Warner Bros. Records Inc. v Rollgreen Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeTHE MASTER OF THE ROLLS,LORD JUSTICE ROSKILL,Sir JOHN PENNYCUICK
Judgment Date20 Dec 1974
Judgment citation (vLex)[1974] EWCA Civ J1220-3

[1974] EWCA Civ J1220-3

In The Supreme Court of Judicature

Court of Appeal

Appeal of third and fourth defendants from interlocutory order of Mr. Justice Willis on 3rd December, 1974.

Before:

The Master of the Rolls (Lord Denning)

Lord Justice Roskill and

Sir John Pennycuick.

Between:
Warner Bros. Records Inc.
Plaintiff and Respondents
and
Rollgreen Limited
First Defendant and Respondent
and
Roderick David Stewart
Second Defendant
Mercury Record Productions Inc
Third Defendant
and
Phonogram Inc.
Fourth Defendant Appellant

Mr. F. M. DRAKE, Q. C., Mr. MICHAEL KEMPSTER, Q. C., and Mr. HAROLD BURNETT (Instructed by Messrs. Davenport, Lyons & Co.) appeared on behalf of the Appellant Third and Fourth Defendants.

Mr. MICHAEL KEMPSTER, Q. C. and Mr. HAROLD BURNETT (instructed by Messrs. Davenport, Lyons & Co.) appeared on behalf of the Appellant Mercury Record Productions Inc.

Mr. ANTHONY LINCOLN, Q. C., Mr. R. Morrett and Mr. UNGOED-THOMAS appeared on behalf of Rollgreen Ltd. and Roderick David Stewart.

Mr. A. BATESON, Q. C., and Mr. N. STRAUSS appeared on behalf of Wareer Bros. Records Inc., Respondent Plaintiffs.

THE MASTER OF THE ROLLS
1

We need not trouble you, Mr. Lincoln and Mr. Bateson.

2

This is a preliminary issue. There is popular Pop star called Rod Stewart who conduts his activities by his own company, Rollgreen Ltd. By an agreement dated 9th October, 1968, Mercury Records Production Inc. (which I will call old Mercury) employed Mr. Stewart to make gramophone records, and he agreed to record exclusively for that company. He was to record a minimum of 12 record sides (which equal one long playing record) during each year of the agreement. The period of the contract was for one year from 9th October 1968, but the company was granted 4 several options of extending the agreement for 4 separate terms of 1 year each. Thus if these options were all exercised, the agreement would last until 9th October 1973.

3

There was also a clause by which, if Mr. Steward did not perform part in due time each year, the company could, at its election, extend the period for an equivalent period.

4

Finally there was a clause as to assignment:-

5

"Mercury may at its election assign this Agreement or any of its rights hereunder and shall have the right to give lend lease or sell to any person firm or company matrices stampers or master recordings from which records and films reproducing all or any of the Artist's services hereunder both audio and visual may be manufactured or sold and shall have the right to grant permission to any such person firm or company to use such film negatives matrices stampers or master recordings to manufacture and sell records therefrom." The important words are "Mercury may at its election assign this agreement or any of its rights thereunder"

6

Old Mercury duly exercised the four options so that the period of agreement was to last until 9th October 1973. Inaddition it appears that Mr. Stewart did not keep up to date with his recordings, with the result that Old Mercury was entitled, at its election, to an extension for an equivalent period.

7

Under that agreement old Mercury had the exclusive right to Mr. Stewart's recordings up to 9th October 1973.

8

On 18th March 1971 (Whilst the agreement with Mercury was still current) Mr. Stewart and his company Rollgreen Ltd., made agreements with a rival concern, Warner Brothers Ltd. But these agreements did not conflict with his agreement with old Mercury. These agreements with Warner were for a tem of three years, commencing on 9th October 1973, and ending on 8th October 1976. So they did not start until the old Mercury contract ended. Under the agreements with Warner Bros., Mr. Stewart and Rollgreen Ltd. agreed that Mr. Stewart's recordings and services would be given exclusively to Warner for those three years.

9

Now here comes the point of conflict. On 1st June 1972 old Mercury made a fresh agreement with Mr. Stewart which was in direct conflict with the agreement he had made with Warners. It gave old mercury the right to have Mr. Stewart's services for a period beyond 8th October 1973. It did this by giving old Mercury options to extend the original agreement of 9th October 1968 so that it could go on to 9th October 1975 and 9th October 1977. The material clause in that agreement is in a letter of 1st June 1974 by old Mercury to Mr. Stewart and agreed by him:-

10

"We recommend that the third option period in our contract with you be increased to two years, commencing October 9, 1971 and that we be granted two additional options to extend our agreement for two separate terms of two years each, each of said options to be exercised as provided for in paragraph 19 of said agreement."

11

So that the options were to be exercised in accordance with paragraph 19, which I read, that:

12

"Each of the said options may be exercised by Mercury by means of written notice sent to Artist (Mr. Stewart) by registered or recorded delivery mail at the address provided by the artist herein, said notice to be sent by Mercury at least 30 days before expiry date."

13

Now Warners did not know of that agreement of 1st June 1972. They learned of it later, as we shall see, and took strong objection to it, because it was in flat conflict with Mr Stewart's agreement with them.

14

A few months after that agreement old Mercury was re-constituted under the laws of the State of Delaware. As a result, old Mercuty was dissolved. It transferred all its assets, which would include any contractual rights, to a corporation called the New Mercury Corporation Inc., which afterwards changed its name to Phonogram Inc. That assignment took place on 27th October 1972. Th The old Mercury under Delaware law was dead except for the purpose of continuing legal proceedings and the like. At all events, the old mercury dropped out: the New Mercury, alias Phonogram, came in.

15

Now the important point arises. Neither old Mercury nor new Mercury gave any notice to Mr. Stewart of that assignment. This is admitted on the pleadings. Then, without any notice of the assignment, on 7th August 1973 a letter was written by new Mercury alias Phonogram purporting to exercise the option contained in the agreement of 1st June 1972. It is as follows:

"Mr. Rod Stewart

Cranbounre Court August 7, 1973

Windsor

Berkshire, England.

"Dear Rod:

Please be advised that the undersigned, Phonogram, Inc. (formerly Mercury Record Productions, Inc.) does hereby exercise the option contained in the written agreement between yourself and said corporation, dated as of October 9, 1968, for extension of said agreement from October 9, 1973 to October 9, 1975.

We, therefore, consider that said agreement will remain in affect in accordance with the terms thereof until October 9, 1975.

Sincerely

PHONOGRAM, INC.

I. H. Steinberg President."

16

The point of law for decision is whether that letter was a valid exercise of the option. The option was granted originally to the old Mercury, but it was assigned to the new Mercury alias Phonogram. It was exercised by the new Mercury alias Phonogram without any notice being given to Mr. Stewart of the assignment.

17

In due course Warners got to know of the agreement of 1st June 1972 (by which Mr. Stewart gave the further option to old Mercury to extend for two more years.) This conflicted with Warners' rights which started on 9th October 1973. As soon as Warners got to know of it they wrote a letter on 18th April 1974 in these terms to Mercury Record Corporation:-

18

"Gentlemen:

19

This is to advise you that on March 18, 1971 we entered into a contract with Rollgreen Limited which contract was confirmed by the usual form of inducement or attornment letter signed by Rod Stewart, pursuant to which Rollgreen Limited agreedthat we should have the sole and exclusive rights throughout the world to phonograph record master embodying the performance of Rod Stewart. This contract commenced on October 9, 1973, or after the expiration of the October 9, 1968 contract between Mercury Record Productions, Inc. and Mr Stewart. We have since been advised that sometime late in 1972, to take effect as of June 1, 1972, an amendment to the Mercury Record Productions, Inc., contract dated October 9, 1968 was signed by the parties thereto extending the term thereof for a further period. It is our position that, by reason of our aforesaid March 18, 1971 agreement with Rollgreen Limited Mr. Stewart did not have the Legal right to so extend the Mercury Record Productions, Inc., contract and this act was in violation of the exclusive rights previously granted to us. Therefore it is our position that from and after October 9, 1973 we are entitled to the sole and exclusive right to all master embodying the recordings of Rod Stewart and weintend to take all steps necessary at law and in equity to protect these exclusive rights."

20

Warners acted quickly. On 22nd April 1974 they issued a writ against Rollgreen and Mr. Stewart: and they afterwards added old Mercury and Phonogram. They said that they had contractual rights with Mr. Stewart for three years from 9th October 1973; that old Mercury had induced Mr. Stewart to break the contract with Warners: and that Phonogram threatened to procure further breaches by him.

21

It was important that the issues should be decided quickly. The pleadings were delivered with commendable speed. The action came for trial in November 1974 before Mr. Justice Willis. It was just before the trial that the defendants produced thedocuments relating to the assignment by the old Mercury to the new Mercury alias Phonogram. When these were examined, the point arose whether new Mercury alias Phonogram were entitled to exercise the option, as it purported to do, on 7th August 1973. The pleadings were amended to raise the point. A preliminary issue was framed in these terms:-

"Whether or not an equitable assignee of a...

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