Does 'Subject to contract' do what it says on the tin?
Written Osborne Clarke	on 27 Jun 2003
In a recent music rights dispute over a "Heartless Crew" mix compilation, the court has explained the meaning and effect of the words 'subject to contract'. We report and look at the implications.
Topic: Contract
Who: Confetti Records v Warner Music UK Limited
Where: Chancery Division of the High Court of Justice
Confetti Records sued Warner Music for copyright infringement over the inclusion of a Confetti track in a mix compilation album produced by Warner. The track was a number called "Burnin" composed by Andrew Alcee. Alcee sold all rights in the track to garage music label Confetti. Burnin was very popular. In November 2001 it was No 1 in the official UK garage top 10 in DJ Magazine and Confetti received a number of requests to license the track for inclusion in compilation albums. In November 2001, leading UK garage act The Heartless Crew signed up with Warner Music Division Eastwest Records and a decision was taken to approach Confetti with a view to including a Heartless Crew adaptation of Burnin in a forthcoming mix compilation album to be called "Crisp Biscuit".
A call was made by Eastwest to Confetti and on 11 December 2001 this was followed by a "deal memo" containing heads of terms for use of the track in the compilation. It was marked "subject to contract".
On 19 December 2001 a further version of the deal terms, also marked "subject to contract", was sent through. This was signed by Confetti and returned, although the position on exactly when it was sent and received was unclear, the courts determining that the deal memo as signed by Confetti was not received back by Eastwest until after 8 January 2002.
On about 15 January 2002 Confetti sent Eastwest a copy of the original Burnin track, additional information about it and an invoice for £1,500, the sum specified in the deal memo as the royalty advance for the track to appear on Crisp Biscuit.
To cut a long story short, Confetti subsequently tried to revoke the licence they had apparently given Eastwest to use the track. Warner argued that Confetti was not entitled to do this and Confetti sued for copyright infringement.
In the ensuing proceedings, there were a number of questions in issue. One of them was whether the signed deal memo dated 19 December 2001 constituted a binding contract, despite the fact that it was marked "subject to contract".
Warner/Eastwest produced expert and much legal argument to the effect that, in context, the court should ignore "subject to contract" and regard the document as binding.
The court disagreed. It was not persuaded that "subject to contract" had any special meaning in the music industry. In the court's view it bore the meaning in normal legal usage. This is that the use of the words prevents the document from being held to be a final agreement. "They are relied on every day to prevent contracts from coming into existence," the Judge held and in this context the phrase must be taken to have intended that the deal memo should not be binding. Accordingly no contract was created by the signed deal memo.
Warner Music got their way eventually. This was by way of an argument that the delivery of the signed deal terms plus the track and the £1,500 invoice amounted to a unilateral offer which Warner Music accepted when it started recording the album in February 2002, something which Confetti knew it would have to do in order to meet the March 2002 release date.
As for the "subject to contract" ruling, this underlines the importance of those magic three words and the extreme difficulty any party to litigation will face if it is trying to argue that despite the appearance of those words on a document, it is a binding agreement. It remains crucial, therefore, for parties involved in contract negotiations to ensure that "subject to contract" appears on all exchanges between the parties until the point that they are sitting down and signing the final agreed form of words.
Tags: Contracts
Peter Barratt
Associate, Bristol
Linda McElwee
Trainee Solicitor, UK
Marie-Claire Smith