Northern & Shell Plc v Champion Children Of The Year Awards Ltd

A contractual discretion must be construed and exercised in the context of the agreement as a whole. Its exercise is judged objectively, by reference to the contract’s commercial purpose and the benefits and obligations undertaken by both parties. A sponsor’s dissatisfaction with audience figures will not, without more, make a broadcast time and date unacceptable where the agreement contains no specific viewing requirement. Repayment cannot reasonably be demanded where the event occurred, the sponsor received substantial benefits, and the contract provides other remedies for failures to perform particular obligations.

Northern & Shell Plc, publisher of OK! Magazine, agreed to sponsor Champion’s 1997 children’s awards scheme. The agreement required payment in two instalments and gave the sponsor a right to repayment if the event did not proceed or was not broadcast by the BBC at a time and date acceptable to the sponsor in its reasonable discretion.

The event took place and was broadcast on a Monday morning before Christmas, attracting about 710,000 viewers. The sponsor sought repayment, relying on clause 6 and alleging other breaches. The Deputy High Court Judge held that the objection to the broadcast was reasonable, ordered repayment, and rejected Champion’s counterclaim for the second instalment. The appeal concerned the proper application of clause 6.

1. Appeal allowed. The three members of the court agreed that clause 6 had to be construed and applied in the context of the sponsorship agreement as a whole, and that the sponsor’s discretion was subject to an objective standard of reasonableness.
2. Per Mantell LJ, the absence of any contractual reference to viewing figures was significant. Disappointing viewing figures alone could not give the sponsor an opportunity to withdraw. The court had to consider the agreement’s commercial objectives, the benefits actually received, and the consequences of allowing repayment while leaving the sponsor with remedies for other breaches.
3. Mantell LJ held that the event had occurred, the Duchess of Kent had attended, publicity had been obtained, and the broadcast had reached a significant audience. In those circumstances it was unreasonable to invoke clause 6, although the sponsor retained remedies for failures under other terms, including clause 2.
4. Sedley LJ accepted that the broadcast slot could be assessed in the light of the agreement’s purpose and that an objection might have been made when the slot was fixed. Nevertheless, the Monday morning broadcast was not equivalent to non-transmission or a graveyard slot. The sponsorship money was not conditional on specified viewing figures or a particular range of broadcast slots.
5. Simon Brown LJ emphasised that repayment would leave the sponsor paying nothing for substantial benefits, including association with a charitable event, exclusive coverage, and the value of the obligation to use best endeavours to provide celebrity interviews. The second limb of clause 6 required circumstances comparable in justification to the event not proceeding. The court therefore gave judgment for Champion on its counterclaim and ordered Champion’s costs of the appeal and below.

• Court of Appeal (Civil Division) — allowed the appeal and gave judgment for Champion Children of the Year Awards Ltd on its counterclaim.
• Queen’s Bench Division — Mrs E Slade QC, sitting as a Deputy High Court Judge, held that the sponsor had reasonably invoked clause 6, ordered repayment of the first instalment, and rejected Champion’s counterclaim.