Law Report: Recording agreement enforceable: Panayiotou and others v Sony Music Entertainment (UK) Ltd - Chancery Division (Mr Justice Jonathan Parker), 1 June 1994.

Where proceedings alleging that an agreement was in restraint of trade were genuinely compromised by the substitution of a new agreement, it is contrary to public policy to allow the doctrine of restraint of trade to apply to the new agreement or a renegotiated version of the new agreement.

Mr Justice Jonathan Parker dismissed claims by the plaintiff, Georgios Panayiotou, professionally known as George Michael, against Sony.

In 1983, George Michael, who performed with the group Wham], claimed that the recording agreement between Wham] and Inner Vision, a record company, was void or unenforceable because it was an unreasonable restraint of trade. Those legal proceedings were compromised by agreement and Wham] entered into a new recording agreement with CBS (UK) in 1984.

In 1987, George Michael became an outstanding commercial and international success as a solo artist. George Michael and CBS negotiated a new agreement in January 1988 so that George Michael was treated more like other superstars. In January 1988, Sony took over CBS.

George Michael spent the whole of 1988 abroad, mainly touring. For tax reasons he received advances and royalties of more than pounds 11m during 1988 under the 1988 agreement. In 1990, further renegotiations improved his financial terms so that he had reached American superstar status.

In 1991, George Michael, who had decided to change the direction of his music and image, became dissatisfied with Sony. In February 1992, George Michael was paid an advance of pounds 1m which he repaid to Sony in August 1992. He wished to rid himself of the 1988 agreement as varied as he now regarded it as being no longer in his interest.

In October 1992, he claimed that the 1988 agreement was unenforceable as an unreasonable restraint of trade or rendered void by article 85(2) of the EEC Treaty which is directed at maintaining freedom of competition within the common market.

Mark Cran QC, Jeremy Lever QC, Ian Mill, Pushpinder Saini (Sheridans) for George Michael; Gordon Pollock QC, David Unwin, Peter Duffy and Vernon Flynn (Clintons) for Sony.

MR JUSTICE JONATHAN PARKER said that the common law jurisdiction to declare a contract unenforceable as a restraint of trade was invoked in this case, and not the equitable jurisdiction to grant relief against unfair and unconscionable bargains. The common law doctrine was not concerned with the conscience of the covenantee, nor did its application require proof of morally reprehensible conduct on the defendant's part.

The first stage was for the court to determine whether the contract was one which attracted the doctrine of restraint of trade at all: for not every contract which was 'in restraint of trade', using the expression in the broad popular sense, would attract the doctrine. The second stage was to determine whether the contract satisfied the test in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd (1894) AC 535, which involved reasonableness as between the parties and reasonableness in the public interest. The plaintiff's motives in challenging the contract were not material.

In the present case it would be wholly unrealistic to treat the 1988 agreement as if it were a new agreement, ignoring the fact it was a renegotiation of a pre-existing agreement. The 1984 agreement must be regarded as enforceable. That did not mean that the renegotiated version, the 1988 agreement, was dispensed from justification under the doctrine of restraint of trade. There were no sufficient grounds for excluding the 1988 agreement from the application of the doctrine.

The compromise of the Inner Vision was genuine and bona fide and freely entered into. Mr Michael had the benefit of one of the most experienced advisers and toughest negotiators in the business.

There was a clear public interest in upholding genuine and proper compromises and Mr Michael was seeking to have a central part of the compromise declared unenforceable. If it were open to a plaintiff to challenge a compromise of a restraint of trade issue by alleging that the compromise was itself in restraint of trade, then a restraint of trade issue could never be compromised by the substitution of a new agreement. The 1988 agreement did not attract the doctrine of restraint of trade.

Although it was strictly unnecessary, the issue of whether the provisions of the 1988 agreement were justified would be considered. There was inequality of bargaining power in the renegotiations leading to the 1988 agreement, such inequality arising purely and inevitably from the fact that the parties were renegotiating the terms of the existing enforceable 1984 agreement. But, inequality of bargaining power was of the nature of renegotiation.

Whether leaving out of account or taking account of any pre-existing restrictions imposed by the 1984 agreement, the terms of the 1988 agreement were justified.

It would be unfair to Sony and unconscionable to allow Mr Michael now to assert that the 1988 agreement was unenforceable. Sony's defence of acquiescance was made. The alleged counter-equities against Sony that Sony operated the 1988 agreement unfairly and to Mr Michael's detriment were not made out and did not defeat Sony's defence of acquiescence.

Turning to the article 85 issue, article 85, on the basis that the 1984 agreement was not challenged and was valid and enforceable, the 1988 agreement did not affect trade between member states within article 85. Further, the 1988 agreement did not have the requisite effect on trade in the context of the market for pop records and the requisite anti-competitive effect was not established.

The Community law treatment of intellectual property rights would in any event save the 1988 agreement from contravention of article 85.

Mr Michael's claims were dismissed.