Henderson v All Around the World Recordings Ltd

This is an inquiry as to damages heard pursuant to the Order of HH Judge Birss QC dated 18th March 2013, following his judgment of 13 February 2013.

The background facts, which are also relevant to this inquiry, were set out in the judgment:

The rights granted by 2NV to All Around the World did not include Miss Henderson’s performance rights. Judge Birss continued:

Judge Birss reached the conclusion that the performer’s right relating to the vocal at the centre of the dispute belonged to Miss Henderson and that she consented to the recording of her vocal by Mr Tawonezvi. Miss Henderson did not consent to the creation and release of the Heartbroken track by All Around the World. All Around the World’s copying of the recording of her vocal performance and the issue to the public of copies of the recording were infringements of Miss Henderson’s performer’s rights. Miss Henderson is accordingly entitled to damages for that infringement.

In the Amended Points of Claim Miss Henderson claims damages under the following three heads:

Loss of royalties from an alternative record deal

Further damages made available pursuant to the 2006 Regulations

Non-economic factors – moral prejudice

Injury to Miss Henderson’s feelings at being strung along by All Around the World;

Humiliation as a result of her minimal appearance in the music video for Heartbroken.

Additional damages pursuant to section 191J(2) of the 1988 Act

At some point between pleading the Amended Points of Claim and the trial the first head of damages appears to have been readjusted to become a loss calculated by reference to the royalties that would have been paid by All Around the World to Miss Henderson had they entered into a contract for the release of Heartbroken – in other words, the familiar type of assessment of royalties that would have been paid had there been a licence which would have made the infringing acts lawful, negotiated between willing licensor and willing licensee, sometimes called the ‘user principle’. That is how the first head of loss was presented by Mr Pearson, who appeared for Miss Henderson, both in his skeleton argument and orally. The possibility that Miss Henderson might have entered into a contract with a third party record label was relegated to part of the evidence in support of the contention that Miss Henderson would have held out for a high royalty in her hypothetical negotiations with All Around the World. It may not make any difference.

Mr Harbottle, who appeared for All Around the World, in his skeleton seems to have assumed that both heads of loss were being run on behalf of Miss Henderson: loss of chance to enter into a recording agreement with a third party and (possibly or) loss of royalties from an agreement with All Around the World. Mr Harbottle interpreted paragraph 7 of the Points of Claim to advance the latter claim. I do not read paragraph 7 that way, but the change of claim certainly did not take Mr Harbottle by surprise. I will consider Miss Henderson’s first head of claimed damages on the basis that it claims the royalty which would have been agreed between Miss Henderson and All Around the World. I see no reason to consider the pleaded, but I think formally abandoned claim based on a notional contract with a third party record company.

By an application notice dated 4 July 2014 Miss Henderson sought to amend the Particulars of Claim to include a claim for loss of income from PPL, the body responsible for collecting royalties for the playing of recorded music in public. Miss Henderson claims that PPL was not properly informed of the correct royalty split between her and Mr Tawonezvi.

I do not allow the amendment. If Miss Henderson is due royalties from PPL she must take that up with PPL. To the extent she wishes to persuade PPL that the royalty split with Mr Tawonezvi has been wrongly stated, this judgment may or may not assist.

By an application notice dated 8 April 2014 All Around the World applied to strike out paragraphs 9.2 and 10 of Miss Henderson’s Amended Points of Claim, which correspond to the claims for heads of damage which I have numbered (2)(b) (unfair profits) and (3) (additional damages) above. The application notice was served on Miss Henderson on 10 April 2014. By 30 April 2014 Miss Henderson had made no response and I dealt with the matter in writing, striking out paragraphs 9.2 and 10.

My reasons in relation to Miss Henderson’s claim for unfair profits was that this constituted a claim to an account of profits in addition to the claim for damages for which she had elected. I took the view that there were no grounds for a claim to All Around the World’s profits and that the claim was an abuse of process.

With regard to paragraph 10, I struck this out pursuant to CPR 3.4(2)(c) on the ground that the claim for additional damages had not been pleaded in the Particulars of Claim, contrary to CPR 63PD paragraph 22.1.

At the start of the trial Miss Henderson applied to set aside my Order of 8 April 2014 pursuant to CPR 3.1(7). Mr Pearson argued that the effect of regulation 3 of the 2006 Regulations allowed a successful claimant to claim both damages and the defendant’s profits and indeed required the court to consider both and where appropriate to make an award in relation to both, in tandem.

As for paragraph 10 of the Amended Points of Claim, Mr Pearson drew my attention to Brugger v Medicaid [1996] FSR 362 in which Jacob J permitted the claimant to raise a claim for additional damages for copyright infringement pursuant to s.97(2) of the 1988 Act at the inquiry stage, even though no such claim had been pleaded in the original pleadings.

I took the view that it would not be time well spent dealing with whether either or both points should remain struck out. The parties’ skeleton arguments had dealt with both points and so I allowed them to be argued. I left to this judgment my decision as to whether either or both paragraphs of the Amended Points of Claim should be reinstated, alongside my views on the merits.

In SDL Limited v Next Row Limited [2014] EWHC 2084 (IPEC) I said this:

A successful claimant is entitled, by way of compensation, to that sum of money which will put him in the same position he would have been in if he had not sustained the wrong, see Livingstone v Rawyards Coal Co. (1880) 5 App.Cas., 25 per Lord Blackburn at 39.

The claimant has the burden of proving the loss, see General Tire and Rubber Company v Firestone Tyre and Rubber Company Limited [1976] RPC 197, at 212.

The defendant being a wrongdoer, damages should be liberally assessed but the object is to compensate the claimant, not punish the defendant, see General Tire at p.212.

The claimant is entitled to recover loss that was (i) foreseeable, (ii) caused by the wrong and (iii) not excluded from recovery by public or social policy, see Gerber Garment Technology Inc v Lectra Systems Ltd[1997] RPC 443, at 452.

In relation to causation, it is not enough for the claimant to show that the loss would not have occurred but for the tort. The tort must be, as a matter of common sense, a cause of the loss. It is not necessary for the tort to be the sole or dominant cause of the loss, see Gerber at p.452.

An inquiry will generally require the court to make an assessment of what would have happened had the tort not been committed and to compare that with what actually happened. It may also require the court to make a comparison between, on the one hand, future events that would have been expected to occur had the tort not been committed and, on the other hand, events that are expected to occur, the tort having been committed. Not much in the way of accuracy is to be expected bearing in mind all the uncertainties of quantification. See Gerber at first instance [1995] RPC 383, per Jacob J, at 395-396.

Where the claimant has to prove a causal link between an act done by the defendant and the loss sustained by the claimant, the court must determine such causation on the balance of probabilities. If on balance the act caused the loss, the claimant is entitled to be compensated in full for the loss. It is irrelevant whether the court thinks that the balance only just tips in favour of the claimant or that the causation claimed is overwhelmingly likely, see Allied Maples Group v Simmons & Simmons[1995] WLR 1602, at 1609-1610.

Where quantification of the claimant’s loss depends on future uncertain events, such questions are decided not on the balance of probability but on the court’s assessment, often expressed in percentage terms, of the loss eventuating. This may depend in part on the hypothetical acts of a third party, see Allied Maples at 1610.

Where the claim for past loss depends on the hypothetical act of a third party, i.e. the claimant’s case is that if the tort had not been committed the third party would have acted to the benefit of the claimant (or would have prevented a loss) in some way, the claimant need only show that he had a substantial chance, rather than a speculative one, of enjoying the benefit conferred by the third party. Once past this hurdle, the likelihood that the benefit or opportunity would have occurred is relevant only to the quantification of damages. See Allied Maples at 1611-1614.”

In SDL Hair I went on to consider this last category of claim – the Allied Maples type of case – in more depth and referred to the analysis of that case and of the subsequent judgments of the Court of Appeal by Nugee J in Wellesley Partners LLP v Withers LLP [2014] EWHC 556 (Ch). Had Mr Pearson pursued his argument of a head of damage consisting of the loss of chance to enter into a contract with a third party record label, this would have been relevant. As it is, I can leave Allied Maples to one side.

In Force India Formula One Team Limited v 1 Malaysia Racing Team Sdn Bhd[2012] EWHC 616 (Ch); [2012] RPC 29 Arnold J considered Wrotham Park damages, i.e. of the type awarded in Wrotham Park Estate Co Ltd v Parkside Homes Ltd[1974] 1 WLR 798. In Force India damages for breach of a restrictive covenant in a contract were taken to be the amount of money which could reasonably have been demanded by the claimant for a relaxation of the covenant. Arnold J identified the following principles (at [386]):

Wrotham Park damages, though they are for breach of contract, are in all relevant respects the same as those I have to consider under this head, so the foregoing principles set out by Arnold J apply. In the inquiry as to damages for infringement of trade marks in 32Red OKC v WHG (International) Limited [2013] EWHC 815 (Ch), Newey J’s assessment was by consent also on the basis of willing licensor and willing licensee. Newey J endorsed the principles identified by Arnold J and expanded on them as follows:

There are limits to the extent to which the court will have regard to the parties’ actual attributes when assessing user principle damages. In particular

the parties’ financial circumstances are not material;

character traits, such as whether one or other party is easygoing or aggressive, are to be disregarded [29]-[31].

In contrast, the court must have regard to the circumstances in which the parties were placed at the time of the hypothetical negotiation. The task of the court is to establish the value of the wrongful use to the defendant, not a hypothetical person. The hypothetical negotiation is between the actual parties, assumed to bargain with their respective strengths and weaknesses [32]-[33].

If the defendant, at the time of the hypothetical negotiation, would have had available a non-infringing course of action, this is a matter which the parties can be expected to have taken into account [34]-42].

Such an alternative need not have had all the advantages or other attributes of the infringing course of action for it to be relevant to the hypothetical negotiation [42].

The hypothetical licence relates solely to the right infringed [47]-[50].

The hypothetical licence is for the period of the defendant’s infringement [51]-[52].

Matters such as whether the hypothetical licence is exclusive or whether it would contain quality control provisions will depend on the facts and must accord with the realities of the circumstances under which the parties were hypothetically negotiating [56]-[58].

The hypothesis I have to consider is a negotiation between Miss Henderson and All Around the World immediately before the date on which Heartbroken was released by All Around the World.

A number of points are to be borne in mind. Birss J found that Miss Henderson composed both the lyrics and melody of Heartbroken. The copyright in those works was not infringed by All Around the World. The hypothetical licence in this inquiry concerns only Miss Henderson’s performer’s rights in the vocal recorded by Mr Tawonezvi in his flat in 2005. Miss Henderson’s right to benefit from her ownership of the copyrights in the song is not relevant to these proceedings.

Looking at the negotiations from All Around the World’s perspective, it had earlier, on 13 August 2007, signed a contract with 2NV to release Heartbroken. 2NV had purported to own all the rights necessary to allow All Around the World to do this, but in fact 2NV had neglected to inform All Around the World that Miss Henderson’s performer’s rights were not owned by 2NV. All Around the World would have been aware that the release could not go ahead without Miss Henderson’s licence and it had already paid 2NV an advance of £30,000.

On the one hand, that was potentially money wasted if All Around the World could not reach a settlement with Miss Henderson. On the other, it was open to All Around the World to arrange for the re-recording of the vocal by a session singer, adjusting the vocal as had been done with Miss Henderson’s vocal, and using that on top of Mr Tawonezvi’s bassline recording. All Around the World would then have been lawfully entitled to release the track without the need for any licence from Miss Henderson.

This alternative route would not have permitted All Around the World to identify the artist performing the song as being, or as including, ‘Jodie Aysha’ (Miss Henderson’s stage name). Heartbroken had acquired a significant reputation by the time it was released by All Around the World because it had been made available as a ‘white label’ vinyl record by Mr Tawonezvi and was both popular in clubs and being heavily played on Radio 1Xtra. However at this stage the track was publicly presented as performed by ‘T2’, the name by which Mr Tawonezvi is generally known. So the burgeoning reputation in the track will have been identified with T2. There was one limited means by which Miss Henderson may have been seen as associated with the track. In the summer of 2007 a video of Heartbroken was released in which Miss Henderson appears, miming the song, but the video primarily featured Mr Tawonezvi and Miss Henderson was not even presented as the only singer since other girls are shown, also miming the song.

There is a certain injustice in this aspect of the case. The reason that Miss Henderson was associated very little if at all with Heartbroken in the public mind in early November 2007 was that Mr Tawonezvi had pushed himself forward to take all of the credit for it, despite Miss Henderson’s objections. But I think I must approach the hypothetical licence of November 2007 on the basis of realities.

Still looking at matters from All Around the World’s perspective, Miss Henderson had only acquired a little fame. The value of being able to use her name as the artist or one of the artists on the track was limited. That said, if All Around the World were to adopt the course of using a session singer, there was no guarantee that the singer would be able to reproduce Miss Henderson’s vocal with sufficient accuracy such that the public would recognise the track released as the same as the one heard on Radio 1 Xtra and in clubs.

Turning to Miss Henderson’s point of view, she undoubtedly had an incentive to reach agreement with All Around the World. John Nuttall, who is the Managing Director and a shareholder in All Around the World, said that the starting ambition of an aspiring performer in the music industry is simply to feature on a commercial release. I accept that evidence. An unknown or relatively unknown artist might well agree a disadvantageous deal in order to gain public profile. Once such a profile is achieved, his or her bargaining position is likely to be much enhanced for subsequent negotiations. This proved to be the case. Paradoxically, All Around the World’s infringement by release of Heartbroken provided Miss Henderson with one of the prime benefits which would have been in her mind at the hypothetical negotiations. The single reached number 2 in the main singles chart in the UK and number 1 in the dance chart. All Around the World says that in the United States it reached number 10 in the Billboard dance charts (Miss Henderson says it reached number 2). Miss Henderson performed the song at nightclubs and other venues without any involvement of Mr Tawonezvi. The artist on the record was identified as ‘T2 featuring Jodie Aysha’. Miss Henderson’s evidence was that whereas her name appeared in small red letters, ‘T2’ was in the form of a big white logo. The writing was credited to ‘T2/Jodie Aysha’, which was not accurate. This notwithstanding, Miss Henderson achieved significant public exposure as a new artist due to the release of Heartbroken.

The prospect of becoming well known would have been a powerful incentive to Miss Henderson to ensure that All Around the World was licensed by her to release Heartbroken featuring her name and her vocal. Miss Henderson’s case was that she was already well known. I was shown nothing to substantiate this. It is my impression that in November 2007 if Miss Henderson enjoyed any fame, it was modest. The fame she acquired was due to the release of Heartbroken.

All Around the World argued that Miss Henderson had a further incentive. On 21 September 2007 she entered into a publishing contract with Sony ATV Music Limited, in relation to her songs. Sony ATV paid an advance of £15,000. The royalties which Miss Henderson could expect to achieve would be significantly enhanced if at least one of her songs, Heartbroken, was a hit. I am not sure, though, that publishing royalties would have counted for much in Miss Henderson’s mind. All Around the World had every reason to wish to release Heartbroken in one form or another in short order. Public enthusiasm for the track was high, but would wane. I think the essence of All Around the World’s bargaining position, whether expressly stated or implied, would have been that either Miss Henderson granted a licence and her vocal would be used, or a session singer would be used. Either way, Miss Henderson would have received publishing royalties.

Miss Henderson suggested that just as All Around the World could have threatened to record a new vocal over Mr Tawonezvi’s bassline track, she equally could have arranged for a new bassline track to be recorded along with a new vocal by her. Thus, All Around the World could be faced with no right to release the existing Heartbroken track and if an alternative was made with a vocal by a session singer there would be a competing record from Miss Henderson. I think this is a little fanciful. The public was familiar with the existing record, of which Mr Tawonezvi’s bassline contribution was a prominent part. It was not certain that Miss Henderson could arrange for an identical copy of that contribution to be performed by someone else. Also, the record would have to have been released by another record company and there was no evidence that any such other company was willing to take this on.

Miss Henderson suggested that the release of Heartbroken using another singer would have been blocked by Sony ATV, the owner of the copyright in the song. However Mr Nuttall explained that All Around the World had the benefit of a licence from the Mechanical Copyright Protection Society (MCPS). MCPS is the body through which songwriters and other owners of copyright works, including Sony ATV, license their works. There was never a prospect of a block by Sony ATV.

Mr Pearson submitted that the following would also have been taken into account by the parties at the hypothetical negotiations:

The dominance of Miss Henderson’s performance.

Mr Nuttall had assured Miss Henderson, in a telephone call in the late summer of 2007, played to Judge Birss and of which I was shown a transcript, that Miss Henderson would get her just desserts, would get all the credit and money she wanted and that she was more famous than Mr Tawonezvi.

Miss Henderson was not merely a session singer.

Overall I think that All Around the World was in a stronger bargaining position than Miss Henderson. Both sides are assumed to have wished to reach a settlement; to that extent both would have been conciliatory, but Miss Henderson more so than All Around the World.

It was common ground that All Around the World would have paid a royalty to Miss Henderson, not a single fee as might have been appropriate in the case of a session singer.

After Heartbroken had been released, in April 2009 Miss Henderson signed a record deal with All Around the World for a track called Pozer (“the Pozer Agreement”). The record was not a success. At trial Miss Henderson alleged that All Around the World failed to procure a bona fide release of the record and in consequence was in breach of the agreement.

The rates of royalty payable to Miss Henderson in the Pozer Agreement are 22% for sales in the form of albums and 20% in respect of other formats.

Mr Pearson submitted that because of the strength of Miss Henderson’s bargaining position in the hypothetical negotiation, stronger than it was in April 2009, All Around the World would have paid a 30% royalty for Heartbroken. For the reasons I have stated, I do not believe Miss Henderson was in a strong bargaining position and I do not accept this hypothetical mark-up to 30%. Nonetheless, the Pozer Agreement provides some sort of guide.

Mr Harbottle submitted that the guidance was limited. First, the Pozer Agreement was a full recording contract, not an agreement to obtain a licence under performer’s rights to fill the gap in All Around the World’s right to release Heartbroken. Secondly, clauses 7(c) and 11 of the Pozer Agreement allow All Around the World to recoup any losses from subsequent unsuccessful singles by way of deductions from royalties due. Mr Harbottle submitted that the hypothesis would be that Miss Henderson agreed similar terms for Heartbroken and that there would be subsequent deductions from royalties due because of the failure of Pozer. I do not read clauses 7(c) and 11 that way. They seem to me to allow All Around the World to recoup the costs of mixing and promotional videos. In the hypothetical negotiations, no such costs would be contemplated.

Mr Harbottle also submitted that by the time of the Pozer Agreement Miss Henderson had acquired a degree of fame, so she was able to secure a higher royalty than would have been obtained in the hypothetical negotiations. I think there is some force in this.

My impression though is that the 20% figure in the Pozer agreement provides an approximate starting figure for the royalty due to an artist in Miss Henderson’s position for his or her performance. It accords with Mr Nuttall’s estimate (Nuttall III, ¶60(a)) that the best royalty that an artist could have negotiated in respect of Heartbroken was 18-20%. Mr Nuttall also gave evidence that from this were would be a deduction for the producer and mixer’s royalty – he suggested 4% and Miss Henderson suggested 3%, plus a further deduction for packaging costs – he suggested 5%. This second deduction was not supported by Miss Henderson, nor was it actively disputed. In the hypothetical negotiation it might be expected that these costs had already been provided for in the deal reached with 2NV. On the other hand, it appears that All Around the World had thought that the performer’s royalty had already been taken into account as well so there may have been limited room to pay Miss Henderson a royalty and remain profitable.

I think that the Pozer Agreement points towards a net artist’s royalty of 12%. Miss Henderson could not claim all of this since she was the artist on Heartbroken jointly with Mr Tawonezvi. I do not accept that Mr Tawonezvi’s contribution can be dismissed as merely that of a mixer and producer. It was more than that. Judge Birss found that the prominent “bassline” feel of Heartbroken was down to Mr Tawonezvi’s own creativity. Even the vocal on the track was not the product of Miss Henderson’s talents alone. Mr Tawonezvi altered the pitch of Miss Henderson’s voice electronically and chopped up her vocals in certain ways. I will assume that in the hypothetical negotiations the parties would have reached the view that Miss Henderson and Mr Tawonezvi were joint and equal performers. That would suggest a royalty due to Miss Henderson of 6%.

Mr Pearson relied on what were said to be five offers to Miss Henderson which served as comparables.

Owen Smith was from 2005 to 2011 the Chief Executive Officer of Red Skin Records Ltd (“Red Skin”), a record company based in Brighton. Red Skin was the first label to sell tracks only in digital form. Mr Smith said that he had seen a draft contract between Red Skin and Miss Henderson in which she was offered 30% by way of artist’s royalty. Mr Smith had no clear recollection of the circumstances surrounding the offer or the date on which it was made. He appears to have assumed that the offer related to Heartbroken because he speculates that the contract was not concluded as a result of Heartbroken having been released by All Around the World.

Mr Smith was not cross-examined (sensibly, neither side applied to cross-examine any witness). Two points stand out however. First, it was clear from other evidence that the royalty offered for digital releases was always significantly higher than for the sale of physical records. Mr Nuttall said that because of the pricing of digital sales, the royalty on such sales is calculated on a far lower price than for the sale of a record (Nuttall III, paragraph 110). All Around the World’s infringement resulted from the sale of records, so the hypothetical licence was for such sales. Red Skin’s offered royalty of 30% thus provides no direct guide to the relevant royalty rate. Secondly, Mr Smith’s uncertain recollection and his assumptions about the offer and the reasons for not going through with it do not make the offer an entirely reliable guide to anything.

Emails sent by an officer or employee of Atlantic Records in California, in April 2008, indicate that Atlantic showed interest in Heartbroken. But that is a far as it goes.

In June 2010 a South African label offered an advance of US$500 and a 22% royalty rate for Pozer, the follow-up to Heartbroken. No deal was concluded. The evidence does not provide reasons why no deal was concluded or details as to what the proposed deal would have been had it gone through. In particular there is no indication of what might have been deducted from the headline 22% royalty. I think if anything, this supports the 20% figure of the Pozer Agreement.

In December 2008 Ministry of Sound, a London company, offered Miss Henderson an advance of £150 and a royalty of 14% for her So Typical track. This is a good deal less attractive than the terms of the Pozer Agreement.

The offer in relation to digital single downloads is “50% of our net receipts”. This is an indication of the lack of comparability between the percentage royalty figures for physical records and digital downloads.

In the autumn of 2007 Miss Henderson became temporarily represented by Steve Wolfe, acting as her manager. Mr Wolfe promoted Heartbroken in a number of ways, including by talking to Radio 1. He also tried to negotiate a deal between Miss Henderson and 2NV in November 2007 before Heartbroken was released. Miss Henderson’s evidence at trial was that she knew nothing about these negotiations and her evidence was accepted by Judge Birss. In any event Mr Wolfe asked for a royalty rate of 11.5% for Miss Henderson. 2NV offered 6%. No deal was concluded.

The lack of an agreement means that nothing can be inferred about the reasonableness of either offer. But the evidence I have referred to above, in particular the Pozer Agreement, suggests to me that 2NV’s offer of 6%, assuming no unstated deductions, was a fair one.

Taking all the foregoing into account, I find that the hypothetical negotiations would have resulted in a royalty rate of 6% to be paid by All Around the World to Miss Henderson.

6% of what? In the contract negotiated between All Around the World and 2NV royalties are calculated by reference to “net published price to dealers received by or credited to [All Around the World] in the United Kingdom for sales of records paid for and not returned after discounts and records issued free.” Deductions were made for re-mixing and audio visual costs.

Both parties approached the royalty calculation by reference to total sums received or receivable from sales of Heartbroken, less costs. I will do likewise.

Mark Livermore is an accountant who produced a schedule setting out all such sums. His initial figure for total income was £729,529 with an incomplete figure for costs (overheads were left to be assessed). It is not clear which of these costs are properly deductable. Mr Livermore then revised his figures. The revised total income was £489,873, although at the trial both parties agreed that this wrongly included PPL income, so I calculate the true revised figure for total income to be £427,681. Costs were given but still do not identify which should be deducted. This was not very satisfactory.

Mr Pearson submitted that the figures presented by Mr Livermore were incomplete, inadequately explained and inadequately documented. Two widely differing schedules had been presented and Miss Henderson had lost all confidence in the accuracy of the figures. On 18 September 2013 District Judge Clerk gave Miss Henderson permission to engage her own accountant to advise her in relation to the figures produced by Mr Livermore. Miss Henderson’s accountant was Mr Silcock. He found himself unable to give any accurate figures in place of those provided by Mr Livermore, but he raised a list of queries which were sent to All Around the World. A reply was provided which Miss Henderson says is not satisfactory. In particular, it is said, sales figures for certain territories are missing.

Mr Pearson submitted that any failure by All Around the World to collect or report income should not be visited on Miss Henderson and that I should order an independent audit of All Around the World’s income from Heartbroken. Alternatively I should use data published by the International Federation of the Phonographic Industry (IFPI) showing the retail value of the market for records (physical and digital) in various territories. The latest figures are for 2013. Mr Pearson submitted that I should start with the territories for which Heartbroken sales are known and then fill in the gaps for missing territories pro-rata. Mr Pearson did not advance any figures and so there was no argument about them.

I am not going to order an independent audit. That and the further argument that would ensue would fall a long way short of the cost-benefit test applied in this court. I agree that Mr Livermore’s evidence is not satisfactory. But at root Miss Henderson’s complaint seems to be largely that sales in certain territories were under-reported or not taken into account by Mr Livermore because he was not presented with the relevant paperwork. I am not in a position to say whether this is right or whether sales in the relevant territories were low or non-existent. Reliance on the IFPI figures assumes that all tracks sell at the same proportionate level in all territories. That seems to be very doubtful and I am not prepared to go ahead on the basis that it is true. It might well have been possible to resolve this matter at an earlier stage by an application for specific disclosure but it is too late now. Sales in all territories must have been documented and All Around the World says that it has disclosed all relevant documents to Miss Henderson and also provided them all to Mr Livermore.

Miss Henderson’s first approach was to use the figure of £729,529 in Mr Livermore’s first schedule as the sum from which her percentage should be calculated. Mr Livermore explained why he thought that figure was wrong and I do not think that is an appropriate starting point.

Miss Henderson’s alternative approach was to look at the royalty which All Around the World paid to 2NV, namely 23% of total sums generated by Heartbroken less costs. She said that she was entitled to all of that, less 3% of it to account for Mr Tawonezvi’s fee as producer and re-mixer. I find this unrealistic. The hypothetical licence fee due to Miss Henderson would be that due for her contribution as performer. The royalty paid by All Around the World to 2NV was for all rights in relation to Heartbreaker. Even leaving that to one side, for reasons I have stated I do not think that Miss Henderson was entitled to 97% of the performer’s royalty.

All Around the World’s preferred approach was also by reference to royalties that it had paid to 2NV, namely 23% of total income. Mr Nuttall stated that All Around the World had been obliged to pay 2NV a total of £105,913.72. He said this represented £4,993.91 per percentage point. Therefore the hypothetical negotiations would have resulted in a payment to Miss Henderson of the agreed royalty rate multiplied by £4,993.91.

I think there is a lot to be said for calculating the sum due to Miss Henderson in this way since the appropriate deductions are thereby taken into account. I am not sure about Mr Nuttall’s maths, but it seems to work in Miss Henderson’s favour so I will accept his figures and for simplicity round up each percentage point of the royalty to £5,000.

The sum due to Miss Henderson under the first head of her claim, the user principle, is £30,000.

Miss Henderson relies on regulation 3 of the 2006 Regulations to support her remaining heads of claim. This implements art.13(1) of Directive 2004/48/EC on the enforcement of intellectual property rights (“the Enforcement Directive”). Although the explanatory note at the end of the 2006 regulations does not say so, the view appears to have been taken that there was no need to implement art.13(2). Art.13 is as follows:

Regulation 3 of the 2006 regulations is not drafted in identical terms to art.3(1). I set it out here although of course the Directive must take precedence:

Regulation 3 also includes this:

Art.13(1) applies only where the infringer knowingly, or with reasonable grounds to know, engaged in an infringing activity. The relevant knowledge was admitted by All Around the World. Given the findings of Judge Birss this was not surprising. It is therefore common ground that Miss Henderson is entitled to rely on art.13(1).

Miss Henderson’s claim in relation to regulation 3 of the 2006 regulations, and thus art.13(1) of the Enforcement Directive, divides into a number of sub-headings.

First Miss Henderson claims that she is entitled to the loss of performer’s royalties caused by the injunction against All Around the World, ordered at her instigation by Judge Birss on 18 March 2013, following the trial of the action. I find the logic of this hard to follow. A claimant who succeeds at trial is not obliged to obtain an injunction. One option is to allow the defendant to continue the acts found to infringe, subject to a negotiated licence and the consequent payment of royalties. Miss Henderson cannot have it both ways: an injunction and damages on sales that never happened because of the injunction.

I reject Miss Henderson’s claim under this head.

Secondly Miss Henderson argues that the release of Heartbroken prevented her from releasing other material. There was no evidence to show that this was the case. She was not contractually bound to All Around the World or any other party. There was nothing to stop her from releasing new music and indeed the evidence shows that she received offers from record companies, referred to above.

I make no award under this head.

Mr Pearson submitted that regulation 3(2)(a)(i), and by implication art.13(1)(a), should be interpreted to mean that where those provisions apply the claimant is entitled cumulatively to both lost profits and any unfair profits accrued to the defendant. The latter, Mr Pearson said, are the profits accrued to All Around the World from Heartbroken as would be assessed in an account of profits. They were said to amount to £566,897.

As a matter of English law, the remedies of an inquiry as to damages on the one hand, and an account of profits on the other, are only available as alternatives (see Redrow Homes Ltd v Betts Brothers plc[1998] RPC 793 (HL), at 796-7). In intellectual property proceedings a claimant is free to choose between them but he may not have the benefit of both. In Hollister Inc v Medik Ostomy Supplies Ltd [2012] EWCA Civ 1419; [2013] FSR 24, Kitchin LJ said this (at [71]) in relation to relief granted by the judge at first instance:

If Mr Pearson is right, art.13(1) marks a radical change in the law regarding the relief available for infringement of an IP right, if only in the context of knowing infringement. I do not take the view that the words of art.13(1) have that effect.

First, leaving aside cases in which the defendant knew or had reasonable grounds to know that he was engaged in infringing activity, it is clear from art.13(2) that the claimant retains the right to elect between an inquiry as to damages or an account of profits in the usual way.

Where knowledge is proved, art.13(1)(a) requires the court to take into account relevant aspects of the actual prejudice suffered by the defendant as a result of the infringement. These aspects include both the claimant’s lost profits and the defendant’s unfair profits. The overall task of the court is to order that the knowingly infringing defendant shall

Recital [26] of the Enforcement Directive for the most part closely paraphrases art.13(1). The final sentence says this:

Miss Henderson first elected for an account of profits. By the order of District Judge Clarke dated 18 September 2013 she was permitted to resile from her earlier election and to re-elect. By the time of the Amended Points of Claim dated 18 March 2014, she had re-elected for an inquiry as to damages. In my judgment these do not include All Around the World’s profits from Heartbroken.

So what is meant by ‘unfair profits’? One interpretation of art.13(1)(a) would require the court always to take into account the profit made by the defendant from his knowing infringement and to make an award commensurate with that profit. But I do not think that is right. If profits are automatically unfair because they have been derived from acts of knowing infringement, the defendant in such cases will virtually always have the benefit of unfair profits. This would imply that whenever knowledge is established, the claimant is almost bound to be entitled to a bonus on top of damages for loss of profit, the quantum of the bonus increasing presumably in proportion to the profit that the defendant has made – it is not easy to discern what the correct proportion would be. I do not believe that this would be consistent with the overriding aim in art.13(1) of paying the rightholder damages appropriate to the actual prejudice suffered as a result of the infringement. Neither would it be consistent with the aim of avoiding punitive damages.

I think art.13(1)(a) must contemplate something else, namely that wherever the court reaches the view that the claimant would not receive adequate compensation for the actual prejudice he has suffered if damages were to be assessed by reference to lost profits, moral prejudice and expenses (part of art.13(1)(a)), or royalties according to the ‘user principle’ (art.13(1)(b)), or an account of profits, there is flexibility under art.13(1)(a) to award an additional sum related to the profit the defendant has made from knowing infringement.

This would arise, for example, if the defendant made no direct financial profit from the infringement – so an account of profits would be of little use – but his business expanded in volume and/or in reputation on the back of loss-leader infringements. For the claimant, aside from losing sales there would be a likelihood of further loss because of the expansion of a competing business. The expansion would not constitute a profit by the defendant in the usual direct sense, but it would be a contingent profit nonetheless and an unfair one.

Art.13 does not seem to cater expressly for the circumstance in which a cynical defendant calculates that his benefit from infringement is sure to outweigh the actual prejudice suffered by the claimant, making infringement an attractive option. I think the answer may be that in such an instance the court would readily infer that the claimant will suffer actual prejudice which goes beyond lost sales, making extra compensation appropriate.

In my view the present case provides an example of unfair profits as contemplated by art.13(1)(a). The hypothetical negotiations between Miss Henderson and All Around the World would have centred mostly on the royalty for licensing her performer’s right. But I must also take into account the possibility that other terms would have been discussed, the presence and form of which must accord with the realities of the circumstances under which the parties were hypothetically negotiating (see paragraph 19(xiii) above). I think Miss Henderson would have sought to have her name on the record presented with equal prominence to that of T2 and as joint artists, not just ‘T2 featuring Jodie Aysha’. I also think that she would have wished to have the sole credit for writing the song. On the assumption that the parties would negotiate fairly and reasonably, in my view these suggestions would have been agreed. I think they would have made a difference to Miss Henderson’s status as an artist in the mind of the public and the music industry, though it is very difficult to say how much.

Thus, in addition to losing the appropriate royalty, Miss Henderson suffered a loss regarding the extent to which her name and reputation would have been enhanced by the release of Heartbroken which at the same time provided unfair profit to All Around the World in the sense that she was not compensated by All Around the World for the loss of promotion of her name. This broadly falls within one of the heads of damage (wrongly) pleaded under the general heading of moral prejudice. I have reached the conclusion that I should take it into account. I award the sum of £5,000.

The categories of moral prejudice on which Miss Henderson relies are, in summary, (i) mental distress, (ii) loss of promotional opportunity, (iii) injury to feelings and (iv) humiliation. Miss Henderson claims £15,000 for all of these.

Damage for ‘moral prejudice’ has its roots in continental civil law. In France, the concept of préjudice moral permits the financial compensation for pain and suffering for injury or wrongful death. The civil law tradition has shaped public international law and since at least the early part of the 20th century moral damages have formed part of international awards (Parish, Awarding Moral Damages to Respondent States in Investment Arbitration, 29 Berkeley J. Intl Law 225 (2011); Reports of International Arbitral Awards, United Nations, Volume VII, Opinion in the Lusitania Cases,1 November 1923).

One French text book author indicates that damages for moral prejudice are new to French intellectual property law and at the date of the author’s writing such damages were thought to be of uncertain scope (Bouche, Intellectual Property Law in France, Kluwer Law International, 2011, para. 332).

So far as I am aware, damages for moral prejudice under that name are new to English law generally. But the concept of compensation for a non-economic loss is not new, even to intellectual property law. In Nichols Advanced Vehicle Systems Inc. v Rees [1979] RPC 127, Templeman J (as he then was) made an order for additional damages pursuant to section 17(3) of the Copyright Act 1956 on grounds which included the humiliation of the claimant:

‘Moral prejudice’ in the context of art.13(1)(a) must of course have a single meaning according to Community law which is independent of the various meanings under national laws.

The only clue to the Community definition that I have seen, of very limited guidance, is the Commission explanatory memorandum dated 30 January 2003, COM(2003) 46 final, prepared during the drafting of the Enforcement Directive. At page 9 there is this:

This implies that at this stage the European legislature primarily had in mind compensation for loss of the reputation or exclusive image enjoyed by the claimant’s goods caused by pirated copies. I am not convinced that this is a non-economic loss. It is also a loss for which compensation may be available if the goods are protected by a registered trade mark.

I think I have to assume that art.13(1)(a) in principle entitles a claimant to recover in relation to three of the categories of non-economic loss on which Miss Henderson relies: mental distress, injury to feelings and humiliation. I do not accept that loss of promotional opportunity falls under this head. This is an economic loss and I have taken it into account above in relation to unfair profits.

In her third witness statement Miss Henderson states, albeit quite briefly, that she has suffered distress, injury to her feelings and humiliation because of All Around the World’s infringement. I accept that. The difficulty I have is that it is probably common for defendants to suffer similar emotions when their valued rights are infringed. Many would certainly say so, but I do not think that art.13(1)(a) was intended to introduce the widely applicable payment of an extra lump sum to claimants who prove knowing infringement and claim moral prejudice. Nor do I think that such a right depends on the claimant having had a sufficiently strong emotional reaction to the infringement. Generally it will be impossible for a court to assess the true strength of a defendant’s emotions on any relevant scale, if there is one.

In my view the moral prejudice contemplated by art.13(1)(a) is confined to prejudice arising in limited circumstances, in particular where the claimant suffers little or no financial loss and would either be left with no compensation unless the moral prejudice were taken into account, or the compensation would not be proportionate to the overall damage suffered where this includes significant moral prejudice. For instance, if a defendant were to infringe the copyright in photographs disclosing private grief by publishing them on the internet, that may generate no profit for the defendant and no financial loss for the copyright owner. But the emotional stress caused might be acute. In those circumstances art.13(1)(a) would allow the court to award appropriate compensation, hitherto unavailable in England to copyright owners.

I my judgment only in unusual circumstances will moral prejudice be sufficiently significant such that damages for economic loss are not proportionate to the overall actual prejudice suffered by the claimant. I do not believe that this case falls into that category and I make no award for moral prejudice.

Section 191J(2) of the Copyright, Designs and Patents Act 1988 is in the following terms:

This has some similarity to art.13(1)(a). I think the probable effect of art.13, when taken together with regulation 3(3) of the 2006 regulations, is to alter how s.191J(2) (and equivalent provisions) must now be applied: (a) flagrancy as formerly understood is no longer required, (b) the claimant’s knowledge or reasonable grounds to know that he engaged in infringing activity are required (although this will have been an implied constituent of flagrancy and seems to be a lower hurdle) and (c) the matters referred to in art.13(1)(a) must be taken into account. Art.13 has an independent effect, so if I am right s.191J(2) has now become effectively redundant by reason of its conformity with art.13(1)(a).

In case I am wrong, i.e. an unaltered s.191J(2) and art.13 operate in parallel, I will consider Miss Henderson’s claim under the section.

I must first deal with Miss Henderson’s application to set aside my order striking out her claim to additional damages. There are strong reasons not to set it aside. CPR 63PD 22.1 would be largely pointless if a claimant could introduce a claim to additional damages for the first time at the inquiry. I bear in mind Brugger v Medicaid. I was not told by counsel and my researches have not revealed whether CPR 63PD 22.1 was introduced after Brugger. If so, and at present it seems to me that must be the case, its purpose may have been expressly to impose the requirement that additional damages are pleaded in the substantive proceedings to overcome that part of the judgment in Brugger. In Kohler Mira Ltd v Bristan Group Ltd[2014] EWHC 1931 (IPEC) I discussed the policy reasons for exercising the court’s discretion to refuse a claimant to introduce an argument of innocence under section 233(1) of the Copyright, Designs and Patents Act 1988 for the first time at the inquiry as to damages, at least in the IPEC. I think similar considerations apply with equal force to Miss Henderson’s wish to introduce a claim to additional damages.

For those reasons, and subject to confirmation that CPR 63PD 22.1 was introduced after the judgment in Brugger, I do not set aside my order of 30 April 2014 in so far as it relates to paragraph 10 of the Amended Points of Claim.

I add one observation. On one view, if I am right that s.191J(2) must now conform with art.13(1)(a), this is not going to be an issue that will recur. Community law gives claimants the right to claim damages pursuant to art.13 and CPR 63PD 22.1 is only concerned with a claim to additional damages under the 1988 Act. However I say nothing about whether the policy of proceedings in the IPEC will still require parties to present their case in full by the time of the case management conference in the liability proceedings, including a claim pursuant to art.13(1).

Flagrancy has not been admitted and was not expressly decided by Judge Birss. Mr Pearson invited me to infer flagrancy from paragraphs 80 to 83 and 92 of the judgment. I think those paragraphs are enough to establish “…scandalous conduct, deceit and such like; it includes deliberate and calculated infringement”, the test for flagrancy adopted by Brightman J in Ravenscroft v Herbert[1980] RPC 193, at 208. They arguably go further than establishing a “couldn’t care less” attitude on the part of All Around the World, the criterion favoured by Pumfrey J in Nottinghamshire Healthcare NHS Trust v News Group Newspapers Ltd [2002] RPC 49, at paragraph 52. In the Nottinghamshire Healthcare case Pumfrey J observed that the equivalent provision in relation to copyright infringement, section 97(2) of the 1988 Act, is not intended to be punitive or exemplary however (paragraphs 48 to 51).

Had I come to the view that (a) paragraph 10 of the Amended Points of Claim should be reinstated and (b) s.191J(2) remains unaffected by art.13 of the Enforcement Directive, I would have reached the conclusion that the justice of this case is best served by Miss Henderson recovering £5,000. The loss in question is already provided for by the award under art.13(1)(a) and the two would not be cumulative, so it would make no practical difference.

Miss Henderson is entitled to damages according to the ‘user principle’ of £30,000 and a further £5,000 pursuant to art.13(1)(a) of the Enforcement Directive, making a total of £35,000.

After receipt of a draft of this judgment Mr Harbottle sent me a helpful note regarding CPR 63PD 22.1. Apparently at the time of the judgment in Brugger there was no equivalent to CPR 63PD 22.1 in the Rules of the Supreme Court then in force. The rule was introduced as paragraph 19.1 in practice direction 49E by Update 1 to the CPR released on 11 March 1999. The rule later became CPR 63PD 25.1 and later still CPR 63PD 22.1.