Factual Summary:

Producer and distributor entered into a motion picture licensing agreement under which distributor would provide an LC payable to producer. The producer/beneficiary would draw on an LC on delivery of the film and trailer internegative to the distributor/applicant. Believing that the transaction was risky, the applicant informed the beneficiary that it wished to open the LC in a lower amount than specified in the licensing agreement. The beneficiary responded by stating that "unless [producer's] offer was dealt with immediately by acceptance and delivery of the LC to [producer's] bank, [producer] would have no option but to terminate the distribution agreement and look to re-license all the rights." Because the distributor/applicant never opened a LC, the producer issued a formal termination notice and treated the film licensing agreement as repudiated by the applicant. The producer then brought action for reputation and was awarded US$ 450,000 by the High Court of England. On appeal by distributor, order affirmed, with damages in excess of US$ 200,000 to be reassessed.

Legal Analysis:

1. Breach of Contract to Issue LC:The distributor contended it had the discretion to perform the original license agreement or reject the offer as unacceptable and that it could have withdrawn at any time prior to producer's termination. The Court of Appeal rejected this approach, stating that "the only method of contractual performance open to the [applicant] in order to avoid repudiation would have consisted in opening a LC for US$ 600,000. The existence of an unacceptable offer which might have been withdrawn at any time [by the beneficiary]...seems to me quite irrelevant...I would not give permission to appeal in respect of this first point [of contractual entitlement to terminate]".

2. Breach of Contract; Damages: Distributor claimed that damages should have been lowered by "the difference between the contractually agreed price and the market value at the time of repudiation" and that "[producer] had failed to mitigate by realizing that value". The court granted application to appeal on this issue stating "It is not appropriate that I should say any more about the prospects of [the applicant] succeeding than that I think that [distributor's counsel] has crossed the threshold justifying permission and there should be a hearing of an appeal on the second point [of 'market value of the francophone rights as at the date of termination'.]"



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.