B e f o r e :
LORD JUSTICE PILL
LORD JUSTICE ROBERT WALKER
SIR MARTIN NOURSE
| || JOHN & ORS||Appellants|
- and -
| ||PRICE WATERHOUSE|
(1) FRERE CHOLMELY (A FIRM)
(2) FRERE CHOLMELEY BISCHOFF (A FIRM)
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
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Mark Howard QC and Neil Calver (instructed by Eversheds) for the appellants
Mark Hapgood QC and Cyril Kinsky (instructed by Barlow Lyde & Gilbert) for the respondent
Michel Kallipetis QC and Simon Monty (instructed by Ince & Co) for the Part 20 defendant
HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT
Crown Copyright ©
Lord Justice Robert Walker:
- This is a preliminary issue in an appeal by Sir Elton John and three associated companies (“the EJ companies”) against an order of Ferris J made on 11 April 2001. By that order, and a consequential order made on 6 June 2001, Ferris J dismissed an action by Sir Elton and the EJ companies against Price Waterhouse (“PW”), the well-known accountants who have since become PricewaterhouseCoopers, and Mr Andrew Haydon. PW is the only respondent to the appeal.
- Sir Elton was knighted in 1998 but it is simplest to refer to him throughout by his present title. The claim made by Sir Elton and the EJ companies against PW and Mr Haydon was based on allegations of breaches of duty by them in connection with a management company called John Reid Enterprises Ltd (“JREL”). JREL took its name from Mr John Reid, who was from the 1970s both a close personal friend of Sir Elton and the manager and administrator of his business affairs. The thrust of the claims was that PW (as auditors and financial advisers) and Mr Haydon (as an officer of the EJ companies during the late 1980s and early 1990s) had failed to ensure that certain costs and expenses incurred in connection with Sir Elton’s highly successful musical activities were borne by JREL (rather than by the EJ companies and so, ultimately, by Sir Elton).
- Before the judge this claim was pursued against both defendants in respect of two categories of costs. The first category was generally referred to at trial as the tour agents’ costs (although it was recognised that this might be a misnomer). The second category was the salaries and expenses of three particular individuals on Sir Elton’s personal staff. This second category is not a live issue on the appeal, nor is a claim in respect of the first issue pursued against Mr Haydon. The only live issue on the appeal is that of PW’s liability in respect of the tour agents’ costs.
- The supervising lord justices have taken the unusual course of directing a preliminary issue in this court. The circumstances in which they did so are that PW’s primary defence to the claim was that they had not been in breach of duty because the tour agents’ costs were indeed, on the correct understanding of the parties’ contractual arrangements, intended to be borne by the EJ companies (and not by JREL). If that was not correct as a matter of construction, PW relied on a variety of further defences, including (but not limited to) a denial of breach of duty, a denial of any loss caused by any breach, and reliance on the Limitation Act 1980.
- At the start of the trial the judge was asked to hear and decide the issue of construction as a preliminary issue. That course had obvious attractions, not only in possible savings of time and costs, but also in enabling the judge to consider the issue of construction without having to hear and then shut out from his mind all the evidence on the issue of what was called quasi-rectification. On that part of the case PW contended that if the contract between Sir Elton and his companies (on the one hand) and JREL and Mr Reid (on the other hand) did provide for the latter to bear the tour agents’ costs, then JREL and Mr Reid would have been able to obtain rectification of the contract, a management agreement dated 14 March 1986 (“the 1986 agreement”). This claim was pleaded in detail in paragraph 43 of the defendants’ reamended defence and counterclaim. In fact there never were any proceedings claiming rectification, because Sir Elton and Mr Reid resolved their differences by a compromise agreement entered into on 15 May 1998 (an event which is relied on as a further defence to the claim against PW).
- The judge recognised the attractions of hearing a preliminary issue as to construction of the 1986 agreement (and in particular, clause 7 of that agreement). But after hearing argument he did not think it right to adopt that course, for reasons which he set out as follows:
“On the face of it this part of the claimants’ case depends upon a concise point of construction of a written agreement. It is one which, at an early stage of the trial appeared to me to be capable of being determined as a preliminary issue, a course which would have had a number of attractions. In the event I was persuaded it was not practicable to deal with it in this way. In arriving at this conclusion I was influenced by the fact that it seemed that there would be prolonged argument about what material constituted the relevant factual matrix.”
- A little later in his judgment, after referring to Lord Hoffmann’s well-known speech in Investors’ Compensation Scheme v West Bromwich Building Society  1 WLR 896, 912-3, the judge stated:
“The fact that it proved impracticable to determine as a separate issue the question of the true meaning of Clause 7 means that I have heard evidence not only of matters which go to make up the factual matrix surrounding the making of the 1986 Agreement but also in respect of the quasi-rectification point. This evidence, so far as it goes beyond what is needed to establish the factual matrix, is not admissible for the purpose of construing the 1986 Agreement. While I cannot escape the fact that I have heard it, I am very conscious of the fact that I must endeavour to put such inadmissible evidence out of my mind when I am deciding the meaning of the 1986 Agreement.
However I clearly can and should take into account the factual matters which I have described at some length in the preceding sections of this judgment, so far as those facts existed at the date of the 1986 Agreement. All this material was known to, or at least was reasonably available to, the parties to that Agreement.”
- In the event the judge decided the issue of construction in favour of the defendants and that was determinative of the case, although the judge saw it as his duty to deal with the other issues, especially where findings of fact were required. It will be necessary to come back to the appellants’ criticisms of the judge’s approach to the factual matrix of the issue of construction. But no significant criticism is made of the judge’s findings of fact, as such. With the advantage of having the judge’s clear and thorough judgment (which runs to 448 paragraphs in all, 133 of which relate to the issue of construction) the supervising lord justices thought it right to direct that there should be a preliminary issue in this court (with the rest of the appeal to follow after an interval of a few weeks, if the appellants win on the issue of construction).
- The 1986 agreement was the third of a series of management agreements with JREL entered into by Sir Elton and his companies. The first set of agreements was entered into in 1973 (for three years) and the second set in 1977 (for five years, but extended by agreement and varied from time to time).
- The general background to all these agreements was that Sir Elton (who was born in 1947) began his career in the late 1960’s. He became an international star in the 1970s and since then his career has been continuously successful. At first he was managed by an organisation called Dick James Music, but from the early 1970s he was managed by Mr Reid through the medium of JREL. During the 1970s the general picture was, the judge said, one of inadequate financial controls, both of Sir Elton’s business affairs and of JREL itself.
- In 1980 Sir Elton retained Arthur Anderson (“AA”) as accountants and financial advisers, and under their influence steps were taken to improve financial controls. In 1981 Mr Haydon, a chartered accountant, was employed by JREL, and he occupied increasingly senior positions in JREL. In or soon after 1986 he also became an officer (either director or secretary or both) of the EJ companies, that is Happenstance Ltd (“Happenstance”), William A Bong Ltd (“Bong”) and J Bondi Ltd (“Bondi”).
- Particulars of these companies are given near the beginning of the judge’s judgment. For present purposes it is sufficient to note that each of the companies employed Sir Elton for a particular field of his musical activities, on terms (embodied in a written service agreement) that virtually the whole of the company’s income was payable (or could be made payable) to Sir Elton. The fields of activity were, in the case of Happenstance, overseas tours between 1982 and 1986; in the case of Bondi (which was a wholly-owned subsidiary of Happenstance), overseas tours as from 20 October 1986; and in the case of Bong, activities in the United Kingdom and the Republic of Ireland. There were some other companies, including Sackville Productions Ltd (“Sackville”) and The Rocket Record Company (“Rocket”) which played minor parts in the story.
- It is also unnecessary to go far into the detail of the agreements made in 1973 and 1977. Under the first set of agreements (made between Bong, Sackville and JREL) JREL was to receive, as Sir Elton’s manager, commission of 20 per cent of the companies’ gross receipts in respect of his services as a performer; 10 per cent of gross receipts in respect of his recordings; and nothing in respect of his work as a composer, writer or arranger.
- Under the 1977 agreements (made between the same parties) the commission on receipts from recordings went up to 15 per cent, and there was to be a 10 per cent commission on receipts in respect of literary works. As explained below, the 1986 agreement provided for JREL to receive commission at the rate of 20 per cent of the gross income from all the managed activities (as widely defined in Schedule 1 to that agreement). The 1977 agreements (which were in identical terms except for the identity of the company) expressly authorised JREL, with prior consent of the company and in Sir Elton’s best interests, to appoint agents, who might earn commission up to ten per cent (or more if agreed) in addition to JREL’s commission.
- The judge recorded that it was common ground that the successive management agreements were all generous to Mr Reid and JREL. Sir Elton’s solicitor sent him a letter, just before the 1986 agreement was made, describing it as “extremely generous”. The judge found that this generosity had two sources: Sir Elton’s uncommonly generous disposition and his very close relationship with Mr Reid.
- As to that the judge quoted what Sir Elton said in his witness statement:
“Until late 1997 and in particular the discovery of the matters which led to the termination of his services in May 1998, I trusted John Reid absolutely. We had a personal relationship for five years from 1970 until 1975 and, even after that relationship came to an end, we were extremely close throughout the time of his management of my affairs until, really, the last year. I relied upon him and the advisers he employed, in particular [PW] and Andrew Haydon to look after my business affairs properly and to do all that was necessary to act in my best interests. I left business matters entirely to [JREL] and the professionals they retained to act and advise on my behalf and on behalf of my companies.”
- The judge then referred to Sir Elton’s lack of interest in business affairs, and the difficulties which this caused to his advisers. He added:
“Sir Elton’s indifference to the details of financial and business matters was for a long time compounded by the fact that he had serious problems with alcohol and drug abuse. Sir Elton himself is now quite frank about these problems. He says that he was cured of them in 1990 and there is no reason to doubt this.
It is right to add that John Reid had similar problems at the same time. He too is quite frank about them and in his evidence he acknowledged Sir Elton’s help in helping him to overcome them in 1991.”
- In 1987 PW took over from AA as financial advisers to Sir Elton and his companies and as auditors of the EJ companies. They also became auditors of JREL. The judge rejected the suggestion that Mr Haydon engineered this change or that there was something underhand about it.
- Live concerts on tour, especially in the United States and Canada, were an important source of income for Sir Elton and his companies. By the time of the 1986 agreement a settled and successful pattern for North American tours had been established. This had been heavily influenced by the requirements of the United States Internal Revenue Service (“IRS”).
- The IRS took, and no doubt still takes, a close interest in taxing the profits of artists who perform in the United States, but are not resident there. In the absence of arrangements approved in advance the IRS will send officials to a concert venue and demand immediate payment on an estimated (and, it is said, over-estimated) basis, leaving it to the performer to submit a claim and eventually recover the overpayment.
- This summary form of tax collection could be avoided if the visiting artist was controlled by a tour producer established in the United States and approved by the IRS. Before the start of a tour the tour producer would submit a budget to the IRS and the tour producer and the artist (or in this case, Happenstance or Bondi) would enter into an agreement (called a withholding agreement) with the IRS for the tour producer to submit accounts and pay the tax due to the IRS. In this way payment of tax would be deferred and deductible expenses would be allowed for.
- The judge gave this description of the position and functions of the tour producer and of the others involved in the organisation of an American tour, that is the booking agent and the local promoters:
“In order to perform its obligations under the Withholding Agreement the tour producer, as principal, enters into a contract with each of the other parties whose services are necessary to enable the tour to proceed. So far as performances are concerned two such parties are engaged. The first is known as a “booking agent”. His task is to know the territory in which the tour is taking place and, in conjunction with the tour producer and the artist or his manager, to arrange an itinerary for the artist to visit and perform in particular places. The second is a “local promoter” who owns or controls particular venues at which the artist may perform. In determining the itinerary one of the principal functions of a booking agent is to identify appropriate local promoters who will arrange for the artist to perform at the venues which they have available. Once selected the local promoter will contract with the tour producer for the performance to take place. The local promoter will be responsible for ticket sales and for all the direct expenses connected with the use of the relevant venue. His contract with the tour producer will usually provide for the payment by him to the tour producer of a guaranteed sum which is payable regardless of the level of receipts. He will also agree to pay a high proportion of the amount by which the receipts in respect of the performance exceed the expenses of staging the performance, credit being given for the guaranteed sum. The local promoter is thus remunerated by means of a share of the profits of the performance. The booking agent is remunerated by means of receiving a percentage of the sum paid over by the local promoter to the tour producer.
The tour producer is also responsible for most of the administrative arrangements for the tour. Thus the tour producer enters into contracts for such things as transport of the touring party and their musical instruments from place to place and for accommodation of the touring party (although in Sir Elton’s case his personal accommodation and that of his immediate entourage was arranged by JREL itself, the tour producer dealing only with the accommodation of the less important members of the party).”
- Another specialised function was that of tour accountant. One of the tour accountant’s main functions would be to deal with the IRS, both in negotiating the withholding agreement and in submitting and agreeing accounts. The other would be to go on tour in order to check procedures at concert venues, maintain accounting records and pay expenses.
- Similar needs arose on other foreign tours (mostly to Europe, Japan or Australia) except that the particular problems posed by the IRS’s requirements were peculiar to the United States. The individuals involved on other foreign tours were Mr Mel Bush and Mr Harvey Goldsmith, who acted as booking agents. For present purposes it is sufficient to concentrate on North American tours, as these were the most important and the most likely to have been in the parties’ minds when the 1986 agreement was negotiated and entered into: but references below to ‘tour agents’ should be taken as including Mr Bush and Mr Goldsmith.
- The pattern for American tours began to be established in the 1970’s, when Mr Reid acquired a Californian company named John Reid Enterprises Inc (“JRE Inc”). JRE Inc became a subsidiary of JREL. It contracted as a principal with Sackville for concerts which Sir Elton gave in the United States and Canada between September and November 1979. Sackville was to receive whichever was the greater of (i) $25,000 for each concert performance and (ii) 80 per cent of the gross income from concerts managed by JRE Inc after deducting specified costs and expenses, including “theatrical booking agency and other commissions”.
- The judge commented on this:
“I think that it is plain from this agreement that the gross income received by JRE Inc from presenting the intended concerts was to be its own money. Correspondingly it was to contract for and be personally liable for the cost of the various services (accommodation, travel, musical accompaniment etc) which were to be provided for Sir Elton under the agreement. If, as seems likely to have been the case, a booking agent was engaged, his commission would have been payable by JRE Inc, although it would have deductible in ascertaining the amount of the contingent compensation.
Thus if the tour was not sufficiently successful to produce as much as $25,000 per concert appearance after payment of all the expenses for which JRE Inc was liable, JRE Inc was to bear the expenses and was also to pay $25,000 per appearance to Sackville. If that left JRE Inc with a loss, the loss would have to be borne by JRE Inc. If, however, the tour produced more than $25,000 per appearance after payment of expenses, Sackville would receive the contingent compensation of 80% of the net amount. In that event Sackville would, in economic terms, “bear” 80% of the expenses. But this does not alter the legal analysis that JRE Inc was solely liable to the third parties who had provided the services in respect of which the expenses were incurred.”
- By the early 1980’s Sir Elton’s advisers were concerned that JRE Inc might be perceived by the IRS as being too closely connected with Sir Elton. They decided that the tour producer should be an entity not connected with either Sir Elton or Mr Reid. JREL approached Ms Constance Hillman who had worked for JRE Inc between 1974 and 1977, but had fallen out with Mr Reid.
- Ms Hillman agreed to act as tour producer through a company named Constant Communications Corporation (“CC”). It was established in the spring of 1982 and was based in Los Angeles. Ms Hillman was its president and she owned all its shares. It was envisaged, the judge said, that CC would receive annual remuneration for acting as JREL’s United States representative, and that it would be entitled to additional remuneration for each North American tour for which it acted as tour producer. These arrangements were made by Mr Reid and JREL, almost certainly (the judge found) on the advice of AA. The judge quoted a draft press release (dated 22 March 1982) which began:
“Connie Pappas Hillman has today announced the formation of Constant Communications Corp, John Reid retains firm to produce Elton John tours for United States and Canada.”
JRE Inc then dropped out of the picture.
- The first North American tour in which CC was involved took place in the summer of 1982. CC and Happenstance entered into an agreement dated 13 May 1982 under which Happenstance made available Sir Elton’s services and CC undertook a large number of obligations (set out in thirteen subparagraphs of clause 4.1, each containing in a prominent position the words “at its own expense”). These included providing concert venues and rehearsal facilities, transport between venues, living accommodation, subsistence, and so on. CC undertook to pay to Happenstance a fee equal to the ‘net proceeds’ less $100,000. The net proceeds were defined as CC’s gross receipts from the tour less the ‘tour costs’ defined as the costs incurred by CC in fulfilling its obligations under clause 4. Clause 11 of the agreement expressly excluded the creation of any partnership, joint venture or agency.
- CC entered into similar agreements with Happenstance in respect of Sir Elton’s North American tours in 1984 and 1986 and with Bondi in respect of later tours. The amount of profit which CC could derive increased over the years but it remained in the same fixed form.
- For each tour CC entered into a simple form of agreement with The Howard Rose Agency (“HRA”) of Beverley Hills, California as booking agent. HRA had been founded in 1973 by Mr Howard Rose, who was an experienced and well-regarded booking agent. CC agreed to pay HRA commission (initially at 10 per cent, then at 7½ per cent, and ultimately at 5 per cent) of the “gross monies or other considerations paid by local promoters” (or in a later form “the gross monies earned by [CC]”) in respect of the tour.
- Mr Rose gave evidence and the judge accepted his evidence that he regarded himself as having been hired (and as being liable to be fired) by JREL, and that he presented himself to the world as Sir Elton’s agent. But the judge said:
“The fact remains however that, at least from the time when CC began to be used as tour producer, HRA’s contract in respect of each tour was with CC and no one else. HRA was a representative engaged to negotiate rather than an agent in the full sense, but so far as he was an agent his principal was CC and not Sir Elton, Happenstance, Bondi or JREL.”
- HRA would identify suitable local promoters and negotiate with them. CC would then enter into a standard form of contract under which the local promoter agreed to pay a guaranteed minimum sum and a specified percentage (generally 90 per cent) of the amount by which the net profits (that is gross receipts from ticket sales less local taxes, ‘direct hall expenses’ and a fund for promotional purposes) exceeded the guarantee. The judge summarised the local promoter’s position:
“The local promoter was to receive the gross receipts on his own behalf, not as agent or trustee for any other party. He would have to pay out of his own resources (including the gross receipts) the amounts due to CC, and the direct hall expenses and he would have to set aside the promotion fund. His profit would be the amount of the gross receipts remaining after satisfying these outgoings.”
- Neal Levin & Co (“NL”) a firm of certified public accountants based in Beverley Hills, were engaged as tour accountants. There was no evidence as to who first engaged NL, but the judge said that it was probably Mr Reid, acting for JREL or JRE Inc. But after CC became tour producer it was CC that retained NL. The judge said that there was no written retainer, but that it followed inevitably from the evidence (and especially Ms Hillman’s evidence) about the flow of money produced on tour.
- The judge described the practicalities of the cash flows:
“The starting point of this flow is the local producer who collects the box office takings. Under the standard form of contract with CC, the payment for the services of Sir Elton, which is legally due from the local promoter to CC, is to be made by the promoter not to CC but to a specified bank account of HRA, partly in the form of a deposit which is payable before the concert takes place. HRA then deducts its own commission and any expenses it is entitled to recover and pays the balance into a bank account of CC which is operated on behalf of CC by [NL]. [NL] pays out of that account the expenses for which CC is liable (including its own charges), the remuneration due to CC for acting as tour producer and the tax which is payable in accordance with the Withholding Agreement. The balance is remitted to London. Until the early 1980s the entirety was remitted to JREL which in turn was entitled to retain its commission and obliged to account for the balance to Sackville or later Happenstance. It appears that JREL was somewhat lax about actually paying over this balance, with the result that a considerable book debt became owed by JREL to the EJ companies. From a time when the 1986 Management Agreement was being negotiated this system was changed and [NL], on behalf of CC, paid only JREL’s commission to JREL, the balance being paid to Happenstance or later Bondi.”
- It is appropriate to mention at this point some material as to which there is disagreement about its relevance and admissibility as part of the matrix of fact. On 8 November 1984 (at about the end of a very successful North American tour) Ms Catherine MacRae of JREL wrote to Mr Michael Boreham of Frere Cholmeley (Sir Elton’s solicitors), with a copy to Mr Pat Desmond of AA. This letter had three enclosures, each signed by Sir Elton and Mr Reid: a memorandum agreeing management commission and administrative fees for the period from 11 May 1981 to 31 December 1983; a two-page memorandum about future commission; and a document headed ‘Heads of Agreement: subject to contract’.
- It is the last two documents which are controversial. The memorandum, (which has been referred to as the ‘old basis/new basis’ memorandum) stated that Sir Elton and Mr Reid had ‘reviewed’ the attached schedule, which in a simplified form gave the following projections for commission for the 15-month period from 1 January 1984:
|Touring and sponsorship
The schedule also referred to the repayment of indebtedness by JREL.
- The heads of agreement (subject to contract, as already noted) were between Happenstance, Bong, Sir Elton and JREL and Mr Reid (together “the Manager”). They provided for a commission of 20 per cent on gross earnings from all managed activities. They contained the following as clause 7: “OVERSEAS REPRESENTATION – the appointment of overseas agents and responsibility therefor shall lie with the Manager at its own cost”.
The 1986 agreement
- The 1986 agreement was under negotiation for a long time, and when concluded it took effect from 1 January 1984, so as to apply to the North American tour in 1984 (the second tour which CC undertook). It was submitted on behalf of PW that part of its commercial genesis and purpose was to impose tighter financial discipline on Mr Reid and JREL, while at the same time providing JREL with generous terms enabling it to pay off its substantial arrears in what was due to the EJ companies.
- The 1986 agreement was considerably more complex than the 1977 agreements which it replaced. Both Sir Elton and Mr Reid seem to have commented unfavourably on its complexity. It may be useful to set out a summary of the whole document before getting to grips with the intricacies of clause 7, on which (together with schedule 5) the argument has centred. The parties to the 1986 agreement were (1) Bong (2) Happenstance (3) Rocket (4) Sir Elton (5) JREL and (6) Mr Reid. There were recitals of past contractual arrangements (including the replacement of Sackville by Happenstance) and of the parties’ wish that new arrangements should be entered into for management and the undertaking of administrative functions by JREL.
- Clause 1 contained a number of important definitions, some of which were linked to schedules to the agreement. These included “Managed Activities” (very widely defined as any activities in the music and entertainment industries and including activities listed in schedule 1); “Manager’s Duties” (also widely defined and including duties described in schedule 2); “Administrative Functions” (duties to be carried out by JREL as administrator as described in schedule 3); “Personal Administration” (administrative and other functions to be performed by JREL in its capacity as Sir Elton’s personal administrator as described in schedule 4); and “Tour and Recording Administration” (administrative functions to be undertaken by JREL in respect of tours and recording sessions as described in schedule 5). The definitions evince an intention (whether or not it was achieved) to distinguish between the functions of manager (on the one hand) and administrator (on the other hand).
- Clause 2 provided for the replacement, with transitional provisions, of the old management agreements (identified in schedule 6). Clause 3 provided for the new agreement to run until 31 December 1989 and thereafter until terminated by six months’ notice (“the Term”). Clauses 4, 5 and 6 respectively provided for the appointment of JREL
i) by Bong, Happenstance and Bondi as “sole and exclusive manager of the Managed Activities engaged in by [Sir Elton]”.
ii) by Bong, Happenstance and Rocket as administrator to perform “such of the Administrative Functions and Tour and Recording Functions as are applicable to them” and
iii) by Sir Elton as personal administrator, and as administrator for “such of the Administrative Functions and Tour and Recording Functions as may be applicable to them” of some other named companies which were not parties to the agreement.
Then came clause 7, headed ‘General provisions as regards JREL’s obligations hereunder’. It will be revisited soon.
- Clauses 8 and 11 (inclusive) provided for JREL’s commission, by which the EJ companies and Sir Elton undertook several obligations to pay commission “on the income ... of each of them arising during the Term derived from or in respect of the Managed Activities or the product of the Managed Activities”. There were transitional provisions (operating at the beginning and at the end of the Term) and a prohibition (clause 9.3) on double counting. Commission as to be “at the rate of 20 per cent of the gross amount of Income derived from the Managed Activities or the products thereof and received by or on behalf of the party obliged to pay Commission”. It was to be calculated in sterling, with provisions as to rates of exchange (clause 9.5). It was to be paid on invoices submitted by JREL, backed by itemised statements of income and deductions. There were provisions for set-off (clause 10.3) reflecting JREL’s outstanding indebtedness to the EJ companies. Clause 12 provided that JREL should also be entitled to occupancy charges for occupation of premises belonging to JREL.
- Clause 13 (headed ‘Expenses incurred by JREL (whether as manager or as administrator)’) received some attention in argument. Clause 13.1 provided that JREL pay out of its own resources “all such costs and expenses as may be incurred by it on its own behalf in the performance of the Manager’s Duties and the Administrative Functions Personal Administration and Tour and Recording Administration respectively” and that JREL should “as regards the Manager’s duties be entitled to be reimbursed only such costs and expenses as are incurred by it which it incurs with the consent of [Sir Elton] or of Bong Rocket or Happenstance for action beyond that which could reasonably be expected of JREL in any event”, with a proviso as to the approval of the amount of any such additional costs or expenses. Clause 13.2 and 13.3 contained restrictions on JREL pledging credit or incurring liabilities as an agent.
- Clause 14 related to accounting procedures. Clause 15 referred to the continuing litigation against Mr Dick James, Sir Elton’s former manager, and companies associated with him. It contained a provision entitling JREL to 10 per cent of net recoveries in the litigation (a provision whose validity has not been challenged in these proceedings). Clause 16 (‘Cash handling’) expressly provided that neither JREL or Mr Reid had authority to receive money on behalf of Sir Elton or any of his companies. Clause 17 (‘Disclosure of interest’) required JREL to disclose the extent and nature of any conflicting interest in any contract or arrangement affecting Sir Elton or his companies.
- The remaining clauses can (with one exception) be sufficiently identified by their headings: clause 18 Termination provisions; clause 19 Wrongful termination or repudiation; clause 20 Indemnities; clause 21 Duty of confidentiality; clause 22 Variation; clause 23 Notices; clause 24 Waiver, time and indulgence; clause 25 Entire agreement; clause 26 Headings; clause 28 Assignability; clause 28 Arbitration; clause 29 Value added tax; clause 30 [Sir Elton’s] rights; clause 31 Law. The subject-matter of the five schedules has been covered already, although it will be necessary to come back to them, especially schedule 5.
- The exception is clause 25 (‘Entire agreement’) which was not relied on below but has been relied on in this court:
“This Agreement and any other written agreements of even date herewith entered into between all or some of the parties hereto set forth the entire agreement and understanding between any and all of the parties hereto in connection with the subject matter hereof.”
- I must now focus, as the judge did, on clause 7 of the agreement. Clause 7.1.1 gave JREL (both as manager and as administrator) authority to negotiate but not conclude agreements on behalf of Happenstance, Bong and Sir Elton. Clause 7.1.2 required JREL to consult with its principal in all negotiations. Then clause 7.1.3 required JREL’s obligations to be discharged “personally by Mr Reid or under his direct personal supervision or control”, and for Mr Reid to “attend upon and consult with” Sir Elton.
- As the judge observed, clauses 7.1.1 and 7.1.2 are concerned with the extent of JREL’s authority. Clause 7.1.3 and clause 7.2 are apparently concerned with the degree of personal performance required, and with prohibiting or restricting the delegation of duties, and arguably these provisions should be read together. Clause 7.2 began as follows:
“JREL shall not be entitled to appoint an agent or agents to act on its behalf in the performance and discharge of any of its obligations hereunder without the prior written consent of the person (“the Principal”) in respect of whose activities such agent is appointed save for an agent in respect of bookings for a live performance concert tour. Any such appointment shall be subject to the following provisions of this clause:-
7.2.1 Mr Reid shall at all times exercise supervision and control of the activities of such agent;
7.2.2 the fees and expenses of such agent shall be paid by JREL out of the Commission and administration fees paid to it hereunder unless otherwise agreed in writing by the Principal.”
There followed other provisions relating to any appointment of an agent by JREL: these restricted its scope (by forbidding a ‘significant’ degree of delegation) and required the disclosure of full budgetary information and of any conflict of interest.
The judgment below
- The judge summarised the essentials of the claimants’ case in four propositions:
“(1) Each of the tour agents [CC, HRA, the non-American booking agents and NL] is an agent of the kind referred to in the opening words of Clause 7.2.
(2) Each of the tour agents is an agent for whose appointment written consent was either unnecessary (ie a booking agent) or must be regarded as having been given.
(3) Accordingly the fees and expenses of each of the tour agents were payable by JREL under Clause 7.2.2, no agreement to the contrary having been made.
(4) Although the structure under which one or other of the EJ companies initially bore all the tour agent’s fees and expenses was one which was concurred in by all the claimants, and was indeed essential if the claimants were not to suffer United States tax to an unacceptable extent, the effect of Clause 7.2.2 is to require JREL to adjust the position by a system of recharging under which JREL recouped to the relevant EJ company the tour agent’s fees and expenses which it had borne.”
- The judge then made some observations about the structure of clause 7 in general and clause 7.2 in particular, noting that clause 7.1.3 and clause 7.2 were concerned with Mr Reid’s personal involvement in this performance of JREL’s obligations, and the degree to which the performance of JREL’s obligations might be delegated to what the judge called ‘sub-agents’. He considered the meaning of the words ‘Any such appointment’ at the beginning of the second sentence of clause 7.2. His provisional conclusion was that clause 7.2 applied only to sub-agents which were (i) appointed by JREL (ii) as agents to act on JREL’s behalf (iii) in the performance of one or more of JREL’s obligations under the agreement.
- The judge then went on to consider these three points in reverse order, in effect scrutinising and testing the validity of the claimants’ first proposition set out in paragraph 50 above. He came to the conclusion that the appointment and functioning of the tour agents, when examined, did not meet two of the three tests and that the position on the third was ambiguous. This was the main basis for his overall conclusion against the claimants on the issue of construction (although the judge did consider a number of subsidiary points, and treated most of them as supporting his overall conclusion).
- I can at this stage summarise the judge’s reasoning fairly shortly, since I shall have to come to the criticisms of his reasoning advanced in this appeal. The judge reminded himself of JREL’s duties under clauses 4, 5 and 6 and schedules 2, 3 and 5 (there was no issue as to personal administration under schedule 4). He set out schedule 5 in full and observed that the tour agents performed tasks which fell within the descriptions in Schedule 5, including paragraphs (a) (planning and scheduling of concert tours), (c) (advertising and publicising of concert tours), (g) (keeping of full accounting records), (h) (the appointment and supervision of local tour promoters) and (j) (generally supervising and arranging tours).
- The judge doubted, both on internal grounds and by reference to the factual situation at the time when the 1986 agreement was being negotiated, whether JREL was intended to perform all the schedule 5 tasks “completely and exhaustively” without any delegation. Mr Howard Rose gave evidence that in New York and California a booking agent needed a licence (which HRA had, but JREL did not have) and Sir Elton accepted in evidence that HRA was hired in order to provide something which JREL could not provide.
- The judge stated that none of the tour agents was, as a matter of law, engaged as an agent of JREL. CC was acting as a principal (and no one suggested that its independent status was a sham). NL was providing professional services as an independent contractor. As to HRA the judge said:
“HRA probably was an agent, at least in the broader or colloquial sense of this term, but as a matter of legal analysis its principal was CC, not JREL, or perhaps Happenstance and Bondi or Sir Elton himself. Sir Elton himself regarded HRA as his agent and Howard Rose regarded Sir Elton as his client ...”
- The judge therefore found that none of the tour agents was appointed by JREL ‘in the legal sense’, by which he meant so as to bring CC, HRA or NL into privity of contract with JREL. But the judge accepted that all the tour agents were identified and selected by JREL, and would in practice have been removed from the scene if JREL (after consultation with Sir Elton) had thought fit. He concluded that on this point the position was ambiguous, but that in conjunction with the other tests the tour agents were not within clause 7.2.
- The judge expressly considered the following further points in reaching his conclusion on construction: (i) the significance of the words “save for an agent in respect of bookings for a live performance concert tour” in clause 7.2 (‘the booking agent exception’); (ii) an argument based on industry practice; (iii) an argument based on JREL’s indebtedness to the EJ companies and on the ‘old basis/new basis’ memorandum; and (iv) an argument that clause 7.2 was, in the part beginning “Any such appointment ...” dealing with what was seen as an exceptional case, not a procedure which was both essential and routine.
- There were three arguments based on the booking agent exception, one put forward by the claimants and two by the defendants. The claimants’ submission was of the “utmost simplicity”: the insertion of the exception showed that the appointment of any booking agent (and any other tour agent) was within the scope of clause 7.2, and the exception merely removed the need for consent (not the provisions as to who was to pay). The judge saw the logical force of this but thought that the argument gave too much weight to the exception.
- The defendants’ first argument on the booking agent exception was that (completely contrary to the claimants’ argument) it took booking agents outside clause 7.2 altogether, and not merely out of the need for consent. The judge rejected that as not being the ordinary and natural meaning of the words used. The defendants’ second argument was based on the ‘private dictionary’ principle (see IRC v Botnar  STC 711, 738, where the authorities are collected in the judgment of Mance LJ). The judge rejected that argument as having no established evidential foundation.
- The judge also attached some weight (but not, as I read his judgment, much weight) to the three other factors mentioned in paragraph 57 above. The judge said of the ‘old basis/new basis’ memorandum:
“The schedule does not contain anything which directly shows how the costs of tour agents were assumed to be borne, but I think Mr Hapgood was correct in saying that it cannot have been supposed that JREL was paying for the tour agents on the new basis. The main reason for drawing this conclusion is that HRA alone would have to be paid 7.5% or 10% of the tour income and it is impossible to suppose that there would be such a large increase in JREL’s commission on touring and sponsorship if JREL was having to bear these payments.”
‘Matrix of fact’ issues
- In this court counsel for the appellants (Mr Mark Howard QC, who did not appear below, and Mr Neil Calver, who did) have launched a vigorous attack on the judge’s conclusion on construction. The appellants’ skeleton argument (prepared before Mr Howard was instructed) submitted that the judge allowed himself to be influenced by “a mass of inadmissible and irrelevant factual material” put forward by the defendants in support of their quasi-rectification claim; and this was echoed by Mr Howard at the beginning of his oral opening. Similarly a schedule submitted in advance of the hearing (in accordance with case-management directions given by the supervising lord justices) contained a large number of points on which the appellants were contending that the judge let in too much ‘matrix’ material. But as the argument developed it became apparent that the gap was not so wide as had at first seemed likely.
- There was (as one would expect) a high degree of consensus as to the general principles. Both sides commended as particularly helpful the following passage from the very well known speech of Lord Wilberforce in Prenn v Simmonds  1 WLR 1381, 1384-5,
“The reason for not admitting evidence of [negotiations] is not a technical one or even mainly one of convenience, (though the attempt to admit it did greatly prolong the case and add to its expense). It is simply that such evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties’ positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus. If the previous documents use different expressions, how does construction of those expressions, itself a doubtful process, help on the construction of the contractual words? If the same expressions are used, nothing is gained by looking back; indeed, something may be lost since the relevant surrounding circumstances may be different.”
- Similarly both sides agreed that in the Investors Compensation Scheme case Lord Hoffmann (and the other members of the House of Lords who agreed with his speech) had not made any radical alteration in the boundaries of the principle. In his dissenting speech in BCCI v Ali  1 AC 251, 269 (para 39) Lord Hoffmann explained that when he said in Investors Compensation Scheme (at p.913)
“ ... that the admissible background included “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man”, I did not think it necessary to emphasise that I meant anything which a reasonable man would have regarded as relevant. I was merely saying that there is no conceptual limit to what can be regarded as background.”
- In the end the most significant outstanding dispute was as to the old basis/new basis memorandum and the heads of agreement. Mr Howard did not press other points raised in the appellants’ schedule, including Sir Elton’s very generous disposition, his previous close relationship with Mr Reid, and the arrangements made on previous North American tours (including the arrangement between JRE Inc and Sackville under an agreement dated 4 September 1979).
- Mr Howard was wise not to press these points. They appear to me to be inconsistent with the appellants’ positive submission that it was the judge’s duty to take into account the ‘aim or genesis’ of the 1986 agreement, and the terms of the agreements which it replaced. Sir Elton was and is (as he made clear in his evidence) a musician and an artist, not a businessman or an accountant, and his long-standing friendship with Mr Reid was far from an ordinary commercial relationship. He was and is known as a man of extraordinary generosity. It would be wrong for the court not to recognise those matters. But for the same reason, I respectfully think that the judge would have been wrong, in the unusual circumstances of this case, to give more than trifling weight to normal practice in the entertainment industry, since this is not a normal case. But I do not think that he attached much more than trifling weight to it.
- In their counter-schedule PW have not challenged any finding of fact made by the judge or the admissibility of any factual matter which he took into account on the construction issue. In their counter-schedule and their respondent’s notice PW have sought to rely additionally on (i) the parties’ awareness (from the Dick James litigation) of the potential for a manager to abuse powers of delegation; (ii) the calculation of commission, during 1981-3, on net touring income, after tour agents’ costs had been met by Happenstance, and the negotiation of the basis (from net to gross) only after the wording of clause 7.2 had been agreed; and (iii) the fact that (as they said in evidence) neither Sir Elton nor Mr Reid expected JREL to perform the functions of tour producer, booking agent or tour accountant on any tour, whether to North America or elsewhere. But Mr Mark Hapgood QC (appearing with Mr Cyril Kinsky for PW), did not press all these points and his basic position has been that the judge reached the correct conclusion for the right reasons.
- In his submissions on the ‘matrix’ issues which remained in dispute, Mr Howard relied on a new point, that is the ‘entire contract’ clause in the 1986 agreement. On this point he referred to the decision of Lightman J in Inntrepreneur Pub Co v East Crown Ltd  2 LLR 611. In that case an ‘entire contract’ clause in similar but not identical terms was held to exclude what might otherwise have been a collateral warranty by denuding it of legal effect: see at p.614. But a conventional ‘entire contract’ clause cannot in my view affect the question whether some matter of fact (whether or not in documentary form) is admissible as an aid to the process of construing a contractual document.
- As to the old basis/new basis memorandum and the heads of agreement Mr Howard’s primary submission was that neither should be looked at, since (although signed) they were not contractual documents and it was impossible (without a wholesale breach of the principle which excludes evidence of negotiations) to discover what they contributed to the agreement as finally signed about sixteen months later. His alternative submission was that if either document was to be looked at, both should be (the heads of agreement appear to give the appellants some comfort) and that in any event it is impossible to derive from the memorandum any clear message about tour agents’ costs.
- Mr Hapgood supported the judge’s approach in having taken into account what he did, including the old basis/new basis memorandum. It did, he said, record one of the commercial aims of the transaction, that is to increase JREL’s income (and so its ability to pay off its indebtedness). He submitted that the weight to be given to ‘matrix of fact’ evidence varies with the nature and clarity (or obscurity) of the document to be construed, and that here the 1986 agreement was peppered with ambiguities. He referred to what Mance LJ said about badly-drafted contracts in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No.2) 2001 2 AER (Comm) 299, 305-6 (para 16),
“In these circumstances, it is especially important to undertake the exercise on which the judge declined to embark, that is to consider the implications of each interpretation. In my opinion, a court when construing any document should always have an eye to the consequences of a particular construction, even if they often only serve as a check on an obvious meaning or a restraint upon adoption of a conceivable but unbusinesslike meaning. In intermediate situations, as Professor Guest wisely observes in Chitty on Contracts (28th ed, 1999) vol 1, p.606, para 12-049, ‘a balance has to be struck’ through the exercise of sound judicial discretion.”
- The judge was not asked to treat the heads of agreement as relevant or admissible on the issue of construction. He seems to have regarded the old basis/new basis memorandum as something of a borderline case. He said of his decision to consider it:
“I have considered carefully whether I am entitled to take the old basis/new basis memorandum into account in construing the 1986 Agreement. It was, in one sense, merely a stage in the negotiations and negotiations are not generally to be looked at because they are unhelpful in ascertaining the final intentions of the parties. But the old basis/new basis memorandum constitutes not merely a statement of the position of one party to negotiations but a formal statement, signed by both parties, which recognises at least the broad result which they expected their negotiations to achieve if and when they led to a concluded agreement. I consider that I am entitled to take account of the memorandum, not as showing precise figures for JREL’s commission but as showing that such commission was expected to increase substantially.”
- The difficulty of that approach is that evidence of the parties’ intentions in November 1984, even if embodied in a formal statement, cannot be evidence of their purpose or aim in March 1986, at any rate in the absence of further evidence that there was no change in the course of the negotiations. So the court would be swept into the stream of the negotiations and out of the proper ambit of the principle. That was illustrated in the course of argument when Mr Hapgood, in order to demonstrate the continuity of the purpose, referred to a letter dated 21 October 1985 to Sir Elton from his solicitor, the terms of which could not have been known to Mr Reid.
- The boundaries of the exception for evidence of negotiations are in some respects unclear, as Lord Hoffmann said in the Investors Compensation Scheme case at p.913. Sometimes they may have the effect of excluding material which would otherwise help to establish the aim of a transaction (but in many cases the aim could still be made clear from simple facts known to both sides, without the need for reference to particular documents). I respectfully consider that the judge erred in taking account of the memorandum as such, even for the limited purpose for which he did rely on it. Nevertheless I think that in construing the 1986 agreement he was entitled to take account of Sir Elton’s generosity and long-standing friendship with Mr Reid, and also of JREL’s indebtedness to the EJ companies (which is referred to in the agreement itself).
- It is common ground that the judge was right to have regard to the established pattern of arrangements for North American tours, and that he was at liberty to have regard to the terms of the 1977 agreements (as varied) which the 1986 agreement replaced. But it is debatable whether anything very useful can be obtained from the earlier agreements, since the practical objections (to looking at evidence of negotiations) stated by Lord Wilberforce in Prenn v Simmonds (para 62 above) do to some extent apply to superseded agreements also: if their framework and language is different, how can they help? It is possible to imagine cases in which they might (for instance, if a clause had been copied verbatim except for one significant alteration). But here the framework and language of the agreements is very different. The recitals to the 1986 agreement record that management and administration by JREL is to continue under “new arrangements”, and the nature of those new arrangements must be derived from the 1986 agreement, construed in accordance with established principles.
The construction of the 1986 agreement
- To my mind this appeal illustrates, yet again, a melancholy truth. The fact that very large sums of money are to change hands under a commercial agreement, and the further fact that it has been negotiated and prepared over a long period by well-remunerated professionals, provide no guarantee of competent drafting. Given the factual background, and in particular the established procedures for North American tours as I have described them, it is remarkable that (apart form the single awkward reference to a booking agent in clause 7.2) the language of the agreement is so vague and inappropriate to the way in which the parties actually carried on their business affairs.
- It is possible to conjecture (but it is only a conjecture) that instructions may have reached the actual draftsmen by long and not always easy lines of communication. Whatever the explanation, it has produced the situation in which each side has been contending, at different stages in the argument, that the other side’s construction cannot possibly be right, because if that had been intended, the meaning could and should have been much more clearly spelled out. (For this purpose only I include Frere Cholmeley, the Part 20 defendant, as being part of PW’s side; Mr Michael Kallipetis QC, leading Mr Simon Monty, put in a skeleton argument and made some brief oral submissions on behalf of Frere Cholmeley and in support of Mr Hapgood.) There was force in each side’s submission. But the court’s task is to make sense of the agreement as best it can, even if the eventual answer cannot be regarded with any more enthusiasm than that it is the least unsatisfactory construction.
- Trying to stand back after two days of skilful and often intricate argument, I ask myself what are the main themes which have emerged. I have identified seven points which recurred frequently in the course of argument. Some overlap (or approach the same question from a different starting point). They are the following:
i) the nature of JREL’s duties under schedules 2 and 5, and their interaction with clause 7.2 and clause 13.1;
ii) the question whether the language of clause 7.2 was (especially in its references to agents) to be taken in its proper legal sense or in a looser business sense;
iii) (following on from (ii) above) the significance of CC acting as a principal, and being the party who was in contractual relations with HRA, the local promoters and NL;
iv) the significance of Sir Elton having readily accepted that Mr Howard Rose was indispensable to the success of North American tours, and did tasks which JREL (or Mr Reid) could not have done;
v) the question (forcefully posed by Mr Howard) of what clause 7.2 was directed to, if not to tour agents;
vi) the significance of the clauses dealing with financial administration, as tested against the factual evidence about cash flows from tours; and
vii) the significance of what I have called the booking agent exception.
I shall comment on these points in turn, although they cannot of course be regarded as discrete problems; the agreement has to be construed, warts and all, as a whole.
- Mr Howard placed great stress on the terms of schedules 2 and 5, as linked through the definitions in clause 1.1.5 and 1.1.7 (“administrative functions”) to JREL’s duties under clauses 4 and 5 respectively. He concentrated especially on paragraphs (a), (b) and (c) in schedule 5 –
“(a) planning and scheduling of concert tours ...
(b) booking of concert venues ...
(c) advertising and publicising of concert tours.”
Those, he said, were duties of JREL as tour administrator; and if it engaged others to perform those duties, that fell squarely within clause 7.2. Mr Howard described as impossible the suggestion that the whole of paragraphs (a) to (i) of schedule 5 were in substance particulars of the general obligation in the next paragraph
“(j) generally supervising and arranging tours ...”
He also rejected the suggestion that a reference to ‘supervising’ or ‘administering’ should be read into each of the paragraphs in which it does not actually appear.
- I would accept Mr Howard’s last two submissions. Although I have been critical of the drafting of the 1986 agreement it is the coherence of the whole agreement which is most defective. Particular parts of it seem to have been drafted with some care, and I do not think that it is possible to ignore the choice of language in schedule 5, under which five of the paragraphs (a) to (j) are concerned with JREL doing things, and five with JREL getting other people to do things (the latter are (d) engaging musicians etc; (f) arranging travel etc; (h) the appointment of local tour promoters; (i) arranging insurance; (j) generally supervising and arranging tours).
- But when the judge (in a paragraph which Mr Howard has criticised) doubted whether JREL was required to perform its schedule 5 tasks “completely and exhaustively” I do not think that he was questioning whether Mr Reid, through JREL, had to concern himself with all these tasks, but whether he and his staff at JREL had to perform them (as it were) single-handed. It is clear from all the evidence that planning, arranging and making a tour was a complex and demanding undertaking. One of the very few gaps in an otherwise clear and comprehensive judgment is that the judge did not mention that Mr Reid did go on tour with Sir Elton. During a North American tour he would not be on the end of a telephone in London, but (for most though not all of the time) on the road with Sir Elton and his band, sharing responsibility with Mr Howard Rose (although the latter was the man with local knowledge and expertise). That would have been well known to the parties when the agreement was entered into.
- Leaving that point rather in the air, I go on to the sense in which clause 7 uses the word ‘agent’ (and related expressions) and the significance of Ms Hillman’s company, CC, acting as a principal and itself engaging HRA, NL and the local promoters. Mr Hapgood emphasised that clause 7 is dealing with legal matters and uses language (including ‘authority’ and ‘principal’) appropriate to agency in its proper legal sense. Against that Mr Howard submitted, correctly, that ‘agent’ can be, and very often is, used in a broader commercial sense, and that HRA and the other tour agents were as a matter of fact performing (instead of or in conjunction with JREL) functions (such as booking concert venues) which were plainly part of JREL’s duties under schedule 5. The judge himself recognised that the tour agents were selected by JREL and might be described as appointed by it (this was the point which the judge described as ambiguous).
- Both sides’ arguments have some force. But looking for the present mainly at the structure and language of clause 7 as a whole, I think the judge was right to see it as addressing legal matters in appropriate legal language. Those legal matters were JREL’s authority (as an agent in the full sense); the degree to which JREL (as a corporate embodiment of Mr Reid and no-one else – see clause 18.1.3 to 5) was to perform its obligation through Mr Reid personally; and the circumstances in which (in derogation from clause 7.1.3) a limited amount of delegation of responsibility was to be permitted.
- If that is the right way in which to approach clause 7, then it is apparent that it does not fit at all well with the way in which Sir Elton’s tours (and especially his North American tours) were organised. The legal structure provided for CC to act as principal at the top of the pyramid, as it were. In theory, CC was exposed to the risk (however small it was in practice) of a tour turning out to be a disaster (this is another point on which the judge seems to have erred, although the point was never of the slightest practical importance). No-one suggested that the structure topped by CC was a sham (even though the IRS was described in evidence, to which Mr Kallipetis drew attention, as looking to substance rather than form, possibly to a higher degree than under this country’s fiscal jurisprudence).
- Mr Hapgood made much of Sir Elton’s ready and unqualified acceptance of how important HRA (and the personal skill and experience of Mr Howard Rose) were to the success of North American tours. I would not give any real weight to that point. It underlines how odd it is that the position of HRA and the other booking agents was not dealt with more fully and more clearly, either in clause 7 or in some other part of the agreement. But it seems to me neutral as to what the agreement means.
- If clause 7.2 is not intended to cover tour agents, what is it directed at? That question was posed more than once by Mr Howard, and he asserted that Mr Hapgood had no answer to it. I have to say that I was not much impressed by the answer suggested (that it was to cover the possibility of Mr Reid being unable to go on tour because of illness), if only because of clause 7.2.3 (significant part of JREL’s obligations). A more plausible example might have been a decision to delegate the keeping of the various companies’ statutory books and registers, and other company secretarial services (schedule 3, paragraph (c)) to a firm of chartered accountants. That might at some stage have been a sensible course, but JREL would have had to pay the cost of delegating this task, because it was being paid to do it. That would reflect the symmetry which Mr Howard discerned in clause 7.2.3, clause 13.1 and schedule 5.
- However the suggestion of plausible possibilities still leaves force in Mr Howard’s point that if clause 7.2 is not directed to tour agents, it amounts to quite a complicated set of provisions with no obvious need or justification. The length of a clause in a commercial agreement may not be proportionate to its importance. Some of the elaboration in clause 7.2.3 to 7 may reflect Sir Elton’s solicitors’ concern that he should not again get caught up in the sort of litigation in which he became involved against Mr James and his companies (litigation which is mentioned in clause 15, and which came to end in November 1985). But for all that, I am left with the feeling that Mr Howard’s question did not receive any wholly satisfactory answer.
- The judge very carefully examined the evidence about cash flows on North American tours, analysing (see paragraph 35 above) how gate receipts received by local promoters flowed (partly as guaranteed minimum and partly as the lion’s share of the net profits) to HRA and from HRA (after deduction of its commission, initially 10 per cent but later a lower percentage) to CC for onward transmission (after CC had recouped its substantial expenses and taken its remuneration) to Happenstance and JREL (by way of contractual fee and commission respectively). The judge did not attach much weight to this in his conclusions, but Mr Hapgood submitted that this court should do so. The fourth step in the appellant’s main submissions in both courts (see paragraph 50 above) required a system of recharging expenses, by way of recoupment, which is not clearly spelled out in the agreement (although there may be vestigial indications in clause 10.2.1).
- This is in my view a powerful point. The 1986 agreement is heavily freighted with provisions which might be described as financial controls directed at JREL, notably clause 7.2.4 to 7 (whatever the clause as a whole means), clause 10.2, clause 10.3, clause 13, clause 14.2, 4 and 5 and (perhaps most important of all) clause 16 (cash handling). In the face of these provisions, and the existing pattern of cash flows, it would be surprising if the agreement allowed JREL to receive substantial sums which it would have to pay out again by way of recoupment. Moreover in practice any such recoupment would have been to Happenstance, not (as clause 7.2.2 if applicable would require) to tour agents as JREL’s sub-agents.
- The last of the recurring themes is the booking agent exception, on which each side has relied below. In this court Mr Hapgood pointed out that the judge had not said that booking agents would, but for the booking agent exception, have come within clause 7.2. He said that they would or might be supposed to do so. Provisions are sometimes inserted for the avoidance of doubt, and sometimes their effect is not to avoid doubt but to create or increase it. But in this case I regard the booking agent exception as important.
- From its awkward position in the first sentence of clause 7.2, and its awkward grammar as an exception to a sentence which is in form a prohibition, my first impression was that this exception was probably a drafting interpolation; and as the language of clause 7.2 has been relentlessly analysed and debated, that impression has grown stronger in my mind. Whether that is right or not (and although I read the whole judgment when I gave permission to appeal on paper some time ago, I have not reread the passage on quasi-rectification) I have finally come to the conclusion that the booking agent exception is of decisive importance in this appeal.
- It is, after all, the only clear reference in the whole document to any species of tour agent. And its general effect is, at any rate at first sight, to make an exception for booking agents on live performance concert tours. The judge rejected the argument that its effect was to take booking agents outside clause 7.2 altogether, but the point is raised in PW’s respondent’s notice. The judge’s reasons for rejecting the argument were that it was contrary to the natural meaning of the language used:
“Clearly their appointment is excluded from the requirement that there must be prior written consent. That represents the ordinary and natural meaning of the words used. I am unable to attribute to it any other meaning.”
- I respectfully disagree. Whether the various subparagraphs (7.2.1 and following) of clause 7.2 apply to a booking agent depends entirely on what meaning is to be attributed to the words “Any such appointment ...” in the second sentence of clause 7.2. ‘Such’ is a demonstrative adjective (akin to the old-fashioned legal ‘said’) pointing to what has been mentioned or described before. In clause 7.2 it can as a matter of language mean either ‘any appointment which requires consent’ or ‘any appointment which requires consent or in respect of which the need for consent has been dispensed with’. On contextual grounds I would prefer the former. I have referred to some of these grounds already and I need not repeat them; but to these I would add the pointlessness, as I see it, of inserting the booking agent exception if its only purpose was to dispense with a formal consent which all parties knew would be readily granted.
- If (as I have concluded) booking agents are outside clause 7.2, it would be absurd if CC (which was not an agent at all) or NL (which was performing professional services on instructions from CC) were caught by it. No-one argued for that result.
- I have therefore come to the same conclusion as the judge, but in some respects by a rather different route and in other respects by attaching greater weight than he did to some of PW’s arguments (notably that based on cash flow, and that based on the booking agent exception). But I also attach great weight to, and I agree with, the judge’s analysis and conclusions on the central issue of agency.
- I cannot say that there is any wholly satisfactory answer to Mr Howard’s very pertinent question about the function of clause 7.2, and the excellence of Mr Howard’s submissions has certainly made me hesitate over my conclusion. It would be unprofitable to attempt any more precise quantification of all the relevant factors than that which I have already attempted. The process of construction often (and certainly in this case) involves the assessment of disparate (and therefore incommensurable) factors to reach what is ultimately an intuitive (but not irrational) conclusion. If a judge makes a point-by-point evaluation of the opposing arguments addressed to him he is performing his duty to give reasons for his decision. But point-by-point analysis of that sort cannot fully reflect the nature of the judicial process of construing a complex and difficult commercial agreement.
- I would therefore dismiss this appeal.
Sir Martin Nourse:
- I gratefully adopt paragraphs 1 to 60 of Lord Justice Robert Walker’s judgment and do not wish to add to them. In regard to the matrix of fact against which the 1986 agreement is to be construed, I agree with him that the old basis/new basis memorandum and the heads of agreement must be left out of account; conversely, that account must be taken of Sir Elton John’s generosity and long-standing friendship with Mr Reid, JREL’s indebtedness to the EJ companies, the established pattern of arrangements for North American tours (including cash flow arrangements) and, for what they are worth, the terms of the 1977 agreements (as varied). However, the previous arrangements, as distinct from the terms in which they were expressed, are an important part of the factual matrix.
- Lord Justice Robert Walker having summarised the principal arguments on each side, I can go straight to the recitals to the 1986 agreement. Recitals D and E record that between 11th May 1973 and 11th May 1981 JREL had acted upon the terms of the “old management agreements” (which include the 1977 agreements) as manager to the EJ companies and that since then it had continued to act as manager on the same terms “save that with effect from 12th May 1981 the financial terms thereof were varied”. Recital H is in these terms:
“It is the wish of the parties hereto that new arrangements be entered into relating to the continuing management by JREL and concerning certain administrative functions which have been and will continue to be undertaken by JREL in respect of [the EJ companies].….”
- The 1977 agreements had themselves made significant changes in the commission to which JREL was entitled. In November 1984, as recorded in recital E to the 1986 agreement, further changes were made for the period from 11th May 1981 to 31st December 1983. The latter was the day before the 1986 agreement took effect and during that period JREL was entitled to commission at the rate of 10% of gross income in respect of recording income and 20% of net income (after deduction of directly associated expenses) in respect of touring income and “all other income”.
- It was against that background that the parties wished to enter into new arrangements, two of which appear to have been markedly favourable to JREL. First, under clause 9.1 of the 1986 agreement JREL became entitled to commission at the rate of 20% of the gross amount of income derived from “the managed activities” (which included touring income). Second, JREL became entitled, for the first time, to commission on income derived from publishing. These advantages to JREL must be borne in mind when evaluating the suggestion that the appellants’ construction of clause 7.2.2 would result in JREL’s commission being eroded to an extent which the parties, in the light of Sir Elton’s generosity and long-standing friendship with Mr Reid and JREL’s indebtedness to the EJ companies, could not reasonably have intended. In my view it is impermissible to allow these considerations to override the meaning and effect (if clear) of the operative part of the 1986 agreement, to the material provisions of which I now turn.
- By clause 1.1.7 the expression “Tour and Recording Administration” is defined to mean:
“the administrative functions to be undertaken hereunder by JREL in respect of tours and recording sessions undertaken by Mr John which functions are described in Schedule 5 hereto.”
So far as material, clause 5 provides:
“[The EJ Companies] each hereby appoint JREL….. to act as administrator for them and to perform throughout the Term such of the….. Tour and Recording Administration as are applicable to them or their undertakings and JREL accepts such appointment and agrees to perform such services accordingly.”
Schedule 5 is set out in full in paragraph 108 of Mr Justice Ferris’s judgment. It is dealt with in paragraphs 77 to 79 of Lord Justice Robert Walker’s judgment.
- In my view it is plain that it could never have been contemplated that JREL would itself perform all the duties specified in Schedule 5. It is enough to refer to the first three:
“(a) planning and scheduling of concert tours or recording sessions as the case may be
(b) booking of concert venues or recording studios as appropriate
(c) advertising and publicising of concert tours.”
At the time that the 1986 agreement was entered into and previously some of these duties, for example booking and advertising, were being performed by others. What was plainly intended by the parties was that JREL should be responsible to the EJ companies for the performance of the schedule 5 duties, either by itself or through others.
- It is said that this view of JREL’s responsibilities is inconsistent with clause 7.1.3, which provides that in performing its duties under the agreement JREL shall:
“procure that throughout the Term its obligations hereunder are performed or discharged personally by Mr Reid or under his direct personal supervision or control.”
In my view that provision was intended to ensure that within JREL it would be Mr Reid himself who performed or discharged its obligations or directly supervised or controlled their performance or discharge. It was not intended to affect or modify JREL’s responsibility to the EJ companies for the performance of the schedule 5 duties, either by itself or through others.
- I now come to clause 7.2, the first part of which provides:
“7.2 JREL shall not be entitled to appoint an agent or agents to act on its behalf in the performance and discharge of any of its obligations hereunder without the prior written consent of the person (“the Principal”) in respect of whose activities such agent is appointed save for an agent in respect of bookings for a live performance concert tour. Any such appointment shall be subject to the following provisions of this clause:-
7.2.1 Mr Reid shall at all times exercise supervision and control of the activities of such agent;
7.2.2 the fees and expenses of such agent shall be paid by JREL out of the Commission and administration fees paid to it hereunder unless otherwise agreed in writing by the Principal;”
- It is unnecessary to set out again the judge’s view of these critical provisions or to refer to the extensive arguments which have been directed to them in this court. I propose to state my conclusions on the principal points in issue as briefly as I reasonably can.
- First, it being self-evident that JREL would perform some of its duties through others, I attach no significance to clause 7.2’s being expressed as a prohibitory exception. If anything, it confirms the self-evident. Secondly, despite the legalistic terminology of the first sentence of clause 7.2, I am quite unable to hold that it refers only to the appointment of agents by JREL as an immediate principal. The established pattern of arrangements for North American tours being what it was, I see no difficulty in extending its application to others through whom JREL performed its schedule 5 duties, that is to say CC, HRA, Mel Bush, Harvey Goldsmith and NL (“the tour agents”). In commercial, as opposed to legal, reality they were all appointed by JREL. Further, as was persuasively urged upon us by Mr Mark Howard QC, for the appellants, if the tour agents are excluded it is impossible to ascribe any effective function to clause 7.2. In my judgment this is one of the two decisive features of the question and it is one which Mr Mark Hapgood QC, for PW, was unable to answer in any convincing way.
- Thirdly, I refer to the words “save for an agent in respect of bookings for a live performance concert tour”, which, like Lord Justice Robert Walker, I will call the booking agent exception. Everybody is agreed that HRA, Mr Bush and Mr Goldsmith were each accurately described as an agent in respect of bookings for a live performance concert tour. The difference of opinion, an acute one, is over the effect which must be given to the exception. In my judgment conventional principles of construction require it to be treated as a provision which illuminates the ambit of that from which it is excepted. In other words, it confirms that booking agents (and thus the other tour agents) were intended to be included within clause 7.2. No argument which I have seen or heard has satisfied me that this simple approach can be faulted. In particular, speculation as to whether the booking agent exception was a drafting interpolation is not in my view helpful. For the purposes of construction it is there; and the first sentence of clause 7.2 must be read accordingly. In my view the booking agent exception is the second decisive feature of the question.
- Fourthly, again on conventional principles of construction, the words “Any such appointment” in the second sentence of clause 7.2 must be taken to include any appointment of a kind previously referred to; in other words, to include any appointment which requires consent or in respect of which the need for consent has been dispensed with. That is the final piece in the jigsaw and, subject to two points which have yet to be mentioned, it leads to the conclusion that the fees and expenses of the tour agents fall within clause 7.2.2.
- I take the two outstanding points in what may be thought to be their reverse order. The first is a suggestion that clause 7.2.3, which prohibits appointments of agents where the consequences would be that a “significant” part of JREL’s obligations would be being discharged by others, indicates that the tour agents were not intended to be included within clause 7.2. I do not myself regard that as a persuasive point. There was little, if any, discussion as to the meaning of “significant” in this context, but it must be well arguable that it is the equivalent of “major”, and it is by no means clear that the tour agents could be said to have been discharging the major part of JREL’s obligations as a whole. In any event, I can only regard clause 7.2.3 as having a peripheral bearing on the question we have to decide.
- Finally, I refer to the cash flow arrangements, the judge’s description of which is quoted in paragraph 35 of Lord Justice Robert Walker’s judgment. Reliance is placed by PW on the requirement of clause 7.2.2 that the fees and expenses of the agent shall be paid by JREL out of its commission, and further, on the financial controls directed at JREL, which, against the background of its indebtedness to the EJ companies, demonstrate that it could not have been intended that JREL should receive substantial sums (nearly £7m as it has proved) and then have to pay it out again to the EJ companies. However, as I understand the judge’s description of the cash flow arrangements, the final steps were for NL, on behalf of CC, to remit JREL’s commission to JREL and the balance to the EJ companies. I do not understand what objection there could have been to NL’s deducting from JREL’s commission the amount of the tour agents’ fees and expenses. Admittedly, that would not have involved JREL in the “payment” of the fees and expenses in the strict sense. But I agree with Mr Howard that in an agreement regulating the position only as between the EJ companies and JREL it is not very difficult to read “paid” as meaning “borne”.
- Some hard things have been said about the drafting of the 1986 agreement. Very few commercial agreements survive two days’ argument in this court without criticism in one degree or another, and it may well be that this agreement is not a fine example of its kind. Nevertheless, I believe that if its wording is scrutinised carefully and calmly, with due regard to the admissible matrix of fact but without any extraneous preconception as to what the parties might reasonably have intended to achieve, its meaning and effect are, in material respects, tolerably clear. For my part, I would allow the appeal and make a declaration in favour of the appellants.
Lord Justice Pill:
- I too gratefully adopt Lord Justice Robert Walker’s statement of the facts and also adopt the abbreviations he has used to describe the parties. By the time the 1986 agreement was made, the pattern for Sir Elton John’s American tours was well established. These tours were most important to Sir Elton’s career and would have been in the minds of the parties when the agreement was negotiated and entered into. It is common ground that the judge was right to have regard to that established pattern as part of the factual matrix. The judge described the role of the tour producer, that of a booking agent and that of a local promoter at paragraphs 51 and 52 of his judgment, cited by Robert Walker LJ. One reason that settled pattern was established was that, by reason of requirements of the IRS, it was important that an American company quite independent of Sir Elton John should act as tour promoter.
- Neither Sir Elton nor Mr Reid expected JREL to perform the functions of tour manager, booking agent or tour accountant, but that is not of course conclusive as to whether JREL should, under the 1986 agreement, pay their fees. For each American tour, CC, as tour promoter, entered into an agreement with HRA as booking agent. CC also retained NL as tour accountants. CC entered into contracts with local promoters. There was no privity of contract between JREL on the one hand and CC, HRA or NL on the other, although all tour agents were identified and selected by JREL.
- What must also be taken into account as a part of the factual matrix is the close personal business relationship between Sir Elton John and Mr Reid. The judge found that the relationship was very close, Sir Elton stating in his witness statement that “we were extremely close throughout the time of his management of my affairs until, really, the last year. I relied upon him and the advisers he employed, in particular [PW] and Andrew Haydon to look after my business affairs properly and to do all that was necessary to act in my best interests”. Mr Reid did actually go on tour with Sir Elton. As Robert Walker LJ has put it, Sir Elton’s “long standing friendship with Mr Reid was far from an ordinary commercial relationship”.
- JREL and not Mr Reid was the party to the contract with Sir Elton’s companies but the company was owned by Mr Reid as acknowledged in Clause 18 of the 1986 agreement. It is plain that Mr Reid’s personal business services were highly valued by Sir Elton and those services are set out in the Schedules. The complications involved in a major entertainer touring the United States are obvious as is the value to the entertainer having at his right hand someone in whom he has confidence and has skill and experience at keeping the show on the road. That is so notwithstanding, and indeed partly because of, the existence of detailed contractual duties involving several parties.
- That is the factual matrix in the context of which the 1986 agreement should be construed. I agree with Robert Walker LJ that the judge ought not to have taken the old basis/new basis memorandum into account in construing the 1986 agreement. The fact that, late in 1984, it was signed by Sir Elton and Mr Reid does not render it any less a part of the negotiations which led to the 1986 agreement. As such it was not admissible. It is common ground that if that document is not admissible the heads of agreement of September 1984 are also not admissible. Reliance on the memorandum was not central to the judge’s decision.
- The form of the 1986 agreement is to set out, by headings in Clause 1, the duties which JREL are to perform. The headings are “Administrative Functions”, “Manager’s Duties”, “Personal Administration” and “Tour and Recording Administration”. Those duties are particularised in schedules to the agreement. Some of them are expressed by reference to the “Managed Activities” of Sir Elton John which are particularised in Schedule 1. They include the duty to “preserve, promote, publicise, enhance and further the career and reputation of Mr John and the business of his employers in respect of their Managed Activities” (Schedule 2(a)), and the duty to “advise guide and make recommendations to Mr John and his employers with regard to Mr John’s career and their businesses as regards the Managed Activities both on request being made and generally as could reasonably be expected of a first class manager of artists within the music and entertainment industries” (Schedule 2(c)).
- Schedule 3 provides for the performance of administrative functions including keeping “full and proper and appropriate accounting records” and, subject to instructions, responsibility for the “control, supervision and operation of bank accounts”. Schedule 4 requires, amongst other things, the keeping of:
“such personal records on behalf of Mr John as may be appropriate prudent or desirable to be kept whether in respect of his career or finances”.
These are duties of a personal nature likely to be performable by, and only by, a person with a close personal business relationship with Sir Elton.
- Provision is made (Clause 8) for the payment of commission to JREL and the manner of calculation and payment are set out in Clauses 9 and 10. The dispute turns upon the construction of Clause 7 headed “General Provision as regards JREL’s Obligations Hereunder” read with Schedule 5. Paragraphs 7.1.1 and 7.1.2 describe the authority of JREL to negotiate on behalf of Sir Elton and the duty to consult with him and act in accordance with his instructions.
- The appellants rely on Clauses 7.2 and 7.2.2 which Robert Walker LJ has set out in paragraph 49 of his judgment and paragraphs (a), (b) and (c) in Schedule 5, in paragraph 77. Mr Howard QC was able to conclude his submissions for Sir Elton by putting his case succinctly:
(i) By virtue of Schedule 5, JREL had undertaken duties which included the planning and scheduling of concert tours, the booking of concert venues and the advertising and publicising of concert tours.
(ii) Under Clause 7.2, JREL appointed agents to discharge those obligations for them. The agents appointed were the very agents the clause contemplated. Booking agents were mentioned expressly.
(iii) By virtue of Clause 7.2.2, the fees and expenses of those agents were payable by JREL out of its commission.
- That submission has obvious attractions but in my judgment does not succeed upon a reading of the contract as a whole in context. I consider Clauses 7.1.3, 7.2.1 and 7.2.3 to be fundamental to the question of construction. They provide that JREL shall:
“7.1.3 procure that throughout the Term its obligations hereunder are performed or discharged personally by Mr Reid or under his direct personal supervision or control provided always that notwithstanding anything to the contrary herein contained or implied Mr Reid shall himself attend upon and consult with Mr John as necessary or desirable in connection with JREL’s obligations hereunder.
7.2.1 Mr Reid shall at all times exercise supervision and control of the activities of such agent;
7.2.3 JREL may not appoint an agent or agents if the consequences of such appointment would be that a significant part of JREL’s obligations hereunder to the Principal would be being discharged by an agent or agents;”
I agree with the judge that the numbering should logically provide for 7.1.3 to be read with 7.2 rather than 7.1 but nothing turns upon that.
- These clauses confirm the personal nature of the obligations upon JREL to be performed by Mr Reid, the owner of that Company. Moreover, Clause 18 provides for termination of the agreement forthwith if “Mr Reid shall cease for whatever reason to be the beneficial owner of all the issued share capital for the time being of JREL” or if “JREL shall cease to be the sole person entitled to the entire beneficial interest in the sums payable in respect of management and administration thereunder” or if “any arrangement is made whereby Mr Reid ceases or will cease to obtain directly or indirectly the whole benefit of this agreement”.
- The word “obligations” in Clause 7.2 and the “administrative functions” identified in Clause 1.1.7 and described in Schedule 5 must be read in the context of the factual matrix, the agreement as a whole, and in particular Clauses 7.1.3, 7.2.1 and 7.2.3, because they indicate the limited role an agent appointed under Clause 7 is to have. In context, paragraphs (a), (b) and (c) of the Schedule cannot be read literally:
(i) The agreement provides that JREL’s obligations under it are to be performed by Mr Reid personally or under his direct supervision or control.
(ii) The agreement does not permit JREL to appoint an agent if the consequence would be that a significant part of JREL’s obligations would be discharged by an agent or agents.
(iii) It was plainly contemplated by the parties that the functions of tour agents, including the booking of concert venues, the advertising and publicising of concert tours and the engaging of musicians were to be undertaken by entities other than JREL, acting as principals. (Moreover, it strains language to refer to them as agents of JREL, especially when the first two sub-clauses of Clause 7, Clauses 7.1.1 and 7.1.2 contemplate agents in the true legal sense.)
(iv) These were significant and substantial activities and payment for them constituted a large part of the £7 million in issue in this case. The activities cannot be regarded as other than significant or, if they are part of JREL’s obligations, a significant part.
(v) Some of the activities could not lawfully have been performed by JREL at least in some American States.
In those circumstances, it cannot in my view be contemplated that the “obligations” in Clause 7.2, as specified in Schedule 5, included the obligation on JREL to perform what were plainly the functions of tour agents.
- Paragraph (j) of Schedule 5 imposes a duty of “generally supervising and arranging tours”. Paragraph (h) provides for the “supervision” of local tour promoters. The use of the word “supervision” indicates the scope of the duties of JREL on tour and, notwithstanding the absence of the word from the earlier paragraphs of the Schedule, does not, for the reasons given, permit those paragraphs to be construed as imposing on JREL the detailed and important functions of tour agents. This is a case in which the words used must be construed in a way which reflects the intentions of the parties as they emerge from the agreement as a whole.
- The reference in Clause 7.2 to “booking agents” is puzzling. The Claimants submit that the insertion of what is claimed to be merely an exception to the need for written consent to the appointment of agents establishes that the work of booking agents and any other tour agents was within the scope of Clause 7.2, and hence 7.2.2. I agree with Robert Walker LJ that the reference to booking agents was intended to make it clear, albeit in a misguided and unclear way, that booking agents were not to be within the scope of Clause 7.2 at all. I agree with the reasoning of Robert Walker LJ in paragraph 71 of his judgment. I also agree that if booking agents are outside Clause 7.2, CC and NL cannot be caught by it.
- What Clause 7.2 and Clauses 7.2.1 to 7.2.7 were intended to do, in my judgment, was to make clear the very limited circumstances in which the personal business obligations undertaken by JREL in the agreement (and in effect by Mr Reid) could be performed by an agent, using the word in its true legal sense. The purpose was to define narrowly the circumstances in which Mr Reid need not be involved personally in the performance of the personal business services required by the agreement. The clause was probably inserted because it was contemplated that such circumstances could possibly arise, for example by reason of the temporary indisposition of Mr Reid or his temporary distraction by other work. In such circumstances it was permissible for an agent to perform the obligations, as defined under the agreement, provided written consent was obtained. The agent’s functions were circumscribed by the provisions of the clause. It is not at all surprising, in my view, that such an arrangement should have been included or that JREL should have to been responsible for the fee of an agent so appointed, as provided by Clause 7.2.2.
- I also agree with Robert Walker LJ that the absence of detailed provisions as to cash flow points in the same direction and makes it extremely unlikely that the obligations of tour agents were imposed on JREL. Given the contractual scheme as between the many entities involved in Sir Elton’s tours, and had it been intended to place those obligations on JREL, I would have expected to find in the agreement detailed arrangements for the handling of funds. In other respects, financial controls are directed at JREL in the agreement. What is now alleged is a system of recharging expenses by way of recoupment which is not spelt out in the agreement. Moreover, the recoupment would, under Clause 7.2.2, be to Sir Elton’s companies and not to the tour agents who are claimed to be the agents of JREL. It is in my judgment highly unlikely that the obligations of tour agents were intended to be placed upon JREL in the absence of different and detailed provisions as to how payments were to be made.
- I agree with Robert Walker LJ that the appeal should be dismissed.
Order: Appeal dismissed with costs.
(Order does not form part of the approved judgment)