Ministry of Sound (Ireland) Ltd v World Online Ltd
| Jurisdiction | England & Wales |
| Judge | N. Strauss QC |
| Judgment Date | 15 September 2003 |
| Neutral Citation | [2003] EWHC 2178 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No. HC02 C02138 |
| Date | 15 September 2003 |
[2003] EWHC 2178 (Ch)
In the High Court of Justice
Chancery Division
N. Strauss Qc
Claim No. HC02 C02138
Mr. David Lord (instructed by Messrs Tarlo Lyons) for the Appellant
Mr. Timothy Lord (instructed by Messrs Sheridans) for the Respondent
Introduction
This is an appeal against the order of Master Moncaster of 19th February 2003, dismissing the claimant's application for summary judgment for £200,000, the last instalment due under the terms of a written agreement between the parties dated 3rd February 2000, and allowing the defendant's application to dismiss the claim in the action.
In essence the Master held, following dicta in the speech of Lord Reid in White and Carter (Councils) Ltd v. McGregor [1962] A.C. 413 at 927–30 that, in circumstances in which the defendant had by its breach of contract prevented the claimant from performing its obligations under the contract, the claimant could not sue for a debt due under the contract, but only for damages. Since the claimant accepted that it had suffered no damage, it followed that not only the claim for summary judgment but also the claim in the action must be dismissed.
Counsel for the defendant has reminded me that my function is to review the decision and not to rehear the application. However, the appeal involves issues of law and construction, arising on facts which are largely undisputed. In giving permission to appeal, the Master said that he was not confident that his decision was right. I have to consider the same issues and there is no difference in this case between a review of the decision and a rehearing.
The Facts
The claimant ("Ministry of Sound"), is one of a group of companies operating nightclubs under that name. The defendant ("World Online") is an internet service provider which in February 2000 wished to attract custom by associating itself with the Ministry of Sound brand.
The agreement was to last for two years. One of its main features was that Ministry of Sound was to package and distribute "Access CDs" which had been produced by World Online. Another was that it required Ministry of Sound to maintain on its website a branded Internet service ("the Branded Service"), based in part on services provided by World Online, which was to be available via the Access CDs to end users who had contracted with World Online. The Branded Service was to include a tag line specified by World Online. Ministry of Sound was to receive payments totalling £1,242,237, the equivalent of $2 million, plus 8 quarterly payments of £200,000 totalling £1.6 million.
World Online's obligations are set out in clause 3 of the Agreement and include the following:
(a) By 3.1.1 to provide the services set out in Schedule 1 including services required for the Branded Service.
(b) By 3.1.6 at its own cost to produce copies of Access CDs of satisfactory quality and despatch them safely and securely to the Ministry of Sound.
(c) By 3.1.7 to maintain sufficient stocks of Access CDs and adequate distribution procedures and staff to enable them to be despatched promptly in response to requests by Ministry of Sound.
Ministry of Sound's obligations are set out in clause 4.1 of the Agreement and include the following:
(a) By 4.1.2 to be responsible for the design, look, feel and branding of the Branded Service.
(b) By 4.1.3 to produce the marketing and packaging material and carry out any other obligations agreed between the parties and package the Access CDs and to perform the services "as contemplated in the estimated budget scheduled in Part II in Schedule 5."
(c) By 4.1.4 to distribute the packaged Access CDs and provide the Branded Service to end users (this is the internet service referred to earlier).
(d) By 4.1.5 to publicise World Online's involvement with the Branded Service in the manner agreed between the parties, including its use in (i) all the formats set out in Schedule 3 (which relate mainly to the Access CDs) and (ii) in all business activities in which Ministry of Sound uses its own brand name set out in Schedule 4 whether now existing or to be launched.
(e) By 4.1.8 to be responsible for the content of the website.
Payment is provided for in clause 5.1 which simply states that World Online is to pay "the amounts and at the times set out in Schedule 5", which is reproduced on the following pages of this judgment.
SCHEDULE 5 —part I
Payment Schedule
SCHEDULE 5 —part II
Schedule of Resources Required
WOL to provide Clubber's Guide Packs £2,350,000
N.B. Does not include packs requested via phone,email, post
| 1) Date amount due | Reference | Amount to be paid |
| Upon signature of agreement | Media Forward Buy | £500,000 |
| January 3, 2000 | Sponsorship | £121,119 |
| March 1, 2000 | Media Forward Buy | £621,118 |
| SUB-TOTAL | £1,242,237 | |
| 2) Date | Reference | Amount |
| January 31, 2000 | Hard Costs of Branding and Bundling | £200,000 |
| April 3, 2000 | Hard Costs of Branding and Bundling | £200,000 |
| July 2, 2000 | Hard Costs of Branding and Bundling | £200,000 |
| October 3, 2000 | Hard Costs of Branding and Bundling | £200,000 |
| SUB-TOTAL | £800,000 | |
| Date | Reference | Amount |
| January 3, 2001 | Hard Costs of Branding and Bundling | £200,000 |
| April 3, 2000 | Hard Costs of Branding and Bundling | £200,000 |
| July 2, 2001 | Hard Costs of Branding and Bundling | £200,000 |
| October 3, 2001 | Hard Costs of Branding and Bundling | £200,000 |
| SUB-TOTAL | £800,000 |
| £ | |
| Misc | |
| World Online/Ministry of Sound Logo Design | 5,000 |
| Marketing Executive | 30,000 |
| CD Software Design | |
| Clubber's Guide to… the Internet Package Design | 15,000 |
| Software Interface Design | 5,000 |
| Albums & Singles | |
| Inserting 3,000,000 Cards into Albums | 150,000 |
| Inserting 2,000,000 Cards into Singles | 100,000 |
| Clubs & Events | |
| Flyer Printing | 25,000 |
| PoS Material for CD Display | 5,000 |
| Ministry Magazine | |
| Double Page Spread | 48,000 |
| Mounting CDs | 90,000 |
| Licensing | |
| Insertion of CDs into packaging | 6,000 |
| Database | |
| Envelope Mail outs | 49,600 |
| 310,000 mailout of CD software | 155,000 |
| Sub Total | 683,600 |
| Printing 5,000,000 cards | 50,000 |
| TOTAL | 733,600 |
| Contingency | 66,400 |
| Total Marketing Budget for 1 year | 800,000 |
Termination is provided for in clause 10, inter alia as follows:
"10.1 Either party shall have the right to terminate this Agreement upon written notice:
1 With immediate effect, if the other is in material breach of any material obligation … which is not remedied within 30 days of written notice from the other party so to do …
3 Of 14 days, if any event described in clause 13.1 lasts for more than two months from the date of its commencement.. ."
Clause 13.1, which is part of a section headed "General" reads as follows:
"13.1 Neither party will be obliged to carry out any obligation under this Agreement where performance of such obligation is prevented due to any cause beyond its reasonable control".
A number of features of the agreement are to be noted. The agreement does not specify a date by which the Access CDs were to be ready. Nor is there a clear provision for the number of Access CDs to be produced. However, it is agreed between the parties that the figure 2,350,000 at the foot of Schedule 5 Part II is the number or approximate number to be produced for the first year, and that by implication the quantity for the second year was to be the same. Schedule 3 provides for Access CDs to be mounted in each issue of Ministry of Sound's monthly magazine, which had a monthly print run of 150,000. In fact, only 650,000 Access CDs were produced. The payment dates in Schedule 5 start before the date of the agreement, which is 3rd February 2000. This may be because (as is clear from clause 2), the agreement replaced an earlier agreement dated 22nd December 1999.
It is common ground on the pleadings that the three payments in Schedule 5 Part 1(1) totalling £1,242,237 (or $2 million) represented what World Online was prepared to pay for the benefit of an association with the Ministry of Sound brand, as a way of introducing itself to prospective customers in the United Kingdom. The terms 'Media Forward Buy' and 'Sponsorship' are not defined in the agreement, but it is clear from (for example) clause 3.1.10 that 'media' includes the various methods of generating publicity resulting from the agreement, including but not limited to the Access CDs.
The quarterly payments totalling £800,000 p.a. were clearly intended to compensate Ministry of Sound for the cost of providing the ongoing services required by the agreement, which is estimated in the budget for the first year set out in Schedule 5 Part 2. There was no obligation actually to incur costs of that magnitude; the obligation in clause 3.1.1 was to provide the services. Certain of the estimated costs were one-off costs which would only be incurred at the outset, and a contingency of £66,500 was included to bring the figure up to £800,000.
Although the costs are referred to as "hard costs of branding and bundling", and are clearly related in large part to the packaging and distribution of Access CDs, they also relate to other obligations in the agreement and they are not all strictly costs of "branding and bundling". For example, the expense of designing the logo and the provision of a marketing executive would relate to publicity via all media, not only Access CDs, and there was provision for a double-page spread in the monthly magazine as well for the mounting of Access CDs.
It is relevant to identify the main continuing obligations which were unrelated to the...
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