Eurovideo Bildprogramm GmbH v Pulse Entertainment Ltd

Contractual language is not confined to operating as a warranty merely because it is proposed during negotiations and incorporated into the final agreement. It may also make a representation of existing fact, depending on its substance and context.

An assurance that a licensee has an exclusive right of first exploitation inherently represents that the relevant exploitation rights have not already been granted to another. A pre-existing conflicting grant therefore makes the assurance both false as a representation and broken as a contractual term. Where the assurance was negotiated, accepted and included in the draft proffered for signature, it is a pre-contractual representation capable of founding a misrepresentation remedy.

Pulse granted Eurovideo a seven-year licence to distribute 19 German-language animated videos in specified German-speaking territories. The agreement assured Eurovideo of exclusive first exploitation and stated that Pulse had not entered any agreement conflicting with the rights granted.

Pulse had already granted conflicting exploitation rights to other distributors. Eurovideo had paid most of the licence fee when it discovered that position and terminated the agreement. His Honour Judge Crawford QC held that Pulse was in breach of contract and had made an actionable pre-contractual misrepresentation, awarding relief based principally on the licence fee paid and net exploitation expenditure.

Pulse appealed, contending that the relevant language could amount only to contractual warranties and not to a representation of fact. The damages issue did not require determination if the misrepresentation finding stood.

1. Appeal dismissed unanimously. Lord Justice Rix gave the judgment, with whom Lord Justice Jonathan Parker and the Vice-Chancellor agreed. The judge was entitled, and right, to find an actionable pre-contractual misrepresentation.

2. The court rejected the proposition that language intended to become a contractual term can never also be a representation of fact. Its character depends on the wording and commercial context. The heading Representation and Warranties was not conclusive, but it supported the conclusion drawn from the substantive wording. Section 6(1)(a) of the Misrepresentation Act 1967 also confirmed that contractual language may have both functions.

3. The statement that Pulse had not entered any agreement conflicting with Eurovideo’s rights was plainly a representation about an existing fact. It was false because conflicting exploitation rights had already been granted.

4. The assurance of exclusive first exploitation independently carried the same factual representation. A promise of future exclusivity may be broken only by a later conflicting grant. However, a promise of first exploitation can be defeated only by an earlier grant. It therefore necessarily represents that the relevant rights have not previously been granted.

5. The representation was pre-contractual and induced the agreement. Eurovideo had sought the assurance in correspondence; Pulse accepted the amendment; and the amended draft containing it was sent for signature and became the contract. Pulse accepted that, if actionable misrepresentation was established, the quantum of the relief below was not in issue. The appeal was dismissed with costs summarily assessed at £6,000.

• Court of Appeal (Civil Division) — Pulse’s appeal was dismissed: [2002] EWCA Civ 1235.
• First instance — His Honour Judge Crawford QC held that Pulse had made an actionable pre-contractual misrepresentation, as well as breaching the licence agreement.