Universal Studios International BV v Flextech Rights Ltd

In a contract requiring later television episodes to be similar in content to episodes from an earlier season, “content” bears its ordinary broad meaning. It includes format, subject matter, presentation, participant and audience interaction, and language, although individual features carry different weight. Regulatory non-compliance is not itself a breach, but may be relevant evidence of dissimilar content. Similarity and whether any breach justifies dissolution under the Dutch Civil Code are fact-and-degree questions. They must be assessed against the general run of the earlier series and the later series as a whole, rather than by reference to a single or worst earlier episode. Ultimate issues should not be decided solely on assumed pleaded facts where fuller evidence and examination of the programmes are required. Contractual editing and substitution provisions did not exclude the similarity obligation.

Universal licensed Flextech rights to exhibit Jerry Springer and Maury Povich under a 1998 agreement governed by Dutch law. Flextech alleged that later episodes of Jerry Springer were no longer similar in content to the 1997/1998 season and purported to dissolve the agreement under Article 6.245 of the Dutch Civil Code. Cooke J determined preliminary issues in the Commercial Court: [2005] EWHC 2267 (Comm). Universal appealed on the construction of the similarity obligation, the relevance of compliance with the ITC Code, the effect of Rider 8, and whether breach and dissolution could be determined on assumed facts. The central questions concerned the proper comparison exercise and the extent to which the contractual provisions governed untransmissible episodes and substitute programmes.

The Court of Appeal, in the judgment of Neuberger LJ with Jacob LJ and Sir Anthony Clarke MR agreeing, substantially upheld the decision below but qualified the lower court’s premature conclusions on ultimate breach and dissolution.

1. Meaning of “similar in content”. The expression has its ordinary, broad meaning. It encompasses what is in the episode, including its format, subject matter, manner of presentation, the contribution and interaction of the presenter, participants and audience, and the language used. Technical matters falling within “overall production value” are distinct. The factors do not have equal weight, and the assessment is not governed by a prescriptive formula.
2. Assessment of similarity. Similarity is a question of fact, more precisely an inference from primary facts. Each later episode is to be compared with the totality or general run of the earlier season. The comparison is not confined to one selected episode or the worst earlier episode. The number and distribution of episodes displaying relevant features may assist the assessment, but the ultimate judgment remains for the trial tribunal.
3. Regulatory compliance. The agreement did not make Universal responsible for ensuring compliance with the ITC Code, and non-compliance did not itself establish breach. Nevertheless, compliance or non-compliance, together with the reasons for it, was admissible and relevant evidence of aspects of programme content and dissimilarity. Where an episode could reasonably be edited into compliance under clause 8 or Rider 8, Flextech could not rely on its unedited non-compliance as such.
4. Dissolution. The entitlement to dissolve under Article 6.245 depended on the factual evaluation of the number, extent, manner and consequences of any dissimilar episodes, viewed both against the later series as a whole and against individual episodes. The question whether the breach was sufficiently serious was not properly determined on the assumed facts alone.
5. Preliminary determination. The facts pleaded by Flextech were not admitted and were unlikely to be exhaustive. The final tribunal would need fuller evidence and would have to examine at least some episodes. The Judge should therefore have declined to determine the ultimate questions of breach and dissolution on that artificial basis, although the legal guidance he gave was substantially correct.
6. Rider 8. The second part of Rider 8 did not prevent untransmissible episodes from founding an allegation of breach of clause 4(a). It could be treated as an optional remedy, or as conflicting with clause 4(a) to the extent that it removed the benefit of that clause. A substitute under Rider 8 had to be a new original episode, not a repeat; otherwise the words “if available” would have little work to do.
7. Pleadings and order. Schedule 2 was properly treated as incorporated into the Defence. Flextech could rely on the actual content of the episodes, not merely the summaries in the schedules, but could not introduce new pleaded facts without amendment. Counsel were invited to agree an order reflecting the judgment below subject to the Court of Appeal’s variations.

• Court of Appeal (Civil Division): Substantially upheld the construction reached below, but qualified the determination of the ultimate breach and dissolution issues. Citation: [2006] EWCA Civ 1036.
• High Court of Justice, Queen’s Bench Division (Commercial Court): Cooke J determined preliminary issues concerning the 1998 agreement. Citation: [2005] EWHC 2267 (Comm).