The full Monty – producer wins his Holy Grail

‍There were two disputes between the parties.  The first related to Mr Forstater’s entitlement to share in that income.  The second concerned the expenses that he had to pay for the collection and distribution of the income.  Broadly speaking, he claimed that he should receive twice as much and pay half as much as PMP claimed he should.  Despite his success on the income dispute, he failed to convince the judge on the expenses dispute.

Background

Income dispute

By an agreement dated 25 April 1974, Mr Forstater was engaged by PMP as producer of the film.  He was to be paid £5,000 for his services.  £2,000 of the fee was to be deferred to be available for PMP to use towards the costs of completing the production of the film in case third-party funding was exhausted.  He was also entitled to receive 5.6875% of defined profits of the film [ii].    The profits definition was given in the Third Schedule to the agreement.  This included profits derived from “any and all so-called “merchandising” and other “spin-off” rights”[iii].  

The income dispute arose from a confusing proviso.  This stated that if, under PMP’s agreements with investors in the film, PMP was entitled to receive 50% of the proceeds of exploitation of such rights (before the division of such proceeds among profit participants), Mr Forstater would be entitled to receive 7.1429% (i.e. one-fourteenth) of such profits “in addition to his said shares of the profits” of the film [iv].

Mr Forstater argued that he was in fact entitled to an equal portion alongside the other Pythons (that is, one seventh) of the merchandising/spin-off profits – or the “Top Half” (as the income was referred to in the submissions, a term adopted in the judgment) [v].   In the alternative, he argued that the agreement should be rectified to provide him with one-seventh of the Top Half, contending that something had “gone wrong with the language of the Third Schedule” [vi].

Expenses dispute

The second dispute arose from a 2007 agreement between PMP, the National Film Trustee Company (NFTC) and Fergus Spence Management Limited (FSM), the sales agent and business manager appointed in 1997 by PMP to exploit the rights in the existing Python material.  At the point of their initial engagement, FSM’s charges were calculated by reference to PMP’s share of income from the film.  The FSM agreement, however, provided that FSM’s charges should be based on all divisible receipts, meaning that the profit participants previously shielded from these expenses would now all have to pay for a proportion of them.  Mr Forstater claimed that NFTC had breached duty by accepting a change in the way that FSM was remunerated, and that PMP’s agreement to that change was a breach of contract.

Decision – the income dispute

The judge rejected the argument that something had “gone wrong” with the language of the Third Schedule, finding instead that the “literal and grammatical reading” [vii] was that Mr Forstater should receive one-fourteenth of the Top Half.  He found that one-fourteenth represented a “mid-point” between the one-seventh share claimed by Mr Forstater and the “complete absence of entitlement to share in something he did not create” [viii].   He commented that there was “no obvious commercial reason” [ix] why Mr Forstater should share equally in the Top Half, and emphasised that “the agreement means what it says” [x].

On the question of whether the agreement should be rectified to award Mr Forstater an equal portion of the Top Half, the judge applied the test set out in Daventry District Council v Daventry & District Housing Association Limited. [xi]  Accordingly:

(a) the burden of proof lay with Mr Forstater;
(b) the standard of proof was the ordinary civil standard, but convincing evidence was needed to persuade the court that on the balance of probabilities the final document embodied a mistake;
(c) Mr Forstater was required to show that he and the “human agents” acting for PMP shared an “objectively ascertainable common intention” regarding his entitlement to participate in the Top Half;
(d) that “objectively ascertainable common intention” had to have existed at the date the agreement was signed; and
(e) by mistake, the agreement did not reflect that common intention.

The issue at stake, the judge commented, was “simple and stark” [xii].   Was there convincing evidence to establish, on the balance of probabilities, that there had been an agreement that differed from the one set out in the Third Schedule?

In the judge’s view, noting the absence of any counterclaim that sought to exclude Mr Forstater entirely from participation in the Top Half, the logical starting-point was that the agreement was correct to award Mr Forstater some kind of share.  Consequently, the question was whether the participation documented in the agreement was a mistake that would have been objectively ascertainable by an observer from the dealings of the parties.  This came down to Mr Forstater’s evidence.

The judge attached “fair criticism” [xiii] to Mr Forstater for having changed his account of events after the service of the Particulars of Claim, and found that his memory was “less than wholly reliable” [xiv] in some respects.  He described the oral evidence given on Mr Forstater’s behalf as “not particularly convincing” [xv].

As to the written evidence, although the diaries, agendas and memoranda submitted did not refer to any proposal or agreement that sufficiently supported Mr Forstater’s claim, this did not mean that such an agreement was not reached.  There were two reasons for this.  First, the written evidence did not document the origin of the Top Half at all, and yet it was created.  Secondly, as a matter of commercial reality, the Top Half must have been created by the Pythons themselves, since it was unlikely that the profit participators would have surrendered it voluntarily: it was impossible to infer “from the absence of a record that the event did not occur when there are no records of events we know must have occurred” [xvi]. 

What did exist among the written evidence was a collection of invoices dating from 1976 to 2005 rendered by Mr Forstater which, in the judge’s view, made it clear that one-seventh of the Top Half was being claimed.  These were paid, “apparently without question” [xvii].   The judge asked how these invoices came to be approved, and why they were accepted by the auditors of PMP in the early years. It did not matter that the amounts claimed at first were small or that, once a pattern of payment was established, the invoices would not have attracted particular scrutiny.  The judge considered the payment of these invoices to be relevant conduct of the parties.

The documentary evidence also showed that Mr Forstater was entitled to receive the same financial benefits as the Pythons in other respects.  For example, his share in mainstream income was the same.

The judge thought it significant that PMP failed to call Anne Henshaw as a witness.  She had acted as a secretary to the Pythons during payments of invoices to Mr Forstater.  A challenge to do so had been put to the Pythons by Mr Forstater directly, and the judge found that PMP’s decision “to duck that challenge” [xviii] at least meant that she had no evidence to offer that PMP wished to adduce to displace inferences that could be drawn from the documentary evidence in support of Mr Forstater.

The judge was therefore persuaded that there was a consensus, immediately before execution of the agreement, that Mr Forstater was entitled to a one-seventh share of the Top Half.  This was not recorded in the agreement because of a mistake in the drafting of the agreement.  The agreement should consequently be rectified, by doubling the one-fourteenth share of the Top Half to which Mr Forstater was contractually entitled.

Decision – the expenses dispute

Mr Forstater claimed that PMP was in breach of two terms that should be implied into Mr Forstater’s agreement, namely that:

(a) any deduction from the profits of the film in respect of distribution fees should be reasonable and/or made under arrangements with third parties which were themselves reasonable and/or in the best interests of the film’s profit participants; and
(b) in order to give business efficacy to the agreement, PMP would do nothing to prevent performance of the agreement or to stop Mr Forstater recovering the sums that he was due.

The judge rejected this claim, considering that there were no contractual provisions relating to any deductions at all, so it was difficult to imply any obligation to deduct only reasonable amounts.  Further, it had been agreed that Michael White, who provided funding for the film, should negotiate the agreement for distribution and exploitation of the film according to what he, in his absolute discretion, considered to be in the best interests of PMP, subject to consultation with Mr Forstater.  It was “inherently improbable” [xix]  that a reasonable person with the knowledge available to the parties at that time would have understood them to be agreeing to maximise Mr Forstater’s profit participation at the expense of that of PMP.  A reasonable person would expect a deduction made in bad faith to be a breach of obligation.  Subject to that, he would expect the arrangement for such deductions to be made in a “commercially usual way”[xx].  

So the agreement was not to be read as including either of the implied terms that Mr Forstater suggested.  Even if the terms had been included, neither term would have been breached.

The judge was similarly unconvinced by Mr Forstater’s submission that NFTC’s entry into the FSM agreement had constituted a breach of trust by NFTC.  Looking at the FSM agreement as a whole, the act of entering into it had not been negligent, and the representatives of NFTC had not “fundamentally misunderstood the role of a trustee” [xxi].  

Comment

Although Mr Forstater’s agreement was held to provide that his profit entitlement was one-fourteenth, the court was willing to rectify it, so doubling his entitlement to one-seventh.  The case serves as a reminder of the caution to be applied when paying out to profit participants.  Had the invoices rendered by Mr Forstater for a one-seventh share not been paid over 30 years so unquestioningly, the income dispute may well have been decided differently.

Article written for Entertainment Law Review.