Three Billboards on the Border of the ASGM

Review of three court cases in Russia in respect to movies production.

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The three main components of the film: the script, the script and the script again. (c) Alfred Hitchcock

Against the background of the claims of the Cinema Foundation (for example, to the film company "RFG Corp" and KD STUDIOS LLC) there is an interest in the judicial side of the Russian film industry as a whole: what problems do its participants have to solve in court? How successful are the plaintiffs in their claims? What factors do they overlook, and as a result, fail? Even a cursory glance at it suggests that the problems and conflicts that reach the court are very diverse in this industry. I propose to turn our attention to some of them in this article. As objects of study, I propose three court cases on the production of audiovisual works in Russia. Based on the results of their analysis, I am ready to share the following observations:

Responsibility of an investor who does not own the rights to the movie

ABC LLC (the plaintiff and producer) and Triofilm LLC (the defendant) have entered into an investment agreement to finance the production of a feature movie. This producer undertook to carry out the production of the movie, whereas Triofilm LLC - to finance of such production in full in the amount of 100,000,000 rubles. Triofilm LLC undertook to transfer funds to the payment account of ABC LLC in the amount of 100,000,000 rubles within 20 days from the date of the agreement signing. The funds were not transferred to the payment account of ABC LLC, and so, this company filed the claim for collecting interest for improper fulfillment of obligations under the investment agreement in the amount of 10,100,000 rubles (case No. A40-83445/18-105-407 ).

The court, considering the case, has determined: this agreement is essentially a loan agreement and is not concluded. Under the Russian laws, the loan agreement is a real deal, i.e. it is considered concluded only from the moment of transfer of money or other things. Since the money under the disputed agreement were not transferred by the defendant to the plaintiff, the disputed agreement is not considered concluded and the defendant cannot be held liable for non-fulfillment of contractual obligations on the basis of this agreement, which is considered not concluded. Due to the lack of money of this agreement, it is not concluded, and the defendant has no obligations to fulfill it.

The return of investment funds is made within 6 years from the date of the end of the movie production (clause 1.5. of the agreement). The producer obliged to return to the company the funds paid as part of the financing of the movie production at the expense of proceeds from the theatrical rental and other ways of using it (clause 1.3. of the agreement). Thus, an investment agreement, under the terms of which the investor undertakes to deposit funds and at the same time has the right to return the invested funds, but does not acquire ownership on the result, is a loan agreement.

The Court of first instance concluded that the plaintiff had not proved a violation of his rights. The agreement has not been concluded because the money have not been transferred. The court has no grounds for satisfying the claims.

Conclusions of this case: (1) if, under an investment agreement for the creation of intellectual property results (IP), a party (investor) undertakes to deposit funds, receives the right to return them, but does not acquire intellectual property rights on the IP, such an agreement should be qualified as a loan agreement; (2) since the loan agreement is a real transaction (i.e. concluded only from the moment of transfer of money or property), if funds under such an agreement were not transferred, it is not considered concluded, and the defendant cannot be liable for non-fulfillment of obligations under it (in particular, for depositing funds).

Turning prepayment into unjustified enrichment

The case No. A40-107142/2019-134-800 arose as a result of the following situation. FREDZHIL LLC (the customer and plaintiff) and individual entrepreneur D.V. Ivanov (the author and defendant), have made the author's order agreement, according to which the defendant was obliged to create, by order of the plaintiff, scenario materials of a multi-part television feature movie, including the script of the 1st series, the script of the 2nd series and the serial (12 series) scenario plan, to alienate the exclusive right to them to the plaintiff in full. The plaintiff transferred the prepayment (788,620 rubles) to the defendant, which was confirmed by a payment order.

The defendant failed to fulfill the obligations to create the scenario materials stipulated by the agreement, namely: (1) did not create and did not provide to the plaintiff with the final version of the script of the 1st series of the Movie as amended (amendments, corrections, additions) of the plaintiff; (2) did not create and did not provide to the plaintiff with the script of the 2nd series of the Movie; (3) did not create and did not provide to the plaintiff with a serial (12 episodes) scenario plan of the Movie.

In view of the defendant's improper fulfillment of the terms of the agreement, the plaintiff sent to the defendant (including by e-mail) a proposal to terminate the agreement by mutual consent of the parties with the attachment of two copies of the relevant agreement signed by the plaintiff, it contained a condition on the defendant's obligation to return the prepayment previously paid under the agreement. Within the 30-day period established by law and later, the defendant did not provide the plaintiff with a signed copy of the additional agreement on termination of the agreement prepared by the plaintiff, and did not return the prepayment. Therefore, the plaintiff filed the claim for termination of this agreement and recovery of the unprocessed prepayment.

The court, having established that the plaintiff provided proper evidence to substantiate the claims regarding the recovery of the advance, which the defendant did not challenge, ruled that the defendant without legal grounds withholds the plaintiff's funds, in connection with which, the funds in full amount of the advance are unjustified enrichment of the defendant, which according to Article 1102 of the Civil Code of the Russian Federation is subject to return to the plaintiff.

Conclusions in this case: (1) it makes sense to pay a contractor in advance not in full, but only for part of the work, (2) when proving payments to a defendant, a plaintiff must submit to the court appropriate payment orders for such payments, (3) the unprocessed advance previously received by a contractor for the fulfillment of obligations that were not eventually fulfilled may be recognized as unjustified enrichment.

Refund of remuneration for services rendered partially through the fault of the customer

The plaintiff (production company) and the defendant (production director) have made the agreement for the creative development, shooting and editing of a feature-length movie. The director was obliged to complete the script and submit it for consideration and approval to the plaintiff no later than 01.02.2014, to develop a director's script based on the completed script and submit it for consideration and approval to the plaintiff no later than 15.06.2014.

Suing for the recovery of the amount of unjustified enrichment in the amount of 8,470,088 rubles 76 kopecks, interest for the use of the plaintiff's money (case No. A40-110997/15), the plaintiff indicated that, in violation of the agreement, the director did not provide the script he had completed on time, so the plaintiff decided to cancel the agreement and sent him a corresponding notification by mail. According to the plaintiff, their agreement is terminated from the moment of receipt of the notification, and the prepayment transferred to the defendant is subject to refund. The defendant pointed out that the agreement did not contain a provision that the director was obliged to provide a completed and/or director's script in writing.

Since the form of providing the script is not provided for by the agreement, the defendant provided it by e-mail. It was found that the defendant repeatedly provided to the authorized persons of the plaintiff with a modified script (for example, the first edition was provided 11 days before the end of the term stipulated by the agreement).

The plaintiff stated that the results of the defendant's fulfillment of his obligations by the plaintiff were not accepted. It was established that the defendant sent a letter by e-mail to the general producer of the company about the need for the production company to attract a number of specialists and carry out the work to move to the next stage of the movie production - the preparatory period, but there was no response from the defendant. Notification from the plaintiff about the suspension (conservation) of the production of the film according to the contract was also not made. Guided by the need to continue the production process and fulfill obligations, the defendant provided a number of services under the agreement (in particular, the development of the director's script was started; the formation of the movie crew was started; the selection of the cast was started). The plaintiff did not fulfill his obligations related to the preparatory period of the movie's production (in particular, he did not participate in the formation of the main creative team of the movie crew; he did not properly consider the revised script of the movie provided by the director). These arguments have not been objected by the plaintiff.

The plaintiff demanded the return by the defendant of the remuneration paid to him as prepayment. The disputed sum of money was transferred to the defendant in nine payments for the provision of services in the pre-preparatory and preparatory periods of the production of the movie. According to the agreement, (1) the first payment was paid to the director for the provision of services during the pre-production period of the movie, and (2) other payments in the amount stipulated by the agreement were paid to the director monthly for the provision of services during the preparatory and filming periods of the movie production. In accordance with Article 408 of the Civil Code of the Russian Federation, Article 406 of the Civil Code of the Russian Federation and the agreement, the obligations of the defendant in the pre-production period of the movie are terminated (completed) by their proper execution. Thus, the remuneration received by the defendant is a payment for the services rendered by him in the pre-preparatory period of the production of the movie and is not subject to refund.

Monthly payments were discontinued after 04.04.2014. On 23.06.2014, the defendant sent a notice to the plaintiff that the plaintiff still had not taken any action to ensure the preparatory period for the production of the movie, and therefore its production could not be carried out within the terms of the agreement. In the period since October 2013 till April 2014, the plaintiff made seven (7) payments. They are the reward for services partially rendered by the defendant during the preparatory period of the movie production according to the agreement. The services were rendered by the defendant partially through no fault of his own according to Article 401of the Civil Code of the Russian Federation. Thus, the remuneration received by the defendant in accordance with part 1 of Article 779 of the Civil Code of the Russian Federation is the payment for services partially rendered, through no fault of his own, during the preparatory period of the movie production. The partial provision of services by the defendant in the preparatory period was the result of the plaintiff's failure to provide the movie production process due to his violation of a number of provisions of the agreement, as well as the termination of contractual relations by the plaintiff by termination of the agreement, which deprived the defendant of the opportunity to provide services in full.

As a result, the court has established and determined: (1) the defendant has violated neither the terms nor the form of submission of the revised script; in addition, (2) the defendant sent the revised script to the plaintiff before the date from which the plaintiff considered the agreement terminated (i.e., before the date when the defendant received the notice of termination of the agreement); (3) the defendant has been taking all necessary measures for the proper performance of obligations for several months; (4) the defendant, through no fault of his own, was unable to provide services in full; (5) the remuneration received by the defendant for services rendered in part, through the fault of the plaintiff, during the preparatory period of the movie production, is not subject to refund, the claims are subject to rejection.

Conclusions on this case: (1) when determining the scope of the director's services during the production of the movie, the court is guided not only by the agreement, but also by the established film production practice (although the court did not specify in its decision what exactly is relevant to the latter), (2) if the form and method of providing the results of services are not fixed in the agreement, they can be provided by e-mail to authorized representatives of the customer, (3) if the services are provided by the contractor partially through the fault of the customer, the remuneration received by him is not subject to refund to the customer, (4) the customer's fault may be expressed in non-fulfillment by it its own obligations under the agreement (for example, not taking part in the formation of the creative composition of the movie crew; not considering a properly submitted movie script).