Copyright; Interpretation; Laches; Musical works; Royalties; Settlement

As the old adage has it, ‘‘where there’s a hit, there’s a writ’’.  This has been borne out in a succession of claims brought during the past few years by former band members, such as Aston Barrett of the Wailers, Matthew Fisher of Procol Harum and—as more recently reported ¹—Alan Lancaster of Status Quo. 

The last of these received less coverage in the wider media, but repays a closer look.  It turned, as the others did, on the particular facts of the case, but the different stages of the litigation have raised some noteworthy points of more general application.

For royalty participants, the case underlines the potential for bringing a royalty claim long after the expiry of the contractual limitation period.  For rights owners and continuing band members, the case illustrates the importance of a well drafted settlement agreement.

Background

On leaving Status Quo in 1985, Mr Lancaster, the ex-bassist, would not—if a quote from a Status Quo hit can be excused—‘‘Roll Over, Lay Down’’.  Nor would John Coghlan, the group’s ex-drummer, who had also left, in 1981.

It is surprising, on the face of it, that either musician brought a claim at all, since each signed documents two years after leaving the group that arguably released all claims to continuing participation in back-catalogue royalties. ²  In the case of Mr Lancaster, he entered into a number of documents, including a Deed of Release and Indemnity (referred to below as the Deed), partly to settle a dispute that arose among other things as to the use of the group’s name, over which Mr Lancaster had issued proceedings in February 1986.

In November 2002, Mr Lancaster and Mr Coghlan brought proceedings against the continuing members of the group, Francis Rossi and Rick Parfitt, as well as the then group manager, Handle Artists Management Ltd, ³ seeking declarations as to their continuing entitlements to royalties under various recording agreements concluded in the period from July 1966 to December 1982.

In 2005, the defendants (with the current licensee of the back catalogue, Sanctuary Records Group Ltd, joined as a defendant) applied to the High Court before the Chancellor, the Rt Hon. Sir Andrew Morritt, for the claims to be struck out or summarily dismissed. ⁴  The defendants argued that the claimants had released their rights to future royalties, and that they were, in any event, statute-barred from bringing the claim. The Chancellor struck out the claim in part, but found that the claimants had a real prospect of success on the royalty claims under two agreements (in the case of Mr Lancaster) and under one agreement (in the case of Mr Coghlan).

First-instance decision

The case was heard at first instance ⁵ before H.H. Judge Hazel Marshall, who upheld the surviving royalty claims under the agreements concluded with Pye Records. ⁶  The statutory six-year contractual limitation period ⁷ was held not to apply.

The judge found that the claimants’ royalty shares were held by the continuing group members impressed with a trust from the outset, with the claimants as beneficiaries.  The trust arose out of the joint ownership and quasi-partnership of the group members.  It was a so-called ‘‘class 1’’ constructive trust, i.e. a trust that arises ‘‘by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property . . . to assert his own beneficial interest in the property and deny the beneficial interest of another’’ and where the trustee ‘‘does not receive the property in his own right but by a transaction which both parties intend to create a trust from the outset, and which is not impugned by the plaintiff’’. ⁸

The judge found that the continuing group members still held the relevant monies as trust property, or had spent them, so converting them to their use.  No limitation applies to an action by a beneficiary under a trust to recover trust property or the proceeds of trust property in the trustee’s possession or previously received by the trustee and converted to his use ⁹; so royalties going back to the 1980s were held to be recoverable.  The judge rejected the defence that the relevant royalties were partnership or corporate monies and held that the claimants were individually entitled to the royalties.

The judge also partly rejected a defence under the equitable doctrine of laches (i.e. the requirement that equitable remedies should be sought without unreasonable delay). ¹⁰  The judge held, however, that in respect of certain past royalties the claim was barred by reason of delay in taking action. ¹¹

Finally, the judge also rejected the defence that each claimant had relinquished his right to the royalties on leaving the band as part of the departure terms, holding that that, while the wording of the Deed (which is examined in some detail below) might arguably have been literally wide enough to cover all forms of claims against the other parties, it did not have that meaning in the context. The defendants appealed against that part of the judgment in relation to Mr Lancaster.

Appeal

The issue on appeal was whether Mr Lancaster in fact gave up his entitlement to any claim to the Pye royalties in January 1987 when he entered into the settlement documentation, including the Deed. ¹²  According to the appellants, the effect of the Deed was a ‘‘clean break’’ putting an end, once and for all, to any financial claims of Mr Lancaster, including the Pye royalties.

The Court of Appeal allowed the appeal, overturning the relevant part of the first-instance judgment. In the leading judgment Jacob L.J. held that the language of the Deed was, on its natural construction, sufficiently wide to bring all money claims to an end, including matters that may have been forgotten, and that there was nothing in the factual matrix that meant that the words should be given a narrower construction.

The factual matrix

It was common ground that, on established principles for the construction of a contract, the court had to put itself in the position of a reasonable reader, equipped with the relevant knowledge of the context in which the agreement was made (the ‘‘matrix of fact’’), trying to ascertain the meaning of the document intended by its authors. ¹³  Jacob L.J. noted the defendants’ alternative argument based on post-contract conduct, but considered this irrelevant:

‘‘as indeed it must be if in logic one construes the language against the background of the past matrix, not any future matrix’’. ¹⁴

Jacob L.J. conceded that the past factual matrix was ‘‘rather hazy’’, and highlighted two key ‘‘elements’’:

• There was ‘‘not much clear distinction going on between the various individuals and corporate entities, or as to the various income streams’’ being paid to the group’s management company, Quarry. ¹⁵  Over the years the band had had four groups of recording contracts. The first group comprised recording contracts made between the individual members of the group with Pye Records.  The members of the group authorised Pye to pay the royalties to their then manager.  The three subsequent groups of recording agreements were entered into with various Phonogram companies by various entities incorporated by the group members.  Eventually, after earlier litigation brought by another ex-group member, all group-related monies, including the Pye royalties and advances from Phonogram, were being paid to Quarry.
  
  
• The parties to the agreements ‘‘knew that there had been a fractious past’’. ¹⁶ By the time of the 1986 litigation, Mr Coghlan was effectively being ‘‘frozen out’’ and was not party to the litigation.  The 1986 litigation was the third set of proceedings involving Status Quo.  The continuing members of the group and Phonogram wanted to ensure that they could use the name ‘‘Status Quo’’ freely. Mr Lancaster was bringing financial claims.  All the money was ‘‘going into the same Quarry pot’’, including the Pye royalties (via nominated solicitors).

Wording of the Deed

Such was the factual matrix against which the reader would ascertain the meaning of the relevant clauses of the Deed, the language of which was, in Jacob L.J.’s view, ‘‘wide’’.  ¹⁷

Under clause 1 of the Deed, Mr Lancaster released and discharged Mr Rossi,Mr Parfitt and certain group-related corporate entities from:

‘‘any and all sums of money (including but not limited to all repayments of tax suffered or paid for by any of the foregoing), actions, proceedings, accounts, claims and demands whensoever arising whether prior to the date hereof or at any time for a period of 80 years hereafter relating to Mr Lancaster’s participation as a member of and/or partner in the group of musicians known as ‘‘Status Quo’’ and/or as a shareholder and/or director of Classicmoor, Quo Entertainments and Shawbury Music.” ¹⁸

Jacob L.J. found that the phrase ‘‘any and all sums of money’’ was:

‘‘apt language for dealing not only with things you have thought of but things you think might turn up in the future or things which you have not specifically thought of’’.

The words ‘‘whensoever arising whether prior to the date hereof or at any time for a period of 80 years hereafter’’ also showed ‘‘an intention to cast a very wide net’’, and the word ‘‘participation’’ was also wide. ¹⁹

The other terms of the Deed were drafted in a similar vein. Clause 2 contained a reciprocal release and discharge of Mr Lancaster from all claims against him in equivalent terms, backed by an indemnity in Mr Lancaster’s favour under clause 4 of ‘‘equal wide import’’ that ‘‘would cover a claim by Pye or its successors”. ²⁰  Under clause 3, Mr Lancaster renounced all rights in the name ‘‘Status Quo’’ and undertook not to use the name in the future.

In Jacob L.J.’s view, the reasonable reader, knowing each of the matrix factors, would not be given a reason to read the words narrowly, excluding claims which were not partnership assets or not said to be partnership assets or claims which were only as between Mr Lancaster and the other two remaining members of the group: if the parties had intended to keep the Pye royalties out of the settlement then they would have said so. ²¹ Jacob L.J. considered it more likely, however, that the Pye royalties had simply been forgotten, and the language the parties devised was nonetheless intended to bring all money claims to an end, including the things that had been forgotten as well as the things had been borne in mind. ²²

There was no implicit assumption, as H.H. Judge Hazel Marshall considered, based on the lack of anything in the documents specifically dealing with Mr Lancaster’s right to receive royalties that he was entitled to receive them from Pye. ²³ Moreover, while H.H. Judge Hazel Marshall considered that the words relating to Mr Lancaster’s ‘‘participation’’ as a member of Status Quo connoted ‘‘activity’’, Jacob L.J. pointed out that this past participation would also mean past activity. ²⁴  It also appeared to Jacob L.J. that H.H. Judge Hazel Marshall had overlooked the fact that the money had been going for some years into the single Quarry pot along with other monies to do with Status Quo. ²⁵

There may, although not explicitly contained in Jacob L.J.’s leading judgment, be a further commercial justification underpinning the Court of Appeal’s decision on the true construction of the Deed. As Thomas L.J. observed in his brief supporting judgment: ‘‘The wording was clear.  The agreement makes commercial sense on that wording.” ²⁶

Comment

It remains to be seen whether the case will continue, as leave to appeal was granted.  Either way, the case raises two points of wider interest, especially since artists commonly enjoy a resurgence in popularity years after the original hits.  A case in point is the band Aerosmith, whose single ‘‘Same Old Song And Dance’’ was featured in the video game Guitar Hero III: sales of the song increased by 136 per cent in the week after the game was released in late 2007, and by 400 per cent a week after Christmas 2007. ²⁷

First, it is notable that the case could be brought at all, even disregarding the existence of the Deed and the other settlement documentation. It serves a reminder—welcome to potential claimants and alarming to potential defendants—that back-catalogue royalty claims may not be time-barred, despite the passage of years, if the royalties can be successfully shown to be trust property.  Further, while defences of laches, acquiescence and estoppel may potentially arise, the application of these defences is a question of fact in each case; and the first-instance decision shows that even a delay of two decades may be acceptable (depending, of course, on the facts).

Secondly, three points of best practice emerge for drafting a ‘‘clean break’’ release of claims in order to eliminate precisely the sorts of debate over construction that ran through this case:

• The wording of the release should specifically list any known claims (or types of claims) that may not obviously be within the contemplation of the parties. In particular, although the release is likely to focus on the release from current recording commitments, the entitlement to back-catalogue royalties should not be ignored. For instance, in this case, it would have greatly assisted the defendants if the Deed had referred specifically to the various groups of back-catalogue recordings. It almost goes without saying that, to exclude the operation of the eiusdem generis rule, it should also be made clear that such a list is non-exhaustive and illustrative only, using a phrase such as ‘‘including, without limitation’’.
  
  
• The release should also characterise the causes of action released as widely as possible, specifically including a release of claims arising ‘‘in equity’’ (again, in a nonexhaustive way), so covering (and therefore precluding) any potential claim under trust law.
  
  
• Lastly, the release should specifically deal with the winding-up and dissolution of any partnership that may have been formed among the group members, with suitable reference or amendment to any express partnership agreement. Partners who receive monies belonging to other partners owe the other partners fiduciary duties to ensure that those monies are paid over to them; so it should be made clear that any lump sum paid under the terms of the release is inclusive and in full and final settlement of any such claim. This would have eliminated one strand of confusion in the ‘‘matrix of fact’’.
  

Anything that reduces the chance of heavy litigation should ultimately favour all parties, and should help in giving the lie to that other adage so favoured by musicians, ‘‘the only winners are the lawyers’’.

Ed Baden-Powell