"Can a contractual undertaking not to infringe copyright continue forever -- even if the legal basis for it has disappeared?
The definitive answer given by the Scottish Court of Session appeal court (Inner House) to this question last Friday was a resounding ‘No’. This case was part of the fall-out of the FAPL case -- Football Association Premier League Ltd and others v QC Leisure and others (no 2) and the ruling of the Court of Justice of the European Union (CJEU), for which, click here. In that case, as readers will know, the CJEU decided that clauses prohibiting the use of foreign decoders and smart cards were void as a restriction on competition under European law - the free competition provisions of European law prevailed over the UK's Copyright, Designs and Patents Act 1988.
In the Scottish version of this case the defenders, as the owners of three pubs on the west coast of Scotland, had screened live Scottish Premier League football matches in a pub using a decoder device to access the signal broadcast by a Polish company (Polsat). This was at the time an infringement of copyright under section 298 of the 1988 Act because Polsat was not licensed to broadcast within the UK. When the defenders effectively ignored the pursuer's requests to cease such activity, they raised an action for copyright infringement and applied for an interim interdict (injunction) in the local Sheriff Court. In response, the defenders offered an undertaking effectively to stop use of the decoders and smart cards to screen matches at its premises, in return for which the proceedings were dismissed. Despite this undertaking the defenders screened yet another live match via the Polsat signal in response to which the pursuers applied for interim interdict again -- but this time to the Court of Session. And this time an order was granted.
Meantime the FAPL action in England and Wales had been referred to the CJEU, so the pursuers’ action was stayed to await the outcome of that. On 4 October 2011 the Grand Chamber of the CJEU issued its decision in FAPL to the effect that contracts which prevented use of foreign decoders and smart cards were void as a restriction on competition and that EU law in this respect took precedence over the 1988 Act. The defenders applied to have the interim interdict cancelled/recalled, to which the pursuers consented. The defenders also counterclaimed for damages for wrongful interim interdict. The pursuers amended their case to delete the copyright claim and relied instead on the defenders' undertaking as a basis to seek a continuing and perpetual interdict. One of the key questions therefore to be decided was whether the contractual undertaking was still enforceable.
At first instance the court decided that the undertaking ceased to have effect as from the date of the recall of the interim interdict which was later than the CJEU's decision. On appeal there were some quite ingenious arguments run by the pursuers about the meaning and scope of the undertaking. For example it was argued that the undertaking contained no limit in time, had not been withdrawn and contained nothing to suggest it envisaged that it would fall if the unlawfulness that it sought to address were to change. Nor was it envisaged at the time or known by the parties that the interim interdict would be recalled or that FAPL would be referred to the CJEU. The enforceability of an undertaking should not depend upon the recall of an interim interdict which was not foreseen by the parties since, if it did, so this would amount to the court making the parties’ bargain as opposed to just applying it and its terms. The CJEU decision declared the law ‘as it had always been’ i.e. was retrospective. Accordingly if the defenders were correct the result would be that the undertaking had never taken effect at all which was contrary to the parties' contention.
The defenders were able to counter these points and relied on BCCI v Ali  UKHL 8 on construction of a commercial contract which made it clear that a court should be most reluctant to infer that a party intended to give up rights and claims of which it was unaware and could not have been aware. Thus the opposite point to that of the pursuers was being made to the effect that there was no need for the undertaking to have specific wording in it to deal with a situation which was unforeseen. The undertaking had been given not to do something which both sides had assumed was illegal at the time. Once that changed, it was logical that the undertaking should fall.
The appeal court agreed with the defenders and essentially upheld the first instance decision, but considered that the date upon which the undertaking ceased to have effect was as from the date of the CJEU decision on 4 October 2011 and not when the interim interdict was recalled on 12 July 2012. In interpreting the undertaking the appeal court took account of the circumstances in which it had been given, ie in the context of an application for interim interdict to prevent the defenders from carrying out what were at the time illegal acts. The logic was therefore that, if those acts ceased to be illegal, the undertaking ceased to be effective or enforceable.
On a subsidiary point the appeal court also decided that there were enough details in the pleadings on whether there had been breach of Article 101 of the Treaty on the Functioning of the European Union to allow the case to proceed. The case will therefore continue with the defender’s counterclaim for damages for wrongful interim interdict.
This seems to have been the only sensible outcome here as to hold a party to an undertaking when its whole legal basis has been undermined could not be correct. Here such an outcome would have allowed a back door route to continuing to enforce a contract term which was an illegal restriction on competition under EU law and of legislation which was no longer applicable. The fact though that the matter was argued at all demonstrates that it is worth taking care to ensure that such undertakings given in the context of court proceedings are drafted carefully taking all possible developments in mind".