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Cite as: [1960] AC 87, [1959] UKHL 1

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JISCBAILII_CASE_CONTRACT

Die Jovis, 18° Junii 1959

Parliamentary Archives,
HL/PO/JU/4/3/1054

Viscount
Simonds

Lord Reid

Lord

Tucker

Lord
Keith of
Avonholm

Lord

Somervell
of Harrow

HOUSE OF LORDS

CHAPPELL AND COMPANY LIMITED and others

v.
THE NESTLE COMPANY LIMITED and others

18th June, 1959.

Viscount Simonds

My lords,

This appeal raises a question of construction of the Copyright Act, 1956,
upon which there has been a difference of opinion in the Courts below, the
Court of Appeal by a majority (Jenkins and Ormerod, L.JJ., Romer, L.J.
dissenting) having reversed the decision of Upjohn, J.

The facts are not in dispute and the action was tried without pleadings
upon an interlocutory motion which by consent was treated as the trial of
the action. The Appellants Winneton Music Corporation are the owners,
and the Appellants Chappell & Company Limited their exclusive licensees,
of the copyright in a musical work entitled " Rockin' Shoes ". The question
is whether the Respondents The Nestle Company Limited and Hardy Record
Manufacturing Company Limited (whom I will call " the Respondents
" Nestle " and " the Respondents Hardy ") have infringed this copyright. It
is common ground that they have done so unless they are protected by
section 8 of the Copyright Act, 1956. I will therefore set out that section
and then state such further facts as appear to be relevant. Section 8 is as
follows: —

" 8.—(1) The copyright in a musical work is not infringed by a person
" (in this section referred to as ' the manufacturer') who makes a record
" of the work or of 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 retail, or to
" supply it for the purpose of its being sold by retail by another
" person, or intends to use it for making other records which are
" to be so sold or supplied ; and

" (d) in the case of a record which is sold by retail, the manu-
" facturer pays to the owner of the copyright, in the prescribed
" manner and at the prescribed time, a royalty of an amount
"ascertained in accordance with the following provisions of this
" section.

" (2) Subject to the following provisions of this section, the royalty
" mentioned in paragraph (d) of the preceding subsection shall be of an
" amount equal to six and one-quarter per cent, of the ordinary retail
" selling price of the record, calculated in the prescribed manner:

" Provided that, if the amount so 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."

Regulations were made under the Act, of which I think it necessary only
to mention Regulation 1 (1) (f), which provides that the notice required
by subsections (1) and (5) of section 8 shall contain the ordinary retail selling

price (as thereinafter defined) of the records, or, where it is intended to repro-
duce 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 ; and Regulation 3, which pro-
vides 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 pur-
chase tax in either case.

The Respondents Hardy are manufacturers of records, the Respondents
Nestle are manufacturers of chocolate. The Respondents Hardy make use
of a process by which a recording can be produced on a thin film of cellulose
acetate at a cost enabling them to sell records at a wholesale price of 4d.
each. By this process they have produced film records of the musical work
" Rockin' Shoes" and sold them to the Respondents Nestle mounted upon
cards supplied by the latter. A film so mounted is sold by Nestle" to any
member of the public who sends to them a postal order for 1s. 6d. with
three wrappers from 6d. bars of Nestlé’s Milk Chocolate. A typical offer
appeared in the "Daily Mirror" of 11th September, 1957, in the words:
" Here's how to get each new stars record. Collect three 6d. wrappers
" from Nestlé’s Milk Chocolate. Fill in the coupon and send it with a
" Postal Order for l/6d., the price of the record, and your three wrappers.
" You may order as many records as you like on this coupon, but for each
" record you must send three wrappers and l/6d. P.O., crossed, payable to
" the Nestle Co. Ltd.". Next to the script that I have cited was a
coupon containing the names of a number of musical works including
" Rockin' Shoes ". All this was part of a full page advertisement of Nestlé’s
Milk Chocolate and no one can doubt that Nestlé’s interest in the sale of
records was in order to promote the sale of their chocolate, but presumably
they were not averse from making such profit as they seem to have made
from the sale of records also. The film, as I have said, was mounted on a
card supplied by Nestle, whose name appears prominently upon it. On the
back were the words: " Remember, all you have to do to get each NEW
" STARS record is to send three wrappers from Nestlé’s 6d. Milk Choco-
" late bars, together with Postal Order for l/6d., and stating which record
" you want to Nestle Record Offer, P.O. Box 14, Hayes, Middlesex. Don't
" forget, 3 wrappers and Postal Order for l/6d."

Before, however, making or permitting a public offer such as I have referred
to, it was necessary that the notice prescribed by section 8 of the Act should
be served. This duty falls on the manufacturer, and accordingly the Respon-
dents Hardy entered into correspondence with the Mechanical Copyright
Protection Society Limited, who were, as I assume, acting on behalf of the
Appellants. In the first letter which passed between them, dated the 12th
September, 1957, but referring to other musical works than " Rockin' Shoes ",
Hardy stated: "The retail price of the record, and they are being sold indi-
" vidually, not collectively, is one shilling plus 3 wrappers. Wrappers are
" valueless and are normally thrown away." In the ensuing correspondence
the Society objected that the proposal made by Hardy did not constitute a
sale by retail and that therefore the proposed records could not be made
under the provisions of section 8 of the Act. Hardy nevertheless on the
17th July, 1957, proceeded in relation to " Rockin' Shoes " to give a notice
which purported to be the statutory notice. In it they said: "The ordinary
" retail selling price of each record will be not greater than 8 3/4 d. exclusive
" of purchase tax and not greater than 1s. inclusive of purchase tax". By
a subsequent letter those figures were amended to 1s. 1 1/2 d. and 1s. 6d.
respectively. No mention was made of any wrappers. Nestle then proceeded
to put the proposal into effect and sold the record to members of the public
who sent a postal order for 1s. 6d. together with three chocolate wrappers.
Forthwith the Appellants challenged the validity of their claim to be protected
by section 8. Mr. Justice Upjohn supported their contention and granted
the appropriate injunction. The Court of Appeal, on the other hand, taking
by a majority the view that the Respondents had complied with the section,
allowed the appeal and dismissed the action.

Faced by this conflict of opinion among learned Judges, from any of whom
I am reluctant to differ, I feel at liberty to say that I have found unusually
great difficulty in reaching ray own conclusion.

It appears to me that, in order to comply with the provisions of section 8
and thus obtain its protection, there are three relevant conditions to be satis-
fied by the manufacturer of an article which would otherwise be an infringe-
ment of copyright. By " relevant conditions " I mean those conditions about
which an issue arises in this case. First, there must be a " sale " of the
article in question: secondly, the sale must be a " retail" sale: thirdly, it
must be possible to predicate of it that there is an " ordinary retail selling
price " of it, for if there is not, an essential part of the prescribed notice cannot
be given.

Upon the first point I cannot feel any doubt. It had not been contended
in the course of the case that there was not a sale, until during the debate in
your Lordships' House that suggestion was made, and I think that, beyond
doubt, anyone, who in answer to the advertisement acquired a record, would
say that he had bought it and would be surprised that any doubt should be
cast upon what he regarded as an obvious fact. Whether the consideration
or the price that he paid was 1s. 6d. only or 1s. 6d. and three wrappers is
a matter not for him but for your Lordships to determine.

Secondly, I think it is clear that the sale is a retail sale. It is a sale to
a consuming member of the public, and I know of no other factor which
distinguishes a retail sale from other sales. Put negatively, it is not a sale
wholesale to a purchaser who proposes himself to sell it retail. In considering
this second point, I do not ignore the argument that in its context in the
section " retail sale " means only what was sometimes called an " ordinary "
retail sale, by which, as I understood, was meant a sale in which there was
no other element than on the one side an article sold and on the other a
payment of money made, and that the transaction was not an " ordinary "
retail sale if the purchaser was required to produce three chocolate wrappers
in addition to his postal order. This argument is so closely linked with the
third condition that there must be an " ordinary retail selling price " that I
will consider the two points together.

I think, my Lords, that upon this last matter some confusion has arisen from
treating the word " ordinary " as if it qualified " retail " rather than " price ".
If there is no retail sale, there can, of course, be no ordinary or other retail
selling price. But, given a retail sale, there is no difficulty in ascertaining
the ordinary selling price upon such a sale. The problem, therefore, and the
only problem, is whether there is a retail sale with a retail selling price within
the meaning of the section. The contention that it is not is stated in various
ways. Mr. Justice Upjohn in a passage cited with approval by Lord Justice
Romer says: "The vital part of this transaction is to get in three wrappers,
" and that represents a great deal of value to Nestlé’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
" 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 1s. 6d. The purchaser has to purchase three
" bars of chocolate and that is the real value of this transaction to Nestlé’s."
Lord Justice Romer himself states the proposition thus: " 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 Nestlé’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 ". There are here two somewhat
different conceptions. First, the transaction is not such an ordinary retail
sale as is contemplated by the section, because the vendor gets something of
value, namely, the evidence of an advertising campaign pushing up the sales:
secondly, it is not within the section, because the vendor gets from the pur-
chaser a consideration for the sale of the record which the copyright owner
does not share, for it is not included in the retail selling price upon which

the royalty is based. In the latter case the wrappers are treated as part of
the consideration moving from the purchaser, in the former as evidence of a
collateral advantage which has already accrued to the vendor. It is necessary
to distinguish these two aspects of the matter. In the contention that the
sale is not an ordinary retail sale and therefore not within the section because
the vendor gets not only the cash price but also evidence of an advantage
already accrued, I see no merit. It is irrelevant what is the vendor's motive
for selling a record for 1s. 6d. if that is the selling price. It may be part of
an advertising campaign for the sale of other goods: but there is nothing in
the Act which impels me to read into the section a qualification that the selling
price is to be disregarded and the article denied protection if the vendor's
motive in fixing it is anything but to obtain the maximum amount commer-
cially possible. The alternative view is that the production of three chocolate
wrappers is part of the price of the record and that, as it is incapable of
valuation, the necessary particulars cannot be given and the statutory require-
ments satisfied. This view is to some extent supported by the fact that
in the advertisement and offer, to which I have already referred, the postal
order for 1s. 6d. and three wrappers are in one passage included in a single
demand. But in the same document the postal order for 1s. 6d. alone is
referred to as the price of the record. I cannot draw any safe conclusion
from the documents: the question remains open whether the wrappers are
part of the selling price.

In my opinion, my Lords, the wrappers are not part of the selling price.
They are admittedly themselves valueless and are thrown away, and it was
for that reason, no doubt, that Mr. Justice Upjohn was constrained to say
that their value lay in the evidence they afforded of success in an advertising
campaign. That is what they are. But what, after all, does that mean?
Nothing more than that someone, by no means necessarily the purchaser of
the record, has in the past bought not from Nestlé’s but from a retail shop
three bars of chocolate and that the purchaser has thus directly or indirectly
acquired the wrappers. How often he acquires them for himself, how often
through another, is pure speculation. The only thing that is certain is that,
if he buys bars of chocolate from a retail shop or acquires the wrappers from
another who has bought them, that purchase is not, or at the lowest is not
necessarily, part of the same transaction as his subsequent purchase of a
record from the manufacturers.

I conclude, therefore, that the objection fails, whether it is contended that
(in the words of Romer, L.J.) the sale " bears no resemblance at all to the
" transaction to which ... the section is pointing ", or that the three wrappers
form part of the selling price and are incapable of valuation. Nor is there
any need to take what, with respect, I think is a somewhat artificial view of
a simple transaction. What can be easier than for a manufacturer to limit
his sales to those members of the public who fufil the qualification of being
this or doing that? It may be assumed that the manufacturer's motive is
his own advantage. It is possible that he achieves his object. But that does
not mean that the sale is not a retail sale to which the section applies or
that the ordinary retail selling price is not the price at which the record is
ordinarily sold, in this case 1s. 6d.

An argument was addressed to the House by counsel on either side which
appeared to be based on the difficulties that are likely to ensue if the one
contention or the other is accepted. It may be so. It is probable that the
draftsman of the Regulations foresaw some of them and did his best to
avoid them. But these are not considerations that have weighed with me
in interpreting the words of a section which appear to be written in plain
English. Nor do I need to have recourse to the principle that since the
Act takes away something heretofore of common right, it must be strictly
and narrowly construed, nor to the principle that, since section 8 constitutes
an exception upon a general grant, it is the exception which is to be narrowly
construed. These are maxims to which it is necessary to have recourse as a
last resort. In the present case, though I take a different view from your
Lordships with great diffidence, I do not find it necessary to do so.

I would dismiss the appeal.

Lord Reid

MY LORDS,

The Respondents, the Nestle Company, manufacture chocolate, including
wrapped bars of milk chocolate, which are sold to the public at 6d. per bar.
As an advertising scheme to promote the sale of their chocolate they published
advertisements in September, 1957, in which they offered to supply any one
of six named gramophone records in return for a postal order for 1s. 6d.
and three wrappers. The advertisement produced said: " Save the wrappers
from 6d. blocks. They will help you to get smash-hit recordings of skiffle,
calypso, swing and ballad by Britain's newest stars, all exclusive to Nestlé’s."
Any member of the public could obtain as many records as he wished by
sending 1s. 6d. and three wrappers for each record.

One of these records was a reproduction of a dance tune, " Rockin' Shoes ",
of which the copyright belonged to the Appellants the Winneton Corporation,
the other Appellants, Chappell & Company, being sole licensees under the
copyright. The Appellants maintain that the manufacture and sale of this
record was an infringement of their copyright and they seek an injunction
and damages. The Respondents maintain that they were entitled to supply
records in this way without the permission or licence of the Apellants because
they were authorised to do so by section 8 of the Copyright Act, 1956. The
relevant part of that section is as follows:

" 8.—(1) The copyright in a musical work is not infringed by a person
" (in this section referred to as' the manufacturer') who makes a record
" of the work or of 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;

" (d) in 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 prescribed time, a royalty of an amount ascertained in accordance
" with the following provisions of this section.

Before dealing with these provisions it may be helpful to state briefly
the history behind them and the steps which the Respondents took to comply
with them. Before 1911 it had been held that the reproduction of copyright
musical works by mechanical means such as rolls for player pianos was not an
infringement of copyright, and gramophone records had been manufactured on
a considerable scale and sold without licence or payment of royalty. By the
Copyright Act, 1911, it was enacted that copyright included the sole right to
make any record or other contrivance by means of which a work might be
mechanically performed. But it was provided by section 19 of the Act that
making any such contrivance should not be an infringement if the maker
inter alia gave the prescribed notice and paid royalties calculated in
accordance with the section in respect of all such contrivances sold by him.
The provisions of this section are broadly similar to the provisions of section 8
of the 1956 Act.

32350 A3

The Respondents, the Hardy Company, operate a novel process whereby
records which play for about 1 3/4 minutes are made on thin films of cellulose
acetate. These films can then be suitably mounted and played in the
ordinary way on gramophones. The process is inexpensive and the Hardy
Company sold to the Nestle Company a large number of these recordings at
4d. each. The Nestle Company then had them mounted on cardboard
mounts which also carried advertisements for their chocolate.

The Hardy Company informed the Mechanical Copyright Protection
Society of the project in June. 1957. They said that the retail price of the
records was to be one shilling plus three wrappers. This society stated that the
proposal did not constitute a sale by retail and in consequence the proposed
records could not be made under the provisions of section 8 of the Copyright
Act, 1956: they further stated that they could not countenance the repro-
duction of their members' copyright music on records for the purpose of
advertising the products of another company. After some correspondence
the Hardy Company gave a notice purporting to be under the 1956 Act and
Regulations made under it. This notice included a paragraph: " F. The
" ordinary retail selling price of each record will be not greater than 8 3/4 d.
" exclusive of purchase 'tax and not greater than 1 s. inclusive of purchase tax."
On 25th July, 1957, these figures were altered to 1s. l 1/2 d. exclusive of purchase
tax and 1s. 6d. inclusive of purchase tax. The society maintained their
views and the Appellants now contend that this notice was not a valid notice
under section 8 of the Act or the Regulations.

The scheme of section 8 appears to me to be clear. To avoid infringement
four conditions must be complied with. Condition (a) limits the class of
works for the reproduction of which the manufacturer can rely on this section
and I need not further consider it: (b) requires notice to be given: (c) requires
that the manufacturer shall intend the records which he makes to be dealt
with in one or other of three ways: and (d) requires that if the intention
is to deal with them in either of the first two of these ways a royalty shall be
paid. Then subsection (2) provides for the amount of the royalty. Condi-
tion (b) refers to the prescribed notice and subsection (2) refers to royalty
calculated in the prescribed manner. " Prescribed " means prescribed in
Regulations made by the Board of Trade, and the Copyright Royalty System
(Records) Regulations 1957 have been so made. On the view which I take
of the case it is unnecessary to base my judgment on the terms of these
Regulations. One argument submitted for the Respondents would, if correct,
mean that some of them are ultra vires. My view of the section does not
involve any such result in the present case, and it would not be right to
speculate whether in some other case some inconsistency might emerge
between the provisions of the Act and those of the Regulations.

It appears to me that all four statutory conditions are intended to be
complied with before a record is made or anything is done which apart from
section 8 would amount to an infringement. Otherwise it could not be
known when the record was made and sold by the manufacturer whether
making the record was an infringement or not: that would depend on whether
the condition was subsequently complied with or not. The Respondents con-
structed a powerful argument on the basis that condition (d) only comes into
operation after a record has been sold by retail and that no royalty is payable
until then. But I do not so read the section. I think that the Regulations
rightly provide that in his notice under (b) the manufacturer must state
what is to be the ordinary retail selling price of the record and that determines
the amount of the royalty And again I think that the Regulations rightly
provide for the manufacturer paying the royalty at a much earlier stage than
after sale by retail. The manufacturer pays royalty on records which he
intends to be sold by retail. Apart from the last purpose set out in Condition
(c) he is not entitled to make them for any other purpose. And if later some-
one disposes of a record in some other way no part of the royalty can be
recovered.

I can now turn to what appears to me to be the crucial question in this
case: was the 1s. 6d. an " ordinary retail selling price " within the meaning of
section 8? That involves two questions, what was the nature of the contract

between the Nestle Company and a person who sent 1s. 6d. plus three wrap-
pers in acceptance of their offer, and what is meant by "ordinary retail
" selling price " in this context.

To determine the nature of the contract one must find the intention of
the parties as shown by what they said and did. The Nestle Company's
intention can hardly be in doubt. They were not setting out to trade in
gramophone records. They were using these records to increase their sales
of chocolate. Their offer was addressed to everyone. It might be accepted
by a person who was already a regular buyer of their chocolate; but, much
more important to them, it might be accepted by people who might become
regular buyers of their chocolate if they could be induced to try it and found
they liked it. The inducement was something calculated to look like a
bargain, a record at a very cheap price. It is in evidence that the ordinary
price for a dance record is 6s. 6d. It is true that the ordinary record gives
much longer playing time than the Nestle records and it may have other
advantages. But the reader of the Nestle offer was not in a position to know
that.

It seems to me clear that the main intention of the offer was to induce
people interested in this kind of music to buy (or perhaps get others to buy)
chocolate which otherwise would not have been bought. It is, of course, true
that some wrappers might come from chocolate which had already been
bought or from chocolate which would have been bought without the offer,
but that does not seem to me to alter the case. Where there is a large number
of transactions—the notice mentions 30,000 records—I do not think we
should simply consider an isolated case where it would be impossible to say
whether there had been a direct benefit from the acquisition of the wrappers
or not. The requirement that wrappers should be sent was of great import-
ance to the Nestle Company: there would have been no point in their simply
offering records for 1s. 6d. each. It seems to me quite unrealistic to divorce
the buying of the chocolate from the supplying of the records. It is a per-
fectly good contract if a person accepts an offer to supply goods if he (a) does
something of value to the supplier and (b) pays money: the consideration is
both (a) and (b). There may have been cases where the acquisition of the
wrappers conferred no direct benefit on the Nestle Company, but there must
have been many cases where it did. I do not see why the possibility that in
some cases the acquisition of the wrappers did not directly benefit the Nestle
Company should require us to exclude from consideration the cases where it
did. And even where there was no direct benefit from the acquisition of the
wrappers there may have been an indirect benefit by way of advertisement.

I do not think that it matters greatly whether this kind of contract is called
a sale or not. The Appellants did not take the point that this transaction
was not a sale. But I am bound to say that I have some doubts. If a
contract under which a person is bound to do something as well as to pay
money is a sale, then either the price includes the obligation as well as the
money, or the consideration is the price plus the obligation. And I do not
see why it should be different if he has to show that he has done something
of value to the seller. It is 'to my mind illegitimate to argue—this is a sale,
the consideration for a sale is the price, price can only include money or some-
thing which can readily be converted into an ascertainable sum of money.
therefore anything like wrappers which have no money value when delivered
cannot be part of the consideration.

The Respondents avoid this difficulty by submitting that acquiring and
delivering the wrappers was merely a condition which gave a qualification to
buy and was not part of the consideration for the sale. Of course, a person
may limit his offer to persons qualified in a particular way. for example,
members of a club. But where the qualification is the doing of something
of value to the seller, and where the qualification only suffices for one sale and
must be re-acquired before another sale, I find it hard to regard the repeated
acquisitions of the qualification as anything other than parts of the considera-
tion for the sales. The purchaser of records had to send three wrappers for
each record, so he had first to acquire them. The acquisition of wrappers by
him was, at least in many cases, of direct benefit to the Nestle Company, and

required expenditure by the acquirer which he might not otherwise have
incurred. To my mind the acquiring and delivering of the wrappers was
certainly part of the consideration in these cases, and I see no good reason
for drawing a distinction between these and other cases.

Is such a transaction within the contemplation of section 8? I proceed on
the view that it was a sale, and, if so, it was a sale by retail and not by
wholesale. But subsections (1) and (2) must be read together in light of the
apparent object of the section. Its object appears to me to be twofold, to
benefit the public and to protect the financial interest of the owner of the
copyright. The section makes it possible for records to be available to the
public for the manufacture of which the owner might not have granted a
licence. And it protects the copyright owner by requiring royalties to be paid
on the ordinary retail selling price. Where records are sold in the ordinary
way of business it can be assumed that in his own interest 'the manufacturer
will fix a full price to cover not only the cost of production and his own profit
but also the profit required by retailers. But where there is a special order
and none of the records made are to be sold in the ordinary way but all are to
be sold, as here, in an unusual way in order to promote a scheme for advertis-
ing quite a different business from selling records, the protection of the copy-
right owner is not at all secure. In such a case the retailer will get the
manufacturer to fix such a retail selling price as will best suit him, and this
may be something quite different from an ordinary economic price.

If the Respondents are right, the owner of the copyright gets nothing in
respect of the advantage to the retailer arising from the requirement that
wrappers must be acquired and delivered, and he would get nothing in respect
of any collateral advantage accruing to an advertiser however clear or how-
ever valuable. It is true that the price of 1s. 6d. left the Nestle Company with
a profit after paying the cost of mounting, postage, and other expenses, though
we do not know whether the profit was as great as retailers normally require.
But the original proposal in this case was to sell at 1s. plus three wrappers,
and it might have suited the Nestle Company to sell at 9d. or 6d. plus six
wrappers. It might even suit a particular advertiser to sell at less than the
price he paid the manufacturer.

In its context I cannot interpret the phrase " ordinary retail selling price "
as applying to all sales however extraordinary in character and as meaning
whatever money price may be charged irrespective of the type of transaction
or of conditions attached to the sale or of collateral advantages accruing to
the seller or of whether the money price is really the whole consideration for
the sale. I am of opinion that the Hardy Company's notice that the ordinary
retail selling price was 1s. 6d. was invalid, that there was no ordinary retail
selling price in this case and that the Respondents' operations were not within
the ambit of section 8. They were therefore infringements of the Appellants'
copyright, and in my judgment this appeal should be allowed.

Lord Tucker

MY LORDS,

This case has in its course through the Courts resulted in a very narrow
division of judicial opinion which shows that the point in issue, though
short, is one of considerable difficulty. The conclusion which I have
reached can, however, be stated quite shortly. I do not doubt that these
records were supplied by the manufacturer " for the purpose of being sold
"by retail" within the meaning of section 8 (1) (c) of the Copyright Act,
1956. I think the contrast throughout the section is between retail and
wholesale sales, and I can find no justification for limiting the sales to
ordinary retail sales, nor do I find it easy to define what is an ordinary retail
sale, but this does not, in my opinion, conclude the matter. The royalty
has, by subsection (2), to be calculated on the basis of the " ordinary retail
" selling price ". This does not mean the price prevailing on an ordinary
retail sate but the ordinary price obtainable on a retail sale, and I think the
ordinary price so obtainable envisages a money sum constituting the entire

consideration for the sale. Otherwise it would be impossible to calculate
the royalty percentage payable in cases where the money value of the
additional consideration is incapable of valuation. The fact that the
retailer may choose to sell at a loss cannot affect the proper interpretation
of the section or justify a sale by him for a sum of money plus the delivery
of a number of wrappers or other articles which he desires to obtain for
reasons which he considers beneficial to his trade. The ordinary retail
selling price as prescribed by Regulation 3 of the Copyright Royalty System
(Records) Regulations, 1957, provides that it is to be calculated "at the
" marked or catalogued selling price of single records to the public ". The
records in question are marked as follows: —" Remember, all you have to do
" to get each NEW STAR'S record is to send three wrappers, from Nestlé’s
" 6d. Milk Chocolate bars, together with postal order for 1/6." Under
Regulation 1 (1) (f) the notice required by subsection (2) of section 8 must
state the ordinary retail selling price as denned by Regulation 3. In the
present case the notice, as amended, stated that " the ordinary retail selling
" price of each record will not be greater than 1s. 1 1/2d. exclusive of purchase
" tax and not greater than 1s. 6d. inclusive of purchase tax." This
statement does not disclose the entire consideration but only that part of
it that is expressed in terms of money and is therefore, in my opinion,
defective. It is necessarily defective because it is impossible to state " the
" ordinary retail selling price " envisaged by subsection (2) if the money
price is only part of the consideration.

If this is not the correct view it follows that there would be no infringe-
ment if the retailer sold each record for a penny plus one hundred wrappers,
and I cannot believe that this could have been intended by those who
framed this section and fixed the percentage of royalty on the basis of the
ordinary retail selling price which must, I think, envisage a retail sale
where the whole consideration is a sum of money.

It being conceded that if the notice given under Regulation 1 (1) (f) is
defective the protection of section 8 is lost and the notice given being, in
my view, necessarily defective in view of the nature of the consideration, it
follows that there has in this case been an infringement of the Appellants'
copyright.

I should add that I do not feel able to accept the view that the requirement
with regard to the wrappers merely constituted a limited class of the public
who having qualified for inclusion in the class then became entitled to
purchase for 1s. 6d. This seems to me an unnecessarily artificial description
of what is on its face one indivisible transaction.

For these reasons I would allow the appeal.

Lord Keith of Avonholm

MY LORDS,

Were it not that a majority of your Lordships think differently I would
have contented myself with expressing my complete concurrence with
the judgment of Jenkins, L.J. (as he then was) in the Court of Appeal.

I find the Appellants' case somewhat elusive as it seems to oscillate between
considering whether the sale of the record here is an ordinary retail sale
and considering whether there is an ordinary retail selling price of the record.
I can find no warrant in section 8 of the statute for the view that it contem-
plates two kinds of retail sale, ordinary retail sale and some other kind
of retail sale which is not ordinary. Subsection (1) of the section refers
four times to retail sales, and when in subsection (2) reference is made to
ordinary retail selling price the only meaning I can take from that is a refer-
ence to the ordinary selling price of the retail sales mentioned in subsection
(1) As Jenkins, L.J. points out, this is also the view taken in the Regulations
made under the Act where, in the absence of a marked or catalogued selling
price, the phrase is defined " the highest price at which single records are
"ordinarily to be sold to the public ". In my opinion, there is or is intended
to be a sale of the record here and it is a retail sale. The only question, as
I see it, is: " Is there an ordinary retail selling price on which the royalty
" can be calculated? "

As I agree with Jenkins, L.J. that the production of three wrappers of
three sixpenny bars of chocolate is merely a qualification for purchasing the
record, I will say only a few words on the contrary view that it is part of the
consideration for the purchase of the record incapable of monetary assess-
ment. To Nestle these pieces of paper are worthless. Nestle are no doubt
pleased to see that somebody has been buying their chocolate. They
would know that anyhow, without the production of chocolate wrappers,
from the figures of their turnover. The wrappers represent a liability to
Nestle rather than an extra consideration if it be assumed, as I think it must,
that on presentation of the wrappers and the tender of 1s. 6d. Nestle are
bound to sell the record. But that is because of the offer they have made
accepted by a member of the public. If it be said that the sale of the record
is of value to Nestle because it promotes the sale of their chocolate, the
same can be said of advertising their chocolate in the Press or in a number
of other ways. Such overheads, like other overheads, go to increase the
cost of production and, unless compensated by increased sales, may go to
increase the price of the chocolate. But the retail price of 6d., or what-
ever it is, is just the price of the chocolate and nothing else. In the present
case there is no reason for assuming that the price paid by the purchaser is
paid for anything but the chocolate. As the facts show, there is ample profit
to Nestle in the sale of the record alone and no reason to attribute something
extra in the sale of the chocolate.

The letterpress in the advertisement, " Fill in the coupon and send it
" with a Postal Order for l/6d., the price of the record, and your three
" wrappers", and on the cardboard mount of the record, " Send three
" wrappers from Nestles 6d. Milk Chocolate bars, together with postal order
" for 1 /6d.", is, in my opinion, entirely consistent with, indeed, in my opinion,
goes to support, the view that the ordinary retail selling price of the record
is 1s. 6d.

I would dismiss the appeal.

Lord Somervell of Harrow

MY LORDS,

Section 8 of the Copyright Act, 1956, provides for a royalty of an amount,
subject to a minimum, equal to 61/4 per cent, of the ordinary retail selling
price of the record. This necessarily implies, in my opinion, that a sale
to be within the section must not only be retail but one in which there is
no other consideration for the transfer of property in the record but the

money price. Parliament would never have based the royalty on a per-
centage of a money price if the section was to cover cases in which part,
possibly the main part, of the consideration was to be other than money.
This is in no sense a remarkable conclusion as in most sales money is the
sole consideration, It was not argued that the transaction was not a sale.

The question, then, is whether the three wrappers were part of the con-
sideration or, as Lord Jenkins held, a condition of making the purchase,
like a ticket entitling a member to buy at a co-operative store.

I think they are part of the consideration. They are so described in
the offer. " They ", the wrappers, " will help you to get smash-hit record-
" ings". They are so described in the record itself—" all you have to do
" to get each NEW STARS record is to send three wrappers from Nestlé’s 6d.
" Milk Chocolate bars, together with postal order for 1/6." This is not
conclusive but, however described, they are, in my view, in law part of
the consideration. It is said that when received the wrappers are of no
value to Nestlé’s. This I would have thought irrelevant. A contracting
party can stipulate for what consideration he chooses. A peppercorn does
not cease to be good consideration if it is established that the promisee
does not like pepper and will throw away the corn. As the whole object
of selling the record, if it was a sale, was to increase the sales of chocolate,
it seems to me wrong not to treat the stipulated evidence of such sales as
part of the consideration. For these reasons I would allow the appeal.

(32350) Wt. 8056-3 J5 7/59 DL/PA/20