Rover International Ltd v Cannon Film Sales Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE KERR,LORD JUSTICE DILLON
Judgment Date25 May 1988
Judgment citation (vLex)[1988] EWCA Civ J0525-9
Docket Number88/0473

[1988] EWCA Civ J0525-9

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL.(CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

(MR. JUSTICE HARMAN)

Royal Courts of Justice

Before:

Lord Justice Kerr

Lord Justice Dillon

and

Lord Justice Nicholls

88/0473

1986 F No.4941

Between:
(1) Rover International Limited (A Body Corporate)
Plaintiffs (Appellants)
(2) Monitor TV and Merchandising SRL (A Body Corporate)
Plaintiffs
(3) Proper Film Limited
Plaintiffs
(4) Luigi de Rossi
Plaintiffs
and
Cannon Film Sales Limited (formerly Thorn-EMI Film Distributors Limited)
Defendants (Respondents)

(By Original Action)

And Between:
Cannon Film Sales Limited (formerly Thorn-EMI Film Distributors Limited)
Plaintiffs
and
(1) Rover International Limited
(2) Monitor TV and Merchandising SRL
(3) Proper Film Limited
(4) Luigi de Rossi
(5) Monitor SRL (A body corporate)
Defendants

(By Counterclaim)

MR. R.C. CORDARA and MISS GERALDINE ANDREWS (instructed by Messrs. Barlow Lyde & Gilbert, Solicitors, London EC2M 2PJ) of the First and Third Plaintiffs in original action (Appellants).

MR. A. PARDOE Q.C. and MR. R. WYNNE GRIFFITHS (instructed by Messrs. Jeffrey Green and Russell, Solicitors, London W17 9DG) appeared on behalf of the Defendants in original action (Respondents).

LORD JUSTICE KERR
1

These are appeals from parts of a judgment delivered by Harman J. on 30th March 1987 which is reported in (1987) BCLC 540. It followed a trial of some three weeks and a long and bitterly contested interlocutory history. Most of the issues debated in the course of these proceedings are now no longer relevant. But in order to explain the relatively limited matters which are under appeal an account of the history is unfortunately unavoidable. I will refer to the companies on the appellants' side as "Rover", "Monitor" and "Proper". The respondents, Cannon Film Sales Ltd., were formerly Thorn EMI Film Distributors Ltd. ("Thorn EMI") and I will refer to them as "Cannon".

2

The issues under appeal, which I only mention at this stage for identification, are the following.

3

First, Rover appeal against the rejection by Harman J. of their claim for the return of certain advances in the nature of royalties which Rover had paid to Thorn EMI/Cannon pursuant to a purported contract in the form of a joint venture between Rover and Thorn EMI for the dubbing and distribution in Italy by Rover/Monitor of certain films supplied by Thorn EMI. Secondly, Rover appeal against the similar rejection of their claim for a quantum meruit to cover the costs and reasonable remuneration for the dubbing and distribution of the films in question. Both these claims derive from the unfortunate main feature of the history: the fact that, unbeknown to all parties for a long time, the purported contract between Rover and Thorn EMI was void ab initio.

4

Thirdly, Proper appeal against another part of the judgment holding that they are liable to pay a sum of $900,000 to Cannon pursuant to a different contract concluded between Proper and Thorn EMI for the exhibition of certain other films on Italian television.

5

The events leading up to the appeals by Rover and Proper are quite unconnected, and I will deal with them in that order.

6

The Rover Appeals.

7

The history.

8

The persons mainly involved on the side of the appellants were a Mr. Luigi de Rossi, his assistant, a Mrs. Karlin, and his brother Angelo de Rossi. During the autumn of 1985 there were discussions between them and a Mr. Bateman on behalf of Thorn EMI about the dubbing and distribution in Italy of what ultimately became 17 films in which Thorn EMI had, or were to acquire, the necessary rights. The de Rossi brothers and Mrs. Karlin were connected with Monitor, a well-established film distributor in Italy, and it appears that similar ventures had previously been successfully carried out between Monitor and Thorn EMI. In broad outline, the joint venture was to take the following form. Thorn EMI would supply master prints of the films and all other necessary materials, which would remain their property, and Monitor would arrange for the dubbing of the films into Italian and all the related artwork and other matters. Thereafter Monitor would arrange the distribution of the films to Italian cinemas, but in all respects subject to the approval and control of Thorn EMI. The gross receipts derived from the release of the films on the Italian market were to be split in a way explained hereafter. An important feature of the deal was that substantial advances were to be pre-paid to Thorn EMI by instalments in US dollars on account of their ultimate share of the gross receipts. Since this would have involved complications with Italian monetary or fiscal regulations it was envisaged from the outset that a non-Italian company would have to be interposed as a "front" for Monitor. This was to be Rover, a company to be incorporated in the Channel Islands and presumably to be funded from non-Italian sources to pay the advances to Thorn EMI. The so-called "Theatrical Agreement", to denote that the films were to be shown in cinemas as opposed to television, was accordingly to be concluded between Thorn EMI and Rover, but in the knowledge that the performance of the distributor's obligations would in practice all fall on Monitor, Unfortunately, however, as subsequently held at the trial, the Theatrical Agreement ante-dated the incorporation of Rover by about a month, and this fact did not become apparent to either side until some six months later. Many, but not all, of the issues between the parties, and all the issues raised on this appeal by Rover, stem from this unfortunate fact of which Cannon, when they appeared on the scene, took full advantage.

9

The document which constituted the purported Theatrical Agreement ("the Agreement") was dated 5th December 1985. Its relevant particulars can be summarised as follows. Thorn EMI were to deliver all the necessary prints and other materials within a stated time from Rover's readiness to receive them, and they were to remain the property of Thorn EMI at all times. The films were then to be dubbed and treated ready for release in Italy by Rover at their expense, but the release dates, release patterns, and marketing strategy were all to be dependent on the prior approval of Thorn EMI (Clause 9(a)). The "Gross Receipts" from the exhibition of the films were to be the property of Thorn EMI as soon as they were generated, but subject to division as mentioned hereafter. Meanwhile Rover were liable to pre-pay US$1,500,000 to EMI in 24 instalments of $62,500, collectively referred to as the "Advance". The first instalment was to be paid on 1st January 1986 (or upon prior approval of the agreement by the Italian authorities), and the remaining 23 on the last business day of each subsequent month. These instalments were to be allocated to the 11 most important films covered by the Agreement, pro rata according to an estimate of each film's expected profitability, totalling $1,500,000. It is unnecessary to go into the list of films and allocations save to mention that the flagship in the list was to be a film called "Highlander" to which $350,000 had been allocated.

10

I must then refer in greater detail to Clause 6 of the Schedule to the Agreement which dealt with the division of "Gross Receipts" (as defined) after allowing for "Distribution Expenses" (as defined) and the "Advance" mentioned above, in the following way:

"6 Gross Receipts shall be applied in respect of each film…as follows:

  • (A) Until the Box Office Receipts attributable to a particular film equal 4 billion lire

    • (i) 65 per cent of the gross receipts shall be applied to the recoupment of the Distribution Expenses and the Advance

    • (ii) 35 per cent of the Gross Receipts shall be retained by the Distributor [Rover]

  • (B) Thereafter

    • (i) 70 per cent of the Gross Receipts shall be paid to Licensor [Thorn EMI]

    • (ii) 30 per cent of the Gross Receipts shall be retained by the Distributor".

11

The clause went on to provide that if Thorn EMI's share turned out to be less than the Distribution Expenses the shortfall was to be for the account of Rover. But if after six months from the date of the release of each film the balance available to Rover after recoupment of the Distribution Expenses (the "Net Receipts") was less than the Advance allocated to that film, then the allocated Advance was to be reduced to the level of the Net Receipts. At the end of the term of the Agreement, which was to be basically for two years expiring at the end of 1987, Thorn EMI were to repay to Rover any excess in the total Advance paid by Rover over the Net Receipts recouped by them.

12

While I have deliberately somewhat simplified these provisions, because it is unnecessary to consider them in greater detail, it can be seen that they provide considerable security and possibly a substantial profit for Rover. All being well, it was to be expected that Rover would be able to recoup the Distribution Expenses and Advance in full, and be left with a share of the order of 30—35 per cent of the Gross Receipts. And although they bore some risk in relation to the level of Distribution Expenses, they were in any event guaranteed to recover their Advance.

13

But other provisions of the Agreement were extremely draconian. Clause 16, headed "Default", entitled Thorn EMI to terminate the Agreement forthwith upon the occurrence of a long series of events, many of which, could not have amounted to a repudiatory breach on the part of Rover. Furthermore, under Clause 17, headed "Termination", Thorn EMI were entitled to revoke the Agreement, resume possession of all the prints and other materials...

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