IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
 

Before: The Hon. Mr. Justice Laddie
 
 

B E T W E E N

NELSON
Plaintiff
 
 
- and -
 
 

RYE

Defendant
 
 
Robert Anderson instructed by Russells for the Plaintiff
Robin Oppenheim instructed by John Byrne & Co. for the Defendant
Hearing dates: 24, 25, 26, 27, 30, 31 October, 1, 21 November 1995
 
 

JUDGMENT
 
DATED: 21 November, 1995

Mr. Justice Laddie:

 

Mr William Nelson, the plaintiff in this action, is a popular musician. From about 1972 to 1977 he was a member of a group called 'Be Pop Deluxe'. From 1977 to 1980, he was a member of another group known as 'Bill Nelson's Red Noise'. Since 1980 he has pursued his career as a solo musician. There are two defendants named on the writ. The first, Mr Mark Rye, was Mr Nelson's manager from the second half of 1980 to late 1990. He was appointed pursuant to an oral contract. The second defendant, Cocteau Records Ltd, was struck off the register about a year ago. It is in fact the second company bearing that name. The first (Cocteau 1) was incorporated on 27 November 1984 and was struck off the register on 12 July 1988. The second defendant (Cocteau 2) was incorporated on 17 November 1988.

From August 1980 onwards, Mr Rye ran Mr Nelson's affairs on the latter's behalf. The relationship between them gradually deteriorated in circumstances which I will touch upon later. On 2 October 1990 Mr Rye wrote to Mr Nelson terminating their business relationship. A month later, solicitors acting for Mr Nelson wrote to Mr Rye raising questions about the manner in which he had carried out his duties as a manager. The ensuing correspondence records a widening of the gap between the parties. On 23 December 1991 the writ in this action was issued.

In these proceedings Mr Nelson seeks three types of relief. First he seeks an account of the moneys received by Mr Rye while acting as his manager. Secondly, he seeks relief in relation to alleged infringement of the copyright in certain musical compositions contained in an album called 'Simplex'. Thirdly, he has sought delivery up by Mr Rye of certain master recordings of his performances which, at the date of the writ, were in Mr Rye's possession. There is also a counterclaim by Mr Rye for commission and expenses due and owing from Mr Nelson. It is not now in dispute that Mr Rye can raise these claims and I do not need to consider the counterclaim further.

It is convenient to mention here two other companies. As Mr Nelson said in his witness statement, during the oral discussions leading to the management contract, he and Mr Rye talked about setting up a new company to look after Mr Nelson's interests. That company was Happytronics Ltd. It was incorporated on 26 August 1980 a few days after the oral contract was made. Its function was to be the conduit through which all or substantially all of Mr Nelson's income and business expenditure could be funnelled. Its two directors were Mr Nelson and Mr Rye. It was effectively the vehicle through which Mr Rye managed Mr Nelson's affairs until it was struck off the register on 30 March, 1993. The other company is Nelsongs Ltd. It was originally called Cant Eat Records. It changed its name to Nelsongs on 12 March 1982. Its purpose was to receive on Mr Nelson's behalf his income from music publishing. It does not appear that there was any such income until the very end of 1984 at the earliest. It was struck off the register on 7 March 1989.

 

THE WITNESSES

In relation to many of the issues which have to be determined in this action, the primary source of evidence is the oral testimony of witnesses, relevant contemporaneous documents either never having existed or now no longer being traceable. Because of their importance, I think it is appropriate to consider at the outset the impact the witnesses made on me. Besides Mr Byrne, Mr Rye's solicitor, who gave purely formal evidence, three witnesses were called. Each of them had served signed witness statements in advance. Mr Christopher Rowland Thomas is a chartered accountant. He was involved in doing accountancy work in relation to the affairs of Happytronics Ltd and the Cocteau 1 company for most of the period with which this dispute is concerned. He was called by the defence. He gave his evidence clearly and straightforwardly. I accept his evidence as being truthful throughout. Mr Mark Rye also gave evidence. It was very apparent that he was hurt and disappointed that he had been sued by Mr Nelson. He explained how he had been a fan of Mr Nelson and even now respected his artistic talents. He felt that he had given his all to helping Mr Nelson, even to the extent of making significant financial sacrifices to keep Mr Nelson's head above water. Not surprisingly, he could not always recall with precision the details of what had happened 10 to 15 years ago. However, having observed him carefully in the witness box, and having compared his version of events with such documents as do still exist, I accept that all of his evidence, save possibly in relation to one minor issue, was truthful. At one point Mr Nelson said that Mr Rye was telling 'fairy stories' in relation to the issues in dispute and that '[Mr Rye] always told deceptions and lies'. I reject those allegations. If Mr Nelson harboured those feelings during the ten years of the relationship, he had no justification for doing so.

The only witness called on behalf of the plaintiff was Mr Nelson himself. I observed him carefully while he was in the witness box. I have compared his evidence with the contemporaneous documents and, after the trial, I re-read his witness statement and my note of his evidence in full. Like Mr Rye, it is unsurprising that he could not recall with precision events of a decade or more ago. However, in many areas he gave forthright evidence. I did not find him a convincing witness. I have come to the conclusion that in a number of crucial areas his evidence was either seriously unbalanced or simply not truthful. In relation to those issues where the evidence of Mr Rye and Mr Nelson are in conflict, I have no hesitation in accepting the evidence of Mr Rye.

 

ISSUES RELATING TO THE ACCOUNT

It is not in dispute that an account must be given. However, as mentioned above, Mr Rye alleges that Mr Nelson owes him various sums and has raised a counterclaim in respect of them. On 19 May 1992 Master Dyson ordered an account in respect of all moneys received by the defendants on behalf of Mr Nelson. Following objections on behalf of Mr Nelson to Mr Rye's compliance with that order, on 25 November 1993 Master Dyson ordered a further and better account. I was informed that Mr Nelson asserts that the account is still deficient, but that even on the figures so far disclosed, Mr Rye owes him nearly £280,000. On the other hand Mr Rye asserts that the accounts demonstrate that Mr Nelson owes him just over £64,000.

I am not directly concerned with the account as such. However two areas of dispute exist which may significantly affect not only the size of the amount found due, but also who owes it to whom. First there is disagreement as to the precise financial terms of the contract between Mr Nelson and Mr Rye. Secondly Mr Rye raises various Limitation Act 1980 and laches defences.

 

The terms of the retainer

Originally, when performing with Be Bop Deluxe, Mr Nelson was managed by a Mr Colin Mauston. That relationship was terminated in 1975. Litigation ensued. In 1975 Be Bop Deluxe signed up with a new manager, Mr Mike Dolan of Arnakata Management. Mr Nelson says that he began having money troubles with Arnakata. In 1980 he was summoned to Mr Dolan's office and was told that Arnakata was no longer willing to manage him. In fact Arnakata was having serious financial problems and soon ceased trading. Apparently Mr Dolan suggested that Mr Rye might be a suitable candidate to take over as Mr Nelson's manager. In about August 1980, Mr Rye visited Mr Nelson's home in Yorkshire. It is not in dispute that at some time during that meeting, whether while walking in the garden or in the local village, it was agreed that Mr Rye would become the new manager. It is also not in dispute that financial terms were discussed. Mr Nelson said that it was agreed that Mr Rye would receive '20% of my income'. He says that he understood 'income' to mean the money that was left, after all expenses had been paid. On the other hand, Mr Rye says that he made it perfectly clear that his terms were 20% of gross fees. He says that it was also agreed that in addition to these fees he would be entitled to reimbursement of all his expenses. Mr Nelson denies that.

Both Mr Nelson and Mr Rye did their best to recall the words used by them in their meeting in Yorkshire some 15 years ago. However their recollections of matters more recent than then were understandably hazy and it is not unreasonable that after all this time their recollections should have become moulded by what they now think they must then have agreed. Indeed, Mr Nelson was unable to challenge Mr Rye's assertion that he had used the words 'gross income', all he could say was that he has now no recollection of that having been said.

Since the parties did not reduce the results of their discussion to writing, the court must do its best by looking at the surrounding circumstances, including such documents as still exist, to determine what was agreed.

 

The rate of commission

As I have already indicated, Mr Nelson cannot recall precisely what was said at the meeting. He simply understood that Mr Rye would charge a commission of 20% 'on my income'. He said he could not challenge Mr Rye's recollection. Mr Rye says he has a good recollection of what was discussed. He said that he knew full well the difference between gross and net income and made it clear that he would only take on Mr Nelson if his commission was based on the former. In particular he says that it was apparent to him that if the commission was based on net income and Mr Nelson's expenses matched or exceeded his income, then he, Mr Rye, would be working for nothing. Mr Nelson agreed that was a possibility but that it was a risk Mr Rye had chosen to take.

In my view it is likely that this was an important consideration for Mr Rye at the time. When Mr Nelson parted company with Arnakata, he had just been dropped by EMI, the recording company. Mr Rye said that he was aware that EMI were substantially unrecouped on advances they had made to Mr Nelson while he was under contract to them. In other words, he knew that there was a risk that Mr Nelson's net income might be very small or non-existent. It would not have made commercial sense for him to have taken on Mr Nelson for a commission based on net income. Mr Nelson says that he was not aware that EMI was substantially unrecouped. I think that is unlikely. Furthermore Mr Rye had been associated with Mr Nelson before the management agreement was entered into. In 1979 Mr Nelson had his own record label, 'Cocteau' (the subsequent incorporation of Cocteau 1 was to protect the name used on the label), under which he put out his own records. Mr Nelson at that time was managed by Arnakata Management. They employed Mr Rye to help put out a recording of Mr Nelson's music called Do you dream in colour late in that year. As Mr Nelson admits, that record 'died'. Therefore, at the time that Mr Rye and Mr Nelson were negotiating in August 1980, Mr Rye knew that Mr Nelson's last record had been a commercial failure. This reinforces my view that it would have made no commercial sense to Mr Rye to have accepted commission on net income.

In addition there are documents in existence which support Mr Rye's version of events. First, on 19 February 1981 Mr J Wyllie, a solicitor acting on behalf of Mr Rye, sent a telex to Mr Gentle, a solicitor acting on behalf of Mr Nelson. By that stage Mr Rye had formed Happytronics Ltd. The telex was in the following terms:

'Following our telephone conversation yesterday herewith proposed letter from the company providing Mark Rye's services to Happytronics Limited: From ... Limited [Mr Rye had his own company into which his own income was paid.] To Happytronics Limited:

"Dear Sirs,

Mark Rye

This is to confirm the arrangement between us whereby we agree to make available to you the administrative and managerial services of Mark Rye on a non exclusi[v]e basis to administer and organised [sic] your business arrangements generally and in particular to enable you to comply with your obligations to Bill Nelson in the letter from you to Bill Nelson of even date herewith. In consideration of our agreeing to provide such services you agree to account to us for 20% of your gross income from the activities of Bill Nelson whether as shareholder director or otherwise and you shall account to us for the income payable to us promptly after receipt unless we agree otherwise. Please sign the attached copy of this letter to indicate your agreement to its terms ... Please let me know if you think this is satisfactory and I will let you have copies typed for signature."

Although a letter in those terms does not appear to have been signed, the financial terms there recorded do not appear to have been disputed. Mr Gentle replied by letter dated 25 February 1981, in which he said as follows:

'I have now had a further discussion with Bill Nelson, and notwithstanding your telex of 19th February last, I really can find no justification for proceeding on the basis as set out. It appears to me that Happytronics Limited should be treated as Bill's production company. It seems to be agreed that Mark should receive a 20% commission and I would suggest that there is an agreement between Happytronics Limited and whatever limited company which has the benefit of Mark's services ...'

The letter went on to suggest other modifications to the proposals in the Wyllie telex. However, the suggestion in that telex that the agreed terms were 20% of gross income was not challenged. Under cross-examination, Mr Nelson accepted that this correspondence was discussed between him and Mr Gentle at the time. He did not suggest that Mr Gentle's reply was written other than under instructions from him. There would have been a very substantial difference between the two bases for calculating Mr Rye's commission. In those circumstances, had the oral agreement been for a percentage based on net income, it is most unlikely that this feature of Mr Wyllie's telex would have passed without correction.

Furthermore, under cover of a letter dated 28 March 1983 Mr Rye sent Mr Nelson a statement of income and expenditure for Happytronics for 1980 and 1981. The letter invited Mr Nelson to raise any queries he might have. The statement shows that over the two-year period, expenditure exceeded income to the tune of £25,792795. However the statement also shows that in that period Mr Rye drew a commission of £9,000. Mr Nelson did not dispute having received and read these figures. If his account of the financial terms agreed between him and Mr Rye was correct, Mr Rye was not entitled to any commission at all. Mr Nelson said that he did not notice the inclusion of the commission in these figures. I do not accept that evidence. At the time that he changed management to Mr Rye in 1980, Mr Nelson was owed some £48,000 by Arnakata. That money was never paid. Mr Nelson had mortgaged his house at the end of 1980 or beginning of 1981 to maintain his standard of living. I accept Mr Rye's evidence that throughout the ten years Mr Nelson demanded more and more money. I do not believe that he failed to notice the £9,000 commission paid to Mr Rye. It was one of the largest expenses on the statement of expenditure. If, as he now says, the commission was agreed to be on net income, I have little doubt he would have complained that Mr Rye's deduction of commission was not justified. He did not do so because, at the time, he knew that commission was due on gross income.

 

Mr Rye's expenses

As I have mentioned, Mr Rye also says that it was agreed that, in addition to his 20% commission, he was entitled to be reimbursed his expenses. Once again in the statement of income and expenditure sent under cover of the letter of 28 March 1983, sums can be identified as being expenses paid to Mr Rye.

Mr Rye explained what he meant by expenses. He said: 'I meant that if I went on tour to the US, my expenses would be met. If I hired a van, my costs would be met. I did not need to pay myself.' I am by no means convinced that these are really his personal expenses at all. If he hired a van for use by Mr Nelson or his support team, that would appear to me to be a legitimate business expense of Mr Nelson. Similarly, if Mr Nelson wanted his agent to attend him on tour, the cost of that also might well be a legitimate business expense of Mr Nelson. In any event, I accept Mr Rye's evidence that he believes he mentioned his personal expenses to Mr Nelson. I also accept that it is quite possible that Mr Rye mentioned expenses in the sense indicated above to Mr Nelson. If so, Mr Nelson would not and did not understand those expenses to be the personal expenses of Mr Rye. It is not proved that Mr Rye's requirement for his own personal expenses to be met was ever communicated properly to Mr Nelson and it follows that I find there was no agreement that these expenses be paid. It is notable that in the Wyllie/Gentle correspondence to which I have referred, there is no mention of personal expenses.

It was argued on behalf of Mr Rye that even if payment of expenses was not agreed, a term to that effect should be implied to give business efficacy to the agreement. I reject that argument. If Mr Rye was to obtain a 20% commission on gross income, there is no compelling reason to imply any such term. On the contrary, I think that there are just as good reasons of business efficacy why such a term should be excluded.

 

The period of accounting

The third feature of the oral agreement in relation to which a dispute arose was the frequency with which Mr Rye had to account to Mr Nelson. It was not disputed that Mr Rye agreed to account regularly and also that the parties did not turn their minds to the question of how regular that should be. Mr Anderson, who appeared on behalf of Mr Nelson, suggested that quarterly or half-yearly accounting should be implied. Mr Oppenheim for Mr Rye suggested annual accounting.

The argument in favour of quarterly accounting was that VAT returns have to be produced each quarter and it was convenient and proper to use that opportunity to produce accounts for Mr Nelson. I was not clear on what basis Mr Anderson's alternative suggestion of six-monthly accounts was based, other than that it was less burdensome than quarterly accounts but not as unreasonably relaxed as annual accounts. On the other hand Mr Oppenheim says that annual accounting makes sense, since all or most of Mr Nelson's income was to pass through Happytronics and the filing of annual accounts would be necessary for that.

Mr Oppenheim's argument is to be preferred. When the court implies a term it must do so in the circumstances prevailing at the time the contract was entered into. In this case those circumstances include the fact, as I hold it to be, that the parties had agreed that management of Mr Nelson's affairs would take place substantially through the medium of a company. This is consistent with Mr Nelson's witness statement in which he described the discussions with Mr Rye at the end of 1980. He said '[Mr Rye] talked about setting up a new company to look after my interests after the Arnakata debacle'. The company formed for that purpose was Happytronics. An officious bystander would have assumed that annual accounting would be sufficient. Indeed, if the company was to be the vehicle, it might well be thought that the company accounts would serve as the management accounts. I think it most improbable that reasonable business people in these circumstances would have suggested quarterly or even half-yearly accounts. As long as Mr Nelson was receiving his 'wages' from the company, I do not think it would have been reasonable for him to be expected to review or for Mr Rye to provide accounts twice, let alone four times a year.

 

DELAY, LACHES AND ACQUIESCENCE

On behalf of Mr Rye it is said that even though Mr Nelson is entitled to an account, he is not entitled to an account in respect of the period before 24 December 1985. This is put two ways. First it is said that the claims here are covered by the provisions of the Limitation Act 1980. In essence this is a claim for an account arising out of an alleged breach of contract. The limitation period is therefore six years. Mr Nelson denies that any limitation period applies to the causes of action here. This issue raises points of some legal nicety. Secondly, it is said that even if Mr Nelson is right on this issue, Mr Rye can rely on s 36(2) of the 1980 Act, which provides: 'Nothing in this Act shall affect any equitable jurisdiction to refuse relief on the ground of acquiescence or otherwise.' It is said that here the equitable jurisdiction should be invoked to prevent Mr Nelson from now seeking an account in relation to the pre-1985 period. Mr Oppenheim is prepared to accept that the defence will not run in respect of the accounts from 24 December 1985 onwards.

 

Does a statutory limitation period apply?

The parties' arguments

Mr Anderson's argument is simple and falls into two parts. First, he says that the 1980 Act prescribes limitation periods for certain causes of action only. Causes of action which are not expressly covered by the Act are not subject to a period of limitation. Actions for breach of fiduciary duty are outwith the Act, so no limitation period applies to them. In support of this he drew my attention to Tito v Waddell (No 2), Tito v. A-G [1977] Ch 106 at 251 and to A-G v. Cocke [1988] Ch 414 at 421. In the latter Harman J said:

'I had cited to me by counsel for the second defendant most interesting authorities under the 1939 Act. He particularly took me to Megarry V-C's judgment in Tito v. Waddell (No 2), Tito v. A-G [1977] Ch 106 at 250-251, but, although that was on a somewhat different section to the present form of s 23 of the 1980 Act, Megarry V-C comes to a conclusion, which I think is the same as the conclusion I have come to, that a claim to an account simpliciter based on a fiduciary relationship and nothing more is not barred by any period of limitation. The observation in that case was obiter because he had held there was no fiduciary relationship arising.'

In the alternative Mr Anderson relied on the provisions of s 21(1) of the 1980 Act, which is in the following terms:

'No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action -- (a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or (b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee, or previously received by the trustee and converted to his use.'

Mr Anderson relied particularly on para (b). He puts his argument in relation to this section in two ways. First, he said that where persons occupy a fiduciary position they are treated for the purpose of limitation as trustees, and time never runs in their favour. He relied on McGee on Limitation Periods (2nd edn, 1994) pp 247-248; Burdick v. Garrick (1870) LR 5 Ch App 233; North American Land and Timber Co v. Watkins [1904] 1 Ch 242 and Soar v. Ashwell [1893] 2 QB 390. Secondly, he said that Mr Rye would be treated as a constructive trustee of any moneys which he held or profit which he obtained by virtue of a breach of his fiduciary duties. Since s 38(1) of the 1980 Act provides that the terms 'trust' and 'trustee' have the same meaning as in the Trustee Act 1925, s 21(1)(b) applies as much to constructive trustees as to express ones.

Mr Oppenheim approached the issue of limitation in an entirely different way. First, he drew my attention to s 23 of the 1980 Act, which provides:

'An action for an account shall not be brought after the expiration of any time limit under this Act which is applicable to the claim which is the basis of the duty to account.'

He argues that the basis of the duty to account in this action is the contract entered into between Mr Nelson and Mr Rye. Time therefore ran against Mr Nelson for the purposes of an account or other monetary claim from the date of breach of the relevant contractual obligation. The period of limitation for breach of contract is set at six years in accordance with s 5 of the 1980 Act. He says that s 21 has no application. He says that even if there was no time limit for a claim for breach of fiduciary duty or trust, that has no application here. Were this not so, s 21 would have the effect of circumventing and rendering nugatory the provisions of s 23. He says that it is not contended that the fiduciary duties arose from anything other than the contractual agreement between the parties. There was no fiduciary obligation which predated the agreement. He said that this was not inconsistent with A-G v. Cocke because in that case Harman J was careful to qualify his views ([1988] Ch 414 at 421):

'... a claim to an account simpliciter based on a fiduciary relationship and nothing more is not barred by any period of limitation.' (My emphasis)

Furthermore, he says that Tito v. Waddell (No 2) is not relevant because the problem under the Limitation Act 1939 addressed by Megarry V-C in that case has now been resolved by s 23 of the 1980 Act.

The argument then proceeds as follows. First, he says it is no longer necessary or helpful to look at old cases, such as Soar v. Ashwell, to determine what the limitation period is for actions for breach of fiduciary duty. Prior to s 68(17) of the Trustee Act 1925, constructive trustees were treated differently to express trustees, and the old jurisprudence relating to limitation periods for breach of fiduciary duty developed while that difference existed. He says that if a fiduciary breaches his obligation and he holds as a trustee at all, he is treated as a constructive trustee. He accepts that for the purpose of s 21(1)(b) of the 1980 Act, the constructive trustee is treated in the same way as an express trustee as a result of the provisions of s 38(1). However, he says that the fact that Mr Rye received moneys on behalf of, and stood in a fiduciary relationship to, Mr Nelson does not necessarily make Mr Rye a constructive trustee of all the moneys so received. He said that it is always a factual question, dependent upon the nature and content of the fiduciary obligation, whether breach of the obligation gives rise to proprietary remedies by way of constructive trust. In relation to this he relied on certain passages in Meagher, Gummow and Lehane Equity: Doctrines and Remedies (2nd edn, 1984), in Bowstead on Agency (15th edn, 1985) and in an article written by Sir Peter Millett 'Bribes and Secret Commissions' [1993] RLR 7. In particular, Sir Peter said (at 23):

'When, then, is a fiduciary to be treated as held to be a trustee of money or property which has been entrusted to him by or for the account of his principal? The question is a familiar one which commonly arises in cases of agency. An agent is a person who acts for another ... he may or may not be a trustee ... The position is not necessarily the same where money payments are concerned. An agent who receives money from or for his principal is not necessarily a trustee, even though he is a fiduciary. At law, the relationship between the agent and his principal is that of debtor and creditor. In equity, however, the relationship of trustee and beneficiary may be superimposed ... In other cases the question whether an agent is a trustee depends on all the circumstances and in particular the intention of the parties, express or inferred. There is no single test; the usual approach is to consider whether it is appropriate to superimpose a trust relationship onto the commercial relationship which exists between the parties; or whether it was contemplated that the agent should be free to treat the money as his own, in which case no trust relationship is created. It is fundamental to the existence of a trust that the trustee is bound to keep the trust property separate from his own and apply it exclusively for the benefit of his beneficiary. A right of the agent to mix his principal's money with his own and use it as part of his cash-flow is inconsistent with the existence of a trust.'

Mr Oppenheim says that here there is no reason why a constructive trust should be imposed on top of the creditor/debtor relationship which exists between Mr Rye and Mr Nelson. He pointed to a number of factors which supported that conclusion. In particular he referred to the fact that there was no obligation on Mr Rye to keep his commission money separate from Mr Nelsons and further that Mr Rye invested his own money in the service company. He took out a second mortgage on his own home to meet some of the service company's debts.

Finally, Mr Oppenheim says that even if there is a constructive trust in this case, on its true construction, s 21(1)(b) only comes into play if the plaintiff can demonstrate a prima facie case that there is identified property in specie held by Mr Rye which belongs to Mr Nelson. He says that Mr Nelson fails on that issue as well.

 

Conclusions

In resolving these arguments, I think it is helpful to bear in mind what the limitation defence is and how it relates to the defences of laches, acquiescence and delay. Outside the statutory provisions there are principles which provide that in some circumstances, normally associated with significant delay, it will be inequitable to allow a plaintiff to enforce his rights. The requirements and limitations of this equitable doctrine will be considered later. For present purposes it is sufficient to note that whether the plaintiff is barred from relief is determined on the particular facts of the case. Account is taken of the actions and behaviour of the plaintiff and defendant and sometimes the impact on third parties. It is a flexible defence.

This is to be compared with limitation periods provided by statute, particularly the 1980 Act and its predecessors. The statutes have imposed essentially arbitrary time limits on certain defined causes of action. It does not matter in such cases whether the plaintiff is to blame for not keeping within the time limit, nor is it relevant that in some cases it will be thought unfair that the defendant is allowed off the hook. The defendant is entitled to play possum in the hope that the plaintiff will make a mistake and fail to commence proceedings before the statutory time limit is breached. If the limitation period is exceeded then the defendant is entitled to call down the guillotine on the plaintiff's action unless a statutory exception exists, such as the extension of time provided by s 32 of the 1980 Act in cases where there is fraud or concealment.

Furthermore, the arbitrary time limits imposed by statute vary from cause of action to cause of action. For example, an action for breach of contract must be commenced within six years, an action upon a speciality must be commenced within twelve years and an action in respect of personal injuries must be commenced in many cases within three years. What then if one set of facts gives rise to two or more potential causes of action with different limitation periods? For example, it may well be that the breakdown of a relationship which arises out of a contract gives rise to alternative causes of action for breach of contract, negligence and breach of trust. No doubt the injured party cannot use the alternatives so as to receive duplicate or triplicate relief (see United Australia Ltd v. Barclays Bank Ltd [1941] AC 1 and A-G for Hong Kong v. Reid [1994] 1 AC 324), but that does not mean that he can not sue under all of the heads simultaneously. Each cause of action may have its own strengths and weaknesses so that, say, the plaintiff may succeed in his cause of action based in negligence but fail in his action for breach of contract, or vice versa. In particular, where a limitation period exists and can be invoked in relation to one cause of action, it is nihil ad rem that no, or a different, limitation period applies to an alternative cause of action which has been or could have been pleaded by the plaintiff.

Historically, actions by beneficiaries against trustees for misappropriation of trust property have been excluded from the imposition of such arbitrary time limits. The courts and the legislature have treated trustees as bearing a special responsibility to the trust property and the beneficiary's interest in it. The beneficiary's right to complain of breach of trust has been treated as persisting indefinitely unless, of course, in all the circumstances it would be inequitable to allow him to enforce his rights. There is nothing to which my attention has been drawn which suggests that the 1980 Act effected a significant change in this area.

With these considerations in mind it is possible to address the arguments advanced by the parties to this action.

In my view s 23 of the 1980 Act does not have the meaning for which Mr Oppenheim contends. The section simply confirms that the limitation period which applies to a particular cause of action applies equally to the relief by way of account which flows from it. For example, in this case certain claims for copyright infringement arise. Section 96(2) of the Copyright, Designs and Patents Act 1988 entitles a copyright owner to seek relief by way of an account where infringement is proved. The effect of s 21 of the 1980 Act is that the limitation period for the account is the same as that for the claim for infringement. I do not accept that s 21 has the effect of circumventing and rendering nugatory the provisions of s 23. The former is concerned with whether or not there is a limitation period for actions for breach of trust, whereas the latter is only concerned with the limitation period to be applied to a form of relief which may be ordered in favour of a successful plaintiff.

Since that is so, what limitation period, if any, applies to the cause of action in this case? As I have indicated above, where a limitation period exists and can be invoked in relation to one cause of action, it is nihil ad rem that no, or a different, limitation period applies to an alternative cause of action which has been or could have been pleaded by the plaintiff. If the cause of action here is one for breach of fiduciary duty or breach of trust, it does not avail Mr Rye to argue that the relationship arose out of a contract and that the relationship between him and Mr Nelson can be treated as one between debtor and creditor. If Mr Nelson had chosen to sue for breach of contract alone, then the limitation period for contractual claims would have applied. He has not done so. If Mr Oppenheim's argument on this was right, the provisions of s 21(1) would be virtually valueless because in most cases of breach of trust the trustee would be able to argue that he could have been sued for breach of contract.

I accept Mr Anderson's basic premise that the 1980 Act only imposes limitation periods on those actions it specifically identifies. A cause of action for which the 1980 Act, or other legislation, makes no limitation provision is not subject to a limitation period. Actions for breach of fiduciary duty are not expressly covered. It follows that prima facie no limitation applies to them. However, if this was all, s 21 would serve little purpose. As far as I can see, in all cases of breach of trust covered by the section it would be possible to say that there had been a breach of fiduciary duty. Although, as I have held, no limitation period applies to actions for breach of fiduciary duty simpliciter and s 21(1) provides that no limitation period applies in respect of many actions for breach of trust, some actions for breach of trust are the subject of limitation periods - see s 21(3). If those are treated as actions for breach of fiduciary duty, the limitation would be side-stepped.

The fallacy, it appears to me, is to treat breach of fiduciary duty and breach of trust as different causes of action. In a case where, because of the existence of a fiduciary duty, a constructive trust comes into existence, breach of trust and breach of fiduciary duty are the same cause of action. Similarly, where an express trust has been created, breach of that trust and breach of fiduciary duty are also the same cause of action. It is therefore not possible to side-step the limitation provisions of s 21(3) by referring to the action as one for breach of fiduciary duty.

Since I accept Mr Oppenheim's argument that not all breaches of fiduciary duty give rise to constructive trusts, the following propositions appear to follow. (1) An action for breach of fiduciary duty simpliciter is outside the provisions of the Limitation Act 1980 and therefore is not subject to a period of limitation. (See A-G v. Cocke [1988] Ch 414.) (2) Where a breach of fiduciary duty gives rise to a constructive trust, the provisions of s 21 of the 1980 Act determine whether there is a limitation period, and its duration. (3) An action for breach of an express trust is, in like manner, subject to the limitation provisions of s 21. (4) In neither case (2) or (3) is it possible to avoid any limitation period imposed by the 1980 Act by treating the case as one of breach of fiduciary duty.

There is no dispute between the parties that Mr Rye owed Mr Nelson a fiduciary duty. He was obliged to account to Mr Nelson annually. He did not. There has been a breach of that duty and, prima facie, no limitation period applies. Mr Oppenheim's arguments to the effect that the cause of action did not fall within the ambit of s 21(1)(b) would only help Mr Rye if he had also succeeded in persuading me that the action should be treated as one for breach of contract rather than breach of fiduciary duty. Since he has failed to persuade me of that, no limitation period applies, either because the cause of action is outwith the 1980 Act or because it falls within s 21(1)(b) (it was not suggested that the action came within s 21(3)). In the circumstances it is not necessary to determine under which head this action falls. Nevertheless, it is clear to me that this case does fall within s 21(1)(b). Although not all fiduciary relationships give rise to constructive trusts, this one did. As Sir Peter Millett said in 'Bribes and Secret Commissions' [1993] RLR 7 at 23:

'Every agent is a fiduciary; he may or may not be a trustee. Often he holds no money or property for his principal. If he receives goods from his principal, he may be a bailee only. Where, however, he receives property from a third party intended for his principal, his obligation will almost invariably be to transfer it in specie to his principal and, if so, he will be treated as holding it as trustee for his principal. He cannot assert a beneficial title to property which was never intended to be his.'

In this case Mr Nelson left all of his financial affairs to Mr Rye. All of his various sources of income were to be handled by his manager. Mr Rye accepted that he was not free to treat Mr Nelson's income as his own. He never did. The fact, as I find, that Mr Rye did not take out all the commission to which he was entitled and put his own funds in to keep Mr Nelson afloat, does not alter the nature of his interest in Mr Nelson's income. If it were otherwise, any agent in a fiduciary relationship to his principal could prevent a constructive trust from arising by failing to take his permissible deductions from the trust fund or by putting his own money in, even if this was not sought by the beneficiary. Furthermore, I reject Mr Oppenheim's argument that s 21(1)(b) does not apply because the constructive trust contained no property in specie. The subsection requires that the action be one to recover from the trustee 'trust property or the proceeds of trust property in the possession of the trustee'. Mr Rye received Mr Nelson's income. That was trust property. The balance left after all proper deductions is also trust property. This is an action to recover that property.

It follows that no limitation period applies in this case. However, that does not dispose of this part of the case. Mr Rye argues that it would be inequitable by reason of laches, acquiescence and delay to allow Mr Nelson to maintain this action at least in respect of the period before 24 December 1985.

 

The equitable defence

For Mr Nelson it was argued that to succeed on this issue, Mr Rye must show: (a) there was an express or implied representation by the plaintiff that he intended not to compel performance in specie by the defendant of the obligation in question; (b) that the plaintiff was aware, or ought to have been aware, of the possibility that the defendant would act to his prejudice in reliance on the representation; and (c) in consequence of that representation, it becomes unjust to grant the equitable relief sought as the defendant has been prejudiced by reliance on it (in the sense of being in a 'substantially worse position' than he would otherwise have been). For these propositions Mr Anderson relied on Spry on Equitable Remedies (4th edn, 1990) pp 236-238. In relation to laches, he said that in order to raise a prima facie case, a defendant must establish two facts: (a) that there has been unreasonable delay by the plaintiff; and (b) that there has been consequent substantial prejudice or detriment to the defendant which justifies the refusal of the equitable relief sought. He said that mere delay per se is not sufficient. A defendant must show a causal link between the delay and the prejudice/detriment (see Lindsay Petroleum Co v. Hurd (1874) LR 5 PC 221 at 239-240, Lazard Bros & Co v. Fairfield Properties Co (Mayfair) Ltd (1977) Times, 13 October and Spry on Equitable Remedies (4th edn, 1990) pp 227-228). At least at one stage in his argument, Mr Anderson suggested that the defendant needs to prove that the prejudice was substantially caused by the delay.

It can be misleading to approach the equitable defences of laches and acquiescence as if they consisted of a series of precisely defined hurdles over each of which a litigant must struggle before the defence is made out. In Lindsay Petroleum Co v. Hurd (1874) LR 5 PC 221 at 239-240 the Privy Council stated:

'Now the doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay are most material. But in every case, if an argument against relief, which otherwise would be just, is founded upon mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circumstances, always important in such cases, are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy.'

In Erlanger v. New Sombrero Phosphate Co (1878) 3 App Cas 1218 at 1279-1280, after quoting this passage, Lord Blackburn went on to say:

'I have looked in vain for any authority which gives a more distinct and definite rule than this; and I think, from the nature of the inquiry, it must always be a question of more or less, depending on the degree of diligence which might reasonably be required, and the degree of change which has occurred, whether the balance of justice or injustice is in favour of granting the remedy or withholding it. The determination of such a question must largely depend on the turn of mind of those who have to decide, and must, therefore, be subject to uncertainty; but that, I think, is inherent in the nature of the inquiry.'

So here, these defences are not technical or arbitrary. The courts have indicated over the years some of the factors which must be taken into consideration in deciding whether the defence runs. Those factors include the period of the delay, the extent to which the defendant's position has been prejudiced by the delay, and the extent to which that prejudice was caused by the actions of the plaintiff. I accept that mere delay alone will almost never suffice, but the court has to look at all the circumstances, including in particular those factors set out above, and then decide whether the balance of justice or injustice is in favour of granting the remedy or withholding it. If substantial prejudice will be suffered by the defendant, it is not necessary for the defendant to prove that it was caused by the delay. On the other hand, the plaintiff's knowledge that the delay will cause such prejudice is a factor to be taken into account. With these considerations in mind, I turn to the facts.

It was not in dispute that no formal request for a written account was made during the ten years of the management agreement and that no account which would satisfy a lawyer was ever provided. Why was this so?

In the witness box, Mr Nelson sought to portray himself as naive in matters financial. He said that he had been badly treated by his manager. The flavour of his complaints can be gauged from the following passage in his witness statement:

'I have been in the dark about the legal and financial position concerning my affairs for many many years. My previous management went into liquidation owing me money. I trusted Mark Rye absolutely. However, I have never had a real explanation from him of what has happened to my income over the years.'

It would have been possible to discuss the accounts with Mr Thomas around the table. That could have been with or without Mr Rye present. There is no doubt from the documents that Mr Thomas suggested to Mr Nelson that they talk or meet. On 14 April 1986 Mr Thomas sent a letter to Mr Nelson, to which was attached a compliment slip on which Mr Thomas had written the following:

'Bill, Thank you for the forms. They are all in order -- I must write the attached letter as the company's auditor. Please telephone me if you require some further information.'

The letter to which the compliment slip was attached was in strong terms. It mentioned the fact that Mr Thomas' firm had not been paid and was reluctant to carry out further work. It also contained the following:

'As we have previously explained PAYE regulations have been breached by drawing money out of the company without accounting for the tax due. These amounts are not small and place a considerable burden on the company. You must be aware that the Inland Revenue will take all steps to recover the tax lost with interest and penalties, and prosecute the directors for the offences committed ... We understand that you hope to receive a substantial advance from CBS in the immediate future. We would advise you that you give serious consideration to allocating funds to deal with your outstanding financial affairs and tax liabilities without delay. We trust that these matters will be put right but should you wish to meet and discuss any aspects we are happy to do so.'

On 16 February 1987 Mr Thomas wrote to Mr Nelson again. He said:

'Please do try and get in touch with me next time you are in London as I do think it is important that we meet up so that I can explain things more fully and we can plan our way forward.'

Similarly, Mr Rye's evidence, which I accept, was that he tried to explain the financial position to Mr Nelson on numerous occasions, and he suggested Mr Nelson should go to see Mr Thomas if he had any problem with the figures. For example, on 17 October 1986 Mr Rye wrote to Mr Nelson as follows:

'Chris Thomas has finally sent me some draft accounts for Happytronics Ltd. I propose we have a meeting to look at them. When is your next London Lodge Meeting and we can make it at the same time?'

It is also clear that in fact two meetings with Mr Thomas (not one as suggested by Mr Nelson) were arranged, but were both cancelled by Mr Nelson.

Mr Nelson's oral evidence on these issues was contradictory or implausible. He said that he would ask for business meetings with Mr Thomas, but that Mr Rye would say he could not afford to go to accountants or bookkeepers. When it was put to him that he knew who Mr Thomas was and could have contacted him, his response was that he didn't meet Mr Thomas until the end of the relationship with Mr Rye, but not through lack of asking. He said that if a meeting had been arranged at a date which was convenient, he would have been prepared to meet. He said that he asked Mr Rye to set up meetings but they were not set up. He claimed that for ten years he had asked Mr Rye to set up meetings. However he also said that he did not ask for meetings with Mr Thomas because (a) Mr Thomas was a friend of Mr Rye, (b) Mr Thomas said that he didn't have enough information from Mr Rye (evidence which itself is difficult to reconcile with the Mr Nelson's accurate oral testimony that he never spoke to Mr Thomas throughout the ten years of the management agreement) and (c) Mr Rye had all the information so that he, Mr Nelson, was powerless to advance without it.

When challenged as to why he did nothing, since he was asking for and being refused accounts, Mr Nelson said:

'[Mr Rye] had all my property. I didn't want to rock the boat. I thought he might do a runner. I thought that a real possibility.'

This picture of a man willing to listen to explanations and scared to challenge his manager for fear that he would run off with his property is difficult to reconcile with his evidence that he trusted Mr Rye absolutely (see the extract from his witness statement referred to above) and his oral testimony that he did nothing about demanding a proper account because he accepted Mr Rye's explanation that everything was in order. Mr Nelson agreed that he cancelled the one meeting with Mr Thomas which he remembered had been arranged because he said that he was told about it at the last minute and had already checked out of his hotel and had a lot of luggage with him.

I think Mr Nelson got closer to the truth when he said :

'If he [Rye] asked me [to come to meetings] and I refused there could be many reasons. I was working non-stop. I had very little spare time.'

In my view there was a wilful refusal by Mr Nelson to involve himself in his financial affairs. He deliberately ignored advice both from Mr Rye and Mr Thomas to get round the table to see how the figures worked out. I find as a fact that he declined to attend two meetings with Mr Rye and Mr Thomas for no good reason. He was happy to drive his Rolls Royce, live in a mansion and take far more out of Happytronics than could be justified on the basis of its receipts, but he did not want to know the details of how the sums added up - or failed to add up. He rejected all advice. He was not interested in the account as between him and Mr Rye. He knew or suspected that working out any of the figures would merely confirm that he was living beyond his means. This was something which he preferred to ignore. He would leave his manager and Mr Thomas to sort out the problems. His only concerns arose when Mr Rye sought to put a brake on his wages. I accept that then he would demand to know why he could not have more and, from time to time, asked to see the figures. But this was simply part and parcel of trying to place the blame for his financial problems on others and, in particular, Mr Rye. During the ten years of the relationship, Mr Nelson did not want an account and that was apparent to Mr Rye. He wanted to complain about lack of funds, but he was not interested in any explanation which would support Mr Rye's constant warning that he was living beyond his means. In particular he did not want to see it in black and white. Mr Thomas told Mr Rye that he wanted a meeting between the three of them so that he, Mr Thomas, could explain to Mr Nelson that he could not continue to draw 'vast amounts out of the company when it does not have the funds'. Even if Mr Nelson was not aware of the contents of this particular communication between Mr Thomas and Mr Rye, he was aware that this was the message he would be given if there was a meeting and it was not one he was prepared to listen to. He was quite content to convince himself that he was too busy to meet to discuss the problems. I have little doubt that had Mr Rye not terminated the relationship in 1990, Mr Nelson would have continued to refuse to look at any accounting material. As far as Mr Rye is concerned, I find that he wanted and tried to explain the accounts to Mr Nelson. It was in his interests to do so.

I have come to the conclusion that there was unreasonable delay in commencing these proceedings.

I turn to consider whether Mr Rye has suffered prejudice as a result of that delay. Mr Oppenheim relied on two matters. First he says that documents relevant to the account which did exist in the past now no longer exist. Secondly he says that it is inevitable that matters more than six years ago will be poorly remembered. In other words, Mr Rye's ability to give evidence has been prejudice by the delay. I will consider each of these in turn, but before doing so I should mention one matter. Mr Nelson has raised before the master certain objections to the account given by Mr Rye. In particular, although Mr Nelson accepts that Mr Rye was entitled to deduct legitimate expenses, a very large number of expenses claimed have been challenged on the basis that vouchers do not exist to support them. Mr Nelson is therefore seeking to have excluded from the account some or all of these expenses. Mr Anderson confirmed before me that Mr Nelson intends to continue to attack the account rendered on behalf of Mr Rye on this basis.

As far as the vouchers are concerned, Mr Rye's evidence was that from time to time, when he wanted space, he would clear out of storage and destroy old documents. In particular invoices and receipts and the like would fall within the category of documents eligible for disposal. He said that he would not deliberately dispose of any vouchers less than six years old. This space-making exercise was not regular nor was it consistent. The result is that very many, but not all, vouchers which were more than six years old have gone. Under cross-examination, Mr Rye said that as soon as he received the letter from Mr Nelson's solicitors shortly after 21 December 1990 he stopped this deliberate destruction practice, at least in relation to Mr Nelson's affairs. It is apparent that Mr Rye's document retention practices within the six-year period are less than perfect. Even comparatively recent documents can no longer be found.

I turn now to the second part of Mr Oppenheim's argument on prejudice, namely that the passage of time will make it more difficult for his client to give reliable evidence in relation to the first half of the 1980s. Whenever there is delay, the party being sued can claim that the passage of time will make it more difficult for him to present evidence in support of his case. Mr Rye is particularly anxious that he will find it impossible to recall the minutiae of what expenses, including many very small ones, were incurred on what date and for what purpose. The court should bear in mind that a party may be inclined to understate his powers of recall when it is in his interests to do so. Nevertheless I am satisfied that Mr Rye's fears are justified. We are not here considering major events in Mr Rye's life but the comparative trivia of the day-to-day movement of funds in a small business. During the existence of his managerial relationship with Mr Nelson, Mr Rye had every reason to believe that Mr Nelson was not in the slightest bit interested in raking through the minutiae of what expenses were paid on his behalf. Indeed, I accept Mr Rye's evidence that Mr Nelson made it clear to him that his primary duty was to pass money to Mr Nelson and that if that involved deferring or declining payment to others, so be it.

I have considered all of the above matters. In my view Mr Rye will suffer substantial prejudice for both of the reasons advanced by Mr Oppenheim and this is a case where it would be unreasonable and unjust to allow Mr Nelson to assert his right to an account against Mr Rye in the period prior to 24 December 1985. The defence of laches or acquiescence is made out. In his reply speech, Mr Anderson suggested that because Mr Rye said that he did not throw away further relevant documents once he had received Russells' letter of 26 November 1990, the period of prejudice only extended up to six years before that date, that is to say it was only documents earlier than that which might have been destroyed. Therefore, he argued, if the defence runs it should only cover the period before 26 November 1984.

I do not accept that argument either. As I have already noted, Mr Rye had a less than perfect document retention procedure. Even if the deliberate destruction policy was suspended on receipt of the Russells letter, it is likely that documents have been lost with the passage of time. It is likely that this will include some documents dated between November 1984 and December 1985. Their absence now is no less a prejudice to Mr Rye than the absence of earlier documents. Furthermore, Mr Anderson's argument does not address the significant prejudice which Mr Rye will suffer by reason of the difficulty of recalling all the minutiae up to December 1985.

As I have said, it would be quite unjust to allow Mr Nelson now to seek an account prior to 24 December 1985. I should make it clear that I would have come to the same conclusion even had I been persuaded by Mr Anderson that the defendant must show a causal link between the delay and the prejudice/detriment of which he complains. If Mr Nelson had made it clear that he wanted a proper account earlier on in their relationship, I think it most likely that few, if any, of the vouchers from those early days would have gone missing. It is unrealistic for Mr Nelson to demand that Mr Rye identify precisely which vouchers have been disposed of which would not have been otherwise. In my view, the detriment in these proceedings which I have indicated the defendant has suffered by reason of the plaintiff's failure to ask for an account earlier or complain when it was not forthcoming, is largely due to that delay and the manner in which Mr Nelson treated Mr Rye's persistent attempts to make him sit down and look at the figures.

 

CONVERSION

The issues in relation to this claim are simple. It is not in dispute that until very shortly before the trial Mr Rye had in his possession a number of master or production tapes of recordings made by Mr Nelson. These are set out in schedule 2 to the statement of claim. It was also accepted before me that the return of those articles was demanded by Russells in a letter dated 29 November 1991. On behalf of Mr Nelson I was asked to consider whether at that date he had a right to immediate possession. Mr Rye refused to return the recordings until a few days before the trial. The only relief which Mr Nelson now seeks is a declaration of his entitlement to the recordings and costs.

The position adopted on behalf of Mr Rye has changed since the defence was originally served in March 1992. At first it was alleged that the recordings were retained pursuant to a collateral oral agreement in favour of Happytronics, Cocteau 1 or Cocteau 2. An attempt to amend this at the last moment to raise an inconsistent plea was only allowed on terms as to costs which Mr Rye was not prepared to accept. At the trial Mr Oppenheim's position was that it was open to him to challenge Mr Nelson's claim to be entitled to possession. I let him develop that argument. Save in relation to the recording called 'Simplex', no questions of licence were advanced. As far as the latter is concerned, whether or not Mr Rye was entitled to retain possession is tied up with the issue of whether or not he had, or had the benefit of, a licence to make or authorise the making of Simplex records. That is at the heart of the copyright case. If at the date of Russells' demand in November 1991, Mr Rye was entitled to retain that master tape for the purpose of making records, the case in conversion will fail. I will therefore consider the claim in conversion against all the recordings except for Simplex.

On the evidence it appears that the tapes were made by or on behalf of Mr Nelson. In some cases the manufacture may have been paid for by one or other of his companies on his behalf. However, I also accept that in those cases he had a beneficial interest in them and that once a demand had been made for their return in Russells' letter he had an immediate right to possession. Once that demand had been made, Mr Rye should have returned the tapes. The cause of action has been made out for all the recordings save in relation to Simplex, which I will deal with separately.

 

COPYRIGHT

Once again, the issues relating to this claim are fairly straightforward. Mr Nelson alleges that he is the owner of the copyright in certain musical compositions contained in the Simplex album. It was not disputed that copyright subsists in those compositions as musical works under s 12 of the Copyright, Designs and Patents Act 1988. It was also not disputed that the ownership of that copyright vests in Mr Nelson. Compact discs (CDs) of the Simplex album have been made since the termination of the management agreement. Some have been made by a French company and supplied to Cocteau 2. It was also alleged that CDs were made by an American company called Enigma Entertainment Corp. In his reply speech Mr Anderson accepted that even if Enigma had made such CDs, that would have taken place out of the jurisdiction and can not amount to infringement. Furthermore it was not proved that Enigma had made any CDs at all. It is not in dispute that the CDs made for Cocteau 2 contain copies of the copyright works. Manufacture of those CDs without licence will constitute an infringement of Mr Nelson's copyright pursuant to the provisions of s 16 of the 1988 Act. Pursuant to ss 16 and 18 of the 1988 Act it is an infringement to put into circulation in the United Kingdom copies of the musical works which had not previously been put into circulation. The real issue on this part of the case is only one of licence.

It was in relation to the issues surrounding the manufacture of the Simplex CDs that I have difficulty in accepting all of Mr Rye's evidence. Initially he said that he arranged manufacture of copies of the album before he terminated the management agreement on 2 October 1990. He said that they already had been ordered before he sent out an offer for sale to members of Mr Nelson's fan club on 6 November 1990. The circular containing that offer stated that the album would be 'available on cassette only' and would cost £4700. Subsequently a business in which Mr Nelson had an interest, Magpie Mail Order, offered the CDs for sale to the fans at £8750. Mr Rye said that reference to 'cassettes' in the November offer was a clerical error and that only CDs had ever been contemplated. This version of events would have been consistent with his evidence that the CDs were ordered before October 1990. In my view, in relation to this, Mr Rye's evidence was not to be relied on. He knew very well the difference between a cassette and a CD. I do not accept that a clerical error was made. What he contemplated in November 1990 was the manufacture of cassettes. They were to be sold at the cheaper price of £4700 rather than £8750 which could have been demanded for the CD. In the end only CDs were made and they were only ordered after the circular dated 6 November 1990 and therefore after the end of the management agreement. During the trial, documents consistent with this were discovered by Mr Rye. He then accepted that manufacture did not occur until after the management agreement was terminated. On the balance of probabilities not only were the CDs made after that date, they were also ordered after that date.

However, that does not necessarily mean that Mr Rye is liable for infringement of copyright by manufacture. It was not asserted that he personally had manufactured the CDs, only that he had authorised the unlicensed manufacture. Therefore the question which has to be addressed is whether the manufacture of the CDs in late 1990 or early 1991 was unlicensed. A person can only be liable for authorising infringement if the primary actor could himself be guilty of infringement. As Hoffmann LJ put it in AKCO Music and Records Inc v. Music Collection International Ltd [1995] RPC 657 at 660: 'authorising is a tort only if the act authorised is an act restricted by the copyright.'

In relation to this issue Mr Nelson said in his witness statement that he delivered the master recordings of the Simplex album to Mr Rye 'in about late 1988 -- early 1989 to be released on the Cocteau label'. He went on to explain that there was not enough money to permit production at that time and that Enigma, to whom the album was offered, were not planning anything 'at the moment'. He went on to say: 'I therefore assumed that the recordings would be released as and when an opportunity arose.' Under cross-examination, Mr Nelson said that he 'needed Simplex to be released'.

When Russells wrote to Mr Rye on instructions to complain about the release of the album, the only objection was as to the price, namely £4700, at which it was thought it was to be released. Thus, in a letter of 21 December 1990 Russells wrote:

'As regards your comments on Simplex this is being released at a price of £4700. That is not a full price release. Please immediately confirm by return that this will now be corrected and that the album will be sold at a full price and provide us with details of the number of copies that you have sold at £4700.' (My emphasis)

Mr Nelson said under cross-examination that the correspondence from Russells put too much emphasis on price and that the main point he wanted conveyed was that the album should not be released at all. I reject that evidence. I think it is clear that Mr Nelson wanted the album released under his Cocteau label. That is what he told his solicitors and that is what they told Mr Rye. Furthermore, Mr Nelson confirmed under cross-examination that if Cocteau was to make money it had to be able to release records. He said: 'I wanted Simplex released by Cocteau. I wanted it out on my own label'.

Mr Rye knew that was Mr Nelson's wish. In my view what happened to Simplex was what Mr Nelson intended. It was released under the Cocteau label. The Cocteau companies were set up for the purpose of running Mr Nelson's record business. There was no suggestion that on termination of the management agreement it was expected that Cocteau would stop putting out Mr Nelson's records. On the contrary, Mr Nelson expected his Cocteau company to continue to trade. Cocteau 2 had a licence from Mr Nelson to manufacture and sell Simplex. It is clear that the order for the manufacture of the albums was placed by Cocteau 2. That manufacture could not have been an infringement. The fact that Mr Rye, in his position of director of the company, authorised it to proceed with licensed manufacture cannot be an infringement either.

I should add that Mr Nelson asserted that he did not know of the existence of Cocteau 2. The letter which Mr Rye sent terminating the management agreement contained the following:

'Income from your record sales controlled by Cocteau Records diminishes by the month whilst publishing income is now virtually non-existent ... I shall try and arrange for the company overdraft and liabilities to be paid from the stock I hold and then I shall arrange to have the company struck off or liquidated as advised with a final set of accounts then being prepared by the accountants.'

In para 20 of his witness statement, Mr Nelson says that he was not aware of the incorporation of either of the Cocteau companies. That evidence was clearly false. He was appointed a director of Cocteau 1 and had signed the necessary forms consenting to that which were filed at Companies House. In a letter dated 24 January 1990, Mr Nelson wrote to Mr Rye asking for 'details of the corporate structure of Cocteau Records'. In their letter to Mr Rye of 26 November 1990 Russells stated:

'... [Mr Nelson] understood that a company called Cocteau Records Limited was established in or around 1981/1982 to take care of his recording interests ...'

I have no doubt that Mr Nelson knew full well that a Cocteau company existed in 1990 and that it organised the manufacture and release of his records. Whether that company was Cocteau 1 or Cocteau 2 was a matter of indifference to Mr Nelson. It was suggested that even if he knew of the existence of Cocteau 1, he was not aware of Cocteau 2. It is true that the documents which Mr Nelson had to sign to make him a director of Cocteau 2 were sent to him but not returned. Mr Nelson says that he never received them and did not know about them. I think that is unlikely. I have come to the conclusion that it is more likely that he knew of the formation of Cocteau 2 and chose not to complete the forms sent to him. The reason for this course of inaction is not hard to find. On 4 March 1986 Mr Nelson received a letter from Companies House in relation to the late filing of accounts for Happytronics. It included the following:

'As a director of the company, you are personally responsible for the delivery of all accounts due since your appointment and for all outstanding annual returns, whenever due. If the outstanding documents are not received within 28 days, you may be prosecuted ... If found guilty you could be fined and possibly disqualified as a company director.'

That was reinforced by Mr Thomas' letter to him of 14 April 1986, which has been referred to above. It also told Mr Nelson that, as a director of a defaulting company, he might be prosecuted. The message clearly struck home because a year later in a letter to Mr Thomas, Mr Nelson wrote:

'... due to the pressing legal problems as a result of Companies House, I better not rock the boat too much at this stage as I'm implicated simply by being a director, despite having no control over the financial affairs of the company.'

Although he denied it when giving oral evidence, I think it is likely that Mr Nelson chose not to sign the documents which would have made him a director of Cocteau 2, so as to avoid being responsible for its affairs.

For the above reasons I hold that it is likely that Mr Nelson knew of the existence of both Cocteau companies and was happy for whichever happened to be in existence at the time to organise the release of his records.

This does not finally dispose of the question of copyright infringement. Under the Copyright Act 1956 it was not an infringement of copyright to sell reproductions of a copyright work unless they were unlicensed. An attempt to treat such activities as a 'publication' of the copyright work and therefore an infringement under s 2(5)(b) of the 1956 Act failed in Infabrics Ltd v. Jaytex Ltd [1982] AC 1. Under the combined effect of ss 16(1)(b), 16(2) and 18(2) of the 1988 Act, it is now an act of primary infringement to issue copies of a copyright work to the public without licence where those copies were not previously in circulation. This category of infringement is not limited to the issue of copies the manufacture of which was unlicensed. It follows that it is now possible to infringe copyright by issuing authorised copies of a copyright work (for example made by or on behalf of the copyright owner) to the public, if the act of issuing itself has not been licensed. Mr Rye could still be held to infringe if he authorised the release of Simplex and that release was not authorised.

In the many cases this new category of infringement will not make a significant difference to the position of the parties. Even in the absence of an express licence to sell, it is likely that in many situations a licence to manufacture for the purpose of sale will carry such a licence with it by necessary implication. In the current case there clearly was a licence to whichever Cocteau company existed to issue copies of the Simplex album to the public, including the members of the Nelson fan club. Some 299 CDs out of a total of 995 manufactured were sold to fans. Mr Rye's involvement in that could not constitute authorising an infringing activity. Copies of the album were not only sold to members of the fan club. Cocteau Records 2 owed L3,000 to another company, See For Miles Records Ltd, in respect of storage charges. The balance of 696 CDs were sent to the latter company in lieu of the those charges. I hold that trading the albums to meet the commercial needs of Cocteau Records was contemplated and agreed to by Mr Nelson.

However, in his reply speech Mr Anderson raised a new point. He had elicited in cross-examination that See For Miles Records Ltd was a company in which Mr Rye had a significant interest. That interest had not been disclosed to Mr Nelson. Mr Anderson argued that in view of Mr Rye's fiduciary duty to Cocteau 2, it was not open to him to arrange for the latter company to supply records to See For Miles Records, effectively for his own benefit, and that that transaction was accordingly unlicensed. Even if he were correct on this point, there is nothing to suggest that the price achieved for these CDs, equivalent to £4729 each, was not fair and it is likely that Mr Nelson has suffered no or very little as a result of the transaction. However, the argument is flawed. As indicated above, the sale or disposition by Cocteau 2 was licensed. Any sale or disposition by the company cannot be an infringement of Mr Nelson's rights. If complaint can be raised to the transaction with See For Miles Records it is not as an act of copyright infringement. It could only have been put forward as a breach of fiduciary duty as between Cocteau 2 and Mr Rye. It could not be a breach of fiduciary duty as between Mr Rye and Mr Nelson, because it has not been alleged that at the time of the transaction the former owed a fiduciary duty to the latter. In addition no such claim for breach of fiduciary duty was pleaded on behalf of Mr Nelson, nor was leave to amend sought. I therefore reject this argument also.