DATE: 20010312
DOCKETS: C32061 and C32025
COURT OF APPEAL FOR ONTARIO
FINLAYSON, CARTHY and SHARPE JJ.A.
BETWEEN:
STEVE DeMARCHI, FRED CURCI and ROB ELLIOTT
David W. Kent and Kathryn J. Manning, for the applicants (respondents/cross-appellants)
Applicants (Respondents/Cross-Appellants)
- and -
REEL RECORDS & TAPES LTD., BANANAREE PUBLISHING LIMITED, TONY VARONE and PERFORMING RIGHTS ORGANIZATION OF CANADA LTD.
Ronald E. Dimock and R. Scott MacKendrick, for the respondent (appellant) Bananaree Publishing
Emilio Bisceglia, for the respondent (appellant) Tony Varone
Respondents (Appellants)
A N D BETWEEN:
BANANAREE PUBLISHING LIMITED, TONY VARONE and ARNOLD LANNI
Plaintiffs (Appellants)
-and-
STEVEN DeMARCHI, ROB ELLIOT, FRED CURCI and PERFORMING RIGHTS ORGANIZATION OF CANADA LTD.
Defendants (Respondents)
Heard: February 21, 2001
The appellant Bananaree Publishing Limited appeals from the order of Justice Douglas H. Carruthers dated July 28, 1997 and from the judgment (varied) of Justice Carruthers dated March 16, 1995 and July 28, 1997.
The appellant Tony Varone appeals from the judgment (varied) of the Justice Carruthers dated March 16, 1995 and July 28, 1997.
The respondents Steven DeMarchi and Fred Curci cross-appeal the judgment (varied) of Justice Carruthers dated March 16, 1995 and July 28, 1997.
FINLAYSON J.A.:
Background
[1] These proceedings concern disputes over the royalties of a song entitled “When I Am With You” (the “Song”). The Song was written by Arnold Lanni and recorded and performed by the band Sheriff. When first released in the early 1980s, the album featuring the Song achieved only modest Canadian sales.
[2] Sheriff was formed in 1979 and had five members: Steve DeMarchi, Fred Curci, Rob Elliott, Ralph Hassel and Arnold Lanni.
[3] On October 31, 1981, Reel Records and Tapes Ltd. (“Reel Records”) and the members of Sheriff entered into a Publishing Agreement and a separate Recording Agreement (also referred to as the Artist’s Agreement).
[4] Sheriff broke up in 1984.
[5] On December 22, 1986, Reel Records assigned all of its rights in the agreements to Tony Varone, in trust, for a company to be incorporated. On December 31, 1986, Varone (in trust) assigned his rights to Bananaree Publishing Limited (“Bananaree”).
[6] In 1989, the Song was “discovered” in the United States and reached number one on the Billboard charts in the United States and in Canada. The Song’s increased radio play resulted in new record sales and requests to reproduce Sheriff’s version of the Song on other records and to have other artists record the Song.
[7] The former members of the band disagreed over how certain royalties were to be divided among them. DeMarchi, Curci and Elliott claimed equal shares in all publishing royalties, while Lanni claimed a lone interest for songs (like the hit) that he wrote himself.
[8] By Notice of Application dated December 5, 1989, DeMarchi, Curci and Elliott commenced a proceeding against Reel Records, Bananaree, Varone and the Performing Rights Organization of Canada Ltd. (“PROCAN”, now “SOCAN”). The application sought declaratory relief on the issues as between the band members and sought an accounting and payment of all publishing income as against Bananaree and Varone.
[9] On December 22, 1989, Bananaree, Varone and Lanni commenced an action against DeMarchi, Curci and Elliott. The action sought declaratory relief in respect of publishing royalties and damages for breach of contract and economic torts.
[10] On July 9, 1990, the Honourable Madam Justice Klowak ordered that the action and the application be heard together at trial.
[11] The Honourable Mr. Justice Carruthers heard the trial of the issues in the action and the application in February of 1995. The parties were DeMarchi and Curci, having carriage, and Lanni, Bananaree and Varone, responding. Matters involving all other parties had been resolved by the time of trial.
[12] At the beginning of the trial, Carruthers J. was advised that Bananaree “had consented to provide the accounting sought”. Thereafter, counsel for Bananaree and Varone withdrew from the trial.
[13] On March 16, 1995, Carruthers J. issued his judgment with reasons. He found for DeMarchi and Curci and declared that each was entitled to a one-fifth share of the royalties payable under the Publishing Agreement. He also ordered that Bananaree and Varone provide a full and complete accounting of any and all royalties or other income, howsoever received or derived, with respect to all musical compositions subject to the Publishing Agreement. Finally, he directed a Reference for the taking of those accounts. Carruthers J. ordered that the Report of the Referee was to be returned for confirmation.
[14] The Reference took place before Master Linton. In his Report on the Reference, Master Linton determined the quantum of royalties that DeMarchi and Curci were entitled to not only under the Publishing Agreement, but also under the Recording Agreement. In his March 20, 1997 reasons, Master Linton found that the interpretation of the Publishing Agreement submitted by DeMarchi and Curci was to be used, and he adopted as his own both the DeMarchi/Curci submissions with respect to their entitlement to a co-publisher’s share of SOCAN royalties and their analysis and calculations of all amounts owing.
[15] On June 2, 1997, Master Linton released further reasons, awarding DeMarchi and Curci prejudgment interest together with their costs against Bananaree and Varone on a solicitor and client scale.
[16] Master Linton’s report was brought back before Carruthers J. for confirmation. On July 28, 1997, Carruthers J. issued his reasons and an order which, inter alia:
(a) dismissed Varone’s motion to vary the Trial judgment to exclude Varone from personal liability;
(b) reversed Master Linton’s report with respect to DeMarchi’s and Curci’s entitlement to a co-publishing share of Bananaree’s performing rights royalties, and adjusted the co-publishing award and prejudgment interest accordingly;
(c) otherwise refused all requests by Varone and Bananaree to reverse Master Linton, and confirmed all other aspects of Master Linton’s report;
(d) permitted an amendment to the original Notice of Application to expressly claim an accounting and payment under the Recording Agreement in addition to the Publishing Agreement;
(e) awarded costs of the original Trial against Bananaree and Varone on a solicitor and client basis fixed at $46,000, and against Lanni on a party and party basis fixed at $15,000; and
(f) awarded costs of the confirmation hearing against Bananaree and Varone on a party and party basis fixed at $3,000.
The Bananaree Appeal
[17] In its appeal from the July 28, 1997 order of Carruthers J. and from his judgment (as varied) dated March 16, 1995 and July 28, 1997, the appellant Bananaree advanced the following grounds for appeal in its factum:
(1) Did Mr. Justice Carruthers err in principle in confirming Master Linton’s findings in respect of the calculation of mechanical royalties earned by the Respondents under the Publishing Agreement, in light of Master Linton’s failure to make a determination of the quantum of administration and management fees, as provided for in the Publishing Agreement, which Master Linton recognized were to be deducted?
(2) Did Mr. Justice Carruthers err in principle in confirming Master Linton’s findings in respect of the revenues earned by the Respondents under subparagraph 2.01(m) of the Publishing Agreement, in light of the amendment to Master Linton’s Report by Mr. Justice Carruthers and his finding that the Respondents were not entitled to “co-publishing” revenues under the Publishing Agreement?
(3) Did Mr. Justice Carruthers err in principle in confirming and directing that Bananaree pay DeMarchi and Curci revenue pursuant to subparagraph 2.01(m) of the Publishing Agreement, in light of the amendment of the Report by Mr. Justice Carruthers and his finding that the Respondents were not entitled to “co-publishing” revenues under the Publishing Agreement?
(4) Did Mr. Justice Carruthers err in confirming the Report of Master Linton with respect to the awarding of costs on the reference on a solicitor and client scale, in light of:
(a) the necessity of the Respondents amending their Notice of Application at the Confirmation Hearing, to add the Royalty Agreement; and
(b) the amendment of the Report, inter alia, on the substantive matter of “co-publishing revenues”?
(5) Did Mr. Justice Carruthers err in confirming the Report of Master Linton to provide that the Respondents were entitled to prejudgment interest on moneys to be paid under the Recording Agreement, in light of the necessity of the Respondents amending their Notice of Application at the reference Confirmation Hearing?
(6) Did Mr. Justice Carruthers err in awarding costs on the proceedings, other than before Master Linton, on a solicitor and client basis, where the issue as before the honourable trial Judge on the trial of an issue heard in 1995 was principally with respect to the declaratory relief sought by the Respondents as against Lanni on the question of the apportionment of royalties, and was not with respect to the accounting?
(7) Did Mr. Justice Carruthers err in awarding costs on the Confirmation Hearing as against Bananaree, in light of its success at the hearing?
[18] Prior to the hearing and before the court, Bananaree abandoned all of its grounds of appeal, except issues 2, 3 and 5.
(i) Co-Publishing Revenues
[19] Issues 2 and 3 concern royalties payable under sub-paragraph 2.01(m) of the Publishing Agreement, sometimes referred to as “co-publishing” revenues. That sub-paragraph provides that in addition to the various proportions of the different revenue streams to which the band is entitled under Article 2.01, the “Publisher” (Reel Records, now Bananaree) agrees to pay to the “Owner” (the band members) a further portion of all those revenues insofar as they originated outside Canada.
[20] Bananaree received two kinds of foreign publishing royalties: mechanical royalties and public performance (SOCAN) royalties. At the reference hearing before Master Linton, the inclusion of public performance royalties in the co-publishing provision 2.01(m) was disputed by Bananaree because of allegedly conflicting language in sub-paragraph 2.01(e) of the Publishing Agreement. Sub-paragraph 2.01(e) provides:
Notwithstanding anything to the contrary contained herein, Owner shall receive his public performance royalty throughout the world directly from his own affiliated performance rights society [such as SOCAN] and shall have no claim whatsoever against Publisher for any royalties received by Publisher from any performing rights society which makes directly or indirectly distribution to the writers, authors and/or composers.
[21] At the Reference, Master Linton accepted the DeMarchi/Curci interpretation of sub-paragraphs 2.01(e) and (m), held that co-publishing rights were not intended to be affected by sub-paragraph 2.01(e), and included public performance royalties within the calculation of co-publishing revenues.
[22] In his reasons following the confirmation hearing, Carruthers J., in relation to co-publishing revenues, stated:
To my mind, the provisions [of the Publishing Agreement] clearly preclude DeMarchi and Curci from participating in royalties received by the publisher “from any performing rights society which makes directly or indirectly distribution to the writers, authors and/or composers”. In my opinion, therefore, the Master erred in allowing DeMarchi and Curci to participate in this revenue stream and to that extent then the Master’s report is not confirmed.
[23] The appellant Bananaree contends that the above-noted quotation serves to evidence an intent on the part of Carruthers J. to deny the respondents DeMarchi and Curci any entitlement to co-publishing revenues. As such, it is argued that given this finding, Carruthers J. erred in confirming Master Linton’s findings in respect of the co‑publishing revenues earned by the respondents under sub-paragraph 2.01(m).
[24] Conversely, the respondents submit that Carruthers J. did not find that DeMarchi and Curci were disentitled to all co-publishing revenues under sub-paragraph 2.01(m). They submit that Carruthers J.’s ruling was restricted to the SOCAN public performance royalty stream and did nothing to disturb the respondents’ entitlement to co-publishing revenues in respect of the mechanical royalty stream.
[25] On this point, I prefer the submissions made by the respondents. Carruthers J.’s decision served to reverse Master Linton only on the finding that public performance royalties were to be included within the calculation of co-publishing revenues. Based on this conclusion, Carruthers J. amended the Master’s report “to exclude all performing rights royalties in the calculation of royalties pursuant to Article 2.01 of the Publishing Agreement” and reduced the amount payable to DeMarchi and Curci under subparagraph 2.01(m) to $9.036.70 each. There is nothing in the language of Carruthers J. that indicates that the respondents were not entitled to co-publishing revenues in the form of mechanical royalties.
[26] Furthermore, the issue of whether mechanical royalties, and not just public performance royalties, should be excluded from co-publishing revenues was not argued at the confirmation hearing before Carruthers J. I accept the submission of the respondents that had that issue been raised, Carruthers J. would have clarified his language to expressly indicate that while he was excluding public performance royalties from the calculation of co-publishing revenues, he was affirming the inclusion of mechanical royalties into that calculation.
[27] Accordingly, I would not give effect to the appeal on issues 2 and 3.
(ii) Prejudgment Interest
[28] The ground of appeal most vigorously pressed by Bananaree revolved around the question of the date from which prejudgment interest can be said to have started to accrue (issue 5). The appellant Bananaree submits that the respondents’ cause of action arose prior to October 23, 1989, and, as such, the former s. 138 of the Courts of Justice Act, S.O. 1984, C. 11, governs any award of prejudgment interest. Pursuant to the former s. 138, where an order is made on a liquidated claim, prejudgment interest is calculated “from the date the cause of action arose to the date of the order”, whereas when an order is made on an unliquidated claim, prejudgment interest is calculated “from the date the person entitled gave notice in writing of his claim to the person liable therefor to the date of the order.”
[29] Bananaree’s contention is that written notice was not given in respect of the claim under the Recording Agreement until the Notice of Application was amended at the confirmation hearing and as a result, no prejudgment interest may be awarded on the Recording Agreement claim. This argument rests on the supposition that the claim in issue is an unliquidated one.
[30] The respondents contend that the cause of action actually arose after October 23, 1989 and, as a result, the former provision does not apply. Should this be the case, the amended s. 189 would apply. That section provides that, regardless of whether the claim is liquidated or unliquidated, prejudgment interest is calculated “from the date the cause of action arose to the date of the order.”
[31] As noted by the respondents, Bananaree does not cite any evidence to support the assertion that the cause of action arose before October 23, 1989. Accordingly, I agree with the respondents that it is not clear when the cause of action arose and that the better view is that it was after the 1989 amendments to s. 138 came into force.
[32] For the reasons given, I would dismiss Bananaree’s appeal with costs.
The Varone appeal
[33] The appellant Tony Varone, President and Secretary of Bananaree, appeals those portions of the judgment of Carruthers J. ascribing to him personal liability to pay the amount of the judgment and costs of the various proceedings on a solicitor and client scale.
[34] As noted above, at the outset of the trial counsel for both Bananaree and Varone withdrew at the outset, although Varone remained to testify as a witness. In hindsight, this turned out to be a mistake. At the conclusion of the trial, Carruthers J. ordered not only that Bananaree, the owner of the publishing rights, pay the royalty amounts due to DeMarchi and Curci, but also that Varone personally pay the amounts due. That is, judgment was awarded against Bananaree and Varone jointly and severally for all royalty payments, prejudgment interest amounts and costs.
[35] In his March 16, 1995 Reasons for Judgment, Carruthers J. does not provide any cogent reasoning supporting the order against Varone, stating only (at pp. 14-15):
I am concerned about the apparent manner in which the funds have been held or paid by Bananaree whose operation is under the control of Varone. The $80,000.00 received by Lanni which, according to him was paid “under the Writer’s Agreement via the publisher” or as he described in chief “was the writer’s share of mechanicals”, appear to have been paid under paragraph 2.01(d) of the Publishing Agreement. That paragraph represents money which, although created by “mechanical reproduction”, pertains to copyright and not recording, which is the subject of the Artist’s Agreement. [Emphasis added.]
[36] There never was an issue that the operation of Bananaree was under the control of Varone. He was the principle shareholder, president and secretary of the company. He was its directing mind. I take it that there was a concern at one time that the assignment of the Publishing Agreement from Varone to Bananaree had not been completed and this is why Varone was named personally in the proceedings. However, by the time the trial started before Carruthers J., this issue had been resolved and it was Bananaree, as the recipient of all the funds that had the liability to account. In his further reasons of July 28, 1997, Carruthers J. attempts to establish a personal liability on the part of Varone’s by commenting on the lack of severance between Bananaree and its directing mind. He says:
I dismissed the motion because I continue to remain firm in my view that Varone has his own personal responsibility to DeMarchi and Curci by reason of the nature of their relationship, the relationship of Bananaree and his being the directing mind of Bananaree. It appears quite clear to me that the involvement of Bananaree in the relationship between DeMarchi, Curci and the other members of the band and Varone was solely to convenience or accommodate Varone and cannot be used as a basis for permitting Varone to escape the plain obligations which he had to the members of the Band.
The Master concluded from the evidence which he considered that “there is no question that Bananaree and Varone are virtually inseparable – that Varone was and is to all intents and purposes Bananaree”. The grounds put forward by counsel on behalf of Varone at this time do not require me to change my mind. In fact, upon further reflection, I think that what I had to say then about Varone is not as full as it should have been.
As a witness, I found Varone had no redeeming features. He was flippant to a fault and left no impression on me that he had done or would do right by DeMarchi and Curci and whose best interest he had an obligation to act. He did not give even a hint that he had any understanding of how he was to act towards them. This caused me to conclude that “the report or decision or whatever it is that determines the accounting of the funds being held by Bananaree is to be brought back before me for confirmation”. I wanted to maintain the ability to satisfy myself to the farthest extent that I could that Varone had and could not avoid his plain obligations to DeMarchi and Curci.
The fact that Varone now maintains that he should not be personally involved in these proceedings, appears to me to be somewhat inconsistent with the fact that he caused himself to be named as a party in the action which was brought on behalf of Bananaree, Lanni and himself against DeMarchi and Curci and others, claiming, inter alia, damages for breach of contract. The fact that separate counsel have been retained by Bananaree and Varone does not cause me to disagree with the Master’s conclusion that “Varone was and is, to all intents and purposes, Bananaree”.
[37] The conclusion that “Varone was and is, to all intents and purposes, Bananaree” applies precisely the wrong test for the proposition that Varone should be personally liable for the debts of Bananaree. Varone can only be personally liable if there was some conduct of his that was severable from his actions as the directing mind of the company he controlled and caused to enter into the various agreements that are the subject matter of the accounting. I am concerned that the unfavourable reaction of Carruthers J. to the performance of Varone as a witness caused him to lose sight of the fact that Varone had withdrawn as a party from the trial apparently with the concurrence, at least implicit, of the other parties.
[38] Aside from the criticisms of Varone as a witness, this court was taken to no evidence that would support a claim for personal liability against Varone. After considering the evidence presented throughout these proceedings, I can find no basis for a judgment of personal liability as against Varone. In fact, the evidence clearly indicates that at all material times, Varone acted only as an officer and director of Bananaree. Varone assigned all of his rights and duties in relation to the band to Bananaree, which operated as a bona fide corporate entity, and not just as a shell for Varone’s personal initiatives. Moreover, both the Publishing Agreement and Recording Agreement were owned by Bananaree and not by Varone personally, and both specified the obligations of Bananaree and not of Varone personally.
[39] While it is true that Varone was the directing mind of Bananaree, there is no suggestion that Bananaree was not an operational corporate entity with whom the other parties contracted. Varone was at all material times acting on behalf of the corporation, not on his own behalf, and in such circumstances, there is not sufficient justification to pierce the corporate veil. Based on the lack of any express articulation supporting Varone’s personal liability, Carruthers J. was in error in ascribing a separate persona to Varone in these proceedings.
[40] Accordingly, I would allow the appeal of Varone with costs and vary the judgment below to exclude any award for damages or costs with respect to Tony Varone.
The DeMarchi and Curci Cross-Appeal
[41] DeMarchi and Curci cross-appeal from paragraph 4 (and related provisions) of the judgment (varied) of Carruthers J. dated March 16, 1995 and July 28, 1997. Paragraph 4 reads:
THIS COURT DECLARES that sub-paragraphs 2.01(l) and (m) of the Publishing Agreement exclude all performing rights royalties in the calculation of royalties payable pursuant to Article 2.01 of the Publishing Agreement.
[42] The cross-appeal raises a discrete issue as to the interpretation of sub-paragraph 2.01(m) of the Publishing Agreement. Recall that this provision (sometimes referred to as a co-publishing provision) provides that certain net foreign revenues received by Bananaree will be further divided between Bananaree and the band. As noted earlier, I interpret Carruthers J.’s judgment as supporting the position that DeMarchi and Curci were entitled to mechanical royalties under the co-publishing provisions of 2.01(m). The question on cross-appeal is whether performing rights royalties are also to be included within the co-publishing net revenues that are subject to this provision.
[43] I agree with counsel for DeMarchi and Curci that performing rights royalties are to be included within the co-publishing provision. First I accept the submission that the Publishing Agreement is not ambiguous and that the plain meaning of the Publishing Agreement supports the position that public performance royalties are covered by sub-paragraph 2.01(m). Both sub-paragraph 2.01(e) and 2.01(m) must be considered in the context of the entire agreement and not read in isolation. When viewed this way, there is nothing inconsistent about the inclusion of public performance royalties within the phrase “all monies” for the purposes of calculating the “net income” to which the sliding scale in sub-paragraph 2.01(m) applies.
[44] Furthermore, it is evident that the interpretation which views the Publishing Agreement as including public performance revenues in sub-paragraph 2.01(m), is the only interpretation consistent with the prior conduct of Reel Records, the original publisher and assignor of Bananaree’s rights and obligations. As noted by the cross-appellants, Reel Records negotiated the Publishing Agreement with the band, and it accounted to the band for the publisher’s share of public performance royalties. This would not have been necessary if these revenues were excluded from the co-publishing provision. In addition, Reel Records credited the band with a portion of the publisher’s share of performing rights royalties calculated according to the sliding scale of percentages in sub-paragraph 2.01(m), thereby acknowledging that the performing rights royalties were to be included.
[45] Accordingly, I would allow the cross-appeal and give effect to the relief claimed by:
(a) varying paragraph 4 of Carruthers J.’s judgment to change the word “exclude” to “include”;
(b) varying paragraphs 10 and 11 of the judgment to replace the figures $45,183.50 and $9,036.70 with the figures $174,689.57 and $34,937.91 as the amounts earned by the band and payable to each of DeMarchi and Curci under sub-paragraph 2.01(m) (as found on the Reference);
(c) varying paragraphs 12 and 13 of the judgment to replace the figures $263,416.60 and $52,683.32 with the figures $298,124.15 and $59,624.83 as the amounts earned by the band and payable to each of DeMarchi and Curci as prejudgment interest (as found on the Reference); and
(d) awarding DeMarchi and Curci their costs of the cross-appeal.
Summary of Dispositions
[46] I would dismiss Bananaree’s appeal with costs.
[47] I would allow the appeal of Varone with costs and amend the judgment below to exclude any award for damages or costs with respect to Tony Varone.
[48] I would allow the cross-appeal by DeMarchi and Curci and accord relief in the above-noted form.
(signed) “G. D. Finlayson J.A.”
(signed) “I agree J. J. Carthy J.A.”
(signed) “I agree Robert Sharpe J.A.”
Released: March 12, 2001