Film Finance Inc. v The Royal Bank of Scotland
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Andrew Smith |
| Judgment Date | 14 February 2007 |
| Neutral Citation | [2007] EWHC 195 (Comm) |
| Date | 14 February 2007 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2006–1061 |
[2007] EWHC 195 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN's BENCH DIVISION
COMMERCIAL COURT
Mr. Justice Andrew Smith
Case No: 2006–1061
Raymond Cox QC (instructed by Sedgwick Detert Moran &Arnold LLP) for the Claimants
Antony White QC (instructed by Reed Smith Richards Butler LLP) for the Defendants
Hearing date: 19 January 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
MR JUSTICE ANDREW SMITH
The Claimants, to whom I shall refer as FFI, and who are represented by Raymond Cox QC, seek a determination under section 32 of the Arbitration Act 1996 that a dispute between them and the Defendants, to whom I shall refer as RBS, is governed by an Arbitration Agreement and subject to arbitration by Mr Nik Powell thereunder. RBS, who are represented by Mr Antony White QC, seek a determination to the opposite effect.
Section 32 of the Arbitration Act 1996 provides as follows:
“(1) The court may, on the application of a party to arbitral proceedings (upon notice to the other parties), determine any question of the substantive jurisdiction of the tribunal. …
(2) An application under this section shall not be considered unless…
(b) it is made with the permission of the tribunal and the court is satisfied that
(i) that the determination of the question is likely to produce substantial savings in costs,
(ii) that the application was made without delay, and
(iii) that there is good reason why the matter should be decided by the court.”
By an award dated 21 September 2006 Mr. Powell determined that he was duly appointed under an arbitration agreement to determine the dispute, and has given permission for FFI's application. I am satisfied that the application has been made without delay and that it is likely to produce a substantial saving in costs if I determine the question whether Mr. Powell has the jurisdiction to arbitrate the dispute and that there is good reason that I should decide the question. It has not been argued that these conditions are not satisfied.
The issue between the parties is the meaning and effect of provisions in a “Completion Guaranty” dated “as at” 5 April 2004. The Completion Guaranty is in the form of a letter agreement. There are three parties to it: the letter was sent by FFI to RBS and The Take Six Film Ltd. Partnership (“TAX Partnership”), and was countersigned by the two addressees. TAX Partnership has no involvement in this dispute.
The Completion Guaranty related to the financing by RBS and TAX Partnership of a film called Tempesta. The nature of completion guarantees is explained by an uncontroversial paragraph of a witness statement made by Mr. James Shirras of FFI as follows:
“In the film industry, completion guarantees are generally issued to investors as a form of partial security for production loans. The security taken by the lenders typically includes: (a) security interests in film materials and rights to exploit films; and (b) assignments of payments due to borrowers, including licence fees payable under pre-sale distribution agreements. In other words, the security will often largely depend on a film being completed, and lenders therefore typically require a guarantee that the producer will produce the film as described and deliver it to sales agents and/or distributors so that the film will be sold and licence fees will be generated. It is the primary responsibility of the producer of a film to complete and deliver the film. A completion guarantor, such as Film Finances, guarantees the performance of the producer to effect delivery.”
The financing of the film was arranged by the Commissioning Producer of Film, Kasander (Tempesta Finance) Ltd. On 5 April 2004 RBS entered into a bank facility letter with them and made advances of over 4.8 million euros under it. The provision of a completion guarantee was a condition precedent for the funds being advanced.
Clause 1 of the Completion Guaranty provided as follows:
“1. Guaranty: Subject to the provision of this agreement we:
(a) Guaranty the Completion and Delivery of the Film (as that term is defined in Schedule I attached hereto):
(b) Agree to procure or provide the Completion Funds, if any are needed, to Complete and Deliver the Film, as aforesaid, if the Producer shall fail to do so; and if Producer fails to Complete and Deliver the Film, we shall Complete and Deliver the Film as aforesaid; and
(c) If we fail to Complete and Deliver the Film as aforesaid, we shall make the payments specified in paragraph 7(a) hereof.”
Clause 7 provided so far as material as follows:
“In the event that we fail to Complete and Deliver the Film, our liability hereunder shall be limited to (i) the payment to each of [TAX partnership and RBS] of, and we shall pay to each of [TAX partnership and RBS] upon demand an amount equal to the Obligations (as defined in Schedule II) less so much thereof as may have been refunded to and retained by each of [TAX partnership and RBS] by insurance or otherwise indefeasibly paid to each of [TAX partnership and RBS] in connection with the Film and (ii) the payment of any additional costs or expenses of the Film which we are required to pay pursuant to this Completion Guaranty”.
By clause 8 of the agreement it was provided:
“So long as you do not interfere with our ability to Complete and Deliver the Film pursuant to the Completion Guarantee, you may at all times, without prejudice to this Completion Guarantee without discharging or in any way increasing our liability hereunder, make further advances …”.
I am not, of course, concerned with the merits of the dispute between FFI and RBS, but I must explain its nature. It is described by Mr Cox in his skeleton argument and I adopt his description as an accurate and fair summary of it.
It is common ground that only part of the loan which RBS provided to enable the film to be made was to be paid by distributors and investors on the completion and delivery of the film, leaving a shortfall of 1.3 million euros which RBS would only recover if the film generated sufficient income. On the other hand, under the Completion Guaranty RBS could recover from FFI the whole of the loan if the film was not completed and delivered.
The following sufficiently summarises FFI's contentions to explain the nature of the dispute. Shooting took place in the middle of 2004. The film was in effect complete by the end of October 2004 and could have been delivered on time. However from November 2004 RBS or their agents required the film to be changed because they feared a loss. Changes included re-shooting significant parts of the film and re-editing the whole of it to make its appeal more commercial. As a result the budget was exceeded and the production schedule overran. The commercial version of the film was ready only in September 2005, after the original delivery date of 31 March 2005 and indeed after an extended delivery date of 31 July 2005. However, the sales agent's forecasts for that version of the film were even more pessimistic than before the changes and in September 2005 RBS claimed that the film required by the Completion Guaranty had not been completed and delivered by 31 July 2005. The importance of this dispute is that if the film was completed and delivered RBS could only recover the “shortfall” funding from sales; if the film was not completed and delivered RBS could seek to claim from FFI under the Completion Guaranty. In fact the sales agent accepted delivery of the film and distributors who were to pay on its completion and delivery have paid. However the film has not been a commercial success and RBS now claim for funding which they have not recovered.
FFI advance two arguments that RBS have no claim under the Completion Guaranty. First, they say that RBS were in breach of a term of the Completion Guaranty that prohibited them from interfering with completion and delivery of the film and that since their interference caused the film not to be completed and delivered as RBS say it should have been, any failure to complete and deliver the film was caused by RBS's own breach of contract. This, FFI argue, answers the claim because the obligation of FFI under clause 1 of the Completion Guaranty is introduced by the words “subject to the provisions of this agreement”. They also say that, even if they are not protected by these words, nevertheless RBS are not entitled to claim under the Completion Guaranty because of the principle of construction which prevents the party from relying in a contractual claim upon his own wrong, as explained by the House of Lords in Alghussein Establishment v Eton College, [1988] 1 WLR 587. Secondly, FFI say that RBS's conduct prevents them from complaining about the completion and delivery of the film because it amounts to forbearance on their part or gives rise to a promissory estoppel.
The Completion Guarantee includes at clause 14 a provision in these terms:
“In the event of a dispute relating to delivery hereunder, the provisions for arbitration specified in Schedule III attached hereto shall apply. Any dispute other than a dispute relating to delivery shall be submitted to the jurisdiction to the courts of law of England…”
It is of some significance that the word “delivery” when used in clause 14 is not printed with a capital letter “d”.
(This clause is headed “Remedies”, but since the Completion Guaranty provides “The captions used herein are for convenience only and have no other significance”, this is to be ignored for the purpose of interpreting the contract.)
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