Evans v SMG Television Ltd & Ors

A contractual novation may be inferred where it is necessary to give business efficacy and a lawful explanation to the parties’ conduct. The parties need not appreciate that their arrangement has the legal character of a novation.

Contracts requiring close co-operation may contain implied duties to co-operate and preserve the necessary relationship of trust and confidence. Persistent non-performance, deliberate obstruction of management and conduct damaging the other party’s business may cumulatively amount to repudiation.

A deferred-consideration condition concerning circumstances materially adverse to a holding company’s business or financial position may encompass its subsidiaries where commercial purpose requires a group-wide view. “Materially adverse” means appreciably adverse. A damages claim arising from the relevant misconduct does not neutralise its adverse character or effect.

The claimant was a prominent radio presenter who had sold a corporate group containing Virgin Radio to the defendants. The consideration included deferred shares whose conversion depended upon conditions connected with his continued performance under a Presenter’s Agreement and Partnership Agreement.

After a deterioration in relations, the claimant failed to present programmes, removed his established team and changed the programme format without prior approval, refused to communicate with management, and generated damaging publicity. Virgin Radio treated the Presenter’s Agreement as discharged, and Kentfarm expelled him from the partnership.

The claimant sought damages for allegedly wrongful termination and rights to convert the deferred Tranche C Shares. The defendants counterclaimed for contractual damages. The principal issues concerned novation, contractual breach and repudiation, lawful expulsion, and whether the circumstances of expulsion were materially adverse to the relevant business or financial position.

1. The claimant’s claims were dismissed. Virgin Radio had replaced Ginger Radio as a party to the Presenter’s Agreement by an inferred novation. That inference was necessary to give business efficacy and a lawful basis to the parties’ conduct. Ginger Radio had ceased trading, Virgin Radio performed the producer’s role and paid the contractual fees, and the parties had made binding variations through Virgin Radio. Their failure to appreciate that these arrangements constituted a novation was immaterial.

2. The Presenter’s Agreement contained implied obligations to co-operate, to preserve the necessary relationship of trust and confidence, and to give reasonable notice of holidays. These terms were necessary in the commercial and operational context and supported the express obligation to perform as a first-class presenter. Reasonable notice of an intended absence would ordinarily be at least four weeks. The parties’ established practice also required the claimant to present on Fridays unless either party gave adequate notice, assessed as one month, of a return to the written Monday-to-Thursday arrangement.

3. The claimant committed numerous contractual breaches. The primary breaches included unjustified and unannounced absences, the effective removal of the programme team and alteration of the format without management approval, refusal to communicate with management, false claims of illness, and deliberate generation of adverse publicity. Taken cumulatively, the breaches evinced an intention not to fulfil the contract and went to its root. Virgin Radio was entitled to accept the repudiation and obtain an inquiry as to damages, including specified promotional and sponsorship losses, severance consequences and replacement-presenter costs.

4. Kentfarm was entitled to expel the claimant because his failure to perform the partnership’s obligations under the Presenter’s Agreement constituted a qualifying default. An inquiry as to damages for breach of the Partnership Agreement was directed.

5. Under the Option Deed, the claimant bore both the persuasive and evidential burdens of establishing that the circumstances giving rise to expulsion were not materially adverse. Those circumstances comprised the facts which both actually and lawfully justified expulsion. They excluded the expulsion itself but included the preceding repudiatory breaches and discharge of the Presenter’s Agreement.

6. The “business” and “financial position” of SMG Jersey were to be assessed by reference to the company and its subsidiaries as one commercial entity, particularly Virgin Radio. “Materially adverse” meant appreciably adverse. The clause focused on the adverse character of the circumstances, although the result was the same if actual adverse effect was required. The existence of a damages claim did not cancel that adversity. The claimant therefore had no right to convert or retain the Tranche C Shares.

not stated in the judgment.