Contract

Forstater and another v Python (Monty) Pictures Ltd and another company: Chancery Division: 5 July 2013

The proceedings concerned the profits related to the comedy film Monty Python and the Holy Grail (the film). The Monty Python members (together, the Pythons) incorporated the first defendant company (PMP) to manage the making of the film. They identified Chippenham Films, which was a partnership between D and the first claimant, F, as the film production unit. In an agreement of April 1974 (the MF agreement) PMP and F agreed that PMP was entitled to the exclusive services of F. In addition to a fixed payment, F was entitled to 5.6875% of the profits of the film.

The profits were defined in the third schedule to the MF agreement (the third schedule) as including, among other things, 'any and all so-called "merchandising" and other "spin-off" rights arising therefrom'. However, a number of additional agreements made at the same time affected the attribution of funds derived from merchandise. One of those agreements stated that investments into the film would be made under a scheme run by the second defendant National Film Trustee Company (NFTC) (later renamed Freeway Cam (UK) Ltd), and that PMP would, simultaneously with the making of those investments, enter into a trust deed with NFTC providing for the assignment by PMP to NFTC of the intellectual property rights in the film and the payment to NFTC of all the proceeds of exploitation of the film.

In particular, if income from merchandising into which the Pythons had put special creative effort (over and above simple exploitation of the existing creative content of the film) was treated as 'mainstream income', then the Pythons would have received 34.125% of it. Of that income, 50% (the 'Top Half') was paid to PMP directly before the residue was divided between all the participants, including the Pythons for distribution between themselves and F in accordance with the terms of the MF agreement, and they shared in the remaining 50% forming part of the mainstream income pot along with everyone else in their stated profit shares.

When divided up, F and each of the Pythons received 5.6875% of the PMP sum. In August 1975, F assigned whatever was his then entitlement to participate in the mainstream profits to the second claimant production company (MFPL), which he controlled. In December 1997, PMP engaged a sales agent (FSM) to exploit the rights in the existing body of Python material. A dispute arose as to the remuneration of F who was entitled to a fourteenth of the Top Half.

F submitted that he was entitled to a seventh of the Top Half, in the same way as each of the Pythons. Four issues arose: (i) whether the true meaning of the MF agreement so far as regards merchandising and spin-off income was that F should share equally with individual Pythons in that income, or whether he should receive a lesser proportion of the Top Half (the construction argument); (ii) if the true meaning was that F should receive a lesser proportion, whether the MF agreement should be rectified so that he received the same share of the Top Half as each of the Pythons (the rectification claim); (iii) who was entitled to advance the construction argument and the rectification claim (the assignment issue); and (iv) whether the person or body able to advance that claim was entitled to damages from PMP or equitable compensation from NFTC in respect of the alteration in the terms upon which FSM operated as sales agent (the expenses argument). In that argument, F contended that NFTC had, in breach of duty, agreed, and PMP in breach of contract had acceded to, a change in the fee structure by which FSM was remunerated. He contended, among other things, that terms should be read into the agreement between PMP and FSM dealing with all sums receive by PMP of NFTC from the exploitation of the film.

The court ruled: (1) On the true construction of the agreements between the parties, and as a matter of commercial logic, the MF agreement was to be taken as meaning what it said. As a result, the construction issue would be decided against F (see [80], [81] of the judgment).

(2) Regarding the rectification claim, the real issue was whether there was convincing evidence that established to the requisite standard an agreement different from the one actually embodied in the third schedule. There was no counterclaim that the MF agreement should be rectified entirely to exclude F, so the logical starting point was that the MF agreement correctly included F as entitled to some participation in the Top Half. As a result, the question was whether the documented participation embodied a mistake that would have been objectively ascertainable by an observer from the dealings of the parties. That rested on F's evidence. Overall, there was evidence of a sufficiently convincing quality to persuade the court that, on the balance of probabilities, that immediately prior to the signature of the MF agreement there had been a consensus that F should be entitled to a 1/7th share of the Top Half. The fact that the third schedule did not so provide was not evidence of there having been a change of mind. It would be appropriate for the MF agreement to be rectified by doubling the percentage of the Top Half to which F was entitled (see [89]-[91], [103] of the judgment).

Whitworth Street Estates (Manchester) Ltd v James Miller & Partners Ltd [1969] 2 All ER 210 applied; Maggs (t/a BM Builders) v Marsh [2006] All ER (D) 95 (Jul) applied; Chartbrook Ltd v Persimmon Homes Ltd [2009] All ER (D) 12 (Jul) considered; Daventry District Council v Daventry & District Housing Ltd [2011] All ER (D) 200 (Oct) considered.

(3) On the evidence, F's rights arose under the third schedule to the MF agreement. Choses in action arising under that contract belonged to F. PMP had never received notice of any assignment of F's rights: so it was from F that they could have obtained a good receipt and to F that they were bound to account for payments due under the third schedule. So in August 1975, F had been entitled to the entirety of those rights, which at the instant time would vest in MFPL (see [111] of the judgment).

Relief in respect of the MF agreement had to be granted to MFPL (see [112] of the judgment).

Wisniewski v Central Manchest HA [1998] PIQR 324 considered.

(4) Regarding the expenses argument, on the true construction of the MF Agreement, it was not to be read as including either of the implied terms for which F contended. The terms of the FSM agreement had not been unreasonable and no negligence had occurred (see [137], [145, [151]] of the judgment).

The claim against NFTC would be dismissed (see [154] of the judgment).

Buttle v Saunders [1950] 2 All ER 193 considered; Cowan v Scargill [1984] 2 All ER 750 considered; Crema v Cenkos Securities plc [2010] All ER (D) 212 (Dec) considered; Rubinstein v HSBC Bank [2012] EWCA Civ 1184 considered.

Tom Weisselberg and Mark Vinall (instructed by Fladgate LLP) for the claimants; Richard Spearman QC and Amanda Michaels (instructed by ENT Law) for PMP; Edmund Cullen QC (instructed by Lee & Thompson) for NFTC.