Phonographic Performance Ltd v Nightclub (London) Ltd

This is an application of the claimant (“PPL”) for permission to issue a writ of sequestration against the defendant (“the Company”) and for committal of its sole director and shareholder Sokol Toska (“Mr Toska”). I heard the application in the absence of the Company and Mr Toska. My reasons for proceeding in their absence are explained later in this judgment. I should, at the outset, as well as commending his oral submissions, acknowledge the helpful skeleton argument and note for hearing prepared by Mr Harbottle who appears for PPL. I have drawn on them significantly in preparing this judgment.

The evidence is contained in the affidavits of Adam Dickman (17 February 2016), Anna Killick (14 January 2016), Wayne Petford (29 January 2016), Steve May (26 January 2016) and Dave Avraam (2 February 2016) and the exhibits to those affidavits. There is an error in Ms Killick’s affidavit. She stated that she had read Mr Dickman’s affidavit; what she had actually read was a draft of that affidavit. The affidavit as eventually sworn contained only minor changes to the draft. Ms Killick has provided a supplementary affidavit correcting the error and confirming the accuracy of what Mr Dickman says in his affidavit as sworn. The Company and Mr Toska have taken no part in the proceedings at any stage; there is no evidence from them. My findings appear in the following paragraphs.

The Company has been the Premises Licence Holder in respect of the nightclub premises known as Kolis, 1 Archway Road, London N19 (“the Premises”) since 24 November 2005 and as such is authorised by the local authority to play recorded music.

Mr Toska has at all material times been the sole director and shareholder of the Company as well as being the designated premises supervisor in respect of the Premises. As such supervisor he is responsible for the day-to-day management of the Premises pursuant to the Guidance under Licensing Act 2003. Although Mr Toska has asserted that the appropriate party to hold PPL’s licence in respect of the Premises is another company called Entertainment Enterprise Limited (which it appears he also controls), he has produced no evidence to support that assertion. In the absence of any such evidence, I conclude that the Company remains the proprietor of the Premises.

PPL became aware that the Company was trading at the Premises in June 2013. After numerous reminders, the Company declared that recordings from PPL’s repertoire were being used as “background music” at the Premises and a licence was granted in respect of that use for the period to 13 April 2015.

PPL suspected that the Company was also using recordings in its repertoire as “specially featured entertainment” (DJ presentations and the like), which generally attracts a higher licence fee. This was confirmed by an agent who visited the Premises on 9 August 2014. Attempts to persuade the Company to obtain PPL’s licence for specially featured entertainment had no result and proceedings were commenced on 18 September 2014. There was no acknowledgement of service and no Defence.

An order was made by Norris J on 14 November 2014 on an application by PPL for default judgment (“the Order”). The Order was in similar form to those frequently made in actions of this nature brought by PPL. The Order contained an injunction restraining the Company from infringing PPL’s copyright and/or the copyright to which PPL’s members hold an exclusive licence by playing in public any sound recording, or recordings in PPL’s repertoire. Although not identified in the Order – the list would be far too long – the Order contained an undertaking by PPL to make available a searchable database of the sound recording comprising that repertoire. The Order also contained an order for costs against the Company.

On 14 November 2014, copies of the Order were posted to the Company at its registered office and at the Premises. The covering letter explained that further playing of PPL’s repertoire in public was a breach of the Order and at the Company’s peril; and it was suggested that the Company seek legal advice if it was in any doubt. In response to attempts to enforce the costs part of the Order, on 20 February 2015 Mr Toska asserted that he had paid the licence fees. It was explained to him that he had only paid the licence fees for background music. Mr Toska then applied for a licence in respect of specially featured entertainment in the name of “Nightclub Kolis” but failed to pay the invoice, so that the Premises therefore remained unlicensed.

The Company did however pay the costs of the proceedings to High Court Enforcement Officers. By letter to the Company dated 13 March 2015 (also emailed to Mr Toska), PPL’s solicitors acknowledged this but explained that continued unlicensed public performance of sound recordings was a breach of the Order and an infringement and threatened to continue the proceedings.

The Company submitted directly to PPL a completed licence application form; it was submitted in the name of Nightclub Kolis and dated 24 February 2015. PPL raised an invoice but this was never paid.

On 11 April 2015 a copy of the Order endorsed with penal notices addressed both to the Company (at the top) and Mr Toska (at the bottom) was personally served on Mr Toska at the Premises. Although the penal notices are in comparatively small print, the first page of the Order contains a notice that breach of the injunction could result in the Company being found in contempt of court and “any of your Directors may be sent to Prison or fined”. In any case, when the Order endorsed with penal notices was personally served, Mr Toska acknowledged himself, and the penal notice addressed to the Company (although not the one addressed to him) was read to him. The process server states that she read the penal notice to Mr Toska. She set out what she read: “If you disobey the injunction in this Order you may be found guilty of Contempt of Court and any of your Directors may be sent to Prison or fined and you may be sent to Prison or fined or your assets may be seized”. Those words are actually words of the Notice in the Order itself and not, verbatim, the words either of the penal notices. I do not think this matters. Clearly Mr Toska should have understood from what was read to him the consequences of disobeying the injunction; although the penal notices were in small print, the combination of those Notices and the words read out to him by the process server can have left him in no doubt about his exposure.

On 13 April 2015 the background music licence expired and the Premises have been completely unlicensed ever since.

On 22 April 2015 a person who identified himself as “Daniel” telephoned PPL’s solicitors. The attendance note, the contents of which I see no reason to doubt and accept, records that Daniel was told that the licence fee remained outstanding; he stated in reply that he did not accept that and said that he would place the Company into administration. The note also records “He stated that the premises was not currently trading”. The person holding the conversation with Daniel recorded his belief that Daniel was actually Mr Toska. I agree that that is likely. Indeed, the inevitable inference from the threat by Daniel that he would put the Company into liquidation is that he was able to do so; the only person in the position to do so was Mr Toska. In the absence of any contrary evidence, I conclude that Daniel was, indeed, Mr Toska.

Contrary to Daniel’s assertion, the Premises remained open and trading and on 13 June, 15 August and 19 December 2015 in breach of the Order sound recordings in PPL’s repertoire were played in public at the Premises by way of specially featured entertainment. I am satisfied that this was so from the affidavits of Wayne Petford, Steve May and Dave Avraam which I have already mentioned.

By letter dated 28 September 2015, PPL’s solicitors notified the Company of the breaches dated 15 August 2015. The letter was copied by email to Mr Toska. The letter clearly warned the Company (and the email warned Mr Toska) of the risk of sequestration, fines or imprisonment.

A further letter was sent on 28 January 2016 reiterating that the playing of sound recordings in public at the Premises continued to be a breach of the Order. Despite having been invited in those letters to regularise the position, the Company has failed to do so. The Islington Licensing department confirmed on 4 February 2016 that the Company remained the Premises Licence Holder and that Mr Toska remained the Designated Premises Supervisor.

It is clear from the evidence that the Company has been properly served with the Order and that its terms have been explained to Mr Toska on a number of occasions, and he has also been warned at the same time of the consequences of a breach of the injunction. I am entirely satisfied that, nonetheless, the Company has continued to play or authorise the playing at the Premises of sound recordings for which it requires PPL’s licence without that licence. The Company is beyond any reasonable doubt in breach of the Order.

The application before me is, as I said at the outset, for permission to issue a writ of sequestration against the Company and for committal of Mr Toska. It is dated 17 February 2016. I am satisfied that it, together with the evidence in support, was served personally on the Company (in the person of Mr Toska) and on Mr Toska himself at the Premises on 20 February 2016. Also served were copies of two covering letters dated 17 February 2016 from PPL’s solicitors addressed to the Company and Mr Toska respectively. The letters were in similar form, advising the recipient of the date of the hearing – 16 March 2016 – which date was in any event included in the application notice. The process server, Mr Hopkins, read out the words of warning contained in the Order of Norris J. Mr Toska would also have been able to see the separate penal notices directed specifically to the Company and himself. The letters also asked the Company and Mr Toska to supply any evidence to be relied on urgently and suggested that if they were in any doubt they contact a solicitor.

By letters dated 22 February 2016 (again in similar form) PPL’s solicitors informed the Company and Mr Toska respectively of the availability of Legal Aid without means testing in respect of committal proceedings and supplied a copy of the relevant guidance. There has been no communication since.

At the first hearing of the application, on Wednesday 16 March 2016, despite having been personally served with the application notice, neither the Company nor Mr Toska attended. Mann J issued a bench warrant to secure Mr Toska’s attendance and adjourned the application to Wednesday 23 March 2016 at 10.30 am or such earlier or later date as the Court might order.

By 23 March the warrant had not been executed. Morgan J adjourned the application again to 6 April 2016. So far as PPL is aware, the warrant had still not been executed by the time of the hearing before me.

On Friday 1 April 2016, a sum of £934.21 was paid to PPL directly by bank transfer in respect of PPL’s invoice (generated automatically) in respect of the licensing year commencing 14 April 2016. PPL has indicated to me that this sum will be held generally on account and accordingly will not, in its view, regularise the Company’s licensing position. I should not be taken as accepting that PPL is entitled to take this course. The payment was, as I understand it, made in respect of an identified invoice. A debtor ordinarily has the power to appropriate a payment to a particular debt; it is only if he does not do so that the creditor can then appropriate. I do not, at present, know enough about the payment and how it was made to be able to determine whether the Company has effectively appropriated the payment to the invoice.

Nothing turns on this so far as concerns breaches of injunction since the breaches of which complaint is made, of course, all pre-date 14 April 2016 and no appropriate licence fee has been paid in respect of the past. The Company (and for reasons which I come to) Mr Toska are clearly in contempt of court. However, if the payment made on 1 April 2016, is properly to be appropriated to the licence fee for the year commencing 14 April 2016, then the Company is no longer in breach of the injunction contained in the Order. This may well have an impact on the sentence, if any, which it is appropriate to impose on the Company and Mr Toska.

In accordance with the Order of Morgan J, on 24 March 2016 PPL’s solicitors posted a copy of the Order first class to the Company’s registered office and the nightclub premises. They also posted a copy by first class post to the address for service given to Companies House by Mr Toska. This is good service on Mr Toska: see section 1140 and 1141 Companies Act 2006 and the commentary at 6.3.9.1 of the White Book Service 2016. Nothing has been heard in response.

So far as concerns the exposure of a director or a company for contempt of court as a result of the company’s breach of an injunction, Hamblen J summarised the applicable principles in Public Stock Company v Maksimov [2014] EWHC 3771 (Comm) at 37(5):

“Where a company is ordered not to do certain acts and a director of that company is aware of the order, he is under a duty to take reasonable steps to ensure that the order or undertaking is obeyed, and if he wilfully fails to take those steps and the order or undertaking is breached he can be punished for contempt. It may be otherwise if the director can reasonably believe some other director or officer is taking those steps”.

Hamblen J reviewed the authorities in IPartner PTE Shipping Ltd v Panacore Resources DMCC [2014] EWHC 3608 (Comm) at [24] and [25]:

“24.

In A-G of Tuvalu v Philatelic Distribution Group [1990] 1 WLR 926 Woolf LJ in giving the judgment of the Court of Appeal stated as follows:

‘In our view where a company is ordered not to do certain acts or gives an undertaking to like effect and a director of that company is aware of the order or undertaking he is under a duty to take reasonable steps to ensure that the order or undertaking is obeyed, and if he wilfully fails to take those steps and the order or undertaking is breached he can be punished for contempt. We use the word “wilful” to distinguish the situation where the director can reasonably believe some other director or officer is taking those steps (936E-F)

…

There must however be some culpable conduct on the part of the director before he will be liable to be subject to an order of committal under Ord. 45, r. 5 ; mere inactivity is not sufficient….(938A)

…

(that) … should not be taken as meaning that it is only where a director has actively participated in the breach of an order or undertaking that Ord. 45, r. 5 can apply. If there has been a failure to supervise or investigate or wilful blindness on the part of a director of a company his conduct can be regarded as being wilful and Ord. 45, r. 5 can apply. (938D)’

25.

In Sectorguard v Dienne [2009] EWHC 2693 Briggs J. stated his understanding of the effect of the Tuvalu case to be as follows at [42]:

‘42...an applicant for the committal of a company director who relies upon a breach by the company of an order or an undertaking must disclose in the committal application a case for the establishment of responsibility on the part of that director, either on the grounds of aiding and abetting or wilful failure to take reasonable steps to ensure that the order or undertaking is obeyed.’”

It follows that a wilful failure on the part of a director to take reasonable steps to prevent the breach of an order gives rise to liability for contempt. In this case Mr Toska is the only director and the only shareholder. He has been personally served with the Order but has taken no steps to ensure compliance with it. On the contrary, he has wilfully ignored it. He cannot contend that he thought some other director was taking those steps because there was no other director. He is clearly the controlling mind of the Company. He is, in my judgment, plainly in contempt of court.

It is evident that the Company and Mr Toska were well aware of the application and the hearing date before me. Mr Harbottle invited me to deal with the application in their absence. He properly reminded me that to do so is an exceptional course: JSC BTA Bank v Solodchenko [2011] EWHC 1613 (Ch) (“Solodchenko”) at [13], where Briggs J set out the summary given by Roth J in JSC BTA Bank v Stepanov [2010] EWHC 794 (Ch) at [12]. I do not propose to set the passage out again.

In Sanchez v Oboz [2015] EWHC 235 (Fam), Cobb J set out a checklist of considerations for the Court to have in mind when considering whether to proceed in an alleged contemnor’s absence. The checklist reflects the factors addressed by the Court of Appeal in R v Hayward [2001] QB 862. The list, and its application on the facts of the present case, is as follows:

In the light of those factors, I decided that I would hear the application.

The Company and Mr Toska are beyond any reasonable doubt (that is to say, applying the criminal standard of proof) guilty of contempt by reason of the breaches discussed in the judgment of the injunction granted by Norris J in the Order. The application before me has complied fully with the procedural requirements. The small error in Ms Killick’s affidavit has been corrected and has no consequence.

I do not, however, consider that I should proceed to sentence at the present time. As Briggs J said in Solodchenko, in a case where serious contempt has been proved in a respondent’s absence, it is appropriate for the court to pause before proceeding immediately to sentence and to consider whether the matter should in the alternative be adjourned. The present case does not involve a contempt on a level with the contempt in that case, but the reasons Briggs J gave for pausing apply equally in the present case. In addition, it would be wrong to impose any sentence at the present time without clarification about the payment or non-payment of the licence fee for the year commencing 14 April 2016.

The appropriate course, I consider, is to adjourn the application before sentence, if any, is passed. There is already a bench warrant outstanding; there is no point in issuing a fresh one. Following the course contemplated by Briggs J at the end of his judgment, I direct service of this judgment on the Company and Mr Toska, requiring attendance at an adjourned sentencing hearing. If they do not respond, the court will be likely to sentence him in his absence. I will expect, in any event, that PPL provides further information about the payment made on 1 April 2016 and an explanation as to why it contends, if it continues to do so, that the payment is not to be appropriated to the licence fee for the year commencing 14 April 2016. I will hear submissions about an appropriate period for the adjournment when I hand down this judgment.