Future Investments SA v Federation Internationale De Football Association

The claimant, Future Investments SA (“Future”), a company domiciled in Switzerland, claims to be entitled to exclusive rights to the production and exploitation of the international television signal and all other copyright works in the 1998 Football World Cup (“WC98”) matches and opening and closing ceremonies. In particular it claims the “exclusive rights” to produce and exploit home video of the 1998 World Cup. The defendant is the world governing body of Association Football (“FIFA”) and arranges the football World Cup every four years. It is also domiciled in Switzerland. The issue raised in this application is whether Future can invoke the jurisdiction of the English Court under the Lugano Convention to complain about the grant by FIFA to an English third party of rights which include rights to home videograms of WC98.

Future claims to have derived the exclusive rights on which it relies by a chain of agreements starting with a licence from FIFA to Organización de la Televisión Ibroamericana (“The FIFA-OTI Agreement”). OTI is the regional broadcasting union (RBU) for Central and South America. There are RBUs for the other regions of the world: the EBU is the RBU for Europe. From OTI, Future claims to have derived its rights via, firstly, an agreement between OTI and a company also called Future Panama SA, but domiciled in Panama (“Future Panama”), and secondly an agreement between Future Panama and itself. The OTI Agreement is governed by Swiss law, and contains an arbitration clause in favour of arbitration in Switzerland.

The FIFA-OTI Agreement was entered into in March 1987, long before WC98. The Agreement was concluded in Switzerland with OTI, which is domiciled in Mexico. Clause 1.1 of the FIFA-OTI Agreement granted OTI the broadcasting rights (essentially in South America, but including non-English language transmission to US and non English/French for Canada) in respect of the 1990-1998 World Cups, and a right to make videograms “only for the purpose of those transmissions”. No reliance is placed by Future on this clause. Clause 1.3 provides as follows:

“All rights not expressly granted to OTI hereunder remain reserved to FIFA. As a matter of record it is noted, though, that the exclusive videogram production and exploitation rights, with the exception only of the English language rights for the USA and the English and French language rights are, with regard to the 1994 and 1998 Cup with the Consortium (internally OTI). With regard to the 1990 Cup a separate agreement with OTI has been reached. ”

Future says that clause 1.3 is a recognition that FIFA has already granted exclusive videogram production rights to the Consortium. The reference to the Consortium is explained a little further in the first recital to the Agreement, as including the European Broadcasting Union.

Future’s originally pleaded case alleged three alternative consequences of clause 1.3 of the FIFA-OTI Agreement.

The basic complaint in the action is that FIFA has licensed IMG Media Limited (formerly known as TWI (UK) Limited) (“IMG”) to market and sell a DVD called FIFA FEVER, first released in 2004 and designed to celebrate the FIFA centennial. FIFA FEVER contains footage of WC98, the very World Cup in which Future claim to have acquired exclusive rights.

The FIFA-IMG Agreement was concluded in 2004 and signed by FIFA in Switzerland and IMG (then TWI) in England. By clause 3.1 of the FIFA-IMG Agreement FIFA granted exclusive rights to IMG in the Home Video Rights. The Home Video Rights were defined in clause 1.1 as the exclusive right to make and sell copies of the Picture for non-commercial viewing. The Picture was defined in recital A as the documentary which became FIFA FEVER. Clause 4.1 of the FIFA-IMG Agreement reads as follows:

“FIFA has the right to enter into and perform its obligations pursuant to this Agreement and to grant to [IMG] all of the rights and licences granted therein.”

IMG was to be able to use “FIFA Archive Material” which was defined in a way (which includes WC98) as:

“the moving images and footage of the official films of the historical FIFA World Cups … (excluding the official films of the 1994 and 2002 FIFA World Cups), currently operated and managed by Infront Sports & Media in Ipswich, England”.

FIFA had rights of approval over the contents of the film. IMG compiled and created the basic digital master of the film in England, but sub-licensed the manufacture and distribution of FIFA FEVER to a Swiss Company called Cult Licenz AG, which handled distribution through the DVD label run by its Swiss subsidiary Evolution Entertainment AG. A German company, Tonix, Pictures GmbH, handled the authoring (adding menus etc). The final master copy for stamping was supplied to Evolution in Switzerland by Tonix. Evolution then arranged for distribution through a network of 20 sub-licenses throughout the world. The UK sub-licensee was called Green Umbrella.

It is important to be clear at the outset what the action is not about. Whilst the WC98 footage is presumably the subject of copyright and is amongst the rights exclusively licensed to OTI/Future Panama/Future, there is no attempt by Future in the present action to bring proceedings for infringement of copyright either against IMG or against FIFA for authorising copyright infringement, or as a joint copyright infringer with IMG. Further, as the claim was originally formulated it included a claim by Future for breach of contract against FIFA. That claim has now been discontinued. Moreover, Future no longer asserts that the FIFA-OTI Agreement conferred any rights in respect of home videograms of WC98. It relies exclusively on the assertion that those rights were conferred by some prior agreement, which they are unable to produce, and FIFA has not yet identified.

The only claim sought to be maintained by Future against FIFA is based on the tort of causing harm by unlawful means. As originally formulated, the plea of causing harm by unlawful means did not specifically identify the unlawful means relied on. The relevant section of the pleading, commencing at paragraph 48, merely said that the whole of the first 47 paragraphs of the pleading were repeated. These paragraphs covered “The Parties”, “The Agreements”, “Subsequent Ownership of WC98 Home Video Rights to WC98 Games” and “FIFA’s Breach of Contract”. The breach of contract alleged against FIFA was a breach of the FIFA-OTI Agreement: see paragraph 45, although paragraph 40 alleged that FIFA were in breach of the Warranty and/or the Transfer and/or had acted contrary to the Acknowledgment (in the FIFA-OTI Agreement) set out in paragaphs 10-16 by entering into the FIFA-IMG Agreement.

It is not necessary to explore further the basis of these claims, because it is plain that the only illegality which was relied on for the purposes of the originally pleaded case of causing harm by unlawful means was FIFA’s breach of the various rights arising out of or recognised by the FIFA-OTI Agreement. Whilst paragraph 40 exhibited a copy of the FIFA-IMG Agreement, it was exhibited for the purposes of demonstrating that FIFA were in breach of the FIFA-OTI Agreement, or possibly the other rights so recognised. There was no allegation of any breach by FIFA of the FIFA-IMG Agreement, or of any other unlawful means used by FIFA against IMG.

Very shortly before the hearing of the present application, Future applied to amend its pleading. Part of that amendment was simply to give effect to the discontinuance of the breach of contract claim. Amendment is also sought to the case of causing harm by unlawful means. The section on causing loss by unlawful means is now structured as follows:

Thus it is clear that the tort now alleged to have been committed by FIFA is that it used unlawful means against IMG. An essential element in the claim that FIFA acted unlawfully in relation to IMG is the warranty given by FIFA in clause 4.1. If no express or implied warranty to grant the rights were contained in the agreement, the acts pleaded in paragraphs b(ii) to b(v) would not have been actionable by IMG, nor could they even arguably have affected IMG’s freedom to deal with Future.

Future’s case, however, is that because of the clause 4.1 warranty, IMG was wrongfully reassured that it need not deal with Future. It contends therefore that, as FIFA knew of the prior grant of rights to OTI and its successors in title, acknowledged in the OTI Agreement and elsewhere, FIFA was intentionally causing harm to Future by unlawful means.

The first application in time was FIFA’s jurisdictional challenge. FIFA contends that the action, whether as originally formulated or as now amended, cannot be brought within any of the exceptions to the principle established in Article 2 of the Lugano Convention, that a defendant should be sued in the courts of its country of domicile. The only exception in play is Article 5(3) which creates an exception for actions in tort in favour of the courts where the harmful event occurred. FIFA contends that the harmful event did not occur in this country.

FIFA sought, in the alternative, a stay of the action in favour of Swiss arbitration under the arbitration clause in the FIFA-OTI agreement. The latter application has fallen away in the light of the fact that there is no longer any action brought against FIFA for breach of the FIFA-OTI agreement.

The second application is Future’s application to amend its pleadings in the way I have indicated above. FIFA objects to the amendment on the grounds (a) that it does not raise a seriously arguable case, (b) that it is too late, and it would prejudice FIFA to allow it to be introduced now and (c) that it should not be allowed while a jurisdictional challenge is pending as it raises a new cause of action.

The law in this area has recently been clarified by the House of Lords in OBG v Allen [2008] 1 AC 1; [2007] UKHL 21. The elements of the tort are dealt with in the speech of Lord Hoffmann at [45] to [64]. At [47] Lord Hoffmann, with whom Lord Brown and Baroness Hale agreed, said:

“The essence of the tort therefore appears to be (a) a wrongful interference with the actions of a third party in which the claimant has an economic interest and (b) an intention thereby to cause loss to the claimant.”

At [49] Lord Hoffmann explained that (subject to the qualification that there is no need for proof of loss by the third party), acts against third parties will be unlawful for the purposes of the tort if they would be actionable (subject to the qualification about loss) by the third party.

By contrast it is not unlawful for a person to use unlawful means against a third party which do not affect the third party’s freedom to deal with the claimant: see [51].

Attempts to use the tort of causing harm by unlawful means as a substitute for a directly enforceable intellectual property right have not enjoyed success historically. In RCA v Pollard [1983] 1 Ch 135, the Court of Appeal struck out an action by the exclusive licensee of a performer’s recording rights (granted by the estate of Elvis Presley) against a bootlegger (a person making unauthorised recordings in breach of the Dramatic and Musical Performers Protection Acts). Despite the fact that the bootlegger was knowingly committing unlawful acts which were damaging to the exclusive licensee, the Court of Appeal held that the exclusive licensee had no cause of action. The statute, being designed to protect a narrow class of persons, created no cause of action in favour of the recording companies. The plaintiffs relied on a broad principle of equity to protect property rights by granting an injunction to prevent a crime which would affect such rights. The majority of the Court of Appeal held that such a broad proposition had been rejected by the House of Lords in Lonrho v Shell [1982] AC 173. Oliver LJ expressed the view (at 153) that even if such a principle existed it would not be wide enough to confer a cause of action in the present case. He reasoned that the sales by the bootlegger did not reduce the value of the plaintiffs’ exclusive licence. That was a right to prevent their licensor from granting licences to reproduce to others: that right was unaffected by the bootlegger’s sales.

Oliver LJ’s obiter view received the approval of Lord Hoffmann in OBG v Allan at [52]-[53]. He explained why the exclusive licensor’s action failed in these terms:

“The wrongful act did not interfere with the estate’s liberty of action in relation to the plaintiff”.

Similarly in Isaac Oren v Red Box Toy Factory Ltd [1999] FSR 785 an action by the exclusive licensee of a registered design against an infringer of that registered design failed. No statutory right is given to an exclusive license of a registered design to sue infringers (unlike the case of patents and copyright, where such a right is expressly given). In a passage which received the approval of Lord Hoffmann in OBG v Allan at [54] Jacob J held that

“It is true that the exploitation of the licence may not have been so successful commercially by reason of the infringement, but the contractual relations and their performance remain completely unaffected.”

These are cases of unlawful acts in relation to licensors of rights which fail to satisfy the requirements for the tort of causing harm by unlawful means because they do not interfere with the freedom of the licensor to perform the contract with the claimant licensee. There is no direct authority in relation to a case based on an unlawful act in relation to a third party who is said to require a licence from an exclusive licensee. But what these cases do indicate is that it is important to enquire with precision into the question of whether the unlawful act complained of does in truth interfere with the third party’s freedom of action in relation to the claimant. They also show that the relevant damage for the purposes of the tort is the damage which is caused by the interference with the third party’s freedom of action. Damage which is suffered by the claimant which is not the consequence of interference with the third party’s freedom of action (such as the loss in value of the exclusive licence in Pollard) is not within the purview of the tort.

The principles to be applied to a jurisdictional challenge of the kind being run by FIFA are simple to state. The basic principle is that the defendant is entitled to be sued in the courts of the state where he is domiciled. Article 5(3) of the Convention provides an exception to this general rule in cases of based on tort. In such cases the claimant can sue “in the courts for the place where the harmful event occurred”. This latter expression was interpreted by the Court of Justice in Bier v Mines de Potasse d’Alsace Case 21/76 [1976] ECR 1735 as meaning both the courts of the place where the damage occurred and the courts of the place where the event which gives rise to the damage occurred. Where these two places are not the same, the claimant has the option of suing in either court.

The claimant must show to the standard of a good arguable case those elements which are necessary to carry it through the jurisdictional gateway. In Canada Trust v Stolzenburg No 2 [1998] 1 WLR 547 at 555, Waller LJ explained what a good arguable case meant in the context of a jurisdiction challenge:

““Good arguable case” reflects in that context that one side has a much better argument on the material available. It is the concept which the phrase reflects on which it is important to concentrate, i.e. of the court being as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction.”

That passage was endorsed by the Privy Council in Bols Distilleries v Superior Yacht Services Limited [2007] 1 Lloyds LR 684; [2005] UKPC 45 at [26]-28].

I should not give Future permission to amend unless the pleaded case has a realistic prospect of success. I should approach this question by assuming in favour of Future that it will establish the facts pleaded at trial. If those facts do not disclose a cause of action, or one with a realistic prospect of success I should refuse permission.

Future’s case in a nutshell is that FIFA has, by warranting, contrary to the fact, that it has the right to grant licences to WC 98, caused harm to Future’s economic interests because IMG have been discouraged from approaching Future for a licence.

Future’s case proceeds in the following way:

Mr Thomas Raphael, who appears on behalf of FIFA, submits that the cause of action thus pleaded is defective because, whilst the activity licensed by FIFA may make whatever exclusive rights are possessed by Future less valuable, it did not even arguably have the effect of interfering with the ability of IMG to contract with Future. Clause 4.1 was there for the protection of IMG, it did not have any impact on IMG’s ability to deal with Future.

Ms Madeleine Heal, who appeared on behalf of Future, submitted in her skeleton argument that the effect of FIFA’s actions against IMG “militated against the existence of Future’s rights”. If by this she meant that, in some way, FIFA’s actions against IMG compromised Future’s rights, I cannot see how this is so. Future either has the right to demand royalties from IMG or it does not: FIFA’s warranty that it had the right to grant the licence to IMG cannot make those rights disappear or even make them less valuable.

I think the most that can be said, on the basis of Future’s pleaded case, is that IMG was somehow discouraged from approaching Future for a licence. At one level this might be thought to be analogous to the cases of causing loss by unlawful means based on intimidation of customers, of which Tarleton v McGawley (1794) Peake 270 provides a colourful example. In that case the master of a ship used cannons to prevent a potential customer from approaching a rival ship. IMG was a potential customer of Future for a licence to WC98 footage, but was turned away by FIFA’s authoritative and (so say Future) wrongful assertion of the right to grant a licence itself.

It seems to me, however, that there is a fundamental and decisive difference between keeping your rivals away from your competitor’s goods and keeping them away from your competitor’s intellectual property rights. In the former case the customer has, and should have a free choice as to where to purchase goods, and that choice is being interfered with by the activity of the tortfeasor in scaring them away. But in the case of an intellectual property right, there is no question of any choice. One either needs a licence or one does not. Once IMG had decided to include WC98 footage in its FIFA FEVER DVD, if Future’s factual case is correct, it required a licence from Future. IMG never had any freedom of action to include WC98 footage without a licence from Future, and nothing that FIFA has done through clause 4.1 of the FIFA-IMG Agreement has conferred any such freedom on them. Equally, if Future had the right to prevent IMG from including WC98 footage in FIFA FEVER, it continued to enjoy that right notwithstanding anything that FIFA has done. The relations between IMG on the one hand and Future on the other are wholly unaffected.

I would accordingly hold that the pleading as amended does not disclose a cause of action in causing loss by unlawful means with a realistic prospect of success. The facts alleged do not give rise to a realistically arguable case that IMG’s freedom to deal with Future is in any material respect interfered with. It follows that I should refuse permission to amend.

It is therefore not necessary for me to decide FIFA’s points about the lateness of the amendment and amendment during jurisdictional challenge. It is sufficient therefore for me to say that I was not persuaded that FIFA was, in the end, materially prejudiced by the lateness of the amendment, as it was able to present its arguments more than adequately. However, I would have been inclined to hold that the amendment raised a new cause of action. The amendment relied for the first time on illegal acts directed at IMG, and the loss claimed is, for the first time, that which arises through the interference with IMG’s freedom. That is a quite different cause of action to the case of causing harm by unlawful means originally pleaded, which, for reasons I have given, relied at most on rights arising out of or acknowledged by the FIFA-OTI Agreement. I would accordingly have held, in the light of Gruppo Torras v Al-Sabah [1995] 1 Lloyds Rep 374 at 5.2 and News International v Bourgognon (unrep Court of Appeal 5^th March 1998), that the amendment should not have been allowed for this reason as well.

The finding that I should refuse permission to amend is sufficient to deal with this application, as it is not suggested that, in these circumstances, the originally pleaded case can survive. However, in case I am wrong about that I should consider Future’s cause of action from the point of view of jurisdiction.

FIFA submits that the place where the harmful event occurred was where FIFA signed the FIFA-IMG Agreement. That was in Switzerland. It submits that in deciding where the harmful event occurs, the focus is on the tortfeasor. Thus in Shevill v Press Alliance [1995] ECR I-415, it was the place where the newspaper publisher was established, not the place where the defamatory newspapers were read. In Domicrest v Swiss Bank Corporation [1999] QB 548 it was the place where the negligent misstatement was made, not where it was received.

Future submits that the harmful event does not occur at the point where the agreement was signed by FIFA, because the Agreement could have been performed without the incorporation of any WC98 material: the Agreement does not require IMG to include such material, although it may be commercially essential. Accordingly Future says that it is not until FIFA equips IMG with WC98 material from the archive and gives its approval to its incorporation on the compiled DVD that the event giving rise to the harm occurs.

In my judgment the harmful event occurred when FIFA signed the FIFA-IMG Agreement. This is the origin of the harm of which Future complains, and its case depends on the assertion that the Agreement warranted that FIFA owned the rights in WC98. For example Future points to the fact that certain rights are excluded from the definition of FIFA Archive Material, but not WC98. Whilst it may be the case that other events had to occur before Future’s case on damage is made good, the origin of the harmful event is, at it seems to me, undoubtedly the signing of the Agreement which contained the warranty complained of.

FIFA contends that the damage occurred when Future did not receive licence revenue from IMG for IMG’s activities. That was a loss which was suffered by Future in Switzerland. Payment would have been made in Switzerland into Future’s bank account.

Future contends that the damage occurred in England, when FIFA equipped IMG with WC98 footage and/or gave its approval to IMG to include WC98 footage in FIFA FEVER.

One has to be somewhat cautious about claims in jurisdictional challenges under the Lugano Convention that the claimant suffers loss in the state of its domicile because that is the place where it ultimately suffers loss to its bottom line. As Christopher Clarke J pointed out in Dolphin Maritime & Aviation Services v Sveriges Angartygs Assurans [2009] EWHC 716 (Comm) at [30] to [31], the claimant will ultimately suffer all economic loss at the place where its books are made up, which is likely in most cases to be the place of his domicile. If this were sufficient to establish that the loss occurred there, it would create a very large exception to the Article 2 principle that a defendant should be sued in the state of his domicile. The special jurisdiction under Article 5(3) must accordingly be interpreted more strictly than this, in line with the judgment of the Court in Kalfelis v Backhaus Schroder [1988] ECR 5565. It is for this reason that in Dumez France v Hessiche Landesbank [1990] ECR I-49, the Court stated at [20] that the place where the damage occurred:

“can be understood only as indicating the place where the event giving rise to the damage, and entailing tortious, delictual or quasi-delictual liability, directly produced its harmful effects upon the person who is the immediate victim of that event”.

The reference in that extract to the “immediate victim” arose because it was a subsidiary of the claimant which had sustained the damage in that case, and the claimant was claiming for the indirect effect on itself of the harm to its subsidiary. Normally it will be sufficient to ask where the event directly produced its harmful effect on the claimant.

Notwithstanding the reasoning in these cases, the conclusion may, in a proper case, be that the claimant did indeed sustain a loss for the first time at the place where its books are made up.

In cases of tort where the harm complained of is economic harm, it may be useful to enquire what the position would have been if the tort had not been committed, and compare that with the situation in fact: see Dolphin at [59] and Domicrest at 568 E-G.

In the present case there is no question of Future claiming indirectly for harm caused to IMG, or IMG being the victim. I should therefore ask where the event giving rise to damage and entailing tortious liability directly produced its harmful effects upon the claimant. The event which gives rise to tortious liability in this case, is, as I have held, the warranty that FIFA had the right to licence IMG in respect of WC98. There remain two further questions: what is the harmful effect of the tortious conduct complained of and where did that effect occur?

In my judgment the harmful effect of the event giving rise to tortious liability is the alleged interference with IMG’s freedom to deal with Future in respect of rights to WC98. As soon as IMG are in receipt of the warranty in the FIFA-IMG Agreement, consistently with Future’s case, they are persuaded that they do not need to apply to Future for and obtain a licence. The result is, on this theory, that Future’s licensing revenue is reduced.

I reject Future’s submission that it is the equipping of IMG with the materials necessary to use WC98 footage which is the relevant harmful effect. It is here that it is essential to keep in mind that it is the interference with IMG’s freedom to deal with Future which is the wrong complained of. Future’s submission elides the present cause of action with one of procuring a tort by IMG. It may be that the acts of equipping etc are acts which reduce the value of Future’s exclusive licence, but they are not acts of interfering with IMG’s freedom to act.

Where does that harmful effect of interference with IMG’s freedom to act occur? In my judgment it occurs where the contract with Future would have been made, if there had been no interference with IMG. It seems to me, on the evidence available to me, that such a contract would have been made in Switzerland, where Future was based. The evidence certainly does not establish that there is a good arguable case that a Future-IMG licence agreement would have been signed in England.

Accordingly I would hold that the jurisdictional challenge succeeds.