Pink Floyd Music Ltd & Anor v EMI Records Ltd

This appeal is brought by EMI Records Ltd (“EMI”) against the decision of the Chancellor of the High Court. It raises issues of interpretation relating to two agreements which EMI entered into with Pink Floyd Music Ltd (“PFM”) on 17 June 1999. Those agreements have been referred to in argument as “the 1999 Agreement” and “the MLA”, expressions which I shall adopt. The appeal also gives rise to concerns about private hearings and anonymisation, which I shall touch on at the end of this judgment.

PFM and its fellow claimant, Pink Floyd (1987) Ltd (which can for present purposes be treated as included within PFM), are service companies for members of the well known pop group, Pink Floyd. The 1999 Agreement relates to the overseas and UK sales of five named albums (and two single tracks), and incorporates the provisions of the MLA, which was a Master Licence Agreement. The two agreements terminated all earlier agreements (entered into between 1967 and 1992), and their effect was to confer licences on EMI to exploit those albums on terms. Between 1 February 2000 and 27 September 2005, there were a number of subsequent agreements between the parties by which four further albums became subject to the terms of the MLA.

In March 2007, PFM notified EMI that, in accordance with their rights under clause 7 of the MLA, they had appointed Prager & Fenton to carry out an audit of the royalty statements provided by EMI for the period from July 2002 to September 2007. In July 2008, Prager & Fenton produced a report indicating that, in their view, there were fifteen areas of under-accounting amounting to a total value of more than £10 million.

In March 2009, PFM issued their claim form in the instant proceedings, essentially based on that assessment, and their amended particulars of claim were served in June. EMI’s defence was served the following month, and, in October 2009, PFM served a reply and applied for summary judgment.

All but four of the fifteen claims have now been settled. The four claims that remain are based on PFM’s allegations that EMI (a) used an incorrect base price for digital sales; (b) wrongly exploited the works in the albums in the form of single track downloads; (c) wrongly exploited those works in the form of ring tones and streaming; and (d) did not include digital income from single track downloads.

The claim for summary judgment seeks two declarations. The first relates to clause 9(d)(i) of the 1999 Agreement (and clause 6.1(b)(i) of the MLA, which for present purposes is to the same effect). The second declaration relates to clause 4.13 of the MLA, which was incorporated into the 1999 Agreement. The first declaration relates to claim (a), the second to claims (b) and (c).

The first declaration sought by PFM was in these terms:

“Upon the true construction of [the 1999 Agreement] and/or the MLA, internet music providers (such as, for example, iTunes) are ‘sub-licensees affiliates or any third party obtaining rights in this respect directly or indirectly from [EMI]’ within the meaning of Clause 9(d)(i) of [the 1999 Agreement] or clause 6.1(b)(i) of the MLA, so that [EMI] is obliged to account to [PFM] in respect of income received at source by such providers."

The second declaration sought by PFM was:

“Upon the true construction of the MLA, Clause 4.13 of the MLA applies to Online Distribution, so that the Defendant is not entitled to exploit the recordings on the MLA Albums (or other Albums now subject to the terms of the MLA) by Online Distribution or by any other means other than the original Album configurations, without the prior written consent of the Claimants which may be absolutely withheld (including by means of ringtunes and streaming).”

The Chancellor granted both declarations, and I will consider them in turn. However, before doing so, it is appropriate to set out the principally relevant terms of the 1999 Agreement and the MLA, and to discuss the applicable law.

As explained above, the 1999 Agreement provided that the licence and all rights previously granted to EMI in respect of recordings reproduced on five albums (whose album titles and individual tracks are set out in Schedule 2 to the MLA) and two Single tracks (whose titles are also set out in Schedule 2), the copyright to which was owned by EMI, would be replaced by the terms of the MLA. By the MLA, PFM granted to EMI, in return for royalty payments, licences to exploit certain other albums in which PFM owned the copyright.

Clause 1(b) of the 1999 Agreement incorporates various definitions contained in clause 12.1 of the MLA, which include the following:

“‘Album’: any sound alone record derived in whole or in part from the Master Tapes.

‘Associate’: any person firm or company which is a connected person (as defined in the Income and Corporation Taxes Act 1988 Section 839) of the Licensee or which is an associated company of the Licensee within the meaning of Section 416 of that Act….

‘Delivery Material’: the Master Tapes and other material short particulars of which are set out on Schedule 1 [which refers to “[t]he Master Recordings listed in Schedule 2 …”].

‘Master Tapes’: duplicate master tapes containing the Recordings suitable for the creation and exploitation of first class Records.

‘On-Line Distribution’: distribution of recordings via telephone, satellite, cable, point of sale manufacturing or other means of direct transmission to the consumer over networks or through the air now known or hereafter invented.

‘Records’: any sound alone devices manufactured by the Licensee in a configuration now known and currently exploited together with formats to be devised and derived in whole or in part from the Master Tapes.

‘Recordings’: recordings of [Pink Floyd] and musical works short particulars of which are contained in Schedule 2.

‘Royalty Calculation Price’: the price upon which royalties (not being mechanical royalties) due to the Company in respect of the sale of Records hereunder are calculated. Such price will be the Licensee's published price (or if no such published price exists the actual price gross of all discounts charged for such Records by the Licensee to the majority of dealers in such country) exclusive of VAT or other sales taxes of such Records gross of all discounts (howsoever arising) in the country of sale of which the Licensee's Records are customarily available to dealers …...

‘Single’: a seven inch 45 rpm Record and/or a twelve inch (45 rpm or 33 1/3 rpm) Record (and/or the Compact Disc and/or the cassette and/or DVD and/or other agreed format equivalent thereof and all other equivalent means of exploitation the rights to which are granted to the Licensee as specified herein) containing not less than two (2) tracks or more than four (4) tracks.”

Clause 12.3 of the MLA provides, inter alia, that the singular includes the plural and vice versa, unless the context otherwise requires.

Clause 4(b) of the 1999 Agreement incorporates royalty rates by reference to the second schedule thereto, which specifies rates for certain online distributions to be a percentage of “receipts”.

Clause 9(a) of the 1999 Agreement confirms that the rights granted to [EMI] under both agreements include rights of online distribution. Clause 9(d)(i) is the centrally relevant provision for the purposes of the first declaration. It is in the following terms (with the figure being replaced by “XX” on the ground that it is commercially confidential):

“In the event of the sales distribution by [EMI] or its Associates (whether directly or by licence) of [EMI] Recordings by the Artists hereunder by Online Distribution –

(i)

Such sales shall be deemed sales of Records for all purposes SAVE THAT the royalty in respect thereof shall (subject to the provisions of clause 9(d)(ii) hereof) be a [XX]% … share of [EMI's] receipts. [EMI's] receipts shall be calculated at the so-called ‘source’ so that they shall incorporate the receipt of EMI's licensees sub-licensees affiliates or any third party obtaining rights in this respect directly or indirectly from [EMI].”

Clause 9(d)(ii) contains a provision allowing an increase in the royalty rate for online distributions payable by [EMI], and it uses, as a comparator, dealer prices less certain specified expenses.

Turning back to the MLA, clause 1.1 grants EMI “the sole and exclusive right” to manufacture, sell and distribute “Records reproducing the Recordings”, and clause 1.3 grants “the sole and exclusive rights of On-Line distribution (as hereinafter defined) and the sole and exclusive rights to reproduce Records on DVD …”.

The centrally relevant provision of the MLA for the purpose of the second declaration is clause 4.13, which reads as follows:

“[EMI] warrants undertakes and agrees with [PFM] …

not to couple Records delivered hereunder with other master recordings or to sell in any form other than as the current Albums and to exploit the Albums in exactly the same form as to track listing and timing as are delivered hereunder (without limitation there are no rights to sell any or all of the Records as Single records other than with the Company's prior written consent which may be absolutely withheld).”

Certain other provisions of the MLA were referred to in the course of the argument relating to the second declaration, but it is unnecessary to refer to them, at any rate at this stage.

Each of the declarations granted below raises a question of interpretation of a provision in a commercial contract. The answer to such a question does not simply depend upon the words used in that provision: it is also dependent on the other provisions of the contract, on commercial common sense, and on the surrounding circumstances (or the matrix of facts) at the time the contract was made. Accordingly, when construing a provision in a commercial document, one should not carry out “a detailed semantic and syntactical analysis of the words used” – per Lord Diplock in The Antaios II [1985] AC 185, 201.

The ultimate aim of interpreting such a provision is to determine what the parties to the contract meant by it. And that involves ascertaining what a reasonable person would have understood the parties to the contract to have meant. In that connection, we were referred, in particular, to passages in the speeches of Lord Hoffmann in Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, passim, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912F-913G and in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, paras 21-26.

Those well known and important passages demonstrate that while one may proceed on the prima facie assumption that the words at issue mean what they naturally say, they cannot be interpreted in a vacuum. The words must be interpreted by reference to what a reasonable person (who is informed with business common sense, the knowledge of the parties, including of course of the other provisions of the contract, and the experience and expertise enjoyed by the parties, at the time of the contract) would have understood by the provision. So construed, the words of a provision may have a meaning which is not that which they may appear to have if read out of context, or the meaning which they may appear to have had at first sight. Indeed, it is clear that there will be circumstances where the words in question are attributed a meaning which they simply cannot have as a matter of ordinary linguistic analysis, because the notional reasonable person would be satisfied that something had gone wrong in the drafting.

In both Investors Compensation [1998] 1 WLR 896 and Chartbrook [2009] 1 AC 1101, Lord Hoffmann made it clear that there is a fundamental difference between interpretation and rectification: the difference arises from the fact that in a claim for rectification, the court can take into account, and in an appropriate case can give effect to, the negotiations between the parties, whereas it cannot do so on an issue of interpretation. This case is concerned with interpretation, so what was said in negotiations is irrelevant and thus inadmissible (thereby ruling out some of PFM’s evidence).

Further, as Lord Hoffmann also made clear in Investors Compensation [1998] 1 WLR 896, there is a difference between cases of ambiguity, which may result in giving the words a meaning they can naturally bear, even if it is not their prima facie most natural meaning, and cases of mistake, which may result from concluding that the parties made a mistake and used the wrong words or syntax. However, he emphasised the court does “not readily accept that people have made mistakes in formal documents” - Chartbrook [2009] 1 AC 1101, para 23. He also pointed out in paragraph 20, that, as the court, and therefore the notional reasonable person, cannot take into account the antecedent negotiations, the fact that the natural meaning of the words appears to produce “a bad bargain” for one of the parties or an “unduly favourable” result for another, is not enough to justify the conclusion that something has gone wrong. One is normally looking for an outcome which is “arbitrary” or “irrational”, before a mistake argument will run.

Accordingly, before the court can be satisfied that something has gone wrong, the court has to be satisfied both that there has been “a clear mistake” and that it is clear “what correction ought to be made” (per Lord Hoffmann in Chartbrook [2009] 1 AC 1101, paras 22-24, approving the analysis of Brightman LJ in East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61, as refined by Carnwath LJ in KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336).

To the same effect, Chadwick LJ said in City Alliance Ltd v Oxford Forecasting Services Ltd [2001] 1 All ER Comm 233, para 13 (in a passage cited with approval in Lediaev v Vallen [2009] EWCA Civ 156, para 68) that the court cannot “introduce words that the parties have not used” into a contract unless “satisfied (i) that the words actually used produce a result which is so commercially nonsensical that the parties could not have intended it, and (ii) that they did intend some other commercial purpose which can be identified with confidence.”

On the first of the two issues before us, Ms Jones QC, who appeared for EMI with Ms Holtham, submitted that expert evidence is admissible to support a case as to what the parties to a contract would have known or believed. While of course he did not accept that such evidence assisted EMI in these proceedings, I did not understand Mr Howe QC, who appeared for PFM with Ms Shaheed Fatima, to challenge the deployment of such evidence in principle, in my view rightly so. I can see no reason why such evidence cannot be admitted, although it would not take matters further in the great majority of cases of interpretation. I might add that, if we were to hold that expert evidence was inadmissible on issues of interpretation, that would cause surprise, even consternation, to those involved in the construction of patents, which, while unilateral documents, are subject to the same approach as synallagmatic documents when it comes to interpretation – see Mannai Investments [1997] AC 749, a case concerned with a unilateral document, and Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2005] 1 All ER 667, a patent interpretation case referred to in Chartbrook [2009] 1 AC 1101, paras 14-15.

The Chancellor granted the first declaration, which ultimately turns on the meaning of the last sentence of clause 9(d)(i) of the 1999 Agreement (“clause 9(d)(i)”), which is in these terms:

“[EMI's] receipts shall be calculated at the so-called ‘source’ so that they shall incorporate the receipt [sic] of [EMI's] licensees sub-licensees affiliates or any third party obtaining rights in this respect directly or indirectly from [EMI].”

The Chancellor accepted PFM’s contention as to the effect of clause 9(d)(i), which is, in effect, that the clause entitles PFM to have the XX% royalty calculated by reference to the price paid by the ultimate consumer, or at any rate the end-user, of a particular recording. As a matter of language, that is, as EMI have always realistically accepted, the natural meaning of the words after “so that” : the words “sub-licensees”, “any third party” and “indirectly” appear to make it clear that, where there is what one might call a chain of licensees or purchasers, the royalty is to be calculated by reference to the last link of the chain, which would, save in very unusual circumstances, result in the royalty being calculated by reference to the highest figure in that chain.

EMI’s case in relation to the first declaration is that the royalty rate under clause 9(d)(i) should nonetheless not be assessed by reference to the price paid by members of the public to retailers who were not EMI, its “Associates” (as defined) or otherwise under its control. On that basis, Ms Jones argued that, where EMI (or an Associate or some equivalent entity) license or sell to a third party outside EMI’s control, the royalty is to be calculated by reference to the price paid by the third party to EMI (or its Associate or equivalent entity).

I describe this as EMI’s case, but it would be more accurate to describe it as what EMI’s case would be at trial, if the first declaration is set aside. That is because EMI realistically accepts that, in the absence of findings by a judge, following a trial with oral evidence, tested in cross-examination, EMI’s case as to the meaning of clause 9(d)(i) could not be accepted.

Given that this is an application for summary judgment, the question is, as the Chancellor said, whether, to use the words of CPR 24.2(a)(ii), EMI has a real prospect of defending PFM's claim for the first declarations it seeks. To put it another way, the question is whether there is any point in the issue going to trial. The issue is the meaning of clause 9(d)(i), and the question is whether there is a realistic prospect of the apparently clear meaning of the clause, for which PFM contend, being displaced in the way that EMI argues, if the evidence EMI has adduced is accepted.

In that connection, EMI’s evidence consists of witness statements from Alasdair George, a non-practising solicitor with considerable expertise in the entertainment business, Julian French, the senior Vice President in the Legal and Business Affairs Group of EMI, and Stephen Cooke, Business Affairs manager in the same Group. At this stage, it is not possible to resolve disputes of fact, save in clear and exceptional cases. Accordingly, as explained, it is necessary to consider whether the first declaration would be made if this evidence was accepted by a judge at trial. If so, there would be no point in the issue going to trial, and the declaration made by the Chancellor should stand; if not, then the declaration must be discharged, and the issue must go to trial.

The effect of this evidence was said by Ms Jones to establish that, by 1999, the position was as follows (to quote from her clear skeleton argument):

Although these points were strongly pressed by Ms Jones, I do not consider that, even assuming that all the evidence given by the three deponents to whom I have referred was established at a trial, it would justify the court departing from the plain meaning of clause 9(d)(i).

The structure of the crucial final sentence of clause 9(d)(i) is important in this context. The clause starts by saying that the calculation is to be on a “source” basis, which, by the use of the words “so that”, it then appears to define. Accordingly, there is obvious force in the point advanced by Mr Howe that the parties have defined the very expression on which EMI substantially relies in its point (b), and that there is therefore no room for the sort of arguments which Ms Jones has pressed. The answer advanced by Ms Jones is that, if that were right, there would be a tension, indeed a conflict, between the reference to ‘the so-called “source”’ and the words that follow, and that that conflict should, or at least (after a hearing) could, be resolved in favour of EMI’s favoured interpretation.

In my opinion, the weakness in that answer is twofold. First, it does not really meet the point that the parties have defined the meaning of calculation by reference to the “source”. Secondly, for Ms Jones to make good her point, the evidence would have to establish that there was a clearly understood meaning as to what was meant by “source” in the relevant industry, and I do not consider that the evidence achieves that. Mr George says that ‘the term “at source” is usually defined in some detail in musical publishing agreements’, which is very hard to reconcile with the notion that it has a clearly understood meaning in the industry.

It is true that Mr George goes on to say that the expression “source” would, in any event, be understood to exclude an “end-licensee or sub-licensee”. However, he not only accepts that the expression would be understood to include “sub-publishers (whether or not associated with the publisher)”, but he also accepts (unsurprisingly) that any sub-licensee, which, I think, quite clearly includes a sub-publisher, appears to be expressly included in the scope of the closing words of clause 9(d)(i). Furthermore, while he says that assessing royalties on the retail price charged by retailers obtaining rights from entities not associated with the record company was starting to go out of fashion from the mid-1980s, he accepts that, even as late as 2005, ‘other [record companies] still continued to use “retail price” as the basis for calculating royalties’.

These aspects of Mr George’s evidence appear to me to undermine not only point (b), the alleged industry understanding of “at source”, but also point (a), the alleged impracticality of PFM’s interpretation. In any event, I find it very difficult to accept the argument based on impracticability because it must be possible to grant licences on terms that the licensee will require any sub-licensee (whether direct or indirect) to provide an account of all sales or sub-licences, and to impose such a requirement on any sub-licensee who is not, as it were, an end-user. Further, the alleged difficulty in ascertaining retail prices charged by third parties unassociated with EMI seems largely to be linked to on-line distribution, and that market was apparently only “nascent” (at least insofar as it was lawful) in 1999, so it would not be surprising if the alleged impracticalities had been overlooked.

So far as points (c) and (d) are concerned, they essentially rely on the contention that it seems unduly favourable to PFM that the royalty rate should be the same for retail prices as for dealer prices. I am not sure that, on PFM’s interpretation, dealer prices would ever be the right basis for assessing royalties, assuming that dealers sell on. In any event, it seems to me that this involves relying on the sort of point deprecated by Lord Hoffmann in Chartbrook [2009] 1 AC 1101, para 20, where he made clear that the fact a particular interpretation produced an unexpectedly favourable result for one party was not a good reason for concluding that the parties had made a mistake in their drafting. One does not know how the figure of XX% was arrived at, and, even if there was an industry norm, Pink Floyd may have been able to command a particularly favourable rate, or there may have been other terms in the MLA or the 1999 Agreement which were particularly favourable to EMI: that is just the sort of point which it is dangerous to pursue, at any rate save in an unusual and extreme case. Indeed, here it goes further than that: even on EMI’s interpretation, royalties would be charged on the retail price, where EMI or its Associates or other connected third parties made retail sales.

So far as point (c) relies on the relatively recent nature of the on-line music business, it does not seem to me to advance EMI’s case either. The parties intended to cater for, and were aware of, various specific means of on-line distribution of recordings, as is clear from the terms of the 1999 Agreement and the MLA as set out above. More specifically for present purposes, it would seem from the terms which they agreed that the parties intended that their contractual arrangements in relation to on-line distribution should follow, or mirror, their contractual arrangements in relation to the more traditional, physical, methods of distribution, at least so far as royalty rates were concerned.

In these circumstances, I consider that, despite Ms Jones’s spirited argument, EMI has failed to show that “a clear mistake” was made in the wording of clause 9(d)(i) or, even if it was, that it is clear “what correction ought to be made” (per Lord Hoffmann in Chartbrook [2009] 1 AC 1101, paras 22-24). To put the same point in the words of Chadwick LJ in City Alliance [2001] 1 All ER Comm 233, para 13, EMI have established neither “that the words actually used produce a result which is so commercially nonsensical that the parties could not have intended it”, nor that the parties “intend[ed] some other commercial purpose which can be identified with confidence.”

Clause 4.13 of the MLA (“clause 4.13”) can be conveniently divided into three obligations on the part of EMI, plus one qualification:

Thus, what I shall call clause 4.13(a) and (d) refer to “Records”, and clause 4.13(b) and (c) refer to “Albums”. There is no doubt that the effect of 4.13(b) and (c) is to prevent EMI from “unbundling” the Albums by issuing any of the tracks in part or as singles, or in any combination save as in the precise configuration as is in the relevant album.

The question which divides the parties is whether clause 4.13, with its reference to “Records” and “Albums”, extends to digital recordings. The Chancellor, again agreeing with PFM, held that it did. EMI’s challenge to this conclusion does not depend on any disputed evidence, and therefore, as both parties agree, the issue is fit for summary judgment.

The Chancellor was much impressed with the point that the purpose of clause 4.13 was “to preserve the artistic integrity of the album[s]”, which helped lead him to conclude that EMI’s contention that the clause should not apply to on-line distribution was unlikely to be correct. Although Ms Jones challenged the Chancellor’s view of the purpose of the clause, it seems to me hard to avoid agreeing with it. Of course, it also gave PFM a negotiating position, in other words a platform for extracting more money, if EMI wished to unbundle any Album, but that does not detract from the good sense of the proposition that composers, compilers or performers of musical works can reasonably be expected to want to have a degree of control over any interference with the integrity of the products of their creativity. No other reason has been advanced for including the clause, and, especially as one must interpret the MLA through the eyes of a reasonable person, who is assumed to have commercial common sense, it seems to me that the Chancellor was plainly correct in his view of the reason for including the clause.

However, it is, of course, necessary to consider what the parties actually agreed, and in that connection, EMI’s argument effectively rests on the proposition that the ambit of clause 4.13 is limited to “Albums”, “Records” and “Single records”, and that the definitions of those words in the MLA are limited to physical products and cannot extend to digital storage or online distribution. The Chancellor was unimpressed with that line of argument, but I must admit to having found it rather more telling.

In particular, so far as the actual definition of “Records” is concerned, I find EMI’s argument very hard to resist. The concept, in the first half of the definition of that word, of “devices” which are “manufactured” is plainly limited to physical objects, but it is fair to say that the word “formats”, in the second half of the definition is a more flexible concept.

However, the expression “formats to be devised” in the second half of the definition not only takes its colour from the first half, but has to be read together with the definition of “On-Line Distribution”, which includes “distribution … via telephone, satellite, cable, point of sale manufacturing”, and also “other means of direct transmission … now known or hereafter invented”. This gives rise to two points. First, as at 1999, there were means of on-line distribution (telephone, satellite, cable, point of sale manufacturing) which were, on any view, excluded from the definition of “Records” as they were not “devices manufactured”, nor, even if they were capable of being “formats”, were they “to be devised”. That suggests that, if a method of transmission falls within “On-Line Distribution”, it does not fall within “Records”. Secondly, it would be a little odd if a system fell within the closing words of both definitions, a point supported by the terms of clauses 1.1 and 1.3, which, as do some other clauses of the MLA, support (but do not absolutely compel) the conclusion that the parties did not envisage that the definitions were intended to be mutually exclusive – although the reference to DVDs in clause 1.3 is a little odd given that they would seem to be within the definition of “Records” (and the reference to “point of sale manufacturing” in the definition of “On-Line Distribution” also may be questionable).

EMI’s contention that the definition of “Album” is limited to the physical items is less powerful. If “Album[s]” were expressly limited to “Records”, then EMI’s argument would be as apparently telling as it is in relation to that latter expression. However, the word “record” in the definition of “Album”, because of its lower case first letter, does not necessarily take one to the definition of “Record” with its upper case first letter. Having said that, it is fair to say that “recordings”, in the definition of “On-Line Distribution” must, I think, refer to “Recordings”. (Further, although the reference to “Master Tapes” in the definition of “Album” takes one to a definition which has reference to “Records”, it seems clear to me that the structure and wording of the definition of “Master Tapes” does not have the effect of limiting the expression to what is actually on Records. The expression “suitable for the creation and exploitation of first class Records” is merely descriptive of the quality of the recordings, and cannot fairly be read as somehow limiting the extent of the “Master Tapes”. If that is not right, then the reference to “Records” in the definition of “Master Tapes” is another example of a misuse of the word “Records” to mean “Recordings”, which would assist PFM’s case, as explained below).

It is appropriate to consider other provisions of the MLA, to which we were referred in argument, in order to see whether the parties referred to “Records” and “Albums” in such a way as to make it clear that they understood that those terms did or did not extend to digital recordings.

There is no doubt that, in a number of clauses of the MLA, “Records” is limited to physical product only, and it is clear from some clauses, over and above clauses 1.1 and 1.3, that the parties were well aware of the distinction between physical and digital recordings. The opening words of clause 6.1(b)(i), which mirror the opening words of clause 9(d)(i) of the 1999 Agreement, expressly state that online distribution of “Recordings” should be treated for royalty purposes as “sales of Records”. Similarly, clause 4.12 restricts EMI’s use of the “Delivery Material” to “the purpose of manufacturing and exploiting Records and exercising [EMI’s] On-Line Distribution Rights in accordance with this Agreement”.

However, Mr Howe referred to various passages in the MLA in which, he said, “Records” must have been intended to include digital recordings, or, more precisely, to mean the recordings rather than the object on which, or method by which, they were recorded or transmitted.

In that connection, I was not persuaded by Mr Howe’s reliance on clause 4.8, at least if the point stood alone. The clause requires royalties to be paid on “any Records … distributed free …”. While it would have made better commercial sense to extend this provision to on-line distribution, there are no grounds for thinking that it would have been irrational not to have done so.

On the other hand, there is force in the argument that references to “Records” in clauses 4.2 and 4.3 cannot be limited to physical products. Clause 4.2 requires EMI to “ascertain the identity of [every copyright holders] in all music and lyrics contained in the Records”, and to ensure that they consent to EMI’s “exploit[ation of its] rights under this Agreement”. The reference to “Records” should plainly be to “Recordings” or to what was on the Master Tapes. Similarly, in the first part of clause 4.3, there is a provision which is concerned to ensure that EMI does nothing which prejudices “the copyright in the Records”. It appears to me that it would have been plainly more appropriate to refer to copyright in the material in the Recordings or recorded on the Master Tapes.

It also seems odd if clause 4.6, which restricts sale of “any Records” to “top line label[s]” and to sales at “dealer prices”, excludes online distribution. The notion that there is no control whatever over who sells the material online, and at what price the material is sold online, is not easy to reconcile with a provision which imposes strict controls of that nature over the sale of physical products. Again, the clause makes sense if the reference to “Records” is treated as referring to “Recordings” of the music and lyrics on the Master Tapes.

There may also be something in the contention that there was a misuse of the word “Records” at the end of clause 4.6, which is concerned to limit “commercial tie-up agreements”, but, particularly given the nascent nature of the online market at the time, I do not regard that contention is made out. Clause 4.9 requires EMI to give PFM particulars of any third party “claim … in connection with the Records”. Again, that may have been intended to be a reference to the Recordings, but I do not consider that it can be read as such: PFM’s concern may have been about liens and the like over physical items.

As to the use of the word “Album”, there is no assistance from other provisions of the MLA, in that the few references outside clause 4.13(b) and (c) to Albums, while consistent with the expression being limited to physical products, are not inconsistent with the expression including online albums. Thus, clause 4.19 requires the Albums to be released and maintained in release, which could, but does not have to, extend to online release. Similarly, clause 6.1(a) refers to Records and Albums, but only Records are referred to in clause 6.1(b)(i); however, given the way clause 6.1(a) is worded, the point is neutral.

After this rather lengthy exegesis, I return to clause 4.13 itself. Commercial common sense strongly supports the case advanced by PFM, as the Chancellor said. It seems perverse to imagine that the parties envisaged the integrity of the Albums being rigidly controlled by PFM so far as they were physically recorded and distributed, but that PFM would have no control whatever over the integrity of digital recordings and distribution, particularly when one bears in mind that downloading by the eventual purchaser can involve a permanent recording being held on a physical format. While it is true that digital distribution was in its infancy at the time, it was plainly in existence and was seen by the parties as being commercially significant, and, on the issue of maintaining the integrity of recordings, no sensible reason for distinguishing between physical format and digital recordings has been advanced.

However, at any rate at first sight, the references to “Records”, “Album” and “Single” render it difficult to support a reading of clause 4.13, which extends its reach to digital recordings. Nonetheless, I have reached the conclusion that the Chancellor was right and that the restraints on EMI contained in clause 4.13 do extend to online distribution.

First, the centrally relevant provisions in connection with unbundling are clauses 4.13(b) and (c). The obligation in clause 4.13(b) limits what can be sold to the form of “the current Albums”. Clause 4.13(c) then goes on to limit exploitation of “the Albums” to the same form, in rather more specific terms. In my view, the definition of “Album” is quite consistent with the expression extending to digital recording. In particular, the reference to “record” can properly be read as a reference to recordings (whether physical or digital), rather than to “Records” as defined.

Secondly, while the reference to “Records” in clause 4.13(a) and (d) could exclude digital recordings without logically undermining this conclusion, it does seem to me more likely that either all or none, rather than only some, parts of clause 4.13 were intended to apply to online distribution. In my view, this is a case where commercial sense means that one can and should conclude that the parties made a mistake in referring to “Records” in clause 4.13(a) when they intended to refer to the music, lyrics and performance which were recorded on those records, or more precisely, on the Master Tapes. This is a fairly small mistake to have made, and the contention that it was made is not only supported by business common sense, but also by the reference to “records” elsewhere in the clause, and the perversity of the alternative. A somewhat similar mistake was made in more than one place in the MLA (at least in clauses 4.2, 4.3 and 4.6), and there is the error in the definition of “On-Line Distribution” referred to above. Furthermore, the contention is supported by the fact that the reference to “Records” in clause 4.13(a) cannot literally mean physical product anyway: one cannot “couple” a physical record or other physical format with “master recordings”: one can however couple a recording of what is on a physical record (or on a digital recording) with master recordings.

As to clause 4.13(d), it also refers to “Records”, and the same reasoning applies to that extent. The reference in that clause to “Single records” shows that the parties have not adhered to the contractual definitions in clause 4.13, in the light of the definition of “Single” and the fact that singular includes the plural, and this provides some further support for my conclusion. The reference to “Single records” can also be said to give a little support for my view that when the parties refer to “records” (with a lower case “r”) they meant to include digital recordings, but I consider that the point is too abstruse and over-sophisticated to be of any weight. Quite apart from this, the definition of “Single” could fairly easily apply to digital media, in the light of the reference to “equivalent means of exploitation the rights to which are granted … herein.”

In all these circumstances, I have reached the conclusion that clause 4.13, unlike clause 9(d)(i), is not by any means a clearly drafted provision, whose effect is unambiguous as a matter of language, and that it is therefore quite permissible, indeed positively appropriate, to invoke commercial common sense to assist on the issue of clarifying a rather opaque provision. I also consider that the commercial common sense which PFM invokes for the purpose of interpreting clause 4.13 is simple and uncontroversial. On the other hand, as I have sought to explain, the commercial common sense invoked by EMI in relation to clause 9(d)(i) is far more unclear and debatable.

Since preparing this judgment, I have seen the draft judgment of Carnwath LJ, in which he comes to a different conclusion on this difficult point. I readily acknowledge the force of the reasoning in his well expressed judgment, but, albeit with diffidence, I adhere to the view that the appeal on this second issue should be dismissed for the reasons set out above.

This appeal was listed in the Daily Cause List to be heard in private under the case name “P v E”. When the appeal was called on, we invited counsel to explain why this was so. It appeared that the only reason was the alleged commercial sensitivity of the precise percentage figure in clause 9(d) of the 1999 Agreement (“the percentage”), which explains the fact that it is the only redaction made to this judgment or to that of the Chancellor below. I had, and have, some doubt as to whether even that aspect of the case justified secrecy or redaction. However, the parties had had no notice that that point might be raised, the Chancellor had accepted the redaction of the percentage, and there was a risk that we would run up against time problems anyway, so the appeal proceeded on the basis of that redaction.

Assuming (as may well be correct) that it was appropriate to ensure that the percentage was not revealed, that did not justify having any part of the hearing in private, let alone anonymising the parties. The percentage could be, and was, referred to in court, as in the judgments, as “XX”, and any risk that the percentage might be inadvertently mentioned in open court could be, and was, dealt with by our making an order that no reference to the percentage could be made outside court, even if it was mentioned in court. (We also made an order, similar to one made below, restricting public access to court documents, for the purpose of ensuring that the percentage was not seen by, or revealed to, third parties.)

That course ensured that the hearing proceeded in open court, but, because of the way in which the appeal was listed, the public, including the media, would not have been alerted to the fact that the appeal against the decision of the Chancellor in this case was being heard. In itself, that was, I think, not a point of serious concern, as, although any case involving a famous pop group, such as Pink Floyd, may be thought by members of the general public and the press, to be worth investigating, it seems to me unlikely that anything said during the hearing was of any general interest.

However, it was wrong in principle that this appeal was not properly listed. It was also inconvenient in practice: had the issue been properly considered in advance, all the papers, including the skeleton arguments, could have been appropriately redacted so that the documents, as well as the hearing, could have been dealt with in the normal way. More importantly, unless steps are taken to ensure that this does not happen again, such inappropriate listing and preparation could lead to real injustice in another appeal.

I consider, therefore, that the present appeal provides a good opportunity for this court to make it clear that a private hearing or party anonymisation will be granted in the Court of Appeal only if, and only to the extent that, a member of the Court is satisfied that it is necessary for the proper administration of justice.

The fact that the first instance judge granted or refused to permit a private hearing or anonymisation cannot be conclusive of such issues in the Court of Appeal (although the judge’s refusal of such relief will, in most cases, render any subsequent application on appeal pointless). A first instance judge’s decision on such an issue self-evidently does not bind the Court of Appeal, and cannot determine how an appeal in this court proceeds. However, this court would normally pay close regard to the judge’s decision, especially if expressed in a reasoned judgment. Nonetheless, in relation to appeals, the Court of Appeal should not depart from the general rule that litigation is to be conducted in public, unless a judge of that court is persuaded that there are cogent grounds for doing so.

In a case where permission to appeal is required from this court, then, where the applicant wants a private hearing or anonymisation, the correct procedure is to apply for an appropriate order at the time permission to appeal is sought. If another party to such an appeal wants a private hearing or anonymisation, or in a case where permission to appeal has been granted below, if any party has such a wish, the party concerned should make an appropriate written application to this court. Where any application for a hearing in private or anonymisation is made, it will be referred to a single Lord Justice, who will, at any rate initially, consider it on paper. If such an application is granted ex parte and another party (or a representative of the media) objects, the order will, of course, be reconsidered.

Of course, particularly in a case in which anonymisation or privacy was granted below, where anonymisation or privacy is sought in an appeal to this court, it would (at least in the absence of unusual circumstances) be appropriate for the parties and the court to maintain anonymisation or privacy on an interim basis, without a direction from a judge of this court, until it was possible for this court to rule on the question of whether an order for anonymisation or privacy should be made.

As it is, in my view, for the reasons given above, this appeal should be dismissed.

I have had the advantage of reading the judgments of My Lords the Master of the Rolls and Carnwath LJ. I agree with them that the first declaration was correctly granted by the learned Chancellor, and in relation to that EMI’s appeal should be dismissed for the reasons given by the Master of the Rolls.

My Lords are divided as to the second declaration. In my opinion that declaration was also correctly granted, and I would dismiss the appeal in relation to it. Here too I agree with the reasons given by the Master of the Rolls, but since we are not unanimous I will add some short observations of my own.

As the Master of the Rolls indicates (paragraph 40) the question which divides the parties is whether clause 4.13 of the MLA extends to digital recordings. To my mind the starting-point here is the Chancellor’s acceptance of the proposition that the purpose of clause 4.13 was to preserve the integrity of the albums. I agree with this, as does the Master of the Rolls (paragraph 41). Once that is accepted, it seems to me impossible to suppose that the parties in concluding paragraph 4.13 might have chosen to give effect to this purpose as regards physical products but not as regards digital products. I cannot see that any appeal to the relative infancy of digital recording in 1999 materially affects that conclusion. That was the purpose of the clause.

May the clause’s language properly be read as giving effect to that purpose in light of the modern jurisprudence on the construction of contracts? My Lord the Master of the Rolls has given an account of the learning on which I cannot improve and will not repeat. Here, in my judgment, the critical factor is that the language of the contract is equivocal. So much is to my mind demonstrated by the Master of the Rolls’ discussion of the material terms of the contract at paragraphs 42 – 57.

I therefore see the case as one where the purpose of the provision is clear but the language is equivocal. In those circumstances, on established principles we should construe the contract so as to give effect to its demonstrated purpose. That is what the Chancellor and the Master of the Rolls have done, and so would I.

I gratefully adopt the Master or the Rolls’ account of the facts, and his exposition of the relevant principles of law. Applying those principles, I agree entirely with his conclusion on the first issue.

The same principles lead me respectfully to differ from him on the second issue. Important points to my mind are the prima facie assumption that the words mean what they say; the dangers of “detailed semantic and syntactical analysis” of a commercial document; and the warning against too readily inferring that something has gone wrong, merely because it appears to result in a “bad bargain”, unless it produces a result which is “arbitrary or irrational”. These points are particularly relevant in the context of a commercial contract drawn up and agreed by parties well able to look after themselves, and armed with the legal advice necessary to do so.

I agree with the first stage of his reasoning: that is, that the definition of “Records” is clearly referring to physical items. It is important also that the definitions clause distinguishes between, on the one hand, such physical “Records”, and, on the other, “recordings” which, under the definition of “On-Line Distribution”, may be distributed “over networks or through the air…” “Album” is defined as “any sound alone record…” Again the natural reading, to my mind, suggests a physical item. I note the changes (as compared with the definition of “Records”) to lower case and singular. But I cannot read those changes as intended to signal a broader or materially different concept of “record”, especially since non-physical “recordings” are dealt with separately and specifically in the same clause.

If that is the correct interpretation of the definition section, it follows that 4.13 of the MLA, which restricts “uncoupling” is also dealing with physical items. The restrictions in the clause are expressed as applying to “Records” and “Albums”. There is no reference to a corresponding restriction in relation to recordings in other forms.

The main reason, as I understand it, for not adopting this simple view of the clause is that it offends “common sense”. It is said to be “perverse” to imagine that the parties agreed to rigid control of the integrity of physical Albums, but not of their on-line equivalents; and that “commercial sense” points to a “mistake” in the reference to “Records” in clause 4.13. This is supported by the view that a similar mistake appears in other parts of the agreement.

I accept that, with hindsight, it seems surprising that a distinction would have been drawn for this purpose between physical and on-line sales. However, that is far from saying that it would have been arbitrary or irrational for the parties to have made an agreement on that basis in 1999. On this part of the case, we are not asked to consider evidence outside the terms of the contract itself as to the factual matrix. We have no evidence, therefore, as to the precise commercial significance to either party of a restriction on “uncoupling”. It is impossible, and in any event impermissible, to try to recreate the thinking of either party in the negotiations.

We can of course infer, as did the Chancellor, that the general purpose was to preserve the artistic integrity of the album, at the same time as giving them (in the words of the Master of the Rolls) “a platform for extracting more money”. That simply explains the logic from PFM’s point of view. It tells one nothing about EMI’s willingness to concede the point, or how far they would have been willing to go if pressed. Given the uncertainty at that time about the future development and form of on-line distribution, it cannot necessarily be assumed that “uncoupling” would have been seen as having the same commercial immediacy or importance in that context. All we can go on is the natural meaning of what they agreed. (For completeness I note that information supplied since the hearing by Ms Jones QC suggests that the precise form of restrictions relating to “unbundling” or “decoupling” did vary over time as the agreements were negotiated and re-negotiated. However, since this was not the subject of the argument at the hearing I attach no weight to that information for the purposes of this judgment.)

We are asked to draw parallels with similar “mistakes” in other parts of the document. I am doubtful of the value of that exercise unless the other parts are dealing with issues which are truly comparable, in either substance or significance. That cannot in my view be said of the particular clauses relied on. Thus, for example, I do not gain any assistance from analysis of clauses 4.2 and 4.3. They are concerned, respectively, with identifying the owners of copyright in “all music and lyrics contained in the Records”, and with ensuring that “copyright in the Records” is not impaired. The latter expression can be said to be a misuse of language, in that the copyright is in the recorded material, rather than in the Records as such. Thus, by contrast, the definition of “Copyright liabilities” refers more accurately to “any right of copyright in musical compositions in the Master Tapes of the Records”. However, there was no ambiguity about what was intended in clauses 4.2 and 3. The relevant recordings were all listed by name in Schedule 2, by reference to specific Albums, and they were in fact all “Records” as defined. The words used were adequate for their sole purpose which was that of identification. To describe that wording as a “mistake”, rather than simply looseness of language, is to accord it a significance which it did not have in its context. It provides no assistance, in my view, to the interpretation of a clause such as 4.13, in which this distinction matters, and where one would have expected the parties to take care to ensure that the wording reflected their intention.

Finally, I should refer to clause 6.1(b)(i) of the MLA, under the heading “Royalties” (in similar form to clause 9(d)(i) of the 1999 Agreement, which was relevant to the first issue). It provides that in the event of sales distribution of “any Recordings by On-Line Distribution”, such sales are to be “deemed sales of Records for all purposes SAVE…” (there follows the modified royalties formula). It is not as I understand it argued that this deeming provision has any direct application to the second issue, or that it extends beyond the issue of royalties. However, it may provide some support for the view I have taken on this issue, in so far as it suggests that where the parties intended the rules for Records to apply also to On-line Distribution, they made specific provision for it.

For these reasons, I would have allowed the appeal on the second issue.