European Film Bonds A/S v Lotus Holdings LLC
| Jurisdiction | England & Wales |
| Judge | Andrew Hochhauser |
| Judgment Date | 11 May 2020 |
| Neutral Citation | [2020] EWHC 1115 (Ch) |
| Date | 11 May 2020 |
| Docket Number | Claim No: BL-2018-002267 |
| Court | Chancery Division |
[2020] EWHC 1115 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
7, Rolls Building,
Fetter Lane, London
Mr Andrew Hochhauser QC
(Sitting as a Deputy Judge of the High Court)
Claim No: BL-2018-002267
Edmund Cullen QC, instructed by Clintons, for the Claimants
Laura John and Alexandra Whelan, instructed by Wiggin LLP and Quinn Emanuel Urquhart and Sullivan LLP, for the First, Second and Third Defendants
Hearing dates 2 and 3 December 2019
I direct that pursuant to CPR PD 29A para 6.1 no official shorthand note shall be taken of this Judgement and that copies of this version as handed down may be treated as authentic.
Andrew Hochhauser QC
Approved Judgment
Table of Contents
| Introduction | 5 |
| The Evidence | 6 |
| The Parties | 7 |
| The legal issues to be determined | 8 |
| The Factual Background | 9 |
| The Interparty Agreement | 10 |
| The CGA | 11 |
| The PCA | 13 |
| Events thereafter | 13 |
| The Claimant's claim | 21 |
| The First Defence: the proper interpretation of the word “return” in paragraph 5 of Schedule 2 to the CGA | 22 |
| The First to Third Defendants' submissions on the proper interpretation of “return” | 24 |
| An implied term as to a reasonable mode of delivery | 27 |
| An implied term to notify | 28 |
| The exclusion clause argument | 28 |
| The Claimants' submissions on the proper interpretation of “return” in paragraph 5 of Schedule 2 to the CGA | 29 |
| The Implied Terms contended for by the First to Third Defendants | 36 |
| The Implied Term to notify | 36 |
| The Implied Term to use a reasonable method of consignment | 37 |
| The exclusion clause argument | 37 |
| Discussion and conclusion on the proper interpretation of “return” in paragraph 5 of Schedule 2 to the CGA | 38 |
| The First to Third Defendants' submissions in relation to the Second Defence | 43 |
| The consequences of a conflict | 46 |
| No breach and/or no deemed “completion and delivery” | 46 |
| The effect of the Stay Judgment | 46 |
| No barrier to the reliance of rights under the Interparty Agreement | 48 |
| Parties to the Interparty Agreement | 50 |
| The Claimants' submissions in relation to the Second Defence | 50 |
| There is no conflict | 53 |
| The effect of the Stay Judgment | 54 |
| Estoppel by convention | 60 |
| The Claimants' conclusion in relation to the Second Defence | 63 |
| Discussion and conclusion on the Second Defence | 63 |
| What is the effect of the Stay Judgment? Does it prevent the First to Third Defendants from advancing this Defence? | 63 |
| Are the First to Third Defendants estopped from advancing the second defence on the grounds of Estoppel by Convention? | 65 |
| Do the delivery procedures under the CGA and the Interparty Agreement conflict, such that the delivery procedure under the Interparty Agreement prevails? | 67 |
| The Third Defence – Clause 9.2 of Schedule 2 to the CGA is a penalty | 70 |
| The Law on penalty clauses | 70 |
| The First to Third Defendants' submissions as to whether paragraph 9 of Schedule 2 to the CGA is a penalty | 73 |
| Paragraph 9 is a penalty | 73 |
| The identity of the parties | 75 |
| The Claimants' submissions as to whether paragraph 9 of Schedule 2 to the CGA is a penalty | 78 |
| Discussion and conclusion on the third defence: Is clause 9 of Schedule 2 to the CGA unenforceable on the ground it is a penalty | 81 |
| Conclusion | 83 |
Introduction
This is a Part 8 claim which seeks declaratory relief in relation to the determination of an issue as to whether a film entitled “Starbright” (the “ Film”) is conclusively presumed to have been completed and delivered for the purposes of a Completion Guarantee Agreement dated 25 April 2016 (the “ CGA”). That issue (the “ Substantive Issue”) arises against the background that, if the Claimants are successful on it, then the Second to Eighth Claimants will avoid the risk of being liable to make payments to the Third and Fourth Defendants under clause 2.1(c) of the CGA. It does not necessarily follow, however, that, if the Claimants are not successful on their application, that the Second to Eighth Claimants will be liable under clause 2.1(c) of the CGA.
The factual background is substantially agreed and the issue to be decided is a narrow one, turning essentially on when certain materials (the “ Lotus Delivery Materials”) were “ returned” by the First and Second and Third Defendants to the Claimants within the meaning of paragraphs 5.2 and 9 of Schedule 2 to the CGA.
The First to Third Defendants allege that the Claimants and their agent, Burmester, Duncker & Joly GmbH & Co. KG, trading as DFG Deutsche Filmversicherungs Gemeinschaft (“ DFG”), having taken over the obligations to effect completion and delivery of the Film, have failed to do so. The Claimants deny this. The dispute is a subject of an arbitration in Los Angeles, California. Those arbitration proceedings are presently stayed.
By two application notices, one dated 21 November 2018 from the Third Defendant, the other dated 29 November 2018 from the First and Second Defendants, a stay of these proceedings was sought under Section 9 of the Arbitration Act 1996 and/or the Court's inherent jurisdiction, on the basis that these proceedings fall within the scope of arbitration agreements between the parties (the “ Stay Applications”). Those applications were heard by Deputy Master Henderson, together with a further application from the Third Defendant dated 4 April 2019, seeking a stay of this claim, including the Stay Applications, pending the decision of the California Superior Court in proceedings issued by the Claimants by way of a “Complaint” filed on 19 March 2019. In a judgment handed down on 31 July 2019 (the “ Stay Judgment”), the Deputy Master dismissed them on the basis that the Substantive Issue is not within the scope of the CGA arbitration agreement. It therefore followed that s.9(1) Arbitration Act 1996 had no application and the Deputy Master declined to stay these proceedings under that section, the Court's inherent jurisdiction or his case management powers.
There has been no appeal from his consequential Order dated 17 September 2019. The Stay Applications and the Stay Judgment are relevant to one of the defences raised by the First to Third Defendants. I will address that in due course. If the Claimants are right about deemed acceptance, there is no longer any issue to be arbitrated and the First to Third Defendants have agreed that the pending arbitration proceedings will be dismissed.
The Evidence
The evidence before me consisted of the following:
(1) The first witness statement of Stephen Joelson dated 19 October 2018 (“Joelson 1”);
(2) The fifth witness statement of Alan Owens dated 29 October 2019 (“Owens 5”);
(3) The first witness statement of Khaled Khatoun dated 29 October 2019 (“Khatoun 1”);
(4) The fourth witness statement of Stephen Joelson dated 12 November 2019 (“Joelson 4”);
(5) The first witness statement of Steve Harrow dated 12 November 2019 (“Harrow 1”);
(6) The exhibits to those witness statements include the following agreements:
(i) The Short Form Sales Agency Agreement dated 22 December 2015 (the “ SAA”);
(ii) The CGA; and
(iii) The Sales Agent Interparty Agreement dated 25 April 2016 (the “ Interparty Agreement”),
(iv) The Producer's Completion Agreement dated 25 April 2016 (the “ PCA”).
I will refer to the salient parts of those agreements in due course. There were also communications between the parties relating to the delivery of the Film and correspondence as to whether or not there had been compliance with the delivery procedure set out under Schedule 2 to the CGA and Exhibit 1 to the Interparty Agreement. I will refer to these when setting out the factual background.
At the hearing the Claimants were represented by Mr Edmund Cullen QC and the First to Third Defendants were represented by Ms Laura John and Ms Alexandra Whelan. I am grateful to them for their helpful written and oral submissions.
The Parties
The First Claimant (“ EFB”) is a company involved in the provision of completion guarantees in relation to film and TV projects. The remaining Claimants (the “ Underwriters”) are insurance companies which underwrite those guarantees. The Claimants are all parties to the CGA either originally or by virtue of a Deed of Amendment dated 31 January 2017, whereby the composition of the underwriting group was amended. They are represented by DFG, which entered into the CGA (and the Deed of Amendment thereto) expressly as their agent. The Underwriters are referred in the CGA as the “ Guarantor”. This is in contrast to the Interparty Agreement, where simply DFG, together with EFB, are referred to as the “ Guarantor”. The Underwriters were not parties to the Interparty Agreement.
The First and Second Defendants (together “ Lotus”) are sales agents who are responsible for marketing and selling films to distributors around the globe. They were also parties to the CGA but, significantly, clause 1.15 provided that this was “ solely for the purpose of agreeing to the provisions of Schedule 2 and 3 … and it shall have no other right or benefit pursuant to this Agreement or any...
To continue reading
Request your trial