West Is West Distribution Ltd v Icon Film Distribution Ltd

A contractual right to terminate for material breach is assessed at the date of the notice. Materiality depends on the agreement and all the circumstances, including the consequences of the breach and of termination. Persistent failure to provide contractually required accounts may be material even where the sums ultimately due are modest and the breach is later cured.

On termination, an obligation to deliver all materials made by the licensee may extend to stock and masters created at its expense. Damages remain limited to loss proved to have been caused by non-delivery. A consultation obligation concerning sub-distributors does not, absent clear wording, deprive receipts of their contractual character or create a claim to a windfall.

The claimant producer appointed the defendant as UK distributor of the film West is West under an Acquisition Agreement. The agreement required periodic accounting, consultation concerning additional sub-distributors and delivery of film materials following termination.

The claimant terminated the agreement after repeated failures to provide distribution statements. It claimed damages for non-delivery of DVD materials and masters, recovery of sums connected with unauthorised sub-distributors, repayment of distribution expenses, and indemnity costs arising from injunction proceedings concerning later exploitation rights.

The central issues were whether termination was valid, what materials had to be delivered, what loss was caused by non-delivery, whether receipts from Universal Music Operations, Spafax and Phantom Media fell outside the agreement, and whether the injunction costs fell within the contractual indemnity.

1. Termination. The claimant validly terminated the Acquisition Agreement. The obligation to provide regular accounts was material and fundamental. The issue was to be judged when notice was served. The comparatively small sum later shown to be due, the administrative character of the failures and their prompt cure after notice were irrelevant. The approach in Crosstown Music Company LLC v Rive Droite Music Ltd [2009] EWHC 600 (Ch) was applicable: materiality depends on the nature of the agreement and all the circumstances, with a higher threshold where there is no cure notice.
2. Materials and damages. “All materials ... made by the Licensee” included DVDs and masters made by or at the defendant’s expense. The defendant therefore breached its obligation to deliver them. The provision was not an unenforceable penalty. The claimant could recover only loss proved to have been caused by the failure to release the masters. The court found a supply gap and some resulting loss, but attributed no more than 50 per cent of the 2012 lost sales to the breach. The precise assessment was left for submissions.
3. Sub-distributors and expenses. Failure to consult before appointing a sub-distributor ordinarily gave rise only to a damages claim for loss caused by the breach. It did not transform receipts into sums outside the Acquisition Agreement or entitle the claimant to recover all receipts. The claim concerning Universal, Spafax and Phantom Media therefore failed. Trailer and poster costs were properly apportioned, while London Film Festival costs were to be split equally.
4. Indemnity. The injunction application concerning the defendant’s undisclosed exploitation arrangements arose from a contractual dispute within the indemnity. The claimant was awarded 75 per cent of the reserved application costs, with the balance left subject to the costs jurisdiction.
5. Alternative contractual point. The judge considered, but did not need to decide, whether the principle in Boston Deep Sea Fishing Co v Ansell (1888) L.R.39 Ch D 339 CA permitted reliance on later-discovered breaches.