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Schroeder-Music-Publishing Co Ltd v-Macaul
LAW (LLB)
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All England Law Reports/1974/Volume 3 /A Schroeder Music Publishing Co Ltd v Macaulay - [1974] 3 All ER 616
[ 1974] 3 All ER 616
A Schroeder Music Publishing Co Ltd v Macaulay
HOUSE OF LORDS
LORD REID, VISCOUNT DILHORNE, LORD DIPLOCK, LORD SIMON OF
GLAISDALE AND LORD KILBARANDON
15, 16 JULY, 16 OCTOBER 1974
Trade - Restraint of trade - Agreement - Standard form agreement - Restrictions during continuance of agreement - Exclusive services agreement - Agreement between song-writer and music publishers - Writer undertaking to provide exclusive services to publishers - Writer assigning to publishers copyright in existing works and works to be composed during period of years - Publishers under no obligation to publish writer's works - Writer entitled to £50 advance on royalties and further advances of £50 on recoupment of previous advance from royalties received - Publishers alone entitled to terminate agreement by notice - Whether doctrine of restraint of trade applicable to agreement - Whether agreement in unreasonable restraint of trade.
The plaintiff, a young and unknown song-writer, entered into agreement with the defendants, a music publishing company, whereby the defendants engaged his exclusive services for a period of five years. The agreement was in the standard form used by the defendants. Under it the plaintiff assigned to the defendants the full copyright for the whole world in each original musical composition and lyric created or conceived by him alone or in collaboration with any other person at any time during the period of the agreement or at any time prior to it insofar as the works were still owned and controlled by the plaintiff. The defendants agreed to pay £50 to the plaintiff as a general advance against royalties payable by them under the agreement and to recoup therefrom the £50. When it was recouped, the defendants were to advance the plaintiff a further £50 which would be recouped in the same way. The procedure was to continue throughout the five year period. If during that [1974] 3 All ER 616 at 617
period the total or the plaintiff's royalties and advances equalled or exceeded £5,000 the agreement was to be automatically extended for a further period of five years. The defendants could at any time terminate the agreement by giving the plaintiff one month's written notice. There was no corresponding provision in favour of the plaintiff. The defendants had the right to assign the agreement, or any particular work of the plaintiff, with all rights and obligations mentioned in the
agreement to any other person but the plaintiff could not assign his rights under it without the defendants' prior consent. The defendants were under no obligation to publish any of the plaintiff's compositions. The plaintiff sought a declaration that the agreement was contrary to public policy, as being in unreasonable restraint of trade, and void. The defendants contended, inter alia, that the doctrine of restraint of trade was inapplicable to their standard form agreement as contracts which had passed into accepted and normal currency of commercial relations did not require justification under a public policy test of reasonableness.
Held - (i) A distinction had to be made between standard form contracts made freely between parties bargaining on equal terms and a standard form contracts, such as that made between the defendants and the plaintiff, which had not been the subject of negotiation between the parties to it, or approved by any organisation representing the interests of the weaker party, but had been dictated by the party who enjoyed superior bargaining power. Contracts of the former kind raised a strong presumption that their terms were fair and reasonable. When the contract was of the latter kind, however, no such presumption applied and the court had to consider all its provisions to see whether the bargain made was fair, ie whether the restrictions were both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured to the promisor under the contract (see p 622, f , p 623 b and h , and p 624 a to h , post); dicta of Lord Pearce and Lord Wilberforce in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] 1 All ER at 723, 719, 730 explained.
(ii) The restrictions in the agreement between the defendants and the plaintiff were not fair and reasonable in that they combined a lack of obligation on the part of the defendants, who were not required to publish any of the plaintiff's compositions, with a total commitment on the part of the plaintiff with the result that for a period of years his work would be sterilised and he could earn nothing from his abilities as a composer if the defendants chose not to publish. It followed that the contract was in unreasonable restraint of trade and that the plaintiff was entitled to the declaration sought (see p 622 a b and h to p 623 b and j and p 624 g and h , post).
Decision of the Court of Appeal sub nom Instone v A Schroeder Music Publishing Co Ltd [1974] 1 All ER 171 affirmed.
Notes
For agreements in restraint of trade, see 38 Halsbury's Laws (3rd Edn) 20-21, paras 13, 15, and for cases on the subject, see 45 Digest (Repl) 443-449, 271-.
Case referred to in opinions
Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] 1 All ER 699, [1968] AC 269, [1967] 2 WLR 871, HL, Digest (Cont Vol C) 985, 132a.
Appeal
either they cannot be justified at all or that they must be justified by the party seeking to enforce the agreement? Then, if there is room for justification, has that party proved justification--normally by shewing that the restrictions were no more than what was reasonably required to protect his legitimate interests. In this case evidence on the second question was scanty and I turn first to the terms of the agreement. The agreement contains 17 clauses. It must of course be read as a whole and we must consider the cumulative effect of the restrictions contained therein. I think it best to set it out in full omitting only those parts which deal with performing rights, because neither party founded on them in argument, and some formal matters. The relevant parts are as follows:
'1. Subject as hereinafter mentioned this Agreement shall remain in force for a period of FIVE (5) years from the date hereof (hereinafter called 'the said term').
'2. (a) The Publisher engages the exclusive services of the Composer and the Composer will render the same to the Publisher during the said term. (b) The Composer shall obey and comply with all lawful orders and directions in relation to his services hereunder given to him by the Publisher and shall use his best endeavours to promote the interests of the Publisher. (c) The Composer will
[1974] 3 All ER 616 at 619 not during the said term directly or indirectly work for render services or be affiliated to or be interested in or connected with any person firm or corporation engaged in the music publishing business other than the Publisher nor will he during the said term carry on or be concerned in whether alone or in partnership any music publishing business. (d) The Composer will not divulge to any person except as may be required by the Publisher any confidential information relating to the business of the Publisher.
'3. (a) The Composer HEREBY ASSIGNS to the Publisher the full copyright for the whole world in each and every original musical composition and/or lyric including but without prejudice to the generality of the foregoing the title words and music thereof written/or composed created or conceived by the Composer alone or in collaboration with any other person or persons and whether in his own name or under a nom-de-plume at any time during the said term or at any time prior to the date hereof insofar as such latter compositions and/or lyrics are still owned or controlled by the Composer directly or indirectly ... (b) In this Agreement references to musical works and/or lyrics shall include the part or parts hereof (if separate and divisible) written composed created or conceived by the Composer ...
'4. Where a musical composition and/or lyric to which this Agreement applies is a "work of joint authorship" as defined by Section 11 of the Copyright Act 1956, the Composer will procure that his co-author or co-authors as the case may be will join with him in doing such acts and things and executing such deeds and documents as may be necessary to vest the copyright in the said work in the Publisher.
'5. In respect of each work hereinbefore referred to the copyright in which has been assigned by the Composer and his collaborators (if any), the Publisher will pay to the Composer and his collaborators (if any): (a) on all piano copies sold and paid for (after the first 500 copies) in the United Kingdom of Great Britain and Northern Ireland and Eire a royalty of 10% of the marked selling price; (b) 50% of all net royalties received by the Publishers in respect of mechanical reproduction of the said works and of all net synchronisation fees; (c) in the event of the said works being published in any country outside the United Kingdom and Eire, 50% of the net royalties received by the Publisher from persons authorised to publish the said works in such foreign territories.
'6. (a) Fees in respect of performing rights shall be divided as to 50% to the Composer and his collaborators (if any) (hereinafter referred to as "the Composer's Share") and 50% to the Publisher ... (c) If the Composer shall be or become a member of P.R. and while he remains such member all performing fees shall be divided between the parties hereto in accordance with P.R. rules for the time being in force subject to the agreement of the parties hereinbefore contained varying the divisions as permitted by such rules so that 50% of such fees are for the Composer and his collaborators (if any) and 50% for the Publisher ...
'8. (a) The Publisher shall pay the sum of £50 to the Composer, which shall be a general advance against royalties payable by the Publisher under this Agreement and to be recouped therefrom but in no case shall the Publisher be entitled to the return of any part of such sums. Upon the recoupment by the Publisher of said general advance payment of Fifty (£50) Pounds, the Publisher agrees to pay another Fifty (£50) Pounds, which is to be treated as a general advance as described herein. This same procedure shall continue throughout the said term hereof; i. as each general advance of Fifty (£50) Pounds is recouped in full by the Publisher, the Publisher shall pay to the Composer the sum of Fifty (£50) Pounds, etcetera. (b) The Publisher will render to the Composer semi annually statements showing the amount of royalties due to the Composer as at 31 December and 30 June in each year. Such
statements shall be delivered
[1974] 3 All ER 616 at 620 within 60 days of the relevant date and shall be accompanied by a remittance for such sum (if any) as may be shown to be due to the Composer.
'9. (a) If during the said term the total of the Composer's royalties hereunder and all advances thereon (if any) shall equal or exceed £5000 then this agreement shall automatically be extended for a further period of FIVE (5) years and for the purpose of this Agreement the said period of FIVE (5) years shall be deemed to be included in and be part of the said term. (b) The Publisher may at any time during the said term terminate this Agreement by giving to the Composer one month's written notice to that effect. Such termination shall be without prejudice to the rights of the parties in respect of any antecedent breach of this Agreement and the Publisher's obligations to pay royalties hereinbefore provided for.
'10. (a) The Composer will forthwith submit to the Publiser every composition and/or lyric written and/or composed created or conceived by him alone or in collaboration. The Composer warrants to the Publisher that the copyright in all such works will pass to the Publisher free from any adverse claims or rights from any third party and that all such works submitted to the Publisher will be the original work of the Composer and his collaborators (if any). (b) The Composer will indemnify the Publisher against all claims damages and demands and against all costs incurred in the institution or defence of any actions or proceedings relating to the said works submitted to the Publisher ...
'12. (a) The Composer will execute a standard song writer's Agreement in respect of each and every work the subject of this Agreement. Such song writer's Agreement shall be in the form annexed hereto and initialled by the parties (hereinafter referred to as "the song writer's Agreement"). (b) For the avoidance of doubt it is agreed that any assignment required under Clauses 4 or 12 hereof shall be in the form of the song writer's Agreement.
'13. In the event of any breach of the terms or conditions of this Agreement by the Composer the Publisher shall be entitled to suspend and withhold payment of royalties (including the general advances provided for in para 8 hereinabove) until such breach has been remedied. If the Composer shall fail to remedy any such breach within One month of written notice by the Publisher requiring him so to do all royalties then or thereafter due under this Agreement shall cease to be or shall not become (as the case may be) payable ...
'15. For the avoidance of any possible doubt and without in any way limiting the assignment hereinbefore contained it is hereby declared that the copyright hereby assigned includes: (a) the right to renew and extend the copyright and the ownership of such renewed and extended copyright. (b) the right to make and publish new adaptations and arrangements and to make such additions adaptations and alterations in and to the words and/or music as the Publisher may desire and to provide and translate the lyric thereof in any and all languages of the world.
'16. (a) The Publisher shall have the right to assign this Agreement and all rights and obligations hereunder to any person firm or corporation and shall also have the right to assign any or all rights in a particular work. (b) The Composer will not assign his rights under this Agreement without the Publisher's prior written consent.
'17. The Composer will at the Publisher's request at any time during the said term or thereafter execute any other document and do all other acts or things which may hereafter be required for vesting in the Publisher the rights and benefits hereby expressed to be assigned and conferred.'
Clauses 1 and 9(a) determine the duration of the agreement. It was to last for five years in any event and for ten years if the royalties for the first five years exceeded £5,000. There is little evidence about this extension. Five thousand pounds in [1974] 3 All ER 616 at 621
five years appears to represent a very modest success, and so if the respondent's work became well known and popular he would be tied by the agreement for ten years. The duration of an agreement
be expected to enter into any positive commitment to publish future work by an unknown composer. Possibly there might be some general undertaking to use his best endeavours to promote the composer's work. But that [1974] 3 All ER 616 at 622
would probably have to be in such general terms as to be of little use to the composer.
But if no satisfactory positive undertaking by the publisher can be devised, it appears to me to be an unreasonable restraint to tie the composer for this period of years so that his work will be sterilised and he can earn nothing from his abilities as a composer if the publisher chooses not to publish. If there had been in cl 9 any provision entitling the composer to terminate the agreement in such an event the case might have had a very different appearance. But as the agreement stands not only is the composer tied but he cannot recover the copyright of the work which the publisher refuses to publish.
It was strenuously argued that the agreement is in standard form, that it has stood the test of time, and that there is no indication that it ever causes injustice. Reference was made to passages in the speeches of Lord Pearce and Lord Wilberforce in the Esso case with which I wholly agree. Lord Pearce said ([1967] 1 All ER at 723, [1968] AC at 323):
'It is important that the court, in weighing the question of reasonableness, should give full weight to commercial practices and to the generality of contracts made freely by parties bargaining on equal terms.'
Later Lord Wilberforce said ([1967] 1 All ER at 729, 730, [1968] Ac at 332, 333):
'The development of the law does seem to show, however, that judges have been able to dispense from the necessity of justification under a public policy test of reasonableness such contracts or provisions of contracts as, under contemporary conditions, may be found to have passed into the accepted and normal currency of commercial or contractual or conveyancing relations. That such contracts have done so may be taken to show with at least strong prima force that, moulded under the pressures of negotiation, competition and public opinion, they have assumed a form which satisfies the test of public policy as understood by the courts at the time, or, regarding the matter from the point of view of the trade, that the trade in question has assumed such a form that for its health or expansion it requires a degree of regulation.'
But those passages refer to contracts 'made freely by parties bargaining on equal terms' or 'moulded under the pressures of negotiation, competition and public opinion'. I do not find from any evidence in this case, nor does it seem probable, that this form of contract made between a publisher and an unknown composer has been moulded by any pressure of negotiation. Indeed, it appears that established composers who can bargain on equal terms can and do make their own contracts.
Any contract by which a person engages to give his exclusive services to another for a period necessarily involves extensive restriction during that period of the common law right to exercise any lawful activity he chooses in such manner as he thinks best. Normally the doctrine of restraint of trade has no application to such restrictions: they require no justification. But if contractual restrictions appear to be unnecessary or to be reasonably capable of enforcement in an oppressive manner, then they must be justified before they can be enforced.
In the present case the respondent assigned to the appellants 'the full copyright for the whole world' in every musical composition 'composed created or conceived' by him alone or in collaboration with any other person during a period of five or it might be ten years. He received no payment (apart from an initial £50) unless his work was published and the appellants need not publish unless they chose to do so. And if they did not publish he had no right to terminate the agreement or to have any copyrights re-assigned to him. I need not consider whether in any circumstances it would be possible to justify such a one-sided agreement. It is sufficient [1974] 3 All ER 616 at 623
to say that such evidence as there is falls far short of justification. It must therefore follow that the agreement so far as unperformed is unenforceable.
I would dismiss this appeal.
VISCOUNT DILHORNE.
My Lords, I have had the advantage of reading the speech of my noble and learned friend, Lord Reid, in draft. I agree with it and for the reasons he gives, I, too, would dismiss this appeal.
LORD DIPLOCK.
My Lords, the contract under consideration in this appeal is one whereby the respondent accepted restrictions on the way in which he would exploit his earning-power as a song-writer for the next ten years. Because this can be classified as a contract in restraint of trade the restrictions that the respondent accepted fell within one of those limited categories of contractual promises in respect of which the courts still retain the power to relieve the promisor of his legal duty to fulfil them. In order to determine whether this case is one in which that power ought to be exercised, what your Lordships have in fact been doing has been to assess the relative bargaining power of the publisher and the song-writer at the time the contract was made and to decide whether the publisher had used his superior bargaining power to exact from the song-writer promises that were unfairly onerous to him. Your Lordships have not been concerned to enquire whether the public have in fact been deprived of the fruit of the song-writer's talents by reason of the restrictions, nor to assess the likelihood that they would be so deprived in the future if the contract were permitted to run its full course.
It is, in my view, salutory to acknowledge that in refusing to enforce provisions of a contract whereby one party agrees for the benefit of the other party to exploit or to refrain from exploiting his own earning-power, the public policy which the court is implementing is not some 19th century
the weaker party. They have been dictated by that party whose bargaining power, either exercised alone or in conjunction with other providing similar goods or services, enables him to say: 'If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it.'
To be in a position to adopt this attitude towards a party desirous of entering into a contract to obtain goods or services provides a classic instance of superior bargaining power. It is not without significance that on the evidence in the present case, music publishers in negotiating with song- writers whose success has been already established do not insist on adhering to a contract in the standard form they offered to the respondent. The fact that the appellants' bargaining power vis-à- vis the respondent was strong enough to enable them to adopt this take-it-or-leave it attitude raises no presumption that they used it to drive an unconscionable bargain with him, but in the field of restraint of trade it calls for vigilance on the part of the court to see that they did not.
LORD SIMON OF GLAISDALE.
My Lords, I have had the advantage of reading in draft the speeches prepared by my noble and learned friends, Lord Reid and Lord Diplock. I agree with them and I would therefore dismiss this appeal.
LORD KILBRANDON.
My Lords, I have had the advantage of reading the speeches prepared by my noble and learned friends, Lord Reid and Lord Diplock. I agree with their conclusions, and like them would dismiss this appeal.
Appeal dismissed.
Solicitors: Wright & Webb (for the appellants); Malkin, Cullis & Sumption (for the respondent).
Christine Ivamy Barrister.
[1974] 3 All ER 616 at 625
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Schroeder-Music-Publishing Co Ltd v-Macaul
Course: LAW (LLB)
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