Independiente Ltd & Ors v Music Trading Online (HK) Ltd

A settlement agreement requiring a party to give undertakings to the court may, on its true construction, also create a contractual obligation owed to the opposing party to observe the same restraints. The agreement must be read as a whole and in its commercial context. Court undertakings may provide additional security for performance; they do not necessarily confine the innocent party to the remedy of contempt.

Accordingly, conduct breaching such undertakings may also constitute a breach of contract. Alternatively, an equivalent contractual term may be implied where it is obvious that the parties intended the undertaking to protect the claimant as well as the court.

The claimants had settled earlier copyright-infringement proceedings against the Hong Kong company operating CD WOW!. Under clause 3 of the settlement agreement, the defendant agreed to give undertakings to the court restraining specified sales. Those undertakings were incorporated in a consent order.

The claimants later alleged breaches. They commenced proceedings for breach of contract and applied for committal. A preliminary issue asked whether breach of the court undertakings was actionable in separate proceedings as breach of contract. Underhill J decided for the claimants, holding that, although no express promise was made to them, an equivalent promise was implied.

The defendant appealed, contending that its only liability for breach of the undertakings was for contempt of court.

1. Appeal dismissed. The court unanimously upheld Underhill J’s ruling that breach of the undertakings given pursuant to the settlement agreement was actionable by the claimants as breach of contract, as well as being capable of founding contempt proceedings.
2. Per Mummery LJ, the decisive analysis was the true construction of the agreement rather than necessarily implication of a term. The agreement had to be construed as a whole and against its factual and commercial context. By agreeing, in settlement of the earlier proceedings, to give undertakings to the court not to do the specified acts, the defendant also agreed with the claimants not to do those acts.
3. The case differed from a voluntary undertaking given in response to an application for an injunction, or an undertaking given merely on a consent order. Here the undertaking formed part of a negotiated settlement between the parties. The express undertakings to the court supplied additional security for the contractual promise; they did not displace it.
4. Mummery LJ further held that, if implication were the correct analysis, the equivalent term in favour of the claimants was properly implied. The officious bystander test was satisfied because it made no commercial sense for the defendant to promise the court, but not the claimants whose rights were protected, that it would refrain from the acts concerned.
5. Lloyd LJ added that the contractual obligation was coextensive with the court undertakings. A release or modification of the undertakings under clause 9 would therefore release or modify the contractual obligation. The contrast with the short interim contractual regime in clause 4 reinforced the commercial conclusion.

• Court of Appeal (Civil Division) — Dismissed the defendant’s appeal and affirmed that the settlement agreement made breaches of the court undertakings actionable as breaches of contract: [2007] EWCA Civ 111.
• Chancery Division — Underhill J determined the preliminary issue for the claimants, holding that an equivalent undertaking to the claimants was implied by the settlement agreement.