Client Update March 2010
Dispute Resolution
Court Of Appeal Discusses What A Legal Duty To Account Entails
Introduction
In Chua Chian Ya v Music & Movements (S) Pte Ltd [2009] SGCA 54, a local songwriter-singer entered into an agreement with a music publisher, under which the former agreed to assign and grant to the music publisher all rights in and to her compositions during the terms of the contact. The music publisher was obliged under the agreement to account to the songwriter-singer for the royalties it had collected from the latter’s performances. In the course of the songwriter-singer’s career, she discovered discrepancies in the statements of account sent to her by the music publisher.
The Singapore Court of Appeal was confronted with the issue of whether the music publisher breached its contractual obligation to account for the royalties collected as would entitle the songwriter-singer to terminate the contract pursuant to the Suspension and Termination clause of the publishing agreement.
In ruling in favour of the songwriter-singer, the Court examined the obligations arising from a duty to account and held that the music publisher had indeed breached its contractual obligation to account for royalties. It noted that the music publisher only provided the songwriter-singer with bare statements or summaries of the royalty payments without meaningful information on how the royalty amounts were arrived at. In the circumstances, it was impossible for the songwriter-singer to raise any legitimate queries on the accounting discrepancies as there was nothing of substance which could be challenged in the first place.
It would appear therefore that a duty to account is not discharged by simply furnishing statements of account. There must be materials that would enable the recipient to understand how the figures were calculated as well as to check or ask legitimate questions regarding the veracity of the numbers or formula used in the calculation.
This case is important as it sets out practical guidelines on what a legal duty to account entails – an essential aspect of almost all sorts of agency relationships.
Brief Facts
(1) On 18 September 2002, local songwriter-singer Chua Chian Ya (aka Tanya Chua) (“Chua”) entered into an agreement with music publisher Music & Movements (S) Pte Ltd (“M&M”) for a period of three years, under which she agreed to compose songs (“Compositions”) exclusively for M&M (“Principal Agreement”). The pertinent provisions of the Principal Agreement were as follows (paraphrased):
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(i) Grant of Rights - Chua irrevocably and absolutely assigns, conveys and grants to M&M, its successors and assigns all rights and interests of every kind, nature and description in and to the Compositions created by her during the term of the Principal Agreement.
(ii) Statement of Accounts and Audits - M&M should provide and deliver to Chua a statement of account whether or not any royalties or fees are then due to Chua.
(iii) Suspension and Termination - Chua may elect to cancel or terminate the Principal Agreement in the event, inter alia, that M&M fails to account and make payment or fails to perform any obligations required under this provision (ie Suspension and Termination clause) and such failure is not cured within 30 days after written notice has been served on M&M. Upon cancellation or termination of the Principal Agreement, all rights in and to the Compositions shall revert to Chua and M&M may not thereafter exercise any rights under the clause. (emphasis supplied)
(2) On 25 May 2005, Chua entered into an agreement with M&M, which extended the Principal Agreement until 17 March 2007 (“Extension Agreement”). Of particular importance was the provision in the Extension Agreement that stated that the “obligations of [M&M], namely to promote, publish and …commercially exploit all Compositions …so as to generate royalties revenue and income therefrom shall survive 17 March 2007 …”
(3) Pursuant to the Principal Agreement and the Extension Agreement, the Compositions were promoted throughout various countries, including China, Taiwan, Malaysia and Singapore. Chua became famous in the region as a songwriter- singer.
(4) M&M appointed an international music publishing house, Warner/Chappell (“W/C”), as the administrator to take charge of tabulating and collecting royalties arising from the use of the Compositions. Broadly, the arrangement between M&M and W/C was that W/C would send statements of accounts on the royalties collected to M&M. M&M, in turn, would summarise W/C’s accounts and send a summary of those accounts along with its copy of the accounts based on W/C’s accounts to Chua every six months.
(5) On 14 November 2006, Chua sent an email to M&M and W/C to clarify several discrepancies between W/C’s accounts and M&M’s summary covering the same period. Chua conveyed to M&M that she would terminate the publishing agreement if it could not explain the accounting discrepancies.
(6) Dissatisfied with the explanation given by M&M, Chua sought a declaration before the Singapore High Court that the Principal Agreement, which was extended by the Extension Agreement, had come to an end and all rights in the Compositions had reverted to her. This was so because M&M breached its duty to Chua to account the royalty payments it had received. In the alternative, she sought a declaration that all rights in the Compositions had reverted to Chua absolutely pursuant to clause 12 of the Principal Agreement (on Suspension and Termination). The High Court dismissed Chua’s Originating Summons.
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Issues
There are two key issues that were raised by Chua, but for our purposes, we shall only focus on the issue of whether M&M had breached its contractual obligation to account to Chua for royalties collected as would entitle her to terminate the Extension Agreement pursuant to the clause 12 of the Principal Agreement.
Holding Of The Court
The Court of Appeal held that M&M was in breach of its contractual obligation to account to Chua for the royalties it had collected.
The Court said that M&M’s legal obligation to account was clearly set out in clause 10 of the Principal Agreement (on Statement of Accounts and Audits). The Court noted that although numerous summaries of the accounts relating to Chua could be found, what was on record consisted essentially of bare statements or summaries of the royalty payments received by jurisdiction and nothing else. To be sure, there were no details as to how the royalty amounts were arrived at. For example, details such as the following were not provided to Chua and at the proceedings in the High Court or on appeal:
• breakdown of the royalties from Chua’s performances;
• the number of record albums sold and the price at which each copy was sold;
• the income generated from Chua’s performances; and
• the details of withholding tax deducted.
Hence, it was impossible for Chua to raise any legitimate questions on the accounting discrepancies because there was nothing of substance which could be queried in the first place. Moreover, Chua could not confirm the veracity of M&M’s claim that the accounts that it had submitted (ie summaries) constituted true and complete statements of account.
The Court stated that M&M’s obligation to account to Chua could not be met by mere production of bare summaries of accounts without meaningful information on how the royalty amounts were arrived at. The accounting statement must at least be complete in order for Chua to sufficiently raise legitimate clarifications in relation to the royalty amounts. M&M’s failure to meet its duty to account constituted a breach of its contractual obligation. Chua is thus entitled to terminate the Principal Agreement and to recover the rights in the Compositions.
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