Internet Broadcasting Corporation Ltd (t/a NETTV) v MAR LLC (t/a MARHedge)
| Jurisdiction | England & Wales |
| Judgment Date | 24 April 2009 |
| Neutral Citation | [2009] EWHC 844 (Ch) |
| Court | Chancery Division |
| Date | 24 April 2009 |
[2009] EWHC 844 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr. G. Moss QC
sitting as a Deputy High Court Judge
Antony White QC and Eleni Mitrophanous instructed by Bankside Commercial Ltd for Claimants
Anthony Boswood QC and Simon Atrill instructed by Field Fisher Waterhouse for Defendant
Introduction
This is a reserved judgment arising from the trial on liability only of a claim. The claim is in respect of a wrongful repudiatory termination of contract. The Defendant has, at almost the last possible moment, admitted that there was a wrongful repudiatory termination. It relies upon an exemption clause to protect it from substantial liability in respect of loss of profits from a contract which turned out to be profitable for both parties. The preliminary issue debated at the hearing and dealt with in this judgment is the true construction of the exemption clause.
Facts relevant to the preliminary issue
The First Claimant (“NETTV”) is in the business of constructing and providing interactive internet television platforms. NETTV is effectively owned by Graham Loughridge, an entrepreneur with hedge fund and electronic media experience. The Defendant (“MARHedge”) is a US corporation, now no longer in business, which provided, inter alia, information and services to hedge funds and arranged conferences for the hedge fund industry. At all material times its President was Gary Lynch.
On 18 May 2005, NETTV entered into a written agreement (“the Agreement”) with MARHedge under which NETTV would set up and provide an internet television channel located at www.marhedge.tv on which would be broadcast material agreed with MARHedge, including coverage of MARHedge's conferences (clause 1). MARHedge agreed, amongst other things, that it would support and publicise the services of NETTV, provide it with promotional material from MARHedge's existing print media and promote any financial services companies that agreed to pay NETTV for a channel and place that channel on MARHedge TV (clause 3). NETTV would operate an online payment and collection system for subscriptions to the channel and in the first year remit 35% of the monies received net of tax to MARHedge, this figure rising to 40% in the second year and 45% in the third year (clause 1.2). The Agreement could not be terminated for three years other than in response to a material breach that was not remedied within 30 days of a notice requiring such a cure (clause 13).
The venture envisaged by the Agreement was essentially that NETTV would construct and operate the MARHedge TV channel and produce what was to be shown on the channel, e.g. by filming MARHedge's conferences and screening these. The income for the venture was envisaged to be the subscription fees to be charged to those wishing to view the channel.
It became clear a few weeks after the signing of the Agreement that the venture in its anticipated form would not succeed, since no subscriptions were sold. In about late June/early July 2005 a meeting took place at a Starbucks coffee shop in London between Mr Loughridge and Mr Lynch and at that meeting a revision of the contractual arrangement between NETTV and MARHedge was discussed.
The question of whether or not a further contractual agreement was made at that meeting is no longer relevant in view of the sensible concession by the Claimants that any new agreement would also incorporate the exemption clause.
As a result of the discussion at the Starbucks meeting, NETTV established a subsidiary, the Second Claimant. Instead of selling subscriptions to the MARHedge TV channel to potential viewers as envisaged by the Agreement, the Second Claimant sold opportunities to hedge funds and related organisations to appear on the channel. Such opportunities would consist of filmed participation in hedge fund manager discussions and interviews which would be filmed and screened on Marhedge TV by the new company.
Following the Starbucks discussion, the Second Claimant between August 2005 and May 2006 achieved sales of nearly £600,000 and remitted tens of thousands of pounds to MARHedge by way of a “royalty” of 10% of all monies received from the sales discussed at the Starbucks meeting. It is not necessary for present purposes to decide whether this contractual performance was under the Agreement, whether in its original form or in a varied form, or under some new or additional agreement with one or other or both Claimants, since it is agreed that the exemption clause was part of the relevant contract in any event and would bind both Claimants.
The Second Claimant's impressive sales, which showed a substantial month by month increase, were described by Mr Lynch of the Defendant as “fantastic”. The joint venture seemed to be going very well.
However, on 26 May 2006, MARHedge gave notice purporting to terminate the Agreement with immediate effect and has failed to provide any content for the channel since. The Defendant's reasons for this abrupt and ostensibly self-defeating termination have not been established, since the parties have sensibly agreed that the subjective position of the Defendant is not relevant to the issue. The issue is whether the exemption clause applies to the Defendant's admitted repudiatory breach so as to exempt it from liability in respect of loss of profits. The material point is that the Defendant now accepts that it had no contractual justification for repudiating the Agreement (or any other agreement that may have applied).
The exemption clause
The exemption clause, clause 17, set in the context of the adjoining clauses, is as follows:—
“16. Nothing in this Agreement shall operate to exclude or limit either party's liability for death or personal injury caused by its default or negligence, any breach of the terms implied by the sale of goods and supply of goods and services legislation, fraud, or any other liability that cannot be excluded or limited under applicable law.
Subject to clause 16 neither party will be liable to the other for any damage to software, damage to or loss of data, loss of profit, anticipated profit, revenues, anticipated savings, goodwill or business opportunity, or for any indirect or consequential loss or damage.
Subject to clause 17, NETTV's aggregate liability in respect of claims based on events relating to this Agreement shall not exceed the total amount of cash fees paid by the Client to NETTV in connection with this Agreement or any collateral contract, whether in contract or tort (including negligence). NETTV shall not be liable for the value of media contributed by the Client as part of this Agreement.”
The parties are agreed that no legislation which limits the ability of a party to rely on an exemption clause applies in this case.
Exemption clauses and fundamental breach
It seems odd at first impression that a party who deliberately repudiates a contract should at the same time be able to rely on a clause in that contract containing an exemption from liability in respect of the loss caused to the other party to the contract as a result of such repudiation. The normal anticipation of commercial parties is that a party who repudiates his contractual obligations should be liable to compensate the other party for the loss caused.
The underlying principle against allowing a party to a contract to profit from his own wrong was so strong that the courts and, in particular, Lord Denning, one of the great Judges of the 20 th century, held that there was a rule of law which prevented exemption clauses applying to a fundamental breach.
However, the current position is that I am bound by the decisions of the House of Lords in the Suisse Atlantique case [1967] 1 AC 361 and Photo Production Limited v Securicor Transport Limited [1980] 1 AC 827 to reject the notion that there is any such rule of law and treat the issue as one of construction only.
Relevance of deliberate and repudiatory breach
Nevertheless, even as a matter of construction, the fact that a breach is deliberate and repudiatory is relevant to the question of whether the exemption clause, on its true interpretation, covers the breach. Thus Lord Wilberforce in the Suisse Atlantique case said at page 435:—
“Some deliberate breaches … may be, on construction, within an exceptions clause (for example, a deliberate delay for one day in loading). This is not to say that “deliberateness” may not be a relevant factor: depending on what the party in breach “deliberately” intended to do, it may be possible to say that the parties never contemplated that such a breach would be excused or limited.”
In the Photo Production case there are statements which suggest that there is a presumption against an exemption clause being interpreted so as to cover a repudiatory breach.
Thus, Lord Diplock states at page 850:—
“Since the presumption is that the parties by entering into the contract intended to accept the implied obligations exclusion clauses are to be construed strictly and the degree of strictness appropriate to be applied to their construction may properly depend on the extent to which they involve departure from the implied obligations. Since the obligations implied by law in a commercial contract are those which, by judicial consensus over the years or by Parliament in passing a statute, have been regarded as obligations which a reasonable businessman would realise that he was accepting when he entered into a contract of a particular kind, the court's view of the reasonableness of any departure from the implied obligations which would be involved in construing the express words of an exclusion clause in one...
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