(1) CARLTON COMMUNICATIONS PLC (2) GRANADA MEDIA PLC v THE FOOTBALL LEAGUE [2002] EWHC 1650 (Comm)

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
[2002] EWHC 1650 (Comm)Case No Case No: 2002 Folio 377Venue Royal Courts of Justice, Strand, London, WC2A 2LL
Between
(1) CARLTON COMMUNICATIONS PLC (2) GRANADA MEDIA PLCClaimantsTHE FOOTBALL LEAGUEDefendant
Before
Mr Justice LangleyLord Grabiner QC & Mr Daniel Toledano (instructed by Messrs. Slaughter and May) for the ClaimantsMr Charles Flint QC & Mr Andrew Green (instructed by Messrs. Lawrence Graham) for the DefendantHearing dates : 25, 26 & 29 July 2002Date 1 August 2002
[1]Mr Justice Langley: Introduction The claimants (“Carlton” and “Granada”) are each 50% shareholders in ITV Digital Holdings Limited (“Holdings”) which is itself the parent company of ITV Digital plc (formerly ONdigital plc). Throughout most of the material events the company was known as and I shall refer to it as ONdigital. On 27 March 2002 ONdigital was placed into administration by an order of the High Court.[2]The Defendant (“The Football League”) is a company of which the shareholders are the football club members of the Football League. The clubs are those playing in what are commonly referred to as the Football League first, second and third divisions. The Football League owns the broadcasting rights to matches played by members in those divisions as well as to matches in other competitions it organises.[3]ONdigital was incorporated in January 1997 to provide digital terrestrial television services to subscribers. The service was launched in November 1998 as ONdigital and changed its name to ITV Digital in July 2001.[4]The Football League and ONdigital entered into a written contract dated 15 June 2000 (“The June Contract”) by which The Football League agreed to license to ONdigital the rights to all matches during the 2001/2, 2002/3 and 2003/4 football seasons. Under the June Contract ONdigital was due to pay the Football League the sums of £89.25 million on both 1 August 2002 and 1 August 2003.[5]The central issue in these proceedings is whether or not the liabilities of ONdigital under the June Contract were guaranteed by Carlton and Granada. As is well known the financial condition of ONdigital is such that it has ceased to broadcast and would have been unable to meet the payments when they fell due.[6]These proceedings were commenced by Carlton and Granada by a Claim Form dated 12 April 2002. The relief claimed was (and is) a declaration that neither company is liable for any payments due under the June Contract. By a counterclaim dated 9 May, the Football League claimed a declaration that Carlton and Granada were jointly and severally liable as guarantors of ONdigital’s obligations under the June Contract. The original counterclaim sought a declaration of liability to pay the two sums of £89.25m “if such sums are not paid” by ONdigital. As amended, a declaration of liability to pay damages in the sum of £131,833,334 is sought.[7]On 13 May The Football League’s solicitors wrote to the administrators of ITV Digital “terminating the licence arrangements pursuant to the (June Contract) as a result of the Company’s present position.” The letter purported to accept “the repudiatory breaches” of the June Contract by ONdigital said to be that the Company could not perform the Contract as it had ceased broadcasting and “does not propose to pay the remaining instalments.”[8]On 5 July The Football League granted broadcasting rights for the seasons 2002/3 to 2005/6 to British Sky Broadcasting Limited (Sky). It is The Football League’s case that for the 2002/3 and 2003/4 seasons the sum payable by Sky under the agreement is £46,666,666 and that to that extent it has mitigated its loss under the June Contract. Hence also the amended claim to which I have referred in paragraph 6.[9]This court ordered on 17 May that the trial of the proceedings be expedited. They began before me on 25 July and concluded on 29 July when I reserved my judgment. It was agreed that, despite the form of the proceedings, the Football League should conduct the trial as claimant. It was also agreed that should issues of mitigation and quantum be required to be tried they should be left to a subsequent hearing. The Football League’s Case[10]The Football League contends that by a statement made in an Initial Bid document dated 7 June 2000 that “ONdigital and its shareholders will guarantee all funding to the FL outlined in this document” Carlton and Granada made a “unilateral offer to guarantee” the obligations of ONdigital to the Football League in the event that a contract was concluded between the Football League and ONdigital for the licensing to ONdigital of broadcasting rights owned by the Football League. It is the Football League’s case that this unilateral offer was accepted by the Football League’s conduct in entering into the June Contract on 15 June. The June Contract itself did not contain a guarantee and neither Carlton nor Granada were parties to it. Carlton and Granada’s Case[11]Carlton and Granada contend that: i) The Initial Bid did not contain a “unilateral offer to guarantee”. The statement relied upon by The Football League was part of a “subject to contract” proposal. It was not expressed to be or capable of “acceptance” by conduct, nor did The Football League purport to accept it. I will refer to this as “the construction issue”. ii) Even if the statement was an offer to guarantee it was made by ONdigital and ONdigital was not authorised to make it on behalf of either Carlton or Granada. I will refer to this as “the authority issue”. iii) In any event the alleged guarantee is unenforceable by virtue of section 4 of the Statute of Frauds 1677 (“The Statute of Frauds Issue”). Section 4 provides that: “No action shall be brought whereby to charge the defendant upon any special promise to answer for the debt default or miscarriage of another person unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised.” iv) The alleged guarantee would not in any event enable The Football League to recover damages for anticipatory repudiatory breach of contract by ONdigital. I shall refer to this as “the scope of the guarantee issue”.[12]The Football League relies in response on what it says was the actual or ostensible authority of ONdigital to make the offer on behalf of Carlton and Granada. It also contends that the Initial Bid and the letter enclosing it, a later Revised Bid and the letter enclosing it, and Clause 18 of the June Contract fulfil the statutory requirement for a “memorandum or note” of the agreement to give a guarantee, relying on the signature of those documents by ONdigital as signatures on behalf of Carlton and Granada. The other issues are ones which substantially depend on the documents and to a limited extent case law. The Parties and Players ONdigital[13]Holdings was incorporated on 9 October 1996 and ONdigital in January 1997. At that time the company was called British Digital Broadcasting plc.[14]ONdigital was the subject of a “Restated Joint Venture Agreement” (“The JVA”) dated 18 December 1997 made between Carlton and Granada, Holdings and ONdigital. Clause 2.3 of the JVA expressed the intention that the company was to operate as “a stand alone profitable viable entity having independent management and an existence independent of the shareholders consistent with the success and profitability of the business.” As regards the management of the company, the JVA provided for each of Carlton and Granada to appoint up to 3 directors of each of Holdings and ONdigital. Each was also required, at the insistence of the Independent Television Commission, to use its best endeavours to ensure that there were at least two independent directors on the board of ONdigital. The Board of ONdigital was required to appoint additional directors and senior management who were to be of sufficient calibre to operate the company independently of Carlton and Granada and who were obliged to act in the best interests of the company independently of the interests of Carlton and Granada.[15]Whilst the day to day management of ONdigital was to be conducted by the Board acting by a simple majority various matters required the approval of the Holdings Board. In particular Clause 9.4.8 of the JVA provided that ONdigital would not without the approval of the board of Holdings “incur or enter into any binding commitment to incur any capital or other expenditure in any accounting period … which would or would be likely to result in expenditure aggregating more than £10 million …”[16]ONdigital, as a new venture, was dependent on funding from Carlton and Granada save to the extent it generated funds from its own business. The statutory accounts of ONdigital for the year ended 30 September 2000 (signed on 19 February 2001) stated that the company was dependent on continuing financial support from Carlton and Granada to continue its activity and meet its liabilities as they fell due. In a press release issued by the Executive Chairman (Charles Allen) of Granada towards the end of November 2001 it was stated that Carlton and Granada had both “confirmed their current intention” to continue to provide funds to ONdigital to enable the business to meet its operational requirements as and when they fell due. In Carlton’s statutory accounts for the year ended 30 September 2001 Carlton recorded that it had indicated “its current intention” to that effect with a specific reference to ONdigital’s payment obligations to The Football League under the June Contract. It is not, however, alleged that The Football League relied on any of these statements all of which, of course, post-dated the June Contract.[17]Carlton and Granada have also been the main forces in ITV at least since Granada acquired the television interests of United News and Media in October 2000. ITV Network Limited (“ITV Network”) oversees and administers the ITV Network. Carlton and Granada have substantial interests in ITV Network but are not the only shareholders. Directors and Advisers[18]As at June 2000 the ONdigital Board of Directors consisted of 6 executive directors: Stuart Prebble (Chief Executive), Graeme Stanley, Rob Fyfe, Simon Dore, Guy Lawrence and Jeanette Wilkins. There were 3 non-executive directors nominated by Carlton: Michael Green, Nigel Walmsley and Viscount Piers Caldecote. Mr Green and Mr Walmsley were also directors of Carlton. There were also 3 non-executive directors nominated by Granada: Charles Allen, Stephen Morrison and Henry Staunton. Each was also a director of Granada. The two independent non-executive directors were The Rt. Hon. The Viscount Astor and Lady Katherine Innes Kerr. Marcus Ezekiel was the company secretary. He is a qualified solicitor. Paul Matthews was an in-house solicitor. Thomas Betts (commercial director of Carlton Television Limited a subsidiary of Carlton) was concerned in the bid process at the relevant time. Bernard Cragg was a director of Carlton but not of ONdigital. Mark Oliver was an independent consultant from Oliver & Ohlbaum Associates Limited, a company which provided advisory services during the bid process. The Football League[19]The Board of The Football League consisted of representatives of some of the member clubs. The June Contract was negotiated by or under the control of the commercial committee of the Board. Mr Sheepshanks was chairman of the committee and Mr Phillpotts was the commercial/marketing director. Mr Phillpotts left in March 2001 to work for The Premier League. The Football League was advised by Richard Alderson of Edge Ellison (solicitors) and by specialist consultants, Active Rights Management Limited, represented by Stephen Townley. The Witnesses[20]The following gave evidence at the hearing: i) On behalf of The Football League, Mr Phillpotts and Mr Townley; ii) On behalf of Carlton and Granada, Messrs Prebble, Stanley, Betts, and Walmsley. In addition witness statements were served for Messrs Staunton and Cragg and Viscount Caldecote but they were not required to attend for cross-examination and their statements were accepted in evidence as written. Statements were also served for Messrs Green, Allen and Morrison but before the third day of the hearing Mr Flint indicated that they too were not required to give evidence and so their statements also stand as uncontested evidence. The Facts The Early Negotiations[21]By letter dated 10 January 2000 The Football League informed prospective bidders that the current television contract with Sky was due to come to an end in 2001 and invited expressions of interest. The current contracts for The Premier League rights and FA Cup rights were also coming to an end and negotiations for their sale were proceeding at the same time as the sale of The Football League’s rights. ONdigital responded in a presentation on 11 February 2000. The presentation was made by ONdigital’s management and was attended by Mr Betts and Mr Oliver. The Football League (by Mr Townley) invited offers for the rights in a pre-tender document dated 27 March. Mr Townley sent this document to Mr Stanley on 28 March. On 10 April, at a meeting, ONdigital submitted a written proposal to acquire certain rights for a 3-year period.[22]On 18 April ONdigital made a “presentation to shareholders” at a meeting. The presentation set out a bidding strategy and proposed a bid of about £80m a year to The Football League in the hope of securing an exclusive negotiating period. The presentation was made by Mr Stanley supported by Mr Betts and Mr Oliver. The notes of the meeting record that “it was agreed that ONdigital’s management would continue to liaise with shareholders as the rights process develops.”[23]On 2 May, Mr Stanley wrote to Mr Walmsley and Mr Morrison “in response to shareholder questions posed concerning ONdigital’s football bids” concluding that the economic case for a bid for Football League rights was compelling and that a bid of £60m a year should be made. On 4 May Mr Prebble wrote to Messrs. Allen, Staunton and Morrison of Granada having been asked to summarise ONdigital’s “total possible exposure and the opportunities which arise from our proposed strategy on the various football rights.” Mr Prebble urgently requested approval to bid for The Football League rights starting at £60m a year but with the flexibility to go to £70m. Mr Prebble wrote that “this approval has been obtained from Carlton”.[24]On 10 May ONdigital produced a draft short form contract setting out the terms on which it was prepared to licence the rights. This document was discussed with The Football League at meetings held over the 10 to 13 May. At these meetings Messrs Prebble, Stanley, Matthews and Betts represented ONdigital and Messrs. Phillpotts, Townley, Alderson and Sheepshanks represented The Football League. The negotiations foundered on a “matching rights clause” by which Sky had a right in its existing contract with The Football League to match any competing offer. Later (on 31 May) Sky agreed to the waiver of the clause.[25]On 23 May ONdigital made a further presentation to shareholders in which it recommended that the company continue to bid for all football rights but with Football League rights the priority.[26]On 26 May Mr Townley wrote to Mr Stanley stating that The Football League would be preparing a short list of bidders at a meeting on 5 June and that if ONdigital proposed to proceed further it was important that it submit a written proposal by noon that day. The 5 June date was later extended to 7 June. The Initial Bid[27]On 6 June Peter Mercier (the Business Development Manager of ONdigital) sent by e-mail to Messrs. Stanley and Betts and Oliver the first draft of what became the Initial Bid document which is the foundation of The Football League’s case. Mr Mercier wrote in the e-mail to Messrs. Stanley and Betts that “not having been involved directly in the talks, this document is a sketch gleaned from existing presentations and letters to the FL.” In his e-mail to Mr Oliver he asked him to “please review for us.” Mr Mercier circulated a further draft of the document to Messrs Prebble, Stanley, Fyfe, Betts, Oliver and Ezekiel that evening.[28]On 7 June 2000 Mr Stanley wrote to Mr Townley enclosing a 10 page document entitled “Initial Bid for Audio-Visual Rights Football League 2001/2 – 2003/4 ONdigital” (“The Initial Bid”). The Initial Bid was prominently expressed on each page to be “Subject to Contract” and in the Introduction it was stated that “this document is subject to contract”. It contained an offer of £240 million for the defined rights payable over the three year period. Under the heading “Financial Arrangements” it was stated that “ONdigital and its shareholders will guarantee all funding to the FL outlined in this document.”[29]Also on 7 June Mr Stanley sent to Messrs Phillpotts and Townley a letter addressed to Mr Townley dated 6 June from Mr Johnson, the Controller of Legal and Business Affairs of ITV Network, which stated that ITV Network would not be making an independent bid but was supporting ONdigital's bid. This stance was repeated in a further letter of 15 June.[30]The various bids were opened at a meeting of the Football League’s commercial committee on 7 June. There was concern at the need to conclude the bidding process rapidly generated by the knowledge that the sale of Premier League rights was soon to be concluded and might affect the market. The Revised Bid[31]On 12 June Mr Townley sent an e-mail to Mr Stanley attaching “a draft deal memorandum” to provide a framework for discussions to be held the next day. Mr Townley acknowledged the draft might be at variance with ONdigital’s document. It made no reference to any guarantee. It was headed “subject to contract”. On the same day Mr Prebble sent a memorandum to Messrs. Allen, Green, Morrison, Walmsley, Staunton and Caldecote which analysed various projections and concluded that ONdigital’s current bid of £80m could be increased. Mr Prebble said that he considered the acquisition of the rights was very important to the future of ONdigital’s business and the achievement of the company’s business plan.[32]On 13 June Mr Stanley faxed to Messrs. Phillpotts and Townley an amended copy of what he described as a “draft binding letter” which was a draft of what became the June Contract. Mr Townley sent a copy of the draft to Mr Alderson for his comments. Mr Stanley also requested that this draft (rather than Mr Townley’s deal memorandum) should be used in discussions due to take place that evening. Those discussions did take place between Messrs. Phillpotts, Townley and Stanley.[33]Mr Townley sent a fax to Mr Stanley on 14 June. He wrote:
“… our preferred position, given the level of commitment of a number of parties to the Football League rights, is to give each a further opportunity to make any adjustments they feel necessary to their previous proposal and/or their financial terms. Accordingly we invite you to do this by not later than 12.00 p.m. on Thursday 15 June. … In submitting any further documentation, I would ask you to submit the pro forma agreement with any consequential amendments and details … We would also ask you to confirm that any offer is to remain open for at least 5 working days from receipt.”
[34]On 15 June Mr Stanley submitted a revised bid (“the Revised Bid”) on behalf of ONdigital. He did so in a fax addressed to Mr Phillpotts. So far as material, the letter read:
“In response to Stephen Townley’s letter of June 14 ONdigital are writing to bid for Football League rights on the basis of our Initial Bid made to the League on the 7 th of June. ONdigital bid £96,100,000 per annum within a three year term.”
The remainder of the letter made clear that it was written as part of a continuing negotiating process. The June Contract[35]On 15 June itself Mr Townley met Stuart Prebble. An annual figure of £105 million was discussed. That evening Mr Prebble telephoned Mr Townley and said the figure was agreed. Mr Prebble had sought and obtained approval from Mr Morrison and Mr Walmsley to increase the bid to that level.[36]The parties then met at a London hotel. Those present for The Football League were Mr Phillpotts, Mr Townley and Mr Alderson. Messrs Stanley, Prebble, Fyfe and Matthews were present for ONdigital. At the meeting the June Contract was concluded by amendment of the draft previously produced by ONdigital. Mr Prebble signed the agreement “for and on behalf of ONdigital” and Mr Phillpotts signed it “for and on behalf of The Football League”. Clause 16 provided for payment of £12 million on signature of the agreement and “£35.25m … on the earlier of 60 days from the date of this agreement and signature of the long form agreement” and for three annual payments of £89.25m on the first working day of August in each of the years 2001, 2002 and 2003.[37]The following clauses of the June Contract provided:
“17. Each party represents and warrants that it has the authority to enter into this Agreement and validly grant and perform its obligations under this Agreement. 18. ONdigital and FL shall use their best endeavours to execute a long form agreement within 60 days which will be negotiated with reference to the Football League Pre-Tender Document of 27 th March 2000 and ONdigital’s Initial Bid dated 7 th June 2000 and pre-existing arrangements that the FL has for its portal and 2 side letters from ITV dated 6 th and 15 th June 2000 and ONdigital dated 13 th and 15 th June 2000 and will include clauses such as standard legal boilerplate, confidentiality, compensation for ONdigital if there are significant changes in competition structure which adversely affect the value of the rights granted to ONdigital, minimum broadcast commitments, quality guarantees for programmes and competitions and the like. 19. Nothing in this Agreement shall require either party to breach any applicable law or regulatory requirement. 20. This Agreement shall be governed by English law and the courts of England and Wales shall have exclusive jurisdiction.”
[38]Clause 1 of the June Contract obliged ONdigital to procure that ITV Network Limited become a party to the agreement within 60 days in relation to the sub-licensing of the free-to-air TV rights to ITV Network in accordance with the agreement.[39]Neither Carlton nor Granada were parties to the June Contract nor was there any provision for them to become parties to it. Nor was there any express reference to either company in the June Contract.[40]Mr Alderson circulated an “Outline” of the agreement to the Board of The Football League on 16 June. Mr Fyfe circulated to Messrs Allen, Staunton, Morrison, Green, Cragg, Walmsley and Caldecote a document outlining ONdigital’s “economic assumptions and payback based on the final rights price agreed with the Football League last night”. Neither document referred to any guarantee or obligation on Carlton or Granada. Mr Fyfe’s document showed an estimated average profit a year for the “ONdigital Football League Channel of £35m.”[41]On 11 August ITV Network became a party to the June Contract as envisaged by Clause 1.[42]Under the June Contract, ONdigital paid a total sum of £136.5m made up of the £12m due on signature, the £35.5m due within 60 days after signature and the £89.25m due on 1 August 2001. Subsequent Negotiations[43]There were negotiations concerning a long form agreement as envisaged by Clause 18 of the June Contract. But no agreement was concluded either within 60 days or otherwise. Matters proceeded on the terms of the June Contract itself. Drafts of a proposed long form agreement were exchanged between Mr Matthews and Mr Alderson. None of these drafts made any reference to any form of parent company guarantee. All of them were drafted as agreements between only ONdigital and The Football League.[44]On 3 December 2001, Mr Alderson wrote to ITV Network Limited (for ONdital) and stated:
“Given all the paper talk about the alleged intentions of Granada and Carlton over the last few weeks, the future solvency of ITV Digital has become an issue and needs to be dealt with in the long form agreement. The Football League must now look for parent company guarantees from Granada and Carlton. This was envisaged in ONdigital’s bid document and so will come as little surprise.”
[45]The “paper talk” was a reference to the media interest in the financial and commercial success or otherwise of ONdigital and the commitment of Carlton and Granada to ONdigital. The terms of the letter are, as Carlton and Granada submit, quite inconsistent with The Football League’s present case that parent company guarantees were already in place.[46]The response from ITV Network was quick and emphatic. A letter dated 19 December stated:
“I have expressed to David Burns (of The Football League) our surprise that you should raise the issue of parent company guarantees at this late stage in the process, especially when the wording of draft 8 of the long form agreement has almost been agreed. Indeed, parent company guarantees were excluded from the negotiations over the long form some considerable time ago, and, of course, were not part of the short form contract arrangements. Parent company guarantees will not be provided by Carlton and Granada.”
[47]The Football League responded on 21 January 2002 restating its position that “the long form agreement must provide the financial guarantees that were offered in ITV Digital’s Initial Bid Document.” The letter continued:
“Whilst our current agreement does not provide for guarantees, I believe the agreement is not entirely silent on the issue in that it provides for any long form contract being negotiated with reference to provisions of the Initial Bid Document.”
[48]The “current agreement” is plainly the June Contract and the “reference” to the Initial Bid Document is a reference to clause 18 of it. The Construction Issue[49]It is an unpromising start for a party who seeks to rely on a guarantee by third parties of obligations involving £315m entered into by another party that the only reference to a guarantee is to be found in one short sentence of a document produced by the supposed primary obligor in the course of a negotiating process which was “subject to contract” and the only subsequent effective or binding contract is one agreed by the primary obligor which was on different terms and contains no guarantee nor a reference to one save in the very oblique terms of Clause 18 of the June Contract. It is all the more unpromising when the relevant negotiations are conducted in a major commercial context between two companies with the benefit of the professional advice of experienced management and lawyers. In my judgment The Football League’s case remains just as unpromising at the finish as it looked at the start.[50]It is essentially incontestable that: i) The Initial Bid and the Financial Arrangements statement in it were subject to contract. As such they contained no offer capable of acceptance least of all an offer which could be accepted in respect of only one statement in the document. ii) To establish a binding contract the “subject to contract” statement had to be waived or otherwise replaced. iii) The June Contract did represent the conclusion of negotiations at that stage in the sense that it was plainly intended to be and was a legally enforceable agreement made between ONdigital and The Football League. In the event it was the only enforceable agreement made between them. But the Financial Arrangements statement did not appear in the agreement, admittedly formed no part of any of the discussions and negotiations either before the Initial Bid or between the Initial Bid and the conclusion of the June Contract, and would even have been inappropriate in its terms had it been included if only because the “price” negotiated had increased from £240m to £315m. The undisputed fact is that no one representing The Football League even suggested let alone requested that the June Contract contain or be supported by any guarantee from Carlton or Granada.[51]The Football League’s submission that the Financial Arrangements statement was a unilateral offer open for acceptance if it agreed to license the rights to ONdigital is in my judgment inventive but misconceived. A unilateral offer capable of acceptance so as to create a binding obligation was referred to by Diplock LJ in United Dominions Trust v Eagle Aircraft Services Ltd [1968] 1 WLR 74 at 83 as an “if” contract: I will do or refrain from doing x if you will do or refrain from doing y. It can be “accepted” and so become binding by the promisee doing or refraining from doing y.[52]In my judgment not only was the Financial Arrangements statement not expressed in such terms but the fact it was subject to contract precludes it from acceptance as such in any event. The statement was made as part of a package of proposals themselves forming part of a continuing negotiation. The Initial Bid document cannot be construed as part unilateral offer by Carlton and Granada and part subject to contract proposals by ONdigital. Moreover I think a subject to contract proposal is the antithesis of or at the least incompatible with a unilateral offer. The former is not open to acceptance; it is the essence of the latter that it is.[53]Clause 18 of the June Contract in my judgment reinforces this conclusion as Lord Grabiner submitted. It provided that ONdigital and The Football League would use their best endeavours to execute a long form agreement “which will be negotiated with reference to … ONdigital’s Initial Bid dated 7 June 2000”. That is not, I think, consistent with the contention that any part of the Initial Bid which was not incorporated in the June Contract had become binding simply on conclusion of the June Contract itself. Although both Mr Phillpotts and Mr Townley said that they believed at the time of or on the conclusion of the June Contract that a guarantee by Carlton and Granada was in place neither of them had any substantial basis for doing so albeit I think in fairness to them neither was really focused on the contractual or legal considerations involved. Of course the correspondence in December 2001 and January 2002 is not consistent with the expressed belief of Mr Phillpotts and Mr Townley albeit neither was involved at the time the letters were written. Mr Alderson, the author of the 3 December letter was, however, involved with both Mr Phillpotts and Mr Townley at the time and their belief plainly does not appear to have been shared with or by him.[54]Insofar as it is relevant to refer to any authority, it is well established that “subject to contract” proposals remain in negotiation until a formal contract is executed: Tiverton Ltd v Wearwell Ltd [1975] Ch.146 at page 159 per Lord Denning MR. Once the rubric is introduced it continues to apply and only ceases to do so by express agreement or necessary implication: Cohen v Nessdale [1981] 3 AER 118 affirmed by the Court of Appeal at [1982] 2 AER 97. Thus the fact that the Revised Bid was not marked “subject to contract” does not affect the matter. The fact that it was expressly made “on the basis of our Initial Bid” is an improbable basis for incorporation of the “Financial Arrangements” statement in any event but even if it had that effect it would not be sufficient to affect the subject to contract stipulation which would be incorporated also. The documentary and oral evidence demonstrate beyond argument that there was a continuous negotiation between 7 and 15 June which ended with the conclusion of the June Contract.[55]However expressed, I do not think Mr Flint’s submissions overcame this difficulty. He submitted that whilst the whole of the Initial Bid including the Financial Arrangements statement was “subject to contract” that was no more than a suspensive condition, the condition being that ONdigital and The Football League should enter into a formal contract for exploitation of the rights. So, he submitted, once the deal was done by the June Contract, the unilateral offer of a guarantee ceased to be “subject to contract” and became binding. But in my judgment that is not the correct analysis. The correct analysis is that the whole of the Initial Bid was indeed “subject to contract” and the extent to which a binding contract was thereafter concluded is to be found in and only in the June Contract which contained no guarantee and is not contended to have done so. The same in my judgment applies to the Revised Bid. It was part of continuing negotiations; insofar as it could be said to incorporate the Initial Bid it did so on that basis. Insofar as it did not it said no more about any guarantee than had been said in the Initial Bid.[56]Although (and rightly) by no means at the forefront of Lord Grabiner’s submissions it is, I think, a useful illustration of the unreality of The Football League's submission and the reality of “subject to contract" to consider the crucial words themselves. They were and were only:
“ONdigital and its shareholders will guarantee all funding to the FL outlined in this document.”
[57]The words appeared in a document, the Initial Bid, which was itself unsigned but came under cover of a letter from Mr Stanley who had no connection with either Carlton or Granada save that he was a director of ONdigital. The wording is odd in referring to ONdigital itself guaranteeing “funding” to the FL. The words “funding to the FL” are inelegant even in the context of a guarantee from the shareholders. The “funding outlined in this document” was a total payment of £240m over 3 years (including annual payments of £68m in August of each year) and (possibly) 60% of pay-per-view revenues. It might also have been a nice question whether the shareholders guarantee was joint and several or to be limited to 50% each. Mr Stanley said that it was not his intention in the choice of words to offer guarantees at all from Carlton and Granada but only to reflect those companies commitment to fund ONdigital to see that ONdigital met its obligations. But he readily acknowledged that the words could be read as offering a shareholder guarantee to the FL as indeed in my judgment not only they plainly can but would normally be.[58]Mr Flint submitted that these were all simply points of construction to be resolved from the words used. He submitted that the obligation was joint and several, that the reference to ONdigital was really no more than repetitive, and that the words should be read as an “offer to guarantee the financial obligations of ONdigital to The Football League in respect of a contract for the rights set out in the Initial Bid.” Whilst the other points are I think arguable, the latter in my judgment is not. The words used are explicit in referring to the funding “outlined in this document” (my emphasis). I cannot construe those words in the extended way submitted by Mr Flint (which would apply them to whatever might in future be agreed) on any known canon of construction.[59]I would add that in no normal commercial negotiation do I think a party would be content to rely on such a statement from such a source as providing the security of shareholder guarantees of sums of £240m let alone a quite different sum of £315m. Nor do I think, despite the evidence of Mr Phillpotts and Mr Townley, The Football League in fact did so or thought it had obtained an effective agreement in those terms. The “subject to contract” statement was indeed more than a rubric; it was in commercial terms a statement of the obvious. The words were not phrased as an offer capable of acceptance but as something which, if pursued, would plainly require further agreement.[60]In my judgment, therefore, The Football League’s case falls at this first and fundamental hurdle. There was no agreement for a guarantee by either Carlton or Granada.[61]I should nonetheless address the other issues, but will do so as succinctly as they permit. The Authority Issue[62]This was the issue to which the oral evidence was really directed. I should therefore state my impressions of the witnesses who addressed it. In a sentence, I am quite satisfied that all the witnesses for Carlton and Granada gave a truthful and accurate account of their roles in and knowledge of the negotiations between the parties. In particular, Mr Stanley, who as the author of or at least the signatory to the Initial Bid was understandably exposed to searching cross-examination on how it came to include the reference to the shareholders guarantee, was an impressive and straightforward witness. He, like Mr Prebble, readily acknowledged the embarrassment of the reference being included when each said in effect that it should not have been and ONdigital had no authority to offer guarantees by Carlton or Granada.[63]The evidence is that whilst Carlton and Granada were regularly consulted on the size of the bids for the package of rights at no time did either company authorise Mr Stanley or ONdigital to make any offer of a corporate guarantee let alone to conclude one. Approval to the amount of the bid by ONdigital was given to ONdigital; no authority to commit either Carlton or Granada was given. Indeed I am satisfied that no one at Carlton or Granada authorised to act for the companies even saw the Initial Bid before the dispute arose towards the end of 2001. Mr Flint wisely and rightly accepted on the evidence that The Football League’s case on express actual authority was unsustainable and he abandoned it on the morning of 29 July.[64]The Football League’s case was also that Mr Betts was authorised to act for Carlton and Mr Oliver for Granada and that they had permitted the Initial Bid to go to The Football League as representatives of Carlton and Granada. Mr Betts said, and I accept, that he was seconded to ONdigital for the purpose of the bid to assist the ONdigital team because of his experience in media rights. He also said that Mr Oliver was responsible for the valuation of the rights. Mr Prebble said both were working on the bid for Ondigital, not Carlton and Granada, to give advice and “sanity checks”. Moreover Mr Betts had a reduced involvement in events after the first round of negotiations which ended because of Sky’s matching rights and it is not even suggested that he (or indeed Mr Oliver) played any part in preparing or offering a guarantee. Mr Betts said he did see the Initial Bid at some point between 7 and 15 June but he did not discuss the guarantee with anyone and in any event would not have had the authority to offer one himself. Indeed The Football League’s evidence is that whenever authorisation was required to increase the bid those with whom they were negotiating for ONdigital would break off and seek it. That demonstrates the lack of authority of those with whom they were dealing face to face. Again wisely and rightly Mr Flint abandoned any case based on the supposed authority of either Mr Betts or Mr Oliver to act for Carlton or Granada.[65]The Football League also sought to suggest that the involvement of ITV Network as a “partner” in the bid was itself material to this issue. I do not think it was. Carlton and Granada were substantial shareholders in ITV Network but by no means the only shareholders. Moreover ITV Network had its own management. Nor was the bid a “joint bid” as Mr Flint submitted. It was ONdigital’s bid with a proposal to sub-licence the free-to-air rights to ITV Network.[66]Essentially The Football League’s case on authority (now only implied actual authority or ostensible authority) came to depend on no more than: i) The fact that Carlton and Granada owned and controlled the business of ONdigital through directors on the board and the need for ONdigital to have approval for financial commitments in excess of £10m; and ii) The control Carlton and Granada in fact exercised over the bidding process by approving how much ONdigital should bid and ONdigital’s dependence on funding from Carlton and Granada to meet the payments; and iii) The apparent lack of any decision by the ONdigital board itself to make the Initial Bid and conclude the June Contract; and iv) The importance of acquiring the rights to the future of ONdigital.[67]Whilst the extent of even some of these factors is a matter of debate, in my judgment they do not begin to address the real question which is whether an offer of a guarantee open for acceptance by The Football League by the conclusion of an agreement for the rights with ONdigital was authorised by Carlton and Granada to be made in the Initial Bid. Nor do I think that in law they amount to a case of agency implied or ostensible. There is no dispute that Carlton and Granada gave approval to ONdigital making the bid in the amount it did. But approving an offer to be made by ONdigital is in law and fact substantively different from authorising ONdigital to contract on behalf of Carlton and Granada. I think The Football League’s submissions seek to elide the distinction when there is no basis for doing so. The question is not who caused the bid to be made but who made it.[68]It is trite law that a company has its own legal personality distinct from its shareholders: Salomon v Salomon & Co [1897] AC 22 . The fact that a company can in common parlance be said to carry on business on behalf of its shareholders does not make the company the agent of the shareholders. Salomon’s case involved a “one-man” company. In J.H. Rayner (Mincing Lane) Ltd v Department of Trade and Industry [1989] Ch 72 (CA) and [1990] AC 418 (HL), to which Lord Grabiner referred, Kerr LJ in the Court of Appeal at page 188 referred to Salomon’s case and said:
“The crucial point on which the House of Lords overruled the Court of Appeal in that landmark case was precisely the rejection of the doctrine that agency between a corporation and its members in relation to the corporation’s contracts can be inferred from the control exercisable by the members over the corporation or from the fact that the sole objective of the corporation’s contracts was to benefit the members.”
[69]Kerr LJ also addressed a submission that the International Tin Council (which was alleged to have entered into contracts on behalf of its member states) was to be viewed differently from a corporation because it had no board of directors and acted directly on the instructions of its members. He held it made no difference:
“Whether a corporation acts directly on the instructions of the members as directors, or merely indirectly by reason of the overriding control which the members can exercise in general meeting, makes no difference in principle. And the fact that the business objectives of the body corporate were those of its members was precisely the point which was held in Salomon v A. Salomon & Co. Ltd to make no difference.”
[70]The analysis of Kerr LJ was expressly approved in the House of Lords by Lord Oliver (at page 515).[71]It follows, in my judgment and as Lord Grabiner submitted, that the factors on which The Football League relies, even if fully established, simply do not justify a conclusion of agency; whether express or implied.[72]In the context of implied authority, Mr Flint referred to Bowstead & Reynolds on Agency (16 th Ed) Article 8:
“Agreement between principal and agent may be implied in a case where one party has conducted himself towards another in such a way that it is reasonable for that other to infer from that conduct consent to the agency relationship.”
[73]He also referred to Garnac Grain Co. Inc. v H.M.E. Faure & Fairclough [1968] 1 AC 1130 and the reference in the speech of Lord Pearson at page 1137 to the possible creation of an agency relationship even where the parties do not recognise it and “even if they have professed to disclaim it.” But the basic requirement of the law is that by words or conduct or both the parties consented to the creation of an agency relationship in this case such as to authorise ONdigital to give guarantees of the performance of the June Contract binding on Carlton and Granada. In my judgment the evidence does not come near to meeting that requirement. ONdigital did not believe it had any such authority and never sought it. Carlton and Granada were unaware that any guarantee was proposed or offered. The bid was by ONdigital and the June Contract was between ONDigital and The Football League.[74]The plea of ostensible authority is, I think, equally unsustainable. It requires Carlton and Granada to have made an implied representation by conduct (because no words attributable to either company are or could be relied upon) to The Football League that ONdigital had authority to make a unilateral offer of a guarantee on their behalf. But the only conduct relied upon is, again, the approval of the amount of the bid and the dependency of ONdigital on Carlton and Granada. In my judgment that is quite insufficient to establish ostensible authority. At best it establishes that ONdigital was itself entitled to conclude the June Contract.[75]It follows that I also think The Football League’s case fails on the authority issue. The Statute of Frauds Issue[76]There are three reasons why Lord Grabiner submits that The Football League’s case falls foul of the Statute: i) The requisite written document must actually record the agreement of the guarantee or be a note of it, and none of the three documents on which The Football League relies do so. The Initial Bid does not do so because it was subject to contract and so is the antithesis of an agreement. The same applies to the Revised Bid. The June Contract itself (Clause 18) refers to further negotiation not agreement; and ii) the only written document does not record all the material terms of the alleged agreement because it refers only to the funding in the Initial Bid itself (£240m not £315m); and iii) none of the documents relied upon by The Football League were signed by a person authorised by Carlton and Granada to do so.[77]In Chitty on Contracts, 28 th Ed. Vol. 1 para 4-022 it is said that:
“Apart from the exceptional case of a written offer signed by one party and accepted orally by the other, the writing must acknowledge the existence of a contract. It is now settled, after some hesitation, that a letter expressed to be ‘subject to contract’ is not in itself a sufficient memorandum to satisfy the statute.”
[78]This statement of the law follows the decision of the Court of Appeal in Tiverton Ltd v Wearwell Ltd [1975] Ch.146 which decided that two earlier decisions of the Court, insofar as they had decided that a subject to contract document might satisfy section 40 of the Law of Property Act 1925 if the stipulation had been waived, were wrong. The earlier decisions were Law v Jones [1974] Ch.112 and Griffiths v Young [1970] Ch.675. Section 40 of the 1925 Act was as regards contracts for the sale of land in the same terms as section 4 of the Statute of Frauds. I am bound by Tiverton’s case. It decided that to satisfy the Statute the requisite document had itself to acknowledge or recognise the existence of a contract and if it was “subject to contract” it did not do so. In any event, even if Law v Jones were good law, I do not think it would assist The Football League. There was here no oral waiver of the subject to contract stipulation as there was there nor, as I have already said, can I read the Revised Bid as having that consequence. Insofar as the stipulation ceased to apply it did so on conclusion of and on agreement of the terms of the June Contract. But they do not of course include the alleged guarantee.[79]Tiverton’s case also decided that the requisite document must contain a statement of the material terms of the contract. As I have already said, the Financial Arrangements statement in the Initial Bid was limited by its terms to the “funding” stated in it. Yet The Football League’s case is that it extended to the terms of the June Contract. There is, I think, a material difference between a guarantee (even if such it was) of £240m and £315m.[80]Finally on my findings on the authority issue there is no document on which The Football League can or does rely which was or even purported to be signed by either Carlton or Granada or any other person “lawfully authorised” by either company to do so.[81]In my judgment, therefore, The Football League’s case is also unsustainable for lack of the requisite written document required by the Statute of Frauds. Any one of the three points taken by Carlton and Granada would suffice for that conclusion. I think all three are correct. The Scope of the Guarantee Issue[82]In Moschi v LEP Air Services Ltd [1973] AC 331 at page 334 Lord Reid referred to the distinction between a guarantee obliging the guarantor to meet instalment payments if the principal debtor failed to pay them and a guarantee that the principal debtor would carry out his contract. In the first case the guarantor’s obligation would only arise on the debtor’s failure to pay and “if for any reason the debtor ceased to have any obligation to pay the instalment on the due date then he could not fail to pay it on that date.” In the second case a failure by the debtor to carry out his contract would put both debtor and guarantor in breach of contract.[83]In Moschi the guarantee was expressed as a guarantee of “the performance” by a company “of its obligation to make” various instalment payments. The company fell into arrears and the creditor (rightly so it was decided) terminated the contract. The House of Lords held that the guarantor was liable in damages for the total sum guaranteed. In other words the guarantee was of the second type referred to by Lord Reid. There are passages in the speech of Lord Diplock at page 348 which support Mr Flint’s submission that a guarantee is at least readily if not usually to be construed to that effect.[84]Had I decided that there was an effective guarantee in the terms of the Financial Arrangements statement in the Initial Bid I would on balance have concluded that it was of the second type and so applicable to The Football League’s present claim based as it is on a repudiation by ONdigital of its obligations under the June Contract. Conclusion[85]In my judgment Carlton and Granada are entitled to the declaration they seek that neither company is liable to The Football League for any sums due under or damages payable for breach of the June Contract made between the League and Ondigital, now ITV Digital. There was no guarantee by either company of ITV Digital’s obligations under that contract.

Cited in 1 later judgment