Finding the bankrupt’s copyright—a right old warriors’ dance

Stuart Adair, a barrister at XXIV Old Buildings, takes a look at some of the common issues surrounding the application of copyright law to bankruptcy situations, in light of the recent case of Cole v Howlett.

Original news

Cole v Howlett  [2015] EWHC 1697 (Ch), [2015] All ER (D) 178 (Jun)

The claimant issued proceedings against the defendants, alleging copyright infringement of his music sample of the drum part of ‘Warriors Dance’, released on the album ‘Invaders Must Die’ by the Prodigy. He sought permission to amend his claim form and particulars of claim to plead an assignment of the causes in action to him from the Official Receiver (OR) of his bankruptcy estate and, thereby, properly constitute the claim. The Chancery Division, in allowing the application, held that it was disproportionate, since the defect had been cured, to deprive the claimant of his right to have the issue ventilated in court.

What was the background to the case?

The claimant is a musician, composer and producer. In these proceedings he claims to be entitled to be regarded as the author and owner of the copyright in the music and lyrics of a musical composition called ‘Let the Warriors Dance’. He claims that his rights in that composition have been infringed by the defendants, the members of the band ‘the Prodigy’, the publishers of the composition and the recording company.

The claim was listed to come on for trial on 21 April 2015. However, on 9 April 2015 the defendants’ solicitors wrote to the claimant’s solicitors pointing out that the claimant had been adjudged bankrupt on 14 December 1990 and that all his rights in ‘Let the Warriors Dance’ would have vested in his trustee in bankruptcy. It necessarily followed that the claimant had no right to bring the claim.

On the first day of the trial the claimant applied to Mr Justice Peter Smith for the adjournment of the trial and permission to amend his particulars of claim to plead an assignment of the cause of action from his trustee in bankruptcy. That application was refused by the judge because at that point there had been no assignment of the cause of action and there was no evidence to demonstrate that there would be one. Furthermore, the judge found that the claimant’s failure to disclose his ownership of the copyright to his trustee in bankruptcy amounted to an abuse of process. The judge observed that it was the trustee in bankruptcy who had the right to bring the proceedings and that he needed time to investigate the claim and decide whether he wished to intervene and take over the proceedings. By an order dated 22 April 2015 the judge, therefore, stayed the proceedings, but provided that if the trustee in bankruptcy, who was the OR, did not apply to intervene by 4.30pm on 20 May 2015 the claim would be struck out and the claimant would be required to pay all the defendants’ costs.

The OR decided that he did not wish to intervene and become the claimant in the proceedings and entered into an agreement with the claimant to sell the cause of action to him for the sum of £25,900. The monies were paid and the OR executed a written assignment of the cause of action and associated property rights. However, although the claimant had acquired the cause of action, the order of 22 April 2015 had provided that the claim would be struck out if the OR did not apply to intervene by the specified date. The claimant, therefore, applied to the judge for:

  1. a variation of the order dated 22 April 2015to prevent the order being struck out, and
  2. permission to amend his particulars of claim to plead the assignment from the OR

What key issues did the application raise?

The key issues raised by the claimant’s application to the judge for a variation of his earlier order and permission to plead the assignment were:

  1. whether the court should permit a claimant to amend their claim to plead a cause of action which arose or was acquired after the proceedings were commenced
  2. the scope of the jurisdiction under the Civil Procedure Rules 1998, SI 1998/3132, Pt 3.1(7) (CPR) to vary or revoke an order and, in particular, whether the order dated 22 April 2015 was a ‘final order’
  3. whether the abuse of process that the judge had found was cured by the claimant’s payment to the OR of £25,900 for the cause of action

The judge determined that, in the circumstances of the case, he would exercise his discretion in favour of the claimant and:

  1. vary his order of 22 April 2015 to prevent the claim being struck out, and
  2. permit the claimant to amend his particulars of claim to plead the assignment to him of the cause of action

The judge determined that the order he had made on 22 April 2015 was not a ‘final order’ for the purposes of CPR 3.1(7) because it did not give rise to any issue estoppel which would prevent the claimant from issuing new proceedings. In these circumstances he was more favourably inclined to exercise his discretion to vary the order. However, he rejected the submission of the defendants’ counsel that, had the order been a ‘final order’, he would not have had the requisite jurisdiction to vary it. Following a review of the authorities the judge came to the following conclusions:

  1. The power to vary or revoke an order is entirely discretionary and is not prescribed by any rules or restrictions.
  2. The court nevertheless will generally not allow a party to treat a review application as if it were an appeal or a simple attempt to re-run the previous hearing on precisely the same material.
  3. The court will generally be less favourably inclined to consider a review of a final decision.
  4. The court will generally require either a change of circumstances or a misleading of the judge in the first decision.
  5. The court nevertheless must consider all the circumstances of the case and none of the above is a requirement for the court to consider varying or revoking a previous order.’

The judge concluded that the claimant’s abuse of process in failing to disclose his ownership of the copyright to ‘Let the Warriors Dance’ had been cured by his payment of £25,900 to the OR and the taking of an assignment of the cause of action and the associated property rights. The judge noted the importance of the concession of counsel for the defendants that an assignee of a cause of action from a trustee in bankruptcy is not tainted by the conduct of the bankrupt and further pointed out that the claimant had taken an assignment from the person who had the power to investigate and deal with the claimant’s previous misconduct.

What are the common issues in this area of copyright law and bankruptcy?

Copyright is property and the copyright to any musical composition written or created prior to the bankruptcy will automatically vest in the author’s trustee in bankruptcy by virtue of the Insolvency Act 1986, s 306 (IA 1986). As a consequence of that vesting the trustee in bankruptcy will become entitled to receive any royalty payments relating to that copyright and will be entitled to bring proceedings in respect of any breach of that copyright.

A cause of action is a chose in action and, with certain exceptions, is an item of property which vests in a bankrupt’s trustee in bankruptcy by virtue of IA 1986, s 306. The exceptions are causes of action which are personal to the bankrupt in that ‘the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind or character, and without immediate reference to his rights of property’ (Beckham v Drake (1849) 2 HL Cas 579). Such causes of action include claims for assault and injury to reputation. A cause of action for breach of copyright is an item of property which falls into the bankruptcy estate.

Once intellectual property vests in a trustee in bankruptcy it remains vested in that trustee and does not revert to the bankrupt when he or she is discharged from bankruptcy. However, the judge observed during the course of the hearing and in his subsequent judgment that at the time when the claimant was adjudged bankrupt in 1990 there was a view held by a significant number of lawyers and commentators on insolvency that assets of a bankrupt, which were not dealt with by his trustee, would re-vest in the bankrupt on his discharge from bankruptcy. This misconception was corrected by the decision in Re Dent [1994] 2 All ER 904. Importantly, the judge made clear in his judgment of 22 April 2015 that he was not persuaded that the claimant had appreciated when he commenced his claim that he did not own the cause of action.

The knowledge of the claimant in this regard is highly relevant because in Pickthall v Hill Dickinson [2009] EWCA Civ 543, [2009] All ER (D) 235 (Jun) the Court of Appeal made clear that it is an abuse of process for a claimant to commence proceedings knowing that he does not have a cause of action and that taking a subsequent assignment of the cause of action does not cure that abuse. In the light of the judge’s finding that he was not persuaded that the claimant had appreciated that he did not have a cause of action when he commenced the proceedings, it could not be said that commencing the proceedings amounted to an abuse of process. The abuse of process was confined to the claimant’s failure to disclose the copyright to his trustee in bankruptcy and that was cured by the payment and the assignment.

What should lawyers advising in this area advise their clients?

It is important that any solicitor acting for a client contemplating litigation checks with their client as to whether or not he or she has ever been adjudged bankrupt. This should be done as a matter of course. In the event that the client has been adjudged bankrupt after the accrual of the cause of action or the acquisition of any property right to which the cause of action relates, it is likely that the client will not possess the requisite cause of action and will not be able to commence proceedings unless and until he or she has taken an assignment of the cause of action from the trustee in bankruptcy.

In the event that proceedings have been commenced without the claimant possessing the requisite cause of action, the trustee in bankruptcy or, if he has obtained his release, the OR should be approached with a view to the claimant purchasing the cause of action and taking an assignment of it. In the event that an assignment of the cause of action is taken, an application must be made for permission to amend the particulars of claim to plead that the claimant acquired the cause of action by an assignment. The granting of such permission is an exercise of the court’s discretion and will depend on the circumstances of the case.

As previously stated, it is an abuse of process for a claimant to commence proceedings knowing that he or she does not possess a cause of action against the defendant. In these circumstances, it is unlikely that a claimant will be given permission to amend.

Do you have any best practice tips?

Always ask a client contemplating litigation whether or not they have ever been adjudged bankrupt and, in the event of there being any doubt, ask the client’s permission to carry out a bankruptcy search.

Interviewed by Alex Heshmaty.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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