Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1 (18 June 1959)

Nestlé offered gramophone records for 1s 6d plus three chocolate bar wrappers. The copyright owners argued this arrangement meant there was no ordinary retail selling price for calculating royalties under the Copyright Act 1956. The House of Lords held the wrappers formed part of the consideration, not merely a qualifying condition.

Facts

The Nestlé Company ran an advertising campaign offering gramophone records, including ‘Rockin’ Shoes’, to the public for 1s 6d plus three wrappers from their 6d milk chocolate bars. The records were manufactured by the Hardy Company using an inexpensive cellulose acetate process. The wrappers themselves were valueless and were thrown away upon receipt.

Chappell & Co Ltd, the exclusive licensees of the copyright in ‘Rockin’ Shoes’, and Winneton Music Corporation, the copyright owners, sought an injunction claiming copyright infringement.

Issues

Principal Issue

Whether the Respondents were protected by section 8 of the Copyright Act 1956, which permitted manufacture of records without infringement provided certain conditions were met, including payment of royalties calculated on the ‘ordinary retail selling price’.

Specific Questions

1. Whether the chocolate wrappers formed part of the consideration for the sale of the records, or were merely a qualifying condition for purchase.

2. Whether there was an ‘ordinary retail selling price’ within the meaning of section 8 when part of the consideration was non-monetary.

Judgment

The House of Lords allowed the appeal by a majority of 3-2 (Lord Reid, Lord Tucker, and Lord Somervell in favour; Viscount Simonds and Lord Keith of Avonholm dissenting).

The majority held that the chocolate wrappers formed part of the consideration for the purchase of the records. Lord Somervell stated:

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.

Lord Reid emphasised the commercial reality of the transaction, noting that the requirement to send wrappers was of great importance to Nestlé and that acquiring wrappers was of direct benefit to them in many cases through promoting chocolate sales.

Lord Tucker held that the ‘ordinary retail selling price’ envisaged by section 8 contemplated a money sum constituting the entire consideration for the sale. Since the wrappers were part of the consideration but incapable of monetary valuation, there could be no valid notice under the statutory provisions.

The dissenters, Viscount Simonds and Lord Keith, considered the wrappers to be merely a qualifying condition rather than part of the consideration, with the 1s 6d being the true retail selling price.

Implications

This case established the important principle that consideration need not have economic value to the recipient to be valid. The fact that Nestlé threw away the wrappers did not prevent them from being good consideration. The case demonstrates that courts will look at the commercial substance of transactions to determine what constitutes consideration, rather than adopting artificial constructions. It also highlights that where Parliament has based calculations on a money price, transactions involving non-monetary consideration may fall outside statutory provisions designed for ordinary commercial sales.

Verdict: Appeal allowed. The chocolate wrappers formed part of the consideration for the sale, meaning there was no ordinary retail selling price capable of supporting the statutory notice required under section 8 of the Copyright Act 1956. The Respondents had therefore infringed the Appellants' copyright.

Source: Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1 (18 June 1959)