Indian sports broadcast network 'bowled out' for breach of a media rights agreement
This article was first published in Entertainment Law Review last month. It considers New Zealand Cricket (Incorporation) v Neo Sports Broadcast PVT Ltd in which the High Court exercised its discretion and lifted a stay to allow the claimant, New Zealand Cricket, to successfully obtain summary judgment on a breach of contract claim with elements of bad faith counter-arguments.
Background
Parties
New Zealand Cricket is the national governing body of cricket in New Zealand and the owner of the right to broadcast cricket matches played in New Zealand (the Rights). It entered into a Media Rights Agreement with the defendants in 2013.
Both defendants are incorporated in India. The first defendant, Neo Sports Broadcast Pvt Ltd, owns two pay TV sports channels. The second defendant, Nimbus Communications Ltd, is involved in sports broadcasting in India.
The Agreement
The Agreement was governed by English law and provided that the courts of England and Wales should have exclusive jurisdiction. Under the Agreement Neo Sports was granted a licence to the Rights until 2020, in exchange for paying a licence fee of $50m (in instalments) to New Zealand Cricket.
When the Indian men's cricket team toured New Zealand, part of the licence fee was required to be paid in advance. 65% of the advance payment was due to be paid at least 30 days before the scheduled start of the tour, and Neo Sports was required at the same time to provide security for the remaining 35% of the advance payment via a letter of credit. Nimbus guaranteed the performance of all of Neo Sports' payment obligations under the Agreement.
The breach
The Indian men's cricket team toured in February and March 2014, and pursuant to the Agreement Neo Sports was due to pay c.$8.7m (and provide the letter of credit for c. $4.7m) on 20 December 2013. Neo Sports failed to pay the sum due on that date and also failed to provide the claimant with the letter of credit.
On 21 December 2013, New Zealand Cricket served notice requesting Neo Sports to remedy the default within seven days. Pursuant to the Agreement, failure to comply with this request gave the claimant the contractual right to terminate the Agreement. Neo Sports did not comply with the request and New Zealand Cricket served a termination notice in January 2014.
Bad faith
In January 2014, Neo Sports alleged in correspondence that, after the date for payment had passed (and the notice served), New Zealand Cricket had contacted other organisations in India offering to sell the Rights that had been granted exclusively to Neo Sports in the event that the Agreement terminated. The allegations were that the contact with other organisations:
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amounted to a breach of the exclusivity provision in the Agreement;
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breached a provision of the Agreement which granted Neo Sports the exclusive right to exploit the advertising rights; and
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breached an implied covenant of good faith and fair dealing.
Neo Sports claimed in the correspondence that the breaches amounted to a material breach of the Agreement incapable of remedy giving Neo Sports the right to terminate the Agreement.
New Zealand Cricket did not deny that such discussions had taken place, but did deny that it amounted to a breach of an obligation under the Agreement (whether express or implied), and that any alleged breach was capable of being a repudiatory breach in any event.
Proceedings
In November 2014, New Zealand Cricket issued proceedings in England and Wales. The defendants had appointed Couchmans LLP as their agent for the purpose of accepting service in connection with the Agreement, and Couchmans LLP filed an acknowledgement of service on behalf of the defendants, which did not contest jurisdiction. The defendants failed to file a defence.
In circumstances where a claimant does not apply for summary judgment within six months of the defence due date, the claim is stayed under CPR Rule 15.11(1). To lift the stay and apply for summary judgment, New Zealand Cricket required the court's permission. The application by New Zealand Cricket was served on Couchmans LLP, still formally on the record, but who explained that it was no longer instructed to accept service.
Out of caution (as technically service was deemed legally effective), New Zealand Cricket applied for permission to serve the application and supporting documents on the defendants out of the jurisdiction in India. The court granted permission for such service but the defendants chose not to file any evidence in response to the application, appear or be represented at the hearing.
Decision
Should the stay be lifted?
Either party can then apply to the court for the stay to be lifted. The court held in Michael Wilson & Partners Ltd v Sinclair [2015] EWCA Civ 744 that, provided at least some explanation has been given for the relevant delay, relief should be granted in a situation where the relevant delay has had no material impact on the efficient conduct of the litigation.
New Zealand Cricket explained that the six month delay was a result of obtaining advice on the ability to enforce an English judgment against the defendants in India, and on the appropriate course to take in the proceedings.
Leggatt J found that the delay here had no material impact on the efficient conduct of the litigation, and therefore the stay should be lifted.
Should summary judgment be granted?
With the stay lifted, New Zealand Cricket sought summary judgment on the outstanding sum of c. $8.7m (plus contractual interest) which fell due on 20 December 2013.
The test for summary judgment comes from CPR Part 24 which asks if the defendant has a real prospect of successfully defending the claim. The burden to show a real prospect of success is on the defendant, but there is a relatively low hurdle to overcome. In circumstances where the defendants had dis-instructed solicitors and refused to engage with proceedings, Leggatt J found that the defendants’ silence was “telling and would be a sufficient reason in itself to grant the application”. However, Leggatt J decided to consider the earlier correspondence between the parties and consider the arguments ran by the defendants in them.
Leggatt J rejected the allegations by Neo Sports that New Zealand Cricket was in repudiatory breach of the Agreement, and particularly that New Zealand Cricket had acted in bad faith. In particular: "a party which is in breach of contract and which faces termination of the contract within a matter of days if it continues to fail to comply with its obligations cannot complain".
He went on to say that not only should that party not complain, it would not be bad faith for the party who suffered loss as a result of the initial breach to seek to mitigate its loss in the event the earlier breach is not remedied. In fact, evidence was provided by New Zealand Cricket which showed that Neo Sports had proposed the contact between New Zealand Cricket and the third party broadcasters via its agent.
The court held that the defendants had no real prospect of successfully defending the claim and awarded New Zealand Cricket summary judgment for the amount of the outstanding debt (plus interest) with the remaining damages to be assessed.
Comment
The judgment provides a useful illustration of how the court will exercise its discretion to lift a CPR 15.11(1) stay and progress a case in circumstances where the defendant disengages.
Where the evidential burden rests with the defendant, and that defendant has disengaged, the court is reluctant to decide in the absence of testing its arguments. Without pleadings the court has shown that it will consider the earlier correspondence between the parties.
The bad faith arguments run in correspondence were bound to fail, especially in circumstances where the party alleging bad faith was the instigator of the actions it later complained of. It is, however, useful to see that actions of New Zealand Cricket were viewed as steps to mitigate loss in the light of the imminent (and likely) termination of the Agreement.
This material was first published by Sweet & Maxwell in Entertainment Law Review (Volume 28; Issue 5; ISSN: 0959-3799), and is reproduced by agreement with the publishers.