Union Music Ltd Arias Ltd v Russell John Watson Blacknight Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ROBERT WALKER,LORD JUSTICE CARNWATH |
| Judgment Date | 29 April 2002 |
| Neutral Citation | [2002] EWCA Civ 680 |
| Docket Number | A3/2001/2751 |
| Court | Court of Appeal (Civil Division) |
| Date | 29 April 2002 |
[2002] EWCA Civ 680
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
(HIS HONOUR JUDGE HOWARTH, Sitting as a Deputy High Court Judge)
Royal Courts of Justice
Strand
London WC2
Lord Justice Robert Walker and
Lord Justice Carnwath
A3/2001/2751
MR C FREEDMAN QC (instructed by Shammah Nicholls, Manchester M3 3EL) appeared on behalf of the Appellants
MR E BARTLEY-JONES QC and MR D CASEMENT (instructed by Wacks Caller, Manchester M2 4JU) appeared on behalf of the Respondents
Monday, 29th April 2002
This is an interlocutory appeal in the course of hotly contested litigation between parties in the entertainment industry. In fact the issue on the appeal is doubly interlocutory since it is an appeal from a ruling that Mr Russell Watson (the first defendant in the action) should make an election before proceeding with his application to have the second claimant, a company called Arias Limited ("Arias"), struck out as a party in the proceedings. That ruling was made by His Honour Judge Howarth on 3rd December 2001 when he was sitting at Manchester as an additional judge of the Chancery Division.
I have to say that I have grave doubts whether this appeal, and the events leading up to it, reflect the spirit of the new Civil Procedure Rules or are likely to assist the overriding objective. They have already resulted in the loss of the trial date and they may prove to be a little more than interlocutory skirmishing for its own sake. However, the court gave permission to appeal and this court cannot say "a plague on both your houses", however much it might be inclined to do so.
The background to the matter can best be explained by identifying and introducing the parties. I start with the first defendant, Mr Russell Watson, who is the appellant in this court. According to a paragraph of the particulars of claim, which is admitted:
"In May 1998 Mr Watson was a little known talent (singing largely on a casual basis in working men's clubs) impecunious, and living in a council house in Salford."
He is now a well-known performer of popular opera. His album " Russell Watson—the Voice" was No.1 in the United Kingdom classical charts. The action is about which promoters and managers are entitled to share in his success.
The first claimant, Union Music Limited ("Union"), is a company incorporated (according to the witness statement of Mr Christopher Sorrel, a partner in Wacks Caller, Union's solicitors) as a joint venture between Mr Keith Chadwick (who claims to have "discovered" Mr Watson) and Mr Ian Boasman (who was to assist with finance). Mr Chadwick is no longer a director or shareholder of Union, his place having been taken by a company called Lonecroft Plc. Wacks Caller was joined as a respondent to Mr Watson's strike out application.
The second claimant, Arias, is at the centre of the controversy with which this appeal is concerned. It was incorporated on 17th July 1998 for the stated purpose of promoting, managing and exploiting Mr Watson's talents. It has 100 issued shares, 51 held by Union and 49 held by Mr Watson. Initially its directors were Union, Mr Watson and his wife Mrs Helen Watson. Unhappily Mr and Mrs Watson have separated and Mrs Watson resigned as a director on 7th September 2001, after the commencement of the action (which was on 22nd December 2000).
The other matter at the centre of the controversy is a shareholders' agreement entered into on 5th August 1998 between Union, Mr Watson and Arias. The terms of the written agreement, and some oral variations said to have been made to it at a board meeting of Arias on 31st March 1999, are pleaded in the particulars of claim. I need not go into them at this stage.
The second defendant is a company called Blacknight Limited ("Blacknight"). It is part of the Cliff Richard organisation. According to the particulars of claim there was on 21st June 1999 a written although unsigned agreement between Union, Arias and Blacknight. Union and Arias agreed to make available to Blacknight Mr Watson's exclusive audio and audio-visual recording services, and assigned copyright and other rights to Blacknight in all such recordings, on terms under which Arias was to receive 80 per cent of the net income from exploitation of the recordings and 90 per cent of all other income generated by Mr Watson. The defence does not admit that this agreement was entered into.
The particulars of claim allege that in November 1999 Mr Watson entered into his own agreement with Blacknight, Blacknight having in the meantime (on 5th August 1999) entered into an agreement with Decca Record Company Limited. They also allege that Mr Watson is in breach of his fiduciary or contractual obligations to Arias, and that Blacknight is in breach of its agreement to pay sums due to Arias, and is liable for inducing Mr Watson to act in breach of his fiduciary and contractual obligations. There is also a restitutionary claim for expenses and remuneration.
In his defence and counterclaim Mr Watson has contended that the shareholders' agreement dated 5th August 1998 is unenforceable as an unreasonable restraint of trade for reasons set out in paragraph 17 of the defence and counterclaim. Alternatively it is pleaded that it should be set aside as procured by undue influence, or as an unconscionable bargain. The restitutionary claim is denied, among other things, on the basis of an unspecified change of position. The defence also contends (and this is of central importance) that:
"The claimants' solicitors have no authority to act on behalf of [Arias] (even on the claimants' own case) and [Mr Watson] reserves the right to claim the wasted costs incurred as a result of the misconceived claim purportedly brought by [Arias]."
The reference to the claimants' own case appears to be a reference to paragraph 9 of the particulars of claim, which is in the following terms:
"The Board of Directors of Arias is presently controlled by Mr Watson and his wife. Nevertheless, the majority shareholder is Union. It is the wish of Union, as the majority shareholder in Arias, that Arias commence, and continue, these pleadings as against Mr Watson. Accordingly, by its participation in these proceedings Union authorises, and ratifies, the commencement and continuation of these proceedings by Arias against Mr Watson. Granted the terms of Article 40 of Table A Mr Watson has the ability to make any general meeting of Arias inquorate. So far as may be necessary, Union as the majority shareholder in Arias would seek directions from the Court under Section 371 of the Companies Act 1985 for the holding of a quorate meeting of Arias so that the commencement, and continuation, of these proceedings could be authorised by Arias in general meeting."
Section 371 of the Companies Act 1985 does confer that power on the court, and the court has a wide discretion to make such order as it thinks just. That discretion is not however unlimited: see Harman v BML Group Limited [1994] 1 WLR 893. The claimants' advisors have from the outset of the matter referred to the possibility of making an application under section 371 and two applications have been made but neither has yet been heard. The live application is, we were told, to be heard in June, and there is also a requisition for an extraordinary general meeting under section 368 of Companies Act 1985. On the hearing of Mr Watson's application to have Arias struck out Mr Edward Bartley-Jones QC (appearing then, as today, for Union and Wacks Caller, with Mr David Casement—not, it is to be noted, appearing for Arias itself), wished to argue that a section 371 application would in fact be unnecessary, in the light of clear evidence as to the position taken by Union as 51 per cent shareholder in Arias. That point of company law seems to be controversial, see for instance Breckland Group Holdings Ltd v London and Suffolk Properties Ltd [1989] BCLC 100. But the argument on the preliminary point about election filled the time available before the judge on 3rd December 2001, and the judge and counsel agreed that further argument would have to wait for another day, after the hearing of this appeal. It seems to me that if at all possible all the outstanding issues should now come before Judge Howarth with a view to getting the action ready for trial at last.
The point on election (which the judge described as "a very simple point, a simple sounding point at least") was, in his words at the outset of his judgment, whether Mr Watson:
"… should be put to his election as to whether or no he relies upon the terms of a shareholders' agreement, or whether or no he is asserting that the shareholders' agreement is now void, it having been voidable and having been avoided by him."
Later, the judge paraphrased Mr Bartley-Jones' argument as being that:
"… if Mr Watson is relying on that agreement it is said then he cannot have his cake and eat it, or if one wants to be a little less user-friendly in terms of ordinary speech, he cannot approbate and reprobate."
The judge, relying especially on the decision of Sir Nicolas Browne-Wilkinson V-C in Express Newspapers Plc v News (UK) Ltd [1990] 1 WLR 1320 held that that principle should be applied. His decision was expressed in paragraph 1 of the perfected order in these terms:
"The First Defendant is required to elect before commencing the strike out application whether he accepts or denies the substantive...
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