Category Archives: Legal Updates

Bob Marley: dud case lost again in Court of Appeal

blue mountainIP Draughts has previously reported on a case in the English High Court, over the ownership of copyright in some Bob Marley songs, including No Woman No Cry.

The claimant lost that case and appealed. Last week, the Court of Appeal’s decision in the same case was handed down. In BSI Enterprises Ltd and another v Blue Mountain Music Ltd [2015] EWCA Civ 1151, the claimant lost again.

The central issue in the case was whether copyright in a set of Bob Marley compositions had transferred under an agreement made in 1992.  The songs were not mentioned by name in this agreement, unlike many other of Bob Marley’s songs. But the agreement included wording that broadened its scope beyond the named songs.

If the answer to that question was “no”, then copyright remained with the seller, and a later assignment from the seller to the claimant was effective. If the answer was “yes”, then the later assignment couldn’t transfer what the seller didn’t own. Thus, the case turned on an interpretation of the 1992 agreement.

The claimant’s counsel in the High Court, Hugo Cuddigan, had argued that the parties to the 1992 agreement had deliberately omitted the songs in question from a schedule to the 1992 agreement, and that this was part of the factual matrix in light of which the agreement should be interpreted. The judge at first instance rejected this argument, preferring to rely on the words of the agreement. These words made clear “almost to the point of redundant repetition” that all Bob Marley songs were included, whether or not they were listed in the schedule.

On appeal, the claimant had a new counsel, Madeleine Heal. She obtained permission from the court to base her case on a different argument. Her line was that a close analysis of the words of the agreement led to the conclusion that the songs in question were not covered by the assignment.

The agreement provided for the assignment of copyright in the Compositions, a term that was capitalised in the agreement. But what did this term mean? Clause 1 of the agreement set out a list of definitions. Clause 1.8 was headed “Composition” and “Catalogue”. The text of clause 1.8 included, at the end of a lengthy sentence, the words individually a “Composition” and collectively the “Compositions”. Admittedly the definition slightly muddled up the two terms, Composition and Catalogue, but the wording was broad in scope, and included the phrase including, but not by way of limitation, the Catalogue listed on Schedule 2 hereto. There is no suggestion in clause 1.8 that the definition of Composition is limited to the songs listed in Schedule 2.

no noAccording to Ms Heal, one shouldn’t look at the definitions clause to find the definition of Composition. Oh no, no, no, no. Instead, one should look at the warranty clause, which included, at clause 5.10, a warranty by the seller that “Schedule 2 contains a complete and accurate list of all the Compositions.”

Moreover, continued Ms Heal, a recital to the agreement stated that the seller wished to sell “certain” music publishing rights and interests, which proved that only some, and not all, of the seller’s interests were to be transferred.

Oh dear. Kitchen LJ’s mild response to these and similar arguments was that he was “unable to accept” them, they were “unsustainable”, he was “wholly unpersuaded”, and there was “nothing in this criticism”.

Thank goodness for small mercies.

To IP Draughts’ mind, the court at first instance and the Court of Appeal had a relatively straightforward task to interpret the 1992 agreement, and they performed it well. No new point of law arises from the case. There is no guidance that needs to be given to drafters in light of the case. It is an illustration of how far a party is prepared to go to try to protect its business interests, by pursuing a dud case all the way to the Court of Appeal.





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Unconscionably long judgments uphold penalty clause

expensiveCertain phrases in contracts are reassuringly familiar to English commercial lawyers, however weird they may appear to clients. One of these concerns what are known as ‘liquidated damages clauses’. Typically, the clause will say something along the following lines:


If the Supplier is late in delivering the Goods, it will pay the Buyer liquidated damages of 1% of the Price for each week of delay. The Parties acknowledge this is a genuine pre-estimate of the loss that the Buyer will suffer from late delivery, and is not a penalty.

By explicitly agreeing that the payment obligation is a ‘genuine pre-estimate of loss’, drafters have hoped to persuade the court (in a future dispute) that it is a liquidated damages clause and not a penalty. It has long been thought that the former are enforceable under English law, but the latter are not.

IP Draughts considers this form of words to be largely pointless and self-serving, but that it does no harm. What should matter to the court is the substance, and not the label. An interesting, if irritating, variant appeared in a publishing agreement that a publisher recently asked IP Draughts to sign:

In the event that the Publisher wishes to cancel or terminate this Agreement prior to the delivery of an acceptable manuscript or the publication of the Work without due cause, then the Publisher’s total liability to the Author shall be capped at £100 (one hundred pounds), such payment being made by the Publisher by way of liquidated damages. The parties confirm that these sums represent a genuine pre-estimate of the loss that the Author would suffer in the event that the Publisher terminated or cancelled this Agreement.

This clause is fundamentally misconceived, in that it is an attempt to limit liability masquerading as a liquidated damages clause. Thankfully, the editor at IP Draughts’ publisher has agreed to go back to the wording of the agreement used for the previous edition of the same work, which didn’t include this kind of lawyers’ nonsense.

The general assumption, that under English law penalties are unenforceable but liquidated damages clauses are enforceable, goes back at least 100 years. One of the leading cases on this subject was a House of Lords decision, Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79. In that case, Lord Dunedin proposed 4 tests for whether a payment obligation was a penalty. One of those tests used the phrase ‘genuine pre-estimate of damage’, and this phrase seems to have been picked up by the courts in subsequent cases.

Last week the UK Supreme Court issued its decisions in two combined cases on the subject of penalties. The judgments and an abbreviated ‘press release’ can be found here. In effect, this is the first time that the Supreme Court (formerly the House of Lords) has looked in detail at this subject

£85? You've got to be codding!

£85? You’ve got to be codding!

in a century. The second of the two cases (Parking Eye Limited v Beavis) concerned the owner of a fish-and-chip shop, who refused to pay an £85 penalty charge for staying in a free, short-term car park connected to a shopping mall for more than the permitted 2 hours. Their lordships’ decision in this case, that the charge was enforceable, was reported in most of the national newspapers earlier this week.

The first of the two joined cases (Cavendish Square Holdings BV v Talal el Makdessi) was a large commercial dispute in respect of a contract to sell a majority shareholding in a major advertising agency in the Middle East. The contract included stage payments, and non-compete obligations on the sellers. If the sellers breached the non-compete obligations, there would be two consequences: (1) later stage payments would not become due, and (2) the sellers would have to sell their remaining shares to the buyers at a pre-determined price. The seller argued that both of these provisions were unenforceable penalty clauses. The Supreme Court disagreed.

7Usually, a panel of 5 justices decides Supreme Court cases. Occasionally, as in this case, where major issues are at stake, 7 are empanelled. Readers who think they could handle the pressure of having difficult legal questions fired at them continuously and for a long period by 7 extremely bright justices may wish to see the recordings of the proceedings, which can be viewed here.

In essence, the Supreme Court has introduced some new tests for whether a contractual penalty is enforceable. Exactly what those tests are needs to be unpicked from the various judgments, which in total run to a staggering 123 pages.

Probably, we should focus on the joint judgment of Lords Neuberger and Sumption, not least because (a) they are brainier than the others, (b) their judgment is clearer than the others (even if it does take up a whopping 49 pages), and (c) Lords Carnwath and Clarke agreed with their judgment, which means that a majority of the justices have agreed that the legal points made in this judgment form the basis of the decision.

numptyLords Neuberger and Sumption (hereinafter collectively referred to as Lord Numpter) considered the previous focus on pre-estimates of loss to have been unsatisfactory, and to have resulted in the law on penalties becoming ‘the prisoner of artificial categorisation’.

Nor is it helpful to consider whether a provision is a ‘deterrent’, as this is just the flip-side of an ‘inducement’ and not inherently bad. Instead, the test of whether something is a penalty should be whether it is ‘penal’. [Duh!]

Unconscionable or extravagent

To determine whether a provision is penal and therefore unenforceable, it is necessary to consider whether it seeks to influence a party’s conduct in an ‘unconscionable’ or ‘extravagent’ way (these words also appear in Lord  Dunedin’s 1915 judgment).

At this point in Lord Numpter’s judgment, and in the equivalent parts of the judgments of the other justices, a selection of words and phrases is used to elaborate on the threshold of unconscionableness. IP Draughts noted the following:

  • out of all proportion to a legitimate interest of the innocent party
  • exorbitant
  • in terrorem

And in the different context of a claim in the Parking Eye case based on the Unfair Terms in Consumer Contract Regulations:

  • significant imbalance in the parties’ rights
  • disportionately high sum in compensation

Several of their lordships referred to the fact that penalty rules also existed in certain civil-code countries, where provisions might be unenforceable if they were:

  • manifestly excessive
  • disproportionately high

Lord Hodge also referred to certain ‘soft law’ principles established by international bodies such as UNCITRAL, which would limit the right to damages that are:

  • grossly excessive
  • substantially disproportionate

He also referred to the tests of exorbitance and unconsionableness as preventing the enforcement of ‘egregious’ contractual provisions.

So much for the adjectives. Lord Numpter’s judgment also focussed on the following points:

Primary or secondary?

Is the financial obligation a primary obligation or merely the (secondary) consequence of failing to comply with a primary obligation? In the words of Lord Numpter:

The penalty rule regulates only the remedies available for breach of a party’s primary obligations, not the primary obligations themselves…

This means that in some cases the application of the penalty rule may depend on how the relevant obligation is framed in the instrument, ie whether as a conditional primary obligation or a secondary obligation providing a contractual alternative to damages at law…

This topic is discussed at greater length in the judgment. In other words, the question of whether a provision is unconscionable and extravagent, and therefore unenforceable, is only relevant if the obligation is a secondary one. If the obligation is a primary one, the penalty rule doesn’t apply.

IP Draughts’ reaction is that this distinction is ‘too clever by half’ and that manoeuvring around the penalty rule on the basis of primary and secondary obligations will be fraught with difficulty for us mere mortals who actually draft contracts.

parking eyeLater in the judgment Lord Numpter concluded that both of the financial provisions at issue in the commercial case – the loss of future stage payments and the obligation to sell the remaining shares at a pre-determined price – were primary obligations and therefore not subject to the penalty rule. In the consumer case, Lord Numpter concluded that the £85 charge was a secondary obligation and therefore the penalty rule was engaged, but on the facts it was justified and not an unlawful penalty.

In their judgments, Lords Mance and Hodge seemed unconvinced that the obligations in the commercial case were primary obligations. But this ultimately didn’t matter, as they found them not to be unconscionable or extravagent in the circumstances of the case. Lord Toulson seemed to agree with this analysis.

If we take the Mance/Hodge/Toulson line, it may be risky to make any assumption about a clause being a primary obligation. If we take the Neuberger/Sumption line, it should be possible to draft many penalty-like clauses so that they fall outside the penalty rule altogether. Which line represents the current state of English law?

agreeYour guess is as good as mine. In his short judgment, Lord Clarke “agree[d] with the reasoning of Lord Neuberger and Lord Sumption, Lord Mance and Lord Hodge.” With respect, you can’t agree with all of them on this point, as they had different views. Rather oddly, Lord Carnwath says nothing in the official judgment; there is simply a laconic statement, in parenthesis and as part of the heading, before Lord Numpter’s judgment, that Lord Clarke and Lord Carnwath ‘agree’ with that judgment.

Relief against forfeiture

Lord Numpter spends some time discussing the differences between (a) the law on relief against penalties and (b) the law on relief from forfeiture, but declines to reach any conclusions on whether relief from forfeiture might be available in a contract case, even if the penalty rule doesn’t apply. Lords Mance and Hodge expressed the view that relief from forfeiture could be available in these circumstances, and Lord Clarke’s single paragraph of judgment is mainly devoted to saying that his “present inclination” is to agree with them. In other words, an obligation might not be so bad as to amount to an unlawful penalty, but might avoided under the rule on relief against forfeiture. However, this was not the basis of the decisions in the present, joined cases.


Their lordships declined counsels’ invitations to abolish or significantly expand the rule on penalties. Instead they sought to ‘explain’ the rule, which had been misunderstood by an undue emphasis, over the previous century, on Lord Dunedin’s 4 tests, including the phrase ‘genuine pre-estimate of damage’.

Where the penalty rule is engaged (and it may well not be engaged if the obligation is a ‘primary’ one), the test for whether an obligation should be struck down as a penalty is, in the words of the press release that accompanied the judgment, the following:

The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation

Following this judgment it will be easier, in IP Draughts’ view, to enforce what the world knows as penalty clauses . In English law agreements, there will be less emphasis on formulaic drafting of clauses that refer to genuine pre-estimates of loss.

allenFinally, congratulations to the lawyers at Allen & Overy who advised Cavendish Square Holdings in 2008 and presumably drafted the clauses that the Supreme Court upheld in the commercial case. Job well done. Does anyone know who the individuals were who drafted these clauses?

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No copyright for ‘Solicitor at a Desk’ yoga position

Lord Neuberger, President of the Supreme Court, demonstrates I Can Read Text at This Distance

Lord Neuberger, President of the Supreme Court, demonstrates his mastery of I-Can-Read-Text-at-This-Distance. Baroness Hale is impressed.

IP Draughts is relieved to hear that the US Court of Appeals for the 9th Circuit has recently rejected the appeal of Bikram Chaudhury in the case of Bikram’s Yoga College of India LP v Evolution Yoga LLC No. 13-55763, D.C. No. 2:11-cv-05506-ODW-SS.

Millionaire yoga guru Chaudhury is famous for his ‘hot yoga’ classes, in which the room is heated to 40 degrees Centigrade. According to newspaper reports, he leads the classes wearing nothing but a pair of Speedos® and a Rolex®. In this case he sought to prevent his former pupils from teaching approximately two dozen yoga positions that he had invented. The court decided, unsurprisingly, that there is no copyright in a yoga position.

Readers may not be aware that, in his spare time, IP Draughts has been developing his own set of yoga moves. The IP Draughts system of yoga is typically conducted at 20 degrees Centigrade, wearing Smart Casual™ clothing, though it can be done in Speedos® and a Rolex® if no-one is watching. Remember to switch off the camera on your computer.

The best-known move in the IP Draughts system is his Solicitor at a Desk™ position, which involves sitting on a fake Charles Eames chair in a slightly hunched position, leaning forward with fingers moving on a keyboard, while squinting at a computer screen. Other moves include Collecting a Draft Agreement from the Printer™, and Bending Down to Plug in the Headset for a Skype® Call™.




Filed under Humour, Legal Updates

Who owns a Banksy mural?

art buffA recent case in the English High Court has seen a senior IP judge, Mr Justice Arnold, deciding on the ownership of a Banksy mural that was removed from the wall of a building.

The artist known as Banksy is famous for:

(a) retaining his anonymity;

(b) creating artwork in public places that could be viewed as graffiti, and sometimes has a political message, and which tends to have a high commercial value (hundreds of thousands of pounds); and

(c) causing his works suddenly to appear in unexpected places.

In recent years, a trend has developed of removing Banksy works from the walls on which they have been painted, and selling them at auction, sometimes to raise money for good causes.

The present case, The Creative Foundation v Dreamland Leisure Limited and others [2015] EWHC 2556 (Ch) concerns a mural known as Art Buff that appeared on the wall of a building in Folkestone, a seaside town in England.

art buff 2The tenants of the building, Dreamland Leisure, removed the mural, which involved taking a layer of the wall away, and sought to sell it at auction in the United States. The Creative Foundation sought an order for delivery up of the mural on the basis that it belonged to The Creative Foundation as assignee of the landlord’s interest.

In a case like this, we need to distinguish between the work of art, the copyright in the work, and the slice of wall on which it is painted. As Arnold J said in his judgment:

I should explain before proceeding further that, when I refer to the Mural in this judgment, I am generally referring both to the physical object and to the artistic work fixed on it. For the avoidance of doubt, I am not concerned with the copyright in the artistic work, which prima facie belongs to Banksy.

Thus, Arnold J found himself deciding a case on the respective rights of a landlord (lessor)  and a tenant (lessee) to materials that originally formed part of the demised premises but, when removed from the building, “revert to the status of chattels”. This is not part of the usual legal diet of an eminent IP judge.

After reviewing the cases, and the terms that could be implied into a lease of (real) property, he concluded:

In my judgment the term which is to be implied is that the chattel becomes the property of the Lessor. My reasons are as follows.

First, I consider that the default position is that every part of the property belongs to the Lessor. The Lessee only has a tenancy for a period of time. Thus it is for the Lessee show that it is proper to imply into the Lease a term which leads to a different result.

Secondly, in my view the mere fact that the Lessee is discharging its repairing obligation does not lead to the implication that it acquires ownership of such a chattel. Dreamland’s argument is based upon the Lessee’s need to be able to remove items generated by the act of repair from the premises. But that would only justify the implication of a term dealing with permission to remove (and, where appropriate, dispose of) such items. It does not justify the implication of a term transferring ownership of the items…

Thirdly, even if a term may be implied with respect to the ownership of (i) waste or (ii) chattels with no more than scrap or salvage value, it does not follow that it should be implied with respect to the ownership of a chattel with substantial value. Such a term would not be necessary, would not go without saying and would not be one that would satisfy the officious bystander test.

Fourthly, I do not consider that it makes any difference that the value is attributable to the spontaneous actions of a third party. It is fair to say that, whatever solution is adopted, one party gets a windfall. But who has the better right to that windfall? In my view it is the Lessor. …

Accordingly, I conclude that the Foundation is correct that the defence advanced in paragraph 13 of the Defence is unsustainable as a matter of law.

For the reasons given above, I conclude that the Foundation is entitled to summary judgment on its claim against Dreamland for delivery up of the Mural.

So, now we know. Though one might have expected copyright law to feature prominently in a dispute over a valuable artwork, in fact it came down to implying terms about the ownership of builders’ rubble in a routine property lease. IP Draughts wonders whether the drafters of property leases will, in future, include standard terms to deal with the ownership of works of art that are incorporated into the leased property without the knowledge or permission of either lessor or lessee.

The back story to this dispute is also interesting. It seems that Art Buff failed to sell at auction in the USA because its authenticity as a Banksy work had not been certified by a body associated with Banksy, known as Pest Control. Thus, questions of property law and copyright law were ultimately secondary to questions of provenance.





Filed under General Commercial, Intellectual Property, Legal Updates