Considering repudiation of a Production Agreement—think twice

26 Oct 2015 | 10 min read
Alan Watts, dispute resolution partner at Herbert Smith Freehills, considers MR H TV Ltd (formerly known as CAN Associates TV Ltd) v ITV2 Ltd [2015] EWHC 2840 (Comm), [2015] All ER (D) 85 (Oct) and advises that full and objective investigation of any allegations and consideration of ways to resolve issues should be undertaken by companies where they are considering claiming repudiation of a contract
 

What was the background to this dispute?

The claimant was a production company, wholly owned by Mr Neville Hendricks, which produced reality television programmes including: Peter Andre: The Next Chapter; Peter Andre: Here to Help; and Kerry Katona: The Next Chapter. These were broadcast by the defendant, ITV2. A series of production agreements governed the relationship, with the relevant agreement being dated 9 December 2010.

Ms Claire Powell, who was Mr Hendricks’ business and personal partner for many years, owned CAN Associates which managed both Mr Andre and Ms Katona. Ms Powell and Mr Hendricks split up in 2010 but continued to work together until allegations of affairs in May to June 2011 caused the relationship to deteriorate. During this time Ms Katona terminated her management agreement with CAN Associates amid various untrue rumours regarding her behaviour. In part to address this, Mr Hendricks opened a Twitter account on 23 June 2011. As his relationship with Ms Powell worsened, offensive statements were published on Twitter by Mr Hendricks and unidentified third parties, some of which also referred to Mr Andre.

In June 2011, during a telephone meeting with ITV2, Ms Powell suggested that Mr Andre had issues with Mr Hendricks and suggested that a new production company be used. ITV2 did not adopt this suggestion.

Despite two mediation attempts, Mr Andre’s solicitors wrote to the claimant’s solicitors on 16 August 2011 stating that he wanted no more dealings with the claimant or Mr Hendricks. ITV2’s solicitors were aware of this letter and the following day sent a letter terminating the production agreement for alleged breaches of ITV’s general terms and conditions which ITV2 stated were incorporated into the production agreement. It was claimed that there was a breach of confidentiality and an undermining of Mr Andre and of the claimant’s relationship with him. ITV2 classed these as events of default under the general terms and conditions and a fundamental breach of the agreement which entitled them to terminate.

Additionally, Ms Katona was seeking to take part in Celebrity Big Brother. The defendant claimed this was a breach by the claimant of its exclusivity obligation under the production agreement but reluctantly agreed to take four programmes (instead of eight). The claimant countered offering six programmes. In the 17 August 2011 letter from the defendant’s solicitors, breach of the exclusivity obligation was also stated to be a fundamental breach of the production agreement.

What were the legal issues?

The claimant’s particulars of claim stated that the purported termination of the production agreement was wrongful and a repudiatory breach of that agreement. Damages for loss of profits earned on the licence fees were claimed amounting to more than £6m. Additionally £549,060 was claimed for an outstanding invoice.

The defence and counter-claim argued that:

  • the tweets posted by Mr Hendricks constituted breaches by the claimant of:
    • an implied term of the production agreement that the claimant would not act in a way to damage the necessary relationship of trust and confidence between the claimant and Mr Andre (as the subject of the claimant’s programmes)
    • various terms in the ITV general terms and conditions
    • the consequences of which were that the claimant was unable to perform its obligations under the production agreement and that Mr Andre was reluctant to render his services 
    • an implied term that the claimant would use reasonable skill and care in providing its services;
  • the exclusivity term in relation to Ms Katona had been breached by the claimant

The defendant claimed that all of these breaches were repudiatory and therefore entitled them to terminate the production agreement. The defendant also claimed in the alternative that the production agreement was frustrated by Mr Andre and Ms Katona being unavailable to perform their services and consequently the defendant was discharged from performance. The counter-claim claimed repayment of all sums paid to the claimant, relying onsection 1 of the Law Reform (Frustrated Contracts) Act 1943.

While ITV2 admitted there was an outstanding invoice, it claimed that the sum should be reduced because of a reduction in the number of programmes and that the defendant’s claims for loss and damage arising from diverted management time (including mitigating its losses) extinguished this claim.

What did the High Court decide?

The court found that ITV’s general terms and conditions were not incorporated into the production agreement. The reasoning for this was that it was not the production agreement that referenced and incorporated the general terms and conditions but a schedule which contained a draft licence agreement. Additionally, there was an entire agreement clause in the production agreement that specifically referred to ‘separate licence agreements which ITV2 and CATV may conclude relating to any or all of the programmes’. No licence agreement was ever entered into in respect of the series’ that were the subject of this dispute and so consequently the general terms and conditions were not incorporated.

The court refused to imply a term that the claimant must not do anything to undermine the relationship of trust and confidence with the subject of the programmes. It held that such a term was not necessary in order for the agreement to achieve the parties’ express agreement construed against the admissible background. Further, the court stated that as a fully negotiated contract, if such a term was intended then he would expect to see it expressly stated, however, given the subjective nature of the proposed term it would not be appropriate in a commercial contract. The court stated that even had the proposed term been implied, the tweets by Mr Hendricks did not relate to Mr Andre or the programmes save for a couple which the court held were misread and not defamatory. Tweets relating to friends of Mr Andre would not have been deemed sufficient to undermine any relationship of trust and confidence.

There was no suggestion that the claimant would not continue to produce the series ‘in a consistently first class manner’ and that showed Mr Andre in a favourable light. Indeed, the claimant was still producing Here to Helpseries four in late July early August 2011 and there were no complaints from Mr Andre or ITV. The court found that the claimant did not fail to use reasonable care and skill in performance of the agreement.

In relation to the exclusivity of Ms Katona, despite this term only being included in the recital to the agreement, the court found that it was a term of the production agreement. The court did not find Mr Hendricks’s evidence credible given it was wholly inconsistent with the preamble and considered that the defendant would never have agreed to Ms Katona being free to go on other TV channels, particularly as the agreement refers to Ms Katona being one of the ‘faces’ of ITV2. The court also refused to infer the qualification of ‘reasonable endeavours’ given that this wording had not been included here whereas other obligations later in the agreement were qualified in this way. Despite the court finding for the defendant on this aspect, they did not find that this was sufficient to lead to a repudiatory breach of the agreement.

The court concluded that, the claimant was not in repudiatory breach of the agreement and that the agreement had not been frustrated. Instead, it held that the purported termination by the defendant was itself a repudiatory breach. The claimant was awarded substantial damages and payment of its outstanding invoice. The counter-claim was dismissed.

What could ITV2 have done differently?

The court stated that the defendant should have taken a more robust commercial approach with Mr Andre and his manager, particularly given that ITV2 conceded that they had a suspicion that they were being set up. The court stated:

‘The effect of the refusal to provide the itinerary unless demands that they were not contractually entitled to were met, was a threatened refusal by Mr Andre to perform his contractual obligations to ITV.’

The defendant never challenged Mr Andre under the obligations that he owed them directly.

There was considerable lack of clarity regarding which tweets were relied on and how. ITV should have set out which tweets had been seen by Mr Andre and/or ITV2 at the relevant time, set out how they were defamatory and the effect on Mr Andre and/or the defendant. Ultimately, this lack of articulation, along with the late pleading of many of the tweets, resulted in the judge only considering 18 out of more than 300 tweets that were attached to the re-re-amended defence and counter-claim.

In relation to Ms Katona, the defendant never chased the claimant for the editorial framework that they had requested, responded to the counter-claim or provided them with correspondence that they had requested. Had these avenues been exhausted then the judge felt that agreement would most likely have been reached. Additionally, the court did not feel that this unfinished state amounted to a repudiation of the contract.

In calculating its claim for diversion of management time, the defendant used a notional benchmark to determine its executives’ salaries. ITV2 claimed that the information was confidential. The court concluded that ITV had chosen not to make out its case. Had ITV2 identified actual figures then their claim would have held much more weight.

What messages can lawyers take from this case?

The judge appeared heavily influenced by the credibility of the witness’ evidence. In particular, he found Mr Andre not to be genuine and to have ‘fabricated’ evidence, and Ms Clarke, the ITV in-house lawyer, not to have clear recollections and instead fell back on her witness statement which he did not feel were accurate recollections. Careful proofing of witnesses and explanation of their obligations as witnesses is therefore crucial.

Ultimately, the chronology of events undermined the whole justification for the defendant’s termination of the production agreement. As the judge points out, the claimant’s tweets could not have caused the undermining of the relationship with Mr Andre where correspondence shows that removal of the claimant was discussed three weeks prior to any Twitter account being opened. Thorough proofing of witnesses and reviewing your case against a chronology should assist in highlighting any such flaws at an early stage.

Full and objective investigation of any allegations and consideration of ways to resolve issues should be undertaken by companies where they are considering claiming repudiation of a contract. The court in this case was reluctant to find the defendant entitled to terminate for repudiation where some benefit had been conferred under the contract and where the parties were still deemed ‘in negotiation’. The fact that the claimant remained willing to fulfil the contract was also relevant. If ITV2 had not terminated when they did they would have been able to test whether the claimant was actually able to perform its obligations under the production agreement possibly giving ITV2 a much stronger claim.

It was not accepted that because the claimant’s Twitter account was a personal one that the claimant could not be held to account for it. Mr Hendricks was the sole director and owner of the claimant and was identified with the claimant by those he dealt with. This should serve as a warning to active Twitter users that are deemed synonymous with their businesses.

Alan Watts is experienced in all forms of dispute resolution including High Court litigation, arbitration and mediation proceedings. His expertise encompasses sports law, media and entertainment law, company and commercial disputes, professional negligence claims and defamation matters.

Interviewed by Kate Beaumont.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

This article is republished with kind permission of WIPIT’s sister site, Lexis®PSL IP & IT. For a free trial click here. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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