Entertainments must get businesslike
15 March 1999
The recent legal battle in which James Palumbo's Ministry of Sound (MoS) companies sued one of its former key executives for breach of contract, is seen by top lawyers as highlighting the importance of equitable remedies in the fast moving and often informal environment of the entertainment industry.
The recent case centred on Lynn Cosgrave, a former shareholder and director with the James Palumbo's Ministry of Sound companies.
She was taken to court by MoS Holdings and six other associated companies and accused of breaching her duties for MoS by: carrying out business on her own account; providing management services for DJs and secretly managing DJs, including CJ Mackintosh, after she was instructed by James Palumbo not to; and wrongly removing sensitive files and documents from MoS's offices when she left in September 1997.
In a 104-page written judgment Mr Justice Neuberger found Cosgrave had made secret profits for which she was held to be accountable, though he cleared her in respect of the claims that she wrongly removed files and documents.
Allen & Overy associate Jenny McKeown, who acted for MoS, says that this case is as a classic illustration of the usefulness of equitable remedies in commerce.
"In an industry that operates on an informal basis, and is vulnerable to those who abuse their position, it is vital to be able to have recourse to equitable remedies to ensure that people are not permitted to exploit the informality of the business to their own benefit," she says.
Now Cosgrave faces a separate account enquiry as to profits she earned in respect of the first two breaches. The judge has ordered an inquiry into this aspect of her activities to assess any sums that she should now pay to MoS.
It was claimed that in breach of her duties as a director, and in breach of her contract, Cosgrave carried on providing management services for DJs, in particular CJ Mackintosh, Robert Clivilles and Tony Humphries, between February 1996 and January 1997.
Cosgrave on the other hand claimed that Mr Palumbo agreed to her managing the three DJs.
Allen & Overy partner Robert Hunter, who heads the firm's fraud and trust litigation group and who acted for MoS, points out that a large number of high profile cases in the entertainment industry have revolved around allegations of abuse of position and breach of fiduciary duty.
"There has been a lot of academic debate concerning the role of fiduciary duty in commerce. The entertainment industry is a good example of an area where equitable remedies need to be imposed to ensure fair play," he says.
Jenny McKeown adds: "Equitable remedies can play a very active role in the entertainment industry where rel-ationships of trust are common, and often the parties do not reduce agreements to writing, let alone take legal advice."
McKeown believes that cases involving Elton John, Gilbert O'Sullivan, Spandau Ballet, as well as the Ministry of Sound case, all emphasise the special problems that can arise in an industry where the business experience of the participants varies enormously.
As far as the Ministry of Sound case was concerned she says: "The defendant and Mr Palumbo, on behalf of the Ministry of Sound group of companies, entered into an agreement whereby Ms Cosgrave agreed to transfer her existing DJ management business into a newly-formed company, Ministry of Sound Management, in exchange for 30 per cent of the issued share capital in that company."
He continues: "However, the agreement was not well documented, as appears to be the norm in fast moving entrepreneurial entertainment businesses.
Ms Cosgrave did not in fact transfer all the benefits of her existing DJ management business, and the company therefore brought a claim for breach of fiduciary duty."
She believes that a more clear-cut agreement at the time, could have done away with the need for protracted litigation, as it could with many other cases.
She says a balance needs to be struck between encumbering a fast moving business like the entertainment industry with excessive formality, and placing too great a reliance on personal relationships and ad hoc agreements.