Insights High Court refuses to award damages for loss of profit in relation to breach of film option agreement


Under a deed agreement dated 31 March 2016 (the Deed) the claimant, Recorded Picture Company Ltd (RPC), granted to the defendants, Alfama Films Production, acting through its Chief Executive Officer Paulo Branco, an option to make a film provisionally entitled The Man Who Killed Don Quixote, written by Tony Grisoni and to be directed by Terry Gilliam.

Pursuant to the Deed Alfama bought the option for €25,000 for a term of six months from 1 April 2016. Upon exercising the option they would acquire an exclusive worldwide licence to make the film. Clause 7 prevented RPC from disposing of or dealing with the rights to make the film during the option term. Clause 16 allowed for the extension of time in the event of litigation or claims affecting the rights in the film.

On 29 April 2016, Mr Gilliam and Alfama entered into a Director Agreement, governed by French law and under French jurisdiction, under which Mr Gilliam would provide directing services for the film.  Relations between Mr Gilliam and Mr Branco broke down (evidenced through email correspondence) and on 30 August 2016 Mr Gilliam notified Alfama in writing it that it was in breach of the Director Agreement alleging that Alfama, through Mr Branco, had on 6 August 2016 cancelled production of the film and constructively terminated Mr Gilliam’s employment. The claim went to trial in Paris. It failed at first instance and the appeal was dismissed. A further appeal is pending before the Cour de Cassation.

On 30 September 2016, Alfama sent a letter to RPC requesting an extension of Alfama’s option term which, absent a reason for extension, was due to expire at the end of that day. On 6 October 2016 RPC gave Alfama notice that the option had expired.

On 14 October 2016, RPC granted an option to a Spanish production company called Tornasol Films SA on substantially the same terms as in the Deed. This option resulted in the making of the film, directed by Terry Gilliam and starring Adam Driver and Jonathan Price, which was released in 2018. No sum was charged for the option.

After entering into the Tornasol Deed, RPC realised that Alfama’s option might not have expired on 30 September 2016. The notification of breach letter of 30 August 2016 might have caused clause 16 of the Deed to be engaged, resulting in an extension to Alfama’s option term.

In April 2017, RPC issued proceedings seeking a declaration that Alfama’s option had expired at midnight on 30 September 2016. Alfama and Mr Branco (the Producers) counterclaimed that by entering into negotiations with Tornasol, by concluding the agreement of 14 October 2016 and by performing its terms, RPC had acted in breach of the Deed. The Producers sought damages and interest. The claim was dismissed in December 2017 on the basis that the dispute between Mr Gilliam and Alfama and the French proceedings fell squarely within clause 16 of the Deed. Therefore, the option term had not ended on 30 September 2016. In April 2018, the Court of Appeal dismissed RPC’s appeal.

In their counterclaim, which was heard separately, the Producers claimed their pre-production costs of €500,418.03, or a proportion thereof on the basis of the loss of a chance, and the balance of Mr Branco’s claimed producer’s fee of €400,000, or a proportion thereof, also on the basis of the loss of a chance.

RPC denied that it had acted in breach of the Deed. Alternatively, if it had, it argued that: (i) according to the terms of the Deed, the film could only have been made with Mr Gilliam as director; Mr Gilliam would not have agreed to continue working with Mr Branco, so the film would never have been made with Mr Branco as producer; and (ii) even if Mr Gilliam had agreed to continue as director, the Producers would not have been able to raise the finances to enable the film to be made.

His Honour Judge Hacon said that despite all parties believing that Alfama’s option had expired, the fact was that the Court of Appeal had found that the option had not expired on 14 October 2014. Therefore, there was no doubt that by entering into the Tornasol Deed, RPC was in breach of the Deed. The whole point of the Deed was to guarantee Alfama’s exclusive right to exploit the rights until its option term had expired.

As for damages, the Producers said that RPC’s breach of the Deed caused them to lose the profits they would have made from making the film. Therefore, it all depended on the hypothetical conduct of third parties: (i) Mr Gilliam, and whether he would have continued to be director of the film with the Producers still in place; and (ii) the individuals, who took decisions on behalf of the sources of finance, and whether they would have paid enough money for the film to go ahead.

Examining the email correspondence between Mr Gilliam and Mr Branco evidencing the breakdown in their relations, His Honour Judge Hacon noted that there were several points of dispute, including Mr Branco’s refusal to finance the cost of Mr Gilliam’s preferred Assistant Director, Lee Grummett, and his UK-based team, and that in early August 2016 Mr Branco had set an ultimatum that either Mr Gilliam agree to Mr Branco having complete control over every decision, including the choice of team members, or the project would end.

HHJ Hacon found that, if Mr Branco’s ultimatum had been pushed through, it would have been inconsistent with the Director Agreement. Under clause 7, Mr Gilliam and Mr Branco were mutually to approve all creative matters and Mr Gilliam’s decisions, including the choice of all department heads, was to prevail provided that they were consistent with the final approved budget.

Despite this, in Mr Gilliam’s final email of 6 August 2016 he had said that he was willing to pursue the project, but his offer was to carry out his obligations under the contract and he did not accept Mr Branco’s terms. Mr Branco then offered a way forward, subject to “big changes”, but did not set out what this was or withdraw his ultimatum. On 9 August 2016 Mr Gilliam was presented with the idea of continuing the film with another producer, i.e. Tornasol, and by the date of the breach of the Deed, which HHJ Hacon said was the grant of the option by RPC to Tornasol on 14 October 2016, Mr Gilliam had become committed to Tornasol as producer.

Mr Branco argued that all the points he had insisted upon were subsequently accepted by Mr Gilliam in his dealings with Tornasol. Therefore, he said, his insistence had been justified. HHJ Hacon found that this was true up to a point. The film was shot in the spring of 2017 and it was likely that Mr Gilliam would have agreed to a similar delay with Mr Branco, provided Mr Driver was available in 2017, which he was. Mr Gilliam may also have accepted a higher proportion of the crew coming from Spain and Portugal rather than using a predominantly English crew to save money. However, HHJ Hacon said it was difficult to envisage Mr Gilliam accepting the principal condition required by Mr Branco: that henceforth all decisions would be taken by Mr Branco.

In HHJ Hacon’s judgment, there was only a very low chance that if Mr Gilliam had had no option other than to continue to work with Mr Branco, his desperation to make the film was such that he would have tried to make the best of working with Mr Branco.

As for financing the film, there were two distinct issues to consider: (i) objectively whether Mr Branco could have raised sufficient finance; and (ii) Mr Gilliam’s perception in October 2016 as to whether Mr Branco could raise sufficient finance and its influence on Mr Gilliam’s willingness to continue with Mr Branco as producer.

HHJ Hacon was not persuaded that Tornasol’s ability to raise €16.7 million meant that Mr Branco was sure to be able to do the same. That would imply that no knowledge or skill was required by a film producer when raising money.  HHJ Hacon also did not accept Mr Branco’s assertion that he would have raised the finance in time for a spring 2017 shoot. Mr Branco had failed in his attempts to raise financing from Amazon and witness evidence stated that Mr Branco would not have recovered from Amazon’s rejection, as it would have become known to other prospective financers.

HHJ Hacon held that events would not have led to the film being made with Mr Branco as producer. Even if Mr Gilliam had believed that Mr Branco had the finance in place, the chance of his being willing to continue working with Mr Branco was very low. Even if desperation had driven him to try, he would have come to realise that Mr Branco was never going to raise sufficient finance. At that point he would have left and there would have been no film. Any chance Mr Branco had of making the film would have fallen to zero.

Therefore, HHJ Hacon held, the Producers never had a substantial chance, in fact nothing above a speculative chance, of making the film if RPC had not been in breach of the Deed. (Recorded Picture Company Ltd v Alfama Films Production [2020] EWHC 3481 (Ch) (17 December 2020) — to read the judgment in full, click here).