Court of Appeal upholds High Court judgment in Film Financing Litigation

15 Nov, 2012

The Court of Appeal yesterday (Nov 14) delivered a significant judgment in favour of U.K. stockbroker Teathers Limited (in Liquidation) (“Teathers”). The judgment upholds a High Court judgment in a trial of preliminary issues in group litigation involving five consolidated claims brought by some 220 claimants (and valued at in excess of £20 million) who were investors in a series of investment schemes in TV and film productions.


The Court’s unanimous judgment is significant given the popularity of these film financing investment schemes and the scrutiny they now face. Further, the judgment provides clarification in an important area of the law tested in other recent high-profile multi-party proceedings in the English courts.




Over the period 2000 to 2004 Teathers promoted a series of five unregulated collective investment schemes, known respectively as Takes 2, 3, 4, 5 and 6, by means of an Information Memorandum (one in respect of each scheme). The schemes were designed to take advantage of certain tax reliefs and to provide income benefits through the co-production and exploitation of British TV and (subsequently) film productions. The schemes were, in general, unsuccessful. In September 2009 some 220 investors issued claims in the High Court against Teathers for misrepresentation, negligent breach of duty, regulatory breach of duty and breach of trust.


The breach of trust, or Quistclose, claim was selected for trial as a preliminary issue in circumstances where the claimants contended that the Quistclose case was their “primary case” and that a successful claim would avoid the need for the claimants to prove reliance by each investor on alleged misrepresentations in the Information Memorandum or prove negligence by Teathers in the management of the schemes. Take 3, in which the investment of monies in TV productions was carried out through the medium of a series of general partnerships, was selected as the paradigm scheme.

The essence of the Quistclose claim was that the subscription monies provided by each investor were held by Teathers on a Quistclose trust to apply the monies only for the purpose of an investment which satisfied a series of investment criteria (the so-called “Take Criteria”). These Take Criteria, so the Claimants alleged, could be derived from the Information Memorandum and set the limits of Teathers’ authority to deal with the subscription monies.


On 9 February 2012, Mr. Justice Norris rejected the Claimants’ Quistclose claim. He held that the Take Criteria were “too loosely expressed”, and too “imprecise” and “subjective”, to qualify as Quistclose type directions; and that the fulfilment of them “…could not be objectively ascertained at the time of the investment…”. Moreover he held that it was clear from the transactional documents (the Subscription Agreement and Partnership Deed) that it was not the mutual intention of the parties that Teathers’ authority should be limited in this way.


Court of Appeal


In an emphatic judgment in favour of Teathers, the Court rejected the Claimants’ appeal and upheld the decision of Mr Justice Norris. The Court in particular emphasised the fact that the existence of a Quistclose trust up to and including the moment of investment would be inconsistent with the express terms of the Subscription Agreement and the Partnership Deed. In particular, the Court explained that:


  • Mr Justice Norris was “right” to hold that the trust, which undeniably existed when the investors’ funds were first received, “…could not consistently with the Subscription Agreement have required Teathers to do more than use the monies as partnership capital…”.
  • Teathers’ various objections to the effect that: (1) Teathers was not legal owner of the monies once in the partnership account; (2) Teathers’ powers over the account derived not from an implied trust derived from the Information Memorandum but from the (contractual) terms of the Partnership Deed; and (3) the imposition of a trust in the terms alleged was inconsistent with the terms of the Partnership Deed which entitled Teathers “…to enter into any contracts in respect of Partnership Businesss…”, were all “well founded”.
  • The Subscription Agreement made it clear “…that the investor agrees to join a Take 3 TV Partnership under the terms of the Partnership Deed and not on any other terms…”.
  • It was impossible to imply into the “…professionally drawn…” Partnership Deed “…some additional limitations on the authority of Teathers as managing partner…”.


The Court’s judgment represents a comprehensive victory for Teathers, which continues to defend the outstanding claims in this case.


The Team


Fulbright & Jaworski International LLP partner Chris Warren-Smith (pictured) leads the team alongside partner Jehan-Philippe Wood and a team of associates and trainees.


Fulbright has instructed Andrew Onslow QC and Matthew Hardwick of 3 Verulam Buildings to appear on behalf of Teathers. 

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