IN THE SUPREME COURT OF JUSTICE
CHANCERY DIVISION
Royal Court of Justice
Strand, London
Wednesday, 19th April 2000
B E T W E E N :
Claimant
-and-
Defendants
-----------
Nicholas Caddick (Beachcroft Wansboroughs) for
the claimant.
Gordon Bennett (Douglas Jones & Mercer) for the defendants.
-----------
1. This case raises, as its principal issue, when a trustee or other fiduciary may be entitled to receive remuneration for services which have benefited the beneficiaries where that remuneration has not been agreed in advance by the terms of the trust or by the beneficiaries. It arises in the context of a dispute between the former members of a rock band, Badfinger, which in the early 1970s was internationally known. The issue concerns the right to royalties from a recording of the band playing live at the Agora Club, Cleveland, Ohio on March 4, 1974.
2. Badfinger had a number of substantial hits and was connected with The Beatles. The band wrote the best selling song Without You, made a number one hit in the United Kingdom and the USA by Harry Nilsson and recorded by many artists since. In 1975 the band broke up. The litigation before me is a part of the legal consequences of that split.
3. The early beginnings of the band were as a group known as The Iveys consisting of four members: Pete Ham, Tom Evans, Mike Gibbons and Ron Griffiths. Two members were tragically later to commit suicide: Peter Ham in 1975 and Tom Evans in 1983. Their musical mentor, and manager for a period of time until an American manager, Stanley Polley, took over the business management, was Bill Collins, now 85 years of age. Mr Collins is a man with a deep love of music and is even now engaged on what has become a lifelong project of musical teaching and innovation based on a new notation system together with his wife, a classically trained musician and teacher of music.
4. Ron Griffiths left the band and was replaced by Joey Molland. Mr Collins clearly attributes blame for the breakup of the group, and also, to some extent, for the way he personally was treated, to Joey Molland and his wife Kathy. At times during his evidence he demonstrated deep, and sometimes bitter, emotion about the events which led to the breakup and the tragic suicide of Pete Ham in 1975. I hold this in no way against him; his views are clearly honestly and deeply felt. Equally, however, I have to say that the cause of the breakup is no part of the issues I have to decide. I do not therefore have to investigate, let alone attribute, responsibility for the breakup. I, therefore, say no more about that issue.
5. After the group broke up, there was lengthy litigation about the right to royalties. This litigation commenced in 1979 and was eventually compromised, six years later, by an agreement contained in a Consent Order dated September 24, 1985. What is relevant to the matters before me is that it was agreed then that recording royalties from recordings of performances by the band before July 24, 1975 were to be divided equally between the four members of the band (or their estates) and Mr Collins (see clauses 1 and 8(i) of the Schedule to the Consent Order). Publishing royalties (i.e. the publishing or other performing right payment relating to the composition of the songs) in respect of words and music composed by any member of the group prior to April 24, 1975 were to be divided differently: 32.5 per cent to the actual composer (or shared between them if there was more than one) and the balance split equally between the five (see clauses 1 and 8(ii) of the Consent Order).
6. A firm of accountants in London, Goldblatt & Co., have acted as the group's accountants. Under the terms of the Consent Order Goldblatts were designated as the accountants to handle the distribution of certain specific moneys dealt with under the agreement. But they have also acted generally by tacit consent in the distribution of moneys coming to the group in accordance with the formulae in the Consent Order. Mr Bill Press, now a consultant with Goldblatts, was the person principally concerned at Goldblatts. Certain issues arise as to the workings of the provisions and as to the giving of certificates by Goldblatts but these have been left for consideration with a second summons after this judgment has been delivered.
7. The summonses before me arise under the litigation compromised in 1985 and therefore this matter bears the title of the original action. In fact neither Badfinger Inc., nor Ron Griffiths, have appeared or been represented before me (although I think Mr Griffiths has been in court out of interest). As the summonses in effect take the form of a claim by Joey Molland against the four others (the estates of Peter Ham and Tom Evans together with Mr Collins and Mr Gibbons), I shall call the parties before me respectively claimant (Mr Molland) and defendants (the four others).
8. The Agora concert in 1974 was taped with a view to possible production of a live album. Although the concert itself went well, the tapes themselves--16- track recordings--were very poor. It is now common ground (although it was not always so) that the quality of the original tapes was technically so poor that they were commercially unusable in that form and could only be turned into a commercially saleable product after a great deal of work of re-mixing, repairing and indeed re-recording some of the original vocals and instrumentals which were out of tune and technically deficient. Expert witnesses consulted by the claimant and defendants agreed that many hours of studio work were likely to have been needed to turn the original recording into a commercially saleable release (over 200 hours in the case of the claimant's expert, over 100 hours in the case of the defendants'). As a result of this large measure of common ground between the parties it was agreed that there was no need for either expert to be called.
9. Although the original intention of the band had been to release a live recording of the Agora concert, the poor technical quality of the tapes made that inappropriate at the time. The band were then signed with the Warner record label. A Warner representative was present at the concert but did not think it worth releasing. Again in 1978 a Warner representative listened to the tape but was not interested in releasing it. (There was a third contact with Warner in 1989 to which I will return.)
10. The Agora tapes travelled with the band on the completion of their tour and, having been with them at the Caribou Ranch in the USA, arrived in England. Whilst in England they were taken by Mr Molland's wife, in circumstances I will have to explore in more detail shortly. From that moment on the tapes remained in the possession of the claimant and his wife. It was in that same year, 1974, that the claimant left the band and within the course of the next 12 months there took place the suicide of Pete Ham and the breakup of the group.
11. The tapes remained with the claimant for the next 13 or 14 years. There is some evidence of an approach to Warners in 1978 to see if it was interested in the recording, which it was not, but the evidence is too sketchy as to who was involved to enable me to draw any conclusions from that, other than that Warners were not interested in releasing the recording.
12. Then, in about 1988, the claimant decided to re-mix and re-master the tapes to make a commercially releasable CD. His decision was motivated by the release of a number of bootleg Badfinger albums on which, of course, the band members received no royalties. No doubt he saw an opportunity for a commercial venture.
13. Over the period from June 1988 to March 1990 the claimant, together with a sound engineer/musical producer whom he had interested in the project, Mark Healey, worked to re-mix and re-master and repair the tapes. The claimant spent many hours on this project, working especially in the evenings and other times in the studios of Bajus-Jones Inc. (subsequently Mike Jones Inc. and known, at least at some time, as the 74th Street Studios). His calculation was that he spent 210.5 hours of studio time on the project and I accept that statement. He had to transfer the old 16-track tape to a new 24-track tape. He had to clean the tape so that the individual vocals and instruments could be separated out before mixing. This was a complicated process because the original tape had been recorded live with open microphone without noisegates which would have ensured that the particular mike only picked up the appropriate instrument or vocal. It was also necessary to clear off extraneous sounds such as feedback, electrical noises and bangs on microphones on stage. The claimant also considered it right to re-record some of his own guitar pieces, his guitar having gone out of tune on the night, and vocals. The whole had to be mixed in the way any producer would have to do.
14. Although at one time the defendants suggested this would have taken very few hours it was common ground at the hearing that this was not the case. Mr Collins volunteered that his original statement (contained in a letter dated June 14, 1997) had been an exaggeration and a claim not to be taken seriously. The defendant's own expert estimated something in the region of 110 hours would have been necessary.
15. The claimant then went about making the arrangements for a commercial release. Under the trading name of Independent Artist Records (not an incorporated body, but what would be in English law a partnership of the claimant and his wife) he sought in writing the consent of Apple Corporation and Warners to release of the album. He contacted Apple, with which the band had signed, but Apple had no interest except as publisher of the songs involved. He contacted Warner in the belief that it was they who were entitled to royalties from sale of products recorded by the pre-1975 Badfinger. Warners did not reply, from which the claimant took it that they had no objection to the proposed release.
16. The claimant then arranged, by an agreement dated May 1, 1990 with Rykodisc Inc., a record manufacturer in Minneapolis, for Rykodisc to manufacture and distribute the release under licence on a worldwide basis in return for a royalty rate escalating with sales effected from a base of 13 per cent of, in effect, net retail sales in the United States and half that amount for sales outside the United States. Under the written agreement the claimant warranted, amongst other things, that he was the sole and exclusive owner and proprietor of all rights in the recordings, that he had the full right, power and authority to enter into the agreement and that he had secured the consent in writing of all artists including of the musicians who performed. At least two of these warranties were not in fact justified: Mr Molland was not the sole and exclusive owner of all rights in the recordings, and he had not secured the consent in writing of all artists including of the musicians who performed. As to the other warranty, he had not consulted any of the defendants as to the terms of the Ryko deal before entering this agreement. Whilst I make certain findings later in this judgment on the extent to which Mr Gibbons and the representatives of other musicians were aware of the release which Mr Molland was pursuing, it would be a misue of language, in my judgment, to say that they had given consent, let alone in writing, to the conclusion of the agreement with Rykodisc of the terms of which they were unaware.
17. In the autumn of 1990 the recording was released as Day After Day and went on to sell some 50,000 units. The royalties payable by Rykodisc were of two sorts.
18. First, the recording royalties payable under the Licence Agreement. These were paid by Rykodisc direct to the claimant. They paid him an initial advance of $30,000 on May 30, 1990 and thereafter further payments. The total amount paid in recording royalties to him, or to his order, was $74,642.86. This figure once in controversy was agreed during the hearing. With the exception of $2,000 which Mr Molland paid to Mr Gibbons in October 1991-- again I refer to this below-- Mr Molland did not attempt to account for any of these royalties before Goldblatts raised the issue with him in 1995/96 stating that neither they, nor members of the group, had any prior knowledge of the CD and claimed a share of the royalties. Between April 15, 1996 (when the issue was first raised directly with the claimant) and at least November 1996, the claimant, through his U.S. attorneys, did not accept that the recording royalties in respect of Day After Day fell to be shared with the defendants. However, by March 1997 the claimant had accepted that, subject to the claim to be reimbursed production expenses and himself to be paid a fee, the recording royalties fell to be treated under the formula in the Consent Order. I infer that his change of view was as a result of receiving advice from English lawyers. The matter is put thus in the skeleton argument for the claimant: 'Having now received legal advice as to the meaning of the consent order, Molland accepts that (a) he held the Agora tapes and any royalties or benefit derived from them upon trust for the rest of the band and Collins, (b) this includes sums received in respect of his re-mastered version of the Agora tapes (c) he is therefore liable to account for the [moneys] which he has received by way of recording royalties in relation to Day After Day; and (d) (subject to the claims in this summons) those royalties should have been paid to Goldblatts and divided in accordance with the Consent Order.'
19. Secondly, publishing royalties. Although when the case was opened before me, the defendants were still doubting what had happened to those, and plainly suspecting the claimant had appropriated those also, when Goldblatts disclosed their files to the claimant's legal advisers during the course of the hearing, those files contained royalty statements from Apple (who collected publishing royalties form all sources) which included references to Ryko which could only have related to Day After Day as Ryko had no other involvement with the songs. It was, therefore, accepted rightly that all publishing royalties from Day After Day were correctly and properly paid throughout to the band and the claimant at no time took, or attempted to appropriate, them to himself. Contrary to the view they held, the other members and Mr Collins had all along been receiving royalties on Day After Day in the form of their share of publishing royalties. It is unfortunate that they did not know this as it might have lessened (although perhaps not eliminated) their feelings of resentment that Mr Molland had appropriated all to himself. It is unfortunate that the evidence of this fact, which was sitting all along in Goldblatts' files, was not noted by Goldblatts for a period of almost five years. I accept that Goldblatts were not performing an audit and, given the way the royalty arrangement operated, there was no need for them to note from what source Apple calculated the particular royalties for which they accounted. I therefore accept that they would not necessarily have noted at the time the royalty statements came in an unusual new name (as Ryko's name would have been) or indeed have checked for the name of songs which had not appeared in statements before. So I do not accept the contention at one stage apparently advanced that Goldblatts must have known throughout of the existence of the CD. Indeed, even if Goldblatts had noticed the Ryko name, it would not follow that Ryko had released a Badfinger album at all; this royalty could have related to some entirely different artist recording Badfinger songs, but on the Ryko label. But once the dispute arose, I regard it as unfortunate that Goldblatts did not go back and check their own records to see what evidence there was of publishing royalties paid by Ryko. It appears that Ryko may have given them an indication of what was paid during 1995 but that was only part of the story, as they should have appreciated. Had Goldblatts done so, they would have seen that publishing royalties had properly been paid throughout and they could have put the defendants' minds to rest at least on that score.
20. The issues before me are raised by two summonses, dated respectively March 10, 1997 and December 1998. I am only concerned, at this stage, with the first summons, it having been agreed that the second summons should not be determined until after my judgment on the first summons.
21. By the first summons the claimant seeks a direction that:
(a) the costs incurred in producing Day After Day should be apportioned equally between the five members (i.e. the estates of Ham and Evans and Gibbons, Collins and the claimant) and
(b) the claimant should be held entitled to a fee or producer's royalty in respect of his production of Day After Day.
22. The production expenses fall into two heads:
(i) studio expenses; and
(ii) a fee or royalty payable to Mr Healey.
23. As to the studio expenses, at the opening of the hearing there were a number of issues which were raised on these expenses. However, through sensible concessions, the position has now been reached as follows. A total of $21,181.50 expenses were incurred in the production of Day After Day. It is now accepted by the defendants that all those expenses have in fact been paid by Mr Molland. An issue about a particular invoice was resolved by inquiries during the trial. I accept the evidence that all these had been paid. Further, it is accepted by the defendants that in principle the claimant should be reimbursed for all reasonable expenses he in fact incurred. At one stage it was argued that, if the liability to pay was not the liability of the claimant alone, but was a joint liability with Mr Healey, this would affect the position. However, it was in the end accepted, rightly in my view, that this was in fact irrelevant and that if the claimant had paid the amount and that it was a reasonable expense in relation to Day After Day, this fell to be a production expense of which all the beneficiaries should bear a share of the burden.
24. Agreement was further reached that the reasonable expense to be taken as spent on studio fees was $17,500. The nature of the agreement, reached in order to avoid the need for experts to give evidence, was that the claim for reimbursement of studio fees was to be limited to that amount.
25. In the circumstances, in the event it is accepted now by the defendants that the claimant should be reimbursed the sum of $17,500 in respect of studio fees incurred by him. This concession was plainly right and I would have so determined in any event.
26. The second element of the costs for which the claimant seeks reimbursement are fees paid to Mr Healey.
27. Mr Bennett for the defendants submitted that no allowance should be made for these fees on essentially two grounds; first, that as a matter of principle no fee by way of percentage should be visited at the door of the beneficiaries because this amounted to requiring them to share their profits when they had not agreed to do so and that this the law does not permit. Second, he submitted that, on the facts, it had not been shown on the evidence (the burden of proof being on the claimant) that to engage Mr Healey as a co-producer was reasonable, nor had it been shown that the fee payable to him was reasonable nor that the claimant had in fact paid Mr Healey.
28. In support of the first point, Mr Bennett relied on a statement in Goff & Jones, The Law of Restitution (5th ed.) at p. 717 where it is stated that, in contrast to the more generous position in New South Wales, 'as a general rule the High Court will not contemplate apportioning profits, as distinct from granting an allowance for skill and expertise, unless there was an antecedent agreement for profit sharing'. He also relied on the decision of the Court of Appeal in O'Sullivan v. Management Agency [1985] Q.B. 428. In that case, Gilbert O'Sullivan, the composer and performer of popular music, successfully applied to set aside the management contracts he had made with Mr Gordon Mills and publishing and ancillary contracts with companies closely connected with Mr Mills on the grounds that they had been induced by undue influence and that they were in restraint of trade. However, although it was ordered that Mr Mills and the contracting companies were liable to account as fiduciaries for any profits they obtained respectively through the agreements (see especially per Fox L.J. at pages 464-465D) it was held that the defendants should be entitled to receive an allowance for the skill and labour used by them in promoting the compositions and performances and managing the business affairs of Mr O'Sullivan (pages 468E-469A). At this point in the case, Mr Bennett relies particularly on the rejection by Fox L.J. of the argument that the defendants should be put in the position said by an expert witness to be the position they might reasonably have negotiated if Mr O'Sullivan had received independent advice. In the course of doing so, Fox L.J. noted that 'an order which, in effect, would involve substantial division of the profits between the beneficiary on the one hand and the fiduciary (and persons for whom he procured benefits) on the other, goes far beyond anything hitherto permitted' (page 468D). Mr Bennett relied in particular on the words in parentheses as indicating that the principle applied to third parties who had been enabled to earn profits as a result of the acts of the fiduciary.
29. I reject this point in principle. I do so for two reasons. First, I do not read this passage as indicating that where a third party has in fact been remunerated for assistance he has given, which it was reasonable for him to give in order for the profit to be earned, the fiduciary may be reimbursed for that expense, if it was a flat fee, but not if it was a fee calculated on some percentage basis. That is the effect of the submission made by Mr Bennett. Provided that the payment is reasonable and of the sort which might reasonably and normally be agreed for that sort of service, I do not see why it should be refused simply because it is one calculated by reference to a percentage in a case where a flat fee (which could of course be of a larger absolute amount) would be recoverable. As I suggested in argument, this principle would otherwise prevent a fiduciary being reimbursed the necessary and normal fee of a stockbroker who had been engaged to sell securities for the proceeds of sale of which the fiduciary was obliged to account if that fee was calculated as a percentage of the sale price but not if it was a flat fee.
30. I can see neither logic nor justice in such a distinction; both are reasonable fees for necessary expenditure without which the profit to be enjoyed by the beneficiaries would not have been earned. I note also that in Redwood v. Chappell [1982] R.P.C. 109 royalties paid to third parties were allowed to be deducted in giving an account of profits by the defendant. Nor do I consider the reference in the passage I have cited ('and the persons for whom he procured benefits') to be a general reference to all third parties with a business connection with the fiduciary. The point was that in that case the other defendants were all, in effect, the creatures of Mr Mills and they were to be treated in the same was as he was.
31. Secondly, Fox L.J. does not rule out entirely the giving of an allowance to the fiduciary in the form of a share of the profits (see pages 468E- 469A), a point to which I must return when dealing with the position of Mr Molland's own claim to a royalty.
32. Rejection of the point of principle, however, does not dispose of the second objection of Mr Bennett, although it does mean that I hold that the claimant is entitled to be reimbursed the fees in fact paid by him to Mr Healey to the extent that they were reasonably incurred and reasonable in amount. I should deal with those issues now.
33. I find that, having regard to the work required and Mr Molland's own limited experience of production it was reasonable to engage Mr Healey to co- produce. I also find that it would have been reasonable to share a royalty payment with a co-producer and that a 2 per cent royalty would be feasible for a co-producer if the overall royalty was 4 per cent which I find would be a reasonable overall royalty. All percentages are of net sales calculated as were the royalties under the Rykodisc agreement.
34. As to the third point, Mr Bennett submits that the claimant should not be reimbursed any moneys which he has not in fact paid over. I agree, subject to this qualification, that he should be entitled also to be reimbursed for sums which he is liable to pay, provided at least that there is an adequate mechanism for ensuring that the sums do not remain with him and thereby create a windfall in his hands.
35. The evidence as to what has been paid is not satisfactory. The claimant's case, supported by evidence of Mr Healey (who was not called to give evidence), was that the agreement was that Mr Healey should be paid 2 per cent of net retail sales. However, the written agreement produced was somewhat inconsistent with that, allowing as it did for hourly fees together with a rate payable on the wholesale sales. Even allowing for the evidence that the retail rate would be ½ of the retail rate, this was troubling. However, more troubling was the failure of Mr Molland to produce any more than a very few cheque carbons representing only a very small part of the moneys he had claimed to have paid over. I am surprised that more cheques were not produced or that bank statements showing the payments were not disclosed. It is true that Mr Healey's second witness statement said that he had been paid all he was due. However, this evidence is of doubtful weight as it was also clear that he did not know what he was in fact due because he was not privy to what royalties were received from Ryko. In these circumstances, and given that there is evidence that Mr Molland has not in the past met liabilities to creditors, I would not be prepared to allow reimbursement to him of moneys said to have been paid to Mr Healey without further evidence of actual payment. At one stage I thought that it would be sufficient to order that Mr Molland hold on trust for Mr Healey any moneys to the extent that they had not in fact been paid to Mr Healey. However, I have been persuaded that this would not be the appropriate order to make here and that there will need to be an inquiry as to what sums have in fact been paid to Mr Healey for which better evidence will be needed probably in terms of documentary banking records.
36. In principle, therefore, the claimant should be reimbursed sums already paid to Mr Healey. I wish to hear further argument, however, in the light of this judgment as to whether Mr Healey should be entitled to continue to receive the royalty from subsequent future royalty payments by Ryko.
37. Whether the claimant is entitled to a producer's fee for the work he did on Day After Day has been the most controversial issue, and the main issue, before me.
38. I deal first with the law.
39. The basic proposition is not in dispute: that a fiduciary is not in general entitled to be remunerated for his work save where this is agreed in the trust instrument or by the beneficiaries. The general proposition, as set out in Snell on Equity (28th ed.), at page 252, cited with approval by Lord Templeman in Guinness plc v. Saunders [1990] 2 A.C. 663 at 690D-E is that:
As a result of the rule that a trustee cannot make a profit from his trust, trustees and executors are generally entitled to no allowance for their care and trouble. This rule is so strict that even if a trustee or executor has sacrificed much time in carrying on a business as directed by the trust, he will usually be allowed nothing as compensation for his personal trouble or loss of time.
This principle flows from the existence of other basic principles in the law of trusts, notably, that a trustee may not make a profit from the trust and must not put himself in a position where there is a conflict between his personal interests and his duties to the beneficiaries (see per Lord Templeman in Guinness at pages 689-690).
40. The rule is not, however, inflexible but admits of exceptions. Thus, in a number of cases to which I was referred, trustees or fiduciaries were held entitled to remuneration, notwithstanding that they had previously no agreement either in the trust instrument or from the beneficiaries for such remuneration. Examples are Boardman v. Phipps [1967] 2 A.C. 46 (solicitor who was held to have exploited information in the nature of trust property and was held liable to account for the profits, but subject to receiving a proper allowance 'on a liberal scale'in respect of his work and skill in obtaining the benefit for the beneficiaries; see the decision also at first instance of Wilberforce J. reported as Phipps v. Boardman [1964] 1 W.L.R. 993 at 1018; Marshall v. Holloway (1820) 2 Swans 432 (prospective and retrospective allowance given to trustee of will trusts to compensate him for time and effort expended on the trusts); O'Sullivan (see above) (allowance given to manager and associated companies for skill and labour in promoting compositions and performances of the plaintiff although the agreements had been set aside as in restraint of trade and for undue influence); Foster v. Spencer [1996] 2 All E.R. 672 (trustees of cricket club land allowed allowance for past services in relation to efforts to sell the cricket club ground and to obtain another site); Redwood Music v. Chappell & Co. Ltd [1982] R.P.C. 109 (music publishers who had unwittingly infringed the copyright in a song held entitled to a liberal allowance for their skill and labour).
41. Further, in Bray v. Ford [1986] A.C. 44 Lord Hershell said (pages 51- 52) that: 'It is an inflexible rule of a Court of Equity that a person in a fiduciary position, such as the Respondent's is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interests and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule. But I am satisfied that it might be departed from in many cases, without any breach of morality, without any wrong being inflicted, and without any consciousness of wrongdoing'. (my emphasis)
42. The difficulty is to determine in which cases the general rule may be departed from. In Guinness Lord Templeman referred to the fact that 'in exceptional circumstances' a Court of Equity might award remuneration to the trustee, citing Phipps v. Boardman as an example of such exceptional circumstances (at page 694B-C). That echoes the words of Upjohn J. in Re Worthington [1954] All E.R. 677 at 679B/C and 680D that the jurisdiction in the court to allow remuneration to trustees 'should be exercised sparingly and only in exceptional cases'.
43. Whilst both counsel before me have helpfully made submissions as to the principles to be derived from the decided cases on when an allowance may be made and when it may not, in my judgment, there is no single statement of principle which will cover all cases other than that, as Fox L.J. stated in O'Sullivan (at page 468): 'the justice of the individual case must be considered on the facts of that case'. There are competing equities which may arise in a given case and, as Fox L.J. also noted in the same passage, 'a hard and fast rule that the beneficiary can demand the whole profit without an allowance for the work without which it could not have been created is unduly severe'.
44. The conflict between equities is between the general rule identified above and the idea that, at least in certain circumstances, it would be inequitable for beneficiaries to step in and take the profit without paying for the skill and labour which has produced it. This dichotomy was noted and discussed by Lord Goff in Guinness as follows (at pages 700D-701E):
Plainly it would be inconsistent with this long-established principle to award remuneration in such circumstances as of right on the basis of a quantum meruit claim. But the principle does not altogether exclude the possibility that an equitable allowance might be made in respect of services rendered. That such an allowance may be made to a trustee for work performed by him for the benefit of the trust, even though he was not in the circumstances entitled to remuneration under the terms of the trust deed, is now well established. In Phipps v. Boardman ... the solicitor to a trust and one of the beneficiaries were held accountable to another beneficiary for a proportion of the profits made by them from the sale of shares bought by them with the aid of information gained by the solicitor when acting for the trust. Wilberforce J. directed that, when accounting for such profits, not merely should a deduction be made for expenditure which was necessary to enable the profit to be realised, but also a liberal allowance or credit should be made for their work and skill. His reasoning was, at page 1018:
Moreover, account must naturally be taken of the expenditure which was necessary to enable the profit to be realised. But, in addition to expenditure, should not the defendants be given an allowance or credit for their work and skill? This is a subject on which authority is scanty; but Cohen J. in Re MacAdam [1946] Ch. 73 at 82 gave his support to an allowance of this kind to trustees for their services in acting as directors of a company. It seems to me that this transaction, i.e. the acquisition of a controlling interest in the company, was one of a special character calling for the exercise of a particular kind of professional skill. If Boardman had not assumed the role of seeing it through, the beneficiaries would have had to employ (and would, had they been well advised, have employed) an expert to do it for them. If the trustees had come to the court asking for liberty to employ such a person, they would in all probability have been authorised to do so, and to remunerate the person in question. It seems to me that it would be inequitable now for the beneficiaries to step in and take the profit without paying for the skill and labour which has produced it.
Wilberforce J.'s decision, including his decision to make such an allowance, was later to be affirmed by the House of Lords ....
It will be observed that the decision to make the allowance was founded upon the simple proposition that 'it would be inequitable now for the beneficiaries to step in and take the profit without paying for the skill and labour which has produced it.' Ex hypothesi, such an allowance would not in the circumstances be authorised by the terms of the trust deed; furthermore it was held that there had not been full and proper disclosure by the two defendants to the successful plaintiff beneficiary. The inequity was found in the simple proposition that the beneficiaries were taking the profit although, if Mr Boardman (the solicitor) had not done the work, they would have had to employ an expert to do the work for them in order to earn their profit.
The decision has to be reconciled with the fundamental principle that a trustee is not entitled to remuneration for services rendered by him to the trust except as expressly provided in the trust deed. Strictly speaking, it is irreconcilable with the rule as so stated. It seems to me, therefore, that it can only be reconciled with it to the extent that the exercise of the equitable jurisdiction does not conflict with the policy underlying the rule. And, as I see it, such a conflict will only be avoided if the exercise of the jurisdiction is restricted to those cases where it cannot have the effect of encouraging trustees in any way to put themselves in a position where their interests conflict with their duties as trustees.
45. In Guinness v. Saunders the question was whether a director of the company, Mr Ward, was entitled to retain a sum of £5.2 million which he had been awarded by a committee of the board of directors for his services in connection with a takeover bid being made by the plaintiffs. The House of Lords, having held that he was not entitled to the money pursuant to a decision of the committee of the board, the decision to award special remuneration being reserved by the Articles of Association of the company to the board itself, went on to consider whether Mr Ward was nonetheless entitled to recover any part of the sum by way of quantum meruit. In the course of unanimously rejecting that claim, their Lordships considered the principle that trustees and other fiduciaries were not entitled to remuneration unless the relevant instrument (in this case the Articles of Association of the company) so provided. Given the specific power in the Articles of Association vested in the board of directors as a whole to award special remuneration, the House of Lords were not prepared to allow that provision to be side-stepped by the award of remuneration under the court's inherent jurisdiction (see especially per Lord Templeman at page 694A-D). Lord Goff particularly noted that this was a case where there was a clear conflict of interest: by agreeing to provide his services in return for a substantial fee, the size of which was dependant upon the amount of a successful bid by Guinness, Mr Ward had put his own personal interests in 'stark conflict' with his duty as a director, which would have been to have only authorised the making of a bid by Guinness if it was in the company's best interest to do so (see pages 701-702).
46. I am not persuaded, however, that the speech of Lord Goff, which I have cited, requires that remuneration be disallowed unless all conflict of interest, or the possibility of conflict of interest can be excluded in the given case. Equally, the fact that there is no conflict of interest cannot, without more, justify the granting of an allowance if otherwise the circumstances make it inequitable to do so. The existence or absence of conflict of interest, therefore, is a very important consideration which may, in certain cases, be determinative but it is not the only factor to be taken into account.
47. Nor, in my judgment, is the question of the honesty or otherwise of the trustee necessarily determinative although that also is an important factor. It is the case that, in a number of cases where an allowance has been made, the honesty and propriety of the trustee's dealings has been emphasised. (See for example, Boardman v. Phipps per Lord Upjohn at page 123B-C; Lord Cohen at page 104E-G; Lord Hodson at page 105G and, for another example, Redwood v. Chappell (supra page 132, lines 15-17). However, remuneration is not restricted only to cases where the personal conduct of the fiduciary cannot be criticised: O'Sullivan per Fox L.J. at page 468A/B. (I note at this point that O'Sullivan was cited in argument in Guinness but the judgments contain no adverse comment upon it.) It was a case in which necessarily the conduct of the trustee/fiduciaries could be criticised for they were found guilty of undue influence and procuring agreements with the young and inexperienced plaintiff in restraint of trade. Nonetheless, they were held entitled to recover an allowance for the skill and effort they had expended.
48. Other factors which will be relevant, depending upon the circumstances of the case, are whether the transaction was 'of a special character calling for the exercise of a particular kind of professional skill' (see per Wilberforce J. in Phipps v. Boardman) or where the services can only realistically be supplied by the fiduciary (see Bainbrigge v. Blair (1845) 8 Beav. 588 at 596 and Re Worthington (supra at page 679D-H) and Marshall v. Holloway (supra) where the trust solicitor was better acquainted with the estate than any other person).
49. Against this background, I turn to consider the facts which appear to me to be relevant in determining the claim of Mr Molland to remuneration. In doing so, I must now deal with certain of the contested facts in this case.
50. As I have already indicated, it is now common ground that a significant amount of work was required before an acceptable album could be made from the tapes. If Mr Molland had not done this work, someone else would have had to do it, and would have had to be remunerated for doing so. There is no credible case that the quality of the work was in any way deficient. Mr Molland impressed me as diligent and energetic and I have no reason to consider that the quality of the work would have been any higher had a third party performed this essential task. It is right that tastes may differ as to precisely how to re-master a recording such as this, but that does not go to the question of the quality and commercial usefulness of the work in fact done. So, without the work done by Mr Molland, which was of an exceptional and substantial character, covering over 200 hours of work, the profit to the beneficiaries from this recording would not have been earned. Indeed, I have grave doubts that anybody else would have taken on the task. Warners, the commercial record label, had not been interested in the project either in 1974 or, when asked again, in 1978. The defendants have made no suggestion of anybody else who would have been prepared or interested in performing this difficult and time consuming task.
51. Additionally, Mr Molland was able to bring to the task special qualities which others could not have provided. He was one of the only two remaining members of the band. The other, Mr Gibbons, is a drummer. Mr Molland was able to re-record his own vocals and guitar pieces to bring them back into line and into tune. No one else could have done that and left a genuine 'Joey Molland guitar' on the album. It was suggested by Mr Bennett that the experts' reports disclosed that other pieces had been re-recorded without the original musicians' involvement. This may be so in relation to the drumming, or some of it and perhaps also in relation to some backing bass guitar or even backing vocals. I do not regard this as any evidence that the substantial work done by Mr Molland in relation to the prominent guitar and vocals on which he featured could satisfactorily have been re-recorded by someone else or, that if it had been, the album could properly have been put forward as a Badfinger concert album.
52. I must now make my findings as to the circumstances in which Mr Molland came to possess the Agora tapes, how he came to hold on to them and the extent to which he kept other members of the band and Mr Collins informed of his proposals.
53. Mrs Molland's evidence, supported by that of her husband, was that she had taken the tapes to protect the interests of the band. I find this evidence difficult to accept. Mrs Molland's evidence was that she 'just wanted to protect the tapes for the band and so I removed them from their studios on behalf of the band and kept them at our rented town house'. If that had, however, been her purpose, I consider it more likely that she would have made a specific statement to that effect to the band and that when her husband left the band (if that was not the time when she took the tapes) she would have made it clear to the other members of the band that she still had the tapes and was holding the tapes for them. I consider it more likely that the tapes were taken in the throes of a break-up of the group in which Mr Molland was to receive no compensation and the equipment, apart from his own guitars, was to be left with the group. It was, as I find Mr Molland told the interviewer of the Badfinger fanzine, that it was a case of 'grab what I could'. It is not easy to identify, however, precisely the purposes for which the Mollands did take the tapes. In the event they did not commercially exploit them until some 14 or 15 years later, which does not indicate a pressing belief that these were useful tapes which they intended to turn to their own advantage. It is true that there is some evidence of an approach to Warners within four years of the tapes being taken but I do not have enough information about that approach to draw a reliable conclusion as to which members of the band were involved in it. I find therefore that the taking of the tapes was not simply to protect the interest of the group, which would have made the taking entirely innocent and above board, but for Mr and Mrs Molland's own purposes but probably in the belief that somehow they were entitled to do this. But I cannot say, on the present evidence and having regard to the very long passage of time, precisely what the intentions of Mr and Mrs Molland were at the time the tape was taken.
54. Their conduct, thereafter, in making the arrangements commercially to exploit the tapes themselves is also not without criticism. I find that Mr Molland did tell Mr Gibbons in 1988 or 1989 that he had the live tapes in his possession and was engaged in re-mixing them for a re-release. Mr Gibbons' response, as he told me, was not one of objection. Rather he said, 'Go for it'. Mr Gibbons was content for Mr Molland to continue with this course in the expectation that he would, in due course, receive royalties from it. I find similarly that Mr or Mrs Molland told Marianne Evans, the widow of Tom Evans, about the project some time before July 1990, as evidenced by a postcard from Ms Evans. She also did not object to the project continuing. Further, Mr Gibbons and Ms Evans were sent copies of the CD on its release in or about September 1990 and raised no objections to what had taken place. I find, on the balance of probabilities, that copies of the CD were similarly sent to the solicitors for onward transmission to Petra Ham, the daughter of Pete Ham, and also to Mr Collins. In this latter respect, I should record that I find that a conversation did take place on the telephone between Mr Molland and Mr Collins in which Mr Molland claimed to have sent a copy of the CD to Mr Collins and that Mrs Collins in the background said, 'Here it is'. On the balance of probabilities, this conversation took place in 1995 and, accordingly, I do not accept that the CD-rom she had found was the CD she produced in evidence which included the song Day After Day but which turned out to be a 1996 recording. It is more likely, in any event, that having sent the CD-rom to other members of the group, Mr Molland would have sent a copy to Mr Collins also with whom he continued to be on good terms at this stage and who might, in any event, be expected to hear about the project from Mr Gibbons or Ms Evans or simply because publishing royalties would become available from Rykodisc. I find also that Mr and Mrs Collins were told in general terms about a project which would produce money for them which was in fact the Day After Day project. It follows that Mr Collins also raised no objection at that stage.
55. However, although I therefore find that the claimant did inform the defendants about the project and did not, as was suggested, keep it secret, Mr Molland's conduct in this period is to be criticised in two respects particularly.
56. First, before engaging on the project, he made no attempt to consult other members of the band or Mr Collins as to the proposed treatment of the disc or the arrangements he proposed to make with Mr Healey or the Bajus Jones Studio or Rykodisc. These are steps he ought to have taken, in my judgment, as this was not his property deal with alone. However, had he done so, the consequence would either have been that the project would have continued artistically in the same way with Mr Molland in control or there would have been fundamental disagreement and no project at all would have taken place. I do not consider any third party would commercially take this project on; it needed an enthusiastic group member like Mr Molland prepared to put in a lot of time and able to recreate some of the music. Mr Gibbons is not, in my judgment, someone who would have had the inclination, even if he had had the ability, to perform this task. As for Mr Collins, by this stage, his heart had gone out of the Badfinger band, as he told me, following the tragic death of Pete Ham and his interest had turned to the musical notation and teaching project.
57. Secondly, Mr Molland is to be criticised for the way he dealt with the recording royalties. He told me that he had always intended that the group would share in the recording royalties. I do not accept this. The arrangements which Mr Molland made, including contracts drawn up involving Independent Artists' Records were, I find, designed to keep the recording royalties for himself and in order to defray the expenses of recording. He made no attempt to share any part of those royalties with any other members of the band or to account for them to Goldblatts, notwithstanding his knowledge of the Consent Order save that in October 1991 he paid a sum of $2,000 to Mr Gibbons, who was short of money at that time, and who threatened otherwise to create 'a stink about the royalties'. His attitude evidences a cavalier approach to his responsibilities and the rights of other members of the group.
58. I was pressed to consider whether that conduct amounted to dishonesty, but, in the absence of that issue being properly explored in cross-examination with Mr Molland, I am not prepared to reach that conclusion. Rather, I consider that Mr Molland (with his wife's encouragement) had persuaded himself that, given that they had been in possession of the tapes for over 15 years, that he had done all the work to produce a saleable recording, and that the band members would be receiving publishing royalties it was just that he should retain the profits from the recording royalties. It is to his credit that once properly advised of his obligations he accepted that the royalties should be distributed, subject only to his remuneration and expenses, between all members of the group. However, until that time his approach was that it was for him alone to decide how to deal with the tapes and for him to deal with the recording royalties which he intended to retain as his own fee.
59. Overall, I regard Mr Molland's conduct as open to serious criticism. He does not stand in the same category as those fiduciaries who have been described as operating with entire honesty and propriety. However, given that I reject the allegation that he kept the whole project secret and reject the allegation of outright dishonesty (cf. O'Sullivan at page 468B), I do not regard his conduct as so egregious as to deprive him of any remuneration for the undoubted value he provided through his considerable and specialist efforts.
60. Mr Bennett pressed me that this was a case in which Mr Molland had a conflict of interest between his personal interest and his duty to the other beneficiaries. I reject some of the conflicts he suggested as being unrealistic and not related in any way to the commercial exploitation of this material, which is what the account of profits is about. For example, he suggested that other beneficiaries might have preferred that no commercial re-mix be made at all because the underlying tapes were poor and that they would prefer to retain the memory of the original group members intact. I regard this as unrealistic. I am satisfied that the interest of both Mr Gibbons and Ms Evans, who did know of the project, was commercial; they were interested in what might be received from the project. In reality, all the conflicts suggested by Mr Bennett amounted to the proposition that Mr Molland had the ability to impose his view of what would artistically and commercially be the best way to deal with the tapes. These do not appear to me essentially the sort of conflicts of interest which Lord Goff had in mind in Guinness. This case may be contrasted with the case thereof of a director whose personal interests are advanced by the company making a takeover bid at a high price (on which the director's special fee would then be calculated) contrasted with the interests of a company in only making a bid at a reasonable price and if it were in the interests of the company. Or it may be contrasted with the more classic case of the conflict of interest where a fiduciary deals with property of the trust, e.g. by offering to buy it himself. In such a case there is a plain conflict between his interest as purchaser to get the lowest price and his interest as trustee to get the highest price. Essentially, in this case, the interests of Mr Molland and the beneficiaries coincided, namely, to make the most commercially saleable product that would earn profit and publishing royalties. The one possible exception to that is the arrangements which Mr Molland made in relation to his own remuneration. Whilst I regard the way he dealt with royalties as to be criticised, and therefore any remuneration which he would otherwise receive to be reduced on that account (see O'Sullivan, supra) in my judgment that is not the sort of conflict of interest which would absolutely bar Mr Molland from receiving anything for the special and considerable efforts he put into earning profits for the other beneficiaries.
61. I conclude, having regard to these factors, that this is one of those exceptional cases where the court is justified in awarding remuneration to the fiduciary notwithstanding the general rule. I find it not without significance that Mr Collins, with his own innate sense of fairness and justice, did not consider it unjust that Mr Molland should receive something for his efforts (see letter of May 22, 1996).
62. I turn finally to the question of quantum for production fees. The evidence on what would be a reasonable fee for production fee and royalty is not considerable. There is however evidence from Mr Molland, Mr Healey and from the 'Entertainment Industry Contract Negotiating and Drafting Guide 1994' produced in evidence by Mr Weyrauch that royalty paid to a producer will generally be between 2 and 4 per cent and that a fee may be paid as well, though there is no indication as to what levels of fee may be appropriate which makes that evidence difficult to apply.
63. I have been reluctant, having regard to the sums involved, to put this question off to further inquiry which would cause further costs to the parties. However, I wish before expressing a concluded view to hear further argument as to what would be an appropriate fee having regard to the following principles. It is appropriate to adjust an allowance to Mr Molland to take account of the fact that I do not regard it as right, in the circumstances, that he should have received the same amount as he would have received if he had openly consulted and agreed with the other band members and Mr Collins that he should take on this role (compare O'Sullivan). I also regard it as more appropriate that there should be a flat fee allowed rather than a continuing share of profits. Mr Molland will have his share in any event under the Consent Order. Further any fee must take account of the fact that Mr Healey's fee is already catered for.
64. In conclusion, I hold that the five parties (the estates of Ham and Evans, Mr Collins, Mr Gibbons and Mr Molland) are entitled to share equally in the recording royalties from Day After Day, the release of Badfinger at the Agora Club, after allowing for:
(a) studio expenses of $17,500 to be reimbursed to Mr Molland;
(b) the sums already paid by Mr Molland to Mr Healey, there to be an inquiry as to those amounts;
(c) a producer's fee to Mr Molland.
65. After hearing counsel I will give a further decision as to the amount of that fee and the position of continuing royalties to Mr Healey.