Portobello Productions Limited v Sunnymarch Limited

A contractual power to terminate on specified conditions is not ordinarily subject to an implied requirement that it be exercised rationally or consistently with the parties’ reasonable expectations. A Socimer-type limitation is a particular implied term and must satisfy the ordinary requirements for implication, including necessity for business efficacy or obviousness. Such limitations generally concern decisions affecting both parties in the ongoing performance of a contract, involving an assessment or choice between options. They do not ordinarily apply to an unrestricted right to terminate. Summary judgment may determine a severable legal issue arising from a defence where the court has the necessary material and there is no compelling reason for a trial.

The claimant film production company entered into a co-production agreement with the defendant concerning the development and production of a film. Clause 11.3 entitled the claimant to terminate if specified control or exclusivity conditions were met. The claimant served termination notices relying on those conditions.

The defendant pleaded that, even if the conditions were satisfied, clause 11.3 contained an implied term requiring the claimant to exercise its termination power rationally and consistently with the parties’ reasonable expectations. The claimant sought summary judgment on that issue under CPR rule 24.2, alternatively striking out under CPR rule 3.4(2)(a).

1. Jurisdiction and procedure. The issue raised by paragraph 14 of the defence was a severable element of the proceedings and a component of the claim concerning the validity of the termination notices. It was therefore suitable for determination under CPR rule 24.2. The court had the contract and all necessary material, the pleaded facts were assumed in the defendant’s favour, and no mini-trial was required.
2. Scope of implied terms. The proposed rationality term was a Socimer-type implied term. Such a term is not governed by a separate body of law. It must satisfy the ordinary principles in Marks & Spencer, including necessity to give the contract business efficacy or obviousness. The defendant could establish neither. Unilateral termination rights are conventional provisions, and the agreement remained commercially coherent without the proposed term.
3. Socimer limitations. The authorities indicate that a contractual discretion susceptible to limitation usually involves an assessment or choice from a range of options, taking account of both parties’ interests, often in the ongoing performance of the contract. That was materially different from clause 11.3, which conferred an unrestricted right on one party to terminate once one or both conditions were met. The agreement’s express good-faith provisions and other unqualified termination rights reinforced that construction.
4. The proposed term was also unworkable. The alleged reasonable expectations were not stated in the agreement, and the claimant would have had to speculate about the defendant’s ability to complete the film without any clear basis or entitlement to obtain relevant information. A good-faith obligation, even if implied, could fill contractual gaps but could not remove an existing right to terminate.
5. Summary judgment was granted to the claimant on the issue arising from paragraph 14. The defendant had no real prospect of success and no compelling reason justified a trial. The same result would have followed under CPR rule 3.4(2)(a), because paragraph 14 disclosed no reasonable grounds and the issue was bound to fail.