On 6 June 2008, in Kiley McPhail (aka Kiley Fitzgerald) v James Bourne [2008] EWHC 1235 (Ch), Mr Justice Morgan found nothing to impugn a settlement agreement resolving a dispute between the original members of the band Busted over the ownership of the rights in six songs.

DISPUTE

The Claimants, Kiley Fitzgerald and Owen Doyle, met the Defendants, James Bourne and Matthew Sargeant, in December 2000 when they were all, except Owen Doyle, 17 years old. They were introduced by an American entrepreneur named Richard Rashman. According to the Claimants, almost immediately, the four boys entered into a contractual relationship under which they agreed to write songs to be performed by the band and to take steps to obtain a recording contract. The four boys then entered into a formal management contract with Mr Rashman on 15 March 2001.

Unfortunately, on 8 October 2001, the band split and the agreement with Mr Rashman was terminated. Dispute arose over the ownership of some of the songs, six in particular. This was settled by a written settlement agreement entered into by the four boys on 22 March 2002. Under that agreement, the Claimants obtained the rights to two of the songs and the Defendants the rights to four of the songs.

The current dispute was principally about those four songs. The Claimants applied to have the settlement set aside on three grounds. First, that it was entered into by the Claimants as a result of the undue influence of Mr Rashman and his associate John McLaughlin. Secondly, that Mr Rashman and Mr McLaughlin made misrepresentations to them such as they were entitled to rescind the agreement. Thirdly, and in the alternative, they claimed that the settlement agreement was arrived at as part of the process of winding up a dissolved partnership and that the Defendants were in breach of their duty of disclosure.

The Claimants contended that, as a result, the ownership of the songs should be governed by an agreement made in early 2001 that the songs should be beneficially owned by the four boys, or, alternatively, that the copyright in the songs would be owned by the joint authors of the songs, in relation to which disputes of fact would be determined by the court. In addition to these claims, the Claimants sought an account of profits made by the Defendants who, just before entering into the settlement agreement, had signed a lucrative recording contract for the new Busted featuring themselves and a new member, Charlie Simpson. According to the Claimants, the recording contract and the new band’s success was a result of improper use, without the informed consent of the Claimants, of partnership assets and, in particular, the four songs in dispute, the goodwill in the name Busted and certain trade marks in relation to the mark BUSTED. All of which meant the Claimants believed they were entitled to very substantial sums of money.

The Defendants’ case was radically different. They conceded that they had entered into a written management agreement with Mr Rashman, as he required them to do so, but that agreement was with the four boys jointly and severally. Their position was that there was no contractual relationship between the four boys and certainly no partnership. They also claimed never to have made an agreement with the Claimants as to ownership of the songs and certainly not an agreement to the effect that the songs would be beneficially owned in four equal parts, irrespective of who had contributed to the composition of a particular song. They believed that the settlement agreement was generous to the Claimants and that, after that agreement, they were entitled to make use of the four songs that were acknowledged to be theirs under the settlement agreement. Additionally, they contended that there was no goodwill in the name Busted and no benefit in the trade mark BUSTED.

COURT’S DECISION

The judge dismissed the Claimants’ case. He made detailed findings of fact as to what took place between the sacking of Mr Rashman in October 2001 and the signing of the settlement agreement in March 2002. Based on those findings of fact, he concluded that there was no undue influence, either actual or presumed. There were no threats or misrepresentations made to the Claimants to induce them to enter into the settlement agreement. No improper pressure had been put upon them. There was no impropriety or unacceptable behaviour on the part of the Defendants, Mr Rashman, or Mr McLaughlin in relation to the negotiations that led up to the conclusion of the agreement. There was no fiduciary relationship between Mr Rashman and the Claimants after 8 October 2001. Additionally, and amongst other things, Kiley Fitzgerald had accepted the settlement terms in March 2002 because he preferred them to other settlement terms that he had been offered. The undue influence claim therefore failed and, on the same findings of fact, so did the misrepresentation claim.

PARTNERSHIP

The judge also rejected the Claimants’ alternative case based on the existence of a partnership. Reviewing the law, the judge noted that it is a precondition to the existence of a partnership that there is a binding contractual relationship between the parties; the law will then determine whether that contract is a contract of partnership or creates some other relationship. The agreement need not be in writing and can be created formally or informally. If there is no direct evidence of the making of an express agreement, the court may be able to infe r from other evidence that the parties did indeed reach an express agreement. In the absence of an express agreement, an agreement may be implied from the conduct of the parties. If, for example, two or more persons carried on a business in common, with a view to profit, and distributed the net income of that business between them, it may well be appropriate to imply the existence of a contract between them, the terms of which contract provided for those persons to carry on that business and to have rights and obligations in relation to that business and the benefits and liabilities to which it gave rise.

Nonetheless, contracts were not to be lightly implied, but a contract could be implied where the court was able to conclude with confidence both that the parties intended to create contractual relations and what the terms of the contract were. Finally, in Khan v Miah [2000] 1 WLR 2123, the House of Lords held that there was no rule of law that parties to a joint venture did not become partners until trading actually commenced. The Claimants’ case for an express partnership would not therefore fail simply because they had not, as part of the original four, obtained a recording contract. Against this background, the question for the judge was whether there was an oral agreement for a partnership or, if not, whether one could be implied from conduct. On his findings of fact, the judge concluded that there was no contractual relationship entered into by the four boys when they reached an understanding that they would collaborate and write songs and rehearse those songs and act under the management of Mr Rashman with a view to getting a record deal. The alleged oral agreement, alleged to give rise to a partnership was made in January 2001, which was before the four boys received any legal advice about contracting with Mr Rashman. The lack of definition in relation to the activities, which were the subject of the contract and the alleged partnership, and the complete lack of appreciation that anything the boys were doing required them to address those questions, suggested that there was no intention to create a contractual relationship at all.

Nor, in the judge’s view, could it be said that the parties had reached an express agreement some time later (but before October 2001). Whilst after January 2001 the boys did have legal advice and did enter into the management agreement with Mr Rashman, the fact that that agreement related to a matter of business and involved legal advice and a written document demonstrated that, in relation to that part of their activities, the boys did intend to be contractually bound. However, this was because Mr Rashman required them to act that way, for his own protection. Mr Rashman did not suggest to them that they should form a contractual relationship between themselves and it did not seem to have occurred to them that they should do so. Further, it was a factor suggesting that the four boys had no intention to create a contractual relationship between themselves, that the management agreement was recorded in writing following legal advice and following the involvement of the parents of some of the boys. There was nothing comparable in relation to the suggested contractual relationship between themselves.

The Claimants’ proposition that the terms of the management agreement indicated that the boys must have made a parallel contractual relationship between themselves was not supported by an examination of those terms. For example, the management agreement was for a term of five years with specific early termination provisions, whereas the suggested contract and alleged partnership was said to be at will. Additionally, the judge considered that the fact that the boys did not make a contract about the songs made it less likely that they entered into a contractual partnership, given the emphasis laid by the Claimants on the fact that the partnership was for the purpose of collaborating in song writing. As to whether a contract of partnership could be implied from conduct, for much the same reason the judge concluded that the activities of the four boys between January 2001 and October 2001, which were consistent with the non-contractual arrangements made in January 2001, did not justify an inference that they must at some time, after the initial meeting, have turned a noncontractual relationship into a contractual relationship. Accordingly, there was no contract of partnership, express or implied.

As there was no partnership, the question of partnership property did not arise. But for the settlement agreement, the ownership of the copyright in the songs was thought to be determined amongst the four individuals and not as partnership property. Similarly, because there was no partnership, the name Busted could not be partnership property and any goodwill in it, which on the facts the judge concluded did not exist to any significant degree, would be owned by the four boys, but not as partners.

COMMENT

If the settlement agreement had been set aside, the judge would have had the unenviable task, in the absence of a partnership, of assessing according to their contributions the respective shares in the ownership of the copyright in the songs amongst the four boys as individuals. Indeed, he considered doing so but thought better of it on account of the significantly conflicting evidence and the magnitude of the task. As to the existence of a partnership at will, the judge’s findings were strongly influenced by the fact that he considered the boys too young to appreciate the potential significance of what they were doing. That may be the case in the sense that young boys forming a band and making up tunes are not likely to have any sense of how to go about determining how the ownership of those songs and tunes are shared. That does not, however, necessarily mean they do not have a sense that they are part of something that is shared between them and that it would be very unfair if one or some of them were to claim that they were the sole creators of the work. It will not always be clear, as it was to the judge in this case, at what point that “sense” will be sufficiently strong, and evidently so, that a contractual relationship amounting to a partnership may be implied.