Love (not) thy neighbour

The recent NSW Supreme Court case of Biscayne Partners Pty Ltd v Valance Corp Pty Ltd & Ors attracted much media attention, due in no small part to the identity of its main protagonists, former "Neighbours" stars Scott Michaelson and Holly Valance.

Background

Whilst both parties operated through private companies, in essence the case concerned Michaelson's claim against Valance for breach of a Management Agreement entered into in May 2000, whereby the former was appointed as Valance's sole manager in the entertainment industry throughout the world for a term of 3 years.

As Valance's career began to take off it appears the relationship began to sour.  In January 2002 Valance purported to bring the agreement to an end by serving notice of termination on Michaelson.  A second notice was served in September 2002.  In effect, both notices relied on an alleged failure by Michaelson to properly perform his duties as manager.

The decision of Einstein J deals with a number of issues (including claims ancillary to breach of contract).  Given the limitations of space, it is not intended in this article to provide a comprehensive review of all of these issues, but rather to note some key points of practical interest, especially to artists.  It should be noted that references to paragraph numbers are references to paragraphs in the decision, reported at [2003] NSWSC 874.

Communication is key

Early in his decision Einstein J comments that, "It is significant to note that prior to receipt of [the first of the two termination notices] Mr Michaelson had not received any significant complaint about his performance from the Valance parties" (para 54).  This lack of material complaint not only had a negative effect on Valance's credibility as a witness, but also on the various claims as to Michaelson's alleged shortcomings as a manager. 

For any artist unhappy with the performance of their manager, the lesson is clear – voice your concerns and seek an improvement.  If the situation doesn't improve, record your complaints in writing.

Don’t go your own way

In fact, the various complaints made against Michaelson (which essentially revolved around allegations of failing to properly represent Valance) were, on the evidence, found to be without substance. 

More importantly, it was also found that even prior to the first termination notice Valance had decided that Michaelson "was not up to it" (para 174) and that the agreement had to be brought to an end.  As a result Valance began to exclude Michaelson from the management of her activities.  This not only "clouded" suggestions that Michaelson was not properly managing Valance (para 184), but was one of several breaches of the contract found by the court to have been committed by Valance (see para 225).

Again, for the artist dissatisfied with their manager, the answer is not to go behind his or her back.  Rather, refer to your Management Agreement, get independent legal advice and, if the circumstances allow for it, follow the contractual termination procedure.

Follow the contract!

As for the Michaelson – Valance agreement, the termination clause (14.1) provided as follows:

"14.1    No breach of this Agreement is a material breach giving the other party the right to terminate, unless:

1. the party allegedly in breach is given written notice specifying the nature of the breach (this notice must be clearly headed 'Breach of Agreement – Notice to Cure'); and
    
2. the party receiving the notice fails to rectify the breach within 30 days of receipt of such notice."

Einstein J found clear defects in both of the two termination notices served on Michaelson.  Both failed to correspond to the provisions of the termination clause of the Management Agreement.

The first termination notice made no reference to the 30 day "remedy" period.  It "purported to terminate the agreement with immediate effect.  Hence the notice [could not] be described as in substance a 'Notice to Cure'." (para 91).  In other words, Michaelson wasn't given the 30 day opportunity to remedy whatever breaches were complained of.

Einstein J went on to state, "As to the second termination letter, this completely failed to specify within the meaning of clause 14.1(a), the nature of the alleged breaches of the Agreement" (para 94).  The notice, in fact, complained of Michaelson's failure "to perform at all times [his] obligations pursuant to clause 4.1 of the Agreement", which set out essentially all of Michaelson's responsibilities as manager.

As such, the notice was simply too wide – even though the 30 day "remedy" period was given, no specific breach could be ascertained from the general reference to clause 4.1 in its entirety.  Reference in the notice to failing to perform "at all times" was also found to be ambiguous (para 94): did Michaelson "at no time" perform his obligations, or did he fail to perform "during part only" of the relevant period? 

Another obstacle to the second notice was that by the time it was given Valance had effectively "shut down" her relationship with Michaelson (para 97).  That is, Michaelson was being given 30 days to perform his obligations under the contract when Valance was in fact preventing him from doing just that!

Valance has announced her intention to appeal the court's decision.  It may be that the proper interpretation of the termination clause will be a subject of that appeal.  However, it remains clear that had proper regard been given to clause 14.1 when both termination notices were drawn up, at least one difficulty facing Valance could have been overcome.

As it stands, subject to a successful appeal, Valance faces a damages pay out for breach of contract in excess of $350,000.

Tim Nelson is a solicitor at Healy Pynt in Perth.