Straw & Anor v Jennings & Ors

Where parties agree to share profits from a separately operated distribution business, the court should not readily imply an obligation to share losses. Such a term requires necessity for business efficacy or obviousness, assessed as part of contractual construction. The parties may also be taken to have agreed periodic accounting where that is necessary to give the arrangement practical effect.

Distribution profit is calculated by reference to the agreed distribution income, direct costs and an appropriate share of indirect overheads. Where reliable accounting material exists, the court may determine the amount payable without ordering a full account. A counterclaim should not generate disproportionate further inquiries where the alleged copyright claim is unsupported or would produce no meaningful recovery.

The claimants held rights in recordings by Eva Cassidy and agreed with the defendants that the recordings would be promoted and distributed in specified territories. Net profits from the joint venture were to be shared equally. A later oral arrangement permitted the defendants to charge a distribution fee and required the parties to share the resulting distribution profit equally.

The dispute concerned whether losses were also shareable, the periods for which profit should be calculated, the reliability of the defendants’ accounting, limitation, and the amount payable. The defendants counterclaimed for copyright ownership and an account of assets allegedly created for the joint venture.

1. Distribution losses. No term was implied into the distribution arrangement requiring the claimants to share losses. The arrangement treated distribution as a business operated by the defendants, whose liabilities remained theirs. Sharing profits did not make sharing losses necessary or obvious: [2013] EWHC 3290 (Ch), paras 95–104.
2. Accounting periods and methodology. The arrangement carried an implied obligation to account and pay the claimants’ share during its operation, rather than retain all profit until termination. The accounts actually provided fixed relevant periods ending on 31 December 1999 and 30 June 2004. Distribution profit was to be calculated from the 30% distribution income, less direct distribution costs and an appropriate proportion of general overheads, using actual business costs rather than statutory accounts prepared for tax purposes, paras 106–111, 187–209.
3. Quantum and proportionality. The April 2005 account was the appropriate starting point. A full account was unnecessary because the defendants had not produced reliable evidence showing material error in the underlying figures. Payment was ordered on the basis of £758,127, subject to specified adjustments for management charges, Asian and Irish sales, Redlands, Annandale and depreciation, paras 210–239, 364–369.
4. Limitation. The claim arising from the Cassidy royalty adjustment was partly time-barred. An acknowledgment admitted only the net sum acknowledged. The limitation defence therefore failed as to £158,913.44 but succeeded as to £16,104.56. The distribution-profit claim was not time-barred, paras 254–270.
5. Copyright and proprietary claims. Consultation and editorial input did not establish joint authorship of the album compilations, sequencing or liner notes. The defendants established authorship of the American Tune track notes, but the court declined a damages inquiry as disproportionate. The alleged joint-venture asset claim also failed: the licence and assigned rights were not assets of the joint venture, paras 284–362.
6. The counterclaim was dismissed. Judgment was given for the claimants for the distribution-profit sum, subject to the consequential adjustments and directions stated at paras 364–369.

The discussion of an implied licence was expressly obiter and was not necessary to the decision, para 356.