upheld.
Mance LJ:
1. This is an appeal with permission of Clarke LJ on limited grounds from a judgment dated 15th April 2003 given by Mr Julian Flaux QC, sitting as a deputy High Court judge in the Commercial Court. The appellants are Cine Bes Filmcilik ve Yapimcilik A.S. (a Turkish cable television company which I shall call “Cine 5”) and Avrupa ve Amerika Holding A.S. (“Avrupa”). They have not renewed their application to appeal on other grounds on which Clarke LJ refused permission on paper. The first respondent is United International Pictures (“UIP”), a joint venture company established by the second, third, and fourth respondents, Paramount Pictures International (a division of Viacom International (Netherlands) B.V.), Universal Studios International B.V. and MGM International Television Distribution, Inc. The second, third and fourth respondents are described in relevant licence agreement as “the Studios”.
2. The proceedings arise out of a licence agreement signed by the parties and dated as of 1 May 2000. The parties had previously signed a letter dated 4th May 2000, by which they undertook to enter into such a licence agreement in the form of schedule 1 to that letter. The background is that there had been a previous licence between UIP and Cine 5 dated February 1994. This had given rise to claims by UIP against Cine 5 and Avrupa as well as a counterclaim, both due for trial in June 2000. The letter dated 4th May 2000 recorded the terms on which the parties had agreed to resolve that litigation. Upon receipt by UIP of US$3,863,090 and an acceptable letter of credit and upon withdrawal by Cine 5 and Avrupa of their counterclaims, UIP agreed irrevocably to withdraw its claims. The parties” signatures in respect of the agreement in schedule 1 were held by the opposite parties” solicitors to the order of the signatories pending receipt by UIP of...
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