England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		1st June 2009

MR. JUSTIC KITCHIN:

1. I have before me an application for an injunction to restrain the defendant pending trial or further order from imposing upon the claimant new working practices as a precondition to the continuation of the broadcasting of the claimant's advertisements and programmes pursuant to a licence agreement between the claimant and the defendant dated 12 February 2007 ("the Licence Agreement").
2. As I shall explain, the application has taken a somewhat unexpected turn in that the defendant indicated at the outset of the hearing that it does not resist the injunction sought provided that the claimant itself provides an undertaking to the court to use its best endeavours to comply with a more limited working practice in rather different terms.
3. For reasons I shall elaborate, the claimant submits that would not be an appropriate course and that I should grant the injunction sought without any such condition. I consider I therefore have no alternative but to address first, the merits of the claimant's application and second, the merits of the defendant's request that the claimant provide the further undertaking to which I have referred.
4. The application first came before the court on 22 May 2009 when Henderson J granted an injunction over until today. The notice of the application was given to the defendant that morning and substantial evidence in support in the form of the fifth witness statement of Mr. Alexander Zhigulev, the chief financial officer of the claimant, was served only shortly before the hearing. Nevertheless, the defendant served a brief witness statement from its solicitor, Mr. Trevor Mascarenhas, in response to that of Mr. Zhigulev and counsel for the defendant attended the hearing. The defendant has now had the opportunity of serving fuller evidence in answer to the application in the form of a sixth witness statement of Mr. Mascarenhas and Mr. Zhigulev has replied to this evidence in his sixth witness statement provided to me this morning. The evidence is therefore now complete.
5. In broad summary, the claimant invites me to continue the injunction on the grounds that the defendant's attempt to impose new working practices is at least arguably in breach of the terms of the Licence Agreement, that damages would not be an adequate remedy and that the balance of the justice favours the granting of the relief sought.
6. The defendant opposes the unconditional continuation of the injunction on the basis that the imposition of the new working practices does not constitute a breach of the terms of the Licence Agreement, particularly in the light of the difficulties faced by the defendant as a result of the claimant's past conduct; that, contrary to the evidence of the claimant, at least one of the working practices is not new and had previously been complied with by the claimant and that the court should not in its discretion grant injunctive relief to the claimant, particularly in view of the claimant's past and continuing serious breaches of the Licence Agreement.
7. The defendant continues that the claimant has been abusing the process of the court by relying on the inability of the defendant to terminate the licence on the grounds of those breaches as a result of an earlier injunction granted against the defendant until trial, in circumstances I shall explain.
8. The background to the matter, at least so far as relevant to the present application, is as follows. Under the Licence Agreement the defendant licensed to the claimant the right to broadcast and distribute a TV channel called Fashion TV in a territory comprising Russia, other CIS states and the Baltic states. The version of the channel broadcast in the territory is defined as the Russian Signal.
9. The process of putting together the Russian Signal is explained by Mr. Zhigulev in his fifth witness statement. In summary, the claimant sells advertising space to its customers who provide their adverts to the claimant. The claimant then sends the defendant its advertising schedules by e-mail and uploads the advertisements to the defendant's server together with any programmes it wishes to add to the Russian Signal itself. The full 24 hours of programming each day is then filled out by the defendant from its library of programmes, so producing what is known as a play list.
10. The defendant uploads the play list on to its website where it can be accessed. The content making up the play list is then sent by fibre optic cable to Moscow, where it is uploaded to the ABS 1 satellite.
11. In a broad terms, the claimant is obliged under the Licence Agreement to pay to the defendant a minimum licence fee of US$105,000 per month, of which US$23,000 is ear-marked to cover costs incurred by the defendant in providing its technical services. If the sums received by the claimant exceed a minimum guaranteed figure, then an additional royalty becomes payable.
12. It seems the relationship between the parties began to deteriorate from about July 2008 with each making allegations of breach of the Licence Agreement against the other.
13. The defendant complains inter alia that the claimant failed to make payment of substantial sums which were due and owing and failed to provide specific detailed information in compliance with its reporting obligations. Matters came to a head when the defendant sent a purported cure notice dated November 2008. It says the claimant's breaches were not remedied within the requisite period so it became entitled to terminate the Licence Agreement.
14. The claimant disputes the defendant's right to terminate and maintains it has made overpayments by mistake and that it is entitled to damages for deceit and negligent misstatement and, having failed to reach agreement with the defendant, issued the claim in December 2008 and applied for an interim injunction restraining the defendant from acting on the cure notice or any notice of termination.
15. An injunction was granted on a without notice basis by Lewison J on 23 December 2008. It was continued by Blackburne J on 19 January 2009, upon the claimant giving various undertakings. On 25 February 2009 Warren J ordered an expedited trial and gave appropriate directions to that end, with the result that the trial is due to take place in October of this year. Then, on 28 April 2009, a consent order was made by Floyd J continuing the injunction until trial.
16. The defendant invites me to note the following points about that order. First, the claimant undertook that a performance guarantee in the sum of US$1.5 million should stand both as security for its cross-undertaking and damages and also as security for the defendant's costs. Therefore, any claim by the defendant for damages or costs in excess of that sum is not secured. Second, as for the monthly minimum licence fee of US$105,000, only US$23,000 is being paid to the defendant. The balance of US$82,000 is not being paid as a result of the various claims advanced against the defendant in the action. Hence the defendant says the additional costs it is incurring as a result of the on-going failures by the claimant are not covered. It is being deprived of the balance of the minimum licence fee to which it is entitled. Moreover, if the claimant is receiving more than the minimum guaranteed figure under the Licence Agreement it is also being denied its additional royalties. It strongly suspects that to be the case.
17. There matters stood until a Mr. Oren Givoni, acting on behalf of the defendant, sent an e-mail to the claimant on 14 May 2009 in the following terms:

"Dear Alexander,

Please be informed that we are upgrading our scheduling system and we will have to change our workflow accordingly.

For all Fashion TV advertisement contracts on all feeds, our accountancy (based in Vienna) must confirm each airing before the commercial goes on air. This new confirmation stage by our accountancy will assist our company with our international operation.

The workflow will have to change accordingly to assure smooth operation and here is its contents:

1. You must send all schedules 7 days in advance to billing@ftv.com and to oren@ftv.com, vladimir@ftv.com, yulia.sherbakov@ftv.com.

2. You must include to each daily schedule the attached sales order form that will include all financial details of the deal. The form will not be accepted unless all details marked in yellow color will be filled.

3. FTV Accountancy will confirm each campaign on the daily schedule.

4. Only after the confirmation from our accounting department is given, FTV Broadcasting centre will schedule the campaigns that are confirmed.

We will begin in 7 days from now. By the 20/5/09 you must follow the new workflow for the 21st of May onwards otherwise we will not be able to schedule your local advertising.

Please confirm.

Thank you,

Best Regards,

Oren Givoni."

18. In summary, the defendant requested that:

(i) all advertising schedules be sent seven days in advance;

(ii) each daily schedule should have attached to it sales order forms setting out all financial details of the advertising deals to which the schedule related and, further, the sales order forms would not be accepted unless all highlighted sections had been filled in;

(iii) the defendant's accounting department would subsequently confirm each advertising campaign on the daily schedule;

(iv) only after confirmation from the defendant's accounting department was given would the defendant's broadcasting centre schedule the campaigns, so confirmed, for inclusion in the Russian Signal.

19. For reasons I shall elaborate, the claimant maintains that these work practices represent departures from the work practices that had operated between the claimant and the Defendant up to that point and, perhaps more importantly, that it would be impossible for the claimant to comply with them. Moreover, they were implemented by the defendant with immediate effect, with the result that the defendant ceased to broadcast the claimant's advertising campaigns in the Russian Signal as from 21 May 2009 (although it has recommenced doing so following the order made by Henderson J on 22 May 2009).
20. As to whether the work practices set forth in the e-mail constitute a departure from those previously in operation, I think it tolerably clear from the terms of the e-mail itself that the defendant considers that they do, since it expressly refers to them as a new work flow. More specifically, and dealing first with the instruction that advertising schedules be provided seven days in advance, Mr. Zhigulev explains in his fifth witness statement that the defendant had previously requested they be provided four days in advance and that the claimant has complied with this where possible. However, he says that there are times when advertising schedules can only be sent less than four days in advance and there are other occasions where advertising schedules need to be changed less than four days in advance. This, he says, is the nature of the television industry which moves quickly. On occasion clients only provide information or change information previously provided at the last minute and the claimant then works with the defendant to try and accommodate the client's needs.
21. Indeed, I do not understand Mr. Mascarenhas really to suggest otherwise in his fifth and sixth witness statements. He acknowledges that the claimant had agreed to provide the advertising schedules four days in advance and says it has repeatedly failed to comply with that requirement, consistently provided them just one day in advance (often with errors) and that this has caused considerable inconvenience and has resulted in the defendant's staff having to work substantial amounts of overtime.
22. Indeed, I rather detect that this is the defendant's real concern. It believes it to be grossly unjust that the claimant appears to think it can provide advertising information as late as it likes, with the result, as it must well appreciate, the defendant has to suffer substantial disruption and incur high additional costs without any appropriate compensation.
23. Turning to the instruction that the claimant must provide financial details associated with each deal at the time of submission of the advertising schedules to the defendant, the claimant points out that the Licence Agreement contains accounting and reporting obligations and these require the provision of specified information within 10 days of each calendar month and within one month of the end of each contractual year. None of these after the event reporting obligations is concerned with the submission of advertising schedules or the submission of financial information in advance of or contemporaneously with the advertising schedules themselves. Nor, says Mr. Zhigulev, has there been any requirement under existing work practices or under the Licence Agreement for the approval of the claimant's advertising schedules by the defendant's accountancy department prior to their incorporation into the Russian Signal.
24. Mr. Mascarenhas disputes this evidence. He says the requirement to provide sales order forms is not novel. It was the system used in the territory prior to the Licence Agreement and did not create any undue administrative burden to the claimant's predecessor. He also maintains all other licensees of the defendant follow the same procedure. He adds that the claimant itself used to follow this procedure immediately after the Licence Agreement had been entered into.
25. Plainly there is a dispute here on the evidence as to aspects of the practice in the industry, of the claimant's predecessor and of that adopted by the claimant itself, at least at the outset. However, I think it reasonably clear that the provision of sales order forms does not form part of the recent working practices operating between the claimant and the defendant and that sales order forms have never been provided by the claimant seven days in advance and there has never been a requirement for the approval of the advertising schedules or sales order forms by the defendant's accounting department.
26. I must now address whether it would be possible for the claimant to comply with the new working practices. Mr. Zhigulev explains at some length that it would not. In summary, his reasons are as follows. The vast majority of the claimant's advertising is provided by its exclusive sales agent Video International. Its contract apparently stipulates it must provide advertising schedules and videos five days in advance. Mr. Zhigulev says that in practice the claimant and Video International normally work to four days. The claimant could not get Video International to provide them any earlier because they work with a computer program that allows advertisers to change the adverts to be broadcast up to four days before the date of the broadcast. At that time the system locks and the schedules are produced. To change this would require a fundamental change in Video International's relationship with its clients and would create a divergence from the common practice with all other channels in Russia, where Video International is the dominant advertising firm. This is not going to be possible.
27. As for the other clients of the claimant, they provide their advertising schedules on what is described as a full campaign basis, but the claimant's working relationship with those clients is now set up so that they plan their campaigns taking account of the need to provide advertising information to the claimant four days in advance of broadcast. It would be very difficult and damaging to those relationships to try to change them now and impose a seven day deadline.
28. Turning to the requirement to include sales order forms with the advertising schedules, clearly if the advertising schedules cannot be provided seven days in advance then neither can the sales order forms. In addition, Mr. Zhigulev says it would involve a huge amount of additional information to fill the forms in and attach them to every advertising schedule that is sent. Moreover, he continues, in the light of the way in which Video International sends its schedules to the claimant, it would be extremely difficult for a sales order form to be completed at the time the advertising schedules are sent. In addition, Mr. Zhigulev can see no reason why it should be necessary or appropriate for the defendant's accounting department to approve the advertising campaigns, the advertising schedules or the sales order forms. The claimant is entitled to run whatever adverts it wishes on the Russian Signal at whatever price it can get in the market and there is no provision in the Licence Agreement requiring prior approval by the defendant's accounting department.
29. In a nutshell, the claimant's case is that the imposition of the new work practices amounts to a breach of the defendant's duty under the Licence Agreement:

(i) not to take any action that would derogate from the grant of rights of the claimant, including the broadcasting rights defined in clause 4.1 of the Licence Agreement; such a duty not only being a matter of obvious implication in a Licence Agreement but expressly recorded in clauses 2.6 and 3.3;

(ii) to co-operate with the claimant to the extent necessary to enable the claimant to enjoy the rights granted to it under the Licence Agreement.

30. In all the circumstances, I am satisfied that the claimant does indeed have an arguable case that the imposition of the new work practices would amount to a breach of the defendant's obligations under the Licence Agreement in both respects and potentially prevent the claimant from enjoying its rights under the Licence Agreement altogether. They are practices with which the claimant cannot comply and the defendant has made clear that failure to comply will mean that the defendant will not schedule the claimant's advertising. Indeed, as I have mentioned, prior to the order of Henderson J that is exactly what happened.
31. That takes me to the balance of justice and in my judgment that is really all one way. So far as the claimant is concerned, the position is explained by Mr. Zhigulev in his fifth witness statement. The claimant has spent two years working up the business connected with the Licence Agreement and the broadcast of the Russian Signal and this would be completely destroyed if it were unable to broadcast adverts for a period of five months. Even if the broadcast of adverts recommenced after trial the claimant's reputation in the market would have been destroyed and its customers would have taken their business elsewhere.
32. He elaborates that the same applies to the claimant being required to comply with the new requirements set down by the defendant. It is not possible for it to do so in at least the vast majority of cases and the inevitable result would be the adverts not being broadcast and the damage to which I have referred.
33. Moreover, he continues, even if the claimant were able to comply after negotiating adjustments to its relationships with advertisers, including Video International in particular, it then would only be able to offer advertising on strict terms which would be less favourable than other channels in the market which would prompt customers to place their advertisements elsewhere and it will, he says, be impossible to collect evidence of every advertisement lost because of this competitive disadvantage.
34. He concludes that it is not an overstatement to say that this would seriously endanger the business operations of the claimant and would affect not only the claimant but the other companies in the group which deal with the same advertisers. For example, he says, already Proctor & Gamble is holding off on placing regular adverts with the claimant's group on the basis that the claimant is experiencing problems placing its adverts on the Russian Signal.
35. Moreover, the provision of the detailed information required in the sales order forms would impose a significant additional administrative burden on the claimant and appears to be inconsistent with the system of event reporting contained in the Licence Agreement. Nor is there any obvious basis in the Licence Agreement for the claimant's advertising schedules to be pre-approved by the defendant's accounting department.
36. Conversely, if I grant the injunction sought it will restore the status quo immediately before the defendant's e-mail of 14 May 2009. The defendant's real complaint seems to be that the claimant has persistently failed to comply with even the four day notice requirement and this has caused substantial disruption to the defendant's business and resulted in it incurring significant additional extra costs at a time when it is receiving only a small fraction of the money due to it under the Licence Agreement. Moreover, it says, the claimant has repeatedly failed to provide any or any accurate monthly reports.
37. I have to say that I have some sympathy for the defendant in respect of both these matters. However, I am satisfied they are not new complaints and were a cause of dissatisfaction to the defendant even before the commencement of proceedings. Certainly there is no suggestion that there has been any material change in circumstances since the consent order made on 28 April 2009. Moreover and more fundamentally, I do not believe they provide any justification for the imposition of even more stringent working practices with which the claimant cannot in practice comply. If and to the extent the claimant's failure to provide advertising schedules or reports on time has caused the defendant loss, then it is open to the defendant to claim damages in respect of such loss.
38. For all these reasons I have come to the conclusion that damages would not be an adequate remedy for the claimant and that the balance of justice favours the grant of the injunction sought.
39. Nevertheless, the defendant has submitted through counsel today that, in all the circumstances I have related, the interests of justice demand that the injunction should be subject to an undertaking from the claimant to use its best endeavours to provide the advertising schedules together with the relevant video clips, either within the same timescale as that provided for in the claimant's contract with Video International or, in any event, four days before broadcast.
40. I decline to make the grant of the injunction subject to such an undertaking for all of the following reasons. First, it seems to be wholly wrong to extract by way of undertaking something which the defendant has chosen not to seek by way of mandatory injunction. Second, this submission has been made very late in the day and it is not something to which the claimant has had a chance to direct evidence. Third, the defendant has complained about the claimant's failure to provide advertising schedules four days in advance for some considerable time. There is no evidence to suggest there has been any change in circumstances since the consent order of 28 April 2009. Fourth, such evidence as is before me suggests that the claimant is doing its best to provide the advertising schedules four days in advance of broadcast in any event. Finally, I am concerned that the terms of the undertaking sought are uncertain in scope. In light of the current state of the relationship between the claimant and the defendant I think that this has the potential to cause real practical problems and this would be unjust to the claimant.
41. Accordingly I propose to grant the relief sought.

(For proceedings: see separate judgment)