Chappell CA

1 Ch. CHANCERY DIVISION. 529

C H A P P E L L & C O . L T D . v. N E S T L E C O . L T D AND A N O T H E R . C. A .

[1957 C. 2761.] 1938

Feb. 3, 4, 5; Mar. 19.

CopyrightInfringementMusical workGramophone recordsDistri- Jenkins, bution for cash price to members of public sending chocolate ormLerodnL.JJ. wrappersWhether sale " by retail"Copyright Act, 1956 (4 & 5 Eliz. 2, c. 74), s. 8Copyright Boyalty System (Records) Regula-tions, 1957 (S.I. 1957, No. 866), para. 1.

The H . Co. manufactured and sold to the N. Co., who were manufacturers of milk chocolate, a number of gramophone records of a work which was " m u s i c a l " wi th in the meaning of the Copyright Act, 1956, and the copyright of which belonged to the plaintiffs. The recording was made on a th in film of cellulose acetate adapted for mount ing on cardboard discs which were supplied by the N . Co. and bore mat te r advertising their chocolate, the price charged to the N . Co. being fourpence per record. The N. Co. advertised the records for sale to the public a t the price of Is . 6d. each, but wi th a s t ipulat ion to the effect t h a t in tending purchasers mus t in respect of each record send in addi t ion three wrappers from sixpenny packets of their milk chocolate. The company made a profit on each t ransact ion. The wrappers when received were worthless and were thrown away.

By a motion, which was treated by consent as the t r i a l of the action, the plaintiffs sought to res t ra in the two companies from manufac tur ing and selling the records on the ground ' t h a t the t ransact ions involved breaches of copyright in t h a t the H . Co. did not intend to sell the records " b y r e t a i l , " or to supply them for the purpose of their being sold " b y r e t a i l " by another person, wi th in the meaning of section 8 of the Copyright Act, 1956. * Upjohn J . gave judgment for the plaintiffs. On a p p e a l :

1 Copyright Act, 1956, s. 8: " (1) The copyright in a musical work is not infringed by a person (in this section referred to as ' the manu-' facturer ') who makes a record of the work or an adaptation thereof in the United Kingdom, if(a) records of the work, or, as the case may be, of a similar adaptation of the work, have previously been made in, or imported into, the United Kingdom for the purposes of retail sale, and were so made or imported by, or with the licence of, the owner of the copyright in the work; (b) before making the record, the manufacturer gave to the owner of the copyright the prescribed notice of his intention to make it; (c) the manufacturer intends to sell the record by

1 C H . 1958.

' retail, or to supply it for the pur-' pose of its being sold by retail by ' another person, or intends to use it ' for making other records which are 1 to be so sold or supplied; and (d) in 1 the case of a record which is sold ' by retail, the manufacturer pays to ' the owner of the copyright, in the ' prescribed manner and at the pre-' scribed time, a royalty of an amount ' ascertained in accordance with the 'following provisions of this section. ' (2) Subject to the following provi-' sions of this section, the royalty ' mentioned in paragraph (d) of the ' preceding subsection shall be of an ' amount equal to 6J per cent, of the ' ordinary retail selling price of the ' record, calculated in the prescribed 'manner: Provided that, if the

35

530 CHANCERY DIVISION. [ 1 9 5 8 ]

C. A.

1958

CHAPPELIi & Co. LTD.

v. NESTLE

Co. LTD.

Held (Romer L.J. dissenting), that the transaction constituted' a sale by retail such as to satisfy the requirement of the section; as (1) the distinguishing characteristic of a retail sale was a sale to the consuming customer as opposed to a sale to the trade; (2) the transaction was a genuine sale at an ascertained money price, since the effect of the condition requiring the sending of the wrappers was merely to limit the class of purchasers to those who so qualified themselves; and (3) the money price being ascertained, the manufacturers were enabled to give the appropriate notices of their intention to manufacture as required by the relevant regulations.2

Per Romer L.J. I am unable to see how there can be an "ordinary retail. selling price" (within the meaning of section 8 (2) ) in the absence of an ordinary retail sale. The sales were not ordinary retail sales; they did not, therefore, constitute sales " by " re ta i l " of the character envisaged and required by section 8.

Observation of Lord Dunedin in Turpin v. Middlesbrough Assess-ment Committee [1931] A.C. 470 at p. 473; 47 T.L.R. 308 applied.

Decision of Upjohn J . reversed.

APPEAL from Upjohn J . The Hardy Eecord Manufacturing Co. Ltd. , the second

defendants, made gramophone records consisting of thin films of cellulose acetate. They entered into an agreement with the first defendants, the Nestle Co. Ltd . , who were manufacturers of milk chocolate, to supply them with a number of records of a dance tune called " Eockin' Shoes ," the copyright of which was vested in the first plaintiffs, Chappell and Co. Ltd . , as sole licensees and in the second plaintiffs, the Winneton Music Corporation, as owners. The price to Nestle of the records was fourpence; they were mounted on cardboard discs supplied by Nestle containing advertising matter . Nestle sold the records to the public at the price of I s . 6d., subject to a condition that the purchaser mus t

" amount BO calculated includes a " fraction of a farthing, that fraction " shall be reckoned as one farthing, " and if, apart from this proviso, the " amount of the royalty would be " less than three-farthings, the " amount thereof shall be three-" farthings."

2 The Copyright Royalty System (Records) Regulations, 1957: " 1 (1) " The notice required by subsections " (1) and (5) of section 8 of the Act " shall contain the following particul a r s : . . . (/) the ordinary retail " selling price (as hereinafter defined) " of the records, or, where it is in

tended to reproduce the work on more than one type of record, the ordinary retail selling price of each type of record, the manufacturer intends to make and the amount of the royalty payable on each record; . . . 3. The ordinary retail selling price of any record shall be calculated at the marked or catalogued selling price of single records to the public, or if there is no such marked or catalogued selling price, at the highest price at which single records are ordinarily to be sold to the public, exclusive of purchase tax in either case."


also send three wrappers for their sixpenny milk chocolate bars. These wrappers were of no value in themselves and were thrown away when received. Nestle1 made a profit on each sale, but the purpose of the scheme was to advertise and promote the sale of their milk chocolate.

The Hardy company gave notice of their intention to manufacture, in accordance with section 8 (1) (b) of the Copyright Act, 1956, stating Is. 6d. to be the ordinary retail selling price, and offered to pay royalties, which the plaintiffs refused.' In the action the plaintiffs alleged that these transactions constituted a breach of copyright, as they did not involve a sale " by retail " within the meaning of the section. An interlocutory motion for an injunction was treated, by consent, as the trial of the action. At the hearing of the motion Upjohn J. gave judgment for the plaintiffs. The defendants appealed.

C. A.

1958

CHAPPELL & Co. LTD.

t>. NESTLE

Co. LTD.

Guy Aldous Q.O. and John Whitford for the first defendants. Under section 8 (1) of the Act, once records of a musical work have been made and marketed with the licence of the copyright owner, anyone can make records of that work " for the purposes " of retail sale " subject to giving the prescribed notice and paying the prescribed royalties; the question in this case is, What is the meaning of " retail sale " ? The judge below held that that meant a sale for cash, a money price, and that NestUVs transactions fell outside that definition, as they got the advantage of the sales of the three chocolate bars in each case and of the advertisement which the scheme gave them.

The defendants say that the true meaning is the ordinary meaning, i.e., a sale to the consumer and not to a wholesaler. Further, apart from statute, a work once published is free to the public; the Act provides for penalties for infringement, so it should not be construed so as to restrict the public more than necessary. Even if the judge was right in his definition, the sale of a record for Is. 6d. to a person who produces three worthless wrappers is a cash sale; he was confusing the total benefit to Nestle1 with the consideration moving from the buyer; the fact that Nestle might get some indirect advantage does not prevent the transaction from being a sale. I t is submitted that the wrappers form no part of the consideration; the effect of the requirement is to limit the class of persons who can become buyers by retail within the ordinary meaning of that expression.


C. A.

1958

CHAPPBLL & Co. LTD.

o. NESTLt!

Co. LTD.

The transaction in the present case is a sale, and the judge so held; it is not a case where the consideration was the extinguishing of an antecedent debt, as in Simpson v . Connolly.3 The defendants ' view as to the meaning of a retail sale is reinforced by the language of the Finance (No. 2) Act, 1940, which introduced purchase tax, and in section 41 provided tha t " selling by retail " m e a n s selling otherwise than by wholesale." In Turpin v . Middlesbrough Assessment Committee 4 Lord Dunedin associated retail trade with the " consuming cus tomer ."

Before the Copyright Act, 1911, anybody could make records freely: Boosey v . Whight.5 The court will not, unless forced to do so, construe widely Acts which take away public r ights : see Walsh v . Secretary of State for India 6 and David v . De Silva.7

The Act of 1911 placed no restrictions on the method of sale, as does the present Act, which introduces for the first t ime the restriction of retail sale. A fortiori the court will give a wide construction when an Act imposes penalties for infringements: see London County Council v . Aylesbury Dairy Co. Ltd.* and Bex v . Chapman.9

John Cope, for the second defendants, adopted the arguments set out above.

K. E. Shelley Q.C. and P. Stuart Bevan for the plaintiffs. I t is quite erroneous for the purposes of section 8 of this Act to divide a sale into two exclusive categories of retail and wholesale. That was no doubt proper for the ascertainment of liability to purchase tax, but here the contrast is between selling by well-established retail methods and by other methods of distribution, which may have some of the characteristics of an ordinary retail sale. The Act is intended broadly to confer copyright on the author, and section 8, which provides an exception to tha t right, ought to be interpreted narrowly. The section does not deal with the sale of goods in general, but of records for reproducing sound, and authorities dealing in general with the sale of goods have no application.

The question mus t be regarded as concerning the manufacturer. If Hardy have not infringed, neither of the defendants can be made liable. Bu t Hardy must both give the requisite notice and intend tha t the records shall be sold by retail. Nobody

s [1953] 1 W.L.B. 911; [1953] 2 All E.E. 474.

* [1931] A.C. 470, 473; 47 T.L.E. 308.

5 [1900] 1 Ch. 122; 16 T.L.E. 82. G20.

(1863) 10 H.L.Cas. 367. i [1934] A.C. 106; 50 T.L.E. 165. s [1898] 1 Q.B. 106. [1931] 2 K.B. 606; 47 T.L.E.


makes records without intending that they shall eventually reach the ultimate consumer, and to construe the section as the defendants seek to do is to give it no meaning.

The true interpretation is to be derived from subsection (2), which provides that the royalty shall be based on " the ordinary " retail selling price." That means that there must be ordinary sales in retail shops in the ordinary way of commerce, without any question of the customer qualifying himself in any special way or tendering any consideration other than cash or credit. Parliament was concerned to preserve the rights of business conducted through the normal channels, whereby the copyright owner receives a proportion of the whole consideration received for the disposal of the records; it was not concerned with schemes such as this, where the seller gets indirect advantages.

Having regard to the terms of the Act and the regulations, the defendants must establish a case whereby any ordinary member of the public, without any qualification, can obtain a record by tendering the list price, such price being the full consideration for the sale. In the present case there is no ordinary retail selling price, and no proper notice under the Act and regulations can be tendered; that consideration must be stated in terms of money, and in an advertising scheme such as this it is impossible to state that consideration; the same argument applies to the calculation of the royalties; there is no cash price on which to assess them. The section and regulations are concerned with sales in the ordinary course of retail business at an ascertained price to an unrestricted public. Here there is nothing fixed or ascertained; there is nothing to prevent Nestle from reducing the price and requiring the sending of more wrappers.

Bevan following. Section 8 (2) requires that there shall be a calculation in the prescribed manner, so " retail sale " must be limited to where there is an ordinary retail selling price, and other transactions which prima facie might be thought to be retail are outside the ambit; examples are sales by auction or sales to a restricted section of the public, such as the members of co-operative societies.

Aldous Q.C. in reply. Because subsection (2) refers to " ordinary " retail selling price, that is no reason for excluding from the ambit of subsection (1) sales by co-operative societies or vendors who limit their customers in some way. It is quite wrong to postulate that no manufacturer produces a record except for sale to the ultimate consumer; examples to the contrary are the B.B.C. and film companies. The purpose of section 8 is to

C. A.

1958

CHAPPELL & Co. LTD.

v. NESTLE

Co. LTD.

534 CHANCERY DIVISION. [1958]

ensure that such recordings, not made with the intention of future sales, shall not frank manufacturers generally to make reproductions subject to the payment of royalties. [Savill Brothers Ltd. v. Bethell10 was also referred to.]

Cur. adv. vult.

March 19. JENKINS L.J. I will ask Ormerod L.J. to deliver the first judgment.

ORMEKOD L.J. This is an appeal from an order of Upjohn J. made on November 14, 1957, that the defendant be restrained from infringing the copyright in a musical work entitled " Eockin'

Shoes " or any other musical work of which the plaintiffs are the owners of the copyright or under which they have been granted an exclusive licence. The matter came before the judge on a consent order that the motion originally launched by Chappell & Co. Ltd., the exclusive licensees, should be treated as the trial of the action, and the owners of the copyright, the Winneton Music Corporation, were allowed to be joined as plaintiffs. By consent of the parties the action was tried on the evidence filed on the motion. There were no pleadings and no issues arose on the facts. The sole question was, and is, the construction to be put upon the words ' ' retail sale ' ' in section 8 of the Copyright Act, 1956.

It will be useful before setting out the facts to read the relevant parts of the section in question. [His Lordship read section 8 (1) and (2) and continued: ] From this it will be seen that the copyright in a musical work is not infringed by a person making a record thereof provided the conditions set out in the section are fulfilled. In this case, apart from a question on the notice, with which I will deal later, the only condition which it is claimed has not been fulfilled is the one set out in subsection (1) (c), namely, that the manufacturers intended to sell the record by retail or to supply it for the purpose of being so sold. It is not disputed that the manufacturers knew how Nestle's intended to deal with the records, and supplied them for that purpose.

The facts are that the Hardy Eecord Manufacturing Co. Ltd., whom I shall refer to as the manufacturers, make records by a new process which is so inexpensive as to enable them to be sold wholesale for 4d. each. They are one-sided records made on a thin film of cellulose acetate, and are designed to be played at

" [1902] 2 Ch. 523.

C. A.

1956

CHAPPELL & Co. L T D .

v. NESTLfi

Co. L T D .


78 revolutions per minute. Nestle's, the well-known suppliers of milk chocolate and other similar products, entered into an agreement with the manufacturers to purchase a quantity of recordings of a piece of dance music called " Eockin' Shoes," the copyright of which was vested in the plaintiffs. They caused to be supplied to the manufacturers the necessary cards on which the records could be mounted. On the cards was printed, amongst other matters, a notice that this and other records could be obtained by sending to Nestl^'s for each record a postal order for Is. 6d., together with three wrappers for Nestle's 6d. milk chocolate bars. I t was agreed by Nestle's that the object of selling records in this way was to advertise their milk chocolate. None the less, they stated, and it was not disputed, that the price of Is. 6d. enabled them to make a reasonable profit on the sale of a record. The judge held that sales of records such as this were not retail sales within the meaning of the section, and granted an injunction to the plaintiffs.

Mr. Aldous on behalf of the appellants contended that the words in question in the statute should be given their normal meaning, and that " sale by retail " meant a sale to the conr suming customer in contrast to a wholesale sale which is a sale to the trade. He further contended, as a matter of construction, that under the general law a work once published is free to the public. The Copyright Acts restrict that freedom and impose penalties for infringement, and should therefore be construed so as not to restrict the public more than necessary. He cited Boosey v. Whight,1 which established that there was no copyright in recorded music (in that case the perforated sheets for an " Aeolian " organ) and submitted that the section of the Copyright Act, 1911, which restricted the freedom of performance of recorded music, and section 8 of the Act of 1956 which replaced it, should not in consequence be given an interpretation more restrictive than was strictly necessary. He cited a number of authorities in support of this submission, including Walsh v. Secretary of State for India,2 David v. De Silva,3 and, to show that the principle was applied more rigidly if penal consequences were involved, London County Council v. Aylesbury Dairy Co. Ltd.4, and Rex v. Chapman.5

It was further contended that even if, as the judge appears to have held, a sale by retail meant a cash sale, that is, a sale where

C. A.

1958

CHAPPELL & Co. LTD.

v. NESTL6

Co. L T D . Ormerod L.J.

i [1900] 1 Ch. 122; 16 T.L.E. 82. 2 (1863) 10 H.L.Cas. 367. 3 [1934] A.C. 106; 50 T.L.E. 165.

* [1898] 1 Q.B. 106. s [1931] 2 K.B. 606; 47 T.L.E.

620.


C. A. 1958

CHAPPELL & Co. LTD.

v. NESTLE

Co. L T D . Ormerod L.J.

the consideration was wholly in money, the sale of a record under the conditions set out above was in fact a cash sale.

Mr. Shelley on behalf of the respondents contended in the first place that, as the effect of section 8 was to make an exception to the grant of the broad right of copyright, it should in consequence be construed narrowly. He further contended that a sale by retail meant a sale in the ordinary way of a trader's business, and that the section did not contemplate a transaction such as this, which was for the purpose of advertising Nestle" 's goods, and in respect of which other conditions had to be fulfilled by the purchaser in addition to the payment of the price. I t was submitted that the use in section 8 (2) of the term " ordinary " retail selling price " as a basis for calculating the royalty to be paid necessarily implied that the sale " by retail " in subsection (1) (c) should be an " ordinary " retail sale. The contrast contemplated in the section, submitted Mr. Shelley, was not the contrast between wholesale and retail, but between selling by retail on the one hand and methods of distribution which might have some of the indicia of a sale on the other, and the transaction in question came within the latter classification.

Whichever way the transaction is regarded, it is not disputed that it was a sale. G. J. Dawson (Clapham) Ltd. v. H. & G. Dutfield,* and indeed a number of earlier authorities, establish beyond doubt the proposition that a transaction is none the less a sale because part of the consideration consists of the exchange of other goods.

There seems to be little authority as to the definition of " re ta i l . " In Turpin v. Middlesbrough Assessment Committee7 Viscount Dunedin said: " I t may be that in strictness the words " ' retail trade or business ' are only applied with complete " accuracy to cases of selling goods; or it may be that they may " properly be applied to all trades and business which deal " directly with the ' consuming ' customer." The question under consideration there was whether a garage and motor repair depot was an industrial hereditament within section 3 (1) of the Eating and Valuation (Apportionment) Act, 1928, but it would certainly appear that Lord Dunedin regarded dealing with the consuming customer as a necessary ingredient of " retail trade."

For my part, after a careful consideration of the words of the section and of Mr. Shelley's submissions, I can find no sufficient ground for the meaning which he seeks to attribute to the

[1936] 2 All B.E. 232. i [1931] A.C. 470, 473; 47 T.L.E. 308.


word " retail." The distinction appears to me to be betwee"n a sale to the trade on the one hand, and to the public, or, as Lord Dunedin put it, to the consuming customer on the other. A retail sale may take place in a number of ways. The commonest way, no doubt, is by a sale in a shop over the counter. But it may, and frequently does, take place by means of the post and other similar means. Again, a retail sale may be fqr cash or for credit, or may be in part exchange of other goods, as is frequently so in the case of motor-cars.

I t was suggested at one stage of the argument that a sale could not be by retail if there were conditions or restrictions attached to it. This would exclude from the definition sales by a co-operative society or by any dealer who sought to limit in any way the number or class of his customers.

How, then, does the transaction in question fall short of being a sale by retail? It was admitted on behalf of the plaintiffs that, if Nestle" 's had offered the record for sale as it was except for the condition attached of sending three chocolate wrappers, the transaction would have been within the terms of the section. I t is necessary to consider, therefore, the effect of the condition. I t is agreed that the wrappers were of no value, but the plaintiffs submitted that they were part of the purchase price of the record. The defendants took the view, on the other hand, that the object of the condition was to limit the class of purchasers so that the only people who could purchase the records were those who had qualified to be members of the class by sending the necessary wrappers. This latter view appears to me to be the correct one, and in these circumstances I find it difficult to see why this should not be a sale by retail just as much as it would be if no condition were attached.

I t was argued that Nestld's might alter the terms of the sale by increasing the number of wrappers required and reducing the price to one that would bear no relation to the cost of the record. That, of course, is not this case, and it might be that under such circumstances the transaction might be held not to be a genuine sale. But in any event the proviso to section 8 (2) sets out the minimum royalty to be paid, so that it may well be that in such circumstances the owner of the copyright would suffer no undue hardship.

I t was further argued that, although Nestle"'s were selling the records at a reasonable profit, the real advantage to them was the profit they made, or expected to make, on the sale of their usual products as a result of what was admittedly an advertising

C. A.

1958

CHAPPBLL & Co. LTD.

r. NESTLE

Co. LTD. Ormerod L.J.


C. A. 1958

CHAPPEU, & Co. LTD.

v. NESTL13

Co. LTD.

Ormerod L.J.

campaign. This argument appears to have found favour with the judge, who says, after dealing with the value to Nestle's of the chocolate wrappers: " This bears no resemblance at all to the " transaction to which, in my judgment, the section is pointing, " that is, an ordinary retail sale with an ordinary selling price." I cannot agree with this view. The motive for making the sale does not appear to be relevant, nor does the fact that the seller hopes to obtain some benefit from the transaction other than the actual profit on the sale.

A further argument put forward by the plaintiffs was that this transaction could not be a retail sale within the meaning of section 8, as it was impossible to comply with the provisions of section 8 (1) (b) that the manufacturer should, before making the record, give to the owners of the copyright a prescribed notice of his intention to make it. The particulars required in the notice are set out in paragraph 1 (1) of the Copyright Eoyalty System (Eecords) Eegulations, 1957 (S.I. 1957, No. 866), made in pursuance of powers contained in the Act, subparagraph (/) of which is as follows. Paragraph 1 (1) of the Order reads: " The notice " required by subsections (1) and (5) of section 8 of the Act shall " contain the following particulars," and in (/) the particulars are as follows: ' ' The ordinary retail selling price (as hereinafter " defined) of the records, or, where it is intended to reproduce " the work on more than one type of record, the ordinary retail " selling price of each type of record the manufacturer intends " to make and the amount of the royalty payable on each record."

Then in paragraph 3 it is provided that " The ordinary retail " selling price of any record shall be calculated at the marked or " catalogued selling price of single records to the public, or if " there is no such marked or catalogued selling price, at the ' ' highest price at which single records are ordinarily to be sold " to the public, exclusive of purchase tax in either case."

It is agreed that notice was given by the manufacturers, but the ordinary retail selling price was set out in the notice as the amount at which the records were to be sold without reference to the wrappers. The plaintiffs' submission was that, as the ordinary retail selling price could not be set out in the notice, the transaction could not be one within the section. If the view I have expressed above is the correct one, that the transaction was intended to be a sale of records for Is. 6d. each, limited to persons who sent three wrappers in respect of each record, there does not appear to be any substance in this argument.


It follows from what I have said that, in my view, taking the ordinary meaning of the words used in the section, the transactions contemplated by Nestle's were sales by retail, and the defendants were entitled to make and sell the records in accordance with the provisions of section 8 (1) of the Copyright Act. In the circumstances, it is unnecessary to consider whether the words of the section should be given a broad or a narrow construction in accordance with the respective contentions of the parties. I would allow the appeal.

C. A.

1958

CHAPPELL & Co. LTD.

v. NESTL

Co. LTD. Ormerod L.J.

JENKINS L.J. The substantial question in this appeal is whether the second defendants, Hardy Kecord Manufacturing Co. Ltd., in making gramophone records of the musical work " Eockin' " Shoes " and supplying them to the first defendants, the Nestle Co. Ltd., for the purpose of their being disposed of by the first defendants in the manner I am about to describe, were, as regards any given record so made and disposed of, making and supplying the record " for the purpose of its being sold by retail by another ' ' person ' ' within the meaning of section 8 (1) (c) of the Copyright Act, 1956. If, as the judge held, that question should be answered in the negative, the second defendants are not entitled to the benefit of the exception provided by section 8 and must, accordingly, be held, in accordance with the judge's decision, to have infringed the copyright in the work (of which the second plaintiffs are the owners and the first plaintiffs the exclusive licensees) by making the records in question under sections 1 (2) and 2 (5) (a) of the Act; and the first defendants must likewise be held to have infringed such copyright by distributing the infringing records under section 5 (3).

I need not repeat the facts at length. Briefly, the second defendants made records of " Eockin' Shoes " and other musical works by a novel and remarkably cheap process, in which the recording was made on a thin film of cellulose acetate adapted for mounting on a cardboard disc. The second defendants sold these records to the first defendants at 4d. each (the first defendants providing the cardboard mounts), and the first defendants advertised them for sale at Is. 6d. each, but with a stipulation to the effect that intending purchasers must, in respect of each record, send to the first defendants in addition to the Is. 6d., three wrappers from 2 oz. (6d.) packets of Nestle's milk chocolate. The price of Is. 6d., after providing for the costs of the records and 4Jd. purchase tax, left the first defendants with 9Jd. per


C. A. 1958

CHAPPELL & Co. LTD.

v. NESTLE

Co. LTD. Jenkins L.J.

record, which sufficed to cover the cost of the cardboard mountings, postage and the like, and leave some profit. The wrappers are, in themselves, completely worthless, and are thrown away when received.

In these circumstances, is the transaction between the first defendants and any person to whom they supply a record on the terms above stated, a sale by retail within the meaning of section 8?

The Act contains no definition of " sale by retail," and one is thus thrown back upon the ordinary meaning of the words, which I take to be sale to persons buying for their own use or consumption as distinct from persons buying for resale in the course of trade. Some support is to be found for this meaning in the passage from the speech of Lord Dunedin in Turpin's case,8 to which Ormerod L.J. has already referred.

Mr. Shelley, for the plaintiffs, relied upon the reference in section 8 (2) to " the ordinary retail selling price of the record " as the figure on which the royalty is to be calculated as showing that the sale by retail contemplated in section 8 (1) (c) is to be an ordinary sale by retail, or, in other words, a sale by retail in the ordinary course of the business of selling records by retail. The so-called sales by retail of records in the present case did not, in his submission, answer this description, inasmuch as they were not sales in the ordinary course of the business of selling records by retail to customers paying a stipulated money price without any superadded condition or consideration to be performed or provided by such customers. Here each sale was subject to the condition that the purchaser should not only pay the money price of Is. 6d. per record, but should produce his three Nestld's chocolate wrappers. Mr. Shelley said, in effect, that this is not a retail sale in the ordinary course of the business of selling records by retail, but is a sale of records for a cash consideration plus the performance by the purchaser of a special condition designed to promote the sale of Nestle' 's chocolate.

I cannot myself regard the reference in section 8 (2) to the ordinary retail selling price as limiting the meaning of section 8 (1) (c) in the way suggested by Mr. Shelley, and in this connexion I would observe that by the joint effect of section 8 (2) and paragraph 3 of Statutory Instrument, 1957, No. 866, made under the section, the meaning relevant to the present case of the words " ordinary retail selling price " is simply " the highest price at

s [1931] A.C. 470, 473.


" which single records are ordinarily to be sold to the public, " exclusive of purchase tax. . . . " To bring a given case within section 8 of the Act, first, the sale of the record which it is intended to effect must, no doubt, be sales by retail (that is to say, sales to members of the public for their own use as distinct from persons buying for resale in the way of trade); secondly, such sales, to make them sales at all as distinct from gifts, must be sales at a price; thirdly, the price must, as I think (although Mr. Aldous, for the defendants, was disposed to argue the contrary), consist of a sum of money or, at all events, of valuable consideration to which a precise equivalent in terms of money can be assigned. This last requirement appears to me to be impliedly demanded by the provisions in regard to the calculation of the ordinary retail price of the record, and the computation of royalties thereon contained in section 8 (2) of the Act and paragraph 3 of Statutory Instrument, 1957, No. 866, made under the section.

Given fulfilment of these three requirements, it seems to me that section 8 applies, and that there is no justification for assigning to subsection (1) (c) the limited meaning suggested by Mr. Shelley, which would confine its application to retail sales in the ordinary course of the business of selling records by retail, and might have the effect of excluding transactions which, apart from that limitation, would undoubtedly rank as sales by retail in the commonly accepted sense of that expression.

The questions to be answered in the present case are accordingly these, and I append to each of them the answer which, in my view, should be given to it: First,.if sales at all, were the sales of records effected by the Nestle' Co. in the way above described sales by retail within the meaning of section 8 (1) (c)? In my view this question must undoubtedly be answered in the affirmative. The offer was clearly directed to such members of the public as might wish to acquire the records for their own use, and could not be of the slightest interest to persons requiring records for resale in the way of trade.

Secondly, were these transactions sales as distinct from gifts? Here, again, the answer must, I think, clearly be in the affirmative. The cash price of Is. 6d. per record, according to the evidence, left the Nestle Co. with some profit, and each purchaser of a record did at all events undoubtedly pay that amount, whether the condition as to the delivery of the three chocolate wrappers should or should not be regarded as importing some addition to the price over and above the cash payment of Is. 6d.

C. A.

1958

CHAPPELL & Co. LTD.

v. NESTLE



C. A. 1958

CHAPPELL & Co. LTD.

v. NESTLE

Co. L T D . Jenkins L.J.

Thirdly, did the price paid for each record consist of a sum of money or, at all events, of valuable consideration to which a precise equivalent in terms of money could be assigned?

This seems to me to be the difficult point in the case. The transaction has been described and analysed in various ways in the course of the argument. Mr. Aldous was prepared, if necessary, to contend that it was a sale for Is. 6d. in cash plus three wholly valueless chocolate wrappers which, being wholly valueless, could be ignored. This attractively simple proposition appears to me to be far removed from the realities of the case. On the other side it was argued that the transaction was a sale for a price consisting of Is. 6d. in cash, plus the benefit resulting to the Nestle" Co. from the purchase by somebody of three sixpenny packets of their chocolate evidenced by the three empty wrappers. Apart from the difficulty that the wrappers produced by any given purchaser need not necessarily represent chocolate bought by him, I do not think that this view of the effect of the condition requiring the production of three wrappers is maintainable, nor, as I understand the argument, was it sought to be maintained to the extent of allocating some part of the price of the chocolate to the price of the record. Whoever bought the chocolate represented by the three wrappers must be taken to have bought it at the ordinary retail price of 6d. per packet. That price, no doubt, includes some element of net profit to the Nestle" Co., but it is a price wholly attributable to and exhausted by the purchase of the chocolate. Moreover, whoever bought the chocolate would presumably have bought it from a retailer and not from the Nestle Co. itself. Accordingly, I do not think that the cash price of Is. 6d. per record can be treated as increased by the amount of the net profit accruing to Nestld's in respect of the sale of the chocolate represented by the three empty wrappers or any part of that amount.

A simplified form of the bargain (more favourable to the plaintiffs' contention than the actual bargain involved) might be thus expressed: In consideration of your buying three packets of our chocolate at the ordinary retail price of 6d. each, and evidencing such purchase by sending us the three empty wrappers we, the NestM Co., will sell you a record from our list at the price of Is. 6d. If the bargain was in that form, I think that it would be difficult to maintain that the price of the record was not simply Is. 6d. (which admittedly showed a profit to the Nestle" Co.) but Is. 6d. plus some part of the price of the chocolate. A fortiori 1 think that it is still more difficult to do so where, as in the present


case, the bargain does not require the intending purchaser of a record to buy chocolate but merely to produce empty chocolate wrappers.

But, say the plaintiffs, the stipulation as to the production of three empty wrappers was undoubtedly of the first importance to the Nestle Co. and, indeed, the whole essence of their scheme, which was to encourage the purchase of their chocolate by persons wishful of obtaining the necessary qualification in wrappers to enable them to buy a record or records. I agree; but does it follow that the imponderable value to the Nestle1 Co. of the stipulation, admittedly capable of estimation, if at all, only after the advertising campaign based on the " record offer " had run its course, should be apportioned amongst the individual transactions so as to make the price of the record in each case not merely Is. 6d. but Is. 6d. plus " x " ? I think not.

In my judgment, the delivery of three Nestle1 chocolate wrappers required by the terms of this offer should be looked upon as a condition qualifying the person delivering them to buy a record at the price of Is. 6d. and not as an addition to the price of an unascertained and unascertainable amount representing some minute fraction of the advantage which the Nestle1 Co. hoped to derive, in the form of increased sales of their chocolate, from the advertising campaign as a whole. In other words, I think that the effect of the offer was that anyone acquiring three empty wrappers as evidence of the purchase of three packets of Nestle's chocolate became entitled to buy a record at the price of Is. 6d. upon payment of that price and production of the three empty wrappers to show that they had been duly acquired.

The judge in substance accepted the submissions made on behalf of the plaintiffs. I can best state his conclusion, and the reasoning on which it was based, by making the following quotation from his judgment: " That is the matter I have to consider: " can this be regarded as a retail sale for the purposes of the " section?

" It seems to me that the section is directed to retail sales in " the ordinary course of business, that is to say, a sale for cash, " a money price. That is what a sale is ordinarily defined to be, " and the section is contemplating a sale for a money price.

" Can this transaction be so regarded? Now what does the " purchaser have to do? He cannot get the record on tendering " Is. 6d. He has either to purchase three bars of Nestle's choco-" late, or, as was suggested, spend a rather profitless or " unpleasant time scavenging in his neighbours' dustbins to see if

C. A.

1958

CHAPPELL & Co. LTD.

v. NESTL

Co. L T D . Jenkins L.J.


C. A. 1958

CHAPPELL & Co. LTD.

v. NESTLE


' ' he can find any wrappers that have been abandoned by them; " but that is what he has to do. I t does not seem to me that it is " proper to describe that as a cash purchase. What is the value " to the vendor, Nestle's? It is very great indeed, because it is " all part of an advertising campaign, and I confess I listened " with some amazement to the argument which said that really " the existence of the wrappers in the letter containing the postal " order for Is. 6d. could really be ignored because they were " worthless. That is not the transaction at all. In fact, Nestle's " are making a nice profit on charging Is. 6d. for the record, but " that is not the subject of this scheme at all; admittedly not; " Mr. Eainer was perfectly frank and fair about it. The whole " object, of course, is to promote sales of Nestle's milk chocolate. " The price of Is. 6d. is quite a minor consideration. I t may be a " shilling one day or may be two shillings another; so that it is " not the point. The vital part of this transaction is to get in " three wrappers, and that represents a great deal of value to " Nestle's, because it is evidence of an advertising campaign " pushing up their sales. That is the value to them. This bears " no resemblance at all to the transaction to which, in my judg-". ment, the section is pointing, that is, an ordinary retail sale " with an ordinary retail selling price. I think it is quite wrong to " suppose that the retail selling price here is Is. 6d. Thepur-" chaser has to purchase three bars of chocolate, and that is the " real value of this transaction to NestWs.

" In my judgment, therefore, this transaction cannot properly " be described as a transaction of.retail sale and falls outside the " section."

For the reasons I have endeavoured to state, I am unable to accept the view that the cash price of Is. 6d. per record should be treated as increased by some unascertainable amount on account of the stipulation requiring the delivery of three empty wrappers. If that view were right it would, as I think, follow that the resulting price of Is. 6d. plus " x " would be a price incapable of statement as a sum of money and accordingly that the transaction would fail to satisfy the third of the three conditions I have postulated as necessary to qualify it for inclusion in section 8. But if, as I think, the price should be looked on as Is. 6d. per record with a limitation of the offer of records at that price to such members of the public as should deliver three empty chocolate wrappers in respect of each record bought, then I cannot see that the transaction, undoubtedly a sale, is prevented from being a sale by retail within the meaning of section 8

1 C h . CHANCERY DIVISION. 545

by the circumstance that the class of potential purchasers is limited to those who comply with the condition as to the delivery of wrappers. Section 8 (1) (c) refers to the selling of the record " by retail " simpliciter, with no superadded requirement to the effect that the sales referred to must be retail sales in the ordinary course of business. If a shopkeeper acquires a limited stock of some cheap and novel line of goods and offers them for sale at a price showing a profit, but nevertheless an apparently advantageous price from the customer's point of view, with an intimation that they will be sold only to customers who produce evidence of the purchase at his shop since a specified date of other goods to some prescribed minimum value, I cannot see that his sales to consuming, or in other words retail, customers of the special line of goods are prevented from being sales by retail by the circumstance that they are limited to those customers who comply with the condition regarding the purchase of other goods. Nor do I see any justification for the view that in such a case the price charged for the special line of goods should be treated as increased by some part of the price paid for other goods purchased in order to comply with the condition. In this imaginary case the shopkeeper no doubt gets a collateral advantage in the shape of the enhanced sales of other goods he effects or hopes to effect to customers seeking to comply with the condition and thus qualify themselves as purchasers of goods of the special line, just as in the actual case before the court the Nestle Co. get a collateral advantage in the shape of the enhanced sales of chocolate resulting or hoped to result through the purchase of Nestle' 's chocolate by persons wishing to acquire the wrappers necessary to qualify them as purchasers of records. But this collateral advantage does not in the actual case form part of the price of the record any more than it would in the imaginary case form part of the price of goods of the special line.

The plaintiffs' real complaint in the present case appears to me to be that Is. 6d. per record is too cheap a price, yielding too small a royalty, and is not in fact the true price, because the Nestld Co. can afford to let the records go cheap for the sake of the collateral advantage they get in the shape of increased sales of their chocolate. But any retailer of goods may get some collateral advantage from their sale without any such special arrangements as I have assumed in the case of my imaginary shopkeeper. For example, a novel and attractive line of goods may bring in customers who will buy other things as well, and may be stocked by a retailer with that very object in view rather

1 C H . 1958. 36

C. A.

1958

CHAPPELL & Co. LTD.

o. NESTLE

Co. L T D .

Jenkins L.J.


C. A. 1958

CHAPPELL & Co. LTD.

o. NESTLE


than the actual profit he hopes to make from the sale of the goods themselves. As to the cheapness of the price of Is. 6d. per record, this, according to the evidence, is made possible by the new and exceedingly cheap method of manufacture used by the Hardy Co. Moreover, according to the evidence this price shows the Nestle Co. a profit, and I see no sufficient reason for regarding it otherwise than as the true price. I t is moreover to be observed that the plaintiffs have no right to insist on the records being sold at any particular price or at a price showing a profit. If the Nestle Co. had sold the records at Is. 6d. or even less than that without any condition as to the production of wrappers, the plaintiffs admittedly would have had no ground for complaint, even though the records might be accompanied by matter advertising Nestle's chocolate.

The view I have formed to the effect that Is. 6d. is to be regarded as the price of a record, without any addition in respect of the condition as to wrappers, disposes of the plaintiffs' subsidiary argument to the effect that the prescribed notice given by the Hardy Co. pursuant to section 8 (1) (b) of the Act and paragraph 1 (1) of Statutory Instrument, 1957, No. 866, was defective, in that it did not and could not specify the ordinary retail selling price as required by paragraph 1 (1) (/) of the statutory instrument.

I should add that I likewise reject an argument raised on paragraph 3 of the Statutory Instrument which defines " The " ordinary retail selling price of a record " in these terms: " The " ordinary retail selling price of any record shall be calculated ' ' at the marked or catalogued selling price of single records to the " public, or if there is no such marked or catalogued selling price, at " the highest price at which single records are ordinarily to be " sold to the public, exclusive of purchase tax in either case." The point taken here (in addition to the objection that Is. 6d. was not the true price) was to the effect that the Nestle' Co. 's sales of records were not sales to the public, because of the condition as to wrappers. I see no sufficient reason for holding that this condition prevented such sales from being sales to " the public." I think " the public " in this context is used as meaning members of the public purchasing records for their own use as distinct from traders purchasing for re-sale. Nor can I regard it as right to treat that paragraph as qualifying the simple reference to sales by retail contained in section 8 (1) (c) of the Act itself.

For these reasons I would allow this appeal.


EOMER L.J. I t is with regret and diffidence that I feel constrained to differ from the judgments of my brethren on this appeal, but. for my part I have reached the conclusion that the decision of Upjohn J. was correct and should be upheld. I can state my reasons for this view very shortly, because they are substantially the same as those expressed by the judge in his judgment.

The question is whether the sale by the Nestld Co. of the records in question in this case can properly be regarded as sales " by retail " within the meaning of that phrase as used in section 8 (1) of the Copyright Act, 1956. The subsection has been read and I will not read it again, but I respectfully agree with, and adopt, the following passage in the judgment of the judge: " Beferring back," he said, " to section 8 it is at once

apparent that the emphasis in the section (and in this it differs from section 19 of the earlier Act) is upon 'retail sale.' In paragraph (a) it is a necessary condition precedent, in fact satisfied in this case, that records must have been imported or made for the purpose of retail sale. Passing over paragraph (6) which, as I have said, is satisfied subject to a point I shall mention in a moment, paragraph (c) again stresses the retail sale aspect of the matter because he has to state, if he is to satisfy the section, that ' the manfacturer intends to sell the ' record by retail, or to supply it for the purpose of its being ' sold by retail by another person.' Then in (d) again there is the reference that in the case of a record which is sold by retail the manufacturer has to pay a royalty and, finally, in subsection (2) there is a reference to the ordinary retail selling price. I t seems quite clear, therefore, that the question I have to determine is whether this transaction can properly be described as a retail sale, or whether it is the manufacturer's intention to sell the record by retail."

In some sense it is quite true to say that the sale of the records by the Nestle Co. is a sale by retail; for it is not a sale by wholesale but is a sale direct to the consumer, namely, the public. I t appears to me, however, that the retail sales envisaged by the section are ordinary retail sales for cash, across the counter or in response to written orders, such as characterize, I suppose, the vast majority of purchases of gramophone records by members of the public. The reason why, in my opinion, it is ordinary retail sales, and those alone, which are within the contemplation of the section is that under subsection (2) of section 8 the royalty

C. A.

1958


t>. NESTLE

Co. L T D .

548 CHANCEEY DIVISION. [ 1 9 5 8 ]

C. A. 1958

CHAPPELI, & Co. LTD.

v. NESTLE

Co. L T D .

Romer L.J.

payable to the owner of the copyright is a percentage of " the " ordinary retail selling price of the record "; and I am unable to see how there can be an ordinary retail selling price in the absence of an ordinary retail sale. The issue, therefore, as it seems to me, is narrowed down to the question whether the sales by the Nestle1 Co. Ltd. are ordinary retail sales.

The judge came to the conclusion that they are not, and I agree with him. It is quite true that the three chocolate wrappers which have to accompany each application for a record are intrinsically valueless and that the only money price which the customer has to send with his application is the sum of Is. 6d. That sum, however, is not the only price which the customer has in fact to pay for the record; for he or one of his family or friends has to pay for three bars of the Nestle1 Co.'s chocolate as well. This represents a profit to the company on each sale of a record in addition to the Is. 6d. which they receive in cash. " The vital "pa r t of this transaction," said the judge, " i s to get in three " wrappers and that represents a great deal of value to Nestle1 's, " because it is evidence of an advertising campaign pushing up " their sales. That is the value to them. This bears no resem-" blance at all to the transaction to which, in my judgment, the " section is pointing, that is, an ordinary retail sale with an " ordinary retail selling price. I think it is quite wrong to suppose " that the retail selling price here is Is. 6d. The purchaser has to " purchase three bars of chocolate and that is the real value of " th i s transaction to Nestle's."

I am in agreement with those views of the judge. I cannot help thinking that the owner of the copyright was entitled, under section 8, to a royalty assessed upon the full purchase price of each record sold by retail. Under Nestle' 's method of selling them the copyright owner gets a royalty assessed upon the cash part only of each sale, and he gets nothing in respect of the consideration which, although indirect, passes from the customers and is received by the company; and the minimum royalty provision would, in many cases of transactions of this character, be no satisfactory substitute for the loss. The position would become still more unfavourable to the owner of the copyright if the company (which it might well do at any time) reduced the amount of cash payable by the customers and increased the number of the requisite wrappers.

In my judgment, the sales of the records in the manner in which they are carried out do not constitute sales " by retail " of

1 Ch. CHANCERY DIVISION.

the character envisaged and required by section 8 of the Act; an< I would only add that it seems to me difficult, if not impossible for the manufacturer to give, in relation to such sales, the particu lars required by regulation 1 (/) of the statutory regulations.

I would, accordingly, dismiss the appeal. Appeal allowed. Leave to appeal.

Solicitors: McKenna & Co.; Howe & Rake; Syrett & Sons.

F. R. D.

In re CASTIGLIONE'S WILL TEUSTS. HUNTER v. MACKENZIE AND OTHERS.

[1957 C. No. 1962.]

CompanyShareholderCompany itselfDirection in will to transfer company's own shares to companyProposed transfer to nominees W h e t h e r validQualification of nominees.

A testator directed t h a t 1,000 ordinary shares in C. E. & Co. Ltd . should be held on t rus t for his son for life, and if the son should die without issue the trustees of the will were to " t ransfer " them to C. E. & Co. Ltd . a t the date of his d e a t h . " There were certain restrictions on the t ransfer of shares in the articles of the company. On the death of the son without issue the court was asked to determine whether the shares should be transferred to nominees of the company (one of whom was qualified under the articles while the other was not) , or whether they fell into the testator 's residuary es ta te :

Held, t h a t al though the company could not hold its own shares, since i t could not be a member of itself, there could be a t rus t for the company under which certain persons, registered as holders of the shares, held them on t rus t for the company as beneficiary; accordingly, the company was entitled to direct t h a t the shares should be transferred into the names of nominees, who must be properly qualified under the company's articles of association to hold its shares.

Kiroy v. Wilkins [1929] 2 Ch. 444 and Cree v. Somervail (1879) 4 App.Cas. 648 applied.

In re Buckingham (1943) 170 L.T. 53 considered.

I C. A.

1958


o. NESTLE

Co. L T D .

1958 Feb. 11.

Danckwerts J.

Documents

Chappell CA