Union Music Ltd & Anor v Watson

The doctrine of election rests on common sense and fairness, not a rigid technical formula. It is fact-sensitive and may arise where a party’s chosen course risks affirming or acquiescing in a transaction, creates an abuse of process, or raises a case-management concern.

A party may therefore be required to elect before pursuing a decisive interlocutory application that relies on an agreement while challenging its validity. Receipt of a benefit and technical classification are relevant considerations, but neither is invariably decisive.

Union Music Ltd and Arias Ltd sued Russell Watson and Blacknight Ltd concerning agreements for the promotion, management and exploitation of Mr Watson’s performances. Mr Watson challenged the shareholders’ agreement as an unreasonable restraint of trade and on equitable grounds. He also sought to strike out Arias as a claimant, relying particularly on provisions of the agreement while maintaining that the agreement was unenforceable.

His Honour Judge Howarth ordered Mr Watson to elect, before commencing the strike-out application, whether he accepted or denied the agreement’s substantive validity. This was an appeal against that interlocutory order. The central issue was whether the doctrine of election justified requiring that choice.

Appeal dismissed. Lord Justice Robert Walker delivered the leading judgment, and Lord Justice Carnwath agreed with his reasons.

1. The doctrine of election is based on common sense and fairness to both sides. It is not governed by an inflexible maxim or technical classification. Its application depends substantially on the facts. Election between substantive rights is distinct in principle from election between remedies, although the two may overlap.
2. Election may describe the risk that a litigant, by taking a particular course, will affirm or acquiesce in a transaction and lose the right to challenge it. It may also reflect abuse of process or ordinary case management. Receipt of a benefit can make inconsistent conduct unfair, but the relevance of benefit is not universal. The authorities also show that labels such as estoppel, affirmation, release and approbation and reprobation are not decisive.
3. The order was justified because Mr Watson’s proposed strike-out application relied heavily on clause 6 of the shareholders’ agreement. He sought to use the agreement as a procedural sword while reserving a challenge to its validity. Requiring an election enabled him to make an informed choice and avoided the risk of an unfair procedural trap or a later amendment alleging affirmation and acquiescence.
4. The court approved the judge’s general approach, while stressing that the general principle required careful handling. The treatment of election in Johnson v Agnew [1980] AC 367, and the cautions in Lissenden v Bosch [1940] AC 412 and Banque des Marchands de Moscou v Kindersley [1951] Ch 112, supported a fact-sensitive approach.
5. The court expressed no view on the likely outcome of the pending application under section 371 of the Companies Act 1985. It noted that clause 6 might potentially survive under the agreement’s severance clause, but the argument had not been advanced in that form and it was inappropriate to alter the order. Costs were subject to detailed assessment, with an interim payment of £15,000 within 21 days.

• Court of Appeal (Civil Division): Appeal dismissed. [2002] EWCA Civ 680.
• Chancery Division, Manchester District Registry: His Honour Judge Howarth, sitting as a deputy High Court judge, ordered on 3 December 2001 that Mr Watson elect before commencing his strike-out application whether he accepted or denied the substantive validity of the shareholders’ agreement. No citation is stated in the judgment.