England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(His Honour Judge Crawford QC
(sitting as a deputy High Court judge))

		Royal Courts of Justice Strand London WC2 Friday 1st February, 2002

1. LORD JUSTICE ALDOUS: Pulse Entertainment Ltd sought permission to appeal against the judgments of His Honour Judge William Crawford QC in an action brought by Eurovideo Bildprogramm GmbH.
2. I can take the basic facts from the first judgment of the judge. In September 1997 there was a trade fair at Cannes at which Pulse had a stand. The managing director of Eurovideo was interested in Pulse's animated classics series and indicated a desire to distribute video cassettes of that series in the German-speaking territories. After the trade fair, Pulse wrote to Eurovideo giving the availability of certain titles. After correspondence the managing director of Eurovideo visited Pulse's offices in California on 4th December 1997. At that meeting it was agreed that a video distribution licence agreement should be drawn up. A draft was faxed to by Pulse to Eurovideo on 12th December. On 16th December Eurovideo wrote back requesting a number of amendments. These included in three places the addition of the words "exclusive right for the first exploitation in the licensed media", "exclusive right for the first exploitation and license right to manufacture", and "exclusive first exploitation right (in the designated territories)". Those amendments were incorporated into a draft licence which was sent by Pulse to Eurovideo, together with a letter dated 18th December 1997 which stated that the amendments were "accepted and amended".
3. The agreement was put into effect and three instalments of licence fees amounting to just over $170,000 were paid. The events that triggered these proceedings arose when Eurovideo sought the necessary licence from the German licensing body. They were told that some of the titles had been licensed. Eurovideo then withheld the last tranche of the licence fee and on learning that the video cassette rights of distribution had been granted to other distributors made a claim for damages and/or rescission for misrepresentation and breach of contract.
4. There were a number of disputes of fact, in particular what happened at two meetings. The judge found as a fact that at what was called the MIPCOM meeting nothing was said which made it clear that there had been a previous distribution in Germany. At the 4th June 1997 meeting, the judge found:

"... no references or statements were made by the Defendants' witnesses which made the position as to previous distribution clear: ..."

5. It was also alleged that Pulse had made representations to Eurovideo that the films had been previously exploited. The judge held that it was not mentioned that the films had been exploited as video cassettes in the German language in Germany, Austria and Switzerland.
6. The judge went on to conclude that the agreement was entered into upon misrepresentations. If the defendant had not agreed to the proposed amendments, or if they had said or done anything to raise any doubt as to whether prior exploitation had taken place, then Eurovideo would not have signed the agreement. He held that the representations made, which were subsequently contained in the agreement, were that the relevant works had not previously been exploited in the German language. Thus the agreement would give Eurovideo the right of first distribution in the territory concerned. He went on to conclude that the agreement could be rescinded and awarded damages.
7. The judge did not give permission to appeal and therefore Pulse applied to this court. I considered the matter on paper and granted permission to appeal on the matters sought to be argued in relation to the measure of damages. However, I stated that the skeleton argument had not persuaded me that the other issues stood a real chance of success.
8. This is a renewed application for permission to appeal upon the issues on which I refused permission to appeal on paper. I will deal with them in turn.
9. First, it was submitted by Mr Flower that the judge erred in construing the phrase "first exploitation right" as meaning that titles had never been previously distributed within the territory. Clause 1A of the agreement is in this form:

"Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee during the Term thereof:

A. the exclusive right for the first exploitation and the license to manufacturer, sell, rent and advertise video devices, whether tape or disc or other contrivance, reproducing the Programmes for supply to the public for private home use by means of a playback device and to distribute same throughout the Territory and to grant sub-licenses to do the same; ..."

10. It was submitted by Mr Flower that on the proper construction of those words, the words "first exploitation" must refer to each copy rather than the works themselves. Thereafter the argument proceeds by reference to section 18 of the Copyright, Design and Patents Act 1988 which states that the issuing of copies to the public is a act restricted by the copyright. It follows, it was submitted, that when a copy is put into circulation the consent of the copyright owner is required. Accordingly it was submitted that "the first exploitation right" granted to Eurovideo meant no more than the respondent had the right to exploit each of the copies made by the respondent by putting those copies into circulation for the first time.
11. As I have said, the judge rejected that construction. He held that "the first exploitation" had the effect that nobody had exploited the videos before. In my view the judge must be right. In essence the submission is that the videos that were supplied, or would be supplied, would be new and not second-hand videos and that was the right that was given to Eurovideo. That in my view is not what is said. What was given was the exclusive right to first exploitation. That was a right to the first exploitation namely a right which had not been granted to others. In my view the construction argument stands no real prospect of success. I would not give permission to appeal to argue that matter.
12. I come next to what I can call the misrepresentation argument. The judge held that there had been a misrepresentation in the pre-contactual documents and in the agreement itself that the rights that were going to be granted would be first exploitation rights. He held that that representation was untrue and that Eurovideo relied upon those representations when entering into the agreement.
13. Mr Flower submitted that the judge was wrong to come to that conclusion as this matter was not pleaded. Second and more importantly, that in this particular case it had not been established that there had been any pre-contractual misrepresentation, all that there was was an agreement to be bound by the truth of the statements in the contract. He submits, went on to submit that it would not be established that Pulse did not believe that the representation that they thought they were putting forward was other than the truth. In those circumstances, this was not a case in which rescission was a possible outcome. The most that Eurovideo could recover would be damages for breach of a term of the agreement.
14. For my part, I believe that that is arguable and therefore I would give permission to argue the misrepresentation point. I believe the pleading point is purely technical. I do not believe that it is one with which this court should be troubled. In those circumstances, I would limit the permission to the misrepresentation argument.
15. LORD JUSTICE ROBERT WALKER: I agree.
ORDER: Application for permission to appeal granted, limited to the misrepresentation argument; Appellant counsel allowed 14 days to submit a fresh skeleton argument and grounds of appeal (if necessary). (Order not part of approved judgment) ____________________