Misendeavor – no strike-out of booking agency’s claim for post-term gig commission

Parties

X-R Touring LLP (X-R), the claimant in this case, is a UK-based concert booking agency co-founded by Steve Strange, who was a well-known figure in the music industry as the lead singer of the 1980s band Visage and a successful nightclub promoter.

The first defendant, Joshua Javor, was formerly employed by X-R as a booking agent from 2008. He became Mr Strange’s “trusted right-hand man”, and he built a successful career working with a roster of renowned music artists, including Coldplay and Eminem.

The second defendant, William Morris Endeavor Entertainment (U.K.) Limited (WME), is part of the Endeavor group of talent and media agencies, representing artists across the entertainment spectrum.

Background

On 1 April 2022 Mr Javor entered into a one-year fixed-term employment contract with X-R, with continuity of employment since January 2008.  As before, he was employed as a booking agent securing bookings for X-R's artists and negotiating terms with concert promoters. He was paid a fixed salary of £350,000 per year, but he had no entitlement to any bonus or commission.

Mr Javor’s employment continued informally after the one-year term expired, and on 16 May 2023 Mr Javor orally confirmed his resignation from X-R, proposing that it take effect from 31 May 2023. Mr Javor then signed an employment contract with WME, on an understanding that Mr Javor would start at WME once he had extricated himself from X-R.  

X-R insisted that Mr Javor work out his contractual three-month notice period, which Mr Javor eventually accepted. From 19 May 2023, X-R engaged in legal correspondence with Mr Javor, doubting his continuing loyalty to X-R, threatening (but not making) an injunction application, and seeking undertakings from Mr Javor, which Mr Javor refused to give, as he did not “agree to be gagged”.

On 16 August 2023, WME released a press statement announcing Mr Javor’s move to WME. The statement listed 32 artists that Mr Javor had worked with during his employment with X-R, and quoted Mr Javor as saying: “Steve Strange and I built an incredible business at X-Ray over the last 18 years through teamwork and passion for our artists … I’m excited to start this next chapter at WME and to continue this legacy with the team in London and across the world.”

Mr Javor’s last day with X-R was 17 August 2023, and he started working for WME on 18 August 2023.

Contractual obligations

Clause 13 of Mr Javor’s X-R employment contract included two post-termination obligations:

• a 12-month non-solicitation covenant for clients, artists and staff who had worked with X-R in the 12 months preceding termination of his employment; and
• an obligation on Mr Javor to ensure that X-R would be paid full commission (whether received by Mr Javor or by his future employer) in relation to all bookings confirmed after termination, but which had been “discussed, scheduled, made or contemplated (whether or not actually contracted)” during Mr Javor’s period of employment by X-R, and an obligation on Mr Javor to ensure that such bookings were contracted via X-R.

First instance

On 6 September 2023 X-R issued proceedings against Mr Javor for breach of the post-termination restrictions contained in his employment agreement. Mr Javor subsequently applied to strike out the entire claim for summary judgment, arguing that X-R had no real prospects of establishing that both the non-solicitation covenant and the commission provision were enforceable at trial.  

In relation to the non-solicitation covenant, the High Court considered that the claimant had real prospects of establishing breach at trial, and Mr Javor’s application failed in that respect.^[2] The judge placed particular importance on WME’s press statement, referring to the distinction made in Trego v Hunt^[3] between a general appeal for business and a direct appeal to customers from the previous business. The High Court judge considered that a trial may well have shown Mr Javor to have crossed “the Trego line”.

Yet, in relation to the commission provision, the High Court concluded that it was unreasonably wide, incapable of severance and operated in restraint of trade, and there was no real prospect that X-R would persuade the judge otherwise at trial. Accordingly, the claim over the commission provision was struck out.

Grounds of appeal

X-R was granted permission to appeal on six grounds, i.e. that the High Court judge:

• misdirected himself to or misapplied the test for strike-out and/or summary judgment;
• wrongly decided that there was no real prospect that the trial judge would find that the commission provision did not operate in restraint of trade;
• failed to consider whether there was a real prospect that the commission provision was not subject to the doctrine of restraint of trade;
• failed to consider or identify X-R's legitimate business interests protected by the commission provision;
• wrongly decided that there was no real prospect that any unreasonable parts of the commission provision could be severed; and
• wrongly decided that there was no real prospect that the commission provision severed as far as necessary was no wider than reasonably necessary to protect X-R's legitimate business interests.

Decision

Lord Justice Bean gave the Court of Appeal’s leading judgment, Lord Justice Moylan dissenting. Bean LJ considered the grounds in turn and allowed the appeal.

Ground 1 – misapplication of strike-out test

X-R submitted that, by declining to strike out the non-solicitation claim, the High Court should have rejected the strike-out claim for commission. Counsel referred to the decision in Partco Group Ltd v Wragg,^[4] in which Potter LJ said:

"In deciding whether to exercise its power of summary disposal the Court must have regard to the overriding objective. The Court should be slow to deal with single issues in cases where there will need to be a full trial on liability involving evidence and cross-examination in any event and/or where summary disposal of the single issue may delay, because of appeals, the ultimate action.”  

Bean LJ disagreed, and noted that, in any event, there had been no steps taken to bring the non-solicitation claim to trial.

Grounds 2 and 3 – restraint of trade

X-R argued that the doctrine of restraint of trade did not apply. In considering this, Bean LJ referred to the judgment in Quantum Actuarial v Quantum Advisory,^[5] in which Carr LJ drew together relevant legal principles on the doctrine, including that the doctrine has no clear limits, and the focus should instead be on the practical effect of that restraint, taking into consideration all the circumstances. Notably, X-R relied on a statement by Ian Huffman, a member of X-R, who stated that provisions of this kind were industry-standard. On that basis, X-R argued that contractual provisions that fall within industry standards will generally fall outside the scope of the doctrine, following the “trading society” test adopted by the Supreme Court in Peninsula Securities v Dunnes Stores.^[6] Bean LJ noted that, while that argument might prove correct at trial, it was “not sufficiently clear to be a decisive point” in X-R’s favour at this stage.

Bean LJ also considered whether the commission provision diminished Mr Javor’s prospects of future employment, noting the defendants’ heavy reliance on the decision in Stenhouse Australia Ltd v Phillips.^[7] That case involved a post-termination provision that placed a five-year obligation on a former employee to pay to his former employer half the commission received from any clients that he had dealt with during his former employment. While Stenhouse appeared to be the origin of the test of whether a certain provision would diminish an employee’s employment prospects (which was the basis on which the defendants contended the clause amounted to a restraint of trade), Bean LJ did not accept that the decision demonstrated that any provision of this kind would inevitably diminish such prospects. So he concluded that there plainly was a triable issue as to whether the provision would diminish Mr Javor’s employment prospects, and the High Court should not have treated that as a “knockout blow” for either side.

Ground 4 – former employer’s legitimate interests

X-R’s third submission was that the High Court failed to identify or consider X-R's legitimate interests, which X-R maintained the commission provision sought to protect. Bean LJ acknowledged that he could not see why an employer should not be able to protect its own interests in receiving commission for work that was carried out during employment. Further, he noted that the High Court’s omission to identify that legitimate interest was an error of principle, which called the judge’s evaluative decision into question.

Next, Bean LJ considered whether the commission provision was arguably reasonable as going no further than what was reasonably necessary to protect the employer's legitimate interests. Bean LJ noted that, before deciding whether a provision in restraint of trade is reasonable, the court must first decide what it means. He referred to the validity principle set out by Lord Wilson JSC in Egon Zehnder,^[8] which provides that “in circumstances in which a clause in a contract is capable of having two meanings, one which would result in its being void and the other which would result in its being valid, the latter should be preferred, provided that the latter construction is realistic”. Applying that principle to the commission provision, Bean LJ noted two possible interpretations:

• the commission provision was not limited to clients that Mr Javor had dealt with during his employment with X-R, and so it could apply to all bookings made or contemplated by any employees of X-R, regardless of whether Mr Javor had any knowledge of those; or
• the commission provision was limited to actual or prospective bookings that involved Mr Javor.

Bean LJ considered the former interpretation to be unreasonable, and the latter interpretation to be the more plausible meaning.

Ground 5 – scope for severance

Bean LJ then considered whether any unreasonable parts of the commission provision could be severed using the “blue pencil” test. This was considered in Egon Zehnder, in which an employer sought to enforce a restrictive covenant against its employee that, among other things, restrained her from being “interested” in a competitor’s business. The Supreme Court held that the word “interested” could be severed from the covenant, affirming that courts can sever unenforceable provisions from an agreement, provided that such removal does not significantly change the overall effect of the restraint.

X-R argued that, on this principle, the words “contemplated” and “discussed” could be severed from the commission provision, and Bean LJ noted that the High Court did not consider that. In his view, removing “discussed” would change the overall effect of the clause, as it intended to refer to “bookings or potential bookings”. Yet Bean LJ did consider that the words “or contemplated” could be removed without altering the overall effect of the clause, or, at the very least, it was not plain and obvious that the reference to contemplated bookings was incapable of being severed.  

Ground 6 – enforceability of severed clause

Bean LJ then considered whether the remaining wording of the commission provision went further than what was necessary to protect X-R’s legitimate interests. Bean LJ concluded that it was not plain and obvious that the commission clause went further than what was necessary to protect X-R’s legitimate interests, and so the case was not suitable for summary determination.

Lord Justice Moylan provided a dissenting judgment, while Lord Justice Phillips agreed with the judgment given by Bean LJ, noting that, even if the commission provision were in restraint of trade, its reasonableness would be a question for trial and should be considered in the context of what is, and what is not, standard in the industry.

Comment

Booking agents often jump ship in the live music industry, and restrictive covenants are always a hot topic – the former agency wanting to get paid on gigs on which work started while the agent was at the agency, and the agent naturally wanting to make the most of valuable personal relationships developed with top artists. The problem is compounded by the long lead times for concerts and tours, which can be years in the planning, meaning that, for quite some time, post-term gigs may well have been arranged (or largely arranged) by the agent during the time at the agent’s former agency.

Since it is invariably a specific question of fact in each case, it is rare for this sort of case to make it to court, as the parties usually endeavour (if you’ll pardon the pun) to reach a settlement. That makes this case especially interesting, particularly if the case does proceed to trial and the court gathers expert evidence on what can be considered as industry-standard and then, assuming the restraint-of-trade doctrine applies, rules on enforceability.

A trial judge might yet find this particular commission provision to be unduly restrictive, for some of the reasons to which Moylan LJ alluded in his dissenting judgment: while it is by no means unusual for an agency to seek commission on gigs wholly or substantially booked while an agent remained at the agency, the wording of the particular clause is quite wide and open-ended, as there was no time-limit, and introducing a cut-off date for post-term commission could have helped with enforceability. For now, it is instructive that the appellate court still refused to uphold the lower court’s strike-out of the commission provision, which might be seen as strengthening a former agency’s hand in this kind of case.

Article written for Entertainment Law Review.