Morse v Eaglemoss Publications Ltd

A contract must be construed according to its express terms and the objective meaning conveyed in its commercial context. A mathematically prescriptive royalty formula cannot be retrospectively altered to reflect a party’s preferred commercial outcome. Where the contract makes one party responsible for picture costs, those costs may be deducted from the royalty calculation even if the other contracting party pays them. Rectification for unilateral mistake requires cogent evidence that the defendant knew of the claimant’s mistake and failed to correct it; absent such evidence, the claim cannot succeed. Fiduciary duties are not readily implied in an arm’s-length commercial relationship regulated by detailed contractual terms. A licence is not necessarily a contract for the supply of services for the purposes of the Late Payment of Commercial Debts (Interest) Act 1998.

The claimant, as assignee of Bright Star Publishing Ltd and Midsummer Books Ltd, claimed against Eaglemoss Publications Ltd in connection with the packaging and licensing of the Wildlife Watch publication. The claimant argued that earlier correspondence created a profit-sharing or joint venture agreement, and that the November 2003 licence entitled Bright Star to share in fixed packaging payments received from Reader’s Digest as well as the stated royalty.

The claimant also alleged that picture costs had been wrongly deducted, sought rectification for mistake, damages for misrepresentation, breach of fiduciary duty and collateral contract, and claimed interest for late payment. The central issues were the proper construction of the November Licence, the existence of wider contractual or fiduciary obligations, and entitlement to interest.

1. Construction of the November Licence. The earlier correspondence recorded provisional intentions and an intention to collaborate in the future. It did not create a binding contract or joint venture. The binding agreement was the November Licence.
2. Under clause 5, “R” meant the 5% royalty payable under clause 12 of the 2004 Reader’s Digest Contract. It did not include the separate fixed payments for editorial and packaging services. The formula was prescriptive and could not be altered retrospectively.
3. The defendant was entitled to deduct picture costs. The defendant owed an obligation to ensure that those costs were paid, but could discharge it by arranging for Reader’s Digest to pay them. The claimant nevertheless established a breach of clause 8 because the defendant failed to provide proper supporting accounts and records when requested. The claimant was therefore entitled to an account of the picture costs.
4. Rectification and related claims. The requirements for rectification identified in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, adopting the summary in Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71, were not satisfied. There was no cogent evidence of a common continuing intention, an outward expression of accord, or knowledge by the defendant of a mistake which it had induced or suppressed. The claims for rectification, misrepresentation and collateral contract therefore failed.
5. Fiduciary duties and interest. The relationship was an arm’s-length commercial relationship between parties with comparable bargaining power. The detailed accounting obligation in clause 8 defined the relevant obligation, and no wider fiduciary duty arose. The evidence was insufficient to establish an entitlement to interest. Section 2 of the Late Payment of Commercial Debts (Interest) Act 1998 did not apply because the November Licence was a licence, not an agreement to carry out a service.

The claimant succeeded only to the extent of obtaining an account of the sums said to have been spent on picture costs.

First-instance judgment. The judgment does not state any prior appellate decision.