Terry Gilliam’s first attempt to make “The Man Who Killed Don Quixote” in 2000 had to be abandoned when one of the principal cast became unwell. The insurer paid out compensation and acquired the rights, which were subsequently sold to Recorded Picture Company Ltd (RPC). Having granted options to three successive production companies, none of which took the project forward, RPC entered into an option agreement with Alfama Films Production (Alfama), whose principal is Paulo Branco.
Believing that Alfama’s option had expired, RPC granted a new option to Tornasol Films SA (Tornasol), which resulted in the making and release of the film.
But the agreement allowed for the extension of the option period: “if there is any litigation or claims affecting the Work, the Rights or the Film, then any dates or time periods in this [Agreement] shall be extended automatically until the [Agreement] can be performed or its obligations fulfilled plus an additional thirty days.”
After granting the new option to Tornasol, RPC realised that Alfama’s option might not have expired. Terry Gilliam had entered into a director’s agreement with Alfama. Relations between Terry Gilliam and Alfama deteriorated following disagreements on creative matters. Prior to the expiry of Alfama’s option the agreement became the subject of legal proceedings in France.
RPC applied to the court for a declaration that Alfama’s option had expired but lost. RPC was in breach of the Agreement and Alfama claimed its pre-production costs and a producer’s fee for Mr Branco on the basis of the loss of a chance.
The court had to decide three matters: (1) whether Alfama’s chance was substantial and not merely speculative; (2) if so, how much Alfama would have received from the project had it gone ahead; and (3) the likelihood that the chance would have led to the beneficial outcome and from this the appropriate discount to be applied to the beneficial outcome.
The court decided that there was only a very low chance that if Terry Gilliam had had no option other than to continue to work with Mr Branco, his desperation to make the film would have been such that he would have tried to make the best of working with Mr Branco. The court was not persuaded that Tornasol’s ability to raise €16.7 million to finance the film meant as a matter course that Mr Branco was sure to be able to do the same. On the evidence presented to the court, it took the view that Mr Branco was not able to raise sufficient money to make the film. For these reasons, it held that Alfama “never had a substantial chance, nothing above a speculative chance, of making the Film if RPC had not been in breach of the Agreement”. In the circumstances, Alfama was not entitled to any sum by way of damages for the loss of a chance.
Option agreements often include a provision extending the option period if any legal action or event outside the control of the parties interferes with the producer’s ability to develop or produce the project. From the producer’s point of view, this recognises the increased risk to the producer’s investment if the development or production of the project is prevented by reasons outside the producer’s control.
From the rights owner’s perspective, it is clearly preferable to avoid making any such concession, so that there is absolute certainty as to the duration of the option period. If a concession is made, the rights owner should do its best to restrict the class of events that can trigger an extension and/or limit the length of any such extension to a specified period of time rather than tying the extension to the conclusion of litigation, which could take years.