Caswell v Sony/ATV Music Publishing

Judgment 1The first defendant seeks to strike out those parts of the statement of claim ( "SOC" ) in this action which claim breaches of fiduciary duty. The second defendant, having been served in the Unites States of America, seeks to set aside the service of the SOC on it. 2As this is a strike-out application, I take as facts those that are alleged in the SOC. So far as is relevant, those facts include the following: Introduction (a) The first defendant is incorporated in New South Wales and the second defendant in the United States of America. (b) The first defendant is owned and controlled by the second defendant. (c) The defendants are and have been in the business of exploiting musical compositions worldwide. Contract between the plaintiff and the first defendant (a) The plaintiff, in 1978, entered into a contract with a legal entity of uncertain name ( the "Legal Entity" ), and in or about 1997, by novation, assignment or variation, the Legal Entity ceased to be a party to the contract and the first defendant became a party, assuming the rights and obligations of the Legal Entity under the original contract. The original contract is not available, and neither is the novation or assignment. The contract was in writing and included the following terms: (i) the Legal Entity was appointed sole representative of the plaintiff to exploit and administer any musical composition by him; (ii) the plaintiff granted to the Legal Entity the sole right to collect all income, royalties and fees in respect of the use of the musical compositions; (iii) the plaintiff would assign any copyright in such musical works to the Legal Entity; (iv) the Legal Entity would promote the musical compositions and use reasonable efforts consistent with its business judgment to collect all royalties and fees and pay to the plaintiff a proportion of these; (v) the Legal Entity would, at its discretion, initiate proceedings for and prosecute any infringement of copyright; and (vi) the Legal Entity would act in good faith in relation to the exploitation and protection of the musical compositions. Musical Compositions (a) The plaintiff, in 1978, composed a musical piece named "On the Inside". In 1982, another composition named as "Christmas in Dixie" came into existence in respect of which the second defendant became the owner and licensee. It is admitted that the second defendant holds the copyright in "Christmas in Dixie". (b) In 2004, Dr C J De Wilde reported to the first defendant that he was of the opinion that a case could be made that the two musical pieces shared a level of similarity that went beyond random occurrence or sheer coincidence in that one of the musical pieces was reproducing a substantial part of the other. (c) Dr De Wilde was a person whose opinion would be and was taken seriously by the defendants. Breach of contract 3The simple claim against the first defendant in contract is that the exploitation of "Christmas in Dixie" is an exploitation of "On the Inside"; that the first defendant is required to protect "On the Inside", to make reasonable efforts to promote "On the Inside" and to use reasonable efforts to collect all royalties and fees accruing in respect of the exploitation of "On the Inside" and to pay a proportion of the monies paid to the plaintiff, and that the first defendant has been under an obligation to exercise its discretion in favour of instituting proceedings against the second defendant and to prosecute those proceedings and to collect monies due by reason of the exploitation of "On the Inside", and as a result of the failure of the first defendant to do so the plaintiff has suffered loss. 4There is no complaint about the contractual claim, but I have set out the details so that the claims based on breach of fiduciary duty can be understood. 5To succeed on the contract claim the plaintiff will presumably need to clearly allege an infringement of copyright. That has not been done, but if that is required it can be cured by a simple amendment. The claim framed in contract is against the first defendant only. Claim of fiduciary relationship 6Paragraphs 19 to 34 of the SOC are as follows: " A fiduciary relationship between the Plaintiff and the Defendants 19. Since the Contract was made, a state of affairs has existed affecting at first the Plaintiff and the Legal Entity and then, later and relevantly, the Plaintiff and the Defendants. 20. The state of affairs as between the Plaintiff and the Defendants has had and continues to have ten elements. 21. The first element of the state of affairs has been that an effect of the First Defendant's promises was that it undertook or promised to act for or on behalf of or in the interests of the Plaintiff in the exercise of powers or discretions which would affect the interests of the Plaintiff in a legal or practical sense. 22. The second element of the state of affairs has been that there has been and continues to be a valuable market for the musical compositions throughout the world. 23. The third element of the state of affairs has been that the Plaintiff, by his appointment of, grant to and assignment to the First Defendant, entrusted it with the exclusive responsibility of promoting the musical compositions worldwide. 24. The fourth element of the state of affairs has been that the manner of the promotion was left to the First Defendant's discretion, subject to the terms of the Contract. 25. The fifth element of the state of affairs has been that the exercise of the discretion provided the First Defendant with a special opportunity of acting to the detriment of the musical compositions, in particular by failing to protect the market for the musical compositions in Australia and the USA. 26. The sixth element of the state of affairs has been that the Plaintiff has been a citizen of and resident in Australia, with no practical presence in the USA and lacking any capacity in a practical sense to observe what was happening in a market half a world away. 27. The seventh element of the state of affairs has been that the First Defendant either by itself or by virtue of the Second Defendant's ownership and control of it, has had a practical presence throughout the world and in particular the USA. 28. The eighth element of the state of affairs is that the Defendants' actions in the American market could affect adversely in a practical sense the market in the USA and elsewhere for the musical compositions. 29. The ninth element of the state of affairs is that the Plaintiff relied on the First Defendant to protect and promote the musical compositions not only in the Australian market but in the American market and elsewhere. 30. The tenth element of the state of affairs is that the First Defendant has known each of the other nine elements. 31. By virtue of the elements and subject to the terms of the Contract, the First Defendant has at all material times been in a fiduciary relationship with the Plaintiff. 32. The effect of the relationship is that the Plaintiff has been entitled to expect that, in relation to any protection of or exploitation of the Plaintiff's musical compositions covered by the Contract, the First Defendant would act either in the Plaintiff's interests or in their joint interests, and in either case to the exclusion of the First Defendant's separate interests. 33. At all material times, the Second Defendant has known each of the matters pleaded in paragraphs 1 to 32. 34. By virtue of the matter pleaded in paragraph 33 above, the Second Defendant has been in a fiduciary relationship with the Plaintiff to the same extent as the relationship between the Plaintiff and the First Defendant." 7Allegations of breaches of fiduciary duty are contained in paragraphs 47 to 51 of the SOC and are as follows: " Breaches of fiduciary duties 47. By virtue of the matters pleaded in paragraphs 39 to 46 above [the musical composition matters], the Second Defendant's exploitation of "Christmas in Dixie" (including all moneys earned by it therefrom) has been a "separate interest" within the meaning of paragraphs 32 and 34 above. 48. By virtue of the matter pleaded in paragraph 47 above, the Defendants have had and continue to have an interest that has conflicted or may have possibly conflicted with their duties to the Plaintiff without the fully informed consent of the Plaintiff. 49. By virtue of the matter pleaded in paragraph 47 above, the Second Defendant has had and continues to have, or has known that it may have had and continues to know that may have [sic], an inconsistent engagement without the fully informed consent of the Plaintiff. 50. For the purposes of paragraphs 48 and 49 above, the Plaintiff has never given consent. 51. As a result of the matters pleaded in paragraphs 47 to 50 and as against the Defendants and each of them, the Plaintiff is entitled to an account of profits or to equitable compensation or to such other remedy as a Court of Equity may think appropriate in the circumstances of the case." 8Particulars of the first defendant's "separate interests" within the meaning of paragraphs 32 and 34 of the SOC were given by the plaintiff's solicitors in a response to a request as follows: "the direct benefit to the Defendants from not having sought the Plaintiff's consent together with the benefit to the Defendants which has resulted from the exploitation of 'Christmas in Dixie'" Strike-out claim 9It will be readily seen that the elements of the state of affairs claimed to give rise to a fiduciary relationship between the plaintiff and the first defendant have a close resemblance to the factors listed by Mason J in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 98, being relevant to determining whether in that case a fiduciary relationship existed between Hospital Products Ltd and the United States Surgical Corporation. But similarity does not necessarily lead to the same end result. 10It is not, I think, contended that it is so clear there was no fiduciary relationship the claim must fail, but in any event, while I consider there could be difficulties in the plaintiff establishing a position of disadvantage, the facts alleged in paragraphs 25 to 28 of the SOC are sufficient to allow the claim of a fiduciary relationship to go to trial. 11The argument of the first defendant is that the SOC does not disclose any arguable fiduciary duty or any arguable breach of duty. The first line of attack is on paragraph 32 of the SOC. This is an allegation of fiduciary obligation claimed to arise in paragraphs 19 to 31. However, fiduciary obligation requires that the fiduciary not be in a position of conflict of interest. Separate interests not involving conflict do not bear on the obligations as there is no conflict. As I have said, it is not necessary at this stage to determine whether there was a fiduciary relationship between the plaintiff and the first defendant. The point is that insofar as the relationship is claimed to have the effect pleaded in paragraph 32 and breach of the duty is alleged in paragraph 47, the conduct in paragraph 47 referring to "separate interests" could not give rise to a cause of action for breach and this is more apparent when the particulars of the "separate interests" are taken into account. It is impossible to see how there could be any benefit to the first defendant from not having sought the plaintiff's consent and the claim could only survive if it were assisted by paragraph 48 of the SOC. The difficulty with this is, as counsel for the defendants argues, that paragraph 48 cannot assist as there is no allegation that the first defendant had any interest in "Christmas in Dixie". Its interest and that of the plaintiff are in "On the Inside". There seems to be an effort in the pleadings to conflate the position of the two defendants but that cannot be done. This is not a matter where the interests of the defendants can be said to have been or be the same. It cannot be said that exploitation by the second defendant of "Christmas in Dixie" is a separate interest in which the first defendant has had and continues to have which has conflicted with the duties of the first defendant to the plaintiff. There is no basis upon which the interests of the two defendant companies can be put together as the same interest as has been attempted to be done by paragraphs 47 and 48 of the SOC. 12Finally, if there is some claim relating to the separate interests of the first defendant, that would be a claim which would alter the operation of the contract in a way held not to be permissible in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 at [91]. 13I have concluded that the pleadings do not put forward any arguable case of breach of fiduciary duty, and that therefore so far as the first defendant is concerned, those paragraphs in the SOC should be struck out. Motion of the second defendant 14The second defendant seeks to set aside the service of the SOC. 15The first basis on which this order is sought is under Part 11 Rule 11.7(2)(a) of the Uniform Civil Procedure Rules 2005 (NSW)("UCPR"), namely that the service of the originating process is not authorised by the rules. Rule 11.2 of the UCPR provides that an originating process may be served outside Australia in the circumstances referred to in Schedule 6. Schedule 6 provides in (a) that the originating process may be served outside Australia if the proceedings are founded on a cause of action arising in New South Wales. There is no allegation in the SOC that the breach of fiduciary duty claimed, namely the exploitation of "Christmas in Dixie", has occurred in New South Wales. The plaintiff accepts that this is required and counsel for the plaintiff submitted that in those circumstances leave would be sought to make that amendment. I therefore will proceed on that basis. 16There is a technical difficulty about this as it would then be necessary to serve the second defendant outside the jurisdiction with the SOC as amended and thus it is said service of the document before the Court should be set aside. If that were the only problem, then it would be sensible for the second defendant, which has not entered an appearance but which is represented by the same lawyers as the first defendant, to come to some arrangement under which an appearance would be entered. That is, however, not the only problem. The claim to set aside the originating process is also made under Part 12 Rule 12.11 of the UCPR on the basis that the originating process does not disclose an arguable cause of action. It is accepted that the test here is the same as would be applied on a motion for summary dismissal: see Agar v Hyde (2000) 201 CLR 552 at [60]. Thus I turn to consider whether the proceedings are doomed to fail: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 . 17The facts pleaded which bring about a fiduciary relationship between the plaintiff and the second defendant are set out in paragraphs 33 and 34 of the SOC. This is not some sort of Barnes v Addy (1874) 43 LJ Ch 513 claim. Knowledge of one person of fiduciary obligations of another does not put the former into a fiduciary relationship. The claim is not tenable. 18Next, the copyright in "Christmas in Dixie" belongs to the second defendant. The first defendant has no interest in it. The second defendant has a separate interest. There can be no conflict of interest with the interest of the plaintiff in "On the Inside" and for that matter with the interest of the first defendant in that work and thus a fiduciary obligation does not arise: see Breen v Williams [1996] HCA 57; (1996) 186 CLR 71 at 113. The claim of the plaintiff appears to be that because the second defendant owns the shares in the first defendant and has control of it, the second defendant is in a fiduciary relationship with the plaintiff to the same extent as the relationship between the plaintiff and the first defendant. This is a proposition which seems to me to have no basis. The two companies must be regarded as separate entities, one having an interest in "Christmas in Dixie" and the other having an interest in "On the Inside". The fact that one is a wholly-owned subsidiary of the other does not bring that other into a relationship with the plaintiff when that other has no dealings with the plaintiff. I consider that the claim against the second defendant would be bound to fail. Service of the SOC as against the second defendant should be set aside. Orders 19Paragraphs 31, 32, 38 and 47-51 of the SOC be struck out. 20Service of the SOC on the second defendant be set aside. 21The plaintiff pay the defendants' costs of the notice of motion.