England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/07/2009

Mr Justice Flaux:

Introduction

1. The Claimant (to which I will refer as Excelsior) is an independent television production company, of which the two directors and shareholders are Mr Philip Burley and Mr Richard Bates. The Defendant (to which I will refer as "YTV") was a television production and broadcasting company based in Leeds and was one of the regional licensees who together provide the national independent television channel in the United Kingdom, which until the advent of the digital channels which have led to the present dispute was generally known as "ITV".^[1]
2. The present dispute concerns the rates of payment due from YTV to Excelsior in respect of broadcasts on the digital channels ITV2 and ITV3 of television drama programmes produced by the parties under three separate Agreements, each of which was made many years ago. What is now the only contested issue in the case turns on the construction of a particular clause which, with some variations agreed not to be material, appears in each of the Agreements. On the pleadings, there was an issue about limitation, but it is now accepted by Excelsior that, even if its construction of the Agreements is correct, any claim to payment in respect of programmes broadcast on ITV2 and ITV3 on or before 3 April 2002 is time barred.

The three Agreements

The Darling Buds of May Agreement

3. On 12 July 1990 Excelsior and YTV entered into an agreement ("The Darling Buds of May Agreement") for the production and exploitation of television films of "The Darling Buds of May" and the other Larkin family novels written by the well known novelist H.E. Bates (who was in fact Mr Richard Bates' father). Excelsior had obtained the rights in respect of those novels by assignment from Evensford Productions Limited.
4. By Clause 1(a) of the Agreement, Excelsior granted YTV the exclusive right to produce in association with Excelsior the Film/Programmes for £125,000. Clause 2 set out the rights conferred by the Agreement. Clause 2(b) is relevant for present purposes. It provided:

EGP hereby Agrees and Declares that in connection with the exercise of its rights YTV shall be entitled:

b. to broadcast the Film/Programmes throughout the World subject as hereinafter contained by means of open circuit or 'free' television broadcasting toll or pay cable television broadcasting satellite television broadcasting and likewise to exploit the Film/Programmes non theatrically (as the expression is understood in the film and television industry) and in the form of videograms for sale and hire to the general public.

5. Clause 4 of the Agreement set out the terms for payment for broadcast and other exploitation. Clauses 4(1) and (2) of the Agreement (which are at the centre of the dispute between the parties) provided as follows:

(1) The payment by YTV to [Excelsior] of the said sum of £125,000.00 in respect of the purchase of the rights hereinbefore granted shall entitle YTV to broadcast the Film/Programmes by television on two occasions either simultaneously or non-simultaneously from all the transmitters of the IBA serving ITV or Channel Four Provided Always that if YTV shall further repeat the television broadcasting of the Film/Programmes in the United Kingdom the sum of £3,000.00 (Three Thousand Pounds) per broadcast hour shall be due and payable by YTV to [Excelsior] within Twenty-One Days of the date of such further repeated transmission or transmissions simultaneously or non-simultaneously from all the transmitters of the IBA serving ITV or Channel Four.

(2) It is mutually agreed that if YTV shall transmit or authorise the transmission distribution or exploitation of the Film/Programmes in overseas territories by means of open circuit or 'free' television broadcasting toll or pay cable television broadcasting satellite television broadcasting or by way of non-theatric exhibition or in the form of videograms for sale and hire to the general public there shall be payable to [Excelsior] Eight Per Cent of the adjusted gross income accruing to YTV from such broadcasting authorised broadcasting and other distribution or exploitation as aforesaid…

The Frost Agreement

6. On 23 April 1992 the parties entered into an agreement ("The Frost Agreement") for the production and exploitation of television films of novels by Rodney Wingfield, including "A Touch of Frost". Excelsior had obtained all the rights in the novels by way of an assignment from Mr Wingfield. Clause 2(b) of that Agreement was in the same terms as the equivalent clause in the Darling Buds of May Agreement.
7. Clauses 4(1) and (2) of the Frost Agreement provided as follows:

(1) The payment by YTV to [Excelsior] of the said sums in respect of the purchase of the rights hereinbefore granted shall entitle YTV to broadcast the Film/Programmes by television on two occasions either simultaneously or non-simultaneously from all the transmitters of the Independent Television Network and Channel Four Provided Always that if YTV shall further repeat the television broadcasting of the Film/Programmes in the United Kingdom the sum of £3,000.00 (Three Thousand Pounds) per broadcast hour shall be due and payable by YTV to [Excelsior] within Twenty One Days of the date of such further repeated transmission or transmissions simultaneously or non-simultaneously from all the transmitters of the Independent Television Network and Channel Four. The said repeat fees (of £3,000.00 per broadcast hour) shall remain a fixed rate for the period of Five Years from the date hereof but shall thereafter be calculated by reference to an annual Five Per Cent compound accrual.

(2) Subject as mentioned in sub-clause (3) of this Clause hereunder it is mutually agreed that if YTV shall transmit or authorise the transmission distribution or exploitation of the Film/Programmes by any other method or means within the United Kingdom and/or in any and all media now known or hereafter devised in overseas territories there shall be payable to [Excelsior] Fifteen Per Cent of the adjusted gross income accruing to YTV from such broadcasting authorised broadcasting and other distribution or exploitation as aforesaid.

The Silas Agreement

8. By a further agreement concluded in 1999 but only signed on 2 October 2000 ("The Silas Agreement") the parties agreed to produce and exploit television films of stories by H.E. Bates known as "My Uncle Silas". Excelsior had obtained the rights in the stories by assignment from Evensford Productions Limited. Clause 2 contained similar provisions to the equivalent clauses in the previous agreements.
9. Clauses 4(1) and (2) of the Silas Agreement provided as follows:

(1) The payment by YTV to [Excelsior] of the said sums in respect of the purchase of the rights hereinbefore granted shall entitle YTV to broadcast the Film/Programmes by television on two occasions either simultaneously or non-simultaneously from all the transmitters of the ITV Network provided always that if YTV shall repeat the television broadcasting of the Film/Programmes in the United Kingdom thereafter the sum of £2,000 (Two Thousand Pounds) per broadcast half-hour shall be payable for the third transmission and £2,500 (Two Thousand Five Hundred Pounds) for the fourth ransmission [sic.] Thereafter repeat fees will be calculated by reference to an annual 5% (five per cent) compound accrual. Such sums to be due and payable by YTV to [Excelsior] within Twenty One days of the date of such repeated transmission or transmissions simultaneously or non-simultaneously from the transmitters of the ITV Network.

(2) Subject as mentioned in sub-clause (3) of this clause hereunder it is mutually agreed that if YTV shall transmit or authorise the transmission distribution or exploitation of the Film/Programmes by any other method or means within the United Kingdom and/or in any and all media now known or hereinafter devised in overseas territories there shall be payable to [Excelsior] 15% (Fifteen Per Cent) of the adjusted gross income accruing to TYV from such broadcasting authorised broadcasting and other distribution or exploitation as aforesaid.

10. None of the Agreements is for a set period but each will last for the period for which the rights endure. Since copyright is involved, this might be some fifty years. That the Agreements are for a long period is demonstrated by the fact that the first Agreement was entered into almost nineteen years before the trial took place.

The issue in the case

11. The issue between the parties can be stated shortly. Excelsior seeks a declaration that, in relation to each of the Agreements, it is entitled to payment of the flat rate fees per broadcast hour under clause 4(1) for broadcasts on ITV2 and ITV3. YTV disputes this, contending that the repeat fee under that clause is only payable in respect of repeats on the channel generally known, in 1990 and 1992, as ITV, but now as ITV1. YTV's case is that in respect of broadcasts of the programmes on ITV2 and ITV3, Excelsior is only entitled to payment of royalties under clause 4(2). Since these royalties have been paid, nothing is currently due and Excelsior is not entitled to the declaration it seeks.

The applicable principles of construction

12. Before considering the admissible factual background to the Agreements, it is important, in view of the breadth of some of the evidence which Excelsior in particular sought to call, to have in mind the relevant principles by reference to which the court should construe these contracts.
13. Where, as in the present case, the court is concerned with the construction of a contract made many years ago (in the case of the Darling Buds of May Agreement 19 years ago, in the case of the Frost Agreement 17 years ago and in the case of the Silas Agreement 10 years ago) it is important that the Court should interpret the contract as at the date that it was made and that words in the contract are given the meaning which they bore at the date of the contract: see Lewison: The Interpretation of Contacts para 5.15 and, as a relatively modern example of that principle in play, the decision of Slade J in The Earl of Lonsdale v Attorney-General [1982] 1 WLR 887. Evidence is admissible as to what particular words or phrases meant at the time that the contract was made, as that case demonstrates, evidence having been heard as to the vernacular meaning of the word "minerals" in 1880, the date of the relevant conveyance.
14. Of course, it may be that, even if a particular concept or entity did not exist at the time the contract was made, the contract, properly construed by reference to what words or phrases used meant at the time, may have used words of sufficient width to encompass that concept or entity when it comes into existence. An example of that principle in the context of the present case is the use of the words in clause 4(2) of the Frost Agreement "any and all media now known or hereafter devised". Equally, the parties may have used a word or phrase in their contract which properly construed is intended to change its meaning as the ordinary meaning of the word or phrase changes. Lewison at page 187 cites the example of Dano Ltd v Earl Cadogan [2003] 2 P.&C.R 10, where it was held that the parties must have intended the phrase "the working classes" in a restrictive covenant entered in 1929 to change with social and economic changes.
15. In applying the well-known principles of construction set out by Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 at 912-3, the court is to have regard to the factual background or matrix reasonably available to the parties in the situation in which they were at the time of the contract, not at some later time. At times, both in the submissions made by Mr Andrew Sutcliffe QC on its behalf and in the evidence of Mr Burley and Mr Bates (whether admissible or not), there was a tendency on the part of Excelsior to conflate or confuse what was admissible factual background at the time the Darling Buds of May and Frost Agreements were made, for example as regards the regulatory or corporate position in 1990 or 1992, with the position as it stands today. The present corporate structure of the independent television companies cannot be part of the factual background to contracts made many years ago.
16. That ties in with a related point. In his opening submissions and in his cross-examination of the defendant's witnesses, Mr Sutcliffe spent a good deal of time on events surrounding the operation of ITV2 and ITV3, specifically the question whether "sales" of the programmes by the defendant or the relevant distributor, Granada International, were in truth sales at all, or were at arm's length or were in the best interests of either Excelsior or YTV. From the outset of the trial, I queried the relevance (and indeed the admissibility) of much of this material to the issues the court has to decide on the pleadings (which concern, other than limitation, issues exclusively of the construction of the contracts).
17. There was and is no pleaded case by Excelsior that YTV has acted otherwise than in the best interests of Excelsior and, even if there were, I fail to see its relevance to the task of construction in which the court is engaged. In his closing submissions, Mr Sutcliffe submitted that the relevance was that there was an issue within ITV as to whether repeat programmes on ITV2 and ITV3 would attract fixed fees. However, in my judgment that submission demonstrates that Excelsior was trying to do what well-established principles of construction do not permit, namely construe the contract by reference to subsequent events. At another point, Mr Sutcliffe suggested that the relevance of evidence as to whether the sales to ITV2 and ITV3 were at arm's length was that such sales would have to be, to fall within clause 4(2) of the various Agreements. However, that seems to me to be an impermissible gloss on clause 4(2) as it appears in any of the Agreements, not justified by its wording.
18. At the end of the trial, it remained my firm view that much of this material was neither relevant nor admissible. Of course, the court has to look at the structure of ITV2 and ITV3 and the nature of its broadcasts in order to determine whether programmes broadcast on those channels fall within the words used in clause 4(1) of each of the contracts at the time those contracts were made. However, aside from that evidence, which is in a relatively narrow compass, the other wide-ranging documentary and witness evidence about events which occurred many years after the making of the contracts, falls foul of the general principle that, in the case of a written contract, the subsequent conduct of the parties is not admissible as an aid to the construction of the contract save in very limited circumstances (such as variation or estoppel by convention) not applicable in this case: see Lewison para 3.15, James Miller & Partners v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 and Schuler (L) AG v Wickman Machine Tool Sales Ltd [1974] AC 235.
19. Furthermore, as Lord Hoffmann makes clear in Investors Compensation Scheme, in relation to what might be generically described as "factual background", there are two areas where evidence is not admissible, subjective intentions of the parties and pre-contractual negotiations (subject to certain exceptions). As regards the former, both the witness statements of Mr Burley and his oral evidence (and to a lesser extent the statement and oral evidence of Mr Bates) contained a number of statements of subjective intention and of opinion as to the meaning of the contracts, largely as I see it with a view to arguing Excelsior's case. That evidence was inadmissible and I have ignored it in construing the contracts.
20. The general rule that pre-contractual negotiations are not relevant or admissible as an aid to construction of a contract has been reaffirmed very recently by the House of Lords in Chartbrook Limited v Persimmon Homes Limited [2009] UKHL 38. Their Lordships examined whether there was any justification for departing from this general rule and concluded that there was not. As Lord Hoffmann put it in paragraphs 41 and 42 of his speech (with which the remainder of their Lordships agreed):

41. The conclusion I would reach is that there is no clearly established case for departing from the exclusionary rule. The rule may well mean, as Lord Nicholls has argued, that parties are sometimes held bound by a contract in terms which, upon a full investigation of the course of negotiations, a reasonable observer would not have taken them to have intended. But a system which sometimes allows this to happen may be justified in the more general interest of economy and predictability in obtaining advice and adjudicating disputes. It is, after all, usually possible to avoid surprises by carefully reading the documents before signing them and there are the safety nets of rectification and estoppel by convention…………

42. The rule excludes evidence of what was said or done during the course of negotiating the agreement for the purpose of drawing inferences about what the contract meant. It does not exclude the use of such evidence for other purposes: for example, to establish that a fact which may be relevant as background was known to the parties, or to support a claim for rectification or estoppel. These are not exceptions to the rule. They operate outside it.

21. He went on to hold that the decision of Kerr J in Partenreederei MS Karen Oltmann v Scarsdale Shipping Ltd (The Karen Oltmann) [1976] 2 Lloyd's Rep 708 was an illegitimate extension of the "private dictionary" principle (where, as he put it at paragraph 45: "evidence may always be admitted that the parties habitually used words in an unconventional sense in order to support an argument that words in a contract should bear a similar unconventional meaning"). He pointed out that since that case was decided, the principle of estoppel by convention has been developed. He concluded at paragraph 47:

If the parties have negotiated an agreement upon some common assumption, which may include an assumption that certain words will bear a certain meaning, they may be estopped from contending that the words should be given a different meaning. Both of these remedies lie outside the exclusionary rule, since they start from the premise that, as a matter of construction, the agreement does not have the meaning for which the party seeking rectification or raising an estoppel contends.

22. In the light of these observations, it must be debatable to what extent the decisions to which Mr Charles Hollander QC for YTV drew my attention in his opening submissions, can still be regarded as good law. These were decisions to the effect that pre-contractual negotiations are admissible to show that the parties have negotiated on an agreed basis as regards the meaning of certain words in their contract (see paragraphs 121 to 131 of the judgment of Lawrence Collins LJ in the Court of Appeal in Chartbrook Limited v Persimmon Homes Limited [2008] EWCA Civ 183).
23. However, it is not necessary to reach a concluded view on that point, since this is not a case in which it is alleged that the parties negotiated on an agreed basis, as regards the meaning of "ITV" or "the Independent Television Network" or "the ITV Network" in clause 4(1) of the various contracts. On the contrary, in his witness statement, Mr Burley said of clauses 4(1) and 4(2) of the Darling Buds of May Agreement that "the scope and application of those clauses was not the subject of debate in correspondence". He confirmed in his oral evidence that after receipt from Mr Cieslik of YTV in July 1989 of the draft contract, there was no discussion about clause 4(1). It was not suggested that the position was any different in relation to the other two agreements.
24. Mr Hollander maintained that the approach adopted by Sales J in the recent case of Investec Bank (Channel Islands) Limited v The Retail Group plc [2009] EWHC 476 (Ch) remained a permissible one, even after the decision of the House of Lords in Chartbrook. At paragraph 76 of his judgment, Sales J said:

…in interpreting a contract, regard may be had to the content of the parties' negotiations to establish the "genesis and object" of a provision. This seems to me to be a relevant part of the factual matrix, since if the parties in the course of their negotiations are agreed on a general objective which is to be achieved by inclusion of a provision in their contract, that objective would naturally inform the way in which a reasonable person in the position of the parties would approach the task of interpreting the provision in question.

25. It seems to me that there is a very fine line between looking at the negotiations to see if the parties have agreed on the general objective of a provision as part of the task of interpreting the provision and looking at the negotiations to draw an inference about what the contract meant (which is not permissible), a line so fine it almost vanishes. However, I do not need to decide whether the approach adopted by Sales J survives the restatement of the exclusionary rule in Chartbrook. Mr Hollander only relied upon the negotiations as demonstrating agreement about the general objective of clause 4(1) to a very limited extent, by reference to the letter from Mr Cieslik of YTV to Mr Burley of 7 July 1989 enclosing the draft contract and ensuing correspondence. Mr Hollander submitted that this showed the parties agreed that the objective of clause 4(1) was to deal only with "network broadcasts" in the sense of broadcasts on what is now ITV1 and on Channel Four. I am not convinced that the correspondence did show any such agreement and I derived no assistance from it. I have not taken it into account in construing the clause.
26. Thus, in conclusion on the principles to be applied to the construction of each of these agreements, in construing clauses 4(1) and 4(2) in each agreement, I should have regard to the background knowledge reasonably available to the parties in the situation in which they were at the time each agreement was made, disregarding pre-contractual negotiations (such as they were), the subjective intentions of the parties and their subsequent conduct.

The witnesses

27. Although there was a great deal of written material put before the court concerning primarily subsequent events and the operation of ITV2 and ITV3 in practice, together with witness evidence over nearly two days, much of which was again focused on subsequent events, it will be apparent from my conclusion as to the principles to be applied in construing the Agreement, that I consider much of that documentary and witness evidence to be inadmissible or, at best, irrelevant to the issue which I have to determine. Nonetheless, since both parties called oral evidence, I should set out my views about the witnesses' evidence, whether strictly admissible or not, before dealing with what I regard as the admissible background for the purposes of construing these Agreements.
28. Excelsior called both Mr Burley and Mr Bates to give evidence. Mr Burley has a wealth of experience in the media generally, including in programme production. Mr Bates had many years experience in the television industry, having been deputy managing director of London Weekend International. They were both not only eminent in their field but thoroughly likeable and honest witnesses. However, both of them (Mr Burley perhaps to a greater extent than Mr Bates) had a tendency to give evidence which was more argument than recollection of events. In a case where the relevant contracts were made so long ago and where the dispute between the parties has been on-going for ten years, this is probably inevitable. In my experience people like Mr Burley and Mr Bates, who have lived and breathed for years a dispute which involves them intimately, as this one does, tend to convince themselves that their version of events is correct. I say this without in any way impugning their integrity.
29. The principal witness for YTV was Mr Filip Cieslik. Until his recent retirement, he was the Director of Commercial Projects for ITV Studios Limited. During the period with which this case is concerned he was Manager of Business Affairs at YTV. He was the principal person with whom Mr Burley and Mr Bates dealt throughout their relationship with YTV. It is important to note that, although in Excelsior's opening submissions there were some fairly hyperbolic allegations about sharp practice by ITV plc, which is not of course a party to these proceedings, in cross-examination, Mr Burley fairly accepted that he was not seeking to make any personal criticism of Mr Cieslik.
30. That seemed to me entirely correct. However strongly Mr Burley and Mr Bates feel that they have been let down by "ITV" (which on their evidence is a rather amorphous entity, which at various times in Excelsior's presentation of its case seemed to be synonymous with Granada, at other times with ITV plc, the company formed after the merger of Granada and Carlton and which Mr Sutcliffe described at the outset of his oral opening as "effectively the real defendant"), there is no basis whatsoever for any criticism of Mr Cieslik. He behaved entirely honourably throughout. He was an impressive and measured witness, who was clearly trying to assist the court in the evidence he gave, without any axe to grind as to the correct construction of the contracts. In the relatively limited areas of any evidential relevance where there was a dispute between the Excelsior witnesses and Mr Cieslik, I preferred the evidence of Mr Cieslik.
31. YTV also called as witnesses (i) Mr Magnus Brooke, a solicitor who is Director of Regulatory Affairs for ITV plc, who gave evidence about the regulatory and statutory position at relevant times and whose evidence was frank and honest and (ii) Mr Andrew Chowns, the commercial director of ITV2. Mr Sutcliffe accepted in closing that Mr Chowns was a commendable witness. He, like Mr Cieslik, refuted any suggestion that the sales of programmes by YTV, or its distributor, Granada International, to ITV2 or ITV3 were not at arm's length or were in some other respect not in the best interests of YTV or Excelsior.

Admissible background

The position at the time of the Darling Buds of May Agreement in July 1990

32. The independent television channel which is now known as ITV1 was established in 1955 as the first commercial television channel in the United Kingdom. By the time of the Darling Buds of May Agreement, the provision of the services on that channel by the regional licensees was governed by the Broadcasting Act 1981, under section 1 of which the Independent Broadcasting Authority ("IBA") continued as the provider of the service on the channel. Under section 2 of the Act, the IBA had duties imposed upon it as a public service broadcaster in relation to the content and quality of programmes, to disseminate information, education and entertainment.
33. At the time of the Darling Buds of May Agreement, the channel for which the IBA was the broadcasting authority was widely known as "ITV". That was reflected in section 10(2) (a) of the 1981 Act which provided that: "'ITV' means the television broadcasting service already being provided by the Authority under this Act". ITV was broadcast on the third television channel other than BBC1 and BBC2. In the Broadcasting Act 1990, which was passed in November 1990 after the Darling Buds of May Agreement was made, but which was going through Parliament when that Agreement was made, the channel is officially referred to as Channel 3.
34. It is accepted by Excelsior in its Reply that: "the reference to "ITV" in the Agreement was a reference to the television channel known as ITV which was also known as Channel 3". Even if this were not accepted, I am quite satisfied that a reasonable commercial man in the position of these parties at the time in 1990 would have understood "ITV" to mean what is now officially called Channel 3 and nothing else.
35. Though this channel was a national channel, it had always been structured as a network of separate regional franchises or licensed areas, each of which had its own regional licensee. YTV was the licensee for the Yorkshire region. The regional licensees were members of a not-for-profit trade association which in 1987 had changed its name from the Independent Television Companies Association Limited to the Independent Television Association Limited ("ITVA"). This association became synonymous with "the Network" and was often referred to as the "Independent Television Network" or the "ITV Network". It is admitted in the Reply that the Independent Television Network or ITV Network was "the network of regional franchisees, including YTV, whose franchises were regulated by the IBA and who broadcast on ITV/Channel 3 from transmitters at that time owned by the IBA".
36. The identity of the regional licensees in July 1990 is set out in the following table:

Regional Licensee in 1990	Geographic Region
Anglia Television	East of England
Border Television	English/Scottish border and Isle of Man
Central Independent Television	East, West and South Midlands
Channel Television	The Channel Islands
Grampian	Northern Scotland
Granada Television	North West of England
HTV (previously known as Harlech television)	Wales and West of England
London Weekend Television	London (weekend)
Scottish Television	Central Scotland
Thames Television	London (weekday)
Television South	South of England
Television South West	South West of England
Tyne Tees	North East of England
Ulster Television	Northern Ireland
Yorkshire Television	Yorkshire

37. Although under the 1981 Act the IBA was the broadcaster, it did not provide the programmes for broadcast. These were provided by "programme contractors" who were the fifteen regional licensees, who had the right and the duty under the 1981 Act to provide programmes or parts of programmes for broadcast nationally on ITV. The regional licensees would also broadcast local programmes, such as the local news in their respective regions. When a regional licensee such as YTV provided a programme for national or "network" transmission, the programme would be scheduled for transmission by all the regional licensees. This transmission could be "simultaneous" or "non-simultaneous". A non-simultaneous transmission occurs when for example the local news is overrunning for some reason in a particular region, and the relevant programme is not shown at precisely the same time in that region as in the other regions and may even be shown the following day in that region.
38. The production of television drama was and is inevitably an expensive business. At the time of the Darling Buds of May Agreement, when regional licensees such as YTV produced the programmes, they could not afford the costs of doing so without assistance. Accordingly the regional licensees all contributed to the costs of production and the relevant programme would then be made available to all the regional licensees for transmission nationally on ITV (i.e. Channel 3), but not on any other channel.
39. The fees paid to rights holders for broadcasts on Channel 3 were always fixed fees or flat rate fees, known in the entertainment industry as "residuals". By contrast, in the case of onward sales of programmes to third parties such as overseas broadcasters or cable channels, percentage payments in the form of royalties were payable. This dual system of payment applied equally to others involved in the entertainment industry, such as actors, writers and musicians (as represented by their respective unions or associations, Equity, the Writers' Guild and the Musicians' Union, known collectively as "the talent unions"). The distinction between residuals and royalties was reflected in clauses 4(1) and 4(2) respectively of the Darling Buds of May Agreement (and indeed of the other two Agreements entered into in due course). It was a distinction which was also reflected in the collective agreements which were entered into with the talent unions.
40. Mr Sutcliffe submitted that the terms of the agreements between ITV companies and the talent unions which were before the court were not admissible in construing the Agreements with Excelsior which are in dispute. In relation to the detailed terms of those agreements with the talent unions, I agree. They would be of little assistance in construing the terms of the Agreements with Excelsior, which are not on identical terms. However, the overall general point that the entertainment industry draws a distinction between residuals payable for network broadcasts on Channel 3 and royalties payable for other methods of transmission and exploitation, by way of sales to third parties such as cable or satellite channels, is clearly admissible as part of the background. This distinction was common knowledge in the television industry, in which Mr Burley and Mr Bates have both participated for a number of years.
41. At the time of the Darling Buds of May Agreement, all the transmitters upon which ITV was broadcast were owned by the IBA. There were 1,154 such transmitters and when a programme was broadcast nationally on ITV, all the transmitters would be used. They were all what are now known as analogue transmitters, digital television or transmission not having been invented at that time. Each transmitter was fixed to a separate mast, but only about half the masts were owned by the IBA, the rest being owned by the BBC, which also had transmitters on the same masts.
42. Apart from ITV and BBC1 and BBC2, the only other terrestrial television channel in the United Kingdom in existence in July 1990 was Channel 4. Cable television had first been licensed in the United Kingdom in 1984, but the level of subscription was modest and only limited channels were available. Sky had launched its direct-to-home satellite television service in February 1989. Although its rival BSB launched its service in April 1990, at the time that the Darling Buds of May Agreement was made, the pay-TV market in the United Kingdom was small and undeveloped, compared with Europe and the United States. As Mr Cieslik said in his witness statement, at that time the only significant markets for the exploitation of television drama were terrestrial television and video in the United Kingdom and overseas sales.
43. Mr Cieslik explained the position in relation to Channel 4 very clearly in his witness statement. Channel 4 was launched in 1982. Like ITV, it was and is a public service broadcaster. Its service was provided by a wholly owned subsidiary of the IBA. The regional ITV licensees (including YTV) sold advertisements on behalf of Channel 4 and the IBA raised a subvention from the licensees to fund Channel 4, which was equivalent to 13.6% of the net advertising revenue earned across both ITV and Channel 4 in the previous year. However, as Mr Cieslik said very firmly in cross-examination, Channel 4 was never under the control of ITV and the regulator would never allow it to be. Channel 4 used separate transmitters from those used by ITV, although its transmitters were also, at that time, owned by the IBA and were located on the same masts as those used by ITV and the BBC.
44. Apart from the four terrestrial television channels in existence at that time, the only other terrestrial channel being contemplated was Channel 5, which was to be established pursuant to the Broadcasting Act 1990, which, as I have said was then before Parliament, but which was not passed until November 1990. I cannot accept the rather vague and unconvincing attempt by Mr Burley in his evidence to claim that some other analogue terrestrial channel in addition to Channel 5 was also in contemplation by the television industry. Mr Cieslik's evidence, which I prefer, was that he did not think any further analogue terrestrial channel other than Channel 5 was in contemplation.
45. I also reject the suggestion made by Mr Burley in his evidence that, at the time of the Darling Buds of May Agreement, there was some discussion between himself and Mr Cieslik about the possibility of further ITV channels other than ITV1. Ultimately (and understandably given the passage of time) he was unclear as to whether he was recollecting a discussion at that time or at some later date. Mr Cieslik was clear that there had been no such discussion at the time of the Darling Buds of May Agreement. As he put it:

I am certain in the sense, sir, that had we had a substantive debate about widening the scope of the way in which our agreement was to be used, I am sure we would have reflected that in our contract.

46. So far as Channel 5 is concerned, whilst this was clearly within the parties' contemplation, given that it was the subject of the Broadcasting Bill, it was not known who the licence holders of the new channel would be or whether it would use the transmitters of the IBA. Mr Sutcliffe put to Mr Cieslik in cross-examination that the licence holders might well have been ITV companies, in other words the regional licensees. Mr Cieslik did not agree. He said:

I think that the so-called "light touch" regulation of ITV was a misnomer and ITV was subject to pretty tight regulatory control by the ITC and my recollection, and it may be incorrect but it is my recollection, of the possibility of ITV companies owning Channel 5 -- it was not a possibility.

47. In fact, Schedule 2 to the Broadcasting Act 1990 when passed, contained what were described as "Restrictions to prevent accumulations of interests in licensed services". These included a provision to the effect that the holder of a Channel 3 licence could not be a participant with more than a 20% interest in a company which was the holder of a Channel 5 licence. As Mr Sutcliffe submitted, this would not prevent five or more of the regional licensees from forming a company to bid for the Channel 5 licence. However, as he also said, none of this detail would have been known to someone in the position of the parties at the time the Agreement was made, so it cannot form part of the background.
48. Whilst Mr Cieslik may be mis-recollecting that it would not be possible for Channel 3 licensees to become Channel 5 licensees as well, I very much doubt whether the possibility of this happening was at the forefront of anybody's mind. In any event, I do not derive any assistance in construing clause 4(1) by reference to who the Channel 5 licence holder might have been in the future.

The position at the time of the Frost Agreement in April 1992

49. The only significant change in terms of background at the time the Frost Agreement was entered into in April 1992, from the position at the time of the Darling Buds of May Agreement, was that the Broadcasting Act 1990 had been passed, repealing the 1981 Act. Although some of the relevant provisions of the 1990 Act did not come into force until 1993, the Frost Agreement was clearly entered into with the provisions of the 1990 Act in mind. The Act provided for the dissolution of the IBA and the transfer of its property, rights and liabilities to a new body established by the 1990 Act, the Independent Television Commission ("ITC"). The function of the ITC was to regulate, amongst other things, the provision of television programme services from places within the United Kingdom by persons other than the BBC and the Welsh Authority.
50. Section 14 of the 1990 Act also formally established as Channel 3 the national broadcasting service formerly known as ITV. As before, this was to be structured on a regional basis, with each of the Channel 3 services being provided for such area of the United Kingdom as the ITC determined. The ITC was responsible for the grant of the regional licences, which was heavily regulated under the Act.
51. In the event, when the Act came into force in 1993, there was a 'franchise auction' which led to some of the regional licences going to entities other than the original regional licensee. In particular, Carlton took over the London weekday franchise from Thames. The licences granted in the auction were for ten years. The holders of these licences became broadcasters in their own right and it was they who assumed responsibility (which had formerly rested with the IBA) for ensuring that the public service broadcasting obligations of Channel 3 were met. As part of that responsibility, the regional licensees were required under section 39 of the 1990 Act to ensure that networking arrangements were in place between them. The networking arrangements were to cover the commissioning, acquisition and scheduling of programmes to be available nationally on Channel 3. The arrangements were subject to the approval of the ITC.
52. Also under the Broadcasting Act 1990, the IBA's assets and responsibilities relating to the physical transmission of programmes were transferred to National Telecommunications Ltd ("NTL"). This transfer included the 1,154 transmitters which had been owned by the IBA.

The position at the time the Silas Agreement was concluded in 2000

53. Although most of the terms of what became the Silas Agreement appear to have been agreed by some time in about April 1999, it was not signed. This was because the actor who was due to play Uncle Silas, Oliver Reed, died on 2 May 1999. It seems to have taken a while to find a replacement (eventually Albert Finney) and the Agreement was not signed until 2 October 2000.
54. In terms of developments between the making of the Frost Agreement and the signature of the Silas Agreements, I propose to consider these in separate categories.

Terrestrial television

55. At the beginning of 1993, YTV took over Tyne Tees Television. As Mr Cieslik explained in evidence, this was the culmination of a close working relationship over some years. Because of problems between the transmitter masts for the two regions, the two companies had addressed those problems by effectively operating as a single unit.
56. During 1994, Carlton acquired Central Independent Television, Meridian Broadcasting (owned by Lord Hollick's company which became United News and Media) acquired Anglia Television and Granada acquired London Weekend Television. In 1996, Carlton acquired Westcountry Television and United News and Media acquired HTV. In 1997, Granada acquired Yorkshire/Tyne Tees Television and Scottish Media Group acquired Grampian. In 2000, Granada then acquired Anglia, Meridian and HTV from United News and Media. Due to regulatory requirements, it then sold HTV to Carlton.
57. In 1998, the ITVA (the not-for-profit trade association of the Channel 3 regional licensees) changed its name to ITV Network Limited ("ITVN"). As before, regional licensees are "shareholders" but the company is limited by guarantee and the voting rights vary slightly each year depending on the share of National Advertising Revenue.
58. Under the Broadcasting Act 1990, Channel 4 became the responsibility of an independent statutory corporation which was licensed as a broadcaster by the ITC and required to sell its own advertising time. The subvention from the Channel 3 regional licensees ceased. Although the 1990 Act had given the ITC the power to set up a fifth national broadcasting channel, it was not until 1997 that Channel 5 began transmission.

Cable and digital television

59. In 1992 a BBC/Thames joint venture cable channel later known as UK Gold was launched, followed over the next four years by a number of other cable channels. Only UK Gold at that stage broadcast UK produced drama. In 1997, the British Digital Broadcasting Consortium was awarded the licence for digital terrestrial television ("DTT"). Digital channels such as Film Four and BBC News 24 began to appear.

ITV2

60. ITV2 was a joint venture between Granada, Carlton and United News and Media. Between them these three companies by that stage owned 11 of the 15 Channel 3 regional franchisees, excluding Channel, Grampian, Scottish and Ulster Television. ITV2 was launched in December 1998 as a free-to-air service on cable and DTT. Since then it has also become available on the same basis on satellite. ITV2 has never been available on analogue television.
61. At launch, all the Channel 3 regional licensees except Scottish and Ulster (which had their own digital channels) carried ITV2. The position at the time and since, in relation to the use by the regional licensees of their digital capacity to carry ITV2 (and later ITV3 as well), was explained very clearly by Mr Cieslik in his third witness statement:

After the Broadcasting Act 1996 was enacted, Ofcom gifted DTT capacity to the public service broadcasters, that is the BBC, Channel 3, Channel Four and Five. The Channel 3 regional licensees were allotted a volume of capacity jointly with Channel Four (with a small proportion to Teletext UK). The portion of this capacity held by the Channel 3 regional licensees was in fact more capacity than they needed for the digital broadcast of Channel 3 (including all of its regional variations). Initially, three companies (Carlton, Granada and United) which held 11 of the regional licenses used part of their spare capacity to launch ITV2 in 1998. STV (which held two of the remaining licences) used its spare capacity to launch S2. UTV (which held a single licence) used its spare capacity to launch UTV2. S2 and UTV2 ultimately ceased to broadcast. STV and UTV then sub-licensed their spare capacity to Carlton, Granada and United (through ITV Digital Channels Ltd), enabling both ITV2 and subsequently ITV3 to be broadcast nationally.

There is no special significance to be attached to the fact that ITV2 and ITV3 happen to be using spare capacity initially allocated to Channel 3 regional licensees which are within the ITV Network. ITV plc leases capacity from companies having nothing to do with the ITV Network for broadcasts of other digital channels owned by ITV plc (e.g. ITV2+1 and CITV). It could just as easily have used this leased capacity, rather than the spare capacity licensed to it by STV and UTV (which are wholly independent of ITV plc) to broadcast ITV2 and ITV3.

The genesis of the dispute

62. In March 1999, five episodes of A Touch of Frost were transmitted on ITV2. On 27 May 1999, Excelsior sent YTV an invoice in respect of those transmissions on the basis of an entitlement to be paid £3,000 per broadcast hour in accordance with clause 4(1). YTV did not pay that invoice on that basis and was only prepared to pay on the basis of a 15% royalty under clause 4(2). This much was apparent to Mr Burley when he received a letter from Mr Cieslik of 27 August 1999 setting out YTV's position that ITV2 was a catch up channel, was not ITV and that any repeats on ITV2 would only attract royalties.
63. On 31 August 1999, Mr Burley wrote in reply setting out Excelsior's case as to why it was entitled to be paid flat rate fees per broadcast hour under clause 4(1). On the same day, he wrote another letter to Mr Cieslik asking him if there was any chance of his signing the Silas Agreement and paying the consideration under it. Thereafter, although as I have said there was a delay in signature, the Agreement as signed was (so far as clauses 4(1) and (2) are concerned), in materially identical terms to the Frost Agreement. In other words, Excelsior did not seek to change the wording in the light of the dispute which had arisen.

Subsequent events

64. I have already indicated my firm view that events subsequent to the making of each of the Agreements are not admissible as an aid to construction of that particular Agreement. It is only really necessary to set out the history after the finalisation of the Silas Agreement in 1999 and 2000 in order to set the context in which the dispute has developed.
65. In 2001 Granada acquired Border Television. Then, in early 2004 Granada and Carlton merged and formed ITV plc. The corporate entity was in fact an off the shelf company incorporated by Lovells in December 2003. After the merger, ITV plc owned 11 of the 15 regional licensees, with a total share of about 90% of the Network. In November 2008, all the licences of companies owned by ITV plc were transferred to ITV Broadcasting Limited. At that point, YTV ceased trading.
66. Under Part 2 of the Communications Act 2003, the regulatory functions exercised by the ITC were transferred to and are now exercised by the Office of Communications ("OFCOM").
67. ITV3 was launched in November 2004 essentially as an "archive" channel showing the best of past ITV1 programmes. It is run by ITV Digital Channels Limited, a company previously known until November 2004 as Granada Sky Broadcasting Limited. That company had been responsible for running the Granada Plus channel, a joint venture between Granada and BSkyB. From November 2004, it became a wholly owned subsidiary of ITV plc and the channel started broadcasting as ITV3.
68. So far as the broadcasts on ITV2 and ITV3, which are all digital, and the digital transmission on ITV1 are concerned, the digital licence is held by Digital 3 and 4 Limited, a company owned by the ITV companies and Channel 4.
69. Excelsior sought to make much at the trial, both in terms of its own evidence and cross-examination of YTV's witnesses and submissions, of the allegation that YTV was not acting at arm's length in its transactions with ITV2 (and in due course ITV3) for the purchase of The Darling Buds of May and A Touch of Frost for transmission on those digital channels, specifically that YTV's distributor, Granada International, had not obtained the best price for the programmes and had not acted in the best interests of YTV or Excelsior.
70. I have already indicated that, even if there were any substance in these allegations, they are wholly irrelevant (and, what is more, inadmissible) to the construction of the three Agreements with which I am concerned. Strictly speaking it is therefore not necessary to make findings about those allegations. However, given the seriousness of what was alleged, it seems to me that it would not be right simply to leave the allegations floating in the air.
71. ITV2 was, as Mr Cieslik described it in his letter of 27 August 1999, a "catch up channel" showing repeats of programmes recently shown on ITV1. In respect of any such programme, as Mr Chowns explained, the ITV Network had an exclusive UK licence from the regional licensee which had made the programme, but that could only be exercised by transmission on ITV1. ITVN was not permitted either by the terms of such licences or by the regulator (the ITC and subsequently OFCOM) to sell programmes direct to ITV2 (or for that matter in due course to ITV3). There were evidently issues of competition law which precluded such direct sales.
72. Accordingly, as Mr Chowns said in his statement, ITV2 faced two issues in seeking to acquire in-licence ITV programmes for transmission. First it had to get ITV1 to agree to waive its rights to UK exclusivity in the relevant programme. This was done by paying to ITVN a small waiver fee (initially 0.1% and latterly 0.05% of the initial licence fee paid by ITVN to the producer of the programme). In theory ITVN could have refused to waive exclusivity in the programme, but in practice this never seems to have happened.
73. Second, ITV2 had to approach the producers of programmes (both the regional licensees and independent producers) to get their agreement to sell transmission rights to it. Initially a further 0.9% of the licence fee paid by ITVN (in addition to the 0.1% waiver fee) was paid to producers. This figure varied from time to time. The position between ITV2 and ITVN and the regional licensees for 2000 was formalised in an Acquisition Agreement dated 14 September 2000. From 2001 onwards, the ITV2 licence fee payable to producers varied according to the number of transmissions purchased: 0.75% for one play of a programme, 0.95% for three plays and 1.15% for five plays, together with, in each case, a flat fee of £500 per episode irrespective of length.
74. When ITV3 was being set up, precisely the same licence fee structure was adopted for the acquisition of in-licence programmes from producers. However, ITV3 was and is primarily an "archive" channel for drama which is out of licence. What was generally agreed between ITV3 and Granada International, which was the distributor for, inter alia, YTV, was a fee payable to the producer of 1.75% of the ITV licence fee. There were certain premium programmes which were very popular at the time, Cold Feet, Cracker and Poirot, which attracted a higher fee of 3%.
75. As Mr Cieslik explained in his evidence, because of concerns on the part of rights holders, via the talent unions, that they should be treated fairly as regards repeat fees, in December 2004, ITV commissioned Jayne Redpath, Vice-President of Sales for Granada International, to carry out a comparison or benchmarking exercise between the prices to be paid by ITV3 and prices previously secured by Granada International for other sales, specifically to Granada Plus. That comparison exercise initially showed, so far as the Darling Buds of May is concerned, an ITV3 price per hour (that is at 1.75% of the ITV licence fee) of £9,660, which was actually slightly higher than the price per hour paid by Granada Plus of £9,442. Although the eventual figures per hour, at least as far as Series 1 and 2 are concerned, came down, that was only because the overall ITV licence fee price per hour was less.
76. In his witness statement, having referred to this comparison exercise, Mr Cieslik said:

It was, and is, our practice to do benchmarking of this type to check that the prices we get from ITV3 are comparable to those we get from elsewhere. The issues are very clearly set out in Justine Rhodes' letter to the Writers Guild dated 21 April 2005. I believe that letter to be accurate in all respects.

77. In her letter, Justine Rhodes (Head of Legal and Business Affairs at YTV) said:

Once the ITV1 exclusive licence period has expired, our programmes are available to the rest of the UK secondary market. In negotiating payment terms for this category of programmes, we have taken into account rates previously paid by the Granada Plus channel, together with other broadcasters. Sales of out of licence programmes are dealt with through our distributor, which helps to ensure that the rates being agreed for this channel represent a fair market price.

The payment structure, which was agreed on an arm's-length basis after lengthy negotiations between Granada, the production company and ITV3, the broadcaster, applies equally to programmes acquired from independent producers who have direct access to ITV1. All contributors who have a royalty entitlement will receive their share of the licence fee paid to Granada. In the fragmented market as it currently exists, we feel that we are achieving a fair value for our programmes and we continue to review the arrangements on an annual basis….

78. When he was asked in cross-examination about the fact that Granada International had not negotiated the higher fee of 3% for the Darling Buds of May, Mr Cieslik said:

Granada International would have sought to get the best price they could for all the programmes that they were selling. They would not have sought to do one programme down for the benefit of another, nor would they have sought, as it were, to equalise the sales price secured for those programmes. They have told us in the documentation that we have seen that they have managed to be able to get a premium for certain of the titles because at that time Cold Feet was a very, very successful programme and they could achieve a better price than the normal. The same with the other two titles. By that time Darling Buds had been pretty well mined as an asset by YTV on ITV Channel 3, and it does not surprise me at all that they could not get the same price that they got for perhaps one or two other titles which they managed to achieve slightly better returns for. In the case of all of those programmes, they were negotiating to get the best return for each of those titles.

79. In his witness statement, Mr Chowns (who was commercial director of ITV2 and therefore someone who knew more about the true position as regards acquisition of ITV1 programmes than either Mr Burley or Mr Bates) said very clearly that "ITV2's pricing structure was generally accepted by all producers, both independent and ITV, which suggests that we had pitched it about right in relation to the market conditions". When it was suggested to him in cross-examination that there had been no negotiations between ITV2 and the ITV companies, which had simply been presented with a fait accompli, he said that was not true and that there had been discussion of pricing proposals with all suppliers. He said:

To be honest with you, my tactic, really, was to offer everybody a deal that I thought could be stood up as fair and reasonable. I felt that if we got into a series of individual negotiations with suppliers, we would find it very difficult to conclude business on that basis as we had so few staff and so few resources. Once we had agreed to give more money to one particular supplier, we would inevitably find other suppliers making the same argument to us and we would simply see our prices spiral ever upwards. I think I was very firm with people. As I say, a lot of them did not like it but eventually they accepted that that was what we were going to pay and they had to make a decision whether to be a supplier to us or not.

80. He confirmed that the terms offered to independent producers were the same as to the ITV companies and that it was very rare for an independent producer to turn down those terms. One example in the documents of the terms being turned down was by Mr Rowan Atkinson's production company in respect of Mr Bean.
81. In his statement, Mr Chowns also referred to the fact that various of the contracts with the talent unions (which provided for royalties to be paid other than in respect of ITV and Channel 4) contained an audit clause to enable an accountancy firm to audit sales data to ensure that channel sales were at arm's length and not set at artificially low price levels. ITV2 sales were never the subject of a call for such an audit, which was a further reason for confidence that it was not underpaying for programmes.
82. In my judgment, whatever suspicions Mr Burley and Mr Bates may have had, the allegations that sales were not at arm's length or were in some respect a "stitch up" between ITV plc (before the merger of Carlton and Granada, the consortium which had set up ITV2) and ITV2 and ITV3 respectively are not supported by the evidence. I accept the evidence of both Mr Cieslik and Mr Chowns on this point.
83. However, as I have already said, even if there were anything in those allegations, it would make no difference to the issue of construction I have to decide. Even if it were the case that sales of Frost to ITV2 or of the Darling Buds of May to ITV3 were at an undervalue (even a deliberate one), that could not conceivably bring repeats on ITV2 and ITV3 within clause 4(1) of the respective Agreements unless they are within that clause as a matter of construction. It is to that issue of construction that I now turn.

The correct construction of clause 4(1) of the Darling Buds of May Agreement

84. The question with which the court is concerned is a question of construction and it is a narrow one. Are the words: "if YTV shall further repeat the television broadcasting of the Film/Programmes in the United Kingdom the sum of £3,000.00 (Three Thousand Pounds) per broadcast hour shall be due and payable by YTV to [Excelsior] within Twenty-One Days of the date of such further repeated transmission or transmissions simultaneously or non-simultaneously from all the transmitters of the IBA serving ITV or Channel Four" apt to cover transmissions of the Darling Buds of May programmes on ITV2 or ITV3?
85. In his closing submissions, Mr Sutcliffe originally sought to suggest that the court should construe the reference to "ITV" in the clause as encompassing all independent television. That was not a promising submission, particularly given the acceptance in Excelsior's own pleadings that it was a reference to the channel ITV or Channel 3. In any event, "ITV" cannot mean all independent television, since if it did, the reference to Channel 4 would be otiose, as Mr Sutcliffe was really constrained to accept in his reply. I have no doubt, in the light of the factual background reasonably available to the parties in the situation they were in as at July 1990, that "ITV" in this Agreement meant the channel known as ITV, formally now known as Channel 3.
86. It may have been because of the difficulty of the contrary argument that, later in his closing submissions Mr Sutcliffe concentrated on the words "all the transmitters of the IBA", which he submitted were the critical words, whose focus was on the method of transmission, which was nationwide terrestrial transmission. It did not matter that at the time the Agreement was made the transmitters were only analogue transmitters serving ITV (Channel 3) and no other form of terrestrial transmission was yet known.
87. Mr Sutcliffe emphasised as part of the background to which the court should have regard (i) that it was contemplated that the agreement would last throughout the period that the books remained in copyright, for many years, and (ii) thus the nature of television and its broadcasting might change over that period with advances in technology, as has proved to be the case. Against that background, he submitted the court should construe the words "all the transmitters of the IBA" widely, as encompassing any form of terrestrial transmission from land based transmitters used by the ITV companies, including the digital transmitters now used to transmit ITV1, ITV2 and ITV3.
88. I accept that the court should construe the Agreement against the two matters of background to which Mr Sutcliffe referred, but the words of the Agreement must still be interpreted in accordance with what they meant objectively in July 1990, albeit taking those matters into account. The question still remains whether the words used are wide enough or were objectively intended to encompass every form of terrestrial transmission which advances in technology might come up with in the future.
89. In my judgment, there are a number of obstacles in the way of Excelsior's argument that the words "all the transmitters of the IBA serving ITV or Channel Four" are wide enough or were objectively intended to encompass transmission, many years after the Agreement was made, on ITV2 and ITV3 using digital transmitters owned, after the Broadcasting Act 1990 came into force, by NTL and now owned by Arqiva. To begin with, the reality is that the transmitters used by ITV2 and ITV3 (although located on the same masts as the transmitters used by what is now generally called ITV1 and although for digital transmission ITV1 uses the same transmitters) are the 80-90 digital transmitters, which are different from the 1154 analogue transmitters which were owned by the IBA and which were used for transmission of ITV1 at the time the Agreement was made. Accordingly, ITV2 and ITV3 simply do not use "all the transmitters of the IBA serving ITV" (my emphasis) but only a small proportion of them.
90. In any event, it is to those 1154 analogue transmitters that the phrase: "all the transmitters of the IBA serving ITV" was directed. Whilst I accept that a purposive construction of that phrase encompasses the same analogue transmitters when (as is now the case) they are owned and/or operated by a different entity than the IBA (which has ceased to exist), it seems to me a bridge too far in terms of construction, to interpret that phrase as also encompassing transmitters which are of a type (namely digital rather than analogue) not even contemplated in July 1990, which were never owned by the IBA or any successor regulatory body and which are in fact owned and/or operated by a completely different entity, not in existence at the time of the Agreement.
91. For that reason, I have not been assisted in construing what the phrase "all the transmitters of the IBA serving ITV" meant, when used in a contract made in July 1990, by Excelsior's emphasis in its submissions and in cross-examination of YTV's witnesses upon the current plan to "switch off" analogue transmission on ITV1 in 2012, so that all terrestrial transmissions will be digital thenceforth. That was not something which on any view was in the contemplation of these parties (or indeed anyone) at the time this Agreement was made, not least because digital television had yet to be invented.
92. Excelsior's approach was essentially to argue that, because this Agreement was expected to last for a number of years, Clause 4(1) must be construed as sufficiently wide to encompass digital transmission of ITV1 and, by an extension of reasoning, ITV2 and ITV3, since by that stage in 2012, all three channels will be being transmitted by the same means. That approach seems to me fundamentally flawed, because as I see it, the phrase "all the transmitters of the IBA serving ITV" does not encompass even digital transmission of ITV1 either now or in 2012. The fact that YTV may be prepared to pay Excelsior under clause 4(1) for repeat transmissions on ITV1, even though those transmissions are from digital transmitters, does not seem to me to alter the correct construction of the contract.
93. In my judgment, it would be a complete distortion of the principles of construction to conclude that clause 4(1) should be given some wider meaning than (for the reasons I have given) the words of the clause will bear, merely because the way that the television industry has developed, unanticipated at the time this Agreement or the subsequent Agreements (at least the Frost Agreement) were made, has turned out to be disadvantageous to Excelsior, in terms of claiming fixed rate fees under clause 4(1).
94. Mr Hollander submitted that another reason why Excelsior's construction of clause 4(1) is flawed is that it renders the phrase "simultaneously or non-simultaneously" redundant. Mr Sutcliffe sought to answer this by contending that ITV2 and ITV3 do transmit "simultaneously" on a national basis. That is no doubt true in a literal sense, but overlooks that the phrase is intended to cover regional variations between the various ITV licensees and to ensure that if, for example the Darling Buds of May were shown in all other regions than Yorkshire at 8 pm on a Sunday night, but because of some Yorkshire related event, such as a local tragedy which extended the local news bulletin, the relevant episode was not shown by YTV until 10 pm on the Sunday or until 8 pm on Monday, it would not be open to Excelsior to argue that this constituted more than one transmission for the purpose of the pricing provisions in clause 4(1).
95. Furthermore, at least when the Agreement was entered into, there was the potential for such regional variations on Channel 4, albeit to a more limited extent. Channel 4 ran a separate Welsh channel S4C, which might very well have encountered the same problems of non-simultaneity. In my judgment, the words "simultaneously or non-simultaneously" clearly demonstrate that the clause relates to what is now called Channel 3 and to Channel 4, with the potential regional variations that entails, and not to channels such as ITV2 and ITV3 which are national channels provided digitally, without those regional variations.
96. In the circumstances, I have no doubt that the phrase "such further repeated transmission or transmissions simultaneously or non-simultaneously from all the transmitters of the IBA serving ITV or Channel 4" encompasses only repeats on the channel now generally called ITV1 (and officially known since the Broadcasting Act 1990 as "Channel 3") and does not include any transmissions on ITV2 or ITV3.

The effect, if any, of clause 4(2) of the Darling Buds of May Agreement

97. In opening its case, Excelsior sought to deploy another argument as to why the transmissions on ITV2 and ITV3 fell within clause 4(1), which was an argument not open to it in relation to clause 4(1) in the subsequent Agreements, for reasons which will become apparent. This was the argument that, because transmissions on ITV2 and ITV3 (being transmissions on digital terrestrial television, cable and satellite) were simply not covered by clause 4(2) of that Agreement, they must somehow be covered by clause 4(1).
98. It is fair to say that, by the end of the trial, this point had assumed much less significance. Whilst the matter was not conceded by Mr Sutcliffe, he could see the force of the argument (which in my judgment is clearly correct) that whether or not royalties were recoverable for transmissions on ITV2 and ITV3 under clause 4(2), cannot affect the question whether, as a matter of the correct construction of clause 4(1), "repeat" transmissions on ITV2 and ITV3 are "simultaneously or non-simultaneously from all the transmitters of the IBA serving ITV or Channel 4". However, since the issue as to whether clause 4(2) would entitle Excelsior to receive royalties for the transmissions on ITV2 and ITV3 was fully argued, I shall deal with it.
99. The starting point is the grant of rights to YTV under clause 2(b) of the Agreement, which clearly conferred on YTV rights of transmission and exploitation worldwide in relation to terrestrial television, other televisual means of transmission such as cable and satellite and other means of exploitation such as videos and non-theatrical performance. Clause 4 generally then dealt with payment for those rights. Clause 4(1) provided that the consideration for the acquisition of the rights to exploit the five books (i.e the sum of £125,000) covered two transmissions of the programmes on terrestrial television (as it was then understood, namely analogue transmission on ITV or Channel 4) in the United Kingdom and that flat rate repeat fees would be payable for further transmissions thereafter by that means.
100. One would have expected Clause 4(2) to deal with everything other than terrestrial analogue broadcasts in the United Kingdom, namely other means of transmission (such as cable or satellite) or exploitation (such as video) in the United Kingdom, together with all means of transmission or exploitation in overseas territories. However, a literal reading of clause 4(2) would suggest that it covers only the latter, that is transmission and exploitation in overseas territories. To an extent this is borne out by clause 5(d) which refers to "Clause 4(2) (overseas distribution and sales)", if one regards the word "overseas" as qualifying both "distribution" and "sales".
101. Mr Hollander submitted that the court can give effect to the clear intention that clause 4(2) should deal with payment for everything other than terrestrial television broadcast on ITV and Channel 4 in the United Kingdom, in one or other of two ways. Either the court should provide to the express term, the punctuation it lacks and insert a comma after "overseas territories", which would ensure that the clause captured all types of exploitation other than primary exploitation on ITV or Channel 4 or, if that course is not thought to be possible, the court should adopt a robust, purposive approach to construction of the clause, if necessary by implying a term into the clause.
102. My very firm view is that, by one means or another, a robust and purposive construction should be adopted to clause 4(2), to ensure that other means of transmission and exploitation than analogue transmission on ITV and Channel 4 in the United Kingdom, fall within the payment regime in clause 4(2). It seems to me that one of the ironies of this case is that, were it not for the accident of circumstance that a construction of clause 4(2) which excludes alternative means of transmission or exploitation in the United Kingdom, was thought to suit Excelsior's argument as to the meaning of clause 4(1) in the present dispute, it is likely that Excelsior would be contending that such alternative means of transmission or exploitation in the United Kingdom fell within clause 4(2), urging on the court the sort of robust, purposive construction for which YTV contends.
103. I agree with Mr Hollander that one way of achieving that result is simply by the sensible application of some punctuation to the clause. It is noticeable that both clause 4(1) and clause 4(2) read somewhat breathlessly, with no commas where, as a matter of proper grammar (irrespective of issues of construction), some further punctuation ought to be inserted. However, I am not sure that Mr Hollander is right as to where the comma should be inserted.
104. In order to give effect to the clear intention that clause 4(2) should deal with payment for rights of transmission and exploitation, other than primary exploitation on ITV and Channel 4, it seems to me necessary to distinguish two matters: (i) transmission on terrestrial television abroad equivalent to transmission in the United Kingdom on ITV or Channel 4 and (ii) other means of transmission and exploitation worldwide, encompassing toll or pay cable television broadcasting, satellite television broadcasting, non-theatric exhibition and videos. This is best achieved by placing a comma after "by means of open circuit or 'free' television broadcasting" and that is how, in my judgment, the clause should be punctuated.
105. The second way in which Mr Hollander submits the court should construe the clause, so as to ensure that the intention that clause 4(2) should cover payment for everything not covered by clause 4(1) is not frustrated, invites the court to adopt the approach to purposive construction and the implication of terms which was advocated by Lord Hoffmann giving the judgment of the Privy Council in Attorney General of Belize v Belize Telecom Limited [2009] UKPC 10.
106. In paragraph 21 of that judgment, Lord Hoffmann explained the implication of terms as part of the process of the proper construction of an agreement:

It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on – but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?

107. Mr Hollander submits that, if I apply that principle here, against the relevant background, the clause would reasonably be understood to mean that Excelsior should receive royalties for all means of transmission or exploitation not covered by clause 4(1) and that, to achieve that understanding or intention, the court should simply imply a term to the effect that other forms of exploitation within the grant of rights, not expressly covered by Clause 4(2), should be remunerated on the same basis.
108. Mr Sutcliffe sought to challenge this approach by reference to two matters which he submitted were part of the admissible background: (i) the notes of the meeting between Mr Cieslik and Mr Burley on 6 July 1989, the day before Mr Cieslik sent Mr Burley the draft Darling Buds of May Agreement which showed, he suggested, that Mr Cieslik understood that the 8% royalty in clause 4(2) was referring only to overseas sales and (ii) the abstract of the contract prepared by Mr Cieslik's assistant Mr Nash on 17 July 1990, not long after the Agreement was signed, which referred to the 8% only in the context of "overseas exploitation of any of the rights".
109. So far as the first of these matters is concerned, it seems to me that Excelsior is seeking to rely upon the pre-contractual negotiations to draw inferences as to what the Agreement meant, which falls foul of the exclusionary rule confirmed by Chartbrook, however narrowly or widely that rule is interpreted. However, even if that were wrong, when Mr Sutcliffe cross-examined Mr Cieslik about this meeting note, Mr Cieslik pointed to his note or agenda in preparation for the meeting, which contained the reference "O/seas sales-UK valuation" and "Video Cable", suggesting that he did have in mind the valuation of these additional means of transmission and exploitation in the United Kingdom. He confirmed in his evidence, which I accept, that he did have those in mind.
110. As for the second matter, since the abstract was drawn up subsequent to the Agreement being signed, I do not see how that is admissible either. In any event, I found it of no assistance in construing the Agreement. It is difficult to see how a document drawn up by someone who had not negotiated the contract, in circumstances of which one knows little or nothing, could ever be of much assistance.
111. If it were necessary to do so (which it is not, because the correct construction of clause 4(2) can be achieved by proper punctuation of the clause), I would accept Mr Hollander's submission that the implied term for which he contends should be implied into the Agreement.
112. Finally, before leaving this aspect of clause 4(2) of the Darling Buds of May Agreement, I should emphasise that, even if Mr Sutcliffe were right about the construction of the clause and there is a lacuna as regards payment for transmission or exploitation in the United Kingdom other than on Channel 3 or Channel 4, none of that is of any relevance, despite Excelsior's argument to the contrary, to the correct construction of clause 4(1). If, as I have held, that clause does not, on its correct construction cover transmissions on ITV2 or ITV3, then the fact that such transmissions are not covered by clause 4(2) either, does not enable Excelsior in some way to extend the scope of clause 4(1). Excelsior would simply be left in a situation where its contract did not cover payment for this means of transmission or exploitation at all.

The correct construction of the Frost Agreement

113. Two principal differences are evident between the Darling Buds of May Agreement and the Frost Agreement, in terms of their drafting. First the draftsman of the Frost Agreement has rectified the awkwardness of language in the former agreement, in relation to payment for exploitation or transmission in the United Kingdom other than on Channel 3 or Channel 4. It is now made absolutely clear that such exploitation or transmission falls within clauses 4(2) to 4(5) of the Frost Agreement.
114. Second, the phrase "all the transmitters of the IBA serving ITV or Channel Four" in the Darling Buds of May Agreement has been replaced by the phrase "all the transmitters of the Independent Television Network and Channel Four" in the Frost Agreement. The reason for this change is clearly that the IBA had ceased to exist and the ITV regional licensees which comprised the Independent Television Network were now the broadcasters and were using the 1,154 analogue transmitters previously owned by the IBA.
115. It is accepted by Excelsior that the intention of the parties was that clause 4(1) of the Frost Agreement would have the same scope and effect as clause 4(1) of the Darling Buds of May Agreement. In the circumstances and given my conclusion that clause 4(1) of the Darling Buds of May Agreement did not cover transmissions on ITV2 or ITV3, it is not strictly necessary to consider the construction of the Frost Agreement further.
116. Nevertheless, even if it were necessary to consider the meaning of the phrase "all the transmitters of the Independent Television Network and Channel Four" in the Frost Agreement, as distinct from the meaning of the phrase "all the transmitters of the IBA serving ITV or Channel Four" in the Darling Buds of May Agreement, it is clear that the clause in the later Agreement is not apt to cover digital transmission on ITV2 or ITV3.
117. In particular, it seems to me that the "Independent Television Network" as referred to in the Frost Agreement quite clearly meant the network of regional licensees which provided a nationwide television service on Channel 3. Not only was this how the concept of the network was understood commercially at the time, but this construction accords with the provisions of the Broadcasting Act 1990 (specifically section 39) in relation to network arrangements. This is not, as Mr Sutcliffe suggested, to give the words "Independent Television Network" some special meaning, but simply to construe them against the commercial background reasonably available to people in the position of these parties at the time this Agreement was made.
118. In my judgment, the concept of the "Independent Television Network" does not cover some television channel (such as ITV2 or ITV3) which was not provided pursuant to the network arrangements for the provision of the Channel 3 service, even if that television channel is provided by one or more companies which are regional licensees for Channel 3. The fact that ITV2 and ITV3 cannot be regarded as part of the ITV Network is demonstrated by the point to which I referred when dealing with how sales to ITV2 and ITV3 were structured. ITVN is not permitted to sell programmes directly to ITV2 and ITV3, which is a strong indication that those companies cannot be regarded as part of the Network.
119. At various points, Mr Sutcliffe sought to make considerable play of the fact that ITV plc has marketed ITV2 and ITV3 as part of the "ITV family of channels", together with ITV1, ITV4 and the Independent Television News Channel. In my judgment, that merely underlines the danger of construing a contract made nearly twenty years ago by reference to what people might understand the abbreviation "ITV" to mean in 2004 or 2009 as opposed to 1992. In 1992, not only was ITV plc not in existence, but the concept of a family of channels was unheard of. All that was contemplated, in what became section 39 of the Broadcasting Act 1990, was networking arrangements between the fifteen regional licensees (of which YTV was one) to provide their programmes to all the licensees of Channel 3 for nationwide transmission.

The correct construction of the Silas Agreement

120. Again, as with the Frost Agreement, it is common ground that the Agreement is to be construed on the basis that it was intended to have the same scope and effect as the Darling Buds of May Agreement. In those circumstances, it strictly matters not what the expression "ITV Network" in this Agreement means. However, it seems to me impossible to argue that it should have any different meaning than in the Frost Agreement (referred to above).

Conclusion

121. I have reached the very firm conclusion that the transmissions of the programmes covered by the three Agreements are not within the terms of clause 4(1) of those Agreements, properly construed. It follows that Excelsior is not entitled to the declaration it seeks and that the claim fails.

Note 1   The regulatory background and history of the ITV Network and the various channels with which this case is concerned (much of which is common ground) is set out in detail later in this judgment.    [Back]