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[1986] ZASCA 153
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Sunshine Records (Pty) Ltd. v Frohling and Others (383/84/av) [1986] ZASCA 153; [1990] 1 All SA 8 (A) (28 November 1986)
383/84/AV
IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE
DIVISION
)
In the matter between:
SUNSHINE RECORDS (PROPRIETARY) LIMITED
Appellant
AND
RUDI
FROHLING
1st Respondent
TOMISLAV SVORINIC
2nd Respondent
HERMANN EUGSTER
3rd Respondent
GEORGE VARDAS
4th
Respondent
CORAM
: CORBETT, TRENGOVE, HOEXTER, GROSSKOPF, JJA et NESTADT, AJA
HEARD
: 10 November 1986
DELIVERED
: 28 November 1986
JUDGMENT GROSSKOPF, JA
This appeal concerns the interpretation and enforce-
abilitý
2 ability of a recording contract concluded on
12 December 1979 between the appellant and members of a pop music group cal-led
the
Rag Dolls. This group consisted of five young musi-cians, and although its
membership varied somewhat f rom time to time, it is admitted
that the present
respondents were mem-bers of the group and parties to the contract when the
present dispute arose.
The history of the Rag Dolls was traced in the evi-dence from about 1979. It
appears that the group's first experience in the field
of professional contracts
was on 6 July 1979 when they signed a management contract with Mr. William C.
Boardman (also known as Billy
Forrest) and Mr.Sel-wyn Miller, representing a
company known as Selroy Music (Pty) Ltd. In terms of this contract Boardman was
to
be the group's creative
Manager
3 manager and Selroy Music (Pty) Ltd its business manager.
Selroy Music then arranged for the conclusion of a recording con-tract
between
the Rag Dolls and EMI-Brigadiers (Pty) Ltd., the largest recording company in
the Republic. This contract was concluded on
1 August 1979.
Some time later Mr. Graeme Beggs heard a final master tape which the Rag
Dolls had composed and recorded for EMI-Brigadiers. Mr. Beggs
owns and runs two
specialized com-panies in the field of music, viz., a recording company,
Sunshine Records (Pty) Ltd (the present
appellant) and a publishing company,
Breakaway Music Co. (Pty) Ltd (the Second Plaintiff in the Court a
guo
).
In addition Mr. Beggs acts as manager for certain musicians. Thus he managed the
group Clout, which enjoyed considerable success
international-
ly
4 ly. Mr. Beggs also represented, through his companies, the
South African interests of the group Abba who, he says, are "apparently
the
world's biggest selling record artists ever".
When Mr. Beggs heard the tape
made by the Rag Dolls he was, in his words, "particularly taken with the songs,
the copyrights, and
I felt that given my input over a period of time I could
perhaps produce something that was commercially viable on an international
basis". He approached the Rag Dolls with a proposal that they sign up with his
organiza-tion. They were willing to do so. Mr. Beggs
then secured their release
from their contracts with EMI and Selroy Music. He attempted to do likewise with
Mr. Boardman, but failed.
This did not cause Mr. Beggs any concern, and in fact
Mr.
Boardman
5
Boardman had no influence on subsequent events.
On 12 December 1979 Mr. Beggs signed two contracts
with the Rag Dolls
whereby he personally, and both his com-
panies, obtained rights in respect
of the group's musical
activities. The first contract in point of time was a
re-
cording contract between Sunshine Records and the group.
In this contract Sunshine Records is called "the company";
the Rag Dolls
are called "the Artiste Group" and each member
of the group is called "the
Artiste". Since this contract
is basic to the present appeal I quote it in full. It reads
as follows:
"1. During the period of (3) THREE years from
1.12.1979 to 30.11.1982 the ARTISTE GROUP shall attend at such places and at
such times and shall either alone or with others perform
such musical work/s for
the purpose of the COMPANY making recordings thereof as the COMPANY shall
from
6
from time to time direct.
2. The ARTISTE GROUP shall at the request of the CQMPANY repeat the performance
of any musical work/s until a perfect master matrix
thereof shall in the opinion
of the COMPANY have been obtained.
3. During the period of this Agreement the ARTISTE GROUP shall perform musical
works for recording exclusively for the COMPANY and
shall not per-form nor
directly nor indirectly assist nor advise nor be concerned in the performance
for recording of any musical
work/s for any other person, firm or corporation
whereby the ARTISTE'S GROUP performance of any such musical work/s might be
recorded
in any form from which any gramophone records or any other contrivances
might be offered, produced or performed to the public. After
the termination of
this Agreement the ARTISTE GROUP shall not perform for recor-ding by any other
person, firm or corporation any
musical work/s recorded by the COMPANY under
this Agreement until the expiration of seven (7) years from the date on which
the COMPANY
shall have placed on sale gramophone records or other contrivances
of the ARTISTE'S GROUP'S perfor-mance of the same musical work/s.
The
ARTISTE/
ARTISTE
7
ARTISTE GROUP may perform musical work/s at the premises and/or recording
studios of other concerns, firms or organisations only
with the prior written
consent or instruction of the company.
4. For each perfect master matrix made by the COM-PANY of a musical work/s
performed by the ARTISTE GROUP the COMPANY shall pay to
the ARTISTE/ARTISTE
GROUP the sum of (N/A). In the event that the ARTISTE GROUP or COMPANY shall
engage any additional Performer/s,
not parties to this Agreement to perform with
the ARTISTE GROUP for recording, the ARTISTE GROUP shall be responsible for the
payment
of such additional Performer/s of an equitable share of the above sum.
Further in consideration of the above payment the ARTISTE
GROUP in so far as he
is the Owner of the copyright in any or all the musical work/s performed hereby
licences the COMPANY t'o manufacture
and sell throughout the world gramophone
records or other contrivances reproducing such work/s.
5. All master matrices made by the COMPANY of musical work/s performed by the
ARTISTE GROUP and all facsimiles and derivatives thereof
shall be and remain the
sole property of the
COMPANY
8
COMPANY.
6. The COMPANY shall be entitled to the sole right both present and future
throughout the world, of production, reproduction, sale,
use and per-formance
and all revenue from broadcasting and television or film synchronisation and any
other means, or all gramophone
records, tapes, or other contrivances of musical
works performed by the ARTISTE GROUP under this Agreement.
7. The COMPANY shall have the sole and irrevocable right at its discretion to
commence or discon-tinue the said production, reproduction,
sale, use and
performance of gramophone records or other contrivances of musical work/s
performed
by the ARTISTE GROUP and the sole and irrevocable right to fix and alter the
price/s cf all such gramophone records or other contrivances
and to use and
publish the name of the ARTISTE GROUP and his photograph or likeness on
catalogues, supplements, record-labels, press
notices and other publicity
material for advertising and trade purposes connected with the exploitation of
gramophone records or
other contrivances and to authorise any and all such acts
and things.
8. The ARTISTE GROUP hereby warrants that the
ARTISTE GROUP is under no
obligation to any
person
9
person, firm or corporation whereby the ARTISTE GROUP is prevented from
fulfilling the
terms or conditions of this Agreement. 9. If the ARTISTE GROUP by reason of
illness, ab-sence or otherwise does not comply with Clause
1 or Clause 2 above
to the satisfaction of the COMPANY or if the ARTISTE GROUP shall contravene any
condition of this Agreement,
then the COM-PANY may forthwith cancel this
Agreement in addition to enforcing against the ARTISTE GROUP such other remedies
as the
COMPANY lawfully has.
10.
The ARTISTE GROUP shall not
be entitled to as-sign the whole or any part of the ARTISTE'S GROUP rights under
this Agreement.
11.
The rate of royalty
payable shall be 5% of 90% of the nett number of records and/or tapes sold by
the COMPANY based on the retail
selling price of the record in the Republic,
less any taxes, duties, etc., less 6½% cover
allowance.
12.
This Contract shall be
automatically renewed for a similar period unless notice of termination is given
by the COMPANY in writing
by registered post not later than one month before the
expiration of this Agreement addressed to the ARTISTE GROUP
at
the above-mentioned address.
13. Notwithstanding the rates of royalty set out in
Clause 11 above, the
recordings made hereunder
may be sold through any Record Clubs or any
foreign
10
foreign Record Company or distributor in terms of contracts with the COMPANY,
and in such event the royalty rate for all such sales
shall be one half (½)
of the rate specified in Clause 11 above, calculated on the Retail Price in such
country, less any taxes,
less 6½% cover al-lowance. It is furthermore
agreed that the COMPANY may utilise all recordings in any Record Clubs as bonus,
premium or free records and any such recordings so used shall be free of
royalties. 14. Should any member of the ARTISTE GROUP resign
or refuse to
perform with the other members of the Group, or fail to attend recording
sessions or in any way refuse or fail to co-operate
either with the COMPANY or
with the ARTISTE GROUP, the COMPANY shall be entitled to nominate replace-ments
and the remaining members
of the ARTISTE GROUP agree to record or continue the
recor-dings with such nominated replacements. In such event the remuneration
of
the nominated replace-ments shall be the responsibility of the COMPANY and the
remuneration accruing to the ARTISTE GROUP shall
be reduced pro-rata to the
number of members of the Group who have been replaced. The COMPANY shall however
be entitled to con-tinue
to use the name by which the Group is
known
11
known although the personnel thereof is no longer the same, and shall be
entitled to use that name for the duration of this Agreement,
and for a period
of three (3) years thereafter, even if all or the major portion of the Group are
no longer concerned therewith.
15. The ARTISTE/ARTISTE GROUP hereby grants an
op-tion for the duration of this Agreement to and in favour of BREAKAWAY MUSIC
CO.
(PTY) LIMITED, its successors in title or assigns to acquire the sole,
exclusive and world-wide copyright, including the United States
of America,
which may exist in regard to his/her/their composition for the music, lyrics,
orchestration and/or ar-rangements of the
musical work and/or his/her/ their
arrangements of non-copyright works, in-cluding the right to manufacture and
market gramophone
and other records and the right to receive all appropriate
fees in respect of their use and performance and for the procuring against
any
infringement of the copyright the ARTISTE/ARTISTE GROUP hereby appoints the said
BREAKAWAY MUSIC CO. (PTY) LIMITED to be his/her/
their agents and attorneys and
in their name to take all necessary actíon in that behalf and the
aforesaid BREAKAWAY MUSIC
CO. (PTY) LIMITED
undertakes
12
undertakes to pay to the ARTISTE/ARTISTE GROUP
half (½) of all the statutory royalties re-
ceived by it in respect of the exercise of the
copyright after deduction
of the customary charges in respect of collections. The remune-ration payable
shall not include any sums
paid in respect of the performance of the said
re-cord in circumstances where the lyricists or the creators of the subject
matter
of records do not normally receive a participation in any such sums in
the territory where the said pay-ment arises. All payments
due to the ARTISTE
shall be paid to him/her and all payments due to the ARTISTE GROUP shall be paid
to the leader thereof. Payments
shall be calculated up to the 30th day of June
and 31st day of December in each year, and shall be paid within a period of
SIXTY
(60) days from such respective dates, but in relation to payments
emanating from some third party the amounts paid by the COMPANY
shall at such
respective dates include only sums ac-tually up to that date, the liability of
the COMPANY being limited to such amounts
as shall actually bê received by
it or should with due diligence be so received.
ADDITIONAL CLAUSES
16.
The ARTISTE GROUP insist that the COMPANY make
available
13
available the services of Graeme Beggs to
pro-
duce all the ARTISTE GROUP'S recordings unless
otherwise agreed
between the COMPANY, the
ARTISTE GROUP and GRAEME BEGGS. The COMPANY agree . to record the equivalent
of one album per annum during the course of this agreement
and any extension
thereof. 17. The COMPANY agrees to pay the ARTISTE GROUP an advance of R2000
deductible from royalty earn-ings."
Mr. Beggs signed this contract on behalf of Sunshine Records as well as on
behalf of Breakaway Music, in whose favour clause 15 of
the contract
operated.
Immediately after the conclusicn of the above contract, Mr Beggs
en.tered into a management contract with the group. In terms of this
contract
the Rag Dolls employed Beggs as their sole and exclusive manager and
representative through-out the world with respect to
their appearances and
endeavours.
This
14 This contract was, like the recording contract, to continue for
three years, renewable at the instance of Beggs for a further period
of three
years. During this period Beggs was to use reasonable efforts to assist the
group in obtaining and negotiating engagements;
to advise and guide them in
their professional career; to promote their name and talents; and to carry on
business correspondence
relating to their career. Only Beggs was to accept
engagements for the group. It was recorded that Beggs would maintain facilities
reasonably adequate for the rendition of such services.
The group, for their part, would not, without Beggs's written consent, engage
any other person, firm or corporation
to
15 to perform the services to be performed by Beggs under
the contract, nor would they perform or appear professionally or offer to
do so
except with the consent of Beggs. In return for his services Beggs would receive
a commission amounting to twenty-five percent
of the gross consideration
received by the Rag Dolls, and would in addition be entitled to re-imbursement
in respect of travel and
other expenses incurred in the management and promotion
of the group's affairs. The contract recorded (in clause 6(a)) that, if any
member of the group were to break the contract in any way, Beggs would suffer
damages of at least RlO 000. Clause 6(b) then pro-vided
that the group.and its
members were to be prompt and punctual in attending the engagements negotiated
by Beggs and that they were
to observe all lawful and reasonable orders
given
by
16
by Beggs. Failure to comply with their obligations
would
render the group liable to cancellation of the contract and
payment
of the amount mentioned in clause 6(a) or any greater
sum of damages
whichmightbe proved.
In terms of clause 13 Beggs waived all rights to
com-mission earned prior to the release of the first seven single record in
South
Africa.
The
17 The combined effect of the two contracts was that Beggs
obtained complete control over the group's professional activities for
a period
which he could extend to six years. As manager he could dictate whether and on
what terms the group would appear professionally.
As owner of Sunshine Records
he controlled their recording activities. The nature and extent of this control
will be examined in
more detail later. And as owner of Breakaway Music Company
he had an option extending over the period of the recording contract to
acquire
the sole, exclusive and world-wide copyright in the group's original
compositions, lyrics, orchestrations and arrangements.
Beggs himself describes
how he persuaded the Rag Dolls to accept this regime:
"I
18
"I then discussed it with the defendants and I made clear my
situation with regard to contractual obligations. If we were going to
go into
the international market-place, as I had done with Clout, it would be important
that I held all the strings, i.e. the management,
the recording and the
publication of the copyrights. They agreed, there was proof that this system had
worked once before with amazing
success interna-tionally and they felt
comfortable Cabout) entering into a parallel agreement similar to that which I
had with Clout.
At all times, N'Lord, the pivot point was the recording
contract. That was the founda-tion on which their entire career would be
based."
The Rag Dolls soon became disillusioned. Beggs
showed little interest in
his duties as manager and, as far as live performances were concerned, left them
to their own devices. In
evidence he sought to justify his lack of
interest
19
interest by contending that the parties had reached
an
understanding that his duties as manager would only really |
commence
once the group had produced a gramophone record for the market. This
understanding, he said, accorded with his philosophy
that the career of a pop
group could not commence before they had released a record album. This attitude
might have been understandable
if Beggs had ac-tively promoted the group's
career as recording artists. However, according to the evidence of members of
the group,
he did not do so. In this respect also, according to them, he proved
lackadaisical and unreliable.
Matters came to a head in November 1980. The par-ties had arranged to meet on
several occasions during that
month
20 month but on each occasion Beggs had cancelled the meeting.
Finally they met on 13 November. Beggs played a tape-recording which
the group
had made of their composition King of Japan. The group was not satisfied with
the produc-tion and Beggs agreed to re-mix
it. He also undertook to release a
record of another of the group's works. This would have been the first record to
be released.
Beggs and the group agreed to meet again the following week to make
final arrangements for the release. Beggs did not keep this appointment.
On
Monday 17 November he flew to the Seychelles to meet a yacht which he had had
built. He didnot return to South Africa before January
1981.
The Rag Dolls then consulted their attorneys. The
attorneys
21 attorneys wrote letters to Beggs, Sunshine Records and
Breakaway Music Company on 24 November 1980 cancelling the two contracts
of 12
December 1979 on the grounds of alleged breach of contract by Beggs and the two
companies. Cor-
respondence followed in which the attorneys for Beggs and
purported his companies contended ,
inter alia
, that the cancellation
by the
Rag Dolls amounted to a wrongful repudiation of the contracts.
Thereafter the two companies issued summons in the Witwaters-
rand Local Division against the present four respondents and
one Michael Woitynek, who was the fifth member of the Rag
Dolls at the time. Woitynek has since emigrated and was not re-
presented at the trial or on appeal. The summons contained
several claims which may be summarized as follows.
The
22
The first plaintiff (Sunshine Records, the present appellant)
claimed:
a) payment, as cessionary of Beggs, of the amount
mentioned in clause 6(a)
of the management contract
as a pre-estimate of damages for breach of
contract;
b) payment of various amounts which the appellant had alleged-
ly lent and
advanced to the respondents, and in
respect of which the respondents had signed acknow-ledgments of debt;
c) payment of an amount as damages for the breach of
the recording
contract. This amount represented
costs incurred by the appellant in the
implementation
of this contract.
The
23 The second plaintiff (Breakaway Music) claimed an order
declaring that it was entitled pursuant to clause 15 of the recording contract
"to acquire the (respondents') copyright in their compositions for the music,
lyrics, orchestration and/or arrangements of musical
works".
For reasons that
will become apparent I do not propose setting out the respondents' various
defences to these claims. The matter came
on trial before SPOELSTRA J. Before
the end of the trial it had become abundantly clear that Breakaway Music had not
exercised any
option in respect of the respondents' copyright, and its claims
were not pursued. The claims of the present appellant were all dismissed
by the
trial court. The claim in respect of the pre-estimate
of
24 of damages was rejected because, the court held, the re-spondents
were entitled to cancel the management contract by reason of
Beggs's failure to
comply with his obligations and duties, which failure the court regarded as a
repudia-tion of the contract. Moreover,
even if this had not been so, the court
would, under the Conventional Penalties Act (no. 15 of 1962) have refused to
enforce the
clause because "Beggs did nothing which would entitle him to any
award in terms of clause 6(a)".
The claims in respect of the acknowledgments of debt were rejected because,
the court found, the money had been advanced to the respondents
in terms of
clause 17 of the re-cording contract and was consequently repayable from
royaltíes
earned
25
earned by the respondents. The court held that it was a tacit
term of the agreement that repayment would only be made should royalties
be
earned. Since no royalties were earned these advances could not be recovered.
The claim for damages for breach of the recording
contract failed be-cause the
court a
quo
held that the recording contract was in undue restraint of
trade and was therefore void and un-enforceable.
With the leave of the court a
quo
Sunshine Records
now appeals
against this last-mentioned decision of the court,
i.e., against the
dismissal of its claim for damages for
breach of the recording
contract. There is no
appeal against the court's rejection of the other claims.
In
26 In view of the finding of the court a
quo
, it is
necessary to analyse the recording contract in some detail. The term of the
contract was three years renewable at the instance
of the appellant (but not at
the instance of the respondents) for a further three years (clause 1 read with
clause 12). During this
period the following duties were imposed on the
respondents. They were to attend at such places and at such times to perform
alone
or with others such musical works for the purpose of making recordings as
the appellant might from time to time direct (clause 1).
At the request of the
appellant they had to repeat the per-formance of any musical work until a
perfect master matrix thereof was,in
the appellant's opinion,obtained (clause
2).
These
27 These master matrices would be the appellant's property (clause 5) and
no payment was to be made to the respondents in respect
thereof (clause 4). If
the respondents were by reason of illness, absence or otherwise not to comply
with clauses 1 or 2 to the appellant's
satisfaction, or if they were to
contravene any term of the contract, the appellant could cancel the contract
(clause 9).
During the period of the contract the respondents were to perform
musical works for recording exclusively for the appellant, and they
were
prohibíted from performing or assisting, advising or being concerned in
the performance for recording of any musical
work for any person other than the
appellant whereby their performance of such musical work
might
28 might be recorded in any form from which any gramophone record
or other recording might be offered, produced or performed to the
public (clause
3). After the termination of the contract the group was not to perform for
recording by any other person any musical
works recorded by the ap-pellant under
the contract until the expiration of seven years from the date on which the
appellant had
placed on sale gramophone records of the group's performances of
the same musical works (clause 3). This last-mentioned provision
was more
onerous than it may seem. The appellant's attitude has consistently been that
the words "recorded" and "record"in clause
3 and clause 16, with which I deal
later,are to be interpreted literally. As I shall show when dealing with
clause
29
clause 16 I agree with this contention. On this
inter-pretation music is "recorded" once a record is made of it, whether or not
the
record is released to the public. The consequence of this is that the bar
imposed by clause 3 (i.e. the bar on performing music for
recording by persons
other than the appellant) would have come into force when the ap-pellant made
recordings of music performed
by the respondents, but would have endured for
seven years after the records were placed on sale by the appellant. Whether, and
if
so, when the records would be placed on sale, was under the appellant's
complete control: clause 6 provided that the appellant would
have the sole
right, present and future, throughout the world, of production, reproduction,
sale, use and performance, and all revenue
from broadcasting and
television
30 television or film synchronisation, of all gramophone
reccrds performed by the respondents under the agreement. And clause 7 granted
the appellant the sole and irrevocable right
at its discretion to commence or
discontinue the production, reproduction, sale, use and performance cf
graaophone records by the
respondents, with various ancillary rights such as
the
right to fix and alter prices.-
Reference has already been made to the option granted by clause 15 to
Breakaway Music to acquire the sole copyright in the respondents'
music, lyrics,
orchestration and arrange-ments of musical works. This option was to continue
for the duration of the recording agreement,
and was apparently to relate to all
material in which the respondents enjoyed copv-
right
31
right, whether or not such material was recorded pursuant to
the recording agreement.
As appears from the foregoing, the recording
contract imposed extensive duties, obligations and restrictions on the
respondents. The
question then arises: What reciprocal benefit did they derive
from the contract? Firstly, the respondents were entitled to royalties
on the
sale of records or tapes (clauses 12 and 13) and on the exercise of copyright
(clause 15). There was no suggestion in the
evidence that the royalty rates were
unreasonable or inadequate. The obliga-tion to pay royalties would however only
arise if records
or tapes were sold, or if copyright were exercised. Prior
to
that
32
that time the appellant undertook only to pay the Rag Dolls an
advance of R2000 deductible from royalty earnings. The evidence discloses
that
this amount had been paid to the Rag Dolls by EMI, and that the appellant
considered that it had complied with its obligations
in this regard by paying
EMI the amount owing to it by the Rag Dolls, without making any further payment
to the Rag Dolls.
It is against this background that clause 16 becomes important. This clause
provided
inter alia
that the appel-lant would "record the equivalent of
one album per annum" during the course of the contract and any extension
thereof.
As I have indicated above, the appellant contended that this provision
is to be interpreted literally. The respondents
on the other hand suggested, in an alternative argument based
on an alleged breach of contract by the appellant, that
the
33
the word "record" should be interpreted to mean "record and
release" - in other words, that the appellant was obliged to record and
release
to the public the equivalent of one album per annum. In my view the language of
the clause is quite clear and accords with
the meaning attached to it by the
ap-pellant. The interpretation suggested by the respondents would require the
reading in, by way
of interpretation, of words not found in the original text.
No sufficient reason has been suggested for doing so. It is true that
the
meaning ascribed to the clause by the appellant would render the obligation
imposed on the appellant an insignificant one, but
there is no reason to suppose
that this consequence was not intended by the appellant who was the
proferens
of
34
of the agreement, and acquiesced in by the respondents.
On
the other hand the meaning suggested by the respondents
would entail a jump
into the unknown by the appellant, which
would then have been reguired to
publish the eguivalent of
an album of the respondents' works annually without
any
guarantee that the respondents would provide sufficient suit-
able works for this purpose. This seems an unlikely obliga-
tion to be assumed by the appellant. Of course, if there had
been a clear obligation to release an album annually it may
have been possible to imply a term to cater for the contingen-
cy that the respondents might not provide sufficient suitable
works. The formulation of such a term would, however, have
presented difficulties, particularly in defining how the suit-ability of the
works would be determined. The fact that
such an implication might have been
necessary ..
35
necessary is a further reason for concluding that
the par-ties did not intend the words "and release" to be read into the
clause.
The only substantial reason advanced on behalf of the respondents for
the interpretaticn prcpcsed by them was that,if
this interpretation were
adopted, the contract would be fairer to the respon-
theretcre not be recarded as dents and might containing an undue restraint on
trade. The rule
ut res magis valeat quam pereat
cannct however in my view be
used to justify an interpretation of a contract contrary to
its clear terms and the probable intent of the parties there-
to. Vide
Mc Cullogh v Fernwood Estate, Ltd
1920 AD 204
at
209;
Hughes v Rademeyer
1947(3) SA 133 (A) at 133.
The relevant portion of clause 16 accordingly means,
in
36
in my view, that the appellant was obliged only to
record,
without necessarily releasing, the equivalent of one album per
annum.
The consequence of this is that the respondents were not en-
titled
to any remuneration under the contract unless the |
appellant decided, in its sole discretion, to sell recordings. made by the
group, or unless.Breakaway Music decided to make use of
the copyright in respect
of the respondents' music. The copyright seems to have been of less importance
-the evidence discloses that
the release of records was funda-mental to the
future of the Rag Dolls, not only for the royalties this would have produced but
also
for the publicity it would have provided, which would in turn have brought
in-creased demand and higher fees for their performances.
It
37
It is convenient to summarize the salient features of the
recording contract at this stage. The contract requires the Rag Dolls to
perform
for the purpose of record-ing when required to do so by the appellant. The
results of their work become the property of the
appellant,and Breakaway Music
obtains an option to acquire the copyright therein. Complete control over the
exploitation of the recorded
works and the copyrights is retained by the
appel-lant and Breakaway Music. During the subsistence of the agreement (three
years,
renewable to six) the respondents are not allowed to record elsewhere,
and this prohibition is extended,in respect of recorded works,
for a long period
after termination of the contract. These are the obliga-
tions
38
tions and restrictions imposed on the
respondents: the appellant,for its part, has no obligation save to record the
equivalent of
one album of their music per year. Having done so, the appellant
would not be obliged to release or publish the recordings.
It might be argued, however, that commercial con-sicerations would encourage
the appellant to release recorcs of the respondents'
music if at all possible,
and that this feature renders the contract less objectionable than it appears at
first blush. A similar
situation was considered by the House of Lords in
A
Schroeder Music Publishing Co. Ltd
.
v Macaulay
(1974) 3 All E R 616
(HL), a case dealing with a contract obliging a composer (the respondent) to
assign the
copyright
39
copyright in his compositions to a publishing company
(the
appellants). At p. 621 Lord REID said the following:
"The respondent is bound to assign to the appellants during a long period the
fruits of his musical talent. But what are the appellants
bound to do with those
fruits? Under the contract nothing. If they do use the songs which the
respondent composes they must pay in
terms of the contract. But they need not do
so. As has been said they may put them in a drawer and leave them there. No
doubt the
expectation was . that if the songs were of value they would be
published to the advantage of both par-ties. But if for any reason
the
appellants chose not to publish them the respondent would get no remuneration
and he could not do anything. Inevitably the respondent
must take the risk of
misjudgment of the merits of his work by the appellants. But that is not the
only reason which might cause
the appellants not to publish. There is no
evidence about this so we must do the best we can with common knowledge. It
does
not
40
not seem fanciful and it was not argued
that it is fanciful to suppose that purely
commercial consideration might cause a
publisher to refrain from publishing and
promoting promising material. He might
think it likely to be more profitable to
promote work by other composers with whom
he had agreements and unwise or too ex-
pensive to try to publish and popularise
the respondent's work in addition. And
there is always the possibility that less
legitimate reasons might influence a
decision not to publish the respondent's
work."
Similar considerations apply in my view to the facts cf the present case.
I turn now to the law applicable to contracts in restraint of trade. This
branch of the law was recently re-examined by this Court
in
Magna Alloys and
Research (SA
)
(Pty) Ltd v Ellis
1984(4) SA 874 (A). For present
purposes
the ..
41
the effect of this judgment may be summarized as follows.
(vide pp. 893-4). In determining whether a restriction on the freedom to
trade
or to practise a profession is enforce-able, a court should have regard to two
main considerations. The first is that the public
interest requires,in general,
that parties should comply with their contractual obliga-tions even if these are
unreasonable or unfair.
The second consideration is that all persons should, in
the interests of society, be permitted as far as possible to engage
in
42
in commerce or the professions-or, expressing this different-ly, that
it is detrimental to society if an unreasonable fëtter
is placed on a
person's freedom to trade or to pursue a pro-fession. In applying these two main
considerations a court will obviously
have regard to the circumstances of the
case before it. In general, however, it will be contrary to the public interest
to enforce
an unreasonable restriction on a person's freedom to trade.
Mr. Eloff, who appeared for the appellant, accepted the law as set out above,
and conceded that the recording contract, if read as
a whole, was unenforceable.
I agree with this concession. The nature, extent and duration of
the obligations and restrictions imposed on the respondents,
real
together with the absence of any reciprocal obligation on
the , .
43
the part of any other party, created such an extreme and
serious restraint
on the respondents' freedom to pursue
their profession that a court should,
in my view, refuse to
enforce the contract. It was also common cause that the
ap-
pellant, by claiming damages for breach of contract, was in
effect seeking to enforce the contract.
The matter does not, however, end there. In the
Magna Alloys
case
at p. 896 A to E, Rabie CJ held that a con-
tract in restraint of trade is not necessarily wholly en-
forceable or wholly unenforceable, but that a court may, in
the public interest, order that the whole, or only a part,
or no part at all, of a restriction on trade be enforced.
In so holding RABIE CJ expressed agreement with what had been
said by BOTHA J (as he then was) in
National Chemsearch (S
A)
(Pty)
Ltd v Borrowman and Another
1979(3) SA 1092 (T) at
1114 F
44
1114 F - 1115 D and by VAN DEN HEEVER J in
Drewtons
(Pty
)
Ltd v Carlie
1981(4) SA 305 (C) at 312 C-D and 313 B-F. Mr.
Eloff sought to invoke this finding in his favour as follows. The recording
contract,
he said, was admittedly objectionable if taken as a whole. However, if
certain clauses were deleted and the ambit of certain others
some-what
restricted, a court should not refuse to enforce the re-sultant amended
contract. Consequently, the contention proceeded,
the respondents were not
entitled to cancel the
contract as a whole, but should have continued to perform
altêred their obligations in the form in which, in terms of this
argument, these obligations were enforceable against them.
More specifically it was contended that the following clauses
could
45
could or should be deleted: Clause 3 (the restriction on
performing etc. for recording organizations other than the appellant); clause
4
(lack of payment for master matrices); clause 7 (appellant's control over the
production, sale etc. of records); clause 8 (warranty
that respondents are not
under obligations inconsistent with the contract); clause 9 (the appellant may
cancel the agreement if the
respondents do not comply with clause 1 or 2) ;
clause 10 (the respondents may not assign their rights); clause 12 (the renewal
clause);
clause 13 (reduced royalty in certain cases); clause 14 (the appellant
is entitled to nominate replacements in cer-tain cases); and
clause 15 (the
option in favour of Break-away Music Co,). This then left clauses 1,2,5,6,11,16
and 17.
Clause
46
Clause 1, which imposes the obligation on the respondents to
attend at such places and at such times to perform musical works, alone
or with
others as the appellant shall direct, should, it was contended, be read subject
to an implied con-dition of reasonableness
on the appellant's part. The
operation of clause 5 should also be cut down somewhat, it was suggested. This
clause provides that
all master matrices "made by the company" (i.e. the
appellant) of musical works performed by the respondents, and facsimiles and
derivatives thereof, would become the property of the appellant. The suggestion
was that after the word "made" in the above quo-tation
there should be inserted
"and used for marketing". Similarly it was suggested that clause 6, which grants
the
appellant
47
appellant extensive rights of production, sale, use,
per-formance, etc. of gramophone records, tapes etc. of musical
works
performed by the respondents, should be limited to
gramophone records, tapes,
etc. "used by the Company (i.e. the appellant) for marketing". The effect of
these deletions and amendments
would be to transform the recording contract into
an agreement which does not grant any undue privileges to the appellant and
which
does not restrict the respondents' right to have recordings made
elsewhere. There is no reason to doubt that a court would, in the
absence of
exceptional circumstances which I cannot readily envisage, enforce such a
contract. Does this avail the appellant in the
present case?
Now
48
Now, firstly, it must be emphasized that the
enforce-ability of contracts in restraint of trade is a matter of public
interest depending
on the circumstances prevailing at the relevant time, which
is usually the time when enforce-ment is sought. Cf.
Magna Alloys
case,
supra
, at p. 894 F-G; 895 D-I, 897 C-E, 898 C-E. The onus of proving that
enforce-ment would be against public policy is on the person
resist-ing
enforcement (
ibid
p. 893 A-D; 898 C-E). In the present case the appellant
alleged in its particulars of claim that the respondents had wrongfully
repudiated
the recording con-tract by purporting to cancel it, and that the
appellant had accepted the repudiation and cancelled the contract.
The
respondents pleaded that the contract was "against public interest" and was "an
unlawful restraint of trade and unen-
forceable
49
forceable". No replication was filed. The issue beforé
the trial court was accordingly whether the contract as a whole was
against the
public interest as an unreasonable re-straint of trade. It was to this issue
that evidence was directed,and it is common
cause that the respondents
dis-charged the onus of showing that the contract was unenforce-able in the
circumstances. If the appellant
had wished to rely on less than the complete
contract it was, in my view, obliged to raise this pertinently as an issue to be
dealt
with in evidence and argument. Vide the
National Chemsearch
case,
supra
, at p. 1114 D-F, 1116 G-H. The appellant has not done so, and this
court should not in my view decide an issue on appeal which was
not properly
canvassed in the court a quo.
Apart
50
Apart from (or supplementary to) the feature just
mentioned, there are
also in my view other reasons for re-
jecting the appellant's contention. The
Magna Alloys
case
(
supra
), and the
National Chemsearch
case (
supra
), have
extend-
ed the court's power to depart from the expressed limits of a
restraint, but they have not suggested that this power is
to be entirely unrestricted. Thus BOTHA J said in the
National Chemsearch
case at p. 1117 A:
"I imagine that when an unreasonable re-straint is so formulated that it
would re-quire major plastic surgery, in the form of a drastic
re-casting of its
provisions, to make it reasonable, the Court will de-cline to perform the
operation."
See also the discussion in Christie, The Law of Contract in
South Africa, pp. 360-362. Without wishing to define with
exactitude ....
51
exactitude what degree of plastic surgery (to use BOTHA J's
expression)
would be permissible, I am inclined to think that the !
amendments suggested by the appellant in the present case
are so far-reaching that a court would not have been pre-
pared to enforce such a materially altered contract under
any circumstances.
Be that as it may, even if such extensive
amendment may be
possible in particular circumstances, the
facts of the present case rule it out in my view. The
ratio
for the partial enforcement of restraints is that the
public interest requires it. Thus RABIE CJ stated in the
Magna Alloys
case (
supra
) at p. 896 E that the court should
be empowered to order the partial enforcement of a restraint
clause
52
clause "in 'n gepaste geval, in die lig van die vereistes van
die openbare belang". It would be impossible to list exhaustively the
factors
which a court, when determining whether a partial enforcement is justified,
would consider as pertaining to the public interest,
but I agree with the
suggestion by BOTHA J in the
National Chemsearch
case (
supra
) at
p. 1117 C-E, that a court may
inter alia
have regard to matters such as
whether the restraint clause was calculated to be unduly oppressive or designed
to act in
terrorem
, and whether partial enforcement would not operate
harshly or unfairly towards the person bound by the restraint. In the present
case, as I have indicated above, Beggs designedly obtained complete control over
the professional activities of
the
53
the respondents. The respondents needed his assistance and
were in no posision to reject his terms. It is true that Beggs made no
attempt
to assert his control over their live performances, but his motive in doing so
was not to benefit them in any way, but rather
to be spared the trouble of
managing them at a stage of their careers when he did not consider it worth his
while. He was of the
view that their careers would not really commence before
they became known as recording artists. If that were to have happened, he
would
no doubt immediately have asserted his rights as mana-ger. But during the period
of their association it was the recording
contract that mattered. Beggs did not
at any stage suggest that he might have been prepared to release the re-
spondents
54
spondents from any part of that contract. Even the argu-ment
presented to us on appeal concerning the partial enforce-ability of the
contract
was a purely legal or theoretical argument. There is no scintilla of evidence to
suggest that Beggs would have been satisfied
with the innocuous agree-ment which
the appellant's counsel sought to excise from the recording contract. Indeed,
the indications
are all to the contrary, as is shown by the reasons he gave in
the above-quoted passage for entering into the two contracts with
the
respondents. In short: Beggs wanted a complete monopoly of
the respondents'
professional activities without offering
recording contract, which is the them anything substantial in return. The
contract whereby
he obtained the most important part of this monopoly, is un-
enforceable
55 enforceable. precisely because he was too grasping.
The
court should therefore not, I consider, be astute bo assist Beggs by
holding that the contract could validly have been enforced in
part only.
But
it is not only a matter of not assisting Beggs; the respondents' position also
falls to be considered. The respondents had entered
into this contract hoping to
promote their careers thereby. This hope proved unfounded, and they sought to
resile from the contract.
The contract as a whole had many objectionable
features and was consequently unen-forceable. The appellant had, as I have said,
given
no in-dication that it would not insist on strict and complete performance
of the contract. Surely it would be grossly un-fair to
the respondents now to
hold that parts of the con-
tract
56
tract were enforceable; that the respondents were therefore
not entitled to resile from the contract; and that they were consequently
liable
for damages for breach of contract.
For the aforegoing reasons I cannot
accept the argu-ment that the recording contract was partially enforceable in
the manner suggested
on the appellant's behalf. In my view the contract was
unenforceable in whole and in part, and the respondents were fully entitled
to
resile therefrom. Consequently they are not liable for any damages flowing from
their cancellation of the contract. This decision
renders it unnecessary to
consider a further matter which was argued before us, namely, whether the
damages claimed were in any event
recoverable.
The
57
The appeal is dismissed with costs.
E M GROSSKOPF, JA CORBETT, JA
HOEXTER JA Concur
NESTADT, AJA )