Pink Floyd Music Ltd & Anor v EMI Records Ltd

Commercial contracts are construed objectively, in their full contractual and commercial context. The court seeks the meaning a reasonable person with the parties’ knowledge and business expertise would understand. It may not use prior negotiations on interpretation, and it may correct drafting only where there is a clear mistake and a clearly identifiable correction.

An express royalty provision requiring calculation at the contractual “source” included receipts of downstream licensees and third parties. An equivocal restriction preserving an album’s configuration extended to digital online distribution because that construction gave effect to its evident commercial purpose.

In the Court of Appeal, private hearings and anonymisation require necessity for the proper administration of justice.

Music companies associated with Pink Floyd licensed specified albums to EMI under a 1999 agreement incorporating a Master Licence Agreement. Following an audit of royalty statements, they sought summary judgment on two issues of construction.

The Chancellor granted declarations that royalties for online distribution were to be calculated by reference to receipts at source, including downstream recipients, and that clause 4.13 prevented EMI from digitally unbundling albums without prior written consent. EMI appealed.

The appeal concerned the proper construction of the royalty clause and whether the album-integrity restriction extended to online distribution. It also led the court to address the inappropriate private listing and anonymisation of the appeal.

1. Appeal dismissed. The court unanimously upheld the first declaration. By a majority of Lord Neuberger MR and Laws LJ, it also upheld the second declaration; Carnwath LJ dissented on that issue.

2. A commercial contract must be construed objectively and contextually. The court considers the language, the contract as a whole, the parties’ commercial knowledge and commercial common sense. Interpretation differs from rectification, so antecedent negotiations are inadmissible. The court should not depart from the ordinary meaning of formal drafting merely because it produces a bad bargain. A correction requires both a clear mistake and a clear correction.

3. On the first issue, clause 9(d)(i) expressly defined the contractual meaning of calculation at “source”. Its natural meaning required EMI’s receipts to include those of licensees, sub-licensees and third parties obtaining rights directly or indirectly from EMI. EMI’s industry evidence did not establish either a clear drafting mistake or an identifiable alternative intention. It therefore had no real prospect of resisting summary judgment.

4. On the second issue, clause 4.13 existed to preserve the integrity of the albums. Its language was equivocal, but its references to albums could extend to digital recordings. Commercial common sense strongly favoured a construction preventing unbundling through online distribution as well as physical formats. The majority also treated references to “Records” in parts of the clause as a small drafting mistake, capable of correction in context. Carnwath LJ would have confined the clause to physical records and albums.

5. Lord Neuberger MR further stated that a private hearing or anonymisation in the Court of Appeal should be ordered only to the extent necessary for the proper administration of justice. The general rule remains that litigation is conducted in public.

• Court of Appeal (Civil Division) — In [2010] EWCA Civ 1429, dismissed EMI’s appeal and upheld both declarations granted below.
• High Court, Chancery Division — The Chancellor granted summary declarations on the royalty calculation and the application of clause 4.13 to online distribution.