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IP Whiteboard

I think we should break up

9 September 2011

When entering into licence agreements for TV and other media, few would forget to pay attention to the intellectual property rights of the parties.  But it’s important to remember that the IP rights you’re granting, receiving, or retaining are only as good as the contract which embodies them.  Therefore, it’s pivotal to understand how the contract works and how it can be brought to an end.  A recent Federal Court decision addressed the difficulties of effectively ending a TV broadcasting licence agreement, and provides useful guidance on what to do and what not to do.
Al Jadeed broadcasts Arabic TV stations, one of which is known as New TV Service.  Al Jadeed gave United Broadcasting the right to broadcast New TV Service in Australia.  In exchange, United Broadcasting would pay to Al Jadeed an annual licence fee of US$100,000 plus 50% of all advertising revenues.  United Broadcasting fell behind in its payment obligations and Al Jadeed decided to end the relationship.  Al Jadeed issued four separate notices of termination.  United Broadcasters said the contract remained on foot and disputed the effectiveness of the notices of termination. 
Under the agreement, Al Jadeed could terminate for “material breach”, “material misrepresentation” or the inability to perform a “material obligation“.  A difficulty in this case was that English was not the first language for any of the parties involved, and this was born out by the wording of the notices.
Justice Flick began with the following observations:

  • a termination is valid even if the terminating party does not know of, and does not make reference to, the facts which validate the termination; and 
  • a termination notice must be sufficiently clear so that a reasonable recipient is left in no doubt that the right of termination is being exercised.  However, “absolute clarity” or “absolute absence of any possible ambiguity” is not required.  In this case, the “reasonable recipient”  is a person reading the notice written a language other than the primary language of the writer.

The four termination notices are partially extracted below.  Which ones would you hold to be effective?
Notice 1
Email from Al Jadeed to United Broadcasters dated 2 April 2010:

…you unfortunately stopped paying from the date of September 25th 2009, in spite of your promise to settle the balance every quarter, & the remaining balance of the service for the year 2009 is $ 75,000… Therefore, we asked you to do the necessary to settle the existing balance within a period of 10 days”.

Email from Al Jadeed to United Broadcasters dated 17 May 2010:

Until now we didn’t receive from you answers for the outstanding balance, so we are very sorry to tell you that if today you didn’t tell us about the payment, the transmission will be cut off tomorrow”

Notice 2
Letter from Al Jadeed to United Broadcasters dated 20 July 2010 titled “Subject: Breach of contract”

[Letter refers United Broadcasters’ failure to pay amounts due]
We would much appreciate your attempt to do the necessary to wire the outstanding amount of 25000 US $ due to NEW TV within a period of 2 working days from receipt of this letter…
You should consider the Agreement signed in 2004 terminated with immediate effect, holding you fully responsible, in case of not settling outstanding amounts within 2 working days. 
And if you fail to settle your account within the period mentioned above, you should immediately cease all services under your responsibility relating to New TV”

United Broadcasters paid the amount of US$25,000 within 2 working days of receiving the letter.  However, United Broadcasters subsequently did not pay the annual licence fee of US$100,000 due in September/October 2010.  It was known to United Broadcasters as early as April 2010, but not to Al Jadeed, that it would not be able to pay the US$100,000 licence fee when it fell due.
Notice 3

Letter from Al Jadeed to United Broadcasters dated 22 July 2010 titled “Subject: Breach of contract”

[Letter refers United Broadcasters’ delays in making payments]

– Any failure to pay the license fees in due time, will lead to immediate termination of contract without any prejudice or notification.

[W]hen we first signed the contract for /100 000/ US $ as license fee, it was based upon minimum guarantee incoming from 50% on commercially advertisements revenues, and since you haven’t reach that obligation, you will be responsible for breach of contract.
Therefore, a renegotiation of contract fee and/or a minimum guarantee relating to commercially advertisements revenues should be done as of today, in purpose of keeping NEW TV on your platform.  Otherwise you should consider the contract terminated for breach of material obligations set in contract.
Hoping this letter reach your understanding and willingness for the remaining period of contract which terminates in august 2012

Although not expressly stated, it appears from the judgment that the contract fee and/or minimum guarantee were not renegotiated.
Notice 4
Letter from the solicitors of Al Jadeed to the solicitors of United Broadcasters dated 4 July 2011:

…Without prejudice to previous notices terminating the Licence Agreement, Al Jadeed hereby terminates the Licence Agreement, to the extent to which it has not previously been terminated.
… [The letter sets out a non-exhaustive list of some of the reasons why United Broadcasters was said to be in breach]”

The Court’s decision
Notice 1 was held to be ineffective because it did not to convey to a reasonable person that the agreement was terminated.  Notice 3 was ineffective because the final sentence made it unclear whether the contract had come to end or remained on foot.  Notice 4 on the other hand was clearly effective. 

Of most interest was that notice 2 was effective, even though the amount of US$25,000 was paid within the required 2 day period.  The Court held that there was no ambiguity in the words “terminated with immediate effect” by reason of “breach of contract“.  Further, the court held that as of the date of Notice 2, Al Jadeed had a right to terminate on the basis that United Broadcasters was “unable to perform a material obligation“, being the obligation to pay the licence fee of US$100,000.  The Court held that United Broadcasters was unable to perform this obligation even though payment was not due for a further two or three months.  It did not matter that Al Jadeed was not aware of United Broadcasters’ inability to pay and had not cited it as the basis for the termination.

The full decision can be found here.  The opening 22 paragraphs provide an excellent overview of the law with respect to interpreting and terminating contracts.

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