Excelsior was an independent television production company, Yorkshire TV being a television production and broadcasting company and a regional licensee which provided the national independent TV channel in the UK (formerly as ITV, now ITV1). Between 1990 and 1999 the parties entered into three agreements: (i) the 'Buds of May' agreement, (ii) the 'Frost' agreement and (iii) the 'Silas' agreement. Clauses 4(1) and 4(2) of the Buds of May agreement referred to the terms for payment for broadcast and other exploitation. By Clause 4(1):
"The payment by YTV to [Excelsior] of the said sum ... in respect of the purchase of the rights ... granted shall entitle YTV to broadcast the Film/Programmes by television on two occasions either simultaneously or non-simultaneously from all the transmitters of the IBA serving ITV or Channel Four Provided Always that if YTV shall further repeat the television broadcasting of the Film/Programmes in the United Kingdom the sum of £3,000.00 ... per broadcast hour shall be due and payable by YTV to [Excelsior] within Twenty-One Days of the date of such further repeated transmission ...".Similar repeat fees per broadcast hour were also due under clause 4(1) of the Frost and the Silas agreements. By Clause 4(2):
"It is mutually agreed that if YTV shall transmit or authorise the transmission distribution or exploitation of the Film/Programmes in overseas territories by means of open circuit or 'free' television broadcasting toll or pay cable television broadcasting satellite television broadcasting or by way of non-theatric exhibition or in the form of videograms for sale and hire to the general public there shall be payable to [Excelsior] Eight Per Cent of the adjusted gross income accruing to YTV from such broadcasting authorised broadcasting and other distribution or exploitation …".Excelsior accepted that the intention of the parties was that clause 4(1) of the Frost and Silas agreements would have the same scope and effect as clause 4(1) of the Buds of May agreement.
The digital terrestrial channel ITV2 was launched in December 1998, as a free-to-air service on cable and digital terrestrial television, followed by the digital terrestrial channel ITV3 in 2004. In March 1999, after five episodes of 'A Touch of Frost' were transmitted on ITV2, Excelsior sent YTV an invoice for those transmissions on the basis of an entitlement to be paid £3,000 per broadcast hour in accordance with clause 4(1). YTV did not pay that invoice on that basis, being prepared to pay only on the basis of a 15 per cent royalty under clause 4(2). According to YTV, ITV2 was a 'catch up' channel and that any repeat on ITV2 would attract only royalties.
Whoever said contractual interpretation wasn't a huge bundle of fun?* Evidence was admissible as to what particular words or phrases meant at the time that the contract was made, having regard to the factual background or matrix reasonably available to the parties in the situation in which they were at the time of the contract.* Precontractual negotiations were however neither relevant nor admissible.* The principles of construction would be distorted if clause 4(1) were given a wider meaning than the words of the clause would bear, merely because the television industry had developed in a manner that was not foreseen when the agreements were made and which turned out to be disadvantageous to Excelsior in terms of claiming fixed rate fees under clause 4(1).* The phrase "such further repeated transmission or transmissions simultaneously or non-simultaneously from all the transmitters of the IBA serving ITV or Channel 4" encompassed only repeats on ITV1, but not transmissions on ITV2 or ITV3.* A literal reading of clause 4(2) suggested that it covered only transmission and exploitation in oversees territories. A robust and purposive construction should be adopted when interpreting that clause, to ensure that other means of transmission and exploitation than analogue transmission on ITV and Channel 4 in the UK fell within its payment regime.* Since clause 4(1) did not cover transmissions on ITV2 or ITV3, the fact that such transmissions were not covered by clause 4(2) either did not enable Excelsior to extend the scope of clause 4(1), which did not cover digital transmission on ITV2 or ITV3.