When the Indonesian Who Wants To Be A Millionaire licensee was refused a renewal it didn’t take it lying down. Now it could be close to it a multimillion pound damages award against Celador.
Topic: Contract
Who: Celador International Limited and Arief International Inc
Where: Chancery Division of the High Court, London
When: May 2004
What happened:
Mr Justice Lindsay pronounced judgment in a case involving contracts for the right to produce and broadcast an Indonesian version of the blockbuster hit game show “Who wants to be a millionaire” (“WWTBAM”).
The proceedings were brought for breach of contract by Arief against Celador and the trial was to be in two parts. Part 1, recently finished, has dealt with the question of whether Celador is liable for breach of contract. If Celador were found liable, Part 2 would deal with the question of just how much Celador would have to pay Arief by way of damages, bearing in mind Arief’s top line claim of £23,000,000.
Perpetually renewable right
The litigation came about after Celador, having apparently granted Arief perpetually renewable Indonesian rights in the show, refused to renew them and gave the Indonesian contract to another company altogether.
A not unrelated issue was that while Arief was under an obligation to pay only around £78,600 annually as a maximum licence fee, the new licensee was having to pay not a lot short of £400,000 for the same privilege.
In the event, all of the grounds which Celador put forward as a sound basis for not renewing Arief’s rights were rejected by the court.
In the course of reaching this decision, the Judge focused on some wording in the Celador/Arief contract. This gave Celador the right to refuse renewal of the licence if Arief “delegated” its obligations under the contract “or sublicensed the right” to produce the Indonesian series.
$64,000 question
The fact was that Arief, following normal industry practice, had appointed a production company to produce the show. The $64,000 question was whether, by doing this, it had either “delegated” its obligations or “sub-licensed” its right to produce the show in such as way as to disqualify itself from renewing its licence.
The Judge chose first of all to look at the commercial purpose of the renewal clause.
In an industry in which those in overall charge of production normally use sub-contractors and agents for the very many tasks and skills required between the initial concept and the final broadcast, the objective of the clause could not have been to ensure that every aspect of the production was carried out by Arief’s own employees.
Rather, it must have been to ensure that notwithstanding that Celador had ceded rights in relation to the show to another, it had nonetheless, by its contractual control over Arief, remained able to ensure that the Indonesian series was of first class quality, made with minimal alterations to its established format, that it was regularly shown, duly paid for and no one but Arief would acquire any rights such as might threaten Celador’s enjoyment of its rights.
Obligations delegated?
Looking at what the phrase “delegation of obligations” actually meant, therefore, the Judge felt himself able to take into account the industry practice and to boil it down to a question of whether Arief, by its arrangements, had so entrusted functions in relation to production as a whole to others to have jeopardised the achievement by Celador of its commercial objectives lying behind the renewal clause.
Applying this test, the Judge was quite satisfied that Celador’s commercial objectives were completely unaffected by Arief’s appointment of the production company.
The Judge went on to say that even if one put aside the commercial objective of the clause and applied a literal reading of the wording, delegation of obligations had to be understood to require the delegation of all obligations. In light of this, the Judge again felt that there were no grounds for saying that the obligation had been breached. Arief clearly retained practical control over the production as whole and the Judge would not regard the use of hired-in staff over whom Arief still retained control as a delegation of obligations.
Sub-licensed rights?
If this did not work for Celador, could they successfully argue that the appointment of the production company was a “sub-licensing” of Arief’s rights. Again, the Judge’s answer was in the negative.
Looking at the production agreement, there was very limited involvement by the production company in pre-production and many production aspects were subject to various constraints or the need to obtain approval by or consent from Arief. Accordingly, no right to produce, by way of a right in respect of all parts of production, was actually sub-licensed to the production company or any other third party.
Accordingly, these arguments gave Celador no grounds for establishing that Arief had lost its right to renew.
The Judge found in favour of Arief and held Celador liable for breach of contract. The case now moves to its second and final stage, namely calculating just how much Celador will have to pay in damages.
Why this matters:
Celador has already announced that it intends to appeal this judgment, and given the potentially huge amounts involved this is hardly surprising.
A read of the full judgment is a fascinating insight into how not to go about preparing the ground for arguing that a contract has been breached, but for our purposes it is interesting to see how the Judge interpreted and applied the relevant contractual provisions.
Similar wording often appears in contracts for the provision of marketing services and those drafting these will do well to bear the Judge’s comments in mind when drawing up the next contract that comes across their desk.
