IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (HIS HONOUR JUDGE DAVID MATTHEWS- Sitting as a High Court Judge)
Royal Courts of Justice
Strand, London WC2A 2LL
Wednesday 15th December 1999
B e f o r e:
STEPHEN BATE (instructed by Messrs Harbottle & Lewis of London) appeared
on behalf of the appellant.
DONALD McCUE (instructed by Messrs Cunningham & John of Norfolk) appeared on behalf of the respondent.
The appellant is about 36 and a rock musician. He had a difficult childhood in Salford and was a registered drug addict when still in his teens. In 1982 he formed a band called the 'Happy Mondays' which survived for ten years. It seems that by that date the appellant had a bad reputation in the music industry partly because of his drug abuse and partly because of his behaviour. The respondents are husband and wife and of an older generation. They each had over twenty years experience in the music industry when they met the appellant shortly before the collapse of the 'Happy Mondays'. At that time they were effectively employed by a Mr Kurfurst who operated in the record business in the United States of America through a number of companies, one of which was Radioactive Records. After a number of exploratory meetings it was agreed that the respondents would take over the management of the appellant's career and endeavour to revive his fortunes. This new phase of the appellant's career commenced in March 1993. At the end of that year the appellant signed a publishing agreement with Radioactive Records. In the first month of 1994 he signed a recording agreement with Radioactive Records. Radioactive Records paid $74,000 by way of advance. Of that sum $10,000 was taken by the respondents as a secret commission. The arrangement was obviously irregular since at one and the same time the respondents were both salaried employees of Mr Kurfurst and also managers with the responsibility to negotiate the best terms available to the appellant in the market for publishing and recording agreements.
The respondents had as their solicitor Mr Parker and they instructed him to draw up a management agreement that would bind the appellant to them and define their entitlement to commission on his earnings. The appellant was dyslexic, abusing drugs and unable or unwilling to concentrate on paperwork. He instructed a solicitor on his behalf, Mr Law. Mr Parker's draft was sent by the respondents to Mr Law on 23rd May 1994. Amongst many other provisions was one for commission payable to the respondents on net rather than gross tour income. Perhaps not surprisingly Mr Law proposed no amendment to that term but he did propose a considerable number of significant amendments at the end of September 1994. Almost none were accepted by Mr Parker in early November. At that time the appellant was recording at a studio in Monmouthshire with his new band, named 'Black Grape'. On 10th November Mr Nicholl spent the night at the recording studio, as he was in the habit of doing two or three times a week. On this occasion he took with him the management agreement as first drafted by Mr Parker. He thought Mr Law's proposed amendments were ridiculous. His intention was to get the appellant's signature on the document. He was well aware of the fact that the appellant used cannabis more or less continuously whilst recording. He picked a time of day when he expected the appellant to be at his most equable. He did not mention Mr Law's amendments. The appellant said at once that he would sign it and that he did not require any explanation as to the contents. He said that he was freaked out by paperwork and that it did his nut in. His girlfriend witnessed his signature as well as Mr Nicholl's signature.
Thereafter for a time all seemingly went well. With the support of the respondents and Mr Law the appellant's star ascended. In the summer of 1995 'Black Grape' topped the charts with their first album. There were successful singles and in consequence both tours and merchandising began to contribute to the cash flow. However in early 1996 the respondents were irked by the clause restricting their commission to net tour income and on 24th February wrote to Mr Law proposing a variation of that clause. Mr Law rejected the approach relying on the express term of the agreement. Thereafter the relationship between the parties deteriorated rapidly. The respondents' employment by Mr Kurfurst had ended in 1995 and they were short of money. They felt that the appellant and/or his accountants were deliberately obstructing the cash flow to which they were entitled under the management agreement. The appellant felt that they were laying claim to expenses and commission to which they had no contractual entitlement. In May Mr Law advised him that he was not contractually bound to the respondents' since the contract as drafted by Mr Parker was clearly voidable on the grounds that it was in restraint of trade. In particular the respondents options to renew were clearly excessive and their entitlement to commission on work produced post termination was unreasonable. It seems clear that Mr Law regarded this as a high trump and he duly played the card on 27th June 1996 in the face of continuing acrimony and further deterioration in the relationship between the parties. The letter sent by fax stated:
I am instructed by Shaun that he wants to terminate his management arrangements with immediate effect.
I have advised Shaun that the management contract, particularly the length of the term and the post term commission, is an unreasonable restraint of trade and is unenforceable. Insofar as not performed Shaun elects not to perform the contract as it is voidable at his option.
Thirty nine minutes later Mr Parker faxed a long letter to Mr Law which was clearly composed prior to receipt of the purported termination and which pleads at length for urgent payment of funds to ensure the respondents' financial survival and to salvage the relationship between the parties for their mutual benefit. However there was no reconciliation and on 20th December 1996 the respondents issued their writ claiming a number of reliefs but principally damages for breach of the contract. This outline history has all been culled from the judgment in the court below.
Following service of the writ elaborate pleadings ensued running to over 100 pages of our core bundles. At a comparatively late stage there was added to the plea of restraint of trade the plea of undue influence. In addition to witnesses of fact each side relied upon expert evidence as to what was customary in the music business. In consequence there were a large number of issues for determination, both fact and law. The action was tried in Birmingham before His Honour Judge David Matthews sitting as a judge of the Queen's Bench Division. He delivered a comprehensive reserved judgment running to over 80 pages on 11th May 1998. On 31st July he gave a supplemental judgment on quantification of damages running to over 20 pages of transcript. There is a third and shorter transcript recording the argument and decision on costs given on the same day. Thus it is evident that the dispute between the parties has been the subject of full and reflected judicial decision. However by 24th August Mr Bate, who has represented Sean Ryder throughout, had settled a notice of appeal on his behalf. The end position which he challenges is the order entered on 1st June to reflect the reserved judgment under which the plaintiffs received £73,227.93 on the claim and the defendant £56,728.12 on the counter claim. The outcome of the supplemental assessment of damages was to give the plaintiffs an additional sum of £142,500.
Mr Bate's first and principal submission is one of law but I would prefer first to consider his further submissions all of which challenge the trial judge's findings of fact and particularly his finding that the appellant adopted and affirmed a contract that was in restraint of trade and obtained by undue influence.
I will first record the judge's relevant findings.
In relation to the signing of the agreement the judge's essential finding was as follows:
I find that the plaintiffs appreciated that the defendant was unlikely to sign the agreement in the form of the original draft if he gave informed thought to its terms and to the need for amendment which his solicitor advised. I find that the first plaintiff went to Monmouth hoping to have the agreement in its original form signed by the defendant in circumstances where the defendant might be persuaded to disregard Mr Law's proposed amendments.
The plaintiffs have not established that the benefits which thereby accrued to them in the management agreement were not obtained by undue influence.
In relation to restraint of trade the judge's essential finding is as follows:
None of the other criticisms taken individually would cause me to regard this as an agreement in restraint of trade, but the other matters of complaint, taken together with the objectionable provisions to which I have referred, leave me in no doubt that this agreement is couched in terms which are in unreasonable restraint of trade and terms which cannot be justified.
The judge then turned to consider the plaintiff's responsive reliance on affirmation and estoppel. Mr McCue, who has represented the plaintiffs throughout, had relied upon a dictum of Oliver J in Taylor Fashions v. Liverpool Victoria Trustees Company Limited  1 All ER 897 and a dictum of Dillon LJ in Zang Tumb Tuum Records Limited v. Johnson  EMLR 61. In reply Mr Bate had cited a dictum of Nicholl J in John v. James  FSR 458. Mr Bate had also submitted that the undue influence to be considered was not restricted to the events at the recording studio but continued in unbroken chain from November 1994 until June 1996 and that there could be no acquiescence until the appellant had been liberated from that influence.
In relation to those submissions the judge made the following clear findings:
1. Mr Law had acted not just as the appellant's solicitor but as his monitor and spokesman. Throughout the period from November 1994 to June 1996 Mr Law fulfilled a quasi managerial role.
2. Mr Law became aware of the circumstances in which the contract had been signed in August 1995. He 'kept his views about the enforceability of the management agreement to himself because he adjudged it to be in the defendant's best interests that the plaintiffs should continue to manage him'. He 'decided that it was in the best interests of the defendant to keep the plaintiffs on board'.
3. Throughout 1995 'Mr Law and the plaintiffs worked closely together and worked very hard in order to foster the defendant's career'.
4. 'When the dispute arose as to the basis upon which commission should be charged on touring Mr Law, I find, sought to rely upon and to deploy the management agreement on the defendant's behalf. Only when negotiations had failed or were close to failure did he maintain that that agreement upon which he sought to rely was in his judgment unenforceable'.
5. 'Whilst I have no doubt that the plaintiffs continued to exercise a measure of influence in relation to the defendant I make no finding that that influence was subsequently improperly exercised by the plaintiffs over the defendant or his affairs'.
The judge then stated his fundamental conclusion in the following terms:
Applying the observation of Oliver J in the particular and unusual circumstances of this case, I find that it would be unconscionable for the defendant in these circumstances to be permitted to deny the enforceability of the management agreement or to be permitted to avoid it.
He also concluded that Mr Law's 'knowledge of the lack of enforceability of the management agreement is properly to be imputed to his principal the defendant'.
Mr Bate on behalf of the appellant says that it was not open to the judge to reach those conclusions. He even says that they were so wide of the mark that the judge must have been plainly wrong. He criticises the weight that the judge gave to the appellant's impatience to get the paperwork over and done with. He says that the judge should have recognised the appellant's ignorance rather than saddled him with the greater knowledge of his solicitor. He stresses that the period of acquiescence was a matter of months and not years as in the relevant authorities. He emphasises the extraordinary dependence of the appellant on the respondents from which a finding of continuing influence was surely inevitable.
In my judgement none of these criticisms has the least weight. The judge saw and heard the witnesses through a complex trial of multiple issues. He delivered a manifestly thorough reserved judgment. His findings of fact and his balancing of competing considerations to arrive at discretionary conclusions are simply impregnable in this court.
I therefore turn to Mr Bate's principal contention, namely that the judge got the law of affirmation wrong. He starts with the famous passage from the speech of Lord McNaughton in Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Company  AC 535 at 565:
All interference with individual liberty of action in trade, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable - reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.
He relied heavily upon the case of Kok Hoong v. Leong Cheong Kweng Mines Limited  AC 993. From the speech of Lord Radcliffe he extracts the proposition that a party cannot set up an estoppel in the face of a statute. He then emphasises Lord Radcliffe's extension to the common law prohibition on enforcement of certain contracts overriding any plea of estoppel. He then relies on this passage at page 1016:
It has been said that the question whether an estoppel is to be allowed or not depends on whether the enactment or rule of law relied upon is imposed in the public interest or 'on grounds of general public policy' (see In Re A Bankruptcy Notice, per Atkin LJ). But a principle as widely stated as this might prove to be rather an elusive guide, since there is no statute, at least public general statute, for which this claim might not be made. In their lordships opinion a more direct test to apply in any case such as the present, where the laws of money lending or monetary security are involved, is to ask whether the law that confronts the estoppel can be seen to represent a social policy to which the court must give effect in the interests of the public generally or some section of the public, despite any rules of evidence as between themselves that the parties may have created by their conduct or otherwise.
So submits Mr Bate in the present case agreements in restraint of trade and agreements obtained by undue influence are offensive to public policy and cannot be rendered enforceable by any plea of estoppel or affirmation. He stresses that the dictum of Dillon LJ relied upon by Mr McCue was obiter. He submits that the approach which he urges does not create injustice since proper recompense for work done or services rendered under the voidable contract may be fairly remunerated by a quantum meruit award.
It is not difficult to postulate hypothetical examples in which the application of Mr Bate's proposition would lead to absurd results. I am in no doubt that the judge correctly relied upon the dicta cited by Mr McCue in Taylor Fashions Limited v. Liverpool Victoria Trustees Company Limited, Oliver J said at 915:
Furthermore, the more recent cases indicate, in my judgment, that the application of the Ramsden v. Dyson principle (whether you call it proprietary estoppel, estoppel by acquiescence or estoppel by encouragement is really immaterial) requires a very much broader approach which is directed to ascertaining whether, in particular individual circumstances, it would be unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he has allowed or encouraged another to assume to his detriment rather than to inquiring whether the circumstances can be fitted within the confines of some preconceived formula serving as a universal yardstick for every form of unconscionable behaviour.
More recently in Zang Tumb Tuum Records Limited v. Johnson, Dillon LJ considered a plea of waiver in circumstances at least comparable to the present. He said at page 76:
In this court Mr Carr seeks to put the point more widely. He submits that it is enough for the plaintiffs if, after the point had been raised by the group's solicitors and the defendant was therefore aware of it, the group had 'affirmed' the agreements, that is treated them as still in operation. As to that, the judge said at one point in his judgment that 'after the original complaint there was nothing amounting to an affirmation of the contract'. I think he must have meant in the context of the point was being put to him by counsel, viz that it would be unjust or inconceivable to allow the defendant to take the point.
In my judgment if there is to be a defence on these general lines, whether it be termed waiver, or laches or estoppel or whatever, to acclaim that a contract is unenforceable because it is in unreasonable restraint of trade, it must be a defence on equitable grounds in the light of all the circumstances of the case - not a defence by mere rule of thumb that the point was not finally and irrevocably insisted on at the earliest possible moment.
Whilst this opinion may be labelled obiter it has been adopted and applied subsequently in a music industry dispute: see the judgment of Jonathan Parker J in Panayiotou and Othrs v. Sony Music Entertainment (UK) Limited  EMLR 229 between pages 383 and 385. Jonathan Parker J considered the defences of affirmation and acquiescence in the context of restraint of trade. He recorded the submission of Mr Pollock that the defences should be available in cases fought on the first limb of the Nordenfelt test with reference to the interests of the parties. He then recorded the rival submission of Mr Crann, which is effectively the submission advanced by Mr Bate in this appeal, to the effect that the public policy element present in both limbs of the Nordenfelt test must override defences arising from particular dealings between the parties. Having cited the judgment of Dillon LJ in this court Jonathan Parker J (for convenience labelling the case as Holly Johnson) said:
Thus as I read the judgment of Dillon LJ in Holly Johnson, where equitable defences of the nature of waiver, laches or estoppel are relied upon as defences to a restraint of trade claim, the court will examine all the circumstances of the case in order to determine whether it would be unjust or unconscionable to allow the claim to be made: the mere fact that the claim is not made at 'the earliest possible moment' will not suffice to establish injustice or unconscionableness for this purpose. In the event, on the facts in Holly Johnson the defence of 'waiver' failed because in all the circumstances of that case there was nothing unjust or unconscionable in allowing the artist to allege restraint of trade.
I have not overlooked the fact that Dillon LJ prefaced his observations about the defence of 'waiver' by saying 'if there is to be a defence on these general lines ....'. In context, however, it seems to me that what Dillon LJ was saying was that if a defence along these general lines is raised, in considering it the court will have regard to all the circumstances of the case; I do not understand him to be suggesting that such a defence may not be available under any circumstances, as a matter of law. Had he taken that view, it would not have been necessary for him to go on to consider the particular facts of the case or to reach the conclusion that there was no representation by the artist to the effect that he had decided not to proceed with the claim of restraint of trade.
Moreover, it seems clear that the term 'waiver' as used to describe the defence which the record company was putting forward in Holly Johnson connoted waiver in a general equitable sense (thus Dillon LJ: '.... whether it be termed waiver, or laches or estoppel or whatever ....'), as opposed to waiver in the form of affirmation in the common law sense (see para 1702 of Chitty (above). The distinction is drawn by Dillon LJ in the passage from his judgment quoted above, where he says, with reference to the judges reference to 'affirmation': I think he must have meant that in the context of the way the point was being put to him by counsel, viz that it would be unjust or [unconscionable] to allow the defendant to take the point'.
As I read Dillon LJ's judgment in Holly Johnson, therefore, (a) it does not directly address the question whether a defence of affirmation in the common law sense is available as a defence to a restraint of trade claim (although it gives no indication that it may not be available), but (b) it is authority for the proposition that a general equitable defence such as Sony Music's defence of acquiescence in the instant case is available as a defence to a claim of restraint of trade.
So far as the defence of acquiescence is concerned, therefore, on the authority of Holly Johnson I conclude that such a defence is available as a defence to a restraint of trade claim.
I am in complete agreement with that passage. In my judgment it is of application in the present case and fully support the judge's conclusions.
For all those reasons I am of the opinion that Mr Bate's submissions fail and that the judge was right to apply the contract to determine what sums were due to the plaintiffs on the claim and what sums were due to the respondent on the counter claim. Mr Bate accepted that if he failed on that point then he could not challenge any of the judge's consequential quantification of either claim or counter claim. Indeed during the process of quantification the judge accepted many of Mr Bate's submissions. Mr Bate did advance a number of attractive submissions in relation to what might or might not be due to the plaintiffs were they to be alternatively remunerated on a quantum meruit basis. For instance I have considerable sympathy with the submission that it is hard on the appellant to be obliged to pay the respondents 20% commission on 'Happy Mondays' earnings when he has already paid 17.5% to his former manager. I am equally sympathetic to Mr Bate's criticism of the plaintiffs' recovery of commission on the appellant's notional continuing earnings to 9th November 2001. No doubt a more equitable result might have been achieved were the yardstick applied the rule of quantum meruit rather than the terms of the written agreement. However that yardstick is not open to the court as a matter of law and it is not open in consequence principally of the judge's finding that Mr Law used the contract as he did over the admittedly relatively brief period between November 1994 and June 1996.
For all these reasons I would dismiss this appeal.
I also agree.
Order: Appeal dismissed. Permission to appeal to the House of Lords refused. Stay granted until 15 January 2000. Appellant to pay Respondent's costs of the appeal. Order does not form part of approved judgment.