Philips Electronique v British Sky Broadcasting – Case Summary

Philips Electronique Grand Public SA v British Sky Broadcasting Ltd

Court of Appeal

Citations: [1995] EMLR 472.

Facts

In 1987, the defendant obtained a license to broadcast on TV channels in the UK. The defendant launched a satellite to perform the broadcasts. They contracted the claimant to develop and manufacture the satellite receivers. The claimant undertook to have capacity to manufacture and deliver a particular quantity of further receivers in subsequent years (ending in December 1992). However, the defendant did not undertake to buy these further receivers.

Due to competition from Sky, the defendant failed to establish a profitable service. Three years after the contract, the defendant announced a merger with Sky. They began announcing the suspension of sales of their satellite equipment, advising people to switch to Sky’s systems. They later stated that broadcasts using the claimant’s equipment would continue until the franchise was revoked.

The claimant stated that the defendant had breached several implied terms in the contract:

  1. The first term created an obligation not to do anything which would or might frustrate the contract’s purpose;
  2. The second term created an obligation not to do anything which would or might end the contract or change its operating circumstances;
  3. The third term created an obligation not to impede the marketing of the receivers;
  4. The fourth term required the defendant to use best endeavours to keep broadcasting using the claimant’s receivers until December 1992 or a reasonable period thereafter;
  5. The fifth term obliged the defendant not to do anything which would stop broadcasts using the claimant’s receivers;
  6. The final term prohibited the defendant from making any announcement prior to December 1992 (or a reasonable period thereafter) that it would cease or curtail broadcasts using the claimant’s receivers.

The defendant denied that the contract contained any of these terms.

Issue(s)
  1. Did the contract contain any of the terms contended for by the claimant?
Decision

The court held in favour of the defendant. The agreement was carefully drafted, intended to be comprehensive and novel. In these circumstances, it was not obvious that if the parties had thought about what would happen if the defendant’s channels were a commercial flop they would have agreed on how to allocate that risk. As such, while the claimant’s proposed terms were attractive, the claimant had not established that the court should imply any of them.

This Case is Authority For…

A contract term can only be implied in fact if five conditions are met:

  1. The term is reasonable and equitable;
  2. The term is necessary to give business efficacy to the contract;
  3. It was so obvious that the parties intended to include the term that ‘it went without saying’;
  4. The term can be clearly expressed;
  5. The term does not contradict or conflict with any express terms of the contract.

The court explained that it ‘is because the implication of terms is so potentially
intrusive that the law imposes strict constraints on the exercise of this extraordinary power’.

Other

The court also noted that the court should avoid using the benefit of hindsight to craft a contract for the parties which they did not intend. They explained that the claimant must show both that:

  • The parties would have wanted to make provision for a particular set of circumstances if they had realised it may occur; and
  • The parties would have chosen one particular way to make that provision.

This is less likely to be the case if the agreement is novel, involving extraordinary risks or unusual outcomes. In these cases, it is likely less obvious whether the parties deliberately omitted to provide for a particular scenario. It is also likely less obvious how they would provide for that scenario if they had thought about it.