DISPUTES BETWEEN ARTISTS AND THEIR MANAGERS

Undue influence. Agreements between artists and their managers, publishers or record companies are sometimes liable to be set aside on grounds of undue influence. Although the principles applicable are the same as in any other under influence case, the question whether a particular agreement “calls for an explanation” (see Royal Bank of Scotland Plc v Etridge (No.2) [2002] 2 A.C. 773) may require a comparison between the agreement with other agreements of a similar type. Expert evidence may therefore be admitted to show what terms were usual for such agreements at the relevant time. For a recent example of such a case, see Wadlow v Samuel (aka Seal) [2006] EWHC 1492 (QB); [2007] EWCA Civ 155. See also Section 18, above.

The question sometimes arises whether a music industry contract can be enforced against an artist who is under 18 when the contract was signed. Apart from contracts for necessaries, the general rule is that a contract with a minor is binding on the other party but not binding on the minor unless he ratifies it upon his coming of age. Under s.20 of the Infants Relief Act 1974, ratification did not render enforceable any debts incurred under the contract during the minor’s infancy. However, this section was repealed by the Minors’ Contracts Act 1987.

An important exception to the general rule is that a minor may not repudiate a contract which is beneficial to him, such as a contract of apprenticeship or employment. Thus a contract between a group of under-age musicians and their manager, which is analogous to a contract of employment (since without it the group would be unable to make a living), may be held binding, provided the terms are not unfair to the group. However, a covenant in restraint of trade may be held void against a minor even if it would be enforced against an adult.

Management disputes take many forms. Where the manager has been appointed without a written contract, as often happens in the case of newly formed groups which have yet to establish a reputation, disagreements may arise as to whether a binding contract has been made and if so what its terms are. If there is no binding contract, the manager may nonetheless be entitled to a quantum meruit for work done in anticipation that a contract would be entered into later.

If the manager has been dismissed he may claim damages for wrongful termination of his contract. The group may seek to justify his dismissal on the ground of his conduct. The relationship between a group and its manager involves a high degree of mutual confidence, so that a break down in that confidence may justify the manager’s dismissal. Where the breakdown of confidence is the fault of one party alone, there may be a breach of an implied term, but the extent of this implied term has been the subject of some disagreement. In Denmark Productions Ltd v Boscobel Productions Ltd [1969] Q.B. 699, Winn L.J. held that there was an implied term that the manager should do nothing which he foresaw or should have foreseen might forfeit the confidence of the group. Salmon L.J., however, thought that went too far:

“I think that almost anything a manager might do, however harmless or trivial, could induce hatred and distrust in a group of highly temperamental, jealous and spoilt adolescents. The highest that one could, in my view, put any such implied term would be that [the manager] should take all reasonable steps to retain the group’s confidence” (emphasis added).

Fiduciary duties. An artist’s manager, publisher and record company are often said to occupy a fiduciary position vis-à-vis the artist, on account of the control which they exercise over the artist’s livelihood. A fiduciary must act in good faith and must not place himself in a position where his duty and his interest may conflict: Bristol and West Building Society v Mothew [1998] CH. 1 at 18, per Millett L.J. This may occur where, for example, a music publisher pays excessive fees to an associated company acting as a sub-publisher in an overseas territory, which are deducted from the publishers receipts before the artist’s royalties are calculated: see Elton John v Dick James [1991] F.S.R. 397.

There has been some uncertainty as to whether a failure properly to account necessarily involves a breach of fiduciary duty. The question may be important for limitation reasons, or because the claimant wishes to claim compound interest. In Nelson v Rye [1996] 1 W.L.R. 1378, it was held that a mere failure to account was a breach of fiduciary duty. However, this part of the decision was overruled by the Court of Appeal in Paragon Finance v DB Thakerar & Co [1999] 1 All E.R. 400. Even though the accounting party is a fiduciary his duty to account for the money he receives is generally only a contractual duty, to which the usual six-year contractual limitation period will apply.

Also in Nelson v Rye the judge held that no limitation period would apply to a claim for breach of fiduciary duty, although such a claim might be defeated by a defence of laches. The Court of Appeal of Paragon Finance doubted this part of the case as well, and the deputy judge in Coulthard v Disco Mix Club Ltd [1999] F.S.R. 900 declined to follow it. The deputy judge reasoned that a breach of fiduciary duty was the equitable equivalent of fraud at common law, so that the limitation period applicable to torts must be applied by analogy. Coulthard has been approved by the Court of Appeal in Companhia de Seguros Imerio v Heath (REBX) Ltd [2001] 1 W.L.R. 112.

Where a breach of contract or fiduciary duty has been deliberately concealed, the limitation period may be extended under s.32 of the Limitation Act 1980. “Deliberate concealment” includes the deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time. However, the deliberate commission of a breach of duty excludes a breach of duty which the actor was not aware that he was committing, and likewise for an act or omission to amount to deliberate concealment it must be done with the intention of concealing the relevant facts: Cave v Robinson Jarvis & Rolf [2003] 1 A.C. 384. Note that a continuing failure to disclose the relevant facts may itself be a continuing breach of fiduciary duty: UBAF v European American Banking Corp [1984] 1 Q.B. 713.

The effect of deliberate concealment is that the limitation period does not begin to run until the claimant has discovered the concealment or could with reasonable diligence have discovered it. Most publishing and similar agreements allow the artist to carry out a periodic audit in order to check that royalties are being properly paid, and such a right is probably implied even when it is not expressed in the agreement. It is not certain to what extent the artist must avail himself of this right in order to show that he has been reasonably diligent for the purposes of s.32.

Where the claim is for breach of fiduciary duty the claimant should ask for compound interest: see O’Sullivan v Management Agency Ltd [1985] Q.B. 428. However, in that case compound interest was refused because the defendant’s profits were being used at least in part for the plaintiff’s benefit.

Note that the court has a discretionary power to make an interim order “directing a party to prepare and file accounts relating to the dispute”: CPR r.24.1(1)(n).